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Saturday, Sep 26, 2020

If Beijing puts troops in Hong Kong, Washington should suspend the city’s trade status, US commission says

US-China Economic and Security Review Commission also says export control measures on mainland companies should be applied to their Hong Kong units.
Recommendations come after China calls for tougher crackdown on anti-government protests

Washington should suspend the special economic status granted to Hong Kong if Beijing deploys its military forces in the city, a congressional body warned on Thursday, along with a range of other recommendations addressing perceived threats the US faces as a result of its engagement with China.

The US-China Economic and Security Review Commission, which has a mandate to advise US lawmakers on the implications of Washington’s economic relationship with Beijing, also called for US export control measures on mainland Chinese companies to be extended to their Hong Kong subsidiaries.

Hong Kong issues aside, the body warned about continued investment by US companies in China because of increasing vulnerabilities they face in terms of data and intellectual property protection and said that Chinese companies listed on American stock exchanges should abide by the same disclosure rules as other firms.

According to the commission’s charter, its recommendations are meant “for action by Congress or the President, or both”, but those authorities are not obliged to act on them.

Reflecting the broad ideological and military threats that its members say China poses for the US, the commission took Beijing to task for what it characterised as an attack on democracy in Hong Kong and on the mainland as well as a “campaign of cultural extermination” against the country’s Uygur and other Muslim minorities.

“If there were flickers of opening up in China, they have been firmly extinguished,” commission chairwoman Carolyn Bartholomew said in a news conference in Washington. “It is for this reason that we are making what we view as an important change in our report this year. We are now referring to Xi Jinping using the title by which he derives his true authority, general secretary of the Chinese Communist Party.”

“Giving the unearned title of president to a leader who insists on the superiority of socialism, and who is overseeing a wide-ranging campaign to root out China’s democratic impulses lends a veneer of democratic legitimacy to the CCP and Xi’s authoritarian rule,” she explained.

The commission’s recommendations for tougher economic measures against Hong Kong follow China’s call for a tougher crackdown on the semi-autonomous city’s continuing, and increasingly violent, anti-government protests that are now in their sixth month.

“Hong Kong’s status as a separate customs territory, distinct from mainland China, is under pressure,” the commission, which was established in 2000 as part of Washington’s acceptance of Beijing into the World Trade Organisation, said in its annual report.

“Beijing’s more assertive imposition of sovereign control over Hong Kong undermines the ‘high degree of autonomy’ that underwrites trust in the Hong Kong government’s ability to restrict sensitive US technologies from being diverted to mainland China,” it added.

Among the five recommendations put forth by the commission, Congress should “enact legislation stating that all provisions and the special status of Hong Kong included in the US-Hong Kong Policy Act of 1992 will be suspended in the event that China’s government deploys People’s Liberation Army or People’s Armed Police forces to engage in armed intervention in Hong Kong”.

The report highlights a gathering consensus in Washington that years of engagement with Beijing has not yielded, and will not lead to, the kind of political reform that policymakers had envisioned when officials ties between the two countries were re-established in 1979.

“The Commission has been analyzing the many dimensions in which China poses challenges to the US for many years,” said Bonnie Glaser, senior advisor for Asia at the Centre for Strategic and International Studies in Washington. “It is probably fair to say that their assessment of the nature of the Chinese threat preceded what has become a significant shift in attitudes toward China in the United States, and the adoption of a tougher policy by the Trump administration.”

“I think many of the Commission’s recommendations will resonate with Members of Congress and Trump administration officials,” Glaser said.

One of the most important elements of Hong Kong’s special status has been the fact that it is considered a separate customs and trading zone from China.

That has meant, for instance, that trade war tariffs do not apply to exports from Hong Kong.

Under the 1992 law, the US president can issue an executive order suspending elements of Hong Kong’s special status if the president determines that the territory is “not sufficiently autonomous” from Beijing.

The report also called for congressional action directing the Department of Commerce to extend export control measures now in place for mainland China to subsidiaries of Chinese companies established or operating in Hong Kong.

Also on export control, the commission suggested that Congress hold hearings examining technologies subject to export controls for mainland China, but not controlled for Hong Kong.

“These hearings should request that the US Department of Commerce’s Bureau of Industry and Security and the US consulate general in Hong Kong assess the effectiveness of current export controls in preventing unauthorised transshipment to the mainland or other destinations,” it stated.

The US State Department should also develop a series of specific benchmarks for measuring Hong Kong’s maintenance of a “high degree of autonomy” from Beijing, the report noted.

“Such benchmarks should employ both qualitative and quantitative measurements to evaluate the state of Hong Kong’s autonomy in the State Department’s annual Hong Kong Policy Act Report,” it noted.

Despite the hawkish rhetoric, however, the report advised US lawmakers to continue their outreach with Hong Kong officials, adding: “Members of Congress … should also continue to express support for freedom of expression and the rule of law in Hong Kong.

Last month, the US House of Representatives unanimously passed three pieces of legislation supporting the pro-democracy protests.

The Hong Kong Human Rights and Democracy Act, the most consequential of the bills, would put the former British colony’s special treatment by the United States under tighter scrutiny. It has not been passed by the Senate yet.

The commission is not only concerned about China’s military in Hong Kong.

James Talent, another commission member and a former US senator from Missouri, said that Beijing is using the People’s Liberation Army, in conjunction with the foothold China has gained in European countries through its Belt and Road infrastructure initiative projects, to weaken the North Atlantic Treaty Organisation (Nato) and overall EU unity.

In particular, China is trying to exploit tensions between southeastern European countries and the rest of the bloc to pull those countries more closely into Beijing’s orbit, he contended.

“It’s now clear that Beijing intends to make the PLA a global expeditionary force,” Talent said. “One of the reasons is because they have global interests and they intend to use the PLA among other tools to protect those interests in places like Europe. … This year we dealt more with the hard-power end of that.”

Commission members also spend much of the briefing warning that some Chinese companies listed on US exchanges enjoy less stringent reporting requirements, presenting a significant financial threat.

“American investors are possibly at risk of making investment decisions that are not based on accurate information,” said Robin Cleveland, the commission’s vice-chair, said.

Michael Wessel, a commission member since its formation, said that China’s current economic slowdown magnifies this risk.
“As China’s economic slowdown continues, its need for capital is going to expand and that’s something that we’re going to have to take into account because that may very well enhance the risk profile,” he said. “This is about being compliant with the original Securities and Exchange Act.”


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