G14 in Decline, and China Gets the Bill

The crisis that recently erupted in France has drawn global attention. Masked demonstrators are violently protesting, and the scenes look eerily familiar.

France Erupts, and the West Flips Its Script on Riots

In mid-September, student riots began to break out in France. Students went on strike, took to the streets, blocked roads, burned cars, smashed shops, and confronted police. The forms of violent protest were identical to the situation in Hong Kong in 2019.

The problem is that the United States and the Western world assess the French riots in a way that is completely opposite to their assessment of the Hong Kong riots. French politicians accused the leader of the far-left party "La France Insoumise," Jean-Luc Mélenchon, of orchestrating the riots behind the scenes.

US President Donald Trump pointed out bluntly, "What's happening in France is nothing less than out of control mass migration. This isn't about schools, this is about Islam wanting to take over a once great Country!"

French police arrested as many as 6,500 demonstrators in just over two weeks. Yet no US or UK government came out to demand that the French government release them.

The protests began on September 17, originating from a high school in Créteil, on the outskirts of Paris. At the time, teachers went on strike over unfilled positions and insufficient school funding, and students quickly joined in.

What teachers and students were dissatisfied with was the extreme lack of resources in French secondary schools and the low salaries of teaching staff, which led to a severe shortage of teachers. Schools had no choice but to combine classes, pushing the number of students per class up to 32 to 35. The incident quickly escalated into full-scale violent protests.

The French government is indeed powerless to solve various livelihood problems, because France has spent too much money in recent years, with the fiscal deficit soaring and the national debt ballooning.

Under the impact of the two major wars in Ukraine and Iran triggered and supported by the United States, inflation has remained high, and Europe has also been forced to raise interest rates. This makes things worse for France, a country drowning in debt.

The yield on France's 10-year government bonds rose to 4.75%, a new high since the 2012 European debt crisis, even higher than the bond yields of Greece, which once fell into a debt crisis. France's public debt stands at 119% of GDP, and the debt problem has erupted across the board.

The 'China Overcapacity' Fight

France's finances are in trouble. The government's fiscal deficit runs at 5% of GDP while economic growth stays weak. The Bank of France estimates GDP growth of around 0.5% this year, and the French economy has already sunk into a vicious cycle bordering on stagflation.

America's balance sheet looks even worse. US public debt stands at 122.6% of GDP, and the yield on 10-year US Treasury bonds has surged, recently climbing to a high of 5.3%. Washington's ability to print money to repay debt is a bit stronger than France's. Even so, the outside world believes a US debt crisis is starting to emerge.

The US and the West have a habit of recasting their own problems as other people's problems. When trouble strikes at home, they say China's exports have battered their economies.

Enter the G20. Trade ministers from the Group of Twenty met recently in Milwaukee, and the United States wanted to mobilize the G20 to issue a statement targeting the so-called "China overcapacity" issue. China, Brazil, Russia, Indonesia, Saudi Arabia and South Africa refused to agree to the statement.

So Washington had no choice but to rally the other 14 G20 countries into a joint statement. That statement called for action to end structural overcapacity and to stop non-market policies that encourage excessive production.

The funny part of this story: the United States has always been the leader of international organizations like the G20. The original purpose of creating these organizations was for countries to work hand in hand to solve global economic problems. But when America itself runs a trade deficit, it launches a tariff war to erect trade barriers. Then it urges other countries to join the barrier-building ranks and points the finger at China.

Picture a rule-breaker in a game. He eggs on the other players to rebel, to break the rules along with him, and then questions whether the rules themselves are the problem.

How the West Outsourced Its Way to China's Rise

America claimed the crown in 1914, when the US economy overtook the United Kingdom's to become the world's number one. After World War II, American productivity developed further and hit its peak.

In the language Americans use today, the United States at the time suffered from extreme overcapacity. Its manufacturing industry dominated the globe.

Then the wage bill ballooned. As the economy grew, American workers' pay surged, so the United States gradually shifted production to other low-cost regions. Manufacturing was first outsourced to Japan, then expanded to the Asian Tigers, and finally the baton passed to China.

Russian economists have a distinctive explanation for all this.

Ivan Safranchuk, a senior researcher at Russia's Moscow State Institute of International Relations, laid out the story in an interview on September 29. Globalization, he said, was originally driven by the West, and at the start it genuinely served Western interests.

Ivan Safranchuk, Senior Researcher at Moscow State Institute of International Relations, Russia.

The West wanted to transfer out production links that were costly and heavy users of resources, while keeping the more profitable parts, such as technology, finance and brands, for itself.

Then came the twist. Safranchuk said a series of factors, including US multinational corporations' pursuit of profit maximization, ultimately sent a large share of globalization's gains flowing to developing countries, such as China and India.

These places, once attractive only for their cheap production costs, slowly built industrial strength of their own. In the process of taking on manufacturing, countries such as China accumulated industrial technology, export capacity and complete supply chains.

The result? China ultimately became globalization's biggest winner, all because Western companies were too greedy themselves.

Lin Yifu's Numbers Turn 'Overcapacity' on Its Head

A Russian expert has hit the nail on the head about the problems the West encountered in pushing globalization. Lin Yifu, former Senior Vice President of the World Bank and now Dean of Peking University's Institute of New Structural Economics, has now weighed in on the so-called “China overcapacity” issue as well.

His numbers turn the argument inside out. Germany produces more than 5 million cars a year, exports more than 4 million, and digests only about 20 percent at home. Does that mean 80 percent of German capacity is “excess”? China never said so in the past.

Now flip the lens to China, Lin says. The country builds more than 30 million cars a year, yet exports only about 7 million. That is a mere 20 percent of total output, with the domestic market absorbing the other 80 percent.

His conclusion cuts sharp: measured against Germany's ratio, China's auto industry has no overcapacity at all. If anything, it has too little capacity.

The bigger problem, Lin believes, is that China keeps walking wherever others point. When others cry overcapacity, China's own writers echo the charge in articles, as if everyone had committed a crime. That sort of double standard, he says, sits at the very core of the problem.

The US-led G14 runs a slick rebranding operation. It recasts its own past, voluntary choice to scrap production capacity as China's problem. And it does so while ignoring the fact that a raft of Western multinationals pocketed the lion's share of the profits.

The same countries' own overspending, heavy debts and freely waged wars get the same makeover. All of it is relabeled as problems China must solve.

Then consider the whiplash. America went from championing globalization with everything it had to opposing it across the board, all within roughly a decade. The speed of the about-face turns heads.

Lo Wing-hung

Bastille Commentary

** 博客文章文責自負,不代表本公司立場 **

The world today is in the grip of "profound changes unseen in a century." Big corporations are like lone boats on a raging sea. Only by choosing their strategic positioning well can they have a chance to lay the foundation for a century-long enterprise and seize major development opportunities.

HSBC's Singapore AI Center Sparks Questions

HSBC Holdings recently announced that it will establish a global artificial intelligence center in Singapore in the second half of this year. According to foreign media reports, the Hong Kong Monetary Authority had inquired with HSBC about the matter, questioning why the bank chose to set up the AI center in Singapore rather than Hong Kong. Earlier reports also indicated that HSBC planned to recruit 100 AI experts in Singapore to fully boost its local wealth management services.

Foreign media reports said the HKMA raised the question to defend Hong Kong's status as Asia's leading international financial center and fintech hub. HSBC's explanation was that setting up the AI center in Singapore was mainly to fulfill a commitment made to the Singapore government when it previously sold its local insurance business. The bank said it will continue to deepen its presence in and fully support the development of the Singapore market.

HSBC's move this time takes me back more than 30 years, to an old story. I have been an HSBC shareholder since childhood, buying in when the shares cost just a few dollars each. That is why I have always paid close attention to the direction of this semi-central bank of Hong Kong.

Rewind to the eve of Hong Kong's return to China, and the city was in turmoil. Jardine Matheson moved first, re-domiciling to Bermuda in 1984 and shifting its Hong Kong listing to Singapore.

HSBC then cast its own vote of no confidence in Hong Kong's return, putting its re-domiciliation plan into action in 1991. The method was a shell game. HSBC set up a new holding company in the United Kingdom, HSBC Holdings, which acquired HSBC Bank's North American and Middle Eastern businesses.

HSBC Bank, now a subsidiary, kept the Hong Kong and Asia-Pacific operations, and HSBC Holdings listed simultaneously in Hong Kong and London.

At the time, I was a political editor at a television station, and I still remember how seismic the news felt the day it was announced. I was in the middle of another assignment, but I dropped all the work at hand and rushed straight to another venue to interview Zhang Junsheng, then deputy director of the Xinhua News Agency Hong Kong Branch.

Later, HSBC Group Chairman William Purves and Vincent Cheng, the Chinese chief executive of the Hongkong and Shanghai Banking Corporation, traveled to Beijing together to meet Premier Li Peng. After they returned, I invited Vincent Cheng to dinner, and he recounted the meeting in detail.

He told me that before the meeting, both his former boss Purves and he himself were deeply worried. They feared Premier Li Peng would give them a fierce scolding and denounce HSBC for moving its headquarters to Britain. The outcome defied all expectations: Li Peng glossed over the matter lightly and expressed understanding of HSBC's restructuring.

Vincent Cheng, thrilled, said at the time that he never imagined they would get through so easily. He could not stop laughing as he talked about it. In truth, this was only the beginning of HSBC's nightmare.

The Cost of Turning Away from Hong Kong

At that time, China was sanctioned by Western countries such as Britain and the United States after the June Fourth Incident. Beijing wanted to improve relations with the West, so it held back and did not pursue HSBC's relocation of its domicile severely.

HSBC's real disaster was that it earnestly shifted its business focus away from Hong Kong. It moved to a three-legged structure across Hong Kong, Britain, and the United States. It acquired Midland Bank in Britain and Marine Midland Bank in the United States, and vigorously expanded its US and UK businesses. After more than 20 years of going back and forth in this way, its US and UK businesses both ended in losses.

In recent years, HSBC has learned from its painful experience. It not only sold off its US operations, but also vigorously shrank its British and European businesses. Although its headquarters remains in London, its soul has already returned to Hong Kong and mainland China, the Asia-Pacific profit center.

Recently, HSBC spent HK$100 billion in real money to privatize Hang Seng Bank. At the time, there were some rumors in the outside world saying that because Hang Seng had suffered loan losses, HSBC Holdings wanted to cover up Hang Seng's accounts and privatize Hang Seng. I scoff at these analyses.

To say that HSBC would spend HK$100 billion to cover up its accounts is truly to underestimate the decision-making ability of this global bank.

I believe HSBC is optimistic about Hong Kong's development prospects, which is why it placed such a heavy bet, and it deeply understands Hang Seng's value. Through privatization, it can also merge part of the two banks' businesses and back-office management processes, maximizing synergies.

Privatizing Hang Seng is a low-risk, high-return move, and behind it is an assessment of Hong Kong's prospects. HSBC has taken an important strategic step in the right direction.

Why the Singapore AI Center Is a Strategic Error

Setting up an AI center in Singapore may look like small change. In reality, it does serious damage to HSBC's image of deep commitment to Hong Kong.

On the surface, the decision reads as a minor administrative move, made only to honor a pledge given when HSBC sold its Singapore business. But the decision completely ignores the negative signal behind the move.

Honoring the Singapore pledge would have been simple. Put a 100-person AI center in Singapore as the branch, and a 300-person AI center in Hong Kong as the trunk. That setup would fulfill the promise and spotlight a stance of keeping the development focus in Hong Kong and standing behind the city at all times.

Some say Hong Kong simply cannot use the latest American models. Anthropic's Claude large model, for one, recently blocked even Hong Kong users who reached it through a VPN to bypass restrictions. On that logic, basing the AI headquarters in Singapore is only natural.

But the real issue is this: if HSBC Holdings were a small, faceless company, it would not matter where the headquarters sat. As one of Hong Kong's major note-issuing banks, it must be prudent in making these decisions.

Research suggests China's large AI models trail the American ones by just 3 percent. Dropping Anthropic's model for DeepSeek's would make little practical difference.

And if the true reason for siting the AI center there is to run American models in Singapore, a major security risk hides behind the plan.

Consider Huawei. During Trump's first term, his administration hit the company with heavy sanctions. Huawei had been running on Oracle's operating system, and at a stroke, Oracle dropped the business altogether and cut off Huawei's supply.

So in an era of high geopolitical risk, running a bank's critical operations on American large models is a gamble. The day they suddenly cut you off, you might not even be able to open customers' accounts. Make no mistake: that is a real security risk.

HSBC Must Choose: Repeat the 1990s or Secure Its Future

HSBC is a major Hong Kong bank. In this storm of global geopolitics, it can play neutral on the surface. The reality is that it must still make a choice to lay the foundation for its next century of business.

HSBC must firmly remember the lessons of its mistakes in the 1990s. It must not repeat them now.

Lo Wing-hung