June 9, 2020 | World Politics Review

An Overly Aggressive U.S. Approach to Hong Kong Risks Playing Into China’s Hands

June 9, 2020 | World Politics Review

An Overly Aggressive U.S. Approach to Hong Kong Risks Playing Into China’s Hands

At the end of May, responding to efforts by Beijing to decisively assert control in Hong Kong, the Trump administration declared that it no longer recognized the city as sufficiently autonomous to enjoy special economic and financial privileges under U.S. law. The decertification sets the stage for a range of measures the United States could pursue, some of which could be economically damaging to Hong Kong’s status as a global financial hub. While China’s violations of the agreed-upon status quo regarding civil liberties and political autonomy in Hong Kong are worthy of a robust U.S. response, the administration should carefully calibrate its approach in order to minimize the collateral damage to Hong Kong itself. That means mixing limited sanctions and other tools, while broadening the number of voices criticizing Beijing’s posture.

Economic pressure, after all, is unlikely to cause China to completely reverse course on Hong Kong. The national security law being imposed on the city is designed to curtail the protests that have roiled Hong Kong for a year—protests that began in resistance to a proposed extradition law but morphed quickly into an expression of general disapproval of Beijing’s growing influence and attempt to unwind the “one country, two systems” arrangement for Hong Kong’s autonomy. Chinese officials have begun only in the past few days to see the situation in Hong Kong as a challenge to the Communist Party of China itself, suggesting how high the stakes are.

As a result, Beijing’s desire to exert more control is not going away. Xi Jinping has concentrated power within the Communist Party and dedicated all of China’s resources to ensuring the survival and stability of the current political and economic system. It considers a Hong Kong it cannot control an unacceptable threat to its sovereignty. Beijing’s resolve does not mean that the United States and its allies and partners are powerless in the face of a crackdown on Hong Kong, however. The Trump administration is already pursuing a broad range of measures to push back on aggressive Chinese foreign and security policies, including those that address the human rights situation within China. The United States can raise the cost of doing business for Beijing, while highlighting specific abuses and ensuring that Hong Kongers know they are not on their own in standing up for their rights.

But the U.S. approach needs to be measured, in large part because any economic pressure campaign on China would be focused on a country unlike any other the United States has targeted with sanctions. Economic pressure on China, including on Chinese companies operating in Hong Kong, could have worldwide systemic effects. For example, when the State Department sanctioned subsidiaries of the Chinese shipping giant COSCO last year, for transporting Iranian oil, it led to substantial increases in global shipping costs.

Actions that are too aggressive also risk punishing those in Hong Kong for decisions Beijing is ultimately making. While some firms may decide to exit the Hong Kong market, that is not a choice every company can or will make. Many Hong Kongers who may be eligible to leave, such as through efforts by the United Kingdom to provide a safe haven, may not want to leave their homes. Their economic interests are important to take into consideration. That extends as well to the roughly 1,300 U.S. firms that have some kind of presence in Hong Kong, as well as the 85,000 Americans living there.

That is why the administration should focus any sanctions only on those who are significantly undermining the rights and freedoms of the people of Hong Kong. Sanctions can “name-and-shame” Chinese officials, particularly to the extent that U.S. authorities can highlight specific abuses: violent crackdowns on peaceful protests, arbitrary arrests of pro-democracy activists, or situations where mainland authorities overrule decisions made by Hong Kong-based officials. The administration can also impose export control measures on entities that directly enable these activities, targeting firms, either Chinese or overseas, that sell surveillance technologies to Chinese security forces. These practical steps would back up the administration’s denunciations of China’s conduct. Even for those Chinese officials who do not have significant assets to freeze, designations keep a focus on the moral dimension of their actions.

The Trump administration should carefully calibrate its approach in order to minimize the collateral damage to Hong Kong itself.

For the financial institutions directly assisting Beijing’s efforts to undermine the rights and freedoms of the people of Hong Kong, the administration should signal loudly and clearly that they are on its radar, allowing a bank’s decision-makers to weigh whether their activities are worth the potential risk. Legislation currently under consideration in the U.S. Congress, such as the Hong Kong Autonomy Act, is likewise tailored to encourage any such financial institution to cease this kind of activity. By trying to set clear red lines about what will trigger sanctions, the administration may be able to prevent a future where China takes increasingly aggressive measures to undermine the freedoms in Hong Kong.

The administration should work closely with Congress to explain its approach for minimizing collateral damage through a flexible licensing policy and readiness to remove sanctions immediately if the situation warrants. In prior cases, like the designations of Russian aluminum company RUSAL or subsidiaries of COSCO, the administration provided licenses to allow firms with existing relationships to maintain or, over time, wind down their links to both companies, minimizing—though not eliminating—the disruptive economic effects.

To augment these unilateral steps, the administration should also coordinate its approach with allies and partners. The joint statement the United States issued with Australia, Canada and the United Kingdom about Beijing’s decision to impose the national security law on Hong Kong is a good start. However, a broader coalition is needed.

In the case of the United Kingdom and the European Union, both are looking to establish their own human rights-focused sanctions regimes, borrowing lessons and procedures from how the United States has wielded sanctions under the Global Magnitsky Act against a variety of abusive and corrupt government officials. Joint designations of those Chinese officials who have command responsibility over security services operating in Hong Kong can send a strong message of disapproval.

The United States and its partners should develop common strategies to protect their own private sectors from Chinese retaliation, too. In the past few years, China has honed its informal tools for pressuring foreign companies it feels do not toe its line, most prominently the NBA. The United States should work with like-minded countries such as the United Kingdom, Australia, South Korea and Japan to bolster their companies in the face of expected Chinese retaliation. This response could include financial support for firms that lose out on Chinese revenue because of informal boycotts or other restrictive measures. But conversely, the administration should understand that many firms will not be reassured by such defensive options. The administration should avoid the impulse to censure or impose costs on those companies that do passively acquiesce with the changing reality on the ground in Hong Kong. It would be more effective, instead, to keep the focus on the perverse choice Beijing is forcing on them.

A patient and measured strategy may seem inadequate in the face of the immediate suffering in Hong Kong, especially given how quickly China may move to extend its security apparatus to the territory. However, an overly aggressive U.S. approach risks playing right into China’s hands. Flexibility allows the United States and its partners to calibrate economic pressure and deter specific efforts to undermine Hong Kong’s freedoms, while not punishing the very people it aims to help.

Neil Bhatiya is an associate fellow with the Energy, Economics and Security Program at the Center for a New American Security. Eric Lorber is a senior director with the Center on Economic and Financial Power at the Foundation for Defense of Democracies. Follow Eric on Twitter @ELforeignpolicy

Issues:

China Sanctions and Illicit Finance