An Unnerving Week in Hong Kong: What You Need to Know

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The protests that have gripped Hong Kong this summer took an unnerving turn this week.

What began in June as peaceful demonstrations against a proposed bill allowing extraditions to China have become successively more violent. That’s included tear gas being fired inside subway stations, clashes at Hong Kong’s airport and protesters beating a man they accused of being a Chinese police officer.

The rhetoric has been just as heated. Chinese officials have begun to use “terrorism” in describing the behavior of protesters, while speculation has swirled about the possible mobilization of the Chinese military.

It’s also started to meld into China’s tense relationship with America. U.S. House Speaker Nancy Pelosi called on Hong Kong’s chief executive to meet with protesters this week, prompting Beijing to say American lawmakers should mind their own business. President Donald Trump chimed in as well, tweeting that China wants a trade deal but “let them work humanely with Hong Kong first.”

And while the situation on the ground remains fluid, the repercussions are hardening. Retail sales have fallen for five straight months, economic growth has sputtered and the city’s largest airline finds itself in crisis. Chinese companies are also rethinking plans for fundraising in the city.

Longer term, the question is confidence and whether Hong Kong can retain its reputation for being a safe and reliable place to do business. News this week that Thailand has drawn up contingency plans for evacuating its citizens underlines how fraught the situation is. The longer Hong Kong’s turmoil persists, the more precarious that confidence will be.

Still Talking

Meanwhile, the trade war continues to be unpredictable. Washington announced this week it's delaying a portion of the tariffs that were scheduled to start next month, prompting many to wonder if this was a concession. We then learned that Chinese negotiators are sticking to plans to come to the U.S. for talks in September, something that had been in doubt after Trump’s surprise announcement of additional levies in early August.

But for all that positive mood music, there was also White House adviser Peter Navarro saying the U.S. can’t meet China halfway and Hu Xijin, editor of China’s Global Times, tweeting that a delay in U.S. tariffs won't get China to resume large purchases of American farm goods.  

Huawei Restructuring

There also seems to be no progress on whether the U.S. will relax limits placed on Huawei’s ability to buy American technology. Instead of waiting, founder and CEO Ren Zhengfei is moving forward with plans for a major restructuring of the company over the next three to five years. His goal is to create an “iron army” able to survive the U.S. onslaught, which has included efforts to convince other countries to ban Huawei from their 5G mobile networks.

Ren's army, it appears, will include at least a few people in Washington, after it was revealed separately this week that Huawei has hired a lobbyist with ties to the Republican leadership and another law firm to help lobby on export controls and sanctions.

Consumer Backlash

Huawei isn’t the only company struggling to avoid politics. Fashion brands Versace, Coach and Givenchy have all recently found themselves caught in controversy. Versace apologized for a “wrong design” on a t-shirt that identified Hong Kong and Macau as countries, suggesting their independence from China. Coach and Givenchy were called out by Chinese internet users for similar issues. The stakes are high for a growing number of global companies, which are betting on China's growing middle class for their future growth.

Growth Concerns

And finally, China’s economy is showing further signs of weakness. Industrial production for July slowed, while both retail sales and fixed-asset investment were below expectations. Data also showed credit growth in July tumbling to the second-lowest level this year. This dour outlook for China combined with bad economic news out of Germany has fueled concerns about the potential for a global recession. This was not a week for the optimists.

To contact the editor responsible for this story: Jeff Black at jblack25@bloomberg.net

©2019 Bloomberg L.P.

With assistance from Bloomberg