Hong Kong: Violent clashes feared as China approves controversial bill

China’s parliament has approved a controversial security bill which could threaten Hong Kong’s traditional freedoms.

With an applauding president Xi Jinping present, the draft national security bill was officialy endorsed by China‘s National People’s Congress.

It is a move expected to trigger violent clashes in the territory and reprisals from the United States amid fears it foreshadows Beijing’s plans to strip more freedoms from the semi-autonomous city.

The vote overrides the authority of the territory’s Legislative Council, where efforts to push the bill through had been thwarted by public opposition.

Chinese officials will now draft details of the new laws, which it is believed will ban sedition – actions that encourage dissent against China’s authorities.

Beijing says the legislation is aimed at tackling secession, subversion, terrorism and foreign interference.

But riot police had been deployed across Hong Kong in advance of the vote, after disorder on Wednesday that saw police firing pepper pellets at protesters and make 360 arrests.

Thousands of people have taken to the streets in anger over the bill, with demonstrators staying out late into the evening.

They believe it will undermine civil liberties and might be used to suppress political activity.

They were heard chanting for full democracy and for Hong Kong to seek independence from China, saying this is now “the only way out”.

And it came against the backdrop of escalating threats from the Washington, where Secretary of State Mike Pompeo said Hong Kong no longer qualified for special treatment under US law, potentially dealing a devastatig blow to its status as a major financial hub.

He told Congress that China’s plan to impose the new legislation was “only the latest in a series of actions that fundamentally undermine Hong Kong’s autonomy and freedoms”.

“No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground,” he said.

Beijing had unveiled plans last week for national security legislation for Hong Kong that aims to tackle secession, subversion and terrorist activities.

It is expected to see Chinese intelligence agencies set up bases in the city, which was supposed to have a high degree of autonomy under the terms of its 1997 handover to China by former colonial power Britain.

Chinese authorities and the Beijing-backed government in Hong Kong insisted there is no threat to the city’s high degree of autonomy and the new security law would be tightly focused.

The US and China clashed over Hong Kong at the United Nations on Wednesday after Beijing opposed a request by Washington for the Security Council to meet for discussions about the national security legislation.

The US mission to the United Nations said the issue was “a matter of urgent global concern that implicates international peace and security”, while China said the legislation was an internal matter.

Why this legislation was a huge surprise – and a massive accelerant

By Tom Cheshire, Asia Correspondent

Amid the pandemic, it’s been much observed that history accelerates in crisis. Here in Beijing, years have been compressed into the last week, in terms of China, Hong Kong and the rest of the world.

On Friday, the National People’s Congress proposed national security legislation to cover Hong Kong. It was a huge surprise – and a massive accelerant. Hong Kong’s autonomy was supposed to last until 2047.

Beijing and Hong Kong insist that Hong Kong’s freedoms will be preserved. The US disagrees. Mike Pompeo, the US Secretary of State, told Congress that “no reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given the facts on the ground.”

It’s probable that the US will go on to impose sanctions – something unthinkable last year, even amid the heights of the Hong Kong protests and the heavy-handed police response. And US-China relations will reach their lowest ebb since the Korean War, nearly 70 years ago.

Why has so much happened, so quickly, in this case? The pandemic initially looked to be a threat to the Chinese Communist Party.

Instead, they contained it, at the same time as the West grimly tallied tens of thousands of deaths. Washington railed against Beijing – the same trajectory as pre-pandemic, but now with much more vigour and much higher stakes.

Beijing responded equally forcefully. It has always wanted to bring Hong Kong to heel but seemed to be happy to wait and, year by year, grip Hong Kong tighter.

The pandemic accelerated time, so China seized this moment now, and that has accelerated time once more.

Issues like Taiwan – and China’s ultimate aim to “reunify” or in fact annexe it – seemed a generation in the future. Now they are conceivably short term.

Last year, protesters told me of their fear that, one day, Hong Kong would become “just another Chinese city”. The US is now saying that this is exactly the case. “One day” has come very quickly for the people of Hong Kong.

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US condemns China’s Hong Kong security law

US Secretary of State Mike Pompeo has condemned China’s plan to impose a new security law in Hong Kong, calling it a “death knell” for the city’s freedoms.

China is seeking to pass a law that would ban “treason, secession, sedition and subversion” in Hong Kong.

Critics say the law would strip Hong Kong of autonomy and rights not seen in other parts of China.

Mr Pompeo said the decision to bypass Hong Kong’s lawmakers ignores “the will of the people”.

“The United States strongly urges Beijing to reconsider its disastrous proposal, abide by its international obligations, and respect Hong Kong’s high degree of autonomy, democratic institutions, and civil liberties,” Mr Pompeo said in a statement on Friday.

Mr Pompeo’s intervention is likely to infuriate the Chinese government, whose relations with the US have been strained recently by disputes over trade and the coronavirus pandemic.

In Hong Kong, pro-democracy activists have been calling for support from western governments after China announced the law.

On Friday, campaigners urged mass protests over the weekend against the law, which they see as an erosion of Hong Kong’s autonomy.

The law was submitted at the annual National People’s Congress (NPC), which largely rubber-stamps decisions already taken by the Communist leadership, but is still the most important political event of the year.

Hong Kong, a semi-autonomous region and an economic powerhouse, was meant to have introduced such a law after the handover from British control to Chinese rule in 1997.

Now, after a wave of sustained and often violent protests in Hong Kong last year, Beijing is attempting to push the law through. The Chinese government argues the law is necessary to “prevent, stop and punish” such protests in the future.

Hong Kong’s government said it would co-operate with Beijing to enact the law, adding it would not affect the city’s freedoms.

Why is the law so controversial?

Hong Kong is what is known as a “special administrative region” of China.

It has observed a “one country, two systems” policy since Britain returned sovereignty in 1997, which has allowed it certain freedoms the rest of China does not have.

Pro-democracy activists fear that China pushing through the law could mean “the end of Hong Kong” – that is, the effective end of its autonomy and these freedoms.

In his statement, Mr Pompeo said any decision to impinge on Hong Kong’s autonomy and freedoms would “inevitably impact our assessment” of the territory’s status.

The US is currently considering whether to extend Hong Kong’s preferential trading and investment privileges.

President Trump has also weighed in, saying the US would react strongly if it went through – without giving details.

What is in Beijing’s proposed law?

The “draft decision” – as it is known before approval by the NPC – was explained by Wang Chen, vice-chairman of the Standing Committee of the NPC.

It consists of an introduction and seven articles. Article 4 may prove the most controversial.

That article says Hong Kong “must improve” national security, before adding: “When needed, relevant national security organs of the Central People’s Government will set up agencies in Hong Kong to fulfil relevant duties to safeguard national security in accordance with the law.”

Addressing the congress, Premier Li Keqiang said: “We’ll establish sound legal systems and enforcement mechanisms for safeguarding national security in the two Special Administrative Regions.”

Hong Kong’s leader Carrie Lam, who is seen as part of the pro-Beijing political establishment, said the law would help authorities tackle illegal activity in the city.

Security law open to very wide interpretation

Robin Brant, BBC China Correspondent

China has long desired a new national security law for Hong Kong. Beijing believes almost a year of mass protests and, at times, paralysing confrontations on the streets shows that now it is needed more than ever.

But critics point to what they say are ambiguities inherent in such a law and the broad, generalist framework it would bring to a place which has a very different legal tradition than the communist-controlled mainland.

“Treason, sedition and subversion” are all open to a very wide interpretation. Up to now, the worst charge most arrested protesters have faced has been for rioting.

The notion of “terrorism” also features in this proposed law. That too could encompass wide-ranging acts and activities that the authoritarian rulers on the mainland consider far more menacing than those in Hong Kong, or for that matter elsewhere.

China could essentially place the draft law into Annex III of the Basic Law, which covers national laws that must be implemented in Hong Kong – either by legislation, or decree.

The NPC is expected to vote on the draft law at the end of its annual session, on 28 May.

It will then be forwarded to the NPC’s Standing Committee, China’s top legislature, which is expected to finalise and enact the law by the end of June.

Why is China doing this?

Last year, Hong Kong was rocked by months of protests sparked by a bill that would have allowed extraditions to mainland China.

Mr Wang said the security risks had become “increasingly notable” – a reference to last year’s protests.

“Considering Hong Kong’s situation at present, efforts must be made at the state-level to establish and improve the legal system and enforcement mechanisms,” he is quoted as saying in state media.

Beijing may also fear September’s elections to Hong Kong’s legislature.

If last year’s success for pro-democracy parties in district elections is repeated, government bills could potentially be blocked.

What is Hong Kong’s legal situation?

Hong Kong was under British control for more than 150 years up to 1997.

The British and Chinese governments signed a treaty – the Sino-British Joint Declaration – that agreed Hong Kong would have “a high degree of autonomy, except in foreign and defence affairs”, for 50 years.

This was enshrined in the Basic Law, which runs out in 2047.

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Stocks adrift as vaccine rally falters

LONDON/SINGAPORE (Reuters) – European stocks slipped lower on Wednesday and gold gained as a sceptical press report undermined some hopes for a COVID-19 vaccine and concern about obstacles to a recovery from the pandemic returned.

Italian bonds sustained their multi-week lows, continuing to gain from a Franco-German plan for a 500 billion-euro coronavirus recovery fund, ignoring a hawkish counter-proposal in the works.

Europe’s STOXX 600 index was 1.6% lower. The blue-chip FTSE 100 was down 0.4% as Rolls-Royce Holdings Plc shed 0.8% after it said it would cut 9,000 jobs and might close some of its factories.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1%. Its world stock index was 0.1% lower after reaching its highest level since March 9 on Tuesday.

Wall Street ended Tuesday lower after medical news website STAT cast doubt on a Moderna Inc COVID-19 vaccine trial. The report said the trial results, which had rallied global stocks this week, lacked detail.

“With markets being very narrative driven, this was sufficient to see European equities pick up where Wall Street left off and head lower,” said James Athey, investment director, Aberdeen Standard Investments.”

Two-thirds of 223 fund managers surveyed by Bank of America reckon recent gains are a bear-market rally.

S&P 500 futures were last up 0.4%. Oil was steady and gold rose to $1,750.93 per ounce.

Italy’s 10-year bond yield was holding near five-and-a-half-week lows hit following the recovery fund announcement. The gap with Germany’s 10-year yield was at 211 basis points, less than 10 bps higher than Tuesday’s five-week lows.

The euro edged up 0.18% to $1.0945, near a two-week peak of $1.09755 reached on Tuesday, supported by the Franco-German proposal for the common fund.

Elsewhere, New Zealand central bank chief Adrian Orr backtracked a little from the possibility of negative rates, a prospect he had flagged just days before. That helped support the kiwi dollar.

Doubts about the outlook held back commodity prices. Japanese business confidence slumped to a decade low as the economy entered recession. Australian retail sales suffered their steepest-ever decline in April.

And the U.S. economy won’t recover its lost ground until sometime after next year, the non-partisan Congressional Budget Office said on Tuesday.

Brent crude futures were at $34.64 per barrel, having rallied nearly 7% this week. U.S. crude was 0.4% lower at $31.84 a barrel.

“While countries have started to relax restrictions on economic and social activities, economies will not return to where things were before the outbreak,” said strategists at Singapore’s DBS bank in a note.

“Geopolitical tensions, especially between the U.S. and China, have also returned and are likely to intensify into the U.S. elections in November.”

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Oil crash pummels stocks and bond yields; dollar rises

NEW YORK (Reuters) – Stock markets around the world fell on Tuesday, as oil prices hit a two-decade low a day after some U.S. crude oil futures turned negative for the first time ever, underlining worries about deep economic damage from the coronavirus pandemic.

While gold is often seen as a safe haven bet, that commodity also declined on Tuesday as investors favored cash.

Investors rushed to buy bonds, which pushed down U.S. Treasury yields, with the five-year note hitting a new record low as the difficulties of restarting the U.S. economy sank in.

June oil futures plunged, as the panic that sent U.S. May futures to below minus $40 per barrel on Monday intensified due to worries about the coronavirus pandemic’s effect on fuel demand in a market overrun by supply.

Equities around the world tumbled, with Wall Street’s major stock indexes following Europe and Asia lower.

Monday’s plunge in oil, which saw some prices reach minus $40 a barrel, resulted from growing crude stockpiles and dwindling storage space as demand dwindled because of worldwide lockdowns aimed at containing the spread of the virus.

U.S. crude recently rose 104.78% to $1.80 per barrel and Brent was at $20.19, down 21.04% on the day.

As countries around the world keep reporting new coronavirus cases and deaths, they have also been working on plans to reopen economies amid signs containment efforts seemed to be working.

“Investors are feeling more comfortable about the virus curve flattening but are coming to grips with the economic realities,” said TD Ameritrade Institutional’s senior trading strategist, Mike Turvey, noting that the fall-off of oil demand and prices was one alarming sign along with earnings news.

With bleak news at the forefront of investors minds, Turvey said investors ignored suggestions U.S. lawmakers were close to agreement on a fourth coronavirus spending bill.

The Dow Jones Industrial Average fell 607.41 points, or 2.57%, to 23,043.03, the S&P 500 lost 85.63 points, or 3.03%, to 2,737.53 and the Nasdaq Composite dropped 321.38 points, or 3.75%, to 8,239.35.

The pan-European STOXX 600 index lost 3.19% and MSCI’s gauge of stocks across the globe shed 2.95%.

The U.S. dollar rose against a basket of currencies as investors sought the safety of the world’s most liquid currency in a risk averse market.

The dollar later pared some gains as the session wore on. [FRX/] The dollar index rose 0.214%, with the euro up 0.01% to $1.0863.

“It’s definitely a risk-off day so the dollar is benefiting from that now,” said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.

Benchmark 10-year notes last rose 25/32 in price to yield 0.5472%, from 0.626% late on Monday.

The 30-year bond last rose 92/32 in price to yield 1.1328%, from 1.235%.

Seaport Global Holdings managing director Tom di Galoma said the trading reflected a basket of worries, including lower oil prices and a resulting hit to stock values stemming from wholesale closures of American cities and states.

“It’s a continued flight to quality. Investors are looking for a safety asset, and Treasuries happens to be that,” di Galoma said.

Gold prices dropped to a near two-week low while palladium slumped 15.5% as investors scrambled for cash to cover losses in other asset classes mainly driven by a crash in oil markets as the coronavirus wrecks economies.

“Oil has really got the entire commodity complex down with it … A lot of people are exiting positions that they were very profitable on with a wait-and-see attitude to see whether there’s further spillover from the energy into precious metals,” said Bob Haberkorn, senior market strategist at RJO Futures.

Spot gold dropped 0.8% to $1,679.76 an ounce.

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Stocks rebound grinds past 10% after $2 trillion U.S. stimulus boost

LONDON (Reuters) – A breakneck rebound in world stocks made it past the 10% mark on Wednesday before more global coronavirus warnings and fresh turbulence in commodity markets saw things grind to a halt.

Hopes that an incoming $2 trillion U.S. fiscal stimulus will ease the economic devastation caused by virus lockdowns gave world equity indexes .MIWD00000PUS their first back-to-back gains in a month, though wasn’t plain sailing.

Europe’s main markets in London, Frankfurt and Paris were struggling to stay positive after tearing 4%-5% higher and oil prices swung from 3% up to 3% down, while Wall Street looked set to open lower after Tuesday’s stellar surge.

The Dow Jones Industrial Average .DJI had soared over 11% in its biggest one-day percentage gain since 1933 and the S&P 500 scored a 9.4% jump – its tenth best day on record out of 24,067 trading sessions since daily data started in 1927.

“The right steps have been taken but the main thing that is driving the market at the moment is sentiment,” said Chris Dyer, Director of Global Equity at fund manager Eaton Vance.

He said it was now vital to see some positive signs on combating the epidemic and that health systems were not being overwhelmed. “Market direction can change very, very quickly depending on one item of news or one development,” he added.

The U.S. stimulus deal is expected to include $500 billion in direct payments to people and $500 billion in liquidity assistance.

President Donald Trump had also pressed his case for a re-opening of the U.S. economy by mid-April, though that met with immediate scepticism given the rise in infections in the United States is now among the biggest in the world.

In particular, its financial hub of New York City suffered another big increase, fuelling worries about a shortage of hospital beds.

In Europe too, there were more high-profile cases including Britain’s Prince of Wales, while an internal EU document seen by Reuters showed the bloc needs 10 times more protective equipment and devices like ventilators than traditional supply chains can provide.

“Global equities are clearly a better value proposition than they were a month ago, but we would exercise caution against value opportunities becoming value traps,” said Tim Graf, head of Macro Strategy EMEA at State Street Global Markets.

“Bull markets do not typically begin with 10 percent rallies in a single day, even if the policy response to this crisis has been more expansive and powerful than any previously offered.”

DOLLAR DE-STRESS

In the U.S., the benchmark S&P 500 is still nearly $8 trillion below its mid-February high, and investors expect more sharp swings. Wall Street’s fear gauge eased overnight but was on the rise again ahead of Wednesday’s open.

In the currency markets, the dollar slipped for a third straight session as the scramble for liquidity was soothed by the super-sized U.S. stimulus plan, though it was starting to look a little stronger again.

The risk-sensitive Australian dollar AUD=D3 jumped over the 60-U.S. cent mark for the first time in a week and the euro traded up 0.3% past $1.0835 EUR= and, with traders moving gradually away from safety boltholes, the Japanese yen eased to 111.34 yen per dollar JPY= to leave it just off a one-month low.

Bond markets were also calmer. Benchmark U.S. Treasuries were yielding 0.86% while in Europe Germany’s 10-year yield DE10YT=RR edged a basis point higher to -0.31%, tailed by other higher-rated government debt. NL10YT=RR, AT10YT=RR

In Italy, the epicenter of the virus in Europe, 10-year borrowing costs were unchanged at 1.59%; nearly half last week’s high of 3.01% IT10YT=RR.

European Central Bank chief Christine Lagarde asked euro zone finance ministers during a videoconference on Tuesday evening to seriously consider a one-off joint debt issue of “coronabonds”, officials also told Reuters.

In metals markets, gold changed hands at $1,610.0 per ounce XAU=, retaining most of Tuesday’s gains of almost 5%, its biggest jump since 2008.

Oil prices buckled though another 3% as concerns about demand took over again. [O/R]

Brent crude futures LCOc1 pinballed from $27.51 per barrel to $26.22. That is up about $4, or 12%, from their 18-year intraday low on Friday, though on the month the market is down over 45%.

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