Beijing repeats warning over US action over security law 

China says it will retaliate but details of US response are yet to be revealed; over 700 US firms are based in Hong Kong and could be hit by city losing trade privileges

by Jerome Taylor
Beijing repeats warning over US action on security law
People spend time on the waterfront of Victoria Harbour in Hong Kong on May 31, 2020. Photo: Isaac Lawrence / AFP

Beijing repeated its warning to Washington on Monday that it would retaliate and impose countermeasures if US President Donald Trump announces restrictions on Chinese students in the US in protest at its new national security law for Hong Kong.

Trump said on Friday that the United States would ban some Chinese graduate students and start reversing Hong Kong's special status in customs and other areas, as Beijing moves ahead with a plan to impose a controversial security law.

The US president said the Chinese government had been "diminishing the city's longstanding and very proud status".

But China reacted angrily to the moves on Monday, saying it was "detrimental to both sides".

"Any words and actions that harm the interests of China will be met with counter-attacks on the Chinese side," said foreign ministry spokesman Zhao Lijian at a regular briefing, without providing details.

He said Washington's measures "seriously interfere in China's internal affairs and undermine US-China relations".

China's rubber-stamp parliament on Thursday approved plans for the law, which would punish secession, subversion of state power, terrorism and acts that endanger national security, as well as allow Chinese security agencies to operate openly in Hong Kong.

The move followed seven months of huge and sometimes violent pro-democracy protests in Hong Kong last year.

The declaration by Secretary of State Mike Pompeo last week that Hong Kong is no longer sufficiently autonomous from China was a historic moment with potentially far-reaching consequences for the finance hub – but much depends on what President Donald Trump actually does.

The revocation of special status could radically rearrange the fortunes of a city that has served for decades as the global economic gateway to China. 

While Trump vowed to strip the city of trade privileges, he was light on specifics and the declaration could end up being little more than symbolic.

1997 international agreement dead

In the run-up to Britain returning Hong Kong to China in 1997, a "one country, two systems" deal was forged to allow the city to maintain certain freedoms and autonomy for 50 years. 

Those liberties included a free market economy, an independent judiciary, free speech and legislative autonomy.

As a result, many countries, including the United States, brought in laws that allowed them to treat Hong Kong as a separate trade entity to the authoritarian and economically restrictive mainland.

The arrangement allowed Hong Kong to flourish into a world-class financial centre on a par with London and New York. 

Reciprocal visa-free travel deals, a dollar-pegged currency, the world's fourth-largest stock exchange as well as business-friendly laws, taxes and legal protections greased the wheels of commerce.

Financial connectivity at risk 

If Washington opts for hardline measures it would risk "all of the financial connectivity that China has to the free market", according to Robert Spalding, a US-China expert at the Hudson Institute.

"Once that goes away, stocks, bonds, financial transactions, SWIFT, all of that is imperilled," he told Bloomberg News. 

Trump has certainly indicated he plans to follow up with some concrete measures. On Friday he instructed officials "to begin the process of eliminating policy that gives Hong Kong different and special treatment".

"This will affect the full range of agreements, from our extradition treaty to our export controls on dual-use technologies and more, with few exceptions," he added.

Julian Ku, an expert on international law at Hofstra University, said the president has "lots of flexibility". "I expect him to take some major steps that would show China he is serious, but not to change every US law that applies to Hong Kong," he said.

Hong Kong's fate has produced rare bipartisan support in Washington with lawmakers last year passing a bill punishing China.

734 US companies have regional offices in Hong Kong

But the Trump administration's China policy is unpredictable. Trump has taken a hard line against Beijing on trade but shown little interest in human rights and spoken warmly of his Chinese counterpart Xi Jinping. He may also be reluctant to jeopardise his trade agreement with China as he seeks re-election in November.

American businesses could be hit hard by moves to economically punish Hong Kong.

According to the Congressional Research Service, nearly 300 US companies have a regional headquarters in the city, while 434 have regional offices.

But attitudes towards China are hardening within the Trump administration, especially after the coronavirus pandemic.

For Beijing, Hong Kong is vital for Chinese companies seeking to access foreign currency, international banks and trading firms.

But it is less pivotal than it used to be – last year 12% of China's exports went to or through the city, down from 45% in 1992.

Steve Tsang, a China expert at the University of London's SOAS, said US moves were unlikely to make Beijing think twice. 

"I believe Xi will double down and retaliate instead," he told AFP.

Capital Economics said short-term economic damage to Hong Kong "would be manageable" if the US rescinded trade privileges. 

"But it would accelerate the erosion of Hong Kong's status as an international business centre."