The Chinese Communist Party may be setting up a secret cell within the financial institution that manages your retirement fund. It sounds like the plot of a great spy thriller. Unfortunately, China considers this to be the true cost of doing business for global financial firms – and one of the world’s largest financial institutions has agreed to pay. On July 22, the British banking juggernaut HSBC
The CCP has recently launched several reforms to increase the Party’s influence in business. In January 2020, a CCP regulation demanded that all Chinese state-owned enterprises amend their corporate statutes to include the Party in their governance structure. SOEs must now appoint a Party secretary to chair any company board and establish CCP committees to facilitate Party business and advance government policy. In September 2020, the General Office of the CPC Central Committee issued a report ask the Chinese United Front Labor Departments to spread Party ideology and influence in the private sector, including integrating Party leadership in all aspects of corporate governance.
Recently, the China Securities Regulatory Commission has also started requiring the establishment of CCP cells in foreign financial companies. Within private sector enterprises, CCP committees act as trade unions. In some cases, they function as a means of installing party members into the ranks of a company’s leadership. The party’s goal seems to be ensure that private sector enterprises fall under the influence of the Party and will work with it to achieve national goals.
As it began to integrate the CCP into corporate governance in 2020, China has also welcomed enthusiastic foreign companies in scrapping its 51% cap on foreign equity in financial institutions. London-based HSBC now makes most of its money in Hong Kong and mainland China. HSBC has around 7,000 employees on the continent, far more than any other foreign-based lender. In 2021, he moved four senior executives running its commercial banking, personal banking and asset management divisions in Hong Kong. In 2022, HSBC increased its stake in HSBC Qianhai Securities from 51% to 90%. Qianhai provides investment banking services, including advisory, securities trading and IPO services.
HSBC’s move could help the CCP pressure other foreign banks to follow suit. Six other global lenders control their investment banking operations on the continent: US-based Goldman Sachs, JP Morgan Chase and Morgan Stanley
Despite HSBC’s nonchalance in harboring a CCP cell, their role in Chinese companies is alarming. Dennis Kwok, a former Hong Kong lawmaker, observed growing influence of CCP cells over businesses in Hong Kong. Party branches began by observing and absorbing data, but then began influencing board decisions, installing directors, and even instructing corporate management. Some Chinese companies have amended their statutes to specify that the board will first seek input from the main CCP group within the business before making key business decisions.
More broadly, the creation of CCP cells could be another manifestation of China’s strategy of what I call “latent militarization.” China repeatedly represents benign political, economic, and geopolitical actions while constructing or turning them into tools that can be powerfully leveraged against adversaries. China has cost the NBA hundreds of millions of dollars in 2020 after the Houston Rockets general manager tweeted his support for protesters in Hong Kong. When shareholders of a financial company worry about human rights abuses in China, hundreds of millions of the company’s customer money could be at risk from retaliation or reprimand from China. The company may be compelled to answer before the Party first and its shareholders second.
As China enforces the establishment of CCP cells in foreign financial institutions, democracies, companies and shareholders must mitigate the risks to themselves and the global economy. In the United States, Congress must regulate the influence of Party cells within private sector companies and ensure that Americans’ data and investments are protected from CCP access and safe from abuse. potential militarization. Companies must mitigate the risk of exposing their intellectual property, secrets and data, and those of their customers, to the Party’s influence and eyes. They and their shareholders must also decide how much risk from China’s economic difficulties and political actions they are willing to accept and pass on to their clients. Shareholders must decide whether they accept the risk of having their data and money exposed and managed by CCP members.
Western companies must also decide how willing they are to support — and expose their customers — the CCP’s political agenda and military ambitions. The very idea of having a CCP cell within institutions that are the standard bearers of American capitalism will damage the image of many companies. Some shareholders and customers will object to the companies’ affiliation with the CCP’s human rights abuses and geopolitical aggression. China has openly declared that it plans to reunite with Taiwan, likely by 2049, the deadline set by Xi to achieve his Chinese dream. Given China’s willingness to use economic coercion to advance its geopolitical agenda, the Chinese dream could easily become a nightmare for global financial institutions, their customers, and the global economy.