On Friday, July 16, the Biden administration issued a warning detailing the risks US companies face when doing business in Hong Kong, especially following Beijing’s imposition of its controversial national security law in the semi-autonomous state last year.
The nine-page advisory was jointly released by the departments of State, Treasury, Commerce, and Homeland Security. In general, it reminds businesses operating in Hong Kong that they’re subject to China’s national security law, under which individuals seen as promoting secession, committing subversive acts, engaging in terrorism, and colluding with a foreign country can be arrested. In addition, it expresses concern that the freedom of expression has been and will continue to be curtailed, with authorities targeting newspapers, broadcasters, and others that spread “fake news.” It also warns businesses that the national security law gives Hong Kong law enforcement the authority to surveil individuals and entities and conduct searches or request information from internet service providers without judicial oversight.
Finally, the advisory highlights that businesses operating in Hong Kong must understand how the sanctions landscape affects them. US businesses must comply with US sanctions imposed on specific Hong Kong and Chinese nationals in response to Beijing’s crackdown on anti-government protests in Hong Kong and alleged human rights abuses in Xinjiang. Yet, Beijing’s recently passed Countering Foreign Sanctions Law — which doesn’t distinguish between mainland China and Hong Kong — means those same businesses might be subject to retaliatory measures and legal consequences for complying with US sanctions.
The same day, the US Treasury brought sanctions against seven officials from China’s liaison office in Hong Kong — an office that, according to Secretary of State Antony Blinken, “has been undermining Hong Kong’s autonomy.” Those designated will have their assets frozen, and US businesses are generally prohibited from doing business with them.
China, for its part, slammed the Biden administration’s actions. A spokesperson of the Office of the Commissioner of the Ministry of Foreign Affairs of China said the advisory “smeared Hong Kong’s business environment.” The statement went on to accuse the US of trying to “undermine Hong Kong’s prosperity and stability, endanger China’s national security, and contain China’s development,” which the spokesperson called “despicable and contemptible.”
The question remains whether this will deter businesses as the US hopes, especially since neither the situation in Hong Kong nor the deteriorating US-China relationship has had a significant impact so far. Banks such as Goldman Sachs, UBS Group, Credit Suisse Group, and HSBC Holdings have stepped up hiring and are investing heavily in Hong Kong. Hong Kong has also become one of the top destinations for initial public offerings (IPOs). Right now, businesses seem willing to overlook the risks to take advantage of the economic opportunity Hong Kong represents.
Even so, it’s unclear if and how Beijing intends to retaliate to the Biden administration’s latest actions. Moreover, the two countries are far from reaching a truce; on the contrary, tensions are escalating. Financial institutions and other companies must continue to tread carefully or risk running afoul of China, the US, or both.
Originally published July 22, 2021, updated May 6, 2022
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