The CCP’s Close Ties to US Rivals Implicate Hong Kong in the Sanctions

Huawei's booth at the Hong Kong Fintech Week in November 2022. Peter Parks/AFP

Although the Chinese Communist Party (CCP) has not recognized the Taliban government in Afghanistan, Chinese telecommunications giant Huawei has been working with the Taliban government this month to install advanced closed-circuit television (CCTV) systems in the country. In addition, the CCP has close ties with other U.S. rivals, Iran and Russia, and there is much evidence in recent years that the CCP has used Hong Kong as a “white glove” to bring in Western technology and evade U.S. sanctions under the guise of a cover-up.

Close Ties Between the CCP and the Taliban Government

Huawei has recently agreed to help the Taliban government in Afghanistan install advanced closed-circuit television systems in all provinces of the country. On Aug. 14, a spokesperson for the Afghan Ministry of Interior Affairs posted on X (formerly Twitter) that Deputy Minister of Security Abdullah Mukhtar had met with representatives from Huawei in Kabul. The post also quoted a Huawei representative as saying that Huawei was prepared to begin work under the protection of the Afghan government.

According to reports from RANE, this closed-circuit television system can grant access to Chinese mainland authorities and utilize a facial recognition database for domestic security purposes within mainland China. The agreement between Huawei and the Taliban demonstrates the CCP’s willingness to engage with the Taliban to mitigate instability and security threats, particularly from radical organizations like ISIS and the East Turkestan Islamic Movement (ETIM).

Furthermore, in January of this year, the China National Petroleum Corporation, a Chinese state-owned enterprise, signed a US$540 million, three-year agreement with Mullah Abdul Ghani Baradar, the Deputy Prime Minister for Economic Affairs of the Islamic Emirate of Afghanistan and the Taliban government to conduct oil exploration in northern Afghanistan. Another Chinese company, Gochin, expressed willingness in April to invest US$10 billion in developing Afghanistan’s lithium mines.

Analysis: Implications for Hong Kong

On Sept. 9, U.S. President Biden signed an executive order prohibiting U.S. companies, citizens, and permanent residents from investing in Chinese AI (artificial intelligence), semiconductor, and quantum information technology companies. Hong Kong and Macau were also included in the list of entities subject to these restrictions.

According to the White House, the three prohibited areas were chosen because they are critical to the accelerated development of advanced military, intelligence, surveillance, and cyber.

Biden’s executive order requires U.S. businesses to report periodically to the U.S. government on their investments in China, Hong Kong, and Macau, even if these companies are not involved in sensitive technology areas.

Political commentator Tang Jingyuan, based in the United States, said that the order would make foreign investors in Hong Kong consider withdrawing from the region, impacting Hong Kong’s technology and economic sectors. Unlike previous sanctions that prevented you from buying, this time, the U.S. sanctions focus on “preventing you from producing,” meaning that without investments, talent won’t gather, innovation won’t occur, and China’s past success in high-tech finance through foreign investments will diminish, ultimately affecting Hong Kong.

Huawei’s Trade with Iran via Hong Kong

As early as December 2018, Hong Kong was implicated in the case of Meng Wanzhou, the chief financial officer of Huawei. The U.S. alleged that Huawei had violated U.S. sanctions against Iran by selling American-made goods to the country through a Hong Kong-based company called Skycom.

Prosecutors alleged that from 2010 to 2014, Skycom was used to cloak Huawei’s dealings with Iran, and Ms. Meng’s false statements deceived multiple banks into approving transactions that violated the sanctions.

As early as 2012, Reuters discovered that Skycom had proposed at the end of 2010 to export computer equipment from U.S. company Hewlett-Packard to Iran’s largest mobile operator, MCI.

Despite longstanding U.S. sanctions against Iran, the CCP signed a 25-year, US$400 billion strategic cooperation agreement with Iran in 2021, allowing China to purchase Iranian oil sustainably. Additionally, China significantly increased investments in Iran’s telecommunications, ports, electricity, and established smart cities and 5G networks within Iran.

Hong Kong Companies Accused of Aiding Iran

In June this year, the United States announced a list of sanctions targeting individuals and companies secretly aiding Iran in developing ballistic missiles. This list included over ten individuals and entities from Iran, China, and Hong Kong. One of the entities implicated was a shell company called Hong Kong Ke. Do International Trade Co Ltd, with its director, Qin (Qin Xutong), holding a Chinese passport and also being a shareholder in another sanctioned company, Qingdao Zhongrong Tong Trade Development Co Ltd.

In July, the U.S. government imposed sanctions on a trade network accused of assisting Iran in selling petroleum and petrochemical products and shipping goods to East Asian regions, including mainland China, after the products had been sold. The entities involved included two Hong Kong shell companies mentioned: Lustro Industry Limited and Oligei International Trading Co., Limited.

US Cancels Hong Kong’s Special Status

The reason why Hong Kong is treated like Mainland China by the United States is that after the CCP forced the enactment of the Hong Kong National Security Law in 2020, President Donald Trump signed an executive order on July 14 of the same year, which revoked Hong Kong’s special tariff status, special economic treatment, and access to the export of sensitive technologies, implying that Hong Kong’s “one country, two systems” is no longer recognized.

The United States at that time determined that “Hong Kong no longer enjoys a high degree of autonomy and, therefore, no longer guarantees continued special treatment distinct from China.”

Export of U.S. Chips to Russia via Hong Kong Increased About 10 Times After Russia-Ukraine War

However, Hong Kong companies went further in circumventing U.S. sanctions. In February 2022, when Russia invaded Ukraine, the United States and other Western countries imposed sanctions against Russia. In June last year, the U.S. Department of Commerce announced sanctions on multiple entities that supported Russia’s military actions, including four Hong Kong-registered companies such as World Jetta and Winninc Electronic.

In April this year, Nikkei Asia reported that Agu Information Technology, a company registered in Hong Kong, conducted six transactions with the Russian company Mistral from September to December 2022, involving over 60,000 Intel semiconductors, including microprocessors priced at US$13,000 each.

Additionally, Russian customs data revealed that, from Feb. 24, 2022, when Russia invaded Ukraine, until Dec. 31, 2022, nearly 70 percent of high-value semiconductor imports to Russia were marked as products of U.S. chip manufacturers, and about 75 percent of these were exported from mainland China or Hong Kong to Russia. The total transaction amount involved was approximately US$570 million, roughly ten times higher than in 2021. Many exporting companies were small to medium-sized businesses; some were established after Russia’s invasion of Ukraine started. +