President Donald Trump announced Friday that he has directed his administration to “begin the process of eliminating policy exemptions that give Hong Kong different and special treatment.” His announcement came a day after China’s People’s Congress passed Beijing’s controversial new national security law related to Hong Kong. Trump’s announcement will profoundly affect the future of Hong Kong and the U.S.-China relationship.
The president’s decision was based on Secretary of State Mike Pompeo’s certification to Congress Wednesday that “Hong Kong is no longer autonomous from China,” a decision he said gave him no pleasure but that “sound policy-making requires a recognition of reality.”
The facts on the ground support Pompeo’s assessment. Without universal suffrage, Hong Kongers are stuck with a government made up of pro-Beijing business elites who are beholden to the Chinese Communist Party (CCP), rather than accountable to 7.5 million residents of the city. Under the assertive CCP Party Secretary Xi Jinping, Hong Kongers have seen accelerated erosion of their political freedom for years.
Nine leaders of the 2014 Umbrella movement, which demanded universal suffrage in Hong Kong, were sentenced to prison. Four pro-democracy legislators were disqualified for modifying their oaths of allegiance to China during their swearing-in ceremony. Hong Kong authorities refused to issue visas to several human rights activists and foreign journalists. Beijing even sent mainland Chinese police to Hong Kong to arrest booksellers and a Chinese tycoon, bypassing Hong Kong’s own judicial system.
The CCP Cracked Down on Hong Kong
On the eve of the 20th anniversary of Hong Kong’s handover in 2017, the Chinese Foreign Ministry declared, “Now that Hong Kong has returned to the motherland for 20 years, the Sino-British Joint Declaration, as a historical document, no longer has any realistic meaning.” The CCP essentially abandoned any pretense that it would keep the promises it had made to Britain and the people of Hong Kong when the city was handed over.
In 2019, Hong Kong government tried to rush a new extradition bill through the legislature, which would have allowed Hong Kong to surrender anyone wanted by Beijing based on trumped-up charges, including critics of Beijing, pro-democracy activists, and human rights activists. Hong Kong chief Carrie Lam only withdrew the bill after several months of mass protests, which eventually turned into violent confrontations between some young protesters and Hong Kong police. Beijing warned protesters it would take revenge.
While the rest of the world is struggling to contain a virus that originated in China, Hong Kong authorities arrested a number of prominent pro-democracy activists for their roles in the 2019 anti-extradition bill protests.
Beijing appointed hardliner Xia Baolong as the new director of the Hong Kong and Macau Affairs Office this year. Xia openly condemned Hong Kong’s pro-democracy lawmakers for filibustering bills Beijing wants to pass. In a recent dramatic scene, a few of those lawmakers Xia condemned were dragged out of the legislative council during a debate about a bill that would criminalize any disrespectful action toward the Chinese national anthem.
Now the CCP has decided the time is right to bypass Hong Kong’s legislature and impose a national security law on Hong Kong, banning “treason, secession, sedition and subversion.” The law is so broadly defined and vaguely worded, it will greatly expand the CCP’s control over the city by criminalizing Hong Kongers for exercising their basic rights to free speech and assembly. Beijing also announced it would send security agents to Hong Kong to help enforce the law.
Beijing’s action and announcement have drawn international outcry and condemnation. As Pompeo said in a statement, “No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground,” and, “It is now clear that China is modeling Hong Kong after itself.”
Pompeo Fulfilled His Duty
Why should the U.S. care about the situation in Hong Kong? The 1992 United States-Hong Kong Policy Act obligates the U.S. to “promote Hong Kong’s prosperity, autonomy, and way of life.”
Hong Kong and the U.S. have long-established ties, and Hong Kong’s past autonomy enables it to enjoy special economic and trade treatment from the states. Hong Kong alone was the U.S.’s 10th-largest export market, and the city received more than $80 billion in U.S. foreign direct investment as of 2017. According to the State Department, “There are more than 1,300 U.S. firms, including 726 regional operations, and approximately 85,000 American residents in Hong Kong.”
Last year, Congress passed the Hong Kong Human Rights and Democracy Act (HRDA), which requires the State Department to evaluate whether Hong Kong is still upholding the rule of law and protecting human rights. HRDA also requires the secretary of state to annually certify to Congress whether the city still warrants special treatment, different from mainland China, under various treaties and agreements.
What Pompeo did this week fulfilled his duty under the requirement of HRDA with an honest assessment. Given this certification and the HRDA mandate, President Donald Trump has instructed his administration to begin revoking Hong Kong’s preferential treatment as a separate customs and travel territory from the rest of China. The Trump administration is also looking into imposing sanctions on people from both Communist China and Hong Kong who are responsible for eroding Hong Kong’s autonomy.
Losing Special Status Will Hurt Hong Kong and Beijing
Economic sanctions and ending Hong Kong’s special economic status will be a double-edged sword, causing even some economic pain to Beijing. The higher tariffs the Trump administration imposed on Chinese goods during the U.S.-China trade war did not affect exports out of Hong Kong since the city receives favorable tax and tariff treatment. Therefore, many mainland companies have been using Hong Kong as a transshipment conduit for exporting their goods to the EU and U.S. When the U.S. ends special treatment to Hong Kong, these Chinese companies will have to pay higher tariffs.
One of Beijing’s longtime ambitions is to turn its currency, the yuan, into a global currency, like the U.S. dollar. To fulfill such ambitions, Beijing has heavily relied on Hong Kong because the city is a dominant offshore yuan trading center, accounting for 75 percent of yuan-denominated international payments. Economic sanctions, in addition to losing special status, will cause Hong Kong to lose its leverage as an international finance and trade center. Consequently, Beijing may have to temper its currency ambitions.
There are signs Beijing has anticipated these economic pains and prepared alternatives. It has pumped up mainland cities, such as Shanghai and Hong Kong’s neighbor, Shenzhen, with national resources and preferential treatment, including establishing free trade zones in these cities. Yet as of 2019, all Chinese banks still park about $1.13 trillion in Hong Kong and conduct the majority of their international transactions in the city. Losing Hong Kong as a major financial center will destabilize China’s already-slowing economy.
There is no doubt Hong Kong people will take most of the economic hit after the city loses its special economic status. Its economy already suffered after months of unrest and the coronavirus outbreak. Losing special status and facing sanctions will likely prompt mainland Chinese businesses and international businesses to move their operations, transactions, and trade to other places, taking capital and jobs with them. Hong Kongers are well aware of the economic harm of losing this special status.
Still, in a “if we burn, you burn with us” mentality, many called for the U.S. to take drastic measures, showing solidarity with freedom-loving Hong Kongers and sending Beijing a strong message.
The U.S. is not the only country taking action. British media reported this week that Prime Minister Boris Johnson is working on a “secret plan” to grant Hong Kongers refugee status so they can migrate to the United Kingdom if Beijing continues suppressing their political freedom.
Besides pleading for international intervention, Hong Kongers have been protesting the national security law. Hundreds of them, mostly youths, have been arrested. Images from Hong Kong now show the city has become a police state, a far cry from what was once one of the freest places in the world.
In the past, Beijing discredited the city’s pro-democracy movement by calling the protesters “separatists,” even though the majority of them didn’t support Hong Kong’s independence. Still, Beijing insisted this new national security law is necessary to outlaw any secession attempt, among other things. One notable change in recent protests is that more and more Hong Kongers have been chanting for independence as the city’s only way out. It seems Beijing’s iron-fist approach to Hong Kong has achieved the exact opposite effect.
Hong Kong was once considered a “golden goose” to Communist China. Since the 1997 handover, the city has brought capital and technology to China and has greatly expanded the country’s international trade opportunities, helping propel the country’s economic development and transformation. By trying to impose absolute control on Hong Kong, the CCP killed the golden goose.