Somehow, on Monday, it is being treated as good news out here in Asia that the United States will revoke Hong Kong's special tax and legal status. U.S. President Donald Trump confirmed on Friday that his administration will "begin the process" of re-categorizing Hong Kong as just another city in China.
Hong Kong stocks on Monday are the major movers in Asia again. But unlike last week's losses, they are sharply higher, up 3.3% in late trade. That helps redress some of the 5.9% slide since Beijing announced it will write a special treason law and impose it on supposedly self-governing Hong Kong.
"My announcement today will affect the full range of agreements we have with Hong Kong," Trump said on Friday, "with few exceptions."
Optimists have latched onto those three words as well as the lack of a timeline or details in Trump's speech. Some believe he is talking tough but likely to walk back on actual action.
In Shanghai and Shenzhen, the CSI 300 blue-chip index closed up 2.7%. More cynically, investors may be responding to the fact that Trump did not link the broader U.S.-China trade deal with actions against Hong Kong. So while Hong Kong-specific companies such as its major real-estate developers and banks are likely to suffer, the China-focused listings in the city would be little affected.
It's hard for me to see the positive for Hong Kong companies and investors in Friday's statement. The steps include "action to revoke Hong Kong's preferential treatment as a separate customs and travel territory from the rest of China." The State Department will warn U.S. citizens about their behaviour, "to reflect the increased danger of surveillance and punishment by the Chinese state security apparatus."
China's spy agencies will begin operating in Hong Kong, another step that's against the rules of the city's constitution, the Basic Law. That stipulates Chinese forces can't operate in the territory other than in matters of defense -- but clearly Beijing is going to argue it is merely fending off shadowy "foreign forces."
I agree with Mizuho, which says any relief rally may be "set to evaporate." Trump isn't treading carefully, his administration simply has yet to know the details of China's treason law and spell out its own actions.
I'm not drinking the Kool-Aid apparently served at the cabinet meetings of Hong Kong leader Chief Executive Carrie Lam. Her ministers are sounding more and more like their Communist counterparts, spouting propaganda and making little sense.
Justice Secretary Theresa Cheng says it is "completely false and wrong" that Hong Kong has lost its autonomy, despite Lam's administration being bypassed by Beijing, and rendered inconsequential. Lam wrote in her blog that the new law will "lay the groundwork for the practice of one country, two systems," even though it totally undermines Hong Kong's ability to function autonomously. Above all, they believe the U.S. action drives Hong Kong closer to all-powerful China, and is a GOOD THING, since Mother Panda/Big Brother will shelter the city from harm.
Those ministers may find themselves targeted in U.S. sanctions, since the United States will also target Chinese and Hong Kong with a punitive response any officials "directly or indirectly involved in eroding Hong Kong's autonomy."
In actual fact, China has brought this action on Hong Kong, and resulted in the city becoming a geopolitical pawn. Trump is right that "this is a tragedy for the people of Hong Kong."
Politically, I applaud the move, since the United States and Britain, indeed all nations that consider their populace truly free, must react to Beijing's decision to lay down the law directly in Hong Kong. That's in contravention of its promises, and in fact its legal obligations as lodged in the handover agreement with Britain before the United Nations.
The looting and demonstrations in the United States surrounding the death of George Floyd quite honestly could not have come at a worse time. If there's ever a good time for such events.
At their worst, the demonstrations in 75 U.S. cities look like "real riots" to me, as opposed to the targeted pro-democracy demonstrations in Hong Kong in 2019. It strengthens China's hand considerably that National Guard soldiers are being called into action to keep the peace. China says it simply wants to lay down a law that will allow the Hong Kong police to do the same.
We don't yet know any of the details of Beijing's law, so it is appropriate for the United States to hold fire on its response until those are clear. I would say there is zero chance Beijing is going to walk back the path it has chosen -- it doesn't want to appear to buckle to U.S. pressure. But the language could put more interpretative power in the hands of Hong Kong's courts. That won't mean much because Beijing is extremely willing to step in and force "interpretations" of Hong Kong law on the legal system here.
