How the US sanction affects HK businesses to enter BUD markets

Yesterday (2020/08/07), the US Treasury announced to impose sanctions on China and Hong Kong 11 officials who harm Hong Kong autonomy and human rights.These major officers include the Chief Executive Carrie Lam, the Secretary of Justice Teresa Cheng, the Commissioner of Police PK Tang etc. All Americans and American companies cannot deal with the sanctioned persons or serve them. Their asset in the US will also be frozen.¹ This is the very first time the US government imposes sanctions on Hong Kong major officers, and also the first action after the US revoked Hong Kong special status. Even though the CE Carrie Lam neglected the sanction, we already pointed out many time in previous articles, that the national security law and the election postponement will bring the city further into the eye of the new cold war. This impact on local SMEs is severe, especially after 2019 social unrest and 2020 COVID-19 epidemic. In this article, we try to analyze today’s situation from an international relation and trade aspect, and how will Hong Kong businesses be affected to enter the 20 BUD markets. (For the list of 19 FTA economies, please refer to BUD Fund FTA economies at a glance)

Mainland Programme and Macau in FTA Programme

Needless to say, the economic relation between Hong Kong and mainland China is very close in recent years. The setup of the BUD Fund was dedicated to the 12th National Five-year Plan and “One Belt One Road” strategy. In the era of the new cold war, it is more difficult for Hong Kong companies to enter the West, and the Chinese government has to promote more facility to pacify the elite and the commerce, and encourages them to integrate into the Guangdong-Hong Kong-Macau Greater Bay Area (GBA). 80% of successful BUD application is for Mainland Programme, and this trend will remain. Please also notice that Macau is also a BUD market, not under the Mainland Programme, but the FTA Programme. The policy of Macau is just a coordination of the Central government, and Macau is also one city of the GBA. So it is quite natural for Hong Kong businesses to explore in Macau under the national plan.

Negative impact on relations with Australia and New Zealand

Australia and New Zealand is the member of the English-speaking Five Eyes Alliance, and share a common stance with the US on Hong Kong autonomy and human rights. They have already suspended extradition after the implementation of Hong Kong national security law. ² On the other hand, the Australian community is upset about the economic dependence of China. If the West furthers the sanction, or the anti-China sentiment increases, Hong Kong, as a Chinese city, will have more investment uncertainty in Australia and New Zealand. We don’t mean that our businesses would be sanctioned directly, but it would be more inconvenient. For example, longer time to procure, acquire or apply necessary licenses.

Complex scenario in ASEAN as the second confrontation between China and the US

Traditionally, the 10 member states of the ASEAN have their own pro-China or pro-US stances, and it is best for interest to take a balance in between, not to have any dissonance with the two largest economies. “Separate economics and politics”. Nevertheless, the biggest dispute with China is the South China Sea territorial conflict. Involving ASEAN states are Brunei, Malaysia, Indonesia, the Philippines and Vietnam. They don’t surface the dispute, nor attempt to negotiate with China on behalf of the ASEAN, but the civil pressure exists. ³ The US regard the South China Sea dispute as an important confrontation with China. This region is valuable in military aspect, exists abundant oil and is also an important channel. Therefore the US needs ASEAN members to give diplomatic supports in the issue. Moreover, the majority of the economic leaders in these Southeast Asian countries are ethnic Chinese, often happened riots against Chinese. All these factors make the ASEAN investment complicated and should be dealt carefully.

Know more: BUD Fund ASEAN countries at a glance

Observation on European Free Trade Asso.

Though the European Union is not as sharp as the US in Hong Kong issue, it concerns a lot, with the mainstream value, about the national security law and the election postponement. Germany and France have suspended extradition with Hong Kong.⁴ The European Free Trade Association (EFTA) includes Iceland, Normay, Switzerland and Lichtenstein, which are not EU members. These countries are low-profiled in international relations, especially the famous neutrality of Switzerland. However, it doesn’t mean everything fine here. In 2010, the Chinese government stressed the Norwegian government to intervene the Nobel Committee not to present the Peace Prize to dissident Liu Xiaobo. China banned Salmon import from Norway afterwards.⁵ On the other hand, Swiss foreign minister Ignazio Cassis had a recent interview and reflected that it would affect numerous Swiss companies in Hong Kong if China abandoned the ‘one country, two systems’ principle.⁶ In a short summary, the variables of EFTA investment are less than ASEAN, but we should have careful observation for everything.

And we believe there are no policy amendment for the remaining Georgia and Chile after the US sanctions.

Multiple economic shocks trouble a lot of Hong Kong SMEs since Jun 2019. The latest unemployment rate is 6.2%, a record high for 15 years. ⁷ Previous “Employment Support Scheme” only concerns the first 2 waves of epidemic, but this time the 3rd COVID-19 wave came with huge scale and impacts on all round economy. We cannot see any government measure at this moment, but only political storm. The global economy flourished since 90s, and we may enter a new cold war after 30 years of the old one ended. Someone even describes Hong Kong as the new Berlin.⁸ Except the Mainland Programme and Macau of FTA Programme, we should be cautious in other BUD markets.

Further reading: BUD Consultant practical skill: How to determine the eligibility for the BUD Fund in 15 minutes

1. (2020) Treasury Sanctions Individuals for Undermining Hong Kong’s Autonomy, US Treasury, https://home.treasury.gov/news/press-releases/sm1088
2. (2020) Beijing suspends Hong Kong extradition treaty with New Zealand, Hong Kong Free Press, https://hongkongfp.com/2020/08/03/beijing-suspends-hong-kong-extradition-treaty-with-new-zealand/
3. (2020) Asean stays on the sidelines as South China Sea tensions mount, South China Morning Post, https://www.scmp.com/week-asia/politics/article/3084647/asean-stays-sidelines-south-china-sea-tensions-mount
4. (2020) National security law: Beijing, Hong Kong slam France for halting ratification of extradition treaty with city, South China Morning Post, https://www.scmp.com/news/world/europe/article/3095885/national-security-law-france-halts-ratification-extradition
5. (2011) Norway’s salmon rot as China takes revenge for dissident’s Nobel Prize, Independent https://www.independent.co.uk/news/world/europe/norways-salmon-rot-as-china-takes-revenge-for-dissidents-nobel-prize-2366167.html
6. (2020) Testing times for relations with China, says Swiss minister, Swissinfo, https://www.swissinfo.ch/eng/testing-times-for-relations-with-china–says-swiss-minister/45942300
7. Unemployment reaches 15 year high, news.gov.hk, https://www.news.gov.hk/eng/2020/07/20200720/20200720_163207_430.html
8. (2019) Hong Kong: The New Berlin Wall, the Diplomat, https://thediplomat.com/2019/11/hong-kong-the-new-berlin-wall/