Financial Times Europe - 07.10.2019

Monday7 October 2019 ★ FINANCIAL TIMES 21

T

he member states of the EU

have a common negotiating

position on Brexit, but they

have different ulterior

motives.

There is one group, led by Germany,

whose priority is to avoid a no-deal

Brexit in order to minimise disruption

to industrial supply chains. Another

group, led by France, seeks to stop the

UK from exploiting the opportunities

for regulatory arbitrage. The French

fear that aSingapore on Thames might

undercut EU standards on social policy

and the environment. Then there is a

third group that wants the UK to reverse

Brexit altogether, as a symbol of the

fightback against the rising global tide of

populism.

What all three have in common is a

lack of interest in agreeing to engage

to compromise and grant Hong Kong

the right to vote for its leaders then what

about Shanghaior Shenzhen? If he does

not harshly punish the territory then

the rest of the nation and his many polit-

ical enemies would smell weakness,

rather than applaud his restraint.

Because the people of Hong Kong

instinctively understand what is com-

ing, they are unlikely to quietly return

to their ordinary lives.

Neither side can back down. So the

chances of People’s Liberation Army

soldiers on the streets of Hong Kong are

rising every day as the violence esca-

lates.

One senior police official says pri-

vately that as many as a quarter of his

officers are joining peaceful protests in

their spare time. Hated as it is right now,

the ong Kong police forceH s mi ade up of

Cantonese-speaking locals. Faced with a

Mandarin-speaking occupying army

from the north, many officers would

choose to join the rebellion.

This scenario would rob Beijing of the

luxury to choose when and how it un-p

ishes the city.But vengeance is coming.

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lessly to punish Hong Kong.

Just as in China in the aftermath of

1989, Hong Kong’s education system

will be overhauled to promote “patri-

otic” narratives; “unreliable” civil serv-

ants and judges will be purged; news

outlets will be muzzled; all business fig-

ures, including multinational compa-

nies, will be expected to display loyalty

to the motherland. The internet will

probably be censored. Mass arrests are

likely. This is a best-case scenario, predi-

cated on the protests ending now —

which is unlikely.

In Beijing, the discussion is instruc-

tive. Party cadres say there is nothing

really wrong with the fish-tank that is

Hong Kong, but what is needed is for all

the “bad fish” to be replaced with “good

fish”. The central government will try to

retain the trappings of an international

financial centre — open markets, a

freely convertible currency, a relatively

independent and professional judiciary

for non-political cases — but will quickly

strip away the rights and freedoms that

make Hong Kong unique.

The calculus of Communist rule does

not allow for concessions to unruly

provinces. If President Xi Jinping were

Independent booksellers publishing

political gossip were abducted and spir-

ited across the border to face trumped

up charges in Communist party-con-

trolled courts. State-owned or state-

controlled companies now own most of

the bookshops and newspapers in the

territory. Beijing also accelerated eco-

nomic integration between Hong Kong

and the mainland, hoping that material

wealth would reduce dissatisfaction in

the city. After all this, they still ended up

with the worstoutbreak of unrest no

Chinese soil since the 1989 Tiananmen

massacre.

The conclusion Beijing has drawn

from the past four months of rage is the

only one possible in an authoritarian —

increasingly totalitarian — system: they

were far too soft last time around. When

the moment is right, they must act ruth-

retribution. It has given their move-

ment a hard, nihilistic edge. “If we burn,

you burn with us,” reads one of the most

common slogans spray-painted across

the central business district. For its part,

the ruling Communist party has learnt a

powerful lesson from its response to the

earlier, peaceful “umbrella movement”

of 2014 and its aftermath.

Back then, thousands of young people

occupied the city centre for 79 days to

demand genuine universal suffrage as

promised in the Basic Law, the terri-

tory’s mini constitution.

Not only did that movement fail in its

objective, it prompted Beijing to tighten

its grip ver Hong Kong in a way thato

eroded the freedoms and rights that

exist nowhere else in the People’s

Republic of China.

Leaders of the umbrella movement

were prosecuted, and then reprosecuted

to impose harsher prison sentences,

lawmakers with the wrong political

views were expelled from the legisla-

ture, a pro-independence political party

was banned, and a senior Financial

Times editor wasexpelled rom Hongf

Kong for hosting a discussion with the

party’s founder.

T

he Chinese phraseqiu hou

suan zhang s literally trans-i

lated as “to balance the

books after the autumn

harvest”. But in common

parlance it means “to take revenge

when the time is ripe”. China’s leaders

use the aphorism to discuss the problem

of Hong Kong.

With peaceful and violent protests

still escalating, and the police and gov-

ernment struggling to control the situa-

tion, Chinese officials have mostly

struck aconciliatory tone ntil now. Butu

even if the demonstrations fizzle out

immediately and the former British col-

ony returns to normality, Beijing will

settle its scores and “Asia’s world city”

will never be the same again.

The protesters, steeped n Chinesei

history, are well aware of this impending

with UK prime minister oris Johnson’sB

proposals or the withdrawal deal. Theyf

are reassured that the Brexit extension

bill passed by the House of Commons

has removed the threat of an immediate

no-deal Brexit. Legal documents sub-

mitted to a Scottish court state that Mr

Johnson intends to comply with the

requirements of the Benn Act andseek a

Brexit delay f he cannot secure a deal.i

But even if the deadline is extended

once more, the EU should think twice

before rejecting the latest UK plan. It is

trivially true that an extension buys

time, avoids disruption on the day, and

maybe even opens up a theoretical path

towards a Brexit reversal. But rejection

would still be a short-sighted strategy. If

the process is allowed to stray past the

current October 31 deadline, the EU will

have to live with the consequences of

rejecting the deal.

The big idea behind the British gov-

ernment’s most recent proposals is to

keep Northern Ireland inside the EU’s

single market for industrial goods and

agrifoods, but outside the EU’s customs

union. That sounds complicated, but it

is a reasonable starting point: it is easier

to find technical solutions for customs

procedures than single market rules.

What is unreasonable is to suggest a for-

mal veto for Stormont, the Northern

Ireland assembly — whichhas not sat

since 2017 when the power-sharing

arrangement between the Democratic

Unionist party and Sinn Féin collapsed.

But by rejecting the whole package,

the EU would reveal that it can only

offer a limited range of future relation-

ships: Theresa May’s old deal or full

membership of the single market and

the customs union.

Since all Brexit deals proposed by a

UK government would have been

rejected, no-deal would then be the one

Brexit option that is left. The Conserva-

tive party would campaign for it at the

next general election. Also consider

that, without a deal, it would be hard to

know what question to put on a ballot

paper in any future second referendum.

I do not believe that EU leaders have

thought this through. There are few

people who spend their days thinking

strategically on the EU’s behalf.

National leaders act in their country’s

self-interest, as they did during the

eurozone crisis. The only European

institution accustomed to acting strate-

gically for the entire area is the Euro-

pean Central Bank.

So what would constitute an intelli-

gent strategy for the EU as a whole?

Brexit has weakened the EU, but not

fatally. My first priority now would be to

prevent a large economic shock. The

volume of trade between the EU and the

UK was£634bn in 2018. The total trade

volume between Northern Ireland and

the Irish Republic was£5.4bn. This is a

ratio of more than 100 to one. I under-

stand why the rest of the EU places a

higher value on the interests of Ireland

than the UK. I do not understand why

they place so little value on their own

interests.

There is a lot of muddled thinking

around. The obsession with avoiding

blame is alarming. When you ask why

Dublin prefers a no-deal Brexit to a

compromise onthe backstop, you keep

getting the same answer. Ireland’s prime

minister Leo Varadkar can blame the

UK for the fallout from no deal, but the

Irish would blame him personally if he

compromised. In Brussels, I keep hear-

ing that the EU does not want the blame

for a no-deal Brexit. So it seems that the

biggest problem with a no-deal Brexit is

not the thing itself but who is held

responsible.This blame game might

end up increasing the risk of no deal.

France and Germany have different

ulterior motives, but a no-deal Brexit

serves neither of them. Strategically, it

would be better for the EU to accept the

parameters of Mr Johnson’s proposal,

minus the nonsensical veto rights for

Stormont. The EU should extend the

deadline for a final time to complete the

negotiations in all its technical details

and allow time for ratification. The UK

should undertake to abide by common

standards on social protections and

environmental standards.

There is a deal to be done — and a

gamble to be lost.

[email protected]

rexit negotiators couldB

extend the deadline to

work on technical details in

time to ratify a deal

Beijing will have its revenge on Hong Kong

If Xi does not punish the

territory harshly, enemies

will smell weakness,

not applaud restraint

The EU should not reject the UK’s proposal

Opinion

europe

Wolfgang

Münchau

business

Rana

Foroohar

T

he possibility ofa no-deal

Brexit s getting more reali

by the day. The anxiety is

palpable.People are stock-

ing up n essentials: cannedo

goods, rice, pasta, medicines and toilet

paper. There may or may not be a mess

to come on November 1, so better safe

than sorry. But how best to prepare?

Stockpiling is good, but it’s not a sus-

tainable long-term solution. A no-deal

Brexit calls for real strategies, anew

mode of thinking. As a Pole living in

London, I have some suggestions.

If Brexit was designed to keep eastern

Europeans at bay, its biggest irony is

that Britain’s Poles are best placed to

deal with it. Hardened by growing up

behind the Iron Curtain, we have plenty

of handy life hacks. Communism may

be long gone, our skills may be some-

what rusty, but we haven’t forgotten the

empty shelves in shops, the long queues,

the lack of toilet paper and the joy when

our parents brought home oranges for

Christmas. So, here are some useful tips.

Under communism, toilet paper was a

luxury product — as perhaps it will be

again. Things were different back then,

there were none of the colourful, velvety

brands adorned with puppies and but-

terflies. It was rough and recycled; we

called it sandpaper. I almost preferred

the alternative, which was to use news-

papers; somehow, we never ran out of

newsprint. The key is to roll and rub the

newspaper in your hands, until it is soft

enough to do the job. Try it. Depending

on the paper at hand, it might be a more

satisfactory process than you think.

As to canned goods — there’s certainly

no harm in getting some in, but you’ll

eventually need fresh food as well. I

would recommend finding a reliable

source of potatoes, onions and cabbage.

They all last a while and are full of vita-

mins — great for preventing scurvy,

which, as it turns out, has been on the

rise in the UK among millennials, who

apparently eat badly. A diet rich in cab-

bage has saved manya sailor. In eastern

Europe, we have plenty ofmouth-wa-

tering cabbage-based recipes.

The prospect of medicine shortages

might seem somewhat worrying, but

ultimately you can cure most things

with garlic and chamomile. For a sore

throat, most Poles remember making

onion syrup. You just cut the onion into

little cubes, add loads of sugar and wait

until it dissolves. Warm beer mixed with

an egg yolk can heal a good deal, too.

But chamomile is the most useful cure

and is available in most meadows. It

eases insomnia, reduces anxiety,

strengthens the immune system,

soothes eye infections and lowers blood

sugar. For more information, just ask at

your nearest Polish shop, assuming it is

still open.

Everyone is worried about ruckt

queuesat the border. But if produce

becomes scarce, there will be queues

everywhere. I remember my family

queueing in the middle of the night to

buy milk in the morning, just in case

there was a delivery. Often there wasn’t.

It was like waiting for Godot.

Brits take pride in their queueing

prowess, but in a no-deal scenario they

will need to up their game. You need to

be shrewd: see every queue as an oppor-

tunity. If you spot one, join it immedi-

ately, even if you don’t know what it’s

for. If in doubt ask others. Strike up a

conversation — they won’t know what’s

going on either, but you will soon dis-

cover that queues are where you make

friends, the new centre of social life.

You’ll find yourself queueing outside,

rain or shine. It won’t be that different

from drinking outside a pub — except

without the prosecco or Belgian beer.

Entrepreneurial migrants will soon

enough seize the opportunity to sell you

alcohol while you wait. If you get tired,

you can trade your space in the queue

for a pint.

This is just a taste of what’s possible.

Your eastern European neighbours are

bursting with great ideas. So, don’t be

shy, talk to your Polish friends. We’re

here to help.

The writer is the manager of the Wider

Europe programme at the European Coun-

cil on Foreign Relations

Lessons from

communism

for surviving a

no-deal Brexit

Joanna

Hosa

Hardened by growing up

behind the Iron Curtain, we

eastern Europeans have

plenty of handy life hacks

als back to co-working spaces in New

York and London. Or perhaps, as

remote work becomes more and more

prevalent, everyone — individuals and

corporations — will realise that it is eas-

ier, cheaper and more environmentally

sound for workers to stay where they

are and not commute to prime office

spaces in luxury cities where they pay

more for lattes and square footage alike.

The current market correction might

help push things in the latter direction.

Dan Alpert, managing partner at West-

wood Capital, an investment bank, has

calculated that if WeWork were

removed from the New York property

equation, the Manhattan market would

have had a net loss of 700,000 sq ft of

new leased space, rather than gaining

the 2.3m sq ft that it did in the 24

months leading up to last June. A lot of

that demand came from the euphoria

created by tech-driven markets that are

now correcting.

Stocks and property prices in prime

areas still have quite a way to fall.

[email protected]

eign buyers for both commercial and

residential property. WhenI purchased

my New York home n 2007, I was com-i

ing from London and bidding against a

Brazilian and a German.

Prices in the most sought-after cities

will also be depressed longer term by

the fact that millennials — many of

them underemployed and burdened by

student debt — will be unable or unwill-

ing to buy properties that baby boomers

are looking to sell. About three-quarters

of the US is now “housing unaffordable”

for average wage earners.

That is one reason there has actually

been apick-up in the entry level housing

market n places such as Detroit or Aus-i

tin or Portland. Young people need to be

where the jobs are, but they also need

apartments they can afford, and those

are easier to find in so-called second tier

cities.

The question is how long those cities

will remain affordable. Portland, for

example, is starting to grapple with a

housing affordability crisis f its own.o

Perhaps a collapse in prices in prime

urban areas will bring all those millenni-

But I think we could be at the begin-

ning of a sea change in top markets, for a

number of reasons. In the UK, Brexit has

created huge uncertainties for prime

London tenants and buyers. Meanwhile,

in the US, the Committee on Foreign

Investment in the United States (Cfius),

which reviews and approves foreign

investment deals, has proposed new

rules that wouldexpand scrutiny of

such deals nto real estate, an area thati

had previously been passed over.

Now, if an overseas buyer wants to

make a big real estate purchase, it could

be subject to the kind of scrutiny that

ultimately blocked the Singaporean tel-

ecoms companyBroadcom’s $142bn bid

for US chipmaker Qualcomm last year.

This is bad news for prices, which have

long been buoyed at the top end by for-

because of recessionary fears, and the

(even) lower interest rates that they

might herald.

At the same time, the commercial

market, which has been in a bubble for

some time, is finally deflating. US Fed-

eral Reserve officials have been saying

for some time that the commercial mar-

ket was overheated, even as US banks

have made $700bn worth of commer-

cial real estate loans since 2012. Now

WeWork —a company that has become

a symbol of all things frothy — is at the

centre of what may be a sustained drop

in commercial prices in New York and

London.

The property company, which

recentlyscrapped its initial public offer-

ing, is the largest private sector office

tenant in both cities. As it has imploded,

so hasan £850m commercial deal ni

London that was home to one of

WeWork’s largest sites. In New York, the

company has basically been forced to

stop signing new leases.

You could argue that some deflation

would be healthy — according to a

recent Goldman Sachs report, commer-

cial real estate prices in New York are

now 42 per cent above 2007 levels and

108 per cent above post-recession lows.

The Boston Federal Reserve presi-

dent, Eric Rosengren, and San Francisco

Fed president, Mary Daly, have recently

called out risks in the sector. The MSCI

US Reit Index has quadrupled in value

over the past decade as investors have

searched, often desperately, for yield. A

correction at this stage of the cycle

would perhaps be only natural.

L

uxury real estate is over. I

hate to say it and — as some-

one who has a large percent-

age of her net worth tied up in

a Brooklyn townhouse — I’m

talking against my own book. But it is

true.

For years, cities including London,

New York, San Francisco and Los Ange-

les, have been largely disconnected

from national property market trends.

Such places seemed to be a class by

themselves, buoyed by being at the right

end of a bifurcated global economy.

Former New York City mayor Michael

Bloomberg oncelikened the Big Apple

to a “luxury product” for which people

are prepared to pay an exorbitant pre-

mium.

Except they aren’t any more. The

prices of luxury apartments in Manhat-

tan are falling for the first time in 10

quarters, and it’s thefastest annual drop

since 2011, according to Miller Samuel, a

New York-based real estate consultant.

“The upper third of the market is

characterised by elevated inventory”

and sellers who have been “anchored to

2016-2017 prices,” says president

Jonathan Miller. But buyers are waiting

longer than ever before to jump,

Luxury real

estate has a

long way to fall

The commercial market,

which has been in a

bubble for some time, is

finally deflating

ASIA

Jamil

Anderlini

OCTOBER 7 2019 Section:Features Time: 6/10/2019- 18:00 User:nicola.davison Page Name:COMMENT USA, Part,Page,Edition:EUR, 21, 1