HSBC ACCELERATES ITS TURN TOWARD ASIA. HSBC, the world’s seventh-largest bank by assets, according to S&P Global Market Intelligence, is speeding its reorientation toward Asia, transferring top executives from London to Hong Kong, shutting down its retail U.S. operations, and planning to expand further in Singapore.
The bank is relocating its chiefs of global markets, personal banking, and commercial banking to Hong Kong to cluster a critical mass of decision-makers able to seize the expanding opportunities that Asia presents, according to an unnamed bank official quoted by the Financial Times.
HSBC will close all of its 150 U.S. retail banks after concluding it is unable to make them adequately profitable, insiders told the FT.
The bank also has decided to sell its 200-bank network in France, the FT reported.
HSBC has been in a delicate political position after the bank, founded in Hong Kong, endorsed Beijing’s strict new law for the city, limiting free expression. It also drew the ire of the Chinese government for providing information to U.S. authorities that led to the arrest of a top executive of the Huawei tech company.
TRENDPOST: HSBC’s relocation to Hong Kong is part business, part politics. By transferring key executives and operations there, the bank is signaling to Beijing where its allegiance will lie in the future. As we have detailed in this Trends Journal and others, the business of business is business. Despite China’s clampdown on democracy, banks, hedge funds, and private equity groups are heading to Hong Kong… the banking capital of Asia.
CHINA LETS YUAN’S VALUE RISE, THREATENING EXPORTS. China’s government has not moved to slow the growth in value of its currency, even though the stronger yuan makes Chinese goods more expensive abroad and could slow an economic expansion driven by foreign demand for output from China’s factories.
The yuan has gained 9 percent on the dollar since June, rising to 6.46 on the dollar, its highest mark since mid-2018, as China’s factories supplied a locked-down world with manufactured goods, drawing a massive inflow of foreign funds from investors seeking high yields.
At the same time, the dollar was weakened by the shuttered American economy, the U.S. Federal Reserve’s rock-bottom interest rates, and the global flood of dollars loosed on the world by the Fed, and U.S. government stimulus programs.
Still, the yuan’s 8.2-percent appreciation during the second half of 2020 failed to tamp down global demand for Chinese products; China booked a $535-billion trade surplus last year, its largest since 2015.
The yuan’s appreciation adds a burden to manufacturers already dealing with the rising price of commodities and higher shipping costs. Companies will begin to pass those higher costs on to consumers, some observers say.
From 2014 through 2017, China spent $1 trillion of its foreign cash reserves to prop up the yuan’s value. China’s newfound nonchalance about the yuan’s changing value could grow from a strategic decision that a pricier yuan would make imports cheaper, which could spark growth in the country’s still-feeble consumer economy.
Also, officials already see limits to exports’ continued growth.
China’s foreign currency reserves grew by $108 billion in 2020 to a total of $3.2 trillion, which analysts interpreted as further evidence of Beijing’s casual attitude toward the yuan’s rise in value.
The country’s GDP will expand by 8 percent this year, many analysts have predicted.
TRENDPOST: We have been reporting on China’s dual circulation policy whereby the Chinese government has set a long-term strategy to rebalance the economy.
Beyond its role as a major world exporter, Beijing is placing more emphasis on consumer spending. Thus, the higher the value of the yen, the cheaper it is to buy products from other nations. Also, it is moving toward creating a more self-sustaining economy by encouraging the population to buy Chinese as trends move toward a consumer-driven economy.
