The financial sector is closely watching Beijing this week for signals related to the upcoming anti-sanctions law in Hong Kong, in a critical test of the industry’s tolerance for compliance risk. finews.asia reviews the ongoing developments and potential outcomes.
This week, the National People’s Congress Standing Committee – China’s top parliament – is holding closed-door discussions for four days about various draft laws.
One particular subject of interest for the financial sector is the anti-sanctions law which was passed in mainland China in June. The industry is closely watching for signs related to when and how Hong Kong will implement the controversial law.
finews.asia reviews the developments.
«Irreconcilable Compliance Problems»
Under the current mainland version, the anti-sanctions law gives the government broad powers including asset seizure and visa denial against those who formulate or implement sanctions against the country.
If applied in a similar manner, this could potentially erode autonomy and damage the «separate status» Hong Kong – as well as neighboring Macau – has enjoyed in international trade, according to the chairman of the American Chamber of Commerce in China Greg Gilligan.
«This new law presents potentially irreconcilable compliance problems for foreign companies with respect to a conflict of law between foreign jurisdictions and China, and we hope the [U.S. and China] do not force our companies to only choose one side or the other,» Gilligan said in a «Nikkei» report.
Washington Over Beijing
But if push comes to shove and global banks are truly forced to choose between complying with Washington or Beijing’s rule, there are signs that the former could prevail.
«We will comply with the U.S. sanction orders, because the U.S. dollar is too important to a bank,» said an «AFP» report citing an anonymous senior manager named «John» from an international bank in Hong Kong.
«Foreign enterprises would want to quit Hong Kong,» John said. «They don’t necessarily have to open a branch here, they could do it in Tokyo or Singapore.»
Solution: Ambiguity?
According to government insiders, one solution to retain the anti-sanctions law without applying excessive pressure to global banks is to maintain ambiguity.
«One internal assessment is that the more vague the local version of the law remains, the more flexibility we will have during execution, especially when the relationship between the two powers remains uncertain,» said an «SCMP» report citing one insider.
Another insider said any breach would be «manageable» for large financial institutions, adding that being fined would «not be damaging for banks».
Risk of Bank Exodus
Even with ambiguity in Hong Kong’s legislation, others fear that this may not be sufficient to alleviate business concerns.
«Tactics used by the Chinese Communist Party in its previous crackdowns on institutions were quite unpredictable,» said local economist Law Ka-chung who previously warned that about half of the city’s 200 or so banks could exit due to the anti-sanctions law.
«When managing risks, it’d be quite impossible for banks to stay safe even by setting up a separate entity just for their Chinese businesses.»
More Bark Than Bite
More optimistic onlookers believe the ambiguity will serve well in creating a flexible environment in Hong Kong and expect limited immediate impact, at least until enforcement first occurs.
«We would expect China to be pragmatic, more of a bark than a bite,» said another unnamed bank executive in a «Financial Times» report.
«Many U.S. companies have already implemented US sanctions, haven’t they, and we haven’t seen them sanctioned by China yet.»
