USA Ends Hong Kong’s Special Status

• 16 Jul 2020

Why in News

Recently, the President of the USA has issued an order to end Hong Kong’s special status and signed the Hong Kong Autonomy Act, a legislation that would sanction banks doing business with Chinese officials.

Key Points

• Reasons Behind the Move:
  
  • China’s imposition of national security law in Hong Kong.
  • USA’s blame on China for mishandling the Covid-19 pandemic and not informing the world about its severity.
  • China's military buildup in the South China Sea and its treatment of Uighur Muslims.
• Ending the Special Status:
  
  • Hong Kong will now be treated the same as mainland China without any special privileges, special economic treatment or exports of sensitive technologies.
    
    • Under the USA’s Hong Kong Policy Act of 1992, the USA treats Hong Kong, a semi-autonomous part of China with its own legal and economic system, differently than the Chinese mainland in trade, commerce and other areas.
• Sanctions on Banks:
  
  • The legislation would penalize banks doing business with Chinese officials involved in the national security law which China has imposed on Hong Kong.
    
    • Under the legislation, banks are granted a kind of year-long grace period to stop doing business with entities and individuals (primary offenders) undermining Hong Kong’s autonomy.
    • After that period, a variety of penalties will be imposed like seizing their assets, barring top executives from entering the USA and restricting the ability to engage in USA dollar-denominated transactions.
• Possible Outcomes:
  
  • The new law will force all but provincial Chinese banks to choose between assisting Beijing’s efforts in Hong Kong or being able to conduct transactions in USA dollars and operate in the world’s largest economy.
  • It will have a devastating impact on Hong Kong as the financial gateway to Western markets.
  • Completely ending Hong Kong's special treatment could prove self-defeating for the USA because it was the source of the largest bilateral US goods trade surplus last year, at USD 26.1 billion.
  • Hong Kong is a major destination for USA’s legal and accounting services. Around 85,000 USA citizens lived in Hong Kong in 2018 and more than 1,300 USA companies operate there, including nearly every major financial firm.
• China’s Response:
  
  • China has held that the Hong Kong Autonomy Act “maliciously slanders” its legislation in Hong Kong and has vowed to retaliate.
  • It will make necessary responses to protect its legitimate interests and impose sanctions on relevant USA personnel and entities.