Friday’s announced sanctions and an advisory to US companies operating in Hong Kong underscore the limited leverage Washington has over Beijing’s “behaviour” and conflicting pressures it faces from its domestic constituencies, former US officials and analysts said. The Biden administration warned US companies operating in Hong Kong that their data is increasingly subject to mainland monitoring, their executives to detention and their operations to the vagaries of Chinese justice. It also sanctioned seven deputy directors in the Hong Kong Liaison Office – a year after sanctioning the director. “Every time there’s some news of China putting more pressure on Hong Kong, there’s commensurate pressure on the US side to do something. But they’re running out of things to do,” said Richard Boucher, a fellow at Brown University’s Watson Institute and former US consul general in Hong Kong. Sanctioning a few middle-level Chinese functionaries is not likely to have much impact, analysts noted. And foreign companies operating in Hong Kong that have not noticed Beijing’s growing influence are asleep at the wheel, they said. Friday’s largely symbolic moves highlight the uneasy balancing act the Biden administration is trying to navigate. On the one hand, a growing chorus – from both ends of the political spectrum – insists that the US do something in response to Beijing’s tightening grip over Hong Kong, as well as the alleged human rights violations in Xinjiang amid reports of up to 1 million Uygurs detained in “employment” camps. But the White House also confronts a US business community that still craves access to the massive Chinese market. This effectively acts as a brake on its taking really tough measures in areas where it does have leverage, including injunctions against financial institutions. “It’s the dog that doesn’t bark. We’re not sanctioning banks,” said Bonnie Glaser, Asia director at the George Marshall Fund. “What are the things we could do that really have some consequences? You don’t see us doing anything in that area.” Reluctance to go that far, dubbed the “nuclear option” by some, appears to reflect a calculation by US President Joe Biden that either the cost would outweigh the benefit, or that he doesn’t have the necessary support from allies – or a combination of the two. One year after Beijing imposed a tough national security law in Hong Kong, giving it broad leeway to act against critics of its policies there, the West is gradually acknowledging that a metropolis once seen as a free-market bastion is becoming more of a Chinese city and less of an international gateway. That will likely see it become more of a channel for Chinese capital that is heading overseas or being repurposed in Hong Kong and returned to the mainland – rather than its traditional role as a conduit for overseas money into China, analysts said. But even as legal safeguards erode and China’s direct control tightens, Hong Kong still has a more international operating environment than Shanghai or other Chinese financial centres do, analysts said. They noted that Beijing also has an interest in shoring up global confidence – so long as it doesn’t jeopardise Communist Party control. China says US extension of Hong Kong emergency rules ‘tramples’ international law The opposing narratives were on display this week as Chinese and Hong Kong officials repeatedly promoted the recent rise in Hong Kong financial markets, a 50 per cent increase in initial public offerings over the past year and higher Hong Kong bank reserves even as Washington focused on the growing threat to US corporate activity in the city. “The bottom line is that businesses should be aware that the risks of operating in mainland China are now increasingly present in Hong Kong. And as the president said last month, of course, we will not waver in our support for Hong Kong,” White House Press Secretary Jen Psaki at a briefing. “But businesses are making decisions, and obviously they‘re making decisions themselves.” As the two sides circle each other warily, attention has focused on when, where and whether the leaders of the world’s two largest economies will finally meet. Washington has been in no rush to engage with Beijing as it works to build support among allies similarly frustrated with China’s state-led economic policies, disregard for many global norms and muscle-flexing in the South China Sea. Six months into its tenure, the Biden administration still has not named an ambassador to China nor held back on its criticism of China’s policies. US sanctions 7 Hong Kong liaison office officials, warns of dangers from national security law Beijing is not helping amid reports this week that it balked at granting Deputy US Secretary of State Wendy Sherman a meeting with high-level officials on her coming Asia swing – regarded as a potential precursor to any bilateral summit – reportedly angry over US sanctions and Washington’s efforts to “isolate” China diplomatically and economically. “Such protocol tiffs are not unusual,” said Eurasia Group analyst Michael Hirson, a former US financial attaché. “But the stakes are especially high given that Sherman’s main agenda item is to explore a potential meeting between presidents Joe Biden and Xi Jinping.” Speculation has turned to a possible in-person summit on the sidelines of the Group of 20 gathering expected to take place in Rome in late October. One advantage of this venue, from Washington’s perspective, is that the group setting reinforces a message that China must follow international rules governing intellectual property, data protection, checks on state-led capitalism and adherence to global treaties. But Washington also needs to realise that it is not going to change China’s fundamental system or approach, analysts added. “The Chinese have to deal with the reality of the world,” said Boucher, who is also a former senior official with the 38-nation Organisation for Economic Co-operation and Development trade alliance. “And we have to deal with China as a reality. We can monitor, tailor our relationship, give advice to our companies. But it’s managing China’s rise in the international system that matters, not pretending that you can stop it.”