China poised to add anti-sanctions law to Hong Kong charter

HONG KONG (BLOOMBERG) – China’s top legislative body is expected to approve a proposal to impose an anti-sanctions law on Hong Kong, a retaliation against the US that could put global firms in the cross-hairs of a conflict between the world’s two largest economies.

The National People’s Congress Standing Committee is poised to pass the resolution on Friday (Aug 20), adding China’s anti-sanctions legislation to Hong Kong’s Basic Law.

The city will likely need to pass local legislation before it can be fully implemented, said Chief Executive Carrie Lam, adding that doing so before the current Legislative Council term ends on Oct 30 would be “an extremely tight timetable”.

The anti-sanctions law was passed in June as the country sought to defend itself amid the volley of sanctions the US has placed on Chinese businesses and top officials, including Mrs Lam, for human rights abuses in Xinjiang and in Hong Kong.

It gives broad powers to seize assets from entities that formulate or implement sanctions on China, and empowers people and companies to sue “individuals and organisations” in Chinese courts, seeking compensation for losses that result from “discriminatory restrictive measures”.

The US flagged that China could apply its anti-sanctions law to Hong Kong, when President Joe Biden’s administration warned businesses about the growing risk of operating in the city. In China, the reciprocal sanctions have yet to make an impact due to the US dollar’s dominance in the global financial system.

Instead, authorities have focused on tit-for-tat responses with little tangible effect, such as visa and travel bans for foreign officials with few ties to China.

While much about the law is left vague, if implemented robustly, it could force companies to navigate two contrary regulatory requirements, leading to a bifurcation of Chinese and US operations in Hong Kong, Mr Adam Smith, a former senior adviser in the US Treasury Department’s sanctions unit, told Bloomberg TV on Tuesday.

“US sanctions are really the gold standard that companies around the world comply with almost by default,” said Mr Smith, who’s now a trade compliance adviser with Gibson, Dunn & Crutcher LLP.

“So companies in Hong Kong, especially because of the dollar peg, are very wary of getting it wrong.”

Mrs Lam has expressed support for the legislation, dismissing foreign governments and Western media outlets that she predicted would “make a big deal out of this” by saying it weakens the city’s “position as a financial centre and confidence toward Hong Kong”.

The sanctions law marks the third time in just over a year that China directly intervened to amend the city’s constitution, despite promises it would allow the Asian financial centre to operate with a “high degree of autonomy”.

Since June 2020, Chinese lawmakers have enacted a national security law and pushed an election overhaul to ensure the city is under “patriots” only rule. The sanctions law will also be added to Macau’s charter.

Hong Kong Justice Secretary Teresa Cheng sought to assuage fears that the law might negatively impact Hong Kong’s business community by acknowledging that “some of us may be very concerned”, during a press conference on Aug 3.

“But I think we shouldn’t be too worried for now.”

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