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Mundo #14 - The Beijing Bet  

Updated: Dec 8, 2020

G'day, and welcome to the fourteenth edition of Mundo.

Personally, I want to acknowledge the protests throughout the United States, and state my support in confronting and fixing a system and culture of racism, particularly African Americans. Hearing experiences of friends and others I admire, it's prompted a lot of self-reflection on what I'm ignorant of, where my actions fall short of my moral support, and what I can do to change that.

This week I analyse Beijing's Hong Kong gamble, arguing that it's a calculated bet to tighten control over one of the Communist Party's core interests. The White House released a China strategy, formalising a hardened China stance across the government's departments and agencies not seen in recent decades. This tone anchors U.S.-China policy regardless of who wins the November presidential election. I give the back story on Trump's world view, and share recent links and publications from our Mundo readers.


Approximate reading time: 5 minutes.

Hong Kong, protests, China

Photo credit: Studio Incendo

The Beijing Bet

If you were hoping smoother U.S.-China relations for your business should Trump lose the November elections, don't be so sure. Two events in the last few weeks underscore China's growing boldness to take action in spite of international criticism and commercial risk, and the continued hardening of the U.S. government's departments and agencies against China's actions.

Beijing's May 21 decision to extend national security laws to Hong Kong is the latest fissure in the territory's eroding domestic autonomy. The Chinese Communist Party's declaration lays the path where crimes of "subversion" and "secession" (yet to be defined) will be subject to detentions. More generally, it casts greater uncertainty over the future of Hong Kong's legal system, whose relative independence from the mainland has comforted international investors in recent decades. The directive came from Beijing; Hong Kong's legislature won't have any input.

Beijing's shrewd timing was a stealthier response to the militarised crackdown feared during last year's heaving protests, however it will have a far larger impact. Beijing is pushing these laws through as the pandemic's pall persists, in a calculated play that gives greater leeway to quell protests, while catching Western countries flat-footed with their own public health preoccupations.

The Economist captures the gravity of the situation best, which I paraphrase below:

  1. Will Hong Kongers return to the streets in protest, or has protest fatigue and the spectre of a prolonged covid-19 shutdown set in?

  2. How will foreign, mainland Chinese, and local businesses react? How does this change Hong Kong's status as a capital gateway between China and the rest of the world?

  3. How will the Trump administration react - will it broaden its tariffs, and will it catalyse a financial decoupling between the two powers?

Focusing on the second and third points, Beijing's tightening grip over Hong Kong jolts foreign investor and business confidence. This is coupled with a bill in passage through U.S. Congress requiring stricter auditing requirements of foreign listed firms on U.S. stock exchanges. Both raise the risk of a splitting of capital markets, with Chinese companies returning to the friendlier jurisdictions of Hong Kong or mainland exchanges. Foreign firms with a presence in Hong Kong will be pushed to acquiesce to the new rules, or transition their business elsewhere. HSBC has already voiced their support for the security laws, while Nomura is reviewing their Hong Kong footprint.

Trump's response has so far been vague, saying his administration will "begin the process of eliminating policy exemptions that give Hong Kong different and special treatment" from the mainland, while levelling sanctions on officials. The administration is giving themselves room to manoeuvre, but there is every chance that Trump may further escalate his response. Prior escalations have followed heavy public criticism and assaults on his ego. With the United States preoccupied by protests and pandemic, the domestic response so far has been relatively muted.

This was Beijing's bet, part of a well-used tactical playbook. It's a reminder to remain wary of non-covid flare ups in political risks, against the 2020 backdrop. It's also worrying for Taiwan's political standing - look for this as a potential flash point between the U.S. and China in the coming months.

The D.C. Declaration

The White House also released their long awaited China strategy document in late May. In line with other policy documents and speeches from the past 18 months, this strategy calls for a "competitive approach" and a "tolerance of greater friction". The core theme of the document is central to Trump's "world view", where foreign policy is a narrowly defined transactional affair, banishing any "symbolism and pageantry". More on Trump's world view in the following section.

The key takeaway, however, is the hardening of the United States' federal departments and agencies against China. This sentiment has been clear in Washington over the past 12 months, however this document is its formalisation. The strategy also deepens this stance from federal to state and local governments.

While the strategy does weakly propose "results oriented" cooperation "where interests align", the areas mentioned are unambitious - coordination against fentanyl tracking, and postal agency cooperation for small parcel tracing. No mention of cooperation on climate change, global public health, North Korea, or Afghanistan.

This document was drafted before the Covid Crisis took hold. Bilateral relations have only deteriorated since then.

Trump has never been contained by other foreign policy statements, and this strategy will be no exception. The strategy is now a target for presumptive presidential candidate Joe Biden, and although he will likely find more points for cooperation, the overall tone will remain anchored by the hardening of federal departments and agencies against China.

Further listening: Big Trouble in a little China Strategy? - War on the Rocks

Backstory: Trump's world view

When it comes to the United States' place in the world, does Donald Trump have a world view? Looking back at his 3.5 years in the White House and decades prior, it's clear his world view rests on a single pillar: the deal.

Everything is a transaction, an accounting of short term costs and benefits. From this emanates his views on trade (the U.S. has been hurt by others exploiting globalisation), his rejection of an ambitious role for the U.S. abroad (it's too costly for benefits he fails to see), and his disregard for all else (human rights, multilateralism, etc). If it's not benefitting the United States' hypothetical quarterly profit and loss statement, it's costing it.

This is clear as far back as a 1987 newspaper ad by Trump, which calls for the U.S. to "stop paying to defend countries that can afford to defend themselves”, and that Japan has rebuilt their economy at America's expense. Sound familiar?

Source: The New York Times - September 2, 1987

Former Trump adviser Joe Grogan agreed with this assessment on a call I listened in on last week, saying that Trump views U.S.-China relations as a "business relationship". Richard Haass of the Council on Foreign Relations said similar on another call.

Enveloping these core views is a static of hyperbole and outright lies, that are often intentional. He's been doing this since his heady days pushing 1980s Manhattan real estate deals.

“I play to people’s fantasies,” he writes in “The Art of the Deal,” his 1987 memoir. “I call it truthful hyperbole. It’s an innocent form of exaggeration—and a very effective form of promotion.” - The New Yorker - August 24, 2015

I wouldn't say his "exaggerations" are so "innocent". Parsing Trump's true intentions is not as simple as looking for signal amidst the static noise. To think that one is meaningful while the other isn't overlooks how Trump's static electrifies this political polarity, with real consequences.

Links from our Mundo Readers

Evan Ellis, recently returned to the US army War College after a stint with the Department of State's Policy Planning Unit, argues that Europe and Latin America's focus on their national COVID crises could see a growing dependence on China, to the detriment of their national interests.

Brussel's based trade specialist Aljoscha Nau makes the case for the EU leading global trade reform in the wake of the Covid Crisis.




Please feel free to send through your own thoughts and articles to me.  Forward this along to others who might find this an interesting read. Stay calm, think of others, stay healthy. Mitch

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