The EconomistAugust 24th 2019 Leaders 91A
s the trade war chips away at its allure, China wants to re-
tain the affection of foreign businesses. It has promised to
level the playing field between them and their domestic rivals.
This pledge is meant as reassurance that Chinese firms will re-
ceive no special favours. But it has taken on a different light over
the past week, in the wake of China’s assault on Cathay Pacific,
Hong Kong’s flagship airline. China is taking a hard line against
foreign companies that displease it, lashing out at their bosses
and demanding obedience, much as it wields control over do-
mestic enterprises. Firms in Hong Kong are in the cross-hairs,
but it would be a mistake to think China will stop there.
With 26,000 employees in Hong Kong, Cathay initially took a
neutral stance as protests engulfed the city. The airline would
not dream of telling its employees what to think, its chairmanproclaimed. His defiance withered, though, as criticism from
China mounted. When the Chinese aviation authority, absurdly,
accused the airline of imperilling safety because its employees
had joined the protests, Cathay dumped its chief executive. A cli-
mate of fear now pervades it. Chinese inspectors have started
screening the phones of Cathay crew for anti-Beijing material.
Global firms may console themselves with the thought that
Cathay was uniquely vulnerable. Although it is Asia’s biggest in-
ternational carrier and a perennial contender for best airline in
global rankings, its fate rests almost entirely on China. As much
as 70% of its cargo and passengers pass through Chinese air-
space. Its biggest shareholder is Swire Pacific, a Hong Kong-
based group immersed in China, from soft drinks to property.
Swire executives appear to have concluded that any resistanceCathay’s mayday
China’s bullying of foreign companies reveals the Communist Party’s disregard for rules and free marketsBusiness in ChinaT
he remarkablething aboutthefalloftheItaliangovern-
ment this week was that it did not happen sooner. Parties that
depict themselves as outsiders, such as the Northern League and
the Five Star Movement (m 5 s), typically find their first stint in of-
fice a fiasco. A coalition of two such outfits, one a hard-right na-
tivist group and the other an eclectic set of economic populists,
greens and internet utopians, was bound to come unglued.
Moreover, whereas the m 5 sfinished first in last year’s election,
the League has since far surpassed it, polling at 37% to the m 5 s’s
17%. The League’s leader, Matteo Salvini, has proved more astute
than the m 5 s’s Luigi di Maio. It is not surprising that he pulled his
support from Giuseppe Conte, the prime minis-
ter, in a bid to trigger an election and win the job
for himself. Just now, however, an election
would be a grave mistake for Italy and Europe.
That might seem unfair. After all, the compo-
sition of parliament does not reflect public
opinion. But this is a precarious moment for Ita-
ly (see Europe section). Its economy is feeble,
with growth this year expected to be just 0.1%.
Its immense government debt, of more than 130% of gdp, is the
greatest single threat to the euro zone. An election would take
months, threatening Italy’s efforts to pass a budget by the end of
the year. That could upset markets at a time when much of Eu-
rope is already on the edge of recession.
Should the pro-Kremlin, anti-immigrant Mr Salvini win a
vote, he would seek clashes with the European Union over refu-
gee settlement and foreign policy—a distraction when the public
finances are at stake. Worse, the European Commission must re-
view Italy’s budget to ensure that it deals with the country’s debt.
A proposal is due on October 15th. When the previous govern-
ment’s initial draft of last year’s budget was rejected by Brussels,
itledtomonthsofhaggling.Mr Salvini’s promises of tax cuts
suggest that any government he leads will face similar problems.
A second reason to delay lies in Rome. Mr Salvini has spent
the past year relentlessly undercutting and upstaging the m 5 s.
On some issues, such as the conflict over a high-speed-rail tun-
nel that precipitated the fall of the government, the m 5 sand the
League are diametrically opposed. Mr di Maio deserves a chance
to show whether his party can govern.
Rather than stage an election, the m 5 sshould form a new co-
alition with the centre-left Democratic Party (pd) and indepen-
dent lawmakers. A temporary, less rivalrous coalition with the
pdcould give voters time to get a better sense of
the m 5 s’s abilities before they pass judgment.
More important, such a government could pass
a compromise budget, and then hold elections
early next year. A coalition would face the
daunting task of finding spending cuts of
€23bn, equivalent to 1.3% of gdp, to avert steep
value-added-tax rises. It may well exceed deficit
rules, as Mr Salvini surely would. But, by putting
off the election for later, it would gain time to talk to the eu.
It will not be easy for the m 5 sand pdto work together. Mr di
Maio will have to overcome his party’s reluctance to join one of
the traditional parties it has vowed to supplant. The pdis even
more divided. Matteo Renzi, its former leader, favours a co-
alition. Nicola Zingaretti, the current one, is sceptical. The party
has set out five reasonable conditions for collaboration, such as
the m 5 s renouncing anti-eurhetoric. But Mr Zingaretti has also
insisted on a clear-cut break with the past, which could be a
veiled attempt to exclude Mr di Maio from the next cabinet. If
such demands force new elections, it would be a mistake. This is
not the time for Italy to play political games. 7Time to govern, not campaign
A snap election could make Italy’s budget woes worseItalian politics