Our perilous position here in Hong Kong is hurting markets the world over. The Hang Seng is on the slide again on Friday, down 0.7% at the close, and dragging the bulk of Asian equities lower. The Hong Kong benchmark is down 23.8% since turbulence began in the city last April.
A human-rights battle is being waged on the business front. So the fallout for companies and shareholders is hard to predict. Sanctions and tariffs may be put in place -- not so much to address a trade imbalance or protect commercial property, but to punish political misdeeds.
The headline is that the National People's Congress, China's parliament, approved a new law on Thursday to be laid down in supposedly self-governing Hong Kong. That violates Hong Kong's constitution. It also essentially ends the One Country, Two Systems approach that China uses as a smokescreen to inflict its will on its colonies, Hong Kong and Macau. Beijing will now rule direct.
So here in Hong Kong, I applaud U.S. Secretary of State Mike Pompeo's ruling that Hong Kong is no longer an autonomous part of China. This is a disastrous decision for the Hong Kong economy if the financial hub's special trade and tax status is revoked. But it has to be done.
Does China care? Only a bit. By its calculation, international rebuke is a price worth paying.
The paramount goal of the Chinese Communist Party is to maintain its own rule. And it will stop at nothing to ensure it continues.
The Hong Kong democracy protests have been the most-direct and persistent challenge to that authority since mainland China started opening up in the late 1970s. The idea of Chinese citizens being allowed to rally in the streets and demand political change is the single scariest prospect that the party can imagine. If that translates across the border, the game could be up.
So the Chinese leadership is more than willing to see Hong Kong suffer severe economic pain. The Hong Kong economy, already hurt by the U.S.-China trade war, shrank 1.2% in 2019. It's on track to shed another 6.0% in 2020, according to Oxford Economics. But the Hong Kong government has so far been left by Beijing to introduce only its own stimulus.
The Beijing leadership were happy to leave the Great Hall of the People without setting an economic growth target for this year. But they were damn sure going to take it to those upstarts in Hong Kong. The new law and crackdown will likely take effect by September.
China, like most dictatorships, calls itself a democracy. The same was true of the German Democratic Republic (East Germany), and remains the case for the Democratic Republic of Korea (North Korea). It claims that the rubber-stamp parliament's thousands of delegates represent the country as a whole.
And how does democracy in China work? The Hong Kong law passed with 2,878 votes for, to 1 against. I'd love to know who that is. Maybe a ballot mistake ... certainly a personal one.
The resolution means the new law must now be drafted. It is sure to impose heavy punishment for crimes construed to be "treason, secession, sedition," as well as "subversion against the Central People's Government," which could be virtually anything the government doesn't like.
There will be penalties for the "theft of state secrets," which has been interpreted in China even to cover something as innocuous as a general's birthday, which would imply his retirement age. The new law will also outlaw foreign political organizations or "bodies" from operating in the city. Watch out, Boy Scouts of America ... or more seriously, the American Chamber of Commerce in Hong Kong.
Do not believe the Hong Kong government's line that this will apply only to an "extremely small group" of "terrorists" and "rioters." Those terms already criminalize by language the demonstrators, many of them high-school and college students, who want change in Hong Kong and for the Communist Party to keep its hands off the city.
The new law will be used against anybody that the Chinese Communist Party does not like, and used to quash any dissent. This white terror is the real terrorism. The fear to speak out will spill over even into something as simple as an analyst's report about the Chinese economy or a state enterprise. Chinese spy agencies will operate in the city, and report "traitors."
Hong Kong's top official, Chief Executive Carrie Lam, has given the game away in her defense of this supposedly entirely reasonable law. "We are a very free society. For the time being, people have the freedom to say whatever they want to say." Fears that China's spy agencies will arrest people for, say, calling for the Chief Executive to step down "at the moment are your imagination."
"For the time being" speech is free, and "at the moment" that's in your imagination. Even in defending this indefensible law, she has let the truth slip. She said the law will be applied against anyone who tries to "subvert the state power." The state will reign supreme.
How petty will this get? Hong Kong soccer fans have taken to booing the Chinese national anthem before games. A separate law will make that punishable by three years in jail. God forbid you take a knee! So make no mistake, China will quash all dissent.
U.S. President Donald Trump has promised an American response by the end of this week. He has not personally been vocal about Hong Kong democracy, preferring to focus on doing more trade with China. Despite all his criticisms, this implies closer ties. The Hong Kong government says penalties will backfire, pointing out that from 2009 to 2018, the U.S. trade surplus of $297 billion was its biggest with any trading partner. There are 1,300 U.S. companies with offices here.
We will soon see whether the U.S. response involves sanctions against individuals, or removal of Hong Kong's official special status, with the latter considered unlikely. It will complicate matters even more if it's somehow tied into the Phase 1 trade deal. Barring categories of Chinese students from U.S. study or freezing U.S. visas for officials are token steps.
Where are the British in all this? The former colonial power is, frankly, useless in enforcing the agreement lodged before the United Nations when it handed Hong Kong back to China.
As a Brit by birth, two decades in Hong Kong, I've grown highly frustrated by the British response to the violation of this legal treaty. With each Chinese move to undermine it, the Foreign Secretary makes some "tut tut" noises of disapproval. And nothing happens at all. The British need to act, not talk.
The latest word is that British Foreign Secretary Dominic Raab says the country may offer a better deal on visas for holders of the British National (Overseas) passports that it granted Hong Kongers born under British rule. This is basically a "dirty person" passport that says "You're British, just don't come live here."
In the deal, holders of the "BNO" will have their current six-month visa on arrival extended to 12 months. They can use that time to apply to work or study. But Raab said that offer will only come "if" China continues down this path.
It's mealy-mouthed. Just grant the 300,000 or so people in question the right of abode in Britain, or citizenship, like Britain should have done when it left Hong Kong. Hong Kongers would feel safe, and likely bring a lot of capital and expertise if they do settle in Britain. In my experience, immigrants are the hardest workers in their new home.
Britain and the United States on Thursday did issue a joint statement alongside Australia and Canada expressing "deep concern" over the national-security law. This states that the law is in "direct conflict" with China's obligations under the "legally-binding, UN-registered Sino-British Joint Declaration."
It looks like only the United States will in fact respond by doing anything other than talk, although Taiwan has offered to help political refugees.
Any curtailment of the Hong Kong finance industry will hurt. For now, Hong Kong still has a place because China continues to restrict exchange of the yuan. But there's a long-term goal of ensuring that Shanghai becomes the financial center of greater China. The influential Shanghai faction of the Communist Party, one of the only checks on all-powerful President Xi Jinping's power, will relish the shift away from Hong Kong.
I've had readers ask whether it's safe to write these columns. "For the time being."
Yesterday I was reminded to look up a poem from the German pastor Martin Niemöller that's displayed to visitors at the U.S. Holocaust Memorial Museum. Ironically, the U.S. display tends to skip over the first two lines, "First they came for the Communists," since that didn't go down well on U.S. shores.
The rest of First They Came is as follows:
First they came for the socialists, and I did not speak out -
because I was not a socialist.
Then they came for the trade unionists, and I did not speak out -
because I was not a trade unionist.
Then they came for the Jews, and I did not speak out -
because I was not a Jew.
Then they came for me - and there was no one left to speak for me.