US needs to balance sanctions against Beijing without harming Hong Kong, experts say

The United States should oppose Chinese legislation that will harm Hong Kong’s autonomy and should support Hong Kong’s pro-democracy movement, rather than taking measures that will harm the economy, several experts said Wednesday at a virtual hearing of the U.S. Senate Committee on Banking, Housing, and Urban Affairs.

The congressional session was called to gather information about a new Chinese national security law that allows Beijing to set up national security agency branches in Hong Kong and suppress what it defines as subversive activity. The Chinese law was approved during a session of the National People’s Congress of China this month in Beijing.

“The Chinese Communist Party in Beijing has been waging an aggressive and systematic campaign, which is designed to limit the freedom enjoyed by people in Hong Kong,” said banking committee member Sen. Jerry Moran (R-Kansas).

“The Chinese Communist Party’s legislation will destroy the ‘one country, two systems’ arrangement.” Moran said, “Independent media voice shattered, Beijing’s censorship and surveillance is likely to grow, and the causes for Hong Kong financial-economic success could wither.”

Under the “one country, two systems” principle, Hong Kong has been a special administrative zone of China since its transfer from British control in 1997.

Testifying before the committee was Lee Cheuk Yan, the vice chairman of the Hong Kong Labour Party had strong criticism of Beijing’s action. “The rule of law that we are proud of has become rule by law and rule of fear,” Lee said. “The legislation will destroy the freedom of many aspects we enjoyed in the past, which we may not have in the future.”

To respond to China’s erosion of Hong Kong’s autonomy, President Donald Trump announced on May 29 that his administration would “begin the process of eliminating policy exemptions that give Hong Kong different and special treatment.”

Witnesses before the committee criticized the administration approach. “We should be clear that risks exist in this approach,” said Peter Harrell, an adjunct senior fellow of the Center for a New American Security. “China would be likely to respond and could take countersanctions.”

In retaliation, Harrell said China would likely place U.S. companies on an unreliable list or threaten to renege on trade deal commitments with the Trump administration.

“The primary objective for the U.S. should be deterring the CCP and local authorities from cracking down on pro-democracy protests, make sure every step would not push Hong Kong further to Beijing’s control,” said Eric Lorber, Senior Director of the Center on Economic and Financial Power Foundation for Defense of Democracies.

Lorber cautioned Congress and the administration must carefully calibrate economic pressure on Beijing. “Too much economic pressure could further isolate Hong Kong from global markets,” he said, causing the U.S. and other foreign companies to downsize their exposure in Hong Kong or even leave the jurisdiction altogether.

“This would have an outsized impact on the financial health of U.S. businesses and could lead to significant fallout in financial markets,” he added.

For further sanctions against CCP, Lober suggested making the sanctions flexible, which would ensure that pressure does not cause an intended market impact, significant escalation, or real damage to businesses and international financial markets.

“The U.S. should balance to push pressure on Beijing, while the same time to make sure we don’t exact too much economic pain on Hong Kong,” he said.

Harrell urged the United States to seek a global coalition in line with U.S. values. “Both the EU and UK have adopted sanction rules in their own law, which is a tool for the U.S. to collaborate with allies to impose multi sanctions over china,” he said.

Following Beijing imposing the new national security law in Hong Kong, meanwhile, the British government promised to offer wider visas for nearly three million Hong Kong residents to live and work in Britain.

Michael F. Martin, an Asian affairs specialist at the Congressional Research Service, urged Congress also to consider legislation to help Hong Kong residents who live under China’s authoritarian governance. He said that while some Hong Kong activists, such as Joshua Wong, a leader of the pro-democracy movement, probably have options to leave Hong Kong, many others do not.

Senators Chris Van Hollen (D-Maryland) and Pat Toomey (R-Pennsylvania) introduced bipartisan legislation in May to defend autonomy in Hong Kong. Their bill would impose mandatory secondary sanctions on people or entities that materially contribute to China’s violation of Hong Kong’s Basic Law.

“There’s bipartisan interest in getting legislation like this done as soon as possible,” Toomey said at the hearing.