2019 Hong Kong Policy Act Report

Pursuant to section 301 of the United States-Hong Kong Policy Act of 1992, as amended (the “Act”), the Department submits this report on recent developments in Hong Kong from May 2018 through March 2019.

Key Findings

 * The United States continues to have deep economic and cultural interests in Hong Kong. Cooperation between the U.S. government (USG) and the Hong Kong government remains broad and effective in many areas, providing significant benefits to the U.S. economy and homeland security.
 * During the period covered by this report, the Chinese mainland central government implemented or instigated a number of actions that appeared inconsistent with China’s commitments in the Basic Law, and in the Sino-British Joint Declaration of 1984, to allow Hong Kong to exercise a high degree of autonomy. The tempo of mainland central government intervention in Hong Kong affairs — and actions by the Hong Kong government consistent with mainland direction — increased, accelerating negative trends seen in previous periods.
 * As a general matter, Hong Kong maintains a sufficient — although diminished — degree of autonomy under the “one country, two systems” framework to justify continued special treatment by the United States for bilateral agreements and programs per the Act.

Context of U.S.-Hong Kong Relations
U.S.-Hong Kong relations are based upon the continued substantial maintenance of the “one country, two systems” framework, as established in the basic law of the Hong Kong Special Administrative Region of the People’s Republic of China, as enacted by the National People’s Congress. The Act establishes the policy of the USG to treat Hong Kong as a non-sovereign entity distinct from China for the purposes of U.S. domestic law, based on the principles of the 1984 Sino-British Joint Declaration.

Significant economic, legal, and commercial differences continued to exist between the Hong Kong Special Administrative Region and mainland China during the period covered by this report. Hong Kong practiced free and open trade, with negligible tariff or non-tariff barriers. The Hong Kong economy was free from state direction and, for example, was ranked by the Heritage Foundation as the world’s most free for a 25th consecutive year. The World Bank ranked Hong Kong in fourth place in its ease-of-doing-business index for 2018. The Hong Kong legal system continued to be based on common-law traditions. Judges were independent and final judgments respected and enforceable. Property rights were well protected in law and practice. Hong Kong maintained its own currency, pegged to the U.S. dollar. The Hong Kong Monetary Authority set monetary policy autonomously from the People’s Bank of China. Hong Kong was not subject to the mainland cybersecurity law, and persons in Hong Kong could access internet content not available in the mainland, including content offered by U.S. media and technology firms. Hong Kong maintained customs, immigration, and law enforcement authorities distinct from those of the mainland central government, whose agents were not authorized to operate in Hong Kong except in specified instances discussed later in this report. Mainland operatives reportedly monitored some political activists, NGOs, and academics who criticized the Chinese central government’s policies. Hong Kong kept high standards for public health and safety. Hong Kong people can protest the policies of the mainland central government, such as the annual vigil to commemorate the victims of the 1989 Tiananmen Square massacre, although protest organizers are required to give police notice before demonstrations.

Bilateral Agreements and Multilateral Forums: Hong Kong continued to participate separately from mainland China in a number of multilateral organizations and agreements, including the financial action task force and the financial stability board. Hong Kong concluded a free trade agreement with Australia in November 2018 and with Georgia in June 2018. An ASEAN-Hong Kong free trade agreement entered into force in January 2019. Hong Kong is a separate and active member of the WTO.

Trade, Commerce, and Finance: U.S. trade and finance relations with Hong Kong were very strong. More than 1,300 U.S. firms operated in the Special Administrative Region, with about 300 U.S. firms basing their Asian regional operations in the city. Nearly every major U.S. financial firm maintained a presence in Hong Kong, with hundreds of billions of dollars in assets under management. Hong Kong was a major destination for U.S. legal and accounting services. In 2018, the United States’ largest worldwide bilateral trade-in-goods surplus was with Hong Kong, at $31.1 billion. Exports totaled $37.4 billion and imports were $6.3 billion, Hong Kong ranked ninth-largest among U.S. goods exports destinations. Hong Kong was the fourth-largest market for U.S. exports of consumer-oriented agricultural products in 2017, valued at $4.3 billion, representing 10 percent growth from 2016. U.S. exports of goods and services to Hong Kong supported an estimated 188,000 U.S. jobs in 2015 (latest data available).

U.S. Citizen Interests: An estimated 85,000 U.S. citizens lived in Hong Kong, while 1.3 million visited or transited in 2018. Hong Kong remains one of the safest cities in the world, with low rates of crime. Approximately 127,000 Hong Kong residents visited the United States in 2018, and 20 direct flights operated between the United States and Hong Kong.

Law Enforcement Cooperation: U.S. federal law enforcement agencies continued to cooperate effectively with the Hong Kong disciplined services, which is composed of police, customs, and immigration elements. Hong Kong helped to disrupt the flow of contraband, including narcotics such as fentanyl and synthetic opiates, between the United States and East Asia, including by conducting joint operations. In 2018, USG information regarding shipments entering Hong Kong generated 65 arrests and multiple seizures of contraband, to include nearly 1,100 lbs (500 kg) of illegal drugs, approximately 41,000 counterfeit items valued at a total of $2.4 million, and more than 6,600 rounds of ammunition. The United States assisted in Hong Kong’s identification of drug trafficking cells operating in Hong Kong and East Asia that could affect the United States. Hong Kong expanded its assistance to stop hundreds of millions of dollars of illicit fund transfers from U.S. victims to and through Hong Kong banks. Hong Kong counterparts provided tactical and operational support for U.S. activities and participated in U.S. International Law Enforcement Academy training in Bangkok.

Hong Kong generally remained a good partner for fugitive surrender and sharing of evidence in criminal cases. During the reporting period. Hong Kong authorities assisted with two fugitive surrender cases for persons to be prosecuted in the United States. The mainland central government has still not provided information on the disposition of its case against an individual sought by the USG that the Hong Kong government detained but released in October 2017 on the basis that the individual was subject to parallel prosecution by mainland China authorities. Hong Kong has yet to adopt certain systems that would improve identification of high-risk travelers.

U.S. Military Activities: Engagement between U.S. military forces and the Hong Kong disciplined services continued, with a focus on counterterrorism, including a subject matter exchange in August 2018 with Navy Special Warfare Group One and participation in a U.S. sponsored regional counterterrorism conference in New Delhi. With approval from the mainland central government, the USS Ronald Reagan and two accompanying ships visited Hong Kong in November 2018. The mainland central government denied a port call by the U.S. ship Wasp in October 2018, the second such denial since December 2014, breaking with Hong Kong’s tradition as an open port. The Commander of USINDOPACOM visited Hong Kong in March 2018.

Sanctions Enforcement: The USG communicated regularly with Hong Kong on issues involving sanctions enforcement, strategic trade controls, and counter-proliferation concerns, and the Hong Kong government’s handling of these issues received increased public and private scrutiny in 2018. In June 2018, the Hong Kong government incorporated UN Security Council Resolutions 2270, 2321, 2371, 2375, and 2397 into its sanctions ordinance, enhancing tools available for North Korea sanctions enforcement. Hong Kong conducted 182 investigations of potential sanctions violations in 2018, twice as many as 2017. Many companies were deregistered, however, no charges were brought. Hong Kong put in place legislation intended to make it more difficult for anonymous front companies to utilize Hong Kong to evade sanctions or violate U.S. export laws. The Department of State met annually for counter-proliferation dialogue with the Hong Kong government to maintain communication and to review policies, procedures, and specific cases. Given Hong Kong’s position as a free economy and one of the world’s largest and busiest ports, it remains a target of proliferators.

Export Controls: The Department of Commerce maintained an export control office in Hong Kong to conduct end-use checks, industry outreach, and government liaison work. U.S. representatives continued to raise concerns about cases of diversion of controlled items. The U.S. and Hong Kong governments took steps to tighten licensing requirements and held joint seminars for industry groups, published due diligence guidance to raise industry awareness about trans-shipment risks, and cooperated on export control officer action requests.

Hong Kong is eligible to receive controlled U.S. defense articles sold via direct commercial sale. The Department of State, which licenses commercial sales of such articles under the International Traffic in Arms Regulations, enhanced compliance via its blue lantern end-use monitoring program and worked with the Hong Kong government to reduce the risk of diversion.

Academic, Cultural, and Scientific Exchanges: U.S. institutions conducted extensive academic, cultural, educational, and scientific exchanges with Hong Kong, including short-term visits by U.S. faculty, summer programs for students, and exchanges of faculty and staff. During the 2017-2018 academic year, 7,162 Hong Kong students studied at U.S. colleges and universities, contributing approximately $275 million to the U.S. economy. Hong Kong hosted more than 1,640 U.S. students in academic year 2016-2017, including 48 U.S. undergraduate Gilman Scholars. In 2018-2019, 10 Hong Kong residents were selected as Fulbright students and scholars, and Hong Kong hosted six U.S. Fulbright scholars and two Fulbright specialists. In FY 2018, 18 Hong Kong residents participated in the Department of State’s International Visitor Leadership Program.

Other Matters Affecting U.S. Interests in Hong Kong
During the reporting period, policies and practices of the mainland central government adversely impacted Hong Kong in multiple areas, and mainland pressure resulted in new constraints on Hong Kong’s political space. In some particularly concerning instances, Hong Kong authorities took actions aligned with mainland priorities at the expense of human rights and fundamental freedoms. There were particular setbacks in democratic electoral processes, freedom of expression, and freedom of association.

Mainland Policy regarding Hong Kong Politics: The mainland central government publicly and privately stated its aim was to establish clear-cut and fixed “redlines” precluding advocacy of independence for Hong Kong, while allowing other civil and political rights. In practice, apparent inconsistencies in the implementation of the basic law during the period covered by this report increased local concerns that mainland central government policy is shifting toward diminished tolerance for human rights and fundamental freedoms in Hong Kong, mirroring the strengthening of authoritarian action inside mainland China in recent years. Growing political restrictions in Hong Kong may be straining the confidence of the international business community. Following Hong Kong’s decision not to renew journalist Victor Mallet’s visa, the American Chamber of Commerce called on Hong Kong “to make it clear to the international business community that free speech and free flow of information in this world city is still sound enough for business to consider Hong Kong as an important hub.”

Freedoms of Association and Movement: In September 2018, the Hong Kong government banned the pro-independence Hong Kong National Party (HKNP) using the societies ordinance, the first time a political organization in Hong Kong had been banned for “national security” reasons. Hong Kong immigration authorities restricted entry to Hong Kong by individuals critical of the communist party of China, including Japanese politician Kenichiro Wada, whom pro-Beijing media outlets called an “anti-China rightist” for his support of Taiwan independence. In October 2018, Hong Kong authorities refused to renew the work visa of Victor Mallet, Financial Times Asia news editor, after he hosted a talk by a pro-Hong Kong independence advocate in his capacity as acting chairman of the foreign correspondent’s club (FCC). Mainland central government authorities condemned the FCC for hosting the talk. In November 2018, Hong Kong authorities refused to allow Mallet, who is a British citizen, to enter Hong Kong as a tourist. In addition to these documented cases, the U.S. consulate general also received multiple reports of alleged harassment or intimidation of individuals affiliated with foreign NGOs, the press, or pro-democracy activists.

Freedom of Expression: In January 2019, the Hong Kong government proposed local implementing legislation for the mainland’s national anthem law. On November 17, 2017, the Standing Committee of the National People’s Congress adopted the decision to add the National Anthem law to Annex Ill of the Basic Law, which lists all of the mainland national laws that are to be applied in the special administrative region. The proposed local law would subject those who “publicly and intentionally insult” the anthem to punishment not to exceed a $813 ($6,380 HKD) fine and/or three years in prison. Flag desecrations are subject to similar penalties, and at least one activist was jailed for two months in March 2018 for flag desecration. In November 2018, organizers of a Hong Kong exhibition by political cartoonist Badiucao, whose drawings have criticized the communist party, canceled the event due to alleged threats from mainland central government authorities, according to media reports. The organizers did not specify the nature of the threats. Also in November 2018, author Ma Jian was told by Tai Kwun art space administrators that he could not present his work at the venue during the Hong Kong international literary festival, before public outcry forced the administrators to reverse course. The Hong Kong government denied any role in the initial decision to bar Ma’s events, which went on without incident.

Academic Freedom: In January 2018, Hong Kong Polytechnic University did not renew lawmaker Cheng Chung-tai’s teaching contract after he was convicted of flag desecration. In May 2018, Chinese President Xi proposed Hong Kong-based researchers be permitted to apply for expanded grants from the mainland central government. Chinese state-controlled Xinhua news agency reported that the mainland central government would support researchers who “love the country and Hong Kong,” which some local academics interpreted as a political litmus test for grant approvals.

Internet and Media Freedom: The special administrative region’s online environment remained unfettered. Freedom of expression of members of the press and other media was generally respected, allowing for lively public political discourse, although journalists assessed media outlets practiced a degree of self-censorship for commercial and/or political reasons. A significant number of media outlets are now owned by companies with business interests on the mainland or whose major shareholders are members of the Chinese communist party. Reporters Without Borders ranked Hong Kong in 70th place in its world press freedom index for 2018. In May 2018, local media reported that the mainland central government liaison office in Hong Kong indirectly owned more than half the bookstores in the city, raising concerns that those bookstores would not sell politically sensitive books.

Development of Democratic Institutions: Hong Kong authorities again barred candidates from local elections based on actual or imputed political views. The Hong Kong government barred Lau Siu-lai from running in a November 2018 by-election due to her alleged support for Hong Kong “self-determination.” Authorities prevented legislative counselor Eddie Chu from running to represent a rural village of 100 constituents based on his statements that other citizens should be free to advocate independence (Chu himself does not support independence). Pro-establishment candidates won three of five seats in March 2018 and November 2018 legislative council by-elections, representing a net gain of three seats for the pro-establishment camp, after six pan-democratic lawmakers were disqualified from holding office in 2016-2017 following controversy over their oaths.

Judicial independence remains a cornerstone of Hong Kong’s autonomy. Members of the Hong Kong bar association, the law society, and local and international business communities expressed continued high confidence in the independence and integrity of Hong Kong’s judicial decisions. Media reporting alleged that some Hong Kong judges may be considering mainland priorities in deliberations.

Official Mainland Government Presence: In September 2018, the West Kowloon express rail terminal opened. A “co-location arrangement” between Hong Kong and the mainland permitted mainland security agents to deploy to a discrete area of the train station (the “Mainland Port Area” (MPA)), where mainland law is applied. Mainland authorities have said the MPA is considered to be mainland China for purposes of certain law enforcement activities, even while passengers are still inside the West Kowloon train station or on the train inside Hong Kong regional territory. Questions remain regarding consular access to assist foreign citizens in distress in the MPA. In October 2018, a reported 400 uniformed members of the People’s Liberation Army garrison in Hong Kong deployed in Hong Kong to assist in clearing mountain trails in the wake of typhoon Mangkhut. The Hong Kong government did not request assistance from the garrison.

Hong Kong Policy Act Findings
There were no suspensions under section 202(a), terminations under section 202(d), or determinations under section 201 (b) of the Act during the period covered by this report.