The United States issued a warning to US companies operating in Hong Kong, signaling that Washington may take further action, an international trade lawyer said.
Adam Smith, a partner at law firm Gibson, Dunn & Crutcher, said Friday’s Financial and Regulatory Risk Council was “quite important,” but “it is doing nothing to change the rules so far.”
However, it does indicate that “the United States can do much more” politically, he told CNBC’s Capital Connection on Monday.
The nine-page notice warned on Friday that US companies face a number of risks associated with Chinese national security legislation in Hong Kong. Washington also announced sanctions against seven Chinese officials for violating Hong Kong’s autonomy.
Possible next steps
In response to Beijing’s crackdown on the former British colony, Smith said that “what will really change the nature of interactions and risks for the parties in Hong Kong” is the sanctions against organizations, structures and institutions that have not yet been absent.
Sanctions against individuals could be a problem for US businesses in Hong Kong, but “the real challenge” will come from restrictions on organizations that businesses will have to interact with frequently, he said.
Masked men cross a street in the Wang Chai district of Hong Kong on February 16, 2021.
Zhang Wei | China Information Service | Getty Images
The charm of Hong Kong
However, there are “too many opportunities” for companies to leave the city at the moment, Smith said.
“Hong Kong … still has an incredible amount of human capital that many businesses still need,” he said.
Kurt Tong, a former consul general representing the United States and head of mission in Hong Kong and Macau, said Hong Kong remains a good place to do business despite the risks.
“There is legal risk, there is reputational risk, there is some operational risk, but I think these risks are being measured,” he said.
“At the same time, (businesses) need to keep an eye on the big picture that China is a huge and attractive economy to do business. And Hong Kong is in many ways still … one of the best platforms for doing this job, ”he added.
Tong, a partner at consulting firm The Asia Group, said the rule of law in Hong Kong has deteriorated, but most companies are unsure if it was completely destroyed.
“I think it will take more to squeeze companies out of Hong Kong than the changes that have taken place so far,” he told CNBC. Squawk Box Asia. “
In terms of next steps, Tong said he expects US President Joe Biden and Chinese President Xi Jinping to meet in the fall to discuss each of their red lines that cannot be crossed.
Meanwhile, according to him, “diplomatic battles” will continue.
“The rhetoric was so harsh on both sides that there is still much to be done to save face,” he added.
Tonga said trade negotiations between the two sides are currently at an impasse, and the United States has no incentive to negotiate because it does not believe in their success.
“This is a complex picture … of US-China relations during the Biden and Xi era,” Tong said. “We’re still in the first scene of the first act of how it will unfold in the next year or so. “
Really. Following the intervention of Tong and Smith, a new alliance of NATO member states – the European Union, Australia, New Zealand and Japan – accused China’s Ministry of Security of a massive cyberattack on Microsoft Exchange mail servers earlier this year.