China’s largest state-owned banks operating in Hong Kong are taking tentative steps to comply with US sanctions imposed on city officials, and are trying to protect their access to major dollar financing and foreign networks.
Large lenders with operations in the US included Bank of China Ltd., China Construction Bank Corp., en China Merchants Bank Co. have been cautious in opening new accounts for the 11 sanctioned officials, including Hong Kong Chief Executive Carrie Lam, according to people familiar with the matter. At least one bank has stopped such activity.
With some lenders, transactions via the U.S. are prohibited, although compliance now requires checking and unsubscribing to others that would have been processed immediately, the people said.
Photographer: Paul Yeung / Bloomberg
Foreign lenders like Citigroup Inc. has taken steps to close accounts or increase controlling Hong Kong customers.
Such measures underscore the ability of the US to use greenback dominance in international transactions as a pressure point in its intensified standoff with China. China’s state providers need to maintain their access to global financial markets, especially at a time when Beijing is pushing for it to support the economy from the fallout from the coronavirus.
China’s four largest banks had $ 1.1 trillion in dollar financing at the end of 2019, according to Bloomberg Intelligence.
Read more: China seeks to calm US tensions
Representatives of Bank of China and Construction Bank did not respond to requests for comment. China Merchants Bank declined to comment. The Hong Kong government did not immediately respond to a request for comment.
U.S. President Donald Trump last week sanctioned Chinese and Hong Kong officials including Lam, Xia Baolong, director of the Hong Kong State Council’s Hong Kong and Macau bureau, and Chris Tang, city police commissioner for her role in enforcing a security law in Hong Kong. The officials will have ownership and assets frozen in the US.
Photographer: Prashanth Vishwanathan / Bloomberg
The sanctions prohibit banks from doing business with criminals as risks for fines that would threaten their access to the U.S. financial system.
China recovered Monday by sanctioning 11 individuals including U.S. senators Marco Rubio and Ted Cruz, but stopped short of putting all senior U.S. officials on its list. His top diplomat, Yang Jiechi, said Friday that the door to talks with the US remains open.
It did not clarify the potential implications for financial institutions that keep companies engaged with the said.
“China’s position on US sanctions is clear and consistent,” Foreign Ministry spokesman Zhao Lijian told reporters in Beijing on Wednesday in response to a question about the banks’ move to comply. “American sanctions are irrational and baseless. They are unanimously opposed and condemned by all Chinese, including our Hong Kong residents. ”
Bank of China had the largest exposure to U.S. dollars among its local peers, followed by Industrial & Commercial Bank of China Ltd., the largest bank in the world. Lenders are expanding their worldwide presence in recent decades by adding branches, making acquisitions and lending to finance everything from local power plants to tolls.
Meanwhile, local banks in Hong Kong are also worried, as they all have some U.S. transactions such as foreign exchange and settlement, one person said.
De Hong Kong Monetary Authority, the city’s de facto central bank, sought to reduce concerns on Saturday, saying lenders in the city have no obligation to comply with U.S. sanctions under local law, and urge banks to treat customers fairly in assessing whether they continue to provide services.
Despite the announcement, “Banks that have U.S. operations or conduct dollar operations may still have to consider their U.S. compliance obligations,” JPMorgan Chase & Co., Hong Kong-based analysts led by Katherine Lei wrote in a note. “Risks for listed Chinese banks are relatively subdued, in our opinion, because the four Chinese officials on the list can get banking services from local unlisted Chinese banks that do not have dollar or US companies.”
– With the help of Alfred Liu, Jun Luo, Zheng Li, Kari Soo Lindberg, and Colum Murphy
(Updates with comments from China in 12th paragraph.)
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