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‘Hong Kong will sit on China’s lap’: Beijing crushes city’s autonomy



Forty-seven Hong Kong democracy activists were charged last week with subversion against the Chinese state for attempting to win an election. This week, China’s parliament ensured that they would never participate in another one.

The intervention by the National People’s Congress marked the second time in 10 months that Xi Jinping’s administration has imposed radical legislation on Hong Kong through an effectively secret process. As with a national security law last year, it will be weeks before the full provisions of a new election law authorised by the NPC on Thursday are fully revealed.

Its outlines, however, are clear. Xi, China’s most powerful leader since Mao Zedong, has dramatically reduced the scope of the former British colony’s autonomy, which was supposed to be guaranteed for 50 years after its 1997 handover under a “one country, two systems” principle.

“We must improve the [election] system to ensure that Hong Kong’s organs of political power are firmly in the hands of real patriots,” Xia Baolong, who runs the Chinese government office responsible for Hong Kong matters, said before “the 47” — as they are known — were arraigned en masse. Only five of them have been released on bail.

The remainder, including student activist Joshua Wong and academic Benny Tai, will probably remain behind bars for the duration of what is likely to be a lengthy trial.

Bing Ling, a professor of Chinese law at the University of Sydney, said that Beijing wanted the trial to have a “chilling effect”, by showing that “it is now legally perilous to engage in overt political opposition in Hong Kong”.

The election law will empower a pro-Beijing “election committee” to nominate all candidates for the territory’s legislature as well as directly appoint “a relatively large share” of the chamber. Previously, half of the Legislative Council’s seats were chosen through open nominations and direct elections. According to people briefed on the law, only 20 to 30 per cent of Hong Kong’s lawmakers will be directly elected in the future.

Just as the national security law revealed much about the Chinese Communist party’s paranoid world view, which insists that “hostile foreign forces” are sowing chaos across Hong Kong, the new law is a stark illustration of what it considers to be democratic, free and fair elections.

“The party tolerates political pluralism and the institutions of electoral democracy only insofar as they are supportive of its grip on power,” said Jude Blanchette at the Center for Strategic and International Studies in Washington.

“As soon as Beijing views its authority as being challenged, it will respond without any sense of compunction. To Xi, the idea of ‘free and fair’ is a complete irrelevance. What matters is stability and power.”

Li Zhanshu, head of the NPC and the Chinese Communist party’s third-highest ranking official, described the election law’s provisions as “combination legal punches” needed to defeat “extremists” and alleged foreign interference in Hong Kong’s affairs.

Even Bernard Chan, the pro-establishment head of a committee that advises Carrie Lam, the chief executive, told Hong Kong’s public broadcaster “it’s a pity that we have probably gone back to where [political development was] in the early days after the handover”.

Xi Jinping’s administration will respond to challenges ‘without any sense of compunction’ © Reuters

The regression, he added, was necessary to “give confidence to the central government that ‘one country, two systems’ could carry on”.

A Chinese academic who advises the government on Hong Kong affairs and asked not to be named said, “Hong Kong used to sit on the lap of the west, transferring resources from the entire world to China”.

“Hong Kong made a lot of money and benefited a lot,” the academic added. “But from the perspective of Beijing, the hope now is that Hong Kong will sit on China’s lap as we explore the world together.”

Beijing officials and local prosecutors, armed with the draconian provisions of the national security law, alleged that the 47 democracy activists on trial for subversion had “conspired” to win a majority in the territory’s legislature “to grab the power to administer Hong Kong” in an election planned for last year, which was postponed.

Their aim, prosecutors added, was to “indiscriminately refuse to pass any budgets . . . regardless of their contents or merits”, and ultimately force Lam to resign. Under Hong Kong’s Basic Law, or mini-constitution, Lam would have to step down if the budget was rejected twice by the Legislative Council.

Lam has been deeply unpopular since she attempted to pass a contentious extradition bill two years ago that would have allowed Hong Kong residents to be extradited to China, triggering a mass protest movement. While the extradition bill was withdrawn, the NPC trumped it last year with the national security law.

The subversion trial has highlighted how some mainland legal practices now supersede Hong Kong norms in national security trials, such as the previous presumption of bail for most defendants. Crowded bail hearings for the 47 stretched late into the night, most of them in vain.

The eight activists released on bail by Saturday have to adhere to strict conditions, such as refraining from making any public political statements. In the run-up to the mass arrests, Xia denounced Wong and Tai as “vile anti-China elements”.

Emilia Wong, the girlfriend of defendant Ventus Lau, observed that the bail conditions would render those released pending trial “basically dead” in the public domain, and wondered why the others had been kept in detention.

“What are the authorities afraid of?” she asked. “Can dead people still endanger national security?”

Additional reporting by Qianer Liu in Shenzhen and Xinning Liu in Beijing

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Emerging Markets

Tech-heavy Taiwan stock index plunges on Covid outbreak




Taiwan’s stock market, home to some of the world’s biggest tech companies, suffered one of the largest drops in its history as investors were rocked by a worsening Covid-19 outbreak.

The Taiex fell as much as 8.55 per cent on Wednesday, the index’s worst intraday fall since 1969, according to Bloomberg. It finished down 4.1 per cent.

Construction, rubber, automotive and financials — sectors retail investors had been shifting into from technology in recent months — were the worst hit in the sell-off.

The world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Company, which has a 30 per cent weighting in the index, fell as much as 9.3 before recovering ground to be down 1.9, while Apple supplier Hon Hai Precision Industry, also known as Foxconn, dropped 9.8 per cent before paring losses to be down 4.7 per cent.

While Taiwan’s sell-off was related to domestic Covid-19 problems, it followed recent declines in global markets as investors worried about possible inflationary pressures.

The falls came as Taiwan’s government was expected to partially close down public life to contain a worsening coronavirus outbreak — something the country had managed to avoid for more than a year.

“The reason that triggered the escalated sell-off during the trading session is the new [Covid-19] cases to be reported this afternoon, and probably the raising of the pandemic alert level,” said Patrick Chen, head of Taiwan research at CLSA. “On top of that, the market before today was already at a point where the index was at an inflection point.”

Taiwan’s strict border controls and quarantine system and meticulous contact tracing measures had helped it avoid community spread of Covid-19 until recently.

That success, which allowed Taipei to forego lockdowns, helped boost the local economy, which grew about 3 per cent last year and 8.2 per cent in the first quarter of 2021.

But health authorities announced 16 locally transmitted confirmed cases on Wednesday, for three of which the infection source was unclear — a sign of widening spread in the community. Authorities had confirmed seven untraced cases on Tuesday, and domestic media reported that the government might introduce partial lockdown measures.

President Tsai Ing-wen called on the public to be vigilant but avoid panicking.

Taiwan’s stock market rose almost 80 per cent over the past year, peaking at a historical high late last month. It is now down 8.5 per cent from that mark.

Retail investors have increasingly moved out of technology stocks in recent weeks, reducing the sector’s weight in trading volume from almost 80 per cent at its height to just over 50 per cent.

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China factory gate prices climb on global commodities boom




The price of goods leaving factories in China rose at the fastest pace in more than three years, on the back of a rally in commodities supported by the country’s economic recovery.

The producer price index rose 6.8 per cent in April year-on-year, beating economists’ expectations and surpassing March’s increase of 4.4 per cent.

The rate was driven in part by comparison with a low base last year in the early stages of the pandemic. But it also reflects a global surge in the prices of raw materials that was first stoked by China and now incorporates expectations of recovering global demand.

While PPI prices in China have leapt, economists suggested there was limited spillover into consumer prices and that the central bank was unlikely to react. China’s consumer price index added just 0.9 per cent in April, the National Bureau of Statistics said on Tuesday, although it touched a seven-month high.

“It tells us that demand at this moment is super strong,” said Larry Hu, head of greater China economics at Macquarie, of the PPI data, although he suggested policymakers would see the increase as “transitory” and “look through it”.

“We’re going to see some reflation trends,” he added.

Signs of tightening in China’s credit conditions have drawn scrutiny from global investors eyeing the prospect of higher inflation as the global economy recovers from the pandemic, especially in the US, which releases consumer price data on Wednesday.

China’s PPI index remained mired in negative territory for most of 2020 following the outbreak of coronavirus, but has started to gather momentum this year. Gross domestic product growth in China returned to pre-pandemic levels in the final quarter of 2020.

An industrial frenzy in China has stoked demand for commodities such as oil, copper and iron ore that make up a significant portion of the index and have helped to push it higher. 

Policymakers in China have moved to tighten credit conditions, as well as attempted to rein in the steel sector. Ting Lu, chief China economist at Nomura, said the relevant question now was “whether the rapid rise of raw materials prices will dent real demand, given pre-determined credit growth”.

Retail sales in China have lagged behind the growth rate of industrial production, putting downward pressure on CPI, which has also been weakened by lower pork prices that rose sharply on the back of African swine fever. Core CPI, which strips out food and energy, rose 0.7 per cent in April 

Julian Pritchard-Evans, senior China economist at Capital Economics, said that producer prices were feeding through into the rebound in consumer prices, but also suggested that pressures on the former were “likely to be mostly transient”.

He added that output prices for durable consumer goods were rising at their fastest level on record.

China’s rapid recovery has been driven by its industrial sector, which has churned out record quantities of steel and fed into a construction boom that policymakers are now trying to constrain. On Monday, iron ore prices hit their highest level on record, while copper prices also surged.

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Iron ore hits record high as commodities continue to boom




The price of iron ore hit a record high on Monday in the latest sign of booming commodity markets, which have gone into overdrive in recent weeks as large economies recover from the pandemic.

The steelmaking ingredient, an important source of income for the mining industry, rose 8.5 per cent to a record high of almost $230 a tonne fuelled by strong demand from China where mills have cranked up production.

Other commodities also rose sharply, including copper, which hit a record high of $10,747 a tonne before paring gains. The increases are part of a broad surge in the cost of raw materials that has lasted more than a year and which is fanning talk of another supercycle — a prolonged period where prices remain significantly above their long term trend.

The price of timber has also hit a record high as US sawmills struggle to keep pace with demand in the run-up to peak homebuilding season in the summer.

“Commodity demand signals are firing on all cylinders amid a synchronised recovery across the world’s economic powerhouses,” said Bart Melek, head of commodity strategy at TD Securities.

Strong demand from China, the world’s biggest consumer of commodities, international spending on post-pandemic recovery programmes, supply disruptions and big bets on the green energy transition explain the surge in commodity prices.

Commodities have also been boosted by a weaker US dollar and moves by investors to stock up on assets that can act as a hedge against inflation.

The S&P GSCI spot index, which tracks price movements for 24 raw materials, is up 26 per cent this year.

Strong investor demand pushed commodity assets held by fund managers to a new record of $648bn in April, according to Citigroup. All sectors saw monthly gains with agriculture and precious metals leading the way, the bank said.

Agricultural commodities have had an especially strong run owing to rising Chinese demand and concerns of a drought in Brazil. Dryness in the US, where planting for this year is under way, is also adding to the upward rise in prices. Corn, which is trading at $7.60 a bushel and soyabeans at $16.22, are at levels not seen since 2013.

“From a macro economic environment to strong demand and production concerns, the ingredients are all there for the supercycle,” said Dave Whitcomb of commodity specialist Peak Trading Research.

Rising copper and iron ore prices are a boon for big miners, which are on course to record earnings that will surpass records set during the China-driven commodity boom of the early 2000s.

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JPMorgan reckons Rio Tinto and BHP will be the largest corporate dividend payers in Europe this year, paying out almost $40bn to shareholders. Shares in Rio, the world’s biggest iron ore producer, hit a record high above £67 on Monday.

Brent crude, the international oil benchmark, has crept back up
towards $70 a barrel, which it surpassed in March for the first time in
more than a year, recovering ground lost as the pandemic
slashed demand for crude and roiled markets.

Supply cuts by leading oil producers have helped to bolster the market
as consumption has begun to recover around the world.

While some Wall Street banks have hailed the start of a new supercycle, with some traders talking of a return to $100 a barrel oil, others are less convinced. The International Energy Agency said oil supplies still remain plentiful meaning any talk of a supercycle is premature.

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