‘The End of Hong Kong’ in New Treason Law

‘The End of Hong Kong’ in New Treason Law

Beijing has given up playing the game of pretending that Hong Kong is governing itself. You could potentially be charged under the city’s new national-security law.

China’s showcase political conflab, the National People’s Congress, began today. First item on the agenda? A full-frontal attack on Hong Kong freedoms.

The second order of business was an item of non-business. Premier Li Keqiang opted not to set a growth target for 2020, something that’s always established when the meeting normally meets in March.

It had planned to set a rate of “about 6%.” But the uncertainties surrounding the Covid-19 recovery and global growth, not to mention the rekindled U.S.-China trade war, have scotched all that.

That first item is sending Hong Kong stocks south, with the Hang Seng plummeting 4.6% in early afternoon trade. The benchmark started lower, and just keeps going down. Shareholders should be very worried about their holdings in Hong Kong.

Chinese shares are also dragged down, with the CSI 300 of largest stocks in Shanghai and Shenzhen down 1.6%. There should be intense political pressure on China over this issue. We will see how far Britain and the United States are prepared to push Beijing over rights when money and trade is at stake.

Don’t be fooled by the coverage of this issue, which mainly indicates that a “controversial” new law has been proposed.

It’s not just controversial, it’s illegal. Pro-democracy lawmaker Dennis Kwok is only slightly exaggerating that “This is the end of Hong Kong.” It means Beijing will directly rule Hong Kong.

When China got its hands on Hong Kong in 1997, it promised that the former British territory would be allowed to keep its laws and operate autonomously for 50 years, until 2047. It signed the Sino-British Joint Declaration to that effect, a legal contract lodged with the United Nations. Hong Kong also established its constitution, the Basic Law, and elected its own government.

That government decides Hong Kong’s laws. It says so in the Basic Law. The government is stacked to Beijing’s favor, with half its members appointed rather than elected. Even then, the pro-Beijing camp struggle to shove through their legislation.

With this new law, the mainland government is simply enacting a new law of its own directly, in Beijing, and imposing it on Hong Kong. It plans to write the new “security” law into the Hong Kong constitution directly, bypassing the Hong Kong government altogether.

So Beijing is dispensing with any pretence that Hong Kong governs itself. It says it got “frustrated” with waiting for the proper legal process to occur.

It would be, I suppose, similar to the federal government bypassing states altogether and writing a sedition law, perhaps with capital punishment, directly into the state constitution of all 50. It would mean the end of any power for state governments.

That is vitally important in the case of this new law. Hong Kong, which guarantees free speech, has a totally different view of what kind of conversations about the government are allowed. Mainland China restricts free speech massively, censors discussion, leaving no one comfortable in criticizing the Communist Party in public. You can get locked up for decades for doing so, potentially executed. The international coverage of this issue is being blacked out on TV screens and blocked online as I write.

I can currently criticize the Communist Party all I want, here in Hong Kong. With this new law, my ability to write these articles will be severely curtailed.

All this is being done under the guise of “national security,” the catch-all phrase beloved by dictators and authoritarian governments the world over. “National security is the bedrock underpinning the stability of the country,” Zhang Yesui, the spokesman for the National People’s Congress, said as the Communist Party’s flagship meeting kicked off on Friday.

It’s a poorly run, unstable and weak country if its bedrock is stopping criticism of that country. A proud, strong nation should be able to take criticism on the chin.

We don’t yet know what will be in the new law. The central government is today due to table a resolution to allow the Standing Committee of the National People’s Congress to craft and pass the new national security law for Hong Kong. Translation: the rubber stamp government will approve the top leaders writing a treason law for Hong Kong.

The new law will ban secessionist and subversive activity, as well as foreign interference and terrorism, according to the sources at the South China Morning Post. So foreign entities and people can also be charged.

It presents a real dilemma for Secretary of State Mike Pompeo. He has delayed a report on how autonomous Hong Kong actually is until after this meeting in Beijing. He must certify an annual assessment that Hong Kong is self-governed enough to justify separate trade status. That is very much in doubt.

China is already referring to last year’s pro-democracy demonstrations as terrorism, and says anyone flying a foreign flag at a march is promoting Hong Kong independence. Of course, the Communist leaders are furious that people have been burning and stamping on the Chinese flag, booing the national anthem, and even breaking into the government chambers here to spray-paint over the Hong Kong flag.

Hong Kong’s constitution does state that the city has to pass a national security law, in its Article 23. So-called Article 23 legislation was put forward by the Hong Kong government in 2003, but pulled after 500,000 people marched in opposition to it in the streets.

Now the Beijing government has lost patience with playing the rigged game that it set up. It figures that it will simply directly rule Hong Kong in this case, banning criticism of itself, how China is governed, how Hong Kong is governed. Presumably you, in the United States, could be prosecuted for “foreign interference” should you criticize the party and step foot in Hong Kong.

So beware. This law really does mean the end of Hong Kong’s autonomy. It is dangerous for us all.

This story originally appeared on Real Money.

Chinese Investors Doubt Trump’s Talk Over Virus ‘Proof’

It seems Chinese investors have called President Trump’s bluff.

Markets in Shanghai and Shenzhen resumed trade on Wednesday with early losses, after a five-day long weekend. That was the first time for investors to respond to renewed hostilities that again threaten China-U.S. trade.

But Chinese shares ended the day with modest gains. The CSI 300 blue-chip index rose 0.6%. Chinese punters are paying more attention to the likelihood of Chinese stimulus. The Communist Party is keen to keep its citizens happy ahead of its major political meeting now due to start on May 22. The central People’s Bank of China also appeased U.S. hawks by setting the Chinese yuan at a neutral rate, at 7.07 to the U.S. dollar.

At this stage, Trump’s attacks amount to hot air. In Chinese, we call it “blowing water,” or chit chat, idle talk.

Trump last Thursday threatened China with new tariffs. This week, U.S. Treasury Secretary Steve Mnuchin warned of “very significant consequences” if China doesn’t follow through on commitments to buy U.S. goods made in its “Phase 1” trade deal with the U.S. Those are worrying sounds here in Hong Kong, bashed last year by trade war winds.

On Tuesday, Trump said the U.S. is ready to dish the dirt about how a Chinese lab mishap led to Covid-19 cursing the world. He earlier told a reporter he has seen evidence that gives him a high degree of confidence that the virus originated from a Wuhan lab. But when asked what the evidence is, he said “I can’t tell you that. I’m not allowed to tell you that.”

Trump now says the U.S. will issue a full report on the origins of the virus. “We will be reporting very definitively over a period of time,” Trump said on Tuesday.

Trump has yet to prove that he is not propagating yet another conspiracy theory when he claims that the SARS-CoV-2 coronavirus leaked from the Wuhan Institute of Virology, China’s first biosafety level 4 lab. Numerous scientists have stepped forward to say the DNA indicates the virus is of natural origin, not man-made.

There are plenty of people here in Hong Kong who believe the lab theory too, without a shred of evidence. I’m sorry, but when U.S. Secretary of State Mike Pompeo says he has “enormous evidence” that Chinese lab technicians messed up, show us the proof. Otherwise keep quiet until you are ready to do so. It’s not just hot water, it’s irresponsibly vague.

For the rest of this story, check out Real Money on TheStreet.com.

Australia and India Lead Mid-Week Selling for an Asia in Recession

There are country-specific reasons why Australia, India and Thailand are leading Asia’s plunge, but the whole region is in recession, S&P correctly says.

The wildly unpredictable movements of equity markets continued apace on Wednesday. Despite the strong rally on U.S. markets the day before, when the S&P 500 rose 6%, almost all Asian markets again posted sizable losses here on Wednesday.

The biggest losers are in Australia and India. I’ll briefly explore why each of those two markets is performing particularly poorly.

In Australia, there are massive daily moves in either direction, sometimes even intraday. The S&P/ASX 200 was down 6.4% at the close Wednesday after posting its biggest single-day gain in 20 years on Tuesday. Now that gain has been wiped out! Since hitting a record high on Feb. 20, the index has corrected 31.2%.

Australian equities are dominated by the Big Four banks – Commonwealth Bank CMWAY, Westpac Banking (WBK) , ANZ ANZBY and NAB NABZY – all of which are seeing their shares oscillate as central banks shift policy globally. The Oz market also has a healthy dose of commodity stocks such as the gold miners BHP Group (BHP) and Rio Tinto (RIO) , and commodities are getting crushed, even gold. There’s also a hefty listed real estate sector and renters are going to start struggling to pay up. Oh, and let’s not forget that Australia’s main customer is China, which isn’t buying.

India follows suit

Indian shares again sold off hard on Wednesday, with the Sensex down 5.6% at the close. Indian shares have now corrected 30.1% in the month since Feb. 19, one of the worst performances in Asia. Foreign institutional investors have been heavy sellers, placing a higher risk premium on Indian stocks than before the outbreak.

India only has 137 declared Covid-19 cases so far, and it’s a bit of a mystery why the world’s second-largest country by population has been spared so far. It may be that only a few people are being tested. While ultraviolet light does kill viruses in general, there has been no scientific proof that hot weather deters Covid-19, so it may be that developing markets that often are hot either haven’t been hit yet or tested well. Of course, developing nations will struggle the most in a health care sense if the disease sets in.

Here in Hong Kong, we’ve had virus cases confirmed among Hong Kong tourists returning from India trips. State governments in India are starting to shutter schools, malls, movie theaters and so on, an economic danger because domestic consumption accounts for around 60% of the economy. Travel and tourism, around 7.5% of GDP, will suffer immensely with tourism visas being cancelled.

There are some India-specific issues that add an extra layer of worry. Yes Bank, a private bank established in 2004 as an alternative to state-backed institutions, has collapsed and is being bailed out by the Reserve Bank of India, the nation’s central bank. Also, violent attacks against Muslim minority by radical Hindu nationalists have left scores dead. Those ethnic tensions are not going to be helped by any downward spiral in the economy.

It isn’t pretty elsewhere, either

While Australia and India have fared worst here on Wednesday, other markets alternate to outdo each other in poor performance. Japan was one of the only sources of green on screens, with the Topix up a narrow 0.2% on Wednesday after the Bank of Japan announced it will support the market by buying ETFs. But the Topix, a broad measure of all big Japanese stocks, is down 26.2% this year.

Thailand’s SET index has fallen 33.7% in 2020, by a small margin the worst year-to-date performance in Asia. Thailand gets 11% of its GDP from tourism, and that’s dead – technically, down 44% and getting worse. The Philippines, where stocks are down almost as much, 31.7% in 2020, has simply shut down its stock exchange, saying it couldn’t guarantee the health of folks on the floor. The blood pressure of investors is another health disaster altogether.

It’s going to take a coordinated global response when it comes to fiscal and monetary stimulus to get everyone on the same page. It also will take cooperation among medical bodies and addressing transportation links if we’re going to get out of the coronavirus mess. The unilateral, single-nation responses are firing buckshot when we need a .458 Winchester Magnum, the kind of Big Game rifle the ranger carries when I’ve been on walking safaris in South Africa.

Investors are sensibly responding to economic disruption rather than simply rates of infection. Korean stocks lost 4.9% in a market dominated by big exporters and heavy industry.

Hong Kong’s Hang Seng index closed down 4.2% on Wednesday, even though the rate of new infections is now slow in East Asia. Most of Hong Kong’s new cases are coming from abroad as Hong Kongers hurry home ahead of travel shutdowns around the globe. The Hang Seng hadn’t risen as high as other Asian indexes due to the pro-democracy protests here last year, so the benchmark is down “only” 20.9% in 2020.

Mainland China, where this all started, is seeing its stocks spared the worst of the selling. The CSI 300 index of the largest shares in Shanghai and Shenzhen fell 2.0% on Wednesday, and the whole index is down only 11.2% this year. That’s half the size of the general selloff around Asia. But treat Chinese share movements with skepticism. Domestic retail investors drive the trading and don’t have many other places to put their money. They are also notorious momentum traders. Mainland stocks are also essentially options on companies rather than genuine holdings, because Communist Party policy can change literally overnight without warning and shut your favorite company down. The party also has cash to spend on stimulus.

Recession is here

I was a guest on RTHK Radio 3’s drive-time business show “Money Talk” Tuesday morning, talking about the disastrous economic figures out of China on Monday. The jobless rate is at a record high, manufacturing has slowed a record amount, and retail sales cratered by a record margin.

One point I made is that, given the shutdowns already under way in Italy and Spain, we can expect similar figures out of those economies in the next month or two. And as more countries corral movement and stop public gatherings, we will see that economic pain spread.

So I chuckle a wry laugh when I hear forecasters predicting that we’re heading for recession. We are in recession, people! It’s here now.

The backward-looking economic output figures will confirm that assessment in the future. I hate the new piece of business jargon that an analyst is attempting to “nowcast” activity. But real-time assessments and common-sense assessments are what we need right now.

I’m digesting a particularly gloomy set of reports from Standard & Poor’s. The rating agency isn’t pulling any punches.

“Asia-Pacific Recession Guaranteed” is my light reading right now. It’s a quick hit. The “enormous first-quarter shock” in China means its growth will shudder to 2.9% in 2020, S&P says, a gutsy call because the Communist Party was keen on “predicting” growth of “around 6%.”

S&P is using the traditional definition of two down quarters in a row to define recession. By other measures, countries such as India and China need to achieve outsize growth just to keep the floods of people moving from the countryside to the city gainfully employed.

This new report says the “rising scale of the shock will leave permanent scars on balance sheets and in labor markets” in Asia. I concur. The rating agency believes US$400 billion in permanent income losses is going to be wiped off profit-and-loss statements.

S&P forecasts aggregate growth will fall by more than half in Asia to under 3% for all of 2020. It envisions a U-shaped recovery.

V-shaped, U-shaped, it’s all a question of how deep and how long this recession is going to last. All downturns are temporary unless you think the world economy is going to zero, which it’s not. But how bad will this get? We don’t know. The costs are continuing to add up, meaning we can’t count the final tab yet.