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HSBC walks the tightrope between Beijing and the U.S.

August 27, 2020, 1:17 PM UTC

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HSBC CEO Noel Quinn likes to describe the mission of the sprawling, 155-year-old financial institution he helms as providing a “bridge between China and the international trading community.”

In a recent call with journalists, Quinn argued that, while tensions between China and the U.S. “inevitably create challenging situations” for the bank, sticking with that mission is the best way to ensure “the greatest long-term benefit” for customers, no matter “the political context at the time.”

It’s a noble goal. But as relations between the two superpowers grow ever-more contentious, analysts, investors, and the financial press have come to see HSBC’s “mission” as a predicament—one better portrayed with a different metaphor: “walking a tightrope.”

U.S. Secretary of State Mike Pompeo complicated HSBC’s hire-wire act Wednesday by attacking the British lender for allegedly shutting accounts for people linked to Hong Kong’s pro-democracy movement even as it continues to operate bank accounts for individuals sanctioned by the U.S. government.

In a statement, Pompeo blasted HSBC for freezing credit card and personal bank accounts of senior executives at Next Digital, a publishing company whose flagship tabloid, Apple Daily, has been critical Beijing’s oversight of Hong Kong. Next Digital founder Jimmy Lai, a frequent participant in pro-democracy demonstrations, was arrested on August 10 on charges of violating Beijing’s controversial new national security law.

Pompeo decried “the Chinese Communist Party’s coercive bullying tactics” against British companies. HSBC’s shares slumped in Hong Kong trading Thursday.

The facts of the Next Digital case are murky. Mark Simon, a senior executive of the company who has left Hong Kong, told Reuters that HSBC has frozen Lai’s personal and private business accounts, as well as Simon’s own personal and credit card accounts. Next Digital’s business accounts reportedly remain open.

HSBC isn’t commenting. China’s foreign ministry was also mum. A spokesman for the British Foreign & Commonwealth Office said only that it was in “close contact with a wide range of businesses in Hong Kong.”

But Pompeo’s broadside is the latest of many that have tested HSBC’s acrobatic skills in recent months. The bank has drawn harsh criticism from lawmakers and investors in the U.S. and the U.K. for publicly affirming its support for the new national security law. Pompeo called that move a “corporate kowtow.”

HSBC also has been thrown off balance by allegations in China’s state-owned press that it colluded with U.S. authorities in “fabricating facts” and “maliciously framing” Meng Wanzhou, chief financial officer of telecommunications giant Huawei Technologies. Meng, daughter of Huawei founder Ren Zhengfei, remains under house arrest in Canada, where she faces extradition to the U.S. on charges of violating sanctions against Iran. HSBC took to Chinese social media to debunk what it called a “misinterpretation of the facts”—only to have its account on WeChat blocked.

Financial pressures on the bank don’t help. Although HSBC’s headquarters are in London, more than 80% of its profits come from Asia, mostly Hong Kong. The bank announced a “pivot to Asia” strategy in 2015, and doubled down this year with a restructuring plan that will cut 35,000 jobs and shift more resources to Asia.

Bloomberg reports that, in China, HSBC has ramped up investment in commercial banking, credit cards, investment banking, and wealth management, and now employs more than 8,000 in 170 outlets in the country.

HSBC’s long history in China is unique. But it’s dependence on China for future growth is not. We’ve argued often in this space that, for all its challenges, China remains the best growth story in the global economy—one that many Fortune Global 500 CEOs know they can’t afford to ignore. As the Wall Street Journal noted earlier this month, China’s rebounding consumer economy has offset plummeting sales back home for many U.S. companies.

In this week’s Eastworld Spotlight conversation, Jefferies International chief global strategist Sean Darby argues that the importance of the China market looms especially large for companies in finance—not just HSBC, but competitors including Goldman Sachs, JP Morgan and Credit Suisse. Sean, who’s one of the savviest China analysts we know, also argues that over the last five years, China’s equity markets have deepened and matured, leaving China’s emerging tech ventures far less dependent on Western exchanges for raising capital.

More Eastworld news below!

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com

Eastworld news

High seas

On Wednesday, the U.S. government blacklisted 24 companies for their role in helping construct artificial islands in the South China Sea, which reportedly preceded Beijing launching ballistic missiles in the contested waters. The U.S. has previously blacklisted Chinese companies over national security concerns and for allegedly conspiring to commit human rights abuses in Xinjiang. This week's move marks the first time the U.S. has punished China over its advances in waters where Taiwan, Vietnam, and other Asian governments have competing claims. The tensions in the South China Sea come as the Philippines blasted Beijing this week for encroaching in waters that it claims. New York Times

Fishing in the Galapagos

China has the world’s largest fishing fleet, and critics argue that its nearly 17,000 vessels are responsible for depleting fish stocks around the world. This vast armada has recently come under greater scrutiny after the Ecuadorian government discovered that over 300 vessels were fishing just off the coast of the Galapagos Islands, the protected marine reserve that inspired Charles Darwin’s Theory of Evolution. China has announced plans to reduce its fleet to 3,000 vessels by the end of 2020, but environmental organizations argue that Chinese fleets continue to grow and routinely subvert international authorities by shutting off tracking equipment. The Guardian

Extradition, financial scandals, and a boat

A Wall Street Journal investigation published this week would be hard to believe if it was a Hollywood script. The Journal found that one of China’s top government officials met with a senior Republican fundraiser to lobby for the extradition of Guo Wengui, a billionaire Chinese exile and prominent critic of China living in New York. The meeting was allegedly set up through Jho Low, the mastermind of the Malaysian 1MDB scandal, the world’s largest-ever financial con. For his part, Guo is a close associate of Steve Bannon, the China-hawk and former Trump administration official who was recently arrested on fraud charges while aboard Guo’s boat. Wall Street Journal

An uncomfortable home

The increasing scrutiny that Chinese tech behemoths like Huawei and Tencent face abroad may pale in comparison to the constraints China places on them in their home market. This week, Financial Times columnist Henny Sender argues that the Chinese government views the growing power of Chinese tech giants and the individuals who lead them as a potential threat to its control. To rein them in, the Chinese government has placed a ceiling on their growth prospects in China and has sought to bring them closer to the government. Financial Times

Campus politics

In August, Amazon opened its largest campus in the world in Hyderabad, a city of nearly 10 million in southern India. The planned 1.8 million-square foot campus provides Amazon a base of operations in a rapidly growing e-commerce market, where it currently trails only Walmart-backed Flipkart in market share. The project confirms Amazon’s commitment to the country, but analysts in India worry about Amazon’s history of alleged anti-competitive behavior and say that the firm is already pushing out smaller traders and retailers. New York Times

Coronavirus by case

Hong Kong

The pandemic is infecting an average of 200,000 people per day globally, but one man’s case in Hong Kong this week had the power to move markets and spark fears about the effectiveness of a potential vaccine. Scientists in Hong Kong confirmed on Monday the world’s first known COVID-19 reinfection, finding that a 33 year-old-man tested positive for coronavirus after recovering from a separate strain of the virus months before. The man’s case signals that “there will be no such thing as 100% immunity” for COVID-19, a researcher at Hong Kong University tells Fortune, and that any immunity to COVID-19 may be finite. On the bright side, the researcher said, early trial data shows that a vaccine may offer more protection than actually getting infected with the virus. Fortune

Markets and movers

X-Peng – The Chinese electric vehicle maker has increased the size of its Thursday initial public offering in New York to $1.5 billion, which would value the company at $11.2 billion, sources told Reuters.

Alibaba – The Chinese tech giant has suspended investments in India amid China’s tensions with the Indian government, according to Reuters. Alibaba has invested over $2 billion in India since 2015 and has no immediate plans to reduce stakes in those investments. Reuters

Facebook – The U.S. social media giant is preparing legislation against the Thailand government for forcing it to block a group with 1 million members that's critical of the country’s monarchy. This comes as protesters in Thailand continue to organize near daily anti-government demonstrations that have called for curbs on the king's powerCNN

TikTok – Recently appointed CEO Kevin Mayer stepped down from his position on Wednesday, weeks before the U.S. government's ban on the app is set to go into effect. TikTok also launched a lawsuit against the U.S.'s order that will force TikTok to sell its U.S. operations to an American entity or be banned from the market entirely. Financial Times

Final figure

48%

After the U.S. postponed trade talks with China last week, trade negotiators from the U.S. and China finally met over the weekend to review progress on the phase I trade deal. Data released after the meeting, however, suggests that both sides will have a lot of ground to make up to fulfill the deal, according to the trade deal tracker from the Peterson Institute for International Economics (PIIE). On Tuesday, PIIE found that through July, China had purchased $39.2 billion worth of goods covered in the trade deal, or 48% of what it would have needed to stay on track to meet its $172.7 billion target by the end of the year. China is even farther behind in its purchases of energy goods; through July, it imported just 17% of what it needs to keep pace with its trade deal objectives. PIIE