Tory Leadership Race Snared in China Tensions

(Bloomberg) --

It's a fight by a prime minister with one foot out the door. But perhaps out of a sense of duty, and an eye on her legacy, Theresa May is picking one with China.

The U.K. has a vested interest. It handed back Hong Kong to Chinese rule in 1997 and negotiated the conditions whereby Beijing would govern the city for the next 50 years.

May waded in after weeks of violent protests in the former colony against a proposed law to allow extraditions to China. Her call for respect of Hong Kong's autonomy prompted a rare televised rebuke from China's ambassador.

Beijing won't need to deal with May for much longer. Instead, it will face either former Foreign Secretary Boris Johnson or current Foreign Secretary Jeremy Hunt, the final two in the contest to become Tory leader.

Hunt warned China today of unspecified “serious consequences” if it abandons the deal on Hong Kong. That's even as he has championed close ties with Beijing, especially for trade. Johnson has also backed the protesters.

With the U.K. on a tortuous path through Brexit, it will need China ready and willing to do a quick trade deal afterward. The risk is that China tensions become entangled in the U.K. leadership process, with both Hunt and Johnson pushed to take a strong stance.

Global Headlines

Talks, accusations | There will be “lots of communications” between U.S. and Chinese officials, including face-to-face meetings, as they work to resolve their trade war, White House chief economic adviser Larry Kudlow said. His comments came as President Donald Trump leveled another accusation of currency manipulation at China, suggesting  progress in the talks will be unpredictable despite a recent thaw between the two powers.

Shifting focus | His front-runner status becoming more tenuous, Joe Biden is returning to the campaign trail with a new determination to contrast his more moderate views with those of other Democratic presidential hopefuls. After focusing attacks on Trump in the first two months of his campaign, the former vice president turned his attention to rivals in his own party as he began a two-day swing across Iowa, the first state to vote for a nominee in seven months from now.

EU angst | The picks for the European Union's top jobs have set the stage for frustration for governments stretching from Poland to Italy. The nominations strengthen the hand of those fighting against democratic backsliding amid clashes with Poland and Hungary over the rule of law. They also confound efforts by Italy's de facto leader, Matteo Salvini, to steer Brussels away from its doctrine of fiscal prudence that he and fellow populists loathe.

Fast release | Australian student Alek Sigley was freed from detention in North Korea after going missing on June 24. Sigley, who was doing postgraduate work at Kim Il Sung University, regularly posted about the secretive country on social media. It was a relatively fast release: U.S. student Otto Warmbier was held for more than 17 months and died shortly after he was sent home in a coma in 2017.

Pension watch | Brazil investors are closely watching a lower house committee where lawmakers are discussing President Jair Bolsonaro's proposed pension overhaul. While the government has the votes to push the changes through the committee, a delay today could make it impossible for the lower house to approve the constitutional amendment before Congress's mid-year recess. That would rattle markets that consider the reform essential to stanch the bleeding in public accounts.

What to Watch

• Trump speaks at the Lincoln Memorial tonight, remaking the capital's July 4th festivities into a display of military might mixed with presidential politics. The White House says Trump's message won't be political, but it comes as the 2020 campaign heats up.
• Campaigning started today in a Japanese upper house election that could determine Prime Minister Shinzo Abe's chances of achieving his long-held ambition of changing the pacifist constitution.

And finally... Images of tanks rolling through Washington's streets have inflamed Trump's critics ahead of his revamped celebration. While some past presidents have spoken on or around the annual national holiday, none has done it in quite the same way. Barack Obama delivered Independence Day remarks from the White House. Ronald Reagan gave a “Star Spangled Salute to America” speech on the National Mall in 1987, but on July 3. Richard Nixon recorded an address that played at the 1970 celebration.

--With assistance from Karen Leigh, Walter Brandimarte, Michael Winfrey and Kathleen Hunter.

To contact the editor responsible for this story: Anthony Halpin at thalpin5@bloomberg.net

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