HSBC and Standard Chartered should be encouraged to relocate out of Hong Kong

HSBC and Standard Chartered should be encouraged by ministers to relocate from Hong Kong to avoid being used by Beijing to manipulate the global financial system, a leading think tank says in a new report.

Analysts at the China Strategic Risks Institute (CSRI) said that, despite its reputation as a hub of free-market capitalism, Hong Kong’s financial infrastructure and regulators were being used to ‘increasingly serve China’s strategic interests’ after control over the territory was tightened after pro-democracy protests in 2019.

As a result, firms like HSBC, which have big business interests in Hong Kong and mainland China, could be pressured by Beijing to act against British customers if the two countries were at odds over a conflict such as an invasion of Taiwan.

Ryan Wu, who co-wrote the report, said the banks could find themselves receiving ‘conflicting legal instructions from London and Beijing’, and that China could pressure them to use their Hong Kong operations to ‘freeze assets held by British firms or savers’.

 Wu added that the banks could find themselves in a similar situation to British firms with operations in Russia after its invasion of Ukraine when many were forced to exit the country to comply with Western sanctions resulting in billions in unwinding costs and lost profit.

The CSRI recommended UK regulators and ministers support ‘relocation pathways’ for firms to relocate major operations out of Hong Kong, including speeding up approval procedures needed to access critical systems such as payment processing.

‘A firm moving critical operations to London faces a process through the Financial Conduct Authority and Bank of England’s Prudential Regulation Authority that can stretch towards a year. In a geopolitical crisis, firms cannot afford to wait that long for permission to operate,’ Wu said.

‘The Treasury could press both regulators to establish a fast-track for international businesses relocating from Hong Kong.’

His comments come as concerns rise over the exposure of the major UK banks to China, which over the past decade has seen the Communist Party tighten its grip on the economy.

This month, HSBC, Standard Chartered and Asia-focused insurer Prudential saw billions wiped off their values after reports emerged that Chinese officials were cracking down on people moving money overseas by stopping them opening bank accounts in Hong Kong.

Concerns over Chinese influence in the UK have also risen after a string of spying scandals, and protests at a new ‘super embassy’ in London that critics say will be a spy nest.

He said this had already happened when Chinese regulators effectively ordered HSBC to stop British National Overseas visa holders from Hong Kong accessing their pensions after they left the city in a move seen as politically motivated.