Ending of Hong Kong special status: what does it entail?

President Trump's decision to rescind the special status of Hong Kong will have manifold effects on the region, which is host to around 300 US companies. The move is a double edged sword, which will not only injure China, but also cut the US economy deeply.

ending of Hong Kong's special status

Washington’s declaration this week that Hong Kong is no longer sufficiently autonomous from China and that it was moving toward an ending of Hong Kong’s special status was a historic moment with potentially far-reaching consequences for the finance hub — though much depends on President Donald Trump.

The revocation of special status could radically rearrange the fortunes of a city that has served for decades as the global economic gateway to China.

On Friday, Trump vowed to strip the city of certain trade privileges, saying Beijing’s plan to impose a sweeping national security law on the semi-autonomous city was a “tragedy”.

But he was light on specifics and the declaration could end up being little more than symbolic.

Trump severs ties with Hong Kong, rescinds special status

Trump, however, was light on specifics and notably avoided personal criticism of President Xi Jinping, with whom he has boasted of having a friendship even as the two powers feud over an increasing range of issues. Nevertheless, he laid out a general plan of action that the United States administration will follow.

“I am directing my administration to begin the process of eliminating policy that gives Hong Kong different and special treatment,” Trump said.

Read more: Trump severs ties with Hong Kong, bans Chinese students to pile pressure on China

“This will affect the full range of agreements, from our extradition treaty to our export controls on dual-use technologies and more, with few exceptions,” he said.

Secretary of State Mike Pompeo had earlier informed Congress that the Trump administration would no longer consider Hong Kong to be separate under US law, but it was up to Trump to spell out the consequences.

China this week pressed ahead on a law that would ban subversion and other perceived offenses against its rule in Hong Kong, which was rocked by months of massive pro-democracy protests last year.

An explanation of what Hong Kong’s special status is

In the run-up to Britain returning Hong Kong to China in 1997, a “one country, two systems” deal was forged to allow the city to maintain certain freedoms and autonomy for 50 years.

Those liberties included a free market economy, an independent judiciary, free speech and legislative autonomy.

As a result, many countries, including the United States, brought in laws that allowed them to treat Hong Kong as a separate trade entity to the authoritarian and economically restrictive mainland.

The arrangement allowed Hong Kong to flourish into a world-class financial centre on a par with London and New York.

Reciprocal visa-free travel deals, a dollar-pegged currency, the world’s fourth-largest stock exchange as well as business-friendly laws, taxes and legal protections greased the wheels of commerce.

If Washington opts for hardline measures it would risk “all of the financial connectivity that China has to the free market”, according to Robert Spalding, a US-China expert at the Hudson Institute.

“Once that goes away, stocks, bonds, financial transactions, SWIFT, all of that is imperilled,” he told Bloomberg News.

What is the new law at the centre of the controversy?

The new controversy has been fuelled by China’s parliament authorising a new security law for Hong Kong, which observers and analysts say would effectively end the democratic character of the city-state.

The law will “guard against, stop and punish any separatism, subversion of the national regime, terrorist group activities and such behaviours that seriously harm national security”.

Read more: New Security Law in Hong Kong approved by Chinese parliament

It would authorise Chinese lawmakers to directly enact long-delayed Hong Kong security legislation itself at a future date, rather than leaving it up to the territory’s administration.

China made clear it wanted the legislation passed after Hong Kong was rocked by seven months of massive and sometimes violent pro-democracy protests last year.

The new law would punish secession, subversion of state power, terrorism and acts that endanger national security, as well as allow mainland security agencies to operate openly in Hong Kong.

The law has been greeted by protests from within Hong Kong and from the international community, with observers stating that the law would effectively end the democratic nature of the territory.

What is written in the future for Hong Kong?

Trump has certainly indicated he plans to follow up with some concrete measures.

On Friday he instructed officials “to begin the process of eliminating policy that gives Hong Kong different and special treatment”.

“This will affect the full range of agreements, from our extradition treaty to our export controls on dual-use technologies and more, with few exceptions,” he added.

However, no specific plans were unveiled.

Julian Ku, an expert on international law at Hofstra University, said the president has “lots of flexibility”.

“I expect him to take some major steps that would show China he is serious, but not to change every US law that applies to Hong Kong,” he told AFP.

The reasons behind ending of Hong Kong special status

The decision to begin revoking Hong Kong’s special status was sparked by growing fears that Beijing is prematurely stamping out freedoms.

Of most recent concern is a plan to ban subversion and acts endangering national security after months of pro-democracy protests last year.

Beijing says the law is needed to curb “terrorism” and “separatism”. Opponents fear it will be used to snuff out dissent like on the authoritarian mainland.

Hong Kong’s fate has produced rare bipartisan support in Washington with lawmakers last year passing a bill punishing China.

One of the provisions was for the State Department to certify each year whether Hong Kong maintains enough autonomy from China to justify its special status.

On Wednesday the State Department decided it did not.

Is Hong Kong finished as the global financial hub?

The Trump administration’s China policy is unpredictable.

Trump has taken a hard line against Beijing on trade but shown little interest in human rights and spoken warmly of his Chinese counterpart Xi Jinping, but did not hesitate to announce the ending of Hong Kong’s special status

He is also reluctant to jeopardise his trade agreement with China as he seeks re-election in November.

Read more: New Chinese security law to be the ‘end’ of Hong Kong

American businesses could be hit hard by moves to economically punish Hong Kong.

According to the Congressional Research Service, nearly 300 US companies have a regional headquarters in the city, while 434 have regional offices.

But attitudes towards China are hardening within the Trump administration, especially after the coronavirus pandemic.

For Beijing, Hong Kong is vital for Chinese companies seeking to access foreign currency, international banks and trading firms.

But it is less pivotal than it used to be — last year 12 percent of China’s exports went to or through the city, down from 45 percent in 1992.

Chinese retaliation to the US move awaited

Trump’s order could also trigger retaliation. China in March expelled US journalists after the Trump administration tightened visa rules for staff at Chinese state media.

“Sanctions are not always unilateral and our country (China) has said that we will roll out countermeasures,” Hong Kong’s security chief John Lee said Saturday.

China’s Global Times, published by the People’s Daily, the official newspaper of China’s ruling Communist Party, said Mr Trump’s decision was a “recklessly arbitrary” step.

The Hong Kong government – which has a long history of working ties with US counterparts, distinct from Beijing – has yet to respond, although it warned on Thursday the move could be a double-edged sword.

Steve Tsang, a China expert at the University of London’s SOAS, said US moves were unlikely to make Beijing think twice.

“I believe Xi will double down and retaliate instead,” he told AFP.

Capital Economics said short-term economic damage to Hong Kong “would be manageable” if the US rescinded trade privileges.

“But it would accelerate the erosion of Hong Kong’s status as an international business centre.”

Ending of Hong Kong special status: Impacts on US Economy

The American Chamber of Commerce in Hong Kong said on Saturday it was “a sad day” for the global financial centre, hours after US President Donald Trump moved toward stripping the city of its special treatment in a bid to punish China.

Mr Trump told reporters at the White House that China’s move on Hong Kong was a tragedy for the world, but he gave no timetable for the moves, leaving Hong Kong residents, businesses and officials to ponder just how far his administration will go. “This is an emotional moment for Americans in Hong Kong and it will take companies and families a while to digest the ramifications,” AmCham President Tara Joseph said in a statement.

“Many of us… have deep ties to this city and with Hong Kong people. We love Hong Kong and it’s a sad day,” she said, adding the chamber would continue to work with its members to maintain Hong Kong’s status as a vital business centre.

More than 1,300 US firms have offices in Hong Kong and provide about 100,000 jobs. In the past decade, the US trade surplus with Hong Kong has been the biggest among all its trading partners, totalling US$297 billion from 2009 to 2018.

AFP with additional input by GVS News Desk

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