British banking and financial services giant HSBC, which has a long-standing presence in East Asia, has become the first foreign lender to install a Chinese Communist Party committee in its investment banking branch in China.
HSBC’s Chinese investment bank, HSBC Qianhai Securities, set up a CCP committee after the lender increased its stake in the joint venture from 51% to 90% in April.
Some experts fear the move could expose HSBC to greater influence from Beijing. But other analysts told VOA Mandarin that development is not a big deal, saying there is little evidence these party committees wield substantial influence in private businesses.
“Creating a party committee at HSBC can be super important, or it can be totally irrelevant and not worth the attention it gets,” said Scott Kennedy, senior adviser at the Center for Strategic and International. Studies in Washington, at VOA Mandarin in an interview.
“The vast majority, as far as I know, really do nothing. They haven’t affected normal corporate governance procedures,” he said. “But in Xi Jinping’s China, nothing is impossible.”
Founded during a growth phase
Founded as Hongkong and Shanghai Banking Corporation, Ltd., HSBC was established in Hong Kong in March 1865 and opened in Shanghai a month later. It was launched at a time of booming trade between China, India and Europe.
According to Gabriel Wildau, managing director of consulting firm Teneo, the Chinese legal requirement that all companies with more than three party members must establish a party committee dates back to the PRC Company Law of 1993. But before Xi became CCP general secretary in 2012, this requirement was lightly enforced, especially for private and foreign companies.
“Under Xi Jinping, law enforcement has intensified and the share of private companies with party cells has increased,” Wildau wrote in an email to VOA Mandarin, referring to the Chinese president since 2013. Xi has extended the party’s influence over the economy in several ways. , apparently based on his sense that public and private companies often used business models that undermined the party’s political, economic and social goals, Wildau said.
Seven international banks control investment banking operations in mainland China, including HSBC, Goldman Sachs, JPMorgan, Credit Suisse, Morgan Stanley, UBS and Deutsche Bank, according to the Financial Times. So far, only HSBC has set up a CCP committee, according to the report.
Dennis Kwok, a partner at Elliott, Kwok, Levine & Jaroslaw, a New York City law firm, thinks the creation of a party committee risks exposing HSBC to increased party reach.
“What China is doing is opening its financial market to foreign companies, and you see a lot of investment banks and other financial institutions have shown great interest in entering the Chinese market. But at the same time, China is also using these party cells to increase their control and influence over these financial institutions,” Kwok said in an interview with VOA Mandarin.
After a long period of political and economic isolation under Mao Zedong, Deng Xiaoping began to open up China to foreign business with the launch of his Reform and Opening-Up Policy in 1978.
Following the creation of this HSBC committee, foreign companies should reassess the risks associated with doing business in China, Kwok said.
“Now is the time to reassess your risk exposure. Now is the time to stress test your operations on the ground to see if you are managing legal and political risk the right way,” Kwok said. “And if things don’t go your way, can your international operation handle the political or legal crises emerging from China?”
The development has also caught the attention of some high profile US politicians.
Florida Republican Senator Marco Rubio, long known for his anti-Beijing stance, criticized the move. “Communist party committees are not just for show. They exist to influence, monitor and ultimately control the business,” he said on July 21. “Investors should be aware.”
But several Chinese analysts with whom VOA Mandarin spoke were less concerned.
One reason is that such committees are relatively common in China and don’t seem to do much in practice, according to Teneo’s Wildau, former Shanghai bureau chief for the Financial Times.
“From Chinese business executives and investors, I get the impression that party organizations rarely get involved in substantive decision-making and are often quite irrelevant in practice. Often they don’t do little more than organizing occasional ideological study sessions,” Wildau wrote.
Yet he acknowledges that business leaders and foreign investors fear that party cells are becoming more assertive and influential. “But I don’t think we’re there yet,” Wildau said.
The Chinese Embassy in Washington did not respond to VOA’s request for comment.
In a statement, HSBC told the FinancialTimes this “[e]employees of private companies in China can form a Party branch. These branches are common and can be created by as few as three employees. It is important to note that the management has no role in the creation of such groups, they do not influence the direction of the company and have no formal role in the daily activities of the company.
What sets this particular party committee apart from others is the fact that HSBC is such an important stakeholder in HSBC Qianhai Securities, according to Wildau.
Until now, party committees have generally been owned by companies that are more like Chinese-foreign joint ventures, Wildau said. The fact that HSBC now has a 90% stake in HSBC Qianhai Securities and has still established a party committee makes it “sound like a big step”, he said.
Hoping “business as usual”
“Still, HSBC and foreign banks are likely hoping that the creation of the committee will be a ticking exercise that does not disrupt business as usual,” Wildau wrote. “The fact that a party committee has been established tells us very little about the influence it will have, if any.”
Victor Shih, a professor at the University of California, San Diego, agrees that some development responses have been “a little overdone”, but says it’s still something people should be aware of.
“Most of the time it’s for show, but in an emergency situation when the party wants to mobilize all resources, these committees potentially serve as a link between the party and society’s resources,” Shih wrote. in an email to VOA Mandarin.
Political developments in Hong Kong, such as the controversial 2020 national security law, also inform the decision, Shih said, since HSBC makes almost all of its profits in that city.
“The bank had to toe a hard line in the run-up to Hong Kong’s national security law and in the aftermath of its passage,” Shih wrote. “HSBC’s eagerness to announce the formation of a party committee could be linked to its desire to score points with the Chinese government.”
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