By Neel and Rishi Shah
HONG KONG: A CLASH OF IDEOLOGIES
On the 3rd of April 2019, the Hong Kong government first read a proposal to enable the extradition (movement for trial abroad) of criminal suspects to China, Macau and Taiwan. The bill was proposed after a Hong Kong man fled Taiwan following the murder of his girlfriend but could not be prosecuted due to legal restrictions between the two nations. However, the prospect of the Chinese judicial system, under the instruction of the Communist Party, having control over Hong Kong criminals led to mass protests. Many Hong Kong citizens felt the bill would be misused to trial pro-democratic protesters, who receive political freedom under the 50-year transition period negotiated by the British.
On the 31st of March, 22,800 protesters (figure stated by police) to 130,000 protesters (figure stated by protesters) launched a protest calling for the withdrawal of the extradition bill (before the bill had been read in Parliament). This was followed by protests on the 28th of April and the 9th of June (3 days before the second reading of the bill). However, by the 9th of June, an estimated 1.03 million people, nearly 1/7th of the population, had joined the protest. This swiftly rose to over 3 million protesters by 16th June (or 338,000 according to police estimates). Tens of protests have occurred since, with protesters calling for more demands.
On the 15th of July, Carrie Lam (the leader of the Hong Kong government) announced the suspension of the extradition bill. However, following continued protests, Carrie Lam withdrew the bill on the 4th of September. Yet, protesters remain dissatisfied and maintain the need for their five demands: complete withdrawal of the bill, retraction of the ‘riot’ status (to prevent the prosecution of protesters), release of arrested protesters, an independent enquiry into police brutality and the resignation of Carrie Lam alongside universal suffrage for Chief Executive elections (since candidates are currently chosen by Beijing). The situation appears to be worsening, with the Chinese army amassing on the border with Hong Kong.
These protests could be potentially disastrous for the global and local economy:
1. The reaction of the Chinese government sets a precedent over treatment of domestic affairs, since China claims full sovereign control over Hong Kong. This has worsened under Xi Jinping, who has strengthened China’s military and political standing, both within Hong Kong and on a global stage. This may threaten Hong Hong’s position as a free-market entrance to the Chinese economy, and the 1.38 billion consumers within the market.
2. Businesses operating in Hong Kong are also threatened and must choose to side Beijing or the protesters. For example, Cathay Pacific (Hong Kong’s flagship airline) has fired workers who were involved in the protests in order to gain Chinese favour, however they face problems in operation and threaten to alienate their consumer base in Hong Kong. In comparison, HSBC (who receive roughly half of their profits from Hong Kong) have promoted a peaceful resolution to the protests and an end to all violence (remaining fairly neutral on the issue).
3. The protests have also blocked trading and economic activity, particularly in key industries (e.g. the airport has been filled with protestors). This has led to a reduction in business and trade, both locally and internationally, with Moody downgrading Hong Kong’s credit rating as a result.
4. Finally, on a much broader scale, China’s reactions to the protests will set an example for its international relations. China has previously focused on domestic growth, however President Xi’s focus on the ‘One Belt One Road’ policy suggests a more aggressive foreign policy from China. This is worsened by the fact that China has refused to accept an international voice on the Hong Kong protests, claiming it is purely an internal affair for the Chinese government. A lack of international response against police brutality and the risk of armed warfare in the territory could set a dangerous precedent, enabling China to infringe human rights due to their economic prowess and the reliance of the global economy on China.
On an unrelated note, the Hong Kong stock exchange has proposed a £32 billion merger with the London Stock Exchange (LSE), valuing shares £10 above market value. However, the LSE is unlikely to accept the proposal due to the risk of a monopoly in the market and the indirect control of an important national asset given to China (since the Hong Kong government select a majority of board members in the stock exchange).
COULD OIL SPARK A MIDDLE EASTERN WAR?
On the 14th of September, two attacks on Saudi Arabian oil facilities destroyed 5% of global supplies at the time. The loss of 5.7 million barrels of oil is the largest single-day loss in supply. This caused a 20% surge in oil prices when trading began, with oil prices jumping by 15% to $69 per barrel, the highest level in the last three months. However, it is important to note that oil prices remained relatively low when compared to October 2018 and October 2019 (where sanctions on Iran and Venezuela cut global supplies causing prices to exceed $85 and $70 respectively).
Brent crude oil prices, 24th June to 24th September 2019
The Saudi Arabian facilities in Abqaiq and Khurais account for over 50% of Saudi oil supplies. Despite the Houthis in Yemen claiming responsibility for the drone strikes, Saudi Arabia and the US have criticised Iran. The suspicion has been placed due to the rivalry between Iran and Saudi Arabia, which has historically existed due to political and religious divide.
Saudi Arabia is a kingdom with a Sunni Muslim majority, while Iran is a republic with a Shia Muslim majority. This has historically been a cause of divide, with the two powers competing for influence in the Middle East (alongside Turkey and Egypt). This is worsened by their geopolitical allegiances, since the US backs Saudi Arabia while China and Russia back Iran. The involvement of these superpowers threatens nuclear involvement should war break out in the region.
However, this particular incidence is unlikely to spark a war on the region. Aramco (the company operating Saudi Arabia’s oil facilities) has stated that output will be returned to full capacity by the end of September, demonstrating the resilience of Saudi oil facilities and limiting US dependency on Iranian oil supplies. As a result, the attacks appear to have served in the favour of Saudi Arabia. Although tension with Iran is increasing, the cause of a Middle Easter conflict is unlikely to be the result of oil in the near future. Humanitarian crises, extremist groups and geopolitical tension between the US and Iran appear to have a greater influence on the stability of the region and the possibility for peace.
FACEBOOK’S CURRENCY: LIBRA
What is it?
Libra is a simple global currency and a system of financial infrastructure that Facebook is launching in 2020 to empower billions of people through financial inclusion. Unlike other cryptocurrencies like Bitcoin, it will be backed by a stable reserve to keep its value over time. It will allow for fast transactions and secure cryptocurrency network to be built on a blockchain. Facebook claim it will allow the 1.7 billion unbanked to access a new means of exchange and it will allow instant money transfers for low cost. So far PayPal, Visa, Mastercard, Spotify, Uber, Vodaphone and 21 other firms have all signed up for this project.
What is a reserve?
It is a collection of many fiat currencies, which is invested to give a low risk yield over time. The fact that it has a reserve backing the currency, it means that instead of being used mainly for speculation and investment it will have intrinsic value of stable and liquid assets to protect against swings.
What is the technology behind it?
It is based off a blockchain, which is a programmable decentralised database and an open programme which can be updated and changed to accommodate future FinTech Innovation. It will have to win over regulators first. Half of the reserve is made up from the US Dollar, along with British Pound, Singapore Dollar, Japan Yen and Euro.
Future
Central banks have questioned the effect of company owned currencies on financial stability and Facebook will gain unsafe levels of monetary policy power. Equally, socially putting so much data into one organisation is questionable and it will make it harder to monitor payments outside the country and make international financial sanctions impossible.