Hong Kong Fears Trump Will End Special Trading Status
Hong Kong business groups are starting to worry the Trump administration end financial hub’s preferential trade status.
(Bloomberg) -- Hong Kong business groups are starting to worry the Trump administration will open the door to ending the financial hub’s preferential trade status, rendering it “just another Chinese city” as its government gets closer to Beijing.
The U.S.-China Economic and Security Review Commission stoked fears last month with a recommendation that Congress reassess Hong Kong’s special trading status for some sensitive U.S. technology imports. It said Beijing’s statements and legislative actions “continue to run counter to China’s promise to uphold Hong Kong’s autonomy.”
If President Donald Trump acts on the recommendation, it would only impact dual-use technology with consumer and military applications -- like carbon fiber used to make both golf clubs and missile components -- that represent about 2 percent of U.S. exports to Hong Kong. But the blow to the city’s image may be irreparable.
“It would have a ripple effect -- the door would be open and it might not close,” said Felix Chung, who represents the textile and garments industries as a pro-establishment member of Hong Kong’s legislature. “The Western community would look at Hong Kong with different eyes and may not even trust Hong Kong. The business sector cannot take this kind of risk.”
Under the terms of the United States-Hong Kong Policy Act of 1992, the U.S. agreed to treat the former British colony as fully autonomous for trade and economic matters even after China took control in 1997. That means Hong Kong is exempt from Trump’s punitive tariffs on China and enjoys U.S. support its participation in international bodies like the World Trade Organization.
While the U.S. State Department said earlier this year it sees no reason to scrap Hong Kong’s special status, one clause in the law particularly worries the city’s business elites: The U.S. president can issue an executive order suspending privileges in a particular area if he determines it isn’t sufficiently autonomous from Beijing.
‘It’s Trump’
“If it was the Obama administration I wouldn’t worry,” Chung said. “But because it’s Trump you never know what he’s going to do.”
The U.S. Consulate in Hong Kong declined to comment when asked whether Trump was considering any action against the city. It pointed to a statement last month from Consul General Kurt Tong, who said “we are quite focused on the importance of the ‘one country, two systems’ framework” that allows Hong Kong to maintain a distinct economic, legal and political system.
In its annual May report on the city’s autonomy, the U.S. consulate said “certain actions” by China were inconsistent with its commitment to allow Hong Kong to exercise a high degree of self-governance. But it found that the city “generally” maintains a high degree of autonomy, “more than sufficient to justify continued special treatment.”
‘Think Twice’
So far, Hong Kong’s government has dismissed concerns the “one country, two systems” framework is under attack. Chief Executive Carrie Lam last month cautioned the U.S. to “think twice” before changing Hong Kong’s status and harming its own interests. She also borrowed a phrase from Beijing, accusing the U.S. commission of seeing things through a “colored lens.”
Asked about the U.S. trade privileges in the legislature on Wednesday, Commerce Secretary Edward Yau downplayed the commission report and said Hong Kong “will continue to maintain our robust trade control system” to prevent unauthorized exports to the mainland. He said Hong Kong would “always respect, abide by and uphold ‘one country, two systems,’" calling it the “cornerstone” of the city’s economic success. Hong Kong’s status as a separate customs territory from China is set out in the city’s charter, he said.
The U.S. has a substantial interest in Hong Kong staying autonomous. Some 85,000 U.S. citizens live in the city, and 1,400 U.S. firms that use the territory as a platform to do business in China. They prize the territory for its rule of law, free flow of capital, independent judiciary, access to information and protections of personal and press freedoms.
Still, Beijing-backed efforts to restrict dissent have fueled concerns of China’s growing influence. The commission’s report cited a litany of examples, including Hong Kong’s moves to ban pro-independence politicians and heed a request from mainland authorities to not hand over a fugitive to the U.S.
Jack Lange, chairman of the American Chamber of Commerce in Hong Kong, called on the Hong Kong administration to “engage” with the U.S. to ensure that sensitive technologies don’t end up in China given the city’s increasing economic integration with the mainland.
“People are concerned about the autonomy issues and the consequences that could come out of them,” Lange said. Still, he added, Hong Kong citizens enjoy substantial liberties: “Nobody has any problem googling anything they want in Hong Kong. That’s not true across the border.”
Hong Kong’s business community has long fostered ties with Beijing, a relationship that helped the city become a gateway to China. Since the 1997 handover the economy has grown by some 50 percent to more than $341 billion -- larger than countries like Singapore, Malaysia and the Philippines.
But as Beijing exerts its authority, business is suffering from the perception Hong Kong is in China’s pocket.
Deal Rejected
In November, Australia rejected a A$13 billion ($9.4 billion) gas project bid by Hong Kong tycoon Victor Li’s CK Infrastructure Holdings Ltd., calling it contrary to national interest. The decision followed a torrent of criticism in Australia that Hong Kong companies were just as susceptible to Beijing’s influence as those on the mainland.
On a September visit to Washington, a Hong Kong business delegation that included commerce secretary Yau found widespread misunderstanding about the city’s special status.
“We realized that many people in the U.S. were not fully aware of ‘one country, two systems,’” Cathay Pacific Airways Ltd. Chairman John Slosar, a vice-chairman of the Hong Kong General Chamber of Commerce, said in a report issued by the group. He declined to comment further when contacted.
While any U.S. moves to change Hong Kong’s status would be a reputational blow, other Western countries might not follow suit if they view it as part of a wider competition between the world’s biggest economies, according to Paul Serfaty, a director of investment bank Asian Capital Partners Group who has lived in Hong Kong for three decades.
“All Donald Trump cares about is bringing pressure to bear on China,” he said. “And in that respect Hong Kong is beginning to look more like a pawn than an actor.”
--With assistance from Sheridan Prasso.
To contact the reporter on this story: David Tweed in Hong Kong at dtweed@bloomberg.net
To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Karen Leigh
©2018 Bloomberg L.P.