China’s foreign ministry vows countermeasures over US sanctions even as Hong Kong banks face blacklist threat
- Foreign ministry spokesman Zhao Lijian said US should stop interfering in Hong Kong affairs, Chinese domestic issues
- Hong Kong Autonomy Act allows the US to penalise lenders who engage in ‘significant’ transactions with blacklisted officials
“The Hong Kong issues are purely China’s internal affairs and no country has the right to make unwarranted remarks and interfere with the matter,” foreign ministry spokesman Zhao Lijian said during a press conference on Thursday, adding that China has lodged a formal protest with the US against the move.
“The US should correct its mistakes and stop interfering with Hong Kong affairs and China’s domestic politics. If the US insists on that, China will take resolute countermeasures to protect its sovereignty and national interest, and to safeguard the legal rights and interest of Chinese companies and related personnel.”
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The Hong Kong government also voiced its opposition against the US move and urged the US to refrain from taking measures that might undermine the interests of the international financial system.
A government spokesman strongly reprimanded the American authorities for publishing a report that had “totally groundless and irresponsible accusations against the HKSAR”. He defended the introduction of the national security law and criticised the US’ threat to impose sanctions on financial institutions and government officials as another example of “US hegemony”.
“The US’ ‘sanctions’ will not create an obligation for financial institutions under Hong Kong law. Our financial institutions and our financial system as a whole are robust and resilient. They will continue to operate normally and smoothly despite any undue pressure from the US,” he said.
The comments from the Hong Kong and Chinese governments came as the city’s lenders, including the Hong Kong arms of China’s big state-owned banks, could soon find themselves in the firing line over the national security law.
“Instead of including more individuals on the list, they cut one,” He said. “We do not see the situation escalating at the moment.”
He cited US sanctions as a potential outlook risk in initiating coverage of several Hong Kong banks this week.
The threat of sanctions sent the shares of the city’s three currency-issuing lenders lower in trading in Hong Kong on Thursday.
Because of the dominance of the US dollar as a trade currency, sanctioned individuals often face difficulty in engaging in transactions that come anywhere near the US financial system.
Banks and other businesses have paid tens of billions of dollars in fines in the past decade as the US more aggressively pursued institutions who facilitated transactions by blacklisted individuals and countries.
As a result, global banks – not just American lenders – are particularly cautious about maintaining accounts with so-called politically exposed persons and seek to close accounts or limit their interactions with those individuals at the first hint of potential sanctions.
Banks contacted for this story declined to comment or did not respond to requests for comment.
However, some lenders in Hong Kong have already severed ties with blacklisted city officials or strengthened their reviews of any transactions going forward with those individuals, according to people familiar with the matter.
Hong Kong national security law official English version:
The challenge for lenders, such as HSBC and Standard Chartered, is particularly acute as their business revolves around the flow of trade between developed and emerging markets, with the US dollar serving as a key trade currency.
Under the Hong Kong Autonomy Act, lenders who engage in “significant” transactions with blacklisted officials can be cut off from serving as a so-called primary dealer in US Treasury bonds, engage in foreign exchange transactions involving the US dollar and not receive loans from American banks.
Their senior executives also face potential travel bans and sanctions themselves.
No Chinese lenders currently serve as primary dealers to the Federal Reserve Bank of New York, but HSBC’s US arm does.
Global banks in the city also have to worry about running afoul of the national security law itself, which bars sanctions against the city or mainland China, and an “unreliable entities” list being drafted by Beijing.
Nationalistic tabloid Global Times has said HSBC could potentially be added to the “unreliable entities” list for its prior help in a US investigation into Chinese telecommunications giant Huawei Technologies.
“HSBC is caught in the crossfire of potential sanctions by the US under the HK Autonomy Act and risk of being named ‘unreliable’ by China,” Citigroup analyst Yafei Tian said in a September 22 research note. “Should it be on the list, even without tough measures taken, its mainland China business would likely be adversely impacted as its clients reduce transactions. Mainland China clients in [Hong Kong] might also avoid unnecessary transactions with HSBC HK. In a worst-case scenario, HSBC might be forced to divest its investments in mainland China.”
Standard Chartered has a similar exposure to the mainland, but it could face “less political risk” because of its involvement in the country’s Belt and Road Initiative, Tian said.
The US State Department must designate any financial institutions who engaged in those transactions within the next 30 to 60 days and the US President must enact at least five types of sanctions against those institutions within a year’s time.
And, the sitting President has the ability to remove foreign financial institutions from sanctions if the transactions are “not likely to be repeated in the future” or have been reversed or mitigated through “positive countermeasures”.
Additional reporting by Kanis Leung