As new pains ease, old tensions return.
The Hang Seng Index closed down 4.2% on Monday, with Hong Kong shares being punished as U.S.-China trade hostilities resurface. The city also reported its worst economic figures on record, with an 8.9% slump in GDP for the first quarter of 2020. That was a slightly larger decline than the 8.3% drop after the Asian financial crisis in the third quarter of 1998.
The coronavirus panic is subsiding here in Asia, as I explained on Friday, with Hong Kong yet again reporting zero cases of local transmission on Monday, making it 15 days in a row now. But the claim by U.S. Secretary of State Mike Pompeo to have "enormous evidence," none of which he presented, that the Wuhan virus escaped from a lab in China has spooked investors who believe we're about to see a resumption of trade war hostilities.
Chinese investors have not yet had the chance to respond. But look for a major selloff in Shanghai and Shenzhen when trading resumes on Wednesday. The long Labor Day weekend is a bit of a Covid-19 coming out party in China.
The Shanghai Bund was packed with tourists over the weekend, and across the country many tourist attractions had to stop selling tickets because their post-virus quotas were reached. Based on a survey of travel plans in more than 100 cities, China should see around 117 million travelers over the long weekend, or 60% of the tourist traffic seen last year, according to Dai Bin, the head of the China Tourism Academy. In 2019, 195 million tourists traveled in China over the holiday, spending 120 billion yuan (US$16.9 billion), which suggests spending this year will be 72 billion (US$10.1 billion).
Mainland Chinese stock markets were out of action on Friday and will remain closed until Wednesday for the Labour Day holiday. Ironically, this most socialist of days has its origins in the American Midwest and U.S. trade unions.
This Golden Week to honor workers roughly coincides with lixia, or the start of summer on the lunar calendar. But Labour Day, or the International Workers' Day, is honored in much of Asia. It traces its roots to the Haymarket Massacre, which took place on May 4, 1886, in Chicago.
On that day, a labor demonstration started out as a peaceful rally demanding an eight-hour work day. When the police moved in to disperse the demonstration, someone threw a dynamite bomb into their ranks. The explosion caused some officers to draw their guns and shoot on the workers. The chaos left seven cops dead, as well as at least four civilians, with scores on both sides injured.
Despite scant evidence, eight anarchists were convicted of conspiracy, with four executed by hanging and another committing suicide in jail. As a result, labor union membership surged in the United States. In 1889, when socialist and labor parties from 20 countries gathered in Paris, they declared May 1 the International Workers' Day, taking the campaign for an eight-hour work day worldwide. Labour Day gradually has been adopted in many nations.
May Day on May 1 was a pagan ritual and celebrated as a spring festival in much of Europe. Picking it as Labour Day rather than May 4 was a step to distance it explicitly from the Haymarket Massacre, but the event was still too fresh in the minds of U.S. politicians. When they selected their own Labor Day, they chose the first Monday in September. Grover Cleveland signed Labor Day into law in 1894.
So U.S. Labor Day is different from the U.S.-inspired Labour Day marked in India, China, Hong Kong, Macau, Taiwan, Singapore, the Philippines, Thailand, Vietnam, Malaysia, Pakistan and other Asian nations. Argentina, Brazil and much of Africa marks the occasion with a public holiday, too.
The May Golden Week has a checkered history in China. There has been discussion in China's parliament about scrapping both the National Day and May Day Golden Weeks. It causes travel chaos to have many of the 1.4 billion people on vacation at the same time.
In China, it used to be the case that laborers only got a block of time off at the Lunar New Year, in mid-winter. Then in 1999, the Communist government introduced a fall Golden Week to honor the Oct. 1 foundation date of the People's Republic of China in 1949. It also introduced a Labour Day Golden Week surrounding May 1, basically to spur retail sales.
The May Golden Week was cut to just 1 day off in 2008 to allow for three other traditional festivals. But it got boosted again in 2019 and lengthened back to its full five-day glory in 2020. The decision came before the coronavirus outbreak, but desperate retailers are glad some semblance of normal life is being restored over the long weekend.
In Hubei Province, epicenter of the coronavirus outbreak, tourist numbers were down 83% through Sunday, but the 22 attractions that had reopened still drew 520,400 visitors, according to China Daily. The Yellow Crane Tower in Wuhan is a landmark pagoda that has needed to be rebuilt several times through history, most recently in 1981. It drew only 1,000 visitors on Sunday, when it can accommodate around 5,500 people.
The Forbidden City in Beijing reopened this weekend for the first time since Jan. 25, but with tickets limited to 5,000 per day instead of the normal 80,000 visitors allowed in. Travel is back but with strict controls.
Investors should watch for the fallout from the worsening Chinese-U.S. relations when Shanghai and Shenzhen resume trade on Wednesday morning. It could be a brutal day.