Communists Might Be Managing Your Money—And Your Data

The Chinese Communist Party may be setting up a secretive cell inside the financial institution that manages your retirement fund. It sounds the plot of a great spy thriller. Unfortunately, China considers it the real-world cost of doing business for global financial firms—and one of the world’s largest financial institutions has agreed to pay. On July 22, the British banking behemoth HSBCHSBC
became the first international financial institution to establish a Chinese Communist Party (CCP) cell inside its investment banking venture in China. HSBC has stated that the CCP committee does not influence the direction of the firm and has no formal role in its day-to-day activities. However, the influence of CCP cells in China’s own corporations suggests the Party may have other plans. Global financial institutions—and their customers—may now be exposed to CCP access and influence. Establishment of CCP cells in international firms poses serious risks for corporate security, customer data, and the global economy.

The CCP has recently launched several reforms to increase Party influence in the corporate world. In January 2020, a CCP regulation required all Chinese state-owned enterprises (SOEs) to amend their corporate charters to include the Party in their governance structure. SOEs must now appoint a Party secretary to serve as chairman of any corporate board, and establish CCP committees to facilitate Party activities and advance government policy. In September 2020, the General Office of the Central Committee of the CCP released a report asking China’s United Front Work Departments to spread Party ideology and influence in the private sector, including integrating Party leadership into all aspects of corporate governance.

Recently, the China Securities Regulatory Commission began requiring the creation of CCP cells in foreign financial firms as well. Within private sector corporations, CCP committees serve as unions. In some cases, they function as a way to install party members in a corporation’s executive ranks. The Party’s aim seems to be to ensure that private sector businesses fall under Party influence and will work with it to achieve national goals.

While it began integrating the CCP into corporate governance in 2020, China also welcomed eager foreign firms by scrapping its 51% cap on foreign ownership stake in financial institutions. London-based HSBC now makes most of its money in Hong Kong and mainland China. HSBC has about 7,000 staff on the mainland, far more than any other foreign-based lender. In 2021, it moved four senior executives leading its commercial banking, personal banking, and asset management divisions to Hong Kong. In 2022, HSBC increased its ownership share in HSBC Qianhai Securities from 51% to 90%. Qianhai provides investment banking services including advisory, securities trading, and running initial public offerings.

HSBC’s move may help the CCP pressure other foreign banks to follow suit. Six other global lenders control their investment banking operations in the mainland: U.S.-owned Goldman Sachs, JP Morgan Chase, and Morgan StanleyMS
, and European-owned UBS, Credit Suisse, and Deutsche Bank. Goldman Sachs and UBS have already employed senior CCP members or their relatives, indicating their willingness to work closely with the CCP. Other global financial institutions will also be affected. Blackrock, the world’s largest asset manager, has strongly advocated financial ties with China. Fidelity also maintains a significant presence in China. If these behemoths were to establish Party cells, other financial institutions might feel compelled to follow—potentially exposing countless American and foreign retirement plans, assets, and data to the CCP.

Despite HSBC’s nonchalance about harboring a CCP cell, their role within China’s corporations provides cause for alarm. Dennis Kwok, a former Hong Kong legislator, has observed an increasing influence of CCP cells upon corporations in Hong Kong. Party branches began by observing and absorbing data, but later started to influence board decisions, install directors, and even instruct company management. Some Chinese companies have amended their articles of association to specify that the board will first seek the opinion of the leading CCP group within the company before making key corporate decisions.

More broadly, the establishment of CCP cells might be another manifestation of China’s strategy of what I call “latent weaponization.” China repeatedly represents political, economic, and geopolitical actions has benign while building or accreting them into tools that can be powerfully leveraged against adversaries. China cost the NBA hundreds of millions of dollars in 2020 after the Houston Rockets’ General Manager tweeted his support for protesters in Hong Kong. When the shareholders of a financial firm raise concerns about China’s human rights abuses, hundreds of millions of the firms’ client’s own money might be at risk from China’s retaliation or rebuke. The company may be forced to answer to the Party first and its shareholders second.

As China mandates the establishment of CCP cells in foreign-owned financial institutions, democracies, corporations, and shareholders must mitigate risk to themselves and to the global economy. In the U.S., Congress must regulate the influence of Party cells within private sector firms and ensure that Americans’ data and investments are protected from CCP access and insulated from potential weaponization. Corporations must mitigate the risk of exposing their intellectual property, secrets, and data—and that of their clients—to the influence and eyes of the Party. They and their shareholders must also decide how much risk from China’s economic woes and political actions they are willing to accept—and pass on to their customers. Shareholders must decide whether to accept the risk of having their data and their money exposed to and managed by CCP members.

Western firms must also decide how much they are willing to support—and to expose their customers to—the CCP’s political agenda and military ambitions. The optics alone of having a CCP cell inside institutions that are the standard-bearers of American capitalism will harm the image of many corporations. Some shareholders and customers will balk at businesses’ affiliation with the CCP’s human rights violations and geopolitical aggression. China has openly stated that it plans to reunify with Taiwan, likely by 2049, Xi’s deadline for achieving his Chinese Dream. Given China’s willingness to use economic coercion to advance its geopolitical agenda, the Chinese Dream could easily become a nightmare for global financial institutions, their customers, and the global economy.