British bank and financial services giant HSBC, a long-time presence in East Asia, has become the first foreign lender to install a Chinese Communist Party committee in its investment banking subsidiary in China.

HSBC’s China investment bank, HSBC Qianhai Securities, established a CCP committee after the lender increased its stake in the joint venture from 51% to 90% in April.

Some experts are concerned that the move might expose HSBC to increased influence from Beijing. But other analysts told VOA Mandarin that the development isn’t a big deal, saying there is little evidence that these party committees exert substantial influence in privately owned companies.

“The establishment of a party committee at HSBC may be super important, or it may be entirely irrelevant and not worth the attention it’s getting,” Scott Kennedy, a senior adviser at the Center for Strategic and International Studies in Washington, told VOA Mandarin in an interview.

“The vast majority, as far as I can tell, really don’t do anything. They haven’t affected the normal procedures for corporate governance,” he said. “But in Xi Jinping’s China, nothing is impossible.”

Founded during a growth phase

Founded as the Hongkong and Shanghai Banking Corporation, Ltd., HSBC was established in Hong Kong in March 1865, and opened its doors in Shanghai one month later. It launched at a time of burgeoning trade among China, India and Europe.

China’s legal requirement that all companies with more than three party members must establish a party committee dates back to the 1993 PRC Company Law, according to Gabriel Wildau, a managing director at the consulting company Teneo. But before Xi became the CCP’s general secretary in 2012, this requirement was lightly enforced, especially for private and foreign companies.

“Under Xi Jinping, enforcement has intensified, and the share of private companies with party cells has increased,” Wildau wrote in an email to VOA Mandarin, referring to China’s president since 2013. Xi has expanded the party’s influence over the economy in many ways, apparently based on his sense that both state-owned and private companies were often operating business models that undermined the party’s political, economic and social objectives, Wildau said.

Seven international banks control investment banking operations in mainland China, including HSBC, Goldman Sachs, JPMorgan, Credit Suisse, Morgan Stanley, UBS and Deutsche Bank, according to the Financial Times. So far, only HSBC has set up a CCP committee, according to the report.

Dennis Kwok, a partner at Elliott, Kwok, Levine & Jaroslaw, a New York City law firm, thinks establishing a party committee risk exposing HSBC to increased party reach.

“What China is doing is that it is opening its financial market to foreign firms, and you see a lot of investment banks and other financial institutions have shown great interest in going into the China market. But at the same time, China is also using these party cells to increase their control and influence of these financial institutions,” Kwok said in an interview with VOA Mandarin.

After a lengthy period of political and economic isolation under Mao Zedong, Deng Xiaoping began opening China to foreign companies with the launch of his reform and opening policy in 1978.

Following the establishment of this HSBC committee, foreign companies should reevaluate the risks associated with doing business in China, Kwok said.

“This is the time to reassess your risk exposure. This is the time to do a stress test on your operations on the ground to see if you are managing the legal and political risk in the right way,” said Kwok. “And if things don’t go your way, can your international operation handle any political or legal crises that emerge from China?”

The development also drew the attention of some high-level U.S. politicians.

Florida Republican Senator Marco Rubio, long known for his anti-Beijing stance, criticized the move. “Communist party committees are not just for show. They exist to influence, monitor, and ultimately control the company,” he said on July 21. “Investors need to be aware.”

But multiple China analysts with whom VOA Mandarin spoke were less concerned.

One reason is because these committees are relatively common in China, and they don’t appear to do much in practice, according to Teneo’s Wildau, a former Shanghai bureau chief for the Financial Times.

“My sense from Chinese corporate executives and investors is that party organizations rarely intervene in substantive decision making and are often quite irrelevant in practice. Often they do little more than organize occasional ideological study sessions,” Wildau wrote.

Still, he recognizes that foreign business leaders and investors are concerned that party cells may grow more assertive and influential. “But I don’t think we’re at that point yet,” Wildau said.

The Chinese embassy in Washington did not respond to VOA’s request for comment.

In a statement, HSBC told the Financial Times that “[e]mployees of private firms in China are able to form a Party branch. These branches are common and can be set up by as few as three employees. It is important to note that management has no role in establishing such groups, they do not influence the direction of the business, and have no formal role in the day-to-day activities of the business.”

What distinguishes this particular party committee from others is the fact that HSBC is such a significant stakeholder in HSBC Qianhai Securities, according to Wildau.

Up until now, party committees have usually been in companies that are more equally Sino-foreign joint ventures, Wildau said. The fact that HSBC now owns a 90% stake in HSBC Qianhai Securities and still established a party committee makes it look “like a milestone,” he said.

Hoping for ‘business as usual’

“Still, HSBC and foreign banks probably hope that establishing the committee will be a box-ticking exercise that doesn’t disrupt business as usual,” Wildau wrote. “That a party committee has been established tells us very little about what influence it will have, if any.”

Victor Shih, a professor at the University of California, San Diego, agrees that some responses to the development have been “a bit of an over-reaction,” but says it’s still something people should be aware of.

“Most of the time it is for show, but in an emergency situation, when the party would like to mobilize all resources, these committees potentially serve as the links between the party and resources in society,” Shih wrote in an email to VOA Mandarin.

Political developments in Hong Kong, like the controversial 2020 National Security Law, also inform this move, Shih said, since HSBC makes almost all of its profit in that city.

“The bank has had to walk a tight line in the run-up to the Hong Kong national security law and in the aftermath of its passage,” Shih wrote. “HSBC’s eagerness to announce the formation of a party committee might be related to its desire to score points with the Chinese government.”###

• VOA