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Cathay Pacific: The week, the main Hong Kong airline bows in front of China

China is furious with the challenge to its authority and has threatened a crackdown if the situation deteriorates further. Other events are planned for this weekend.

None of this was enough to save two of the top leaders in the company, and news of their departure was first announced in the Chinese official media.

"International companies are facing a new reality here," said Ronald Wan, managing director of Partners Capital International in Hong Kong.

For over 20 years, the former British colony has been governed by the One Country, Two Systems Regulation, which gives the city political and legal freedoms that are not available on the Chinese mainland. This has helped protect Hong Kong from its status as a formidable financial hub and reassure foreign companies that the city is a safe and stable place to operate.

But the Cathay crisis signals a change in the way China views the city – and in which it expects companies to operate there.

"Beijing is increasingly uncompromising on issues of sovereignty and territorial integrity," Wan added. "Hong Kong is no longer a safe haven, it's not" Hong Kong, China. "It's China."

Two tumultuous weeks

The political turmoil began months ago when Hong Kong residents began to protest a controversial bill that would have allowed extradition to mainland China. The bill was finally put aside, but the protests turned into a broader call for greater democracy and an investigation into alleged police brutality.

The central role of Cathay has appeared much more recently. More than a thousand of its employees participated in a strike last week that forced the company to cancel more than 150 flights. A few days later, China said it would not allow Cathay flights driven by people involved in "illegal demonstrations, demonstrations and violent attacks" to use its airspace. He forced the airline to provide crew IDs.
Cathay Pacific lost hundreds of flights this week when protesters targeted the Hong Kong airport.

The airline had little choice but to comply with the order because Cathay not only flies to mainland China, but also goes through its airspace to reach the airport. Europe and the United States.

"It is impossible to ignore the threat of the Chinese civil aviation authorities to ban crews from taking part in Hong Kong demonstrations to operate flights from China," he said. said David Bandurski, co-director of the China Media Project. "I think we can expect to see many more examples like this, where China will use its economic leverage to advance its political agenda."

But Cathay's surrender did not stop there.

On Monday, the company hardened its language and warned that it could fire employees involved in illegal protests. China's aeronautical authorities have met Merlin Swire – the billionaire at the head of Cathay's largest shareholder Swire Pacific (sweep) – that same day.
Hong Kong Billionaires Demand Restoration of Order

On Wednesday, Cathay said he had ended two pilot projects without giving any reason. A well-placed source in the company told CNN that the pilots had been fired in connection with events-related activities.

All the while, Cathay was grappling with threats to her results. Hundreds of additional flights were canceled earlier this week as protesters invaded the airport and reservations are affected. Its stock has fallen more than 12% in the last month.

On Friday, the company announces the release of General Manager Rupert Hogg and Commercial Director Paul Loo.

The 'sins & # 39; from Cathay Pacific

China Central Television, the mainland television channel that announced the release of Hogg, issued a long message Friday night on the Chinese social network Weibo, which described Cathay's actions as "sins".

"No zuo no die!" State-owned media have written, using a slang that translated to: "If you do not do silly things, they will not come back to bite you in the a–."

CCTV pointed out that Cathay "said that the behavior of some employees did not represent the position of the company" only after the intervention of the Chinese aviation authority. He accused the airline of having an imperfect "professional ethics".

Cathay did not give specific reasons for the changes of direction. But President John Slosar said in a statement that "recent events have challenged Cathay Pacific's commitment to flight safety and put our reputation and brand under pressure."

Meanwhile, Hogg told employees in a memo that it was a "serious and critical moment" for the airline.

"There is no doubt that our reputation and our brand are under immense pressure and that this pressure has intensified in recent weeks, especially in the very important market of mainland China," wrote Hogg in a memo, that the airline shared with CNN Business. "Could we have handled things differently?" Looking back, "yes."

Greg Waldron, the Asia editor of the aeronautical press group FlightGlobal Group, said he did not want to speculate on the reasons for leaving. But he said that the episode highlights the challenge for the airline.

"It's unprecedented," Waldron said. "It is clear that he does not want to bother Beijing, he wants to avoid politics and stay focused on his business."

Part of a trend

What happened in Cathay this week will probably not be an anomaly, "said William Reinsch, chairman of the Scholl Chair for International Trade at the Washington Center for Strategic and International Studies.

He added that the Chinese government is already intensifying its efforts to control companies and put pressure on them to comply with the party line.

"In [President] The administration of Xi Jinping, the number one priority, is to maintain control of the party, "added Reinsch," it is a self-preservation, and it is more important than anything else. " "

Hong Kong companies may feel a chilling effect. The financial sector depends on stability, he added. Without this presence in the city, some businesses may feel the need to uproot and move to other places in the region, such as Singapore.

"This creates enormous uncertainty about the government's intentions," added Reinsch. "And what people tend to do in case of uncertainty, is that they do nothing and wait, or if they predict that the situation will continue, they will move." "

Wan, the executive of Partners Capital International, said the consequences for other companies would be considerable.

"I'm afraid Cathay is not the only one who has to compromise," he said. For western companies like HSBC (HBCYF) or the Jardines group, "if you can not move your Hong Kong businesses, you must also compromise."

– Laura He and Michelle Toh from CNN Business contributed to this report.

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