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HSBC, a London-based bank with deep roots in Hong Kong, has long been a conduit between China and the West. Today, that position may be as precarious as ever.

On Wednesday, HSBC’s Asia-Pacific chief executive Peter Wong signed a petition in support of Beijing’s new national security law on the Chinese messaging platform WeChat, and the bank later issued a statement supporting the measure that’s aimed at Hong Kong. The move follows public pressure from Hong Kong’s former chief executive Leung Chun-ying for HSBC to support the law and aligns the bank with a growing chorus of executives from Hong Kong business institutions supporting the bill. In recent days, London–based Standard Chartered bank and the city’s traditional trading houses Swire Pacific and Jardine Matheson have also pledged support for Beijing’s controversial policy.

Beijing’s new national security law was ratified last week by China’s National People’s Congress and aims to shore up China’s national security by preventing and punishing acts of secession, terrorism, and foreign interference in Hong Kong. Critics view the law as subverting the “one country, two systems” agreement that has provided the city with relative independence and autonomy from mainland China since it was handed over from the U.K. in 1997.

“HSBC reiterates that under the ‘one country, two systems’ principle, it respects and supports all laws that stabilize Hong Kong’s social order and boost the economy to develop prosperously,” the bank’s statement said.

When asked to elaborate on the bank’s stance, a spokesperson for HSBC on Thursday said it doesn’t “have any further comments” at this time.

Joshua Wong, a top pro-democracy activist in Hong Kong, denounced HSBC’s decision Wednesday night in a statement on Twitter. HSBC demonstrates “how China will use the national security law as new leverage for more political influence over foreign business community in this global city,” he wrote.

Even before HSBC’s statement Wednesday, Hong Kong’s pro-democracy camp speculated that HSBC is swayed by Beijing’s interests, an accusation the bank denies. But HSBC’s most recent move could ensnare it even further in the Hong Kong–Beijing feud that’s extended to the U.K. and the U.S., where the bank operates and where governments oppose the national security law. At the same time, the bank has become increasingly reliant on China and Asia more broadly in recent years, meaning political missteps in the region carry enormous risk.

“[Leung’s] recent call for HSBC to support China’s new national security law really had an intended audience of only one person, and [Peter Wong] quickly signaled his support,” said Brock Silvers, chief investment officer at Adamas Asset Management in Hong Kong. “Wong may have protected HSBC’s crucial Asia growth by trading Hong Kong for China, [but] the company has now taken sides in a hotly contested Hong Kong debate, the results of which remain unsettled for now.”

Caught in the crossfire

HSBC first became embroiled in Hong Kong’s pro-democracy movement last year, joining a list of companies with operations in Hong Kong, such as Starbucks and Chinese state–owned banks, that were targeted by protesters for their perceived ties to Beijing.

HONG KONG-CHINA-POLITICS-UNREST-NEW YEAR — An HSBC lion statue is set on fire by a protester outside the bank’s offices, following a pro-democracy march in Hong Kong on Jan. 1, 2020.

HSBC’s difficulties began in November 2019, when it suspended a corporate bank account for a client called Spark Alliance HK, an advocacy organization in Hong Kong that raises money for pro-democracy causes like paying bail for jailed protesters.

HSBC later said it suspended the account because it “was not being used for its stated purpose.” A month later, Hong Kong police froze $10 million in the Spark account and arrested four people affiliated with the organization for money laundering. The police accused Spark of using the funds for personal gain, paying protesters, and “other illegal activities.”

Spark denounced the accusations as a smear campaign orchestrated by Beijing. In response, HSBC said its initial decision to suspend the account “was completely unrelated to the Hong Kong Police’s arrest of the four individuals.”

Protesters were unconvinced, and vandalized multiple retail outlets and ATM machines across the city during marches in late December and early January. The bank’s iconic lion sculptures, which have sat outside HSBC’s Asia headquarters in downtown Hong Kong since it moved to the building in 1935, were spray-painted and set on fire. In response, HSBC moved the lions off the street for only the third time in its history—the first was during World War II, and the second was during a construction project in the 1980s.

The pandemic’s social-distancing measures that quelled protests in early 2020 provided a temporary reprieve for HSBC’s Hong Kong locations, but the demonstrations have resurged in the wake of Beijing’s national security law.

Hit from all sides

Despite the recent turmoil, HSBC has long been embedded in the fabric of Hong Kong, to the point that it remains one of three banks that prints Hong Kong’s currency.

Formerly known as the Hong Kong and Shanghai Banking Corporation, HSBC was founded in 1865 in Hong Kong, just decades after China was forced to cede Hong Kong to the U.K. after the first Opium War. The bank was headquartered in Hong Kong for over a century, but moved its base operations to London in 1993 amid a push to expand outside Asia.

In the past decade, the firm has firmly shifted focus back to Asia again.

In June 2015, then–HSBC chief executive Stuart Gulliver unveiled a 150-page Asia pivot strategy document to move operations away from Europe and into growing Asian economies. “Asia [is] expected to show high growth and become the center of global trade over the next decade,” Gulliver said at the time.

The announcement sparked years of speculation—and even the company’s own threats—that HSBC would move its headquarters from London back to Hong Kong, but the firm remains based in the British capital.

However, HSBC’s Asia pivot has shown up clearly in its earnings. In 2014, 37% of HSBC’s revenue and 70% of its profit came from Asia. In 2019, those figures had grown to 49% and 90%, respectively.

The shift has accelerated under HSBC’s new chief executive, Noel Quinn, who assumed an interim role in August and got the permanent position in March. In February, the bank announced a restructuring plan to cut roughly 35,000 jobs. HSBC did not announce where the cuts would come from, but Quinn said resources would be redistributed from underperforming areas to faster-growing markets like Asia and the Middle East. Last year, Quinn had called the bank’s performance in the U.S. and Europe “unacceptable.”

That plan was temporarily put on hold in March, as the company delayed laying off thousands of workers amid the pandemic and global economic depression. Yet in the wake of HSBC’s bleak earnings report for the first quarter of 2020—pretax profit fell nearly 50% compared with the same period last year—some analysts predict that the bank’s turn toward Asia could become even more dramatic.

In fact, there’s early evidence that it’s already taking place.

On May 4, HSBC announced that it had bought out National Trust, its partner in a life insurance joint venture in China, as a means to “accelerate growth” in Asia, as Quinn put it. On May 26, the Financial Times reported that HSBC board members were urging the company to make a tighter turn to Asian markets, which may include deeper cuts to the bank’s operations in the U.S. and Europe.

Even as Asia increasingly bolsters the company’s bottom line, the bank’s future still relies a great deal on pacifying authorities in the U.S., who have threatened sanctions against entities seen as “involved in eroding Hong Kong’s autonomy.”

Supporting Beijing’s national security law may give the bank “greater profit potential in China in the medium to longer term,” said Jeffrey Halley, senior market analyst for Asia Pacific OANDA. “But that will mean nothing if they are shut out of the U.S. financial system.” As an international bank, HSBC depends on trading in U.S. dollars, the global reserve currency, and any threat to HSBC’s ability to use U.S. currency would be disastrous for the bank, he said.

In his Facebook post from last Saturday, Leung said HSBC should consider “which side of the bread is buttered” as he advised the bank to support the national security law.

In Hong Kong, at least, it seems it’s Beijing-side up.