Washington is in the process of rolling out capital market responses to China’s Hong Kong security law including potential measures that could restrict capital flows to the semi-autonomous city.
President Donald Trump ordered a treasury-led working group last week to recommend moves to protect U.S. investors from Chinese companies’ failure to adhere to American rules on accounting and disclosure. The report of policy recommendations is due in 60 days.
«We are – I don’t want to prejudge what the report will be, but we will come back with a variety of recommendations,» said U.S. treasury secretary Steven Mnuchin according to a «Reuters» report, in response to questions about potential capital flow restriction to Hong Kong.
«[The working group will produce a report] that strikes the right balance between protecting our capital markets and dealing with this situation as well.»
U.S. Dollar Flow
Hong Kong officials have continuously reassured the city that free capital flow would be maintained while additional foreign exchange controls would not be introduced. Hong Kong’s financial secretary Paul Chan and the city’s de facto central bank both expressed commitment with the latter stating that a currency swap line with China was at its disposal if required.
Meanwhile, there are growing reports of increased demand for U.S. dollars from both local money changers and banks with some even seeking offshore options to park assets.
Phase 1 Trade Deal
Capital markets aside, Mnuchin was more optimistic about China’s obligations under the Phase 1 trade deal which includes a $200 billion increase in purchases of U.S. goods over two years and improved protection for American intellectual property.
«As of now we believe they are in the process of meeting their obligations but we’re keeping a close watch on that,» Mnuchin added.
