After five years, HSBC is officially calling it quits on its sponsorship of Markit’s EM PMIs, meaning the bank’s name will no longer be stamped on the one data point out of China that supposedly retains some degree of objectivity.
Although HSBC claims it’s simply time to move on after a “successful” partnership, those ‘in the know’ (so to speak) say political concerns were almost certainly behind the decision. Put simply: with Beijing struggling to convince the world that despite slumping export growth and weak readings on key data points such as rail freight volumes, the Chinese economy is still expanding at a 7% clip, sponsoring an index that consistently comes in weaker than the official numbers is a politically dangerous move to make. Here’s Reuters [5]:
HSBC has ended its marketing tie-up with financial information firm Markit Ltd, both companies told Reuters on Friday, winding down a five-year relationship that some industry insiders said may have become too expensive and a potential political liability for HSBC in China.
Markit and HSBC spokespersons said that HSBC had ended its sponsorship of the closely watched China Purchasing Managers Index and of other emerging markets indexes compiled by Markit.
"The sponsorship arrangement is now coming to an end and we will announce replacement sponsors soon," said Laura Davis, a Singapore-based spokeswoman for Markit in an email statement.
Market insiders have been chattering about the coming end of the partnership for months, with some speculating that HSBC was ending its sponsorship of the indicator because of pressure from Beijing, or because the sponsorship costs had become too expensive, or both.
And more color from the Australian Financial Review [6]:
For those on wanting to understand China there is one economic statistic more closely watched than any other.
It's the Flash Purchasing Managers Index - or PMI - which is released in the last week of every month.
For the last five years the index has been sponsored by HSBC, giving the bank an easy stream of publicity and allowing it to brand itself as an authority on the Chinese economy.
But HSBC's sponsorship will finish at the end of this month after the bank did not renew its global agreement with the survey's private sector compiler, Markit. The bank will end its sponsorship of all 23 emerging market PMI's produced by Markit.
This would suggest other big foreign banks operating in China will jump at the chance to sponsor the survey and have their name splashed all over the media each month.
Not so, according to one person who was approached to take on the sponsorship.
While attracted by the branding opportunity his organisation declined as it was "too risky" in the current climate.
"If you are a sizeable bank that wants to do more business in China you don't want to make parts of the Chinese government angry," says the person who asked not to be named. "Sponsoring the survey is likely to affect your future business expansion in China."
The issue is that the HSBC/Markit PMI has been consistently weaker or more negative over the last year than the official PMI released by China's National Bureau of Statistics. In a country where the official narrative on everything from the economy to the weather is tightly controlled, this is a problem as it reinforces the view that China's official data can't be trusted.
Putting your name to such a high profile survey therefore makes you a target for China's regulators, according to the source.
In other words, with the Chinese economy facing the formidable task of transitioning to a consumption and services-led model, banks who intend to benefit from the liberalization of China's financial markets aren't keen on making enemies within the Politburo by endorsing a data point that is likely to diverge markedly from the official line going forward — especially given the likelihood that economic growth will continue to decelerate.
It will be interesting to see who takes HSBC's place. We'll leave you with the following hint from Markit itself:
"It's a blue chip name …. but no its' not a bank."
Oh, the intrigue!
