In this episode of our BryghtCast edition of the Managing Uncertainty Podcast for the week of August 12, 2019, Bryghtpath Principal & CEO Bryan Strawser and Consultant Bray Wheeler take a look at three current risks and upcoming events:
- Hong Kong protesters offer apologies, China doubles down after airport clash
- One-China T-Shirt row engulfs Coach and Disney, a day after Versace apology
- Donald Trump to delay extra tariffs on Chinese imports
- US designates China as a currency manipulator for the first time in decades
Bryan Strawser: Hello, and welcome to the Managing Uncertainty podcast. This is Bryan Strawser, principal and CEO at Bryghtpath. And with me today is Bray Wheeler, consultant at Bryghtpath. This is our weekly BryghtCast edition where we talk about recent news and upcoming events and what they might mean for businesses in the private sector. And we’re just doing it a little different this episode. As we looked through the news this morning, and we’re recording this on Monday, August 12th, as we looked through the news this morning, really one topic was really dominating the news that we thought had private-sector impact, and that is China.
Bryan Strawser: So we’re going to start by, again, talking about protests in Hong Kong. I awoke early this morning, of course, early afternoon Hong Kong time, but I awoke early this morning to learn that the Hong Kong Airport was completely shut down because thousands of protesters were occupying what looks from the photos I’ve seen to be essentially every square inch of real estate in the Hong Kong Airport. So inbound flights were canceled, outbound flights were canceled. And really the, again, we can protest led to airport closure. Bray, what do you see going on here?
Bray Wheeler: Yeah, it’s just that, it’s the next evolution of what they’ve been able to do. They’ve targeted a lot of these more disruptive major logistical and transportation features, government locations, things like that where they’re going to get the most bang for their buck in terms of attention and disruption really without direct violence. Now, certainly, there’s back and forth on how much violence there is actually taking place. But in terms of just the disruption and the attention, this has been the protestors’ MO.
Bryan Strawser: There were a couple of pieces of related news feeding into the airport shutdown this morning that came out over the weekend. One was there were a number of protests throughout Hong Kong over the last couple of days. I think it’s the 10th weekend in a row that there were major protests. There was tear gas fired, which is becoming also more of a norm to see that level of force from the police. There was also an interesting article, I want to say it was in Foreign Affairs Magazine, on their blog over the weekend, but it may have been elsewhere, about protest technology and false news and how both sides were using that in the Hong Kong protest through social media in order to put out their version of a narrative. I think the protesters have been very effective in using video to show their side of the story and what has gone on.
Bryan Strawser: And now law enforcement clandestinely appears to be doing something very similar planting stories in social media from the other side to counter the narrative. And that’s before we get to the point in our lives where this is being done by AI and machine intelligence and these deep fakes that we keep hearing about.
Bray Wheeler: Yeah. It’s not that it’s unheard of that certainly opposition sides are putting videos or posting pictures that certainly depict a certain way, but just the level of engagement and use of those things is a little bit unique with the Hong Kong protests. It seems like everything that has historically been a tool or a method on either side has come into play, but also some of this new stuff or bordering up, as you said, bordering up to some of this new stuff with the fake images and fake video and fake sounds and all that stuff. It’s not overt, but they’re encroaching on that directly being used.
Bryan Strawser: Right. It’s almost like there’s a different level of sophistication here that we haven’t seen, which makes sense. We’re talking about democratic protestors in Hong Kong and all the sense of innovation and freedom that comes with that. And China, the rising great power, who has made a name for themselves in some ways because of their technological capability really only rivaled by the United States in the great power conflict.
Bray Wheeler: Yeah. I think, to your point, the level of technology use in everyday life, the level of education, the level of all those things are definitely coming into play here in a different way than we’ve seen in some of these other countries where they’re upset about lack of access to those things and lack of access to be able to grow and to use technology and to have that accessibility, that’s not the case between China and Hong Kong. They have it.
Bray Wheeler: So it’s almost like a protest on a different front, a 21st-century protest almost with just every technological piece coming into play, and we’re seeing it and we’re hearing it everywhere, it’s being covered everywhere.
Bryan Strawser: There were two other omnibus bits of news that came about with the protest today, things that happened this morning U.S. time. The first is that China made a statement about the protests that these were actions of terrorists.
Bray Wheeler: Sprouts of terrorists.
Bryan Strawser: Sprouts of terror. Okay, that’s very Chinese. Sprouts of terrorism erupting in Hong Kong. Is this an escalation, do you think, in terms of rhetoric?
Bray Wheeler: I certainly think it definitely is an escalation on China’s part to use that kind of language, to throw that out, to not directly say it is terrorism, as you said, the Chinese language version of that or communication version of that, was sprouts of terrorism masking it as, “Hey, this is starting to evolve into this and we’re starting to become concerned,” becomes what will likely be a justification should they escalate this from use of military or force martial law that they declare. They’re laying the seeds to be able to do that kind of stuff.
Bryan Strawser: The other bit of news relates to what you just said, and that’s could the military be used? Could there be more physical escalation? And there were almost what I would say some tinfoil hat wearers on social media this morning talking about, “Hey, there are convoys of military trucks making their way through Shinjin towards the Hong Kong border.” And I think a lot of people went, “Yeah, okay. You look like somebody that might wear a tinfoil hat from time to time.”.
Bryan Strawser: But then China came out and admitted that, yes, we have placed 12,000… They described it as riot police, but the vehicles are clearly military. But of course there’s not much differentiation in China between the two sometimes. So they’re at the border, this appears not to be a conspiracy. They really are there. So this is a physical warning to the protesters that we may decide to assert ourselves.
Bray Wheeler: Yeah, I think China is very much preparing for that possibility or at least playing the leverage that they have to be able to take control of the situation in a way that maybe doesn’t even escalate to the use of it. But they’re definitely starting to demonstrate and starting to position that use of force and those cards that they have available that certainly Hong Kong protesters do not have because the police are certainly not going to take their side necessarily in this situation. So they’re at a disadvantage in that sense. So China’s playing every advantage that they have without going full escalation, because it is a little bit of a game-changer, like we’ve talked in weeks past, where should China escalate to that moment, this becomes more likely a global situation rather than just a Hong Kong, China with some global awareness and monitoring because of Hong Kong’s position in the global economy and its relationship with certain Western countries, it definitely takes a different face, should China use force in mass within Hong Kong.
Bryan Strawser: And I would expect, and I’m speculating here if China decides to directly intervene with mainland China military or police that’s going to happen extremely quickly and without warning. Right? It’ll be like if I draw a parallel to what we saw in Cairo in 2011 with the Arab spring, we went from relatively easy to get around the city and safe to get around the city to people not being able to leave their condo or home because they couldn’t cross town to get to work or to visit family. It’s going to happen at that scale and speed and it’s going to be very difficult to get people out. And I don’t remember, there are 90,000 Americans there. The number is really high.
Bray Wheeler: Yeah. It’s a really, really high percentage of Americans and other Western country, citizens from other Western countries. And I think the interesting piece that comes into play that, I don’t know how much impact it has, but it’s a little bit of an interesting thought is should China elect, to your point, go in in mass and do it relatively quickly? Typically, that’s something that would take place overnight. And then in the nighttime hours that they would just show up, take control, and when people wake up in the morning-
Bryan Strawser: It’s over.
Bray Wheeler: It’s over. It’s a game-changer. What’s happening though with these protests is a lot of them are happening afternoon, into the evening, in the overnight. So it’s almost a 24/7 operation on the protester front. But there is no good moment for China to just sneak in, take control of Hong Kong and have it be done. They’re going to be seen, it’s going to be felt, it’s not going to be quite the clandestine operation that I think China would like it to be.
Bryan Strawser: So when it comes to Hong Kong, and then we can move onto the next two topics that we outlined for today, our message to businesses really remains the same. This is something that you need to continue to monitor. I think you’ve got to be cognizant of the fact that this may move so quickly you won’t have an opportunity to respond or to put other plans in play. So now is the time to plan for those various contingencies. Do you want your expatriates there if the stuff goes down between Hong Kong citizens and the mainland? Do you want to move in advance of that? What continuity implications could this have for your business? And I think any way you slice this, you’re running the risk of getting caught in the middle of this and then being unable to react until it’s truly over.
Bray Wheeler: And I think even just in probably to somewhat of a lesser degree, just as we’ve seen the airport being disrupted, and we’ve talked about this in weeks past too, just that Hong Kong is a travel hub. So even if you don’t have an operation in Hong Kong but you use Hong Kong as a transit point to hit other countries, you may want to start evaluating whether or not in the short term, near term, that continues to be the spot that you want to transition folks through, or does Tokyo or Seoul or somewhere else become more of [crosstalk] the right spot for you? What’s the risk-reward of doing that? Is it cost-effective to start making those switches now?
Bryan Strawser: Yep. What’s our second China topic?
Bray Wheeler: Second China topic, still somewhat related to the Hong Kong issue, and an interesting nexus there too that I think not only plays in the line with China’s message on Hong Kong, so it definitely has some global implications to it. But I think more to the point of what we’re discussing here from a private-sector standpoint, from a corporate standpoint, is some branding issues with some different products. So over the weekend, several companies have gotten embroiled with some China controversy, Versace, Coach, and Disney, in terms of some t-shirts that these companies have put together in which they’ve listed Hong Kong, Macao, and Taipei or Taiwan as separate from China.
Bray Wheeler: So Beijing, Shenzhen has been listed as the city with the country, so Shenzhen, China. But with Hong Kong and Macao, they’re listed separately as just Hong Kong, Hong Kong or Macao, Macao. And then Taipei is Taipei, Taiwan, which in China’s view is highly offensive to a one-China policy that they have and one China vision that they take issue with, but also feeds that narrative that’s going on in Hong Kong and some of those sensitivities.
Bray Wheeler: But I think just from a corporate branding standpoint, not only is it an issue itself just from that market and those Chinese customers looking at that and being offended by it and impacting market space, but also it leads to the need for corporations to really have somewhat of a review process with some of their products to highlight some of those sensitivities that may come into play and may impact you. We’ve seen it certainly with Israel and Palestine through products, cultural appropriation, use of different icons and symbols. The U.S. flag is always one. But just those things, when companies are using products or branding or things like that, these things pop up. They have an impact and they become a distraction.
Bryan Strawser: From an international relations standpoint, this is one of the greatest sins you can commit in a playing field where China is present, is to refer to Hong Kong or Macao as separate than China. But the biggest sin of all in international relations where China’s there is to refer to what they think of as Chinese Taipei, the wayward province of Taiwan, as Taiwan as an independent power. Right or wrong, that’s the way diplomacy is conducted when you’re talking about these things. And Disney and Versace and Coach are well respected international companies, particularly Disney who operates in China and really stepped in it with this approach. So China really had some words for them over the weekend and it’s caused all three companies to apologize.
Bray Wheeler: Yes. And like I was saying before, too, these types of situations are easily catchable, easily mitigated, but if they’re not, they become front-page news. And to your point, particularly with China and the volume, and like we’ve talked about just right before, the circumstance of what’s going on in Hong Kong and that narrative of Hong Kong being a part of China, when you step into it and then step in it in the middle of something else, becomes a serious brand component. And China’s a big market and their a big player in the global economy.
Bryan Strawser: Absolutely. So I’m not sure there’s a thing here to monitor. Certainly, companies should be culturally sensitive on this particular topic. Make the right decision by your company.
Bray Wheeler: When I think if you’re fortunate enough to have or you’ve invested the resources into it from a reputation monitoring, from a crisis response monitoring, there’s opportunities, we’ve seen it with other companies, company I used to work for became a cross-functional group that got put into place to review some of these things that, as a point for different merchandising or branding or communications or whatever it might be to be able to go and use it as a resource to look and say, “Hey, this looks all great, but if you do this we’re going to have an issue because this thing, Hong Kong is separate from China, is going to be an issue.” Or used before, Israel Palestine, is a common one, putting Palestine on things causes issues.
Bray Wheeler: So there’s really having a mechanism or having a thought process or starting to think about, from a rep management standpoint, from a incident response standpoint, starting to have some of those reviews or those conversations, highlighting those as potential issues at the very least could become effective in mitigating some of those, or at least getting ahead or being prepared to respond.
Bryan Strawser: Yeah, I completely agree. I think that those are very important things to have in place. If you’re going to do business on a global scale, then you need to understand the sensitivities involved in such.
Bray Wheeler: Yep.
Bryan Strawser: So our last topic for this week’s edition is just in general about some current news around tariff and currency issues between China and the United States. There were two big announcements around this last week, both done by the president. The first is that he was adding a 10% tariff to products that were not currently seeing a tariff from China to the United States. China retaliated following that tariff announcement by saying that they were going to stop buying grain from the United States.
Bryan Strawser: That’s a pretty significant impact on the Midwest where most of the grain used in the world is grown, and China is the biggest market for grain in the world and buys a significant amount of grain from the United States. So hard to know where that’s going. Interestingly enough, on NBC News this morning I saw that there was a poll of farmers in Indiana, Illinois, Minnesota, Wisconsin, Nebraska, I believe were the states, about the tariffs. And 57% said they supported the president’s action.
Bryan Strawser: The other thing that happened between the U.S. and China last week is that the United States for the first time declared China to be an international currency manipulator, that they were deliberately manipulating the yuan, the Chinese national currency, which then after an initial very negative response, China came back and said that they would not devalue the yuan in the international markets. Their initial response, by the way, is that this was a ridiculous accusation by the United States, but then within 12 hours they said, “Well, we won’t be downgrading or otherwise manipulating the yuan.”
Bray Wheeler: And I think they were trying to combat the perception, at the very least, the perception that they were doing it in response to the tariffs as a weapon to counteract the tariffs that were put into place. And that it was reactionary rather than they did it because it was the right economical thing for China to do, independent of tariffs, was the narrative they were trying to re-put out after stepping in it.
Bryan Strawser: So these are definitely two issues to watch, the tariff situation when it comes to grain, and the Chinese deciding not to buy U.S. grain. I’m not actually sure how sustainable that is. I think the grain in the world typically comes from the United States, although Russia grows a significant amount of grain as well. But I’m not sure if that throw will actually turn out to be true or not. But certainly the trade war continues to heat up, and that’s definitely an issue that businesses should continue to monitor.
Bray Wheeler: Yeah, I think especially going into the fall and winter, when typically the Midwest, the big producers of it are going to go into the winter season and having a lot of that stored up, and how long has that been stored and whether or not that can be sent over. So even though we’ve grown it and we’re holding it, how does that play? I think it’s, to your point, the sustainability of some of that is in question, but timing is certainly another piece to it too, the fact that this is taking place right now in comparison to that fall/winter time period where there’s a little bit lower risk or pressure from it. We’ll have to see.
Bryan Strawser: That’s it for this edition of the Managing Uncertainty podcast. We’ll be back with our regular topical episode next Monday. Thanks for listening. Hope to hear from you again soon.