Updated: An Iron Curtain descends across Hong Kong

The Hong Kong National Security Law has finally been unveiled. Under this law, anyone who criticizes the Chinese communist regime, anywhere in the world, could be liable to life in prison. In this article, we examine our view of the outlook for the Hong Kong economy as well as breaking the law on day one of its enactment.

Picture: Credit LA Times

Breaking News: US Congress passes the Hong Kong Autonomy Act on 02nd July 2020 Kuala Lumpur time. This is a game changer for interbank Dollar funding markets in Asia. More analysis to follow.


The elements of the Hong Kong National security law is finally out. The following could be punishable by sentences up to lifetime imprisonment:

The four categories of criminal offence outlined in the law are: Secession, subversion of state power, terrorist activities and collusion with foreign and external forces to endanger national security. Lead perpetrators and serious offenders can receive a maximum life sentence, or long-term imprisonment of 10 years and above for offences in all categories. Criminal acts under the category of foreign collusion include: Inciting Hong Kong residents’ hatred of the Hong Kong or Chinese government, electoral manipulation or sabotage, and sanctions against Hong Kong or China.

The law applies to both residents and nonresidents and has extraterritorial jurisdiction: meaning that a Malaysian citizen criticizing China in Timbuktu can now be jailed for life if he stepped into Hong Kong. To make matters even worse, communist totalitarian regimes usually interpret criticism as any sentence which involves the regime as a subject in that sentence and the sentence does not fall into the following categories: genuine pandering, curry favoring, and the author does not adopt the form of a obsequious waiter.

If that wasn’t enough, the implementation of this law is governed by a National Security Commission in Hong Kong which is above Hong Kong’s basic law, can involve agents from China who are given immunity from all laws in Hong Kong and can be conducted by Chinese law officials from the moment of arrest to incarceration within the 99% Conviction positive Chinese legal system.

Thus, for the benefit of the doubt, the Rembau Times is about to join the US Senate, the US House of Representatives and all other bodies which are highly critical of China in breaking Hong Kong’s National Security Law on Day One of its enactment.

Hong Kong is now officially under the similar iron curtain that fell on Eastern Europe after World War 2.

Implication of this law to Hong Kong’s economy

Bloomberg had a lengthy article on this. Click on picture for link

Previously, we concluded in our article Hong Kong’s Future thrown in doubt, in late May, that after the Hong Kong Government’s successful Alamo siege of #PolyU , the protest movement had been defeated by the Hong Kong SAR Government.  That was evident as there were no large scale protests arising from the time the Chinese Government decided to go ahead with this law.

The question however which is yet to be answered is whether there is a silent protest by the 1% richest Hong Kong citizenry (1-PCT) and the overseas capital currently invested in Hong Kong?

As of Apr 2020, the latest monthly datapoint provided by the HKMA, total deposits in the Hong Kong banking system was HKD 13.9 Trillion (equivalent in USD ~ $1.8 trillion ), comprising mainly of HKD 7.0 Trillion in Hong Kong dollar deposits and HKD 5.2 Trillion in US denominated deposits.

This number is the crucial number which will reflect whether or not the 1-PCT decided that the legal risks arising from Hong Kong’s new national security laws are outweighed by the benefits that the Hong Kong economy provides.

Of course this view needs to be validated and requires data, which will only be available sometime in September 2020. However, one can get a view of how things are by considering the HKMA’s daily monetary statistics. As of 05 May 2020, HKMA’s monetary base was HKD 1.71 Trillion. As of 30th June 2020, HKMA’s monetary base was HKD 1.75 Trillion, indicating an increase of HKD 40 billion in the monetary base. The overnight HIBOR as of 30th June 2020 was at 0.11% and the HKAB 1-Month HIBOR fixing was at 0.44%.

Furthermore, we need to consider the leverage structure of Hong Kong’s foreign currency denominated asset and liability position. As of end April 2020, the Hong Kong banking system had in aggregate HKD 15.4 Trillion of foreign currency denominated assets (anything from stocks in Facebook to gold mines in Timbuktu ) and HKD 14.7 Trillion of liabilities, for a net asset position of HKD 0.7 billion. This is where one can also look to see if there is any materialization of a 1-PCT revolt : if the foreign net asset position goes negative. Over the last 38 years (credit to HKMA for keeping long dated statistics), the HK banking system went only net negative on a Foreign Currency position for only 30% of the time, and the maximum net negative liability was HKD 110 billion.

If the US hits Chinese banks we can see a major repercussions in the Asian dollar funding market. Excerpt from the Bloomberg article. (Not sure how the Mr Emons compares outstanding dollar debt issued by Chinese banks against dollar deposits in the Chinese banks. Deposits are liabilities and do not constitute as a High Quality Liquid Assets to be used in the event of a collapse in the Asian dollar funding market. But maybe he was talking about Chinese banks holding dollar deposits in other US banking subsidiaries operating in Hong Kong. )

Taken together, what this tells us is that as of 30th June 2020 based on publicly available data, the 1-PCT had not panicked and still had faith in the Hong Kong economy. If there was a panic, one would expect a contraction in the monetary base, and an increase in the overnight HIBOR and the foreign asset currency position to switch from net positive to net negative.

Bloomberg also shares the view that a dollar funding crisis may materialize if sanctions are imposed,

However, Rembau Times view is that this could change very rapidly because of the imposition of this new national security law dramatically changes the risk profile of Hong Kong. Anyone, regardless of nationality, who criticizes China, is guilty under this law – this law makes the old Barisan Nasional Sedition laws look like the embodiment of freedom of expression. Expect the Hong Kong tourism driven economy to also take a hit as tourists  will shun the city due to legal advisories enacted by major Western democracies. (Coincidentally due to the Coronavirus, tourist arrivals were down 99.9% to 8,139 visitors in May 2020 as compared to 5.9 million visitors in May 2019. Question to Global Times: Is one breaking the HK Sedition Law by just making reference to these figures?).

Our view is clear as of 01st July 2020: the Hong Kong National Security Law or HK NSA will lead to the collapse of the Hong Kong economy over the next 6 months.

UPDATE 02 July 2020

This just in , the United States Congress passes the Hong Kong Autonomy Act which includes the following provision:

The Department of State shall report annually to Congress information about (1) foreign individuals and entities that materially contributed to China’s failure to comply with the Joint Declaration or the Basic Law; and (2) foreign financial institutions that knowingly conducted a significant transaction with such identified individuals and entities. An individual, entity, or financial institution may be excluded from this report for various reasons, such as to protect an intelligence source.

This is profound because a bank which establishes a banking relationship with sanctioned officials can face sanctions by the US Treasury. This makes it impossible to hold dollar denominated assets outright because every single dollar denominated asset transaction needs in the end to pass through the banking networks of primary members of the Federal Reserve network that hold reserve balances. Your Eurodollar your Asia dollar and everything else is smokescreen, essentially there is what is known as a vostro nostro Account with a bank offering these services and a primary member of the US Federal Reserve banking system. If Chinese banks get cutoff from the US dollar network we will see massive defaults and downgrades of US dollar denominated debt by Chinese corporations, of which there is about $2  trillion outstanding. Reader/friendly critic Afifplc asked us today about our view on a potential Sino American military conflict; mark our words, the year won’t end before you see this happening.

Warning: A non-numeric value encountered in /home/customer/www/rembautimes.com/public_html/wp-content/themes/Newspaper/includes/wp_booster/td_block.php on line 326


  1. China is leading to its death doing stupid things. Under immense economic downturn pressure and bad relationship with a lot of strong country around the world (India, South Korea, Japan, Taiwan, Canada, Australia, UK, USA, France), still want to implement the law that bring zero benefit. The control of Hong Kong is still the same with or without this law. There is a lot of smart way to reduce the number of protester but China choose the very bad method.

  2. No nuke war, but collapse in Chinese economy will put pressure on Xi Jinping to step down. Han Zheng may replace him. Xi has been weakened massively this year. Jiang Zemin’s faction which was decimated by Xi wants revenge