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Hong Kong Special Administrative Region (SAR)

Red Chips are stocks of mainland Chinese companies traded on the Hong Kong stock exchange. China uses Hong Kong to channel its investments around the world and a large share of the capital that flows into China goes through the Hong Kong financial system. The Chinese have a large incentive to maintain their image as a preferred destination for foreign capital. The financial linkage underwritten by British common law and a reputation for transparent and honest regulation that gives Hong Kong an importance to the Chinese economy that far outstrips its relative size.

Hong Kong is a Special Administrative Region of China, a status that initially ensured its courts, civil service and media enjoy freedoms that do not exist on the mainland. Political stability, the rule of law, low taxes, minimal regulation and freedom of speech are qualities that have made it the main gateway between mainland China and the rest of the world for multinational companies for decades. Hong Kong is one of the world's most important financial centers, second only to New York and London in terms of global significance. The territory boasts over 150 licensed banks and more than 1,600 asset managers as well as associated professional services. Although Hong Kong accounts for less than 3% of entire China's gross domestic product (GDP), the territory is the country's most important offshore fundraising location. Despite the growing significance of places like Shanghai and Shenzhen as China's financial centers, Hong Kong remains a key gateway connecting mainland China with global financial markets. Hong Kong owed its status as a flourishing financial hub to a number of factors, like the region's rule of law and independent judiciary.

international firms often use Hong Kong as a base to expand into mainland China. China also uses Hong Kong's financial markets to attract foreign funds. Chinese companies are by far the most important USD issuers in the Hong Kong offshore market, so most of Hong Kong's external debt is actually debt from Chinese subsidiaries operating from Hong Kong. Hong Kong's contribution to China's gross domestic product dropped from 20% in 1997 to less than 3% by 2019. By the year 2000, Hong Kong accounted for two-thirds of all foreign investment in China and one-third of China's foreign exchange. But by 2004, inward FDI and IPO funds raised through foreign equity markets (including Hong Kong) accounted for about 1114% of total investment. Hong Kong was the home of 73% of mainland Chinese companies initial public offerings overseas during the period 2010 to 2018. In the same vein, Hong Kong accounts for 60% of overseas bond issuance of mainland companies and 26% of their syndicated loans.

Almost all U.S. portfolio investment goes toward Chinese firm listing on the Hong Kong stock exchange. By one estimate, by 2019, about 60% of foreign investment in China and a similar share of its outbound investment was channelled through Hong Kong. By another estimate, in 2019 it was the largest source of overseas direct investment in China, accounting for 54% of the national total, and the leading destination for China's foreign direct investment outflow, with the same percentage. Sixty-four percent of mainland Chinas inward FDI comes from Hong Kong, and between 2010 and 2018, 65% of outward FDI was channeled through Hong Kong.

Assistant Professor Masato Kajimoto of the University of Hong Kong' Journalism and Media Studies Centre says Hong Kong has been divided between the pro-democracy camp and the pro-government bloc for years, mainly due to the 2012 Anti-National Education Movement and the Umbrella Movement two years later. But he says the gap has deepened further since many people turned to social media, including Facebook, Twitter, YouTube, WhatsApp, Weibo and Telegram.

"It is natural for people to seek and share the views that reinforce their political beliefs. On social media those views are often amplified by like-minded users, creating an environment known as the 'echo chamber.' What we see is not just consuming the political views that you like. Those views include vicious attacks on other viewpoints. And I think that's particularly problematic because you're not only excluding yourself from other viewpoints, you are constantly exposed to other viewpoints. And yet, instead of trying to understand the other ways to look at things, you are constantly mocking them, attacking them, making fun of them. And that you can see on both sides clearly in Hong Kong."

US policy treats Hong Kong separately from the rest of China in trade, investment, commerce, and immigrationbased on Beijings pledge to give the territory a high degree of autonomy under the one country, two systems model. The new act would require the U.S. State Department to report annually to Congress whether Hong Kong is sufficiently autonomous from China to justify keeping the citys distinct trading status, and whether China has eroded Hong Kongs civil liberties and rule of law, as protected by the citys Basic Law.

More than 1 million people marched through Hong Kong 01 January 2020 as protest leaders pledged to keep fighting for their demands in the new year. Police and demonstrators previously clashed during midnight celebrations. Protest organizers claimed the rally was bigger than the original rally that spawned the movement in June 2019. Authorities forced organizers to end the latest rally early after clashes erupted. Hong Kong police said "masked rioters recklessly vandalized public facilities" in various areas of the city.

By February 2020 the demonstrations were on hold as fear of a new coronavirus in neighboring China kept the city's 7.4 million avoiding large crowds. Hong Kong police had arrested nearly 6,000 people since the anti-extradition movement broadened into a city-wide pro-democracy movement in early June, with hundreds of rioting and public order prosecutions in the pipeline. The bodies of a number of young people have been found in the sea in recent months, amid speculation that a growing number of missing persons have been "disappeared," possibly to mainland China.

Luo Huining, a hardline figure and key ally of the Chinese president, was appointed director of the Beijing's Central Liaison Office in Hong Kong 06 January 2020. Sent to deal with a city in crisis when he was supposed to be easing into semi-retirement, 65-year-old Luo Huining is seen as capable. Hong Kong Chief Executive Carrie Lam said she would work closely with Beijing's top official in the Asian financial hub to get it back on "the right path" after more than six months of pro-democracy protests.

Luo Huining has a record of using hardline tactics to resolve tough problems for the Chinese Communist party. In coal-producing Shanxi. Writing in the Communist Partys official Peoples Daily in 2017, Luo said Shanxi had been ardently following instructions from Xi to clean up the mess there. Shanxi has gone from being a victim of a regression in its political environment to being a beneficiary of all-out efforts to enforce party discipline, he wrote.

Luos appointment probably signals a hard-line policy from Beijing that we dont give a damn about your feelings, said Chen Zhao, co-founder of the Montreal-based research firm Alpine Macro, who has insights on China after attending university with some of the nations high-ranking officials. Hes just a party boss he has no connection with Hong Kong and no foreign affairs expertise. Zhao said Luo has no relationship with the business community or political arena in Hong Kong. I think it will be very difficult for him to be helpful for the Hong Kong government, whereas the previous guy knew Carrie Lam well.

Luo Huining told Hong Kong to urgently enact national security legislation to tackle what he called radical violence, foreign interference and pro-independence forces in the city, apparently referring to the months-long, sometimes violent anti-government demonstrations sparked by a controversial extradition bill in June last year. He said on 15 April 2020 that national security has been a "prominent weakness" in Hong Kong since the handover. "This weakness could prove fatal at a crucial time," he said. "Laws protecting national security must be enacted as soon as possible." HK SAR chief executive Carrie Lam had formally withdrew the hated security amendments to the city's laws in October 2019.

Chinas top representative office in Hong Kong said 17 April 2020 it was entitled to get involved in Hong Kong affairs and is not subject to the semi-autonomous city's constitutional restrictions that bar the Chinese government from interfering in local affairs. The China liaison office said in a strongly worded statement issued late Friday that a high degree of autonomy is not complete autonomy. It said Hong Kongs right to self-govern is authorized by the central government and the authorizer has supervisory powers over the authorized.

It was likely no accident that the pronouncements on the status of the Liaison Office and the arrests of pro-democracy figures had come at the same time. On 18 April 2020 Police in Hong Kong arrested 14 pro-democracy figures on Saturday, including Democratic Party founder Martin Lee, rights lawyer Albert Ho and media tycoon Jimmy Lai, for "unlawful assemblies" on Aug. 18 and Oct. 1 and 20 last year. The arrestees stand accused of organizing a peaceful march on Aug. 18, 2019 against plans by Hong Kong's leader Carrie Lam to allow extradition of alleged criminal suspects to mainland China that saw 1.7 million people take to the city's streets.

Hong Kong's Bar Association said 20 April 2020 the ruling Chinese Communist Party's liaison office is subject to the city's mini-constitution, the Basic Law, which bars interference in the city's internal affairs by Chinese government departments. Article 22 of the Basic Law states: "No department of the Central People's Government and no province, autonomous region, or municipality directly under the Central Government may interfere in the affairs which the Hong Kong Special Administrative Region administers on its own in accordance with this Law." The Basic Law also sets down the principle that Hong Kong shall be accorded a "high degree of autonomy" in running its own affairs, with the exception of foreign policy and defense. "The effect of Article 22 is to prohibit interference in the internal affairs of [Hong Kong] by any part of the [Chinese government], which is itself bound by the provisions of the Basic Law, being a national law of the People's Republic of China," the HKBA said.

Hong Kong police arrested at least 230 people during protests 10 May 2020, as pro-Beijing politicians blamed the city's liberal education system for a 'lack of respect' among young people. Protesters turned out in Kowloon's Mong Kok shouting slogans in support of the five demands of the democracy movement, to be met with a renewed onslaught of police violence. Democratic Party lawmaker Roy Kwong was attacked by a group of officers and arrested on public order charges, before being hauled off to Hung Hom police station. A group of protesters gathered to chant slogans at the intersection of Kowloon's Nathan Road thoroughfare and Shandong Street, where a trash can was set on fire, while others threw objects at police officers at the New Century Plaza in Mong Kok.

China on 21 May 2020 said it was gearing up to "perfect the legal system" of Hong Kong with national security legislation that will outlaw speech and actions considered subversive, pro-independence or part of "foreign interference" in the city. "The ... National People's Congress (NPC) will consider a draft decision on ... perfecting Hong Kong's legal system and law enforcement mechanisms ... with regard to national security," state news agency Xinhua reported, citing NPC spokesman Zhang Yesui. The announcement follows media reports that the ruling Chinese Communist Party could be gearing up to insert the new law directly onto Hong Kong's statute book without tabling it in the city's legislature.

The draft law will ban "seditious" and "subversive" activities deemed to be aimed at toppling the central government, as well as external interference in Hong Kongs affairs, as well as "acts of terrorism," a phrase that has been increasingly used by the city government to describe pro-democracy protests, the South China Morning Post (SCMP) reported. In mainland China, peaceful critics are often targeted with national security charges, including "subversion" and "incitement to subvert state power."

US Secretary of State Pompeo said 27 May 2020 Hong Kong no longer operates autonomously from Beijing. The move could have massive financial implications for the city and for China. Trump's administration no longer sees Hong Kong as autonomous from mainland China. While the move does not carry any immediate consequences, it is the first step needed to revoke the former British colony's preferential trade and financial status. "No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground," Pompeo said. "Hong Kong does not continue to warrant treatment under United States laws in the same manner as US laws were applied to Hong Kong before July 1997."

US lawmakers passed a law in 2019 to support pro-democracy protesters in Hong Kong, but it required the city remain autonomous and able to maintain its separate status with the US for trading purposes. That is now on the brink of collapse. "While the United States once hoped that free and prosperous Hong Kong would provide a model for authoritarian China, it is now clear that China is modeling Hong Kong after itself," said Pompeo.

Hong Kong police arrested 360 people as thousands of people once again protested the controversial security measure and other measures, including a bill that would make it illegal to insult the Chinese national anthem. Activists said the bill would abolish basic freedoms for Hong Kong residents as well as visitors. The city had seen months of protests, even during the coronavirus pandemic, against Chinese security bills for the semi-autonomous city.

China's parliament earlier on 28 May 2020 rubber-stamped a law initially proposed by the National People's Congress (NPC) after huge pro-democracy protests rocked the financial hub for nearly 11 months. The vote was 2,878-1 with six abstentions.

China's plan to impose a new security law on Hong Kong puts it in direct violation of its international commitments, the United States and its allies - the United Kingdom, Canada and Australia - said. "China's decision to impose the new national security law on Hong Kong lies in direct conflict with its international obligations under the principles of the legally binding, UN-registered Sino-British Joint Declaration," a joint statement released 28 May 2020 by the four countries said.

Donald Trump said on 29 May 2020 he was directing his administration to begin the process of eliminating special treatment for Hong Kong in response to China plans to impose new security legislation in the territory. Trump made the announcement at a White House news conference, saying China had broken its word over Hong Kong's autonomy. He said its move against Hong Kong was a tragedy for the people of Hong Kong, China and the world. "We will take action to revoke Hong Kong's preferential treatment," he said, adding that the United States would also impose sanctions on individuals seen as responsible for smothering Hong Kong's autonomy.

Under the Hong Kong Human Rights and Democracy Act, which was passed by US Congress in November 2019 amid the pro-democracy protests, the US State Department must determine whether Hong Kong had a sufficient degree of autonomy to justify it retaining its special trade status.

The anti-extradition protests that gripped the city since early June 2019 were making five key demands of Lam's administration: the formal withdrawal of planned amendments to laws that would allow extradition of alleged criminal suspects to face trial in Chinese courts; an amnesty for arrested protesters; an end to the description of protesters as rioters; an independent inquiry into police abuse of power; and fully democratic elections. The government's actions in recent months had eroded the public trust in the city administration. That is why when Lam announced that she was officially withdrawing the controversial extradition bill, the protesters were not satisfied. They said they would not stop protesting until all of their demands were met.

No one knows what will happen next. It seems like a revolution, but it's more like a disaster that is about to break out. No one predicts that there will be a good ending.

Beijing unveiled the details of the much-anticipated national security law on 30 June 2020 after weeks of uncertainty, pushing China's freest area and one of the world's most glittering financial hubs on to a more authoritarian path. Beijing's Hong Kong and Macau Affairs Office (HKMAO) likened the national security law to a "sharp sword" hanging over the heads of anyone "endangering national security." However, the law also targets anyone in the world committing actions within its scope, regardless of whether they live in Hong Kong or are its permanent residents. Anyone "causing residents of the Hong Kong Special Administrative Region to have misgivings about the Central People's Government through various unlawful means," will also be pursued under the law, a provision that also could potentially be used to target the media and anyone commenting on social media.

Many of the actions and activities banned in the law could include those taken by protesters last year in the face of widespread police violence meted out even to peaceful mass marches. The law makes secessionist, subversive or terrorist activities illegal, as well as foreign intervention in the city's internal affairs. Any person taking part in secessionist activities, such as shouting slogans or holding up banners and flags urging for the citys independence, is in violation of the law regardless of whether violence is used.

Chinese sources said the National Security Law is leading Hong Kong's "second return" to China. "Western countries fear that after the national security law takes effect, the sources of funds for the riots will be traced. Their intervention in Hong Kong affairs will be exposed, and they would be held accountable," Lau Siu-kai, a vice-president of the Chinese Association of Hong Kong and Macao Studies, told the Global Times on 30 June 2020. A large amount of materials show that "black hands" from Taiwan have helped exacerbate the public outcry in Hong Kong and have led the city into chaos, violence and recession in 2019. Foreign organizations, institutes and personnel who violate the term will receive the same punishment, according to the law.

On 01 July 2020, the anniversary of the former British colony's handover to China in 1997, Hong Kong police made their first arrests under the new national security law imposed by Beijing, detaining protesters on Wednesday for carrying flags and signs calling for Hong Kong's independence, as Britain accused China of a "clear and serious" breach of their handover agreement. More than 300 protesters were arrested in total, nine under the new security law, as protesters took to the streets in defiance of the sweeping security legislation, which critics say is aimed at snuffing out dissent.

When the United Kingdom handed over Hong Kong to China on July 1, 1997, Chinese President Jiang Zemin vowed to maintain a one country, two systems policy that would allow the city to maintain a high degree of autonomy for 50 years. While Hong Kong nominally remains governed under the one country, two systems policy, the security law will likely herald a new era of a drastically different way of life in the city. Throughout the city, residents are worried that this marks the end of Hong Kongs unique political arrangement.

US law allowed for separate and preferential treatment of Hong Kong compared to mainland China when it comes to tariffs and visas. But thats predicated on Hong Kong maintaining a high level of autonomy. In 1992 the US implemented the US-Hong Kong Policy Act to give the city special trade status. US Secretary of State Mike Pompeo said his department no longer viewed Hong Kong as having a high degree of autonomy. Thats a change in stance that could impact US trade relations with the territory. China believed that the US supports Hong Kongs pro-democracy activities. So harsh treatment of Hong Kong is also a way of antagonizing the US.

Trump on 14 July 2020 signed the Hong Kong Autonomy Act and an order to end the preferential trade status for Hong Kong, following the enforcement of a new security law in the southern Chinese city. He also signed a law that imposes sanctions on Chinese officials, businesses and banks that help China restrict Hong Kong's autonomy. The law had been passed with bipartisan support in Congress earlier this month. In a news conference held in the White House Rose Garden, Trump said Hong Kong will now be treated the same as mainland China "no special privileges, no special economic treatment and no export of sensitive technologies." He added "Their freedom has been taken away; their rights have been taken away. And with it goes Hong Kong, in my opinion, because it will no longer be able to compete with free markets. A lot of people will be leaving Hong Kong".

Hopefuls who had been barred from running in the upcoming Legco elections expressed their surprise 30 July 2020 that a dozen of them were disqualified on the same day, saying it is now clear that Beijing will brook no opposition in Hong Kong and the move shows a "total disregard for the will of the Hongkongers". The authorities disqualified nearly all pro-democracy hopefuls, from young progressive groups to traditional moderate parties. All of the candidates who had been in opposition [to] the national security law were disqualified from joining the election. Former Governor Chris Patten described the disqualifications as an "outrageous political purge ... It is obviously now illegal to believe in democracy, although this was what Beijing promised in and after the Sino-British Joint Declaration. This is the sort of behaviour that you would expect in a police state".

Hong Kong Chief Executive Carrie Lam on 31 July 2020 announced that she was invoking emergency powers to postpone the election planned for September 6, citing mounting concern over the coronavirus pandemic. She said the election would be held on September 5, 2021. This decision to postpone the Legislative Council elections that were scheduled to be held this year may be unlawful, the city's bar association said on 02 August 2020. The body of lawyers said there were "serious doubts about the legal and evidential basis of the governments decision."

Hong Kong's top leader said 02 September 2020 the city's political system has no separation of powers between the executive, legislative and judicial branches of government. She said that in Hong Kong, the executive branch supersedes the legislative and judicial branches, which she said were just doing their respective parts. Hong Kong's mini-constitution, the Basic Law, does not provide for the separation of powers. But Hong Kong high school textbooks long had the description of the "separation of powers." But in August, this description was deleted from new textbooks.

Nearly 300 people were arrested by Hong Kong police on 06 September 2020 as riot officers swooped on democracy protesters opposed to the postponement of local elections. The day was meant to be voting day for the city's partially elected legislature, one of the few instances where Hong Kongers get to cast ballots. But the city's pro-Beijing leader Carrie Lam suspended the polls for a year -- citing the coronavirus -- angering the pro-democracy opposition who had been hoping to capitalise on seething anti-government sentiment. Hundreds of riot police flooded the district of Kowloon in a bid to thwart online calls for flash mob protests to mark the suspended vote.



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