By Chuin-Wei Yap | Graphics by Yasufumi Saito
The U.S. decision to rescind Hong Kong's status as a largely
autonomous Chinese territory opens the way for a range of punitive
measures from Washington that may damage Hong Kong's status as a
trading and finance hub.
At stake for Hong Kong is a sizable trading partnership and
access to some of America's key technology exports, including
sensitive ones such as telescopic lenses for guns, satellites and
The U.S. is Hong Kong's second-largest trading partner, after
China, according to the latest available data. By contrast, the
tiny territory was America's 21st-largest trading partner.
The bilateral relationship is at risk after the U.S. State
Department certified to Congress that Hong Kong no longer enjoys "a
high degree of autonomy" from Beijing, in response to China's
approval of national-security laws that override the city's
legislature. Such autonomy had conferred on Hong Kong preferential
trade and economic status that differentiated it from how the U.S.
treats China. U.S. officials are pushing for sanctions on the
Prolonged trade tensions have already gnawed away at the trade
relationship, with last year marking a fall to the lowest level in
nearly a decade of booming bilateral trade with the U.S. Official
data show Hong Kong's total goods exports, including re-exports, to
the U.S. amounted to some $40 billion last year, a 15%
year-over-year decline that was related to the trade war's global
impact and political unrest.
"The short-term economic damage [from the U.S. measures] would
be manageable, but it would accelerate the erosion of Hong Kong's
status as an international business center," said Mark Williams,
chief Asia economist for Capital Economics.
The Hong Kong government has criticized the move as unjustified
and warned that American companies will be hurt too. They point to
a history of surpluses favoring the U.S. in the bilateral
merchandise balance of payments; the surpluses totaled some $297
billion for the goods trade in the decade to 2018, official data
show. Hong Kong's Chief Executive Carrie Lam said Tuesday that the
U.S. would be hurting its own interests in Hong Kong if it takes
measures against trade with the territory.
While Mr. Trump said the U.S. plans to eliminate Hong Kong's
trade privileges, he hasn't yet specified which and to what
Hong Kong itself manufactures relatively little. Domestic
exports account for only about 1% of its total exports. U.S. action
on this front isn't likely to hurt the local economy. The
territory's re-exports have never qualified for preferential U.S.
It is unclear whether the U.S. will target one of Hong Kong's
main economic roles -- which benefits China -- as a re-export hub.
Many trading businesses locate in Hong Kong and handle re-exports
to and from China, often helping foreign companies get around some
Chinese taxes and the need for regulatory approval from Beijing
when directly shipped China-bound consignments exceed certain
limits. Re-exports refer to imported goods that are largely
unchanged, in value-added terms, before being exported again to a
As a destination, China accounted for 56% of Hong Kong's
re-exports last year, or some $284 billion, according to Hong Kong
data. The U.S., as Hong Kong's second-largest re-export market,
trailed with only about 7.6%. China was also the largest source of
Hong Kong's re-exports by far, accounting for 57% in 2018, the data
One aspect of Hong Kong's commercial role is in moving
merchandise between the U.S. and mainland China. In 2018, around 8%
of mainland China's exports to the U.S., or about $37 billion, went
through Hong Kong. So did $10 billion of U.S. exports to mainland
China that year, official data show.
Among the many exports from the U.S. to Hong Kong is a range of
relatively unusual goods that require U.S. regulatory approval,
whether in the form of special licenses or export preconditions
from agencies including the Bureau of Industry and Security, an arm
of the U.S. Commerce Department that deals with the overlaps
between national security and high technology. Such items could
have sensitive technology or both civil and military uses, known as
Mr. Trump singled out dual-use technologies as a potential
target last week.
Hong Kong often re-exports many of such goods to China. One
example: In the past two years, Hong Kong imported some 42,000
telescopic sights for firearms from around the world -- including
1,776 from the U.S. -- and re-exported about 6,000 to China,
official data show.
Some such exports to Hong Kong have helped China skirt U.S.
regulations in the past. In 2017, Asia Satellite Telecommunications
Co., a Hong Kong-based satellite operator co-owned by China's
state-owned industrial conglomerate Citic Group, bought a $164
million communications satellite from the U.S. and shipped it to
Hong Kong under license -- despite U.S. rules effectively
prohibiting American companies from exporting satellites to China.
AsiaSat could buy U.S. satellites because of a U.S. policy treating
semiautonomous Hong Kong as separate from mainland China. Hong
Kong-based companies on earlier occasions have bought American
Shipments of sensitive technology from the U.S. to Hong Kong in
recent years have also included semiconductor chips and mass
spectrometers, devices that break apart molecules and are useful in
high-tech applications such as genetic engineering and
environmental analysis, BIS data show.
Hong Kong is an important re-export hub to China for chips from
major tech makers around the world. Electronics account for about
two-thirds of Hong Kong's total exports, official data show; a
substantial portion are high-tech products including
Hong Kong last year re-exported to China some 37,300
thermal-imaging cameras, which are used in civilian work such as
firefighting but are also essential to the military. It imported
about 48,000, including about 8,000 from the U.S.
Even before last week's ruling on Hong Kong's autonomy, the U.S.
in April, wary of unregulated tech transfers to foreign nations,
had already moved to tighten controls on potential re-exporters of
such merchandise, by requiring of importers an additional U.S.
license. The move, targeting tech software and dual-use telecom
equipment, was widely viewed by analysts as aimed at containing
such flows to strategic rivals including China and Russia.
U.S. curbs on Hong Kong's commerce would likely exacerbate the
twin economic stresses the city faces from the coronavirus and the
protests that tipped the economy into recession last year. Trading
and logistics have traditionally accounted for the largest share of
Hong Kong's economic output. The latest available data show these
components in 2018 translated to 21% of Hong Kong's gross domestic
output, exceeding other major pillars of the economy such as
financial services and tourism.
Some U.S. businesses in Hong Kong are trying to persuade
Washington that dismantling the bilateral relationship would hurt
Hong Kong and the U.S. -- but not China as much. Should Hong Kong's
role wane, other commercial hubs such as Singapore could quickly
supplant some of its re-exporting role.
Hong Kong has warned it may hit back at U.S. interests, if that
happens. "There are over 1,300 American companies in Hong Kong
which have been treated in exactly the same way as a local company
in accessing the mainland market," Mrs. Lam said. She added that
Hong Kong has always granted visa-free access to American passport
holders though it doesn't receive reciprocal U.S. treatment.
"I point out the facts and the figures so that they will do
their own calculations," Mrs. Lam said.
Write to Chuin-Wei Yap at email@example.com
(END) Dow Jones Newswires
June 06, 2020 07:14 ET (11:14 GMT)
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