By He Jun
HSBC, founded on March 3, 1865, is facing one of the major risks in peacetime since its establishment. It has become an unavoidable pawn in the geopolitical game between China and the U.S. because of its involvement in the U.S. government’s crackdown on Huawei.
HSBC has deep roots in the Chinese market. Its official name, The Hongkong and Shanghai Banking Corporation Limited, demonstrates its close ties with Hongkong and Shanghai. The original Chinese name of HSBC was ‘Waylee Bank’ but it was later changed to ‘Wayfoong Bank’ in 1881. It is said that the word ‘Wayfoong’ was proposed by the Chinese comprador Gu Yingchun after numerological calculation, and the new name has the meaning of “abundant remittance.” At the beginning of the 20th century, HSBC has become the largest bank in the Far East, regularly accounting for 60-70% of the turnover in the Shanghai foreign exchange market. From the late Qing Dynasty to the Republican Era of China, HSBC Shanghai was the main agency for the Chinese government to repay foreign debts and indemnities, and the main bank that collected tariffs and kept China’s domestic debt funds on behalf of the General Taxation Department. In 1915, the stock of gold and silver in Shanghai’s financial sector totaled 80.99 million taels, among which 17.3% were held by Chinese banks and financial institutions, 44.3% by other nine foreign banks, and 38.4% by HSBC alone. From its founding to the War of Resistance against Japanese Aggression, Shanghai has been HSBC’s most important market in the world.
After the founding of the People’s Republic of China in 1949, HSBC’s branches in mainland China were closed one after another, with only the Shanghai branch continued to operate, making it one of the few foreign banks in mainland China without interruption of business. HSBC China officially opened for business on 2 April 2007 with its head office in Shanghai, China. By 2014, HSBC had 135 outlets in China, with 29 branches in 29 cities including Beijing, Shanghai, and Guangzhou. Currently, HSBC has nearly 170 outlets in 57 cities, about one-third of which are located in Guangdong, making it the only foreign bank with outlets in all prefecture-level cities in the province. HSBC is now the largest foreign bank in the mainland with the most outlets.
However, HSBC, which has deep roots in the Chinese market, is now embroiled in a geopolitical game between China and the U.S., as it co-operates with the U.S. in cracking down on Huawei.
On May 28 this year, the Supreme Court of British Columbia ruled that the essence of Meng Wanzhou’s case was a crime of fraud. On the morning of July 24, the court disclosed the evidence materials for the next stage of the Meng Wanzhou extradition case. According to the disclosed evidence, HSBC is suspected to have participated by providing evidentiary materials on Huawei’s Iran business in exchange for the U.S.’s pardon of HSBC’s violation.
The U.S. Case Prosecution Record submitted to the Canadian court stated that Meng Wanzhou “concealed” the relationship between Huawei and Hong Kong Xingtong Technology Co., Ltd. (Hong Kong Xingtong, or Skycom) from HSBC and “misled” HSBC to continue to provide banking services to Huawei. HSBC therefore violated the U.S. sanctions against Iran and faced the “risk” of civil and criminal fines. Meng Wanzhou constituted a “fraud” against HSBC. The “only key evidence” in this case is a PPT file that Meng Wanzhou gave to HSBC. The public materials include the full text of the PPT, as well as the business email records of HSBC and Huawei. HSBC falsely stated that it did not know the relationship between Huawei and Hong Kong Skycom, which is a blatant lie. From the 2009/2010 financial report of Hong Kong Skycom issued by Huawei to HSBC, it can be seen that HSBC fully understands the business situation of Hong Kong Skycom in Iran. In order to justify the argument and strengthen the effectiveness of the “criminal evidence”, HSBC claimed that only “junior” employees were aware of the relationship between Huawei and Hong Kong Skycom, but these “junior” employees did not pass on relevant information to the “senior” managers, causing the latter to only rely on the PPT provided by Meng Wanzhou to judge the risk.
More critically, in December 2012, HSBC signed the “Deferred Prosecution Agreement” with the U.S. Department of Justice due to its own misconduct, including violations of U.S. sanctions on Iran. HSBC assured the U.S. Department of Justice that it will review and clean up the entire group of customers. During this process, how could HSBC fail to recognize the relationship between Huawei and Hong Kong Skycom? Even so, in February 2013, Hong Kong Skycom closed its HSBC account. This concludes the cooperation between Huawei and HSBC on the Iran business. The business has been terminated, and HSBC still repeatedly requires “communication” with Huawei. Out of respect, in August 2013, Meng Wanzhou met with HSBC executives to give a detailed statement of Huawei’s business in Iran. The PPT she presented was handed over by HSBC to the U.S. side, which became the key evidence for the U.S. to strike Huawei.
HSBC cooperated with the U.S. to frame Huawei, which hides a huge exchange of interests: HSBC acted as a victim to testify against Meng Wanzhou, in exchange for a pardon from the United States. In 2012, the U.S. government charged HSBC with serious money laundering and financing of international terrorism. For this, HSBC paid a fine of USD 1.92 billion and reached a 5-year (2012-2017) “Deferred Prosecution Agreement” with the U.S. Department of Justice. HSBC agrees to “cooperate with the U.S. Department of Justice in any investigation.” If it fails to fulfill the relevant requirements, the U.S. Department of Justice has the right to withdraw the agreement and file criminal charges against HSBC.
In September 2016, news broke from the market that the U.S. Department of Justice was discussing whether to withdraw the “Deferred Prosecution Agreement” and whether to sue HSBC for criminal charges. At the end of the same year, HSBC began a secret investigation of Huawei’s account. In response, Reuters published a report analysis: HSBC “cooperated” with the U.S. to submit the investigation results to Huawei, “coincidentally” it was launched before the expiration of the agreement between HSBC and the U.S. Department of Justice. The Reuters report makes it clear that HSBC actively cooperated with the U.S. investigation of Huawei in late 2016 and 2017 in exchange for a pardon from the U.S. Department of Justice, given the bank’s involvement in other cases involving violations of U.S. sanctions.
According to public information, from February to July 2017, HSBC took the initiative to make at least 4 statements to the U.S. Department of Justice and actively cooperated with the U.S. investigation of Huawei. Thousands of people were interviewed by the U.S. Department of Justice. In December 2017, although the compliance supervisor of the U.S. Department of Justice believed that “HSBC’s compliance is still very flawed”, the U.S. prosecutors “unexpectedly” dropped all criminal charges against HSBC and ended the case against HSBC Supervision. Since the meticulously planned meeting with Meng Wanzhou in 2013, the investigation of Huawei was secretly initiated in 2016, until the termination of cooperation with Huawei in August 2017… Through a series of operations, HSBC has retained Huawei as a major customer and provided evidence to the U.S. in exchange for the withdrawal of the charges against it.
From the perspective of general business logic, a profit-seeking global financial institution should not subjectively “frame” its major clients. But the reality for HSBC was that it had been caught for violations by the U.S. government and had to co-operate with the U.S. Department of Justice in its investigation of Huawei in return for letting HSBC off the hook. On the U.S. side, HSBC needs to act as a “witness”. As we all know, the U.S. government’s global investigation and suppression of Huawei is no longer a commercial interest or violation of sanctions, but a special “battle” in which the U.S. adjusts its strategy towards China and carries out long-term containment against China. In other words, cracking down Huawei is part of a U.S. geopolitical campaign against China that HSBC is deeply involved in.
Faced with Chinese media accusing it of “framing” Huawei, HSBC stated on the its Chinese WeChat messaging service account, stated that it did not participate in the decision of the U.S. Department of Justice to investigate Huawei. “The context of the development of the Huawei incident clearly shows that the U.S. investigation of Huawei was not triggered by HSBC,” the bank said in its WeChat post. “HSBC has no malice against Huawei, nor has it ‘framed’ Huawei,” it said. “In response to information requests from the U.S. Department of Justice, HSBC only provided factual information. HSBC has not ‘fabricated’ evidence or ‘concealed’ facts, nor will it distort facts or harm any customers for our own benefit.”
However, HSBC’s statement sidesteps the point. It is a well-known fact that the U.S. Department of Justice has launched an investigation into Huawei, which HSBC does not need to explain. HSBC’s role, motive, and interest exchange in this matter are the key points. HSBC’s active cooperation with the U.S. Department of Justice undoubtedly played a key supporting role in the U.S. crackdown on Huawei and the arrest of Meng Wanzhou with the help of Canada.
At this point, the Shenzhen Banking and Insurance Regulatory Bureau issued approval on July 24, allowing HSBC China to shut down its branch in Shenzhen’s Longgang district (which coincidentally also happens to be home to Huawei). The big question is what will happen to HSBC’s future. How will it be affected in the Chinese market? To this, ANBOUND’s researchers made the following judgments:
First, it is difficult for HSBC to leave the Chinese market. Unlike other Western financial institutions, HSBC is domiciled in London, but its ‘historical and cultural’ domicile is in Hong Kong, China, where its market is deeply rooted (both in Hong Kong and the mainland China). According to its annual report, HSBC had adjusted revenues of USD 55.4 billion and adjusted profit before tax of USD 22.2 billion in 2019. Its adjusted revenue in the Asian market was USD 30.5 billion (55% of global revenues); the adjusted profit before tax was USD 18.6 billion (83.8% of total profit). Hong Kong’s adjusted profit before tax was USD 12.1 billion (54.5% of the total profit). The first-quarter report of HSBC shows that in the first quarter of the group’s USD 10.66 billion revenue, Hong Kong contributed USD 4.61 billion, accounting for 40%; its profit before tax in Hong Kong market accounted for USD 2.85 billion or 88.2% of its USD 3.23 billion global profit before tax.
Second, HSBC will find it difficult to be free from being caught in the competition between China and the United States. Hong Kong has become the focal point of the geopolitical game between the United States and China. HSBC, with its Hong Kong roots, is struggling to escape this situation. At the same time, it is difficult for HSBC to make a decision to withdraw from the Chinese market because of its interests in the market. In the classification of the withdrawal of foreign investment from China by ANBOUND, HSBC belongs to the category of “collapse once it withdraws”. HSBC is hard to shake off the geopolitical game between China and the U.S., especially after the implementation of the Hong Kong National Security Law and the U.S.’s Hong Kong Autonomy Act. The two countries will engage in a geopolitical game on the legal level. Though HSBC is a giant in the financial industry, its future is full of uncertainties under the geopolitical conflicts. If it cannot withdraw from the Chinese market, HSBC will need to seek more balance between China and the United States in the future, instead of only considering the unilateral hegemony and interests of the United States.
Third, HSBC’s position in China and Hong Kong will change subtly. The latest evidence released by a Canadian court revealed that HSBC was involved in the U.S. crackdown on Huawei. This has quickly provoked anger aiming towards HSBC within China, and offensive remarks against HSBC will definitely increase in the future. In addition, HSBC’s assistance to the U.S. as a “witness” will affect its commercial credibility and market image. In the future, some corporate and individual customers with important ties to China may avoid HSBC when choosing a bank, so as to avoid becoming HSBC’s sacrificial offering to the United States. This will have a negative impact on HSBC’s mainland and Hong Kong markets.
Fourth, the Chinese government may not crackdown on HSBC. Although HSBC stabbed Huawei in the back, ANBOUND researchers believe the Chinese government won’t go out of its way to clamp down on the bank in the grand scheme of things. The reasons are: (1) HSBC is very important to Hong Kong. Hong Kong needs to maintain its prosperity and its status as an international financial center. HSBC, which was “born” in Hong Kong and has a significant relationship with Hong Kong residents and businesses, is an important symbol as well as an important commercial presence. (2) China’s opening to the outside world requires foreign capital, not only the introduction of foreign capital, but also the continuous operation of foreign capital. HSBC is the representative of foreign financial institutions, which has the largest network among foreign banks in China. (3) China’s “sanctions” on foreign banks need to be based on laws, and the current legislation is difficult to retrospect. China’s International Criminal Justice Assistance Law was introduced in 2018, and the Hong Kong National Security Law was released on June 30, 2020. These two laws may not retroactively track HSBC’s past behavior, but will form legal constraints on HSBC’s future behavior.
Final analysis conclusion:
HSBC’s involvement in the U.S. crackdown on Huawei will have mixed repercussions in China. In the grand scheme of things, the Chinese government may not go out of its way to crack down on HSBC, and may not retroactively track its past behavior. However, the future development of HSBC in the Chinese market may be affected to some extent, HSBC’s future behavior will be bound by Chinese laws. To put it bluntly, there will not be a next time for HSBC to “frame” Chinese companies.
About the Author
Mr. He Jun takes the roles as Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy.
It’s the brand, stupid: Why Donald Trump has a critical advantage in the upcoming Presidential election.
By Glyn Atwal and Maya Kaiser
Campaign activists are gearing up for one of the most aggressive and unpredictable election campaigns in modern US history. President Trump has in fact never stopped campaigning since his inauguration. His Twitter account (@realDonaldTrump) has become a personal campaign megaphone whose opinions are amplified to a global audience. Social media has essentially provided Donald Trump an effective platform not only to determine but dominate the political agenda.
Poll numbers continue to oscillate, which typifies erratic US voter sentiment. In the “coastal elite” regions, Donald Trump remains consistently unpopular. However, like the election that brought him to power four years ago, the 2020 election will not be won in the states of California or New York but in the so-called battleground or swing states. And there will be no room for error. In 2016, Donald Trump won the state of Wisconsin by a margin of just over 22,000 votes.
Hard issues in previous elections such as the state of the economy or how a President responded to a national or international crisis made it easier to predict voter intention. This election is different. These factors will of course matter, but it will be softer issues that rarely appear on the political spectrum that will make the subtle but significant difference. A salient soft issue which could potentially keep Donald Trump in the White House is Brand Trump.
Brand Trump
The key asset that helped Donald Trump win the Republican nomination was the aura of the Trump personality.[i] Trump came to the White House with a lifetime of experience in personal branding: his property developments featured the Trump name in ostentatious golden lettering; his various business ventures, from steaks to vodka, were all branded with the family name. Trump cultivated his personal brand with cameos in popular Hollywood movies — Home Alone 2 (1992), Zoolander (2001), Wall Street (2010). His autobiographical business book, The Art of the Deal, followed by the long-running Apprentice reality TV series, cemented the Trump brand: a brash, bold, successful businessman in charge of his own empire, the “You’re Fired” guy with household name recognition throughout the US.
Trump leveraged the power of his personal brand from the earliest days of his campaign to establish his credibility as a businessman to be reckoned with, a no-nonsense guy who gets things done. The power of his brand has helped to keep his reputation strong among his supporters, even as scandal after scandal has engulfed his administration.
In the past four years, Trump has consolidated his cult-like following within the Republican Party. The rise of Brand Trump provides an additional layer of protection against political attacks. With a few exceptions, notably Mitt Romney, the glue that holds the Party together is based on Donald Trump’s force of influence.
Trump has in fact followed the effective brand building techniques of the likes of McDonald’s, Starbucks and Apple. Brand Trump has established an emotional connection which sells not a tangible product or service but a brand ideology. Donald Trump’s playbook is centered on delivering meaning encapsulated in simplicity. We have outlined the effectiveness of Brand Trump according to how the brand is projected and perceived. The outcome is a level of trust in the promise of the brand which voters will choose either to reward or punish.
Brand Concept
Brand Trump is clearly recognizable through key branding codes: its Trumpian red (confidence), slogan (MAGA), brand story (maverick self-made billionaire disrupting the political establishment), and family associations (Ivanka Trump). The brand’s power derives in large part from its All-American associations: Trump has turned himself into a living symbol of core American values such as American patriotism, embracing the US flag and even the Confederate flag to punctuate speeches. Ideas surrounding his wealth, originally inherited from his father, are particularly telling: transforming him into a self-made man is a better embodiment of the “American dream”, the pursuit of wealth and happiness written into the US constitution.
Brand Language
It is also the brand’s assertive language, style and tone which exerts a distinctive sense of control and authority (tweets which end with repeated exclamation mark, coupled with capitalized words and emphatic repetition of key phrases). Trump’s repetitive way of speaking and writing, which writer Phillip Roth once derided as a “77-word vocabulary”, is actually an asset when it comes to Brand Trump, communicating clear values and sentiments: “tremendous,” “great”, “beautiful”, “nasty”, “loser,” and “sad!” are all instantly recognizable as Trump-speak. It is this consistency which has turned Donald Trump into one of the most iconic brands in modern society.
Brand Positioning
Brand Trump occupies a distinct place in the minds of the electorate. America First is not a new phenomenon, but it has been subsumed into Brand Trump. Highly symbolic political initiatives, from building the wall on the Mexican border to imposing tariffs on Chinese goods, have helped to underline a distinctive brand positioning. Brand Trump is binary. Brand Trump is not about compromise. The electorate is either with Brand Trump or against it. This is reinforced in how Donald Trump portrays the Democrats as left-wing extremists, the “radical left”. Trump’s messages are unequivocally on-brand, which helps to break through the clutter and create synergy.
Brand Segmentation
Brand Trump does not attempt to “be all things to all people”. It does however tailor micro-messages to important target segments, and this with great precision. He has repeatedly addressed the “suburbs”, a critical share of the electorate which Trump narrowly won in 2016. For example, Patricia and Mark McCloskey, who came to prominence as they were filmed waving a pistol and an AR-15-style rifle at Black Lives Matter protesters in the vicinity of their St. Louis home, were invited to speak at the Republican National Convention. The message was unequivocal: the suburban dream is under threat.
Segmentation is based according to special interests such as winning over evangelicals (e.g. pro-life stance) but also to state interests in battleground areas (e.g. support for oil and natural gas production in Pennsylvania). It is the ability to demonstrate relevance at a personal level which provides a greater incentive for voters to become advocates of Brand Trump. Trump has evinced a remarkable capacity to use broad forums — social media, rallies, television ads and appearances — to deliver messages that speak directly to targeted audiences, and may be missed or ignored by his other segments.
Brand Nostalgia
In stark contrast to Obama’s campaign slogan, “Yes We Can”, Brand Trump is not about exhibiting “hope”, “optimism” and “empowerment” in the quest of a better future, but looks at the past for inspiration. Trump’s vision, “Make America Great Again,” leverages nostalgia to evoke impressions of a bygone era that remains ill-defined. This is a common marketing technique used by brands from Pepsi to Gucci. Even the Brexit campaign evoked nostalgia with success. When Donald Trump commented on the Oscars at a rally, ““Can we get like ‘Gone with the Wind’ back please? ‘Sunset Boulevard,’ so many great movies”, he was essentially reinforcing the imaginary of conservative values in a better America.
This nostalgia is a powerful branding tool, positioned as it is against messages of hope for the future. It ties in with Trump’s promise to “drain the swamp”: it is as if he were saying that he is not like those other politicians who promise a future they cannot deliver. There is also an element of cross-branding: Trump references “great American companies” to bolster his own brand and tie it to the image of America as a powerful, economically dominant nation.
Brand Polarization
Many powerful brands exhibit a high degree of polarization.[ii] Brand Trump is no exception: his poll numbers show high valence, a large proportion of voters who either love or hate him.
Polarization can be a risky strategy in politics, where a contingent of enthusiastic voters may not make up for a larger proportion of the electorate put off by a candidate who refuses to seek compromise. Yet Brand Trump turned polarization to its advantage once before in 2016, galvanizing its brand base in swing states to win a victory in the electoral college.
What makes Brand Trump stand out is the way it capitalizes on polarizing political issues such as Donald Trump’s supposed opposition to the Black Lives Matter movement. The impact is to antagonize brand detractors and amplify a polarizing attribute. This may be seen as a high-risk strategy for any brand but in the case of Brand Trump, extreme polarization further differentiates the brand and helps to invigorate brand loyalists.
A key element of Trump’s capacity to benefit from polarization is the way this plays into the mechanisms of social media: Twitter and Facebook seek to “engage” social media users by showing them content that elicits stronger reactions (comments, debate, shares). Content which is loved moves up the feed. So does content which is hated. Brand Trump not only produces enormous volumes of content, sometimes dozens of tweets in a day — enough to rival the most enthusiastic community managers. It also has an uncanny knack for getting that content in front of viewers.
Brand Authenticity
In the 2020 election, Donald Trump will need to navigate Brand Trump through uncharted territory: an on-going pandemic, active protest movements, and double-digit unemployment. Strategists will be quick to dismiss Trump against a resurgent Joe Biden. Yet the power of Brand Trump should not be underestimated. The chances of a Donald Trump re-election will depend less on policy than to the extent the electorate continues to buy into Brand Trump – and whether Biden, on the other hand, can elicit similar enthusiasm. Switching brands is never easy and demands conviction. The perceived authenticity of Brand Trump will provide an additional barrier to competition.
Should Donald Trump fail to be reelected on November 3rd 2020, no-one should write off Brand Trump. Donald Jr. and Ivanka Trump are both active surrogates for their father, touring the US giving speeches in his support. The Trump family dynasty means a relaunch and revival of Brand Trump could potentially return with new vengeance.
About the Authors
Endnotes
[i] Refer to Atwal, G. and Bryson, D. (2016) The Brand Trump, The World Financial Review, May-June: 18-19.
[ii] Refer to Luo, X. Wiles, M. and Raithel, S. (2013), Make the Most of a Polarizing Brand, Harvard Business Review, 91(11):29-31.