COLD WAR 2.0 RED SCARE REDUX
On 3 March, Hong Kong Watch publish a new report entitled: ‘Red Capital in Hong Kong: The Invisible Hand transforming the city’s politics.’ The report provides a warning to democratic governments about the way that Beijing has used ‘economic coercion’ as a key strategy of control in Hong Kong.
The report underlines the way that an influx of mainland money and assets - red capital - changed the power dynamics in the city’s politics. With mainland chambers of commerce now major players, able to dictate which media companies get advertising and how their employees vote, the reservations of the international business lobby about the effect of the extradition bill on the rule of law were batted aside. Beijing has been subsequently able to issue an ultimatum to international business: endorse the national security law or face the treatment of Cathay Pacific – finding that China is a no-fly zone.
Johnny Patterson, Policy Director of Hong Kong Watch says: “20 years ago, Hong Kong’s success relied on international business. The rise of red capital has turned the tables, and recent trends have exposed the level of dependency that many of these international firms have on China. The business community’s acquiescence to the new normal, or in HSBC’s case active enforcement of the Hong Kong government’s priorities, should alarm international policy makers. HSBC’s position has undoubtedly undermined the strength of the UK government’s position on the Sino-British Joint Declaration.”
In its conclusions, the report considers the fact that despite geopolitical tension, capital flows between the West and China have increased in recent years, arguing this should be a cause of concern. Despite the situation in Hong Kong, the coronavirus, and the US-China Trade War driving a growing fissure between China and the West, ties between China and Global Finance are growing, and the total value of China’s stock market has hit record highs. Over the first eight months of 2020, the amount of Chinese onshore bonds held by foreign institutional investors increased more than 20 per cent year on year to Rmb2.8tn ($421bn), according to Fitch Ratings.
The report concludes that steps should be taken to question and stall major institutional investment into firms with ties to the Chinese military-industrial complex or complicit in gross human rights abuses. It underlines that scrutiny should be placed on the component members of passive index funds which track major investment indices such as the MSCI Emerging Markets index.
Patterson continues: “It is time to wake up. We need to be looking at where Western institutional investment is going and where China is targeting its investments. If we allow another ten years of Beijing’s strategic investment of red capital across Africa and Europe, Latin America and Asia to take place unchallenged, we should not be surprised if – when inevitably there are geopolitical flashpoints – we see a rerun of Beijing’s domination of Hong Kong in other strategic geo-political battlegrounds or indeed on our own doorstep. Hong Kong is a canary in the coalmine. It shows why Western researchers need to take red capital seriously, and policy makers need to find solutions.”
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