The world continues to watch China and Hong Kong
Asian markets were somewhat weaker in May, but did not fall as much in local currency. Almost the entire downturn consists of a 4.0 percent weakening of the dollar against the krona.
Chinese society and the economy continued to return to normal activity in May. With a few exceptions, a second wave of contagion has been avoided, and these are mostly imported cases that have been handled promptly. Both housing sales and demand for cars showed a healthy recovery over the past month. Restaurants in China and Hong Kong have been packed with guests, all wearing facemasks.
However, concerns about the virus barely settled before new threats appeared on the horizon when the US launched a new round in the US-China trade conflict. In addition to accusing China of releasing the virus on purpose, it again wants to impose restrictions on the export of US technology to Chinese companies. This mainly concerns telecommunications company Huawei, but Taiwanese semiconductor company TSMC was also in the firing line since Huawei is a major customer. TSMC solved this by offering to build a new semiconductor plant in the US for USD 12 billion. Blackmail is and remains Donald Trump’s modus operandi.
China’s annual People’s Congress began on May 22. In addition to new support measures for the economy, the big theme was a launch of new security legislation for Hong Kong. Following democracy protests over the past year, China wants to limit the violence and restore law and order. The agreement with the British when Hong Kong was handed to China in 1997 states that Hong Kong should have some autonomy and that British laws should apply for 50 years. It seems this is now being eroded. Hong Kong plays an important role for China when it comes to raising international capital for Chinese companies.
These plays can be seen as counters in a game between the US and China as the tone and rhetoric between the countries are heightened. The US immediately threatened to deprive Hong Kong of its most favoured nation trade status.