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The week that reduced Hong Kong to a superpower plaything

May 28, 2020, 10:48 PM UTC

This is the web version of Eastworld, Fortune’s newsletter focused on business and technology in Asia. Subscribe here to get future editions in your inbox.

Fortune‘s 1995 cover proclaiming “The Death of Hong Kong” ignited a firestorm of controversy in Asia. The accompanying story, in its opening paragraph, declared the “naked truth about Hong Kong’s future could be summed up in two words: it’s over.”

The prediction of Hong Kong’s demise proved premature. After Britain returned the city to Chinese sovereignty in 1997, Hong Kong weathered a regional financial crisis, the SARS epidemic of 2003, the Global Financial Crisis of 2008, and the Umbrella Revolution in 2014. After each crisis, Hong Kong not only survived, but reinvented itself, and (mostly) thrived. The noisy crowds flocked back to bars in Lan Kwai Fong. More luxury boutiques sprang up in Central. Container ports hummed, rents and property prices soared, stock prices resumed their upward climb.

Over the course of my two tours for Fortune in Hong Kong, as Asia Editor in the early 2000s, and in my current role since 2016, I have learned not to underestimate this city’s resilience. Hong Kong’s future isn’t “over” now any more than it was in 1995.

WEB05.28.Fortune-6.26.95-Death of Hong Kong
Fortune Magazine’s June 1995 cover story proclaimed the ‘Death of Hong Kong.’
Fortune

And yet it does seem clear that the shape of that future has been irrevocably altered by decisions announced in Beijing and Washington over the past seven days.

First came the surprise announcement Thursday that China’s rubber-stamp National People’s Congress would vote on a resolution to draft tighter security laws for Hong Kong, bypassing the former British colony’s local legislature and seemingly rolling back the “one country, two systems” principle by which China’s leaders promised to govern the territory when they reclaimed it from Britain.

On Wednesday, U.S. Secretary of State Mike Pompeo formally advised Congress that the State Department no longer considers Hong Kong to have a significant degree of autonomy under Chinese rule. His statement seemed to indicate that the Trump administration intends to withdraw some or all of the special commercial privileges the U.S. has accorded Hong Kong since 1992.

On Thursday afternoon, as expected, the Chinese legislature approved the Hong Kong security proposal. The final version, to be drafted by members of the NPC’s powerful standing committee, may not be ready until August. But a summary of the NPC’s decision released after the vote suggests the law will grant local and national authorities vast new powers for quashing dissent in the city. The new measure prohibits any act of treason, secession, sedition or subversion. It also bans all “activities of foreign forces” interfering in Hong Kong affairs. It would allow China’s Public Security and National Security agencies to operate openly in Hong Kong, and criminalize acts or expressions of disrespect for the Chinese national anthem or other state symbols.

The next move is Trump’s. In the most extreme case, President Donald Trump could rescind Hong Kong’s special trade status altogether and seek to punish Beijing by treating this global financial hub as no different than any other Chinese city. That move might play well with Trump’s political base as he heads into the November election. But it is unlikely to inflict meaningful economic pain on the rest of China—and is certain invite further retaliation from Chinese President Xi Jinping.

Financial Times correspondent Henny Sender, in a contrarian analysis, argues that U.S.-China tension might actually provide a windfall benefit to Hong Kong’s stock exchange as a slew of mainland companies eying U.S. public offerings in coming months follow the lead of e-commerce giant Alibaba in redirecting listings to Hong Kong.

Singaporean scholar and diplomat Kishore Mahbubani, in this week’s provocative Eastworld interview, laments that Hong Kong as a whole has become a “political football” in the larger global conflict between the world’s two largest economies.

More Eastworld news below.

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com.

Eastworld news

An extended quarantine

On Wednesday, Canadian courts denied Huawei Chief Financial Officer Meng Wanzhou’s request to throw out her case. Meng, the eldest daughter of Huawei CEO Ren Zhengfei, has been under house arrest in Canada since being arrested by government authorities in December 2018 under an extradition order from the United States. The U.S. Department of Justice has charged Meng with defrauding banks into doing business with Iran, in violation of sanctions imposed on Iran by the U.S. Meng has denied the charges and has expressed confidence that Canadian courts would clear her of wrongdoing. She plans to continue fighting her case in Canadian courts, but the decision brings her one step closer to being extradited to the U.S. Bloomberg

High stakes

A high-altitude border stand-off between Chinese and Indian troops is escalating tensions between the region’s two major powers. Confrontations began in early May near the Pangong Tso lake in the Himalayan region of Ladakh when Chinese and Indian soldiers engaged in fistfights and pelted one another with stones. The contours of the border region are hotly contested, and since then Indian and Chinese troops have been seen camping in areas claimed by the other party. India alleges that China has recently moved thousands of troops and equipment into Indian territory, and analysts fear that further escalation of the dispute could result in “all-out combat.” Al Jazeera 

Waging on Cambodia

Cambodia may be the next Macau. This week, The Wire China told the story of Nagaworld, a mega casino complex in Phnom Penh, Cambodia that has risen to the ranks of the world’s most profitable gaming facilities, netting over $500 million in profits in 2018. The casino has ambitions for more growth, planning to double its capacity via a project called Naga3 by 2025. Gambling in Cambodia remains illegal for its citizens, but the casino was able to grow in large part on the back of booming tourism from China. Yet the guests may only be the tip of the iceberg of China’s influence. The Wire shows how state-run Chinese companies have been intricately involved in planning and constructing Cambodia’s gambling boom. The Wire China

A Thailand bubble

Your Thailand beach vacation may have to wait. Thailand says that it may be October before it opens its doors to tourism, which makes up roughly 14% of the country’s gross domestic product. Tourism authorities in the country say that even then, the country will likely place heavy restrictions on which countries it opens its doors to and what areas the tourists are allowed to visit. The announcement is an early hint at a potential inter-Asia travel bubble, in which countries could make bilateral agreements for cross-border tourism. Analysts say Chinese travelers are likely to be the first allowed into Thailand, given that China is Thailand's largest tourism source and has managed to get a handle on its domestic outbreak. CNN

Testing for all

In mid-May, local authorities in Wuhan, China, the epicenter of the COVID-19 pandemic, detected six new cases of coronavirus. In response, the city launched an ambitious plan to test every one of its 11 million residents. This week, Fortune’s Naomi Xu Elegant says the city has largely managed to pull it off. She writes that in a single day, Wuhan tested 1.47 million people, more than 10% of its population. For comparison, New York state, the hardest hit region of the United States, has conducted 1.8 million tests in total since the beginning of the outbreak. Fortune

Succession

A Macau gambling empire is being passed to the next generation. Pansy Ho is expected to take control of SJM Holdings and consolidate its assets after her father, Stanley Ho, who was known as the King of Gambling for his role in transforming Macau into the world’s most profitable gambling center, died at 98 this week. But Pansy Ho's control over the company's 20-casino empire may be delicate given competing family interests and the economic toll COVID-19 wrought on the gaming industry. Stanley Ho fathered 16 children with four different wives, and each living member of the family has a stake in the firm. Analysts believe that Pansy Ho, the eldest daughter of Stanley Ho's second wife, will have free rein to try and rejuvenate the family business for now. If business falters, however, her control may vulnerable to the family infighting that has plagued the gambling empire in the past. Bloomberg

 

Coronavirus by country

India -- The world’s largest lockdown experiment may have not been enough. India surpassed 150,000 COVID-19 cases, with over 4,500 deaths, this week, and the virus does not seem to be slowing down. With limited testing capabilities to serve its 1.4 billion citizens, the country averaged over 6,000 cases per day in the last week, up from roughly 1,000 per day in April. Experts predict that infections may not peak until July. India first imposed a country-wide lockdown in late March before beginning to lift restrictions earlier this month. Yet now, even as parts of its economy have reopened, millions of urban workers are returning to their home villages amid the country’s slowdown. As the workers migrate from urban centers, the big question is whether states with fewer resources will be able to handle the expected influx of new cases. BBC

Markets and movers

Uber – The ride-sharing company has proposed moving its Asia-Pacific headquarters from Singapore to Hong Kong. The catch is that Uber says it will only move if Hong Kong officially legalizes its services. Uber is currently banned in Hong Kong, but thousands of drivers and riders still use the ride-hailing app in the face of potential fines. Fortune

Tencent – The Chinese tech giant is investing $70 billion in cloud computing, artificial intelligence, and cybersecurity over the next five years in China, amid government calls for the country to upgrade its technological infrastructure. In a separate deal, Tencent said on Thursday that it raised $6 billion dollars by selling U.S. bonds. Reuters

Volkswagen – The German carmaker is in the final rounds of talks to purchase a 50% stake in Anhui Jianghuai Automobile group, a major electric vehicle maker in China. On Friday, Volkswagen also purchased a 26% stake in Guoxuan, a Chinese electric vehicle battery maker, becoming the company's largest shareholder. For Volkswagen, already the largest foreign automaker in China, the deals represent a major challenge to competitors like Tesla and would help the German company grab a foothold in China’s booming electric vehicle market. Reuters

Final figure

$18 billion

Pinduoduo, or PDD, may be the largest e-commerce company you’ve never heard of, with a user base of over 628 million people. The company keeps costs low by connecting customers directly with factories, and keeps users engaged with its social and gamified shopping experience. The combination proved successful amid China’s coronavirus lockdown, with daily orders increasing from 50 million in March to 65 million in May. The company’s stock has soared; its market cap has nearly doubled to $80 billion since the beginning of 2020. The success has vaulted the company’s founder, Colin Huang, to the No. 3 spot on China's ranking of wealthiest people with a net worth of over $35 billion. His fortune has grown by nearly $18 billion in just the last two months. Fortune