HONG KONG has become a centre of global attention again after China’s National People’s Congress (NPC) adopted a piece of new security legislation for this Asian financial centre to stop unduly demonstrations and violent riots that have hurt its economy and people’s livelihood.
For the second half of last year, this former British colony was often a sight of horror, chaos, fires, clashes between police and protestors, property destruction – thanks to the incessant demonstrations.
As expected, violent protestors returned to the streets again during the NPC’s May 22-28 meetings, and foreign governments – in particular the United States and Britain – condemned Beijing’s action, saying Hong Kong’s autonomy could be jeopardised.
But this time around, the unrests from May 22 were sporadic and more subdued compared to last year, possibly due to people’s anger towards riots and the absence of local opposition leaders, who are facing charges for instigating illegal protests last year.
This security law, currently absent in Hong Kong but is present in mainland China and all other countries, will outlaw acts of secession, subversion, terrorism and conspiracy with foreign forces.
To businessmen and lay persons who yearn for stability and economic prosperity, the enactment of this piece of law is a welcome development.
They have witnessed how Hong Kong’s economy was hammered. In the first quarter of this year, Hong Kong’s GDP shrank 8.9% year-on-year. It was the third consecutive quarter of negative growth.
The security law, to be implemented soon, has received support from Hong Kong residents and business leaders. By June 1, more than 2.9 million Hong Kong residents had signed a petition to support the national security law, according to the campaign’s organiser.
On Monday, the presidents of five Hong Kong universities expressed support for the law in a joint statement. Universities were turned into hot camping ground for student protestors last year.
But to the foreign intelligence organisations from the West and Taiwan, this law could spell death knell for their regional offices and clandestine spying activities on China and most of Asia.
The security law also targets foreign intelligence organisations, traitors and people with direct relations with them.
To foreign investors, there are mixed views. While some may leave Hong Kong for fear this territory’s autonomy will be jeopardised by the security law, others believe this law will bring stability and China will continue to back Hong Kong as a financial centre.
Under the “One country, two systems” rule, Hong Kong enjoys a high degree of autonomy and freedoms of expressions absent in other Chinese cities of the mainland.
Impact from possible US sanctions
Several foreign governments have spoken up against the security law. The most serious reaction has come from the US and Britain.
On May 29, US President Donald Trump announced Washington would “revoke Hong Kong’s preferential treatment as a separate customs and travel territory from the rest of China.”
Currently, Hong Kong enjoys three privileges extended by the US: It has independent tariff status; it can receive technology transfers from the US; and Hong Kong dollars can be freely exchanged with US dollars.
ING’s Greater China chief economist Iris Pang sees the use of US technology as facing the biggest threat.
In an analytical report on May 31, Pang writes: “After the removal of the special status, it could mean more restrictions on technology transfers for Hong Kong. The same policy applied to mainland China on technology transfers should, in theory, be applied to Hong Kong.
“Put simply, the US government can ban US companies from selling technology products and services to Hong Kong-based companies. Media reports say about 70% of cybersecurity products in Hong Kong originate from the US.”
This possible technology ban could have a very deep and wide impact on Hong Kong firms and people’s daily lives even though technology and innovation is not Hong Kong’s key industry, she adds.
However, the removal of the special status should not have much impact on US investments, says ING.
Many US companies choose Hong Kong as a destination for their regional hub because of the low corporate and individual tax rates and the HK dollar’s peg to the US dollar, which reduces forex risks for American business.
Hence, moving out of Hong Kong may not be a simple decision for companies with regional headquarters in the Pearl of the Orient.
“The uniqueness of Hong Kong’s linked exchange rate system is not replicated in other regional economies. As such, we do not think there will be a large-scale exit of US companies, ” says Pang.
In 2019, there were 278 regional headquarters of US companies. This accounted for 18% of Hong Kong’s total regional headquarters.
No impact on trade tariffs
According to ING report, Hong Kong will be slapped with similar trade tariffs with mainland China if Washington removes its trade privileges.
Currently, re-exports form the key part of Hong Kong’s exports. And China’s exports through Hong Kong to the US are imposed a tariff rate similar to the mainland.
Hence, in terms of tariffs, a removal of the special status will not have any impact on trade.
Hong Kong’s figures show that in 2018, around 8% of mainland China’s exports to the US went through Hong Kong, and around 6% of China’s imports from the US went through Hong Kong.
Hong Kong’s total exports amounted to US$533bil that year.
US likely to hold back on sanctions
How likely is Washington to impose sanctions against Hong Kong?
Academics who spoke to Singapore’s Zaobao generally felt that Washington will hold back on sanctions against Hong Kong, so as not to hurt US interests there.
Hong Kong is the single economy that gives the US its highest trade surplus, they told the Chinese newspaper.
Associate Professor Fu Fangjian of the Lee Kong Chian School of Business at Singapore Management University was quoted as saying: “If the US revokes Hong Kong’s preferential customs status, a lot of US goods sold to Hong Kong would have to be taxed, and US companies would also suffer. That would be shooting itself in the foot.”
In 2018, Hong Kong was the US’ third largest wine export market, fourth largest market for beef products, and seventh largest market for agricultural produce. That year, the US earned a trade surplus of US$31.1bil with Hong Kong, according to the Zaobao report.
Hong Kong to see greater stability
Beijing must have taken into consideration all the possible negative scenerios for Hong Kong when its top leaders mooted the security law.
But no matter what, Hong Kong cannot be ruined by protestors, opposition forces and foreign elements.
Chinese leaders have often said they will want to see Hong Kong prosper along with the mainland. By roping Hong Kong into the Greater Bay Area, Beijing shows the importance attached to Hong Kong although it is also developing other cities to be financial centres.
The strong backing of Beijing has positive impact on Hong Kong. This can be seen from the quick rebound of the recently beaten-down stock market.
The Hang Seng Index tumbled 5.6% on May 22, the day after news broke on the security law.
But the plunge was short-lived. It rebounded the following trading days, with support from mainland funds.
The chief executive of Hong Kong Special Administrative Region Carrie Lam declared this week “Hong Kong is not afraid of” US threats of sanctions.
In an interview given to China Central Television (CCTV) on Tuesday, she said Hong Kong does not need to worry about US threats as there is firm support from the central government and Hong Kong citizens for the national security law.
The Hong Kong leader said: “If the central government did not actively play its part, Hong Kong may not be able to solve its current issues.
“This law will instil business confidence. It has given Hong Kong a chance of survival and will help it overcome its difficulties. Hong Kong’s focus now will be on restoring the economy as stability gradually returns to society.”