HSBC, StanChart Press Sunak to Ease Clampdown on China Business

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(Bloomberg) -- Rishi Sunak’s government faces pressure from banks including HSBC Holdings Plc and Standard Chartered Plc, as well as other major companies in the UK, to tone down proposed restrictions on doing business with China.

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Their target is part of new British national security legislation, which aims to boost transparency of any dealings with nations posing a “potential risk to UK safety.” Executives are lobbying ministers not to include China in the strictest risk category, arguing that would impede business and trigger negative publicity if they’re forced to declare it, according to people familiar with the matter.

Even though the government has not made a final decision on how to designate China, there has already been a significant backlash among financial and other firms, the people said, asking for anonymity to discuss private lobbying efforts.

Both HSBC and Standard Chartered declined to comment. Sunak’s office also declined to comment, while a government official told Bloomberg that those lobbying for them are unlikely to get everything they’re asking for.

The question of how close to let businesses get to China is part of a major political tussle in the UK. Relations between London and Beijing have been strained over issues ranging from China’s approach to governing Hong Kong to mutual allegations of spying. UK officials privately blamed China this week for hacking the personal data of British military personnel, which Beijing denied.

Sunak’s governing Conservative Party is split between anti-China hawks who want robust action, and those who want a more careful approach that protects the bulk of trade with the world’s second-largest economy. The National Security Act passed last year is the latest focus of that debate.

Following a major national security speech on Thursday, Foreign Secretary David Cameron told reporters the act is a “very good piece of legislation” but that the government is still in talks about “how exactly to introduce it.”

“I don’t think anyone should be in any doubt that we’ll take a robust approach against those countries that provide the greatest risks,” he said.

The act includes a measure called the Foreign Influence Registration Scheme, listing nations according to risk and requiring firms doing business with them to declare it. Given the strained diplomatic ties, ministers are considering putting China in the “enhanced tier,” people familiar with the matter said, meaning firms in Britain could be required to publicly declare a broader range of activities with any entity considered to be controlled by the Chinese state.

Government officials are working with banks and businesses to try to ease their concerns, with options being worked on to ensure the requirements are proportionate, the people said.

According to one business person involved in the discussions, firms are trying to ensure there is a balance between economic and national security interests, such as ensuring that any non-sensitive commercial activity isn’t caught in increased compliance measures.

China is one of the UK’s largest trading partners. London-based HSBC has been expanding there, including buying retail wealth management portfolio in mainland China, as part of its pivot to Asia in recent years. Standard Chartered is also among the biggest foreign banks operating in China and in March, the London-headquartered lender opened its new wholly-owned Chinese securities firm that will allow it to grow its investment banking operations in the country.

Prudential Plc, the insurance group that has most of its operations in Asia, is also involved in the lobbying. A spokesman declined to comment.

People familiar with the matter said Chinese companies in the UK will also likely be affected. There are about 32,000 of them, according to a survey this year by the China Chamber of Commerce in the UK, with the biggest 970 generating £115 billion in revenue and 60,000 jobs.

“There will be big arguments about whether you have to register for all these companies like TikTok and Huawei,” said Charles Parton, a former British diplomat and adviser to the House of Commons Foreign Affairs Committee. “To which my answer would be: ‘Of course you should.’”

But a major crackdown on dealings with China would likely encourage Beijing to reciprocate, another business person said, beyond its existing restrictions on data coming out of the country and its wider push for government-owned entities to move to domestic systems away from foreign ones.

Another business person said companies in the UK would not want the negative publicity associated with having to declare the business they do with entities deemed to be a potential risk.

“If the government does designate China a threat then there might well be some symbolic, high-profile action against British companies that they’ll use for propaganda,” Parton said. “But it is worth remembering that all countries which have in the last 12 years been in the diplomatic doghouse with China have seen their exports rise during that time.”

--With assistance from Sabah Meddings, Ambereen Choudhury and Ellen Milligan.

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