Need To Know: June 21
India Retaliates Against China
The economic fallout has begun from the China-India clash in the Himalayas that left 20 Indian and 40 Chinese troops dead.
The Indian government will bar Chinese companies from providing any telecom equipment to state-run Indian telecoms, and may also prohibit private mobile phone operators from using gear supplied by Huawei and ZTE.
New Delhi also says it will move to cancel a 4G telecom equipment tender by state-run phone company Bharat Sanchar Nigam Ltd. to keep out Chinese vendors.
This will deal a body blow — if not a death blow — to the Indian operations of Huawei and ZTE, who will be barred from the country’s commercial 5G network. Industry estimates peg the annual market for Indian telecom equipment to be around US $1.7 billion, of which Chinese players account for roughly 25 percent.
India’s private telecoms had been hoping to use Huawei and ZTE, as they offered cheaper equipment and also attractive vendor financing options. Analysts say barring the Chinese duo could lead to a 10-15% rise in gear procurement costs — a price India is now willing to pay to punish Beijing for its aggression.
Just another example of Xi Jinping’s hyper-nationalism hurting China’s interests and economy.
Hong Kong’s Battered Economy
The fallout from months of protests, the US-China trade war and Covid-19 is hammering Hong Kong’s economy.
The city’s economic outlook is bleak, with Morgan Stanley forecasting a 9.4 percent contraction in the second quarter, extending a slide for the fourth straight quarter. The U.S. bank expects Hong Kong’s economy to contract between 5.5 and 9.5 per cent for 2020.
The human toll is devastating. Foreclosures are up 400% since 2018. Keep in mind, in Hong Kong an average apartment costs about US $1.2 million, and it takes the average person 18 years salary to buy it. Most people’s net worth is in their housing, so defaulting is a particular disaster.
The city reported the biggest surge in personal bankruptcies since the 2003 SARS epidemic. Personal bankruptcies are up 12.5 percent for the year, while 25 percent more companies have gone under.
The sharp rise in failing businesses pushed the city’s unemployment rate higher — reaching its highest level in 15 years. It hit 5.9 percent and surpassing the figure recorded in the wake of the global financial crisis in 2008.
Analysts expect the bankruptcy trend to continue to rise over the next few months. The export sector, in particular, had been battered, with the United States and the European Union still under varying degrees of lockdown.
The damage is nowhere near done. With governments all over the world furious at China over Covid-19 and Xi Jinping’s hyper-nationalism — the real question is not if there will be decoupling from China, but how much?
North Korea’s Theater of the Bizarre
On Monday, the North Korean military threatened to move into areas of the Demilitarized Zone that had been vacated by forces from both sides over the past two years as part of reconciliation efforts.
On Tuesday, to make clear just how upset it is with Seoul, Pyongyang made a big show of blowing up the joint liaison office in the border city of Kaesong (where South Korean firms set up factories during more harmonious times).
The incident is a bit of bizarre theater; Seoul has been scrambling to put a stop to what Pyongyang claims to be mad about — activists in the South floating balloons containing food and anti-Kim propaganda across the DMZ — and has generally refrained from doing the things that historically have put Pyongyang on edge, such as large-scale military exercises with the United States.
Indeed, there’s perhaps less reason today than at any time in decades for the North to fear some sort of U.S.-South Korean cross-DMZ incursion. Moreover, such a move by the North would make it more difficult politically for South Korean President Moon Jae-in to push his rapprochement goals forward. (After all, disarming parts of the DMZ was a risky show of good faith by Seoul.)
Given that one of the North’s primary goals is to deepen the wedge between Seoul and Washington — and given Seoul is increasingly unsure of Washington’s strategic judgement and defense commitments — Pyongyang runs the risk of squandering an opportunity to further its longtime goal of shattering the U.S.-South Korean alliance.
Along with several other signs of weirdness in Pyongyang over the past six months, this suggests the North’s moves are motivated mainly by internal matters.