Quick thoughts on hugely complicated issues. Just my opinion and possibly very wrong.

• Getting reliable data out of China is hard. Internal communications are monitored & edited in real time. Externall the “Great Firewall” is a thing. Anecdotal evidence is noisy & slow but provides the clearest picture.
• Hong Kong’s official data is more reliable & transparent. Unoffical channels are good at for business environment news. However for policital news, it’s all “fog of war”. The level of certainty is way too high.

* * * China * * *

The Mainland economy is suffering. Businesses are struggling to get loans/capital. The official GDP figures look great by non-China standards, but there is reason to believe actual growth is lower, possibly negative.

These problems are largely domestic/internal. The USA-China “trade war” is a minor contributor, but a convenient scapegoat. Look at China’s trade statistics with non-USA partners and see similar trends.

China grew from a poor country to today’s middle-income powerhouse through a combination of low cost exporting, “catch up growth” via building infrastruture, rapidly expanding capacity, backing “national champions” in key industries (WeChat, AliBaba), and allowing a massive credit buildup.

Long term, China has massive potential. It has a huge, hardworking, educated workforce and the most singlemindedly pro-growth government on earth. There are still hundreds of millions living in poverty, representing a huge upside in terms of future growth & talent.

Short term… It’s going to be a bumpy few years.

• Bloomberg notes that China is flashing warning signals.
• Professor Christopher Balding has been sounding alarms about Mainland’s economic weakness for a long time (just one example). He’s also one of the loudest voices calling official data.
• The China Law Blog offers frank assessments of how legal risks are evolving as China softens (e.g., how to deal with China companies that see a dark future).

* * * Hong Kong * * *

Hong Kong is in transition. It deserves its longstanding reputation as a world class financial center. Its IPO market was #1 in the world in 2018, in both dollar value and number of issues. It also has massive brokerage, asset management, hedge fund, and insurance industries. Mainland China is a huge source of listings and trading volume.

On the flip side… Check the headlines. The government of Hong Kong is selected by (and loyal to) the China Communist Party. The people of Hong Kong have taken to the streets in the past 6 months to protest perceived government overreach.

The government responded with forceful police actions that definitely went too far, too often, with too little consequences for the uniformed offenders.

This upset the protesters more, with some escalating the “yellow” actions to include vandalism, petrol bombs, and other criminality.

The police responded with more of what upset the protestors. Many in Hong Kong are “blue” supporters of the police and HK government.

Recent council elections showed overwhelmind support for “yellow” parties. The “yellow” movement also asked USA to pass a law that basically says “If China treats HK too much like just another China city, then USA will do the same… For trade, immigration, military, and other matters.”

China’s government is very upset about this, and threatens retaliation to USA. Nobody is sure what that means.

Hong Kong business is now suffering. Mainlanders represented a huge proportion of visitors to HK, but their numbers are down 80-90%. Non-Chinese companies are considering “right sizing” their HK presence. Few companies are taking proactive steps to reduce their HK footprint, but they are generally replacing attrition overseas, or replacing departing foreigners with local chinese hires.

As a result, the requirement to speak Chinese is becoming nearly universal for all new job openings. This makes Hong Kong a less attractive destination for international workforces.

Hong Kong faces a year or two of challenges and uncertainty. Longer term, there are excellent paths forward for the SAR as a more China-focused business center. But Hong Kong will probably be less of a global city going forward.

Hopefully I’m wrong.