Hong Kong severely impacted by recent US tech investment ban.
The United States Implements High-Tech Investment Ban Targeting China
In a bold move to protect national security, the United States has introduced a high-tech investment ban specifically aimed at the Chinese Communist Party (CCP). What makes this ban unprecedented is that it includes not only mainland China but also its special administrative regions, Hong Kong and Macau. Experts are predicting that this ban will have a significant impact on Hong Kong’s thriving high-tech sector.
On August 9th, President Joe Biden signed an executive order that imposes restrictions on American companies, citizens, and permanent residents investing in sensitive high-end technology enterprises in China. This ban covers domains such as Artificial Intelligence (AI), semiconductors and microelectronics, and quantum information technologies. The White House has stated that these sectors were chosen due to their crucial role in the development of advanced military, intelligence, surveillance, and network technologies.
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One of the key provisions of this executive order is the requirement for U.S. investors and businesses to regularly disclose their investments in Mainland China, Hong Kong, and Macau to the U.S. government. Even entities not directly involved in the targeted technology sectors are now obligated to submit reports outlining their investments in these high-tech fields.
Tang Jingyuan, a political commentator residing in the United States, expressed in an interview with The Epoch Times that this ban could lead foreign investors in Hong Kong to reconsider their positions, ultimately impacting the city’s technological and economic landscape.
Mr. Tang emphasized that unlike previous bans and sanctions, which primarily aimed to prevent the CCP from acquiring certain technologies, this ban focuses on limiting the CCP’s ability to develop these technologies internally. The consequences of this investment ban go beyond financial implications and also affect Hong Kong’s ability to attract skilled workers.
Historically, skilled workers tend to follow investment flows. Without sufficient investment, innovation can be stifled due to a lack of skilled labor.
According to Mr. Tang, the three sectors restricted by President Biden’s ban are crucial to venture capital technology. He also predicts that other Western allies will likely follow suit after the U.S. restrictions. As a result, the CCP’s reliance on foreign investment for high-tech finance may no longer be effective, and Hong Kong’s status as an international financial center could continue to decline.
Prior to the implementation of President Biden’s investment ban, the U.S. Department of Commerce and Treasury Department consulted with 175 industry representatives and allied partners, including G7 nations, the European Union, and the United Kingdom. These partners are reportedly considering implementing similar measures based on their own circumstances.
High-Tech Finance in Hong Kong
Before and after China’s entry into the World Trade Organization (WTO), Hong Kong played a crucial role in attracting skilled workers, funds, and technology for the CCP. Western countries, particularly the United States, granted special privileges to Hong Kong, exempting it from tariffs and allowing the Hong Kong dollar to have free convertibility with foreign currencies. Notably, certain Western high-tech sanctions imposed on China did not apply to Hong Kong. This unique trade status propelled Hong Kong to become a premier entrepôt and solidified its position as a major commodity export hub.
Foreign capital flowed into Hong Kong, which then directed investments into mainland China. The city thrived on re-exporting goods, earning substantial “service fees.” For example, in 2018, Hong Kong’s re-export trade volume exceeded three times the size of its GDP. Charging only around 6 percent in service fees allowed Hong Kong to achieve a scale equivalent to 20 percent of its GDP.
One of Hong Kong’s major sources of revenue came from re-exporting technology goods, particularly electronics and telecommunications products, which were in high demand in Shenzhen, the world’s largest manufacturing hub for these goods.
Research on the “Overview of Hong Kong’s Electronics Industry” revealed that before 2022, Hong Kong was the leading exporter of integrated circuits, the second-largest exporter of mobile phones, computer accessories, and cameras, and the third-largest exporter of imaging and recording equipment.
The electronics sector became Hong Kong’s dominant industry, accounting for 72.6 percent of total exports in 2021. Approximately three-quarters of these exports consisted of components that were often transshipped to mainland China for assembly and processing.
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