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".






Wednesday, July 31, 2019

Hong Kong May Feel the Red Dragon’s Heat



The Hong Kong crisis already into its 8th week is metastasizing rapidly perhaps past a point of no return. An overlooked yet critical component is that the PRC’s red line to compel it to directly quell the crisis is not necessarily the level of violence rather the protestors’ verbal and symbolic narratives.

The PRC has historically placed political and social ability far ahead of economic concerns. For this reason any narrative with respect to challenging sovereignty issues by the protestors may compel the PRC to act aggressively. One such potential political tripwire as reported by The Economist article “Against the Symbols of Beijing” 27 July 2019 “calling for the ‘glorious restoration’ of Hong Kong a term used by supporters of the territory’s independence.” The defacement of PRC government buildings has further tested PRC’s patience.

The PRC has two dilemmas.

1.    Firstly, aside from the immediate problem of whether to let the Hong Kong protests” burn out” or to intervene with its estimated 6,000-10,000 troops in nearby barracks in Shenzen to restore order, Taiwan is the all-important long game which has legislative and president elections in January 2020. Taiwan is certainly watching closely how the PRC handles the Hong Kong situation.
2.    Secondly, the PRC fears that the Hong Kong protests may “inspire” mainland residents who are disaffected by the economic inequity and corruption which is why the broadcasts of the Hong Kong protests are limited to anti-PRC symbols particularly defacement of PRC buildings.

As the violent protests increase and occur simultaneously at multiple sites, the Hong Kong law enforcement appears to be stretched thin. For this reason this may explain the participation of “men in white” alleged from local triads to intimidate protestors to fill those security gaps.

To paraphrase Hong Kong’s Basic Law (common law system) vs. PRC (civil law system with socialist roots) as described in the NY Times 26 July 2019 article “What is the Chinese Military Doing in Hong Kong?”, any action to request the PRC must be initiated by the Hong Kong government. However the National Peoples Congress can declare a state of emergency or if turmoil “endangers national unity or security.” I believe that the highest levels of the PRC underestimated the long-simmering vitriol resulting in an unprecedented verbal and physical ferocity by a broad demographic.

Economically the protests are having a deleterious impact on businesses as articulated in The Financial Times article dated 28 July 2019 2019 in the Financial Times entitled “Hong Kong Property Weakens on China Slowdown”.

As a highly respected international trade center continued violent protestors and possibly PRC intervention risks a steep downgrade in Hong Kong’s ability to retain and attract business. Hong Kong’s status in the Asia region is without peer as articulated in the 2019 Index of Economic Freedom.

A short yet superb Wall Street Journal video entitled “Hong Kong’s Status as a Global Hub Under Threat” released 14 June 2019 neatly summarizes these risks.

Unfortunately I believe that the situation has a high probability of deteriorating further potentially decimating business in Hong Kong in the short-term. Here are the dynamics to explain why there’s an elevated risk of more intense protests with an equally intense reactionary law enforcement response:

There is a huge difference between law enforcement and the military. Law enforcement is trained and experienced in handling urban disturbances with the long-established local contacts to better gauge and possibly diffuse the natter. The military is a blunt instrument with no such training, no such experience and has no local relationships and for this reason unsuited to successfully handle and contain disturbances.

Hong Kong’s local police speaks Cantonese speaking while PRC garrison speaks Mandarin. Because of this linguistic difference, the PRC military can easily be perceived as a foreign occupying military force which may spark this tinderbox. A Hong Kong police beating a protestor is far different than a PRC soldier beating a Hong Kong protestor. When it comes to crowd control “one country, two systems” doesn’t work.

Logistically unlike Tiananmen Square which took place in a tightly controlled environment, the PRC has to deal with over 7 million inhabitants in an ultra-dense urban environment. To appreciate its urban density, Hong Kong is the equivalent of 8½ million New Yorkers squeezed into Manhattan.

Despite some fundamental differences between the Tiananmen and Hong Kong protests, the Hong Kong situation is unfolding just as intensely as Tiananmen 30 years ago. Additional comparisons are as follows:

Category
Tiananmen Square Protest
Hong Kong Protests
Demographics
Primarily students
General population
Protestor Objectives
Seeked to gain political freedoms under a rigid communist regime
Seeking to protect wide-ranging freedoms under Hong Kong Basic Law.
Economics
China was bit player in the world economy with limited global political or economic influence.
China is now a behemoth with the world’s 2nd largest economy with extensive global political and economic interests.
Political
Protests in Beijing, the Chinese capital, a potential existential threat to the leadership
Hong Kong, far from Beijing is semi-autonomous, local law dictates all but foreign policy.

Investment Recommendation

Short-term investment risks are dramatically elevated, specifically in the finance and commercial trade sectors which may suffer dramatically should there be a state of emergency. The disruptive elements are likely to continue since there’s no sign of a resolution in sight. Politically and economically it’s in the PRC’s best interest to assist the Hong Kong government to resolve this conflict as quickly and peacefully without direct participation.

Historically it’s important to keep in mind that despite the horrific ending to the Tiananmen Square protests despite world condemnation the PRC economy boomed. Those are the same countries who have, for lack of a better expression “gotten over it” and for decades have purchased PRC goods by the super-container load as the PRC has risen from an economic pygmy to a behemoth.
With respect to medium and long-term investments, Hong Kong will continue as a dynamic global and Asian business hub.

The largest impacts on the Hong Kong economy and investments in the region are global economic fundamentals mostly notably the PRC’s rapidly slowing economy and stubbornly high debt.


Indo-Brazilian Associates LLC is a NYC-based advisory firm and think-tank that provides global investment risk assessment encompassing emerging markets, global urban security and informational technology.


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

Wednesday, June 5, 2019

Early Bird Opportunities In Gold With Prices Not Buried, Just Planted


Albert Goldson CEO of Indo-Brazilian Associates LLC believes that in a world with concurrent geopolitical challenges near the precipice of devolving into a serious conflagration, purchase of gold in whatever form represents one of the best "flight to safety" options in turbulence times which can be read in his published article Early Bird Opportunities In Gold With Prices Not Buried, Just Planted.







Tuesday, April 30, 2019

Turkey: Riding the Economic Titanic



President Erdogan continues to “stay the course” and “full speed ahead” pursuing an unorthodox post-municipal elections economic policy which has a deleterious impact on Turkey’s present-day economy.



The end of sanction waivers on Iranian oil imports exacerbates Turkey’s plummeting foreign reserves and high external debt and may possibly be catastrophic should Brent prices rise another $10/bbl.


For this reason Erdogan must create a political face-saving narrative in actively seeking international financial assistance. If not a potential economic free-fall may occur

An analysis of the the key factors: Energy, Food and Political are articulated in my article:
Turkey: Riding the Economic Titanic.