SinoInsight 1
On Dec. 9, Charles Ho Tsu-kwok, chairman of Hong Kong Chinese language newspaper Sing Tao News and a member of the National Committee of the Chinese People’s Political Consultative Conference, published a full-page advertisement in his newspaper titled, “Wait and See” (拭目以待). In the advertisement, Ho listed 12 “harms” that the Hong Kong government’s extradition bill brought to the city, mocked three “constructive” actions taken by the Hong Kong government, and hinted strongly that Hong Kong chief executive Carrie Lam should take responsibility for the six months of chaos in the city.
Also on Dec. 9, Simon Murray, a Hong Kong-based British businessman and independent non-executive director of Li Ka-shing’s Cheung Kong Holdings, said in an exclusive interview with Hong Kong’s Apple Daily that former Hong Kong chief executive Donald Tsang had confirmed to him that the extradition bill which the Hong Kong government had sought to ram through earlier this year was not the intention of Party central in Beijing but a personal decision made by incumbent Hong Kong chief executive Carrie Lam.
On Dec. 10, Hong Kong media outlets reported sources as saying that Beijing is considering reorganizing and holding accountable members of the Hong Kong government. Hong Kong officials with “low popularity” could be replaced.
On Dec. 11, Hong Kong pan-democrat lawmakers introduced a motion in Hong Kong’s Legislative Council to “condemn Junius Ho,” a pro-establishment lawmaker, for sexual harassment and promoting violence. The motion was passed with zero “nay” votes and was referred to Hong Kong’s Commission of Inquiry.
OUR TAKE
1. On Dec. 1, prominent Hong Kong columnist Chip Tsao wrote in a social media post that a wealthy pro-CCP Hong Kong businessman who recently traveled to America was held up at the airport. Tsao added that the businessman was subjected to three hours of questioning before being repatriated to Hong Kong. The incident reportedly took place after U.S. President Donald Trump had signed into law the Hong Kong Human Rights and Democracy Act of 2019 (henceforth referred to as the Hong Kong Act) on Nov. 27.
According to overseas Chinese language news media, a Hong Kong pro-establishment lawmaker has since identified the wealthy pro-CCP Hong Kong businessman who was sent back from the U.S. as Charles Ho. The unnamed pro-establishment lawmaker said that many close friends and wealthy businessmen have expressed “unease” after the signing of the Hong Kong Act. The lawmaker, who like Ho is a member of the National Committee of the CPPCC, also expressed concern about facing U.S. sanctions.
Charles Ho’s Dec. 9 advertisement in his Sing Tao newspaper suggests that the information obtained by Hong Kong and overseas Chinese language news media and media personalities about pro-CCP Hong Kong persons encountering U.S. action is likely credible. If so, that means that the Hong Kong Act is having a tangible effect in restraining the behavior of the pro-CCP elite (businessmen, politicians, government officials, etc.) in Hong Kong.
To preserve their interests and avoid debilitating U.S. sanctions under the Hong Kong Act, the pro-CCP elite in Hong Kong could become less inclined in the future to do the CCP’s bidding, back Hong Kong government activities that infringe upon human rights and democracy (at least publicly), and could even become more vocal in criticizing the Hong Kong government for its role in escalating chaos in the city.
2. The Hong Kong pro-establishment camp’s massive defeat at the recent Hong Kong local district councilor elections is disastrous for the pro-establishment camp not just politically and reputationally, but also financially. Total remuneration in the past four years for the 98 pro-establishment politicians who lost their seats amounted to $HK160 million; the pro-establishment camp would likely have to invest more than $HK160 million in the next four years to win back those seats.
As part of its re-election agenda, the Hong Kong pro-establishment camp would likely look to “cut loose” politicians that are directly responsible for its election losses. Topping the list are Hong Kong leader Carrie Lam (for pushing the extradition bill) and former legislator Junius Ho (for his part in the Yuen Long triad attacks against protesters and bystanders on July 21). This would partially explain why no pro-establishment lawmakers voted against the pan-democrats motion to censure Junius Ho on Dec. 11.
3. The information released recently by prominent Hong Kong businessmen and the pro-establishment camp regarding Carrie Lam, particular assigning blame for advancing the extradition bill solely to her, suggests that the CCP is working behind the scenes to absolve itself of its role in sparking six months of chaos in Hong Kong.
We said as early as September that the CCP could move to sacrifice Lam, Junius Ho, senior Hong Kong government officials, and the Hong Kong police (even high-ranking police officials) in a bid to calm things down in Hong Kong. Assuming that current trends hold (i.e. the Hong Kong protests stay largely peaceful with no major eruptions of violence), then Carrie Lam could leave office as early as January 2020 (before the Lunar New Year).
SinoInsight 2
On Dec. 6, the China Banking and Insurance Regulatory Commission (CBIRC) lifted foreign ownership caps on life insurance companies to 51 percent and announced plans to fully remove the cap in 2020.
On Dec. 7, the PRC State Administration of Foreign Exchange (SAFE) announced that China’s foreign exchange reserves fell $9.57 billion in November to $3.096 trillion.
On Dec. 8, the PRC’s General Administration of Customs announced that China’s exports in November fell 1.1 percent from a year ago to $221.74 billion; November also marked the fourth consecutive month of falling imports for China. Imports in November increased 0.3 percent to $183.01 billion. Also, China’s trade surplus in November fell 7.5 percent from the previous year.
According to officials PRC data, the total trade between China and the United States fell 11.1 percent to 3.4 trillion yuan (about $483.3 billion) in the first 11 months of 2019. Chinese exports to the U.S. fell 8.4 percent to 2.64 trillion yuan, while imports fell 19.5 percent to 763.05 billion yuan. Meanwhile, China’s trade surplus with the U.S. narrowed by 3 percent to 1.88 trillion yuan.
On Dec. 9, SAFE announced on its website that the Chengde Branch of the Bank of China was reprimanded by the SAFE bureau in Chengde City for allowing a customer to withdraw $10,000 in cash from a single savings account five times within a seven-day period. The Bank of China Chengde Branch received a warning, was ordered to make corrections, and was fined 40,000 yuan.
In the evening of Dec. 9, the CBIRC announced that foreign ownership caps on joint venture life insurance companies will be completely lifted after Jan. 1, 2020, resulting in the possibility of 100 percent ownership for joint venture life insurance companies.
OUR TAKE
1. China’s recently released economic data shows that the Sino-U.S. trade war has hit the Chinese economy hard. This affirms our warning in early 2018 that China cannot withstand a trade war with the United States (see here and here).
2. China is heavily reliant on exporting to the U.S. to maintain its foreign exchange surplus. Going forward, China’s reserves are bound to come under increasing pressure as China’s exports to the U.S. decrease significantly, capital outflows from the mainland increase, and as the PRC struggles to keep the RMB exchange rate stable.
China’s reduction of U.S. Treasury holdings over three consecutive months is likely an effort to stabilize the currency exchange rate. According to U.S. Treasury data, China reduced its holdings of U.S. Treasuries in September by $1.1 billion to $1.102 trillion, the lowest since May 2017. China has also been overtaken by Japan as the largest holder of U.S. debt, dropping to second place.
3. To remedy its shortage of U.S. dollars in the face of declining exports to America and shrinking reserves, the PRC will likely seek to open up its financial markets further and attract more foreign investment.
We believe that the CCP has been and will continue to look to attract Wall Street and pension funds as it strives to make up its dollar shortage. Should Wall Street continue taking the bait, the PRC could maintain its foreign exchange reserves, stabilize the RMB, and more intricately bind U.S. interests with the CCP regime. The last point will pose problems for the U.S. government as it deepens efforts to counter the PRC threat.
Businesses, investors, and governments must be very wary of the PRC’s efforts to “liberalize”/“open up” its markets and economy further. Once the CCP regime has overcome the “new cold war” crisis, it will eventually move to tighten its control over foreign companies and advance its domination agenda. As long as China is under CCP rule, today’s “old friends of China” can easily be cast as hated “landlords” and branded “enemy of the Chinese people”; the CCP’s treatment of Hong Kong’s Li Ka-shing over his stance on the anti-extradition bill protests should be a warning to Wall Street (see here and here).
