HSBC, a British banking giant with deep ties to global finance, is facing significant challenges to its expansion plans in China. The trouble stems from a 2017 decision to share documents with U.S. prosecutors who were building a case against Huawei Chief Financial Officer Meng Wanzhou. Those files allegedly showed that Huawei had misled the bank about its business dealings with Iran. Meng was arrested in Canada in December 2018.
Following the arrest, China’s ambassador to the United Kingdom, Liu Xiaoming, summoned HSBC’s then-chief executive, John Flint, to the Chinese embassy. The ambassador demanded an explanation for the bank’s cooperation with American authorities.
The meeting, described as tense, occurred before Flint was removed from his position in August 2019. HSBC has made China a central part of its strategy to generate billions of dollars in new revenue. It operates more branches on the Chinese mainland than any other foreign lender.
That bet is now at risk. Beijing is reportedly considering placing HSBC on its “unreliable entity” list, a retaliatory measure in the ongoing trade war with the United States.
Inclusion on that list would be a severe blow to HSBC’s operations in China. The bank’s decision to hand over the documents was not entirely voluntary. In 2012, HSBC entered a deferred prosecution agreement with the U.S. Department of Justice, paying a $1.9 billion fine for helping Mexican drug cartels launder money.
That agreement left the bank on a short leash. Refusing a U.S. request for documents could have triggered additional penalties or even criminal charges.
“HSBC was forced to comply with U.S. legal demands because of its prior criminal liability,” a person familiar with the Flint meeting said. The bank is now caught between two angry governments. The trade war between Washington and Beijing has escalated, with the U.S. imposing sanctions and export controls on Chinese companies.
China has retaliated with its own measures, including the “unreliable entity” list. HSBC is a British bank with deep roots in Hong Kong and China, but it is also subject to U.S. law because of its American operations.
It cannot satisfy all three masters. The Meng Wanzhou case is the immediate flashpoint, but the rift runs deeper. China views HSBC’s cooperation with U.S. prosecutors as a betrayal.
The bank’s leadership is in turmoil. Flint’s successor, Noel Quinn, inherited the mess.
HSBC has tried to repair the damage by publicly reaffirming its commitment to China and stressing its long history in the country. However, words may not be enough. Beijing has shown it is willing to use economic tools to punish companies that cross it. HSBC’s fate will be a test of how far China will go in the trade war.
For now, the bank waits to see if it lands on the “unreliable entity” list and whether its China strategy can survive. The bank that once seemed too big to fail now looks very exposed.
