Hong Kong fears Trump will end city's special trading status

The US Consulate in Hong Kong declined to comment when asked whether US President Trump was considering any action against the city.
The US Consulate in Hong Kong declined to comment when asked whether US President Trump was considering any action against the city. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Hong Kong business groups are starting to worry the Trump administration will open the door to ending the financial hub's preferential trade status, rendering it "just another Chinese city" as its government gets closer to Beijing.

The United States-China Economic and Security Review Commission stoked fears last month with a recommendation that Congress reassess Hong Kong's special trading status for some sensitive US technology imports.

It said Beijing's statements and legislative actions "continue to run counter to China's promise to uphold Hong Kong's autonomy".

If President Donald Trump acts on the recommendation, it would impact only dual-use technology with consumer and military applications - like carbon fibre used to make both golf clubs and missile components - that represent about 2 per cent of US exports to Hong Kong. But the blow to the city's image may be irreparable.

"It would have a ripple effect - the door would be open and it might not close," said Mr Felix Chung, who represents the textile and garments industries as a pro-establishment member of Hong Kong's legislature.

"The Western community would look at Hong Kong with different eyes and may not even trust Hong Kong. The business sector cannot take this kind of risk."

Under the terms of the US-Hong Kong Policy Act of 1992, the US agreed to treat the former British colony as fully autonomous for trade and economic matters even after China took control in 1997.

That means Hong Kong is exempt from Mr Trump's punitive tariffs on China and enjoys US support for its participation in international bodies like the World Trade Organisation.

While the US State Department said earlier this year that it sees no reason to scrap Hong Kong's special status, one clause in the law particularly worries the city's business elites: The US President can issue an executive order suspending privileges in a particular area if he determines it isn't sufficiently autonomous from Beijing.


"If it was the Obama administration, I wouldn't worry," Mr Chung said. "But because it's Trump, you never know what he's going to do."

The US Consulate in Hong Kong declined to comment when asked whether Mr Trump was considering any action against the city.

It pointed to a statement last month from Consul General Kurt Tong, who said "we are quite focused on the importance of the 'one country, two systems' framework" that allows Hong Kong to maintain a distinct economic, legal and political system.

In its annual May report on the city's autonomy, the US consulate said "certain actions" by China were inconsistent with its commitment to allow Hong Kong to exercise a high degree of self-governance.

But it found that the city "generally" maintains a high degree of autonomy, "more than sufficient to justify continued special treatment".


So far, Hong Kong's government has dismissed concerns that the "one country, two systems" framework is under attack.

Chief Executive Carrie Lam last month cautioned the US to "think twice" before changing Hong Kong's status and harming its own interests.

She also borrowed a phrase from Beijing, accusing the US commission of seeing things through a "coloured lens".

Asked about the US trade privileges in the legislature on Wednesday, Commerce Secretary Edward Yau downplayed the commission report and said Hong Kong "will continue to maintain our robust trade control system" to prevent unauthorised exports to the mainland.


He said Hong Kong would "always respect, abide by and uphold 'one country, two systems'", calling it the "cornerstone" of the city's economic success.

Hong Kong's status as a separate customs territory from China is set out in the city's charter, he said.

The US has a substantial interest in Hong Kong staying autonomous. Some 85,000 US citizens live in the city, and 1,400 US firms use the territory as a platform to do business in China.

They prize the territory for its rule of law, free flow of capital, independent judiciary, access to information and protections of personal and press freedoms.

Still, Beijing-backed efforts to restrict dissent have fuelled concerns of China's growing influence. The commission's report cited a litany of examples, including Hong Kong's moves to ban pro-independence politicians and heed a request from mainland authorities to not hand over a fugitive to the US.

Mr Jack Lange, chairman of the American Chamber of Commerce in Hong Kong, called on the Hong Kong administration to "engage" with the US to ensure that sensitive technologies don't end up in China, given the city's increasing economic integration with the mainland.

"People are concerned about the autonomy issues and the consequences that could come out of them," Mr Lange said.

Still, he added, Hong Kong citizens enjoy substantial liberties: "Nobody has any problem googling anything they want in Hong Kong. That's not true across the border."

Hong Kong's business community has long fostered ties with Beijing, a relationship that helped the city become a gateway to China. Since the 1997 handover, the economy has grown by some 50 per cent to more than US$341 billion (S$467 billion) - larger than countries like Singapore, Malaysia and the Philippines.

But as Beijing exerts its authority, business is suffering from the perception Hong Kong is in China's pocket.


In November, Australia rejected an A$13 billion (S$12.8 billion) gas project bid by Hong Kong tycoon Victor Li's CK Infrastructure Holdings, calling it contrary to national interest.

The decision followed a torrent of criticism in Australia that Hong Kong companies were just as susceptible to Beijing's influence as those on the mainland.

On a September visit to Washington, a Hong Kong business delegation that included commerce secretary Yau found widespread misunderstanding about the city's special status.

"We realised that many people in the US were not fully aware of 'one country, two systems'," Cathay Pacific Airways chairman John Slosar, a vice-chairman of the Hong Kong General Chamber of Commerce, said in a report issued by the group.

He declined to comment further when contacted.

While any US moves to change Hong Kong's status would be a reputational blow, other Western countries might not follow suit if they view it as part of a wider competition between the world's biggest economies, according to Mr Paul Serfaty, a director of investment bank Asian Capital Partners Group, who has lived in Hong Kong for three decades.

"All Donald Trump cares about is bringing pressure to bear on China," he said. "And in that respect, Hong Kong is beginning to look more like a pawn than an actor."