Hong Kong Headed for Crisis Again

This post Hong Kong Headed for Crisis Again appeared first on Daily Reckoning.

I’ve been visiting Hong Kong for over 35 years. My first visit was in 1982 and my most recent was in May 2018.

All large cities change over time. New districts are developed. New buildings are erected and some old ones torn down.

Cities on the water, like Hong Kong, can use landfills to build more land and transform colourful (if dangerous) dockside alleys into sleek convention centres and hotel districts. None of that is unexpected, especially in dynamic cities like Hong Kong.

Yet in addition to physical infrastructure (which changes), cities have a kind of soul or zeitgeist, which is less susceptible to change.

St Mark’s Square in Venice, the Louvre in Paris and the Houses of Parliament in London are all defining and, if not eternal, at least help to keep a place rooted over time.

My visits to Hong Kong in the late 1990s and early 2000s were characterised by the same energy and dynamism I had encountered decades earlier.

I had routinely described Hong Kong to friends as the most energetic city in the world after New York.

The ‘One country, two systems’ seemed to work well together.

Yet as China’s growth ‘miracle’ gathered steam from 2002-2007, a legal heavy hand and gloomy administrative culture directed from Beijing descended on Hong Kong. You could feel it in the air.

At first, I noticed the lack of energy. The city was still rich and active, but there was a ‘business as usual’ attitude that was less driven than the energetic venue I had always known. Then I noticed a more depressed attitude among the bankers, investors and event planners I associated with.

They still made money, but the typical upbeat smile had been replaced with a more worried look.

This was accompanied by a rise in street protests against the heavy hand of Beijing on matters such as free speech, government autonomy and the relative importance of Hong Kong in the Chinese master plan.

Clearly, Shanghai had come into its own as the financial centre of China, so Hong Kong’s special role had been greatly diminished. The starkest evidence of change came during my last visit in May 2018…

I was presenting to a group of elite policymakers and property developers at the prestigious Asia Society local headquarters. At one point, one of the local elites took me aside, looked over his shoulder and at a near whisper said, ‘Be careful what you say.’

Global investors are accustomed to treating Hong Kong as a bastion of free markets and fair dealing. Those assumptions were suddenly no longer true, as Beijing began to treat Hong Kong as just another piece on a chessboard of market manipulation and geopolitical ambition.

The Chinese authoritarianism evident in Hong Kong last year only cemented that policy shift. What developments can we expect now that the freewheeling Hong Kong we knew from 1960-2005 has come to an end?

Last year’s unrest in Hong Kong was another symptom of the weakening grip of the Chinese Communist Party on civil society. The unrest spread from street demonstrations to a general strike and shutdown of the transportation system, including the cancellations of hundreds of flights.

This social unrest died down after the proposed bill to extradite Hong Kong citizens to China was pulled off the table. But now Beijing is clamping down hard with its proposed legislation to punish dissent.

Expect the pro-democracy protests to resume again. They may even grow larger. How will China react?

A direct Chinese invasion cannot be ruled out if local authorities cannot squash the unrest.

Of course, that would be the last nail in the coffin of the academic view of China as a good global citizen.

That view was always false, but now even the academics have started to understand what’s really going on. The situation in Hong Kong today is eerily reminiscent of the days leading up to the Tiananmen Square massacre on 4 June 1989.

In both cases, a particular cause for complaint gave rise to demonstrations, which soon grew and led to wider demands for political liberty and justice. Tiananmen started as a demonstration against inflation, which drew college students and housewives.

At its height, over one million protestors were active in Beijing, while demonstrations sympathising with the Tiananmen protestors appeared in over 400 Chinese cities.

Tiananmen Square is immediately adjacent to the Forbidden City and the Chinese leadership compound, so the demonstrators posed a potential threat to the government itself. Finally, hard-line Communist Party leaders ordered tanks and troops to attack the demonstrators.

No one knows the exact number killed, but estimates range from the low thousands to the tens of thousands. The entire incident has been covered up and is never mentioned in official communications or taught in Chinese schools…

As I described earlier, Last year’s Hong Kong demonstrations began on a small scale to protest a proposed law that would allow extradition of Hong Kong people to Beijing for trial on charges that arose in Hong Kong.

That would have deprived Hong Kong people of legal protections in local law, and could have subjected prisoners to torture and summary execution. The demonstrations grew exponentially and involved hundreds of thousands of protestors.

The list of demands also grew to include more democracy and freedom, and adherence to Hong Kong’s rule of law. Now the protests look like they’re starting again, and rightly so. Here’s China’s dilemma…

If Beijing tolerates more protests (and they succeed), they may lead to greater autonomy for Hong Kong at a time when Beijing is trying to strengthen and centralise its control. But if Beijing cracks down on the protestors, it will have another Tiananmen Square massacre on its hands with two important differences.

Hong Kong is a major city and will not be as easy to control as a confined square in Beijing.

And the rise of social media, mobile devices and live streaming guarantee that Beijing will not be able to hide or cover up any atrocities.

The jury is out on which path the Communists would take. But with China’s increasing belligerence in the region, don’t count out a strong response.

Unfortunately, the resolution may not be the peaceful one hoped for but another bloody massacre.

With the U.S. warning China against strong action in Hong Kong, let’s just hope the situation doesn’t light a powder keg resulting in a shooting war.

In case investors didn’t have enough to worry about with the coronavirus, they may have a whole lot more to deal with before too long.

Regards,

Jim Rickards
for The Daily Reckoning

The post Hong Kong Headed for Crisis Again appeared first on Daily Reckoning.

Is War Next?

This post Is War Next? appeared first on Daily Reckoning.

Remember the pro-democracy protests in Hong Kong against Chinese authoritarianism?

Well, guess what? They’re about to start again. And U.S.-Chinese relations could get even worse than they are right now.

Are you prepared for a bumpy ride?

Let’s unpack this…

Last year’s protests came in response to a proposed law that would have allowed the extradition of Hong Kong residents to Beijing for trial on charges that arose in Hong Kong.

That would have deprived Hong Kong residents of legal protections in local law and subjected prisoners to torture and summary execution.

The legislation was proposed by Hong Kong’s Chief Executive Carrie Lam, who many consider a puppet of Beijing.

The demonstrations grew exponentially, ultimately involving hundreds of thousands of protesters.

The list of demands also grew to include more democracy and freedom and adherence to Hong Kong’s rule of law.

Due to social media, these protests were seen around the world.

The proposed bill behind the original protests was scrapped last October, which was a victory for the pro-democracy protesters.

The protests didn’t end altogether, but tensions were at least diffused to a great extent and the world moved on.

Well, here comes round two…

China’s Communist parliament is preparing to roll out legislation that would ban “treason, secession, sedition (and) subversion” in Hong Kong.

This is different from the previous legislation because this bill actually originates in Beijing, not Hong Kong. It’s a direct assault on Hong Kong’s democracy. The Chinese parliament would insert the legislation directly into Hong Kong’s constitution.

It’s scheduled for passage next week.

Pro-democracy activists have called for mass protests this weekend in response to what they rightly consider a Chinese invasion of their autonomy.

We could be in for a fresh round of protests, with as many or more people. China’s reaction will be key.

Will they try to put the protests down by force? That could have major consequences.

Yesterday, news emerged that the U.S. Senate is introducing bipartisan legislation to impose sanctions on officials and business entities that enforce the new law.

And President Trump warned yesterday that the U.S. would react “very strongly” to the Chinese legislation.

In response, China’s foreign ministry warned Beijing would “fight back” against any U.S. interference.

At a time when U.S.-Chinese relations are already at a low ebb due to China’s almost criminal handling of the coronavirus pandemic, it looks like things are about to get even worse.

This situation could become very interesting.

But you shouldn’t be surprised. The current trajectory of U.S.-China relations is following a familiar course. It started with the currency war…

When my first book, Currency Wars, was published in 2011, I made the point that currency wars don’t exist all the time, but when they emerge they can last for 15 or 20 years.

The reason is that the currency devaluations just go back and forth between major trading partners and no one is any further ahead in the long run.

Readers said, “OK, we get that, but what comes next?”

The answer is trade wars. Once currency devaluations fail, countries turn to tariffs to slow down imports and help their own exports.

That’s where the U.S. and China are now, with the ongoing trade war (which could get worse).

But that’s also a dead end from an economic perspective. Again, the question is: What comes next?

Well, with history as a guide, we can see that today’s pattern is a repeat of what the world went through in the 1920s and 1930s.

First came currency wars (1921–1936). Then came trade wars (1930–34) and then finally a shooting war (1939–1945).

Are we heading for another shooting war with China? The signs are not good.

Trade war tariffs can be weaponized to pursue geopolitical goals. Trump is using tariffs to punish China for its criminal negligence (or worse) in connection with the spread of the Wuhan virus to the U.S. and the rest of the world.

This also has historical precedent.

Between June and August 1941, President Franklin Roosevelt placed an oil embargo on Japan and froze Japan’s accounts in U.S. banks.

In December 1941, the Japanese retaliated with the sneak attack on Pearl Harbor. Will China now escalate its retaliation to the point of armed conflict?

We’ll find out soon, possibly in the South China Sea or the Taiwan Strait. The latest reemergence of tensions in Hong Kong only adds kerosene to the fire.

Investors should prepare for U.S.-China geopolitical tension to grow worse. Maybe a lot worse. That’s the lesson of history.

Regards,

Jim Rickards
for The Daily Reckoning

The post Is War Next? appeared first on Daily Reckoning.

Chris Temple from The National Investor – Fri 15 Nov, 2019

As the melt up continues don’t ignore the issues in Hong Kong

Chris joins me to wrap up the week that again saw money flow into risk on assets and push US markets to all time highs. More optimum around trade and the Fed put, as Powell outlined in front of Congress continues to be the main support for these moves. However don’t forget about the issues in Hong Kong and how China’s potential actions could impact the entire financial system.

Click here to visit Chris’s site – The National Investor.

Hong Kong firm develops technique to detect rough and polished lab-grown yellow diamonds

A Hong Kong-based developer of tech systems for detecting lab-grown, imitation and treated diamonds has created a new device aimed at amplifying the range of detectable merchandise to include all rough and polished stones in the lower yellowish-to-light-brown colour ranges.

According to developer Diamond Services, this is the first device capable of identifying the yellowish gems together with the colourless to near-colourless range of diamonds. The way it works is that the system scans the rocks at the temperature of liquid nitrogen as opposed to examining them at room temperature.

Detection device. Photo by Diamond Services.

“To provide as accurate results as possible, we insist that all diamonds being tested to detect the possible presence of synthetically-produced goods be examined at temperatures in a liquid nitrogen atmosphere,” said Joseph Kuzi, Diamond Services' founder and president, in a media statement. “Since this can only be done reliably and safely in a proper laboratory setting, we have chosen not to sell the equipment we develop, but rather to use it exclusively as part of the service we provide the trade. The new DND system improves that offering, widening the range of goods that can be screened to include all goods at the lower end of the standard colour range.”

DND stands for Diamond Natural Device and, according to its manufacturer, the system also capable of scanning loose diamonds and diamonds set in jewellery, in large quantities, and with no size limitations, in short periods of time.

The post Hong Kong firm develops technique to detect rough and polished lab-grown yellow diamonds appeared first on MINING.com.