Following an earlier announcement by the United States that it would sanction 11 Hong Kong and Chinese officials for undermining Hong Kong’s autonomy, Monday is the appointed deadline by which the State Department should name individuals and companies that violate Hong Kong’s Basic Law. There is speculation that a second wave of sanctions from the U.S. could come soon.
In July, President Trump signed the Hong Kong Autonomy Act, which can sanction officials and companies involved in activities that undermine Hong Kong’s autonomy. The bill requires the U.S. State Department to submit a report to the U.S. Congress within 90 days listing the names of those who assisted the Chinese government in violating the Basic Law, as well as the financial institutions with which they had “significant dealings,” and the banks that have 12 months from the release of the list to terminate all business dealings with the named officials.
As Monday is the deadline for the U.S. government to submit its report, HSBC, Standard Chartered and other Hong Kong financial institutions that may face sanctions are closely monitoring the situation.
Our correspondent attempted to contact the U.S. State Department for details on the timing of the report’s release, but did not receive a response by deadline.
There is a lot of speculation that the U.S. may waive or reduce the sanctions on financial institutions to avoid affecting the daily business of these companies, said Ross Feingold, a political risk management consultant.
“This is to avoid undermining the first phase of the U.S.-China agreement, and it could also be due to pressure from U.S. companies and these financial institutions.”
However, the U.S. government is also being pressured by members of the U.S. Congress and nongovernmental organizations that support the sanctions, Fong added.
“Hong Kong remains the focus of those in the U.S. Congress who are focused on China issues, as well as experts who support the implementation of conservative policies against China.”
Hong Kong’s South China Morning Post reported earlier that the U.S. sanctions could include a ban on senior executives of the financial institutions in question from traveling to the U.S., even including the inability to use U.S. dollars for clearing, stressing that the consequences of “angering” the U.S. are particularly serious for global lenders such as HSBC and Standard Chartered, which have large retail operations in Hong Kong, and that the U.S. is using “secondary sanctions” to exert economic pressure on the governments of China and Hong Kong to achieve diplomatic goals.
HSBC and Standard Chartered’s market capitalization on the Hong Kong Stock Exchange has declined by 15.6% and 12% respectively since the Hong Kong Autonomy Act took effect, the report said.
Qin Peng, a political and economic analyst from the United States, told reporters that there is no substitute for the dollar’s dominant role in the international financial system.
“Bigger companies and financial institutions, no one can escape the jurisdiction of the dollar. If the settlement of SWIFT is cut off, it can be said that your entire international business will be scrapped. As long as it involves international business, and in the case of Hong Kong, which is basically all international business, if you don’t lift the sanctions, basically the bank is scrapped.”
The U.S. Treasury Department had earlier announced sanctions against eleven Chinese and Hong Kong government officials, including Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor, for weakening Hong Kong’s autonomy and restricting its freedom of speech and assembly. In addition to freezing their assets and holdings in the U.S., the U.S. entities are also prohibited from conducting any unauthorized transactions with them.
China’s Foreign Ministry has responded with a high-profile statement that it was honored to have an official on the U.S. sanctions list. The China Banking and Insurance Regulatory Commission (CBIRC) has also shouted that Hong Kong affairs are China’s internal affairs, that no foreign government has the right to interfere, and that Chinese-funded financial institutions will conduct business legally. However, the U.S. Bloomberg news agency quoted Hong Kong banking sources as revealing that large Chinese state-owned banks operating in Hong Kong have cancelled or stepped up scrutiny of the accounts of sanctioned officials in order to comply with U.S. sanctions and protect their own U.S. dollar financing pipelines.
Qin Peng explained the contradiction on the Chinese side: “In China, basically, it’s also the US dollar streamlined with the yuan to settle the accounts. For financial institutions, it’s impossible not to settle in dollars. Their main sources of capital flow are deposits, transactions, settlement business, and foreign exchange storage from large customers. Which of these large customers are deliberately going around the dollar? No, it doesn’t.”
However, even if the U.S. sanctions are “lethal” to officials and financial institutions in China and Hong Kong, Fong believes they will not make China compromise.
“Even if they cause inconvenience to officials or financial institutions, U.S. sanctions will not be a deterrent to China, nor will they force the Chinese or Hong Kong governments to withdraw the Hong Kong National Security Law, drop all charges against ‘anti-sending to China’ protesters, and implement ‘dual universal suffrage. ‘ and so on. You can see that each side (U.S., China) has its own necessary actions, and on the issue of Hong Kong, there is no room for communication between the two sides.”
He is pessimistic that the current policies formulated and implemented by Western countries and Taiwan towards Hong Kong are recognized by many Hong Kong people, but the repressive actions taken by the Hong Kong government against protesters cannot be changed in the short term.
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