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Blackwater USA – Daily Brief

Coming Up This Week

  • Afghanistan was preparing to celebrate its 100th independence anniversary today, but called the party off after Saturday’s bloody wedding attack in Kabul. Instead of fanfare about independence from Britain 100 years ago, I’m seeing a lot of articles about how the last 40 years have been Afghanistan’s worst.
  • Deposed Sudanese dictator Omar al-Bashir goes on trial today for charges of “possessing foreign currency, corruption, and receiving gifts illegally.” Of course, after 30 years of rule, those were not his greatest misdeeds—he’s also wanted by the ICC for alleged atrocities / genocide in Darfur.
  • U.S. envoy for North Korea Stephen Biegun will visit Japan and South Korea to try to organize partners for a campaign to denuclearize North Korea. North Korea has been acting up recently, and is especially upset about U.S.-South Korea military exercises, but Pres. Trump said that Kim Jong Un told him he was ready to resume talks once those exercises end.
  • A joint U.S.-Turkey operations center and “safe zone” in northeast Syria will likely go into effect this week.
  • The Federal Reserve holds its annual summit in Jackson Hole Aug. 22-24, and will likely offer some signals on its view of trade tensions and the economy after the meeting.

China

  • Organizers estimate that 1.7 million people—around a quarter of the total population—came out to protest in Hong Kong yesterday. That would make it the second-largest protest in the last 11 turbulent weeks since this began. This weekend’s demonstrations remained largely peaceful, temporarily assuaging worries that China would stomp in.
  • Police say there were only 128,000—not 127,000 or 129,000—protesters yesterday, which is a bit reminiscent of how Chinese authorities still estimate there were exactly 241 deaths on the weekend of the Tiananmen “incident” in 1989 (and none in Tiananmen Square itself)…the Red Cross estimated that figure was actually over 2,000.
  • Anyway, if you’re in China, I’m sorry your Daily Brief got censored today.
  • The NYT reports that Hong Kong’s companies are “kowtowing” to the Chinese / official Hong Kong government position that the protesters are just stirring trouble, even as many of their employees are enthusiastically joining the demonstrations. For example, the Big Four accounting firms publicly distanced themselves from an anonymous full-page Apple Daily ad supporting the protests that was apparently paid for by Big Four employees. The article pasted below has more detail.

Sudan

  • There were huge celebrations in Khartoum, where residents are thrilled that the ruling military council and opposition have finally agreed to specific terms for a transition to civilian rule. That demonstration of popular support must be the closest thing to democracy that Sudan has ever seen.

Afghanistan

  • The Taliban released a new video showing its members parading around in new Hilux trucks, and celebrating attacks on Afghan and coalition forces. Bill Roggio of Long War Journal says the film location could’ve been either Afghanistan or Pakistan, but “either way, the Taliban is operating in broad daylight without fear of being targeted from US, Afghan, or Pakistani forces.” And—either way—these are the guys we’re negotiating with.
  • IS claimed yesterday’s attack on a wedding in Kabul, and celebrated the Pakistani suicide bomber online. IS says the operation was two-fold: after the bomber detonated inside, a car bomb outside killed wedding guests who fled the chaos.
  • In response to the wedding attack, Pres. Ghani vowed to crush IS and its safe havens in Afghanistan, while the Taliban chided the U.S. for failing to identify the attackers before they struck.
  • IS appears to be trying to stay in the headlines by staging further attacks in its Afghan heartland of Nangarhar today: approximately 10 bombs in Jalalabad injured around 50 people.

Iran

  • The tanker formerly known as Grace 1—now called the Adrian Darya 1 and flying an Iranian flag—finally left Gibraltar, according to marine tracking sites. Its departure will make it harder for the U.S. to seize it, since a seizure in international waters would apparently violate maritime law.
  • That’s why some analysts are saying that Gibraltar snubbed the U.S. by letting it leave the port, despite a U.S. warrant to re-seize it.
  • Iran appears to be preparing another satellite launch, which is sure to irk the U.S. (who thinks that Iran’s satellite launches all somehow boost its nuclear capabilities). If history is a guide, we won’t find out about a launch until after the fact, but it appears to be imminent.

Venezuela

  • AP reports that the U.S. secretly started talking to Diosdado Cabello. Cabello is the head of Venezuela’s socialist party, the president of its Constituent Assembly (Maduro’s loyal replacement to the opposition-led National Assembly), and the second-most powerful man in Venezuela after Maduro. Cabello reportedly met someone in contact with the Trump administration in Caracas last month, and may follow up with a second meeting soon.
  • The U.S. official who leaked the story to AP clarified that the U.S. isn’t trying to prop Cabello up as a replacement for Maduro—he’s a rather unsavory character who’s been accused of drug trafficking, corruption, and making death threats against a U.S. legislator—but is merely trying to draw on Cabello’s power and influence to better understand what’s going on in the country.
  • Al Jazeera raised the notion that the talks might have been approved by Maduro, as a side channel to reciprocally understand what conditions the U.S. would agree to.
  • Separately, China’s CNPC stopped loading Venezuelan oil, over fears that doing so would violate U.S. sanctions on Venezuela.

Brexit

  • British government files leaked to the Times of London showed that the UK’s leaders expect a hard border between Northern Ireland (UK) and Ireland (EU) if there’s no Brexit deal. That would lead to long lines at the border, which economist estimate would cost Ireland around €42.5 billion ($47.2 billion) over the next seven years.

Libya

  • Libya’s GNA says it shot down a UAE drone in Misrata.

U.S.

  • Pres. Trump confirmed that the idea of buying Greenland from Denmark did come up, and is still strategically interesting (“essentially it’s a large real estate deal”)—but it’s “not number one on the burner.” So maybe it wasn’t just an offhand comment, but I still wouldn’t place great odds on it actually happening.

Other News

  • Russian opposition supporters protested in Moscow for a sixth straight weekend. They want opposition candidates to be allowed to run in next month’s elections, and are asking the government to release demonstrators who were arrested over the past few weeks.
  • It sounds like tensions are escalating in Gaza: Israel intercepted at least two rockets, and killed three armed Palestinian militants at the border.

China Pressures Business Over Hong Kong. Workers Get Caught in the Middle. (NYT)

Beijing wants global companies to back its power over the city, even as their workers join protests calling for greater say in the fate of their home.

As Hong Kong seethes with protests against China’s rule, Beijing is increasingly pressuring the business world to take its side. Businesses, both global and local, are falling in line — and their employees are caught in the crossfire.

The most dramatic example came on Friday, when Rupert Hogg, the chief executive of Hong Kong-based Cathay Pacific Airways, resigned in the face of Chinese pressure after some of the airline’s workers participated in the demonstrations.

Now, global accounting firms are coming under the same pressure.

The Big Four firms — PwC, Deloitte, KPMG and Ernst & Young, now known as EY — put out statements distancing themselves from a full-page ad supporting the demonstrations that appeared in Hong Kong’s Apple Daily newspaper on Friday. The ad was signed and paid for by a group of anonymous employees of the firms.

“We will never fear or compromise with injustice and unfairness,” the text of the ad read. In response, PwC declared that the ad “does not represent the firm’s position,” adding, “We firmly oppose any action and statement that challenge national sovereignty.”

It is not clear whether the companies’ statements will be enough. The Global Times, a tabloid controlled by the Chinese Communist Party, has urged the firms to “fire employees found to have the wrong stance on the Hong Kong situation.” Mainland Chinese internet users have warned them against “becoming the next Cathay Pacific.”

David Webb, the publisher of the financial and corporate governance website Webb-site in Hong Kong, said Mr. Hogg’s resignation was “shocking and shameful,” adding that “it’s an illustration of the influence that can be brought to bear by the mainland government on Hong Kong businesses.”

“I think it would have all the C.E.O.s of the major companies looking over their shoulder and wondering whether they will be next to be held accountable for the actions of their employees,” he said.

For Hong Kong’s workers and businesses, that means growing tensions in the workplace, a perhaps familiar feeling in places like Google and Amazon where workers have used social media and other platforms to take a more activist stance.

Joseph Lai, a 46-year-old employee of a Chinese manufacturer who marched in Hong Kong’s mass demonstration on Sunday, said he no longer tries to make his mainland colleagues understand why people in Hong Kong are unhappy. But he said he was not worried about what might happen if his bosses found out that he was taking to the streets.

“In that case, I’ll look for another job,” he said. “If we don’t come, how can we say we’re Hong Kong people?”

China’s biggest threat is also its greatest promise: a vast market of 1.4 billion people and an economy that, while slowing, is still growing at a pace that most countries would envy. For global companies like Cathay, lack of access could be devastating.

Earlier this month, the Chinese authorities forbade Cathay employees who participated in protests from doing any work involving flights to mainland China and demanded to see lists of workers who fly in or over its territory. The mainland accounts for nearly a quarter of Cathay’s destinations. Still more of its flights go over Chinese airspace, which would mean expensive rerouting if it did not comply.

Its main shareholder, Swire Pacific, is one of Asia’s largest conglomerates, with extensive interests in China including property, beverages and trading. Air China, a state-run airline, also holds a significant Cathay stake.

On Monday in Hong Kong, Cathay’s shares rose initially then fell more than 1 percent by midmorning.

China wields tremendous economic power over Hong Kong. It accounts for half of the territory’s trade, according to government statistics, as Chinese exporters take advantage of its traditionally low barriers to other countries. China provides about a quarter of all foreign investment in Hong Kong directly, and probably much more when money that flows through tax havens like the British Virgin Islands is counted. The mainland supplies more than a quarter of Hong Kong’s electricity and most of its drinking water. More than three quarters of its tourists come from the mainland.

On the other hand, Hong Kong’s importance to China has dwindled, but Beijing still needs it as a financial hub. Most foreign investment into China flows through the territory. Mainland Chinese companies also raise money through Hong Kong, where global investors have put $2.6 trillion in Chinese company stocks.

Beijing has warned that the protests threaten Hong Kong’s future prosperity. On Sunday, it said it approved a plan to further open up the economy of Shenzhen, a booming city just across the border from Hong Kong, suggesting that it wants to increase competition between the two cities.

For years, businesses in Hong Kong have been able to prosper by staying out of politics. But under China’s current leader, Xi Jinping, the Communist Party has amassed more power and intruded into more parts of Chinese life, including business. It has also taken an increased interest in Hong Kong affairs since protests in 2014, known as Occupy Central, that also challenged China’s policies toward the territory.

Mainland Chinese consumers and businesses, often egged on by state media that criticizes any foreign business that does not appear to show the country proper respect, have also emerged as forces in their own right. The result has been a near-daily campaign to prod companies like Versace, Coach and Givenchy to apologize to China for implying in their products and websites that Hong Kong was a separate country.

On Weibo, the Chinese social media platform, mainland Chinese internet users started a #BoycottCathayPacific hashtag, which was viewed half a million times. Analysts at the state-owned Industrial and Commercial Bank of China put a “strong sell” rating on the stock because of what it called “poor crisis management.”

On the other hand, companies risk going too far in placating China. When the actress Liu Yifei last week publicly supported the Hong Kong police, protesters called for a boycott of “Mulan,” the live-action Disney film set to be released next year in which she will play the title character.

While Cathay has been the most visible example of pressure on Hong Kong business, it was by no means the first.

In early July, the maker of Pocari Sweat, a Japanese sports drink popular in Hong Kong, pulled its advertising from TVB, Hong Kong’s dominant broadcaster, which has been accused by protesters of having a pro-Beijing bias. But it said in two subsequent statements that it upheld the “one country, two systems” principle.

Last week, the property tycoon Peter Woo, the former chairman of the real estate company Wheelock and its subsidiary Wharf Holdings, criticized protests that had turned violent. His comments came after Hu Xijin, the editor in chief of the Global Times, attacked one of Mr. Woo’s shopping malls for “kowtowing” to the protesters by allowing them to remove the Chinese flag from a flagpole and throw it into the sea. Mr. Hu also criticized the mall for barring the police to avoid the sort of clashes that have taken place at other shopping centers.

The pressure on the Big Four accounting firms illustrates how global companies can become targets, too.

The employees’ ad that ran in the Apple Daily newspaper on Friday resulted from a crowdfunding effort that raised $9,873 from 264 people, according to the crowdfunding website GoGetFunding. It inflamed many mainland Chinese nationalists online who were already angry at PwC for what they saw as an initial weak response to the protests. An article on Aug. 5 in the Global Times quoted the company as saying it respects the “people’s right to freedom of speech.” The newspaper called it “fence sitting.”

This was not the first time that the employees of the Big Four accounting firms have broken ranks with their bosses. In 2014, during the Occupy Central protests, the companies published an ad saying the protests would harm Hong Kong’s status as a financial center. The employees responded with another ad in the Apple Daily that said, “Hey boss, your statement doesn’t represent us.”

For any company, restraining employees from speaking out can be tough. But in Hong Kong, it could become a necessity.

“For any of these organizations, it is necessary for them, within the framework of the law, to constrain or to require their employees not to touch the bottom line of the law,” said Wang Jun, chief economist at Zhongyuan Bank, a commercial bank based in central China. “I think that is very important.”