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Protesters walk on a highway near Hong Kong’s international airport following a protest on August 12, 2019.

Vivek Prakash | AFP | Getty Images

Two months of protests in Hong Kong are starting to take a toll on some of the largest global companies, adding to a host of geopolitical concerns as the U.S.-China trade war drags on.

During the past few weeks, management teams at a range of multinational firms have taken to earnings calls to warn of dire consequences if the clashes escalate — including lost revenue and deterred business investment. Many of these companies are already feeling the strains of higher tariffs and a weakened Chinese currency.

Ten weeks of increasingly violent protests have plunged the Asian financial center into its most serious crisis in decades. The growing unrest, sparked by a controversial extradition bill, also represents one of the most formidable popular challenges to Chinese president Xi Jinping since he came to power in 2012.

This week, demonstrations at Hong Kong’s International airport suspended check-ins for two straight days, causing hundreds of flight cancellations. Scuffles broke out as thousands of protesters barricaded passageways in the main terminal building, and riot police fired pepper spray to disperse crowds. On Wednesday, flights out of the financial hub resumed as the airport obtained a court order intended to restrict the protests. But, companies are still wary of further disruptions.

Chinese officials condemned the latest rounds of demonstrations, calling them “the first signs of terrorism” in an indication of escalating rhetoric. The territory’s chief executive, Carrie Lam, added the violence was pushing Hong Kong “down a path of no return.” President Trump, citing U.S. intelligence, said Tuesday the Chinese government was moving troops to its shared border with Hong Kong, raising concerns that a possible intervention could be on the horizon.

Traders have punished the city’s stocks in turn, sending Hong Kong’s stock market to a seven-month low on Tuesday.

The iShares MSCI Hong Kong ETF — which closely tracks Hong Kong shares — has plunged 10% over the past six months. The fund now sits 16% below its recent highs in early April. By contract, the iShares MSCI World ETF (URTH) — which tracks shares across the world, including the U.S. — is down only fractionally since then.

Hong Kong officials, meanwhile, have cautioned that protracted tensions could also inflict lasting damage to the local economy. The city — home to seven Fortune 500 global companies including tech giant Lenovo — grew at its weakest pace since 2009 in the first quarter.

Hong Kong’s economy bounced back in the second quarter, but still fell short of analyst expectations, growing at just 0.6%. Warning signs are flashing in specific sectors, including retail, where sales plunged 7% in June versus the prior year. Double-digit declines are expected for July and August.

“If a further escalation triggers capital flight … the city’s property market would be hit hard, resulting in a deep recession,” Julian Evans-Pritchard, Senior China Economist at Capital Economics, said in a note to clients Wednesday.

‘A bad cocktail’ for global retailers

Earlier this summer, Hong Kong-based cosmetics maker Bonjour Holdings cut its full-year profit forecast, citing the political unrest. In their most recent earnings calls, global luxury brands Prada, Hugo Boss, Gucci parent company Kering and Cartier parent Richemont, all said the protests weighed on sales in Hong Kong due to store closures and decreased tourist traffic, even as demand in mainland China grew.

Other luxury retailers, like L’Occitane, have suffered even steeper setbacks in Hong Kong. Sales in the city, the company’s fourth-biggest market, plummeted 19% last quarter.

“Hong Kong has been challenging,” L’Occitane Vice-Chairman Andre Hoffmann said on the firm’s most recent earnings call. “We lost several trading days in the quarter due to the protests. Chinese tourists spending in our shops has declined — all these are a bad cocktail for our business.”

With the second-quarter earnings season entering its final laps, companies beyond retail – from financial juggernaut HSBC to media giant Disney – have also pointed to the political turmoil in Hong Kong as a negative headwind during conference calls with investors.

Airlines could stand the most to lose from heightened tensions. Hong Kong’s airport, the world’s eighth busiest, hosted over 400,000 flights and 75 million passengers in 2018. Government officials say the transit hub alone contributes 5% to the city’s GDP.

Just last week, Cathay Pacific, Hong Kong’s flagship carrier, reported better-than-expected earnings. However, the company flagged that the protests hampered passenger numbers in July and would adversely impact future bookings.

Since Friday, the company has fired two airport employees and suspended a pilot for his involvement in the demonstrations. China’s civil aviation authority has also ordered Cathay Pacific to bar employees who participated in the protests from flying to the mainland.

Shares of the carrier have tumbled more than 7% in just the past two trading days, touching their lowest level since June 2009.

Hotel operators feel the pinch

Concerns are mounting for other segments of the tourism industry. Several major hotel operators have detailed to investors how the continued unrest is impacting their bottom lines. Tourism to Hong Kong, especially from mainland China, has fallen sharply over the past two months, denting hotel revenues. Occupancy rates dropped 20% in June from a year earlier and are projected to decline 40% in July.

And, on Wednesday, the U.S. State Department issued a new travel advisory for the city, urging increased caution due to the unrest.

Hilton Worldwide, Hyatt, and InterContinental Hotels Group  all flagged the negative impact of the protests on their most recent earnings calls.

IHG, the world’s third largest hotel group, outperformed its industry peers in Greater China.  But in Hong Kong specifically, revenue per average room — a key industry metric — dropped 0.4% in the first half of the year, in part due to the ongoing political uncertainty. That compares to a 5% gain in Macau, another Chinese territory across the river from Hong Kong.

IHG CFO Paul Edgecliffe-Johnson said last week the company is closely watching the situation, noting Hong Kong accounts for 15% of the company’s total business in China.

Marriott International President and CEO Arne Sorenson, meanwhile, said that the Hong Kong market performed fairly well last quarter but was not as sanguine looking toward the second half of the year.

“Obviously, what’s happening on the streets … is not a positive sign for travel into that market,” Sorenson said on August 6. “I suspect that we’ll see that Hong Kong weakens [in the current quarter].”

CFO Kathleen Oberg added that Marriott expects revenue per available room for the Asia-Pacific region to come in below forecasts in the second half of the year, citing “cautious corporate demand in China and continued political demonstrations in Hong Kong.”

Hyatt executives have echoed those sentiments. CEO Mark Hoplamazian said on the company’s earnings call on August 1 that they, too, expect to see a drop in hotel occupancies this quarter, owning to softened demand for Chinese leisure travel.

With more rounds of demonstrations slated for the rest of the month, other business leaders are bracing for further fallout from the violent clashes.

Disney, for instance, said visits to its Hong Kong park could suffer. Members of its Cast Members Union went on strike last week, disrupting rides.

“[These protests] are significant…and, while the impact isn’t reflected in the results we just announced, you can expect that we will feel it in the quarter that we’re currently in,” Disney CEO Bob Iger said on the company’s earnings call last week. “We’ll see how long the protests go on, but there’s definitely been a disruption. That has impacted our visitation there.”

‘Serious blow’ to foreign investment

The financial sector is yet another industry feeling the pinch.

Ongoing protests have created more headaches for HSBC, which controls around 30% of the city’s banking market. CEO John Flint recently stepped down after just 18 months on the job, and the bank is planning significant layoffs.

HSBC CFO Ewen Stevenson cautioned last week that further escalation could eat into the bank’s profits.

“Do we expect some impact on the second half? Yeah, inevitably, it will be,” Stevenson said on the company’s earnings call on August 5. “If the current situation continues for a prolonged period of time, it will impact confidence.”

Executives as U.S. investment banks are also contemplating next steps. including possibly allowing employees to work remotely. Citigroup, which boasts a headcount of 4,500 in Hong Kong, has temporarily closed certain branches over the past few months as a precautionary measure. Goldman Sachs, with 1,500 employees in Hong Kong, is also making contingency plans.

“This is dealing a very serious blow to Hong Kong’s long-term competitiveness — as an international city, as a destination of choice for foreign financial services firms,” Stephen Roach, Yale University senior fellow and former Morgan Stanley Asia chairman, said. “The government needs to take this latest escalation of tensions much more seriously.”

Reuters contributed to this report.

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Hong Kong police and protesters clash, ending violence lull

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An anti-extradition bill protester throws Molotov cocktails during clashes at a march to demand democracy and political reforms, at Kowloon Bay, in Hong Kong, China August 24, 2019.

Tyrone Siu | Reuters

Hong Kong protesters threw bricks and gasoline bombs at police, who responded with tear gas, as chaotic scenes returned to the summer-long anti-government protests on Saturday for the first time in nearly two weeks.

Hundreds of black-clad protesters armed with bamboo poles and baseball bats fought with police officers wielding batons on a main road following a march against “smart lampposts” that was sparked by surveillance fears.

The chaotic scenes unfolded outside a police station and a nearby shopping mall as officers in riot gear faced off with protesters who set up makeshift street barricades.

The violence interrupted nearly two weeks of calm in Hong Kong, which has been gripped by a turbulent pro-democracy movement since June.

Police fired tear gas to disperse the crowd after repeated warnings “went futile,” the government said in a statement. By early evening, most of the protesters had dispersed, though clashes flared up in other neighborhoods.

Earlier in the day, some protesters used an electric saw to slice through the bottom of a smart lamppost, while others pulled ropes tied around it to send it toppling and cheered as it crashed to the ground.

The protest march started peacefully as supporters took to the streets to demand the removal of the lampposts over worries that they could contain high-tech cameras and facial recognition software used for surveillance by Chinese authorities.

The government in Hong Kong said smart lampposts only collect data on traffic, weather and air quality.

The protesters chanted slogans calling for the government to answer the movement’s demands. The protests began in June with calls to drop a now-suspended extradition bill that would have allowed Hong Kong residents to be sent to China to stand trial, then widened to include free elections for the city’s top leader and an independent inquiry into alleged police brutality.

“Hong Kong people’s private information is already being extradited to China. We have to be very concerned,” organizer Ventus Lau said ahead of the procession.

The semiautonomous Chinese territory has said it plans to install about 400 of the smart lampposts in four urban districts, starting with 50 this summer in the Kwun Tong and Kowloon Bay districts that were the scene of Saturday’s protest march.

Hong Kong’s government-owned subway system operator, MTR Corp., shut down stations and suspended train service near the protest route, after attacks by Chinese state media accusing it of helping protesters flee in previous protests.

MTR said Friday that it may close stations near protests under high risk or emergency situations. The company has until now kept stations open and trains running even when there have been chaotic skirmishes between protesters and police.

Lau said MTR was working with the government to “suppress freedom of expression.”

Also Saturday, Chinese police said they released an employee at the British Consulate in Hong Kong as scheduled after 15 days of administrative detention.

Simon Cheng Man-kit was detained for violating mainland Chinese law and “confessed to his illegal acts,” the public security bureau in Luohu, Shenzhen, said on its Weibo microblog account, without providing further details.

The Chinese government has said that Cheng, who went missing after traveling by train to mainland China for a business trip, was held for violating public order regulations in Shenzhen, in a case that further stoked tensions in Hong Kong, a former British colony.

The British government confirmed his release.

“We welcome the release of Simon Cheng and are delighted that he can be reunited with his family,” the Foreign and Commonwealth Office said in a statement, adding that Cheng and his family had requested privacy.

Cheng, a Scottish government trade and investment officer, was a local employee without a diplomatic passport.

The Global Times, a Communist Party-owned nationalistic tabloid, said Thursday that he was detained for “soliciting prostitutes.” China often uses public order charges against political targets and has sometimes used the accusation of soliciting prostitution.

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As EU threatens trade retaliation, Brazil fights Amazon fires

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A charred trunk is seen on a tract of Amazon jungle that was recently burned by loggers and farmers in Iranduba, Amazonas state, Brazil, August 20, 2019.

Bruno Kelly | Reuters

European leaders on Friday threatened to tear up a trade deal with South America, reflecting growing international anger at Brazil as a record number of fires in the Amazon rainforest intensified an unfolding environmental crisis.

Amid a global chorus of concern and condemnation, Brazil’s right-wing President Jair Bolsonaro pledged in an address to the nation to mobilize the army to help combat the blazes, while his administration launched a diplomatic charm offensive to try to mend bridges overseas.

Forest fires in the Brazilian Amazon, which accounts for more than half of the world’s largest rainforest, have surged in number by 83% this year, according to government data, destroying vast swathes of a vital bulwark against global climate change.

French President Emmanuel Macron called for G7 leaders to discuss the environmental crisis in Brazil at a summit this weekend in the French coastal resort of Biarritz. Both France and Ireland threatened to oppose an EU trade deal struck in June with a regional South American bloc following Brazil’s response.

Images of fires raging in the Amazon broadcast around the globe sparked protests outside Brazilian embassies from Mexico City and Lima to London and Paris.

In the Cypriot capital Nicosia, a sign tied to the railings of Brazil’s diplomatic mission read: “The Amazon belongs to Earth not to the Brazilian president.”

Bolsonaro, who initially accused non-governmental organizations of setting the forest on fire without providing any evidence, said in a televised address he had authorized the use of troops to fight the fires and stop illegal deforestation in the Amazon.

But the former military officer attributed the scale of the fires to dryer-than-average weather and insisted on the need for economic development of the Amazon to improve the lives of its 20 million inhabitants.

Environmentalists have warned that his controversial plans for more agriculture and mining in the region will speed up deforestation.

“We have to give the population the opportunity to develop and my government is working for that, with zero tolerance for crime – and that is no different for the environment,” Bolsonaro said in his televised speech.

Polls show Brazilians overwhelmingly oppose his policy on the environment and as he spoke to the nation, residents in large cities across Brazil banged on pots and pans in a traditional Latin American form of protest.

President Donald Trump – whose skeptical views on climate change Bolsonaro shares – called the Brazilian president to offer help, if needed, in dealing with the wildfires.

“I told him if the United States can help with the Amazon rainforest fires, we stand ready to assist!” Trump said in a post on Twitter.

G7 set to discuss fires

The wildfires now look set to be discussed at the summit of G7 leaders in France this weekend, where Macron has called for leaders to sign a charter to protect biodiversity. The French leader said an “ecocide” was taking place in the Amazon that required an international response.

British Prime Minister Boris Johnson tweeted that the fires were “not only heartbreaking, they are an international crisis,” while a spokeswoman said Johnson would use the summit to call for a renewed focus on protecting nature.

France and Ireland said on Friday they would now oppose the E.U.-Mercosur farming deal struck in June between the European Union and the Mercosur countries of Brazil, Argentina, Uruguay and Paraguay.

The French president’s office accused Bolsonaro of lying when he downplayed concerns over climate change at the G20 summit in June.

“There is no way that Ireland will vote for the EU-Mercosur Free Trade Agreement if Brazil does not honor its environmental commitments,” Ireland’s Prime Minister Leo Varadkar said in a statement.

The EU-Mercosur deal took 20 years to negotiate, but will not be officially ratified for at least another two years.

Brazilian business leaders also warned the backlash over Brazil’s environmental record could sink its efforts to join the Organization for Economic Co-operation and Development (OECD), a Paris-based club of 37 developed nations whose imprimatur is required by many institutional investors.

Stung by the international outcry, Brazil distributed a 12-page circular, exclusively seen by Reuters, to foreign embassies, outlining data and statistics defending the government’s reputation on the environment.

Having first dismissed the fires as natural, then blaming non-governmental organizations without evidence for lighting them, Bolsonaro appeared to adopt a more serious approach on Friday following the international outcry, summoning top cabinet members for an afternoon meeting to tailor a response.

Agriculture Minister Tereza Cristina Dias insisted that Brazil was “taking care” of the Amazon, and that international concerns over the fires needed to cool down.

“The news is worrying, but I think we have to lower the temperature. The Amazon is important, Brazil knows that, and Brazil is taking care of the Amazon,” she told reporters.

‘Interfering with our sovereignty’

The Brazilian space agency INPE has registered 72,843 fires this year, the highest number since records began in 2013. More than 9,500 have been spotted by satellites over the past week.

Although fires are a regular and natural occurrence during the dry season at this time of year, environmentalists blamed the jump on farmers clearing land for pasture.

Farmers may have had at least tacit encouragement from the firebrand right-wing president, who took power in January.

Bolsonaro has repeatedly said he believes Brazil should open up the Amazon to business interests, allowing mining, agricultural and logging companies to exploit its natural resources.

On Thursday, Bolsonaro admitted for the first time that farmers may be behind some of the fires but he responded angrily to what he saw as foreign interference.

Some foreign donors – including the biggest, Norway – have slashed their funding to an Amazon Fund designed to curb deforestation in the region in protest at changes introduced by Brazil that blocked its operations.

“These countries that send money here, they don’t send it out of charity … They send it with the aim of interfering with our sovereignty,” Bolsonaro said.

Alexandre Antonelli, director of science at Britain’s Kew Royal Botanic Gardens, urged that import sanctions be imposed on Brazil because of the fires.

“Immediate action is necessary to extinguish the current fires and prevent future ones,” the Brazilian scientist said.

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Trump is meeting with world leaders at G7 as he escalates US-China trade war

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U.S. President Donald Trump and First Lady Melania arrive in Biarritz for the G7 summit, France August 24, 2019. REUTERS/Regis Duvignau

Regis Duvignau | Reuters

President Donald Trump arrived in France on Saturday for the annual meeting of the Group of 7 powers, one day after he called his Federal Reserve chief an enemy of the United States and urged American companies to end business with China in the midst of an escalating trade war.

The summit comes amid fears over a global economic slowdown, and U.S. tensions with allies over trade, Iran and Russia.

Trump said Friday he will raise existing duties on $250 billion in Chinese products to 30% from 25% on Oct. 1. Additionally, tariffs on another $300 billion in Chinese goods, which start to take effect on Sept. 1, will now be 15% instead of 10%.

In addition to the China trade war tensions, the president has maintained tough rhetoric against the European Union. The White House is set to decide in November whether they will impose duties on the autos industry in Europe.

Earlier this year, Trump vowed to set tariffs on imported vehicles and parts from the EU and Japan, but delayed that duty for 180 days in May. The president signed a deal with the EU earlier this month to boost U.S. beef exports.

Trump again threatened to tax European cars Tuesday.

“Dealing with the European Union is very difficult; they drive a high bargain,” Trump said. “We have all the cards in this country because all we have to do is tax their cars and they’d give us anything we wanted because they send millions of Mercedes over. They send millions of BMWs over.”

Experts say that trade conflict with Europe could be much more damaging than the current tit-for-tat conflict with China.

British Prime Minister Boris Johnson told reporters upon his arrival in France that he plans to tell Trump at the summit to pull back from the trade war with China. Johnson said his priorities for the summit “are clearly the state of global trade.”

“I am very worried about the way it’s going, the growth of protectionism, of tariffs that we’re seeing,” Johnson told reporters on the tarmac.

Trump’s first meeting on Saturday was a private lunch with French President Emmanuel Macron.

Macron, who will host the summit, said they were discussing world crises, including Libya, Iran and Russia, as well as trade policy and climate change.

Trump said he anticipated the lunch with Macron would go well. 

“We actually have a lot in common, Emmanuel and I. We’ve been friends for a long time. And every once in a while, we go at it just a little bit — not very much. But we get along very well,” he said. 

When asked if he would place tariffs on French wines in retaliation for France’s digital services tax, which he previously threatened to do, Trump was noncommittal, but responded that he loves French wine.

Donald Tusk, president of the European Council, said on Saturday that the EU would “respond in kind” if the U.S. imposes tariffs on France over the digital tax plan.

The G-7, which represents the world’s major industrial economies, includes the U.S., Germany, France, Japan, Canada, Italy, and the U.K.

At the summit, world leaders are expected to discuss several foreign policy matters, including Iran and tensions between India and Pakistan, as well as record wildfires in the Amazon rainforest that have spurred global outrage.

Formal talks begin Sunday morning. Many experts expect the summit to end without a joint communique because of clashes on trade.

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