Blain’s Morning Porridge – Nov 21st 2019 – Hong Kong?

Blain’s Morning Porridge  – November 21st 2019

“China is a sleeping giant. Let her sleep, for when she wakes she will move the world.”

(Extra points for linking Zhou Enlai’s: “It is too soon to say”quote to the quote above.)

While we’ve being getting all angry about the UK elections, and who said what in the White House, we’re likely focusing on the wrong stuff.  I reckon a trade deal is further away than ever. The current crisis point that could impact global markets is Hong Kong, and there are two fundamentals to factor at present:

1. What will China do?

2. What will be the Occidental response?

Many commentators are taking a pessimistic view, and predicting a brutal outcome; a repeat of Tiananmen Square in Hong Kong, citing China’s need to demonstrate its’ dignity and prestige, and maintain the concept of “mainzi” or “face”.  Such a reaction would be blunt and extremely challenging to the West.

An escalation would certainly destabilise the outlook for the global economy, pushing the current trade skirmishes into a full scale trade war right up to sanctions.  Further images of state supression in Hong Kong will build consensus across the West – no matter how damaging to growth.

The Chinese know their claim to be the only and final determiner of Hong Hong’s constitutional legislation puts it in direct challenge with the US.  Although it will infuriate Beijing, Trump is expected to sign House legislation supporting the protestors – it requires annual certification that Hong Kong remains independent of china to retain its “favoured nation status”.  It’s likely to be another reason China isn’t set to budge on trade.

No one is quite sure how Xi will respond to the challenge – everyone is guessing.  (The Chinese might even be front running the expected Western reaction!)   Yet the Chinese have time on their side. Rather than knock out blows, perhaps they will employ a strategy of a million flea bitesto win Hong Kong for China.  It would certainly confound the White House.  This article in the NY Times explains how China mounted a similar campaign againt the Muslim Uighur minority in Xingjiang – its chilling, and despite protests, it will likely work.

China under Xi is a nascent empire – with Chinese communist characteristics.  Mainzi and power projection is important, but a response today is likely to be significantly more nuanced than we saw 30 years ago, and more mature.  China has significant tools: electronic and media surveillance can work alongside already strong and loyal Chinese HINTEL resources within Hong Kong, including the now suborned Police force.

The fact Alibaba chose Hong Kong over Shanghai for its successful secondary listing shows Hong Kong still has value as China’s financial centre and gateway – why risk alienating it further?  Rather than a dramatic clamp down, all China needs to do is keep up the pressure. They don’t want to compromise Hong Kong as a market hub.  There are few signs of domestic China support for the Hong Kong dissidents – it’s completely unlike the student protests of 1989 in Beijing that could have destabilised the whole nation if not checked.

However, the protests will still require China to act.  They just have to make sure they do so within acceptable parameters that won’t trigger international ire – that’s going to be a very delicate balancing act that will keep Occidental relations with China tense for years.

China may decide to apply pressure but not blows via its proxy legislative council and the Hong Kong Police. Like in Xinjiang, they won’t do anything dramatic, but make it increasingly uncomfortable. Demand the rule of law – like anti-mask rules – is followed, and respond quickly to requests for assistance, mainland troops, and support from the legislative body. China will argue it is not intervening, merely keeping the colony peaceful. Who can complain as protestors start to get pulled off the streets in greater numbers?  It’s a domestic China affair. I’m afraid the rioting students don’t get a vote.

Carrie Lam’s law to allow the extradition of criminal cases for trial in China won’t be reintroduced – its apparently already happening. Reports relating to the recent imprisonment of a British consulate worker held on trumped up prostitution charges while visiting China speak of rioters already being held in Chinese jails.  They admit their guilt in return for reduced sentences, are allowed to return home with a criminal record, and then leave Hong Kong of their own free will – which suits China perfectly. Every Hong Kong student who flees to Canada allows China to move in loyal mainland supporters – just as they do in Tibet.

Rather than a shock, China can afford to play a longer game, sniping down the insurrectionists one-by-one – the million flea bites.  China is certainly less afraid of the west objecting.  Although it’s still perhaps a bit early in terms of their military build-up and economic power projection for an all-out trade battle with the West, China is strong enough to fall back on internalising their domestic economy, secure in the knowledge they can endure an economic war, and that its likely to be short term as the west will suffer a downturn – bringing them to the negotiating table.

China probably can’t win such an economic war – the West will have to lose it by blinking first.

China’s policy on Hong Kong may become apparent when the riots inevitably wind down, and if vast numbers of young people leave Hong Kong, allowing the authorities to retain its business/financial base while making it a more Chinese City. That’ will be a far more convincing win for Xi that sending grieving HK parents bills for the bullets used to murder their children.

Meanwhile… Politics…  

The UK election is really beginning to peeve me. It’s a confounded nuisance as it degenerates into a handbag slapping contest between entitled and patronaged-up buffoons on one side versus well-meaning idiotic incompetents on the other, leavened with a frosting of Brexit incredulity on top.  I am so bored by them I might even vote Liberal… Yep, I will vote for the party I dislike the most just so it won’t be disappointed when it gets even worse.

It’s just as bad in the USA. Their next election apparently began the moment Trump won the last one.  What the US needs is leadership, not squabbling political wannabes. Fake News dominates – my social media streams are dominated by articles presenting lies as irrefutable facts on “alleged” Democrat corruption. Throw enough mud and it sticks – ask an entirely innocent man if he still beats his wife, and very quickly the entire world believe he does.  And the Republicans fare little better, seeing their candidate repeatedly swamped by the swamp.

Next year’s US election is shaping up to be the most unpleasant, nastiest, more horrible MOAB we’ve ever seen. Its already started.

Democracy is the very worst form of government, except for anything else.

Both the UK and US are guilty of over-demonising the left.  Rich and Uber-Rich Americans apear united in one thing: their love of the Trump presidency – and he loves them back.  They fear one thing – the Democrat left wing might win the election and thus destroy America. It’s the same picture here in the UK, where business and finance is vehement about the Corbyn danger.

Forgive my temerity, but obviously rich Americans have more right to comment than poor Americans because they are Rich Americans?  And Rich Americans are united in their unquestioning belief the US stock market will immediately collapse if a Democrat Woman gets to redecorate the White House?  In fact, the moment it even looks like a Democrat might get in – except for that nice Joe Biden – the stock market will falter. (Republicans like Joe Biden because they all sincerely believe he has been terribly corrupt in Ukrainia and thus he will get thrown out if he gets in. (It’s a mad world – but its America..))

“The S&P will tumble 25%” if Elizabeth Warren becomes President, says Billionaire Paul Tudor Jones. Mark Mobius says a 25% fall is “probably possible” (yeah?).  Warren is the leading democrat contender. Why do the right hate her? Because she is proposing a single-digit tax on billionaire households?  Because bank executives told a TV host “she’s got to be stopped”, which Warren immediately tweeted her support for (smart use of twitter).

Her full programme is likely to include a host of programmes designed to peeve the rich: a transaction tax on the top 1% of households, changing the rules on private equity leveraging up companies via debt, regulation of big tech, and a new Medicare for all proposal.

There you have it, from the lips of Hedge fund managers and billionaires – the ultimate truth. America is rich because you have made them rich. To undo that will destroy the country.. (US readers – this is called Sarcasm.)

Yep.. these are dangerous beliefs and policies.. giving the poor money and helping the middle classes.. it will be the end of Amerikay completely… I hear Warren is going to ban Apple Pie and Grits (whatever they might be…)

We really should get over our fear of the left. Why should only the Right have the right to completely f**k up the UK and USA? I say give the goddamn commies a turn… !

Five things to read this morning:

FT – Blade Runner, Softbank and the pitfalls of predicting future technologies

Gruniad – I’ll take Labour dithering over Conservative cruelty any day

WSJ – Ailing Art Collector Faces a Very Modern Problem: Mountains of Debt

BBerg – ECB’s Battle on Fiscal Front May Need Lagarde to Change Tack

FT – Money Pours into US Corporate Debt despite warnings

Out of time, and back to the day job

Bill Blain