U.S. Businesses Brace for Damage as Tensions Over Hong Kong Grow
Rising tensions between the U.S. and China over Hong Kong have American businesses caught in the crosshairs.
Companies in the global financial and trading hub, already battered by a year of violent protests and the coronavirus pandemic, face a long period of further uncertainty amid a fight that they fear could disrupt their operations and that casts doubt over their long-term future here.
After China last week approved a plan to impose new national-security laws on Hong Kong, President Trump on Friday said the U.S. would no longer treat Hong Kong as a separate entity from China and would roll back policy exemptions for the city. They could include measures such as export controls, tariffs and visa restrictions, according to analysts, but businesses will have to wait for details and the timing of any moves.
“It’s going to be a challenging week ahead as there are no firm details on how this special economic relationship will be untangled,” said Tara Joseph, president of the American Chamber of Commerce in Hong Kong. More clarity is “essential because our business here is large and important,” she said.
About 85,000 U.S. citizens work in the city, with more than 1,300 U.S. companies operating here, some with regional headquarters. American companies with offices in Hong Kong range from Apple Inc. to Procter & Gamble Co., and FedEx Corp.
The U.S. is Hong Kong’s second-largest trading partner, after China, accounting for 6.2% of trade last year, compared with 50.8% for trade with China. Hong Kong officials point to the U.S. trade surplus with the city, which they said amounted to $297 billion between 2009 to 2018, to show how U.S. interests are also at risk.
“We do not believe that sanctions or trade restrictions against Hong Kong are justified,” a Hong Kong government spokesman said late Saturday. “They will lead to a breakdown of the mutually beneficial Hong Kong-U.S. relationship built up over the years and only hurt local and U.S. businesses in Hong Kong and the people working for them.”
Both sides will lose if the Trump administration follows through with the threat to eliminate all special treatment for Hong Kong, Daniel Russel, vice president of the U.S.-based Asia Society Policy Institute, said. “The impact would fall heavily on Hong Kong, with negative effects on U.S. companies operating there as well,” he said.
When China’s legislature last week approved a plan to impose a new law on Hong Kong, saying the city was a loophole in its national security, it also was light on details and how the law will be enforced. The law will be drafted in the coming weeks. Officials have already said Chinese security agencies will be allowed to operate in the city for the first time.
Officials in Beijing and Hong Kong said only a small minority of people will be affected by the law, as it targets activities deemed subversive, or promoting independence or terrorism. The law also targets what Beijing considers foreign interference in the city’s affairs. China has repeatedly accused the U.S. and foreign forces of stoking last year’s social unrest.
Opposition groups in the city contend that the law is just the start of Hong Kong being assimilated as just another Chinese city and reject government statements that people will retain freedom of speech and assembly. China promised to guarantee those rights under a 1984 agreement with the U.K. that returned sovereignty of its colony in 1997.
Andrew Lo, chief executive of Hong Kong-based immigration consultancy Anlex, said inquiries from residents in the city seeking to emigrate had risen from about 10 per day before the new security law was revealed to about 100 per day now. That could represent challenges to global companies that want to attract and retain top talent in the city.
“People are shocked in Hong Kong,” he said. “For parents, they prefer to live here in Hong Kong and earn their living, but then they think about their children and they think it’s better to go,” he said.
Felix Chung, a pro-business lawmaker who leads the city’s Liberal Party, said many in the local business community welcomed China’s new security law because they believe it will help tamp down protests that have hurt their businesses.
“Hong Kong is just sitting in the middle of two big guys and they are having a fight,” he said. “What actually worries me is not from China but from the U.S. What has Hong Kong done to the U.S.?,” he said.
The European Union Chamber of Commerce in China said in a statement before President Trump spoke Friday that businesses in Europe have depended on Hong Kong’s support for principles such as individual liberties and the rule of law, and that without them, “the allure of this important city will be greatly diminished.”
“The devil’s in the details,” said Allan Zeman, a pro-Beijing businessman in Hong Kong who is also an economic adviser to the Hong Kong government, referring to the next steps that might come from the U.S. administration. Pointing to the trade surplus the U.S. enjoys with the city, he added that controls on exports may hurt the U.S. economically more than Hong Kong, which has a minimal manufacturing sector and doesn’t export.
Mr. Zeman, who has lived in Hong Kong for decades, said that over time he has seen cycles of events where some companies might exit — such as in 1989 after the Tiananmen Square massacre or in 1997 when China reclaimed sovereignty from Britain. “You’ll always have some Nervous Nellies leave.”
Mr. Zeman said he thinks many companies will choose to stay as they are here for gateway access to China, as well as for its low tax regime and free flow of capital.
For many Americans in Hong Kong, “it’s an emotional and fragile moment,” said Ms. Joseph, whose chamber represents hundreds of American companies. “Many of us have worked and lived here for many years and we love Hong Kong.”
Source: Dow Jones