In a bid to uphold its national security, the United States has rolled out a high-tech investment ban targeting the Chinese Communist Party (CCP) with the unprecedented inclusion of both Hong Kong and Macau on the list of restricted entities. Experts predict this move will deliver a significant blow to Hong Kong’s high-tech sector.
Notably, the attached appendix to Biden’s executive order specifies China alongside its special administrative regions, Hong Kong and Macau.
Among the key provisions of the executive order is the mandate for U.S. investors and business figures to routinely disclose their investments in Mainland China, Hong Kong, and Macau to the U.S. government. Even entities not directly involved in the three sensitive technology sectors are now required to periodically submit reports outlining their investments in these high-tech fields.
Tang Jingyuan, a political commentator residing in the United States, conveyed in an interview with The Epoch Times that this move might prompt foreign investors in Hong Kong to reconsider their positions, impacting both the city’s technological and economic landscape.
Mr. Tang emphasized that, unlike previous bans and sanctions, which largely aimed to prevent the CCP from purchasing certain technologies, this ban centers on curtailing the CCP’s ability to develop these technologies internally. The repercussions of this investment ban extend beyond financial implications, and has an impact on Hong Kong’s ability to attract skilled workers.
Historically, the skilled workforce tends to follow investment flows. Without sufficient investment, innovation will be stifled because of a dearth of skilled workers.
The three sectors in which President Biden restricted investment fall precisely within the realm of venture capital technology, Mr. Tang said, adding that after the U.S. restrictions, other Western allies are likely to follow suit.
As a result, the CCP’s past reliance on foreign investment to drive high-tech finance may no longer work, he continued. Naturally, Hong Kong would be affected, and its status as an international financial center would continue to decline.
High-Tech Finance in Hong Kong
Before and after China’s entry into the World Trade Organization (WTO), the CCP leveraged Hong Kong to attract skilled workers, funds, and technology. Western countries, notably the United States, accorded special privileges to Hong Kong, granting it exemptions from tariffs. The Hong Kong dollar enjoyed free convertibility with foreign currencies. A critical point of distinction was that certain Western high-tech sanctions imposed on China didn’t apply to Hong Kong. This distinctive trade status propelled Hong Kong into a premier entrepôt, solidifying its position as one of the world’s major commodity export hubs.Initially, foreign capital poured into Hong Kong, which then funneled investments into mainland China. The city thrived on the re-export trade, earning substantial “service fees.” For instance, in 2018, the re-export trade volume in Hong Kong exceeded three times the size of its GDP. Hong Kong only needed to charge around 6 percent in service fees to achieve a scale of 20 percent of its GDP.
Hong Kong’s substantial gains were notably derived from re-exporting technology goods, particularly electronics and telecommunications products, which were in high demand in Shenzhen, the globe’s largest manufacturing hub for electronic and telecommunications goods.
Research from the “Overview of Hong Kong’s Electronics Industry” revealed that before 2022, Hong Kong held the mantle as the world’s leading integrated circuits exporter, the second-largest exporter of mobile phones, computer accessories, and cameras, and the third-largest exporter of imaging and recording equipment.
The electronics sector emerged as Hong Kong’s dominant industry, commanding a 72.6 percent share of total exports in 2021. Roughly three-quarters of these exports were comprised of components often transshipped to mainland China for assembly and processing before reaching global markets via Hong Kong. Finished electronic products constituted about a quarter of exports, primarily encompassing consumer electronics such as audiovisual equipment, computers, and telecommunications devices. Many high-end chips globally found their route through Hong Kong before entering mainland China.
However, the landscape shifted in October 2022 with the introduction of the Biden administration’s semiconductor high-end chip ban, which significantly impacted China’s semiconductor industry. The subsequent departure of foreign capital and the closure of factories in the Shenzhen technology industrial zone contributed to a downturn in Hong Kong’s imports and exports.
Currently, Hong Kong has relinquished its once-absolute edge in the re-export trade. Its international financial standing diminished due to the implementation of Hong Kong’s National Security Law. The city is now transitioning to align with the CCP’s strategic vision, aiming to harness global resources for the development of cutting-edge technologies, particularly core domains like high-end chips, artificial intelligence, and quantum technology. Supporting this transformation is outlined in China’s “14th Five-Year Plan.”
During Chinese leader Xi Jinping’s visit to Hong Kong, his first stop was the Hong Kong Science Park, where he stressed the pivotal role of Hong Kong in technology innovation. The Hong Kong government is vigorously advocating for technological advancement and actively pursuing the acquisition of skilled workers.
The unexpected investment ban instituted by the Biden administration, encompassing both mainland China and its special administrative regions, Hong Kong and Macau, has dealt a severe blow to the high-tech sectors in Hong Kong.
Veteran media personality Tang Hao noted on his personal platform “Crossroads of the World” that in the past, the United States imposed various sanctions against the CCP while sparing Hong Kong and Macau, enabling them to acquire dual-use military-civilian technology or products from the United States.
They were then quietly transported to the mainland for military purposes, he added.
Much U.S. funding also flowed into China via Hong Kong or Macau for investment. However, this time, the United States has decidedly cut off this route by placing restrictions on funds to Hong Kong and Macau.
