Hong Kong and Chinese shares are suffering on Monday as the administration of outgoing President Donald Trump readies a final salvo of sanctions.
The United States is preparing to impose sanctions on "at least a dozen" Chinese and Hong Kong officials over their roles in the disqualification of elected members of Congress here in Hong Kong, according to Reuters, citing three sources.
The new sanctions may come as early as Monday, Reuters states, or later in the week, with up to 14 people targeted in a move that would prevent them traveling to the United States, and would freeze any assets they have in the U.S. financial system.
A fresh dent in the Sino-U.S. relationship has driven the benchmark Hang Seng index in Hong Kong down by 1.3% in afternoon trade, the worst losses in a mixed day of trade in Asia. The Hong Kong stock market is down 6.0% year to date.
Chinese shares are sitting on impressive gains for the year, with the CSI 300 of the largest companies listed in Shanghai and Shenzhen up 23.0% in 2020. But the CSI 300 is down 0.6% on Monday afternoon, with China likely to respond with tit-for-tat sanctions on American politicians.
Incoming President Joe Biden has pledged to take a tougher stance on human rights with China than Trump, who selectively used rights as a convenient stick to negotiate on trade. The Trump team appears to be putting in place tough policies on China that Biden will find hard to wind back, at a time when there is bipartisan support for an assertive approach on China.
The last-minute sanctions by the lame-duck Trump administration build on an initial round of sanctions for 11 officials in August, with four more officials added to the list in November. Unusually, Hong Kong's head of state, Chief Executive Carrie Lam, was sanctioned in the first round, putting her on par with enemies of the American state such as Venezuelan President Nicolas Maduro and Iranian Supreme Leader Ayatollah Ali Khamenei.
The officials are prevented from routing funds through the U.S. financial system. This has caused commercial banks the world over to curtail access to accounts for the 15 Chinese and Hong Kong officials already slapped with sanctions.
There's glee in the city that Lam, despised by much of the Hong Kong population and with no mandate to govern, reportedly has to take her salary in cash, and cannot find a bank that will accept it. The pro-democracy opposition in Hong Kong resigned en masse from Congress after the disqualification last month of four elected politicians under new laws that allow Lam to kick out politicians for any perceived lack of patriotism, with no recourse to the courts or legislature.
Lam has said it's unpatriotic to oppose her administration. So, by her definition, any opposition to the government's official point of view is grounds for political dismissal, making it pointless to have opposition members in parliament. They've decided to no longer take part in a rubber-stamp government.
The Five Eyes alliance of the United States, Britain, Australia, Canada and New Zealand said the dismissal of four elected legislators is part of a campaign to silence all critics, and a clear violation of the Sino-British Joint Declaration, the United Nations treaty that laid out how Hong Kong should be governed. The foreign ministers of those nations issued a statement to "urge the Chinese central authorities to reconsider their actions against Hong Kong's elected legislature."
Foreign ministry spokesman Zhao Lijian responded that "no matter how many eyes they have, five or 10 or whatever," those who "dare to undermine" Chinese sovereignty should "be careful not to get poked in the eye." Zhao has been a forceful proponent of China's aggressive "Wolf Warrior" diplomacy.
On the flipside, Hong Kong banks have frozen the accounts of pro-democracy Hong Kong lawmaker Ted Hui, as well as those of his family. Hui said on Thursday that he would go into "exile" and not return to the city from a trip to Denmark. He has been arrested twice for his part in protests in Congress, at the Legislative Council.
Hui said on Sunday that accounts belonging to him, his wife and his parents had been frozen at HSBC, its subsidiary Hang Seng, and the Hong Kong branch of mainland-controlled Bank of China.
The Hong Kong government has selectively used prosecutions - of only pro-democracy figures - in a bid to stamp out all dissent. Critics say that concocting cases using obscure laws or tangential offenses, such as financial transgressions rather than politics, is exactly the same strategy used by Beijing to attack its political critics inside China.
The Hong Kong police say they are investigating a Hong Kong person who has "absconded" overseas for money laundering and potential violations of the vaguely worded new treason law in Hong Kong.
Hui said some of his accounts have subsequently been unfrozen, after which he swiftly moved any assets out of HSBC, the bank run out of London and Hong Kong. Hui said he no longer trusts HSBC, which has looked to stem criticism from Beijing by signing up to treason law imposed by mainland China on supposedly autonomous Hong Kong.
White House national security adviser Robert O'Brien says the disqualification of elected legislators shows how much Hong Kong's autonomy has been eroded, and that the "One Country, Two Systems" method of government supposed to preserve Hong Kong's freedoms is now "merely a fig leaf."
O'Brien, his deputy Matt Pottinger, and Secretary of State Mike Pompeo are the staunchest China hawks in the Trump administration. The State Department in October warned financial institutions globally that they could face sanctions of their own if they aided China's crackdown in Hong Kong.
This leaves a hard situation for Biden to handle. Many in Hong Kong are apprehensive, and pray he does not return to the kind of appeasement of China seen when Biden was vice president to Barack Obama.
The US$333 billion Hong Kong economy and its 7.4 million people are obviously no match for China's US$14.2 trillion economy and 1.4 billion people. Hong Kong was previously a valued bastion of freedom on China's doorstep, the prime location to do business across the "Bamboo Curtain." But it has become a very public example of China's increasingly heavy hand in crushing any person or entity that questions the Communist Party's narrative of glorious leadership and great national success.
Trump is a divisive figure in Hong Kong, where many pro-democracy campaigners love him for his anti-China stance. They believe only he will stand up to China and the Chinese Communist Party (CCP), making him their staunchest ally. Likewise, he is beloved in Taiwan for his administration's vocal support of the island nation. Many Asians who dislike the CCP lapped up Trump campaign misinformation about supposedly "corrupt" dealings with China by Biden, his son Hunter, and the husband of incoming Vice President Kamala Harris. None of those generally spurious claims stuck.
I have an open mind on Biden. There is definitely a risk he will be soft on China. So far, he says only that he will seek to reengage with traditional allies in Asia and Europe that were alienated by Trump, who poured scorn on America's friendly nations as much as its perceived enemies. Biden says he will seek to curb China's abusive practices on intellectual-property theft, forced tech transfer and unfair subsidies to state-owned companies.
But I believe Trump's insistence on increasing U.S. trade with China shows that he actually wants closer ties with the country. There seems to be no principled stance on combatting the CCP, only a transactional approach designed to win business. Trump said in a speech at the World Economic Forum in Davos that he and Xi "love each other," later saying the relationship frayed when China was slow to live up to Trump's "Phase 1" trade deal.
Trump has been at best a reluctant supporter of human rights in Hong Kong and mainland China, and sometimes expressed outright disdain for them. When he was told that 1.5 million people had marched in Hong Kong in favor of democracy and citizen's rights, he responded "I don't want to get involved," according to Trump's former national security adviser John Bolton. "We have human rights problems, too."
Bolton hoped Trump would use developments in Hong Kong as leverage, but was disappointed his boss issued no statement on the 30th anniversary of the 1989 Tiananmen Square massacre in Beijing. Those student-led protests demanding democracy have a lot of parallels with the student-led pro-democracy protests in Hong Kong last year.
Instead, Trump said "Who cares about it? I'm trying to make a deal." When meeting Chinese President Xi Jinping at the G20 summit in Osaka, Trump pleaded with Xi to help him get re-elected by buying more farm goods, Bolton wrote in his memoir, comments reflecting "not only the incoherence in his trade policy but also the confluence in Trump's mind of his own political interests and U.S. national interests."
According to Bolton, Trump told Xi to proceed with building detention camps inside China to hold members of the country's Muslim Uighur minority. That was a move Bolton says Trump "thought was exactly the right thing to do." The facilities, effectively concentration camps, have been part of an orchestrated attack on the Uighurs that rights advocates say amounts to "cultural genocide."
In June 2019, Trump privately assured Xi that he would not publicly back the pro-democracy protests in Hong Kong so long as trade talks between China and the United States were going well. With a bill to support the democracy activists on his desk, Trump said Xi was "a friend of mine," and said on Fox & Friends, "I stand with freedom. I stand with all of the things we want to do. But we're also in the process of making the largest trade deal in history."