Daily Memo: Hong Kong Crackdown, US-Poland Talks, Chinese Inflation

All the news worth knowing today.


Hong Kong protesters get minor victory, crackdown. Tens of thousands of Hongkongers shut down streets around the local People’s Liberation Army headquarters and the Legislative Council, where lawmakers were set to debate a draft law that would facilitate extraditions to mainland China and, according to the opposition, open the door for Beijing to further subsume Hong Kong’s de facto constitution. Police cracked down, using water cannons, tear gas (for the first time since 2014) and rubber bullets to disperse a group that was attempting to storm the legislative building – and then moving forcefully to clear the surrounding streets altogether. The demonstrations forced the legislature to delay debate on the bill indefinitely, but it would be premature for the protesters to declare victory. As we’ve discussed, Beijing has generally gotten its way in Hong Kong. This is, in large part, because Hong Kong’s leverage has steadily weakened since handover from the U.K. in 1997. But it’s also because Beijing has carefully picked its battles, typically exerting its authority only on issues that it finds truly threatening to political stability on the mainland – and almost always relying on co-opted local institutions to enforce its writ. The extradition legislation is intended to prevent Hong Kong from being used as a safe haven for dissidents, political opponents, uncooperative tycoons and others that the Communist Party finds threatening, and Beijing will be loath to risk emboldening popular movements at home by backing down in the face of public pressure in the semi-autonomous region. However, this doesn’t mean a more violent, Tiananmen-style crackdown is imminent. Rather, at least for now, expect Beijing to try to follow its standard playbook: Leave the dirty work of containing the demonstrations to the Hong Kong police and courts and wait until the protests lose steam. What to watch: Whether today’s events inspire sustained mass demonstrations on the scale of last weekend’s (which drew as many as a million protesters from a much broader swath of Hong Kong society) or remain limited to younger, more radical protesters numbering in the tens of thousands. The difference will determine whether the playbook holds.

U.S.-Poland talks. U.S. President Donald Trump and Polish President Andrzej Duda are meeting today in Washington. According to a Polish presidential aide, they will announce the deployment of 1,000 additional U.S. military personnel to Poland, increasing the total deployment to 5,500. Poland is expected to help cover the cost of the deployment and has previously offered to pay $2 billion to host a permanent U.S. base there. (It’s unclear yet if such a base will be included in the agreement that’s expected to be signed on Wednesday.) Poland wants more U.S. military support to fend off what it sees as a growing Russian threat. In fact, Poland is one of only seven NATO members that meet the NATO defense spending target of 2 percent of gross domestic product.

Food prices and armyworm. Chinese consumer inflation rose to its highest levels in more than a year, driven primarily by surges in food prices as Beijing grapples with both declining food imports from the U.S. and threats to domestic farmers from armyworm and African swine fever. This is particularly problematic because, perhaps more than any other economic pressure, a shock to food prices is the sort of thing that drives people to protest. Some potential good news: Chinese researchers believe they found a way to help control the armyworm problem. It involves releasing stink bugs, which are a natural predator of the armyworm. While the stink bug is native to China, the Institute of Plant Protection has also set up a breeding factory with a 10 million bug capacity to help arm the country’s farmers against the damaging caterpillar. One potentially ominous historical parallel: When Mao Zedong launched his “four pests” campaign in 1958 – aimed at eradicating rats, flies, mosquitoes and sparrows – a core goal was likewise to protect Chinese agriculture. It backfired. The lack of sparrows led to an explosion of locusts, which happily devastated the very same crops the campaign was intended to save, contributing to the famine that killed tens of millions during the Great Leap Forward.

More reactions to the trade war. To help escape the tariffs imposed on many businesses cooperating with China, Alphabet’s Google is removing from China the production of some of its smart thermostats and server hardware. Much of its motherboard production has already moved to Taiwan, which is excluded from a 25 percent tariff. Meanwhile, in response to China’s restrictions on rare earth exports, the U.S. is planning to cooperate more closely with Canada and Australia to invest in the development of reserves of other key materials, such as cobalt and lithium, that are important to national security. The plan calls for the U.S. to share its mining expertise with other countries to help aid in the discovery and processing of resources to create alternative supply chains that are less dependent on sourcing from China.

Honorable Mentions