21 Minutes, by Read this article (Repeats story first published on Monday.) Reuters, HONG KONG/SHANGHAI, June 28 – Last November, on a wet day on the outskirts of Shanghai, China Baowu Steel Group, the world’s largest steel producer, convened its finance department for a training session. A presentation with a sensitive graphic, a “black list” of 60 lenders that the state-owned steel behemoth had designated off-limits, was one of the highlights. Almost all of the lenders labeled as “high risk” by China Baowu were problematic Chinese banks, large and small. But at the absolute bottom of the list, which Reuters reviewed, there was a single foreign lender, HSBC Holdings PLC, which is one of the world’s largest banks. The executive who gave the presentation was blunt. According to an individual who attended the discussion, China Baowu cannot get short-term loan instruments known as commercial paper from these banks. “If you look at the bottom, of course you can see HSBC,” the presenter remarked, in case anyone missed the British bank’s appearance on the list. The decision by Baowu to blacklist HSBC is part of a campaign by many of China’s massive state-owned enterprises to crack down on the global London-based bank – a campaign described to Reuters in interviews with HSBC bankers and employees at state companies with first-hand knowledge of their operations. These enterprises, which are controlled by China’s ruling Communist Party, are in charge of the country’s greatest industrial projects and generate $9.8 trillion in yearly income. The reason for state enterprises’ withdrawal is not HSBC’s financial soundness, which is unquestionable, but Chinese politics. People familiar with the state-owned businesses and HSBC say Beijing has grown dissatisfied with the bank on sensitive internal and international legal and political matters ranging from China’s crackdown in Hong Kong to the US indictment of a Huawei executive. As a result of HSBC’s falling out of favor with Beijing, nine state-owned firms have stopped or reduced their operations with the bank, according to Reuters. China Energy Engineering Group Co., Ltd., a Fortune Global 500 construction company based in Beijing, is among many who have cut ties with HSBC. The bank formerly provided guarantees for foreign projects, among other things. According to two executives familiar with the situation, the construction giant’s senior leadership circulated an internal e-mail telling employees to shun HSBC totally in early 2020. One of the executives indicated that the Huawei incident was the catalyst for the change. The Hongkong and Shanghai Banking Corporation Limited, or HSBC, has been a force in banking in Greater China for more than 150 years. The bank’s problems began with its involvement in a high-profile US litigation involving Huawei’s top financial officer. Beijing was furious that the bank had given the US Department of Justice information about Huawei in 2017, bolstering the ongoing criminal case. The participation of HSBC was first revealed in a Reuters investigation in 2019. When pro-democracy protests erupted in Hong Kong in the second half of 2019, and China enacted a severe national security law in the city in 2020, pressure on HSBC escalated. During the protests, Chinese social media users slammed the bank, stating that one of its workers had condemned Hong Kong police tactics in an online post, an issue that was carried by state media. Beijing has been harsh in its criticism. The People’s Daily, the ruling Communist Party’s major outlet, warned last June that HSBC risked losing much of its business and would pay a “severe price” for having gone “to the dark side,” citing the Huawei case and what it said was the bank’s lack of support for the national security law. Last August, Chinese regulators in Shanghai penalized the bank and three senior HSBC bankers on the mainland, and in an unusual move, made their names public. According to two mainland HSBC employees with intimate knowledge of the subject, Chinese regulators stopped attending one-on-one meetings with senior HSBC bankers in the middle of last year. IMPACT ON BUSINESS Much of the financial pressure on the world’s seventh-largest lender by assets has been imposed via China’s state-controlled firms, as painful as the public blame and shaming has been. Through interviews with more than 20 personnel at state-owned companies, more than 50 current and former bank employees, and many staff members at competing lenders, Reuters put together the drive to humble HSBC, whose financial future rests on China. All of the participants talked on the condition of anonymity. HSBC said it doesn’t comment on clients in response to a question from Reuters. “That stated,” the bank added in a statement, “we do not recognize Reuters’ definition of our client interactions.” “As China’s economy recovers from the pandemic, we’ve been able to acquire new business and, in many cases, broaden the scope of our mandates thanks to our excellent client connections.” The bank also stated that it interacts with Chinese officials “on a regular basis at all levels.” China Baowu Steel did not respond to Reuters’ enquiries, including if the HSBC ban was still in effect. Other state-owned enterprises mentioned in this story did not respond to Reuters’ questions. The State Council of China and the State-owned Assets Supervision and Administration Commission, which oversees huge state-owned businesses, did not respond. In interviews with Reuters, HSBC bankers said the bank’s efforts to expand its business in China were hampered by the broader campaign against it in China, which included locking it out of bond issuances, restricting its access to retail customers, and barring it from pitches for syndicated loans (lending done by groups of banks). According to Refinitiv data, syndicated loans and bond underwriting, two significant publicly available indices of the bank’s profitability, both exhibited reductions in 2020. HSBC’s China market share for loans in which it was a lead lender fell from sixth to ninth in syndicated loans. According to Refinitiv statistics, the value of HSBC’s share of syndicated loans to all Chinese corporations, including state-controlled firms, fell by nearly 55% in 2020, to $3.2 billion from $7.2 billion in 2019. The market as a whole dropped only 4%. According to the data, overall profits from its China syndicated loans increased in 2020 for Standard Chartered PLC, a British archrival of HSBC with a similarly long presence in the region. While HSBC handled 174 bond underwriting deals in 2019, that number fell to 155 in 2020, despite the industry’s overall number of bond issuances increasing by 29%. Between 2019 and 2020, the value of HSBC-managed bonds increased from $13.8 billion to $15.4 billion. The bank’s 12 percent increase was less than the industry’s 26 percent increase in overall volume. The HSBC experience illustrates a key issue for global companies doing business in China: The market is critical to their economic aspirations, but Western companies doing business here are increasingly at risk of becoming embroiled in rising Sino-Western tensions. HSBC doesn’t have much of an option but to stick it out. In 2020, the bank’s mainland and Hong Kong businesses brought in 39 percent of its annual $50.4 billion in revenue, while its second largest market, the United Kingdom, brought in 28 percent. In addition, the mainland HSBC has the greatest worldwide development potential in China: Last year, the mainland, which is home to the world’s second-largest economy, provided only around 6% of the bank’s revenue. Beijing has taken steps to bring the bank to heel, but it does not appear to be intent on entirely undermining its operations. HSBC plays a major role in providing lending, foreign exchange alternatives, and bond and stock underwriting services to Chinese businesses abroad as China’s top foreign lender with extensive links with several of the country’s largest firms. “HSBC works with over 1,200 Chinese holding companies and their subsidiaries on the mainland as well as in over 50 international markets,” the bank said in a statement. ‘A BANKER’S LIFE’ HSBC has a long history in the region. In March of 1865, it first opened in Hong Kong. A month later, it began operations in Shanghai. After mainland China reopened to the world in 1984, it was the first foreign receiver of a banking license. HSBC was favored by China’s government until a few years ago. It was the first international bank to sponsor yuan-denominated bonds issued by financial institutions in China in 2009. The bank said in 2015 that it will be hiring hundreds of people to help strengthen the southern Pearl River Delta region, which serves as its entrance to the mainland. It was also the first international bank to establish a majority-owned securities joint venture in China in 2017. At an event held by the Hong Kong University Business School in 2016, Peter Wong, then HSBC’s Asia-Pacific chief executive, spoke on the positive outlook in a speech titled “Life as a banker.” “Banking has a bright future,” said Wong, who was born in Hong Kong in 1951, when the city was still ruled by the British. “There will be banking as long as there is trade, as long as there is investment, as long as there is private wealth.” Wong migrated to the United States from Hong Kong in the early 1970s and earned an MBA from Indiana University’s Kelley School of Business. He was a member of the collegiate soccer squad, which he said helped him “learn how to lose, grow better, and win the game” in statements released on YouTube in 2015. He joined HSBC in 2010 as the top Asia executive after stints at Citibank and Standard Chartered. Wong, like HSBC, straddled Western finance and Chinese politics deftly. He was a member of China’s top political advisory body, the Chinese People’s Political Consultative Conference. In the year 2018,