Did China Pay for Its Hong Kong Takeover?

Last month, one of the lead articles of The Diplomat Magazine traced Hong Kong’s transformation into a “police state” following the passage of a new national security law (NSL) by legislators in Beijing on June 30, 2020. A year and change after the NSL was put into place, some of the most dire predictions about its impact have come true: Hong Kong’s political opposition has been gutted; films and museums are being censored; a famously outspoken newspaper was shuttered; and large-scale protests are a thing of the past, with police breaking up even small gatherings over “forbidden” chants and songs.

But if the NSL was every bit as bad as critics feared, the international community has largely watched it happen. Despite a plethora of statements expressing concern and disapproval – including at the most recent G-7 summit in Cornwall – there has been little stomach for action to truly penalize China over its crackdown. The case of Hong Kong indicates just how difficult it is for the Western world to try to force a change in Chinese behavior – especially when different democratic governments disagree on how seriously to take the original perceived offense.

The United States, predictably, was the most forward-leaning in its stance on Hong Kong. The former Trump administration placed sanctions on 35 individuals for their role in “actions or policies that undermine democratic processes or institu-tions in Hong Kong,” including Chief Executive Carrie Lam; Hong Kong’s security, justice, and mainland affairs secretaries; the current and former commissioners of the Hong Kong Police Force; and 14 vice chairs of the National People’s Congress Standing Committee, which passed the NSL. However, Washington avoided sanctioning NPC Standing Committee Chairman Li Zhanshu, who as a member of the Politburo Standing Committee is among China’s seven most powerful people. In other words, there’s a clear limit to how much the United States is willing to rock the boat over Hong Kong. Holding China’s very top leaders to account has proven to be a bridge too far.

The Trump administration also declared via executive order that Hong Kong “is no longer sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China.” However, this order has had limited practical impact as of yet. For example, there has been no move to apply the Trump administration’s extensive tariffs on Chinese goods to Hong Kong. Washington has cancelled a few agreements, including deals that exempted Hong Kong from export restrictions on dual-use technologies; an extradition treaty; and a reciprocal tax agreement. But over a year later, “differential treatment” of Hong Kong versus the rest of China is still very much in effect.

The impact on Hong Kong-U.S. trade would be a good bellwether of the changes, but it’s difficult to detangle the intervention of the COVID-19 pandemic from the direct impact of the NSL (and U.S. retaliation for the law). Trade in goods for January through April 2021 stood at $11.5 billion; slightly lower than the $12.1 billion in trade during the same period of 2019. The 2020 data was hit hard by the pandemic during the January to April period, but the post-NSL timeframe – starting in July 2020 – actually shows a rebound in trade, rather than a decline, as Hong Kong and the U.S. both slowly climbed out of the COVID-19 slump. Trade went from a monthly low of $2 billion in August 2020 to $3.9 billion by April 2021, the last month for which data was available.