Peter Gregoire's Blog
March 4, 2017
Article 109 - very current 5 years on
Article 109 – still very much current 5 years on
The Chinese People’s Political Consultative Conference (CPPCC) kicked off the nation’s two week annual bash with a report that included a self-congratulatory note on its support for the National People’s Congress interpretation of Article 104 of the Basic Law.
This particular interpretation had led to the disqualification of two rather misguided newly elected members of Hong Kong’s LegCo who had inserted pro-independence slogans as part of their oaths at their swearing in ceremony. It was all rather silly and the two young LegCo members rightly lost all the public support they had garnered during their election. Their actions, which prompted this fifth interpretation of the Basic Law by National People’s Congress since the 1997 Handover, annoyed all of Hong Kong, both Democrats and pro-Beijingers alike.
Every NPC interpretation of the Basic Law sparks mass controversy. The Basic Law, Hong Kong’s mini-constitution underpins the unique ‘one-country, two-systems’ principle on which the territory’s continued existence is based. This principle has it that Hong Kong is part of China, buts its legal system, one based on individual rights and common law case precedent, is separate from the rest of China. Whilst an elegant formula (one promulgated by Paramount Leader Deng Xiao Peng for bringing Hong Kong back into the Chinese fold without attracting international criticism from the liberal human rights watchers), the fact remains that ‘one-country two systems’ has, at its core, an irreconcilable contradiction.
That contradiction arises at the point where ‘one-country’ should stop, and ‘two systems’ should begin. Chief amongst these contradictions is the question of which body should have the ultimate right to interpret the Basic Law where there is a dispute over how it should apply: the NPC, China’s leading legislative body (as “one country” would demand)? Or Hong Kong’s Court of Final Appeal, as any common law constitutional system (i.e. the “two system’s’ part of the formula) would require?
The compromise reached appears to be that the Hong Kong courts should always have first bite at interpretation, but if the NPC disagrees it can ultimately override. There is an implicit understanding, however, that the NPC will exercise its right to override only very sparsely (it has only done so five times in twenty years). Whenever the NPC exercises this right, the Hong Kong legal profession, all of them common lawyers, roundly condemn it as a means ensuring that such intervention remains only very occasional.
What made this particular interpretation so controversial, however, was that the NPC issued it before the matter came before any court in Hong Kong. This could have acted like a massive slap in the face to the Hong Kong legal system, had it not been for the judgment which the Hong Kong court eventually rendered when the issue eventually landed in its lap, which reached the same conclusion as the NPC, albeit through the elegant, reasonable and objective application of common law principles.
Clearly, what initiated the NPC to act so expeditiously, in advance of the Hong Kong courts, was the forbidden “I” word: independence. The two youthful LegCo members had countenanced the prospect of Hong Kong independence in their actions accompanying their oaths and this was unforgiveable. The notion of independence so obviously goes against the “one-country” part of the formula, that the NPC felt justified in stamping down on it fast.
Fair enough, perhaps, but one cannot help feeling that if only the NPC had waited for the court decision, which reached the same conclusion, it would have made a far stronger statement in favour of “one-country, two-systems”, than the underlying message sent by its own precipitous interpretation.
That message is clear. It is one of fear. It seeks to scare Hong Kongers into rejecting the very notion of Hong Kong independence, through an unstated threat. ‘If you even think about it, we will crackdown’ is the take-away and that message has now been underpinned further by the NPPCC’s missive of congratulations to the NPC for taking this step.
Indeed, coupled with this self-congratulatory note were the sideline comments from Wang Hongguang, former deputy commander of the Nanjing military area command, suggesting that Beijing was being too tolerant of Hong Kong pro-independence activists. He suggested, in true iron-fist fashion, that they should simply be eliminated.
When I read these comments from the former military commander, I couldn’t help indulging in a little self-congratulation of my own. My novel Article 109 published five years ago had its own hard-line military cadre (I called him “General Zhao”) seeking to carry out a plot based on the Basic Law, that would require him to be called on to instigate a crackdown in Hong Kong. I made the whole thing up, of course, but five years on it seems comments are appearing in the press to give both the characters and the plot credibility.
Sadly, though, Project Fear does seem to be taking its toll in Hong Kong as the growing sense of doom for its future takes hold. None of the Hong Kong Chief Executive candidates in the forthcoming election hold out much hope for solving this problem, but one might perhaps turn China’s attention to the Europe and US. There, it was the proponents of Remain and Hillary Clinton who used the strategy of Project Fear to try and get their own way.
We all know how successful that turned out to be!
The Chinese People’s Political Consultative Conference (CPPCC) kicked off the nation’s two week annual bash with a report that included a self-congratulatory note on its support for the National People’s Congress interpretation of Article 104 of the Basic Law.
This particular interpretation had led to the disqualification of two rather misguided newly elected members of Hong Kong’s LegCo who had inserted pro-independence slogans as part of their oaths at their swearing in ceremony. It was all rather silly and the two young LegCo members rightly lost all the public support they had garnered during their election. Their actions, which prompted this fifth interpretation of the Basic Law by National People’s Congress since the 1997 Handover, annoyed all of Hong Kong, both Democrats and pro-Beijingers alike.
Every NPC interpretation of the Basic Law sparks mass controversy. The Basic Law, Hong Kong’s mini-constitution underpins the unique ‘one-country, two-systems’ principle on which the territory’s continued existence is based. This principle has it that Hong Kong is part of China, buts its legal system, one based on individual rights and common law case precedent, is separate from the rest of China. Whilst an elegant formula (one promulgated by Paramount Leader Deng Xiao Peng for bringing Hong Kong back into the Chinese fold without attracting international criticism from the liberal human rights watchers), the fact remains that ‘one-country two systems’ has, at its core, an irreconcilable contradiction.
That contradiction arises at the point where ‘one-country’ should stop, and ‘two systems’ should begin. Chief amongst these contradictions is the question of which body should have the ultimate right to interpret the Basic Law where there is a dispute over how it should apply: the NPC, China’s leading legislative body (as “one country” would demand)? Or Hong Kong’s Court of Final Appeal, as any common law constitutional system (i.e. the “two system’s’ part of the formula) would require?
The compromise reached appears to be that the Hong Kong courts should always have first bite at interpretation, but if the NPC disagrees it can ultimately override. There is an implicit understanding, however, that the NPC will exercise its right to override only very sparsely (it has only done so five times in twenty years). Whenever the NPC exercises this right, the Hong Kong legal profession, all of them common lawyers, roundly condemn it as a means ensuring that such intervention remains only very occasional.
What made this particular interpretation so controversial, however, was that the NPC issued it before the matter came before any court in Hong Kong. This could have acted like a massive slap in the face to the Hong Kong legal system, had it not been for the judgment which the Hong Kong court eventually rendered when the issue eventually landed in its lap, which reached the same conclusion as the NPC, albeit through the elegant, reasonable and objective application of common law principles.
Clearly, what initiated the NPC to act so expeditiously, in advance of the Hong Kong courts, was the forbidden “I” word: independence. The two youthful LegCo members had countenanced the prospect of Hong Kong independence in their actions accompanying their oaths and this was unforgiveable. The notion of independence so obviously goes against the “one-country” part of the formula, that the NPC felt justified in stamping down on it fast.
Fair enough, perhaps, but one cannot help feeling that if only the NPC had waited for the court decision, which reached the same conclusion, it would have made a far stronger statement in favour of “one-country, two-systems”, than the underlying message sent by its own precipitous interpretation.
That message is clear. It is one of fear. It seeks to scare Hong Kongers into rejecting the very notion of Hong Kong independence, through an unstated threat. ‘If you even think about it, we will crackdown’ is the take-away and that message has now been underpinned further by the NPPCC’s missive of congratulations to the NPC for taking this step.
Indeed, coupled with this self-congratulatory note were the sideline comments from Wang Hongguang, former deputy commander of the Nanjing military area command, suggesting that Beijing was being too tolerant of Hong Kong pro-independence activists. He suggested, in true iron-fist fashion, that they should simply be eliminated.
When I read these comments from the former military commander, I couldn’t help indulging in a little self-congratulation of my own. My novel Article 109 published five years ago had its own hard-line military cadre (I called him “General Zhao”) seeking to carry out a plot based on the Basic Law, that would require him to be called on to instigate a crackdown in Hong Kong. I made the whole thing up, of course, but five years on it seems comments are appearing in the press to give both the characters and the plot credibility.
Sadly, though, Project Fear does seem to be taking its toll in Hong Kong as the growing sense of doom for its future takes hold. None of the Hong Kong Chief Executive candidates in the forthcoming election hold out much hope for solving this problem, but one might perhaps turn China’s attention to the Europe and US. There, it was the proponents of Remain and Hillary Clinton who used the strategy of Project Fear to try and get their own way.
We all know how successful that turned out to be!
February 19, 2017
Hong Kong's Chief Executive Election....fact not stranger than fiction
At the end of 2014, in the immediate aftermath of Hong Kong’s Umbrella Revolution, I launched my second novel. It was called The Devil You Know and it was a political thriller which, at the time, was set two years in future….as in right now.
The backdrop in The Devil is the 2017 Chief Executive Election in Hong Kong, which is currently in full sway, although you would be forgiven for having missed this, such is the lack of interest a Hong Kong election seems to generate. Yet, as I read the newspapers and watch events (such as they are) unfold, I can’t help but compare how my predictions (as of course I had to make a few) have turned out in the reality of the current political climate.
One thing I got entirely wrong was the voting system. In The Devil I suggested that the pig that was the 2015 Reform Bill would pass, giving Hong Kong a smidgeon of democracy where voting for all would be permissible, so long as it was only for candidates who had been pre-screened by a Beijing controlled nomination committee. However, even that smidgeon has been denied to us. Instead we are left with the existing system (which isn’t even a pretense at democracy) where an Election Committee of 1,200 pre-selected voters who supposedly represent Hong Kong society, get to decide on Beijing’s anointed candidate.
A major pat on the back I deserve, however, is for predicting how uninspiring the candidates were going to be. At the outset of The Devil the poor old electorate is left with a choice between a cardboard Financial Secretary and a wooden Chief Secretary. Here, I’ve been pretty much spot on, as we seem to be moving towards an unstimulating showdown between Financial Secretary, John Tsang and his government colleague Chief Secretary, Carrie Lam (being the one everyone knows Beijing prefers and who is almost, therefore, a shoe-in for victory).
Fact has also met fiction in the way the entire election is being generally received by the public. The collective feeling seems to be one of “yeah, whatever”. Nobody seems to give two hoots and why would they, given that 99% of the script has already been written. In addition, it really is hard to tell the difference between Carrie Lam and John Tsang. Both have spent their careers as government civil servants. Both vaunt their experience, but their experience is exactly the same and, as such, more of the same is all we can expect whoever ends up winning.
To be fair there are two other candidates trying to muscle in on Lam and Tsang’s action. One is Regina Ip, who also spent many years in government. Her last government post, in fact, was as the security secretary who tried to force Article 23 (the anti-subversion section of the Basic Law) down the Hong Kong population’s throat in 2003. This prompted the famous July 1st March, which saw half a million people take to the streets in protest (an event recounted in the The Devil). Ip was forced to resign, but has since reinvented herself as a LegCo politician founding her own party. One can’t help worrying, however, that once in government she will revert to form, just like the other two, so again it will be a case of ‘same-old, same-old’.
Then there’s ex-judge Wu who was the first to throw his hat into the ring. Nobody really gives Wu much of a chance and although his background is different, compared to the other three, I for one feel a bit disappointed to see a judge cross the line into politics. A judiciary only works when it is entirely impartial and above political considerations, so the image of an ex-judge running for election does Hong Kong’s rule-of-law a disservice, especially when (let’s face it) he’s not going to be in the final shake up.
What we are missing is a credible candidate from the Democratic camp throwing down a challenge to the Election Committee with a real alternative which offers Hong Kong the change it so desperately needs. The plot in The Devil sees such a last minute entry from a strong Democratic candidate who has the full backing of the free press and, in fiction at least, it really stirred things up. I based the intervening candidate very loosely on Audrey Yu who isn’t from the abhorrent fire-breathing arm of the Democratic spectrum in Hong Kong, but is someone who persuades by reasoned eloquence and intelligence. Oh Audrey, how I wish you’d run!
Instead, the only Democrat who seems prepared to step into the fray is Long Hair, whose radicalism appears almost mainstream nowadays, because of the rise of the Hong Kong nativists advocating independence, such is the pitiful state of Hong Kong’s polity. Don’t get me wrong, I like Long Hair and despite his image, when you see him interviewed you realize he can certainly more than hold his own in a debate. But he does the Democrats no favours by declaring his candidacy because he prevents other more credible options (like Audrey) coming forward.
And so we are left with the shackles of past experience, in the guise of likely winner Carrie Lam (as she has Beijing’s backing) with either John Tsang or Regina Ip doing the noble job of straw person. Past experience, however, has completely failed so it’s not too difficult to predict what the future holds if past experience is the only option available.
I always thought that those right-wing neo-conservatives in the US who couldn’t stand any form of government intervening in the normal operation of society, were completely bonkers. In Hong Kong, however, with this set of candidates on offer, I think they may have a point. If that’s what our government has to offer, then I say it should just go away and leave us alone.
As for the result of the 2017 CE election in The Devil You Know? Well, I don’t want to give away the ending, but I suspect it is certainly very different from what we are going to see in reality come March. And Hong Kong will be much poorer for it.
The backdrop in The Devil is the 2017 Chief Executive Election in Hong Kong, which is currently in full sway, although you would be forgiven for having missed this, such is the lack of interest a Hong Kong election seems to generate. Yet, as I read the newspapers and watch events (such as they are) unfold, I can’t help but compare how my predictions (as of course I had to make a few) have turned out in the reality of the current political climate.
One thing I got entirely wrong was the voting system. In The Devil I suggested that the pig that was the 2015 Reform Bill would pass, giving Hong Kong a smidgeon of democracy where voting for all would be permissible, so long as it was only for candidates who had been pre-screened by a Beijing controlled nomination committee. However, even that smidgeon has been denied to us. Instead we are left with the existing system (which isn’t even a pretense at democracy) where an Election Committee of 1,200 pre-selected voters who supposedly represent Hong Kong society, get to decide on Beijing’s anointed candidate.
A major pat on the back I deserve, however, is for predicting how uninspiring the candidates were going to be. At the outset of The Devil the poor old electorate is left with a choice between a cardboard Financial Secretary and a wooden Chief Secretary. Here, I’ve been pretty much spot on, as we seem to be moving towards an unstimulating showdown between Financial Secretary, John Tsang and his government colleague Chief Secretary, Carrie Lam (being the one everyone knows Beijing prefers and who is almost, therefore, a shoe-in for victory).
Fact has also met fiction in the way the entire election is being generally received by the public. The collective feeling seems to be one of “yeah, whatever”. Nobody seems to give two hoots and why would they, given that 99% of the script has already been written. In addition, it really is hard to tell the difference between Carrie Lam and John Tsang. Both have spent their careers as government civil servants. Both vaunt their experience, but their experience is exactly the same and, as such, more of the same is all we can expect whoever ends up winning.
To be fair there are two other candidates trying to muscle in on Lam and Tsang’s action. One is Regina Ip, who also spent many years in government. Her last government post, in fact, was as the security secretary who tried to force Article 23 (the anti-subversion section of the Basic Law) down the Hong Kong population’s throat in 2003. This prompted the famous July 1st March, which saw half a million people take to the streets in protest (an event recounted in the The Devil). Ip was forced to resign, but has since reinvented herself as a LegCo politician founding her own party. One can’t help worrying, however, that once in government she will revert to form, just like the other two, so again it will be a case of ‘same-old, same-old’.
Then there’s ex-judge Wu who was the first to throw his hat into the ring. Nobody really gives Wu much of a chance and although his background is different, compared to the other three, I for one feel a bit disappointed to see a judge cross the line into politics. A judiciary only works when it is entirely impartial and above political considerations, so the image of an ex-judge running for election does Hong Kong’s rule-of-law a disservice, especially when (let’s face it) he’s not going to be in the final shake up.
What we are missing is a credible candidate from the Democratic camp throwing down a challenge to the Election Committee with a real alternative which offers Hong Kong the change it so desperately needs. The plot in The Devil sees such a last minute entry from a strong Democratic candidate who has the full backing of the free press and, in fiction at least, it really stirred things up. I based the intervening candidate very loosely on Audrey Yu who isn’t from the abhorrent fire-breathing arm of the Democratic spectrum in Hong Kong, but is someone who persuades by reasoned eloquence and intelligence. Oh Audrey, how I wish you’d run!
Instead, the only Democrat who seems prepared to step into the fray is Long Hair, whose radicalism appears almost mainstream nowadays, because of the rise of the Hong Kong nativists advocating independence, such is the pitiful state of Hong Kong’s polity. Don’t get me wrong, I like Long Hair and despite his image, when you see him interviewed you realize he can certainly more than hold his own in a debate. But he does the Democrats no favours by declaring his candidacy because he prevents other more credible options (like Audrey) coming forward.
And so we are left with the shackles of past experience, in the guise of likely winner Carrie Lam (as she has Beijing’s backing) with either John Tsang or Regina Ip doing the noble job of straw person. Past experience, however, has completely failed so it’s not too difficult to predict what the future holds if past experience is the only option available.
I always thought that those right-wing neo-conservatives in the US who couldn’t stand any form of government intervening in the normal operation of society, were completely bonkers. In Hong Kong, however, with this set of candidates on offer, I think they may have a point. If that’s what our government has to offer, then I say it should just go away and leave us alone.
As for the result of the 2017 CE election in The Devil You Know? Well, I don’t want to give away the ending, but I suspect it is certainly very different from what we are going to see in reality come March. And Hong Kong will be much poorer for it.
February 5, 2017
Ken Clarke's speech
Last year, we finally updated our cable package to include Sky News, a move which has enabled me to keep up with all the goings on in post-Brexit Britain. So it came to be that whilst enjoying the public holiday afforded to all Hong Kongers on the third day of Chinese New Year (31 January 2017), I found myself watching the UK Parliament debate the move to trigger Article 50 and start the process of withdrawing the country from the European Union.
I was just about to switch-over, when the speaker called on Kenneth Clarke, so out of curiosity and respect for a politician whom I have always admired and whose career spans almost 50 years, I thought I would pause a moment to see what he had to say.
What followed was one of the most impressive political speeches I have ever been privileged to witness. Without notes and with sparkling humour, passion and imagery, Clarke treated us to a seventeen minute tour de force which covered the history of Britain’s relationship with the EU, a defence of the importance of Parliament and a plea to every MP to vote with their conscience, rather than their party whip. This was political oratory at its best. Clarke took every criticism he knew would be levelled at him and destroyed it, either with biting humour, or by turning the insults back on the accusers. It was simply brilliant.
Kenneth Clarke has been an arch Europhile all his career. Indeed, he worked for Edward Heath to bring the UK into Europe back in the ‘70s and with Thatcher (yes, Thatcher) in the ‘80s to strengthen the Single Market in the UK’s favour. He passionately believes in the EU’s strength as a free trading block and the role it has given back to the UK after the end of Empire as marked by the Suez Crisis which, as Clarke said, had turned the British economy into a laughing stock. In his support for the EU, Clarke has been unstinting throughout his career, so much so that this is the one reason why leadership of the Conservative Party was denied him (he stood, and was rejected, three times). Still, as Home Secretary, Chancellor of the Exchequer and Lord Chancellor he has served his country in some of the biggest offices of state. It must be gut-wrenching for him to have to witness Brexit in his last Parliament.
Yet with this speech, the first from a backbencher in the debate, Clarke has probably left a legacy for the ages that will be looked back on in the fullness of time when Brexit comes to be judged as a success of failure. Clarke is in no doubt which this is.
As the only Conservative MP who defied the party whip to vote against Article 50, his warnings about the future make him similar to Winston Churchill in his Wilderness years, whose own concerns about events involving Europe also fell on deaf ears. Like Churchill, Ken Clarke also proved that he understands that true oratory is not just about conveying facts, but about holding attention and stirring the spirit. When he sat down amidst the applause of his fellow members the other day, he knew that even though most of colleagues did not agree with him, he had made his points, caused them to think and earned their respect.
I was just about to switch-over, when the speaker called on Kenneth Clarke, so out of curiosity and respect for a politician whom I have always admired and whose career spans almost 50 years, I thought I would pause a moment to see what he had to say.
What followed was one of the most impressive political speeches I have ever been privileged to witness. Without notes and with sparkling humour, passion and imagery, Clarke treated us to a seventeen minute tour de force which covered the history of Britain’s relationship with the EU, a defence of the importance of Parliament and a plea to every MP to vote with their conscience, rather than their party whip. This was political oratory at its best. Clarke took every criticism he knew would be levelled at him and destroyed it, either with biting humour, or by turning the insults back on the accusers. It was simply brilliant.
Kenneth Clarke has been an arch Europhile all his career. Indeed, he worked for Edward Heath to bring the UK into Europe back in the ‘70s and with Thatcher (yes, Thatcher) in the ‘80s to strengthen the Single Market in the UK’s favour. He passionately believes in the EU’s strength as a free trading block and the role it has given back to the UK after the end of Empire as marked by the Suez Crisis which, as Clarke said, had turned the British economy into a laughing stock. In his support for the EU, Clarke has been unstinting throughout his career, so much so that this is the one reason why leadership of the Conservative Party was denied him (he stood, and was rejected, three times). Still, as Home Secretary, Chancellor of the Exchequer and Lord Chancellor he has served his country in some of the biggest offices of state. It must be gut-wrenching for him to have to witness Brexit in his last Parliament.
Yet with this speech, the first from a backbencher in the debate, Clarke has probably left a legacy for the ages that will be looked back on in the fullness of time when Brexit comes to be judged as a success of failure. Clarke is in no doubt which this is.
As the only Conservative MP who defied the party whip to vote against Article 50, his warnings about the future make him similar to Winston Churchill in his Wilderness years, whose own concerns about events involving Europe also fell on deaf ears. Like Churchill, Ken Clarke also proved that he understands that true oratory is not just about conveying facts, but about holding attention and stirring the spirit. When he sat down amidst the applause of his fellow members the other day, he knew that even though most of colleagues did not agree with him, he had made his points, caused them to think and earned their respect.
August 2, 2015
A Great Leap Forward? Making sense of China’s cooling credit boom
On Monday 27th July 2015, the Shanghai stock market dived 8.5% despite the Chinese government’s attempt at intervention. Commodity prices also continued to fall in fear that the Chinese economy, which has fueled global demand for raw materials in recent years, was slowing down faster than expected. On Friday 31st July 2015, Beijing was awarded the Winter Olympics in 2022, making it the first city to host the summer and winter versions of the games. This despite a round of protests by human rights associations against the recent Government detentions of human rights lawyers on the Mainland.
Thankfully, it was against this background of contemporary events that I finished reading “A Great Leap Forward?”, a collection of essays from top China-watchers brought together by John Maudlin and Worth Ray which offers a useful insight into what is going on in China at the moment.
Essentially, the essayists divide into two opposing camps: (1) The Pessimists - who think that China is about to follow in Japan’s foot-steps and go bust, after years of unprecedented and unsustainable debt fueled growth; and (2) The Optimists - who suggest that instead, China will slow to a healthier, lower and more sustainable growth rate of around 4%, but in so doing achieve a successful re-balancing of its growth model, away from one driven primarily by credit-dependent infrastructure and property investment, to a consumer demand driven model focused on services and technological innovation.
The Pessimists
Those in the “hard” landing camp, focus on the performance of the Chinese economy since 2008. When the Global Financial Crisis tipped the rest of the world into recession, the Chinese government stepped in to stop this from happening in the Middle Kingdom, forcing state-controlled banks to lend and local governments and state-backed companies to borrow for the purpose of financing a multitude of domestic infrastructure and construction developments. This, in turn, fueled a property bubble but kept GDP growth at the Government’s target 8% level.
Because of the Chinese Government’s success in this respect, certain commentators began to question the Washington Consensus, which had it that capitalism and democracy was the only way for countries to make the step from developing to developed. Instead, such commentators started to vaunt the China-model of state capitalism, where the volatility and greater prospects of social unrest in a capitalist economy were ameliorated by the greater role played by the state in controlling the manner in which the capitalist economy develops.
According the pessimistic essayists, these commentators are, however, about to be proved wrong in no uncertain terms. The cost of China avoiding a slow-down since 2008, has been enormous. This credit-driven growth model has seen China’s banking assets grow by US$17 trillion since 2008, while nominal GDP has grown by US$4 trillion. In this short period of time, China has added the equivalent of 20% of global GDP to its banking assets (or the equivalent of the entirety of the assets in the US banking system); a phenomenal amount by any standards.
If this growth model were to continue to deliver the new target GDP rate of 7%, it would require 4 yuan of new credit to create every 1 yuan in GDP. This would see outstanding debt continuing to expand at nearly twice the rate of GDP, so that the debt to GDP ratio would double again by 2022. There is no way this can continue.
The alternative of managing the amount of debt downwards, however, is impossible. The fragility of the system at the moment means that any attempt by the Government to slow GDP growth by managing credit down, will trigger a collapse – witness the 8.5% drop on the Shanghai stock market as an example. Instead, therefore, the likelihood is that the Government will continue to deliver its target growth rates because not to do so will be political suicide. Hence, credit fueled infrastructure projects will continue (delivering the Winter Olympics has assisted in this respect), and the tough steps the Government should instead be taking will be kicked down the road to a time when it’s too late. At that time, bust will follow boom as inevitably as night follows day.
That then is the pessimistic view, the greatest proponent of which you will find in the essay and interview with Raoul Paul.
The Optimistic viewpoint
On the optimists side we find David Goldman, who argues that social conditions in Chinese society are the same seem in Europe in 1815, when that continent embarked on a mass flourishing and an epoch of economic expansion driven by the technological entrepreneurialism of the industrial revolution. Whilst the industrial revolution was driven by scientific advances, however, these advances were achieved by ordinary members of society seeking to break the mould in the industries in which they worked. Men like Arkwright, an ordinary wig-maker who invented the water-powered spinning frame.
Inventors such as Arkwright were representative of a culture that protected and inspired individuality, imagination, understanding and self-expression; a culture which drove one nation’s (Great Britain’s) indigenous innovation. The same building blocks for this culture are, in Goldman’s view, evident in Chinese modern-day society now.
Essentially, China is still emerging from an era in which conformity was imposed top down by the Cultural Revolution, to an era where entrepreneurialism is not just permitted but positively encouraged. This emergence is characterized by the unleashing of a drive for innovation, embodied by entrepreneurs like Ali-baba’s Jack Ma, Tencent’s Ma Huateng and Huawei’s Ren Zhengfei, each of whose companies are shaking the foundations of the world. Further, as a late-adopter, China is able to jump straight to the front of the queue of the wireless revolution, rather than waiting until its fibre optic technology (defended by vested interest) is rendered completely obsolete. Witness the fact that the Middle Kingdom has the largest number of internet users in the world at 640 million, with penetration being still only 46%, below the US’s 83%. Further, by 2020 all Chinese cities will have free Wifi. Witness also how technology companies are disrupting other traditional service sectors, like Ali-baba which has married up its distribution network with financial services, offering savings accounts at rates that outdo banks.
This explosion of innovation coupled with the entrepreneurial potential of China’s population, will not only enable Xi Jinping to rebalance the economy away from credit fueled infrastructure investment in favour of high value services and consumption driven growth, but it will also allow China to leapfrog its more developed peers in the greatest economic transformation in modern history.
Food for thought all round, then!
Who, then, is right?
Seeing what is happening in China’s stock markets at the moment, it seems that the pessimistic view is rightly gaining the upper hand. That said, with China’s backing of the Asian Infrastructure Investment Bank and its Silk Road initiative, the China government is trying to fuel export demand for Chinese construction companies to keep growth ticking over just enough, so as to give time to the technology revolution which will eventually create the consumer demand led growth model, to gather pace. The same role will be played by the Winter Olympics project, no doubt.
What is abundantly clear from these essays, however, is that the China government has an incredibly difficult path to steer. There is certainly fragility in the system and limits to what a Government can do. Were I betting man, therefore, I’d back the pessimists (which include fund managers that explain how they are shorting the China market at the moment). One can only hope, however, that these pessimists are wrong and that China does successfully navigate the tricky path to a slower, but healthier growth model. Otherwise, the negative consequences for the world economy would be enormous.
Though heavy on economic jargon and analysis in some places, this book is a must read for anyone interested in China; which given her impact on the world, should be everybody!
Thankfully, it was against this background of contemporary events that I finished reading “A Great Leap Forward?”, a collection of essays from top China-watchers brought together by John Maudlin and Worth Ray which offers a useful insight into what is going on in China at the moment.
Essentially, the essayists divide into two opposing camps: (1) The Pessimists - who think that China is about to follow in Japan’s foot-steps and go bust, after years of unprecedented and unsustainable debt fueled growth; and (2) The Optimists - who suggest that instead, China will slow to a healthier, lower and more sustainable growth rate of around 4%, but in so doing achieve a successful re-balancing of its growth model, away from one driven primarily by credit-dependent infrastructure and property investment, to a consumer demand driven model focused on services and technological innovation.
The Pessimists
Those in the “hard” landing camp, focus on the performance of the Chinese economy since 2008. When the Global Financial Crisis tipped the rest of the world into recession, the Chinese government stepped in to stop this from happening in the Middle Kingdom, forcing state-controlled banks to lend and local governments and state-backed companies to borrow for the purpose of financing a multitude of domestic infrastructure and construction developments. This, in turn, fueled a property bubble but kept GDP growth at the Government’s target 8% level.
Because of the Chinese Government’s success in this respect, certain commentators began to question the Washington Consensus, which had it that capitalism and democracy was the only way for countries to make the step from developing to developed. Instead, such commentators started to vaunt the China-model of state capitalism, where the volatility and greater prospects of social unrest in a capitalist economy were ameliorated by the greater role played by the state in controlling the manner in which the capitalist economy develops.
According the pessimistic essayists, these commentators are, however, about to be proved wrong in no uncertain terms. The cost of China avoiding a slow-down since 2008, has been enormous. This credit-driven growth model has seen China’s banking assets grow by US$17 trillion since 2008, while nominal GDP has grown by US$4 trillion. In this short period of time, China has added the equivalent of 20% of global GDP to its banking assets (or the equivalent of the entirety of the assets in the US banking system); a phenomenal amount by any standards.
If this growth model were to continue to deliver the new target GDP rate of 7%, it would require 4 yuan of new credit to create every 1 yuan in GDP. This would see outstanding debt continuing to expand at nearly twice the rate of GDP, so that the debt to GDP ratio would double again by 2022. There is no way this can continue.
The alternative of managing the amount of debt downwards, however, is impossible. The fragility of the system at the moment means that any attempt by the Government to slow GDP growth by managing credit down, will trigger a collapse – witness the 8.5% drop on the Shanghai stock market as an example. Instead, therefore, the likelihood is that the Government will continue to deliver its target growth rates because not to do so will be political suicide. Hence, credit fueled infrastructure projects will continue (delivering the Winter Olympics has assisted in this respect), and the tough steps the Government should instead be taking will be kicked down the road to a time when it’s too late. At that time, bust will follow boom as inevitably as night follows day.
That then is the pessimistic view, the greatest proponent of which you will find in the essay and interview with Raoul Paul.
The Optimistic viewpoint
On the optimists side we find David Goldman, who argues that social conditions in Chinese society are the same seem in Europe in 1815, when that continent embarked on a mass flourishing and an epoch of economic expansion driven by the technological entrepreneurialism of the industrial revolution. Whilst the industrial revolution was driven by scientific advances, however, these advances were achieved by ordinary members of society seeking to break the mould in the industries in which they worked. Men like Arkwright, an ordinary wig-maker who invented the water-powered spinning frame.
Inventors such as Arkwright were representative of a culture that protected and inspired individuality, imagination, understanding and self-expression; a culture which drove one nation’s (Great Britain’s) indigenous innovation. The same building blocks for this culture are, in Goldman’s view, evident in Chinese modern-day society now.
Essentially, China is still emerging from an era in which conformity was imposed top down by the Cultural Revolution, to an era where entrepreneurialism is not just permitted but positively encouraged. This emergence is characterized by the unleashing of a drive for innovation, embodied by entrepreneurs like Ali-baba’s Jack Ma, Tencent’s Ma Huateng and Huawei’s Ren Zhengfei, each of whose companies are shaking the foundations of the world. Further, as a late-adopter, China is able to jump straight to the front of the queue of the wireless revolution, rather than waiting until its fibre optic technology (defended by vested interest) is rendered completely obsolete. Witness the fact that the Middle Kingdom has the largest number of internet users in the world at 640 million, with penetration being still only 46%, below the US’s 83%. Further, by 2020 all Chinese cities will have free Wifi. Witness also how technology companies are disrupting other traditional service sectors, like Ali-baba which has married up its distribution network with financial services, offering savings accounts at rates that outdo banks.
This explosion of innovation coupled with the entrepreneurial potential of China’s population, will not only enable Xi Jinping to rebalance the economy away from credit fueled infrastructure investment in favour of high value services and consumption driven growth, but it will also allow China to leapfrog its more developed peers in the greatest economic transformation in modern history.
Food for thought all round, then!
Who, then, is right?
Seeing what is happening in China’s stock markets at the moment, it seems that the pessimistic view is rightly gaining the upper hand. That said, with China’s backing of the Asian Infrastructure Investment Bank and its Silk Road initiative, the China government is trying to fuel export demand for Chinese construction companies to keep growth ticking over just enough, so as to give time to the technology revolution which will eventually create the consumer demand led growth model, to gather pace. The same role will be played by the Winter Olympics project, no doubt.
What is abundantly clear from these essays, however, is that the China government has an incredibly difficult path to steer. There is certainly fragility in the system and limits to what a Government can do. Were I betting man, therefore, I’d back the pessimists (which include fund managers that explain how they are shorting the China market at the moment). One can only hope, however, that these pessimists are wrong and that China does successfully navigate the tricky path to a slower, but healthier growth model. Otherwise, the negative consequences for the world economy would be enormous.
Though heavy on economic jargon and analysis in some places, this book is a must read for anyone interested in China; which given her impact on the world, should be everybody!
July 6, 2013
The emergence of the Hong Kong politico-consumer
I have just finished “Asian Godfathers” by Joe Studwell, a fascinating read in which the author laments the failure of South-East Asian economies to make the step from developing to developed. The problem, he sights, is one of political will in failing to take long-term decisions (such as on land reform) which has meant wealth continues to be concentrated in the hands of a few Tycoon billionaires who perpetuate their position by maintaining tight relationships with successive governments.
Hong Kong, in this respect, is one of Studwell’s cases in point. Tycoons rule the roost here, having divided up the domestic economy between them into a series of cartels which ensure the rest of the population has to pay them inflated prices for tiny properties, food, electricity, gas and other utilities, without the benefit of urban parkland or an unpolluted environment to produce a quality of life. Their tight relationships with government (first with Tung Chee Hwa, himself a Tycoon and the first chief executive of Hong Kong, then with his successor) have meant the political will to bring in proper regulations to curb cartel behaviour and hold Tycoon’s to proper corporate governance standards, has been entirely lacking. The result is a massive disparity of wealth in Hong Kong society (the Gini coefficient for Hong Kong is 0.5, double that of Japan).
However, writing “Asian Godfathers” from the vantage point of 2007, Studwell was guardedly optimistic about Hong Kong’s future, sighting the politicization of the Hong Kong population, impatient with the slow progress of political change and fed up with Tycoon bad behaviour, as one of the main emerging stories of the South-East Asian region. The 1st July 2003 rally, in which an amazing 500,000 people took peacefully to the streets to stop failed-Tycoon and soon-to-be removed, governor/Chief Executive Tung Chee Hwa from bringing in anti-sedition law Article 23, was symbolic of the emergence of a Hong Kong political identity. So too is the rise of minority shareholder activism as represented by the likes of David Webb, a crusader trying curb the gross anti-minority shareholder antics of the cartel controlling Tycoons. In this respect, Studwell sighted Hong Kong as possibly being able to demonstrate to the rest of South-East Asia that a better life than most people in the region are accustomed to, is within grasp.
And since the book was written…..
Asian Godfathers was first published in 2007. At the end of the book, therefore, I found myself asking whether Hong Kong has achieved the goal of providing its population with the better and fairer life to which rest of South-East Asia can aspire?
The answer, one has to suggest, is that giant strides have been made by the grass-roots, but the pendulum, although moving, is doing so slowly as change continues to be doggedly resisted by the few who stand to lose by it.
There are three main areas where one sees change happening in the form of growing activism. These are: political activism; minority shareholder activism; and individual investor activism, each of which is worth further analysis as they form the basis for the emergence of a strong, vocal Hong Kong politico-consumer society.
On the political front…..
Firstly, Studwell was absolutely right in predicting that Tung Chee Hwa’s successor, Donald Tsang risked a drift to Tung-like popularity unless he convinced Beijing to get serious about political reform in Hong Kong by staking his job on it. Tsang did not do this and Tung-like unpopularity ensued, with the continued tightness between government and Tycoons being brutally exposed with the revelation of trips on Tycoon private jets and yachts and the fact that Tsang was going to lease a luxury flat in Shenzen from a business man, at below market rates in his retirement. That Tsang was forced to reverse these retirement plans and apologise in the face of public outrage, is a further sign both that the tight relationship between big business and government still exists, but also that political will is having an effect in breaking it.
Tsang’s successor, CY Leung initially benefited from the emergence of Hong Kong’s grass root’s political voice, in a remarkable come-from-behind win to defeat of Henry Tang, Beijing’s original nomination for the chief executive post. Tang’s luxury illegal structure basement and the indecent way he “blamed it on the wife”, soon led Bejing and the Hong Kong Tycoonocracy to switch to the Leung horse, in the face of public displeasure. This again demonstrated that political force from below can lead to change in Hong Kong, but that such change will be resisted at every turn, by practical reinvention of elite loyalties to protect their interests.
Since then, however, it has been a vertical downward trajectory for CY Leung. His own illegal structure (something which he – a qualified surveyor denied all knowledge of), got him off on the wrong foot with the Hong Kong public. Compounding his unpopularity, his attempt to bring in the National Education curriculum instigated a mass protest at the Government's new Tamar offices (an event which will go down in the annals of Hong Kong history as every bit as important as the 1st July 2003 march). This forced Leung into a humiliating U-turn in the first few months of his tenure.
Most recently, on the tenth anniversary of 1st July 2003 march, people took to the streets peacefully again, this time in pouring rain, demanding universal suffrage. As yet, however, CY Leung shows no sign of knowing how to take the political reform agenda forward, even though the tide is flowing in that direction ever stronger. Donald Tsang failed to threaten to resign unless universal suffrage was brought in, as a means of convincing his Beijing masters of the need for it. One thinks CY Leung must take this bold step. The signs at the moment, however, do not look hopeful.
Corporate Governance 1, Majority shareholder 0…..
Away from the political arena, strides have also been made in trying to hold Tycoons accountable to proper corporate governance standards. Minority shareholder activism has been gaining increasing traction. In an astute Tycoon move, Richard Li tried to take PCCW back into his private hands in the face of minority opposition. He obtained passage of the necessary resolution at the shareholders general meeting, but accusations of rigging the vote followed, after the suggestion that PCCW shares had been doled out to Fortis employees in return for their voting for the buy back, became prevalent in the press. In the legal fight with the Securities & Futures Commission (“SFC”) which ensued, the Court of Appeal finally blocked Li’s attempt. Victory, then, for the minority on that occasion.
Then there is the fact that Hong Kong now has a Competition Ordinance on the statute books. At the time Studwell wrote ‘Asian Godfathers’ the prospective law was still being debated (read “delayed”). The fact that it has finally passed into law (although it is not yet in force) means that Hong Kong has taken a big step on the way to putting in place the right regulatory infrastructure needed to break the cartels that keep prices high and stifle the development of truly global competitive companies in Hong Kong. The real test, however, will be whether the Competition Tribunal goes after the big fish, or just a few minnows to prove its worth, whilst letting the status quo continue.
Minibonds and now ILAS…..
Studwell’s analysis, of course, was pre-global Global Financial Crisis. If one were to re-evaluate his analysis through a post-GFC prism, therefore, one would have to add the explosion of investor activism which has occurred into the mix when analyzing the growth of a Hong Kong political identity. Hong Kong is, after all, an international finance centre and the maturity of its population as retail investors, not afraid to ask the right questions when a sleek eyed advisor offering riches comes their way, is implicit to the emergence of that identity.
The minibond saga, in which banks sold complex structured products known as “mini-bonds” to depositors at the time they came into their branch simply to renew their time deposits for another term, is well documented. The deal foisted on the banks, which saw most investors get the vast majority of their principal investment returned, marked the start (rather than the end) of a growing retail investor-rights consciousness in Hong Kong.
From mini-bonds, the focus has now shifted to Investment Linked Assurance Scheme (“ILAS”) products - investments products wrapped in the form of an insurance product. Although ILAS products give retail investors access to institutional funds, they do often come with high administration costs and lock-up terms which means getting access to your money without incurring a hefty penalty is difficult. These products have proved popular over the years in Hong Kong, but there have been a growing number of incidents where investors are prepared to speak up in cases where they allege these funds have been missold to them.
The Hobbins court case, one of the defining cases on intermediary commission disclosure, put ILAS products very much under spotlight. However, investors have also found other routes to express their grievances at misselling other than through the courts, with a number of blogs detailing horror stories of ILAS products being sold to persons who could ill afford to buy them (see, the blog entitled “the Rape of Hong Kong” as an example). Pressure from below has instigated change with new commission disclosure requirements on intermediaries selling ILAS products set to come into force, along with an overhaul of the insurance regulatory system targeted for 2015, where the introduction of a new and powerful Independent Insurance Authority will put an end the current self-regulatory regime for insurance intermediaries.
The Octopus incident of 2010 was yet another example of people-power exposing monopoly abuse. Octopus, the provider of Octopus charge cards used ubiquitously by all Hong Kong people to pay for MTR and other public transport (as well as a variety of goods and services), came into possession of the type of customer list that any big businesses would have given their right arm for. Octopus cashed in, by renting out the list. When this was revealed, public outrage knew no bounds. What Octopus had done wasn’t illegal, but the furore which ensued not only toppled its Chief Executive, but led to a change in the Personal Data (Privacy) Ordinance which has virtually killed old-style “rent-a-customer-list” direct-marketing in Hong Kong.
The new Hong Kong politico-consumer….
All of this, then points to the emergence of a sophisticated, highly educated and politically sensitive Hong Kong population, wary of their rights being abused by government or big business and empowered to know what levers to pull (whether it be complaints to the plethora of bodies which now exist, to the press, or simply through their own blogs) when there is any hint of this happening. The above examples show that substantive democracy exists here, if not procedural (i.e. the government is forced to react to public displeasure, even though there is no voting mechanism for the public to directly express it through choosing who governs them via the ballot box).
Change in Hong Kong is therefore happening through erosion rather than eruption. One can feel the tide turning, but that it will result in universal suffrage is by no means a foregone conclusion. History has shown that the ability of the Tycoons to reinvent themselves, adapt and retain economic power (by maintaining their effective control of government) should never be underestimated. Even now, despite the activism which is apparent, property, food and utility prices remain extortionate to the local population’s detriment (and to the Tycoons’ benefit). But it is hoped the combination of a canny and voluble Hong Kong politico-consumer class and a stronger regulatory framework addressing finance, competition, data privacy and investor protection, will force the next Tycoon wave of reinvention into their becoming leaders of globally competitive transparent businesses, in place of the cartel-reliant opaque domestic oligopolies, from which we are all now forced to buy.
Hong Kong, in this respect, is one of Studwell’s cases in point. Tycoons rule the roost here, having divided up the domestic economy between them into a series of cartels which ensure the rest of the population has to pay them inflated prices for tiny properties, food, electricity, gas and other utilities, without the benefit of urban parkland or an unpolluted environment to produce a quality of life. Their tight relationships with government (first with Tung Chee Hwa, himself a Tycoon and the first chief executive of Hong Kong, then with his successor) have meant the political will to bring in proper regulations to curb cartel behaviour and hold Tycoon’s to proper corporate governance standards, has been entirely lacking. The result is a massive disparity of wealth in Hong Kong society (the Gini coefficient for Hong Kong is 0.5, double that of Japan).
However, writing “Asian Godfathers” from the vantage point of 2007, Studwell was guardedly optimistic about Hong Kong’s future, sighting the politicization of the Hong Kong population, impatient with the slow progress of political change and fed up with Tycoon bad behaviour, as one of the main emerging stories of the South-East Asian region. The 1st July 2003 rally, in which an amazing 500,000 people took peacefully to the streets to stop failed-Tycoon and soon-to-be removed, governor/Chief Executive Tung Chee Hwa from bringing in anti-sedition law Article 23, was symbolic of the emergence of a Hong Kong political identity. So too is the rise of minority shareholder activism as represented by the likes of David Webb, a crusader trying curb the gross anti-minority shareholder antics of the cartel controlling Tycoons. In this respect, Studwell sighted Hong Kong as possibly being able to demonstrate to the rest of South-East Asia that a better life than most people in the region are accustomed to, is within grasp.
And since the book was written…..
Asian Godfathers was first published in 2007. At the end of the book, therefore, I found myself asking whether Hong Kong has achieved the goal of providing its population with the better and fairer life to which rest of South-East Asia can aspire?
The answer, one has to suggest, is that giant strides have been made by the grass-roots, but the pendulum, although moving, is doing so slowly as change continues to be doggedly resisted by the few who stand to lose by it.
There are three main areas where one sees change happening in the form of growing activism. These are: political activism; minority shareholder activism; and individual investor activism, each of which is worth further analysis as they form the basis for the emergence of a strong, vocal Hong Kong politico-consumer society.
On the political front…..
Firstly, Studwell was absolutely right in predicting that Tung Chee Hwa’s successor, Donald Tsang risked a drift to Tung-like popularity unless he convinced Beijing to get serious about political reform in Hong Kong by staking his job on it. Tsang did not do this and Tung-like unpopularity ensued, with the continued tightness between government and Tycoons being brutally exposed with the revelation of trips on Tycoon private jets and yachts and the fact that Tsang was going to lease a luxury flat in Shenzen from a business man, at below market rates in his retirement. That Tsang was forced to reverse these retirement plans and apologise in the face of public outrage, is a further sign both that the tight relationship between big business and government still exists, but also that political will is having an effect in breaking it.
Tsang’s successor, CY Leung initially benefited from the emergence of Hong Kong’s grass root’s political voice, in a remarkable come-from-behind win to defeat of Henry Tang, Beijing’s original nomination for the chief executive post. Tang’s luxury illegal structure basement and the indecent way he “blamed it on the wife”, soon led Bejing and the Hong Kong Tycoonocracy to switch to the Leung horse, in the face of public displeasure. This again demonstrated that political force from below can lead to change in Hong Kong, but that such change will be resisted at every turn, by practical reinvention of elite loyalties to protect their interests.
Since then, however, it has been a vertical downward trajectory for CY Leung. His own illegal structure (something which he – a qualified surveyor denied all knowledge of), got him off on the wrong foot with the Hong Kong public. Compounding his unpopularity, his attempt to bring in the National Education curriculum instigated a mass protest at the Government's new Tamar offices (an event which will go down in the annals of Hong Kong history as every bit as important as the 1st July 2003 march). This forced Leung into a humiliating U-turn in the first few months of his tenure.
Most recently, on the tenth anniversary of 1st July 2003 march, people took to the streets peacefully again, this time in pouring rain, demanding universal suffrage. As yet, however, CY Leung shows no sign of knowing how to take the political reform agenda forward, even though the tide is flowing in that direction ever stronger. Donald Tsang failed to threaten to resign unless universal suffrage was brought in, as a means of convincing his Beijing masters of the need for it. One thinks CY Leung must take this bold step. The signs at the moment, however, do not look hopeful.
Corporate Governance 1, Majority shareholder 0…..
Away from the political arena, strides have also been made in trying to hold Tycoons accountable to proper corporate governance standards. Minority shareholder activism has been gaining increasing traction. In an astute Tycoon move, Richard Li tried to take PCCW back into his private hands in the face of minority opposition. He obtained passage of the necessary resolution at the shareholders general meeting, but accusations of rigging the vote followed, after the suggestion that PCCW shares had been doled out to Fortis employees in return for their voting for the buy back, became prevalent in the press. In the legal fight with the Securities & Futures Commission (“SFC”) which ensued, the Court of Appeal finally blocked Li’s attempt. Victory, then, for the minority on that occasion.
Then there is the fact that Hong Kong now has a Competition Ordinance on the statute books. At the time Studwell wrote ‘Asian Godfathers’ the prospective law was still being debated (read “delayed”). The fact that it has finally passed into law (although it is not yet in force) means that Hong Kong has taken a big step on the way to putting in place the right regulatory infrastructure needed to break the cartels that keep prices high and stifle the development of truly global competitive companies in Hong Kong. The real test, however, will be whether the Competition Tribunal goes after the big fish, or just a few minnows to prove its worth, whilst letting the status quo continue.
Minibonds and now ILAS…..
Studwell’s analysis, of course, was pre-global Global Financial Crisis. If one were to re-evaluate his analysis through a post-GFC prism, therefore, one would have to add the explosion of investor activism which has occurred into the mix when analyzing the growth of a Hong Kong political identity. Hong Kong is, after all, an international finance centre and the maturity of its population as retail investors, not afraid to ask the right questions when a sleek eyed advisor offering riches comes their way, is implicit to the emergence of that identity.
The minibond saga, in which banks sold complex structured products known as “mini-bonds” to depositors at the time they came into their branch simply to renew their time deposits for another term, is well documented. The deal foisted on the banks, which saw most investors get the vast majority of their principal investment returned, marked the start (rather than the end) of a growing retail investor-rights consciousness in Hong Kong.
From mini-bonds, the focus has now shifted to Investment Linked Assurance Scheme (“ILAS”) products - investments products wrapped in the form of an insurance product. Although ILAS products give retail investors access to institutional funds, they do often come with high administration costs and lock-up terms which means getting access to your money without incurring a hefty penalty is difficult. These products have proved popular over the years in Hong Kong, but there have been a growing number of incidents where investors are prepared to speak up in cases where they allege these funds have been missold to them.
The Hobbins court case, one of the defining cases on intermediary commission disclosure, put ILAS products very much under spotlight. However, investors have also found other routes to express their grievances at misselling other than through the courts, with a number of blogs detailing horror stories of ILAS products being sold to persons who could ill afford to buy them (see, the blog entitled “the Rape of Hong Kong” as an example). Pressure from below has instigated change with new commission disclosure requirements on intermediaries selling ILAS products set to come into force, along with an overhaul of the insurance regulatory system targeted for 2015, where the introduction of a new and powerful Independent Insurance Authority will put an end the current self-regulatory regime for insurance intermediaries.
The Octopus incident of 2010 was yet another example of people-power exposing monopoly abuse. Octopus, the provider of Octopus charge cards used ubiquitously by all Hong Kong people to pay for MTR and other public transport (as well as a variety of goods and services), came into possession of the type of customer list that any big businesses would have given their right arm for. Octopus cashed in, by renting out the list. When this was revealed, public outrage knew no bounds. What Octopus had done wasn’t illegal, but the furore which ensued not only toppled its Chief Executive, but led to a change in the Personal Data (Privacy) Ordinance which has virtually killed old-style “rent-a-customer-list” direct-marketing in Hong Kong.
The new Hong Kong politico-consumer….
All of this, then points to the emergence of a sophisticated, highly educated and politically sensitive Hong Kong population, wary of their rights being abused by government or big business and empowered to know what levers to pull (whether it be complaints to the plethora of bodies which now exist, to the press, or simply through their own blogs) when there is any hint of this happening. The above examples show that substantive democracy exists here, if not procedural (i.e. the government is forced to react to public displeasure, even though there is no voting mechanism for the public to directly express it through choosing who governs them via the ballot box).
Change in Hong Kong is therefore happening through erosion rather than eruption. One can feel the tide turning, but that it will result in universal suffrage is by no means a foregone conclusion. History has shown that the ability of the Tycoons to reinvent themselves, adapt and retain economic power (by maintaining their effective control of government) should never be underestimated. Even now, despite the activism which is apparent, property, food and utility prices remain extortionate to the local population’s detriment (and to the Tycoons’ benefit). But it is hoped the combination of a canny and voluble Hong Kong politico-consumer class and a stronger regulatory framework addressing finance, competition, data privacy and investor protection, will force the next Tycoon wave of reinvention into their becoming leaders of globally competitive transparent businesses, in place of the cartel-reliant opaque domestic oligopolies, from which we are all now forced to buy.
June 24, 2013
Good-bye Mr Snowden. And God's speed.
Within hours of my previous post, news broke that Philip Snowden had left Hong Kong bound for Russia on his way to seeking asylum elsewhere. So we have been spared a protracted legal wrangle and a potential showdown between Beijing and Washington.
On the face of it, Hong Kong’s reputation for adhering to the rule of law remains in tact. The authorities refused to arrest Snowden, despite a formal request from the United States to do so. The request was turned down on the basis that it was incomplete and hence, under Hong Kong law, there was no basis either to detain Snowden or prevent him from leaving. Because of the operation of Hong Kong law, therefore, he was free to go – and he did.
Underlying this, however, is the suggestion that the Central Government in China asked Snowden to leave. Some may call this a sinister intervention. I say, absolutely not. Rather, if true, this shows the Chinese government becoming more and more deft in picking a path through diplomatic minefields. After all, we have a solution in which China’s special administrative region, Hong Kong, has maintained its adherence to the rule of law and Beijing has avoided an ugly confrontation with the United States. The importance of the bi-lateral relationship between the two most powerful countries in the world, remaining trouble-free cannot be underestimated.
Whatever the case, I say Hong Kong was absolutely right not to give into the United States demands to arrest Snowden and playing this one completely by the book. Even if the suggestion that Beijing asked Snowden to leave is true, the end result was not to override the rule of law, but to leave it very much in tact. Snowden left Hong Kong, not as a criminal, but voluntarily as free man. Hong Kong can be proud of that and the role it has played in this incident.
On the face of it, Hong Kong’s reputation for adhering to the rule of law remains in tact. The authorities refused to arrest Snowden, despite a formal request from the United States to do so. The request was turned down on the basis that it was incomplete and hence, under Hong Kong law, there was no basis either to detain Snowden or prevent him from leaving. Because of the operation of Hong Kong law, therefore, he was free to go – and he did.
Underlying this, however, is the suggestion that the Central Government in China asked Snowden to leave. Some may call this a sinister intervention. I say, absolutely not. Rather, if true, this shows the Chinese government becoming more and more deft in picking a path through diplomatic minefields. After all, we have a solution in which China’s special administrative region, Hong Kong, has maintained its adherence to the rule of law and Beijing has avoided an ugly confrontation with the United States. The importance of the bi-lateral relationship between the two most powerful countries in the world, remaining trouble-free cannot be underestimated.
Whatever the case, I say Hong Kong was absolutely right not to give into the United States demands to arrest Snowden and playing this one completely by the book. Even if the suggestion that Beijing asked Snowden to leave is true, the end result was not to override the rule of law, but to leave it very much in tact. Snowden left Hong Kong, not as a criminal, but voluntarily as free man. Hong Kong can be proud of that and the role it has played in this incident.
June 22, 2013
The city-states put to the test
It is a rare sight indeed for either Hong Kong and Singapore to make it into the world headlines. For both of them to be the centre of attention at once, is rarer still – and yet, there they both were this week.
The city-states of Singapore and Hong Kong are, in many ways, cut of the same mould in terms of the strengths which have made them successful. Both are dominated by business interests. Both serve as vital container ports in the Asia-Pacific region. Both are international finance centres, underpinned by the rule of law. And both are positioned on the edge of larger more populous neighbours, which are viewed as fast emerging economic superpowers. These neighbours (Indonesia in the case of Singapore, Mainland China, in Hong Kong’s case) enable both city-states to position themselves as a two-way gate, firstly offering international companies a stepping stone into these vast markets, and secondly offering domestic Indonesian and Chinese business interests with access to the international capital markets.
In Singapore’s case, this week its vast neighbour, Indonesia, has been proving itself to be more of an undermining weakness rather than an underpinning strength. Thick, porridge-like smog has engulfed the Singaporean streets from Indonesian forest fires. The Pollution Standard Index rocketed to 401, the highest on record in Singapore as the pavements were awash with people wearing masks. Unfortunately for Singapore this highlights one of its impotencies. Being a sovereign state, it has no real power to stop what is going on in Indonesia and is solely reliant on threatening legal action against any Singapore based owners of businesses which are responsible for the smog, or through the unenforceable diplomatic channels offered by ASEAN.
Hong Kong, meanwhile, is undergoing its own test as the United States seeks extradition of Philip Snowden from the city-state where he has sought refuge, to face espionage charges. For a city that prides itself on the operation of the rule of law as its greatest asset, it is imperative that the proper legal channels are followed and Snowden’s assertions against extradition are given a fair hearing. Statements coming from the US like: "If Hong Kong doesn't act soon, it will complicate our bilateral relations and raise questions about Hong Kong's commitment to the rule of law," are hardly helpful in this respect as they are clearly designed to obtain the desired outcome for the United States whether or not the rule of law is followed.
The larger issue lurking in the background is whether the Mainland Chinese authorities (from Hong Kong’s own dominant neighbour) will get involved. The Snowden issue potentially provides the same sort of test to the relationship between the two most powerful countries in the world, as occurred with blind-lawyer activist Chen Guangcheng in 2012, when he sought refuge in the US embassy in Beijing. That time, we saw the relationship between the two countries mature, as it was decided Chen could go to the United States to study and a potential embarrassment was avoided prior the generational change of leadership in Beijing.
Probably the best outcome for the situations in Singapore and Hong Kong is for the former (the Smog) to be dealt with diplomatically through ASEAN and for the latter (Snowden) to be dealt with by the Hong Kong courts. This is a case of finding the right horse for the right course and if ASEAN is seen to step up, it will underpin the emergence of that organization as an important player on the world stage. Similarly, by giving Snowden the fairest of fair hearings, Hong Kong can reinforce itself as a place where the rule of law prevails above all, including the nonsense spouted from the mouths of politicians.
Let’s hope, for the sake of both the city-state rivals, solutions are found which do not compromise the assets which have underpinned their success.
The city-states of Singapore and Hong Kong are, in many ways, cut of the same mould in terms of the strengths which have made them successful. Both are dominated by business interests. Both serve as vital container ports in the Asia-Pacific region. Both are international finance centres, underpinned by the rule of law. And both are positioned on the edge of larger more populous neighbours, which are viewed as fast emerging economic superpowers. These neighbours (Indonesia in the case of Singapore, Mainland China, in Hong Kong’s case) enable both city-states to position themselves as a two-way gate, firstly offering international companies a stepping stone into these vast markets, and secondly offering domestic Indonesian and Chinese business interests with access to the international capital markets.
In Singapore’s case, this week its vast neighbour, Indonesia, has been proving itself to be more of an undermining weakness rather than an underpinning strength. Thick, porridge-like smog has engulfed the Singaporean streets from Indonesian forest fires. The Pollution Standard Index rocketed to 401, the highest on record in Singapore as the pavements were awash with people wearing masks. Unfortunately for Singapore this highlights one of its impotencies. Being a sovereign state, it has no real power to stop what is going on in Indonesia and is solely reliant on threatening legal action against any Singapore based owners of businesses which are responsible for the smog, or through the unenforceable diplomatic channels offered by ASEAN.
Hong Kong, meanwhile, is undergoing its own test as the United States seeks extradition of Philip Snowden from the city-state where he has sought refuge, to face espionage charges. For a city that prides itself on the operation of the rule of law as its greatest asset, it is imperative that the proper legal channels are followed and Snowden’s assertions against extradition are given a fair hearing. Statements coming from the US like: "If Hong Kong doesn't act soon, it will complicate our bilateral relations and raise questions about Hong Kong's commitment to the rule of law," are hardly helpful in this respect as they are clearly designed to obtain the desired outcome for the United States whether or not the rule of law is followed.
The larger issue lurking in the background is whether the Mainland Chinese authorities (from Hong Kong’s own dominant neighbour) will get involved. The Snowden issue potentially provides the same sort of test to the relationship between the two most powerful countries in the world, as occurred with blind-lawyer activist Chen Guangcheng in 2012, when he sought refuge in the US embassy in Beijing. That time, we saw the relationship between the two countries mature, as it was decided Chen could go to the United States to study and a potential embarrassment was avoided prior the generational change of leadership in Beijing.
Probably the best outcome for the situations in Singapore and Hong Kong is for the former (the Smog) to be dealt with diplomatically through ASEAN and for the latter (Snowden) to be dealt with by the Hong Kong courts. This is a case of finding the right horse for the right course and if ASEAN is seen to step up, it will underpin the emergence of that organization as an important player on the world stage. Similarly, by giving Snowden the fairest of fair hearings, Hong Kong can reinforce itself as a place where the rule of law prevails above all, including the nonsense spouted from the mouths of politicians.
Let’s hope, for the sake of both the city-state rivals, solutions are found which do not compromise the assets which have underpinned their success.
June 15, 2013
Hong Kong - now we see its real value to China
Have you been following the amazing news about Edward Snowden, the ex-CIA analyst who has blown the whistle on the US government’s widespread monitoring of personal phone-calls? He could have sought refuge anywhere in the world and where has he chosen to hide out? Hong Kong.
It’s a brilliant move. Hong Kong is part of China, a nation inexorably on the rise towards superpower mantle. No one wants to be on the wrong side of China at the moment, especially not the United States. So Snowden is going to be hard to get at. And under the one-country two-systems formula, Hong Kong’s free press and rule of law, provide Snowden with both the platform and protection he needs.
Every day this week, fed by Snowden, the South China Morning Post has come out with new revelations. The latest one is of how the United States has been carrying out its own cyber-spying campaign in Hong Kong, targeting, among others, the Chinese University of Hong Kong internet exchange through which most web traffic in the city passes. And so we now have the remarkable sight democratically elected Hong Kong LegCo members questioning what the US has been up to.
With the Snowden Incident, then, we are witnessing the real value of Hong Kong to China. Through Hong Kong’s one-country two systems formula, China is at last able to take the moral high ground with the United States. Hong Kong's free system has enabled China, to turn from accused into accuser.
Ten years I’ve lived in Hong Kong. This is certainly a proud moment and worthy of my first attempt at a blog.
It’s a brilliant move. Hong Kong is part of China, a nation inexorably on the rise towards superpower mantle. No one wants to be on the wrong side of China at the moment, especially not the United States. So Snowden is going to be hard to get at. And under the one-country two-systems formula, Hong Kong’s free press and rule of law, provide Snowden with both the platform and protection he needs.
Every day this week, fed by Snowden, the South China Morning Post has come out with new revelations. The latest one is of how the United States has been carrying out its own cyber-spying campaign in Hong Kong, targeting, among others, the Chinese University of Hong Kong internet exchange through which most web traffic in the city passes. And so we now have the remarkable sight democratically elected Hong Kong LegCo members questioning what the US has been up to.
With the Snowden Incident, then, we are witnessing the real value of Hong Kong to China. Through Hong Kong’s one-country two systems formula, China is at last able to take the moral high ground with the United States. Hong Kong's free system has enabled China, to turn from accused into accuser.
Ten years I’ve lived in Hong Kong. This is certainly a proud moment and worthy of my first attempt at a blog.
