China-related issues were heavily featured in HSBC’s review of future risks in its latest quarterly financial results, including the strict zero-Covid policy which has no end in sight.

China’s zero-Covid policy featured heavily in HSBC’s third quarter release with expectations for the stringent restrictions to remain in place in the foreseeable future.

«While the impact of the Covid-19 pandemic on the global economy has largely abated in most markets, it continues to disrupt economic activity in mainland China where stringent health policies continue to remain in place. These have adversely impacted China’s economy, Asia tourism and global supply chains,» HSBC said.

«A full return to pre-pandemic levels of social interaction across all our key markets remains unlikely in the short to medium term.»

Business and Economic Impact

Although improvements in the situation led to a net release of Covid-related allowance in the third quarter, HSBC’s business was nonetheless impacted by the health curbs. In Hong Kong, HSBC was hit by temporary branch closures in the first quarter 

In a worst-case scenario, the bank’s outlook has now accounted for the emergence of a vaccine-resistant Covid strain – alongside higher rates and inflation, escalation of the Russia-Ukraine war and worsening supply chain disruptions – which it forecasts could result in a «deep global recession with a rapid increase in unemployment and sharp falls in asset prices».

Property, US Tensions

In addition to Covid curbs, China was also featured in other risks including real estate worries, which contributed to the $2.2 billion net charge of expected credit losses year-to-date, and political tensions with the West.

«The US, the UK, the EU, Canada and other countries have imposed various sanctions and trade restrictions on Chinese persons and companies, and may continue to impose further measures. In response to foreign sanctions and trade restrictions, China imposed sanctions and trade restrictions, and enacted laws that could impact the Group and its customers,» the bank said on the latter.

«Further sanctions and countersanctions, whether in connection with Russia or China, may affect the group and its customers by creating regulatory, reputational and market risks.»

China Expansion Plans

Nonetheless, HSBC remains committed to Asia where it generates the majority of its profits – $3.51 billion overall in the third quarter this year. Within the mainland China market, it has been rapidly expanding its wealth management business.

Earlier this year, the bank announced plans to hire around 100 private banking staff and 300 affluent banking staff by the end of 2022 with a focus on growing its presence in Hangzhou and Chengdu. Two weeks ago, HSBC became the first global bank to set up a dedicated private banking services team to support clients in the western Chinese two cities.