When Liu Xiaoming, China's ambassador to the UK, gave a speech at HSBC's Chinese New Year party in February, he was praised for the bank. He spoke in the walnut-paneled United Nations Ballroom at the Four Seasons Hotel in London and praised the company for "building confidence in China through concrete action."

Following the speech, Liu and Mark Tucker, the chairman of HSBC, smiled in front of the cameras under the chandeliers, accompanied by two dancers in bright red dragon costumes. However, the ballroom celebrations were a difficult time for relations between Beijing and HSBC, making expansion on mainland China a focal point in their growth strategy.

A few days before the party, Mr. Liu summoned John Flint, the newly-reigned CEO, to the Embassy to interview him about the company's role in arresting and persecuting Huawei's Chief Financial Officer Meng Wanzhou.

According to two people who were briefed on the meeting, Flint told the ambassador that HSBC had no choice but to provide information that would help US prosecutors bring proceedings against Ms. Meng, who is being tried in Canada Extradition to the US is fighting. It denies allegations of bank and transfer fraud in an indictment claiming that the Chinese telecommunications equipment supplier has been doing business against US sanctions in Iran.

Mark Tucker, chairman of the HSBC Group, has made the expansion in China a central part of the Bank's strategy

Beijing's anger at HSBC's role in diplomatic confrontation with Huawei is only a challenge for the bank, which was formed 154 years ago to capture trade flows between East and West and to cope with growing tensions between China and the West.

With globalization looming, some analysts and investors are wondering if HSBC's plan to raise billions of dollars in mainland China is compatible with its London office or its status as one of the world's largest US dollar clearing banks. The recent protests on the streets of Hong Kong, where HSBC generates about half of its profits, have answered the question even more sharply.

"They are moving on this break line between East and West, and that has been a win-win position in recent decades," says Ronit Ghose, bank analyst at Citi. However, given the expected slowdown in China-West flows due to President Donald Trump's trade war, Ghose expects HSBC to lose its lead.

"What was once a tailwind that drove them forward," he says, "has become a headwind."

HSBC's former CEO, John Flint, was interrogated by the Chinese ambassador about the Bank's role in Huawei's arrest of Meng Wanzhou

When Mr. Flint met When the bank handed over Huawei's documents to the US Department of Justice in 2017, it worked with hundreds of people within the company under the supervision of an independent monitor. The Monitor was appointed in 2012 after HSBC was fined $ 1.9 billion for violating sanctions and assisting Mexican drug cartels in money laundering. When the DoJ requested allegedly incriminating information, the bank had to follow suit, Flint said.

Mr. Flint was fired as chief executive of HSBC in August. A few days later, the lender announced that Helen Wong, head of Greater China, would leave the company. The timing of the disposals has led to speculation that they are related to the company's relationship with China, despite the Bank's departure from it: Mr. Tucker recently said Beijing has "put absolutely no pressure on the company."

It is not clear if Flint has managed to placate Beijing over the Huawei affair. The Global Times, a national Chinese-language tabloid in English, reported last month that HSBC could be included in the country's upcoming list of "unreliable businesses", which is being created as a temporary measure in response to US restrictions on Chinese companies like Huawei.

The newspaper said that HSBC had been "unethical" in handing over the documents, citing an unnamed source near the affair, which accused the bank of "laying a trap" for Huawei. When asked about the Global Times report, Mr. Tucker declined to comment, but said the bank was "fully aligned with China's notion of growth and economic prosperity."

Tucker also highlighted the bank's "active involvement" in a number of high-profile projects in the country, including the internationalization of the renminbi, the creation of a technology-driven economic zone in the southeast, known in Beijing as the Greater Bay Area and the Belt and Road Initiative, China's global infrastructure initiative.

In a statement to HSBC investors according to the Global Times report, Autonomous analyst Manus Costello said the bank had good experience securing the licenses it needed to expand in mainland China. "But if HSBC were prevented in any way from participating in the future opening of Chinese financial markets, it could reduce opportunities [for it] to grow".

Even if HSBC does not end up on the list, suggesting that it's somehow unreliable could prove problematic, says Christopher Balding, associate professor at Fulbright University Vietnam, who specializes in Chinese economics and finance.

"What is likely to happen is that from now on, any application to open a new office or enter a new business will have to be handled slowly," says Balding.

"It comes down to this question of how HSBC navigates these waters," he adds. "[They are] faced with a dilemma. They can be big in the US and in Europe. Or you can be big in China. But you can not. , , please both sides. You are in a very difficult place. "

The excitement surrounding Huawei comes from the fact that HSBC, like other companies in Hong Kong, is struggling with its response to the escalating protests.

The bank has tried to do what a leader calls an "apolitical line". When the organizers saw a protest on a weekday in June, the company said that the Hong Kong staff could work from home, and the managers said the staff could attend the demonstration as long as they did not violate the law would have. One colleague compared the approach to the "do not ask, do not tell" policy that was introduced in the US when it was still illegal for gay people to serve in the military.

However, Chris Patten, the last British Governor of Hong Kong, who ran the territory between 1992 and 1997, believes the bank should be more proactive. "I hope HSBC, like other more thoughtful members of the business community, is trying to achieve that [Hong Kong] Government to find a way to reconciliation, "he says.

Some employees complain that HSBC's refusal to comment is symptomatic of a culture that pleases Beijing more than anything else. Leaders in the Bank's Asian research department are particularly cautious when it comes to insults, according to two people who are familiar with the approach. They say that negative economic news about China, which should be in the foreground of the reports, is often buried or given a positive glow.

An article by an HSBC economist from last year titled "Why Trade War is Stimulating China – Stronger Relationships with Emerging Markets Make US Tensions a Blessing" was dismissed by the bank's clients as a "marketing article for the Chinese government" say.

"They are trying to secure as many points as possible to gain access to the Chinese banking market," says Balding. "If you had made a list of all the banks [research] In the order of who is the most bearish for China, I would by far call HSBC one of the two most suitable banks for China. They bury bad news and back up their words. "

HSBC states "to create independent, unbiased market and macroeconomic analysis to help our clients make objective investment decisions."

Stuart Gulliver, CEO of HSBC between 2010 and 2018, spent much of his term eliminating the mess caused by the money laundering scandal in Mexico

Hong Kong and Shanghai The Banking Corporation had been involved in Hong Kong politics since its founding in 1865 by a group of British merchants led by Scottish banker and politician Thomas Sutherland. Some of the bank's employees were interned in camps during the Second World War after the fall of 1941, and one of the bronze lions outside the headquarters of Queen's Road Central is still showing footprints from the fighting.

In the 1980s, the bank, which mistrusted the Chinese Communist Party for a long time in its colonial role in financing opium trade in China, gained popularity in Beijing by lending money to local Chinese business people.

It was partly thanks to HSBC's credit that Li Ka-shing, the Hong Kong tycoon, began ousting the 19th-century British merchants of Hong Kong, who became big conglomerates. When some companies fled the country in 1984, ahead of the signing of the China-UK joint statement, HSBC showed support by launching a new main office building designed by Norman Foster, which opened in 1986.

Executives, however, planned a partial withdrawal. In 1993, the lender acquired the British Midland Bank and relocated its headquarters to London, apparently to meet the demand of the UK regulators. Some believe that the real reason why the company moved its headquarters was the flight from the Communist Party prior to the 1997 transfer.

"HSBC has positioned itself so that it can continue to hold a large stake in Hong Kong without relying solely on Hong Kong politics," says Lord Patten. "Since then it has tried to tread this line with increasing difficulty."

HSBC began a shopping spree to reduce its dependency on Hong Kong. Two of his biggest deals would turn out to be ruinous. With the acquisition of Household Finance in the US in 2003, the company was exposed to the subprime mortgage crisis. The lender, which bought it in Mexico in 2002, was the bank of choice for the country's drug cartels, leading to a money laundering scandal that threatened the existence of HSBC.

The impact of the Mexico scandal led to the appointment of an independent monitor in 2012, forcing the bank to take a decision against Huawei. Stuart Gulliver, HSBC chief, between 2010 and 2018, spent most of his tenure cleaning up the mess.

In 2015, Gulliver announced the Bank's "Pivot to Asia," a strategy designed to consolidate HSBC's status as the leading international bank in China. In this way, he practically put the bank back on a path that was taken in 1884, when the chairman told shareholders that they should only do business of "direct relevance to trade with China."

Today, the lender generates 64 percent of its profits in Hong Kong and mainland China, and its largest shareholder is the Chinese insurance group Ping An, which holds a 7 percent stake.

Even before the tensions were cut, some investors and analysts had doubts as to whether HSBC could meaningfully expand in mainland China. Domestic lenders such as the Bank of China and ICBC are ridiculed that a non-Chinese bank can do business in the country. "It's like asking an American or French customer to bank with us instead of JPMorgan or BNP Paribas," says one.

Protesters in front of the Hong Kong bank headquarters. The bank has tried to pursue an apolitical line during the protests

When Mr. Gulliver revealed the hub for Asia, he identified additional annual revenues of at least $ 3 billion that the bank could achieve over the medium term – usually three to five years. Four years later, it is difficult to see a significant impact of the plan, although optimists may point to some green shoots. Mainland bank revenue for the first half of the year was $ 1.6 billion, an increase of 9.6% over the same period of 2018 (but still a fraction of total revenue of $ 29.3 billion). , Earnings growth was more subdued due to high investment in the region.

HSBC has probably done more to strengthen its presence in China than the competition. It has more branches than any other foreign lender and was the first international bank to acquire a majority stake in a securities firm on the mainland.

The chief executive of a major competitor in China said HSBC had been "smart and visionary" to focus on the Greater Bay Area, which includes fast-growing cities in Guangdong province such as Shenzhen and Guangzhou, as well as Macau and its major market regions Hong Kong.

But HSBC also has to go a diplomatic tightrope. When the ambassador spoke to the New Year's party, he finally quoted two lines from a poem by the poet Li Bai of the Tang Dynasty. "There will come a time to ride the wind and split the waves. I will set my cloud-white sail and cross the sea that is raging. "

Chinese literary experts may be better acquainted with an alternative translation and even recognize an encoded message for HSBC, as it faces a difficult choice between East and West: "A big company needs to find the right moment to set the sails in the clouds and cross the mighty ocean , "

Additional coverage by Don Weinland and Henny Sender in Hong Kong