HONG KONG (Reuters Breakingviews) - Hong Kong could be wrecked if U.S. officials act as aggressively as President Xi Jinping is. His government is ramming through tough laws to suppress further unrest. The business community probably can endure measured political repression in the financial hub. Sloppy retaliation from the Trump administration against trade and investment flows would really hurt, which helps explain a steep market selloff on Friday.
Having failed to persuade suspicious locals to enact security laws, China kicked off this year’s annual parliamentary gatherings by introducing its own legislation to suppress sedition and foreign meddling in Hong Kong, plus insert security organs to enforce them. The move may not technically violate the Basic Law of the former British colony, which is supposed to be operating under a “one country, two systems” structure for almost another three decades, but it follows the slow erosion of the territory’s legal latitude by other means.
Many Hong Kong protesters would like freedom to choose their leader, but so far only the most radical minority aspires to overthrow the government or secede. The latter will now be re-energized. Resumed violent demonstrations could extend the 8.9% economic contraction the city experienced in the first quarter into a depression.
The United States might exacerbate the problem. It withheld a decision on whether to renew Hong Kong’s special status, which includes different treatment than China on trade matters, until after Beijing’s official gatherings. Now Secretary of State Mike Pompeo has been given an excuse to rule that the territory, where some 1,300 U.S. companies operate, is not sufficiently autonomous to warrant the classification. That could expose part of the $1 trillion of imports and exports that flow through the city each year to tariffs, and potentially impact direct and portfolio investment flows.
U.S. lawmakers are mobilising. Two senators introduced bipartisan legislation on Thursday proposing sanctions on Chinese officials and other entities for encroaching on Hong Kong’s autonomy, a violation of the 1997 handover terms in which Beijing committed to allowing a high degree of judicial independence and free speech in the special administrative region. The proposal also would punish banks doing business with violators. Hong Kong is in real danger of getting crushed between two battling giants.
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