China has opened a corporate battleground in the pro-democracy protests in Hong Kong with an order to flagship carrier Cathay Pacific (CPCAY) that it must ground any staff who take part.
Beijing has demanded that Cathay bar any staff members who have taken part in "illegal protests," "violent actions" or "overly radical activities" from flights into or out of China.
Those words are open to a lot of interpretation. What exactly is "overly radical" in your eyes? Or those of Beijing?
A pilot for Cathay Pacific is one of the many protesters who have been arrested during the demonstrations but not convicted of any crime. He was working as normal, but following Beijing's ultimatum has been suspended from flying duties.
Cathay has also fired two staffers over a data leak. The flight details of the Hong Kong police soccer team were leaked to protesters as the cops were flying to a match in the mainland. It's not clear anything happened as a result.
Cathay's shares slumped 4.9% on Monday, reaching their lowest level in a decade. In a note to staff, CEO Rupert Hogg said that staff who "support or participate in illegal protests" would face disciplinary action that "could be serious and may include termination of employment."
Of course, it's not clear who is taking part in "illegal" anything until that's proved in a court. But China's move - which critics compare to "white terrorism" - is an attempt to get corporate Hong Kong to quell protests that it does not like.
Hogg said Cathay Pacific "has a zero-tolerance approach to illegal activities" and that "we are all obliged to abide by the law at all times." Other businesses have garnered praise in Hong Kong for supporting the protests.
Cathay's stock fell to HK$4.80 on Monday, its lowest close since June 2009, and the wake of the global financial crisis. The shares of its parent, Swire Pacific (SWRAY) , dropped 6.2%, their steepest fall in almost four years.
It was the Civil Aviation Administration of China that issued the edict to Cathay about staff members flying over Chinese airspace. But you can bet Beijing will be using every regulatory body it can find to push companies outside mainland China to do its bidding.
I wouldn't be surprised if we shortly see orders issued from the central bank and securities regulators about trading or transferring funds with suspected democracy sympathizers. It'll be couched in legalese, but the intent will be to pressure banks and brokerages.
It will put Hong Kong businesses in a tough situation. They should not take action against staff, customers or business connections unless they have been convicted of a crime. In China, the assumption works the other way around - if the police or authorities accuse you of something, you're basically guilty unless you can prove that you aren't.
These efforts will hamper Hong Kong's economy far more than the demonstrations have so far. The Hang Seng fell 0.4% on Monday. It's a mild dip after yet another intensification in pressure from demonstrators in response to harsh police treatment of peaceful protesters yet again.
Protests ground flight operations
Hong Kong International Airport ground to a standstill on Monday after thousands of demonstrators occupied it in anger over the harsh police response to protests on Sunday.
The airport said on Monday afternoon that all flights were cancelled for the rest of the day. Only flights that had already completed check-in and planes already on the way to Hong Kong were allowed to come and go.
"Airport operations at Hong Kong International Airport have been seriously disrupted, all flights have been cancelled," the airport said in a statement at 4:50 p.m. on Monday. "All passengers are advised to leave the terminal buildings as soon as possible."
The airport is due to reopen at 6 a.m. on Tuesday. The main highway to the airport was also blocked with traffic on Monday, forcing demonstrators to get out and walk to their destinations.
Thousands of protesters wearing black, many wearing eye patches or carrying signs of an "all-seeing eye," clogged the airport, preventing passengers from checking in or clearing security. They're seething at police action on Sunday that left 40 people in hospital, including one young woman struck in the eye by a beanbag round who may lose use of that eye.
Protests started at the airport on Friday afternoon with a sit-in. Several hundred people took part in that, and the crowd was about 300 strong on Saturday.
I'm writing this from the Philippines, having flown out on Sunday morning (successfully). I did rise before 6 a.m. and leave early to make it for my 9:45 a.m. flight, but there were no troubles at that stage. The three days of sit-ins at the airport didn't significantly disrupt airport operations. All I had to do was go through an extra screening to ensure I had a ticket for that day to enter the check-in desks.
Who will China squeeze next?
But protests elsewhere in Hong Kong on Sunday in several neighborhoods ended with police firing tear gas inside one subway station and charging at protesters in another.
It's the first time that Hong Kong police have used tear gas in a confined space. They've now fired around 1,800 rounds of tear gas, as well as bean bag rounds, rubber bullets and sponge bullets at protesters.
The protests began in late April and intensified in June. We've had 10 solid weeks of strife. The police can't contain themselves or those shoving them. The administration stays silent and hides in its offices.
China, with its corporate scare tactics, has added an insidious extra pressure on Hong Kong business, yet none of them appear to care a jot about resolving the issues at the root of the problem.
Investors should watch how China squeezes Hong Kong businesses next. Cathay won't be the last corporate pawn in this game.
