SVA – New Political and Business Risk Series

SVA is pleased to commence a new series of political risk analysis pieces, each of which will focus on a different aspect of geopolitical tensions, to highlight the far-reaching implications of the present state of flux in relations between major powers, for businesses caught between them.

Our first piece hones in on the banking sector, with an examination of how one major institution faces difficult choices that might ultimately lead to a major overhaul of its operations.

Case studies such as these offer a glimpse into broader trends, and warrant close attention to stay alert to triggers that necessitate a proactive strategic response. Our consultants work closely with global businesses across a range of sectors, and we will use this SVA series to offer insight into some of the more interesting emerging developments.

A Rising Tide of Political Risk – HSBC & Ping An

Rising levels of political risk around the Asia-Pacific region are posing acute challenges to many businesses.

Ever more companies find themselves caught awkwardly between China and the US, and so facing hugely difficult choices – as the plight of the major bank HSBC illustrates.

Rising political risk

Sino-American relations are “making the weather” in the Asia-Pacific region, and, in doing so, worsening geopolitical risks that were always latent. The result is that the business climate has become much less friendly in recent months.

One illustration of this distemper came from a visit of US House of Representatives Speaker Nancy Pelosi to Taipei on 3 August 2022, which angered Beijing. China responded with military exercises around the island, so adding sharply to tensions.

The Taiwan Straits dispute, though, is just one issue (if the biggest) over which Beijing and Washington disagree. Other points of contention include China’s expansion into the South China Sea; disputes over trade and access to technology; the 2019 protests in Hong Kong; the outbreak of COVID-19; and a wary, but strengthening, partnership between Moscow and Beijing.

Feeling the chill

These interlinked issues have driven Sino-American relations to a low unseen in years. One obvious result is that the risk of a regional conflict is at its greatest in years, perhaps emerging from an accident that escalates. No side wants a war, of course, but even so the geopolitical rivalry is driving a sharp rise in political risk, with nasty implications for business.

Such political currently include restrictions on travel for executives; protectionist measures against foreign goods; the imposition of financial sanctions on major institutions or individuals; steps to curtail investment into an economy; a risk premium on finance or insurance; measures to prevent the spread of technology; and regulatory action against “unfriendly” companies – to name just a few.

All such measures impede commercial activity – and, worst of all, the number of such risks, and hence the impact on business, is growing.

The HSBC conundrum

For now, the more prominent companies are arguably those most at risk – even if they are not alone.

Take the major bank HSBC as an example. At a shareholder meeting in August, the Chinese insurer Ping An, an 8.9% shareholder and a major Chinese state-owned enterprise (so beholden to central government policy), called for the hiving off of HSBC’s Asia business.

Ping An’s logic was that the Asia business (largely in Hong Kong) accounted for perhaps 69% of profits for HSBC in 2022, and that its separation from the UK and other modules might release value of USD20 billion, or more.

Ping An’s arguments built on widespread criticism of HSBC’s decision to suspend dividend payments in April 2020, on request from the Bank of England and UK Prudential Regulation Authority. That move enraged ordinary investors in Hong Kong, who collectively (if not as a unified group) control about 33% of shares.

However, at the meeting HSBC’s management rejected Ping An’s proposal, arguing that the benefits were much exaggerated, and would affect key services such as dollar clearing. Their logic was sound, but their framing the dispute as a purely commercial matter failed to address the geopolitical “elephant in the room”.

A question of national security

After all, the role of HSBC is not just a commercial question. It a matter of national and economic security for both Hong Kong and China.

Hong Kong is a crucial node integrating the People’s Republic of China (“PRC”) into the international financial system. The city operates the only freely tradeable currency area in China, and boasts a huge financial centre, with assets of HKD29 trillion (perhaps 9.5 times Hong Kong’s GDP). Hong Kong’s economic and financial stability thus has vast ramifications for the mainland.

In turn, HSBC is a lynchpin of Hong Kong’s economic and financial system. The bank has extraordinary standing as an issuer of notes, providing perhaps 60% of all currency in circulation, and handling some 50% of retail banking. HSBC also manages revenues on behalf of the Hong Kong treasury, and facilitates the payment of teachers, public servants, and healthcare workers. HSBC is a systemic institution in Hong Kong.

The decision to halt the dividend, at the request of the British authorities, thus clearly highlighted a disconnect between HSBC’s centre of commercial gravity in Hong Kong, and its regulatory obligations to the UK.

A gap in the defences

From Beijing’s perspective, a lack of direct control over HSBC poses a potential threat to China’s economic security, given the current context of trade protectionism, a weakening property market, and prospective threats to the Hong Kong dollar peg. Ultimately, Beijing needs to know that HSBC will act in defence of Hong Kong (and Chinese) interests at the appointed hour – and, given HSBC’s need to answer to London, it cannot be sure of that.

Nor is the need for defensive measures theoretical. The US has imposed sanctions on Russian individuals and businesses, and sought to exclude certain banks from the SWIFT payment system, in response to the Ukraine conflict. This weaponisation of the financial system against Moscow has made clear to Beijing that it, too, should plan for the day when the US seeks to do the same to China.

HSBC’s anomalous structure – as a systemic institution in Hong Kong subject to British regulatory control – thus amounts to a major vulnerability for Chinese national security. It is in that context that Ping An is acting.

What this means for business

HSBC’s conundrum neatly illustrates how political risks could affect businesses across the Asia-Pacific region.

National security issues are trumping business concerns. Boards that view matters as purely commercial, and respond accordingly (even with the best of intentions), could still leave their companies at risk.

HSBC’s plight also illustrates how COVID restrictions and geopolitical tensions have reduced communication around the region, leaving the “ducks talking to the chickens”, with neither side able (or willing) to understand the other. The risk of miscalculation, then, and particularly of failing to appreciate how far the other side may go, is thus real.

What to do

Businesses need to respond to these (geo)political risks. Those executives who operate as if still in the globalised, free market conditions of recent decades will leave their company exposed.

The threats emanating from this much more hostile climate are not insurmountable, though, if boards act quickly to protect corporate interests. Recognising that the world has changed and that a problem exists is a crucial first step.

In that context, boards should take steps to identify key threats, examine their vulnerabilities, and adopt risk mitigation measures. SVA recommends the following actions:

Analysing and auditing the structure of a business through the lens of political risk, so as to ensure that commercial decisions take account of sensitivities, and so that companies can take pre-emptive action to mitigate risk.

  • Training and encouraging management and local offices to watch for and interpret signals that may indicate rising levels of political risk. Companies should also collect such information centrally, and make use of it when preparing strategy.
  • Working to maintain stronger links across offices, given much lower levels of travel in the wake of the pandemic, so as to ensure that “the ducks understand the chickens”.
  • Examining existing legal and corporate structures, to ensure they are fit for purpose, and to improve resilience. A “modular” structure that can be readily broken into different units may be one means to alleviate risks.
  • Examining payment systems, to ensure that flows of funds around a corporate structure are secure. Such measures would protect against the sudden imposition or expansion of capital controls, or other measures aimed at economic decoupling.
  • Assessing the resilience of communications, with attention to large-scale vulnerabilities, such as severance of internet cables, and smaller-scale concerns, such as protection of intellectual property.
  • Strengthening the integrity of IT and related systems to cyberattacks or cyberespionage, aimed at harming the business.
  • Reappraising the management of data, which is increasingly regulated on a territorial basis. Any failures in handling could result in investigation or prosecution.
  • Looking at insurance policies and contracts, to ensure that political risk concerns are covered under existing language.
  • Mitigating counterparty risks, with attention to how interruption of supply of goods, or the severance of logistics services, might affect business continuity.
  • Examining the security of plant and personnel, assessing prospective risks from violence or coercion linked to social instability, protests, boycotts and strikes.
  • Appraising regulatory risks closely, mindful that supervisors may act in response to geopolitical tensions.
  • Managing public relations strategies with caution, attentive to the risks that a clumsy statement on a sensitive issue could seriously harm a business.
  • Monitoring of developments, and analysis of prospective triggers for action, so as to ensure the business is in a position to respond to threats with alacrity.

SVA can assist with all of the above, and more, as needed.


SVA ( is a specialist risk mitigation, corporate intelligence and risk consulting company. The firm serves financial institutions, private equity funds, corporations, high net-worth individuals and insurance companies and underwriters around the world.

SVA has three core lines of business, which are: Business Intelligence and Political Risk; Corporate Investigations; and Special Risk. SVA also has a dedicated crisis management team which, for our retained clients, stands ready to assist companies during crisis situations.