The Economist asks an important question: “Can Hong Kong remain a conduit between China and the world?” The short answer is: No. As The Economist says, “Hong Kong’s place in the world depends on having the rule of law, a trusted reputation and seamless access to Western financial markets.” The “rule of law” is dying and Hong Kong’s reputation will die with it.
There are, of course, as the article says, “Other Chinese cities [that] have big stock exchanges: shares listed in Shanghai and Shenzhen are together worth a lot more than those in Hong Kong. But neither has fair courts, an independent central bank, free movement of capital or a mix of Western and Chinese firms. These foundations are the basis for $9.7trn of cross-border financial claims, such as loans, that are booked in the territory. Hong Kong is also where mainland Chinese firms and banks go to deal in the dollar, the world’s dominant currency. Some $10trn of dollar transactions flowed through Hong Kong’s bank-to-bank payments system last year.“
“Until recently,” the authors say, “conventional wisdom held that Hong Kong’s position would be assured for 20-30 years, because it would take that long for China either to upgrade its markets to Western standards or to become so powerful that it could impose mainland practices, and the yuan, on the rest of the world. But the trade war, a year of street protests and China’s iron-fisted response to them raise new questions about Hong Kong’s durability (see article). Bullying from Beijing erodes the sense that it is autonomous. And there is an outside chance that America could impose sanctions or other restrictions that would stop some Hong Kong officials, firms or banks from using dollars. China’s actions raise doubts about the sanctity of contracts. America’s might bring into question whether money parked in Hong Kong is still fully fungible with money in the global financial system. If these worries spread, they could destabilise Hong Kong and cause a financial shock in China and well beyond it.” In my guesstimation, President Trump will put more and more pressure on China which will have the end effect of causing a major capital flight from Hong Kong … but t where?
New York? No, I think not, too many investors think that New York is an unsafe place to deal with China, not because of China but, rather, because of President Trum[‘s capricious nature and his near-total disregard for the rules.
London? No, again; even though it is, already one of the world’s financial hubs, I suspect that worries about London post-Brexit will make it less attractive to many investors. What about Frankfurt? Not likely, in my opinion, because it is too small and too weak. Zurich? Stronger than Frankfurt, but London is still bigger and better.
The answer is Singapore.
Singapore is, already, ranked, by many analysts, as one of the world’s top five or six financial centres. It is an Asian centre where the Chinese capitalists feel comfortable. Its rule of law was always at least as strong as Hong Kong’s and, for the past few years, has been stronger. It is a functioning, albeit quite conservative democracy. (Just a few years ago I hoped that China would see that conservative democracy, based on strong, independent, institutions and the rule of law is not incompatible with a Confucian society. I was wrong … for now, at least.)
The other answer, the bigger answer to an unasked question is India. India is growing in economic and strategic importance. It is, already, a powerful counter to China’s growing power. India is many things, including chaotic and shambolic, but it is also the world’s greatest democracy and it is a growing strategic (nuclear) power.
It seems to me that Canada needs to refocus its foreign, trade and defence policies on Asia. Canada needs a Pacific strategy. We should have a lot of good friends in the Asia-Pacific region … should have, but Justin Trudeau ruined our close friendships with Australia, Japan and, above all, India because he and his bungling team of second and third-rate ministers are, to be charitable, immature and not overly bright.
That Pacific strategy should not be overtly anti-Chinese; in fact, it should not be overtly anti-anyone or anything. Rather it should emphasize our ties with Asia’s many democratic states, beginning with Australia, India, the world’s greatest democracy, Japan, New Zealand, Singapore and South Korea. It should include closer ties with more fragile democracies like the Philippines, Thailand and Vietnam, too. Obviously, the enhanced TPP (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)) is the main foundation stone. Unfortunately, our partners will not forget, quickly, that Justin Trudeau nearly botched the whole deal as he tried to virtue signal for the folks back home. The big weakness in the enhanced TPP is that it doesn’t include India, South Korea or Taiwan.
As I mentioned yesterday, Canada should pursue stronger social ties with many Asians countries including India, the Philippines, Thailand and Vietnam. Encouraging (subsidizing) post-secondary education is one good way to do that. It’s good, sensible foreign policy and its also a way to indirectly subsidize our own universities.
On the larger scale, Canada’s Pacific strategy should aim to help contain China’s expansion even as it accepts and, indeed, tries to profit from its inevitable rise as a global great power. Canada’s current geostrategic relationship is one-legged: we depend, almost entirely, upon the USA for our prosperity and for our security. Canada is, de facto, an American colony. Canada needs a better-balanced, more stable set of relationship. Geography and shared culture mean that America will remain our best, most trusted friend for the foreseeable future, but as we have been discussing for 50 years, we need to lessen our trade dependency on the USA. We need a better, more stable stool. Europe was the most obvious second leg, and Asia is the equally obvious third leg. For most of the past 25 years, China seemed the obvious focus for enhanced trade with Asia, but Xi Jinping has changed all that and he has exposed the flaws with being too dependent on China, too. India is on the rise ~ but, being a great democracy, its rise is less well ordered, more hit-or-miss, than was China’s under its “basic dictatorship” with which Prime Minister Trudeau is so enamoured. But, being a democracy, India is far less likely to resort to hostage diplomacy when it wants to settle a disagreement with Canada.
I’m afraid that Canada cannot develop a coherent strategy, one which looks clearly in all directions in pursuit of our own vital interests until we put aside most of the notions of the Trudeaus, both père et fils, both Pierre and Justin. They were and are equally destructive prime ministers, both were hell bent on pushing Canada away from responsible, albeit costly, independence and towards some sort fo silk-stocking-socialist nirvana. Both were intellectual lightweights, but each had loads of charisma which made them easily electable and which was utilized by teams of skilled political tacticians who were (and are) largely unknown to Canadians to advance agendas which were (and are) unexplained and, too often, unexamined by the media.
So, the first thing that Canada needs, before it can have a grand strategy, is a new Conservative government. The second things is a complete revision to the intellectual and moral base of the Liberal Party of Canada so that it can be, again, a geat and valued national institution.
That new Conservative government will have a HUGE problem when, soon, it needs to start digging Canada out of the fiscal hole that Justin Trudeau has dug. But it will not just be a matter of “stop digging.” The new government will have to redirect Canadian opinion away from the Trudeau’s pet causes, popular though they were and are, and towards serving, again, Canada’s vital strategic interests and that will require that spending is redirected, too. It cannot be just a matter of slashing the social safety net or even government advertising. Programmes must be trimmed with the skill of the finest brain surgeon and the savings must be redirect both back into taxpayer’s wallets and into areas like defence and industrial development. The country will need to be persuaded (that government advertising budget, again) and then pulled, not pushed, on to a better path.
So, the answer to the simple question is: Singapore displaces Hong Kong and business, in Asia, can still be done is (relative) safety ~ hostage diplomacy always being a risk when doing business with China. The answer to a larger question is: India is the linchpin for a coherent Western strategy that aims to contain China, not fight it. The answer to a third question is: Canada needs a coherent grand strategy in which all of America, Europe and Asia play important socio-politival, economic and military roles.