Hong Kong News

Nonpartisan, Noncommercial, unconstrained.
Friday, Mar 29, 2024

The United States is treating Hong Kong as mainland China. Business is starting to do the same

The United States is treating Hong Kong as mainland China. Business is starting to do the same

The relationship between China and the West is rapidly eroding, and that could have serious implications for Hong Kong's status as a global financial hub.

The latest blow to the city's standing came Tuesday, when US President Donald Trump followed through on a threat to revoke the United States' special relationship with Hong Kong, which has in the past exempted the city from certain tariffs, among other privileges.

"Hong Kong will now be treated the same as mainland China," Trump said in a speech at the White House.

The Trump administration first suggested it would change its view of Hong Kong several weeks ago, when China began preparing to impose a sweeping national security law on the city. Critics of the law say it undercuts political and legal freedoms that have existed since Britain handed the former colony to China in 1997.

Since the law took effect on July 1, concerns over Hong Kong among foreign businesses and political leaders have only grown. Some tech companies have pulled back from the market, while companies have expressed concern about the new law's broad reach and ambiguity. The New York Times on Tuesday also announced that it would move some of its staff based in Hong Kong to Seoul as it began to "make contingency plans."

Alongside the decision to end the special trading relationship Tuesday, Trump also signed a separate piece of legislation that would impose sanctions on businesses and individuals that are seen as helping China restrict Hong Kong's autonomy.

Without its privilege as a special economy under US law, "there won't be big differences between Hong Kong and other big Chinese cities like Beijing and Shanghai," said Simon Lee, senior lecturer of international business at the Chinese University of Hong Kong. "Foreign companies will think whether they need to maintain their existing scale of operations in Hong Kong."

Following Trump's announcement, China on Wednesday pledged to retaliate with sanctions of its own on US officials and entities. It did not elaborate. On Tuesday, it said it would punish Lockheed Martin (LMT) for selling arms to Taiwan.
In a statement, the Chinese Foreign Ministry called on Washington to "stop interfering in any way in China's internal affairs, including Hong Kong affairs." It also urged the Trump administration to refrain from implementing its new law regarding Hong Kong.

The impact on trade
Since 1992, Hong Kong's special status has allowed the goods passing through its borders to undergo different controls than those in the mainland. During the US-China trade war, for example, it allowed Hong Kong to avoid the tariffs that Washington imposed on Chinese goods.

The new executive order could put an end to that, as it aims to "revoke license exceptions" for exports to Hong Kong.
Hong Kong doesn't do a huge amount of direct trade with the United States, according to Iris Pang, chief economist of Greater China at ING. In 2018, America imported nearly $17 billion in goods and services from Hong Kong, while exporting $50 billion — a trivial amount compared to the nearly $740 billion in goods and services traded that year between the United States and China.

And the majority of goods exported from Hong Kong — about 99% — are re-exports, meaning that they are goods passing through the territory from another country, Pang explained.

That means that if those goods are from mainland China, they are already subject to any tariff that applies to Chinese goods. So "in terms of tariffs, there should be no difference whether there is a removal of the special status," Pang wrote in a May research report.

What's more concerning is the overall deteriorating relationship between the United States and China, she told CNN Business.

For example, Trump said in an interview with CBS News on Tuesday that he was not interested in discussing a potential phase two trade deal with China in the wake of the coronavirus pandemic. The two countries agreed to a phase one deal in January, which involved an agreement by China to buy hundreds of billions of dollars worth of products from the United States.

"I'm not interested right now in talking to China," Trump said. "They hit us with the plague, so right now I'm not interested in talking to China about another deal."

The prospect of a "second wave" in the trade war would be far more damaging to Hong Kong's economy than the new US edict on the city, said Pang.

A blow to business confidence
Trade is only one part of the story.

In recent months, tensions have been bubbling up between China and the West, turning Hong Kong into a political battleground and raising even more questions about the city's future.

The city had already been hit hard by the trade war, as well as long-running anti-government protests, which pushed the economy into recession. Then the coronavirus pandemic sharpened the blow, just months before the national security law was imposed.

Foreign businesses have expressed concern about the new law. More than 68% of businesses that responded to a survey conducted by the American Chamber of Commerce in Hong Kong that published earlier this week said they were "more concerned" than a month ago.

One respondent wrote that the legislation was "extremely broad and could be used for anything at all." Authorities in Hong Kong, though, insist the law is needed to restore stability after months of unrest.

Last week, tech companies began pulling back on or re-examining their operations there. Facebook (FB), Twitter (TWTR), Google (GOOG), Microsoft (MSFT) and Zoom (ZM) each said they would temporarily stop honoring government data requests about their Hong Kong users, while TikTok — which is owned by Chinese company ByteDance but has significant US operations — quit the market entirely.

More serious consequences also appear to have been discussed.

Fears that the United States could punish China by undermining the Hong Kong dollar's peg to the US dollar resurfaced last week after Bloomberg reported that Washington was considering options to weaken the currency. Citing anonymous sources, the news outlet said some suggestions — including limiting the ability of Hong Kong banks to buy US dollars — had been raised among political advisers to the US State Department.
The news outlet later reported that Trump decided against the idea, and the Hong Kong Monetary Authority — the city's de facto central bank — has made clear that it has enough in reserve to support the peg.

But the concept itself is not a new one, and it takes on renewed significance as Hong Kong's status as a safe haven for global business is debated.

While the Trump administration has not pursued the "nuclear option" of targeting the Hong Kong dollar, the city's international relevance "would immediately be called into question" if that were to occur, said Brock Silvers, chief investment officer for Hong Kong-based Adamas Asset Management.

Silvers added, though, that Hong Kong could emerge from the geopolitical firestorm with some benefits. The city, after all, in recent weeks has become increasingly attractive to Chinese companies that fear their business prospects in the United States may be in jeopardy.

"The role of Hong Kong was already evolving in light of its newly redefined relationship with China," Silvers said. "Although Hong Kong's international role could diminish over time if concerned firms relocate to Singapore and elsewhere, Hong Kong may find new relevance as a center for Chinese finance."
Newsletter

Related Articles

Hong Kong News
0:00
0:00
Close
It's always the people with the dirty hands pointing their fingers
Paper straws found to contain long-lasting and potentially toxic chemicals - study
FTX's Bankman-Fried headed for jail after judge revokes bail
Blackrock gets half a trillion dollar deal to rebuild Ukraine
Steve Jobs' Son Launches Venture Capital Firm With $200 Million For Cancer Treatments
Google reshuffles Assistant unit, lays off some staffers, to 'supercharge' products with A.I.
End of Viagra? FDA approved a gel against erectile dysfunction
UK sanctions Russians judges over dual British national Kara-Murza's trial
US restricts visa-free travel for Hungarian passport holders because of security concerns
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Southeast Asia moves closer to economic unity with new regional payments system
Political leader from South Africa, Julius Malema, led violent racist chants at a massive rally on Saturday
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
'I am not your servant': IndiGo crew member, passenger get into row over airline meal
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Spanish Citizenship Granted to Iranian chess player who removed hijab
US Senate Republican Mitch McConnell freezes up, leaves press conference
Speaker McCarthy says the United States House of Representatives is getting ready to impeach Joe Biden.
San Francisco car crash
This camera man is a genius
3D ad in front of Burj Khalifa
Next level gaming
BMW driver…
Google testing journalism AI. We are doing it already 2 years, and without Google biased propoganda and manipulated censorship
Unlike illegal imigrants coming by boats - US Citizens Will Need Visa To Travel To Europe in 2024
Musk announces Twitter name and logo change to X.com
The politician and the journalist lost control and started fighting on live broadcast.
The future of sports
Unveiling the Black Hole: The Mysterious Fate of EU's Aid to Ukraine
Farewell to a Music Titan: Tony Bennett, Renowned Jazz and Pop Vocalist, Passes Away at 96
Alarming Behavior Among Florida's Sharks Raises Concerns Over Possible Cocaine Exposure
Transgender Exclusion in Miss Italy Stirs Controversy Amidst Changing Global Beauty Pageant Landscape
Joe Biden admitted, in his own words, that he delivered what he promised in exchange for the $10 million bribe he received from the Ukraine Oil Company.
TikTok Takes On Spotify And Apple, Launches Own Music Service
Global Trend: Using Anti-Fake News Laws as Censorship Tools - A Deep Dive into Tunisia's Scenario
Arresting Putin During South African Visit Would Equate to War Declaration, Asserts President Ramaphosa
Hacktivist Collective Anonymous Launches 'Project Disclosure' to Unearth Information on UFOs and ETIs
Typo sends millions of US military emails to Russian ally Mali
Server Arrested For Theft After Refusing To Pay A Table's $100 Restaurant Bill When They Dined & Dashed
The Changing Face of Europe: How Mass Migration is Reshaping the Political Landscape
China Urges EU to Clarify Strategic Partnership Amid Trade Tensions
The Last Pour: Anchor Brewing, America's Pioneer Craft Brewer, Closes After 127 Years
Democracy not: EU's Digital Commissioner Considers Shutting Down Social Media Platforms Amid Social Unrest
Sarah Silverman and Renowned Authors Lodge Copyright Infringement Case Against OpenAI and Meta
Why Do Tech Executives Support Kennedy Jr.?
The New York Times Announces Closure of its Sports Section in Favor of The Athletic
BBC Anchor Huw Edwards Hospitalized Amid Child Sex Abuse Allegations, Family Confirms
Florida Attorney General requests Meta CEO's testimony on company's platforms' alleged facilitation of illicit activities
The Distorted Mirror of actual approval ratings: Examining the True Threat to Democracy Beyond the Persona of Putin
40,000 child slaves in Congo are forced to work in cobalt mines so we can drive electric cars.
×