War in the grey zone ~ weaponizing regulators

There is a chilling report in The Economist which says that “As the trade war chips away at its allure, China wants to retain the affection of foreign businesses. It has promised to level the playing field between them and their domestic rivals. This pledge is meant as reassurance that Chinese firms will receive no special favours. But it has taken on a different light over the past week, in the wake of China’s assault on Cathay Pacific, Hong Kong’s flagship airline. China is taking a hard line against foreign companies that displease it, lashing out at their bosses and demanding obedience, much as it wields control over domestic enterprises. Firms in Hong Kong are in the cross-hairs, but it would be a mistake to think China will stop there.

Global firms,” the authors of The Economist article say, “may console themselves with the thought that Cathay was uniquely vulnerable. Although it is Asia’s biggest international carrier and a perennial contender for best airline in global rankings, its fate rests almost entirely on China. As much as 70% of its cargo and passengers pass through Chinese airspace. Its biggest shareholder is Swire Pacific, a Hong Kong-based group immersed in China, from soft drinks to property. Swire executives appear to have concluded that any resistance would be an act of corporate self-immolation … [but, they note that] … Cathay is far from alone. It joins a list of foreign firms that have wound up on the wrong side of politics in Beijing. Often the remedies are relatively simple, if nauseating. A series of luxury brands—Versace, Coach and Givenchy—have recently offered profuse apologies for selling t-shirts that appeared to identify Hong Kong as being separate from China (see article).

The article goes on to explain that “As a general rule, the more foreign companies prize China’s market, the more they have to fear (see article). HSBC, Europe’s biggest bank, has come under pressure for sharing information with American authorities that helped them build a fraud case against the chief financial officer of Huawei, a Chinese telecoms giant. With its strategy predicated on growth in China, HSBC cannot afford to become a villain there. This month it ousted both its chief executive and the head of its China unit, though it denied any connection with the General-Motors-696x362Huawei controversy.” It isn’t just big banks with strong links to China that may be deeply exposed to the Chinese market; that list includes giant American automaker General Motors, too. That should make us all wonder about the impact of a trade war.

The Economist concludes by saying that “Using state firms as battle spears gives the lie to China’s claim that it is managing them according to market principles. And weaponising regulators undermines China’s ambitions to play a bigger international role. The airline supervisor had earned respect in leading the charge to ground the 737 MAX, Boeing’s troubled aeroplane; its Cathay warning makes it look like a political hack. The party may well get foreign companies to toe its line on Hong Kong. In the process it is revealing its true nature.

China is locked in a no-win trade war with the USA. The RMB (Renminbi ¥) is set for its biggest fall in 25 yearsIt is looking towards Europe for relief, but Europe might be looking back with some scepticism. The ongoing unrest in Hong Kong, as Doug Saunders Screen Shot 2019-08-30 at 07.00.02explains in the Globe and Mail, challenges both the power and legitimacy of Xi Jinping’s new imperium. That will be on display, again, in just one month, on October 1st 2019 when China celebrates the 70th anniversary (National Day) of the Chinese Communist’s Screen Shot 2019-08-30 at 07.02.35victory in the Chinese Civil war (1927-1949). Despite a fondness for Mao jackets and combat uniforms, Xi doesn’t want a military confrontation with anyone, not even with the Hong Kong protesters, but he is willing to use every weapon in his arsenal to threaten, cajole and bully anyone who challenges China’s rise or his ambitions. That includes weaponizing the trade and commerce regulators to menace companies doing business in and even around China.

 

 

 

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