Hong Kong's Secretary for Security John Lee Ka-chiu speaks during a press conference inside the Central Government Offices in Hong Kong, May 17, 2021. Photo: Vernon Yuen / NurPhoto via AFP

The US State Department is expected to warn Hong Kong-based US companies of the rising risks of operating in the Chinese territory as bilateral tensions take a new dive on human rights-related issues.

A Financial Times report this week said the US will soon underline the risks US companies face from Beijing’s ability to obtain their private data in the city, as well as a new Chinese law that enables authorities to impose retaliatory penalties to companies and individuals that follow US sanctions against mainland Chinese groups and officials. The law, passed in June, has not yet been explicitly applied in Hong Kong.

But the risks to the rule of law that were formerly limited to mainland China are now increasingly a concern for Hong Kong, Ned Price, a spokesperson of the US Department of State, said Tuesday in a regular media briefing.

“We know that a healthy business community relies on the rule of law, which the National Security Law that applies to Hong Kong continues to undermine,” Price said amid speculation the US would announce new sanctions on Chinese and Hong Kong officials involved in recent abuses.

“We don’t have anything to announce at this time, regarding future policy moves … We will continue to call international attention to and hold China and Hong Kong authorities accountable for the erosion of the rule of law in Hong Kong.”

US State Department spokesman Ned Price has warned US businesses in Hong Kong. Photo: AFP / Nicholas Kamm

Since the National Security Law’s implementation in Hong Kong on June 30, 2020, many foreign companies and individuals in the territory have said the “red lines” of the law have become unclear.

The American Chamber of Commerce in Hong Kong published a survey in May saying that some 42% of expatriates were considering leaving the city. Among them, 62% said the National Security Law made them uncomfortable while 36% had concerns about the quality of education for their children after the law was implemented.

Some market analysts said Hong Kong-based foreign banks including HSBC and Citibank could soon be targeted both by US sanctions and retaliation from China.

Eugene Law, a director at China Galaxy Securities Co Ltd, said it would be extremely difficult for HSBC and other Hong Kong-based foreign banks to comply with both China and US laws while the two superpowers are locked in a standoff.

On June 25, two US senators – Pat Toomey and Chris Van Hollen – in a letter urged the Biden administration to comprehensively enforce the Hong Kong Autonomy Act in the immediate wake of the forced closure of the Apple Daily and detention of the newspaper’s founder Jimmy Lai.

The two senators said Hong Kong Security Secretary John Lee Ka-chiu had ordered the branches of HSBC and Citibank to freeze Lai’s accounts and Apple Day’s assets.

They claimed these orders to foreign banks were issued in an extrajudicial manner by a single official outside the court system and without any criminal charges or subpoenas.

In this picture taken on June 17, 2021, Cheung Kim Hung, right, CEO and executive director of Next Digital limited, is escorted by police from the offices of the Apple Daily newspaper to a vehicle after Hong Kong police arrested the chief editor and four executives of the pro-democracy newspaper, raiding its newsroom for a second time in the latest blow to the outspoken tabloid. Photo: AFP / Anthony Wallace

On July 9, the Media Freedom Coalition, an international effort by governments to protect and promote media freedom, said in a statement that 21 countries had signed a statement to express their strong concerns about Apple Daily’s forced closure and the arrest of its staff.

It said the use of the National Security Law to suppress journalism was a serious and negative step that undermined Hong Kong’s high degree of autonomy and the rights and freedoms of people in the city as provided for in the Basic Law and the Sino-British Joint Declaration.

It said the signed countries, which include the US, the United Kingdom, Canada, Australia, Japan and key European countries, were highly concerned by the possible introduction of new legislation that is intended or could risk being used to eliminate scrutiny and criticism by the media of the government’s policies and actions in Hong Kong.

On Monday, the Office of the Commissioner of China’s Ministry of Foreign Affairs in Hong Kong urged some members of the Media Freedom Coalition to stop moves that undermine the rule of law in Hong Kong under the pretext of press freedom.

On Wednesday, it said it strongly disapproved and firmly opposed US State Department spokesperson Price’s remarks, which it said smeared the National Security Law and the rule of law of Hong Kong, attacked Hong Kong’s business environment without justification and grossly interfered in Hong Kong’s and China’s internal affairs.

The Office also criticized Price for trying to mislead American and other international enterprises in Hong Kong.

“All this reflected that the sight of a well-developed and sound-governed Hong Kong stings the US,” said the Office. “It also laid bare the malicious agenda of the US to contain China’s development by playing the ‘Hong Kong card’.”

Protesters gather in Hong Kong’s Admiralty district during city-wide protests and strikes on Monday, August 5, 2019. Photo: Asia Times

Some political commentators have said that most Hong Kong officials would not feel the pinch of US sanctions as many of them kept their assets in the UK, Canada and Australia rather than the US.

Last Thursday, the European Parliament passed a non-binding resolution urging the European Union countries to impose sanctions against individuals and entities responsible for alleged violations of human rights and international law in Hong Kong under the EU human rights sanctions regime.

In April, more than 100 members of the UK Parliament and politicians urged UK Prime Minister Boris Johnson to impose sanctions on Chinese officials who led a crackdown on Hong Kong pro-democracy campaigners.

The British government has not imposed any sanctions on Hong Kong or Chinese officials over the clampdown.

Read: Hong Kong defends internet privacy abuse law

Read: China lashes out as Euro-MPs call for sanctions

Read: Over 40% of expats may soon leave HK, AmCham survey says