HSBC installs Communist Party committee in Chinese investment bank

HSBC installs Communist Party committee in Chinese investment bank

HSBC has become the first foreign lender to install a Chinese Communist Party committee at its investment banking branch in the country, a move that underscores the tension the bank faces as it tries to navigate between Beijing and the ‘west.

The lender’s Chinese investment bank, HSBC Qianhai Securities, recently established a CCP committee, according to two people familiar with the decision. The move came after HSBC increased its stake in the joint venture, which it launched in 2015, to 90% from 51% in April.

A CCP committee, which may consist of several branches, is required by Chinese company law but is not yet widely applied among foreign financial groups. It is usually made up of three or more employees who are also members of the Chinese Communist Party. Committees serve a dual purpose as a workers’ union and a means by which a party representative is installed in the upper ranks of a company, sometimes in a managerial or managerial role.

HSBC’s decision will put pressure on other foreign banks to follow suit. Some have considered whether they are required to do so after taking full ownership of their brokerage and securities operations on the mainland over the past two years, several senior officials at those institutions said.

“It’s important in the sense that [HSBC] is assigning its future,” one of the people said. “He is strengthening his ties with an autocracy that clearly has views on how far it wants to penetrate private business. It’s another brick in that wall.

HSBC is one of the global companies most exposed to the escalating geopolitical rivalry between China and the West. It is headquartered in London but makes almost all of its profits in Hong Kong and plans to expand across mainland China.

Reflecting its dilemma, in May its biggest investor, Ping An, called for it to be split into eastern and western units, warning that overlapping the two regions would become impossible in coming years. HSBC is also one of the most frequent targets of politicians in China, the United States and the United Kingdom due to sanctions, trade and political instability in Hong Kong.

HSBC declined to comment to the CCP committee, but people close to the stressed bank would have no management role such as would exist in a Chinese state-owned company. The bank set up its committee earlier this month, according to one of the people familiar with the decision.

HSBC Qianhai is led by Irene Ho and overseen by David Liao, co-general manager of Asia-Pacific. Qianhai provides investment banking services such as advisory, execution of initial public offerings and securities trading. HSBC has around 7,000 employees on the continent, far more than any other foreign-based lender.

Seven global banks oversee investment banking operations in mainland China – HSBC, Goldman Sachs, JPMorgan, Credit Suisse, Morgan Stanley, UBS and Deutsche Bank – however, only HSBC has so far set up a CCP committee, according to several people familiar with the matter. . The other banks declined to comment.

“There was an internal email that said maybe we need to do something, but at the moment . . . it’s not mandatory yet,” said the Asia manager of an international lender.

US bank executives are particularly concerned about potentially exposing strategic decisions and customer data to the CCP, several told the Financial Times.

Goldman Sachs does not have a CCP committee but has employed senior party officials, including Fred Hu, who was chairman of its Greater China business. She runs one of Wall Street’s oldest investment banking businesses in China after forming a joint venture with Beijing Gao Hua Securities in 2004. UBS hired Fan Yang, who is the daughter of Liu Yandong, the former vice- Chinese Prime Minister, as its World Bank President for Asia in 2020.

A regional senior executive at a Wall Street bank said there was a “long-standing agreement” with the China Securities and Regulatory Commission that most foreign securities or brokerage firms do not don’t need CCP committees. There has been little behind-the-scenes pressure so far, the person added.

However, the Chinese Enterprise Law states that: “Communist Party organizations shall . . . be created to carry out the activities of the party” within the companies, which “must provide the necessary conditions for the organizations of the party to carry out their activities”.

“HSBC is on the right side of this one,” another person familiar with his decision said. “You can’t guess the authorities in China. If they catch you, they put you in the trash. Any US bank that does not do the same is playing a dangerous game.

HSBC has separately established CCP committees in other entities it controls in China, such as in its asset management joint venture with Shanxi Trust.

Additional reporting by Olaf Storbeck

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