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Global markets fall as China moves to tighten control over Hong Kong

Investors fear move will further heighten tensions between Beijing and Washington

Larry Elliott

Fri 22 May 2020 11.11 BSTLast modified on Fri 22 May 2020 12.00 BST

https://www.theguardian.com/business/2020/may/22/global-markets-fall-as-china-moves-to-tighten-control-over-hong-kong

Fears that moves by China to tighten its political control over Hong Kong will lead to heightened tensions between Beijing and Washington have prompted a sharp sell-off on global markets.

With investors already anxious about the economic damage caused by the Covid-19 pandemic, the crackdown on dissent in Hong Kong caused shares to fall in both Asia and Europe.

The FTSE 100 fell by more than 100 points in early trading in London, losing almost 2% of its value and dropping back below the 6,000 level. Similar-sized falls were seen in Frankfurt and Paris.

Oil prices also dropped – falling by 5% – after Beijing proposed a new national security law that would allow it to bypass lawmakers in Hong Kong and ban “treason, secession, sedition and subversion”.

The prospect of a fresh wave of democracy protests in the former British colony led to particularly sharp drops in luxury brands such as Dior and Gucci, and in the two UK banks most exposed to Hong Kong: HSBC and Standard Chartered. Almost every share in the FTSE 100 was down as investors sought out safe havens, such as US government bonds.

Beijing’s tough line threatens a fresh deterioration in already frosty relations between China and the US. Donald Trump said Washington, which is already targeting its geopolitical rival over trade, would react “very strongly” against an attempt to gain more control over Hong Kong.

Jim Reid of Deutsche Bank said the US-China relationship seemed to be more in terminal decline than it did six to 12 months ago. Both Republicans and Democrats would react strongly to Beijing’s threatened action.

“This will likely draw a large amount of opposition given the pro-democracy protests in the country over the past year. This could be another wedge between China and the US, given how many US politicians on both sides of the aisle supported Hong Kong’s efforts last year.”

China also announced that – for the first time since it started setting goals for the economy in 1990 – it was not setting a growth target for this year. While expected by the financial markets, the decision hardened the belief that recovery in the world’s second-biggest economy will be protracte