Tag Archives: economics

Leverage

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Since so many American businesses—Apple, Alphabet, the NBA, to name a few—put their individual fiscal game ahead of American values, especially regarding Hong Kong and its citizens ongoing struggle for their own liberties (which just happen to lie at the core of our values), here are some thoughts on the fiscal value of Hong Kong to the People’s Republic of China.

Since 1997, mainland Chinese companies have raised $335 billion by floating in Hong Kong, tapping a broader range of shareholders than they could onshore.
…since the Hong Kong dollar is pegged to its US equivalent, and the city has no capital controls, a listing there can generate hard currency for foreign takeovers and investments. It would be harder to use a Shanghai stock sale for the same goal.

And [emphasis added]

For global investors, Shanghai and Shenzhen have become more accessible. But investors typically prefer Hong Kong’s legal protections, and they have other concerns about mainland markets, including the difficulties of moving money out.

And

Hong Kong is by far the largest offshore center for bond sales by Chinese firms. Companies can borrow for longer than they can onshore and, crucially, can raise funds in hard currency….

And

Hong Kong serves as the main offshore hub for yuan loans, bonds, and trading.

Interestingly [emphasis added],

When it comes to dollar bonds, big state-backed banks and industrial companies even prefer to sell these in Hong Kong…. US deals would be overseen by American regulators and would require greater disclosure.

And

Hong Kong is a preferred location for Chinese and international financiers or business people to conduct transactions because it has a Western-style legal and regulatory system that is seen as fair and nonpolitical.

In sum,

…Hong Kong stands out from its mainland rivals for its rule of law, competent regulators, low taxes, free movement of capital, and use of English.
Neither Shanghai nor [the People’s Republic of] China’s free-trade zones “can really compete with what Hong Kong is and does….”
…
Hong Kong is still [the People’s Republic of] China’s financial window on the world, and the rest of the world’s financial window on [the PRC].

RTWT; there’s more.

Sadly, too many of our major corporations don’t have the moral underpinnings to exercise that leverage.  Apple’s Tim Cook would rather the prestige of sitting as Chairman of a major university in Beijing.  Alphabet would rather work on censorable search engines for the PRC and help develop AI tools for the PRC’s government and People’s Liberation Army than it would work with our own defense establishment on such tools or refuse to support PRC censorship.  And we’ve seen, just in last couple of weeks, how the NBA as a whole, and its individual team staffs and players think their pocket books are more important than the rights of others.

Warren’s Assault on Hydrocarbons

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Progressive-Democratic Party Presidential candidate and Senator Elizabeth Warren (D, MA) want so ban new leases for oil and gas drilling offshore and on Federal lands, and she wants to ban fracking altogether. This assault on our national energy underpinnings would have far-reaching negative outcomes.

  • domestic natural-gas prices would jump to somewhere between $9 and $15 per million BTUs from last Friday’s $2.32
  • oil would rise to the $80-to-$85 range and could run to $150 during market shocks from last Friday’s $53.78
  • entire oil-field service companies would become obsolete
  • pipeline owners would suffer without replenishment, as existing wells peter out

Think how such price increases for basic transportation and such job losses would hammer “the little guy” that Warren pretends to so want to protect from Evil Big Business.

And some far-reaching positive outcomes: for Canada, Russia, and OPEC.

  • Canadian shale drillers
  • big global operators for which higher energy prices would offset losses on US assets.
  • Russia: our ability to free our friends and allies from dependence on Russian oil and gas
  • Russia and OPEC: the potential for political and economic dominance by these two from their enhanced ability to commit energy blackmail (both of which have demonstrated histories of engaging in such blackmail)—sources of market shocks

Here is a core part of Warren’s foreign policy.

There are Bribes

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…and there are bribes.  Hong Kong Chief Executive Carrie Lam tried to bribe the good people of Hong Kong the other day.  She gave her annual address on her policies for the coming year, and in it she “promised” (because we’ve seen the value of her commitments in her promise to completely withdraw and rescind her draft extradition law, a promise on which she has since welched)

to boost the supply of low-cost homes, offer mortgage assistance for first-time buyers, and increase mass-transit fare subsidies

if only Hong Kong’s people would just shut up, go home, and submit.

Those folks didn’t, and don’t, believe her.

Mrs Lam’s speech this week “has not really focused on the protest itself,” a 26-year-old demonstrator…said Sunday.

And tens of thousands of Hong Kong’s finest hit the streets again Sunday, to be met with tear gas and water cannon firing abrasive, dyed liquids shot at them by Hong Kong’s increasingly thuggish police.  It’s true enough, some demonstrators also have resorted to violence—lighting fires in street intersections, trashing some store fronts, the rare Molotov cocktail tossed at those police.  It’s also true enough that incitement to violence, even when the incitement comes from police, is not, by itself, an excuse for responding with violence.

However, given that Lam and her city government have utterly ignored the desires of the people over whom she reigns as PRC President Xi Jinping’s satrap, their increasing frustration and violence are completely understandable.

Lam’s bribes, which insult those citizens’ integrity and intelligence, only add fuel to that frustration.

Costs of a Strike

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There’s a lot of discussion about the costs of the UAW’s strike against GM.  The Wall Street Journal is an example:

Economists say the cascading effect of lost wages, production, and employment will likely linger even if the strike ends….

And

…suspended work at another two dozen company-owned parts warehouses and distribution centers and led to temporary layoffs of nearly 10,000 GM factory workers not represented by the UAW….

And

Striking GM workers also are pulling back on spending, having now lost a month’s worth of company paychecks. Many are trying to get by on $275 a week, the strike pay offered by the UAW to provide some financial assistance. That figure is a fraction of their regular pay, which ranges from $630 to $1,200 for a 40-hour week.

And

120 of GM’s direct suppliers furloughed some 17,000 workers in the US during the strike….

And the damage from the UAW’s action has spread even farther, as this example illustrates:

Sam Kassab, 65, owns the Chene Trombly market where he sells food and liquor close to GM’s Detroit assembly plant. The strike is costing him between 10% to 15% of his usual business, Mr Kassab said, with most of that caused by layoffs at the supplier factories nearby.

No one, though, is talking about the cost of the strike to the union—not the workers, but the UAW itself.  Who, or what, is propping up the UAW, covering its costs, as it prosecutes it blockage of GM’s ability to function at all unless the union gets its way (with all the resulting collateral damage to suppliers, about which the UAW so plainly cares not a whit)?

And another discussion not being held: how will the UAW make whole those collaterally damaged suppliers and their workers?

Lack of Understanding

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This is demonstrated in the lead paragraph of a recent Wall Street Journal article.

Chief executives are taking vocal stands on issues like gun control, climate change, and immigration, but global affairs bring a different complexity and calculation, especially for companies doing business in China*.

After all,

In the aftermath of Houston Rockets general manager Daryl Morey’s now-deleted tweet, the National Basketball Association has found the consequences of even implicitly criticizing Chinese policy can be swift and sizable.

Not to pick on the NBA in particular (although its behavior has been especially public, cowardly, and so reprehensible), Apple and Alphabet, among lots of others, also have sacrificed principle for company “security” in the PRC, while favoring yuan, also, over principle.

No, taking principled positions don’t get complexified by the environment in which they’re taken. The fundamental tenets of ethics, of morality, are universal and constant; the only adjustments are in the manner of their implementation.  There’s nothing at all complex about that. Company personnel are either principled, ethical, moral, or they are not. These are not matters of situation or convenience.

And this:

Executives have to thread a needle when a company’s commercial and financial interests clash with the CEO’s personal values and the cultural values of an enterprise and its home country, said Jeffrey Sonnenfeld, a leadership expert at the Yale School of Management. “One of the rarely discussed downsides of globalization is you get caught in those crosscurrents,” he said.

Those “cross-currents” are irrelevant. Either the CEO or the enterprise have principles worth standing by and sacrificing for, or the CEO or the enterprise have no principles. It’s that simple.

Another misunderstanding is this one by Paul Argenti, Dartmouth College’s Tuck School of Business Professor of Corporate Communication:

The job of a CEO is not to save the world or make the world safe for democracy[.]

No, but it is a core part of his job to be, at all times and in all circumstances, ethical, moral, and not hypocritical.  An example of business’ glaring hypocrisy: the Business Roundtable. That group is carefully and with deliberation silent on the NBA’s, et al., meek acquiescence to the PRC’s tyrants.

One last misunderstanding, this one by Rick Wartzman, Drucker Institute’s Director of the KH Moon Center for a Functioning Society [paraphrased by WSJ]:

The fracas sparked by ephemeral statements can distract from more substantive questions of social responsibility[.]

And

“What concerns me is whether statements, while important, become a substitute for the more meaningful work around what it means to be a responsible company and take care of all your stakeholders[.]”

Again, no. The only way such things can distract is if the statement maker chooses to be distracted. Staying focused on the business of the company in such a circumstance may be hard to do, but being hard means it’s eminently possible.

 

*The WSJ, like most of the NLMSM, refers to the People’s Republic of China as though it were the one and only. They ignore the nation just across a narrow straight from the mainland, the Republic of China that sits on the island of Taiwan.