Big global banks have a large presence in Hong Kong, a top-five global financial center. They have attempted to continue business as usual even as the Chinese government has grown more repressive. Now, though, Beijing has flashed a warning sign about what continued passivity could mean for them.
Many global financial institutions offer pension funds under the Hong Kong government's system, including Manulife, Invesco, Fidelity and HSBC.
The government of Hong Kong has blocked more than 90,000 emigrants to the United Kingdom from having access to their retirement funds, putting banks in an awkward position. By obeying local dictates in Hong Kong, for example, HSBC has found itself the target of withering attacks by politicians in the U.K., where it is headquartered.
The controversy around freezing retirement savings, affecting
Since the Chinese government took possession of Hong Kong in 1997, it has gradually restricted freedoms and increased control. Fear for Hong Kong's future is leading many companies to quietly exit the island. Elite private schools that kept long waiting lists only a few years ago are now desperate for students as foreigners and wealthy Hong Kongers leave.
All the while, banks have been behaving as if their operations in Hong Kong enjoy the same protections they operate under in London or New York. They do not; in fact, they have none. While the pension action is a first, forcing banks to punish former residents of Hong Kong, it will not be the last. And it's not just assets that face control from China; customers' data is also at risk. Politicians in the U.S. and the U.K. have shown increasing concern about the danger that TikTok gives the Chinese government too much access to sensitive data. But often overlooked is the fact that large, influential American and British banks that routinely do business in Hong Kong collect data from their customers, too, and that data could be used by China in the same way as data from TikTok.
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Thus far, the National Security Law (NSL) — the vague and sweeping new law Beijing introduced in Hong Kong in 2020, which imposes harsh sentences for many political crimes — has largely been used to go after pro-democracy journalists, politicians and protesters. But Beijing could easily use the law against banks or other private businesses that, on the surface, pose no threat to the government.
Hong Kong courts once had enough independence to constrain the government. They no longer do. Under the NSL, Hong Kong's chief executive can choose certain judges for one-year appointments, which makes political influence much more likely. The new legal atmosphere has led to a large decline in the number of foreign lawyers practicing in Hong Kong.
That leaves financial institutions largely unprotected if there is a conflict over client privacy and data. Hong Kong's NSL lets the authorities intercept communications related to "national security," which is very loosely defined, and lets it freeze assets without a warrant. The Hong Kong government can access any information that a bank possesses, even without the bank's knowledge. And with the degradation of the legal system, firms have few to no legal remedies. Bank employees in Hong Kong could end up in jail if they refuse to provide data about a client, no matter what country that client lives in.
Hong Kong still wants to protect its image as a financial center. Banks therefore have some leverage to influence what happens next. Rather than just leaving Hong Kong, they could lobby for the restoration of previous norms. As the Hong Kong authorities are working hard to attract new business after the COVID-19 lockdown, the existing business community should make it clear that the uncertainties of operating in Hong Kong will slowly drive away businesses and reduce investment.
Banks can also put pressure on the government by threatening to leave. Maintaining Hong Kong's role as a financial center is still important to Beijing, and if businesses stood up rather than remaining quiet, they would have a chance of fighting the negative trends.
It's time for banks to recalibrate the risks they face — and then take the concerted action that might be the only hope of saving the little bit of freedom that remains in Hong Kong and preserving their own ability to operate successfully.
