Many view tiny Hong Kong as something of an anathema — a hangover from the days of the British empire, part of China but not part of China, often missing the point that that is exactly its strength (or has been).
That unique status, created under the terms of British withdrawal from the territory in 1997, has given Hong Kong many advantages and preserved its location as one of two financial hubs in southeast Asia (alongside Singapore).
According to TIME magazine, almost 300 U.S. companies base their regional headquarters in Hong Kong and more than 1,300 have operations in the city — including 3M, Goldman Sachs, and the insurer AIG.
There are also an estimated 85,000 U.S. citizens living in Hong Kong. Indeed, the U.S. has in many ways taken over the role the U.K. once enjoyed of making Hong Kong its Asian base, attracted by the special trading rights Hong Kong enjoys with the U.S. and by the robust rule of law inherited from the British and underpinned by an individual judiciary.
Hong Kong is part of China but enjoys a very distinct and separate status with its own currency, Olympics team, and a seat at the World Trade Organization TIME states.
In recognition of Hong Kong’s semi-independent status the USA granted HK special trading rights not accorded to mainland China. Since 1992, under the terms of the Hong Kong Policy Act, the U.S. has treated Hong Kong as distinct from the mainland when it comes to economic relations, applying a different set of rules from the rest of China on things like export controls, customs, and immigration.
That special status is now at risk following Beijing’s exasperation with the local Legislative Council, which failed to quell unrest, and the mainland’s decision last week to directly impose a new security law on the colony, bypassing local politicians in a move widely seen as Beijing imposing its own security apparatus on the colony.
U.S. Secretary of State Mike Pompeo announced last Wednesday that Hong Kong was no longer sufficiently autonomous from mainland China and that, as a result, the U.S. was considering a range of steps, including not just revoking the special privileges enjoyed under the Hong Kong Policy Act but also tariffs, visa restrictions, export controls and freezing the U.S. assets of Hong Kong and Chinese officials deemed to be aiding Beijing in its encroachment on Hong Kong’s freedoms.
The U.S. actions, while by far the most impactful, are not in isolation.
Britain granted passports to some 300,000 of Hong Kong’s best and brightest prior to leaving in 1997 and has said it will allow those citizens to apply for British residency if Beijing goes through with its perceived annexation of the colony. A joint statement by Australia, Britain, the U.S. and Canada on Friday said China’s direct intervention in the city’s lawmaking would breach a 1984 agreement between London and Beijing to protect the city’s autonomy until 2047, according to the Financial Review, although Australia stopped short of backing sanctions against Chinese officials.
Hong Kong remains one of the few countries in the world with which the U.S. enjoys a trade surplus. In 2018, U.S. foreign direct investment in the territory was $82.5 billion and U.S. goods and services traded with Hong Kong totaled an estimated $66.9 billion.
In 2019, the trade surplus with the U.S. was about $26.4 billion; many U.S. corporations, plus the local and international firms that service those companies, will be anxious to see what steps the White House takes in the days to come.
For those firms, severe sanctions or removal of special privileges could be serious — for the people of Hong Kong, it could be far worse.