Hong Kong stocks weren't able to function this morning as a "black rain" warning shut down the city. It's an appropriate metaphor. There's a black cloud and looming problems hanging over the city as a business and trading hub, issues that threaten its very existence.
Here on Monday morning western sections of the city saw eight inches of rain. Companies and schools were shuttered and recently built tunnels and train stations demonstrated their weak points by flooding. In the new Kai Tak MTR subway stop, it was raining inside thanks to leaks. There was an average three-inch downpour across the territory.
The Hong Kong stock exchange eventually got back to business in afternoon trading. The 1:40 p.m. local open saw the Hang Seng edge 0.1% lower by the close after flirting with slightly higher losses.
China on July 23 will celebrate 100 years since the founding of the Community Party in Shanghai. Russian-organized cells from around the country gathered in the French Concession in 1921 with Mao Zedong in attendance, though only he and one other inaugural Communist Party member were still around when the People's Republic of China was officially declared in 1949.
The celebrations will kick-start on July 1, celebrated on the mainland as founding day of the Chinese Communist Party. That's also a holiday here in Hong Kong, though it will be a day of commiseration rather than celebration - the much-detested National Security Law went into effect on June 30, 2020. Back in 1997, it was at midnight as the clock ticked to July 1 that the British handed Hong Kong back to China.
Stocks have advanced 19% since the law went into effect last year. However, the Hong Kong market is underperforming stocks in mainland China, where the CSI 300 benchmark index is up nearly 27% in the last year, not to mention Tokyo, where the Topix has advanced 24.6% in the last 12 months. Hong Kong is also trailing other East Asian markets such as South Korea, one of the best performers in the region thanks to its tech-heavy nature. The Kospi, heavy on chipmakers, is up 54.7% in the last year.
Freedoms no longer ring
Hong Kong's landscape has been rendered unrecognizable in the last year. We are used to fast change that sees skyscrapers spring up almost in seconds where low-rise warehouses or the city's long-closed factories once were. The thing we did not expect to happen overnight is the sudden removal of the freedoms of speech, protest and thought that Communist China has forced on its colony.
The Hong Kong police have banned a pro-democracy demonstration that's traditionally held on July 1 in Hong Kong, for the second straight year, pretending that COVID-19 restrictions make it impossible. Infections here are close to zero, averaging four per day over the last week, nearly all "imported" from abroad. On July 1, for many years, pro-democracy demonstrators and politicians were free to protest and seek change. Those minor freedoms have vanished.
Hong Kong Chief Executive Carrie Lam claimed the National Security Law would target only an "extremely small minority" of people when it went into effect. Far from it. The law has been used to target all of Beijing's most-prominent enemies, from politicians to public figures.
It has now been used to force the pro-democracy newspaper Apple Daily to close, as the newspaper did on Thursday. In an unprecedented attack on a viable and profitable company, all 800 people at the paper's parent, Next Digital, and related companies are now out of jobs. Next Digital was forced to close after the authorities froze its accounts and refused to unfreeze them so the company could pay its staff.
No business is safe should its founders fall afoul of the Communist Party. That strikes at the heart of the laissez faire economic system that used to guarantee commerce in Hong Kong was free. The clearly selective use of the Hong Kong law by authorities to target their enemies undermines the city's once-strong legal system.
Police on Sunday night arrested a second editorial writer at Apple Daily. Fung Wai-kong, also until recently editor-in-chief of the English news section, was looking to leave for England. He has now been detained on suspicion of collusion with foreign forces, a charge used to prosecute critical articles, particularly any op-ed that suggested sanctions on the Hong Kong government were in order for its violations of citizens' rights. Fung joins another editorial writer, Yeung Ching-kei, in detention, their only apparent crime being writing articles that are critical of the government. Their "collusion" appears to be expressing those views in public, the "foreign force" any reader.
Chief Executive Lam is reneging on another of her promises. Although the National Security Law is not supposed to be retroactive, the authorities say they are investigating around 30 articles dating back into 2019, before the law went into effect.
How is it a threat to the national security of your entire nation to write critical news articles? U.S. President Joe Biden is correct in asserting that Apple Daily is the "victim of tyranny" and was a "much-needed bastion of independent journalism in Hong Kong."
Resentment under the surface
Advocates would say the National Security Law has brought much-needed stability to the city after a year of conflict in 2019. But appearances can be deceiving. The issues that drove the protests are not even close to resolution; the issues that brought 2 million people out into the street and caused thousands of young people to clash violently with police still bubble at boiling point below the surface.
The administration of the puppet government under Lam has looked at symptoms - young people are throwing rocks and firebombs at police - and said it is a success to make them go away. But the lame Lam administration, appointed at the behest of Beijing but with scant public support, has done nothing to cure the disease. It has not considered why Hong Kong people are unhappy; it has done nothing to resolve those grievances.
Much of the anger vented in 2019 stemmed from Beijing's creeping influence in Hong Kong. The fact that Beijing has directly ordered a law upon Hong Kong, one that was drafted and decided in Beijing, has merely revealed the level of dictatorship the Communist Party wants to see pushed into place in Hong Kong. Beijing attempted to push change behind the scenes and via the Lam administration; when it became clear the Lam administration could not achieve the kind of total control Beijing enjoys at home, the Communist Party took off the kid gloves and simply decided to rule supposedly free, supposedly free-market Hong Kong directly.
The black cloud will persist over the city for the foreseeable future, even after this morning's thunderous downpours have broken. There will be plenty of propaganda out of China surrounding the July Communist Party centenary. Throughout history, you could expect critical insight into such events to be freely published in Hong Kong. But those printing presses are quiet. It remains to be seen how long the Communist Party's iron-fisted tactics keep the seething resentment under the surface in Hong Kong.