Swiss voters in November 2020 will have their say on a proposed law to make companies liable for human rights abuses that occur in connection with their activities abroad. This could also apply to the case of Hong Kong.

Swiss banks often have been blamed for lax controls and all-too-liberal approach to the choice of business opportunities. The popular initiative that attempts to make Swiss companies with a global presence directly responsible for human rights abuses in connection with their business would increase the pressure on Swiss financial firms too. Not only in Switzerland, but also in countries such as China, and therefore also in Hong Kong.

The current developments in the former crown colony are flying in the face of the Western understanding of democratic rule. The new national security law has put people under a totally new level of control, which also covers foreign banks. Many are feeling the pressure to vet their connections with clients and end all those relationships with people who may come into conflict with the law.

The new requirement may put (Swiss) banks on a collision course with the basis of the initiative because they potentially could lead to human rights infringements. This in turn would impair the banks’ strategies to grow in Asia and in particular in China, where they have enjoyed a particularly privileged position.

 Diplomatic Tit-for-Tat

The sensitivity of the issue became apparent earlier this week when Swiss Foreign Minister Ignazio Cassis questioned the situation created in Hong Kong and demanded a more robust response from Switzerland. He added fuel to the fire by asking for a timely election to the legislative council of Hong Kong, in accordance with the demands made by other Western European nations.

The reaction from Beijing came promptly and unequivocally. Wang Wenbin, the main spokesperson for the Chinese foreign ministry, put the finger right where it hurts most and showed how astutely the world’s second-largest economy is playing the economic card. If the West chooses to criticize Chinese affairs openly, it risks not only the wrath of the Chinese government but more importantly the business with a fast-growing country.

«China is committed to development through opening-up,» Wang said. «Financial enterprises like Credit Suisse are among the first to benefit from China's new round of financial market opening-up.»

Corporate Influence on the Government

The Chinese government is well aware of the power that corporate Switzerland wields in a country that prides itself of its diplomacy and evenness. Mentioning a company of the size of Credit Suisse, Switzerland’s second-largest bank, in a statement intended to rebuke Switzerland’s criticism is raising the stakes and will have had the alarm bells ringing in Zurich.

All of Switzerland’s powerful global financial players have major operations in Hong Kong – with UBS, Credit Suisse, Julius Baer as well as Pictet and Lombard Odier particularly well established. They show little appetite to move away at a time when growth in markets such as the U.S. and Europe is adversely affected by a pandemic-induced recession.

Bank Business Little Affected

It came as no surprise that the companies asked for comment about the situation by finews.com chose not to do so. The assumption that they are in close contact with the government in Bern is hardly far-fetched though given the size of their business interests.

Observers say that despite the current situation banking is not as affected as might be expected. This is mainly to do with the type of business they have, namely wealth management with rich Asian entrepreneurs and their families. They increasingly are looking for the added protection that a Swiss bank can provide for its assets.

Inflow of New Assets

Julius Baer for instance, the Swiss private bank, had a net increase in assets under management in the first half, despite the corona pandemic. Hong Kong was one of the markets mentioned as delivering a particularly strong positive contribution to the group assets under management total. Pictet, the Geneva-based rival, reported major inflows of net new money in the first half.

Companies such as Credit Suisse and UBS have been early beneficiaries of the Chinese government’s decision to allow foreign capital to own a majority stake in the financial joint ventures in the giant economy. They are unlikely to risk the early start this has given them.

Balancing Act

If the population votes in favor of the new law, which currently looks distinct possible, Swiss banks will probably have to have a closer look at how they perform their business in Hong Kong. The balancing act will continue and demand a political astuteness as has been displayed by the Chinese government when challenged by the Swiss.