[Analytics] Hong Kong teeters on edge of US sanctions

US legislation aims to penalize abuses committed in Hong Kong and could make the city’s special status a pawn in the US-China trade war. Nile Bowie specially for the Asia Times.

Hongkonger Hendrick Lui believes the United States should slap sanctions on those responsible for cracking down on recent mass protests against controversial legislation that aims to allow for criminal suspects to be extradited and tried in mainland China.

Lui was among hundreds of mostly young demonstrators involved in a June 21 sit-in at the city’s Legislative Council (Legco) building and nearby roads, where some held banners in support of a bill recently tabled by senior American lawmakers to sanction mainland and city officials involved in rights abuses.

The bipartisan legislation, known as the Hong Kong Human Rights and Democracy Act, was introduced on June 13 by hawkish Republican senator Marco Rubio and Democratic congressman Jim McGovern in the wake of recent violent clashes between protestors and security forces in Hong Kong.

If passed, the bill would impose sanctions and travel restrictions against individuals in China and Hong Kong found to be involved in human rights violations, and require the US president to certify annually that Hong Kong is “sufficiently autonomous” to continue receiving US trade privileges not afforded to mainland China.

If those privileges are withdrawn, analysts agree it would deal a harsh economic blow to a city that has long served as a hub for conducting business, trade and finance with greater China.

“I think [the US] should approve this bill to monitor and report on human rights in Hong Kong and sanction those people, especially those in the Communist Party who are against human rights,” said Lui, 36, who earlier led a march to the city’s US Consulate General to hand over a petition in support of the law.

Carrie Lam, Hong Kong’s embattled chief executive, has effectively shelved the controversial rendition legislation, but protestors have not relented in their demands for her resignation and a formal withdrawal of the extradition bill.

They are also calling for an independent and thorough investigation into alleged police misconduct against protestors that resulted in some of the worst scenes of street violence seen since the restoration of Chinese rule two decades ago.

Police have since taken a softer tack and have not attempted to disperse forcefully recent gatherings and demonstrations. But that may not be enough to stop the momentum building in Washington to penalize alleged rights violators.

While the US-Hong Kong Policy Act of 1992 already requires the US State Department to produce an annual report on Hong Kong’s autonomy, the new bill’s advocates believe that requirements to actively certify that autonomy would deliver a strong message to Beijing amid concerns of its perceived encroachment in the city’s political affairs.

The 1992 law treats Hong Kong as a separate entity from the rest of China in terms of customs, trade, investment, technology transfer, immigration, and international treaties, in accordance with the “one country, two systems” principle that underpinned the 1997 handover agreement which ended British colonial rule and restored Chinese sovereignty over the city.

Crucially, the law includes an off-switch that allows the US president to suspend Hong Kong’s separate legal distinction if it is determined to be “not sufficiently autonomous,” a discretionary power that some analysts believe could undermine the territory’s status as a business and financial hub, including for hundreds of American companies based in the city.

If the territory’s special status under US law were narrowed or stripped as a punitive measure – effectively treating Hong Kong and the mainland as “one country, one system” – it would throttle a key valve for outbound investment by large state-owned and private Chinese companies while impeding massive capital inflows to China.

Moreover, rising tariffs leveled by the US against China would apply to Hong Kong as well, putting international exporters and supply chains in a high-pressure bind. A change to the semi-autonomous region’s special status has thus been described by some commentators as a “nuclear option”, given the high degree of self-harm it would inflict on US business interests.

The US was Hong Kong’s second largest trading partner in 2017, while more than 1,300 American companies operate in the city, according to the US State Department.

Opposition to the extradition bill has not been limited to street protesters. Prominent representatives of the domestic business sector and international business chambers have also spoken out against the proposed legislation.

“For many chambers of commerce, criticizing the government or speaking out could be seen as dangerous to business,” said Tara Joseph, president of the American Chamber of Commerce (AmCham) in Hong Kong. “With the extradition bill, we felt the rule of law was at risk, Hong Kong as an international business center was at risk, and thus we spoke out.”

Hong Kong’s independent common law-based legal system functions separately from the mainland’s Communist Party-controlled courts. Many in the business and diplomatic communities oppose the fugitive transfer bill over concerns it would undermine Hong Kong’s still-strong reputation for judicial independence, widely touted as its greatest remaining asset.

While bipartisan support in the US Congress for moves to certify annually Hong Kong’s autonomy under the precedent set by the US-Hong Kong Policy Act stoked an angry response from Beijing and its nationalist state media, the prospect of the city losing its special status under US law is ringing alarm bells among American businesses as well.

“It was only until pretty recently when everyone went, excuse my language, ‘Holy shit, this could actually happen’,” said Joseph in response to a question from Asia Times during a Q&A session at a National Press Foundation (NPF) trade seminar in Hong Kong. “People sort of took it for granted, but it’s definitely something being thought through.

“It would have a profound impact. It would make Hong Kong just another Chinese city in the long run, but I’m not sure everyone would run for the exits automatically,” said the AmCham president, adding that the chamber was conducting a study on how business would be impacted if Hong Kong’s special status were narrowed or revoked.

Student activist and politician Joshua Wong and others in Hong Kong’s pro-democracy camp are loudly lobbying US lawmakers with calls to re-evaluate its ties with the city under the 1992 policy act.

US President Donald Trump, however, has so far maintained a restrained posture. “I hope it all works out for China and for Hong Kong,” he told reporters at the White House earlier this month. Trump referred to the mass-scale protests on Hong Kong’s streets as “very effective in their dealings with China,” though he declined to voice support for their specific demands or grievances.

In March, the US State Department issued its 2019 report on the US-Hong Kong Policy Act and assessed that the territory maintained a sufficient – although diminished – degree of autonomy under the “one country, two systems” framework to justify continued special treatment, a designation unlikely to change without a serious precipitating cause or event.

“I think the autonomy question is central to Hong Kong’s future and there will continually be a lot of discussion about that, but the US stance on the situation is basically reactive,” said Kurt Tong, the US Consul General to Hong Kong and Macau.

If the city’s high degree of autonomy unravels, “then the US naturally is going to treat it differently,” Tong said. “The current formulation is a win-win proposition for the US and China. If that goes away, it’s a lose-lose proposition for the US and China.”

Washington’s top diplomat in the city, however, refuted reports speculating that Hong Kong’s special status could be weaponized in the escalating and ongoing US-China trade war.

“There were some people mouthing off in the newspaper the other day about the ‘Hong Kong card’, that somehow the political situation in Hong Kong or the existence of Hong Kong was going to be a factor in the US-China trade negotiations… like a bargaining chip. That to me is a sophomoric piece of analysis,” he said in response to a question from Asia Times.

“It’s just not the way it works. Nations pursue their own self-interests and so we’re not going to shoot ourselves in the foot just because it feels good,” said the diplomat, who also spoke at the Hong Kong trade seminar.

Authorities and opinion-makers in Beijing, however, believe US lawmakers are eyeing Hong Kong with new trade leverage in mind.

“The current China-US tariff war has no direct impact on Hong Kong unless the region is stripped of separate customs territory treatment. The US Congress’ insidious act is to turn Hong Kong into a new tool to add pressure on the Chinese mainland,” read a recent editorial in the Chinese tabloid Global Times newspaper.

Senator Rubio and co-sponsors introduced similar Hong Kong-related legislation two years ago, though it failed to clinch enough support to pass through the Senate’s foreign relations committee. Now, with the backing of Nancy Pelosi, the Democratic speaker of the US House of Representatives, and a more pronounced anti-China mood in the US capital, the bill has a much better chance to pass.

“My view is that it is the government, not Hongkongers, who would be responsible if the US-Hong Kong Policy Act were repealed,” said local Hong Kong activist Jackie Yuen. While some among Hong Kong’s black-clad protesters would welcome a punitive US response in support of their cause, others are equally cognizant of the economic pain it would inevitably cause.

“Advocates of its repeal are aware that Hong Kong’s economy will be seriously affected, but they think it can threaten local and mainland officials,” activist Yuen said. “The rich and tycoons are more likely to be affected. Support for repealing the US-Hong Kong Policy Act is only the very final measure that Hongkongers can resort to in order to threaten the government.

“[But] nobody really wants all of these things to happen.”