China’s imposition of a strict new national security law could lead the US to rescind Hong Kong’s special financial status.
You are browsing in private mode.
To enjoy all the benefits of our websiteLOG INorCreate an Account
The American political scientist Edward Luttwak described his country’s trade spats with Western Europe and Japan in the 1970s as « the logic of conflict in the grammar of commerce ». Half a century later, you couldn’t come up with a more apt context for thinking about the feisty state of relations between China and the US specifically, and the West in general. In the past two years, this conflict has been described by a number of « wars »: a trade war, a tech war, an information war, a propaganda war.
Another is looming: financial. Put more formally, “financial war” is about the worrying possibility of the weaponisation of capital.
One of the many powers the United States still enjoys is financial leverage. It has the biggest, deepest, most transparent and trusted capital markets subject to the rule of law, and the world’s pre-eminent reserve currency. Until now, the US government has not tried — overtly, at least — to exploit this leverage against China. In fact, most of what has passed for recent financial engagement between the United States and China has been about possible concessions to US financial institutions wanting to do more business in China.
Then came the pandemic, which, with its origins in China, triggered an icy turn in US-China relations. Further escalation followed last week, with the Communist Party’s decision to bring Hong Kong to heel and accelerate its absorption into the mainland by imposing a National Security Law in contravention of the treaty agreed by China and the UK in 1997.
Hong Kong could be the flashpoint for a possible financial war because while it is now economically small, accounting for a little less than 3 per cent of Chinese GDP, it remains China’s window on to global finance, and vice versa. Hong Kong intermediates capital into and out of China and, importantly, serves as a conduit for much-needed US dollars into China’s financial and economic system. These dollars help finance crucial policies such as the Belt and Road Initiative.
Last Friday, President Trump warned that the US would begin the process of stripping away some of the privileges accorded to an « autonomous » Hong Kong under the US-Hong Kong Policy Act of 1992. The legal construct for action now derives from last year’s passage of the Hong Kong Human Rights and Democracy Act 2019, which directs various government departments to assess whether, according to several criteria, political developments in Hong Kong justify changing Hong Kong’s unique treatment under US law.
