SinoInsight 1
On Aug. 14, a Taiwanese media outlet reported “exclusive” news that Beijing will declare Hong Kong a Chinese municipality (直轄市) if the Hong Kong government cannot restore order in the city. The media outlet also listed the ways in which Beijing will reorganize Hong Kong’s government, financial, police, and education system after scraping the “one country, two systems” model.
On Aug. 15, overseas Chinese language media reported that about 20 military trucks carrying troops from the PLA Garrison in Hong Kong were spotted driving through the city’s central business district.
In recent days, at least 500 military vehicles and armored vehicles were spotted in Shenzhen, the Chinese city neighboring Hong Kong. Some of these vehicles were parked in the Shenzhen Bay Sports Center. It is estimated that the vehicles carried about thousands of armed police troops, who held drills in the stadium. Earlier, the official WeChat account of the People’s Liberation Army Ground Forces of the Eastern Theater Command posted an article which claims that it “only takes 10 minutes” to travel from Shenzhen to Hong Kong.
OUR TAKE
1. SinoInsider also received the so-called “exclusive” news that was reported by Taiwanese media outlets via an anonymous source.
Based on our long-term research into the CCP, we believe that the “exclusive” news and other information which seems to indicate possible PLA/PAP intervention in Hong Kong are all part of classic CCP psychological warfare operations to intimidate the Hong Kong people. The CCP psyop is also likely aimed to a degree at the international community; those who fear a crackdown in Hong Kong would either try to pressure the protesters into surrendering or find ways to compromise with the CCP to prevent a crackdown.
If the CCP really wanted a military crackdown in Hong Kong at this time, it would already have done so swiftly and without any warning. The fact that the CCP is relying on and broadening its psyop shows that it still thinks that Hong Kong is of great value to the communist regime. And if Hong Kong is still valuable, the CCP will prefer not to order a military crackdown and destroy the current status quo.
2. Part of CCP influence operations is the feeding of “exclusive” information to overseas news outlets.
Through disseminating “exclusive” information (or rather, disinformation), the CCP gets to shape the external information environment and public discourse to its liking (see our piece on the Red Matrix). Based on our research, the CCP intelligence apparatus is known to feed “reliable” information to external news outlets in the beginning to build up trust before releasing “wrong” information at an opportune moment in an attempt to destroy the credibility of a media outlet.
Different CCP factions are also known to feed “exclusive” information to external media outlets to create trouble for their factional opponents or swing a situation to their advantage on the mainland.
3. By constantly crying “wolf!” on military intervention, the CCP lowers the vigilance of the Hong Kong people and the international community to an actual military intervention, and even conditions the world to accept the eventuality of a crackdown in Hong Kong.
We would like to stress that while the CCP does not seem like it wants to intervene militarily in Hong Kong just yet, it does not mean that the CCP is not prepared to deploy troops in the future.
SinoInsight 2
According to Hong Kong news reports and social media, protesters are planning a “great bank run” (銀行大擠兌) on Aug. 16.
On Aug. 15, a post in a Hong Kong social media group noted that many Hong Kong residents had already begun withdrawing Hong Kong dollars from the various major banks in the city. The post added that many ATMs could not dispense Hong Kong dollars while banks and currency exchange shops seem to have run out of U.S. dollars. The post also described the situation as a “financial tsunami.”
OUR TAKE
1. The Hong Kong protesters had earlier attempted a bank run on mainland banks in the city in mid-June. The move put pressure on Chinese capital in Hong Kong, led to soaring Hong Kong interbank interest rates, and saw capital outflows to Singapore and Taiwan. At the time, Hayman Capital founder Kyle Bass said that the Hong Kong financial system could collapse if four to five percent of the people in Hong Kong participated in a run on the banks.
It is hard to gauge the impact of the planned “great bank run” on Aug. 16 on the Hong Kong government and financial system. However, we believe that the planned bank run will more seriously affect the Chinese banks as compared to the earlier effort in June.
2. This month, the renminbi broke the psychological 7 to the U.S. dollar mark. The Chinese authorities have also restricted mainland Chinese from traveling abroad and limited the amount of foreign currency that individuals can exchange. There was also speculation that China borrowed HK$400 billion in foreign reserves from Hong Kong and has yet to repay the debt. When taken together, the news and rumors cast doubt on China’s foreign exchange reserves and how the PRC is growing them. There will also be growing doubts about whether the PRC and Hong Kong governments can cope with a financial crisis.
3. We previously analyzed that China is heavily dependent on exporting to the U.S. to grow its foreign exchange reserves. The ongoing trade war has seen China slip from the first to the third-ranked country which exports the most to America. This means that China’s foreign exchange earnings would undoubtedly have taken a severe hit.
Although the PRC claims to have over $3 trillion in foreign reserves, nearly two-thirds of it is comprised of foreign debt (of which over 60 percent is short-term debt). In other words, China has limited ability to tap into its foreign exchange reserves.
