HONG KONG/SAN FRANCISCO (Reuters Breakingviews) - Washington’s Chinese firewall is a tall order. U.S. Secretary of State Mike Pompeo wants to purge America’s internet of Chinese telecoms, apps, cloud services and more. In effect he is trying to put an information ring-fence around the People’s Republic, and wants other countries to join in.
HONG KONG (Reuters Breakingviews) - Chinese equity market regulators are growing a set of governance teeth. The Supreme Court has finally permitted shareholder lawsuits similar to the class-action litigation deployed against corporate malfeasance in the West, mostly famously in the cases of Enron and WorldCom. As other liberalisations unleash massive rallies on domestic bourses, it’s past time to deter executive abuses.
HONG KONG (Reuters Breakingviews) - Huawei might starve before it sells its offshore assets. The Chinese telecoms kit maker is under renewed attack from Downing Street to Washington. Founder Ren Zhengfei has mulled divesting intellectual property, but overseas buyers for that, or for handset or network units, are few. Nor will Beijing permit a sale that looks like defeat. Ren’s attempts to evade the Americans’ brawl with Beijing have failed. Despite protestations that it is privately owned, Chinese diplomats have made it clear that Huawei’s commercial interests are inseparable from its government’s diplomatic agenda. And Beijing threatened to punish Great Britain if it gave in to Washington’s push to pull Huawei equipment from UK networks – which it eventually did. A big chunk of Huawei’s business is in the crossfire: the company generated over 40% of its $123 billion in revenue outside of China in 2019. But with its smartphones blocked from Google’s app store, its executives unable to get U.S. visas, and the certainty of sustained American pressure, spinning off overseas assets to preserve value looks increasingly attractive from a financial perspective. Ren himself last year floated the idea of selling the company’s fifth generation telecommunications intellectual property. The United States has no 5G champion per se, but a firm like Cisco, say, could become one by acquiring Huawei’s patents. Westinghouse did something similar with its nuclear power technology in China. U.S. officials shot that idea down, however. Huawei could try to sell its offshore network equipment businesses to Samsung Electronics, but with the Chinese out of the way, customers will welcome the South Korean giant regardless, to prevent an Ericsson-Nokia duopoly. The bigger problem is domestic optics. Any sale might be trumpeted by the White House as a sign that Huawei, and by extension the Chinese government, has lost a round. Beijing can’t have that. This might explain why the company is not offloading its offshore handset business, which is crippled by the embargo on Google tools. Instead it is pushing its own operating system called Harmony, riffing on the Chinese Communist Party’s “Harmonious Society” slogan. That is unlikely to take much share from Android. But even if Ren, a former military man, wanted to surrender, his commanders won’t let him.
HONG KONG (Reuters Breakingviews) - China has avoided a recession, but debt problems are piling up. Output rose 3.2% year-on-year in the three months to June, following last quarter’s record contraction. Investment still looks tepid, employers are shedding jobs, and retail is anaemic. That means more bad loans. Unfortunately, the country is running low on distressed debt investors.
HONG KONG (Reuters Breakingviews) - China’s latest stock pop mixes the bitter with the sweet. Indexes have spiked to levels not seen since 2015, and leverage is rising, adding to fears of a crash. Weakness in shadow banking and property are pushing speculative funds into shares, but the rally is also underpinned by reforms accelerating a shift into equities.
HONG KONG (Reuters Breakingviews) - On the 23rd anniversary of its return to Beijing’s control, Hong Kong is being reshaped into a less distinct city. Harsh new security laws targeting a long-running protest movement have been secretly drafted and hastily imposed without the local legislature’s involvement. They may quash the disruptive demonstrations that have vexed the business community, but the price of order will be high.
HONG KONG (Reuters Breakingviews) - As the Covid-19 epidemic began to peak in Asia, Piyush Gupta tried to boost morale for his quarantined workforce. The chief executive of Singaporean bank DBS led his management team through a parody version of Gloria Gaynor’s disco breakup anthem “I Will Survive,” in which they sang off-key praises for their new remote working arrangements. “We grew strong,” one managing director howled into a wooden spoon. “We learned how to work from home!”
HONG KONG (Reuters Breakingviews) - SoftBank is finding itself stymied by ancient governance technology. Its Chinese chipmaking venture can’t get rid of its Chairman and Chief Executive Allen Wu because he won’t return the company seal. It’s a common problem in the People’s Republic, but this conflict adds Arm to boss Masayoshi Son’s headaches.
HONG KONG (Reuters Breakingviews) - Citigroup has a busy time ahead staying out of Chinese politics. Chief Executive Mike Corbat has so far avoided taking sides on Beijing’s controversial security law targeting sedition, terrorism, and “foreign interference” in Hong Kong. But if the White House follows through on threats to sanction Chinese banks over the issue, the $124 billion lender might make a convenient target for retaliation.
HONG KONG (Reuters Breakingviews) - It has been a poor showing from China for its impoverished masses. Some cities started letting noodle and knick-knack stalls back onto roadsides in recent weeks after Premier Li Keqiang endorsed the worthwhile stimulus initiative, but it is already being rolled back after attacks by state media. The pushback suggests rich urbanites in power prefer to eliminate the appearance of poverty than resolving it.