On a rainy day last November, China Baowu Steel Group, the world’s largest steel maker, gathered its finance department for a training session on the outskirts of Shanghai. One highlight was a presentation featuring a sensitive slide: a “black list” of 60 lenders that the state-owned steel giant had declared off-limits.
Virtually all the lenders branded by China Baowu as too “high risk” to engage with were troubled Chinese banks, large and small. But at the very end of the list, a copy of which was reviewed by Reuters, there was a single foreign lender, one of the largest banks in the world: HSBC Holdings PLC.
The executive making the presentation did not mince words. China Baowu can’t use these banks to obtain the short-term lending instruments known as commercial paper, the executive said, according to a person who attended the meeting. And in case anyone missed the British bank’s presence on the list, the presenter said: “If you look at the bottom, of course you can see HSBC.”
The decision by Baowu to blackball HSBC is part of a clampdown on the global London-based bank by many of China’s gargantuan state-owned enterprises – a campaign described to Reuters in interviews with HSBC bankers, and employees at state companies who have first-hand knowledge of their operations. Controlled by China’s ruling Communist Party, these companies manage the nation’s largest industrial projects and are responsible for $9.8 trillion of revenue annually.
The reason for the pullback by state firms isn’t HSBC’s financial soundness, which isn’t in question, but rather Chinese politics. People inside the state enterprises and HSBC say Beijing has grown disenchanted with the bank over sensitive domestic and international legal and political issues, from China’s crackdown in Hong Kong to the U.S. indictment of an executive at Chinese national tech champion Huawei Technologies.
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