The Big Ideas

by Malcolm Riddell

Foreign Affairs

Kurt Tong | Asia Group

Foreign Affairs

Kurt Tong | Asia Group

Foreign Affairs

Hong Kong and the Limits of Decoupling
Hong Kong and the Limits of Decoupling
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July 18, 2021
BIG IDEA | ‘The United States’ inability to make China regret—much less reverse—its transgressions in Hong Kong suggests that financial separation, sanctions, and economic barriers are less reliable tools than many in Washington believe.’

‘Foreign governments have few tools to specifically punish China for its broken promises to Hong Kong without simultaneously hurting their own national interests and damaging the livelihoods of innocent bystanders in the territory.’

  • ‘The way things are playing out in Hong Kong demonstrates just how hard it will be for Washington and its partners to carry out a comprehensive “strategic competition” with China.’

‘The contradiction in Hong Kong’s political and economic circumstances reflects the fact that politics only narrowly affects the core incentives that guide financial and business decisions.’

  • ‘The gravitational pull of large economies is a powerful force—maybe even strong enough to resist the growing antagonism between China and the West.

‘There is little doubt that the political risk of doing business in Hong Kong is higher now than it was several years ago.’

  • ‘Recent surveys of foreign business organizations in Hong Kong show that perhaps one-third of companies that do business there but are headquartered in countries belonging to the G-7 are contemplating a reduction in personnel or operations, mostly because of concerns raised by the new National Security Law, which has dramatically changed previous perceptions of the city as a freewheeling and cosmopolitan business center.’
  • ‘But to date, concerns about the rule of law have not prompted much downsizing by other major foreign firms, which seem to believe that Hong Kong’s core legal traditions, as applied to commercial law, remain for the most part unchanged.’

‘And there is no practical way to make financial sanctions Hong Kong–specific: any actions against a major Chinese bank would quickly escalate into a full-scale attack on China’s financial system.’

  • ‘Such an attack, therefore, would lead to global financial instability, lost national savings for the United States, and redoubled Chinese efforts to create an alternative to the dollar-dominated SWIFT payments system.’
  • ‘All of those developments would significantly damage the U.S. economy.’

‘Take, for example, the Hong Kong Autonomy Act, which the U.S. Congress passed in 2020, authorizes the U.S. Treasury Department to levy punishments against Chinese banks that do business with Chinese officials who have been tagged in a special State Department report for harming Hong Kong’s autonomy.’

  • ‘To date, however, Treasury has not punished any banks under the act.’
  • ‘One reason is that the banks that might have been targeted have unwound their relationships with problematic individuals.’

‘But Treasury also knows that slapping sanctions on major Chinese banks could trigger significant instability in the international payments system, by interrupting the huge volume of financial transactions between the world’s two largest economies.’

  • ‘That would in turn harmS. financial markets and the perceived reliability of the U.S.-centric global payments system.’

‘The Hong Kong paradox presents a dilemma for Western governments that would prefer the city’s fate to be more of a cautionary tale than a success story.’

  • ‘The uncomfortable truth is that Hong Kong, despite the hollowing out of its democratic system, remains tremendously useful to the United States and other Western powers, and its continued success as a financial market and economic gateway to China remains important for the global economy.’

‘The situation in Hong Kong usefully illustrates the practical limits of pursuing economic separation to support geopolitical competition.’

  • ‘The United States’ inability to make China regret—much less reverse—its transgressions in Hong Kong suggests that financial separation, sanctions, and economic barriers are less reliable tools than many in Washington believe.’
  • ‘Washington and its partners should lower their expectations and abandon the illusion that the right mixture of punishments will prompt a reversal in Chinese policy.’

Bloomberg

CHINADebate

The Big Ideas

'China Plans to Exempt H.K. IPOs From Cybersecurity Reviews'

‘China plans to exempt companies going public in Hong Kong from first seeking the approval of the country’s cybersecurity regulator, removing one hurdle for businesses that list in the Asian financial hub instead of the U.S.’
7/18/2021

The Wall Street Journal

CHINADebate

The Big Ideas

The Editorial Board | The Wall Street Journal

'Biden’s Warning on Hong Kong'

‘The pretense of Chinese and Hong Kong authorities is that their crackdown on the rule of law and dissent will have no effect on Hong Kong’s viability as an international center for trade and finance.’
The Editorial Board | The Wall Street Journal
7/18/2021

CHINADebate

CHINADebate

The Big Ideas

Why the U.S. Lacks Leverage over China

During the celebration of the Chinese Communist Party’s Centennial celebration, Mr. Xi stood in the same place on the balcony facing Tiananmen Square where Mao Zedong stood when he announced the founding of the PRC; Mr. Xi wore a gray Mao suit, among a sea of blue western suits; and he centered himself right above the portrait of Mao, who is similarly attired.
Malcolm Riddell
Founder of CHINADebate
7/18/2021

Nikkei Asia

CHINADebate

The Big Ideas

'I will aim for Mao's Status.'

‘There on the gate was Xi Jinping, Chinese president and party general secretary, in a gray Mao suit. Just below his feet was the portrait of Mao Zedong, also dressed in a gray Mao suit.’
7/18/2021

Financial Times

CHINADebate

The Big Ideas

'US warns companies of risk of doing business in Hong Kong'

“In the face of Beijing’s decisions over the past year that have stifled the democratic aspirations of people in Hong Kong, we are taking action,” said Antony Blinken, US secretary of state. “Today we send a clear message that the US resolutely stands with Hong Kongers.”
7/18/2021

CHINADebate

CHINADebate

The Big Ideas

The Chinese Point of View

Here are a few of my thoughts on the importance of Wang Jisi’s ‘The Plot Against China.’ Yuen Yuen Ang’s ‘The Evolution of Chinese Corruption’ speaks for itself - but note especially how Mr. Xi's anti-corruption campaign could hurt China's economy. I have now lived long enough that when a friend complains about his or her spouse, I say to myself, ‘There are no doubt two sides to this story.’
Malcolm Riddell
Founder of CHINADebate
7/4/2021

Foreign Affairs

CHINADebate

The Big Ideas

Wang Jisi | President of the Institute of International and Strategic Studies at Peking University

'How Beijing Sees U.S.-China Relations'

‘In Chinese eyes, the most significant threat to China’s sovereignty and national security has long been U.S. interference in its internal affairs aimed at changing the country’s political system and undermining the CCP.’
Wang Jisi | President of the Institute of International and Strategic Studies at Peking University
7/4/2021

Foreign Affairs

CHINADebate

The Big Ideas

Yuen Yuen Ang | University of Michigan

'How Corruption Powers China's Economy'

‘China has managed to sustain four decades of economic growth despite levels of corruption that even Xi has described as “grave” and “shocking.” Why does it seem to have bucked the trend?’
Yuen Yuen Ang | University of Michigan
7/4/2021
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