Wednesday, November 6, 2019

Investing in Hong Kong | Strategic Considerations


As the intensely incessant turmoil has accelerated its rapid descent into recessionary territory Hong Kong will remain a vital financial hub for all businesses, particularly those from mainland China whatever, the final outcome of the protests. For this reason because of its limited land commercial and residential property values will eventually become more reasonably priced which will offer buying opportunities that will be more competitive than other important financial centers elsewhere in Asia.

Please access this in-depth perspective at Investing in Hong Kong | Strategic Perspectives.



Sunday, September 29, 2019

China’s King Kong Sized Hong Kong Dilemma


As the 70th anniversary of Communist China approaches October 1st, the Hong Kong protestors are ratcheting up their intensity in a bold “media smackdown” to determine whether they or the Peoples Republic of China (PRC) receives the most attention. It’s a powerful symbolic battle between a parade of military trophy weapons and inexperienced soldiers in Beijing vs parade of effective and proven weaponry and battle-hardened Hong Kong citizenry.

The endless aggressive protests particularly the images of protestors flaunting waving of the former colonial flag of the UK and the so-called “black hand” behind the protests of the US, creation of an anthem (Glory to Hong Kong) and desecration of the PRC flag represents a political and psychological “thousand cuts” to President Xi and his hardliners.

Possibly even more disturbing for the PRC leadership is that Hong Kong residents are not a minority racial or ethnic group, disenfranchised or poor, rather of the same ethnic background (Han), middle class and highly educated. They don’t demand food or water which China could provide and “buy” peace, rather a more precious commodity - self-determination - a concept that for the PRC is non-negotiable. The now ingrained motivation of the Hong Kong citizenry fuels its energy to conduct a high-level of intensity for months may represent a harbinger of things to come – an inspiration to aggrieved groups within the PRC borders should their economy weakens to the point of recession.

The PRC missed its unique window of opportunity to squash the protests during its embryonic stages but choose for various reasons not to and instead relied (and probably guided) the Hong Kong government and its law enforcement to settle the matter. For this reason any PRC intervention in Hong Kong will be due to the failure of the Hong Kong government, not the success of the protestors.

The PRC faces its own version of the Great Wall. Hong Kong itself is the Great Wall to protect them from the red dragon. Instead of threatening giant ape which shares Hong Kong’s surname – Kong – it’s Hong Kong’s physical profile of hyper-density of skyscrapers and narrow streets which makes it extraordinarily difficult for a large red dragon to navigate and control.

In a discussion entitled “US-China Relations -Where to Next?” held by the Hong Kong Association of New York on 16 September 2019, former Australian prime minister (and fluent Mandarin speaker), Kevin Rudd, provided three reasons why he believes why Hong Kong is a “no go” for PRC intervention:

1.    Logistically impossible because of its hyper-density and overall urban layout.
2.    The result would be bloody – far worse than Tiananmen because of the radicalization of HK residents.
3.    Any occupation would then be Beijing’s problem instead of the Hong Kong government’s.

I believe that there’s an unspoken fear amongst the People’s Liberation Army high command that Hong Kong residents are now highly experienced, battle-savvy, tactical street fighters utilizing improvised weapons and savvy use of technology to organize and form attack groups at a moment’s notice.

The ultimate humiliation and loss of face would occur if the PRC’s People’s Armed Police (PAP), the more likely force to intervene instead of the People’s Liberation Army, takes heavy losses or is defeated by, ironically, a counterpart people’s army. Can the PAP motivated by communist political dogma successfully mute a well organized, disciplined Hong Kong citizenry on their own turf which they know intimately, motivated by freedom and willingness to die for their cause? Ultimately the issue is will: who wants Hong Kong more?

Nonetheless the shear weight of political pressure may compel President Xi to take direct action despite all operational warnings that intervention would be an unmitigated catastrophe. The cost in lives would be, at minimum, in the hundreds, more likely in the thousands and economically cost China billions of renminbi to maintain a large and permanent occupational force which would be subject to unending guerilla warfare. It’s a cost that China can ill-afford with a slowing economy.

Despite the obvious history has proven that governments have made disastrous decisions. President Xi would simply follow the missteps of both the former military superpower Soviets in Afghanistan during the 1980s and US during the 2000s also in Afghanistan in a politically divisive and economically draining perpetual war which results in perpetual debt.

For those seeking a comprehensive financial and political perspective on this crisis, you may refer to a series of articles on our website entitled Hong Kong Perspectives.


Copyright 2019 Indo-Brazilian Associates LLC. All rights reserved.

Indo-Brazilian Associates LLC is a NYC-based advisory service and think-tank that provides geopolitical investment and security assessments.


Wednesday, August 28, 2019

Hong Kong | Red Tide to Break Mexican Standoff



The escalating violence in Hong Kong will definitively reach its tipping point this upcoming Saturday. According to the 28 August 2019 article in the South China Morning Post the Hong Kong government has banned a scheduled mass demonstrations for this Saturday citing security concerns particularly to prevent the continued use of potentially lethal weapons such as the use of bricks and petrol bombs by the protestors.

Such a ban will certainly not deter the ever increasing number of active, on-the-street protestors encompassing a wide demographic of ages and professions.

The mass demonstrations have taken a powerful life of its own amongst a wide demographic and professional levels including the humble civil servants. So even if the Hong Kong law enforcement identified the leaders, there’s nothing they can do to prevent continued and increasingly violent demonstrations. The Hong Kong protestors represent the most dangerous adversary because they feel that they have nothing to lose. The voracious beast, perhaps the ying-yang counterpart to mainland China’s, is out the cage and is leading a dynamic – for lack of a better word - insurrection.

For this reason the decision by the Hong Kong government to request assistance by the People’s Republic of China’s (PRC) People’s Armed Police (PAP) will be far easier legally under these extreme circumstances. Additionally, because of the high-alert security threat, this would also legally allow the PRC to act unilaterally and intervene the day and/or night before the Saturday demonstrations manifest.

With respect to the PAP according to the National Institute of Strategic Studies “China’s Other Army: The People’s Armed Police in an Era of Reform” executive summary on the PAP, a paramilitary force, 16 April 2019, the PAP is now under direct military control Central Military Commission whereby before it was a dual civilian/military control.

The PAP has three objectives: domestic stability, wartime support and maritime rights protection and deals with “domestic unrest and opposition.” Hong Kong is an internal matter so it “qualifies” for PAP intervention which is already operationally pre-positioned at the Shenzen Bay Sports Center.

Furthermore, according to the report the PAP has “gaps in special operations forces and helicopters.” Such a shortfall would be provided by the People’s Liberation Army (PLA).

The specific trigger for the PAP to intervene will probably be the unsustainable and untenable role played by the Hong Kong police. Not only has the Hong Kong police reached the breaking point, according to the Financial Times article 30 August 2019 “Hong Kong Police Furious Over Government Handling of Protests”, they feel abandoned by the Hong Kong government with respect to support. Both Hong Kong Chief Executive Carrie Lam, who has been largely absent during these protests, and the PRC have refused to open any dialogue with the protestors. The Hong Kong police are in the proverbial “between a rock and a hard place.”

PRC President Xi is loath to open any dialogue because the demonstrations have focused on self-determination and pro-democracy issues which the PRC considers as separatist and political terrorism. For this reason this gives them justification in adhering to the policies of many democratic and autocratic countries, “We don’t negotiate with terrorists.”

Additionally President Xi is aware of the Tiananmen Square crisis in which there was a fierce debate whether the PRC should open a dialogue and negotiate with the protestors. The hardliners successfully argued that any dialogue and negotiations to loosen policies would only prompt the protestors to later demand even more concessions.


This is exactly what has played out recently in which the Hong Kong government, under pressure from the citizens, withdrew (but didn’t cancel) the extradition law. Even with the withdrawal, the demonstrations metastasized resulting in demands for greater autonomy.

Politically the PRC has primed and pre-loaded the narrative by consistently using the word “terrorism” as the justification for any intervention. The focus has been on the handful number of radicals who have deceived and misled the hundreds of thousands to engage in “terrorist” acts. The arrest of three alleged protest leaders is merely a beau geste because the demonstrations, particularly the violent elements, have operated independently for weeks.


The PRC has indeed shown patience and constraint by non-law enforcement support of the Hong Kong government and local law enforcement and applied pressure on Hong Kong tycoons, the wealthy, celebrities and foreign business entities to denounce the violence.
In the medium term, the PRC is determined that the upcoming 70th anniversary on 1 October must proceed without a hitch or distractions.

The actual interventionalist operations and objectives will most likely follow in this sequence:

  1. A preemptive, pre-dawn incursion into Hong Kong.
  2. Severing all civilian communications which includes mobile phone and internet access just prior to the arrival of PAP vehicles.
  3. Arrival in overwhelming force and secure critical government buildings, the financial sector, infrastructure and logistical chokepoints.
  4. Establish a state of emergency including a strict curfew.
  5. Establish checkpoints throughout the city requiring official ID (and required facial recognition) for civilians to move from one sector to the other.
  6. Occupation of Hong Kong in full force until after the 1 October 70th anniversary celebrations and gradually scale back but maintain enough of a presence to discourage large demonstrations.
  
In other words the PAP will put Hong Kong under lock down wrapping in high-tech bird cage.

There are two fundamental questions once the PAP enters Hong Kong:

  1. How will the initial operation will play out in the first 24-72 hours with respect to casualties?
  2. How successful will the PAP be during the aftermath in maintain “law & order” and prevent sabotage?

With the PRC’s foreign reserves estimated at $3.1 trillion sanctions won’t make a dent. Expect the politically obligatory strong diplomatic denunciations worldwide but the cost of not continuing to do business with the PRC is too overwhelming for most countries, especially Europe, to go beyond verbal jousting. It certainly didn’t discourage these same corporations from increasing their investments after the Tiananmen affair.

On the other hand, the PRC loses Hong Kong forever as a financial conduit to conduct business particularly with western investors under a highly credible legal system. With an economy dependent on services everyone loses including mainland Chinese corporations.

For a more comprehensive assessment of this unfolding crisis Indo-Brazilian Associates LLC has created an on-going report entitled Hong Kong Outlook that includes a series of published articles encompassing the political and economic dynamics of this on-going crisis.

Copyright 2019 Indo-Brazilian Associates LLC. All rights reserved.

Indo-Brazilian Associates LLC is a NYC-based advisory service and think-tank that provides geopolitical investment and security assessments.

Tuesday, August 13, 2019

Hong Kong | Past The Point of No Return



A dramatic role-reversal economic priority takes place as Hong Kong dilemma takes front & center precedence over the US-China trade negotiations.

China (PRC) is facing a lose-lose dilemma but must intervene decisively to contain the exponentially growing crisis and will focus on post-intervention damage control.

Depending on how the People’s Liberation Army (PLA) intervention plays out markets will either plunge temporarily if there is minimal resistance or crash if there is violent opposition.

With intervention gold prices will spike dramatically and remain at elevated levels as investors as Hong Kong is eliminated as a credible international financial center for the short to medium term.

For all particulars with this on-the-knife's edge geopolitical dilemma, please read Hong Kong | Past The Point of No Return.


Additionally for those wishing to gain a more comprehensive understanding of the fierce political undercurrents, my firm Indo-Brazilian Associates LLC has created a report entitled Hong Kong Outlook that includes a series of published articles on this matter.



Indo-Brazilian Associates LLC is a NYC-based  think-tank that provides international investment  & security risk assessments.








Thursday, August 8, 2019

Mainland China’s Economic Pacification of Hong Kong


The surging intensity of the mass demonstrations and heightened political tensions threaten to unravel the lucrative economic co-dependence between Hong Kong and mainland China. Unless there is a political breakthrough in this high stakes “Mexican Standoff” China may be compelled to intervene which would plunge Hong Kong into chaos on every level. These issues are discussed in comprehensive detail in the above article Mainland China’s Economic Pacification of Hong Kong.

Additionally for those wishing to gain a more comprehensive understanding of the fierce political undercurrents, my firm Indo-Brazilian Associates LLC has created a report entitled Hong Kong Outlook that includes a series of published articles on this matter.




Thursday, August 1, 2019

China’s Anschluss of Hong Kong



The rapidly escalating and violent demonstrations in Hong Kong is a face-off between China, an autocratic economic and political behemoth and Hong Kong, an independent (less foreign affairs responsibilities) democratically run entity under a special agreement for the next 28 years, a city with enormous global economic clout and credibility without peer.

I believe that China’s President Xi does not want to wait another 28 years to officially fully absorb Hong Kong into China which would become an indelible part of his legacy. For this reason he welcomes the challenge and “provocation” of Hong Kong residents in their mass demonstrations as an excuse to re-establish “law & order” through the Peoples Liberation Army (PLA) intervention if Hong Kong law enforcement is overwhelmed or “requests” PLA assistance to come to their rescue.

China’s relentless and aggressive encroachments on critical legal protections for Hong Kong (and foreign) citizens have been previously successfully rebuffed. However the latest effort, the extradition law, “broke the camel’s back” resulting in a seething and violent blowback by a wide and broad Hong Kong citizenry.

All President Xi requires is the right circumstances to order the PLA to intervene and create creating a de facto China Anschluss of Hong Kong, an eerie parallel to Nazi Germany’s annexation of Austria in 1938. Such a joining usually occurs under specific conditions such as peoples off similar racial and ethnic backgrounds making it by default an “internal” affair with no foreign interference. Historically Mainland China and Hong Kong share generations worth of similar experiences; the only difference is linguistic Mandarin (mainland China) and Cantonese (Hong Kong).

Historically attempts at reunification or joining on a large scale with minimal violence is a tricky affair especially whether it’s peaceful or not. The last large-scale reunification occurred peacefully thanks to an enormous luck and miscommunication in the East German chain of command which occurred on November 9, 1989, ironically several months after the Tiananmen Square massacre on June 4, 1989.

Despite this agreed upon 50-year transition intervention by the PLA could be justified as an internal affair under a state of emergency which would override the “one country two systems” adage. There’s a stark difference between politics and real politik. For this reason regardless how this all plays out, China is well aware and rather comfortable that no one will come to Hong Kong’s rescue.

The default mindset of the China government towards ethnic Chinese globally is a genetic deputization particularly nearby Hong Kong, Taiwan and including all those of Chinese descent regardless where and for how many generations they’ve lived elsewhere. In other words their first loyalty should always be to the Chinese motherland a philosophical concept that supersedes geographical and time dimension boundaries.

From an operational perspective if China is “compelled” to send in the PLA, they are facing a task never attempted: occupying one of the densest mega-cities in human history. It is not a logistical nightmare. It’s a logistical impossibility.

According to the World Bank, Department of Economic and Social Offices, as of October 2018 Hong Kong, was the fourth densest city after Monaco, Macau and Singapore. Singapore was the only other city with a population over one million. By contract Hong Kong has a population of 7.44 million or 6,300 people per square kilometer. To gain some perspective of such a density it’s the equivalent of squeezing the New York City population of 8.5 million onto the island of Manhattan that measures a mere 13 miles (7.9 kilometers) long and 2 miles (1.8 kilometers) wide (at its widest part).

It is estimated that PLA has 6,000-10,000 soldiers in barracks mostly in Shenzen where housing is far cheaper, far short of what’s required to handle large, potentially violent, and multiple mass demonstrations. According to the Hong Kong Police Force website, Hong Kong officers number 30,886. Keep in mind that the PLA and Hong Kong police are distinct entities (law enforcement vs. military) in duties, tactics, objectives and chain of command each of whom may have conflicting operational methods and objectives in maintain law & order.

A successful operation between two distinct services will require a predetermined arrangement with respect to the roles of each of these entities including the establishment of large detention centers probably requiring transport to mainland China. Lacking those resources the tactic utilized against Occupy Wall Street in NYC is “kettling” in which law enforcement contains a group of demonstrators in one area indefinitely until their rage burns out.

Even if there are official orders by the PLA command for restraint, all one needs is one PLA officer who loses his nerve and panics resulting in a bloodbath particularly sector is breached and overrun. Add in young conscripts with zero experience in crowd control and you have an internal Molotov cocktail. Interestingly more citizens may get crushed or be killed by stampedes than bullets because of Hong Kong’s hyper-density.

Chinese security has experience in handling local demonstrations on the mainland with respect to protesting workers all of which occur in well-defined areas such as factories making control and containment far easier. On the other hand Hong Kong is a Jurassic-sized labyrinth.

Additionally there’s the risk to foreign nationals that numbers 250,000 including 80,000 Americans who could get caught in the crossfire. No foreign country has or can possibly have an evacuation plan because it’s a logistical impossibility in this hyper-dense urban terrain in chaos.

Hong Kong residents might fear the technological facial recognition of the PRC however once the PLA arrives, Hong Kong residents will have more than facial recognition against the PLA – a “heart” recognition revealing and confirming what the PRC leadership really is.

If the PLA is already pre-positioned it will need a strong excuse to intervene. This possibility may manifest in a planned protest by financial workers. According an article “Hong Kong Finance Workers Stage Flash Mob Protest” in the publication The Hill 1 August 2019, these financial workers conducted a peaceful, silent protest on Thursday, 31 July. However the political tripwire that may prompt PLA intervention will be Monday, 5 August 2019 in which, according to this article, “hundreds of bank employees at 34 institutions are also planning to participate in a citywide strike beginning next Monday, with nearly 100 public and private unions also endorsing the strike.

The Aftermath

  • The PRC must be willing to “take the hit” with respect to world condemnation and Hong Kong’s economic downfall.
  • The west can and will do nothing of substance. How can you place sanctions on the # 2 economy in the world, especially if this could be considered an internal matter vs. Russia sweeping into sovereign entities such as Crimea or the occupation of eastern Ukraine?
  • The expensive, dangerous and long-term duties for the PLA of occupying Hong Kong under an indefinite duration of state of emergency.
  • The PLA may battle an enduring Hong Kong cyber-underground resistance even should the demonstrators are pacified.
  • A landslide reelection victory for the Taiwanese president Tsai Ing-wen and her independence party in Taiwan’s January 2020 legislative and presidential elections.
  • The management of overflowing detention centers probably located in mainland China.
  • Nonetheless after Tiananmen Square despite world condemnation the world eventually “got over it” and purchased Chinese goods & services by the super containerload vaulting China from an economic pygmy to a behemoth. “Bring me the head of Khashoggi” MBS must have bellowed and it was done. After a brief interlude, large corporation worldwide are making unprecedented huge deals with the Saudis. Sadly billions in blood money can clean the slate as easily as bleach on a dirty countertop.


  

Indo-Brazilian Associates LLC is a NYC-based boutique advisory service and think-tank that provides global investment security risk assessments.

Copyright Indo-Brazilian Associates LLC 2019. All rights reserved.


Hong Kong | The Demise of its Economic Dominance


The rapidly escalating tensions in Hong Kong between the mass demonstrations and Hong Kong law enforcement is adversely impacting all aspects of business. Should the crisis escalate further with the intervention of China's PLA, Hong Kong's future as an Asian and global economic powerhouse may be permanently diminished as articulated by Albert Goldson, Executive Director of Indo-Brazilian Associates LLC, in the article published 1 August 2019 "Hong Kong | The Demise of its Economic Dominance".