Chinese shares are leading the way south in Asia on Friday as ramifications about the U.S. decision to dramatically amplify its pressure on China sinks home. U.S. authorities appear to be on the warpath to track down Chinese scientists who relay research back to government entities back home.
The CSI 300 index of the biggest stocks in Shanghai and Shenzhen was off 3.0% in early afternoon trade, with losses steepening, while the Hang Seng index in Hong Kong is nursing a drop of 1.9%.
It's unclear how the markets will bake in the increasingly frayed relationship between China and the United States, and indeed between China and the free world. Stock markets are not incredibly responsive to such long-simmering tensions, more driven by corporate profits than geopolitical pressures. But a fresh battleground is emerging almost daily between China and the United States, and as a result China's recent bull-market run has come to a screeching halt. Hong Kong stocks are particularly vulnerable because the city's special status is gradually disappearing.
The forced closure of the Chinese consulate in Houston is a shocking intensification of the increasingly warm war between the United States and China. U.S. sources are suggesting it was a base for Chinese spy efforts to bolster the Chinese army's technological capabilities. According to State Department diplomat David R. Stillwell, the Chinese consul general in charge of the Houston office, Cai Wei, was caught alongside two colleagues using fake IDs to escort Chinese travelers to a charter flight at George Bush Intercontinental Airport, The New York Times reports. That certainly sounds like an effort to put spies on a plane.
Possible Chinese responses
China is likely to announce its response here on Friday with the tit-for-tat closure of either the consulate in Chengdu or in Wuhan. The Wuhan option, reported as likely by Reuters, would be a symbolic step because the staff left when the city became the epicenter of the Covid-19 outbreak. Chengdu might make more sense, with China keen to respond but not too forcefully.
The Hong Kong consulate, far more significant than either Wuhan or Chengdu, should be a target, according to the Global Times official mouthpiece, used to spread China's foreign policy. Online polls show two-thirds of Chinese respondents believe the Hong Kong consulate should be closed. But Chinese citizens and officials (and spies?) need to travel to the United States. Far more likely is some forced reduction of its 1,100 Hong Kong headcount. The newspaper insists that the Hong Kong consulate is a nest of U.S. spies.
China unintentionally may cause a big reduction in the Hong Kong consulate by belittling the city's importance. The new treason-and-sedition law imposed by Beijing on the city on July 1 has reduced Hong Kong's attractiveness to foreign financial firms and multinational companies. I'm looking at a new report from Standard & Poor's stating that Hong Kong's trend growth will more than halve by 2030, with its advantages as a freewheeling city "at risk of erosion."
Hong Kong plausibly could see growth shrink to zero in a decade, S&P says, because political uncertainty, pressure from China and social woes "are making Hong Kong less special."
The Chinese Communist Party wants Hong Kong to continue as the financial center of East Asia. But its members are more worried that pro-democracy voices will continue to call for change in the city and apparently are willing to sacrifice Hong Kong's special place in the world in order to quell dissent.
China's "Wolf Warrior" assertive stance, named for a popular series of staunchly nationalist action movies, has seen China raise the hackles of much of the free world. The example of Hong Kong shows China will accept a scorched-earth approach rather than risk any threat to the chokehold that the Chinese Communist Party has on its political future.
U.S. Secretary of State Mike Pompeo called this week for an international coalition of "like-minded nations, a new alliance of democracies," to stand up to China's aggressions. "If the free world doesn't change, Communist China will surely change us," he says.
Pompeo has been on a whirlwind round of diplomacy to meet his European counterparts this week. On Thursday, he spoke at the birthplace of former president Richard Nixon, who orchestrated a more-open relationship with China that began in 1979.
"The freedom-loving nations of the world must induce China to change," Pompeo said. Those nations must pressure China "in more creative and assertive ways, because Beijing's actions threaten our people and our prosperity."
This might be more likely to happen had the United States, under the administration of U.S. President Donald Trump, not betrayed its international allies repeatedly. The Trump administration has undermined the global bodies necessary to coordinate a response to China's increasingly militant foreign affairs by withdrawing from the Trans-Pacific Partnership, pulling out of the Paris agreement on climate change, reneging on the North American Free Trade Agreement (NAFTA), moaning about NATO financing, complaining about the cost of stationing troops in Japan, South Korea and Germany, belittling the World Trade Organization, calling the United Nations a talking shop, and withdrawing from the World Health Organization at a time of medical crisis.
The Chinese consulate in San Francisco may be the next target of U.S. ire. A Chinese scientist, Tang Juan, who was working at the University of California, Davis, has been holed up in the San Francisco consulate since the FBI questioned her on June 20, according to a U.S. court filing. Tang had hidden that she had worked as a doctor for the Chinese military, U.S. authorities allege. She now has been charged with visa fraud, as has a neurologist studying at Stanford University. Other Chinese researchers at University of California, San Francisco, and Duke University also have been charged recently.
There are signs the international community may take a more coordinated approach on China. It will take them setting aside their commercial interests, which China successfully has used to separate them so they can secure favorable trade terms.
Op-eds on Friday alone in the Global Times wonder aloud why the United States has turned on China, whether India will harden its attitude to China, why Britain is curbing China's influence at home, and why Australia is limiting scientific cooperation with China. You're not being paranoid, as they say, when they're all out to get you.