June 4, 2020 | Congressional Testimony

Crisis in Hong Kong: A Review of U.S. Policy Tools

June 4, 2020 | Congressional Testimony

Crisis in Hong Kong: A Review of U.S. Policy Tools

Introduction

Written testimony

Chairman Crapo, Ranking Member Brown, and distinguished members of the Senate Committee on Banking, Housing, and Urban Affairs, I am honored to appear before you today to discuss the crisis in Hong Kong and review U.S. policy tools.

This is a precarious moment for the people of Hong Kong, and the United States has an important role to play in supporting them in the face of efforts by the Chinese Communist Party to undermine their freedoms. Economic sanctions can be an impactful part of a comprehensive U.S. effort to support the peaceful, pro-democracy forces in the city.

However, we need to have realistic expectations about their effectiveness. Sanctions will be unlikely to restore many of the freedoms that the CCP has taken away from the people of Hong Kong.

Our objectives towards Hong Kong should be threefold. First, our primary objective should be deterring the CCP and local authorities from further cracking down on the pro-democracy citizens of Hong Kong. Second, we should ensure that any action we take does not further push Hong Kong into Beijing’s control. And third, we should work to target the economic impact of these actions so that we do not harm legitimate businesses, including U.S. companies and financial institutions, operating in Hong Kong.

Achieving these objectives will be challenging. Congress and the Administration must carefully calibrate economic pressure on Beijing to do so. Too much pressure could further isolate Hong Kong from global markets, hurting Hongkongers and causing U.S. and other foreign companies to downsize their exposure or even leave the jurisdiction altogether. This would have an outsized impact on the financial health of U.S. businesses and could lead to significant fallout in financial markets. It could also lead to a damaging response from Beijing.

However, too little pressure may not move the needle enough. A weak response could signal to Beijing that it has the green light to increase its aggression, crack down on the pro-democracy movement, and further erode the freedoms enjoyed by those in Hong Kong.

The Hong Kong Autonomy Act, introduced by Senators Toomey and Van Hollen, is a good step towards balancing these considerations and achieving these objectives.  As I discuss in my written testimony, the legislation is designed to pressure the CCP and entities contributing to the undermining of rights in Hong Kong. It is structured to deter these entities from continuing to support this assault on the people of Hong Kong.

I believe there are a number of additional modifications to the legislation that would make it even more effective, increasing its impact while limiting downside risk.  This includes narrowing the secondary sanctions component as well as providing the Trump Administration, and any administration, sufficient flexibility to ensure that this pressure does not cause unintended market impacts, significant escalation, or real damage to U.S. businesses and international financial markets.

We should be clear that risks exist with this approach. China would be likely to respond and could take steps such as countersanctions, adding U.S. companies to the unreliable entities list, or threatening to renege on its commitments under Phase One of the trade deal.

Economic sanctions are not a panacea for countering China’s aggression in Hong Kong. We must temper our expectations for what they can achieve and consider the risks of their use. Nevertheless, a carefully calibrated and flexible sanctions program designed to deter future Chinese encroachment, as part of a broader strategy that includes aggressive diplomatic pushback on China’s intervention, close coordination with allies such as the United Kingdom concerned about China’s measures, and supporting the peaceful democratic forces in Hong Kong, can increase the chances of ensuring that this democracy under siege is not completely subsumed by the mainland.

 

Watch here

Video from June 4, 2020

Click here.

Download here

Download
Full written testimony

Issues:

China Military and Political Power U.S. Defense Policy and Strategy