It's no coincidence that some Asian markets are currently playing havoc on the money markets and that actual and threatened trade wars are escalating.
The current unrest in Hong Kong began with protests initiated by the Civil Human Rights Front (CHRF) in July. More than one million people have been involved, protesting at proposed legislation to be introduced by Hong Kong's Legislative Council. The new law would allow the extradition of suspects to mainland China for the first time.
Supporters of the amendment say it will prevent Hong Kong from becoming a refuge for criminals. Opponents claim China will exploit the new law to target political opponents. What else lies behind the current disturbances, and why does China seem intent on elevated gestures of submission from Hong Kong?
On the surface, the Hong Kong protests are political. They oppose Beijing's growing attempts to impose increased authority over a city that by law is mandated to operate mainly under its own set of rules.
Hong Kong is governed under the principle of 'one country, two systems', by which China consented to give the region a high degree of autonomy.
Under this agreement, Hong Kong was to be allowed to preserve its economic and social systems for 50 years from the date of the handover by Britain in 1997.
I believe China's attempts to transform the agreement to its advantage rest on its accelerated goals for boosted global dominance. China is posturing, sending clear signals to the United States and other global markets. It intends to take its seat at the head of the economic table within the next decade.
While China plays out its strategies in east Asia, other Asian economies have similar intentions to reposition themselves at the main table. The staggering rate of South Korea's economic climb requires some cooling from a Japanese perspective. A few decades ago, Japanese products were in almost every household in the developed world. Today, Korean products or Korean manufactured substitutes have mostly replaced them.
The emergence of South Korea brought a benefit to the Japanese economy with its somewhat stagnant growth rate. However, the long-term playbook the Koreans have in mind does not sit well with the Japanese. Japan's new strategy (though one based on ancient rivalries between the two countries) is to have the Koreans fall back into line with their long-term vision of Japanese regional dominance. The Koreans, on the other hand, have long and bitter memories of the Japanese invasion of the Korean Peninsula and have thrown down a gauntlet themselves.
The exchange of trade-based hostilities and counter-initiatives actions began on July 1. Japan announced it would require individual export approvals for three classes of chemicals used in semiconductor manufacturing in which Japan is the dominant provider. South Korea's technology giants Samsung Electronics, SK Hynix, and LG are among the most significant buyers. Japan implemented the move to slow down the progress of these vital Korean players by restricting their exports to the rest of the world. Next, Japan took the broader step of removing South Korea from its white list or approved group of 27 countries are deemed to have proper controls on sensitive items that could have a military application.
The South Koreans have condemned the Japanese for their actions, and in retaliation, all Japanese products have been subjected to a growing boycott by Korean consumers. Nor is it a coincidence that neither China nor chip producer, Taiwan, is on Japan's white list. These are conventional tactics in an economic war.
Across the same ocean, the Chinese have dropped the value of the yuan to counterpunch Donald Trump's increase of tariffs on Chinese imports. The uncertainty of all this activity cannot be factored into daily trade fast enough, which leads to a widening gap of risk. The growing threat in the money markets, bond markets, and in the commodities space, flows over to general trade across continents.
As India now begins to play its own chess game, Prime Minister Narendra Modi made a controversial move to revoke the special status of Kashmir, the nation's only Muslim-majority state. The growing dissent his action sparked, coupled with the current condition of affairs across Asia, leaves us to ponder on the thought that we are entering a heightened phase of global stress.
Could this be the catalyst to the next global recession? What should companies do to maintain the right heading in a sea of mounting uncertainty?
When you can't accurately calculate the short-term game, you need to look to a mid to long-term strategy based on concrete pillars. Every business should look to these pillars to see them through this likely disruption. If you require an audit of your current strategy or a pivot strategy to bridge the uncertainty, call Strategy Hubb on +61 (0)3 8563 9522 or Email [email protected]
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