The big banks of Wall Street rarely like to rock the boat in dealings with the China and Hong Kong governments. Too much is at stake to risk the ire of Beijing.
So the recent actions on two sensitive issues by Bank of America and an Asian financial lobby group that counts Goldman Sachs, Morgan Stanley and JPMorgan as members were striking.
First, BofA’s cover was blown as the first of the Wall Street giants formally to review whether to relocate jobs out of Hong Kong in favour of Singapore, where pandemic travel restrictions (at least) are far less restrictive.
It was a big moment in a story that has been two years in the making for Hong Kong, where global banks have grown weary of punishing quarantine rules that have made it far harder to recruit at the same time as record numbers of people are leaving the city.
After the news broke, Hong Kong did offer some respite, reducing its three-week hotel quarantine for all international arrivals down to two weeks. But bankers worry that the territory’s pursuit of “zero-Covid” with the goal of reopening the border with mainland China means unrestricted international travel is still a very long way off.
Even before the pandemic, Wall Street had been contingency planning for having to move jobs out of the territory. The 2019 pro-democracy protests and a political crackdown prompted a rethink of the environment for doing business there.
Since then, quietly relocating by attrition has been the preferred method of diversifying the risks of more political turmoil or border closures around the centre of the banks’ Asia operations. A sign of the sensitivity of the issue is that it took two years before the financial industry broke its silence on the “zero-Covid” policy, despite its potential impact on the financial services sector.
Unusually, the BofA review was not the only time last week that Wall Street risked taking bold action in its relationship with China. Banks separately took the rare step of pushing back against new financial regulation from Beijing.
The industry lobby group, the Asia Securities Industry and Financial Markets Association, warned Chinese regulators in a letter that draft new rules for listing Chinese companies overseas were so vague and far-reaching that they created unnavigable regulatory risks that could stymie dealmaking.
The proposals from the China Securities Regulatory Commission, outlined in response to the calamitous flotation of ride-hailing app Didi Chuxing in New York last year, would add a layer of oversight from Beijing on top of existing global standards for underwriting IPOs. Even Chinese companies incorporated abroad would have to secure approval for a plan to list in the US or elsewhere.
Asifma said the rules would be disincentives for banks to help Chinese companies raise money in international markets, a source of funding that has helped some of China’s biggest corporations grow and generated billions of dollars of fees for investment banks.
Such vocal, public complaints are unusual in mainland China and Hong Kong, where convincing anyone at an international bank to say much about anything at all has become extremely difficult.
Tensions about what it is acceptable to say have become so high that this weekend the Hong Kong government had to publicly clarify that “making general remarks and discussion” about the practicality of its coronavirus policies was “not illegal”.
The fear among the banks is of a backlash similar to that which Hong Kong’s biggest retail bank HSBC suffered when it was attacked by Chinese state newspapers after becoming entangled in the battle between the US, Canada and China over the detention of Huawei executive Meng Wanzhou.
BofA is already scrambling to reaffirm its commitment to Hong Kong. In a message to staff to mark the lunar new year this week, the bank’s Asia-Pacific bosses said the territory remained “central” to its regional business and strategy, according to one insider.
But the dilemma for international banks speaks to a home truth in Hong Kong in the post-protest, Covid era: openly responding to bad policy might well benefit everyone, but it is rarely in the interest of the company that breaks ranks to stick its neck out. And this chill on debate seems a far cry from the spirited, boisterous culture of capitalism that Hong Kong was once known for — one locals used to cite in dismissing strait-laced Singapore as a rival financial centre.