Wall Street's China Dream Dashed By U.S. Warning On Hong Kong

US President Joe Biden has a message for Wall Street: Beware in Hong Kong. And with that, a question suddenly confronts C-suites across Manhattan.

If the White House wants banks to reconsider their presence in Hong Kong because China is tightening its grip on the territory’s legal and financial systems, what does that mean for their long-held ambitions for expanding in the world’s second-largest economy and its market of 1.4 billion people? Jennifer Suane and Mary Biekert asked in an analysis carried by Bloomberg News.

That was among the many thoughts racing through financial executives’ minds on Friday as they scrambled to absorb the full implications of Biden’s warning about living and working in one of the industry’s biggest global hubs.

While his broad advisory stopped short of ordering them to scale back investments or leave Hong Kong, administration officials worry that major banks haven’t yet come to grips with the risks they now face in the region.

“It certainly can cause a major rethink of strategic plans the next decade because China is considered a major growth opportunity,” Mike Mayo, a bank analyst at Wells Fargo & Co., said in an interview. It may not cause any immediate pain for banks, he said. But longer-term, “could this be disruptive?” he said. “Absolutely.”

Banks are, of course, no strangers to Hong Kong and its shifting landscape. Financial firms are longtime residents, often treating the 427-square-mile (1,106-square-kilometer) region akin to New York and London.

As tensions flared between pro-Democracy protesters and China’s allies in recent years, bankers had a direct view, sometimes watching melees break out in streets just below their towers. So Biden’s warning, in some ways, offered no revelations about local realities, save perhaps for what it said about the direction of US-China relations.

Nevertheless, banks are being publicly urged to rethink how they’ve long done business with companies in China’s rapidly growing economy. They have been thinking about it a lot -- and so far they’re still in Hong Kong.

Perhaps no US lender has been more vocal in recent months about its bet on the city than Citigroup Inc. Earlier this year, the firm said it will hire as many as 1,700 people for its operations there as part of a plan to capture more business in China’s Greater Bay Area.

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