China miscalculates

TUE, OCT 08, 2019

YOUR AFTERNOON NEWS UPDATE AND MARKET ACTION FROM CNBC

AS OF TUE, OCT 08, 2019 • 12:02 ET

DJIA		26188.57
		-1.09%	-289.45

S&P 500		2902.23
		-1.24%	-36.56

NASDAQ		7858.09
		-1.23%	-98.21

EDITOR'S NOTE

My first thought, after Rockets GM Daryl Morey's tweet last weekend supporting the Hong Kong protesters, was to lament: he's gonna be out of a job.

After all, we've seen this script before. Every time China confronts a U.S. business for insulting it or not playing by its rules, the U.S. business backs down. Gap. Marriott. Coach. Tiffany. Vans. Delta. Apple. And it's not just American companies: UBS suspended its chief economist for awhile for saying the phrase "Chinese pigs" in reference to...actual Chinese pigs. Miraculously, he's back on the job.

Also miraculously, Daryl Morey has not only so far kept his job, he might also have turned public sentiment against China in a much more significant way.

There are two reasons why this particular case has set people off: one, because the cause of the Hong Kong protesters fighting for the democracy they were promised is pretty clear. And two, because the NBA has so prided itself on supporting its players and employees speaking out on political issues that to not defend Morey looks hypocritical at best, and craven--because of the big NBA dollars involved--at worst.

If it were any other China-related issue, or any other organization, the backlash to the NBA's--and Morey's--apologetic initial response probably wouldn't have been so great. But the backlash by fans, politicians, and the general public here has been pretty major. Now you have people tweeting about why the NBA has a training camp in China's Xinjiang province where our Defense Department says it is operating Muslim concentration camps.

The larger, and much more difficult, issue for the NBA is whether and how to continue doing business in a country that has become much more authoritarian under President Xi. And that's hardly just an NBA problem--this is a country that Starbucks recently declared as its "second home market."

Google walked away. And I wonder how many other companies will now make that extremely difficult choice. Probably more than would have five or ten years ago, when the outlook for China looked much brighter. Maybe Dan Clifton of Strategas is right when he says this is our new Cold War--and the last one lasted thirty years.

And maybe access to China's market isn't all it's cracked up to be. Niall Ferguson just bet a Chinese economist that the country's economy will never actually overtake America's in size. And any further loss of American business, or access to U.S. markets, will certainly undermine its growth potential.

One thing is for sure: the NBA controversy this week is a clear win for the Hong Kong protesters, and that can only be a loss for China's ruling Communist Party. Their heavy-handed response to the issue now looks like a miscalculation--and they won't take that lightly.

See you at 1 p.m.!

Kelly

Kelly Evans
@KellyCNBC

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