Bloomberg, and others, are focusing quickly on the implications of the growing “back and forth” with China over Hong Kong. The island, until recently an oasis of political stability in Asia, is now gripped with unprecedented regulatory and legal uncertainty that threatens its position as one of the world's top financial hubs.
China's imposition of a sweeping, but vague, worded national security law on June 30 has already begun to change the business landscape. Tech giants like Google and Facebook Inc. have suspended processing data requests from the government. Banks are struggling to figure out how to comply with the contradictions in U.S. and Chinese legal changes. Even mainland bankers in the city got a shock when China started taxing their incomes at rates as high as 45%, compared with 15% in Hong Kong.
On Tuesday, President Donald Trump stripped away certain special privileges for Hong Kong under U.S. law, a decision that eliminated a range of measures that allowed the capitalist city different treatment from the mainland, ranging from preferences for passport holders to allowing access to sensitive technologies to a Fulbright scholar exchange program. Also, he signed a law that would punish banks for dealing with officials facing sanctions.
The escalating political turbulence, which follows months of anti-government demonstrations last year, has jarred a city that for decades served as a stable base for multinationals to access China.
“The U.S. measures, alongside Beijing's own crackdown on Hong Kong, are fast turning the city from an open, stable international financial center to contested ground at the very front lines of a rapidly intensifying geopolitical conflict,” said Antony Dapiran, a lawyer based in the city.
China “shot back” immediately after Trump's announcement, pledging to retaliate with unspecified strong countermeasures against U.S. officials and entities. Regina Ip, a member of Hong Kong leader Carrie Lam's advisory Executive Council, said the U.S. measures would actually achieve the opposite of what Washington intends.
“It will only drive more Hong Kong people to rely more and more on mainland China for support for our prosperity and stability,” Ip said. “This will not really effect the foundations of Hong Kong's success as an international financial center, because the financial measures will only be imposed on individuals and entities identified under the act. It's not as sweeping as some have suggested.”
The real-world impact of the U.S. moves on Hong Kong's trade will likely be limited since the vast majority of the city's shipments to the U.S. consist of re-exports, or goods passing through the city with no substantial modifications, Bloomberg said. Still, the marked deterioration in U.S.-China ties over the past few months means that Hong Kong is likely in for more turbulence as U.S.-China ties worsen.
By one gauge of confidence in the finance hub -- the flow of capital -- appears to be holding up, with key metrics suggesting that, if anything, money continues to flow into Hong Kong rather than leave.
However, the extremely broad provisions of the new Chinese law -- which bars subversion, secession, terrorism and collusion with foreign forces -- have left residents scrubbing social media accounts, business owners taking down pro-democracy posters, and business chambers saying companies may move assets and capital to other financial centers in part due to difficulties finding talent in Hong Kong.
Things could get worse yet if banks and other financial institutions eventually face sanctions under the Hong Kong Autonomy Act that Trump signed Tuesday. Even if Beijing pushes back, the U.S. actions will still hit the city's global reputation in financial markets and could make it a less favorable spot to conduct business, said Willy Lam, an adjunct professor at the Chinese University of Hong Kong's Centre for China Studies, who has authored numerous books on Chinese politics.
“It's also possible that fewer American businesses may want to do business with Hong Kong,” Lam said. “They may move directly to Shanghai or other financial centers in Asia such as Singapore.”
There's little sense things will improve even after the U.S. election in November. Joe Biden, the presumptive Democratic nominee, is likely to stick by all of Trump's recent moves if the former vice president takes office, said Richard McGregor, a senior fellow at the Lowy Institute in Sydney. “There's no floor under the U.S.-China relationship,” he told Bloomberg. “We keep finding new lows.”
So, we will see. Clearly, the frictions over Hong Kong have taken on a life of their own, and they are likely to have serious adverse impacts unless some significant effort is made to bridge the gap—a proposition that seems quite unlikely just now, but which should be watched closely by producers as it proceeds, Washington Insider believes.
Welcome
