The decision by banking giant HSBC Holdings Plc. to remain in the United Kingdom instead of returning to Hong Kong did not surprise industry observers. The Special Administrative Region’s (SAR) political system of being part of two systems but one country has been cited by analysts as the apparent reason for the global lender’s decision.
Hong Kong, since 1997 when the island-state was returned to China, has some autonomy to operating its legal and political system, but the mainland has been exerting more its influence on the former Crown Colony. The risk of operating in one country, instead of two systems, is the one that HSBC did not want to make in staying put in the U.K., wrote David Webb, shareholder activist in the SAR, reported The Wall Street Journal.
HSBC announced last week that it is remaining in UK after a 10-month review. Other factors behind the decision include changes made by the British government which encouraged HSBC, the largest bank in Europe, to stay in the United Kingdom, reported The Guardian.
Because the political leaders in Hong Kong are moving toward “integration” rather than “differentiation,” Webb wrote that HSBC “simply couldn’t take the risk of shifting headquarters to Hong Kong and subsequently being perceived as a ‘Chinese’ bank in its global markets.”
By remaining in the U.K., HSBC highlighted the need for the institution to remain competitive on regulation, tax and talent, said CBI Director General Carolyn Fairbairn. For Laith Khalaf Hargreaves Lansdown analyst, Beijing’s “panicky intervention” in the Chinese stock market in 2015 reduced Hong Kong’s appeal as an alternative home for HSBC.
Although HSBC only said it would not move out of U.K., but did not explain why, industry observers believe the decision was based on the lender’s growing concern over Hong Kong losing the independence of its legal system. In contrast, Britain’s legal system is an internationally respected regulatory framework.
But for Professor Andre Spicer of the Cass Business School, the collective interests of the U.K. corporate elite had a role in HSBC’s decision. He also acknowledged that the current state of the Chinese market played a big role in why HSBC elected to stay put.
Spicer added that moving HSBC to Hong Kong would mean adapting to a culture where emphasis is more on personal connections above everything else, plus the dreaded bigger role of Beijing in running Hong Kong’s affairs. He reminded that moving headquarters is much worse that moving houses which is an awful experience.