There’s A New Bull In Hong Kong. And Xi Is Cracking Down Harder On Dissent

Hong Kong shares “should” be in a tailspin.

After all, Xi Jinping has effectively stripped the city of its autonomy with the imposition of new national security protocols, which allow Beijing to override Hong Kong’s legal system in the interest of stamping out subversion and dissent. For many outside observers and local pro-democracy elements, the crackdown sounded the death knell for the city, at least as far as its status as a beacon of free markets and the rule of law.

Late last month, the US Commerce department stripped Hong Kong of its special status, and bipartisan legislation calling for sanctions on banks who do business with Chinese officials associated with the new national security law marks a serious escalation in an already tense Sino-US standoff.

Local police began arresting people under the new law last week and, on Monday, Hong Kong’s Education Bureau told school management to review books and teaching materials for possible violations. Any offending materials will be removed.

And yet, since the law went into effect on July 1, the Hang Seng is up nearly 8%. On Monday, local shares surged into a bull market, riding the wave from the mainland, where officials are apparently keen on inflating a new bubble.

You might recall that Hong Kong shares underperformed mightily in May, as market participants attempted to sort out the implications of the new law.

Indeed, the Hang Seng’s relative performance that month versus global shares was among the worst in history. Since then, the gauge has recovered thanks in no small part to inflows from the mainland.

Pro-Beijing officials in the city will surely claim this is evidence that China’s heavy-handed approach to the protests is desirable to the extent it restores order, although, again, you should note that mainland investors have been snapping up Hong Kong shares.

“Waves of mainland capital flooded into equities as international investors dumped them, helping to strengthen the local currency”, Bloomberg writes, adding that “listings by Chinese firms are adding support. Inc. and NetEase Inc. last month raised $7 billion through secondary share sales in Hong Kong”.

This is just another example of why it’s perilous to bet against Beijing. Outcomes are dictated. Yes, they have lost control at times and will likely do so again in the future, but it’s apparent that officials are keen to drive up mainland share prices and simultaneously bolster Hong Kong’s markets at the current juncture.

Meanwhile, in an ominous sign, Xu Zhangrun, a law professor and a prominent critic of Xi, was hauled away from his Beijing home by police on Monday.

Xu has published commentaries lambasting Xi’s management of the country and accusing China of “backtracking toward Mao Zedong’s totalitarian rule”. The New York Times has the details:

Professor Xu, 57, had long taught at Tsinghua University, a prestigious school in Beijing, but the university banned him from teaching and research in 2019 after he issued a series of essays that, in barbed, elegant Chinese, condemned and ridiculed the swelling dominance of the party under Xi Jinping.

Police officers raided Professor Xu’s home in northern Beijing early in the morning, taking away a computer and papers, said his friend, Geng Xiaonan, who said she spoke to the scholar’s wife and students.

“The neighbors described about 10 police vehicles and two dozen officers who blocked and entered his house, and took him away,” Ms. Geng, a businesswoman in publishing and film, said by telephone. The account was corroborated by two other friends who spoke on the condition of anonymity.

“Xu Zhangrun said he was mentally prepared to be taken away. He kept a bag with clothes and a toothbrush hanging on his front door so he would be ready for this,” Ms. Geng said. “But it’s still a shock when it really happens.”

Xu had been living under house arrest, apparently. Now, he’s just under plain arrest.


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