How scrapping the US-HK Policy Act could hit Hong Kong

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Last weekend, Hong Kong National Party’s convenor Mr Andy Chan called on the U.S. government to review the U.S.-Hong Kong Policy Act of 1992. But if that were to happen, it could cause Hong Kong to lose out significantly.

The Policy Act is a law that defines the U.S. government’s view of Hong Kong as a non-sovereign entity distinct from China for the purposes of U.S. domestic law. In other words, Hong Kong is recognized as a separate customs territory and an independent economy.

Critics have suggested that the Policy Act could be used by the U.S. to pressure Beijing. If Hong Kong is not given trade and economic privileges, China’s economy could be hurt as well.

Mr Jacky Fung, a researcher at the Hong Kong Policy Research Institute, says if the U.S.-HK Policy Act were to be cancelled as suggested by Mr Andy Chan, it would be a deadly blow to Hong Kong’s trade and financial system.

“In the short run, the tariffs and policies the U.S. imposes on China would apply to Hong Kong directly. This would significantly impact Hong Kong’s export-driven economy,” says Mr Fung.

Tariff troubles

In this case, the first to be hit would be Hong Kong’s trade and logistics industry, which contributed almost 22 percent to the GDP and 19 percent to the total employment rate in 2016.

The government says additional tariffs would certainly undermine the market competitiveness of certain products and consequentially affect Hong Kong’s re-export trade, and local companies engaged in associated supporting industries and services.

“The U.S. is Hong Kong’s second largest trading partner in the world, while Hong Kong is the its ninth largest export market,” says Ms Jeanne Tam from the Commerce and Economic Development Bureau (CEDB).

“In 2016, the U.S. was the sixth major source of inward direct investment into Hong Kong and the eighth major destination of outward direct investment from Hong Kong,” she adds.

According to the CEDB, the total merchandise and services trade between the U.S. and Hong Kong amounted to US$69 billion last year. The U.S. has been enjoying the highest trade surplus with Hong Kong among its global trading partners, which amounted to US$34.5 billion in 2017, of which US$32.5 billion was surplus in merchandise trade.

Hong Kong enterprises with manufacturing businesses in the mainland were also concerned as increased tariffs would add cost to manufacturing.

Before the row, the U.S. was already considering tariffs on Hong Kong aluminium imports. In April, Hong Kong’s chief executive Ms Carrie Lam wrote to the U.S. Secretary of Commerce Wilbur Ross to protest the tariff plan, saying Hong Kong is a small export-oriented economy. Additional tariffs could significantly jeopardise its economic status.

Just another mainland city

Mr Fung also notes that the long-term damage would be Hong Kong becoming “just another Chinese city.”

“As a city with limited resources, Hong Kong still has a high GDP per capita is because it is a global city drawing capital from everywhere else,” he says.

He warns that Hong Kong’s financial system could fall apart once it loses its status as an independent economic entity that draws foreign investment.

But local current affairs critic Mr Chow Hin, who contributes to AM730, believes the most profound impact from this would be losing Hong Kong’s unique identity and benefits.

“If Hong Kong became just another Chinese city, holders of the HKSAR passport would be treated the same as those holding the mainland passport and lose all the rights and privileges,” he says.

Mr Chow says given China’s economic success today, living standards in some parts of China are as high as those in Hong Kong and even a lot of Hong Kongers are willing to work and live in China. But many Chinese billionaires are still migrating to Hong Kong, while their businesses stay in China.

“The HKSAR passport is what they go after. The biggest harm would be other countries treating the HKSAR passport the same as the mainland one if the Policy Act was scrapped,” he says.

Currently, Hong Kong allows its passport holders to hold passports of other jurisdictions. China does not. Holders of the HKSAR passport to enjoy visa-free entry or visa-on-arrival for 162 countries, compared to 72 countries for those holding a mainland passport.

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