State Dept.'s Ortagus Sees Bipartisan Consensus on Hong Kong Autonomy

U.S. Says Hong Kong’s Autonomy Is Gone, Sowing China Trade Doubt


The Trump administration said it could no longer certify Hong Kong’s political autonomy from China, a move that could trigger sanctions and have far-reaching consequences on the former British colony’s special trading status with the U.S.

Secretary of State Michael Pompeo announced the decision Wednesday, a week after the government in Beijing declared its intention to pass national security legislation curtailing the rights and freedoms of Hong Kong citizens. The National People’s Congress, China’s legislature, is expected to pass the measure later on Thursday.

“Hong Kong does not continue to warrant treatment under United States laws in the same manner as U.S. laws were applied to Hong Kong before July 1997,” 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.”

The move comes as tensions between the world’s two largest economies continue to escalate, fueled by accusations from President Donald Trump that China was slow to disclose the peril of coronavirus. Trump has threatened consequences for Beijing over its handling of the pandemic and more recently its steps to assert more control over Hong Kong. Congress also passed a bill that would sanction Chinese officials for human rights abuses against Muslim minorities.
An activist argues with riot police while demonstrators are being detained during a protest in Hong Kong, May 27.Photographer: Lam Yik/Bloomberg

Hong Kong shares tumbled in the wake of the news, with the Hang Seng Index flirting with the lowest level since global strains peaked in March. The offshore yuan dipped, as it continues to test record levels amid speculation the government would be willing to permit a weaker currency in response to fresh punitive measures from the U.S.

Read more about U.S.-China tensions:
U.S. Move on Hong Kong Leaves Trump With Tough-or-Gentle Options
What Hong Kong Losing Its ‘Special Status’ Would Mean: QuickTake
Hong Kong Police Overwhelm Protesters Now Crying ‘Independence’
Some Hong Kong Democrats Want Trump to Hammer City’s Economy

A finding on Hong Kong’s autonomy was compelled by last year’s Hong Kong Human Rights and Democracy Act, which requires such a certification each year. Pompeo’s decision opens the door for a range of options, from visa restrictions and asset freezes for top officials to possibly imposing tariffs on goods coming from the former colony to effectively treating Hong Kong no differently than the mainland.

“The United States stands with the people of Hong Kong as they struggle against the CCP’s increasing denial of the autonomy that they were promised,” Pompeo said, referring to the Chinese Communist Party.

‘Thread the Needle’

In a statement, the Chinese embassy in Washington said the legislation “targets a very narrow category of acts that seriously jeopardize national security and has no impact on Hong Kong’s high degree of autonomy, the rights and freedoms of Hong Kong residents or the legitimate rights and interests of foreign investors in Hong Kong.” It added that China would take “necessary countermeasures” to any U.S. response, echoing a comment from the foreign ministry on Wednesday.
Meng WanzhouPhotographer: Darryl Dyck/Bloomberg

Prominent Hong Kong democracy advocates welcomed Pompeo’s comments and called on Trump to hit China hard, even to the point of revoking the city’s special trading status. Many of them saw this moment as one of the final opportunities to pressure Beijing before details of the laws are drafted and imposed.

“Our only salvation is for President Donald Trump to impose sanctions,” said Jimmy Lai, a Hong Kong media tycoon and prominent pro-democracy activist, who said the most impactful initial move would be to freeze the bank accounts of top Chinese officials.

WATCH: Jimmy Lai, founder and non-executive chairman at Next Digital, discusses the Hong Kong national security law.
Markets: China Open.” (Source: Bloomberg)

Some Hong Kong Democrats Want Trump to Hammer City’s Economy

On Hong Kong, the Trump administration will probably focus on financial sanctions and visa restrictions on Chinese officials while holding back on tariffs, export controls and investment restrictions until there’s more clarity on the new law, according to David Loevinger, a former China specialist at the U.S. Treasury who’s now an analyst at TCW Group Inc. in Los Angeles.

“They have to thread the needle of coming down on Mainland and Hong Kong officials who support this while not being seen as attacking the Hong Kong people,” he said.

China took back control of Hong Kong from the U.K. under an agreement known as “One Country, Two Systems,” in which it promised to give the former colony broad political and economic independence for 50 years. But under President Xi Jinping, China has steadily asserted more authority over Hong Kong, touching off a wave of protests that stalled only as the coronavirus pandemic swept the globe.

The U.S. action hits Hong Kong after a year of often-violent protests and the Covid-19 pandemic that has slammed its economy.
Demonstrators raise their hands to gesture the “Five demands, not one less” protest motto on May 27.Photographer: Roy Liu/Bloomberg

Earlier Wednesday, protesters planned to gather at the city’s Legislative Council, which was debating a separate law that would criminalize insulting China’s national anthem. Yet they ended up getting nowhere close, and the hearing proceeded as normal -- a far cry from about a year ago, when a mass of people managed to thwart a bill that would allow extraditions to China.

Role Lessening

While Hong Kong remains a major trading hub and a key gateway from China to the rest of the world, it matters far less to the country’s fortunes than it once did. In 2019, 12% of China’s exports went to or through Hong Kong, down from 45% in 1992. China is also far less reliant on inflows of foreign capital and expertise, and has made a much lower priority of making the yuan an international currency.

“Hong Kong is incredibly vulnerable to a massive income shock like this because it’s the most levered economy in the world by many counts,” said Whitney Baker, the New York-based founder of Totem Macro, which advises funds overseeing more than $3 trillion.

“Blowing up Hong Kong’s banking system doesn’t really serve the interests of penalizing China or protecting Hong Kong’s autonomy, so we don’t really get that as an approach,” Baker said. She said she’s been short Hong Kong property stocks and the latest tensions only strengthen the case for that.

Nonetheless, the city still matters. Hong Kong’s open capital account and adherence to international standards of governance are unmatched by any mainland Chinese city and make it an important base for international banks and trading firms.

Trump, asked about the prospect of sanctions at the White House on Tuesday, said his administration is “doing something now” that he would unveil later in the week.

In another point of conflict between the U.S. and China, Huawei Technologies Co. Chief Financial Officer Meng Wanzhou failed Wednesday to persuade a Canadian judge to end extradition proceedings, keeping her under house arrest in Vancouver as the fight against U.S. efforts to prosecute her moves forward.

​Under the U.S.-Hong Kong Policy Act of 1992, Washington agreed to treat Hong Kong as fully autonomous for trade and economic matters even after China took control. That meant Hong Kong was exempt from Trump’s punitive tariffs on China, can import certain sensitive technologies and enjoys U.S. support for its participation in international bodies like the World Trade Organization.

But the law enacted last year gives the administration broad authority to impose sanctions or other punishments. The administration can also revoke Hong Kong’s special trading status if it chooses.

Such a decision, however, would have far-reaching consequences and jeopardize Hong Kong’s role as one of the world’s leading trade and banking hubs, so the Trump administration may start with smaller steps targeting Chinese Communist Party officials rather than moves that would have far-reaching economic consequences, particularly during the coronavirus pandemic.

— With assistance by George Lei

(Updates with markets, Jimmy Lai comment)