Previous Quarterly Editions
Expropriation Risk: 38 38 38 38 ► Political Violence Risk: 48 48 48 48 ► Terrorism Risk: 15 15 15 15 ► Exchange Transfer and Trade Sanction Risk: 13 13 13 13 ► Sovereign Default Risk: 15 15 15 15 ►
Expropriation Risk: 38 38 38 39 ▲ Political Violence Risk: 35 35 35 35 ► Terrorism Risk: 15 15 15 15 ► Exchange Transfer and Trade Sanction Risk: 13 13 13 13 ► Sovereign Default Risk: 15 15 15 15 ►
TREND ►
Political repression has continued to intensify in Hong Kong. The city's largest pro-opposition newspaper, the Apple Daily, shut down on June 24, after its assets were frozen and staff arrested under the National Security Law. Its founder, 73-year-old Jimmy Lai, one of the government's most prominent critics, faces a possible life sentence.
This is the most significant move against media freedom in Hong Kong so far. It will intimidate other media outlets into self-censorship and make businesses reluctant to advertise in opposition-friendly media and more cautious about whatever they say in public, all of which will reduce the availability of accurate information about Hong Kong.
The first sentencing under the National Security Law on July 30 gave an indication of how the courts will handle such cases. The ruling established the principle that language alone can be punished as illegal. Public distrust of the mainstream media could fuel greater reliance on social media as a news source, deepening political polarisation.
A long-running, moderate activist group that has organised the city's largest peaceful protest marches for nearly two decades was forced to disband on August 15. Police are investigating the group, whose current and former leaders have been detained. Other prominent civil society groups have disbanded too, including the city's largest professional union and a group that for years has organised public vigils marking the 1989 Tiananmen Square crackdown.
The dismantling of moderate opposition organisations may be driving some activists towards extremism. Since June, at least 14 alleged members of anti-government terrorist groups have been arrested in raids in which police plausibly claim to have seized weapons and bomb-making materials. Nine were arrested over an alleged plot to bomb courtrooms, railways and an undersea road tunnel. Two others were arrested over an alleged plot to assassinate public figures and bomb police stations. The only attack actually implemented so far was what the authorities consider a 'lone-wolf terrorist attack' in which a 50-year-old man stabbed a police officer and then committed suicide. The officer survived.
The authorities have every incentive to exaggerate the threat of terrorism, but the risk of occasional low-level political violence is real. Instances of actual or alleged terrorism will feed conspiracy theories, which the authorities will encourage, about US agents attempting to destabilise Hong Kong.
In contrast, domestic politics in Taiwan have been largely stable. President Tsai Ing-wen's Democratic Progressive Party controls the legislature, and no national elections are due until 2024. Developments in foreign relations have been more significant. In particular, Japan has begun expressing stronger support for Taiwan's autonomy, including indications that it would use force to defend Taiwan.
In response to greater Chinese intimidation and pressure on Taiwan, Tokyo wants to deter Beijing from trying to invade Taiwan, but retain enough ambiguity to avoid emboldening Taipei to move towards de jure independence. Beijing will interpret Tokyo's behaviour as aggressive, but far from enough to justify a pre-emptive effort to seize Taiwan.
TREND HONG KONG ► TREND TAIWAN ▲
There is nothing to suggest significant risk of Taiwan’s government expropriating foreign assets. Taiwan is a politically stable liberal democracy with robust rule of law.
Hong Kong's situation is more complicated. The government recognises that foreign business is central to the city’s economy and would not want to alarm investors by expropriating foreign property. However, mainland China in June passed an Anti-Foreign-Sanctions Law which explicitly authorises the government to seize assets of individuals and organisations that participate in sanctions against China. This law may be extended to Hong Kong soon, potentially making firms there vulnerable to expropriation, though Hong Kong's government would probably opt for lighter penalties or none, if Beijing allows this.
The protest movement that disrupted business, transport and air travel in Hong Kong for much of 2019 has been crushed, and its leaders and most extreme members arrested. Many of the less-committed protesters will be deterred from further activism. Another round of protests at some point cannot be ruled out, but they are unlikely to approach the level of disruption and destruction seen in 2019.
Taiwan is a stable liberal democracy. In 2014, a short-lived student protest movement against a trade deal with China caused disruption in the capital with large mass gathering and scuffles with police, and briefly occupied the legislature. With Taiwan's ‘anti-China’ party now in power, there is no cause likely to trigger a repeat. However, political engagement is high and protest rallies about various issues not uncommon. It is possible that a controversial issue -- probably related to China -- could galvanise another mass movement, but it would most likely be localised, brief and largely peaceful.
Taiwan has no known terrorist threat, either indigenous or from overseas. Were tensions with China to reach a crisis level, sabotage by Chinese operatives is plausible.
In Hong Kong, the authorities are working to dismantle the organisational structures that have mobilised and channelled political opposition to the government over the years. This could make some activists more susceptible to radicalisation. There is a small risk of lone-wolf or small-scale, organised attacks. These would probably be unsophisticated, given the perpetrators’ likely inexperience. Government facilities and personnel would be the preferred targets, but more accessible infrastructure and businesses perceived as pro-China are possibilities.
The Biden administration in the United States has maintained its predecessor’s revocation of Hong Kong’s special trade status and expanded targeted sanctions on senior officials. Hong Kong’s economy depends on international trade and on the financial sector, which in turn depends on the free flow of capital. This, along with its small size, means its government is not in a strong position to impose sanctions or capital controls.
However, mainland China's Anti-Foreign-Sanctions Law passed in June enables countersanctions against firms that comply with foreign sanctions. This law may be extended to Hong Kong in the near future. China's past behaviour suggests it would impose countersanctions only in a tit-for-tat manner and may not do so at all, but the risk has risen.
The sanctions risk in Taiwan relates entirely to China. Political tension poses an ever-present threat to cross-Strait trade. Beijing has a record of using undeclared, de facto trade sanctions to try to coerce other governments, including Taiwan’s, and can implement them quickly and without warning.
Taiwan’s fiscal position is strong, with public debt around 30% of gross domestic product. Foreign exchange reserves are among the highest in the world and are now at a record high of more than USD540bn. Hong Kong has almost no public debt and its currency is fully backed by foreign exchange reserves under a currency board system.
There is nothing to suggest that government entities in Taiwan would, nor easily could, withhold payment from creditors for political reasons. Hong Kong might plausibly do so if it adopts mainland China’s Anti-Foreign-Sanctions Law. Such countersanctions are likely to be employed conservatively if at all, and imposed in a tit-for-tat rather than escalatory manner.
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