Just hours before China passed national security legislation that tightens its control over Hong Kong, the US government announced June 29 it is banning exports of defense equipment and technology to the territory.
In a statement, Secretary of Commerce Wilbur Ross said "With the Chinese Communist Party’s imposition of new security measures on Hong Kong, the risk that sensitive U.S. technology will be diverted to the People’s Liberation Army or Ministry of State Security has increased, all while undermining the territory’s autonomy. Those are risks the U.S. refuses to accept and have resulted in the revocation of Hong Kong’s special status."
"Commerce Department regulations affording preferential treatment to Hong Kong over China, including the availability of export license exceptions, are suspended," he added, saying further actions to eliminate differential treatment are being evaluated.
Meanwhile, in a separate statement, Secretary of State Mike Pompeo said "As Beijing moves forward with passing the national security law, the United States will today end exports of US-origin defense equipment and will take steps toward imposing the same restrictions on US defense and dual-use technologies to Hong Kong as it does for China."
“We can no longer distinguish between the export of controlled items to Hong Kong or to mainland China,” Pompeo said. “We cannot risk these items falling into the hands of the People’s Liberation Army, whose primary purpose is to uphold the dictatorship of the CCP by any means necessary.”
According to the Office of the United States Trade Representative, US exports to Hong Kong in 2018 reached $37.3 billion, or 2.2% of the total.
The new national security law was signed on June 30 by Chinese President Xi Jinping. Hong Kong's government said the law would go into effect later in the day. The details of the law were not immediately released.
Hong Kong had been given a high degree of autonomy and a special status including lower tariffs and different export controls when the UK returned the global financial hub to China in 1997.
The Chinese parliament's legislation, reportedly aimed at crushing the territory's freedoms, comes in response to last year’s pro-democracy protests in the former British colony.
UK Foreign Secretary Dominic Raab said "The success of Hong Kong, the entrepreneurial spirit, the vibrancy, the economic success, has been built on its autonomy in 'one country, two systems'...That clearly is at threat."
The immediate effect of the latest developments on technology transfers and on Hong Kong's overall startup scene was not certain. Some reports raised the possibility that the new restrictions will make it more difficult for technology companies to do business with clients in the territory.