Protests in Hong Kong against a proposed extradition law that could send Hong Kong dissidents to Beijing for trial and Hong Kong’s loss of autonomy at Chinese hands have now lasted four months. At each turn, authorities have sought to suppress or appease the protesters without result. The protests have grown increasingly large and violent and have severely disrupted Hong Kong’s economy, property values and standing as a global financial center.
Tomorrow is the 70th anniversary of the Communist victory over the Nationalists in the fight for control in mainland China (the Nationalists still control the island of Taiwan). The Chinese government has planned celebrations in Beijing and other cities around China. These celebrations are intended to be orderly and festive and a way to show off China’s progress to the world.
The hope was that the Hong Kong demonstrations would have died down by now and that nothing would happen in Hong Kong to detract from the celebrations planned for the rest of China. That hope has now been abandoned, according to this article. Not only will the Hong Kong protests continue, but there is some danger that the demands for liberty from Beijing’s harsh rule could spread to other Chinese cities.
Some marches have started in Taiwan in support of the Hong Kong protesters. So far, President Xi has not used the full might of the People’s Liberation Army to squash the protests. Any such attack could result in thousands of casualties and be a repeat of the Tiananmen Square massacre of June 4, 1989, in which the Communist Party crushed a protest in the main square in Beijing with troops and tanks, resulting in an unknown number of deaths estimated by some to be in the thousands.
If Xi allows the protests to continue, he risks losing political control of Hong Kong and the possible spread of the protest movement to the rest of China. If Xi cracks down, he risks another massacre and isolation from Western-style democracies.
Xi has no good choices. On balance, he’s likely to favor control over accommodation and is likely to crush the protests by violence if needed. Investors should prepare for more market uncertainty at best and an Asian market crash at worst.
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