Market pessimism provides break from rule-of-law pessimism

Good news for writers of the Hong Kong government’s wrathful press statements: the overseas media have other things to look at than the Jimmy Lai trial. The bad news: the other things include Hong Kong’s dwindling stature as a financial hub.

Bloomberg looks back at a pretty bad 2023…

It was supposed to be the year Hong Kong rebounded onto the world stage, leaving behind an era marred by street clashes, political crackdowns and Covid curbs.

Instead, 2023 turned out to be one of the worst for the financial hub in recent memory, at least as far as its markets are concerned.

The Hang Seng Index has fallen 16%, losing ground [in terms of market cap] to rivals in Tokyo and Mumbai, and putting it among the biggest decliners globally. Funds raised by initial public offerings are the smallest since the dotcom bubble burst. Home sales are on track to be the lowest for any year since records began in in 2002. Office rents have fallen to levels last seen 13 years ago.

Underscoring the malaise, the city has been dubbed the “ruins of an international financial center” on Chinese social media, a viral label rejected by financial services chief Christopher Hui.

…In a sign that Beijing is growing concerned, officials from China’s Ministry of Finance traveled to the city last week to meet with bankers from firms including HSBC Holdings Plc and Standard Chartered Plc to discuss ways to bolster the city’s hub status.

…Further deterioration next year would likely increase doubt over the Lee administration’s ability to meet the demands of an international city, and undercut Xi’s efforts to increase foreign direct investment needed to shore up China’s struggling economy.

One main reason is that the HS Index is dominated by Mainland companies, and China’s demographics, debt problems and ideology are all dragging on the country’s economy. Another is that Hong Kong’s own ideological rectification – including political trials – is bound to worry investors. The FT says

[Hong Kong] now finds itself hitched to a slowing mainland economy. Additionally, competition from Chinese capital markets and a political crackdown by Beijing have left Hong Kong facing “an existential crisis as a major international financial centre,” according to [economics academic] Eswar Prasad

…Journalists, businessmen and lawyers have been arrested under security charges. The judges that preside over such cases are handpicked by Hong Kong’s top officials and there is a 100 per cent conviction rate. Local authorities have increasingly adopted tactics similar to those of mainland China against dissidents and others, including televised “confessions” and forced “repentance” letters.

…Faced with what a range of lawyers, bankers, professors and economists who spoke to the Financial Times describe as a “new reality”, foreign businesses and expats have continued to leave the city, their places taken by mainland firms and citizens.

It now seems to be ‘NatSec first’ rather than ‘business first’. In the Mainland, the SCMP reports that China’s state security ministry – not the economics one – warns about pessimistic comment on the economy as a national security threat…

“Talk concerning China’s decline is in essence an intention to create a ‘narrative trap’ or a ‘cognitive distortion’,” it said.

“It aims to doubt or deny China’s socialist system and attempts to strategically contain China’s development.

…“We still wonder if normal discussions about the problems of the economy will inadvertently cross the vague red line, now that Beijing clearly wants us to focus on the bright prospects.”

SCMP’s former editor notes in an op-ed that Beijing’s leadership wants ‘stronger economic propaganda and public opinion guidance to promote a positive narrative about the Chinese economy’…

The new directive seems to target online commentators and analysts who write research reports for clients at brokerages, consultancies and think tanks. Many online pundits have already seen their social media accounts suspended because of their frank and honest comments, and analysts have been warned they must be careful in their choice of words when writing about the Chinese economy.

One Hong-Kong-based fund manager told me that when sales people from Chinese brokers come to meet him, they first flash PowerPoint presentations on the bright prospects of the Chinese economy. After the presentation, they go on to share what they really think.

How is it possible to restore confidence if one has to be economical with the truth? No wonder the stock markets in Hong Kong and on the mainland fell on Wednesday, the first trading day after the work conference statement was released.

For a quarter-century or so, Hong Kong was a great place for stock investors because it was volatile – which can be fun – yet riding a major long-term uplift from China’s reform-driven post-Mao recovery. Reuters offers reasons why the great ‘maximum bullish’ days are finally over…

China likely grew 5%-or-so in 2023, outrunning the global economy. However, beneath that headline is the fact China invests more than 40% of its output – twice as much as the United States – suggesting a significant portion of that is unproductive.

That means many Chinese don’t feel that growth. Youth unemployment topped 21% in June, the last set of figures before China controversially stopped reporting.

University graduates who studied for advanced-economy jobs are now taking up low-skilled positions to make ends meet while others have seen their wages cut.

In an economy where 70% of household wealth is parked in property, home owners are feeling poorer. Even in one of the few bright spots of the economy, the electric vehicle sector, a price war is causing pain downstream for suppliers and workers.

The national pessimism could present President Xi Jinping with social stability risks, analysts say. If China does slip into a Japan-style decline, it would do so before ever achieving the kind of development Japan did.

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11 Responses to Market pessimism provides break from rule-of-law pessimism

  1. Al Hirt says:

    Officials at the apex of the governmental pyramid, locally and nationally, are still raking in more cash than they ever imagined possible when they were rising young pups, so the likelihood of a change in policy or direction instigated from the top is precisely zero.

  2. Kurt Waldheim says:

    It is an incontrovertible fact that the Department of Justice missed the six-month deadline prescribed by law for pressing sedition charges against Jimmy Lai.

    The judicial apparatchiks running the kangaroo court are faced with nothing but bad choices. They can either let the dangerous, seditious rascal slip through their fingers, which will surely displease their bosses, or they will have to concoct some sort of convoluted explanation as to why “six months” does not actually mean “six months.”

    Either way, it should provide for some amusement in the otherwise grim spectacle taking place before us and the entire world.

  3. Learn English with Regina says:

    “All elected councilors are required to watch the live broadcast of.a speech by Hong Kong and Macau Affairs Office director Xia Baolong, according to sources.
    The government will organize the Hong Kong relay of the broadcast, allowing the newly-elected chairs and members of the District Councils to attend and listen to Xian’s “important speech”.

    So: will there be a test?

  4. reductio says:

    The HSI is down 35% over the last 5 years. No wonder Nicolas Aguzin is on his bike. He was well worth a base salary of $10 million per year.

  5. Chinese Netizen says:

    “Home sales are on track to be the lowest for any year since records began in in 2002.” Is this directly correlated with Mainlanders now more actively parking the $$$ abroad, if possible, knowing that buying in HK would be no different than buying in Shanghai, Shenzhen or Panyu along with the lack of legal protections?

    “If China does slip into a Japan-style decline, it would do so before ever achieving the kind of development Japan did.”
    And we all know the Japanese are an orderly, for-the-better-of-society kind of people/culture. Unlike the Chinese…

  6. David Price says:

    Ha, I was first directed to this site about 10 years ago. Reading ‘Watching the sun set, little by little, on Asia’s greatest city’ on the masthead I thought I’d have no interest in following the ruminations of such a pessimist.

    I was wrong.

  7. MeKnowNothing says:

    “The bad news: the other things include Hong Kong’s dwindling stature as a financial hub.”

    Just wait until everyone finally twigs on the significance of the narrative about the protests: A so-called international financial centre where it’s possible for so-called foreign forces to not only bring in – but also distribute to locals – the funds required to kick off a so-called “colour revolution”?

    That would be an admission that failed. BIG TIME.

    If Mr HeWhoHasThoughtOfEverything’s cack-handed policies that have given the entire country a case of economic long COVID doesn’t drag Hong Wrong down the shitter too, his fixation on national insecurity certainly will. If it hasn’t already.

  8. Mary Melville says:

    The live broadcast is just the first of what will be frequent and obligatory pep talks and rah rahs the dcs will have to participate in. Some are probably already regretting being talked into taking office.
    For the disenfranchised electorate there is at least the perverse pleasure that most of their spare time, after the mandated 40 hours at the office, will be taken up with ‘worthy’ activities. With large banquets and conspicious consumption frowned upon, trips abroad monitored and propriety proscribed, a TV dinner will probably be the highlight of their week.

  9. ouroboros says:

    I think the writing is pretty clearly on the wall here.
    To believe in socialism with Chinese characteristics is to believe in a system that has no attachment to the reality of socialism with Chinese characteristics. Which makes the reality with Chinese characteristics kind of an ouroboros that is constantly eating and repairing itself but not doing anything about actual reality.
    And I believe I know what that leads to, and it’s an improvement in financial accounting books.

  10. Hung Seng Index says:

    Remember when ‘market reform — opening up to ‘pre-revenue’ tech companies and allowing founders to retain control even after selling most of the shares — was going to take the HSI to new heights? Good times …

  11. True Patriots Oppose Backward Marx-Leninism says:

    Methinks that they might just give in on the six-month period to show the world: “See, we have independent courts and judges”!
    There is enough left to nail poor Jimmy for whatever they are being told listening to the North Wind.

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