China Crisis: First the FX brokers, now the banks as Mark Carney turns back on Chinese business

A far cry from just two years ago when FX brokers and institutional partners were focusing heavily on China, most have pulled out and now the Bank of England is railing against financial markets relationships with the Chinese communist government and Hong Kong looks to a bleak future

Trade Chinese Yuan on the London Stock Exchange

For almost a decade until last year, absolutely every retail FX brokerage in the entire world was concentrating as much effort as it could on attempts to enter and develop business in the Chinese market.

Some were extremely successful, and have managed to garner vast amounts of repeat business from extremely well organized IB networks across the Mainland of the People’s Republic, generating tremendous revenues far in excess of what could be considered normal for the size of their business.

The false sense of security that many companies across the retail brokerage sector had lulled themselves into was tested when China’s communist government began to effect what it has done on absolutely every other industry sector globally, that being a blanket ban on approaching China’s population from outside the country and providing any form of product or service that is not proprietary to a Chinese company based on the mainland.

As a result, the only companies that can now operate in China are Chinese companies, and in keeping with the modus operandi of international relations between communist and free market economies, well recognized FX industry regulatory authorities in regions populous with FX brokerages such as Australia have been issuing rulings that overseas business is not allowable, largely due to the reliance on China that many firms have demonstrated.

Yes, the resultant loss of business from restrictions in capital movement, censuring and website blocking by the Chinese government and in some cases removal of executives and their business structure from China has had a tremendous effect, however it is not just the retail sector that has turned its efforts away from China but also the Tier 1 banks too.

Mark Carney, Governor of the Bank of England has pulled out of a dinner in the Square Mile designed to foster relations between London and China.

The City of London Corporation is holding the event at Guildhall on 3 September. It will be attended by China’s ambassador to the UK, Liu Xiaoming, the Corporation’s policy chief Catherine McGuinness and lord mayor Peter Estlin.

This represents a complete u-turn over previous relations and aspirations held by London’s interbank financial sector and China, which were just two years ago set to become very interlinked as President Xi Jinping visited the British Prime Minister in order to pledge massive investment that would link China’s financial markets infrastructure to that of London and pave the way forward for a massive synergy which would have helped the retail financial sector do business in China and Chinese investors work with London-based companies.

Those days are long gone, and the angsty relationship between the free world and communism has taken its place.

City speculators consider Mr Carney’s decision to be a reaction to China’s draconian clampdown on the anti-dictatorship unrest in Hong Kong.

Councillor Richard Crossan said: “The City must use this event to remind China of its responsibilities on human rights, democracy and free speech in Hong Kong. As the situation in Hong Kong develops, the City must also remember that it is not just a financial services lobbying group. It has moral responsibilities, whether it wants them or not.”

The mere fact that China is reacting with force toward the unrest, and that the unrest even exists in the first place shows that the future for Hong Kong is a total integration into China and fully restricted internet, capital controls and communist ethos which would align it with the mainland and remove its international edge, handing the forging of relationships with international banks and companies based in Hong Kong to the Chinese government.

This in itself is a further allusion to an impossible future for Western firms wishing to provide service to Chinese customers.

This morning a British councillor told the mainstream press in London: “There’s a question of whether we should even hold a knees-up on the date of 70 years of the founding of the communist dictatorship that has cost millions of lives. If the red army rolls into Hong Kong, it would be unthinkable to hold this event.”

Mr Carney was originally due to speak at the event but a source said he had since pulled out, citing a “diary issue”.

The Chinese military has so far stayed out of the conflict, but in the last few days tanks have amassed on Hong Kong’s border. Ambassador Liu also warned earlier this week that Beijing would “not sit on its hands and watch” if the situation became “uncontrollable”.

China has become a central plank of the Corporation’s lobbying since the 2016 EU referendum. The City has placed itself as the “natural western hub” of China’s Belt and Road initiative, which the corporation estimates could add up to £1.8 bn annually to UK GDP.

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