Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

China's Warning to Global CEOs: Toe the Party Line on Hong Kong

EconomyAug 22, 2019 01:30AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

(Bloomberg) -- As anti-government protests in Hong Kong intensified this month, KPMG issued a directive to its employees in the city: Don’t speak on behalf of the company in public. It went on to say that the firm supports China’s policy for governing Hong Kong.

PwC, another Big Four accounting giant, sent a similar message to staff telling them to avoid disclosing anything about the company on social media platforms, according to emails seen by Bloomberg.

This is the new reality for multinational businesses that have long grappled with a thorny question on China: What’s the price of access to Asia’s biggest economy? Beijing’s response to the protests, most notably its clampdown on Cathay Pacific Airways Ltd. this month, has provided one answer: compliance with the Communist Party’s worldview, from senior management on down.

“The Chinese government doesn’t see business as being separate from the state and it has made it clear that if you want to do business in China, you’d better toe the line,” said Steve Vickers, chief executive officer of political and corporate risk consultancy Steve Vickers & Associates, and the former head of the Royal Hong Kong Police Criminal Intelligence Bureau.

PwC said in an Aug. 5 statement that it fully respects people’s right to freedom of speech, but regrets the escalation of violence related to the protests. The firm also condemned “the use of social media to spread false messages using the firm’s corporate identity” that it said were designed to mislead the public. KPMG didn’t immediately respond to a request for comment.

Cathay, Hong Kong’s flagship airline, has become a symbol of what happens when a company is judged to have crossed China’s red lines.

After some of Cathay’s staff came out in support of the Hong Kong protests, state-backed firms imposed boycotts on the airline and mainland regulators threatened to block its access to Chinese airspace. Within days, Cathay’s CEO resigned and the company acceded to a list of Beijing’s demands. At least three pilots have also left, one after he reportedly made comments about the protests to passengers on a flight to Hong Kong from Tokyo.

Few corporate targets are as big as Cathay, a Hong Kong icon whose business would be crippled if it lost access to China. Yet scores of other international companies -- from automakers to fashion brands to banks -- could easily find themselves in a similar position.

Cathay’s New CEO Won’t Solve Its China Problems: David Fickling

HSBC Holdings Plc (LON:HSBA) is a prime example. Founded in Hong Kong in 1865, the bank switched its base to London before the handover to China in 1997, yet still generates half its revenue in Asia, including mainland China.

On the protests, the bank has so far appeared unwilling to rein in its workforce, which stood at 238,000 full-time employees in June. According to the Financial Times, HSBC managers allowed staff in Hong Kong to attend a mid-week demonstration in June, as long as they didn’t break the law.

“The bank has always respected our employees have their own personal views on political and social matters,” HSBC said in an email.

That could be a risky stance. A cornerstone of HSBC’s strategy has been to leverage its foothold in Hong Kong to deepen its push into mainland China, where it already offers corporate and retail banking services.

The bank took a clearer stance on Thursday. In an advertisement in the Chinese-language Hong Kong Economic Times, HSBC said the rule of law is indispensable for the city.

“We are very concerned about the recent social events and strongly condemn any violence and actions that disrupt social order,” the bank said in its ad.

HSBC was already in an uncomfortable spot over Washington’s legal and political tussle with Chinese technology company Huawei Technologies Co., a major client of the bank. U.S. prosecutors drew on HSBC’s relationship with Huawei to build its case against an executive at the telecommunications company, the FT reported last month.

‘Economic Isolation’

China has plenty of reasons to show restraint. The government’s pressure tactics could backfire if international companies decide to leave the mainland or Hong Kong, taking with them technical expertise and good-paying jobs. Anything that erodes Hong Kong’s status as a global financial center would also hurt Chinese companies that rely on the city for offshore funding.

“This drives China straight toward what some U.S. hawks seek: economic isolation,” said Victor Shih, associate professor of political economy and Ho Miu Lam Chair in China and Pacific relations at the University of California San Diego.

Even if China’s government eases up, international companies are unlikely to escape scrutiny from the country’s increasingly nationalistic online community. Several global brands, from Versace to Calvin Klein, have apologized in recent days after Chinese Internet users called them out for products and company websites that identified Hong Kong as a distinct country, rather than being part of China.

A senior executive with a European luxury brand, who asked not to be identified given the sensitivity of the subject, said the operating assumption for years has been to be careful with China and politics. Brands carefully monitor the local response to marketing, the person said, and should be willing to cancel even high-budget initiatives if necessary.

In the high-end fashion world, star designers have long had freedom to push boundaries. Yet in the wake of an incident like Dolce & Gabbana’s chopstick debacle last year -- in which the brand was scrubbed from Chinese e-commerce sites after posting videos of a clueless Chinese model trying to eat pizza and cannolis with chopsticks -- even those rules are changing. A top executive at a European luxury group, who also asked not to be identified, said they are now coaching designers to cleave closely to pre-approved messages.

Complying with China’s rules can be challenging, especially for companies with employees who may not agree with the Communist Party ideology. Yet businesses who want access to the $14 trillion economy may not have a choice.

“I’m a democracy guy, but you have to face the current situation,” said Vickers, the risk consultant. “I’m not saying it’s right or legal. I’m just saying that’s how it is.”

(Updates with HSBC adverts calling for peaceful resolution in 13th paragraph.)

China's Warning to Global CEOs: Toe the Party Line on Hong Kong
 

Related Articles

Pakistan receives $3 billion loan from Saudi Arabia
Pakistan receives $3 billion loan from Saudi Arabia By Reuters - Dec 04, 2021 5

By Syed Raza Hassan KARACHI, Pakistan (Reuters) - Pakistan on Saturday received a $3 billion loan from Saudi Arabia, the prime minister's finance adviser said, as part of an...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Lloyd McCord
Lloyd McCord Aug 22, 2019 4:32AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
There will always be those who will sell their souls for money. That's why we're dealing with China in the first place. Global corporatists willing to sell out their own countrymen started this. Those same soulless turncoats will kneel to Xi, but not all. Every chip from the wall leaves it weaker, and in time, that's all that's needed.
Chris Sundo
Chris Sundo Aug 22, 2019 3:19AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
“The Chinese government doesn’t see business as being separate from the state ....` --- But for 5G they swore to the world that it would be separate ... Hmmm ... Ain`t jive .... Two different policies applied arbitrarily IMO.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email