In April I wrote an article questioning the United States’ motive in its attempt to financially decouple from China, including the Hong Kong Special Administrative Region (Disparaging, Containing China Will Not Make America Great, China Daily Hong Kong, April 22, 2024). I noted that the US has been quite successful in suppressing the Chinese mainland’s and Hong Kong’s stock markets, and by doing so has depressed our IPO activities, consumption, and business sentiment. In this article, I will explain why this “strategic success” is at the expense of the US’ long-term interests. It could even create a huge asset bubble in the US that may burst with disastrous results.
On Sept 6, the US departments of State, Agriculture, Commerce, Homeland Security, and Treasury updated their warning to US businesses about “risks” to their operations and activities in Hong Kong. The statement alleged that the National Security Law for Hong Kong and the Safeguarding National Security Ordinance (SNSO), or the Article 23 legislation enacted in March, “erode fundamental freedoms and protections for human rights in Hong Kong” and advised US businesses to avoid investing in Hong Kong and on the Chinese mainland. The statement concluded with four pieces of advice. The first says that businesses as well as individuals could be subject to risk because of the “broad and vague provisions” of the laws. The second warns the extraterritorial application of the SNSO could impact businesses and individuals outside Hong Kong. The third says businesses operating in Hong Kong could face potential legal, regulatory, operational, financial, and reputational risks because of the NSL and the SNSO. The fourth and last one warns and threatens US businesses, saying that their business activities might lead to civil and criminal penalties under US law for failing to adhere to US sanctions.
These four pieces of advice, especially the last, certainly will dampen American companies’ interest in investing in Hong Kong and tarnish Hong Kong’s economic outlook. But what are the benefits to the US? According to a statement from the HKSAR government issued last year, the US enjoyed a trade surplus of $284.9 billion with Hong Kong over the 10 years to 2023, its largest with any trading partner, and more than 1,200 US companies operate in Hong Kong. If the US insists on undermining the mutually beneficial relations between Hong Kong and the US, it will ultimately harm the interests of the US and its companies.
According to trade data from the US, the Chinese mainland increased its imports from the US from $22.5 billion in 2000 to $160 billion in 2014, representing an average annual increase of $9.82 billion per year over the 14 years. Since 2014, after US-China relations soured, China’s imports from the US softened tremendously. From 2014 to 2023, imports rose from $160 billion to $165 billion, at a mere $560 million increase per year on average. What happened to Hong Kong’s imports from the US is even more dramatic. While imports from the US rose from $14.5 billion in 2000 to $35.1 billion in 2014, they dropped by $8.9 billion to $26.2 billion in 2023. Economic growth of the mainland’s and Hong Kong’s economies may indeed slow down as a result of US policy as the US politicians wish. But what does the US gain? Instead of continued expansion of exports to the Hong Kong and mainland markets, the US has lost tens or hundreds of billions of dollars in exports. This tough posturing toward Hong Kong and the Chinese mainland will only turn Hong Kong and mainland consumers away from US goods.
We should do all that we can to debunk the badmouthing of Hong Kong’s security laws, freedoms and human rights
As I explained in my article in April, the US has been quite successful in financial decoupling even though the division of labor and the global supply chain mean that industrial decoupling is virtually impossible. Money that would otherwise have been invested in Hong Kong and Chinese mainland bourses has gone to the US, lifting its stock prices and depressing our stock markets. This has created an unprecedented, outsized bubble that could burst and potentially create financial chaos in the US, even though it had in the short term boosted US consumption and investment. This is why, for many quarters now, the US economy has turned out stronger than expected.
The I-Ching, an ancient Chinese classic that is well-known to many Westerners, says: “The dragon that flies too high will regret it.” Another Chinese classic, Daodejing, advises: “What appears to be misfortune may pave the way for fortune. What appears to be fortune may pave the way for misfortune.” The US enjoys hegemonic status in the world. That appears to be a blessing and a great advantage. But hegemonic excess carries big risks. The US’ all-out attempt to contain China’s rise in order to preserve its hegemonic status, and its abuse of its hegemonic power, often in the name of national security, are paradoxically creating national security risks for itself. The rise of the de-dollarization movement, prompted by the US and its allies’ seizure/freezing of the assets of Afghanistan and Russia, is a case in point.
Hong Kong should broadcast interviews of expatriates from different countries who live in Hong Kong through all possible channels, and, with their consent, show clips of their day-to-day lives in Hong Kong, including their visits to Shenzhen and other cities in the Guangdong-Hong Kong-Macao Greater Bay Area. We should do all that we can to debunk the badmouthing of Hong Kong’s security laws, freedoms and human rights.
The author is an adjunct research professor at Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, and the Economics Department, Lingnan University.
The views do not necessarily reflect those of China Daily.
