Foreign-owned fund managers under new pressure to create Communist Party cells in China -- China Boss update 7.22.22
Update
What happened.
“HSBC has become the first foreign lender to install a Chinese Communist party committee in its investment banking subsidiary in the country,” Financial Times last week reported.
FT:
The lender’s China investment bank, HSBC Qianhai Securities, recently established a CCP committee, according to two people familiar with the decision. The move came after HSBC lifted its stake in the joint venture, which it launched in 2015, to 90 per cent from 51 per cent in April.
Why it matters.
For now, HSBC appears to be the only foreign-owned firm to set up a CCP committee out of the “seven global banks” who “control [their] investment banking operations in mainland China,” FT said. But managers at Goldman Sachs, JPMorgan, Credit Suisse, Morgan Stanley, UBS and Deutsche Bank “are particularly worried about the optics of potentially exposing strategic decisions and client data to the CCP,” and their legal teams “have been examining whether they are required to do so after taking full ownership of their mainland securities and brokerage operations in the past two years.”
While Beijing is probably tightening the leash on China’s financial industry in efforts to stabilize - read control - the economy, the news that it may now be intent on requiring large foreign-owned fund managers to grant a committee of Party members access to shareholder meetings and operations is turning heads, both in business, and in government. Dennis Kwok and Sam Goodman recently wrote in the Wall Street Journal that “[m]any foreign investors have assumed these rules would apply only to Chinese businesses and state-owned enterprises,” but that “China analysts … ha[d] been warning since 2018 that these laws could soon apply to foreign-owned companies operating through Chinese joint ventures.”
Kwok & Goodman, WSJ:
Since 2016, Xi Jinping has pushed for state-run companies and subsidiaries of foreign-owned companies to establish cells through the provisions of the Chinese Communist Party’s Articles of Association.
US Senator Marco Rubio also announced he is sponsoring the “No Chinese Communist Surprise Parties Act (S.3598)” to “require companies to disclose the presence of CCP cells and whether they influence corporate decisions.”
Senator Rubio, WSJ:
The risk of Communist infiltration is widespread because the number of publicly traded companies operating in China—from tech giants and advanced manufacturers to shoemakers and drug companies—is staggering. Financial companies such as BlackRock, Citigroup and Goldman Sachs are among the most vulnerable.
. . . There is a good argument that our companies should not be operating at all in China, where a Marxist regime co-opts them to undermine American strength. But at the very least, our nation’s retirees and pensioners deserve more transparency.
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Still enjoying Porto. I’ll think I’ll stay on a bit. ;) Have a great weekend.
