Sanction Hong Kong, For Its Own Sake

Journal of Political Risk, Vol. 7, No. 10, October 2018 

Silhouette of man standing on top of mountain with reflection of urban cityscape. Source: Getty Images.

By Ho-fung Hung, Ph.D.

The decision of the Hong Kong government to expel Financial Times Asia editor Victor Mallet from Hong Kong has already provoked widespread concern about freedom of speech and autonomy of Hong Kong in the international community. Mr. Mallet broke no law, and the Hong Kong government’s decision is obviously based on his role as moderator of an August 14 talk by pro-independence activist Andy Chan at the Foreign Correspondents Club. This unprecedented expulsion of a foreign journalist takes Hong Kong a big step closer to the status quo in mainland China.

The UK Foreign Office, US Consulate in Hong Kong, European Union, and American Chamber of Commerce in Hong Kong, all issued statements criticizing the decision of the Hong Kong government. In particular, AmCham president Tara Joseph pertinently links the case to the concern about Hong Kong’s continuous viability as a financial center, saying that, “The rejection of a renewal of work visa for FT correspondent Victor Mallet sends a worrying signal. Without a free press, capital markets cannot properly function, and business and trade cannot be reliably conducted.”

Beijing has long said that Hong Kong is no longer important to China economically, because China’s GDP has been roaring ahead over the last two decades since Hong Kong’s sovereignty handover. But in fact, Hong Kong’s special status as an autonomous economy separate from mainland China is still serving China very well.

The deal between China and the world, led by the US and grounded on the Sino-British Joint Declaration of 1984 that guarantees a “One Country, Two Systems” arrangement for the territory, is that the world recognizes Hong Kong as an autonomous entity independent of mainland China regarding visa and immigration, export control, capital flow, and postal mail.  Hong Kong capital and Hong Kong passport enjoy a status close to those from an OECD country. Hong Kong also maintains its separate membership in many international organizations, including the WTO.  At the same time, foreign companies can have access to the free press, independent court, transparent financial system, and internationally recognized business arbitration, while doing business with their Chinese clients in Hong Kong.

The international recognition of Hong Kong as a separate entity from China after 1997 has been to a large extent legitimized by the US-HK policy Act of 1992. Under this Act, the US would verify and report on whether Hong Kong still enjoys substantial freedom and autonomy vis-à-vis mainland China. If it is the case, the US should “seek to maintain and expand economic and trade relations with Hong Kong, and should continue to treat Hong Kong as a separate territory in economic and trade matters, such as import quotas and certificates of origin,” and should “continue to support access by Hong Kong to sensitive technologies controlled under the agreement of the Coordinating Committee for Multilateral Export Controls … for so long as the United States is satisfied that such technologies are protected from improper use or export,” among other things. This US policy set an example for other countries regarding how to handle their relations with Hong Kong after its 1997 sovereignty handover.

With the US and other developed countries offering laxer control over wealth and immigrants from Hong Kong vis-à-vis those from mainland China, the Chinese government and individual Chinese officials could conveniently engage in business and migration via Hong Kong.  It is an open secret that many Chinese officials can freely move their money and relatives to Western countries under the cover of “HK residents” and “Hong Kong investment,” and that China can obtain sensitive technologies and foreign capital via the Hong Kong channel, despite extensive regulatory hurdles restricting mainland China’s access.

For example, the export control exercised by the US and Europe that barred China from obtaining military related equipment does not apply to Hong Kong. It has been found that China has set up companies in Hong Kong to import controlled items, which were in turn transferred to mainland China, or even North Korea and Iran.[1]  When those companies were blacklisted by US export control authorities for not being able to verify the final destinations of the imported items, they could simply close down and reopen with a different name in Hong Kong. The Soviet carrier in Ukraine that became the Liaoning, China’s first aircraft carrier, was acquired by a Hong Kong company run by a Chinese businessman with a People’s Liberation Army (PLA) background in 1999, before it was transferred to the PLA right after its purchase.[2] The Hong Kong identity of that company, which said it was purchasing the carrier with the intention of turning it into a floating amusement park, helped keep the deal under the radar.

Ever since 1997, Beijing’s long term intents for Hong Kong are twofold. On the one hand, Beijing has been anxious to establish absolute control over the politics and society of Hong Kong, ensuring that Hong Kong would not develop into a hotspot of challenge to CCP rule.  On the other hand, Beijing wants the world, and the US in particular, to maintain its formal recognition of Hong Kong’s autonomy and continue its special treatment of Hong Kong with respect to export, capital and migration controls.

Needless to say, there is a great tension between the two intents. If Beijing goes too far in reversing Hong Kong’s freedom, the US and other Western countries will find it all too difficult to pretend that Hong Kong is still autonomous from China. In such case, the US would have to revoke its recognition of Hong Kong’s distinction from mainland China under the US-Hong Kong Policy Act, and other countries will follow. It will have dire consequences to the Chinese economy and fortunes of wealthy Chinese officials. In the first decade after Hong Kong’s sovereignty transfer, Beijing seriously restrained its impulse to clamp down on the civil liberties and political opposition in Hong Kong. This restraint is best illustrated by Beijing’s shelving of the Article 23 anti-subversion legislation, after the massive demonstration in 2003.

But after about 2008, Beijing, perhaps believing that its global power had outgrown the US and Europe, started to see such self-restraint as unnecessary. Beijing apparently expected that Western countries, humbled by China’s new financial and geopolitical muscle, would pretend that Hong Kong is still free and autonomous regardless of its increasing repression. Since then, Beijing has redoubled its efforts to destroy Hong Kong’s freedom. Beijing arbitrarily disqualified selected oppositional Legco candidates and even elected legislators, bringing the beginning of the end of free and fair elections. It resorted to cross-border kidnappings to silence some of the most critical publishers. It has effectively controlled all electronic media and nearly all print media. Worse, it is widely suspected that Beijing is behind Edward Snowden’s escape from Hong Kong to Moscow, with an unknown amount of secretive information divulged to Beijing and Moscow as conditions, and despite that Hong Kong was obliged to turn him in under Hong Kong’s extradition treaty with the US.

Now with the expulsion of a foreign journalist for political reasons, China is loudly walking away from its part of the deal with the world over Hong Kong. For how much longer will the US, UK and others pretend that it is business as usual and there is still a deal over HK? As many recent court cases show, Beijing has been taking advantage of the world’s recognition of Hong Kong’s autonomous status to help North Korea bypass international sanctions,[3] to smuggle in military hardware banned from China,[4] to wire out bribery money to foreign officials on behalf of Chinese companies,[5] and even to mail fentanyl to the western world.[6]

The world needs to have a firm red line over Hong Kong. If China crosses that line, the international community should withdraw its recognition of Hong Kong’s autonomous status and hence terminate its utility to Beijing. Right now, China is turning Hong Kong into another ordinary Chinese city, except that it still enjoys all the benefits of the world’s pretension that Hong Kong is still autonomous from Beijing. Meanwhile, China’s abuse of Hong Kong’s status is posing ever greater security risks to the world.

So far, Beijing’s infringements of rights and autonomy in Hong Kong have invoked little more than a few toothless lines of concern from the US and UK. If the world continues to be reluctant to respond to the erosion of Hong Kong’s freedom by refusing to question continued recognition of Hong Kong’s autonomy, Beijing will eventually bulldoze Hong Kong’s “One Country, Two Systems” to nothing more than a name, and without any price to pay. That will be the ultimate triumph of Beijing. It will be not only a tragedy for the freedom of Hong Kong, but also a significant setback for the credibility and interests of the US and the international community.

It may be too abrupt a measure if the US and other countries completely withdraw recognition of Hong Kong’s autonomy from China. But at the very least, they could apply selective sanctions on certain entities and sectors in Hong Kong that are deemed important to China’s access to global finance and foreign technology.

These kinds of selective sanctions have already started, though mostly out of economic and security reasons and not as response to Beijing’s political repression of Hong Kong. The White House’s aluminum tariff against China does include Hong Kong, though Hong Kong itself has zero aluminum production. This is obviously an attempt to plug a transshipment loophole through which China can get around the tariffs.  More interestingly, the Netherlands, while banning export of surveillance equipment to China to deter China’s development of a massive, horrific “skynet” system monitoring its own people, also unprecedentedly includes HK on the banning list, so that Chinese companies cannot use Hong Kong to bypass the ban.[7]

If the world responds to the disappearance of freedom and autonomy by applying similar sanctions to Hong Kong, it could give Beijing a signal that its clampdown on HK does have consequences to its economy and national interests. Beijing’s calculation over HK could change and it would think twice next time it wants to take away more freedom from the territory. Such sanctions may pose collateral damage to some players in Hong Kong. But by adding a deterrent to Beijing’s crackdown on Hong Kong’s freedom, these sanctions are going to benefit Hong Kong and the Hong Kong people in the long run.

Ho-fung Hung is Henry M. & Elizabeth P. Wiesenfeld Professor in Political Economy at the Department of Sociology & School of Advanced International Studies, The Johns Hopkins University. JPR Status: Opinion.

[1] https://www.corporatecomplianceinsights.com/us-export-controls-update-why-hong-kong-dominates-the-new-unverified-list/

[2] https://www.scmp.com/news/china/article/1681755/how-xu-zengping-became-middleman-chinas-deal-buy-liaoning

[3] http://www.atimes.com/article/hk-scrutiny-n-koreas-ability-bypass-sanctions/

[4] https://www.cnn.com/2018/10/01/politics/china-california-space-smuggling-intl/index.html

[5] https://www.scmp.com/news/hong-kong/hong-kong-law-and-crime/article/2146455/former-hong-kong-minister-patrick-hos-attempt

[6] https://www.nytimes.com/2017/06/10/business/dealbook/opioid-dark-web-drug-overdose.html

[7] https://www.scmp.com/news/china/science/article/2165372/how-tensions-west-are-putting-future-chinas-skynet-mass