US, UK to sanction Chinese entities over HK security law

Retaliatory move expected to ratchet up tensions

The US and the UK are expected to use US Secretary of State Michael Pompeo’s declaration that Hong Kong is no longer autonomous as a trigger to sanction Chinese entities to punish China for pushing a national security law on the territory, said a source well versed in relations among Hong Kong, China and the US.

The tit-for-tat actions by China and the US significantly raise the temperature over the city of 5.7 million people, which was guaranteed special status for 50 years by a Basic Law agreed by the UK and China prior to the 1997 handover, ending 156 years of colonial rule. 

Targets of US sanctions may include Hong Kong officials as well as Chinese officials in Hong Kong, Chinese officials involved in administering the national security law and Chinese banks, said the source, who declined to be named due to the sensitivity of this issue. “They’re pushing China ever tighter into a corner.”

“The US response to China’s provocation will be consequential for markets,” said a statement by the UK-based think tank Enodo Economics. “Sanctions against people who have violated human rights are almost certain.” If the US imposes restrictions on banks that conduct significant transactions with sanctioned individuals or entities, “the battlefront will be widened dangerously,” Enodo warned.

China’s rubber stamp parliament, the National People’s Congress (NPC), today (May 28) approved the expected national security bill that it has been holding over Hong Kong for the past week. Subsequently, the Chinese government is expected to work with the Hong Kong government to implement the law, which would criminalize subversion, Hong Kong separatism and collusion with foreign powers.

On May 27, calling the plan a “disastrous decision,” Pompeo declared, “I certified to Congress today that Hong Kong does not continue to warrant treatment under United States laws in the same manner as US laws were applied to Hong Kong before July 1997. No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China.”

As of May 27, the US government hadn’t formally revoked Hong Kong’s special status with respect to the US.  In a sign the UK will also sanction Chinese entities, a US State Department spokesman Morgan Ortagus said Pompeo spoke with UK Foreign Secretary Dominic Raab on May 27 and discussed the upcoming security law. Pompeo and Raab agreed the international community must “respond to Beijing’s continued erosions of Hong Kong’s autonomy,” Ortagus disclosed.

In a briefing on May 27, US assistant secretary for East Asian and Pacific Affairs David Stilwell said the US will impose sanctions but declined to give details, saying, “There are other actions that will take place.”

US measures could include economic as well as visa sanctions against Chinese and Hong Kong officials under the Hong Kong Human Rights and Democracy Act, Stillwell explained. This act, signed by US President Donald Trump on November 27, 2019, empowers the US government to sanction Hong Kong and Chinese officials deemed responsible for human rights abuses in Hong Kong.

“But at the same time, we will do our best to ensure the people of Hong Kong are not adversely affected to the best we can,” Stilwell qualified.

But others are not so optimistic on Hong Kong as Stilwell.

“Hong Kong is a bishop on a geopolitical board that has just been played, and it is collateral damage,” said the source.

If the US formally strips Hong Kong of its autonomous status, the city’s position as an international financial center will inevitably decline in the long run in favor of Singapore, said Ching Cheong, a China watcher. “The speed of the decline depends on how far the US wants to strangle China, as well as whether Beijing would compromise after a while.”

If Hong Kong loses its autonomous status vis-a-vis the US, it will carry significant implications for the city, said Andre Wheeler, chief executive of Asia Pacific Connect, an Australian business consultancy. Thanks to its semi-independent status, Hong Kong has enjoyed special trade arrangements with the US including discounts on imports of US high-technology and electronic goods.

So Hong Kong businesses are likely to see increased technology costs and reduced access to US technology markets, Wheeler warned. Some US companies may relocate their offices from Hong Kong to other cities, Wheeler said. “The announcement could see capital flight out of Hong Kong, with Singapore being the likely beneficiary.”

There is a “thrust” by the US government to curb China’s access to global markets and governance institutions, rein in China’s national champions and block the world’s second largest economy from US high technology, said Nigel Inkster, who analyzes national security and intelligence affairs for Enodo, in a transcript published on Enodo’s website on May 28. Saying US-China relations have taken a “dangerous turn,” Inkster warned, “The hardening of bipartisan anti-China sentiment in the US has been dramatic.”  

In a press conference in Beijing on May 27, Chinese Foreign Ministry spokesman Zhao Lijian warned that if the US adopted measures in response to the security law, the Chinese government “will take necessary countermeasures,” but gave no details.

If Washington sanctions China over Hong Kong, “we see a spiral of retaliations by both sides,” warned Steve Tsang, director of the China Institute of the School of Oriental and African Studies (SOAS) in London. “But it may well stop as an unlimited upward spiral will be very damaging to both. But accidental upward spiral can happen.”

The geopolitical implications of Pompeo’s pronouncement will be more profound than the economic fallout, Wheeler said. “This could well galvanize the movement to decouple from China and diversify Asian markets. It is giving momentum to what I call the Asian Axis to constrain China.”

Included in this axis are Japan, South Korea, Vietnam, Philippines, Thailand and Malaysia that could encourage manufacturing to relocate out of China to these countries, Wheeler added.

In the face of Pompeo’s hawkishness, Chinese Prime Minister Li Keqiang struck a reconciliatory note at a press conference today (May 28) in Beijing. While admitting recent problems have arisen in the Sino-US relationship, Li said decoupling the two major economies will benefit nobody but hurt the world.

Hong Kong protestors

On May 28, Jimmy Lai Chee-ying, a Hong Kong tycoon, tweeted, “Thank you, Secretary Pompeo, for standing with us Hong Kongers. The world will be a much better and peaceful place when (the Chinese Communist Party) is contained and Hong Kong is free.”

Due to his activism against the Chinese government, Lai is one of the Hong Kong people targeted by the security law, Asia Sentinel reported on May 27.  Lai’s Apple Daily, a popular anti-Beijing newspaper, posted a petition on May 27, asking Trump to pressure the Chinese government to reconsider imposing the security law.

After the law takes effect, which is expected to happen in the coming months, Apple Daily’s petition will likely be a punishable offence, since this law criminalizes collusion with foreign forces on Hong Kong affairs.

Asia Sentinel no longer publishes the bylines of those reporting from Hong Kong out of concern for their wellbeing.