Hong Kong-based banks and financial institutions could soon be caught in a legal web of conflicting US and Chinese laws if Beijing moves as expected to impose its new anti-sanctions law on Hong Kong next month.
The National People’s Congress’ (NPC) standing committee will hold a meeting between August 17 and 20 to discuss and pass a motion that will put more national laws into the Annex III of the Basic Law in Hong Kong and Macau, Xinhua reported on Tuesday evening.
The Xinhua report did not disclose specific details of which laws would be included but several Hong Kong media citing unnamed sources said that Beijing plans to implement its newly-passed Anti-Foreign Sanctions Law in Hong Kong.
The law provides a legal framework for China to retaliate against foreign sanctions targeting its companies and individuals, and effectively makes it illegal to enforce foreign including US sanctions in China.
The announcement came after US Deputy Secretary of State Wendy Sherman held a six-hour meeting with Chinese Foreign Minister Wang Yi and Vice Foreign Minister Xie Feng in Tianjin on Monday. During the meeting, Xie criticized the US government for using various means to demonize China and suppress its development.
“US policy seems to be demanding cooperation when it wants something from China; decoupling, cutting off supplies, blockading or sanctioning China when it believes it has an advantage; and resorting to conflict and confrontation at all costs,” Xie said. “It seems that the US only thinks about addressing its own concerns, getting the results it wants and advancing its own interests. Do bad things and get good results. How is that ever possible?”
Xie said China had proposed two lists to the US including an “error correction list” and a list of key cases of concern to China. He said the US must lift visa restrictions on Chinese students and Chinese Communist Party members, as well as sanctions on Chinese officials and institutions.
Wang, for his part, stated three “red lines” for China-US relations, saying that the US must not challenge, slander or even attempt to subvert the path and system of socialism with Chinese characteristics, attempt to obstruct or interrupt China’s development process or infringe upon China’s state sovereign or damage the country’s territorial integrity.
Sherman said she had a “frank and open” discussion with Wang on a range of issues, including Beijing’s crackdown in Hong Kong, the ongoing “genocide” and crimes against humanity in Xinjiang and abuses in Tibet. She said she also raised concerns about Beijing’s conduct in cyberspace, across the Taiwan Strait and in the East and South China Seas.
Sherman said the US intended to continue to strengthen its competitive hand vis-a-vis China but would not seek conflict with it.
On June 10, the NPC standing committee approved the Anti-Foreign Sanctions Law after a four-day meeting in a bid to counteract a growing raft of US targeted sanctions on companies and individuals. Since then, mainland academics and legal experts have called for implementing the law in Hong Kong.
Tian Feilong, an associate professor at Beihang University’s Law School in Beijing and a director of the Chinese Association of Hong Kong and Macau Studies, said there was an urgent need to put the anti-sanction law into Annex III of the Basic Law.
Tian said the law was aimed specifically at putting pressure on China-based Western companies, which would pass the pressure on to their own countries. He said foreign countries would then become more cautious before imposing any sanctions on China in the future.
On June 26, She Xiaobin and Wang Weikang, two legal experts at China’s Foreign Ministry, wrote in an article on Communist Party magazine Study Times that the inclusion of the anti-sanction law into the Basic Law of Hong Kong and Macau could lay a legal foundation for the two special administrative regions to forbid foreign interventions and safeguard China’s national security.
Chau Sze-tat, a political commentator and popular YouTuber, said the implementation of the anti-sanction law would have a big impact on Hong Kong-based banks and financial institutions as they would be forced to take sides when the US imposed sanctions on Hong Kong and Chinese officials and companies.
Chau said these banks would be punished by Beijing if they implemented the US sanctions in Hong Kong, or they would face secondary sanctions imposed by the US if they followed Beijing’s orders.
He speculated that foreign banks and financial institutions might have to move out of Hong Kong, although other US firms might stay put if they were not affected. He said the US and China’s competing sanctions and anti-sanctions laws would accelerate financial decoupling between the two sides.
Since Beijing imposed the National Security Law in Hong Kong on June 30 last year, the US government has sanctioned dozens of Hong Kong and Chinese officials including Chief Executive Carrie Lam and Liaison Office chief Luo Huining. Lam said in a previous interview that she felt a bit inconvenienced that she now must receive her salary and shop in cash as her Hong Kong bank accounts were closed under the sanctions.
Over the past two years, the US has also sanctioned many companies that have connections with the Chinese military and those involved in Xinjiang’s human right issues. On June 3, US President Joe Biden signed an executive order to prohibit US investment and dealings with 59 Chinese military-related companies.
Some already see potential loopholes in the contradictory laws. “The Chinese government should prohibit the unjustified extra-territorial application of foreign legislation in the mainland, though people and organizations could apply for exemptions,” according to the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures announced by China’s Ministry of Commerce on January 9.
Mainland commentators have suggested Beijing may allow some foreign companies to be exempted from the anti-sanctions law. For example, chipmakers will not be punished if they stop supplying chips to Huawei, which has been sanctioned by the US. However, it is unclear whether Hong Kong’s banks will be able to apply for such exemptions.
Lau Siu-kai, vice president of the Chinese Association of Hong Kong and Macao Studies, said Beijing had the decision-making power to impose sanctions against foreign entities and individuals while Hong Kong only had an executive role.
Lau said when foreign countries sanctioned China, their companies in Hong Kong and the mainland would be affected by the anti-sanctions law.
On July 16, the US State Department issued a business advisory for Hong Kong-based American firms and set out different kinds of risk, including the risks for businesses with exposure to sanctioned Hong Kong or China entities or individuals.