Tag Archives: Hong Kong

As Hong Kong refuses to bend the knee… by Simon Black

China will wait the Hong Kong situation out. From Simon Black at sovereignman.com:

Sun Tzu, the legendary Chinese general of the 6th century BC Zhou Dynasty, famously wrote in the Art of War:

“When you engage in actual fighting, if victory is long in coming, then men’s weapons will grow dull and their ardor will be damped. If you lay siege to a town, you will exhaust your strength.”

Modern day governments understand this principle very well. And that’s lesson #1 I want to discuss today.

If you’ve turned on a television, seen a newspaper, or casually browsed the Internet today, you probably saw some startling news about more protests erupting in Hong Kong.

I told you about this earlier in the week when I was on the ground there– over a million people took to the streets to demonstrate against a Draconian new law that the Hong Kong government is proposing which aims to make it easier to extradite political dissidents to mainland China.

People in Hong Kong are militant about their freedom, and they’re refusing to bend the knee over this proposed law.

Yet the government is still pressing ahead despite overwhelming opposition. So much for representative democracy.

Other governments around the world have spoken out about it, including even the United States, which issued a statement expressing “grave concern” about the law.

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Hong Kong Pushes Forward On China-Backed Extradition Bill Despite Massive Protests, by Tyler Durden

Hong Kong wants to make it easier to extradite people to China. The people of Hong Kong are understandably upset. From Tyler Durden at zerohedge.com:

The leader of Hong Kong has pledged to move forward with legislation that will ease extraditions to China despite a massive protest from hundreds of thousands, if not millions, of citizens over the weekend. The legislation is backed by Beijing, according to Bloomberg, and would allow Hong Kong to enter into one-time agreements with places like China and Taiwan to move criminal suspects.

Chief Executive Carrie Lam said that the government “could see people are still concerned about the bill.” Generally, a million people taking to the streets in protest can make that point clear.

Lam has said that the legislation has been amended to protect human rights and called on Hong Kong’s elected Legislative Council to make further changes.

Lam remarked:

“The society has been closely and intensely discussing the amendment bill for four months. It should be returned to the Legislative Council, which should carry out its constitutional duty. This means after vetting the bill, legislators can amend or approve the bill or whatever. Our stand is still our stand today.”

“There is very little merit to be gained by delaying the bill,” Lam concluded.

Hong Kong arrested 7 people who were parties to the protest on charges of “suspicion of attacking the police”. Lee Kwai-wah, senior superintendent of the city’s Organized Crime and Triad Bureau, said another 12 people were arrested for blocking roads.

Jimmy Sham of the Civil Human Rights Front, the organizer of Sunday’s protest, pushed back on Lam’s comments: “Carrie Lam is provoking us. I don’t understand why a government doesn’t want us to live a comfortable life but to challenge us to see what price we can pay.”

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“The Quiet Panic” – Kyle Bass On Hong Kong’s Looming Financial & Political Crisis, from Zero Hedge

Hong Kong as a flashpoint for financial and political crisis is off most people’s radars, but Kyle Bass makes a good case that it shouldn’t be. From Kyle Bass at zerohedge.com:

In his first investor letter in three years, Kyle Bass, Wall Street’s most visible China bear, explains the rationale behind his latest massive macro bet: A carefully-constructed position that will produce carry for his investors while also producing a massively asymmetrical outcome should the looming crisis Bass describes come to pass, in either China or Hong Kong. The letter was previewed earlier in the Wall Street Journal. Bass also appeared on CNBC earlier today to answer some questions about his views on China and Hong Kong, alongside former White House Chief Strategist Steve Bannon.

Via Kyle Bass, managing partner of Hayman Capital Management


For the better part of the last 36 years, since Hong Kong pegged its currency to the USD and ceded monetary policy to the Fed, Hong Kong has been a financial and political oasis for investment into mainland China and Southeast Asia. Today, newly emergent economic and political risks threaten Hong Kong’s decades of stability. These risks are so large that they merit immediate attention on both fronts. In this letter, we will discuss the origins of Hong Kong’s impending crisis, a brief history of Hong Kong, the economics of currency boards/pegs, the agreement that governs the United States economic and political relationship with Hong Kong, and how Xi Jinping’s China is forcing the Hong Kong Government to violate the agreement that requires Hong Kong to maintain its autonomy or lose most-favored-nation trading status and be treated as China itself is treated.

Economic Risk

The Economics of Hong Kong Have Changed Dramatically Since the Global Financial Crisis

Hong Kong was once vitally important to China’s economic position. At its apex in 1993, Hong Kong’s economy represented more than 25% of China’s GDP and was the most active port in the world.

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China Hard Landing Spreads: Hong Kong GDP Tumbles At Fastest Pace Since Financial Crisis, by Tyler Durden

Hong Kong offers a window on the Chinese economy, unobscored by China’s bullshit statistics and propaganda. From Tyler Durden at zerohedge.com:

In the latest indication of contracting global growth, overnight Hong Kong reported that its Q1 GDP fell off a cliff 0.4% qoq, widly missing estimates of 0.1% growth as retail sales plummeted and the property market continued its collapse. On a y/y basis, the economy grew only 0.8% when compared to the same period last year, less than half the 1.9% y/y growth reflected in Q4.

Hong Kong’s economy grew only 2.4% in 2015, half the pace of 2011, as a slowdown in mainland China and a weaker yuan curbed Chinese spending, while a volatile stock market also hit domestic consumption.

“At least over the next five to six months, we don’t see any positive growth driver that can help lift GDP growth substantially,” said Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong.

“Hong Kong’s economy is facing myriad headwinds, including an increasingly acute residential property price correction and significant linkages with the slowing Chinese economy,” said Andrew Wood, head of Asia country risk at BCI research. He added that “while we do not envisage the economy tipping into full-scale recession in 2016, the risks of such an event are rising.”

We, on the other hand, envisage the Hong Kong economy tipping into a recession, as we have since early 2016.

One driver for the weakness is that Hong Kong’s tourist arrivals dropped 20.5% in February, and slid 4.3% from a year earlier to 4.21 million in March. Mainland visitors, which accounted for 72 percent of the total, fell 6.9% to 3.02 million, perhaps the best indication of just how pressured the Chinese consumer truly is.

To continue reading: China Hard Landing Spreads: Hong Kong GDP Tumbles At Fastest Pace Since Financial Crisis

Hong Kong Is Doomed! Foolishly Lowers, Eliminates Taxes To Stimulate Economy, by Simon Black

Hong Kong government officials should know better. The government is running a surplus, interferes very little with the freest economy on the planet, and is proposing to lower taxes and return money to its citizens. Haven’t they learned the lesson of history, the lesson from the US’s own Industrial Revolution, when the US government pretty much followed the same policies? (There wasn’t even an income tax or central bank, for chrissakes!) Don’t they know about this black period in US economic history, when real incomes doubled and economic growth in the US hit its all-time highs as prices actually went down and innovation exploded? (For a fictional depiction of this dark time see The Golden Pinnacle, by Robert Gore). Somebody send the IMF to Hong Kong to save those benighted fools from themselves! From Simon Black, of The Sovereign Man blog, via Zero Hedge:

The government committee was clear—if nothing was to be done, the government’s finances would be doomed in as little as seven years.

The Finance Secretary had some tough decisions to make. Raising more revenue for the government over the next few years is crucial.

He was also being targeted and mocked because his ministry’s predictions for economic performance and taxes raised have been consistently wrong every year since 2007.

This is common for government agencies in pretty much every country, but Hong Kong is possibly the worst—they continually underestimate the numbers.

The government will finish the fiscal year ending next month, for example, with a surplus of at least HK$60 billion (probably more, given how horrible they are at forecasting), which is six times more than the finance ministry projected.

A surplus! Who does that anymore??

Couldn’t they find something else to spend money on? Armored vehicles and combat gear for the police (they did face a massive uprising just a few months ago after all)? Welfare? Crony subsidies? Drones? New government committees and agencies? Surveillance?

At least build a bridge, dammit! What are you going to do with all that extra money now??

I’ll tell you what they’re going to do. The Hong Kong government is so foolish that they’ll… I’m utterly disgusted saying this… they’ll -gulp- give it back to the people…

They’ll institute measures like a salary tax rebate of about HK$10,000, a waiver on property rates, and a PERMANENT increase in the tax allowance for parents from HK$70,000 to HK$80,000 per child—which is a second increase in child tax allowance in three years already!

One of the officials said: “There is a need to stimulate the city’s domestic consumption by introducing measures to leave more cash in the hands of the public.”

What are you talking about, man? Everyone knows that you stimulate the economy by increasing government spending, not reducing it and just leaving the people to decide what they’re going to spend it on. It’s insane.

Reducing already low taxes because you’re running budget surpluses? And you’re only taxing people and companies on the money they earn within Hong Kong? Really? You’ve got much to learn…

Even though following this practice has transformed the once barren island at the mouth of the Pearl River Delta into a global financial and trading center with one of the highest standards of living in the world, this clearly unsustainable bubble of a free market economy, minimal government, and fiscal prudence is bound to end in disaster.