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Money market

HSBC and Standard Chartered back Hong Kong security law

UK-based banks follow moves by major businesses in the city

HONG KONG -- The two British lenders that dominate Hong Kong banking have come out in support of Beijing's national security law for the city despite opposition from the U.K. government, highlighting the pressure on businesses to choose sides over the contentious legislation.

HSBC Holdings and Standard Chartered on Wednesday in carefully worded statements endorsed the proposed law, which opponents say will end the "one country, two systems" framework that governs the territory and eventually end the city's role as a global financial center.

The two statements -- which come a week after former Hong Kong leader Leung Chun-ying called on HSBC to support the law -- follow similar moves by other major businesses in the city. Corporate houses including Swire Group, which controls Cathay Pacific Airways, Mandarin Oriental Hotel Group parent Jardine Matheson and billionaire Li-Ka Shing have all endorsed the law.

The move has already drawn criticism from some HSBC's customers in Britain and democracy campaigners in Hong Kong. It will also irk the U.S. and British governments, which have both opposed the law. British Prime Minister Boris Johnson on Wednesday promised easier access to visas to live in the U.K. for about 3 million Hong Kongers who hold or are eligible for a British National (Overseas) Passport.

As HSBC "largely generates profits from Hong Kong and China, it is understandable why they have to do this," said Kelvin Lam, a former HSBC economist and a now pro-democracy district councilor in Hong Kong. "China is using its economic advantage and big market as a bargaining chip to influence companies. Businesses only seek to maximize profits, and Hong Kong should provide a fair business environment for them."

HSBC said in a post on its WeChat social media account that Peter Wong, chief executive of its Asian operations, had signed a petition in support of the law.

The post, written in Mandarin and confirmed by a Hong Kong-based spokeswoman, said: "We reiterate that we respect and support laws and regulation that will enable Hong Kong to recover and rebuild the economy and at the same time maintain the principle of 'one country, two systems.' Stability is key to Hong Kong's recovery and its long-term future as an international financial center."

The city's economy suffered its worst quarter on record in the first three months of the year as months of violent anti-government protests and the coronavirus pandemic took their toll.

The national security law is Beijing's response to quell the protests and tighten its control over the former British colony. Last week, China's legislature approved a plan to impose the law on Hong Kong to target "subversion of state power, terrorism or interference by foreign countries" in the city.

"We believe the national security law can help maintain the long-term economic and social stability of Hong Kong," Standard Chartered said in an e-mailed statement, adding that it remained positive that Hong Kong will continue to play a key role as an international financial hub.

"For the two banks, a majority of the income comes from greater China," said Kenny Wen, a wealth management strategist at Everbright Sun Hung Kai in Hong Kong. "However difficult, it is prudent for them to express their opinion. Their shareholders and customers will have varied opinions, but I think for business, stability is key."

HSBC made $12.1 billion in pre-tax profit in Hong Kong, or 55% of its group total. Greater China as a region accounted for 40% of the London-headquartered bank's revenue.

A strategy overhaul unveiled in February increases the stakes for the bank's operations in the region. HSBC, which has plans to slash 35,000 jobs globally, will continue to hire in Asia, with Hong Kong "central" to its growth plans. The bank plans to shrink its operations in U.S. and Europe and deploy the freed up capital in Asia.

Last year, HSBC launched a public relations campaign to contain the fallout from its role in the U.S. crackdown on Huawei and defend its position as the largest foreign bank in China. The internal campaign, titled "Beijing Visibility Strategy," was aimed at protecting the bank's reputation in the world's second-largest economy.

The PR offensive came after reports that Liu Xiaoming, China's ambassador to the U.K., summoned then-CEO John Flint in early 2019 to the embassy to question him over the company's role in the arrest and prosecution of Meng Wanzhou, CFO of Huawei and daughter of the tech company's founder, Ren Zhengfei.

The bank lost out on some roles in China amid the Huawei fallout. Last year, it was not part of the committee that decides China's prime lending rates. Among the expanded panel's 18 members, only two foreign banks -- Standard Chartered and Citigroup -- were included.

However, the bank's luck had turned by mid-2019, and it led China's sovereign bond issuance in November and a host of debt sales by Chinese companies and banks. It also featured in a number of large acquisitions by Chinese companies.

For Standard Chartered, 61% of the $2.4 billion in pre-tax profit logged by its greater China and North Asia operations came from Hong Kong. The lender is also setting up a virtual bank in the city to enhance its retail network.

HSBC and Standard Chartered are also among three Hong Kong currency note-issuing banks.

HSBC shares climbed 1.6%, and Standard Chartered advanced 2.3% in Hong Kong where the main share index nudged up 0.1% on Thursday.

Additional reporting by Michelle Chan in Hong Kong

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