Market Thinking

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I see what you did there..

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The sudden escalation of violence in Hong Kong and the dramatic and telegenic use of incendiary devices ensured that Hong Kong dominated the global 24/7 news cycle over the last two weeks, culminating in an Alamo style standoff at one of the Hong Kong Universities over the weekend. In a completely unrelated event, this week also saw the unanimous passage of the Hong Kong Human Rights and Democracy Act of 2019, in Washington and it now only awaits Presidential signature.

While the US public may have missed this and be distracted by the latest impeachment proceedings, the Chinese government will not be, for make no mistake, this is the latest strike in the new Cold War between the US and China. In particular we would focus on the issue of universal suffrage. In the basic law that came as part of the joint declaration it states that “The ultimate aim is the selection of the Chief Executive by universal suffrage upon nomination by a broadly representative nominating committee”. It also notes that “the ultimate aim is the election of the Legislative council by universal suffrage”. Note the expression ultimate aim. It is worth remembering that the so called Yellow Umbrella protests in 2014 insisted that both ‘ultimate aims’ occurred simultaneously, in effect they rejected universal suffrage for the LegCo unless the also got universal suffrage and selection of the Chief Executive. China wouldn’t budge on the last point and so the people of Hong Kong got neither. As discussed elsewhere, this meant that the vested interests – essentially the property tycoons – got another 5 years to run Hong Kong to suit themselves.

Compare this then with the text of the new US act, where it says statement of policy (5) “to support the establishment of a genuine democratic option to freely and fairly nominate and elect the Chief Executive of Hong Kong and the establishment by 2020 of open and direct democratic elections for all members of the Hong Kong Legislative Council,” This latter point is very important, it is not that it is a bad aim – indeed it is exactly what the people of Hong Kong need – but it effectively endows the US government with the power to set the agenda for democratic reform in Hong Kong. It is saying that the US now has the power to sanction China if it doesn’t have open and direct elections of the Hong Kong Legislative Council by next year.

Note also, point 11) “to coordinate with allies, including the United kingdom, Australia, Canada, Japan and the Republic of Korea, to promote democracy and human rights in Hong Kong.” In other words, the US is demanding, under threat of sanctions the right of it and its allies to operate politically in another sovereign country. While some may be overwhelmed by the irony, the reality for investors is that the people of Hong Kong and their markets are now right in the middle of the new Cold War.

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