Amid the escalating standoff between the United States and China over Hong Kong, the power of U.S. sanctions is emerging. Chinese state-owned banks have announced their intent to cooperate with recent U.S. sanctions on Hong Kong officials in order to protect financing and access to overseas investments.
These banks are among the wealthiest in the world, many owned by the Chinese government.
They include the Bank of China Ltd., China Construction Bank Corp., and China Merchants Bank Co. At least one of these banks has suspended account activity with the 11 sanctioned Hong Kong officials,
Bloomberg reported.
Earlier this month, the U.S. Treasury Department
sanctioned 11 Hong Kong officials due to their roles in suppressing freedom of expression and assembly in Hong Kong. Sanctioned officials include Chief Executive Carrie Lam and Hong Kong’s Police Commissioner Chris Tang. The preceding police commissioner, Stephen Lo, was also sanctioned.
The U.S. government called out Lam as “directly responsible for implementing Beijing’s policies of suppression of freedom and democratic processes” in its official sanction press release.
She responded on
Facebook, denouncing the sanctions as redundant and mocking the U.S. government. “By the way, my visa to the United States is valid until 2026. Since I don’t want to go to this country, it seems that I can cancel it voluntarily” Lam declared on her official page.
When the Chief Executive was questioned on her reaction to potential U.S. sanctions during a press conference, she responded she would merely “
laugh it off.”But Facebook said in a statement that it had “taken steps to prevent the use of payments services” for sanctioned officials. This includes using its advertising tools or any commercial activities.
Credit unions within the Hong Kong police force were found to be
transferring billions of HKD in assets from foreign banks into Chinese banks to protect officers from sanctions. But even transfers to Chinese-owned banks may not save them.
Many of China’s largest state-owned banks have announced their intention to comply with the U.S. sanctions on Hong Kong officials. Two of the four biggest state-owned commercial banks in China, Bank of China and China Construction Bank, said they will comply with U.S. sanctions, according to Bloomberg’s report.
Large foreign-based banks have also announced cooperation. Citigroup Inc. has actively taken steps to suspend accounts of Hong Kong clients under question amid the sanctions. HSBC, also announced its compliance to the U.S. sanctions in its company policy, despite its displays of
allegiance to both the Chinese and Hong Kong government in past months.
HSBC, Citigroup, Bank of China, and China Construction Bank have not yet responded with comments.
The compliance of such influential financial institutions reveals the power of the U.S. dollar in international transactions, despite China’s best efforts to establish the yuan as the dominant world currency through mass debt-strategies and Xi’s Belt and Road initiative.
Hong Kong is one of the world’s foremost financial centers, largely due to its autonomy, rule of law, and U.S. currency peg. U.S. currency dominates international finance. Aside from leading world GDP, around half of cross-border bank loans and international debt securities are denominated in
U.S. dollars. Losing access to the U.S. dollar risks a large majority of any bank’s profit and the ability to continue as a credible international financial institution. It also risks Hong Kong’s livelihood as a top international finance center.
Banks face another conundrum in their choice to comply with U.S. sanctions or China’s National Security Law. They must comply to maintain access to U.S. currency. Yet by doing so, they break China’s National Security Law in Hong Kong by cooperating with the United States.
The National Security Law criminalizes (
pdf) any individual who aids a foreign country in imposing sanctions against Hong Kong or China. The minimum sentence is three years in prison, the maximum warrants
life in prison. It remains to be seen whether banks will be targeted by the security law for abiding with U.S. sanctions against Hong Kong officials.
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