China Macro Reporter
1. ‘America Must Prepare for the Coming Chinese Empire’: Robert Kaplan, Eurasia Group

<tr><td class="bg-holder"><a href="" target="_blank"><img src="" alt="CHINADebate"></a></td></tr><tr><td class="nl-post"><p class="caption">Geo Tekno Asia</p><p class="excerpt">‘But the last thing American policymakers or strategists should assume is that somehow we are superior to the Chinese, or worse: that somehow we have a destiny that they do not.’</p><p><strong>Robert Kaplan, </strong>managing director of the Eurasia Group, presents clear-eyed analyses and excellent suggestions, along with provocative and debatable assertions.</p><ul><li><strong>That I don&rsquo;t agree</strong> with some of those assertions doesn&rsquo;t mean they&rsquo;re wrong &ndash; or that the analyses are either.</li></ul><p><strong>Here is a portion</strong> of the essay devoted to China&rsquo;s &lsquo;imperial&rsquo; expansion.</p><ul><li><strong>But the entire essay</strong> is worth pondering.</li><li><a href="" target="_blank"><strong>Read it here.</strong></a></li></ul><table class="intable"><tr><td class="intable-border"><h5>An Imperial World</h5><p><strong>&lsquo;We still inhabit</strong> (in functional terms, that is) an imperial world,&rsquo; writes Robert Kaplan, managing director of the Eurasia Group, in <a href="" target="_blank">&lsquo;America Must Prepare for the Coming Chinese Empire.&rsquo;</a></p><ul><li><strong>&lsquo;Make no mistake:</strong> America, since the end of World War II, and continuing into the second decade of the twenty-first century, was an empire in all but name.&rsquo;</li><li><strong>&lsquo;That is no longer the case.</strong> European and Asian allies are now, with good reason, questioning America&rsquo;s constancy.&rsquo;&nbsp;</li><li><strong>&lsquo;Meanwhile,</strong> as one imperium-of-sorts declines, another takes its place.&rsquo;</li></ul><h6>The New Chinese Empire</h6><p><strong>&lsquo;China is not the challenge</strong> we face: rather, the challenge is the new Chinese empire.&rsquo;</p><ul><li><strong>&lsquo;It is an empire</strong> that stretches from the arable cradle of the ethnic Han core westward across Muslim China and Central Asia to Iran; and from the South China Sea, across the Indian Ocean, up the Suez Canal, to the eastern Mediterranean and the Adriatic Sea.&rsquo;</li><li><strong>&lsquo;It is an empire</strong> based on roads, railways, energy pipelines and container ports whose pathways by land echo those of the Tang and Yuan dynasties of the Middle Ages, and by sea echo the Ming dynasty of the late Middle Ages and early-modern period.&rsquo;</li></ul><h6>Indian Ocean</h6><p><strong>&lsquo;Because China</strong> is in the process of building the greatest land-based navy in history, the heart of this new empire will be the Indian Ocean, which is the global energy interstate, connecting the hydrocarbon fields of the Middle East with the middle-class conurbations of East Asia.&rsquo;</p><ul><li><strong>&lsquo;This new Indian Ocean empire</strong> has to be seen to be believed.&rsquo;</li><li><strong>&lsquo;While America&rsquo;s bridges</strong> and railways languish, it is a great moment in history to be a Chinese civil engineer.&rsquo;</li><li><strong>&lsquo;China has gone</strong> from building these ports, to having others manage them, and then finally to managing them themselves.&rsquo;</li><li><strong>&lsquo;It has all been part</strong> of a process that recalls the early days of the British and Dutch East India companies in the same waters.&rsquo;</li></ul><p><strong>&lsquo;Newspaper reports</strong> talk of some of these projects being stalled or mired in debt.&rsquo;</p><ul><li><strong>&lsquo;That is a traditionally</strong> capitalist way to look at it.&rsquo;</li><li><strong>&lsquo;From a mercantile</strong> and imperialist point of view, these projects make perfect sense.&rsquo;</li><li><strong>&lsquo;In a way,</strong> the money never really leaves China: a Chinese state bank lends the money for a port project in a foreign country, which then employs Chinese state workers, which utilize a Chinese logistics company, and so on.&rsquo;</li></ul><h6>South China Sea</h6><p><strong>&lsquo;And because the Indian Ocean</strong> is connected to the South China Sea through the Malacca, Sunda and Lombok straits, Chinese domination of the South China Sea is crucial to Beijing.&rsquo;</p><ul><li><strong>&lsquo;China is not a rogue state,</strong> and China&rsquo;s naval activities in the South China Sea make perfect sense given its geopolitical and, yes, its imperial imperatives.&rsquo;</li><li><strong>&lsquo;The South China Sea</strong> not only further unlocks the Indian Ocean for China, but it further softens up Taiwan and grants the Chinese navy greater access to the wider Pacific.&rsquo;</li></ul><h6>Middle East and the Horn of Africa</h6><p><strong>&lsquo;The South China Sea</strong> represents one geographical frontier of the Greater Indian Ocean world; the Middle East and the Horn of Africa represent the other.&rsquo;</p><ul><li><strong>&lsquo;The late Zbigniew Brzezinski</strong> once wisely said in conversation that hundreds of millions of Muslims do not yearn for democracy as much as they yearn for dignity and justice, things which are not necessarily synonymous with elections.&rsquo;</li><li><strong>&lsquo;This is a world tailor-made</strong> for the Chinese, who do not deliver moral lectures about the type of government a state should have but do provide an engine for economic development.&rsquo;</li><li><strong>&lsquo;To wit,</strong> globalization is much about container shipping: an economic activity that the Chinese have mastered.&rsquo;</li><li><strong>&lsquo;The Chinese military base</strong> in Djibouti is the security hub in a wheel of ports extending eastward to Gwadar in Pakistan, southward to Bagamoyo in Tanzania, and northwestward to Piraeus in Greece, all of which, in turn, help anchor Chinese trade and investments throughout the Middle East, East Africa and the eastern Mediterranean.&rsquo;</li><li><strong>&lsquo;Djibouti is a virtual dictatorship,</strong> Pakistan is in reality an army-run state, Tanzania is increasingly authoritarian and Greece is a badly institutionalized democracy that is increasingly opening up to China.&rsquo;</li><li><strong>&lsquo;In significant measure,</strong> between Europe and the Far East, this is the world as it really exists in Afro-Eurasia.&rsquo;</li><li><strong>&lsquo;The Chinese empire,</strong> unburdened by the missionary impulse long prevalent in American foreign policy, is well suited for it.&rsquo;</li></ul><h5>Chinese Model</h5><p><strong>&lsquo;Of course,</strong> there are all sorts of political and social tensions inside China.&rsquo;</p><ul><li><strong>&lsquo;And the unrest</strong> among the middle classes we see today in Brazil and the rest of Latin America could well be a forerunner to what we will see in China in the 2020s, undermining Belt and Road and the whole Chinese imperial system altogether.&rsquo;</li><li><strong>&lsquo;China&rsquo;s over-leveraged economy</strong> may well be headed for a hard, rather than a soft, landing, with all the attendant domestic upheaval which that entails.&rsquo;</li><li><strong>&lsquo;I have real doubts</strong> about the sustainability of the Chinese political and economic model.&rsquo;</li></ul><p><strong>&lsquo;But the last thing American</strong> policymakers or strategists should assume is that somehow we are superior to the Chinese, or worse: <em><u>that somehow we have a destiny that they do not.&rsquo;</u></em></p></td></tr></table></td></tr>

2. 'Trump Has Gotten China to Lower Its Tariffs. Just Toward Everyone Else.'

<tr><td class="bg-holder"><img src="" alt="CHINADebate"></td></tr><tr><td class="nl-post"><p class="caption">PIIE</p><p class="excerpt"></p><p><a href="" target="_blank">&lsquo;Trump Has Gotten China to Lower Its Tariffs. Just Toward Everyone Else,&rsquo;</a> by <a href="" target="_blank">Chad P. Bown</a>,&nbsp;<a href="" target="_blank">Euijin Jung</a>, and&nbsp;<a href="" target="_blank">Eva (Yiwen) Zhang</a>&nbsp;of the Peterson Institute for International Economics (PIIE). </p><p><strong>&lsquo;While Trump shows</strong> other countries nothing but his tariff stick, China has been offering carrots.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;China has increased tariffs</strong> on imports from US to an average 20.7 percent.&rsquo;</li><li><strong>At the same time,</strong>&lsquo;Beijing has repeatedly cut its duties on imports from America&rsquo;s commercial rivals, including Canada, Japan, and Germany to an average of only 6.7 percent.&rsquo;</li></ul><p><strong>&lsquo;As recently as early 2018,</strong> firms in both the United States and the rest of the world competed in China with each other on a level playing field, facing an average Chinese tariff of 8.0 percent.&rsquo;</p><ul><li><strong>&lsquo;Figure 1 summarizes</strong> how the Chinese tariff differential has arisen over the course of Trump&rsquo;s&nbsp;<a href="" target="_blank">trade war</a>.&rsquo;</li></ul><img width="100%" src="" alt="CHINADebate"><p><strong>Looked at another way</strong>&lsquo;<strong>a substantial gap</strong> has emerged between Chinese duties facing US exporters and those facing exporters in the rest of the world (figure 3).&rsquo;</p><ul><li><strong>&lsquo;The difference</strong> has arisen even though China has not simply followed Trump&rsquo;s lead and imposed a 25 percent tariffs on US exports.&rsquo;</li><li><strong>&lsquo;With the exception</strong> of autos, aircraft, and pharmaceuticals, there is now a sizable difference between the tariffs facing US exporters and those facing exporters elsewhere.&rsquo;</li></ul><img width="100%" src="" alt="CHINADebate"><p><strong>&lsquo;China&rsquo;s choice of products</strong> and tariff levels are likely the result of a complex calculation.&rsquo;</p><ul><li><strong>&lsquo;Like Trump,</strong> Beijing may be acting strategically in an attempt to inflict political-economic pain on the other side.&rsquo;&nbsp;</li><li><strong>&lsquo;But the nuance</strong> of its choices may also signal that it is wary of self-harm.'</li><li><strong>&lsquo;And one potential way</strong> to offset the cost of its higher tariffs on US exporters is to lower its tariffs on everyone else.&rsquo;</li></ul><p><strong>&lsquo;China&rsquo;s tariff reduction</strong> is not a violation of any WTO rules.&rsquo;</p><ul><li><strong>&lsquo;So long as it keeps</strong> a tariff&nbsp;below&nbsp;the &ldquo;binding&rdquo; rate it has submitted to the WTO, China is well within its legal rights to reduce its applied MFN tariffs to whatever level it chooses.&rsquo;</li></ul><p><strong>At the same time, </strong>&lsquo;China is shifting some of its imports away from the United States and toward the rest of the world.&rsquo;</p><ul><li><strong>&lsquo;As China&rsquo;s economic growth</strong> has&nbsp;<a href="">slowed</a> during the trade war, its imports from both the United States and the rest of the world have also fallen (figure 4).&rsquo;</li><li><strong>&lsquo;China&rsquo;s tariff reductions</strong> toward the rest of the world are likely to have helped stem the decline in imports from those countries.&rsquo;</li><li><strong>&lsquo;Nevertheless,</strong> the drop in US exports to China&mdash;due to slowing domestic demand, the retaliatory tariffs, as well as the incentive to switch to other foreign sources&mdash;is much more severe.&rsquo;</li></ul><img width="100%" src="" alt="CHINADebate"><p><strong>&lsquo;China is likely</strong> minimizing the economic harm to itself by limiting the product coverage and levels of its tariff retaliation,&rsquo; as seen in Figure 2.&rsquo;</p><ul><li><strong>&lsquo;China&rsquo;s retaliatory tariffs</strong> currently do not target aircraft, oil products, autos, and parts.&rsquo;</li></ul><img width="100%" src="" alt="CHINADebate"><p><strong>In the end,</strong>&lsquo;this is not good news for US exporters.'</p><ul><li><strong>&lsquo;For one thing, &lsquo;China&rsquo;s retaliatory tariffs</strong> put them at a disadvantage relative to local firms, which obviously don&rsquo;t have to pay any border taxes.&rsquo;</li></ul><p><strong>But &lsquo;reducing tariffs on imports</strong> from other countries means US exporters face an increasing disadvantage relative to competitors in Canada, Japan, Europe, and elsewhere.&rsquo;</p><ul><li><strong>&lsquo;For example,</strong> the American lobster industry saw its exports fall by 70 percent after China imposed its retaliatory tariff of 25 percent on July 6, 2018.&rsquo;</li><li><strong>&lsquo;Things are so bad</strong> that the industry has sought federal assistance, though it has not been eligible for the subsidy programs the Trump administration&rsquo;s US Department of Agriculture (USDA) has provided&nbsp;<a href="" target="_blank">to date</a>.&rsquo;</li><li><strong>&lsquo;On the other hand,</strong> Canada&rsquo;s lobster exports to China nearly doubled as it benefited from a 3&nbsp;percentage point tariff cut in 2018.&rsquo;</li></ul><p><strong>&lsquo;In other instances,</strong> the new tariff on the United States was the only thing needed for China&rsquo;s consumers to make the switch.&rsquo;</p><ul><li><strong>&lsquo;China shifted</strong> much of its imports of US soybeans in 2018 to&nbsp;<a href="" target="_blank">imports</a> from Brazil and Argentina without further reducing its existing 3 percent tariff on soybean imports from those countries.&rsquo;</li></ul>

3. ‘Services are ½ of the value-added in global trade- we just don’t see them or count them.’: David Dollar, Brookings

<tr><td class="bg-holder"><img src="" alt="CHINADebate"></td></tr><tr><td class="nl-post"><p class="caption"></p><p class="excerpt">‘Viewed from this value-added perspective, bilateral trade imbalances look quite different.’<br/>‘The contentious US trade deficit with China, for example, is roughly cut in half when the analysis shifts from gross value to value added because China tends to be at the end of many value chains.’</p><p><strong>&lsquo;From smartphones</strong> and autos to TVs and computers, more than two-thirds of international trade now takes place within global value chains,&rsquo; writes Brookings&rsquo; <strong>David Dollar</strong> in <a href="" target="_blank">&lsquo;Invisible Links&rsquo;</a> in the IMF&rsquo;s <em>Finance &amp; Development</em> June magazine.</p><ul><li><strong>&lsquo;Yet decades-old methods</strong> of gathering trade data, developed in the pre-value-chain world, fail to reflect this transformation, giving rise to a skewed picture of the movement of goods and services around the world.&rsquo;</li><li><strong>&lsquo;The result:</strong> acrimonious debates over job losses blamed on trade are rooted in inadequate data, amplifying misguided calls for protectionism.&rsquo;</li></ul><p><strong>&lsquo;Take the case</strong> of a smartphone exported by China.&rsquo;</p><ul><li><strong>&lsquo;When it is shipped</strong> to the United States, official trade statistics record its full value as an import from China.&rsquo;</li><li><strong>&lsquo;But it would be more accurate</strong> to say the United States imports different types of value added from different partners, including labor-intensive assembly from China and more sophisticated manufacturing inputs from South Korea.&rsquo;</li><li><strong>&lsquo;That is because</strong> official trade statistics measure the gross value of trade, not the value added at each link in the chain.&rsquo;</li></ul><p><strong>&lsquo;What is more,</strong> official statistics don&rsquo;t capture the growing importance of services, such as computer coding, logistics, and marketing, that are contained in the value of manufactured goods.&rsquo;</p><ul><li><strong>For example,</strong>&lsquo;much of the value added in a nominally Chinese-made smartphone, such as computer coding and marketing, originates in the United States and other advanced economies.&rsquo;</li></ul><p><strong>&lsquo;Official statistics</strong> tell us that about 80 percent of world trade consists of manufactured goods and primary products such as food, oil, and minerals.&rsquo;</p><ul><li><strong>&lsquo;The remaining 20 percent</strong> consisting of services such as tourism, overseas college education, and international finance.&rsquo;</li><li><strong>&lsquo;This ratio</strong> has changed little in 40 years.&rsquo;</li></ul><p><strong>&lsquo;The picture looks very different</strong> when the analysis shifts to value added in trade.&rsquo;</p><ul><li><strong>&lsquo;The share of services</strong> in trade, measured in value-added terms, rose by more than a third from 1980 to 2009&shy;&mdash;from 31 percent to 43 percent.&rsquo;</li></ul><p><strong>&lsquo;This means</strong> that the services content in merchandise was increasing.'</p><ul><li><strong>&lsquo;Some of the increase</strong> reflects the growing use of software.&rsquo;</li><li><strong>Another &lsquo;factor</strong> is that prices of services have risen, while manufacturing prices have declined because of the sector&rsquo;s more rapid productivity growth.&rsquo;</li></ul><h6>From David&rsquo;s IMF podcast</h6><iframe title="David Dollar on the Value of Value Chains" src="" height="315" width="100%" style="border: none;" scrolling="no" data-name="pb-iframe-player"></iframe><p><strong>&lsquo;How do value chains work?</strong> Most modern products have long value chains.&rsquo;</p><ul><li><strong>&lsquo;It starts with someone's idea.</strong> If you think about some of the products that have really transformed our lives like smartphones - someone came up with this idea and often they patented, or they start producing it under a brand name.&rsquo;</li><li><strong>&lsquo;That&rsquo;s some of the first value</strong> that goes into the product: the brand, the trademark or patent&rsquo;</li></ul><p><strong>&lsquo;Most modern products</strong> have a mix of sophisticated inputs and more simple ones.&rsquo;</p><ul><li><strong>So a lot of modern products</strong> involve the integration of advanced economies in developing economies.&rsquo;</li></ul><p><strong>&lsquo;You&rsquo;ve got,</strong> for example, the smartphone.&rsquo;</p><ul><li><strong>&lsquo;Taiwan produces</strong> some of the more sophisticated components particularly advanced semiconductors.&rsquo;</li><li><strong>&lsquo;China is increasingly producing</strong> value-added somewhere in the middle of the value chain - somewhat less sophisticated products, but more than just assembly, which China used to specialize in.&rsquo;</li><li><strong>&lsquo;China still does a lot of assembly</strong> but increasingly that&rsquo;s shifting to Vietnam, Bangladesh - countries that have lower wages in China,&rsquo;</li></ul><p><strong>&lsquo;Traditional trade data</strong> is just looking at the gross value of trade.&rsquo;</p><ul><li><strong>&lsquo;A smartphone&rsquo;s wholesale value</strong> when it comes in from China might be $200 - that gets reported as a $200 export from China to the U.S.&rsquo;</li><li><strong>&lsquo;But it may very well</strong> already have $25 of U.S. value-added starting in brands and patents.&rsquo;</li><li><strong>&lsquo;It's got some</strong> Taiwan value-added; it may have been finally assembled in China plus some of the intermediate inputs.&rsquo;</li></ul><p><strong>&lsquo;But remember </strong>most of this stuff ends up in Europe and in the United States.&rsquo;</p><ul><li><strong>&lsquo;If you actually look</strong> at a lot of long value chains, you start out with very sophisticated inputs from, say, the U.S.&rsquo;</li><li><strong>&lsquo;Then you have</strong> the other things I mentioned.&rsquo;</li><li><strong>&lsquo;And eventually</strong> it comes back into the U.S., where again you have shipping and insurance, and sophisticated marketing, distribution and sales.&rsquo;</li></ul><p><strong>&lsquo;So the point</strong> of this whole new strand of value chain research is to break down the production - try to see where all the value-added is coming from - which gives you a somewhat different perspective than those traditional trade statistics.&rsquo;</p><p><strong>&lsquo;A lot of the jobs</strong> that are being created in the advanced economies are in the service sectors - in science and technology but also finance.&rsquo;</p><ul><li><strong>&lsquo;People are not seeing</strong> the positives for an advanced economy because they are not that visible.&rsquo;</li><li><strong>&lsquo;They just see</strong> the product coming in from China, for example.&rsquo;</li></ul><p><strong>&lsquo;We used to call</strong> services &ldquo;non-tradable.&rdquo;&rsquo;</p><ul><li>&lsquo;Now, what we're learning is they are almost &frac12; the value-added in global trade.&rsquo;</li></ul></td></tr>

4. HK Protests: ‘An analysis of events’ by Nuri Vattachi + a response from a noted Greater China expert

<tr><td class="bg-holder"><a href="" target="_blank"><img src="" alt="CHINADebate"></a></td></tr><tr><td class="nl-post"><p class="caption">South China Morning Post</p><p class="excerpt">‘The real story of this amendment begins as a mundane tale of civil servants trying to fix a shortcoming they’d spotted in a rather technical ordinance.’ ‘But perhaps the heart of the story is something else—evidence of a deep well of mistrust of China.’</p><p><strong>One of my close friends, </strong>a resident of Hong Kong for decades, responded to the last <em>InDepth</em> on the Hong Kong protests:</p><p><strong>&lsquo;Sorry, </strong>Malcolm.&rsquo;</p><ul><li><strong>&lsquo;The US is not doing </strong>anything to help HK - it&rsquo;s the 3 million that came out onto the streets on 16 June.&rsquo;&nbsp;</li><li><strong>&lsquo;And what is being threatened by the US </strong>(to review HK&rsquo;s special treatment under the HK Relations Act) will only hurt HK, not China.&rsquo;&nbsp;</li><li><strong>&lsquo;Please keep out </strong>of our affairs if this is all you can offer!&rsquo;&nbsp;</li></ul><p><strong>Today, the same friend </strong>sent me report by Nuri Vattachi, a journalist, humorist, and author likewise based in&nbsp;Hong Kong for many decades.</p><ul><li>Nuri&rsquo;s report paints a very different picture of the events leading to the protests:<ul><li><strong><em>&lsquo;The real story</em></strong><em> of this amendment begins as a mundane tale of civil servants trying to fix a shortcoming they&rsquo;d spotted in a rather technical ordinance.&rsquo; </em></li><li><strong><em>&lsquo;But perhaps</em></strong><em> the heart of the story is something else&mdash;evidence of a deep well of mistrust of China.&rsquo;&nbsp;</em></li></ul></li><li><strong>Read his report below,</strong> and following that a response from a leading expert on Greater China.</li></ul><table class="nl-quote-intable"><tr><td class="nl-quote-border"><p><strong>&lsquo;China&rsquo;s leader Xi Jinping</strong> was not behind the attempt to introduce an extradition law in Hong Kong, well-placed sources say.&rsquo;</p><ul><li><strong>&lsquo;Nor did it originate</strong> with Hong Kong&rsquo;s leader Carrie Lam Cheng Yuet-ngor.&rsquo;&nbsp;</li></ul><p><strong>&lsquo;The real story</strong> is quite different.&rsquo;</p><ul><li><strong>&lsquo;And although</strong> I&rsquo;m sorry I can&rsquo;t name the sources for the report below, this account rings true to me.&rsquo;</li><li><strong>&lsquo;For a start,</strong> it indicates that a lot of what journalists like me have been saying was not correct.&rsquo;</li><li><strong>&lsquo;Read it if you wish,</strong> and make up your own mind.&rsquo;&nbsp;</li></ul><h6>&lsquo;PROLOGUE: HANDS OVER A WALL&rsquo;</h6><p><strong>&lsquo;In 1994,</strong> an extraordinary meeting was held between police detectives from British Hong Kong, Portuguese Macau, and communist Guangzhou.&rsquo;</p><ul><li><strong>&lsquo;They talked</strong> about the possibilities of working jointly on cross-border crime.</li><li><strong>&lsquo;It seemed</strong> a tall order: the future was full of political uncertainties.&rsquo;&nbsp;</li></ul><h6>&lsquo;1) MIRACLE CITY&rsquo;</h6><p><strong>&lsquo;A quarter of a century later</strong>, in 2019, Hong Kong had blossomed into a genuine oddity: a city in China with a world-class, independent legal system.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;Civil servants</strong> were proud that the city was repeatedly rated number one for judicial independence in Asia by the Global Competitiveness Report of the World Economic Forum.&rsquo;&nbsp;</li><li><strong>&lsquo;In the World Justice Project&rsquo;s Rule of Law Index,</strong> Hong Kong was ranked 16th for its rule of law&mdash;higher than many Western countries. In the World Bank&rsquo;s Worldwide Governance Indicators project, Hong Kong scored an impressive 93 for rule of law.&rsquo;</li><li><strong>&lsquo;But</strong> there was a little problem.&rsquo;</li></ul><h6>&lsquo;2) A SMALL DIFFICULTY&rsquo;</h6><p>&lsquo;The community&rsquo;s lawyers knew Hong Kong was weak on international co-operation against crime, having few extradition treaties.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;This was awkward</strong> as the Chinese coastal city had signed a United Nations pledge to &ldquo;significantly reduce illicit financial and arms flows [and] strengthen the recovery and return of stolen assets&rdquo;.&rsquo;</li><li><strong>&lsquo;And then</strong> Hong Kong was criticized by the G7&rsquo;s Financial Action Task Force, which said it had a significant deficit in this area and was undermining international collaboration.&rsquo;</li><li><strong>&lsquo;Critics of Hong Kong&rsquo;s weakness pointed</strong> to the UN Model Treaty on Extradition which made it clear that in the name of justice, states had an obligation to extend extradition treaties.&rsquo;</li><li><strong>&lsquo;In the entire 22-year history</strong> of Hong Kong, China, only 100 people had been extradited, mostly fugitives put on planes to the United States.&rsquo;</li></ul><h6>&lsquo;3) THE EXTRADITION PARADOX&rsquo;</h6><p><strong>&lsquo;This needed fixing.</strong> Hong Kong civil servants reviewed the literature.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;Jurisdictions</strong> which claim to uphold the rule of law need extradition treaties as a social justice issue, said the writers of an influential 2011 UK report on extradition.&rsquo;</li><li><strong>&lsquo;Extradition must NOT</strong> be limited to places with similar legal systems. &ldquo;States have increasingly recognized that effective extradition should operate on the basis of mutual trust and confidence (not suspicion and disrespect)."</li><li><strong>&lsquo;Extradition treaties</strong> forced other places to follow rule-of-law procedures in handling fugitives.&rsquo;</li><li><strong>&lsquo;Extradition treaties</strong> and were particularly necessary for places which shared borders, such as &ldquo;neighbouring states&rdquo;, it said.&rsquo;</li><li><strong>&lsquo;Britain signed extradition treaties</strong> with numerous countries with abysmal human rights records, such as Iraq and Zimbabwe. America signed deals with the Congo, Myanmar and El Salvador.&rsquo;&nbsp;</li><li><strong>&lsquo;In Hong Kong,</strong> Department of Justice staff prepared to follow the leads of Western countries in this area.&rsquo;</li><li><strong>&lsquo;Simple,</strong> right?&rsquo;</li></ul><h6>&lsquo;4) MEANWHILE IN BEIJING&rsquo;</h6><p><strong>&lsquo;Under the surface</strong> in China&rsquo;s capital, the internal enemies of Premier Xi Jinping were slamming him hard on two fronts, Beijing sources say.&rsquo;</p><ul><li><strong>&lsquo;One was the China-US trade war,</strong> which was now causing easily detectable damage to their country&rsquo;s economic indicators.&rsquo;</li><li><strong>&lsquo;And the other</strong> was the rise in illegal capital outflows, often through underground banks to Hong Kong, where it distorted the property markets.&rsquo;</li></ul><p><strong>&lsquo;At some stage,</strong> it&rsquo;s clear that Xi&rsquo;s people (but likely not Xi himself) would have been told about routine legal developments in Hong Kong, as a part of periodic briefings.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;Some people say</strong> that China&rsquo;s illegal cash outflow problem to Hong Kong would have been mentioned at this time, but that remains speculation.&rsquo;<br /></li></ul><h6>&lsquo;5) CHANGES ARE TABLED&rsquo;</h6><p><strong>&lsquo;In Hong Kong,</strong> the civil servants&rsquo; proposal for the lengthening of the extradition countries list was filed in February. At this point, the job was under the remits of Justice secretary Teresa Cheng and Security secretary John Lee.&rsquo;</p><ul><li><strong>&lsquo;Then, in March,</strong> there was a moment of high drama. A man in Hong Kong confessed to murder overseas but could not be arrested for it. The incident wasn&rsquo;t just dangerous, worrying, and embarrassing &ndash; but it made real the glaring hole in Hong Kong&rsquo;s ability to manage international crime.&rsquo;</li></ul><p><strong>&lsquo;But as the expansion</strong> of extradition treaties was discussed, activists noticed that China was NOT excluded in the proposals&mdash;and saw red.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;Just two years earlier,</strong> a decision to allow co-operation between Chinese and Hong Kong immigration channels at a railway station in Kowloon had caused dire predictions of doom.&rsquo;</li></ul><h6>&lsquo;6) THE LAW IS EXPLAINED&rsquo;</h6><p><strong>&lsquo;In the face of criticism</strong> from activists, Chief Executive Carrie Lam encouraged security minister Lee to explain the amendment better.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;Hong Kong&rsquo;s extradition law</strong>, based on the UN model used in the west, was simple at heart, he said.&rsquo;</li><li><strong>&lsquo;It targeted fugitives</strong> suspected of one or more of a limited list of serious crimes, including murder and rape.&rsquo;</li><li><strong>&lsquo;The caseload</strong> was expected to be very small.&rsquo;</li><li><strong>&lsquo;Offenders accused of crimes</strong> related to politics and religion would automatically be untouchable. Tax-related matters were added to the exemptions list.&rsquo;</li><li><strong>&lsquo;ALL decisions</strong> would be made by Hong Kong&rsquo;s legal community.&rsquo;</li></ul><p><strong>&lsquo;Reviewing the proposal,</strong> some lawyers felt the built-in safeguards (such as right of appeal) were strong, while others felt they were not.&rsquo;</p><ul><li><strong>&lsquo;Some lawyers</strong> at the Bar Association pointed to weaknesses in the wording which needed to be changed.&rsquo;</li><li><strong>&lsquo;This was not</strong> unusual for new laws or amendments.&rsquo;</li><li><strong>&lsquo;Lawyers </strong>with an anti-government stance made dire predictions which were not necessarily impossible&mdash;but were highly unlikely.&rsquo;</li><li><strong>&lsquo;A number of activists</strong> interpreted this discussion as proof that the legal community agreed that the amendment was a ploy by a CCP puppet government who wanted to silence them.&rsquo;</li></ul><p><strong>&lsquo;The media,</strong> hungry for drama, overwhelmingly featured the angriest, most negative interpretations.&rsquo;&nbsp;</p><h6>&lsquo;7) CONSPIRACY OVERLOAD&rsquo;</h6><ul><li><strong>&lsquo;On May 1,</strong> China critic Gordon C. Chang (known for his 2002 book The Coming Collapse of China) wrote a widely circulated essay claiming that Beijing was behind the amendment.&rsquo;</li><li><strong>&lsquo;&ldquo;Beijing,</strong> with methodical ruthlessness, is trying to bring Hong Kong to heel,&rdquo; he wrote. &ldquo;Many believe new rules facilitating the sending of suspects to China would effectively allow Beijing to grab people at will and thereby completely control the city.&rdquo;&rsquo;</li><li><strong>&lsquo;Grab people at will?</strong> Frustrated pro-extradition lawyers said: &ldquo;If this was true, tourists could not visit UK without being in danger of being snatched by Zimbabwe and tourists visiting the United States could be snatched by the Congolese government&mdash;but who could believe that?&rdquo;&rsquo;</li></ul><h6>&lsquo;8) INTERPRETATIONS ESCALATE&rsquo;</h6><p><strong>&lsquo;The fears fanned</strong> by Chang and others spread fast. Soon, the main narrative for much of the Western media was that a corrupt Hong Kong civil service was following Beijing&rsquo;s secret orders to destroy the city&rsquo;s rule of law, with brave youths nobly resisting.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;Typical was&rsquo; </strong><ul><li><strong>&lsquo;Vox&rsquo;s headline:</strong>&ldquo;The Fight to Save Hong Kong.&rdquo;&rsquo;</li><li><strong>&lsquo;Time magazine</strong> had: &ldquo;Hong Kong's Extradition Law Would be a Victory for Authoritarianism Everywhere.&rdquo;&rsquo;</li><li><strong>&lsquo;Quartz had</strong>&ldquo;Hong Kong is in the fight of its life.&rsquo;</li></ul></li></ul><p><strong>&lsquo;Perhaps</strong> the root of the misunderstanding was the problem of scale.&rsquo;</p><ul><li><strong>&lsquo;Hong Kong&rsquo;s</strong> existing extradition arrangements only handled four or five cases a year.&rsquo;</li><li><strong>&lsquo;Even if</strong> the amendment caused the number to double or triple, it would still be a tiny number.&rsquo;</li></ul><p><strong>&lsquo;Yet activists</strong> gave the impression that tens of thousands of people were in imminent danger of being dragged over the border to mainland jails: a genuinely terrifying prospect.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;&ldquo;Hong Kong&rsquo;s end game:</strong> why the extradition bill is an &lsquo;infinity stone&rsquo; that could decimate half of society,&rdquo; said a headline in the Hong Kong Free Press over a melodramatic call to action by lawyer-activist Jason Ng.&rsquo;&nbsp;</li></ul><h6>&lsquo;9) REPORTED AND UNREPORTED&rsquo;</h6><p><strong>&lsquo;The number of complaints,</strong> from sensible suggestions to fantastical allegations, were so large they could not be ignored.&rsquo;</p><ul><li><strong>&lsquo;Carrie Lam</strong> took the ball from Lee&rsquo;s court and headed north. (Mrs Lam periodically reports to Zhongnanhai in Beijing in the same way that Hong Kong&rsquo;s British leaders periodically reported to Whitehall in London.)&rsquo;</li><li><strong>&lsquo;In May,</strong> she reported to Central People&rsquo;s Government representatives that Hong Kong people had significant anxieties about the extradition amendment her people were trying to introduce.&rsquo;&nbsp;</li></ul><p><strong>&lsquo;But she said </strong>that she felt it was worth continuing.&rsquo;</p><ul><li><strong>&lsquo;A significant portion</strong> of society was in in favor of the amendment, although their positive declarations went largely unreported.&rsquo;</li></ul><p><strong>&lsquo;Her complaint was fair.</strong> News articles blithely implied that businesses, diplomats and lawyers were all united against the law, but this was not the case.&rsquo;</p><ul><li><strong>&lsquo;All five</strong> of Hong Kong&rsquo;s biggest business organizations (The Hong Kong General Chamber of Commerce, The Chinese General Chamber of Commerce, The Chinese Manufacturers&rsquo; Association of Hong Kong, The Federation of Hong Kong Industries, and The Hong Kong Chinese Importers&rsquo; and Exporters&rsquo; Association) were in favor of the legislation, and most urged the government to pass it as soon as possible.&rsquo;</li><li><strong>&lsquo;Hong Kong&rsquo;s consular officials,</strong> after a detailed briefing on the amendment, came on side, recognizing the positive intentions and close similarity to their own extradition laws.&rsquo;&nbsp;</li><li><strong>&lsquo;Many senior lawyers</strong> were in favor, too&mdash;although the mainstream media and social media preferred to give airtime only to the others.&rsquo;</li></ul><h6>&lsquo;10) WRONG AGAIN&rsquo;</h6><p><strong>&lsquo;Dramatic interpretations</strong> of what some people believed the amendment &ldquo;really&rdquo; meant, ie, the total loss of all &ldquo;freedom&rdquo; in Hong Kong, proliferated through social media.&rsquo;</p><ul><li><strong>&lsquo;This led, on June 9,</strong> to a peaceful protest march of hundreds of thousands of people (but probably not a million: no self-respecting journalist takes &ldquo;the organizer&rsquo;s estimate&rdquo; as hard fact).&rsquo;</li></ul><p><strong>&lsquo;Afterwards, many journalists</strong> (including the present writer) confidently speculated that Hong Kong leader Carrie Lam would have spent the evening in deep consultation with her ultimate boss, Xi Jinping, over what to do next.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;In fact,</strong> we appear to have been wrong again.&rsquo;</li><li><strong>&lsquo;Xi Jinping</strong> was never involved, and there was no consultation that day between Mrs. Lam and Beijing.&rsquo;</li><li><strong>&lsquo;She told reporters</strong> she and her team spent the day monitoring events in Hong Kong and had no contact with the north.&rsquo;&nbsp;</li></ul><p><strong>&lsquo;The media</strong>&ldquo;portrayed the story as the Hong Kong government made this amendment [as a result of the] instruction of the Beijing government,&rdquo; said Chinese official Liu Xiaoming on June 12.&rsquo;</p><ul><li><strong>&lsquo;&ldquo;As a matter of fact,</strong> Beijing central government gave no instruction, no order about making amendment.&rdquo;&rsquo;</li><li><strong>&lsquo;&ldquo;This amendment</strong> was initiated by the Hong Kong government.&rdquo;&rsquo;</li></ul><p><strong>&lsquo;On Saturday, 15 June,</strong> Mrs. Lam put the amendment plan on hold.</p><ul><li><strong>&lsquo;She and her team</strong> remain undecided on next steps.&rsquo;&nbsp;</li></ul><p><strong>&lsquo;The real story</strong> of this amendment begins as a mundane tale of civil servants trying to fix a shortcoming they&rsquo;d spotted in a rather technical ordinance.&rsquo;</p><ul><li><strong>&lsquo;But perhaps</strong> the heart of the story is something else&mdash;evidence of a deep well of mistrust of China.&rsquo;&nbsp;</li></ul></td></tr></table><p>&nbsp;</p><hr/><p>&nbsp;</p><a class="nl-post-title" href="" target="_blank">Response to Nuri&rsquo;s report</a><a href="" target="_blank"><img src="" alt="CHINADebate"></a><p class="caption">Financial Times</p><p class="excerpt">'Now that the trouble Carrie Lam stirred up has revealed the depth of public distrust of the CCP.'</p><p><strong>During an email exchange</strong> on Nuri&rsquo;s report, another good friend wrote a response. It was in answer to my email and is written informally.</p><p><strong>The writer</strong> is a very well-known retired businessman and well-respected China expert, who also lived for several decades in Greater China.</p><table class="intable"><tr><td class="intable-border"><p><strong>&lsquo;The problem</strong> with the account that Nuri posted is the context of the PRC kidnapping the five book publishers and Xiao Jianhua (out of the HK Four Seasons in his case) and detaining in re-education camps over one million people in Xinjiang.&rsquo;</p><ul><li><strong>&lsquo;Those actions</strong> were without basis in HK, international or PRC law.&rsquo;</li><li><strong>&lsquo;Add to that</strong> the decision of the HK government to expel a foreign journalist for presiding over a meeting where a dissident spoke, and to prosecute organizers of peaceful demonstrations for "incitement to incite", a dubious use of the common law precedents.&rsquo;</li><li><strong>&lsquo;It's shocking</strong> but not surprising that Germany gave political asylum to organizers of the Umbrella movement who fled rather than face the HK courts.&rsquo;</li><li><strong>&lsquo;The international community's view</strong> of the trend toward weakening the rule of law in the PRC and HK legal systems is quite clear.&rsquo;</li></ul><p><strong>&lsquo;Given this context,</strong> there is every reason to believe that the PRC would use an extradition law in exactly the way Jerry Cohen suggested and that the HK judiciary might cave under govt/political pressure.&rsquo;</p><ul><li><strong>&lsquo;You represented</strong> the pro and con views well, and those in favor of the proposed law were not convincing to the HK public or the international community.&rsquo;</li></ul><p><strong>&lsquo;As to whether Carrie Lam</strong> consulted Beijing authorities or not, there is no way of knowing and no reason to believe the statements of either government one way or the other.&rsquo;</p><ul><li><strong>&lsquo;No one believes</strong> the statements of the central government that she still has their full support.&rsquo;</li></ul><p><strong>&lsquo;My own guess</strong> is that she saw the Taiwan case as a justification for slipping through a law that would alleviate pressure from Beijing to pass a national security law, and expected the public to acquiesce because it's a fairly technical legal matter. &lsquo;</p><ul><li><strong>&lsquo;That's</strong> pure speculation and immaterial.&rsquo;</li></ul><p><strong>&lsquo;What does matter</strong> is that her judgment of the HK public was incorrect?&rsquo;</p><ul><li><strong>&lsquo;After the first</strong> huge peaceful demonstration, she held to her course.&rsquo;</li><li><strong>&lsquo;As I recall,</strong> she said that it was like a parent faced with an unreasonable child.&rsquo;</li><li><strong>&lsquo;That dismissal of public opinion</strong> meant that only continued large and increasingly violent demonstrations had any chance of forcing her to change.</li></ul><p><strong>&lsquo;Now that the trouble</strong> she stirred up has revealed the depth of public distrust of the CCP (very embarrassing to the Party), she may be able to complete her term, but a second term is unlikely despite what is being said in Beijing.&rsquo;</p><p><strong>&lsquo;One interesting sidelight</strong> is that senior HK government officials continue to repeat the CCP talking point that the demonstrations were instigated by "foreign forces" and don't represent HK public opinion.&rsquo;</p><ul><li><strong>&lsquo;So now</strong> we have to wonder whether they really believe that, in which case they are even more out of touch than we might have imagined.&rsquo;</li><li><strong>&lsquo;It's more likely</strong> that they have no idea how to respond when the HK public and the CCP have incompatible views and therefore cynically repeat whatever BJ says to protect themselves.&rsquo;</li><li><strong>&lsquo;Not good</strong> either way.&rsquo;</li></ul></td></tr></table></td></tr>