This Fascinating City Within Hong Kong Was Lawless For Decades

There are very few places on Earth that remain ungoverned, and even the tiniest islands and city-states tend to have rules in place for things like taxation and citizenship.

Government control is an established reality for most of the world, but what would happen if a neighborhood in your city suddenly became a lawless free-for-all? What type of industries would emerge, and how would people cooperate within that environment to ensure basic services continued to operate?

As Visual Capitalist's Nick Routley details below, one example from recent history sheds light on just how such a situation could work: Kowloon Walled City.

Courtesy of: Visual Capitalist

 

Kowloon Walled City

Today’s infographic is a fantastic editorial illustration from South China Morning Post from 2013 that takes a detailed look at the inner workings of Kowloon Walled City (KWC).

Often described as one of the most remarkable social anomalies in recent history, this bizarre enclave was more dense than any other urban area on the face of the planet.

Kowloon Walled City Timeline

The story of the KWC site begins in the Song Dynasty (960-1297) when a small fort was constructed to house soldiers who helped safeguard the salt trade. In the latter half of the 19th century, the small fort was expanded into a full garrison town as the threat of a British invasion hung over China.

In 1898, the 99-year lease of Kowloon and the New Territories was established with one exception: the 2.7 hectare walled fortress. Because China never dropped its claim on the site and the British took a hands-off approach, the site became a sort of lawless enclave.

After WWII, squatters began to fill the site and more permanent structures followed. By 1950, the population had grown to 17,000, and by 1990 over 50,000 people lived within a property the size of two rugby fields.

kowloon walled city density people

From Squatter Camps to Functioning Neighborhood

There was a tendency to view KWC is an isolated bubble of vice within the city, but the sheer volume of business activity within the informal settlement shows that outside customers were more than happy to benefit from lower priced goods and services. This symbiosis has few parallels in modern history, and it makes KWC a fascinating situation to look back on.

KWC is best known as an enclave of criminal activity and illicit businesses such as brothels and gambling dens, but that only tells one side of the story. Despite the lack of space and formal links to utilities, the neighborhood was remarkably productive. In fact, KWC was often been described as Hong Kong’s shadow economy because the hundreds of tiny workshops and factories scattered throughout the site provided products for businesses across Hong Kong.

Kowloon Walled City Businesses

People moved to KWC for many reasons, including bankruptcy, poverty, or to avoid deportation. Others went there to take advantage of the lack of law enforcement and regulations.

One prominent example of skirting regulation was the high concentration of dental and medical practitioners operating within KWC. In addition to lower rents, doctors who immigrated to Hong Kong from China could avoid expensive licensing and retraining required by the colonial government. Industrial businesses were free to ignore fire, labor, and safety codes to produce goods at a lower cost, or to sell items that were considered taboo in the formal economy (e.g. restaurants serving dog meat).

Law and Order

Triads acted as a de facto city council by resolving civil conflicts, creating a volunteer fire brigade, and organizing garbage disposal. The tight-knit community within the settlement would also coordinate among themselves to conserve electricity and make repairs to shared infrastructure.

Despite the lack of formally recognized land ownership, people still bought and sold property within KWC. In one example, a construction company struck an exchange deal with the owner of a four-story building. The owner would retain a ground floor flat in a newly constructed thirteen-story building on the site.

The Bitter End

In 1993, after intense rounds of buy-out offers and forced relocations, Kowloon Walled City was demolished and converted into a park. Many of the businesses were forced to close forever as rents in the rest of Hong Kong were not affordable for most of the owners.

All this intensity of random human effort and activity, vice and sloth and industry, exempted from all the controls we take for granted, resulted in an environment as richly varied and as sensual as anything in the heart of the tropical rainforest. The only drawback is that it was obviously toxic.

– Greg Girard, author of City of Darknes

US Threatens To Cut Off China From SWIFT If It Violates North Korea Sanctions

In an unexpectedly strong diplomatic escalation, one day after China agreed to vote alongside the US (and Russia) during Monday’s United National Security Council vote in passing the watered down North Korea sanctions, the US warned that if China were to violate or fail to comply with the newly imposed sanctions against Kim’s regime, it could cut off Beijing’s access to both the US financial system as well as the “international dollar system.”

Speaking at CNBC’s Delivering Alpha conference on Tuesday, Steven Mnuchin said that China had agreed to “historic” North Korean sanctions during Monday’s United Nations vote. “We worked very closely with the U.N.  I’m very pleased with the resolution that was just passed.  This is some of the strongest items.  We now have more tools in our toolbox, and we will continue to use them and put additional sanctions on North Korea until they stop this behavior.”

In response, Andrew Ross Sorkin countered that “we haven’t been able to move the needle on China, which seems to be the real mover on this, in terms of being able to apply the real pressure. What do you think the issue is?  What is the problem?”

The stunner was revealed in Mnuchin’s answer: “I think we have absolutely moved the needle on China.  I think what they agreed to yesterday was historic.  I’d also say I put sanctions on a major Chinese bank.  That’s the first time that’s ever been done.  And if China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system.  And that’s quite meaningful.”

And to underscore his point, the Treasury Secretary also said that “in North Korea, economic warfare works. I made it clear that the President was strongly considering and we sent a message that anybody that wanted to trade with North Korea, we would consider them not trading with us.  We can put on economic sanctions to stop people trading.

In other words, to force compliance with the North Korean sanctions, Mnuchin threatened Beijing with not only trade war, but also a lock out from the dollar system, i.e. SWIFT, something the US did back in 2014 and 2015 when it blocked off several Russian banks as relations between the US and Russia imploded.

Of course, whether the US would be willing to go so far as to use the nuclear option, and pull the dollar plug on its biggest trade partner, in the process immediately unleashing an economic depression domestically and globally is a different matter.  So far Washington has been reluctant to impose economic sanctions on China over concerns of possible retaliatory measures from Beijing and the potentially catastrophic consequences for the global economy. Washington runs a $350 billion annual trade deficit with Beijing, while the PBOC also holds over $1 trillion in US debt.

Ironically, the biggest hurdle to the implementation of the just passed sanctions may be the president himself.  “We think it’s just another very small step, not a big deal,” Trump told reporters at the start of a meeting with Malaysian Prime Minister Najib Razak. “I don’t know if it has any impact, but certainly it was nice to get a 15-to-nothing vote, but those sanctions are nothing compared to what ultimately will have to happen,” said Trump who has vowed not to allow North Korea to develop a nuclear ballistic missile capable of hitting the United States.

Separately, at a hearing of the House Foreign Affairs Committee on Tuesday, Republican Chairman Ed Royce said the U.S. should target major Chinese banks, including Agricultural Bank of China Ltd. and China Merchants Bank Co., for aiding Kim’s regime. Russia also came in for criticism. Assistant Treasury Secretary Marshall Billingslea said in prepared remarks to the committee that North Korean bank representatives “operate in Russia in flagrant disregard of the very resolutions adopted by Russia at the UN.”

While China and Russia supported the latest UN sanctions, officials made clear they were troubled by Haley’s comments in the Security Council that the U.S. would act alone if Kim’s regime didn’t stop testing missiles and bombs. They emphasized the world body’s resolution also emphasized the importance of resolving the crisis through negotiations. “The Chinese side will never allow conflict or war on the peninsula,” Foreign Ministry spokesman Geng Shuang said in a statement on Tuesday.

In a soundbite late on Tuesday, Japan’s Nikkei quoted prime minister Shinzo Abe who said that “in the end, [the North Korean] problems should be solved through diplomatic dialogue,” adding that Japan will “work together with the international community to apply maximum pressure, so that North Korea commits to perfect, verifiable and irreversible denuclearization.” For Japan to engage with the regime, he stressed it would have to be “on the condition that North Korea commits to” this complete denuclearization.”

Which, of course, won’t happen: “sanctions of any kind are useless and ineffective,” Russian President Vladimir Putin told reporters earlier this month at a summit in Xiamen, China. “They’ll eat grass, but they won’t abandon their [nuclear] program unless they feel secure.

Predictably, North Korea’s Foreign Ministry slammed the sanctions saying it “condemns in the strongest terms and categorically rejects” the United Nations adding more sanctions, North Korea’s state-run KCNA reported on Wednesday morning. Instead, North Korea warned it “will redouble efforts to increase its strength” as it seeks to establish “practical equilibrium” with U.S.

And so, not only is the entire geopolitical circle jerk back at square one, but the ball is again back in North Korea’s court, while the decision on whether or not to launch another ICBM really depends on whether China will give it the quiet go ahead; a China which responds notoriously poorly to being threatened in the global financial arena, like for example when the US threatens to kick it out of the global dollar system…

Calls To Imprison “Climate Change Deniers” Grow In The Wake Of Hurricane Irma

When retired Georgia Tech professor Judith Curry penned a blog post on her “Climate Etc.” website suggesting that it was scientifically irresponsible to tie the intensity of Hurricanes Harvey and Irma directly to climate change, she probably didn’t expect that she might trigger 1,000’s of progressives to call for her immediate imprisonment.  Unfortunately, for both Curry and society at large, that is exactly what happened. 

Here is part of Curry’s post that potentially resulted in this latest ‘mass-triggering’ event:

It is premature to conclude that human activities–and particularly greenhouse gas emissions that cause global warming–have already had a detectable impact on Atlantic hurricane or global tropical cyclone activity. That said, human activities may have already caused changes that are not yet detectable due to the small magnitude of the changes or observational limitations, or are not yet confidently modeled (e.g., aerosol effects on regional climate).

As the Washington Times notes, Curry’s comments only served to further enrage Al Gore’s climate change crusaders who promptly ramped up their calls to imprison anyone with the audacity to present any data and/or question, in any way, climate models which should be accepted as proven fact…even though they’re subjective and highly sensitive any number of input variables.

That is the kind of talk that could get policymakers who heed her research hauled before the justice system, if some of those in the climate change movement have their way.

 

“Climate change denial should be a crime,” declared the Sept. 1 headline in the Outline. Mark Hertsgaard argued in a Sept. 7 article in the Nation, titled “Climate Denialism Is Literally Killing Us,” that “murder is murder” and “we should punish it as such.”

 

The suggestion that those who run afoul of the climate change consensus, in particular government officials, should face charges comes with temperatures flaring over the link between hurricanes and greenhouse gas emissions.

 

“In the wake of Harvey, it’s time to treat science denial as gross negligence — and hold those who do the denying accountable,” said the subhead in the Outline article, written by Brian Merchant.

 

Brad Johnson, executive director of Climate Hawks Vote, posted last week on Twitter a set of “climate disaster response rules,” the third of which was to “put officials who reject science in jail.”

PB

 

And while we’re not sure if imprisonment is the right punishment, it does seem a bit outrageous for a Georgia Tech climate scientist to challenge the opinions of both the Pope and Sir Richard Branson on climate change...who does she think she is? 

Meanwhile, Pope Francis said the two Category 4 storms offer proof of catastrophic climate change, even though they are the first two major hurricanes to make landfall on the U.S. mainland in 12 years.

 

“You can see the effects of climate change with your own eyes, and scientists tell us clearly the way forward,” said the pontiff, adding that leaders have a “moral responsibility” to take action.

 

“Man-made climate change is contributing to increasingly strong hurricanes causing unprecedented damage,” Mr. Branson said in a Friday statement. “The whole world should be scrambling to get on top of the climate change issue before it is too late for this generation, let alone the generations to come.”

Of course, while we would never question the opinions of the Pope and/or a Knight, we do find the following chart on U.S. hurricane strikes by decade to be somewhat perplexing.  Why, for example, were U.S. hurricane strikes above average for almost every decade between 1870 and 1950 before declining in the 1950s through 2000?  If hurricane frequency can suddenly be linked directly to climate change in 2017, shouldn’t it have produced similarly alarming hurricanes in the 80’s, 90’s and 2000’s?  If we’re not mistaken, CO2 output has pretty much consistently risen since man first started building fires…

Hurricanes

Of course, maybe the extreme weather events have simply shifted away from the U.S. and global hurricane strikes are the more relevant metric…except not…

Globa;

Oh well, we probably just don’t understand the math…

Bitcoin Tumbles After Jamie Dimon Calls It A Fraud: “Would Fire Anyone Trading It”

Surprised by the sudden air pocket below bitcoin? Curious if this was caused by some new, unconfirmed Chinese crackdown on bitcoin traders, exchanges, and other money launderers?

No, the answer is Jamie Dimon, who in an angry outburst during the same conference in which he preannounced JPM’s 20% trading revenue drop, lashed out at the cryptocurrency, calling it a “fraud” which is “worse than tulip bulbs. It won’t end well”, will “blow up” and “someone is going to get killed.” Oh, and in conclusion, “any trader trading bitcoin” will be “fired for being stupid.

  • DIMON: BITCOIN IS A “FRAUD”; “WORSE THAN TULIP BULBS”
  • DIMON: BITCOIN WILL EVENTUALLY BLOW UP
  • DIMON: BITCOIN WON’T END WELL
  • DIMON: WOULD FIRE ANY TRADER TRADING BITCOIN FOR BEING STUPID

So how does Jamie really feel? 

Of course, if “a trader” bought $100,000 of Bitcoin in 2010, they’d be roughly 3x richer than billionaire Jamie, but that’s another story.

What is more surprising, is that bitcoin actually reacted to this angry outburst by the JPM CEO, sliding sharply, and dragging the entire cryptocurrency space with it.

Or perhaps not surprising at all as hundreds of JPM traders quietly liquidated their accounts moments after hearing Dimon’s threat…

Curiously, as Bitcoin sold off, gold finally saw a modest bid:

As for Dimon’s personal vendetta with the digital currency, one twitter commentator said it best:

What is ironic is that this is not the first time Jamie Dimon has lashed out at bitcoin: the last time Dimon slammed bitcoin was November 2015, at the Fortune Global Forum in San Francisco. Here’s what he had to say when asked directly about it by an audience member:

“You’re wasting your time with Bitcoin! Virtual currency, where it’s called a bitcoin vs. a U.S. dollar, that’s going to be stopped,” said Dimon. “No government will ever support a virtual currency that goes around borders and doesn’t have the same controls. It’s not going to happen.”

 

“Blockchain is like any other technology. If it is cheaper, effective, works, and secure, then we are going to use it. The technology will be used, and it could be used to transport currency, but it will be dollars, not bitcoins.”

Speaking to CNBC later in the day, Dimon said he’s skeptical governments will allow a currency to exist without state oversight: “Someone’s going to get killed and then the government’s going to come down,” he said. “You just saw in China, governments like to control their money supply.” And yet, despite said “killing” Bitcoin remained well above $4,000.

That said, Dimon conceded that he wouldn’t short bitcoin because there’s no telling how high it will go before it collapses, saying that it “could hit $100,000 before it drops.” The best argument Dimon has heard about owning bitcoin, is that it can be useful to people in places with no other options: “If you were in Venezuela or Ecuador or North Korea or a bunch of parts like that, or if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than U.S. dollars,” he said. “So there may be a market for that, but it’d be a limited market.”

What is also ironic is Dimon’s admission that his daughter purchased some bitcoin, saying “it went up and she thinks she is a genius.”

And to think the Fed didn’t even have to inject $4 trillion in liquidity to make her feel that way, unlike so many stock “investors.”

Shortly after Dimon’s comment, the chairman and CEO of the CBOE, Ed Tilly – which plans to offer bitcoin futures soon – defended the cryptocurrency after Dimon’s remarks.

“Like it or not, people want exposure to bitcoin,” Tilly said. Believers can bet on its rise, and Dimon is welcome to take the other side, he said. “We’re happy to be the ones in the middle.”

* * *

Incidentally, for those who “wasted their time” since Dimon’s 2015 threat, Bitcoin is up 1,018%.

“It’s Not Worth Fighting” – Hedge Funds Are Dumping Their China Shorts

Pretty soon, China bears will be as rare as the Giant Panda.

At least that’s what Bloomberg suggested in a story about how Chinese markets have continued to defy proclamations that country’s economy would soon collapse in an avalanche of bad debt, exposing rampant corporate fraud. Or that a rash of outflows and the pressure of short sellers would force a massive yuan devaluation. Or that the exposure of rampant fraud and abuse in its corporate sector would tank local markets, which rely heavily on shady investment products.

We’ve repeatedly noted when fund managers who once loudly touted their China-related positions either moderated, or changed their minds completely. Just last week, Corriente Advisors’ Mark Hart announced the end of a seven-year options position that would’ve seen a massive payoff if the yuan dropped 50%. As we noted, he’d spent $240 million rolling over the options.

Before that, Kyle Bass, during an appearance on Adventures in Finance, said that while he was 100% certain his thesis will ultimately prove correct, calling the timing has obviously proven difficult.

Bass, in his interview, cited shady retail investment products that have been used to backstop $40 trillion in debt with only $2 trillion in equity as a looming sign of a collapse. (We’ve also noted other questionable financing deals like the use of collateralized commodity transactions, which we discuss in greater detail in “Did China's Bronze Swan Just Arrive? Copper Inventories Crash Most In History”).

Kyle Bass

Bloomberg has a more complete accounting of how hedge fund managers’ views on China have “evolved” this year, as the promise of the Shanghai Composite’s massive correction, and subsequent yuan devaluation in 2015 proved to be teasers for deeper declines that never materialized. 

Crispin Odey (Odey Asset Management): Said the yuan would slide 30% against the dollar after its 1.8% devaluation in August 2015.

Here’s Bloomberg:

“Odey has moderated his views – somewhat. He’s shorting metal stocks on expectations that China’s economy will slow in the second half. But he says betting against the yuan is no longer worth the trouble. ‘They can control their currency very easily,’ he said in an Aug. 8 interview, citing China’s massive current-account surplus. ‘It’s not really worth fighting very much.’”

Kevin Smith (Crescat Capital): Smith said the yuan was “massively overvalued” before the August 2015 devaluation. Now, he is one example of a bear who’s standing by his position despite absorbing stomach-churning losses.

“Smith is sticking to his bearish bets via currency options and short positions in Chinese stocks, even after his macro fund lost about 12 percent so far this year. He said last month that his “mid-target” for the yuan is a 70 percent plunge over the next year.”

John Burbank (Passport Capital): He said in late 2015 that a hard landing in China could trigger a global recession. In May 2016, he called for a major yuan devaluation. Though he hasn’t publicly commented on China in a while, Bloomberg says a July 31 investor letter suggests his “views have moderated.”

While he predicted China’s restrictions on housing and credit this year would be “detrimental” for commodity demand in the second half, he noted that the Communist Party continues to support the economy.

“Recent economic data has in fact been supportive of a continuation of strong growth near-term, with a slowdown possibly pushed to 2018,” Burbank said.

Douglas Greenig (Florin Court Capital): He said in June 2016 that China might devalue its currency because of Brexit.

Now his “quantitative modeling” has changed his mind; he’s now a China bull.

“Locals could sell more currency, but foreign inflows may offset that,” he said in a phone interview.

In summary, Chinese markets have performed strongly this year. Despite calls for further weakness, the yuan has rallied more than 6 percent from its eight-year low against the dollar in December. Chinese credit markets have quieted down after a period of turbulence triggered by a PBOC crackdown on rampant lending, and the Shanghai Composite Index has rallied to its highest level in nearly two years.

Still, at least for yuan bears, there may be a silver lining. The PBOC recently struck down a policy that required sales desks to hold 20% of revenues from sales of FX derivatives in reserve – effectively opening the door to short-sellers as the bank ironically now seeks to stem the currency’s advance against the dollar.