Financial writer Muddy Dirty Water: Money for blood, Hong Kong dried up. Now it's "keep the island, not the people"
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Financial writer Muddy Dirty Water: Money for blood, Hong Kong dried up. Now it's "keep the island, not the people"
Now that the national security law is passed, the stock market is actually thriving?
(11 Jul) After the enactment of the national security law, Hong Kong's stock market stayed bullish. Government officials presented this as proof that the "Hong Kong doomsday theory" was untrue. As an investor, what does Muddy Dirty Water [pen name] think? Why has the economy not been affected at all?
Muddy Dirty Water (MDW) explained, "There are two aspects to this issue. The first is due to the global Wuhan pneumonia outbreak; many countries are printing paper currency to increase 'liquidity' in the markets. A lot of liquidity went into the Hong Kong stock market. The Hong Kong Monetary Authority recorded that about a few billion to more than ten billion HKD flowed in and out of Hong Kong every day. The second is that the US is penalising Chinese companies. Many Chinese stocks can no longer be listed in the US market. When it comes to the current regulatory and audit standards of the US stock market enforced on these Chinese companies, they [the companies] have to disclose whether they involve committees and members of the Chinese Communist Party (CCP). Based on this standard, almost 99% of Chinese companies cannot be listed. Besides New York, Hong Kong is one of the best stock exchanges in the world.
"The present situation is a huge difference from our understanding of 'CCP's collapse'. More Chinese companies will be listed in Hong Kong stock market in the future. Is this influenced by national security law? Speculators are actually quite happy because they still have initial public offerings (IPO) to buy. Right now, the implications of [the phrase] 'keep the island, not the people' are getting stronger because the stocks and investment funds are coming from China. They're getting listed but they're not looking for help from Hongkongers. It's none of the Hongkongers' business. There's absolutely no money coming to us. Even with sponsors, they're looking outwards or to foreign investment firms with fuerdai* of Chinese officials working as insiders."
So does Hong Kong's bullish stock market mean that China's economy is relatively stable while the rest of the world is getting f***ed over by the pandemic?
MDW shook his head, "It's common knowledge that China's economic indicators aren't trustworthy. I can't foresee the economic prospects in China, but I can glean some other information based on the gestures of senior government officials. Recently, Chinese Premier Li Keqiang expressed the need to revive the 'street-stall economy'. This actually means opening up the black market and sex industry again so that they become a part of the GDP. It's apparent that the situation isn't great. China's economy or, more precisely, its economic figures are invisible. Whether the annual GDP growth was 6% or 5%, that information doesn't hold similar reference value as the gesture of the 'street-stall economy'. Hong Kong actually is a platform for Chinese capital and this will continue. When Hong Kong had a better reputation in the past, Chinese enterprises could pretend to be Hong Kong companies to make it easier to work in developing countries or elsewhere for One Belt One Road+ projects and buying foreign assets.
An impending storm of regulations to befall the stock market
China controls its foreign exchange as a result of tight restrictions on the flow of capital. Besides going through Hong Kong, how else can Chinese capital flow outward?
"The most primitive method is to physically move dollar bills with human hands, like ants moving their house. This type of situation does occur today. Another method of moving capital is through the fine arts market because you can name whatever price you want to a piece of artwork. It disguises 'outbound guarantees'. Another method right now is using cryptocurrency. In the financial world, it's a listed company."
While the national security law was still brewing, some banks expressed their support and "understanding". Even foreign media did exclusive investigations into "why the business world supports the national security law", asking how does this law actually impact Hong Kong's financial sector?
"Some conflicts may exist between the national security law and listing regulations. Certain listed companies don't want to publicise their financial reports or want to circumvent auditing standards. They'll say that their scope of business involves national security. How will Hong Kong's financial regulatory authorities react this time? Take the incidents with China High Precision [Automation Group Limited] and Standard Water Limited as examples. At the time, the court said that national security wasn't a valid reason [for acquittal]. In short, they still had to follow the Securities and Futures Ordinance. With the enactment of the national security law, if there are still these types of people around saying that their companies involve the secret service or strategic work, can't we know how the courts in Hong Kong will judge them? The accountants' firms will also suffer because they're stuck between their clients and the Securities and Futures Commission.How will accountants take up new jobs? Before, there was only one case every few years. I don't know what will happen after. If a private enterprise falsifies its numbers, claiming that its figures involve national security, what will you do?"
What financiers and financial writers fear the most is that exposing falsified figures from private enterprises would become a violation of the national security law. What are state enterprises? What are private enterprises? MDW said, "Whatever is controlled by SASAC [State-owned Assets Supervision and Administration Commission] is a state enterprise. Whatever isn't owned by the provincial government or SASAC is theoretically a private enterprise. This is why Alibaba is a private enterprise. But how does China control private enterprises? It's through inserting the Party's [i.e. CCP] provisions into the company's article of association (AoA). In the AoA of western companies, shareholders appoint board members who then appoint the CEO, CFO, CFO... In the AoA of Chinese companies, a company must include the Party committee, its members and provisions for the Party. A Party committee is inserted above the board. A company's highest authority is transferred from the board to the Party committee."
The "technological feasibility" of attacking China's finances
"The renminbi is not internationally convertible. An example of this is in the high amount of debt within the Chinese real estate industry. Companies rely on issuing US bonds to operate. Tencent recently offered up 20 billion USD worth of bonds. An example is in the industries of cement construction materials and real estate. They need to borrow a lot of money to start their business. After making a profit, they can return their loan. Since you need to find people who will trust that you'll repay your debt, it gets issued as an American bond. China's easiest way to get US dollars is from Hong Kong. This is Hong Kong's use for China. The Linked Exchange Rate is the system of Hong Kong but the US has many ways to abolish it.
What does the bigger picture look like for Hong Kong?
"Sentiments favouring 'keep the island, not the people' are very strong. This island can rely on funds from China to stay afloat, just like Macau. If it weren't for the Wuhan pneumonia wreaking havoc on their only industry of gambling, wouldn't Macau continue to flourish? Likewise, for Hong Kong, as long as its financial industry is fine, then it's good. From now on, Hongkongers' reputation for earning a lot of money won't matter anymore. Hong Kong will just become another place of competition, just like the Chaozhou clique for the stock market, Fujian clique (accounting fraud), Wenzhou clique, Shanghai clique (mainly oil industries) and Chongqing clique to run shell companies... Even the funds have regional and local biases. Incoming funds get snatched every which way and then distributed among the Party. An example is Jack Ma's closeness with the guys from Hangzhou because his company's home base is there. A lot of Hong Kong's capital has been privatised now, like New World [Development Company], Wheelock [and Company] and Li & Fung. Then, everyone wants to sell as much of their assets as possible to mainlanders or just privatise. Some businesses continue as usual but things have taken a turn for the worse on the financial and political aspects. It's just like in 1997 when the British capital withdrew and Hong Kong capital stepped onto the plate. It's like the Second Handover: Hong Kong capital is now leaving and China's is coming up.You can see that Hong Kong is reducing its investment in politics, like avoiding things that might influence the election of the Chief Executive. They're less enthusiastic about voting..."
Tycoons were supposedly doing well, why are they suddenly quitting?
"Political and commercial relations were originally like this. No matter much British capital you had, the Handover would still happen in 1997, with 'Hong Kong people ruling Hong Kong'. Hong Kong capital would take over a lot of manufacturing resources. With these sweeping policies, even if you didn't retreat, your money would run dry. We are just repeating the same script right now, except that the actors are different.Sometimes I feel like the 23 years from 1997 to 2020 were stolen time. It's as if making money was self-comforting, a spiritual victory that would make the passing of time better."
Editor's Note:
* Fuerdai, literally translated as "rich second generation", is a pejorative Chinese term for the children of the nouveau riche in China.
+ One Belt One Road is a global infrastructure development strategy adopted by the Chinese government in 2013 to invest in nearly 70 countries and international organizations. It is considered a centrepiece of Xi Jinping's foreign policy.
Source: Stand News
https://www.thestandnews.com/finance/專訪-金融作家渾水-財金換血-香港陰乾-依家就係-留島不留人/
Translated by: Hong Kong Echo
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