With China's ambitions toward Hong Kong having emerged as the top political fault line in recent days, the market was closely following the start of Friday's National People's Congress (NPC) where in addition to disclosures on Chinese political strategy, Beijing announces decisions on targets on GDP, CPI and fiscal deficit.
China plans on expanding its crackdown on Hong Kong sovereignty, a step that comes one day after China announced dramatic plans to rein in dissent by writing a new law into the city’s charter, and just hours after the Senate passed a bill that will retaliate against China should it do precisely that, effectively ensuring an even further deterioration in US-Sino relations.
Specifically, the National People’s Congress confirmed plans to pass a bill establishing “an enforcement mechanism for ensuring national security” for Hong Kong, with Reuters adding that China's draft Hong Kong Legislation says "Hong Kong Government And Legal Bodies Should Effectively Prevent, Stop And Punish Activities That Endanger National Security."
Chinese lawmakers were preparing to soon pass measures that would curb secession, sedition, foreign interference and terrorism in the former British colony, local media including the South China Morning Post reported Thursday, citing unidentified people.
"We will establish sound legal systems and enforcement mechanisms for safeguarding national security in the two special administrative regions, and see that the governments of the two regions fulfill their constitutional responsibilities,” Li said according to prepared remarks on Friday.
As Bloomberg adds, any attempt to impose security laws now could reignite the unrest that hammered the city’s economy last year and serve as a flash point amid broader U.S.-China tensions. Protesters urged democracy advocates to hold rallies across the city Thursday night, with one poster describing the moment as a “battle of life and death,” but mass demonstrations didn’t immediately materialize.
"This is the end of Hong Kong," said Dennis Kwok, an opposition lawmaker representing the legal sector. "I foresee that the status of Hong Kong as an international city will be gone very soon."
More importantly, we now have a timeline: the law is expected to pass China’s parliament before the end of its annual session May 28, so retail investors have about a week to ramping stocks higher before the trapdoor opens.
“The market is taking this news negatively for Hong Kong given the likely return of violent protest activities, higher risk for the U.S. to remove certain preferential terms for Hong Kong, such as the special tariff status, and risk-off sentiment,” said Becky Liu, head of China macro strategy at Standard Chartered Bank Ltd.
In addition to an imminent return of violent Hong Kong protests, China's position sets up an election-year showdown with Trump, who has come under pressure in Washington to reconsider the special trading status before the city’s return to Chinese rule under a promise to maintain its liberal financial and political structure. Secretary of State Michael Pompeo has delayed an annual report on whether the city still enjoys a “high degree of autonomy” from Beijing, telling reporters Wednesday that he was “closely watching what’s going on there.”
On Thursday, Trump warned that the U.S. would respond to any move to curtail protests and democratic movements in Hong Kong: "I don’t know what it is because nobody knows yet," Trump, speaking to reporters as he left the White House on Thursday, said about the possible Chinese actions. "If it happens, we’ll address that issue very strongly." He didn’t elaborate.
Assuring that this will only get worse, much worse, a late Thursday tweet from Global Times editor in chief Hu Xijing said that "Hong Kong belongs to China, not the US. If senior officials in Washington are confused about this, President Trump's granddaughter can tell them this common sense."
The climax came when late on Thursday, senators Chris Van Hollen (Democrat) and Pat Toomey (Republican) introduced legislation to punish Chinese entities involved in enforcing the proposed new security law in Hong Kong and penalize banks that do business with those entities. They acted in response to what they said was the Chinese Communist Party’s “brazen interference” in Hong Kong’s autonomy. Meanwhile, China has repeatedly stressed that the US should mind its own business and not mess in internal affairs, with Hong Kong considered one of them.
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