US bill on Hong Kong sends further chill through city’s economy, stokes fears of American exodus
- Hong Kong Human Rights and Democracy Act is unlikely to have major immediate effect, but could further damage confidence in the city as a business hub
- However, analysts warn that the ‘US business community in Hong Kong have had a glimpse of the future and they did not like what they saw’
As legislation designed to pressure China to guarantee Hong Kong’s autonomy moved closer to being passed in the United States, analysts have warned that it could crack open a “Pandora’s box” to a broad range of punishment measures against officials in both the city and the mainland.
The consensus among analysts was that there would need to be a massive and sustained Chinese intervention in Hong Kong for the US to adjust the trading status, given the far-reaching consequences it would have on both Hong Kong and the US.
“That step still feels like it would be a long way off, unless there is some sort of bloody crackdown on the protest movement in the territory,” said Duncan Innes-Ker, research director for Asia at the Economist Intelligence Unit, who added that the act could strengthen US President Donald Trump’s ability to use the Hong Kong situation to punish China, should it escalate.
The American Chamber of Commerce in Hong Kong is internally discussing its position on the act, the South China Morning Post has learned.
A senior source at the World Customs Organisation said that Hong Kong’s special status had not been a topic of conversation among officials yet, but voiced concerns that “interference from the central government will only grow stronger in the long term” and that “we may see the end” of Hong Kong as an international business hub in the years to come.
However, the biggest immediate fear is that the act will place another dent in business confidence in the city, which is already teetering on the brink of recession and suffering declines in key industries, as the anti-government protests threaten to bring the economy to its knees.
“By and large, the US business community in Hong Kong have had a glimpse of the future and they did not like what they saw going forward,” said Fred Rocafort, a trade and customs lawyer at Harris Bricken and a former US consular official in China. “ Is the decoupling that is happening with regards to China going to start happening with Hong Kong as well? It will – the question for me is just how quickly that will happen.”
Hong Kong Trade Development Council research director Nicholas Kwan Ka-ming said any changes to trade policy would create uncertainty for investors and traders in the city.
“What will the next policy be? Will the move trigger other jurisdictions to change their trade policy to Hong Kong?” he asked. “The biggest issue Hong Kong faces is the uncertainty arising from these issues.”
Kwan added that any changes could have a far flung impact on US-Hong Kong bilateral investments, innovation and technology transfers, and even cultural exchanges.The US government already reserves the right to adjust Hong Kong’s status through an annual review of human rights conducted as part of the Hong Kong Policy Act of 1992.
Therefore, the new bill could be viewed symbolically as “a very concrete expression of a new feeling that there is in Washington towards China”, Rocafort said, pointing to “the dramatic shift” in how China is perceived in the US.
A former senior White House official, speaking on condition of anonymity, suggested that the existence of the 1992 act means the new bill is unlikely to have a major immediate impact on US-Hong Kong relations, since both pieces of legislation cover similar territory.
The former diplomat added that Hong Kong protesters’ hopes that the US would intervene beyond the new act – including militarily – are “profoundly naive”.
However, there are certain provisions that are already causing anxiety for businesspeople in Hong Kong.
Sally Peng, a Hong Kong-based trade lawyer with US firm Sandler, Travis & Rosenberg, said clients have been phoning with concerns over the possible use of export controls, a mechanism which outlaws the flow of certain goods to sanctioned countries like Iran and North Korea, and to sanctioned companies including Chinese telecommunications manufacturer Huawei. US lawmakers have called on the Trump administration to assess whether sensitive US equipment and technologies could be leaked to mainland China via Hong Kong, with the new act seeking to codify that in an annual review.
“The business community cannot even fathom the possibility of export controls in Hong Kong,” Peng said. “They would have to move everything out, they do not know what they would do – divert to Singapore? “Hong Kong is a trade hub, we do not manufacture anything, but make money on the margins of transshipment through logistics and financing. Export controls would have a big effect.”
Analysts also point to the sanctions provision in the draft bill, which states: “The President shall report to Congress a list of individuals responsible for abducting and torturing people for exercising internationally recognised human rights in Hong Kong. The bill bars such individuals from entering the United States and imposes sanctions on them.”
Sanctions could, however, cause severe disruption to a city which bills itself as a financial powerhouse.
“If a person is sanctioned by the US, then banks will need to cut off ties with the person due to the power of secondary sanctions by the US. These banks could lose the US dollar access unless they decide not to engage in international businesses, which is very difficult in Hong Kong,” said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis.
Additional reporting Denise Tsang