TheChek News Flow

China’s ‘recolonisation’ of Hong Kong could soon be complete

For Beijing it makes sense to crush the things that former colonists think made the city successful

As Prince Charles sailed out of Hong Kong’s harbour in the early hours of July 1 1997, he lamented the symbolic end of British empire after 156 years of colonial rule in the city. “Whatever may be thought about colonisation nowadays, Hong Kong was a pretty remarkable example of how to do it well,” he wrote in his journal aboard the soon-to-be-decommissioned royal yacht Britannia.

The British empire had ended long before that night. But in many respects, decolonisation in Hong Kong was not fully realised until July 1 2020, when Beijing unilaterally imposed a national security law on the territory, essentially outlawing all forms of dissent.

The law has mostly achieved its short-term goal of quashing the biggest eruption of unrest on Chinese soil since the 1989 Tiananmen Square protests. The collateral damage to Hong Kong’s role as a global financial centre is hard to quantify, but is likely to be extensive.

Beijing’s belated decolonisation — perhaps recolonisation is more apt — of the territory provides a fresh reminder of the UK’s much-diminished place in the world. The Chinese Communist party has made clear it has no intention of honouring the international treaty it signed with the UK in 1984, which promised a high degree of autonomy to Hong Kong for at least 50 years.

The most important aspect of this affront to the former colonists is what it tells us about the kind of power a rising Chinese Communist party intends to be in the world.

For all his anachronistic pomposity, Prince Charles was right about the UK’s role in Hong Kong’s success. To quote Chris Patten, the 28th and final governor of the territory, Britain provided the scaffolding — clean government, the rule of law and freedom of speech — that enabled the people of Hong Kong, most of them refugees from China, to ascend.

These are the very things China’s current rulers blame for the turmoil of the past 18 months. The formerly free press is under assault, with broad but vague clauses in the new law outlawing “incitement” of crimes including the barely-defined “collusion with foreign forces”. Described by party cadres as a “sharp sword” hanging over the city, the law explicitly requires the education system to instil “love of the motherland” in young hearts. Politicisation of the relatively independent courts has begun, as Beijing and its agents pursue enemies and “unreliable” judges are sidelined. 

The Hong Kong administration has delayed elections and purged pro-democracy lawmakers. It has tied itself in knots trying to explain how the “separation of powers” between the judicial, executive and legislative branches of government does not exist in the city. As one member of the Chinese rubber-stamp parliament put it: “You can still go on dancing, you can still go horseracing, you can innovate, you can trade . . . but just stay away from [politics].”

Last week’s scrapping of what would have been the world’s biggest initial public offering, of Ant Financial, obliterates the assertion of optimistic financiers that nothing has changed in the city.

The sweeping changes in the territory indicate that President Xi Jinping really does believe China is engaged in a bitter ideological struggle with the “extremely malicious”, “western” ideas of liberalism and democracy. For his party it makes sense to crush the things former colonists think made Hong Kong so successful.

But that does not change the reality. More than two decades after the handover, the territory is administered by British-trained bureaucrats. Foreign financial firms dominate capital flows and one of the biggest landlords in central Hong Kong is the former opium merchant Jardine Matheson. Add to this the steady stream of criticism from local and international media, and the open rebellion that broke out on the streets last year, and it is easy to see why Beijing decided the time for recolonisation had come.

The party of Mao Zedong once spoke of exporting revolution. Today’s party is intent on merely making the world safe for its brand of ethno-nationalist authoritarianism. After a dozen protesters set fire to a national flag outside the Chinese embassy in London in early October, party officials condemned their “abominable acts” of “secession and treason” for allegedly violating the new national security law.

Since that law explicitly covers “crimes” committed anywhere on the planet, the embassy called on UK authorities to “bring the perpetrators to justice at an early date”. Less than 25 years after Prince Charles sailed out of Hong Kong harbour, China is now asserting its jurisdiction on British soil.

Great Portland Estates, Workspace and McCarthy & Stone lay out costs of Covid-19

Three property companies have laid bare the impact of coronavirus on the UK market, with the pandemic hitting valuations and customer interest.

Property companies across the UK have been hit hard by both the virus and the government’s response. Commercial tenants have downsized the space they need and work on construction sites has been delayed.

London landlord Great Portland Estates said it had written down the value of its portfolio by 6 per cent overall. The value of its retail properties has been cut by 18 per cent as vacancies in central London have risen and rents dropped.

“It is clear that the impact of the Covid crisis will persist for longer than we had hoped,” said chief executive Toby Courtauld, announcing first-half results.

“With unemployment rising, albeit from a low level, we should expect rents and capital values in London to fall further,” he said.

Great Portland has collected 80 per cent of the rent that was due for September. Collection rates were much higher for offices than for retail and hospitality locations.

The company’s shares fell 2 per cent in early trading on Wednesday.

Workspace, the flexible office provider, has also written down the value of its portfolio. In its half-year results it said that its properties were worth £2.5bn, 5 per cent less than at the end of March.

Occupancy and rents are down, and the board has deferred a decision on the dividend until the full-year results. Workspace offered most of its customers a 50 per cent discount on their rents in the first quarter.

Chief executive Graham Clemett said that the pandemic had “accelerated fundamental changes to the role and requirements of the office”. Businesses, he said, would need to be agile and would expect the same from their office providers.

Workspace shares fell 1.3 per cent in early trading on Wednesday and were down 38 per cent for the year to date.

McCarthy & Stone, the retirement housebuilder that has accepted a £630m offer from private equity company Lone Star, is also feeling the pain.

In a full-year trading update, it said it had sold 832 units, well down on the 2,402 completions in 2019. It added that current trading was “increasingly affected” by rising infection rates and lockdown measures.

“Sales have remained subdued as the behaviour of our customer base, which has an average age at the time of purchase of 79, has been more cautious than the broader population due to the risks associated with Covid-19,” the company said in a statement.

Hundreds of millions of people are likely to be inoculated by a Covid-19 vaccine produced in China

One of China’s main candidates for a Covid-19 vaccine has been stalled in Brazil. This needn’t be a sign that development will be halted—it may even bolster international confidence in China’s medical-export industry over the longer term.

We don’t know for sure why Brazil’s public-health authority has suspended trials of Sinovac’s vaccine, other than citing a “severe adverse event” late Monday. Such circumstances are common in late-stage vaccine development: AstraZenaca’s vaccine experienced a similar delay.

Paradoxically, the holdup could eventually bolster confidence in the vaccine, since it suggests safety is being scrutinized, at least for the overseas clinical trials. China has been criticized by some Western health experts for allowing emergency domestic use of Chinese vaccines before clinical trials were fully completed. Improving the country’s reputation—and record—for health-care exports is important, given the huge role it is likely to play in global vaccination efforts.

This year, high-profile examples of low-quality Chinese pandemic-related products—masks, other protective equipment and ventilators among them—flooded headlines in Western countries and prompted more stringent customs checks by Beijing. For better or worse, that reinforced existing concerns about the quality of some health-sensitive Chinese products.

But the reality is that many types of vaccines will likely be needed. Hundreds of millions of people overseas will likely receive a Chinese vaccine: Any alternative scenario is bleak, since it would probably take years longer to achieve mass production and distribution.

here are other reasons to hope that the Sinovac halt is a brief false alarm. Some Chinese vaccines seem to have a distinct advantage in terms of the logistical difficulties of delivering vaccines to the poorest parts of the world. The Pfizer vaccine that grabbed headlines Monday for its effectiveness must be stored at minus 70 degrees Celsius. Moderna’s challenger must be kept at minus 20 Celsius, an easier requirement, but still below the temperature of many ordinary freezers.

Sinovac says that its vaccine—which is inactivated, meaning it has lost the ability to produce the disease—has remained within effective levels after months frozen between minus 2 and minus 8 degrees Celsius, and even weeks at much higher temperatures.

Researchers behind the vaccine in development by China’s Academy of Military Medical Sciences and CanSino Biologics suggest their product can also be stored at low subzero temperatures, and can be stored at room temperature for at least one week. In areas of the world with limited laboratory or food-related cold-chain infrastructure, that will be a huge advantage.

Producing quality vaccines for poorer and harder-to-reach parts of the world won’t undo the distrust that has built up between China and many countries in recent years. But it could go some way to bolster its commercial reputation, and provide an example of global cooperation that isn’t just useful, but desperately necessary.

Secretary of State Mike Pompeo said there would be a smooth transition to a "second Trump administration" despite President-elect Joe Biden's victory.

Link to Video : https://cnn.it/38wLGKr

China Construction Bank says the bond is the ‘first publicly listed debt security on a blockchain’

China Construction Bank Corp. is planning to raise up to $3 billion from a sale of bonds that individuals and institutions can trade in and out of using U.S. dollars or bitcoin.

The Beijing-headquartered bank, one of China’s largest, is selling a digital bond that investors outside the country can buy for as little as $100. The security would roll over every three months and pay annualized interest of Libor plus 50 basis points, or approximately 0.75%.

The deal is being arranged by a branch of China Construction Bank located in Labuan, a small offshore financial center in Malaysia that is a tax haven. The digital bond will be listed on the Fusang Exchange, a bourse that also facilitates the trading of cryptocurrencies.

The exchange accepts bitcoin as a form of payment, and will convert it into U.S. dollars for investors buying the digital bonds. Investors can only purchase the bonds via the exchange, which charges a small fee for trades.

Democrats to Hold On to House Majority

Party lost several districts to Republicans in the election, shrinking their majority in the chamber

WASHINGTON—Democrats have clinched a majority in the House of Representatives by reaching 218 seats, the Associated Press said on Tuesday, holding on to power in the wake of a weaker-than-expected showing in the election.

Democrats lost several seats to Republicans in the Nov. 3 election, shrinking their majority in the House, in part due to President Trump and Republicans clawing back seats they had won in 2016 and lost in 2018.

Heading into the election, Democrats had a majority of 232 to 197, with one Libertarian and five open seats. That balance is now at 218 Democrats to 201 Republicans. Some races are still to be decided.

House Speaker Nancy Pelosi (D., Calif.) has acknowledged that the House outcome was much different than in the 2018 cycle, when the party won 43 seats held by Republicans, pointing to Mr. Trump’s presence on the ballot this time.

“We lost a few seats, but as I said we won those seats in Trump districts [in 2018], he wasn’t on the ballot, he is now,” she said last week.

Mr. Trump had a stronger night than many pollsters had anticipated, and helped lift House candidates to victories. Coming into Election Day, many nonpartisan prognosticators had predicted the Democrats would gain seats.

House Democrats have expressed frustration with party leaders over the weak showing, saying Mrs. Pelosi and others oversold their prospects and didn’t adequately protect candidates in competitive races from being labeled as socialists.

Mrs. Pelosi is seeking another term as speaker in the next Congress, but her path could be complicated by the losses in the election.

On Monday, Democratic Congressional Campaign Committee Chair Cheri Bustos said she plans to leave her position after this term, in the wake of the party’s setbacks. Ms. Bustos, an Illinois Democrat who represents a district that President Trump won in 2016, had campaigned for the position by saying she understood Trump voters.

The Democrats also had hoped to win back the majority of the Senate, but Republicans successfully defended most of their competitive seats, and the called races currently stand at 49-48 in favor of the GOP. Republicans lead in Alaska, and both Georgia races are headed for runoffs in January.

EU banks urged to prepare for bad loans as pandemic hits economy

Head of body responsible for winding down failing lenders issues warning

European banks need to prepare their balance sheets for the risk of pandemic-induced non-performing loans hitting them in the new year, the head of the EU agency tasked with winding down failing lenders has said. 

Elke König, chair of the Single Resolution Board, rejected suggestions from the European Central Bank that the EU needs to set up a network of “bad banks” to handle higher non-performing loans (NPLs), but she warned banks needed to do intensive work to sort out viable loans from unviable ones. 

In an interview with the Financial Times she also urged the EU to properly harmonise its state aid rules for handling embattled banks with its “resolution” regime, which intervenes to ward off systemic financial crises. Ms König argued that as things stand there was a “misalignment” in the system. 

The SRB was set up following the eurozone sovereign debt crisis to wind down stricken banks while securing financial stability and consistent treatment of the region’s lenders. But with regulators now weighing the risks of a surge in NPLs, the agency is still working with an incomplete system of EU bank-crisis rules which must operate over a patchwork of different national arrangements. 

Last month, the ECB’s top bank supervisor Andrea Enria wrote in the FT that, in a “severe but plausible” scenario, non-performing loans at eurozone banks could reach €1.4tn, well above the levels of the 2008 financial crisis and the ensuing EU sovereign debt crisis.

Ms König said it was too soon to know how bad the situation with NPLs would get, because this would depend on the nature of the downturn and recovery. Current actions by governments, such as state guarantee schemes, were “shielding” the lenders, she added.

But she said that non-performing loans could start coming through in the first and second quarters of next year. In light of this, her message to banks was “be aware NPLs are coming and the best thing to do is address them early . . . That is the best thing we can do for the time being, and then it is steering through the fog.” 

The European Commission will next month set out its own proposals for handling what Valdis Dombrovskis, executive vice-president overseeing economic policy, has said will be a “likely rise” in NPLs. These include further developing secondary markets in which NPLs are bought and sold, and reforms to insolvency and debt-recovery frameworks. 

The ECB’s Mr Enria has separately advocated the creation of either a European “asset management company”, or a network of them, to take on NPLs. Ms König said that she was cautioning against this idea, and that banks doing their “homework” was the easier way forward. 

“The entire debate . . . always lacks one component: who is footing the bill,” she said. Ms König added that “it feels sometimes as if this is the magic system,” one where losses are supposed to evaporate, something “that is not going to happen”.

Banks need to “get the full transparency” of these portfolios, she said. “They need to be able to separate a portfolio and to set out how they would like to service it, what would be their idea, how would they deal with it.”

She added that in the current crisis there was still a market for bad real estate and corporate loans. When it comes to loans to small and medium-sized enterprises and retail customers, these are traditionally “professionally managed by a bank as an ongoing relationship”.

Ms König underlined the extensive work that has been done since the dark days of the eurozone crisis to strengthen the resilience of banks, and to ensure that they can be safely wound down if they fail. This work has included making sure money can be raised by wiping out bank bondholders, so shielding taxpayers from footing the bill.

She noted that one of the tools available to her agency was an “asset separation” power to strip bad loans out of broken banks’ balance sheets.

But she emphasised that the EU system for handling failing banks was still a work in progress. One step she has called for is the creation of a “pre-liquidation tool” allowing her agency to intervene earlier in a crisis to save the good part of a bank, preventing needless destruction of value.

The SRB and the broader system it oversees has been fully up and running since 2016, and in that time has handled one bank failure: Spain’s Banco Popular.

One ongoing problem, she said, was that the conditions attached to banks put through national insolvency proceedings differed from those attached to interventions by her agency. This issue flared up in 2017 when two regional Italian banks received state aid as part of bankruptcy proceedings while their senior creditors were shielded from losses.

This prompted complaints at the time from Berlin and some other capitals that the measures amounted to a loophole allowing nervous governments to get around the principle adopted by the EU in the wake of the financial crisis that investors, including senior creditors, should face losses before the taxpayer.

The European Commission is set to review the bank resolution system next year. 

Russian property firms ride Kremlin-fuelled housing boom

Risks of bust increase after rapid growth spurred by Moscow support for mortgages

For generations of Russians raised on communism, crisis and a succession of currency collapses, owning one’s own home has long been seen as a measure of financial security.

But state initiatives to encourage that aspiration in recent years and fuel a boom in mortgage lending have raised fears that Russia’s housing market could now be a source of — rather than a bulwark against — economic disaster.

Construction cranes and identikit apartment blocks in various stages of development litter Moscow’s suburbs, towering over newly-built metro stations and vast highways and spilling out over the capital’s formal boundaries as its inexorable expansion continues.

Russian banks issued their largest ever monthly amount of mortgages in September and are expected to underwrite a total of Rbs 3.5tn ($46bn) worth in 2020 — a boom that will increase the country’s total amount of outstanding mortgage debt by 50 per cent in just one year.

Underpinning that expansion are government financial measures drawn up to promote the construction sector as a growth engine for the country’s battered economy since 2014. They include subsidised mortgages and family grants, alongside a surge in unsecured lending that has been either overlooked, or blessed, by the authorities.

As mortgage issuances have soared, so too have the fortunes of Russia’s construction firms. Developer Samolet — Russian for aeroplane — was founded just eight years ago but already has built more than 1.5m sq metres of apartment space. It listed late last month with a market value of Rbs57bn ($750m).

PIK Group, Russia’s largest residential developer, has seen its market capitalisation treble over the past four years — against a 65 per cent rise in the benchmark stock index.

PIK’s net debt rose 33 per cent in the first half of this year, almost entirely because of an increase in project finance. Net debt at LSR, the country’s number two developer, went up almost 20 per cent.

In the short-term, both companies and their competitors look set to keep cashing in. Russia’s government — backed by a recent endorsement from president Vladimir Putin — have extended the mortgage subsidy scheme past its planned expiry of November 1 to next July, at the earliest.

The programme provides grants to offset repayments and reduce the effective interest rate to 6.5 per cent. It also cuts the down payment required to 15 per cent. All told, it essentially amounts to a Rbs 2tn ($26bn) injection of taxpayer’s money into the housing market.

But some officials are warning that the market has risen too far, too fast.

Russia’s deputy finance minister Alexei Moiseev earlier this year warned that the subsidies “risk inflating a bubble in this market among people who are not sufficiently solvent to take out a mortgage”. He suggested that 40 per cent of Russians do not have enough income to make repayments.

Russian households are certainly feeling the pinch. Western economic sanctions imposed against Moscow in 2014 following the annexation of Crimea, and strengthened after Russia’s attempted meddling in the 2016 US election, have contributed to stagnant gross domestic product growth since then.

Even before the coronavirus pandemic, real disposable incomes in Russia had fallen for five of the past seven years. Incomes dropped 8 per cent in the second quarter of this year, the largest fall for more than 20 years amid the coronavirus pandemic.

However, since July, when the market emerged from a coronavirus lockdown lull, average Moscow property prices have risen 9.5 per cent, according to data from Cian, a leading online real estate portal. New apartment prices are up 12 per cent.

“Now we do not see the risk of overheating . . . at the moment. But we must be very careful about housing prices,” Elvira Naibullina, head of Russia’s central bank, said last month.

How the Kremlin navigates an end to the program could well determine whether boom turns to bust. Ms Naibullina says the central bank is already assessing what the impact could be on mortgage owners and Russian lenders if prices tumble as soon as the government stops subsidising repayments.

The question for Samolet’s new shareholders and the tens of thousands of new Russian homeowners each month is whether the market keeps on rising when the Kremlin turns off the money tap.