[Senate Hearing 116-320]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 116-320

 
           CRISIS IN HONG KONG: A REVIEW OF U.S. POLICY TOOLS

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                                   ON

    EXAMINING CURRENT U.S. POLICY TO ADDRESS THE CRISIS IN HONG KONG

                               __________

                              JUNE 4, 2020

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban Affairs
  
  
  
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             U.S. GOVERNMENT PUBLISHING OFFICE 
42-249 PDF           WASHINGTON : 2021                
                


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  JON TESTER, Montana
TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
MARTHA McSALLY, Arizona              DOUG JONES, Alabama
JERRY MORAN, Kansas                  TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                     Gregg Richard, Staff Director

                Laura Swanson, Democratic Staff Director

        John O'Hara, Chief Counsel for National Security Policy

               James Guiliano, Professional Staff Member

               Colin McGinnis, Democratic Policy Director

            Phil Rudd, Democratic Professional Staff Member

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                         THURSDAY, JUNE 4, 2020

                                                                   Page

Opening statement of Senator Toomey..............................     1

Opening statements, comments, or prepared statements of:
    Chairman Crapo...............................................
    Prepared statement...........................................    31
    Senator Brown................................................     3
        Prepared statement.......................................    32

                               WITNESSES

Michael F. Martin, Specialist in Asian Affairs, Asia Section, 
  Foreign Affairs, Defense, and Trade Division, Congressional 
  Research Service...............................................     6
    Prepared statement...........................................    33
    Responses to written questions of:
        Senator Moran............................................    71
        Senator Menendez.........................................    72
        Senator Warren...........................................    73
        Senator Sinema...........................................    75
Peter Harrell, Adjunct Senior Fellow, Energy, Economics, and 
  Security Program, Center for a New American Security...........     8
    Prepared statement...........................................    54
    Responses to written questions of:
        Senator Moran............................................    77
        Senator Menendez.........................................    78
        Senator Warren...........................................    80
        Senator Cortez Masto.....................................    81
        Senator Jones............................................    83
        Senator Sinema...........................................    84
Eric B. Lorber, Senior Director, Center on Economic and Financial 
  Power, Foundation for Defense of Democracies...................    10
    Prepared statement...........................................    61
    Responses to written questions of:
        Senator Moran............................................    85
        Senator Menendez.........................................    86
        Senator Cortez Masto.....................................    89
        Senator Jones............................................    90
        Senator Sinema...........................................    91
Lee Cheuk Yan, General Secretary of the Hong Kong Confederation 
  of Trade Unions, and Vice Chairman, Hong Kong Labour Party.....    11
    Prepared statement...........................................    69
    Responses to written questions of:
        Senator Moran............................................    92
        Senator Sinema...........................................    93

              Additional Material Supplied for the Record

``China Moves To Impose National Security Law on Hong Kong''--In 
  Focus, CRS.....................................................    94

                                 (iii)


           CRISIS IN HONG KONG: A REVIEW OF U.S. POLICY TOOLS

                              ----------                              


                         THURSDAY, JUNE 4, 2020

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met by videoconference at 11 a.m., Hon. 
Patrick J. Toomey, presiding.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. This hearing will come to order.
    Today the Committee meets again for a remote hearing via 
video. A few videoconference reminders: Once you start 
speaking, there will be a slight delay before you are displayed 
on the screen. To minimize background noise, please click the 
mute button until it is your turn to speak or ask questions. If 
there is a technology issue, we will move to the next Senator 
until we resolve the issue. The 5-minute clock still applies. 
You should all have one box on your screen labeled ``Clock'' 
that will show how much time is remaining. And with 30 seconds 
remaining, I will try to remember to gently tap the gavel to 
remind Senators that their time has almost expired. And to 
simplify the speaking order process, we will simply go by 
seniority.
    First, I want to thank the Chairman, Chairman Crapo, for 
scheduling this very important hearing. He cannot be with us at 
this time because he has another commitment on another 
Committee on which he serves, and so he asked me to fill in for 
him, and I am pleased to do that.
    I also want to take a moment to thank Senator Brown. 
Ranking Member Brown was very helpful in enabling us to put 
together especially this very, very impressive lineup of 
witnesses, and I am grateful to Senator Brown for his 
cooperation.
    The purpose of the hearing is to conduct oversight on a 
current U.S. policy to address the crisis in Hong Kong, the 
Administration's responses so far, and what additional legal 
authorities and other tools Congress may consider providing to 
complement that response.
    The Chinese Communist Party in Beijing has been waging an 
aggressive and systematic campaign that seems designed to 
eliminate the distinction between the freedoms enjoyed by the 
people of Hong Kong versus the absence of those freedoms on 
Mainland China. Let us be clear: The Chinese Communist Party 
wants to bring the people of Hong Kong to heel lest Mainlanders 
decide that they want some of those freedoms themselves.
    For decades, Hong Kong has been an amazing place to live. I 
had the pleasure to live in Hong Kong for a year back in 1991. 
The people of Hong Kong are very special people. It is a very 
special place, and largely because of the basic freedoms that 
the people of Hong Kong have enjoyed: freedom of assembly, a 
free press, freedom of speech, an independent judiciary, a 
partially democratic electoral system of Government. And 
because these freedoms have included economic freedom as well--
in fact, Hong Kong is one of the freest economies in the 
world--Hong Kong has been one of the most prosperous societies 
on the planet, despite the fact that is essentially a small 
rock in the water with no natural resources other than a 
harbor.
    Now it seems that the Chinese Communist Party is 
undermining these freedoms. Over 8,000 protesters have been 
arrested for peacefully demonstrating since last year. 
Independent booksellers have been shut down, independent media 
outlets harassed, prodemocracy electoral candidates 
disqualified, intervention in Hong Kong's school curriculum, 
and even the kidnapping of Hong Kong citizens.
    It is chilling that today, on the 31st anniversary of the 
Tiananmen Square massacre, these offenses seem to be 
culminating in a new piece of legislation being imposed from 
the Mainland onto Hong Kong, the so-called national security 
bill that will make it unlawful to have any dissent in Hong 
Kong. It is quite possible that thousands of peaceful 
protesters were killed in Tiananmen Square in 1989, on this 
day, for one reason: they were dissenting against the Chinese 
Communist Party's authoritarian rule, and they were advocating 
for a representative Government elected by its people.
    The Chinese Communist Party's national security legislation 
would destroy the ``one country, two system'' arrangement that 
they had committed to. This legislation criminalizes, among 
other things, subversion that many people in Hong Kong believe 
will be used really to stifle dissent. Hongkongers could face 
arbitrary arrest and long prison sentences merely for speaking 
their minds. Independent media voices shuttered, Beijing 
censorship and surveillance is likely to grow. And the causes 
for Hong Kong's financial and economic success could wither as 
some of the reasons that make Hong Kong such an attractive 
place to work and do business will erode with the erosion of 
freedom and autonomy.
    The Chinese Communist Party's campaign should not be 
surprising. Principles such as freedom and transparency and the 
just rule of law are antithetical to the Communist Party's 
mission. Look at some of the other behavior that the Chinese 
Communist Party has engaged in: treatment of Uighurs in 
Xinjiang, aggression toward neighbors in the South China Sea, 
being dishonest to the world about the COVID pandemic, and the 
unbelievable effort to control the behavior of its own 1.3 
billion citizens through this so called social credit system. 
They are tweaking and prodding people's behavior using an 
Orwellian system of advanced technology to surveil, censor, and 
punish and reward people--all of this with respect to Hong 
Kong, in spite of the Chinese Communist Party's obligation from 
the 1984 international treaty with the U.K., which was called 
the ``Joint Declaration'' that is registered at the United 
Nations. This treaty set out the Chinese Communist Party's 
obligation for when Hong Kong passed from the U.K.'s control 
back to the Chinese Government's, and it established that Hong 
Kong would have, and I quote, ``a high degree of autonomy,'' 
and that its citizens would enjoy many of the basic rights and 
freedoms that we have in the United States. But now many fear 
that the Chinese Communist Party's Orwellian system on the 
Mainland could be the future of Hong Kong.
    I recently introduced with my colleague Senator Van 
Hollen--and I want to thank him for his leadership in this 
area. We introduced a bill that is designed to push back on the 
Chinese Communist Party's aggression and make those responsible 
think twice about continuing to quash Hongkongers' basic 
freedoms, It is called the ``Hong Kong Autonomy Act'', and it 
targets entities that inhibit Hongkongers' freedom of speech, 
press, and assembly; independent judiciary; democratic 
processes; and the high degree of autonomy that was promised to 
the people of Hong Kong.
    Notably, the bill also penalizes the banks that choose to 
finance the erosion of Hong Kong's autonomy and put marginal 
profits ahead of basic human rights. This would be an 
unprecedented action toward the Chinese Communist officials, 
and it is intended to create obstacles to that aggression and 
obstacles that the leadership in Beijing has not encountered 
before.
    The bill has a tailored approach to sanctioning bad actors. 
There is a delayed on ramp before sanctions become mandatory, 
and there is a clear off ramp by which entities can avoid the 
sanctions. There is bipartisan interest in getting legislation 
like this done as soon as possible. The Chinese Communist Party 
must know that there are consequences to its actions. 
Otherwise, the lesson that they will conclude is that they can 
continue the aggression against Hong Kong and perhaps in other 
places around the world.
    Senator Brown, I recognize you for your opening statement.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman. Thanks to you, 
Senator Toomey, and to Chairman Crapo and Senator Van Hollen 
for your work in putting together this hearing. And, Lee Cheuk 
Yan, thank you for the work you do as part of the trade union 
movement. It is an international workers' movement, and you fit 
that bill, and thank you for the work you have done.
    At our hearing earlier this week, a number of us said this 
Committee must show Americans that we are on their side, that 
we see our black and brown fellow citizens, that we hear them, 
that their lives matter, and that we are going to fight for 
change.
    Today's hearing cannot be an immediate return to old 
habits.
    We are going to hear a whole lot of rightful condemnations 
of China's repression today. God knows they deserve it. But 
Monday night, the President of the United States ordered tear 
gas and rubber bullets to be used on peaceful protesters.
    He did not use the arm of the State to stop violence. 
Again, these were peaceful protesters demanding justice for 
their fellow Americans. No, the President used it to stage a 
photo op in front of a church.
    All of us on this Committee stand with protesters in Hong 
Kong, who just want a voice in their Government, to exercise 
fundamental democratic rights. I hope my colleagues will also 
stand with the millions of our black and brown fellow 
Americans, who essentially want the same thing.
    That will also allow us to set a better example for the 
world. I think everyone on this Committee wants the U.S. to be 
a global leader--a beacon of democracy to oppressed people 
everywhere who long for freedom. The President of the United 
States is making that harder.
    You can bet authoritarian Governments around the world, 
especially in Moscow and Beijing, hear loud and clear the 
President's messages stoking doubts about our elections, about 
suppressing voters, about inciting violence. They will use our 
President's words and our President's actions to justify their 
own brutality in Beijing and Moscow.
    Today's hearing, as Chairman Toomey said, falls on the 31st 
anniversary of Tiananmen Square. It is a good opportunity for 
us to recommit ourselves to human rights everywhere--in 
Tiananmen Square and in Lafayette Square alike.
    When the United Kingdom handed Hong Kong back to China in 
1997, China promised the people of Hong Kong that they would 
enjoy certain freedoms, including the right to elect their 
leaders. Those guarantees have ensured Hong Kong's stability 
and prosperity.
    China's new security law reneges on that promise and on its 
international obligations. Beijing's actions are an assault on 
the city's autonomy, the rule of law, and fundamental freedoms 
guaranteed by the Basic Law and the 1977 Sino-British 
Declaration. China's leaders seem determined to impose this 
draconian law. An assault on Hong Kong's democratic activists, 
on human rights advocates, on journalists, and others on 
trumped-up charges of sedition and national security violations 
will follow. The U.S. must stand with the people of Hong Kong.
    If China allows the new security law to go into effect, the 
U.S. and its allies must respond by making clear the long-term 
costs to China of encroaching on Hong Kong's sovereignty, and 
that Beijing's, shall we say, Kafkaesque definitions of 
``secession,'' ``sedition,'' and ``foreign interference'' are 
too vague and too malleable to be useful legal tools in a 
modern State.
    China's authoritarianism and repression have mounted 
against its own people--in Hong Kong and Tibet, against the 
Uighurs, and others. President Trump leads China's leaders to 
believe they can tighten their grip on their own people, and 
our President, the President of the United States, will 
continue to look the other way.
    His opposition to the Hong Kong Human Rights and Democracy 
Act, his silence on human rights violations, his persistent 
praise for President Xi Jinping, his reluctance to challenge 
Chinese leaders for fear of putting his trade deal at risk, it 
all sends a pretty clear message: China, you are free to do 
whatever you want to repress your own people as long as I, the 
President of the United States, get my photo ops.
    Mr. Chairman, I am sensing a pattern.
    Six years ago, Representative Chris Smith of New Jersey, a 
Republican, and I, then cochairs of the Congressional-Executive 
China Commission, introduced legislation to require the 
certification Secretary Pompeo made last week: If Hong Kong 
were no longer sufficiently autonomous, it should no longer 
enjoy its special status under U.S. law, period.
    This decertification, and the President's follow-on 
announcement last week to begin a process to limit Hong Kong's 
special status, were a start--even though tentative, partial, 
hesitant, and long overdue. They at least begin, the President 
at least begins to acknowledge that the Hong Kong security law 
puts the ``one country, two systems'' framework--and the people 
of Hong Kong--at serious risk.
    We need a broad new long-term bipartisan strategy on China. 
But there are also steps we must take in the urgent short term. 
While I would support effective, calibrated additions to our 
present sanctions arsenal, an approach that narrowly focuses on 
unilateral U.S. sanctions, including new mandatory secondary 
sanctions on large foreign banks, may be ineffective and have 
unintended consequences harmful to our strategic interests.
    We also know that the time necessary to craft targeted new 
legislation could delay the Administration from taking forceful 
action now, using powerful tools Congress has provided. Those 
include the 2019 Hong Kong Human Rights Act, the Global 
Magnitsky law, and, most importantly, broad authorities 
contained in the International Emergency Economic Powers Act.
    President Trump could use these authorities tomorrow. He 
should have made it clear months ago he would use them to 
respond to action against Hong Kong. Congress should press the 
White House to do its job, with a comprehensive and 
multilateral approach.
    At a time when the President has turned his back on the 
world--the withdrawal from the World Health Organization in the 
midst of a pandemic being just the latest example--we must step 
in and fill that leadership void created by the absence of our 
Chief Executive.
    We must draw our British, European, and Asian allies into a 
long-term strategy, using robust economic, financial, 
diplomatic, trade, and other tools to make clear to China's 
leaders that violating their agreements on Hong Kong will 
implicate China's strategic relationships not just with the 
U.S., but with other world powers. We should incorporate that 
robust aid to democracy and human rights advocates, 
journalists, civil society organizations, and others who are 
committed to preserving Hong Kong's freedoms.
    Finally, we have to make clear that China will pay a real 
economic price for enforcing this repressive new law. That 
could include changes in tariff treatment, in export controls 
and trade finance, in immigration--the entire range of benefits 
China now enjoys through Hong Kong's unique position as a 
financial center and a gateway to the West.
    China makes it clear--through its economic espionage, its 
aggressive military posture, its abuse of our export controls, 
and its cheating on international trade rules that puts 
American workers out of jobs--that it sees itself more as an 
adversary than a partner of the West. Well, an adversary of 
workers in the West. We know that China has no problem with 
Western CEOs.
    We must confront China's abuses, and its breach of its 
commitments to maintain Hong Kong's autonomy directly. We must 
confront it directly on this Committee.
    I welcome our witnesses. I look forward to hearing their 
ideas on how best to do that.
    Thank you all.
    Senator Toomey. Thank you, Senator Brown.
    I am going to introduce our witnesses now. I will introduce 
all of them; then I will recognize them sequentially before we 
begin with questions.
    Our first witness for today will be Dr. Michael Martin. Dr. 
Martin is a specialist in Asian affairs for the Congressional 
Research Service of the Library of Congress, providing Congress 
with political and economic analysis of Burma, China, Hong 
Kong, and Southeast Asia. From 1994 to 1998, he was the 
assistant chief economist for the Hong Kong Trade Development 
Council. Prior to his time with the Hong Kong Trade Development 
Council, Dr. Martin taught at Hong Kong Baptist University, 
Doshisha University in Kyoto, Japan, Colby College, and Tufts 
University.
    Next we will turn to two sanctions experts who are now in 
the private sector.
    Mr. Harrell, formerly with the State Department and now a 
senior fellow at the Center for a New American Security, will 
give us his statement.
    And then we will hear from Mr. Eric Lorber, formerly with 
the Treasury Department and now a senior director at the Center 
of Economic and Financial Power at the Foundation for Defense 
of Democracies.
    Finally, we will conclude with Mr. Lee Cheuk Yan. Mr. Lee, 
in fact, is joining us from Hong Kong where he is testifying on 
behalf of the Hong Kong Labour Party, and he joins us literally 
moments after participating in a vigil in Hong Kong 
commemorating the victims of the Tiananmen Square massacre 31 
years ago. Mr. Lee, we thank you for your testimony and your 
perspective as a Hongkonger on what is going on today.
    Thanks to all of you for your written testimony. It is very 
helpful to us. It will be made part of the record. I ask our 
witnesses to honor and remember the 5-minute rule for your oral 
testimony so that each Senator has an opportunity to ask you 
questions. And I also would like to remind the Senators that 
we, too, have a 5-minute rule, which I hope to stick to very 
closely.
    With that, Dr. Martin, please begin with your statement.

 STATEMENT OF MICHAEL F. MARTIN, SPECIALIST IN ASIAN AFFAIRS, 
  ASIA SECTION, FOREIGN AFFAIRS, DEFENSE, AND TRADE DIVISION, 
                 CONGRESSIONAL RESEARCH SERVICE

    Mr. Martin. Thank you, Chairman Toomey, Ranking Member 
Brown, and the other Members of the Committee. It is an honor 
and a privilege to testify at today's hearing.
    Before I begin the details of my oral statement, I ask that 
the document that I submitted previously to the Committee be 
included in the record as well as to be permitted the 
opportunity of submitting a more detailed written statement 
subsequent to this hearing.
    Senator Toomey. Without objection.
    Mr. Martin. OK. In addition, CRS submitted In Focus, a two-
page report about the recent NPC decision, and I ask that that 
also be included in the record.
    Senator Toomey. Without objection.
    Mr. Martin. OK. Thank you very much.
    With the remainder of my time, I would like to augment some 
of the materials that I have already submitted that are now 
part of the record, and, in particular, I want to point out 
that in my statement that I submitted, I mentioned ``crises in 
Hong Kong'' because in my assessment there are multiple crises 
in Hong Kong.
    In my statement, I spoke primarily about the political 
crises that I see as well as the economic crises that are going 
on in Hong Kong. But I also see two other important crises that 
the Committee might want to consider.
    First, there is a cultural crisis going on in Hong Kong in 
many different ways, which I can discuss later. Denise Ho, a 
musician, really cannot find a job right now in Hong Kong 
because she has been blacklisted because of her political 
activities.
    In addition, I believe there is an existential crisis going 
on in Hong Kong. The very nature of Hong Kong is at risk, and 
many people in Hong Kong, including my fellow with Mr. Lee 
Cheuk-yan, see what is going on in Hong Kong as threatening the 
very nature of Hong Kong to its very core. And so I want to 
just augment that the crises that I referred to are 
multifaceted, and I would be happy to discuss that more later.
    What I would like to also talk about now is what can be 
done, and as Senator Brown already enumerated, there is in 
existing law a lot of possibilities for the Administration to 
take action in various forms, and we can discuss those in 
greater detail, as well as there has been legislation recently 
passed by Congress, including the Hong Kong Human Rights and 
Democracy Act, that provide the Executive branch with 
additional ways and means by which they could take action.
    There is pending legislation that we can discuss, 
including, Senator Toomey, a bill that you cosponsored that 
attempts to address those issues. And I suspect that there will 
be other legislation introduced that will try to find other 
ways of addressing these crises.
    What I would present before the Committee right now is: 
What are your goals, what are your intentions, what do you hope 
to accomplish? You already mentioned the concept or the idea of 
somehow taking action against the Chinese Communist Party or 
the People's Republic of China. From what I can see, the 
People's Republic of China, with the support of the Hong Kong 
SAR Government and the chief executive, Carrie Lam, are fully 
committed to the course of action they have underway. And it is 
unclear to me what actions, if any, will dissuade them from 
their current path. I am not saying it is without any hope, but 
we should be realistic about what will change their attitudes, 
what will alter their behavior.
    In addition, there are the people of Hong Kong to think 
about, and let me be rather open here. Mr. Lee, Martin Lee, who 
you know, Joshua Wong, who you probably have all met or many of 
you have met, if they wish to leave Hong Kong, they probably 
have options on how they can leave Hong Kong. However, what I 
think about are the many protesters on the street every day or 
many days who have no such options. They probably cannot get 
access to other countries as readily as Mr. Lee. So you might 
want to think about vehicles or mechanisms, if you wish, to 
assist them.
    I would add another group that may not be thought of. As 
Hong Kong continues to change, among the 7.5 million 
Hongkongers, there may be many who just simply do not want to 
live under such an autocratic Government. So you may also wish 
to consider legislation to address how to deal with them.
    I see I am out of time, and I am happy to comment and 
respond to other issues and answer any questions that may be 
asked of me.
    Senator Toomey. Thank you, Dr. Martin.
    Next, Mr. Harrell, you are recognized.

  STATEMENT OF PETER HARRELL, ADJUNCT SENIOR FELLOW, ENERGY, 
  ECONOMICS, AND SECURITY PROGRAM, CENTER FOR A NEW AMERICAN 
                            SECURITY

    Mr. Harrell. Senator Toomey and honorable Members of the 
Committee, it is an honor for me to testify to you today. Like 
Dr. Martin, I have submitted a longer written statement for the 
record.
    I believe that four principles should guide the U.S. 
response to the crisis in Hong Kong.
    First, hold China to account while mitigating costs to the 
people of Hong Kong;
    Second, as Dr. Martin suggested, we need to think of our 
response to Hong Kong within the context of an American broader 
strategy toward China;
    Third, we should use the full range of American tools;
    And, finally, we need to galvanize a global coalition and 
live up to our own values here at home.
    Let me now briefly address three specific areas of U.S. 
policy: treating Hong Kong more like China under U.S. law, 
holding China to account in ways that advance overall strategy; 
and building a global diplomatic coalition.
    U.S. law treats Hong Kong differently from China in many 
respects. There is a legitimate debate about whether broad 
measures to align Hong Kong's treatment under U.S. law with 
China will pressure Beijing or whether such measures will 
fundamentally impose costs on the people of Hong Kong without 
impacting Beijing's decisions.
    I fundamentally believe that U.S. law cannot and should not 
indefinitely treat Hong Kong separately if Beijing does not 
treat the city as autonomous. But as the U.S. aligns policy, we 
must take care to mitigate harm to the people of Hong Kong.
    I recommend several immediate steps. Last year, Congress 
prohibited the export of crime control equipment to Hong Kong 
for 12 months. It is time to make that ban permanent. We should 
also impose export controls and surveillance technologies that 
can be used to monitor citizens online and in person.
    After China enacts the planned new national security law, I 
recommend a much broader range of steps that the U.S. should 
take to align Hong Kong's treatment with China under U.S. law 
and have spelled out a number of those specific steps in my 
written submission. But we also need to be careful to avoid 
taking steps that contribute to China's own objectives in ways 
that would actually enable China to do things like move the 
financial center currently in Hong Kong onto Mainland China, a 
long-term Chinese goal.
    I also recommend diplomatic steps. Inviting Mr. Lee to 
testify today is an example of how the U.S. can highlight the 
prodemocracy movement. And like Dr. Martin, I would urge this 
Committee to consider granting visas to the citizens of Hong 
Kong who do not wish to live under Chinese authoritarian rule.
    The second area of U.S. policy response is measures that 
fit into America's emerging strategy toward China. Several 
Members of this Committee, including Chairman Toomey and 
Senator Van Hollen, have introduced legislation to impose more 
sanctions over China's erosion of Hong Kong's autonomy. 
Targeted sanctions on Chinese officials involved in repression 
and on companies that facilitate Chinese repression are a 
valuable step. But we must also think more broadly about a 
response that fits within our larger strategy. We should join 
with allies to launch a comprehensive campaign to push back on 
Chinese subversion of democratic rules and corruption. We need 
to increase our efforts to press back on China's survival 
agenda, both within China and globally, and we need to take 
steps to secure our own country against malign influence.
    I urge the Senate to consider legislation that would launch 
a comprehensive national supply chain security review to 
identify supply chain vulnerabilities in the U.S. and close 
them.
    I also urge the Senate to consider beneficial ownership 
legislation supported by many Members of this Committee to 
ensure that the Chinese Government cannot set up secret shell 
companies in the United States and use them to pursue its 
objectives.
    Finally, we need to galvanize a global coalition to counter 
China's illiberalism. Over the past year many allies have 
cracked down on China's unfair economic practices, but too many 
continue to downplay China's abuses of democratic rights. We 
need to galvanize our allies to speak out and act through 
sanctions as well as in multilateral forums such as the G7 
against China's repression.
    But to be frank, to galvanize a global coalition, we must 
live our values at home. In recent days protests from London to 
Auckland have been focused on developments here in the U.S., 
not Hong Kong. Police abuses of unarmed men and women and U.S. 
security forces using riot control equipment to disperse 
peaceful protesters and to block access to national memorials 
undercuts U.S. leadership. While Governors and mayors must keep 
the peace, the world is watching our response. By failing to 
live up to our ideals, we make the world less just, less safe, 
and less free.
    In closing, let me mention the Tiananmen Square massacre 31 
years ago. It was a major setback for the cause of democracy. 
Yet the photo of an anonymous protester staring down a line of 
tanks remains an inspiration to people everywhere, and in the 
1990s and the early 2000s, we saw a surge of democracy around 
the world.
    The last decade has seen a reversal of that earlier 
democratic trend, both in China and globally. Yet I hope that a 
strong, smart response to China's erosion of democracy in Hong 
Kong can help turn the tide and promote a new democratic 
renewal.
    Thank you, and I look forward to your questions.
    Senator Toomey. Thank you, Mr. Harrell.
    Mr. Lorber, you are recognized for 5 minutes.

    STATEMENT OF ERIC B. LORBER, SENIOR DIRECTOR, CENTER ON 
    ECONOMIC AND FINANCIAL POWER, FOUNDATION FOR DEFENSE OF 
                          DEMOCRACIES

    Mr. Lorber. Thank you. Senator Toomey, Ranking Member 
Brown, and distinguished Members of the Senate Committee on 
Banking, Housing, and Urban Affairs, I am honored to appear 
before you today to discuss the crisis in Hong Kong and review 
U.S. policy tools.
    This is a precarious moment for the people of Hong Kong, 
and the United States has an important role to play in 
supporting them in the face of efforts by the Chinese Communist 
Party to undermine their freedoms. Economic sanctions can be an 
impactful part of a comprehensive U.S. effort to support the 
peaceful, prodemocracy forces in the city. However, we need to 
have realistic expectations about their effectiveness. 
Sanctions will be unlikely to restore many of the freedoms that 
the CCP has taken away from the people of Hong Kong.
    Our objectives toward Hong Kong should be three-fold.
    First, our primary objective should be deterring the CCP 
and local authorities from further cracking down on the 
prodemocracy citizens of Hong Kong;
    Second, we should ensure that any action we take does not 
further push Hong Kong into Beijing's control;
    And, third, we should work to target the economic impact of 
these actions so that we do not harm legitimate businesses, 
including U.S. companies and financial institutions operating 
in Hong Kong.
    Achieving these objectives will be challenging. Congress 
and the Administration must carefully calibrate economic 
pressure on Beijing to do so. Too much pressure could further 
isolate Hong Kong from global markets, hurting Hongkongers and 
causing U.S. and other foreign companies to downsize their 
exposure or even leave the jurisdiction altogether. This would 
have an outsized impact on the financial health of U.S. 
businesses and could lead to significant fallout in financial 
markets. It could also lead to a damaging response from 
Beijing.
    However, too little pressure may not move the needle 
enough. A weak response could signal to Beijing that it has the 
green light to increase its aggression, crack down on the 
prodemocracy movement, and further erode the freedoms enjoyed 
by those in Hong Kong.
    The Hong Kong Autonomy Act, introduced by Senators Toomey 
and Van Hollen, is a good step toward balancing these 
considerations and achieving these objectives. As I discuss in 
my written testimony, the legislation is designed to pressure 
the CCP and entities contributing to the undermining of rights 
in Hong Kong. It is structured to deter these entities from 
continuing to support this assault on the people of Hong Kong.
    I believe there are a number of additional modifications to 
the legislation that would make it even more effective, 
increasing its impact while limiting downside risk. This 
includes narrowing the secondary sanctions component as well as 
providing the Administration and any Administration sufficient 
flexibility to ensure that this pressure does not cause 
unintended market impacts, significant escalation, or real 
damage to businesses and international financial markets.
    We should be clear that risks exist with this approach. 
China would be likely to respond and could take such steps as 
countersanctions, adding U.S. companies to the unreliable 
entities list, or threatening to renege on its commitments 
under Phase 1 of the trade deal.
    Economic sanctions are not a panacea for countering China's 
aggression in Hong Kong. We must temper our expectations for 
what they can achieve and consider the risks of their use. 
Nevertheless, a carefully calibrated and flexible sanctions 
program designed to deter future Chinese encroachment, as part 
of a broader strategy that includes aggressive diplomatic 
pushback on China's intervention, close coordination with 
allies, such as United Kingdom, concerned about these Chinese 
measures, and supporting the peaceful democratic forces in Hong 
Kong can increase the chances of ensuring that this democracy 
under siege is not completely subsumed by the Mainland.
    Thank you, and I look forward to your questions.
    Senator Toomey. Thank you very much, Mr. Lorber.
    At this time, Mr. Lee, you are recognized for 5 minutes.

STATEMENT OF LEE CHEUK YAN, GENERAL SECRETARY OF THE HONG KONG 
  CONFEDERATION OF TRADE UNIONS, AND VICE CHAIRMAN, HONG KONG 
                          LABOUR PARTY

    Mr. Lee. Thank you, Chairman Toomey, Ranking Member Brown, 
and honorable Members of the Committee, and other honorable 
panel members. Thank you for your invitation to me to speak to 
this Committee at this very, very critical moment in Hong Kong. 
I also want to express our appreciation for the full Senate and 
Congress for your concerns and actions on supporting Hong Kong.
    I am Lee Cheuk Yan, General Secretary of Hong Kong 
Confederation of Trade Unions, also a former elected member of 
the Legislative Council of Hong Kong, and a founding advisory 
board member of Hong Kong Democracy Council. I am also the 
Chairman of Hong Kong Alliance In Support of Patriotic 
Democratic Movement of China, the alliance of people 
organizations in Hong Kong formed in 1989 to support the 
democracy movement in China that sadly ended by brutal and 
bloody suppression by the Chinese Communist Party.
    Today actually is the 31st anniversary of the June 4th 
massacre, and the Hong Kong Alliance had persistently organized 
the vigil for over 30 years. But this year it was banned by the 
police in the name of public health. It has always been 
recognized by the people of Hong Kong that the annual 
candlelight vigil symbolized that Hong Kong still enjoyed the 
freedom under ``one country, two systems.'' So the Hong Kong 
Government is telling the world that Hong Kong is now under 
``one country, one system'' by banning the vigil. This is no 
surprise when we all witnessed the suppression over the last 
year with police brutality, massive arrests, and banning of 
rallies and marches that had been going on in Hong Kong, so the 
banning of candlelight vigil is no surprise. But, still, people 
attended in massive numbers to light a candle in commemoration.
    The Chinese Communist Party jailed the Nobel Peace Prize 
Laureate Liu Xiaobo 11 years for just advocating democracy and 
constitutional reform, and he was criminalized and they said 
that he incited the subversion of the State. Four people were 
jailed for 3 years for brewing and selling Remember June 4th 
wine, just wine is subversion. Pastor Wong Yi was sent to 9 
years in prison for inciting subversion of State power just for 
standing up for religious freedom. The CCP defined subversion 
or other national security crimes in accordance to their own 
political needs and not the law. The law is only an instrument 
of suppression for them.
    For example, when it comes to Hong Kong, you know, a 
question is always asked: Can the Hong Kong Alliance shout the 
slogan of ``End One Party Rule''? Which we have been doing that 
for over 31 years. Or the people of Hong Kong shouted for the 
downfall of the Hong Kong Chief Executive? Are these acts of 
subversion?
    There are suggestions from some of the NPC members that 
actually End One Party Rule may be caught by law. And so you 
can see that the guillotine can strike down anytime they 
believed politically necessary.
    The other crime of foreign intervention can be subjected to 
also very, very broad interpretation. Is my presence and 
testimony at this hearing today a crime of foreign 
intervention? Can Hong Kong civil society contact their 
international counterparts without being accused of foreign 
intervention? Though we do not know the final wording of the 
law or how the court will interpret the law, it is very 
difficult to imagine the court departing from this decision of 
the CCP on all national security cases. I do not think there 
will be any independence of the judiciary in all these national 
security cases.
    The other horrifying aspect is that they are going to set 
up a national security agency in Hong Kong. Is that going to 
start spying on the people of Hong Kong? So it is very sad that 
to announce to the world Hong Kong is now one country, one 
system. The rule of law now is being turned to become rule by 
law and rule of fear. We can win against this fear by believing 
in the people of Hong Kong and that they will continue to fight 
for democracy.
    Last year, the U.S. Congress overwhelmingly passed the 
bipartisan Hong Kong Human Rights and Democracy Act. And per 
the law, the Secretary of State certified last week that Hong 
Kong no longer enjoys meaningful and sufficient autonomy from 
China to warrant the special relationship it has enjoyed. I 
think this is very important that the Administration and 
Congress work together on the appropriate response.
    I believe it would be deeply irrational for President Xi 
Jinping to strike at Hong Kong. By ``burning'' Hong Kong, he 
will also burn China with it because Hong Kong is still 
economically useful to China. And I would tell the friends here 
that we Hongkongers will fight on.
    Thank you.
    Senator Toomey. Thank you very much, Mr. Lee.
    I will recognize myself for the first round of questions, 
and before I pose my first question, I do want to very briefly 
follow up on a point that Dr. Martin made, observing the fact 
that most of the brave people of Hong Kong who have protested 
for their own freedom had very limited choices.
    I noted very favorably the decision by the U.K. Government 
to move in a direction of allowing significant numbers of Hong 
Kong residents to move to the U.K. I would be very interested 
in pursuing policy changes here in the United States that would 
make such an option available to the people of Hong Kong to 
come to America. It would be wonderful for the people of Hong 
Kong. It would also be wonderful for America if people pursued 
that, should it come to that.
    My first question is to Mr. Lee. I cannot help but go to 
the question of the vigil that you just participated in. My 
understanding is that you personally are out on bail. I am 
concerned, frankly, about the personal risks that you and 
others have taken. Everyone on the streets tonight in Hong Kong 
were taking great personal risk. What was it like to be part of 
that? How was it different from previous vigils? What is the 
mood of the people who were participating in the commemoration?
    Mr. Lee. There is a tension before the candlelight vigil, 
what the police will do to us when we enter the Victoria Park. 
Will we be arrested? And today what happened is, you know, they 
have all these loud speakers warning us that if you go into 
Victoria Park, you know, this is an unauthorized assembly, and 
you also will be caught by the ban of regulation of the 
pandemic. You know, they are frightening people with all these 
scary threats about, you know, breach of the law. But the whole 
Hong Kong, everyone come out to light a candle, so I think 
because the number of people that are attending, you know, the 
police today do not take any action.
    But the problem with Hong Kong now is they have a formula, 
and it is sort of, you know, banning the marches and the 
assembly. And then anyone that comes out, you have to take your 
own personal risk and responsibility. For example, I was under, 
you know, fixed charges for three incidents, and the charges 
include incitement to get people to join unauthorized assembly, 
organize and participate unauthorized assembly. So in three 
incidents already I was charged. And today, tonight, I may be 
charged for the fourth incident.
    So, in a way, now it is very different time than the past. 
In the past we would view, oh, we will be secure to pursue 
peaceful marches and also to exercise our freedom of assembly. 
But now it is a different ball game. They will try to ban all 
marches, and then when you come out to march, then they will 
arrest you.
    So I think, you know, Hong Kong people now have to face the 
fact that, you know, you take a personal risk to make any stand 
in Hong Kong. So I do not know what will happen to me because 
of my role in tonight's candlelight vigil, but I would only say 
that, you know, I am ready to face the consequence.
    Senator Toomey. That is extraordinary personal courage, Mr. 
Lee. Let me ask you this: When the national security 
legislation, as it is called, is fully implemented, how is that 
going to affect people's freedom of speech and press and 
assembly? How is that going to change things when that is fully 
implemented?
    Mr. Lee. The national security act, firstly, I have to 
point out this is made in China. You know, totally is so 
absurd, that today Carrie Lam tell the world, tell the people 
of Hong Kong that they are going to rush the station. And one 
thing that she said is there will be consultation. Where is the 
consultation? Laughingly, it is in Beijing, not in Hong Kong. 
Why not in Hong Kong? They said that this is a national law, 
but this so-called national law is going to be implemented in 
Hong Kong. And so we can see how frustrated we are when we look 
at this Administration in Hong Kong, when they can, you know, 
tell the people of Hong Kong that no consultation at all about 
the law in Hong Kong.
    And the second answer I want to make is that, you know, how 
impacted on Hong Kong--it is the Hong Kong Alliance who 
organizes the candlelight vigil every year. We do not know 
whether we can hold a similar vigil next year. I think we will 
be banned from doing that. And we are even worried that our 
organization calling for democracy in China will be seen as 
subversion, then banned totally in Hong Kong. So we do not know 
how many organizations in Hong Kong they will ban, how many 
people they will arrest for, you know, subversion. And one 
thing that we are very much worried about, I think all of you 
may know that we will be have a Legislative Council election in 
September, so this is a very important election. And because 
the people of Hong Kong are behind the prodemocracy group, so 
we may win more seats than in the past. But then with the 
national security law, we are worried that they have one more 
instrument or one more tool to, you know, play around with the 
election and they may disqualify candidates. So they may ask 
candidates, you know, imagine, ``Do you support the national 
security law?'' You say, ``No, I do not support it.'' Then 
disqualify. So they are really playing a very, very dirty 
trick.
    And the other thing that I worry about, how about the 
press? If the press report some of the activities that they are 
labeled ``subversion,'' will the journalists or the media be 
also banned? So it would really, you know, come into the way of 
life in Hong Kong, destroying many aspects of the freedom that 
we have enjoyed in the past, and we may not have that in the 
future, and we will have to live in fear. And I do not think 
this is--you know, we are very sad that this is happening to 
Hong Kong.
    Senator Toomey. Thank you, Mr. Lee.
    Senator Brown.
    Senator Brown. Thank you, Chairman Toomey.
    I will start with Mr. Harrell, if I could, please. As I 
noted in my opening statement, the President has pulled his 
punches with China on human rights, on Hong Kong, by praising 
Xi Jinping on the COVID crisis earlier, as you remember, to 
protect his partial trade agreement. Do you think it might have 
stayed the hand of China's leaders if the President had been 
more clear and concise and emphatic and forceful about the 
potential consequences of China imposing this new security law 
in Hong Kong?
    Mr. Harrell. Thank you, Senator Brown. My short answer to 
that question is yes. I think over the last several years, we 
have seen the U.S. justifiably and rightly begin to get much 
tougher with China over an entire range of trade abuses, 
whether it is unfair subsidies or intellectual property theft. 
But we have as a country, I fear, taken a much lighter hand 
with respect to Chinese abuses of human rights and democracy, 
and I think this has sent a message to China that as long as it 
gives the United States a couple of the things President Trump 
wants on the trade front, with his Phase 1 trade deal, it will 
have a fairly free hand with respect to cracking down on human 
rights and democracy, whether in Hong Kong or in Mainland China 
and Xinjiang and other areas.
    I commend the Congress for the steps Congress has taken to 
create new sanctions around human rights and other steps, but I 
think there is no substitute for Presidential leadership on 
issues of freedom and democracy, and I fear that we have sent 
the wrong message to China on those issues over the last 
several years.
    Senator Brown. Thank you, Mr. Harrell.
    This next question is both for you and Mr. Lorber. Some 
have argued we should respond to China's imposition of the new 
security law by revoking its special status because Beijing 
will have effectively gutted its autonomy and transform Hong 
Kong into just another Chinese city. Others note the other 
side, that revoking Hong Kong's special economic status 
completely will hurt the people of Hong Kong and drive it 
further into China's arms.
    Which of those do you think is more correct? And what do 
you think a Hong Kong under a new security law, assuming it is 
strongly enforced, would actually look like? Let us start with 
Mr. Harrell and be brief as you could, and, Mr. Lorber, too, if 
you could be brief. Thank you.
    Mr. Harrell. I will be brief. I have submitted some 
detailed comments on this question in my written submission. My 
short answer is that I think if China will not treat Hong Kong 
as autonomous, we cannot either. I think we should take steps 
to align customs treatment, export controls treatment, CFIUS 
treatment, and other areas of law if China will not treat Hong 
Kong autonomously.
    I do think we should think carefully about how to mitigate 
the impacts on the people of Hong Kong. You know, differentials 
on visa policy and things like that I think continue to make 
sense. And I am realistic our measures will have some costs on 
Hong Kong. But as a moral matter and as a message of signaling 
to Beijing, I think we cannot keep the treatment unequal when 
China has asserted one country, one rule in Hong Kong.
    Senator Brown. Thank you.
    Mr. Lorber, your comments, your thoughts on that question?
    Mr. Lorber. Thank you, Senator Brown. I agree with Mr. 
Harrell on this. I think that there is a fine balance to be 
struck here between those two competing sides, and I think 
that, you know, once the announcement was made--or the 
circumstance was made by Secretary Pompeo and the announcement 
was made by the President last Friday, the Administration now 
has various levers it can adjust to sort of strike what that 
proper balance is.
    So, for example, I think it would make sense to revisit the 
extradition treaty with Hong Kong if the national security law 
is put in place. The same thing with the export control 
restrictions that apply differentially between Hong Kong and 
China. But I think there are other potential measures that may 
be too onerous or too problematic to revisit in a serious way, 
including financial relationships, for example, between the 
Federal Reserve and the Hong Kong Monetary Authority and other 
entities over there that could have serious, long-term, and 
really potentially problematic financial impacts on Hong Kong.
    Senator Brown. Thank you, Mr. Lorber.
    Mr. Martin, as an economist who has lived in Hong Kong and 
knows the terrain, I enjoyed overhearing your conversation you 
had with your other panelists before, just the informal time 
you lived in Hong Kong. What do you think will be the actual 
long-term economic effect of withdrawing Hong Kong's special 
status under U.S. law, assuming major trade, finance, export 
control, and immigration benefits are eventually withdrawn by 
the U.S. in response to the security law? What will be the 
actual long-term economic effect on--if you want to bring in 
U.S. economic effect, too, but especially on Hong Kong?
    Mr. Martin. OK, and I will try to be as brief as possible. 
First, I would start out by pointing out that if you look at 
the provisions of the U.S.-Hong Kong Policy Act--and I admit I 
am not a lawyer--the President is supposed to, if he uses that 
authority, implement such by indicating the aspect of Hong Kong 
that is no longer sufficiently autonomous to warrant special 
treatment in U.S. law. So there appears to be a tie between the 
President's determination and which aspect of U.S. relations to 
Hong Kong he is suspending, and that is supposed to be done by 
an Executive order.
    But getting to the core of your question, it really depends 
a lot on how both the Hong Kong and the international business 
community responds to the new effective business, cultural, and 
financial environment in which they operate. So for large Hong 
Kong companies, they have options. For the members of Amcham 
Hong Kong and U.S. companies, bigger ones, they have options. 
They can relocate. Singapore would be a logical alternative to 
Hong Kong for a regional economic hub. So there are 
alternatives out there that they could take.
    Hong Kong's economy will start hollowing out. It will 
economically slowly transform into any other Mainland city in 
the end. The people I am particularly concerned about are, 
based on my time at the Hong Kong Trade Development Council, 
actually the people who provide the greatest economic dynamic 
quality to Hong Kong, small and medium-sized Hong Kong 
entrepreneurs, U.S. entrepreneurs, who may not have an 
alternative on where else they can go, and they will see, as my 
testimony points out, their economic status, their prosperity 
diminish, and Hong Kong will become increasingly more 
bifurcated with a few elite wealthy who are closely tied to the 
leadership in Beijing and an increasingly large percentage of 
the population who are low-income, low-wealth, really without 
much economic opportunity.
    Senator Brown. Thank you, Mr. Martin.
    Mr. Chairman, thank you.
    Senator Toomey. Thank you.
    Is Senator Moran on the call?
    [No response.]
    Senator Toomey. Senator Moran.
    [No response.]
    Senator Toomey. OK. If not, then we will go to Senator 
Reed.
    Senator Reed. Thank you, Mr. Chairman. Thank you very much, 
gentlemen, for your very insightful testimony.
    Mr. Harrell, I want to go back to a point you raised about 
beneficial ownership, how critical it is to identify the 
interests that China has here in the United States so we can 
take effective action against them. Can you elaborate a little 
bit on that point?
    Mr. Harrell. Thank you, Senator Reed, for the opportunity 
to comment on that. As many Members of this Committee know, 
there has been a lot of discussion in Washington over the last 
couple of years about how the U.S. can crack down on the 
ability of individuals and companies and, indeed, foreign 
Governments to set up anonymous shell companies here in the 
United States, which they can then use to launder their wealth, 
which they can then use as fronts for other nefarious 
activities.
    As you know, a number of Members of this Committee as well 
as a bipartisan group over in the House has been working for 
the last year or two now on beneficial ownership legislation 
that would require disclosure of who actually owns companies in 
the United States to the U.S. Treasury Department. And I think 
that adopting that legislation on beneficial ownership would 
really help secure the United States against a range of malign 
activities, including, but not limited to, folks in China who 
want to launder their money into the United States and engage 
in other malign activities here.
    Senator Reed. Well, thank you very much, Mr. Harrell. I am 
one of those people who have been promoting the legislation. In 
addition, with respect to the national defense act, we have 
language that requires defense companies to begin to survey 
their suppliers to determine the beneficial ownership of all 
their suppliers on national security grounds.
    One other final question on this. Even though legislation 
would be absolutely in order, my sense is the SEC could order 
public companies today to disclose the beneficial ownership of 
their shareholders. Is that your sense, too?
    Mr. Harrell. Can you hear me?
    Senator Reed. Now.
    Mr. Harrell. I am not an expert on SEC laws and do not want 
to comment in detail. I do think there are steps the SEC can 
and should take to improve disclosure on public companies which 
would be valuable. But I believe even more important is the 
beneficial ownership legislation that, Senator, you as a 
supporter know would also get the very opaque private companies 
that exist in many States in this country.
    Senator Reed. I concur. Let me just ask a final question, 
Mr. Harrell. The efficacy of unilateral sanctions does not 
appear to be particularly compelling, so you might want to 
comment on the fact that we have to have more than a unilateral 
U.S. response. And the flip side of that perhaps is there are 
countries that may very well take advantage of the situation. 
If we impose significant economic restrictions on Hong Kong, 
they could rush in.
    Can you comment on both those aspects, the less than 
significant impact of unilateral sanctions together with 
opening up opportunities for others to exploit our departure?
    Mr. Harrell. I think particularly when we are talking about 
unilateral sanctions on a very large country like China, they 
are just not going to be nearly as effective as multilateral 
sanctions. You know, what we have seen over the last couple of 
years, when you talk about an Iran or a Venezuela or a pretty 
small economy, you know, we do have a lot of clout. I think 
China is just qualitatively different from small countries, and 
I think unilateral sanctions on Chinese officials and on 
companies, though having symbolic impact and, where those 
companies do a lot of business in the U.S., some real impact, 
will not have nearly as much efficacy as a multilateral 
approach.
    On that, I would say one heartening development over the 
last year or two has been that both the European Union and the 
U.K. have adopted sanctions rules in their own law that allow 
sanctions akin to the U.S. Global Magnitsky Act on corruption 
and human rights abuses. So there is actually an existing tool 
we could use to press the U.K. and the European Union to take 
action with us to impose multilateral sanctions on Chinese 
officials involved in repression in Hong Kong, which I do think 
would be much more effective than a unilateral U.S.-only 
action.
    Senator Reed. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Toomey. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Let me start today by expressing my solidarity with the 
people of Hong Kong. Over the past year, they have been an 
inspiration to people the world over as they stood up in the 
face of oppression demanding their basic rights, for the 
freedom of speech, assembly, for the right to votes, rights 
that were promised to them under the Sino-British Declaration 
and their basic law.
    Unfortunately, as we witnessed last week, Beijing has 
betrayed its promises to the people of Hong Kong, and today it 
is clear and obvious to one and all that Hong Kong is no longer 
autonomous. Indeed, as we confront our own yet unfulfilled 
dreams of equality and justice and reflect on our own struggles 
here at home to form our own more perfect union, one line in 
particular from a Hong Kong report just submitted by the State 
Department stood out to me. It said, ``The people of Hong Kong 
turned out in the millions to protest these violations of their 
human rights and fundamental freedoms. Instead of listening to 
their grievances and finding a democratic solution, the Hong 
Kong Government deployed tear gas and made mass arrests, 
including of peaceful demonstrators.''
    These are standards that we must hold Beijing and Hong Kong 
to, Mr. Chairman. But in order for that judgment to stand, we 
must hold ourselves to the values of our own highest 
aspirations as well. Sadly, it is not just Beijing that 
betrayed Hong Kong but, in my view President Trump as well.
    All last summer, as the people of Hong Kong marched, at 
times with American flags, the President was silent. When we 
considered the Hong Kong Human Rights and Democracy Act, which 
I was proud to sponsor, the President said he was against it. 
And when we passed it, the President said he stood not with the 
people of Hong Kong, but with President Xi. He said he stood 
with President Xi.
    So it is no surprise to me that Beijing would think it had 
a green light in Hong Kong, and now it is incumbent on us to 
make sure that Beijing pays a price for its actions. It is 
critical not just for the people of Hong Kong, but for our 
larger policy with China. Our response must be swift and clear 
and targeted at Beijing, not the people of Hong Kong to whom we 
owe a deep moral debt.
    Unfortunately, President Trump has still not made clear 
exactly what he will do to make Beijing pay a price, and most 
of the measures he discussed at his press conference last week 
will affect Hongkongers far more than Beijing. It is inevitable 
that Hong Kong will suffer in the years ahead. If Hong Kong is 
no longer autonomous, we simply cannot extend to it the 
benefits as a separate trade and customs territory that it has 
previously received and which Beijing has taken advantage of 
for its own ends. But in the final analysis, Beijing, not Hong 
Kong, must be held to account for the bad behavior that has led 
us to where we are today.
    To that end, as the Ranking Member of the Senate Foreign 
Relations Committee, I would like to work with the Chairman and 
the Ranking Member of the Banking Committee to develop a tight 
and targeted approach to impose the appropriate penalties on 
Beijing, hopefully maybe through the NDAA.
    Now, let me turn to the witnesses in the little time I have 
left. Mr. Lorber and Mr. Harrell, how should U.S. policy 
balance putting pressure on China and shifting the treatment of 
Hong Kong under U.S. law to now be more like the treatment of 
Mainland China without the burden falling disproportionately on 
everyday citizens of Hong Kong?
    Mr. Lorber. Thank you, Senator. I appreciate the question, 
and it is a great one. I think what the Administration should 
be focused on is selecting which measures it is going to 
adjust, which core bilateral relationships we currently have 
with Hong Kong that are now up for question given the 
certification of nonautonomy, and it should adjust, similar to 
the conversation that Senator Brown and Mr. Harrell and I were 
having, things like extradition treaty maybe up for 
consideration, export control differentials should be 
considered.
    From a U.S. sanctions perspective, what this body can do, I 
think that your language and your approach at having a targeted 
approach to this makes a lot of sense. We have to sort of 
carefully balance both the need to put pressure on Beijing 
while at the same time making sure that we do not exact too 
much economic pain on Hong Kong in a way that drives U.S. and 
non-U.S. businesses out of the jurisdiction and makes Hong Kong 
lose its luster more quickly.
    Mr. Harrell. I agree with Mr. Lorber on the need to take a 
calibrated approach to reviewing the individual areas of U.S. 
law, and I very much agree with you, Senator, on the need to 
hold Beijing and not the people of Hong Kong to account.
    As you and your fellow Members of this Committee and the 
Foreign Relations Committee, Senator, look at targeted 
sanctions, I would urge you to think not only about individuals 
and financial institutions where I know you and your staff are 
already thinking, but also very directly and aggressively 
against the kinds of Chinese companies that may directly 
facilitate surveillance and repression in Hong Kong, whether 
companies providing digital surveillance in Hong Kong or online 
surveillance in Hong Kong or who might help buildup the same 
kind of censorship apparatus in Hong Kong that exists in 
Mainland China. And I would be thinking carefully and in a 
calibrated way about the tech sector as well as the financial 
sector here.
    Senator Menendez. I appreciate that.
    I know my time is up, Mr. Chairman. I have other questions 
for the record which I will submit. I felt compelled to make a 
statement because I think this is a critical moment.
    Thank you, Mr. Chairman.
    Senator Toomey. Thank you.
    Is Senator Warner on the call?
    [No response.]
    Senator Toomey. OK. Senator Cortez Masto.
    [No response.]
    Senator Toomey. Senator Jones.
    [No response.]
    Senator Toomey. OK. If there are no other Senators, then we 
can move on to the second round of questions, and I will direct 
my first question of the second round to Mr. Lorber. One of the 
things that we have attempted to do--``we'' being Senator Van 
Hollen and I--in crafting the Hong Kong Autonomy Act is to use 
secondary sanctions as a mechanism to attempt to dissuade or at 
least establish that there will be a price to be paid by 
Chinese Communist officials who would involved themselves in 
the repression of the people of Hong Kong.
    So, first, I would like your thoughts on how we have 
designed those secondary sanctions. We have tried to calibrate 
them in a thoughtful way. As you know, they are imposed 
gradually. It is a fact that in the first year they are not 
mandatory. It is also the case that banks can choose not to do 
business with the offending parties and thereby avoid this.
    What are your thoughts about how this is crafted?
    Mr. Lorber. Thank you, Senator. I think it is well crafted, 
particularly on the secondary sanctions, because of the fact 
that it creates an incentive for both deterrence and for 
behavior change. There is an incentive for deterrence because 
financial institutions would know who is listed on the list as 
persons undermining the freedoms in Hong Kong, so do not do 
business with them. And then to the extent that a financial 
institution does come into troubled water, there is a 
structural incentive to change behavior, because as you 
mentioned, after year one a certain number of penalties will 
apply; but then after year two, an additional set of penalties 
will apply. So that structure is done in such a way that it 
incentivizes a change in behavior.
    One really important point to note on this--and I mentioned 
this in my written testimony--it will be important, as the 
legislative process continues, to make sure that the financial 
institution components of the legislation really target those 
financial institutions that are actively engaged in undermining 
the rights and the freedoms of the people in Hong Kong. I think 
there should be this understanding that you do not want to cast 
the net too wide because that would have potentially unintended 
consequences. But to the extent that you can find and there is 
evidence that financial institutions are actively supporting 
these activities, I think it makes sense as a legislative 
provision.
    Senator Toomey. Thank you.
    Mr. Lee, I wonder if you could respond to this question, 
and it is about how the Chinese Communist Party responds. I 
understand that it is probably inevitable that the national 
security legislation is going to be implemented, and some 
suggest that no matter what anyone else does, they are going to 
do whatever they are going to do. But it seems to me that they 
might care somewhat about consequences for their actions, and 
perhaps having this legislation that we have contemplated might 
cause some of the actors in Beijing to think twice about 
further repression on Hong Kong. I wonder what your thoughts 
are about how the Chinese Communist Party officials see the 
kind of legislation that we are contemplating.
    Mr. Lee. When you look at the Chinese Communist Party, they 
always want to play sort of what we call now ``wolf warrior'' 
type of, you know, response. They always try to seem very 
strong.
    But when you look at China itself, actually Xi Jinping had 
a big problem with their own economy, so with the problem with 
his own economy, and they tried to impose on Hong Kong the 
national security law, and there will be retaliation into the 
economy in China. So when China tried to undermine our economy, 
Hong Kong economy may be hurt, but at the same time, the China 
economy will be hurt because 70 percent of renminbi settlement 
is in Hong Kong. So they need Hong Kong as the financial 
center.
    So I think it is very much an irrational act on the part of 
Xi Jinping to do that. But my question, I do have an answer. Is 
Xi Jinping's irrationality in undermining Hong Kong economy and 
hurting its own economy, is he--he is the one that does that, 
but it is the whole party behind it, you know, it is the whole 
Communist Party, you know, they may lose their own interest in 
the whole hurting of Hong Kong economy when they have their own 
money in Hong Kong.
    So I think, you know, Xi Jinping may be very, very much 
seen to be a strong leader, but I wonder whether the others 
will go along with him when their own economic interest is 
being hurt. So I think the suggestion that there should be a 
very surgical type of, you know, sanction is something that 
people have to think about so that inside the Communist Party 
their own interests that are being hurt, economic interest 
being hurt, and they have to think twice. Xi Jinping may not 
think twice, but the whole party has to think twice when their 
own interest is being hurt.
    Also, I want to put in one word about the global coalition, 
the diplomat coalition. I think this is very helpful because, 
you know, what--you know, it cannot be one country that takes 
up China. It has to be a united effort on the part of all the 
countries concerned. And so the G7 is very important to band 
together, you know, and to target China and tell China that 
they have to stop intervening in Hong Kong.
    So thank you for the question, but I would hope that the 
American Government can help in promoting this global 
coalition, and also, you know, remember one thing, this is the 
Sino-British Joint Declaration. So the United Nations should 
also come in. And now I think the U.K. Government has not yet 
found a way into United Nations system, so I think by banding 
together as a global coalition, the global coalition can help 
push in getting a United Nations intervention in Hong Kong, 
including, you know, a special envoy to Hong Kong.
    Thank you.
    Senator Toomey. Thank you very much. I will recognize 
Senator Brown.
    [Pause.]
    Senator Toomey. OK. Senator McSally.
    Senator McSally. Thank you, Senator Toomey. Thanks, 
everybody, for your testimony today.
    Mr. Lorber, you talked extensively about the importance for 
targeted and flexible sanctions, but also not so optimistic 
that China is going to change their behavior. So what other 
tools do we have in our public policy toolkit? I got the 
message on sanctions, if you have anything else to say about 
that. But what else can we do in order to deter or to change 
China's behavior in basically taking over Hong Kong, is what we 
are seeing with the steps that they are taking, cracking down 
and going back on their word and their agreement? What else can 
be done in order to try and deter and change their behavior, 
whether it is related to sanctions or any other diplomatic, 
economic--if you are in charge, Mr. Lorber, what else do we 
have to offer?
    Mr. Lorber. Thank you, Senator. I think perhaps the most 
important thing, in addition to kind of the economic pressure 
discussion that we have already had, really relates to what Mr. 
Lee and Mr. Harrell were talking about, where there needs to be 
some type of sustained diplomatic outreach with other countries 
who have vested interests in the freedoms that the Hongkongers 
have historically enjoyed. So certainly the U.K. has done a 
good job already, I think, with Boris Johnson potentially 
offering visas, but doing two things as part of this: One is 
providing a backstop, allowing for Hongkongers, if they are 
threatened, to seek some type of asylum or the ability to move 
to different jurisdictions if the situation worsens, and at the 
same time casting or creating an international public diplomacy 
campaign highlighting what is going on in Hong Kong. Everybody 
sort of knows it, but there has not been this unified front of 
people across the world with freedom-loving countries saying 
this is not acceptable, this is not OK. Essentially, it has 
been the United States and a few other small statements here 
and there. But I think that is what I dealing with do in 
addition to the kind of pressure discussion.
    Senator McSally. Great. Thank you.
    Also, I wanted to ask you, so if they were to terminate the 
special relationship we have relating to the import of certain 
sensitive goods, as you know, semiconductors and other things, 
so Hong Kong has that special relationship allowing for that, 
but with, you know, China continuing to move toward taking them 
over, that becomes obviously a security issue for us. So if we 
were to terminate that special relationship, you know, what are 
the implications of that for the U.S., for our economy, and 
also for Hong Kong?
    Mr. Lorber. Yeah, so that relationship sort of runs in some 
sense two ways, right? So Hong Kong can import--or can export 
goods to the United States differentially than China can, and 
Hong Kong has different export control regulations that govern 
it from China. So the U.S. can send certain goods to Hong Kong 
that it cannot send to China.
    I think it is realistic to assume that as China takes more 
and more control, as Mr. Harrell was saying, the likelihood of 
those export control goods being sent on to China is 
increasingly significant. So I do think that creating symmetry 
between those two countries, between Hong Kong and China, in 
terms of export controls makes a lot of sense. Will that hurt 
Hong Kong economically? It might, to be perfectly blunt. It is 
hard to assess what that impact would be without further 
analysis, but I think that from a national security perspective 
from the United States, I think it makes a lot of sense to do.
    Senator McSally. Great. Thank you.
    And in my last little bit of time, Mr. Lee, can you just 
share--I mean, we are trying to balance this, putting pressure 
to change behavior of China so they stop encroaching on the 
freedoms and, again, their agreement of the past and the way of 
life in Hong Kong, where we put that pressure on them and look 
for different tools, but also protecting the rights of the 
people of Hong Kong. And we are also needing to, again, protect 
U.S. national security. So, Mr. Lee, can you just share, as 
China continues to encroach and continues to take away the 
freedoms of the people of Hong Kong, you know, what else can be 
done in order to strike that balance?
    Mr. Lee. Of course, we are concerned, you know, what will 
happen in the future to the economy of Hong Kong, but one thing 
I think for sure about the people of Hong Kong, if there is 
further invasion into our rights and freedom and encroachment, 
Hong Kong is no longer Hong Kong. And even if we can so-called 
make money, we are not willing to sacrifice our spirit and our 
freedom, and I think people of Hong Kong are ready in a way, 
sadly, to be ready for the economy to be hurt, because China is 
the one that tramples on our freedom. And when you trample on 
the freedom, one thing, even without any sanction in the world, 
one thing will happen. When China tramples on the freedom of 
the people of Hong Kong, the people of Hong Kong will lose 
complete confidence. So even without any sanctions--you know, 
financial center is 100 percent built on confidence. You know, 
talents in Hong Kong working for the economy is 100 percent on 
confidence. If people lose confidence in Hong Kong, then 
actually without any sanctions the Hong Kong economy will go 
down. So in this way we have to be prepared to maybe, sadly, 
have some hard time ahead of us, but it is because of Xi 
Jinping, because of his, you know, attack on the freedom of 
Hong Kong. And then if Hong Kong becomes to be ruled by fear, 
you know, how can one place where people are fearful can be a 
financial center? That is absurd.
    So I am sure that we are having a hard time, but in a way, 
this is inevitable because Xi Jinping has already wanted to 
strike Hong Kong.
    Senator McSally. Thank you, Mr. Lee. We stand with you for 
freedom.
    Mr. Lee. Thank you.
    Chairman Crapo [presiding]. Thank you. And this is Senator 
Crapo. I am back from the Judiciary Committee now, and, Senator 
Van Hollen, you are next.
    Senator Van Hollen. Thank you, Mr. Chairman. And I want to 
thank you and Ranking Member Brown for scheduling this 
important hearing. To all the witnesses, and especially to Mr. 
Lee, thank you for your very long distance testimony and, most 
importantly, for all you have done as part of the trade union 
movement, your work for democracy and human rights in Hong 
Kong, and, of course, that is what brings us together today, 
the actions that the Government of China has taken and is in 
the process of taking in violation of its international 
commitments; in violation of the basic law, and in violation of 
the ``one country, two systems'' principle; and, most 
importantly, in violation of the rights of the people of Hong 
Kong.
    It is essential, in my view, that the United States take 
action to stand up for the important principles that the people 
of Hong Kong in the streets are standing up for, and Congress 
on a bipartisan basis has taken the lead in these issues. I 
know it has been referenced a number of times that we passed 
the Hong Kong Human Rights and Democracy Act last year. There 
is, of course, the Magnitsky Act. It is very true that the 
Trump administration has lots of existing authorities that, in 
my view they need to be implementing and implementing right now 
to send a signal that these continuing actions have 
consequences. It may not stop the Government of China, but it 
is very important to send those signals so that can be part of 
the calculation and their decision making.
    I also want to thank Senator Toomey, and I know he has been 
chairing the Committee hearing for most of this session. I was 
very pleased to partner with him on this legislation, the Hong 
Kong Accountability Act, because I do think it is important 
that Congress, again, on a bipartisan basis, makes sure that we 
deploy a full arsenal and tools at our disposal in terms of 
sanctioning. And, of course, that bill, our bill, targets--
provides secondary sanctions on the banks that help support and 
are complicit in helping individuals who in turn have been 
working to undermine human rights and democracy in Hong Kong. 
And we think it is important that Congress move forward on 
this, but I want to emphasize again that today the Trump 
administration has plenty of authority to take steps 
immediately.
    Let me also say--and, you know, I know when we scheduled 
this hearing, we could not anticipate the events here in the 
United States. But it is a reality that we witnessed something 
right here in Washington, D.C., that I never thought I would 
witness in my lifetime, and that was the President of the 
United States, along with the Attorney General, Secretary of 
Defense, and others, deploying military police to break up a 
peaceful assembly outside the White House in order to make way 
for the President to have a political stunt in front of 
historic St. John's Episcopal Church not far from the White 
House. They deployed rubber bullets. They deployed tear gas 
against people who were peacefully gathering to protest against 
injustice around the country. And for the President of the 
United States to be part of that undermines his credibility and 
the credibility of the United States in speaking with a strong, 
unified voice when it comes to standing up for human rights.
    Now, we all know that that is not our system of Government 
in the United States. We all know that was the exception. In 
fact, I never imagined it would ever happen here in the United 
States. That is the kind of thing that happens daily in Hong 
Kong. That is why it is important that we take action to 
prevent that kind of suppression of free speech. But the 
President has totally undermined that, at least from the 
Executive branch, in the decisions he took and the actions that 
he has taken.
    I also find it difficult, because the President 
consistently has taken this kind of tone also in foreign 
relations. We are, of course, here on another anniversary of 
the Tiananmen Square massacre. Here is what the current 
President of the United States said about that years ago, and I 
think it is important to read what he said because it puts in 
context his unwillingness to move forward today. He said, 
``When the students poured into Tiananmen Square, the Chinese 
Government almost blew it. Then they were vicious. They were 
horrible. But they put it down with strength,'' he replied. And 
he went on to say that our country right now is perceived as 
weak, as being spit on by the rest of the world.
    So our current President of the United States back at that 
time was celebrating the brutal tactics of the Government of 
China in Tiananmen Square. And that just brings me back to why 
we need to act on a bipartisan basis here in the U.S. Congress, 
because it is the Congress that has passed this earlier 
legislation that apparently the President is unwilling to move 
forward immediately on. And I do think it is important that we 
pass the legislation that Senator Toomey and I introduced 
because it actually requires an Administration to take action, 
and if they do not take action, then we as a Congress can do a 
backup.
    So, Mr. Chairman, I guess I have got one eye on the clock 
here, but I know we heard from Mr. Lee. I would like to hear 
from Mr. Lorber, first of all, what your view is on that piece 
of legislation that Senator Toomey and I have introduced, and 
then to Mr. Harrell.
    Chairman Crapo. If you could both be brief, please, we are 
quite a bit over on the time.
    Mr. Lorber. Thank you, Senators. Senator Van Hollen, of 
course, I think the Hong Kong Autonomy Act, which you 
introduced with Senator Toomey, is a well-designed piece of 
legislation. If the purpose of sanctions in the context of Hong 
Kong are really to deter the CCP from further undermining the 
rights and freedoms in Hong Kong, the legislation does get at 
that because it creates a deterrent impact by saying, first, if 
you undermine the rights, you will be added to this list where 
there are discretionary sanctions at the first instance; and if 
you continue to engage in that activity, well, those sanctions 
then become mandatory. That is both for the persons listed and 
for certain financial institutions that are directly supporting 
them. And I think that is a very smart way to do it because it 
creates a deterrent impact and it creates a real behavioral 
change--an incentive to change behavior over time.
    Senator Van Hollen. Thank you.
    Mr. Harrell.
    Mr. Harrell. I agree with what Mr. Lorber said about the 
act. The other point I would make on the act is I actually 
think it fills a gap in existing sanctions laws, including the 
Hong Kong Freedom and Democracy Act that many Members of this 
Committee worked on in November. The act enables the targeting 
of individuals involved in sort of physical acts of 
repression--arbitrary arrests, detentions, those kinds of 
things; whereas, your proposed new legislation would broaden 
the ambit I think in important ways to get at sort of more 
generalized erosions of freedom and autonomy in Hong Kong that 
do not necessarily rise to the level of act of the kind of 
specifically targeted detentions that were targeted in the 
legislation from last November.
    Senator Van Hollen. Thank you, and I thank you, Mr. 
Chairman, Ranking Member, Senator Toomey. And, Mr. Lee, again, 
thank you for your testimony.
    Chairman Crapo. Thank you.
    Senator Warner.
    Senator Warner. Thank you, Mr. Chairman. And I want to 
thank you and Senator Brown for holding this hearing. I think 
it is relevant not only obviously in terms of Hong Kong, but I 
think we are seeing a pattern from the Chinese Government that 
is extraordinarily disturbing. In my role as Vice Chairman of 
the Intelligence Committee over the last year-and-a-half, we 
have had 13 classified briefings about the threat that the 
Chinese Government poses to industries in America, academic 
institutions in America. We have seen the Chinese Government 
manipulate and use some of its technology advantages in terms 
of Alibaba, Tencent, Huawei--Huawei a little more conscious 
than most--and they have been able to create a survival State 
that is unprecedented, that would make Orwell blush.
    So I think looking at these issues in Hong Kong is 
extraordinarily important. As a matter of fact, you may have 
seen that--I am sure our panel saw that there is kind of a 
rethinking of China's technology expansion, and our friends the 
British have proposed a technology alliance among G7 and 
certain other key Nations that I think we need to explore.
    That being said, that is one of the reasons I know a number 
of my colleagues have raised this as well, why it is so 
important that in our country we live by our values. If there 
is going to be a coalition of the willing that wants to avoid 
the kind of Chinese surveillance State, the Chinese Government 
practices, I think we have to again live those values as well 
to present a counterargument.
    Before I get to my question, I also want to really state 
something that I think is really, really so important, and I 
hope my colleagues will take this to heart. In the last year-
and-a-half of doing this, I think it is important that when we 
cite our concerns with China, we make clear that our beef is 
with the Chinese Communist Party, President Xi Jinping. It is 
not with the Chinese people. We literally stand with the people 
of Hong Kong. And some of the things I hear, particularly out 
of the Administration, with this broad brush, is that they in a 
sense impugn sometimes, I believe, the patriotism and 
commitment of Asian Americans, Chinese Americans in particular, 
and I think that is not what we should be focused on, whether 
it is, particularly amongst Chinese Americans, questioning 
their loyalty and commitment to our Nation. And I just hope we 
will all bear that in mind. I would point out my problem, 
again, is with the Government of China, and we stand with the 
people of Hong Kong.
    Mr. Lorber, the first question I want to ask you is, as has 
been pointed out, the Chinese elite and the Communist Party 
elite that we have talked about that, you know, talk like they 
are Communists yet take advantage of this system, this kind of 
crony capitalism on steroids that exists in China, they have 
used the autonomous nature of Hong Kong in so many ways to kind 
of line their own pockets. If we go through this kind of change 
and if China changes the status of Hong Kong, what will that do 
to the elite's ability to leverage the independence of Hong 
Kong?
    Mr. Lorber. Thank you, Senator. I do think that if you were 
to seriously rethink the special relationship with Hong Kong 
and move it back to sort of consider it as part of Mainland 
China, it would make it more difficult for Chinese elites to be 
able, for example, to move money through Hong Kong into Western 
markets, into real estate, into other areas. With that said, I 
do think there is a balancing act that really does need to be 
achieved here, and that balancing act is ensuring that you are 
protecting the rights and freedoms of Hong Kong and making 
clear to the Chinese Communist Party in particular and the 
elites in the party that what they are doing is unacceptable, 
while at the same time making sure that you are not driving 
Hong Kong too far into Chinese control. And, again, it is a 
situation where, if you press too hard on Hong Kong right now, 
I think there is the possibility that you accelerate the 
process of Chinese control. So it is really that kind of 
balancing act that needs to be struck here.
    Senator Warner. Well, thank you.
    Mr. Chairman, I do not have a clock here, but I am going to 
presume that, as usual, I have gone too long. So I will not ask 
Dr. Martin my other question. Thank you, Mr. Chairman.
    Chairman Crapo. You are right on time, and you can send 
that question for a written response. How is that?
    Senator Warner. Thank you, sir.
    Chairman Crapo. Next is Senator Cortez Masto.
    Senator Cortez Masto. Thank you, Mr. Chairman, Ranking 
Member, for this important discussion.
    I so appreciate all the panelists that are joining us 
today. And like my colleagues, I obviously have concerns about 
what we see happening in Hong Kong right now. Hongkongers have 
demonstrated on the streets for freedom and democracy. They 
have inspired us with their bravery and showing that democratic 
aspirations universal. They have looked at the United States as 
a beacon of freedom. It is pivotal at a time when there is an 
upswing in authoritarianism that the United States continues to 
stand by our values both abroad and here at home. There is no 
doubt there is a longstanding injustices in this country, 
especially for our communities of color that are 
disproportionately impacted by the health crisis, the economic 
crisis, and, yes, we are in the middle of a civil rights crisis 
as well. It is, therefore, incumbent upon us that we do the 
important work of dismantling systemic racism and creating a 
more just America. And tackling our crisis at home will bolster 
our ability to lead in promoting universal rights abroad. So 
that is why it is so important that we continue to have this 
discussion as well.
    One of the areas I would love to focus on involves 
companies and banks, and I know yesterday morning Peter Wong, 
the top executive at HSBC, signed a petition in support of 
China's national security law of Hong Kong. This comes days 
after calls to boycott HSBC due to its silence on Beijing's new 
national security law of Hong Kong. And then Jardine Matheson 
Holdings, another British trading firm, also recently announced 
its support for the law.
    So my question to Mr. Lorber and Mr. Harrell and Dr. Martin 
is: How is the Chinese Government pressuring foreign and 
multinational companies to support this law? And will U.S. 
banks in Hong Kong come under similar pressure? Let me start 
with Mr. Lorber and then I would ask Mr. Horowitz and Dr. 
Martin as well.
    Mr. Lorber. Thank you, Senator. My understanding is that 
the Chinese Communist Party, not just in Hong Kong but more 
generally, engages in both subtle but then also in certain 
cases more overt pressure techniques. So it can be anything 
from slowing down the purchases of U.S.-origin products or 
pushing Chinese tourists not to go to particular countries or 
work with particular companies within those countries as a way 
to pressure companies.
    As we have seen over the last few years, it has become more 
overt in many ways with the Chinese Communist Party just out 
and out publicly threatening companies if they do not go along 
with foreign policy preferences.
    In terms of U.S. institutions broadly, U.S. banks and 
others, you have seen that as well. The Chinese Communist Party 
has threatened U.S. companies.
    In terms of what will happen in Hong Kong on that 
particular score, I do not know what the dynamics have been and 
I do not necessarily know what will happen.
    Senator Cortez Masto. Thank you.
    Mr. Harrell, do you have any comments, or Dr. Martin?
    Mr. Harrell. Thank you very much, Senator, for this 
question. I think this is a tremendously important issue. As 
Mr. Lorber says, over the last couple of years we have seen 
more and more, first, quiet and now increasingly overt and 
direct pressure by the Chinese Communist Party and the Chinese 
Government on companies, including American companies. We had 
the instance where airlines from around the world had to remove 
Taiwan as a country from their websites. We, of course, had the 
issue with the NBA just here in America, the basketball league, 
just earlier this year. We are seeing more and more of this, 
and I think we are seeing it because as we see in the instances 
you brought up, it is working. China is getting companies to 
censor themselves. It is getting companies to come out in 
support of the actions that China is taking.
    When you talk to companies about this, I think that they 
feel there is a collective action problem. For any given 
company to stand up to China, they feel very much in a pickle 
because if they are singled out by the Chinese, they lose 
business, but other companies will continue to do business in 
China. And I think we as a country and with our allies need to 
have some dialogue about how to kind of collectively stiffen 
the spine of the corporate sector to stand up here.
    So I have urged, for example, companies to come together 
around a code of conduct in China where they would commit up 
front to not take collectively and as a group to not supporting 
various things the Chinese Communist Party wants them to do, 
because I think it gets them out of this individual action 
where they are afraid of sticking their neck out and having it 
chopped off toward more of a collective approach where I think 
you could see some more backbone out of the corporate sector.
    Senator Cortez Masto. Yeah, and I think it is interesting, 
because we have also had this conversation today that I 
appreciated about while we are looking at U.S. sanctions being 
very prescriptive so they do not harm companies, right? But at 
the same time, we see these actions by companies that are 
supporting a law that we are trying to address in Hong Kong.
    I know my time is up, but, Dr. Martin, I did not know if 
you had a comment.
    Mr. Martin. If I may, Chairman Crapo.
    Chairman Crapo. Yes, please be brief.
    Mr. Martin. I will keep it as brief as possible.
    First off, I would point out with respect to HSBC, which is 
actually a British bank--that is where its headquarters are 
now--the pressure came directly from the previous chief 
executive, CY Leung, who is a vice chairman of the China 
People's Political Consultative Committee, a very high Chinese 
entity that advises the National People's Congress and the 
leadership of China. So he openly basically called for 
everybody to remove all their money from HSBC until HSBC came 
out in support of the pending national security legislation. 
That is very overt from somebody who used to be very high in 
the Hong Kong Government.
    The other entity that I would point to to keep an eye on is 
the liaison office for the Chinese Central Government in Hong 
Kong. They have a history of being very active in the internal 
affairs of Hong Kong, and on the economic front, they have been 
known to call up businesses and basically say, ``Do not do 
business with this U.S. company, this foreign company, or even 
Hong Kong companies because of their politics.'' So Apple 
Daily, Jimmy Lai's newspaper, lost a lot of advertising 
allegedly because of pressure from the liaison office. So they 
have that mechanism.
    And to finish up one point, as Mr. Lee pointed out, there 
are Legco elections coming up on September 6th, and that 
liaison office has in the past very openly campaigned and 
financed and assisted proestablishment politicians who are 
running for office at Legco district council and other places. 
And most recently, the Chinese Central Government announced in 
a break from past policies that that liaison office can operate 
inside Hong Kong and is not subject to the provisions of the 
basic law in terms of central Government bodies not being 
involved in Hong Kong's internal affairs.
    So there are mechanisms, and I pointed to several of them, 
that are being utilized to apply pressure not just on Hong Kong 
companies, not just on Chinese companies, but U.S. companies, 
British companies, to basically toe the line to what has been 
decided by the central Government.
    Senator Cortez Masto. Thank you. Thank you very much.
    Chairman Crapo. Thank you.
    Because of the time, I am going to forgo my questions. I do 
understand that Senator Brown does want to ask another 
question. Senator Brown, are you----
    Senator Brown. Mr. Chairman, I am fine with that. I do not 
need to do that, and I know in the interest of time I do not 
have any comments to wrap up the hearing either, which probably 
surprises you, Mr. Chairman.
    Chairman Crapo. I was expecting some.
    Senator Brown. This was a really good hearing, and I so 
appreciate our trade unionist friend tuning in from halfway 
around the world, so thank you to all the witnesses who were 
really good today. I thought this was really uplifting for all 
of us, and thanks to all of you for your fight for human 
rights.
    Chairman Crapo. All right. Thank you, Senator Brown. And as 
I said, I will not ask any further questions. I apologize that 
I was not able to be here for the first part of the hearing. We 
had a very contentious hearing in the Judiciary Committee that 
I had to participate in. But I do deeply appreciate the fact 
that each of you are willing to come here and present your 
testimony to us today. As Senator Brown said, this is a 
critically important issue, and we are very concerned about the 
rights of the people of Hong Kong and want to make sure that we 
do everything we can to help protect the autonomy of Hong Kong 
and protect the freedoms of the Hong Kong people.
    With that, for Senators wishing to submit questions for the 
record, those questions are due in 1 week, on Tuesday, June 
11th, and I would expect you may get some additional questions 
from Senators, either those who were not able to ask their 
questions or who had some others come to mind.
    As to the witnesses, we ask if you do receive questions 
that you please respond promptly to those questions in writing.
    Again, thank you all for your fight for freedom and for 
autonomy and your advice and your counsel to us as we move 
forward on this legislation. And thank you for joining us here 
today.
    With that, the hearing is adjourned.
    [Whereupon, at 12:43 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    Today is a significant day, in a number of respects.
    Today, the Committee meets to assess what options it may have to 
inject some leverage or restraint into an escalating political and 
human rights crisis in Hong Kong.
    Today marks the 31st anniversary of China's deadly authoritarian 
crackdown, in Beijing's Tiananmen Square, against what was once 
probably the best opportunity a peaceful prodemocracy movement ever had 
of securing any degree of positive political reform and basic human 
rights from the Chinese Government.
    Today also marks the first time in 30 years that the Hong Kong 
police ever prohibited the annual June 4th candlelight vigil to honor 
the victims at Tiananmen Square.
    The Hong Kong police order cited the need for social-distancing as 
justification for the banned vigil, despite Hong Kong's having largely 
returned to normal.
    Yet, the order comes coincidentally less than a week after mainland 
China shook the world by its announcement that it would soon impose a 
new National Security Law that could criminalize almost anything that 
China's Communist Party deems subversive.
    Fortunately, for us, we have a witness today who, as a Hongkonger, 
can speak to his impression of whether or not there is any linkage of 
the vigil to the new law, and expound further on what he is seeing on 
the ground in the city.
    On Thursday, May 28th, China's National People's Congress approved 
a draft decision to pursue, likely by sometime in August, the enactment 
of the new National Security Law, by a vote of 2,878 to 1.
    China's announcement comes after a year of protests against the 
mainland in the city, which startled China's Communist Party.
    The National Security Law, in addition to potentially jailing Hong 
Kong citizens--and others--for doing anything subversive, like 
exercising what the U.S. guarantees as constitutional rights to free 
speech or assembly.
    More ominously, the law also enables China's Communist Party 
leaders to set up so called security agencies in Hong Kong to monitor 
and presumably deter activities of Hongkongers, and others, who it 
finds suspicious.
    What's more, the proposed law would not need to be debated by the 
Hong Kong legislature at all before China circumvents the City's 
autonomous legislative process by unilaterally placing the new law 
under an annex of the Basic Law, or mini-constitution, that currently 
permits Hong Kong to enjoy 50 years of self-government.
    Ironically, it is precisely this Basic Law that leaves it to Hong 
Kong's legislature itself to pass the national security law.
    In its pursuit of its own National Security Law, some analysts 
assess China as beginning to end, far ahead of schedule, Hong Kong's 
autonomy, and the world recognized governing principle agreed to by 
China and Hong Kong of ``one country, two systems,'' which will have a 
fundamental impact on Hong Kong's freedoms, its laws and how it is 
recognized by the global community.
    Thus far, world leaders have responded to China's bypass of Hong 
Kong's legislature through various statements of deep concern.
    The U.S. response was the strongest, with Secretary of State Pompeo 
reporting to Congress on May 27th that the United States no longer 
considers Hong Kong autonomous from China.
    Two days later, President Trump announced that his Administration 
would begin the process of eliminating special treatment for Hong Kong, 
while placing numerous options on the table, including revoking the 
City's special status as a separate customs territory, revising U.S. 
export controls and imposing sanctions.
    Banking's own Senators Toomey and Van Hollen have introduced their 
``Hong Kong Autonomy Act'', a bipartisan bill that seeks to confront 
and deter China's attack on Hong Kong's autonomy, with a set of strong, 
mandatory, primary and secondary financial sanctions.
    Today, we have invited three of our four witnesses specifically to 
help the Committee assess the various proposals thus far propounded, 
and particularly the use of sanctions, to deter China from breaching 
either its treaty obligations to Hong Kong or those under the Basic 
Law.
    I am most interested in the witnesses' views on several questions.
    First, what is the impact of Secretary Pompeo's report to Congress, 
on May 27, that the United States no longer considers Hong Kong to be 
autonomous from China?
    Second, how best can the United States support the people and 
institutions of Hong Kong through targeted economic and financial 
pressure, and coordinate with U.S. allies and partners?
    And third, what would be the likely impact of secondary sanctions 
on financial institutions and how best can we ensure that the impact is 
contained to those who contribute to the demise of Hong Kong's 
autonomy?
    I look forward to working with Senators Toomey, Van Hollen, Ranking 
Member Brown, the other Members of the Committee and the 
Administration, to make sure that we get this right.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    Thank you Mr. Chairman. At our hearing earlier this week, a number 
of us said that this committee must show Americans that we are on their 
side--that we see our black and brown fellow citizens, that we hear 
them, that their lives matter. And that we're going to fight for 
change.
    Today's hearing can't be an immediate return to old habits.
    We are going to hear a whole lot of rightful condemnations of 
China's repression today--God knows they deserve it. But Monday night, 
the President of the United States ordered tear gas and rubber bullets 
to be used on peaceful protesters.
    He didn't use the arm of the State to stop violence--again, these 
were peaceful protesters demanding justice. No, he used it to stage a 
photo op.
    All of us on this Committee stand with protesters in Hong Kong, who 
just want a voice in their own Government, to exercise fundamental 
democratic rights. I hope my colleagues will also stand with the 
millions of our black and brown fellow Americans, who want the same 
thing.
    That will also allow us to set a better example for the world. I 
think everyone on this committee wants the U.S. to be a global leader--
a beacon of democracy to oppressed people everywhere who long for 
freedom. The President is making that harder.
    You can bet authoritarian Governments around the world, especially 
in Moscow and Beijing, hear loud and clear the President's messages 
stoking doubts about our elections, suppressing voters, and inciting 
violence. And they will use his words and his actions to justify their 
own brutality.
    Today's hearing falls on the 31st anniversary of Tiananmen Square. 
It's a good opportunity for us to recommit ourselves to human rights 
everywhere--in Tiananmen Square and in Lafayette Square alike.
    When the U.K. handed Hong Kong back to China in 1997, China 
promised the people of Hong Kong that they would enjoy certain 
freedoms, including the right to elect their leaders. Those guarantees 
have ensured Hong Kong's stability and prosperity.
    China's new security law reneges on that promise and on its 
international obligations. Beijing's overstep is an assault on the 
city's autonomy, the rule of law, and fundamental freedoms guaranteed 
by the Basic Law and the 1977 Sino-British Declaration. China's leaders 
seem determined to impose this draconian law. An assault on Hong Kong's 
democratic activists, human rights advocates, journalists, and others 
on trumped-up charges of sedition and national security violations will 
follow. The U.S. must stand with the people of Hong Kong.
    If China allows the new security law to go into effect, the U.S. 
and its allies must respond by making clear the long-term costs to 
China of encroaching on Hong Kong's sovereignty, and that Beijing's 
Kafkaesque definitions of ``secession,'' ``sedition,'' and ``foreign 
interference'' are too vague and malleable to be useful legal tools in 
a modern State.
    China's authoritarianism and repression have mounted against its 
own people--in Hong Kong and Tibet, against the Uighurs, and others. 
And President Trump leads China's leaders to believe they can tighten 
their grip on their own people, and our President will continue to look 
the other way.
    His opposition to the Hong Kong Human Rights and Democracy Act; his 
silence on human rights violations; his persistent praise for President 
Xi Jinping; his reluctance to challenge Chinese leaders for fear of 
putting his trade deal at risk--it all sends a pretty clear message: 
China, you're free to do whatever you want to repress your own people, 
so long as I get my photo ops.
    I'm sensing a pattern.
    Six years ago, Rep. Chris Smith and I, then cochairs of the 
Congressional-Executive China Commission, introduced legislation to 
require the certification Secretary Pompeo made last week: that if Hong 
Kong was no longer sufficiently autonomous, it should no longer enjoy 
its special status under U.S. law.
    This decertification, and the President's follow-on announcement 
last week to begin a process to limit Hong Kong's special status, were 
a start--even though tentative, partial, and long overdue. They at 
least begin to acknowledge that the Hong Kong security law puts the 
``one-country, two-systems'' framework--and the people of Hong Kong--at 
serious risk.
    We need a broad new long-term bipartisan strategy on China. But 
there are also steps we must take in the urgent short term. And while I 
would support effective, calibrated additions to our present sanctions 
arsenal, an approach that narrowly focuses on unilateral U.S. 
sanctions, including new mandatory secondary sanctions on large foreign 
banks, may be ineffective and have unintended consequences harmful to 
our strategic interests.
    We also know that the time necessary to craft targeted new 
legislation could delay the Administration from taking forceful action 
now, using powerful tools Congress has already provided. Those include 
the 2019 Hong Kong Human Rights Act, the Global Magnitsky law, and most 
important, broad authorities contained in the International Emergency 
Economic Powers Act.
    President Trump could use these authorities tomorrow. He should 
have made clear months ago that he would use them to respond to action 
against Hong Kong. Congress should press the White House to do its job, 
with a comprehensive and multilateral approach.
    At a time when the President has turned his back on the world--the 
withdrawal from the WHO being just the latest example--we must step in, 
and fill that leadership void.
    We must draw our British, European, and Asian allies into a long-
term strategy, using robust economic, financial, diplomatic, trade, and 
other tools to make clear to China's leaders that violating their 
agreements on Hong Kong will implicate China's strategic relationships 
not just with the U.S., but with other world powers. And we should 
incorporate robust aid to democracy and human rights advocates, 
journalists, civil society organizations, and others there committed to 
preserving Hong Kong's freedoms.
    Finally, we have to make clear that China will pay a real economic 
price for enforcing this repressive new law. That could include changes 
in tariff treatment, export controls, trade finance, immigration--the 
entire range of benefits China now enjoys through Hong Kong's unique 
position as a financial center and gateway to the West.
    China makes it clear--through its economic espionage, its 
aggressive military posture, its abuse of our export controls, and its 
cheating on international trade rules that puts American workers out of 
jobs--that it sees itself more as an adversary than a partner of the 
West.
    Well, an adversary of workers in the West--we know they have no 
problem with western CEOs.
    We must confront China's abuses, and its breach of its commitments 
to maintain Hong Kong's autonomy, directly on this committee.
    I welcome our witnesses, and look forward to hearing their ideas on 
how best to do that.
                                 ______
                                 
                PREPARED STATEMENT OF MICHAEL F. MARTIN
 Specialist in Asian Affairs, Asia Section, Foreign Affairs, Defense, 
           and Trade Division, Congressional Research Service
                              June 4, 2020
    Chairman Crapo, Ranking Member Brown, Members of the Committee, My 
name is Michael Martin. I am a Specialist in Asian Affairs for 
Congressional Research Service (CRS). It is an honor and a privilege to 
testify at today's hearing concerning the crises in Hong Kong and U.S. 
policy options.
Crises in Hong Kong
    The decision of China's National People's Congress (NPC) 
authorizing its Standing Committee (NPCSC) to write national security 
laws for Hong Kong precipitated another in a series of crises for the 
residents of Hong Kong. Many people in Hong Kong fear the NPCSC 
legislation will undermine the rights and freedoms enshrined in the 
1984 Sino-British Joint Declaration on the Question of Hong Kong (the 
international treaty on the transfer of sovereignty over Hong Kong from 
the United Kingdom to China on July 1, 1997) and promised by the 
People's Republic of China (China, or PRC) to the residents of Hong 
Kong in the Basic Law of the Hong Kong Special Administrative Region 
(HKSAR) of 1990. Some Members of Congress may share the fears of these 
residents of Hong Kong that the city's ``social and economic systems,'' 
which China pledged would remain unchanged for at least 50 years, will 
soon become a memory.
    This action is the latest in a series of political crises that the 
people of Hong Kong have had to face since July 1, 1997. Some of these 
have been initiated by the PRC Government, and some have been caused by 
the actions of the HKSAR Government. The people of Hong Kong also have 
experienced several economic crises since the establishment of the 
HKSAR, both of an external and internal nature, including the Asian 
Financial Crisis of 1997 and a prolonged decline in Hong Kong's middle 
class. ``Hongkongers'', as they often call themselves, have also been 
coping with various cultural crises, including the immigration of 
thousands of people from mainland China, which many worry will destroy 
the distinctive characteristics of the city they love and wish to 
preserve.
Brief History of Hong Kong
    In some respects, the crises facing the residents of Hong Kong stem 
from the city's unique history. In 1842, China ceded Hong Kong Island 
to the United Kingdom ``in perpetuity'' as a provision of the Treaty of 
Nanking, ending the First Opium War (1839-1842). In 1860, the United 
Kingdom obtained title to Kowloon as part of the First Convention of 
Peking. Following China's defeat in the First Sino-Japanese War (1894-
1895), the United Kingdom signed a 99-year lease for the New 
Territories, the third and largest part of the Crown Colony of Hong 
Kong, as part of the Second Convention of Peking on June 9, 1898 (see 
Figure 1). That lease started a clock, set to expire in 1997, that 
would determine the future of Hong Kong.
    The transformation of the small fishing village of Hong Kong into a 
``world city'' that at various times has been a major manufacturing 
center, a major trading hub, a nucleus for regional international 
finance, and a fountainhead for influential art and culture was made 
possible by the city's status as a British Crown Colony, separate from 
mainland China. Hong Kong is physically remote from the United 
Kingdom--it took over 3 months by ship in the 1860s to travel from 
London to Hong Kong. This meant that the Governor of Hong Kong and 
British civil servants assigned to administer the colony operated with 
a high degree of autonomy from the United Kingdom's central Government, 
with the exceptions of defense and foreign policy. The United Kingdom 
garrisoned British troops in Hong Kong to defend the colony, and the 
Governor refrained from participating in foreign policy matters.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The British Governors of Hong Kong generally adopted a laissez-
faire economic policy and an Executive-led governance system. 
Exceptions were made for certain sections of the local economy, where 
largely British companies were granted monopolies or oligopolies, 
giving rise to Hong Kong's business ``tycoons,'' a word derived from 
Chinese, meaning ``big lord.'' Many of these tycoons became close 
advisors to Hong Kong's Governors, and were often appointed to the 
Governor's advisory Executive Council, and later to Hong Kong's 
Legislative Council (Legco). For much of British colonial rule, only 
some of the Legco members were elected by a popular vote, providing 
only limited democracy.
    The political separation of Hong Kong from the rest of mainland 
China also resulted in the city's unique linguistic, cultural, and 
social character. The native language of the vast majority of people in 
Hong Kong is Cantonese, while the predominant language in mainland 
China is Mandarin (or ``guanhua,'' or ``speech of officials''). In Hong 
Kong, people write using the traditional Chinese characters; in 
mainland China, they use simplified characters adopted by the PRC in 
the 1950s and 1960s. The people of Hong Kong have created a distinctive 
culture that combined elements of British and southern Chinese 
traditions. Social attitudes incorporated elements of the city's 
British heritage, such as the concepts of justice, the rights of the 
individual, and the rule of law, as well as Chinese values, such a 
filial piety, respect for one's elders, and responsibility to one's 
family and community.
    By 1982, the PRC had made it clear to the United Kingdom that it 
had no intention of renewing the lease for the New Territories, and 
sought to negotiate terms for the transfer of sovereignty over Hong 
Kong from the United Kingdom to the PRC. \1\ After the PRC and the 
United Kingdom concluded the Joint Declaration in 1984, many people in 
Hong Kong wondered if the two separate communities of mainland China 
and Hong Kong could find a way to make Deng Xiaoping's concept of ``one 
country, two systems'' work. The Joint Declaration appeared to provide 
sufficient reassurances that China would respect and protect Hong 
Kong's distinct social, economic, political, and cultural identity. In 
the Joint Declaration, China promised, ``The current social and 
economic systems in Hong Kong will remain unchanged, and so will the 
life-style.'' \2\ China also pledged that:
---------------------------------------------------------------------------
     \1\ James Griffiths, ``The Secret Negotiations That Sealed Hong 
Kong's Future'', CNN, June 22, 2017.
     \2\ ``Joint Declaration of the Government of the United Kingdom of 
Great Britain and Northern Ireland and the Government of the People's 
Republic of China on the Question of Hong Kong'', December 19, 1984, 
Section 3(5).

        Rights and freedoms, including those of the person, of speech, 
        of the press, of assembly, of association, of travel, of 
        movement, of correspondence, of strike, of choice of 
        occupation, of academic research and of religious belief will 
        be ensured by law in the Hong Kong Special Administrative 
        Region. Private property, ownership of enterprises, legitimate 
        right of inheritance and foreign investment will be protected 
        by law. \3\
---------------------------------------------------------------------------
     \3\ Ibid.

    These commitments by the PRC were to ``remain unchanged for 50 
years,'' or until June 30, 2047.
    Between 1984 and 1997, thousands of Hong Kong's wealthier 
residents, many with tertiary educations, hedged their bets by 
obtaining citizenship in Australia, Canada, the United Kingdom, and the 
United States, as a precaution in case the PRC did not live up to its 
obligations in the Joint Declaration. The vast majority of Hong Kong 
residents, however, lacking the wealth or formal education to obtain 
foreign citizenship, had no alternative but to stay in Hong Kong and 
hope for the best.
Political Crises
    In 1990, the NPC passed the Basic Law of the Hong Kong Special 
Administrative Region of the People's Republic of China (Basic Law) to 
fulfill one of China's obligations under the Joint Declaration. \4\ The 
Basic Law established a governance structure for the HKSAR very similar 
to that created by the United Kingdom. The Basic Law provides for an 
Executive-led Government, headed by a Chief Executive (rather than a 
Governor), with a separate legislature, the Legislative Council 
(Legco), and an independent judiciary with a separate Court of Final 
Appeal (rather than the United Kingdom's Privy Council). One 
distinctive aspect of Legco is the division of its members into those 
elected by universal suffrage in multiseat geographic districts and 
those selected by limited suffrage by ``functional constituencies,'' 
representing various economic, social, and religious sectors. \5\
---------------------------------------------------------------------------
     \4\ The full text of the Basic Law, as amended, and the various 
decisions and interpretations issued by the PRC Government, is 
available online at: https://www.basiclaw.gov.hk/en/basiclawtext/
index.html.
     \5\ For more about Legco, and its geographical and functional 
constituencies, see CRS In Focus IF10500, Hong Kong's Legislative 
Council (Legco).
---------------------------------------------------------------------------
    The Basic Law reaffirms the commitments made by China in the Joint 
Declaration. In addition, Articles 45 and 68 of the Basic Law state 
that the ``ultimate aim'' is for the Chief Executive and ``all the 
members of the Legislative Council'' to be elected by universal 
suffrage.
    Before the HKSAR was established and the Basic Law went into 
effect, Hong Kong experienced a relatively minor, but potentially 
telling political crisis about the implementation of the Joint 
Declaration and the practice of ``one country, two systems.'' 
Initially, it seemed the PRC Government attempted to avoid interfering 
in the internal affairs of the HKSAR in accordance with the Basic Law. 
As time passed, the PRC Government became more active in the governance 
of Hong Kong.
    Annex I and Annex II of the Basic Law state the process by which 
the method of selecting the Chief Executive and the Legco members can 
be changed, ``subsequent to the year 2007.'' Even before the HKSAR was 
established in July 1997, prodemocracy advocates in Hong Kong began 
pushing for a rapid transition to the election of the Chief Executive 
and all Legco members by universal suffrage. The responses of the PRC 
and HKSAR Governments have led some to question if the ``ultimate aim'' 
of election by universal suffrage will ever be attained.
``Through Train'' Legco and ``Provisional'' Legco
    Legco members serve 4 year terms. Based on the continuity of this 
cycle, a new Legco was to be selected in 1996 and serve until 2000, 
spanning the time when sovereignty over Hong Kong was transferred from 
the United Kingdom to the PRC. The 1996 Legco was dubbed the ``Through 
Train'' Legco that would provide an element of stability during a time 
of political transition. In 1992, the last British Governor of Hong 
Kong, Chris Patten, introduced to the newly selected 1992 Legco 
proposed reforms to the selection of the 1996 Legco members that 
allowed every Hong Kong voter the opportunity to vote for one Legco 
member based on a geographical constituency and one Legco member based 
on a socio-economic ``functional constituency.''
    The PRC, however, had already stipulated in the Basic Law the 
selection process for the first HKSAR Legco, and Patten's reforms did 
not conform to those conditions. Negotiations between the PRC and 
United Kingdom failed to resolve their differences. After Patten's 
reforms were approved by Legco in 1994, the PRC's Provisional Working 
Committee, which was responsible for the Hong Kong's transition to the 
HKSAR, instructed the 400-member Selection Committee, which selected 
the HSKAR's first Chief Executive Tung Chee-hwa, to also choose 60 
members of a ``Provisional Legislative Council'', that would take 
office as of July 1, 1997.
    On July 1, 1997, the ``Through Train'' Legco was officially 
disbanded, replaced the Provisional Legislative Council. Elections for 
the HKSAR's 1st Legco were held on May 24, 1998, and its members took 
office on July 1, 1998.
    Patten's political reforms and the establishment of the Provisional 
Legco highlighted the political division in Hong Kong between 
prodemocracy political parties that advocated the rapid adoption of 
universal suffrage, and proestablishment political parties that 
generally supported the decisions of the PRC and HKSAR Governments. The 
events also raised questions among many Hong Kong residents about 
China's willingness to permit democratic reforms in Hong Kong.
Right of Abode\6\
    In 1999, two cases were brought to the HKSAR's Court of Final 
Appeal (CFA) regarding the interpretation of Article 24 of the Basic 
Law that defines ``permanent residents'' of Hong Kong and determines 
who has the right of abode in the HKSAR. In both cases, the question 
was whether children born in mainland China who had at least one parent 
who had the right of abode in the HKSAR also had the right of abode, 
even if the parent had obtained permanent resident status in Hong Kong 
after the child's birth. The HKSAR Government estimated that up to 1.67 
million people could potentially apply to immigrate into Hong Kong if 
the CFA affirmed that right, and that this influx could overwhelm the 
city's housing, education, and social service resources. \7\ At the 
time, Hong Kong's population was 6.6 million, and many people were 
opposed to the possible massive influx of mainland immigrants.
---------------------------------------------------------------------------
     \6\ For more about the ``right of abode'' crisis in Hong Kong, see 
Anne R. Fokstuen, ``The Right of Abode Cases: Hong Kong's, 
Constitutional Crisis'', Hastings International and Comparative Law 
Review, vol. 26, no. 2 (Winter 2003); and Karmen Kam, ``Right of Abode 
Cases: The Judicial Independence of the Hong Kong Special 
Administrative Region v. The Sovereignty Interests of China'', Brooklyn 
Journal of International Law, vol. 27, no. 2 (2002).
     \7\ Ibid.
---------------------------------------------------------------------------
    In both cases, the CFA ruled that the children had the right of 
abode. In response, Chief Executive Tung Chee-hwa asked the NPCSC to 
provide an ``interpretation'' of Article 24, as permitted by Article 
158 of the Basic Law. On June 26, 1999, the NPCSC released its 
interpretation of Articles 22(4) and 24(2)(3) of the Basic Law, 
effectively overturning the CFA's decision, as well as criticizing the 
CFA for interpreting the Basic Law without consulting the NPCSC.
    Although the NPCSC's decision was relatively popular in Hong Kong, 
legal scholars were concerned about the manner in which the issue was 
brought to the NPCSC and the logic of the NPCSC's interpretation. 
Article 158 of the Basic Law states that the CFA, and not the Chief 
Executive, should bring matters involving Basic Law interpretation to 
the NPCSC. In addition, the NPCSC's decision indicated that the CFA's 
rulings were ``not consistent with the legislative intent'' of Article 
24, and then added additional conditions to be met in order to qualify 
for right of abode. To some legal observers, this constituted not just 
an ``interpretation,'' but also an amendment of the Basic Law, raising 
concerns that the PRC Government might use its power to ``interpret'' 
the Basic Law to curtail the rights of Hong Kong residents in the 
future.
2003 National Security Legislation\8\
    Existing Hong Kong laws dating back to before July 1997 refer to 
acts against the Queen of England or the United Kingdom. \9\ Article 23 
of the Basic Law states:
---------------------------------------------------------------------------
     \8\ For more about the political crisis caused by the proposed 
2003 national security legislation, see Elson Tong, ``Reviving Article 
23 (Part I): The Rise and Fall of Hong Kong's 2003 National Security 
Bill'', Hong Kong Free Press, February 17, 2018.
     \9\ For example, Cap. 200 Crimes Ordinance states a person has 
committed treason if she or he ``kills, wounds or causes bodily harm to 
Her Majesty, or imprisons or restrains Her;'' or ``instigates any 
foreigner with force to invade the United Kingdom or any British 
territory.''

        The Hong Kong Special Administrative Region shall enact laws on 
        its own to prohibit any act of treason, secession, sedition, 
        subversion against the Central People's Government, or theft of 
        State secrets, to prohibit foreign political organizations or 
        bodies from conducting political activities in the Region, and 
        to prohibit political organizations or bodies of the Region 
        from establishing ties with foreign political organizations or 
---------------------------------------------------------------------------
        bodies.

    In February 2003, then-Secretary of Security Regina Ip Lau Suk-yee 
introduced to Legco proposed national security legislation to bring 
Hong Kong laws into accordance with the change in sovereignty over Hong 
Kong and fulfill the HKSAR Government's obligation under Article 23. 
The legislation may have been introduced in response to comments by 
then Vice Premier of China's State Council Qian Qichen in 2002 that the 
HKSAR Government should quickly pass national security laws.
    The draft legislation faced strenuous opposition in Hong Kong, 
including objections from the Hong Kong Bar Association and the Hong 
Kong Journalists Association, who thought the law would unduly restrict 
people's freedom of speech, freedom of association, and press freedom. 
\10\ On July 1, 2003, while the legislation was pending in Legco, an 
estimated 500,000 people joined a peaceful demonstration against the 
proposed national security law. \11\ Prior to Legco's scheduled vote on 
the bill on July 9, 2003, members of the proestablishment Liberal Party 
announced their opposition to proceeding with the legislation. Seeing 
that the bill would not be approved by Legco, Chief Secretary Donald 
Tsang Yam-kuen announced on July 6, 2003, that further consideration of 
the national security legislation was being indefinitely postponed.
---------------------------------------------------------------------------
     \10\ For more about the provisions of the 2003 legislation, and 
the objections to the legislation, see ``Q&A: HK's Anti-Subversion 
Bill'', BBC, July 1, 2003.
     \11\ Keith Bradsher, ``Security Laws Target of Huge Hong Kong 
Protest'', New York Times, July 2, 2003.
---------------------------------------------------------------------------
    On July 16, 2003, Ip resigned her position as Secretary of 
Security, citing ``personal reasons.'' On March 10, 2005, Tung resigned 
as Chief Executive for ``health reasons.'' In Hong Kong, both 
resignations are generally considered to be closely tied to the failure 
to pass the national security legislation.
NPCSC Decisions of 2004 and Proposed Election Reforms of 2005
    Prodemocracy activists have been pressing the PRC and HKSAR 
Governments to transition to the election of the Chief Executive and 
all Legco members by universal suffrage ever since the HKSAR was 
established in July 1997. Annex I and II of the Basic Law stipulate the 
process for amending the manner of selection of the Chief Executive and 
Legco ``for the terms subsequent to the year 2007.'' For Hong Kong 
residents supportive of democratic reforms, this language raised the 
possibility of changing the selection process for the Chief Executive 
in 2007 and the Legco elections of 2008. Following his failure to pass 
national security laws, Chief Executive Tung faced local political 
pressure to propose suitable elections reforms.
    On April 6, 2004, the NPCSC issued an interpretation of Annex I and 
II of the Basic Law. \12\ The NPCSC determined that a five-step process 
had to be followed in order to make any proposed changes in the 
selection of the Chief Executive or Legco members:
---------------------------------------------------------------------------
     \12\ National People's Congress Standing Committee, The 
Interpretation by the Standing Committee of the National People's 
Congress of Article 7 of Annex I and Article III of Annex II to the 
Basic Law of the Hong Kong Special Administrative Region of the 
People's Republic of China, April 6, 2004.

    Step 1: The Chief Executive must submit a report to the 
        NPCSC indicating whether there is a need to make any changes 
---------------------------------------------------------------------------
        (in accordance to Articles 45 and 68 of the Basic Law);

    Step 2: The NPCSC will ``make a determination in the light 
        of the actual situation in the Hong Kong Special Administrative 
        Region and in accordance with the principle of gradual and 
        orderly progress'' if conditions are suitable for election 
        reforms;

    Step 3: The Chief Executive will introduce proposed 
        amendments to the Basic Law to Legco;

    Step 4: Legco may amend and then vote on the proposed 
        amendments; a two-thirds majority of all the Legco members is 
        required to approve the amendments;

    Step 5: The Chief Executive must give his or her consent to 
        the proposed amendments as approved by Legco.

    In the case of amendments to the selection of the Chief Executive, 
the Chief Executive is to report the outcome to the NPCSC ``for 
approval.'' For amendments to the election of Legco members, the 
amendments are to be reported to the NPCSC ``for the record.''
    On April 26, 2004, the NPCSC issued a decision regarding the 
selection processes for the Chief Executive in 2007 and Legco members 
in 2008. \13\ The decision cited the expansion of the previous 400-
member Selection Committee into the 800-member Election Committee in 
2002, and the increase in the number of geographical constituency Legco 
members as evidence of democratic reforms, without mentioning the 
disbanding of the ``Through Train'' Legco in 1997. In the decision, the 
NPCSC determined that conditions in Hong Kong were not suitable for 
selection of the Chief Executive by universal suffrage in 2007 or for 
electing Legco members by universal suffrage in 2008 and that 
``appropriate amendments that conform to the principle of gradual and 
orderly progress'' may be made provided that the ratio between 
geographical constituency and functional constituency seats in Legco 
remains unchanged.
---------------------------------------------------------------------------
     \13\ National People's Congress Standing Committee, ``Decision of 
the Standing Committee of the National People's Congress on Issues 
Relating to the Methods for Selecting the Chief Executive of the Hong 
Kong Special Administrative Region in the Year 2007 and for Forming the 
Legislative Council of the Hong Kong Special Administrative Region in 
the Year 2008'', April 26, 2004.
---------------------------------------------------------------------------
    Chief Secretary Tsang was appointed Chief Executive after Tung 
resigned in March 2005, and announced plans to propose reforms for the 
selection of the Chief Executive in 2007 and Legco in 2008. Tsang 
proposed expanding the Election Committee to 1,600 members, including 
all the elected or appointed District Council members, and adding 10 
new seats in Legco--5 in geographical constituencies and 5 new 
functional constituencies for District Council members--in accordance 
with the NPCSC's April 2004 decision.
    Hong Kong's advocates for democracy were initially split on Tsang's 
proposed reforms, with some willing to accept gradual reform and others 
pushing for more substantial changes and a clear timetable for the 
implementation of universal suffrage. A prouniversal suffrage rally on 
December 4, 2005, drew an estimated 250,000 people. \14\ On December 
21, 2005, Legco rejected the proposed election reforms. Democracy 
advocates in Hong Kong shifted their attention to the next elections of 
2012, when a new Chief Executive and new Legco were to be chosen.
---------------------------------------------------------------------------
     \14\ Keith Bradsher, ``Pro-Democracy Protesters March in Hong 
Kong'', New York Times, December 4, 2005.
---------------------------------------------------------------------------
NPCSC Decision of 2007 and the Election Reforms of 2010\15\
    Chief Executive Tsang and the PRC Government were disappointed by 
the defeat of their proposed election reforms. Prodemocracy political 
parties and activists in Hong Kong started public discussions on 
possible reforms for the upcoming 2012 elections. A clear divide 
between the prodemocracy and proestablishment coalitions arose over the 
way in which, and how soon, Hong Kong residents should be able to vote 
directly for their Chief Executive and all Legco members. In 2006, 
Chief Executive Tsang initiated a public consultation process to 
discuss possible election reforms, and on December 12, 2007, submitted 
a report to the NPCSC as required by Step 1 of the NPCSC interpretation 
of the Basic Law of April 4, 2004.
---------------------------------------------------------------------------
     \15\ For more about the NPCSC's 2007 decision and the 2010 
election reforms, see CRS Report RS22787, ``Prospects for Democracy in 
Hong Kong: China's December 2007 Decision'' and CRS Report R40992, 
``Prospects for Democracy in Hong Kong: The 2012 Election Reforms''.
---------------------------------------------------------------------------
    On December 29, 2007, the NPCSC issued another decision on possible 
election reforms in Hong Kong. In this decision, the NPCSC announced:

    The selection of the fourth Chief Executive in 2012 cannot 
        be done via universal suffrage;

    The 2012 Legco elections will not be done via universal 
        suffrage, and the ratio between geographical and functional 
        constituency seats will remain unchanged;

    ``[T]he election of the fifth Chief Executive of the Hong 
        Kong Special Administrative Region in the year 2017 may be 
        implemented by the method of universal suffrage;''

    The election of all Legco members by universal suffrage can 
        occur ``after the Chief Executive is selected by universal 
        suffrage;''

    Any proposal to select the Chief Executive by universal 
        suffrage must also establish a nominating committee ``formed 
        with reference to the current provisions regarding the Election 
        Committee in Annex I to the Hong Kong Basic Law.'' \16\
---------------------------------------------------------------------------
     \16\ National People's Congress Standing Committee, ``Decision of 
the Standing Committee of the National People's Congress on Issues 
Relating to the Methods for Selecting the Chief Executive of the Hong 
Kong Special Administrative Region and for Forming the Legislative 
Council of the Hong Kong Special Administrative Region in the Year 2012 
and on Issues Relating to Universal Suffrage'', December 29, 2007.

    The NPCSC's interpretation of December 2007 was a blow to Hong 
Kong's supporters of democratic reforms as it further delayed the 
adoption of universal suffrage for both the Chief Executive and Legco, 
and added new conditions on the formation of a nominating committee. 
The interpretation closed the door on the adoption of universal 
suffrage in 2012, and meant the soonest the Chief Executive could be 
directly elected was in 2017--twenty years after the establishment of 
the HKSAR. The NPCSC also established new conditions on the nomination 
process for the Chief Executive that effectively transformed the 
Election Committee into the nominating committee. Prodemocracy 
politicians feared that the nominating committee would be able to block 
the nomination of any prodemocratic candidates for Chief Executive. 
Once again, it seemed to many that Hong Kong's democratic transition 
was being delayed, and the PRC Government was making sure it could 
influence or control the outcome of those elections.
    Despite the NPCSC's December 2007 decision, Chief Executive Tsang 
and Legco were able to compromise on election reforms in 2010, 
expanding the size of the Election Committee to 1,200 members, and 
adding 10 Legco seats--5 geographical constituency seats and 5 
functional constituency seats to be filled by 5 elected District 
Council members chosen by Hong Kong voters who cannot vote in any of 
the other functional constituencies. The PRC and HKSAR Governments and 
the proestablishment Legco members presented the reforms as evidence of 
progress toward universal suffrage. The prodemocracy Legco members 
split over the reforms, with some raising concerns that the PRC and 
HKSAR Governments will use the reforms to delay further progress toward 
democracy.
Proposed Election Reforms of 2014, the NPCSC Decision, and the Umbrella 
        Movement\17\
    In October 2013, the recently selected new Chief Executive Leung 
Chun-ying (CY Leung) started a formal public consultation process to 
discuss possible election reforms for both the 2016 Legco elections and 
the 2017 selection of the Chief Executive. He created the Task Force on 
Constitutional Development headed by the Chief Secretary for 
Administration Carrie Lam Cheng Yuet-ngor, Secretary for Justice Rimsky 
Yuen Kwok-keung, and Secretary for Constitutional and Mainland Affairs 
Raymond Tam Chi-yuen. In July 2014, the Task Force released its report 
on the public consultation that reflected a wide range of views on 
elections reforms.
---------------------------------------------------------------------------
     \17\ For more about the proposed election reforms of 2014, the 
NPCSC's August 2014 decision, and the Umbrella Movement, see CRS Report 
R44031, ``Prospects for Democracy in Hong Kong: The 2017 Election 
Reforms'' (Update) and CRS In Focus IF10005, ``Protests in Hong Kong: 
The `Umbrella Movement' '' (Update).
---------------------------------------------------------------------------
    During the public consultation process, a group known as ``Occupy 
Central with Love and Peace'', (OCLP) formed by Professor Chan Kin-man, 
Reverend Chu Yiu-ming, and Professor Benny Tai Yiu-ting, commissioned a 
public opinion poll in June 2014, in which registered voters could 
choose among three alternative election reform proposals. \18\ Nearly 
800,000 people, or about 22 percent of Hong Kong registered voters, 
participated in the survey. \19\ The voters were also asked if Legco 
should approve a Government proposal that ``cannot satisfy 
international standards allowing genuine choices by electors.'' Nearly 
88 percent of the surveyed voters said that Legco should veto such a 
proposal. The PRC and HKSAR Governments dismissed the survey results as 
meaningless. \20\
---------------------------------------------------------------------------
     \18\ The three proposals included one by a group known as the 
Alliance for True Democracy (ATD), another by the political party, 
People's Power, and a third submitted by the Hong Kong Federation of 
Students (HKFS) and Scholarism. The ATD proposal was selected by 42.1 
percent of the surveyed voters, the HTFS/Scholarism proposal received 
38.4 percent, and the People's Power proposal was chosen by 10.3 
percent (9.1 percent either abstained or didn't make a selection). 
Survey results available online at: https://www.hkupop.hku.hk/chinese/
release/release1164.html.
     \19\ ``Hong Kong Democracy `Referendum' Draws Nearly 800,000'', 
BBC, June 30, 2014.
     \20\ Jonathan Kaiman, ``Hong Kong's Unofficial Prodemocracy 
Referendum Irks Beijing'', Guardian, June 25, 2014.
---------------------------------------------------------------------------
    On July 15, 2014, Chief Executive Leung submitted the required 
report to the NPCSC to begin the five step process for election reform. 
On August 31, 2014, the NPCSC released its decision in response to 
Leung's report, setting three critical restrictions on the election of 
the Chief Executive by universal suffrage:

  1.  ``A broadly representative nominating committee shall be formed. 
        The provisions for the number of members, composition and 
        formation method of the nominating committee shall be made in 
        accordance with the number of members, composition, and 
        formation method of the Election Committee for the Fourth Chief 
        Executive,'' [the Election Committee that selected C.Y. Leung].

  2.  ``The nominating committee shall nominate two to three candidates 
        for the office of Chief Executive in accordance with democratic 
        procedures.''

  3.  ``Each candidate must have the endorsement of more than half of 
        all members of the nominating committee,'' [more than 600 
        members]. \21\
---------------------------------------------------------------------------
     \21\ National People's Congress Standing Committee, ``Decision of 
the Standing Committee of the National People's Congress on Issues 
Relating to the Selection of the Chief Executive of the Hong Kong 
Special Administrative Region by Universal Suffrage and on the Method 
for Forming the Legislative Council of the Hong Kong Special 
Administrative Region in the Year 2016'', August 31, 2014.

    The NPCSC's August 2014 decision was broadly condemned by 
supporters of democracy in Hong Kong. The Election Committee is chosen 
by a complex process with limited suffrage that effectively guarantees 
that a majority of members will be supporters of the PRC and HKSAR 
Governments. \22\ Ex-Legco member and past chair of the Democratic 
Party Martin Lee succinctly summarized the pan-democrats' objections to 
the NPCSC's decision: ``Hong Kong people will have one person, one vote 
but Beijing will select all the candidates-puppets. What is the 
difference between a rotten apple, a rotten orange, and a rotten 
banana?'' \23\ Chief Executive Leung and the proestablishment Legco 
members supported the NPCSC's decision.
---------------------------------------------------------------------------
     \22\ The composition of the Election Committee is specified in 
Annex I of the Basic Law, which establishes a selection process similar 
to that of the functional constituency seats in Legco. For more details 
about the selection of the 2106 Election Committee, see https://
www.elections.gov.hk/ecss2016/eng/figures.html.
     \23\ Demetri Sevastopulo and Julie Zhu, ``Hong Kong Democracy 
Activities Vent Their Anger Against Beijing'', Financial Times, 
September 1, 2014.
---------------------------------------------------------------------------
    Demonstrations against the NPCSC's decision arose in various parts 
of Hong Kong. Two Hong Kong student organizations--the Hong Kong 
Federation of Students (HKFS) and Scholarism, a prodemocracy student 
activist group--organized a week-long class boycott at the end of 
September 2014 to protest the NPCSC August 2014 decision. At the end of 
the boycott, several hundred students organized a protest march to 
Tamar Park in Admiralty, where Hong Kong's Central Government Office, 
Legislative Council Complex, and Chief Executive's Office are located 
(see Figure 2). Supporters of the students quickly swelled the ranks of 
protesters to several thousand on Saturday, September 27, and 
protesters began blocking major roads in Admiralty. On September 28, 
tens of thousands of people gathered in Admiralty, including the OCLP 
supporters, calling for the resignation of Chief Executive Leung and 
``genuine universal suffrage.''
    On the evening of September 28, hundreds of Hong Kong Police Force 
(HKPF) officers unsuccessfully attempted to break up the demonstration, 
firing 87 rounds of tear gas into the crowd, spraying protesters with 
pepper spray, and striking demonstrators with batons. \24\ To defend 
themselves, protesters held up umbrellas, giving rise to the protest's 
name, the ``Umbrella Movement''.
---------------------------------------------------------------------------
     \24\ Bon Cheng and Yvonne Chiu, ``Tear Gas and the Betrayal of 
Hong Kong'', Time, October 16, 2014.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The police action against the protesters in Admiralty gave rise to 
demonstrations in two other locations in Hong Kong--Causeway Bay and 
Mong Kok--where protesters blocked roads and erected barricades. The 
ranks of protesters swelled to more than 100,000 people. \25\ The three 
occupation sites remained in place for over 70 days. The Mong Kok 
protest site was forcibly cleared on November 24 and 25, 2014.
---------------------------------------------------------------------------
     \25\ Elizabeth Barber, ``Hong Kong Student Protesters Call for 
Huge Rally After Government Scraps Talks'', Time, October 9, 2014.
---------------------------------------------------------------------------
    The Admiralty protesters were removed on December 11, 2014, and the 
Causeway occupation was dismantled by police on December 15, 2014.
    Chief Secretary Lam formally announced the start of a second round 
of public consultation to Legco on January 7, 2015. \26\ The second 
round of consultation ended on March 7, 2015. On April 22, 2015, Lam 
presented the results of the second round of public consultation to 
Legco and announced the election reform legislation that would be 
introduced to Legco would comply with the NPCSC's decision. Lam 
presented the official text of the resolution to Legco on June 17, 
2015.
---------------------------------------------------------------------------
     \26\ The text of CS Lam's statement to Legco is available online 
at http://www.info.gov.hk/gia/general/201501/07/P201501070519.htm.
---------------------------------------------------------------------------
    After 2 days of debate, Legco defeated the proposed resolution on 
June 18, 2015, by a vote of 28 against and 8 for the motion. To pass, 
the resolution needed the support of at least 47 (two-thirds) of the 70 
Legco members. The final tally was the result of a walkout by 32 of the 
proestablishment members conducted just after Legco President Jasper 
Tsang Yok-sing called for a vote on the motion.
    In contrast to the 2010 election reforms, the prodemocracy Legco 
members were united in their opposition to the 2015 election reform 
proposals, perhaps because of the Umbrella Movement and the outcome of 
the OCLP public opinion poll. The use of tear gas, pepper spray, and 
batons buoyed popular support for the Umbrella Movement, but also 
demonstrated the HKPF's willingness to use greater force to break up 
largely peaceful demonstrations against the PRC and HKSAR Governments.
Disqualification of Legco Members\27\
    In September 2016, Hong Kong voters selected the 70 members of the 
HKSAR's 6th Legco. The results were encouraging for supporters of 
democratic reforms and the Umbrella Movement, but irregularities in the 
oath taking process provided an opportunity for the HKSAR and PRC 
Governments to remove six prodemocracy Legco members from office and 
increase the proestablishment coalition's control over Legco.
---------------------------------------------------------------------------
     \27\ For more about the 2016 Legco elections and the 
disqualification of Legco members, see CRS In Focus IF10500, ``Hong 
Kong's Legislative Council (Legco)'', and CRS Insight IN10739, ``Hong 
Kong's High Court Disqualifies Four More Legislators''.
---------------------------------------------------------------------------
    Among the winners were seven candidates from five new political 
parties that had emerged from the Umbrella Movement. Together with the 
traditional prodemocracy political parties, they won 19 of the 35 
geographical constituency seats, and 11 of the 35 functional 
constituency seats. Under Legco's procedural rules, the prodemocracy 
coalition's majority of geographical constituency seats gave them the 
ability to slow down or block legislation proposed by the HKSAR 
Government. Their combined 30 Legco votes also meant they could veto 
any proposed amendments to the Basic Law.
    The new Legco members took their oaths of office on October 12, 
2016. Five of the oaths were ruled invalid by Legco President Andrew 
Leung Kwan-yuen because of political statements made during the oath-
taking process, including those taken by Sixtus Baggio Leung Chung-hang 
and Yau Wai-ching, both members of Youngspiration, one of the political 
parties that emerged from the Umbrella Movement. Plans were made for 
the five Legco members to retake their oaths. On October 18, then-Chief 
Executive Leung and then-Justice Secretary Yuen, however, filed a suit 
in Hong Kong's High Court to prohibit Leung and Yau from retaking their 
oaths.
    While the suit was still pending in Hong Kong courts, NPCSC issued 
an ``interpretation'' of Article 104 of the Basic Law on November 7, 
2016. \28\ Article 104 states:
---------------------------------------------------------------------------
     \28\ National People's Congress Standing Committee, 
``Interpretation of Article 104 of the Basic Law of the Hong Kong 
Special Administrative Region of the People's Republic of China by the 
Standing Committee of the National People's Congress'', November 7, 
2016.

        When assuming office, the Chief Executive, principal officials, 
        members of the Executive Council and of the Legislative 
        Council, judges of the courts at all levels and other members 
        of the judiciary in the Hong Kong Special Administrative Region 
        must, in accordance with law, swear to uphold the Basic Law of 
        the Hong Kong Special Administrative Region of the People's 
        Republic of China and swear allegiance to the Hong Kong Special 
---------------------------------------------------------------------------
        Administrative Region of the People's Republic of China.

    In its decision, the NPCSC determined that all Hong Kong public 
officials who are required to take an oath of office must ``accurately, 
completely and solemnly read out the oath prescribed by law.'' Failure 
to do so, the NPCSC states, ``shall be treated as declining to take the 
oath.'' According to the decision, ``no arrangement shall be made for 
retaking the oath.'' The decision concludes with the statement, ``An 
oath taker who makes a false oath, or, who, after taking the oath, 
engages in conduct in breach of the oath, shall bear legal 
responsibility in accordance with the law.''
    On November 15, 2016, the High Court disqualified Leung and Yau, 
ruling they ``declined'' to take their oaths. The High Court's ruling 
did not rely on the NPCSC's decision, focusing instead on the events of 
October 12, 2016, and the requirements of Hong Kong's Oaths and 
Declarations Ordinance (ODO). Chief Executive Leung and Secretary Yuen 
subsequently filed suits against two pan-democrats and two new 
political party members alleging that their oaths were not valid. On 
July 14, 2017, the High Court disqualified those four Legco members.
    By-elections were subsequently held to fill five of the six empty 
seats (one of the disqualified Legco members is still appealing his 
disqualification), but two of the winners were then disqualified when 
the Hong Kong courts ruled two prodemocracy candidates were 
inappropriately ruled ineligible in the by-elections. While the court 
decisions was a victory for the disqualified candidates, they left the 
seats vacant, and the HKSAR Government decided not to hold new by-
elections to fill the vacancies.
    The disqualification of six elected Legco members eliminated the 
prodemocracy coalition's majority in the geographical constituencies, 
but left the coalition enough votes to block amendments to the Basic 
Law. Legco President Leung and the proestablishment Legco members took 
the opportunity to change Legco's procedural rules to prevent the 
prodemocracy Legco members from delaying consideration of pending 
legislation. Previously, the prodemocracy Legco members had used their 
majority of geographical constituency seats to block proposed 
procedural changes.
    The disqualification crisis has raised additional concerns about 
the HKSAR Government using other means to prevent prodemocracy 
candidates from running for office. Under Hong Kong law, anyone 
convicted and sentenced to more than 3 months in prison is not eligible 
to run for elected office for a period of 5 years. The arrest and 
prosecution of several prodemocracy politicians for alleged crimes with 
possible penalties of more than 3 months in prison is viewed by many in 
Hong Kong as a way of tipping the outcome of the Legco elections 
scheduled for September 6, 2020. In addition, some proestablishment 
politicians have said candidates for the Legco elections should be 
asked if they support the pending national security laws to be 
promulgated by the NPCSC as a litmus test for their allegiance to the 
Basic Law, and possible grounds for disqualification.
Proposed Extradition Law of 2019 and the 2019 Protests\29\
    Most of the political crises prior to 2019 were precipitated by 
actions undertaken by the PRC Government. The political crisis of 2019, 
however, was sparked by the decision of Chief Executive Lam to propose 
legislation that would have permitted the extradition of criminal 
suspects from Hong Kong to mainland China. The crisis was exacerbated 
by the decision by the Hong Kong Police Force (HKPF) to respond to 
largely peaceful demonstrations with excessive force, as well as the 
PRC Government's efforts to discredit the protests as being directed by 
``foreign agitators.'' Escalating tensions were possibly dissipated by 
the onset of different crisis in 2020, the outbreak of Coronavirus 
Disease 2019 (COVID-19) in Wuhan, China, and the people of Hong Kong 
voluntarily taking preventive measures to protect their health.
---------------------------------------------------------------------------
     \29\ For more about the extradition law crisis and the 2019 
protests, see CRS In Focus IF11248, ``Hong Kong's Proposed Extradition 
Law Amendments; CRS Insight IN11165, ``Hong Kong Chief Executive Lam To 
Withdraw Extradition Bill; Protests Continue''; and CRS In Focus 
IF11295, ``Hong Kong's Protests of 2019''.
---------------------------------------------------------------------------
    On April 3, 2019, Hong Kong's Chief Executive Carrie Lam Cheng 
Yuet-ngor submitted to Legco proposed amendments to the Fugitive 
Offenders Ordinance (FOO) that would permit--for the first time--
extradition of alleged criminals from Hong Kong to mainland China, the 
Macau Special Administrative Region (Macau), and Taiwan. In addition, 
the legislation sought to amend Hong Kong's Mutual Legal Assistance in 
Criminal Matters Ordinance (MLAO) to include mainland China, Macau, and 
Taiwan.
    Legco was scheduled to take up the proposed amendments on June 12, 
but large-scale demonstrations on June 9 and 12 led Chief Executive Lam 
to announce on June 15 the suspension of consideration of the bill. 
These demonstrations were largely peaceful, with some violent 
confrontations between the HKPF and a relatively small number of 
protesters, particularly on the evening of June 12. After a standoff 
lasting several hours, an estimated 5,000 Hong Kong police officers in 
riot gear used tear gas, rubber bullets, pepper spray, and truncheons 
to disperse the demonstrators. \30\ Chief Executive Lam and then Police 
Commissioner Steven Lo Wai-chung characterized the day's demonstration 
a ``riot.'' Two days later, Chief Executive Lam announced an indefinite 
delay in Legco's consideration of the extradition bill.
---------------------------------------------------------------------------
     \30\ James Griffiths, Helen Regan, and Ben Westcott, et al., 
``Hong Kong Protests Over China Extradition Bill'', CNN, June 12, 2019.
---------------------------------------------------------------------------
    On the following Sunday, June 16, according to the demonstration's 
organizers, an estimated 2 million Hong Kong residents again peacefully 
marched from Victoria Park to the HKSAR Government headquarters; the 
Hong Kong Police Force stated that 338,000 people participated. \31\ 
During the June 16 demonstration, the protesters called on Lam to 
comply with ``Five Demands'' (see text box).
---------------------------------------------------------------------------
     \31\ ``Huge Turnout by Protesters Keeps Heat on Hong Kong's 
Leader'', New York Times, June 16, 2019.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    In the weeks that followed, people gathered to demonstrate in 
various parts of Hong Kong against the extradition bill and in support 
of the Five Demands. The HKPF responded to the demonstrations by 
sending out officers in riot gear to break up the protests. This 
response frequently resulted in violent confrontations between the HKPF 
officers and more militant protesters. The HKPF used tear gas, rubber 
bullets, pepper spray, and truncheons to disperse the protesters. The 
protesters responded by throwing bricks and petrol bombs in front of 
the advancing police officers to slow their advance. Protesters and 
journalists complained about the HKPF's excessive use of force. The 
HKPF denied the allegations and blamed the violence on the protesters.
    Lam announced on September 4, 2019, that she would formally 
withdraw the controversial extradition bill. She also said the 
Independent Police Complaints Council (IPCC), whose members are 
appointed by the Chief Executive, would look into the allegations of 
excessive use of force by the HKPF and the factors that contributed to 
the protests.
    The protests continued throughout the fall and into January 2020, 
demanding that Lam meet the other four demands. Most of the 
demonstration were largely peaceful, with violent confrontations 
between the HKPF and more militant protesters sometimes occurring after 
the planned demonstration was over. During the course of the protests, 
the HKPF:

    have arrested more than 9,000 people;

    fired 16 live rounds, wounding 3 protesters;

    fired more than 10,000 rounds of rubber bullets at 
        protesters, journalists, and emergency medical volunteers 
        tending to the injured;

    discharged nearly 16,000 tear gas canisters;

    deployed nearly 2,000 bean bag rounds and over 1,800 sponge 
        rounds, blinding one journalist in one eye; and

    injured more than 2,000 people. \32\
---------------------------------------------------------------------------
     \32\ Figures based on information in Progressive Scholars Group, 
``Silencing Millions: Unchecked Violations of Internationally 
Recognized Human Rights by the Hong Kong Police Force'', January 24, 
2020; and the postings of Kong Tsung-gan, ``Arrests and Trials of Hong 
Kong Protesters'', at https://medium.com/@KongTsungGan/arrests-and-
trials-of-hong-kong-protesters-2019-9d9a601d4950.

    In addition, 520 HKPF officers were injured during the protests, 
including one shot in the leg with an arrow.
    In May 2020, the IPCC released its report on the 2019 protests. The 
IPCC report made no general determination on the issue of alleged 
excessive use of force by the HKPF, nor did it describe the allegations 
against the HKPF in much detail. It stated that individual allegations 
of police misconduct are to be investigated by the HKPF's Complaints 
Against Police Office (CAPO), and the IPCC's role is ``to monitor and 
review'' CAPO's investigations. The IPCC report did, however, 
repeatedly describe in detail allegations against people involved in 
the demonstrations, who are frequently referred to as ``violent 
protesters.'' \33\ Chief Executive Lam praised the IPCC report, and 
indicated she saw no need for an independent investigation of the sort 
being demanded by the demonstrators. Others characterized the IPCC 
report as a ``whitewashing'' of HKPF's misconduct.
---------------------------------------------------------------------------
     \33\ The phrase ``violent protesters'' appears nearly 300 times in 
the IPCC's 1,011-page report.
---------------------------------------------------------------------------
    Large-scale demonstrations in Hong Kong were effectively brought to 
an end by the arrival of COVID-19 on January 23, 2020 (see section on 
health crises below). Most Hong Kong residents, relying on their past 
experiences with Avian flu (H5N1) in 1997 and severe acute respiratory 
syndrome (SARS) in 2003, voluntarily undertook measures to protect 
their health, such as staying at home, wearing masks in public, and 
avoiding crowds. The HKSAR Government also announced emergency public 
health measures that prohibited large-scale demonstrations, and the 
HKPF stopped issuing approvals for protests. Small-scale gatherings 
continue to occur almost on a daily basis.
    The 2019 crisis began as a protest against a proposed extradition 
law, gained support as a demonstration against police brutality, and 
eventually became a popular expression of dissatisfaction with the PRC 
and HKSAR Governments. In response to the perceived excessive use of 
force by the HKPF, some of the protesters began using more militant 
methods. \34\ The escalation of violence also drew growing concern by 
China's leaders, who saw the Hong Kong protests as an emerging threat 
to national security, and applied increasing pressure on Chief 
Executive Lam and the HKPF to stop the protests.
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     \34\ One of the phrases often spray painted by protesters was ``It 
is you who taught us peaceful protests don't work.''
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National Security Law\35\
    The continuation of the antigovernment protests into 2020 despite 
COVID-19 and the inability of the HKSAR Government to stop the protests 
apparently led the PRC Government to try to take control over the 
situation. China's leaders replaced the heads of the Hong Kong and 
Macao Affairs Office (HKMAO) in Beijing and its Liaison Office in Hong 
Kong with officials with a known record of maintaining local discipline 
and control. Official statements by the PRC Government began portraying 
the Hong Kong protests as a threat to national security and called for 
the enactment of antisedition laws required by Article 23 of the Basic 
Law.
---------------------------------------------------------------------------
     \35\ For more information about China's decision to impose 
national security laws on Hong Kong, see CRS In Focus IF11562, ``China 
Moves To Impose National Security Law on Hong Kong''.
---------------------------------------------------------------------------
    Hong Kong law prior to July 1, 1997, prohibited acts of treason 
against the Queen of England and the United Kingdom. Article 23 of the 
Basic Law required the HKSAR Government to pass local ordinances to 
replace those outdated laws. As previously described, an effort to do 
so in 2003 failed, and contributed to the resignation of the Secretary 
of Security and the Chief Executive. Since that effort, no Chief 
Executive had attempted to fulfill the HKSAR Government's obligation 
under Article 23.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    China's National People's Congress (NPC), on May 28, 2020, adopted 
a decision authorizing the NPCSC to write national security laws that 
will apply only to Hong Kong. The decision also requires the HKSAR 
Government to pass local legislation to protect China's national 
security, as required by the Basic Law, and authorizes China's 
``national security organs'' to ``set up agencies in the HKSAR to 
fulfill relevant duties to safeguard national security in accordance 
with the law.'' \36\
---------------------------------------------------------------------------
     \36\ ``Highlights of China's Decision on Hong Kong National 
Security Legislation'', Xinhua, May 28, 2020.
---------------------------------------------------------------------------
    Many observers see the NPC decision as a violation of China's 
obligations under the Joint Declaration and its commitments in the 
Basic Law. On May 30, 2020, President Donald J. Trump accused China of 
extending ``the reach of China's invasive State security apparatus into 
what was formerly a bastion of liberty.'' \37\ President Trump also 
said he would ``begin the process of eliminating policy exemptions that 
give Hong Kong different and special treatment.'' \38\ He did not 
specify a timeframe for action.
---------------------------------------------------------------------------
     \37\ White House, ``Remarks by President Trump on Actions Against 
China'', press release, May 30, 2020.
     \38\ Ibid.
---------------------------------------------------------------------------
    The NPC decision is seen by many in Hong Kong as undermining the 
city's ``high degree of autonomy,'' threatening the human rights of 
Hong Kong residents, and weakening the independence of Hong Kong's 
judicial system. Some observers see the pending NPCSC national security 
laws as an existential risk to Hong Kong. Some Hong Kong residents are 
actively pursuing ways of emigrating from the city; others have 
transferred their wealth and savings to offshore banks.
    Some commentators see these moves as premature as the NPCSC has not 
yet approved the national security laws and their provisions are 
unknown. Following a trip to see China's leaders in Beijing, Chief 
Executive Lam issued a statement assuring the Hong Kong public that the 
laws ``will only punish a small minority of people who engage in acts 
and activities that seriously threaten national security.'' \39\
---------------------------------------------------------------------------
     \39\ Tony Cheung and Jun Mai, ``Beijing Has Heard Opinion of Hong 
Kong People and Remains `Very Firm' on National Security Law for City, 
Carrie Lam Says After Visit'', South China Morning Post, June 3, 2020.
---------------------------------------------------------------------------
Observations on Political Crises
    The series of political crises in the HKSAR--some more serious than 
others--indicate certain patterns in the behavior of the PRC and HKSAR 
Governments. First, the PRC Government has demonstrated a willingness 
to intervene in the internal affairs of the HKSAR, principally via the 
NPCSC's authority to interpret and render decisions about the Basic 
Law. Second, some progress has been made in democratic reforms, but 
that progress has also been accompanied by new conditions and 
restrictions that provide the PRC Government a greater role in Hong 
Kong's elections. Third, Hong Kong's Chief Executives have generally 
acted more as agents of the PRC Government conveying decisions to the 
people of Hong Kong than representatives of the people of Hong Kong to 
the PRC Government. Fourth, both the PRC Government and the HKSAR 
Government appear to be fearful of representative democracy in Hong 
Kong, and are attempting to construct sufficient constraints to 
maintain control over governance of the city.
Economic Crises
    The people of Hong Kong have also faced a series of economic crises 
since the establishment of the HKSAR in 1997. The Asian Financial 
Crisis struck just after the Hong Kong was transferred from the United 
Kingdom to the PRC, and speculators attempted to destabilize the Hong 
Kong dollar and the Hong Kong stock market. Hong Kong's economy also 
was hit by the ripple effects of the Global Financial Crisis of 2007. 
In addition, structural economic changes since 1997 have made Hong Kong 
more dependent on China. Those structural changes have also resulted in 
a growing income and wealth disparity in Hong Kong, the erosion of Hong 
Kong's middle class, the loss of economic opportunity for the city's 
youth, and a rise in poverty among the Hong Kong's elderly.
Asian Financial Crisis of 1997
    The HKSAR Government had to confront a major economic crisis within 
days of its establishment. The rapid movement of speculative capital in 
Southeast Asia had destabilized many of the region's financial markets 
and led to the rapid devaluation of several currencies. Some 
speculators launched a simultaneous assault on shares listed on the 
Hong Kong Stock Exchange and the Hong Kong dollar, which is linked to 
the value of the U.S. dollar under a currency board system. \40\
---------------------------------------------------------------------------
     \40\ The Hong Kong Monetary Authority, by the exchange of U.S. 
dollar assets for Hong Kong dollars in circulation, maintains the value 
of the exchange rate between 7.75 and 7.85 Hong Kong dollars to 1 U.S. 
dollar.
---------------------------------------------------------------------------
    Finance Secretary and future Chief Executive Donald Tsang and Hong 
Kong Monetary Authority (HKMA) Chief Executive Joseph Yam Chi-kwong 
successfully fought off the speculative attacks by having the HKSAR 
Government buy more than $15 billion in shares on the Hong Kong Stock 
Exchange. After that speculative attacks were over, the HKSAR 
Government gradually sold off its holdings, making almost $4 billion in 
profits. \41\
---------------------------------------------------------------------------
     \41\ Hong Kong Monetary Authority, ``Asian Financial Crisis: 
Difficult Decisions in the Disposal of Shares After Stock Market 
Operation'', September 18, 2019.
---------------------------------------------------------------------------
    The HKSAR Government's successful defense of the Hong Kong dollar 
and the Hong Kong Stock Exchange raised local confidence in the new 
Government. Throughout the financial crisis, the PRC Government 
expressed its support for the HKSAR Government, but avoided intervening 
in the situation. This, in turn, led many to think that the PRC 
Government would abide by the ``one country, two systems'' policy and 
respect Hong Kong's high degree of autonomy.
Global Financial Crisis of 2007\42\
    In late 2007, Hong Kong once again faced a financial crisis, this 
time originating in the United States. Instabilities in U.S. 
derivatives markets led to the bankruptcy of Lehman Brothers and fears 
of the collapse of U.S. financial markets. The financial contagion 
spread to Hong Kong in the autumn of 2008 as the U.S. economy slipped 
into a severe recession.
---------------------------------------------------------------------------
     \42\ For more about Hong Kong and the global financial crisis of 
2007, see Janet L. Yellen, ``Hong Kong and China and the Global 
Recession'', Federal Reserve Bank of San Francisco, FRBSF Economic 
Letter 2010-04, February 8, 2010.
---------------------------------------------------------------------------
    Hong Kong's economy also slid into a recession, as the global 
economic slowdown led to a decline in global trade. The HKSAR 
Government responded with a combination of fiscal and monetary stimulus 
measures that led to recovery in early 2009, aided by the resumption of 
global economic and trade growth. Hong Kong, and the global economy, 
were also assisted by China's decision to implement a lending and 
investment boom to promote economic growth.
    Like the 1997 economic crisis, the HKSAR Government's response to 
the 2007 global financial crisis was well received by the people of 
Hong Kong. Hong Kong residents also generally had a favorable view of 
China's actions, which helped Hong Kong recover without directly 
intervening in Hong Kong's affairs.
Hong Kong's Structural Economic Changes
    Although the HKSAR Government may have received praise for its 
ability to weather external financial crises, gradually over the last 
two decades the structure of Hong Kong's economy has changed in ways 
that raise concerns among substantial numbers of Hong Kong citizens 
about their livelihoods. Some of these concerns may contribute to lower 
support for Hong Kong's own Government and frustration about how Hong 
Kong has developed under Chinese rule.
    During the last 20 years, Hong Kong has become more dependent on 
the mainland economy for economic growth and opportunity. Over time, 
Hong Kong's economy has specialized in the provision of financial, 
legal, and trade-related services for manufacturing and shipping 
companies operating in mainland China, or for mainland companies 
seeking to expand their operations overseas. As a result, many of the 
professional jobs that supported Hong Kong's middle class have been 
transferred to mainland China, resulting in a significant loss in 
employment opportunities that earn incomes to support a comfortable 
standard of living in Hong Kong. According to conversations with recent 
university graduates in Hong Kong, the nominal salary offered to new 
graduates in the last few years is approximately the same as in 1997. 
However, the cost of living in Hong Kong has increased substantially, 
especially the cost of housing. Many Hong Kong couples have postponed 
getting married or having children because they cannot afford to rent 
their own apartment.
    The structural changes in Hong Kong's economy over the last 20 
years can been seen in its rising wealth and income inequality, the 
increase in poverty (especially among its older population), and public 
opinion polls about the city's economic health. Between 1996 and 2016, 
Hong Kong's Gini coefficient for household income rose from 0.518 to 
0.539--the 8th highest income inequality in the world, according to the 
World Bank. \43\ According to Hong Kong's Census and Statistics 
Department, 20 percent of the city's population lives below the 
official poverty line. \44\ The Hong Kong Public Opinion Research 
Institute (PORI), an independent public opinion research group formed 
out of the previous Public Opinion Program at the University of Hong 
Kong (HKPOP), has conducted a regular survey of public ``concern for 
the economic problems of Hong Kong'' dating back to 2005. On a scale of 
0-10 (``extremely not concerned'' to ``extremely concerned''), the 
average rating throughout the 15 years has ranged between 6.75 and 7.5, 
indicating a fairly high level of concern about the economy. \45\
---------------------------------------------------------------------------
     \43\ The Gini coefficient is a measure of income or wealth 
inequality, ranging from zero for perfectly equal distribution to 1.0 
for perfectly unequal distribution (all income or wealth is possessed 
by one individual). By comparison, the U.S. Gini coefficient in 2016 
was 0.414, according to the World Bank. Source: https://
worldpopulationreview.com/countries/gini-coefficient-by-country/.
     \44\ Census and Statistics Department, ``Poverty Situation'', 
December 13, 2019.
     \45\ https://www.pori.hk/pop-poll/current-condition/n006
---------------------------------------------------------------------------
    The perceived loss of economic opportunity has contributed to 
political discontent among much of the Hong Kong population. Although 
the HKSAR Government has shown the ability to address exogenous 
economic shocks, it has arguably not taken sufficient actions to 
address the economic sufferings caused by structural economic changes.
Health Crises
    Since 1997, Hong Kong has faced serious health crises, including an 
outbreak of Avian (H5N1) flu in 1997, SARS in 2003, and COVID-19 in 
2020. The response of the HKSAR Government to each of these health 
crises has received mixed reviews, with particularly sharp criticism of 
the response to COVID-19.
    In May 1997, a Hong Kong boy contracted Avian flu and died. 
Investigations into the source of the disease pointed to imported 
chickens from mainland China. During the course of the outbreak, 18 
people were confirmed to be infected, of which 6 died. To contain the 
disease, the HKSAR Government slaughtered more than 1.5 million 
chickens in December 1997. \46\ While the mass slaughter and other 
measures apparently successfully contained the disease, the HKSAR 
Government was criticized for failing to take adequate measures to 
dispose of the dead chickens and for overcompensating the city's 
chicken vendors.
---------------------------------------------------------------------------
     \46\ Paul K.S. Chan, ``Outbreak of Avian Influenza A(H5N1) Virus 
Infection in Hong Kong in 1997'', Clinical Infectious Diseases, vol. 
34, no. Supplement 2 (May 2002).
---------------------------------------------------------------------------
    In March 2003, SARS spread from neighboring Guangdong Province to 
Hong Kong. By the beginning of June, 1,750 cases had been confirmed and 
286 people had died of the disease. \47\ Hong Kong's Department of 
Health conducted studies of the outbreak of the disease and implemented 
public health measures, such as shutting down schools and universities, 
monitoring overseas arrivals, compulsory isolation and surveillance of 
contacts, districtwide cleansing campaigns, and preventative education 
campaigns. Most Hong Kong residents voluntarily wore masks when in 
public and avoided leaving their homes. Companies and businesses 
implemented strict sanitation regimes in their buildings. Overall, the 
HKSAR Government was viewed as responding well to the public health 
crisis, although there was a shortage of personal protective equipment 
(PPEs) for medical staff at the start of the SARS outbreak.
---------------------------------------------------------------------------
     \47\ Lee Shiu Hung, ``The SARS Epidemic in Hong Kong: What Lessons 
Have We Learned?'' Journal of the Royal Society of Medicine, vol. 96, 
no. 8 (August 2003).
---------------------------------------------------------------------------
    In the eyes of many Hongkongers, the HKSAR Government has not done 
as well in responding to the COVID-19 pandemic. Soon after COVID-19 was 
confirmed in Wuhan, many Hong Kong residents voluntarily adopted the 
safety measures they learned during the SARS outbreak in 2003, such as 
wearing masks and avoiding leaving the home. Doctors, nurses, and other 
medical staff began wearing PPE when treating patients who presented 
with COVID-19 like symptoms. The city quickly experienced an acute 
shortage of PPE.
    The HKSAR Government, however, was relatively slow to implement 
preventative measures and initially resisted calls to close the border 
with mainland China. To many people in Hong Kong, it seemed that Chief 
Executive Lam and her top advisors were more concerned about offending 
China's leaders than protecting the health of Hong Kong residents. \48\ 
After a strike by unionized medical workers, the HKSAR Government 
closed the border with mainland China and implemented a mandatory 14-
day quarantine program for overseas arrivals. It subsequently undertook 
more restrictive measures to contain the spread of COVID-19, including 
the closing of all restaurants, bars, and entertainment clubs, as well 
as prohibiting the public gathering of more than 4 people.
---------------------------------------------------------------------------
     \48\ Sarah Wu, ``Coronavirus Widens Hong Kong Anger at Government, 
China'', Reuters, February 20, 2020.
---------------------------------------------------------------------------
    As of the start of June 2020, the number of confirmed COVID-19 
cases has leveled off at below 1,200 with 4 deaths. \49\ New confirmed 
cases are generally arrivals from overseas. While it appears the city 
has contained COVID-19, the HKSAR Government's apparent initial 
reluctance to implement the necessary preventative measures has been 
subjected to widespread criticism.
---------------------------------------------------------------------------
     \49\ Data from https://www.worldometers.info/coronavirus/.
---------------------------------------------------------------------------
Cultural Identity Crises
    Beyond the political, economic, and health crises, Hong Kong 
residents are contending with various cultural identity crises. The 
regular influx of immigrants from mainland China under various programs 
has given rise to tensions between the largely Mandarin-speaking 
immigrants and the Cantonese-speaking Hongkongers. \50\ China's Liaison 
Office in Hong Kong and other PRC officials have allegedly applied 
pressure on Hong Kong and foreign companies to cut business ties with 
prodemocratic businesses, newspapers, magazines, artists, and musicians 
in an effort to silence their voices. \51\ Many in Hong Kong are 
concerned that the PRC Government is attempting the cultural 
``mainlandization'' of Hong Kong.
---------------------------------------------------------------------------
     \50\ For one such account of those tensions, see Julie Zhu, 
``Mainlanders in Hong Kong Worry as Anti-China Sentiment Swells'', 
Reuters, October 30, 2019.
     \51\ Based on CRS interviews with Hong Kong residents, as well as 
various news accounts. For example, see `` `Liaison Office Trying To 
Coerce Business Sector' '' RTHK, May 16, 2019.
---------------------------------------------------------------------------
    The perceived threat to Hong Kong's distinctive cultural identity 
has given rise to an ``anti-mainlander'' attitude among some Hong Kong 
residents. Some people resent the recent immigrants and disparage their 
lack of understanding of Cantonese. A smaller segment of Hongkongers 
have developed nationalist attitudes and support Hong Kong's 
independence, which worries the PRC Government.
    Since the establishment of the HKSAR, the Hong Kong Public Opinion 
Research Institute (PORI), an independent research group, has 
interviewed Hong Kong residents on how they identify themselves among 
four options--Hongkonger, Hongkonger in China, Chinese in Hong Kong, or 
Chinese. \52\ In August 1997, 34.9 percent of residents said they were 
Hongkongers, 24.8 percent responded Hongkonger in China, 20.1 percent 
chose Chinese in Hong Kong, and 18.6 percent selected Chinese. \53\ In 
early June 2020, PORI conducted another survey; 50.5 percent said they 
were Hongkongers, 25.0 percent responded Hongkonger in China, 12.6 
percent chose Chinese, and 11.0 percent selected Chinese in Hong Kong.
---------------------------------------------------------------------------
     \52\ Hong Kong Public Opinion Research Institute, ``People's 
Ethnic Identity'', https://www.pori.hk/opinion-charts-3.
     \53\ Percentages do not add to 100 percent due selection of 
``other'' or nonresponse.
---------------------------------------------------------------------------
Effects of the Hong Kong's Crises
    The cumulative effects of the various crises experienced by the 
people of Hong Kong since the establishment of the HKSAR Government in 
1997 have left many Hong Kong people with little hope for their future, 
a loss of trust in the PRC and HKSAR Governments, and growing sense of 
desperation. Some look forlornly to the past, and wish for a return to 
the days as a British colony. A few call for Hong Kong independence, 
similar to that of Singapore, as a way out of the city's woes. Others 
look to the United States, the United Kingdom, and other Nations to 
rescue Hong Kong from the PRC and HKSAR Governments.
    According to PORI, the people of Hong Kong have lost trust in the 
PRC and HKSAR Governments. As of May 2020, 67.4 percent of the people 
surveyed were dissatisfied with the performance of the HKSAR 
Government, and 18.6 percent were satisfied. \54\ In addition, 62.9 
percent of the respondents said they distrusted the HKSAR Government, 
and 27.3 percent said they trusted the HKSAR Government. \55\ All four 
of the HKSAR's Chief Executives have seen their public ratings decline 
during their terms in office, and received worst ratings than former 
Governor Patten. \56\ When asked about their satisfaction with the 
performance of the HKPF in November 2019, 59.2 percent said they were 
dissatisfied and 33.8 percent indicated they were satisfied. \57\ A 
January 2020 poll of Hong Kong residents found 58.9 percent had, in 
general, negative views of the PRC Government, and 22.6 percent had 
positive views of the PRC Government. \58\ In addition, PORI's ``Public 
Sentiment Index'' in 2020 has been at its lowest levels in 28 years. 
\59\
---------------------------------------------------------------------------
     \54\ https://www.pori.hk/pop-poll/hksarg/h001
     \55\ https://www.pori.hk/pop-poll/hksarg/k001
     \56\ Donald Tsang received better ratings that Patten for his 
first 3 years in office, but his ratings fell below that of Patten for 
the rest of his time as Chief Executive. Carrie Lam's rating are well-
below that of any of her predecessors at a similar time during their 
terms in office (https://www.pori.hk/pop-poll/chief-executive/combined/
rating).
     \57\ https://www.pori.hk/pop-poll/disciplinary-force/x001/
satisfaction
     \58\ https://www.pori.hk/pop-poll/government/v003
     \59\ https://www.pori.hk/pop-poll/public-sentiment-index. PORI's 
Public Sentiment Index is a measure of people's appraisal of the 
quality of the HKSAR Government and of society.
---------------------------------------------------------------------------
    Many political activists, in conversations with CRS, have said that 
it is up to them to defend and preserve the Hong Kong they know and 
love. Whether it is by running for elected office, organizing 
demonstrations, or confronting HKPF officers in riot gear, they are 
trying to preserve Hong Kong's high degree of autonomy and protect 
their rights and freedoms promised in the Joint Declaration and 
enshrined in the Basic Law.
Why Hong Kong Matters
    Given the U.S. commitment to democracy and human rights, Hong Kong 
matters because the fate of its 7.5 million residents is important. In 
addition, as stated in the U.S.-Hong Kong Policy Act, ``the United 
States has a strong interest in the continued vitality, prosperity, and 
stability of Hong Kong.'' Hong Kong also matters because it matters to 
the People's Republic of China, and what matters to the PRC most likely 
matters to the United States, particularly at a time when China is 
described by some U.S. officials and scholars as the foremost ``great 
power'' with which the United States is in competition. \60\
---------------------------------------------------------------------------
     \60\ For example, see Testimony of Secretary of Defense Mark T. 
Esper, ``Department of Defense Posture Statement'', U.S. Congress, 
Senate Committee on Armed Services, 116th Cong., 2nd sess., March 4, 
2020; and Ashley J. Tellis, ``The Return of U.S.-China Strategic 
Competition'', in Strategic Asia 2020: U.S.-China Competition for 
Global Influence, ed. Ashley J. Tellis, Alison Szalwinski, Michael 
Wills (National Bureau of Asian Research, 2020).
---------------------------------------------------------------------------
U.S. Interests
    Most descriptions of U.S. interests in Hong Kong focus on the 
economic, trade, and investment ties. As reported by the State 
Department, Hong Kong hosts more than 1,300 U.S. firms, ``with about 
300 U.S. firms basing their Asian regional operations in the city.'' 
\61\ An estimated 85,000 U.S. residents live, work, and study in Hong 
Kong. According to the U.S. International Trade Commission, U.S.-Hong 
Kong merchandise trade in 2019 exceeded $35.5 billion dollars, and the 
United States' trade surplus of $26.1 billion was its largest among all 
trading partners. \62\ Hong Kong is a major hub for U.S. financial and 
investment flows into Asia, particularly the PRC. Hong Kong financial 
institutions, lawyers, and trade-related service companies continue to 
be important providers of services for U.S. companies seeking business 
opportunities in Asia.
---------------------------------------------------------------------------
     \61\ Department of State, ``2019 Hong Kong Policy Act Report'', 
March 21, 2019.
     \62\ Ibid.
---------------------------------------------------------------------------
    Arguably equally important are the political and social values 
shared between the people of Hong Kong and the United States. Most Hong 
Kong residents want to be able to elect their representatives in the 
HKSAR Government in free and fair elections. They want to enjoy the 
freedom of speech, association, assembly, religion, and the press; the 
same freedoms in Article 1 of the U.S. Bill of Rights. Hong Kong wants 
to preserve its system of rule of law, as reflected in the British 
common law heritage it shares with the United States, and not be 
subjected to rule by law, as is practiced in the PRC.
    In these days when democracy and human rights are being threatened 
by autocratic Governments, some of them elected in seemingly free and 
fair elections, the goals and aspirations of the majority of residents 
of Hong Kong may be a positive example to the people of other Nations 
in the region and throughout the world.
China's Interests
    When the PRC and the United Kingdom were negotiating the Joint 
Declaration and as the date of the handover of Hong Kong approached, 
many in Hong Kong were hopeful that the PRC Government would abide by 
the terms of the Joint Declaration and the Basic Law to ensure the 
prosperity and stability of the HKSAR and demonstrate to Taiwan that 
peaceful reunification is possible. Some scholars even speculated that 
the example of Hong Kong would open China's leaders to the possibility 
of political reforms in mainland China, with greater tolerance of human 
rights and limited democracy. Since 1997, the actions of the PRC and 
HKSAR Governments have led many in Hong Kong to conclude that these 
were false hopes.
    As previously discussed, China's leaders appear to see the events 
of 2019 and 2020 in Hong Kong as a threat to its national security and 
territorial integrity. They appear to fear that the challenges 
presented by the Hong Kong protests will inspire similar political 
movements in Tibet and the Xinjiang Uyghur Autonomous Region. The 
events in Hong Kong may also move Taiwan to renounce the ``One China 
Policy'', and embrace independence. As such, it is important to the PRC 
Government to demonstrate that Hong Kong is ``an inalienable part of 
the People's Republic of China,'' as stated in Article 1 of the Basic 
Law.
    Hong Kong continues to play a valuable role in advancing China's 
economic goals. A significant portion of China's trade with the world 
flows through Hong Kong or is facilitated by financial, legal, and 
other trade-related services provided by Hong Kong. Hong Kong remains a 
major conduit for investment into mainland China, as well as for the 
rising volume of mainland investments around the world, including Belt 
and Road Initiative (BRI) projects. \63\ Hong Kong also provides a 
mechanism to insulate the mainland economy from external economic 
shocks, such as the global financial crisis of 2007. The HKSAR is also 
to play a pivotal role in the Greater Bay Area Initiative, which seeks 
to integrate the economies of Guangdong Province, Hong Kong, and the 
Macau Special Autonomous Region.
---------------------------------------------------------------------------
     \63\ The BRI is China's plan to develop a network of 
transportation and telecommunications infrastructure to facilitate 
global trade and telecommunications. For more about BRI, see CRS In 
Focus IF10273, ``China's `One Belt, One Road' ''.
---------------------------------------------------------------------------
    Awareness of the importance of Hong Kong to the PRC is important as 
Congress and the U.S. Government consider what actions, if any, to take 
to address the perceived threats to Hong Kong and U.S. interests in 
Hong Kong. The preservation or advancement of U.S. goals and objectives 
may be weighed against the effects on China's goals and objectives, and 
how the PRC Government may respond to measures taken by the United 
States.
U.S. Policy Options
    U.S. policy regarding Hong Kong is stated in the U.S.-Hong Kong 
Policy Act of 1992 (P.L. 102-383). The Hong Kong Human Rights and 
Democracy Act of 2019 (P.L. 116-76) reaffirmed and augmented the 
existing policy by new provisions and authorities. Past Congresses and 
Administrations have generally agreed on the basic principles of U.S. 
policy on Hong Kong, including support for Hong Kong's high degree of 
autonomy, protecting the human rights and freedoms of the Hong Kong 
residents, and preserving the city's distinctive social and cultural 
heritage, and have strived to find ways to assist Hong Kong as it faced 
various political, economic, health, and cultural crises since the 
establishment of the HKSAR.
Current U.S. Policy Regarding Hong Kong
    The U.S.-Hong Kong Policy Act of 1992, as codified, states in 
section 5721(a):

        Notwithstanding any change in the exercise of sovereignty over 
        Hong Kong, the laws of the United States shall continue to 
        apply with respect to Hong Kong, on and after July 1, 1997, in 
        the same manner as the laws of the United States were applied 
        with respect to Hong Kong before such date unless otherwise 
        expressly provided by law or by Executive order under section 
        5722 of this title.

    In addition, the Act stipulates in section 5721(b):

    For all purposes, including actions in any court in the United 
States, the Congress approves the continuation in force on and after 
July 1, 1997, of all treaties and other international agreements, 
including multilateral conventions, entered into before November 27, 
2019, between the United States and Hong Kong, or entered into before 
November 27, 2019, between the United States and the United Kingdom and 
applied to Hong Kong, unless or until terminated in accordance with 
law. If in carrying out this subchapter, the President determines that 
Hong Kong is not legally competent to carry out its obligations under 
any such treaty or other international agreement, or that the 
continuation of Hong Kong's obligations or rights under any such treaty 
or other international agreement is not appropriate under the 
circumstances, such determination shall be reported to the Congress in 
accordance with section 5731 of this title.

    Section 5722(a) of the Act provides the President the authority to 
suspend the special treatment of Hong Kong:

        On or after July 1, 1997, whenever the President determines 
        that Hong Kong is not sufficiently autonomous to justify 
        treatment under a particular law of the United States, or any 
        provision thereof, different from that accorded the People's 
        Republic of China, the President may issue an Executive order 
        suspending the application of section 5721(a) of this title to 
        such law or provision of law.

    The text appears to tie the suspension of Hong Kong's treatment 
under a particular law or a provision of a law to a determination that 
Hong Kong is not sufficiently autonomous with respect to the law in 
question.
    Section 5726 of the Act, as amended by the Hong Kong Human Rights 
and Democracy Act, provides limited visa eligibility protection to Hong 
Kong residents who participated in the Umbrella Movement:

        Notwithstanding any other provision of law, applications for 
        visas to enter, study, or work in the United States, which are 
        submitted by otherwise qualified applicants who resided in Hong 
        Kong in 2014 and later, may not be denied primarily on the 
        basis of the applicant's subjection to politically motivated 
        arrest, detention, or other adverse Government action.

    The Hong Kong Human Rights and Democracy Act added new elements to 
U.S. policy regarding Hong Kong. Section 6(a) of the Act states that it 
is U.S. policy:

  1.  to safeguard United States citizens from extradition, rendition, 
        or abduction to the People's Republic of China from Hong Kong 
        for trial, detention, or any other purpose; [and]

  2.  to safeguard United States businesses in Hong Kong from economic 
        coercion and intellectual property theft.

    Section 7(b) requires the President to impose financial and visa 
sanctions on ``each foreign person that the President determines is 
responsible for:

    A.  the extrajudicial rendition, arbitrary detention, or torture of 
        any person in Hong Kong; or

    B.  other gross violations of internationally recognized human 
        rights in Hong Kong.''

    In addition, P.L. 116-77 prohibits the issuance of export licenses 
for the sale of ``tear gas, pepper spray, rubber bullets, foam rounds, 
bean bag rounds, pepper balls, water cannons, handcuffs, shackles, stun 
guns, and tasers'' to the Hong Kong Police Force for a period of 1 year 
after the date of enactment, or until November 27, 2020.
    Finally, the Further Consolidated Appropriations Act, 2020 (P.L. 
116-94) provides ``not less than $1,500,000'' for ``democracy programs 
for Hong Kong, including legal and other support for democracy 
activists.'' The funds are appropriated under the heading ``Democracy 
Fund'' for the Human Rights and Democracy Fund of the Bureau of 
Democracy, Human Rights, and Labor, Department of State.
Actions by the Trump Administration
    U.S. policy and law provides the Administration with the authority 
to take action regarding the current situation in Hong Kong, if it 
chooses to do so. On May 30, 2020, President Trump stated that he was 
``directing my Administration to begin the process of eliminating 
policy exemptions that give Hong Kong different and special 
treatment.'' \64\ He also indicated that this directive ``will affect 
the full range of agreements we have with Hong Kong, from our 
extradition treaty to our export controls on dual-use technologies and 
more, with few exceptions.'' In addition, his Administration ``will 
take action to revoke Hong Kong's preferential treatment as a separate 
customs and travel territory from the rest of China,'' and the State 
Department will revise its ``travel advisory for Hong Kong to reflect 
the increased danger of surveillance and punishment by the Chinese 
State security apparatus.'' Finally, President Trump said, ``The United 
States will also take necessary steps to sanction PRC and Hong Kong 
officials directly or indirectly involved in eroding Hong Kong's 
autonomy and--just if you take a look, smothering--absolutely 
smothering Hong Kong's freedom.''
---------------------------------------------------------------------------
     \64\ White House, ``Remarks by President Trump on Actions Against 
China'', press release, May 30, 2020.
---------------------------------------------------------------------------
    To date, the only action taken since the President's statement is 
the State Department's amending an existing travel advisory for Hong 
Kong on June 12, 2020. The new text warns U.S. visitors to ``[e]xercise 
increased caution in Hong Kong due to civil unrest, risk of 
surveillance, and arbitrary enforcement of laws other than for 
maintaining law and order.'' \65\
---------------------------------------------------------------------------
     \65\ Department of State, Hong Kong Travel Advisory, June 12, 
2020.
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Pending Legislation
    Several bills have been introduced that would further amend U.S. 
policy in Hong Kong, and provide new authorities and tools to implement 
U.S. policy.
    The Hong Kong Autonomy Act (S. 3798) would impose property- and 
visa-blocking sanctions on foreign persons and foreign financial 
institutions that ``contravene the obligations of China under the Joint 
Declaration or the Basic Law.''
    The Hong Kong Be Water Act (H.R. 5725, S. 2758) would impose 
property- and visa-blocking sanctions on any foreign person who is an 
official of Hong Kong's Government or China's Government and who 
knowingly suppressed the freedom of speech, association, procession, or 
demonstration in Hong Kong. The Act would also block property 
transactions involving a Chinese national, an entity owned or 
controlled by China's Government, or an officer or senior official of 
such an entity, if that individual or entity has attempted to undermine 
the autonomy, basic liberties, and human rights of the people of Hong 
Kong.
    The Hong Kong Freedom Act (H.R. 6947) would ``authorize the 
President to recognize the Hong Kong Special Administrative Region of 
the People's Republic of China as a separate, independent country.''
    The Hong Kong Victims of Communism Support Act (S. 3892) would 
grant asylum to individuals who currently possess the Right of Abode 
(Permanent Residency) in Hong Kong by birth and who have maintained a 
continuous residency in Hong Kong since birth. The Act also states that 
an application for asylum ``may not be denied primarily on the basis of 
the applicant's subjection to politically motivated arrest, detention, 
or other adverse Government action.''
    The Placing Restrictions on Teargas Exports and Crowd Control 
Technology to Hong Kong Act (H.R. 4270) would prohibit the issuance of 
licenses to export certain defense items and services to the Hong Kong 
Police Force or the Hong Kong Auxiliary Police Force. Unlike P.L. 116-
77, the restrictions on U.S. exports would not terminate a year after 
enactment, but would remain in place until the President certifies to 
Congress that:

  1.  the Hong Kong Police have not engaged in gross violations of 
        human rights during the 1-year period ending on the date of 
        such certification; and

  2.  there has been an independent examination of human rights 
        concerns related to the crowd control tactics of the Hong Kong 
        Police and the Government of the Hong Kong Special 
        Administrative Region has adequately addressed those concerns.
Issues To Consider
    As Congress considers what actions, if any, to take to address the 
situation in Hong Kong and the current political crisis in the city, it 
may consider what objectives or goals it seeks to achieve, and identify 
reasonable expectations of what it may be able to achieve. Among the 
various goals or objectives being discussed are:

    Make the PRC and HKSAR Governments fulfill their 
        obligations and commitments contained in the Joint Declaration 
        and the Basic Law;

    Punish those responsible for violations of the obligations 
        and commitments contained in the Joint Declaration and Basic 
        Law;

    Punish the Hong Kong Police Force for its excessive use of 
        force during the protests of 2019;

    Seek to limit the Hong Kong Police Force's access to the 
        weapons and equipment used to physically harm Hong Kong 
        protesters and suppress legitimate political demonstrations in 
        Hong Kong;

    Protect the participants in the 2019 protests from arrest, 
        detention, imprisonment, or other forms of unjust punishment 
        for their involvement in legitimate efforts to protect their 
        rights and freedoms;

    Promote the adoption of universal suffrage for the election 
        of Hong Kong's Chief Executive and all Legco members in a 
        manner acceptable to the majority of Hong Kong residents;

    Maintain Hong Kong's role as a regional hub for 
        international trade, investment, and finance beneficial to U.S. 
        companies and residents; and

    Support Hong Kong as a society in Asia that supports 
        democracy, human rights, and the rule of law.

    As laudable as many of these goals and objectives may seem to 
Congress, it may be useful to view them in terms of how feasible they 
may be to achieve. China's NPC has approved its decision to impose 
national security laws on Hong Kong, and the NPCSC plans to fulfill its 
obligation to write such legislation and add it to Annex III of the 
Basic Law. Similarly, Chief Executive Lam and the HKSAR Government 
appear committed to complying with the NPC's decision.
    As such, Congress may consider how it would respond to a new Hong 
Kong that could emerge if the NPCSC's national security laws are 
enacted and the HKSAR Government proposes the local legislation 
required by the NPC's decision. One may anticipate the NPCSC's 
legislation will spark more demonstrations, some peaceful and some 
confrontational. The HKPF may respond with the greater use of force, 
more tear gas, more rubber bullets, and more pepper spray. More 
protesters and police officers could be injured.
    Some of the legislation that has been introduced would impose 
sanctions on PRC and HKSAR officials responsible for the erosion of 
Hong Kong's autonomy and the rights of Hong Kong residents. Arguably 
there is another segment of the Hong Kong community that has 
potentially been complicit in these undesirable developments in Hong 
Kong--Hong Kong tycoons and business leaders who have supported and 
encouraged the PRC and HKSAR Government. If Congress were to subject 
these tycoons and business leaders to targeted sanctions, they may use 
their influence with China's leaders and Chief Executive Lam to adopt a 
new approach to addressing the grievances of the people of Hong Kong.
    Finally, two segments of Hong Kong society could be overlooked as 
Congress considers its options. The first group consists of the 
thousands of unnamed protesters who have put their personal safety at 
risk by joining the demonstrations over the last year. Individuals such 
as Lee Chuek-yan, who will testify at today's hearing, as well as 
Joshua Wong, Martin Lee, and Jimmy Lai, most likely can easily find 
refuge or sanctuary in another country, if they so desire. The unnamed 
protesters, however, may lack the connections, notoriety, and financial 
resources to emigrate from Hong Kong if they wish to do so.
    The second group consists of those Hong Kong residents who, having 
seen the new Hong Kong being imposed by the PRC and HKSAR Government, 
have decided they do not wish to live in such a society. The wealthier 
Hong Kong residents most likely already have contingency plans and will 
leave when they decide it is in their best interest to leave. Hong 
Kong's small business owners, junior professionals, blue collar service 
workers, and working poor likely lack the means to escape their 
undesirable and undeserved fate.
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for this opportunity to testify at today's hearing.
                                 ______
                                 
                  PREPARED STATEMENT OF PETER HARRELL
Adjunct Senior Fellow, Energy, Economics, and Security Program, Center 
                      for a New American Security
                              June 4, 2020
    Chairman Crapo, Ranking Member Brown, honorable Members of the 
Committee, it is an honor to be asked to testify to you today on an 
issue of critical importance to U.S. foreign policy, ``The Crisis in 
Hong Kong: A Review of U.S. Policy Tools''.
    You have invited me to testify on a somber day. This is not only 
because of the global COVID-19 pandemic and the demonstrations and 
unrest against injustice in the United States that have we have seen 
over the past week, but because today, June 4, marks the anniversary of 
the massacre that ended 2 months of proreform protests in Tiananmen 
Square, one of the darkest days for democracy in modern China. Earlier 
this week the Hong Kong authorities denied, for the first time in 
decades, a request for a permit to hold a memorial vigil in Hong Kong 
to mark Tiananmen. Yet as I reflect on China's repression 31 years ago, 
I cannot help but think of the iconic photo of an anonymous Chinese 
protestor staring down a line of Chinese tanks, which remains an 
inspiration to people everywhere of the power we all possess to stand 
up for justice in the face of repression.
    China's erosion of Hong Kong's autonomy over the past decade, 
including Beijing's announcement last month that China will force a new 
national security law on Hong Kong that China may use to punish 
prodemocracy activists and protestors in the city, should be seen not 
as a unique act, but rather as one element of the Chinese Government's 
growing global assertiveness and challenge to liberal democracy. Under 
the leadership of Xi Jinping, the Chinese Communist Party (CCP) has 
become more antidemocratic both at home and abroad. China's growing 
assertiveness against countries, entities, and individuals that express 
support for democratic values, whether it is the National Basketball 
Association here in the United States or the assistance that China 
increasingly provides other authoritarian States to track and repress 
their own citizens, poses a serious threat to freedom and democratic 
values everywhere.
    I believe that four principles should guide the U.S. response to 
China's attacks on Hong Kong's autonomy:

    First, hold China to account while mitigating unintended 
        costs to the people of Hong Kong. The Chinese Government, not 
        the people of Hong Kong, should bear the brunt of the costs of 
        China's erosion of Hong Kong's autonomy. While the United 
        States should not indefinitely treat Hong Kong as legally 
        distinct from China in many respects if China does not treat 
        Hong Kong as autonomous, shifts in specific U.S. laws should be 
        tailored to specific Chinese actions and changes in specific 
        areas be structured to help rather than harm Hong Kong 
        citizens.

    Second, ensure that the U.S. response to China's erosion of 
        Hong Kong's autonomy fits within the context of America's 
        overall strategy towards China. The U.S. response to Hong Kong 
        is not only about Hong Kong. It is also about signaling to 
        China what future types of Chinese actions are unacceptable and 
        the kinds of U.S. responses that future actions will draw. Our 
        response also has to recognize that despite America's rivalry 
        with China and justified anger at many of China's actions, the 
        U.S.-China relationship continues to include important economic 
        and strategic interests and that the U.S. will need to work 
        with China on global threats such as climate change.

    Third, use the full range of tools. Faced with Chinese 
        aggression, there is an understandable desire to impose costs 
        by denying China financial and economic privileges. Measures 
        such as targeted sanctions can and should play an important 
        role in highlighting repression. But other policy responses, 
        such as diplomatic engagement and offers of visas to Hong Kong 
        citizens, can be equally powerful.

    Finally, the United States must galvanize a global 
        coalition and live up to our own values. Aside from a handful 
        of countries such as the United Kingdom (U.K.), the 
        international response to China's planned new national security 
        law for Hong Kong has been disappointing. The United States 
        must galvanize a global coalition to bring diplomatic and other 
        forms of pressure to bear to highlight the steady erosion of 
        Hong Kong's autonomy. But we must be honest with ourselves: in 
        recent days protests in global cities from London to Auckland 
        have been focused on the developments here in the United States 
        rather than developments in Hong Kong. Police abuses of unarmed 
        men and women and U.S. security forces using riot control 
        equipment to disperse peaceful protestors profoundly undercuts 
        U.S. leadership. While governors and mayors are justified in 
        taking steps to protect our own cities from violence, the world 
        is watching our response and judging it and us. By failing to 
        live up to our ideals, we will be making the world less just, 
        less safe, and less free.

    I plan to address three specific areas of U.S. policy responses in 
my remarks today: treating Hong Kong more like China under U.S. law, 
holding China to account in ways that advance overall U.S. strategy, 
and building a global diplomatic coalition. But first, I would like to 
briefly address how China has eroded Hong Kong's autonomy over the past 
decade.
China's Growing Erosion of Hong Kong's Autonomy
    Those of you who have had the privilege to visit Hong Kong 
understand what a unique city it is. I first visited the city nearly 20 
years ago, just a few years after China resumed sovereignty over the 
territory. I was captivated by the architecture, the food, and most 
importantly the entrepreneurialism and spirit of Hong Kong's people.
    In 1984, when China's sovereignty over Hong Kong remained more than 
a decade in the future, China committed that it would protect Hong 
Kong's freedoms and autonomy under ``one country, two systems'' for 50 
years following the United Kingdom's handover of Hong Kong in 1997. 
China made these commitments in the Sino-British Joint Declaration--a 
document that both the U.K. and China filed with the United Nations as 
a treaty, and which provided that the ``rights and freedoms'' of Hong 
Kong citizens would be ensured. \1\
---------------------------------------------------------------------------
     \1\ Official Publication: ``Sino-British Joint Declaration on the 
Question of Hong Kong'', reprinted by Loyola of Los Angeles 
International and Comparative Law Review, July 1, 1997.
---------------------------------------------------------------------------
    The United States codified the concept of ``one country, two 
systems'' into U.S. law in 1992 when Congress passed the Hong Kong 
Policy Act (HKPA). The HKPA provided that the United States would 
continue in force the treatment of Hong Kong under various U.S. laws, 
such as U.S. customs laws, that were in effect prior to the British 
handover of the territory so long as Hong Kong remained ``sufficiently 
autonomous'' from the People's Republic of China, as provided by the 
terms of the Joint Declaration. Pursuant to the HKPA, for 23 years 
since Britain handed Hong Kong back to China, U.S. customs laws, export 
controls, and other areas of law have continued to provide Hong Kong 
with different and more advantageous treatment than mainland China.
    Over the past decade, however, China has steadily chipped away at 
Hong Kong's autonomy. In June 2014 the Chinese Government released a 
white paper asserting that China had ``comprehensive jurisdiction'' \2\ 
over Hong Kong and limited the nominating process for Hong Kong's Chief 
Executive, undercutting Joint Declaration commitments that the Chief 
Executive would be chosen by ``universal suffrage.'' \3\ The 
nongovernmental organization Reporters Without Borders ranked Hong Kong 
80th in terms of global press freedom in 2020, \4\ still well ahead of 
China (at 177 out of 180), but down from 34 in 2010. \5\ In 2016, 
Beijing pressed for the disqualification of two proindependence Hong 
Kong legislators who had modified their oath of office in a way that 
China viewed as insulting, \6\ with four more legislators disqualified 
in 2017. \7\ Also in 2017, the Chinese Foreign Ministry suggested that 
the Joint Declaration had ceased to have ``practical significance.'' 
\8\
---------------------------------------------------------------------------
     \2\ ``The Practice of the `One Country, Two Systems' Policy in the 
Hong Kong Special Administrative Region''. The Information Office of 
the State Council, People's Republic of China, 2014, via South China 
Morning Post, https://www.scmp.com/news/hong-kong/article/1529167/full-
text-practice-one-country-two-systems-policy-hong-kongspecial.
     \3\ ``China Rules Out Open Elections in Hong Kong'', The Guardian, 
August 31, 2014, https://www.theguardian.com/world/2014/aug/31/china-
rules-out-open-elections-hong-kong.
     \4\ Reporters Without Borders, ``World Press Freedom Index--
2020'', 2020, https://rsf.org/en/ranking.
     \5\ Reporters Without Borders, ``World Press Freedom Index--
2010'', 2010, https://rsf.org/en/world-press-freedom-index-2010. Hong 
Kong ranked 18th in 2002, the first year Reporters Without Borders 
compiled its index. https://rsf.org/en/reporterswithout-borders-
publishes-first-worldwide-press-freedom-index-october-2002.
     \6\ ``Hong Kong Pro-Independence Lawmakers Disqualified From 
Office'', BBC, November 15, 2016, https://www.bbc.com/news/world-asia-
china-37984118.
     \7\ Benjamin Haas, ``Hong Kong Pro-Democracy Legislators 
Disqualified From Parliament'', The Guardian, July 14, 2017 https://
www.theguardian.com/world/2017/jul/14/hong-kong-pro-democracy-
legislators-disqualified-parliament#maincontent.
     \8\ ``China Says Sino-British Joint Declaration on Hong Kong No 
Longer Has Meaning'', Reuters, June 30, 2017, https://www.reuters.com/
article/us-hongkong-anniversary-china/china-says-sino-british-joint-
declaration-on-hong-kong-no-longer-has-meaning-idUSKBN19L1J1.
---------------------------------------------------------------------------
    Last year, Chinese efforts to encroach on Hong Kong's autonomy 
accelerated. In April, pro-Beijing lawmakers in Hong Kong proposed a 
bill that would have allowed extraditions to China in some 
circumstances, a measure that prodemocracy activists warned could be 
used to target activists, journalists, and others who refused to toe 
Beijing's line. Hundreds of thousands of people turned out for protests 
that, at times, the Hong Kong security forces repressed with violence. 
Protests continued even after the Hong Kong Government shelved the 
proposed extradition law, and, in a testament to the spirit of Hong 
Kong, in late November prodemocracy candidates overwhelmingly won local 
elections in the city. \9\ Here in Washington, the U.S. Congress passed 
the Hong Kong Human Rights and Democracy Act, which required the 
Secretary of State to periodically certify that Hong Kong remained 
sufficiently autonomous from China to merit separate treatment from 
China under U.S. law and to impose certain sanctions on individuals and 
entities that engage in repression in Hong Kong. \10\
---------------------------------------------------------------------------
     \9\ Keith Bradsher, Austin Ramzy, and Tiffany May, ``Hong Kong 
Election Results Give Democracy Backers Big Win'', The New York Times, 
November 25, 2019, https://www.nytimes.com/2019/11/24/world/asia/hong-
kong-election-results.html.
     \10\ U.S. Senate, ``Hong Kong Human Rights and Democracy Act of 
2019'', S. 1838, 116th Cong., 1st sess., https://www.congress.gov/bill/
116th-congress/senate-bill/1838/text.
---------------------------------------------------------------------------
    In early 2020, concerns over the COVID-19 pandemic appeared to have 
quieted the protests in Hong Kong's streets. Yet prodemocracy forces in 
Hong Kong could justifiably feel that their work had achieved a degree 
of success in securing their rights, with the extradition law on ice 
and global attention focused on their resistance to encroaching 
authoritarianism. That ended early last month when Beijing announced 
that it planned to increase its authority over the city by mounting an 
end run around Hong Kong's legislature and citizens. Rather than 
continuing to press for legislative reform within Hong Kong to expand 
China's powers, China itself would draft a new national security law 
for the city criminalizing acts of secession, subversion, terrorism, 
and foreign interference in Hong Kong, and force the Hong Kong 
executive to promulgate the law without turning to Hong Kong's 
legislature. \11\
---------------------------------------------------------------------------
     \11\ ``Hong Kong Security Law: What Is It and Is It Worrying?'', 
BBC, May 29, 2020, https://www.bbc.com/news/world-asia-china-52765838.
---------------------------------------------------------------------------
    Last week, China's National People's Congress formally decided to 
move forward with preparing the national security law, which is 
expected to be finalized over the summer. The precise terms of the law 
are not yet clear, including definitions of the crimes and the extent 
to which individuals accused of the crimes would be tried in Hong Kong 
versus mainland China. But democratic activists across Hong Kong fear 
the consequences will be draconian. In response to China's actions, 
last Wednesday Secretary of State Mike Pompeo found that Hong Kong no 
longer met the standards of autonomy that served as the basis for Hong 
Kong's differential treatment under U.S. law. He stated ``No reasonable 
person can assert today that Hong Kong maintains a high degree of 
autonomy from China, given facts on the ground.'' \12\
---------------------------------------------------------------------------
     \12\ ``P.R.C. National People's Congress Proposal on Hong Kong 
National Security Legislation'', U.S. Department of State, press 
release, May 27, 2020, https://www.state.gov/prc-national-peoples-
congress-proposal-on-hong-kong-national-securitylegislation/.
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U.S. Policy Responses
    I will now turn to addressing the options for U.S. policy responses 
to this erosion of Hong Kong's sovereignty. The first area to discuss 
is steps to treat Hong Kong more like China under U.S. law.
    1. Treating Hong Kong More Like China Under U.S. Law: Last Friday, 
following Secretary Pompeo's statement regarding Hong Kong's increasing 
lack of autonomy, President Trump announced that his Administration 
would ``begin the process of eliminating policy exemptions that give 
Hong Kong different and special treatment.'' \13\
---------------------------------------------------------------------------
     \13\ President Donald J. Trump, ``Remarks by President Trump on 
Actions Against China'' (Rose Garden, Washington, May 29, 2020), 
https://www.whitehouse.gov/briefings-statements/remarks-president-
trump-actions-china/.
---------------------------------------------------------------------------
    U.S. law treats Hong Kong differently from China in myriad ways. 
U.S. imports of goods from Hong Kong face different tariff rates than 
goods imported from China and have not been subject to the tariffs of 
up to 25 percent that President Trump has imposed over the past 2 years 
on some $370 billion of U.S. imports from China. U.S. export control 
laws allow a greater range of exports of sensitive and dual-use items 
to Hong Kong than to mainland China. The United States has an 
extradition agreement with Hong Kong, as well as an agreement on 
aviation landing rights. The Committee on Foreign Investment in the 
United States (CFIUS) process does not publish a formal framework 
regarding how it reviews foreign investments from specific countries, 
but CFIUS categorizes Hong Kong and China differently and has the 
potential for differential treatment. The United States has the ability 
to treat visa applicants from China and Hong Kong differently.
    There is a legitimate and important debate about whether broad 
measures to align Hong Kong's treatment under U.S. law with China 
across all these areas will bring effective pressure to bear against 
Beijing or whether such measures will simply impose costs on the people 
of Hong Kong without impacting Beijing. I fundamentally believe that 
U.S. law cannot indefinitely continue to treat Hong Kong separately in 
most respects if Beijing does not treat the city as autonomous. Beijing 
needs to understand that it cannot have it both ways, denying Hong 
Kong's autonomy while the world still treats Hong Kong as autonomous. 
But the U.S. Government should take a nuanced approach towards aligning 
aspects of U.S. treatment of Hong Kong with China while working to 
preserve differential treatment when it serves both U.S. interests and 
the interests of the people of Hong Kong.
    One immediate step that the U.S. should take is to permanently halt 
the export of U.S. crime control equipment such as tear gas to Hong 
Kong. Last year, in the wake of media reports that Hong Kong police 
were using U.S.-made tear gas against protestors, Congress passed S. 
2710, \14\ which generally prohibited the export of crime control 
equipment to Hong Kong for a period of 1 year. It is time to make that 
ban permanent. I also urge the U.S. to impose robust export controls on 
U.S. surveillance technologies that can be used to monitor Hong Kong 
citizens online and in person. While the practical reality is that Hong 
Kong authorities can obtain many surveillance technologies from the 
Chinese, the United States should nonetheless ensure that U.S. 
technology will not facilitate the surveillance of Hong Kong citizens.
---------------------------------------------------------------------------
     \14\ U.S. Senate, A bill to prohibit the commercial export of 
covered munitions items to the Hong Kong Police Force, S. 2710, 116th 
Cong., 1st sess., https://www.congress.gov/bill/116th-congress/senate-
bill/2710.
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    I recommend more significant steps after China actually follows 
through on its plans to impose a draconian national security law on 
Hong Kong. With Chinese officials drafting the law over the next 2 
months, U.S. policy should make clear the costs China will face after 
the national security law is enacted. Specific steps that I recommend 
the U.S. Government take to align Hong Kong and China's treatment under 
U.S. law after the national security law is imposed include:

    Announce that Hong Kong Government officials and their 
        immediate families will receive visas to visit the United 
        States on the same basis that the U.S. grants such visas to 
        Chinese officials and their families.

    Direct the Treasury Department and other agencies involved 
        in CFIUS to treat investments from Hong Kong-domiciled 
        companies comparably to investments from mainland Chinese 
        companies.

    Direct the Commerce Department to begin treating most 
        exports of sensitive and dual-use goods to Hong Kong similarly 
        to the way it treats exports of such goods to mainland China.

    Pause U.S. extraditions to Hong Kong and initiate a review 
        of the U.S. extradition agreement with Hong Kong.

    Announce a scheduled phase-in for tariff rates that will 
        increasingly treat Hong Kong the same as China for customs 
        purposes.

    In other areas of U.S. law, however, I would refrain from making 
major changes. For example, I would not advise the United States to end 
the U.S.-Hong Kong aviation agreement, which would force D.C. to 
negotiate with Beijing over flights to the city--increasing Beijing's 
influence. I would continue to treat visa applications by ordinary Hong 
Kong citizens liberally. I would not work to disrupt Hong Kong's status 
as a global financial hub, which would undercut Hong Kong's economy and 
likely drive financial activity into mainland China--facilitating a 
long-term Chinese goal of seeing Shanghai supplant Hong Kong as the 
region's leading financial center.
    I spoke earlier in my remarks about deploying the full range of 
U.S. tools. In addition to taking steps to align the treatment of Hong 
Kong and China under U.S. law, the United States should deploy 
diplomatic and other tools support the prodemocracy movement in Hong 
Kong. For example, last September, the Congressional-Executive 
Commission on China invited several leaders of the Umbrella Movement to 
testify at a hearing. \15\ I urge members of both the Senate and the 
House to pursue other hearings and public meetings to stand with 
prodemocracy activists from Hong Kong, which sends a powerful 
diplomatic and symbolic message of U.S. support.
---------------------------------------------------------------------------
     \15\ U.S. Congress, Congressional-Executive Commission on China, 
``Hong Kong's Summer of Discontent and U.S. Policy Responses'', 116th 
Congress, 1st sess., 2019, https://www.cecc.gov/events/hearings/hong-
kongs-summer-of-discontent-and-uspolicy-responses.
---------------------------------------------------------------------------
    I also commend the recent United Kingdom announcement that the U.K. 
will offer work visas and a potential path to citizenship for nearly 
three million Hong Kong residents, beginning after China enacts the 
national security law. \16\ Britain's offer is a powerful repudiation 
of Beijing's authoritarian move and threatens a ``brain drain'' from 
the city the that will undercut some of the advantages that Xi Jinping 
hopes to obtain by asserting Beijing's authority over Hong Kong. The 
United States should similarly offer a new visa program for Hong Kong 
residents who fear Chinese persecution to allow them to immigrate to 
America.
---------------------------------------------------------------------------
     \16\ Telegraph Reporters, ``Boris Johnson Says 3m People in Hong 
Kong Will Get Path to British Citizenship'', The Telegraph, June 3, 
2020, https://www.telegraph.co.uk/news/2020/06/03/boris-johnson-says-
3m-people-hong-kong-will-get-path-british/.
---------------------------------------------------------------------------
    2. Holding China to Account To Advance Overall U.S. Strategy: The 
second area of U.S. policy response should focus on measures to 
penalize Beijing. The Hong Kong Human Rights and Democracy Act passed 
last November requires the President to sanction Chinese officials 
involved in ``the extrajudicial rendition, arbitrary detention, or 
torture of any person in Hong Kong'' and ``other gross violations of 
internationally recognized human rights in Hong Kong.'' Several members 
of Congress have introduced other legislation to impose sanctions over 
China's erosion of Hong Kong's autonomy. Targeted sanctions on Chinese 
officials involved in repressing freedom in Hong Kong make sense, as do 
targeted sanctions against officials involved in other Chinese abuses 
of human rights and fundamental freedoms, such as the bill Congress 
recently passed to impose sanctions on officials involved in China's 
repression of its Uighur minority. \17\
---------------------------------------------------------------------------
     \17\ U.S. Senate, ``Uyghur Human Rights Policy Act of 2020'', 
116th Cong., 2nd sess., https://www.congress.gov/bill/116thcongress/
senate-bill/3744/
text?q=%7B%22search%22%3A%5B%22uighur%22%5D%7D&r=1&s=4.
---------------------------------------------------------------------------
    In addition to sanctions, there is a broad range of potential 
measures that the United States can deploy against China in the wake of 
its erosion of Hong Kong's autonomy. In deploying a broader suite of 
measures against China, the U.S. Government should be thinking not only 
about Hong Kong, but about how the U.S. response to Hong Kong fits 
within America's emerging overall strategy of geopolitical and economic 
competition with China. China's erosion of Hong Kong's autonomy is part 
of a much broader trend of Chinese illiberalism at home and abroad. 
China has engaged in an inhumane crackdown on its Uighur population 
that has involved the detention of some one million people. China has 
harnessed its economic power to bully countries from Norway to 
Australia that have criticized the Chinese Government and its 
antidemocratic practices. Having built one of the world's most 
successful surveillance and censorship apparatuses at home, China has 
begun to export its model of surveillance and censorship to other 
Governments. \18\ In recent months China has further escalated its 
efforts to assert control of the South China Sea and stoked tensions 
with India. The U.S. response to China's encroachment on Hong Kong 
should be part of a broader strategy to combat Chinese threats to 
democracy.
---------------------------------------------------------------------------
     \18\ Paul Mozur, Jonah M. Kessel, and Melissa Chan, ``Made in 
China, Exported to the World: The Surveillance State '', New York 
Times, April 24, 2019, https://www.nytimes.com/2019/04/24/technology/
ecuador-surveillance-cameras-policegovernment.html.
---------------------------------------------------------------------------
    We also have to be frank in acknowledging the potential costs to 
the United States of hasty, economically significant actions. The 
United States and China continue to have one of the world's most 
important trading relationships, with two-way goods trade valued at 
more than $550 billion in 2019 despite the impacts of new U.S. tariffs 
reducing trade flows. \19\ For many American companies, China is one of 
their largest markets. U.S. and Chinese financial markets are 
intertwined to a degree and global financial markets will react badly 
to hasty decoupling, an issue that we have to take particularly 
seriously during the current global economic crisis. China's economic 
size and sophistication also make it fundamentally different from 
smaller countries such as Venezuela and Iran, that have few options to 
circumvent and retaliate against U.S. economic pressure. All out 
economic war with China would be costly to the United States for 
uncertain gains.
---------------------------------------------------------------------------
     \19\ ``Trade in Goods With China'', U.S. Census Bureau, https://
www.census.gov/foreign-trade/balance/c5700.html.
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    I urge Congress and the Executive Branch to respond to China's 
attacks on Hong Kong's autonomy by pursuing action against the Chinese 
illiberalism in at least three specific areas: Antidemocracy and 
corruption; antisurveillance; and securing the U.S. against undue 
Chinese influence.
    First, antidemocracy and corruption. The U.S. Government should 
join with close allies to launch a comprehensive campaign to push back 
on Chinese subversion of democratic rules and its corruption. This 
would include a Government-backed effort to identify and publicize 
corruption by both individual Chinese officials and by Chinese 
companies operating around the world. We should also expose and 
publicize the acts of individual Chinese officials subverting 
democratic norms around the world. The United States and allies such as 
the United Kingdom and European Union, which have sanctions authorities 
on the books to target Government officials and others involved in 
human rights abuses and corruption, should use those tools to take 
action against Chinese officials and companies found to be involved.
    Second, antisurveillance and censorship. China has developed a 
sophisticated domestic surveillance apparatus that it is increasingly 
exporting to the world. In recent months the world has borne the costs 
of Chinese censorship that helped to suppress early reports of the 
COVID-19 pandemic. China, meanwhile has signed deals to export 
surveillance technology to Zimbabwe, Ethiopia, Angola, Zambia, and 
Uganda, among many other countries. \20\ Growing use of Chinese 
surveillance and censorship tools, not just in China but globally, 
poses a profound threat to democratic values. The United States and its 
allies need to mount an aggressive campaign to deter countries from 
deploying Chinese censorship and surveillance campaigns and, to the 
extent we can, to push back on China's censorship and surveillance 
inside China's borders.
---------------------------------------------------------------------------
     \20\ Arthur Gwagwa and Lisa Garbe, ``Exporting Repression? China's 
Artificial Intelligence Push Into Africa'', Net Politics blog on 
Council on Foreign Relations, December 17, 2018, https://www.cfr.org/
blog/exporting-repression-chinas-artificialintelligence-push-africa; 
Samuel Woodhams, ``Huawei, Africa and the Global Reach of Surveillance 
Technology'', DW, September 12, 2019, https://www.dw.com/en/huawei-
africa-and-the-global-reach-of-surveillance-technology/a-50398869.
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    Third, securing the United States against undue Chinese influence. 
Over the last decade, China has not hesitated to weaponize its economic 
power in pursuit of geopolitical goals. Here in the United States, 
China retaliated against the National Basketball Association after 
Houston Rockets General Manager Daryl Morey supported democratic 
protestors in Hong Kong. China is currently engaging in economic 
coercion against Australia and Canada over political disputes. The U.S. 
Government needs to ensure that our economy and markets are protected 
against undue Chinese influence.
    Over the past several years, Congress and the Executive Branch have 
taken a handful of steps to protect the U.S. against Chinese influence, 
reforming the CFIUS process to tighten reviews of Chinese acquisitions 
of U.S. companies, banning Huawei and other Chinese equipment from 
communications networks, and beginning to focus on ensuring supplies of 
critical materials, such as rare earth elements. In recent months the 
United States ramped up production of critical medical equipment. Much 
more needs to be done. The U.S. Government needs to launch a 
comprehensive national supply chain security review to identify supply 
chain vulnerabilities and close them. U.S. Government agencies should 
ensure that Chinese companies that are listed in the United States 
adhere to U.S. financial standards. We need a beneficial ownership law 
that ensures that the Chinese Government cannot set up secret shell 
companies in the U.S. and use them as vehicles to pursue its 
objectives. And the United States Government should ensure that 
companies are able to stand up to Chinese bullying and adhere to 
American values when they operate in China.
    Securing the United States against sources of undue Chinese 
influence does not mean cutting off the U.S. from China economically or 
terminating the ability to Chinese citizens to travel, study, and work 
in America. But it does mean taking smart, tough steps to secure the 
U.S. against Chinese influence.
    3. Building a Global Diplomatic Calition: Finally, the United 
States should lead by galvanizing a global coalition to counter China's 
illiberalism. Over the past year many U.S. allies have begun to shift 
their perspectives regarding China's economic practices, criticizing 
anticompetitive Chinese practices and recognizing the security risks 
that come from excessive dependence on China. The European Union, for 
example, labeled China a ``systemic rival'' in a report issued last 
year, \21\ and is taking steps to strength its review of foreign 
investments, and particularly Chinese investments, in European 
strategic assets. \22\ It is reportedly also seeking authorities to 
review and block takeovers by companies that have received unfair 
support from non-European Governments. \23\ Japan has earmarked more 
than $2 billion from its COVID-19 response funds to help Japanese firms 
re-onshore production from China. \24\ A growing number of countries 
have announced plans to prohibit the use of Huawei equipment in their 
5G telecommunications networks, and others, such as the U.K. appear to 
be reevaluating earlier decisions to allow limited use of Huawei.
---------------------------------------------------------------------------
     \21\ European Commission, ``EU-China: A Strategic Outlook'', March 
12, 2019, https://ec.europa.eu/commission/sites/betapolitical/files/
communication-eu-china-a-strategic-outlook.pdf.
     \22\ European Commission, ``Guidance to the Member States 
Concerning Foreign Direct Investment and Free Movement of Capital From 
Third Countries, and the Protection of Europe's Strategic Assets, Ahead 
of the Application of Regulation (EU)'' 2019/452 (FDI Screening 
Regulation), March 25, 2020, https://trade.ec.europa.eu/doclib/docs/
2020/march/tradoc-158676.pdf.
     \23\ Sam Fleming, Javier Espinoza, and Michael Peel, ``EU Seeks To 
Curb State-Backed Foreign Rivals'', Financial Times, June 2, 2020, 
https://www.ft.com/content/8f8fc72d-1c05-488e-93f0-f60a4dce18b6.
     \24\ Isabel Reynolds and Emi Urabe, ``Japan To Fund Firms To Shift 
Production Out of China'', Bloomberg, April 8, 2020, https://
www.bloomberg.com/news/articles/2020-04-08/japan-to-fund-firms-to-
shift-production-out-of-china.
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    This shift on economic issues is heartening. But many allies 
continue to downplay China's illiberalism and abuses of human rights, 
including China's erosion of Hong Kong's autonomy. The U.K., Australia, 
and Canada joined the U.S. in issuing a tough statement condemning 
China's announcement of a national security law for Hong Kong. \25\ But 
the two paragraph European Union statement left much to be desired. 
\26\
---------------------------------------------------------------------------
     \25\ United States Department of State, United Kingdom Foreign and 
Commonwealth Office, and Australian Foreign Ministry, ``China's 
Proposed New Security Law for Hong Kong'', joint press release, May 28, 
2020, https://www.gov.uk/government/news/joint-statement-from-the-uk-
australia-canada-and-united-states-on-hong-kong.
     \26\ Council of the European Union, ``Declaration of the High 
Representative on Behalf of the European Union on Hong Kong'', press 
release, May 29, 2020, https://www.consilium.europa.eu/en/press/press-
releases/2020/05/29/declaration-of-the-highrepresentative-on-behalf-of-
the-european-union-on-hong-kong/.
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    Building a global coalition against Chinese illiberalism will take 
time and diplomatic skill--just as the growing coalition against 
Chinese economic abuses has taken several years of patient diplomatic 
work. But the fact that diplomacy will take time is not an argument 
against it, but rather an argument to get started. The United States 
should work bilaterally to urge more European and other allied States 
to issue strong condemnations of China's planned national security law 
so that its implementation faces a global opprobrium. Close allies, 
such as Canada and the U.K. should be asked to join in imposing 
targeted sanctions on Chinese officials engaged in corruption and human 
rights abuses, as our allies have sanctioned corruption and human 
rights abuses elsewhere.
    The United States should also look for different multilateral 
venues to press for action. For example, the United States could use 
the G7, or an expanded group of close, like-minded democracies, to call 
out China's illiberalism and repression, including its erosion of Hong 
Kong's autonomy and to commit to taking specific steps to counter 
Chinese threats to democracy. (Of course, Russia rejoining the G7 would 
profoundly undermine the group's effectiveness as a group of like-
minded democracies and would likely destroy its utility as a group.)
    The U.S. Government should also encourage allies who have specific 
tools to challenge China's actions to use them. The U.K., for example, 
could try to seek an opinion from the International Court of Justice on 
the question of whether China has violated the Sino-British Joint 
Declaration. China would almost certainly block such a move and refuse 
to accept the court's jurisdiction, much as China has ignored 
international legal rulings that its South China Sea activities violate 
international law. But even the attempt to use international law to 
reign in China's abuses would be nonetheless valuable as a diplomatic 
and political maneuver.
    Where allies are unwilling to join the United States in imposing 
economic or legal measures, D.C. should not simply let them off the 
hook. Instead, the United States should press them to take other types 
of measures to stand against China's growing authoritarianism regarding 
Hong Kong and around the world. In 2016, for example, the Dalai Lama 
visited the European Parliament. \27\ China sharply condemned the move 
and threatened retaliation. But the meeting was a powerful symbolic 
show of support for the people of Tibet. The United States should press 
European political leaders to meet with Hong Kong activists as a 
diplomatic display of support even where countries may shy away from 
coercive economic measures.
---------------------------------------------------------------------------
     \27\ ``Dalai Lama: `I Am One of the Admirers of the Spirit of the 
European Union' '', European Parliament, press release, September 15, 
2016, https://www.europarl.europa.eu/news/en/headlines/eu-affairs/
20160909STO41741/dalai-lama-i-am-one-of-the-admirers-of-the-spirit-of-
the-european-union.
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    As I said earlier in my remarks, the United States must also live 
up to our values here at home. In recent days China has promoted 
stories that liken recent protests in the United States to the Hong 
Kong protests of last year. In recent days the spokeswoman for China's 
Foreign Ministry trolled the U.S. State Department on social media, 
writing ``I can't breathe'' in response to a U.S. State Department 
statement criticizing China for breaking its promises to Hong Kong. 
\28\ She also praised a statement by the President of the African Union 
criticizing the murder of George Floyd in Minneapolis last month and 
racism in the United States.
---------------------------------------------------------------------------
     \28\ Hua Chunying (Spokesperson CHN), ``I Can't Breathe'', May 30, 
10:43 a.m., Twitter, https://twitter.com/SpokespersonCHN/status/
1266741986096107520?s=20.
---------------------------------------------------------------------------
    China's moral relativism is false and disingenuous. Americans can 
read coverage of events in this country unfiltered by a Great Firewall, 
and unlike citizens in mainland China, have a constitutional right to 
speak and peacefully protest against their Government. But if we care 
about America's standing, we also have to acknowledge that repeated 
instances of police brutality against African Americans and the 
aggressive tactics recently adopted by U.S. policy and security forces 
against peaceful American protestors exercising their constitutional 
rights to protest racism, profoundly undercuts out moral authority. 
Images of protestors gathering in London, Brussels, Berlin, Dublin, 
Paris, Toronto, Vancouver, Auckland, Sydney, and other cities to 
protest injustice in the U.S. have been striking. Statements by 
democratic leaders saying that they are watching U.S. development with 
``horror and consternation'' and calling for a ``de-escalation of 
tensions'' in the United States are not the words of Governments keen 
to join the U.S. in a global diplomatic campaign. We must remind the 
world that we as Americans learn from our missteps and are relentlessly 
committed to a brighter, more democratic, and more equal future.
Closing Remarks
    In closing, I'd like return to the Tiananmen Square massacre that 
occurred 31 years ago today. That massacre was a major setback for the 
cause of democracy. Yet in the 1990s and early 2000s we saw a global 
surge of democracy in Eastern Europe, Africa, and other regions. Even 
in China, there was hope for gradual political opening and reform 
alongside economic growth.
    The last decade has seen an unfortunate backsliding of that 
democratic trend, both within China under Xi Jinping, and globally as 
countries around the world erode the freedoms of their citizens. \29\ A 
strong, smart U.S. response to China's erosion of democracy in Hong 
Kong can help turn the tide and promote the same type of global 
democratic renewal we saw in the decade after Tiananmen.
---------------------------------------------------------------------------
     \29\ ``NEW REPORT: Freedom in the World 2020 Finds Established 
Democracies Are in Decline'', Freedom House, press release, March 4, 
2020, https://freedomhouse.org/article/new-report-freedom-world-2020-
finds-established-democracies-are-decline.
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                                 ______
                                 
                  PREPARED STATEMENT OF ERIC B. LORBER
Senior Director, Center on Economic and Financial Power, Foundation for 
                         Defense of Democracies
                              June 4, 2020
Introduction
    Chairman Crapo, Ranking Member Brown, and distinguished Members of 
the Senate Committee on Banking, Housing, and Urban Affairs, I am 
honored to appear before you today to discuss the crisis in Hong Kong 
and review U.S. policy tools. \1\
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     \1\ The views expressed in this testimony are my personal views 
and do not represent the views of the Foundation for Defense of 
Democracies, K2 Intelligence/Financial Integrity Network, or the 
Treasury Department. Pursuant to legal and ethical obligations, I 
cannot discuss internal deliberations that occurred during my tenure at 
the Treasury Department.
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    This is a precarious moment for the people of Hong Kong, and the 
United States has an important role to play in supporting them in the 
face of efforts by the Chinese Communist Party (CCP) to undermine their 
freedoms. Economic sanctions can be an impactful part of a 
comprehensive U.S. effort to support the peaceful, prodemocracy forces 
in the city. However, we need to have realistic expectations about 
their effectiveness. Sanctions will be unlikely to restore many of the 
freedoms that the CCP seeks to take away from the people of Hong Kong. 
They can, however, give the CCP pause.
    To achieve this objective, sanctions must be carefully calibrated 
to both apply pressure on the CCP and those materially contributing to 
the erosion of rights in Hong Kong, while minimizing the costs to the 
people of Hong Kong and mitigating the risks to the international 
financial system and U.S. businesses. Such tools must also provide the 
Trump administration--and future Administrations--with the flexibility 
to apply this pressure in smart ways.
    The Hong Kong Autonomy Act (HKAA), introduced by Senators Toomey 
(R-PA) and Van Hollen (D-MD), is a good step towards this aim. As I 
discuss below, the legislation is designed to pressure the CCP, 
entities contributing to the undermining of rights in Hong Kong, and 
financial institutions that do business with them. It is structured to 
deter these entities and financial institutions from continuing to 
support this assault on the people of Hong Kong. I believe there are a 
number of additional modifications to the legislation that would make 
it even more effective, increasing its impact while limiting downside 
risk.
    I will focus my testimony today on four key issues to consider when 
weighing a response to China's intervention in Hong Kong. First, I will 
address how economic pressure can help the United States achieve 
realistic objectives. Second, I will discuss some of the risks of 
ramping up U.S. coercive measures on China. Third, I will analyze the 
Hong Kong Autonomy Act, noting how it can place pressure on China in a 
way that may deter further aggression. Finally, I will make a number of 
recommendations to enhance the legislation to ensure the Administration 
has appropriate flexibility.
Using Economic Power To Achieve U.S. Policy Objectives Toward Hong Kong
    As Secretary of State Michael Pompeo rightly noted when declining 
to certify that Hong Kong remains autonomous under Section 301 of the 
Hong Kong Policy Act, ``No reasonable person can assert today that Hong 
Kong maintains a high degree of autonomy from China, given facts on the 
ground.'' \2\ Indeed, over the last year, in concert with local 
authorities, the CCP has moved aggressively to curtail the rights 
historically enjoyed by the people of Hong Kong, including: \3\
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     \2\ Secretary of State Michael R. Pompeo, U.S. Department of 
States, Press Statement, ``P.R.C. National People's Congress Proposal 
on Hong Kong National Security Legislation'', May 27, 2020. (https://
www.state.gov/prcnational-peoples-congress-proposal-on-hong-kong-
national-security-legislation/)
     \3\ U.S. Department of State, Bureau of East Asia and Pacific 
Affairs, ``2020 Hong Kong Policy Act Report'', May 28, 2020. (https://
www.state.gov/2020-hong-kong-policy-act-report/)

  1.  In 2019, the Government of Hong Kong, acting with the support of 
        the Government of China, introduced an extradition bill that 
        would have permitted Hong Kong to detain and transfer people 
        wanted in countries with which it has no formal extradition 
        agreements, including the Chinese mainland. \4\
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     \4\ Ethan Meick, U.S.-China Economic and Security Review 
Commission, ``Hong Kong's Proposed Extradition Bill Could Extend 
Beijing's Coercive Reach: Risks for the United States'', May 7, 2019. 
(https://www.uscc.gov/sites/default/files/Research/
USCC%20Issue%20Brief--HK%20Extradition%20Bill.pdf)

  2.  Following the introduction of the extradition bill and robust 
        protests by the people of Hong Kong, authorities in the city, 
        with apparent assistance from the CCP, violently cracked down 
        on protesters. \5\
---------------------------------------------------------------------------
     \5\ Daniel Victor and Mike Ives, ``Why Are People Protesting in 
Hong Kong?'' New York Times, October 15, 2019. (https://
www.nytimes.com/2019/10/15/world/asia/what-are-hong-kong-protests-
about.html)

  3.  In May 2020, China introduced and passed legislation that would 
        ban acts in Hong Kong that endanger China's national security, 
        including subversion and separatism. This legislation, which is 
        on the way to being enacted, would likely permit China's 
        security services to operate in Hong Kong, further eroding the 
        city's historical independence from the CCP. \6\
---------------------------------------------------------------------------
     \6\ Secretary of State Michael R. Pompeo, U.S. Department of 
States, Press Statement, ``P.R.C. National People's Congress Proposal 
on Hong Kong National Security Legislation'', May 27, 2020. (https://
www.state.gov/prcnational-peoples-congress-proposal-on-hong-kong-
national-security-legislation/); U.S. Department of State, Bureau of 
East Asia and Pacific Affairs, ``2020 Hong Kong Policy Act Report'', 
May 28, 2020. (https://www.state.gov/2020-hong-kong-policy-act-report/
); Lily Kuo, ``Chinese Parliament Approves Controversial Hong Kong 
Security Law'', The Guardian (UK), May 28, 2020. (https://
www.theguardian.com/world/2020/may/28/china-vote-npc-nationalsecurity-
laws-hong-kong-us-protest)

    These actions have substantially undermined the Sino-British Joint 
Declaration (the ``Joint Declaration'') and the Basic Law. They signal 
that China is increasingly aggressive in exercising political control 
over the city despite the ``one country, two systems'' principle. \7\ 
Indeed, as President Donald Trump said last week, it increasingly looks 
like ``one country, one system.'' \8\
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     \7\ The relevant language of the Joint Declaration states that 
``the Hong Kong SAR (HKSAR) will be directly under the authority of the 
Central People's Government and will enjoy a high degree of autonomy 
except in foreign and defense affairs which are the responsibilities of 
the Central People's Government;'' and that the ``the social and 
economic system in Hong Kong before the resumption of the exercise of 
sovereignty by China will remain unchanged, and so will the life style. 
Rights and freedoms, private property, ownership of enterprises, 
legitimate rights of inheritance and foreign investment will be 
protected by law.'' Government of the Hong Kong Special Administrative 
Region, Constitutional and Mainland Affairs Bureau, ``The Joint 
Declaration'', accessed June 1, 2020. (https://www.cmab.gov.hk/en/
issues/joint2.htm). For the language of the Basic Law, see: Government 
of the Hong Kong Special Administrative Region, Constitutional and 
Mainland Affairs Bureau, ``The Basic Law'', accessed June 1, 2020. 
(https://www.cmab.gov.hk/en/issues/basic2.htm)
     \8\ President Donald Trump, The White House, ``Remarks by 
President Trump on Actions Against China'', May 30, 2020. (https://
www.whitehouse.gov/briefings-statements/remarks-president-trump-
actions-china/)
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    The people of Hong Kong, despite turning out in the streets in 
massive numbers last year, have thus far been unable to successfully 
push back on China's renewed efforts to subsume the city into the 
mainland's framework for political and social control. Likewise, U.S. 
efforts to deter China's encroachment have been unsuccessful to date. 
Despite the passage of Hong Kong Human Rights and Democracy Act of 
2019, \9\ the CCP appears to have concluded that usurping Hong Kong is 
worth the economic cost that may result from sanctions imposed by the 
United States.
---------------------------------------------------------------------------
     \9\ Hong Kong Human Rights and Democracy Act of 2019, H.R. 3289, 
116th Congress (2019). (https://www.congress.gov/116/bills/hr3289/
BILLS-116hr3289pcs.pdf)
---------------------------------------------------------------------------
    While President Trump announced last week that the Administration 
may take additional measures under the Hong Kong Policy Act, including 
tightening export control restrictions on certain U.S. goods going to 
Hong Kong and increasing customs and tariffs on goods coming to the 
United States from the city, it is not clear whether these measures 
will impact CCP decision making. \10\ But influencing China's future 
actions toward Hong Kong is exactly what Congress and the 
Administration should now consider.
---------------------------------------------------------------------------
     \10\ President Donald Trump, The White House, ``Remarks by 
President Trump on Actions Against China'', May 30, 2020. (https://
www.whitehouse.gov/briefings-statements/remarks-president-trump-
actions-china/)
---------------------------------------------------------------------------
    It is unrealistic to expect China to reverse the steps it has taken 
over the last year. The CCP has made it clear, through the recent 
passage of legislation potentially permitting China's national security 
agencies to operate in Hong Kong, that it is willing to pay a price for 
its aggression. The Administration and members of Congress should 
therefore maintain realistic expectations that any efforts, including 
economic pressure, will not convince the CCP to reverse course on the 
legislation or otherwise restore the freedoms it has revoked from the 
people of Hong Kong.
    However, the United States can and should support the people of 
Hong Kong, and our primary objective should be deterring the CCP and 
local authorities from further cracking down on the prodemocracy 
citizens of Hong Kong. At the same time, Washington should work to 
ensure both that Hong Kong is not further pushed into Beijing's control 
and that U.S. companies operating in Hong Kong are protected as much as 
they can be.
    Achieving these three objectives will be challenging. Congress and 
the Administration must carefully calibrate economic pressure on 
Beijing to do so. Too much economic pressure could further isolate Hong 
Kong from global markets, hurting Hongkongers and causing U.S. and 
other foreign companies to downsize their exposure in Hong Kong or even 
leave the jurisdiction altogether. This would have an outsized impact 
on the financial health of U.S. businesses and could lead to 
significant fallout in financial markets. It could also lead to a 
damaging response from Beijing.
    However, too little pressure may not move the needle enough. A weak 
response could signal to Beijing that it has the green light to 
increase its aggression, crack down on the prodemocracy movement, and 
further erode the freedoms enjoyed by those in Hong Kong.
    Properly calibrated economic sanctions can help deter the CCP. In 
the fall of 2019, the Trump administration's threat of international 
sanctions to deter Turkey from engaging in sustained, widespread 
aggression in northern Syria prevented a significant humanitarian 
crisis. Thanks to the issuance of Executive Order 13894, the 
accompanying designations, and the clear threat by the Administration 
to impose both primary and secondary sanctions on wide swaths of the 
Turkish economy, \11\ Turkey quickly ended its incursion.
---------------------------------------------------------------------------
     \11\ Executive Order 13894, ``Blocking Property and Suspending 
Entry of Certain Persons Contributing to the Situation in Syria'', 
October 14, 2019. (https://www.treasury.gov/resourcecenter/sanctions/
Programs/Documents/13894.pdf)
---------------------------------------------------------------------------
    Likewise, the United States and the European Union imposed 
sanctions in 2014 to deter Russia from engaging in additional 
destabilizing activities in Eastern Europe. Of course, deterrence is 
always difficult to measure. However, evidence suggests that Russia was 
planning to broaden its overt military action in eastern Ukraine to 
wrestle key cities and territories away from Ukrainian Government 
control, but thought twice after biting sectoral sanctions took effect. 
\12\
---------------------------------------------------------------------------
     \12\ For example, see: Nigel Gould-Davies, ``Sanctions on Russia 
Are Working'', Foreign Affairs, August 22, 2018. (https://
www.foreignaffairs.com/articles/russian-federation/2018-08-22/
sanctions-russia-are-working); see also: Eric Lorber, ``Assessing U.S. 
Sanctions on Russia'', Testimony Before the Senate Committee on 
Banking, Housing, and Urban Affairs, March 15, 2017. (https://
www.banking.senate.gov/imo/media/doc/Lorber%20Testimony%203-15-17.pdf)
---------------------------------------------------------------------------
    The lesson here is that carefully calibrated sanctions designed to 
deter additional encroachment on Hong Kong's freedoms can create a 
deterrent impact. These tools should be coordinated, to the extent 
possible, with other countries that share U.S. interests in Hong Kong, 
particularly the United Kingdom.
    At the same time, we must acknowledge that over time, Hong Kong may 
lose its luster as one of the world's preeminent financial centers. 
With the city increasingly under CCP control, it is likely that global 
financial institutions, particularly those based in the United States, 
will find Hong Kong a less attractive place to do business. This is not 
a given; global financial institutions with deep ties to Asia and Hong 
Kong, particularly those based in Europe, may try to maintain a 
significant presence in the jurisdiction. Nevertheless, it will likely 
be more challenging to do so. While other policy tools, such as visas 
for Hongkongers looking to leave the jurisdiction, are outside the 
scope of my testimony, these measures should be considered by the 
Administration and Congress as the situation develops.
The Risks of Using of Economic Power
    While economic pressure may limit further CCP efforts to undermine 
freedoms in Hong Kong, three significant downside risks exist: Chinese 
retaliation; isolating Hong Kong and pushing it further into China's 
orbit; and the potential negative impact to U.S. companies operating in 
Hong Kong. Caution is therefore necessary in developing a sanctions 
program against those responsible for the erosion of rights in Hong 
Kong.
    First, China will likely respond to economic pressure on Chinese 
persons and financial institutions over Hong Kong. In recent years, 
China has become increasingly aggressive in using its own tools of 
economic coercion. The United States should expect that China will 
respond in kind to U.S. pressure. \13\ The CCP has a range of options, 
including but not limited to:
---------------------------------------------------------------------------
     \13\ Eric Lorber, ``Economic Coercion, with a Chinese Twist'', 
Foreign Policy, February 28, 2017. (https://foreignpolicy.com/2017/02/
28/economic-coercion-china-united-states-sanctions-asia/); see also: 
Peter Harrell, Elizabeth Rosenburg, and Edoardo Saravalle, ``China's 
Use of Coercive Economic Measures'', Center for a New American 
Security, June 11, 2018. (https://www.cnas.org/publications/reports/
chinas-use-of-coerciveeconomic-measures)

    Adding U.S. Companies to the Unreliable Entity List/
        Counter-Sanctions. In May 2019, China announced the creation of 
        an Unreliable Entity List. In response to the addition of 
        Huawei to the U.S. Commerce Department's Entity List, the 
        measure was designed to intimidate U.S. firms from cooperating 
        with U.S. export controls. \14\ The exact modalities of the 
        Unreliable Entity List are unclear but could include national 
        security investigations of activities by U.S. firms or other 
        restrictions. China could use the Unreliable Entity List to 
        identify U.S. companies and direct Chinese firms to cease doing 
        business with them.
---------------------------------------------------------------------------
     \14\ The criteria for a U.S. firm being added would include (i) if 
it is boycotting, cutting off supplies to Chinese companies, or taking 
other specific discriminatory actions against Chinese companies; (ii) 
whether these actions are taken for noncommercial purposes, in 
violation of market rules or in breach of contractual obligations; 
(iii) whether these actions cause material damage to the legitimate 
interests of Chinese companies and relevant industrial sectors; and 
(iv) whether these actions constitute a threat or potential threat to 
China's national security. Lester Ross and Kenneth Zhou, ``China's 
Unreliable Entity List'', WilmerHale, July 29, 2019. (https://
www.wilmerhale.com/en/insights/client-alerts/20190729-chinas-
unreliable-entity-list)

    Accelerate Efforts To Undermine Hong Kong's Freedoms. China 
        could accelerate its efforts to pacify Hong Kong, including by 
        more aggressively cracking down on the prodemocracy movement 
---------------------------------------------------------------------------
        and implementing the new national security law.

    Selective Law Enforcement Measures. China could respond 
        with politically motivated arrests of U.S. citizens, corporate 
        officers of U.S. firms, or other Westerners. The arrests of 
        Canadian citizens Michael Korvig \15\ and Michael Spavor \16\ 
        in retaliation for the detention of Meng Wanzhou are an example 
        of this strategy. \17\
---------------------------------------------------------------------------
     \15\ ``Michael Kovrig Arrest: Canadian Held in China `Not Allowed 
To Turn Lights Off' '', BBC (UK), December 21, 2018. (https://
www.bbc.com/news/world-us-canada-46645710)
     \16\ Anna Fifield, ``China Accuses Two Detained Canadians of 
Stealing State Secrets'', Washington Post, March 4, 2019. (https://
www.washingtonpost.com/world/asia--pacific/china-accuses-two-detained-
canadians-of-stealing-andselling-state-secrets/2019/03/04/766f2796-
3e7e-11e9-a44b-42f4df262a4c--story.html)
     \17\ See, for example: the U.S. Department of Justice's 
superseding indictment of Meng Wanzhou. Superceding Indictment, United 
States of America v. Huawei Technologies Co., Ltd., Huawei Device Co., 
Ltd., Huawei Device USA Inc., Futurewei Technologies, Inc., Wanzhou 
Meng, Cr. No. 18-457 (S-3) (AMD) (E.D.N.Y filed February 13, 2020). 
(https://www.justice.gov/usao-edny/press-release/file/1248966/download)

    Additional Tariffs/Abrogation of the U.S.-China Trade Deal. 
        China could abrogate parts of the Phase One trade deal. \18\ 
        The United States has not indicated it would leave the Phase 
        One trade deal as a result of the current tension over Hong 
        Kong. Nevertheless, China could increase its tariffs across-
        the-board on U.S. goods or, while not formally leaving the 
        deal, appreciably slow its purchases of U.S. goods. There is 
        some evidence that this may already be occurring. \19\
---------------------------------------------------------------------------
     \18\ President Donald Trump, The White House, ``Remarks by 
President Trump at Signing of the U.S.-China Phase One Trade 
Agreement'', January 15, 2020. (https://www.whitehouse.gov/briefings-
statements/remarks-presidenttrump-signing-u-s-china-phase-one-trade-
agreement-2/)
     \19\ ``China Halts Some U.S. Farm Imports, Threatening Trade 
Deal'', Bloomberg News, June 1, 2020. (https://www.bloomberg.com/news/
articles/2020-06-01/china-halts-some-u-s-farm-imports-threatening-
tradedeal?srnd=premium&sref=Pw1Mp35R)

    While China's response will likely depend on the level of economic 
and political pressure the United States imposes, any such U.S. actions 
should be taken with reprisals in mind.
    Second, too much economic pressure could push Hong Kong further 
into China's orbit. If the United States ramps up sanctions on Hong 
Kong, U.S. and international companies may seek to reduce their 
exposure and move their operations elsewhere. This would likely lead to 
a significant reduction of businesses based in Hong Kong as a global 
financial center and thus could spawn a major departure of the 
Hongkongers and Westerners who support the freedoms and rights they 
have historically enjoyed. This would leave behind a population in Hong 
Kong that is more willing to accept China's draconian security measures 
and less willing to stand up for their rights.
    Third, sanctions on foreign persons and foreign financial 
institutions in Hong Kong could have blowback effects on U.S. companies 
operating in the city, particularly in the financial sector. 
Approximately 1,300 U.S. firms, including 726 regional operations, have 
a physical presence in Hong Kong, and there are approximately 85,000 
American residents living in the city. \20\ Likewise, U.S. financial 
institutions have a substantial presence in Hong Kong and often work 
closely with systemically important Chinese banks operating both in the 
city and on the mainland. All of this should inform the types of 
sanctions being considered and the targets of those sanctions. If not 
done properly, imposing sanctions could have a deleterious impact on 
U.S. companies in Hong Kong and could prompt them to move their 
operations and business elsewhere.
---------------------------------------------------------------------------
     \20\ U.S. Department of State, Bureau of East Asian and Pacific 
Affairs, ``U.S. Relations With Hong Kong'', July 17, 2018. (https://
www.state.gov/u-s-relations-with-hong-kong/)
---------------------------------------------------------------------------
    These downsides are significant. They must be taken into account 
when considering sanctions pressure. Punitive measures must be 
carefully calibrated. They must limit the downside impacts on Hong Kong 
and U.S. companies, and they should be considered with a clear 
understanding that China will likely respond.
The Hong Kong Autonomy Act: Carefully Calibrated To Deter Further 
        Chinese Efforts To Undermine Hong Kong's Freedom
    The Hong Kong Autonomy Act, introduced by Senators Toomey and Van 
Hollen, is narrowly crafted to create deterrent pressure on China and 
incentivize those penalized under HKAA to cease their malign 
activities. With certain modifications, the HKAA can provide the 
Administration with sufficient flexibility and limit the downside risk 
to U.S. companies and those of our partners and allies.
    The HKAA is designed to incentivize persons materially contributing 
to the failure of the Government of China to meet its obligations under 
the Joint Declaration and the Basic Law to cease those actions. The 
legislation creates that incentive by increasing economic penalties for 
continued bad behavior. The sanctions become more certain and more 
intense over time if those persons do not cease their malign behavior. 
The HKAA works as follows:

  1.  Ninety days after the enactment of the legislation and annually 
        thereafter, the secretary of State must determine in a report 
        whether a foreign person is materially contributing to the 
        failure of the Government of China to meet its obligations 
        under the Joint Declaration. As part of that report, the 
        secretary will also include an explanation for why that foreign 
        person has been included and identify any foreign financial 
        institution that knowingly conducts a significant transaction 
        with that person.

  2.  On the date that the report is submitted, the President may 
        impose sanctions on any foreign person. These sanctions include 
        blocking that person's property or visa revocation. If that 
        person is included in two reports (for example, the first 
        report issued 90 days after the enactment of the HKAA, and then 
        the subsequent report 1 year later), the President must impose 
        sanctions on that foreign person.

  3.  For foreign financial institutions, 1 year after inclusion in the 
        first report, the President shall impose 5 out of 10 penalties 
        stipulated. \21\ Two years after the report, the President 
        shall impose the full 10 penalties on that foreign financial 
        institution. \22\
---------------------------------------------------------------------------
     \21\ These penalties include: a prohibition on loans from U.S. 
financial institutions; a prohibition on designation as a primary 
dealer in U.S. Government bonds; a prohibition on service as a 
repository of U.S. Government funds; a prohibition on foreign exchange; 
a prohibition on certain banking transactions through the U.S. 
financial system; blocking sanctions; a restriction on exports; a ban 
on U.S. persons' investment in equity or debt; the exclusion of 
corporate officers; and sanctions on principal executive officers.
     \22\ As discussed below, this language could be further sharpened 
to make clear that if the foreign financial institution ceases 
conducting knowing and significant transactions with the listed foreign 
person any time after the issuance of the first report (before the year 
one marker is hit), any time between year one and year two, or any time 
after year two, such sanctions will be lifted.

    Four important points stand out about this legislation. First, it 
targets both those persons materially contributing to China's failure 
to uphold its obligations under the Joint Declaration and those foreign 
financial institutions doing business with those persons. This is 
broad, but it is also likely to ensure that the sanctions have teeth. 
Designating natural persons or companies (such as CCP members, 
Government officials in Hong Kong who have undermined the city's 
freedoms, or companies supporting their activities) is important 
symbolically as a show of support for the prodemocracy forces in Hong 
Kong but is unlikely to change China's willingness to intervene. 
Broadening the sanctions to include financial institutions that do 
business with these persons will be more likely to have an impact. It 
would put pressure on those institutions to cease doing business with 
those persons or risk losing access to the international financial 
system.
    Second, the HKAA's structure creates a deterrent impact and an 
incentive for a positive change in behavior over time. The annual 
reporting requirement and potential sanctions on foreign persons listed 
in the reports creates a powerful incentive not to materially 
contribute to China's failure to meet its obligations. Foreign persons 
will not want to be included in these reports, as inclusion triggers 
discretionary sanctions, and therefore at least some will likely think 
twice before engaging in any actions that could lead to them appearing 
in the report. Likewise, foreign financial institutions will not want 
to conduct knowing and significant transactions with entities that may 
be included in these reports, deterring them from supporting such 
activity.
    In addition, the legislation provides a clear incentive for foreign 
persons and foreign financial institutions that are included in the 
reports to change their activity over time or suffer increasingly 
certain or worse penalties. For example, for foreign persons included 
in the first report, the President has discretionary authority to 
impose blocking sanctions on these persons. However, if those persons 
appear on a second report, the President must impose blocking 
sanctions. As a result, the foreign person identified in the first 
report has a substantial incentive to cease contributing to the crisis 
in Hong Kong; if he or she does not, blocking sanctions are certain.
    Likewise, foreign financial institutions have an incentive to cease 
conducting transactions with foreign persons listed in the report. If 
they continue doing business with a listed foreign person 1 year after 
the initial listing, they will be subject to 5 of 10 penalties. 
However, if they continue conducting such transactions for another 
year, they will be subject to the full 10 penalties (some of which are 
particularly powerful, such as blocking provisions). In short, if they 
do not change behavior, they will face a broader range of economic 
pressure.
    Third, the HKAA provides the Administration with substantial 
flexibility. Under the reporting requirement, the President may decline 
to include a foreign person on the report who otherwise materially 
contributes to the crisis in Hong Kong if those contributions do not 
have a significant and lasting negative effect, are not likely to be 
repeated in the future, and have been reversed or otherwise mitigated 
through positive countermeasures taken by that foreign person. Combined 
with determining what specific actions fall under the definition of a 
material contribution, as defined in Section 5(f) of the HKAA, these 
provisions provide the President with significant leeway when deciding 
which entities are included in the report.
    Likewise, the same language applies to foreign financial 
institutions identified in the report.
    Furthermore, the President actually has more flexibility with 
foreign financial institutions, which must conduct knowing and 
significant transactions with the identified parties in order to be 
included in the report. In particular, the ``significant'' qualifier 
has allowed successive Administrations to refrain from imposing 
draconian sanctions when it believed doing so was unwarranted or would 
otherwise cause undesirable impacts. \23\
---------------------------------------------------------------------------
     \23\ The Office of Foreign Assets Control (OFAC) at the U.S. 
Department of the Treasury generally considers a number of factors when 
determining whether a transaction is ``significant,'' including: (1) 
the size, number, and frequency of the transaction(s); (2) the nature 
of the transaction(s); (3) the level of awareness of management and 
whether the transaction(s) are part of a pattern of conduct; (4) the 
nexus between the transaction(s) and a blocked person; (5) the impact 
of the transaction(s) on statutory objectives; (6) whether the 
transaction(s) involve deceptive practices; and (7) such other factors 
that the secretary of the treasury deems relevant on a case-by-case 
basis. See: FAQ 542 in U.S. Department of the Treasury, Office of 
Foreign Assets Control, ``OFAC FAQs: Other Sanctions Programs'', 
accessed June 1, 2020. (https://www.treasury.gov/resourcecenter/faqs/
Sanctions/Pages/faq-other.aspx#ukraine). The HKAA uses a modified set 
of factors.
---------------------------------------------------------------------------
    In addition, the legislation contains a waiver provision whereby 
the President may waive the sanctions on foreign persons and foreign 
financial institutions if he or she determines that doing so is in the 
national security interest of the United States. There may be, for 
example, good national security reasons for declining to penalize 
foreign financial institutions, particularly as some of them may be 
systemically important. The legislation, however, does contain a 
resolution of disapproval provision, which could complicate such a 
waiver (see below).
    Fourth, the HKAA is narrowly scoped to avoid causing a massive 
shock to the international financial system or undue harm to U.S. 
businesses. The legislation targets only those foreign persons and 
foreign financial institutions engaged in specified activity. It is not 
a comprehensive program broadly targeting foreign persons or foreign 
financial institutions operating in Hong Kong. This, coupled with the 
flexibility discussed above, should help this Administration and future 
Administrations effectively manage potential economic blowback on U.S. 
companies and those of our allies and partners.
Suggested Modifications and Recommendations
    While this legislation can play an important role in deterring 
future Chinese efforts to undermine Hong Kong's freedoms, it should be 
sharpened. Doing so can help limit the risk of further isolating Hong 
Kong and negatively impacting international financial markets and U.S. 
companies, while ensuring the Executive branch retains significant 
flexibility.
    This can be done in two primary ways. First, the legislation as 
drafted targets foreign financial institutions, regardless of whether 
their transactions with the foreign persons directly involve the 
undermining of rights in Hong Kong. As discussed above, this provision 
is designed to increase the economic impact and make companies think 
twice about contributing to China's malign activities. However, this 
provision may be overbroad in that it targets foreign financial 
institutions whose business relationships with listed foreign persons 
do not involve their efforts to undermine freedom in Hong Kong.
    For example, if a financial institution provided general banking 
services to a company listed in the report but had nothing to do with 
that company's efforts to undermine freedom in Hong Kong, that 
financial institution could still be subject to U.S. secondary 
sanctions. This provision would likely have the unintended consequence 
of accelerating U.S. and global financial institutions from exiting 
Hong Kong. Some may conclude that maintaining substantial operations in 
the jurisdiction is too risky given the sanctions exposure and could 
decide to either slim down their business presence or exit altogether. 
This would likely be a painful proposition for these financial 
institutions, and such a shift could further isolate Hong Kong and push 
it closer to the mainland.
    As a way to mitigate this outcome, this committee might consider 
limiting the scope of the foreign financial institution restriction to 
activity directly tied to the undermining of rights and freedoms in 
Hong Kong. For example, the sanctions could apply to foreign financial 
institutions that knowingly conduct significant transactions with 
foreign persons in furtherance of those foreign persons' material 
contribution to China's failure to fulfill its obligations under the 
Joint Declaration and Basic Law.
    This or a similar modification would narrow the impact of sanctions 
while directly targeting the undesirable activity. It would also give 
the sanctions increased credibility, as the designations would be 
clearly linked to illegitimate efforts by China's Government to 
undermine Hong Kong's special status.
    Second, the HKAA contains a congressional review component for when 
the President is considering a national security waiver or terminating 
sanctions under the legislation. This resolution of disapproval 
mechanism, which is similar in concept to Section 216 of the Countering 
America's Adversaries Through Sanctions Act (CAATSA), would provide 
Congress with additional oversight and would limit the President's 
flexibility when considering the imposition or lifting of sanctions.
    The committees of jurisdiction have an extremely important role in 
ensuring that U.S. sanctions programs are being properly implemented 
and that these programs are effective. Assessing their efficacy is 
critical, as Administrations continually view sanctions as tools of 
first resort. Congress should continue to conduct aggressive oversight 
of their use. At the same time, Congress should balance the need for 
oversight with a desire to provide Administrations with a degree of 
flexibility. As noted above, this flexibility is critical in ensuring 
Administrations can take the most impactful actions possible.
    As this body observed in the winter of 2018, when the Trump 
administration indicated its intent to delist Rusal and EN+, two 
companies designated for being owned or controlled by Russian Specially 
Designated National (SDN) Oleg Deripaska, \24\ a review can thrust a 
largely technical discussion into the more heated realm of politics.
---------------------------------------------------------------------------
     \24\ Office of Foreign Assets Control Director Andrea M. Gacki, 
U.S. Department of the Treasury, Letter to Senate Majority Leader Mitch 
McConnell, December 19, 2018. (https://www.treasury.gov/resourcecenter/
sanctions/OFAC-Enforcement/Documents/20181219-notification-removal.pdf)
---------------------------------------------------------------------------
    As a general rule when considering including aggressive disapproval 
mechanisms, Congress should follow two maxims. First, Congress should 
be reluctant to insert itself into working-level decisions, such as 
whether to issue licenses or waivers for specific companies, absent a 
compelling national security rationale. While there certainly are 
circumstances where aggressive intervention is appropriate and 
justified, a considered decision to refrain can often be beneficial for 
U.S. sanctions.
    Second, Congress should include disapproval mechanisms in 
legislation only when there is a serious, sustained policy disagreement 
with an Administration. For example, while the review mechanism 
specified in Section 216 created heated debates both during the passage 
of CAATSA and during the Rusal/EN+ delisting episode, the justification 
for including the review provision in the legislation was 
understandable. There was substantial concern in Congress at the time 
that the incoming Administration was going to prematurely lift U.S. 
sanctions on Russia.
    In the case of Hong Kong, however, such a disagreement does not 
appear to exist. As was made clear by President Trump last week, the 
Administration is willing to take action against China as a result of 
the CCP's interventions. \25\ This generally accords with Congress' 
inclination to raise the pressure on the CCP for its aggression. 
Including a disapproval mechanism in this case does not provide much 
benefit to congressional oversight, as it seems unlikely that the 
Administration would waive or terminate sanctions in an untimely 
fashion or for an unjustified reason. Including this mechanism could, 
however, come at a cost, particularly if the Administration were forced 
to consider sanctioning a large, systematically important company. In 
such an instance, providing the Administration with the appropriate 
amount of flexibility is critical. If such waivers are subject to 
review, particularly in a heated political context, the ultimate 
outcome could be detrimental to U.S. companies and global financial 
markets. I therefore recommend amending the legislative text to excise 
the disapproval mechanism.
---------------------------------------------------------------------------
     \25\ President Donald Trump, The White House, ``Remarks by 
President Trump on Actions Against China'', May 30, 2020. (https://
www.whitehouse.gov/briefings-statements/remarks-president-trump-
actions-china/)
---------------------------------------------------------------------------
    Finally, certain language in the legislation should be clarified, 
particularly in the context of the penalties imposed on foreign 
financial institutions. For example, as currently drafted, it is 
unclear whether a foreign financial institution that ceases to conduct 
knowing and significant transactions with a foreign person identified 
in a report would no longer be subject to sanctions. Likewise, if that 
foreign financial institution ceased doing business with a listed 
entity after the first year (but before the second), it is unclear 
whether the foreign financial institution would still be under some, 
none, or all of the prescribed penalties. This language may be 
contained in the termination provision but should be explicitly 
incorporated into the provisions detailing the timing of the imposition 
of penalties.
Conclusion
    Economic sanctions are not a panacea for countering China's 
aggression in Hong Kong. We must temper our expectations for what they 
can achieve and consider the risks of their use. Nevertheless, a 
carefully calibrated and flexible sanctions program designed to deter 
future Chinese encroachment, as part of a broader strategy that 
includes aggressive diplomatic pushback on China's intervention, close 
coordination with allies concerned about China's measures, and 
supporting the peaceful democratic forces in Hong Kong, can increase 
the chances of ensuring that this democracy under siege is not 
completely subsumed by the mainland.
    Thank you, and I look forward to your questions.
                                 ______
                                 
                  PREPARED STATEMENT OF LEE CHEUK YAN
 General Secretary of the Hong Kong Confederation of Trade Unions, and 
                 Vice Chairman, Hong Kong Labour Party
                              June 4, 2020
    Chairman Crapo, Ranking Member Brown, and the honorable Members of 
the Committee--Thank you for your invitation to me to speak to this 
Committee at this very crucial moment in Hong Kong. I also want to 
express our appreciation for the full Senate and Congress for your 
concerns and actions on supporting Hong Kong.
    I am Lee Cheuk Yan, General Secretary of Hong Kong Confederation of 
Trade Unions, a former elected member of the Legislative Council of 
Hong Kong, and a founding advisory board member of Hong Kong Democracy 
Council (HKDC). I am also the Chairman of Hong Kong Alliance In Support 
of Patriotic Democratic movement of China, the alliance of people 
organizations in Hong Kong formed in 1989 to support the democracy 
movement in China that sadly ended by brutal and bloody suppression by 
the Chinese Communist Party.
    Today is the 31st anniversary of the June 4th massacre and the Hong 
Kong Alliance had persistently organized the candlelight vigil to 
condemn the massacre for the last 30 years but this year it was banned 
by the Police in the name of Public Health. It had always been 
recognized by the people of Hong Kong that the annual candlelight 
vigil, attended by hundreds of thousands of people, symbolized that 
Hong Kong still enjoyed the freedom under ``One Country Two System''. 
So, the Hong Kong Government is telling the world, Hong Kong is now 
under ``One Country One System''. This is no surprise when we all 
witnessed the suppression over the last year with police brutality, 
massive arrests and banning of rallies and marches.
    Sadly, for the people of Hong Kong, the CCP escalated its threat to 
our freedom with the unilateral decision by the National People 
Congress to impose on Hong Kong its version of National Security Law 
without any consultation or legislative scrutiny by our Hong Kong 
Legislature. The national Security Law is like constructing a 
guillotine in Hong Kong ready to strike at anyone deemed to be a threat 
to the authoritarian regime. It aims to instill fear among the people 
with the presence of the guillotine and can strike down anytime when 
the political need arises. It contains four elements of offence: 
subversion, secession, foreign intervention and terrorism. All these 
crimes are very vague and poorly defined in China.
    The CCP jailed the Nobel Peace Prize Laureate Liu Xiaobo 11 years 
for advocating democracy and constitutional reform in the name of 
inciting the subversion of the State. Four people were jailed for 3 
years for brewing and selling Remember June 4th wine and under the 
charge of subversion. Pastor Wong Yi was sent to 9 years prison for 
inciting subversion of State power just for standing up for religious 
freedom. The CCP defined subversion or other national security crimes 
in accordance to their own political needs and not the law. The law is 
only an instrument of suppression for them. Can the Hong Kong Alliance 
marches under the slogan of ``End One Party Rule''? Or the people of 
Hong Kong shouted for the downfall of the Hong Kong Chief Executive? 
Are these acts of subversion?
    There are suggestions from some of the NPC members that this may be 
caught by the Law. The guillotine can strike down any time they 
believed politically necessary. The other crime of foreign intervention 
again can be subjected to very broad interpretation. Is my presence and 
testimony at this hearing today a crime of foreign intervention? Can 
Hong Kong Civil Society contact their international counterparts 
without being accused of foreign intervention? Though we do not know 
the final wording of the Law or how the Court will interpret the Law, 
it is very difficult to imagine the Court of departing from the 
political decision of the CCP on all National Security cases. I do not 
think there will be any independence of the Judiciary in these cases.
    The other horrifying feature of the decision by the National People 
Congress is the suggestion to create a national security agency in Hong 
Kong responsible for enforcing the Security Law. Are they trying to 
create an agency in Hong Kong to spy on the people they seen as a 
threat? Will people of Hong Kong be pressured to report on their 
neighbors or colleagues? Where is Hong Kong's ``high degree of 
autonomy'' as promised under the Basic Law when China can send in a 
national Security Agency to enforce the law?
    It is sad to announce to the world Hong Kong is now ``One Country, 
One System''. The rule of law that we are proud of is turned to become 
rule by law and rule of fear. We can win against this fear by believing 
in the people of Hong Kong and that they will continue to fight for 
democracy and freedom. But in this fight, we need International 
supports to stand with Hong Kong against this Giant of authoritarian 
rule.
    Last year, the U.S. Congress overwhelming passed the bipartisan 
Hong Kong Human Rights and Democracy Act. Per the law, the Secretary of 
State certified last week that Hong Kong no longer enjoys meaningful 
and sufficient autonomy from China to warrant the special relationship 
it has enjoyed. The Administration and Congress must now work together 
on the appropriate response--and consider all tools available--like 
those specified in the Hong Kong Human Rights and Democracy Act that 
was passed and other additional ways to add pressure on the CCP and 
Hong Kong officials, like the Hong Kong Autonomy Act introduced by 
Senator Toomey and Senator Van Hollen.
    I believe it would be deeply irrational for President Xi Jinping to 
strike at Hong Kong now when the China economy is badly hit by the 
Coronavirus pandemic. By ``burning'' Hong Kong, he will also burn China 
with it because Hong Kong is still economically useful to China.
    Are the people in China ready to suffer for this reckless and 
stupid act? The economy of Hong Kong will also suffer but money is not 
everything--it is more important for Hong Kong to preserve our freedom 
and way of life, or else Hong Kong is no longer Hong Kong and we are 
left with the body without the spirit. We do not want this to happen to 
Hong Kong. We must stop the Law and the continuous intervention of Hong 
Kong by the CCP. And we will fight on.
    Thank you.
        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                     FROM MICHAEL F. MARTIN

Q.1. There is regular discussion that overuse of sanctions 
could lead to the erosion of the dollar's primacy. Do you take 
that seriously, and how should that impact our approach to Hong 
Kong?

A.1. The primacy of the U.S. dollar in global financial markets 
is based on the perception that the currency represents a 
secure store of value, particularly in times of economic 
crisis, and is nearly universally accepted as a medium of 
exchange. Financial sanctions that restrict or prohibit the use 
of the U.S. dollar, or preclude the involvement of U.S. 
financial institutions in transactions, create an incentive to 
find alternative currencies or financial instruments in order 
to conduct trade and investment transactions.
    For the last decade, the People's Republic of China (PRC) 
has been actively promoting its currency, the renminbi, as an 
alternative to the U.S. dollar for purposes of trade and 
investment. \1\ The PRC Government has encouraged the use of 
renminbi for the settlement of trade transactions, as well as 
the denomination of trade contracts in renminbi. The HKSAR 
Government has actively supported the effort to globalize the 
renminbi, and has developed various renminbi-denominated 
investment instruments in Hong Kong, such as renminbi bonds.
---------------------------------------------------------------------------
     \1\  The name of the PRC's currency is the ``renminbi,'' or 
``people's currency.'' Its base unit is the ``yuan.'' Some sources use 
the base unit, ``yuan,'' as a substitute for the name of the currency.
---------------------------------------------------------------------------
    The United States currently treats the Hong Kong dollar as 
a convertible currency, and the Hong Kong Monetary Authority 
(HKMA) manages its currency based on the value of the U.S. 
dollar, maintaining an exchange rate between 7.75 and 7.85 Hong 
Kong dollars to 1 U.S. dollar through a currency board system. 
If the U.S. Government no longer recognizes the convertibility 
of the Hong Kong dollar, it would make conducting financial 
transactions more difficult and weaken Hong Kong's role as a 
global financial center. It could encourage the HKSAR 
Government and the HKMA to abandon the current link to the U.S. 
dollar, and possibly link the Hong Kong dollar to the renminbi.
    The imposition of sanctions either on Hong Kong or the PRC 
would not seriously erode the global acceptance of the U.S. 
dollar, but it could promote the establishment of regional 
renminbi hubs, based out of the PRC and the HKSAR. If liquidity 
in renminbi asset markets grows substantially as a result, 
spurred by global financial institutions' presence in Hong 
Kong, it could make renminbi financing more attractive, which 
in turn could create more attractive alternatives to the use of 
the U.S. dollar in financial transactions in Asia and in other 
countries with substantial Chinese investment.

Q.2. If existing or proposed sanctions can't deter the Chinese 
Government from a further crackdown--if China is willing to 
bear the costs as a matter of national importance--how would 
you recommend responding?

A.2. At this time, it is unclear what sanctions or changes in 
current U.S. treatment of the PRC or the HKSAR are being 
considered by the Trump administration. President Trump's 
statement of May 29, 2020, provided few details of what changes 
will be made. He did explicitly state, ``We will take action to 
revoke Hong Kong's preferential treatment as a separate customs 
and travel territory from the rest of China.'' He also 
indicated that he intends to sanction ``PRC and Hong Kong 
officials directly or indirectly involved in eroding Hong 
Kong's autonomy,'' but did not indicate in what manner those 
sanctions would be imposed.
    The U.S.-Hong Kong Policy Act, as amended by the Hong Kong 
Human Rights and Democracy Act, provides mechanisms by which 
the Trump administration could impose sanctions on the PRC or 
the HKSAR Governments, or officials of those two Governments. 
In addition, legislation has been introduced, such as H.R. 
5725, H.R. 7083, S. 2758, and S. 3798, that would provide 
additional authorities to impose sanctions.
    Until specific sanctions or restrictions are imposed, it is 
difficult to predict or speculate how the PRC or the HKSAR 
Governments will respond. At this point, there may be little 
the U.S. Government or Congress can do to stop the National 
People's Congress Standing Committee (NPCSC) from promulgating 
the national security laws for the HKSAR. Once those laws are 
released, Chief Executive Carrie Lam Cheng Yuet-ngor would 
likely move forward with fulfilling the obligations of the 
HKSAR Government to pass implementing legislation through Hong 
Kong's Legislative Council (Legco) as stated in the National 
People's Congress decision of May 28, 2020.
    The opportunity for Congress and the Trump administration 
to respond would come after the NPCSC and the HKSAR Government 
have taken action, and the United States has a better 
understanding of the severity of the threat to Hong Kong's 
autonomy and the rights of Hong Kong residents.

Q.3. What are the most-likely ways that China will retaliate to 
U.S. sanctions related to Hong Kong? Would China be able to 
retaliate by partially or completely abrogating the Phase One 
trade agreement?

A.3. Without knowing what sanctions the United States will 
impose on the PRC and/or Hong Kong, it is hard to anticipate 
the response of the PRC Government. Most likely, the initial 
response will be to condemn what the PRC Government considers 
another example of U.S. interference in China's ``internal 
affairs.'' Beyond that, CRS cannot predict the PRC Government's 
response. Partially or completely abrogating the Phase One 
trade agreement, or not fulfilling China's obligations under 
that agreement, are options that China's leaders may consider. 
Current trade flows, however, seem to indicate that there are 
already problems with compliance with that trade agreement, in 
part due to the global COVID-19 pandemic.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR MENENDEZ FROM MICHAEL F. MARTIN

Q.1. For a number of years now I have been concerned about Hong 
Kong's access to dual use and other sensitive technologies 
given its status as separate from the Mainland. That access 
will and must clearly and appropriately come to an end now.
    What is your expectation for the economic effect of ending 
dual use exports will have on Hong Kong's economy and for U.S. 
exports?

A.1. According to the Department of Commerce's Bureau of 
Industry and Security (BIS), of the $37.4 billion of U.S. 
exports to Hong Kong in 2018, less than $450 million were 
subject to a BIS license requirements. \1\ Of those goods 
subject to BIS license requirements, $361.4 million were 
encryption technology or software granted BIS license 
exceptions.
---------------------------------------------------------------------------
     \1\ Office of Technology Evaluation, Bureau of Industry and 
Security, Department of Commerce, ``U.S. Trade with Hong Kong--2018'', 
October 4, 2019.
---------------------------------------------------------------------------
    The Hong Kong Special Administrative Region (HKSAR) 
Government would like to make the city a major high-tech center 
to expand its economic base. To that end, the HKSAR Government 
is working with Guangzhou, Macau, and Shenzhen to support the 
Greater Bay Area (GBA) initiative announced by China's 
President Xi Jinping in 2017. Under this initiative, Hong Kong 
would be a hub for research and design of new technology, and 
neighboring Guangdong Province would become the development and 
manufacturing base for such products.
    Ending dual use exports to Hong Kong would hinder the 
development of the GBA, but the current volume of goods being 
exported from the United States would not cause significant 
harm to Hong Kong's economy in general.

Q.2. Is the best way to end this treatment simply to go cold 
turkey, or are there other more effective ways to wind-down 
this treatment?

A.2. It depends on one's goal or objective. In general, if the 
goal is to cut off access to dual use exports, a ``cold 
turkey'' approach would prevent Hong Kong companies from 
attempting to secure the controlled technology before the 
prohibition goes into effect. If, however, the goal is to 
prevent the illegal transfer of controlled technology into 
mainland China, while maintaining commercial opportunities for 
U.S. companies to work with Hong Kong partners, making gradual 
changes to incentivize legal exchange of dual use technology 
may be preferable.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                     FROM MICHAEL F. MARTIN

Q.1. Dr. Martin, due to the enactment of S. 2710 into law, a 1-
year prohibition is currently in effect on the United States 
exporting certain munitions (i.e., tear gas, pepper spray, 
rubber bullets, foam rounds, bean bag rounds, pepper balls, 
water cannons, handcuffs, shackles, stun guns, and tasers) to 
the Hong Kong Police Force. Prior to this prohibition going 
into effect, which American companies manufactured covered 
munitions that were exported to the Hong Kong Police Force?

A.1. NonLethal Technologies Inc. of Pennsylvania has been 
identified as a supplier of tear gas and other riot gear to the 
Hong Kong Police Force (HKPF). \1\ Spent tear gas canisters 
gathered by journalists and protesters during the 2019 
demonstrations show the company's name (see image below, taken 
in Hong Kong on August 24, 2019). The online news service 
BuzzFeed News published an in-depth examination of the company 
on September 5, 2019. \2\
---------------------------------------------------------------------------
     \1\ Rajesh Kumar Singh, ``U.S. Company Supplying Tear Gas to Hong 
Kong Police Faces Mounting Criticism'', Reuters, October 11, 2019.
     \2\ Rosalind Adams, ``Made in America: For $9.50 an Hour, They 
Brew Tear Gas for Hong Kong'', BuzzFeed.News, September 5, 2019.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    In addition, two Florida-based companies, Defense 
Technology, owned by the Jacksonville-based company Safariland, 
and AMTEC Less-Lethal (ALS), which is part of Pacem Defense 
Corporation, reportedly sold nonlethal weapons and riot gear to 
the HKPF. \3\
---------------------------------------------------------------------------
     \3\  Manuel Madrid, ``Anti-Riot Bullets Made by Two Florida 
Companies Used To Brutalize Protesters in Hong Kong'', Miami New Times, 
August 14, 2019.
---------------------------------------------------------------------------
    According to a State Department report, U.S. companies 
provided the HKSAR Government with 291 ``nonautomatic and 
semiautomatic firearms'' and 20 ground vehicles in 2017. \4\
---------------------------------------------------------------------------
     \4\ Ryan Browne, ``U.S. May Have Supplied Tear Gas Used Against 
Hong Kong Protesters'', CNN, August 15, 2019.
---------------------------------------------------------------------------
    The HKSAR Government and the HKPF have reportedly turned to 
Chinese suppliers to obtain tear gas canisters, other nonlethal 
weapons, and riot gear in response to the U.S. prohibition of 
sales. \5\ The Chinese tear gas is reportedly more toxic and 
burns at a higher temperature than the U.S. tear gas, causing 
more harm to people struck by the canisters or exposed to the 
tear gas. The HKPF has refused to release the list of 
ingredients in the tear gas canisters. \6\ A study of remnants 
in tear gas canisters collected at Hong Kong demonstration 
locations determined that Chinese-made tear gas is more 
dangerous than that previously provided by the United States. 
\7\
---------------------------------------------------------------------------
     \5\ Hillary Leung, ``Tear Gas Is Now a Fact of Life in Hong Kong. 
Residents Are Wondering What It's Doing to Their Health'', Time, 
December 4, 2019.
     \6\ Frank Chan, ``HK Police Under Fire Over Use of Tear Gas'', 
Asia Times, December 9, 2019.
     \7\ George Colclough, ``Explainer: Why China-Made Tear Gas Is More 
Dangerous'', Hong Kong Free Press, May 1, 2020.
---------------------------------------------------------------------------
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                     FROM MICHAEL F. MARTIN

Q.1. The SWIFT payment system is the backbone on which most 
financial transfers take place. However, China is developing 
its Cross-Border Inter-Bank Payments System (CIPS) as a SWIFT 
alternative. Right now, the Administration is pushing Chinese 
firms out of the western financial system and the Chairman of 
the Securities and Exchange Commission supports delisting 
Chinese companies from U.S. stock exchanges. Can you address 
the pro and cons of forcing Chinese businesses out of western 
monitored financial institutions?

A.1. The PRC and several other Nations have complained that 
multilateral financial institutions and their governance no 
longer reflect the reality of the world economy, and have 
proposed reforms that they consider more in line with the 
current situation. The PRC has shown that it is willing to 
develop alternatives, such as the Asian Infrastructure 
Investment Bank (AIIB) and the CIPS, when it decides that the 
United States and its supporters are not responsive to the 
proposed reforms.
    ``Forcing Chinese businesses out of western-monitored 
financial institutions'' runs the risk of China and its 
supporters developing alternatives that could challenge the 
U.S.-backed institutions. Many Mainland Chinese businesses 
already are listed on the Hong Kong Stock Exchange (HKEX), and 
thereby have access to capital from investors around the world. 
The SEC delisting Chinese companies would likely result in 
those companies listing elsewhere, either on the HKEX (if they 
are not already listed on the HKEX) or in Berlin, London, or 
Tokyo. Major U.S. investors would still be able to invest in 
the delisted Chinese companies via these other stock markets, 
and to buy Chinese bonds denominated in non-renminbi 
currencies, so the loss in Chinese access to investment capital 
would be small.

Q.2. There are thousands of Chinese students in colleges and 
universities across the United States. Many of those students 
go on to earn advanced degrees in STEM fields and are an 
important part of the academic research environment in the 
United States. However, when they graduate, the American 
immigration system forces those recently educated individuals 
to leave the U.S. and put their education to use elsewhere. How 
can we better leverage high-skilled immigration to more 
effectively compete in the global economy? Does the U.S. have a 
strategy for utilizing human capital to maintain a U.S. 
competitive advantage?

A.2. Current U.S. immigration policies and programs provide 
avenues by which some of the Chinese students who have studied 
in the United States can remain in the country after they 
finish their degrees. \1\ Quite a few Chinese students have 
benefited from these avenues, and some have become U.S. 
citizens. The 2018 survey of doctoral degree recipients 
conducted by the National Science Foundation found that 79.4 
percent of the Chinese respondents intended to stay in the 
United States. \2\
---------------------------------------------------------------------------
     \1\ For more information, see CRS Report IF11347, ``Foreign STEM 
Students in the United States''.
     \2\ National Science Foundation, ``Survey of Earned Doctorates'', 
table 53, https://ncses.nsf.gov/pubs/nsf20301/data-tables/.
---------------------------------------------------------------------------
    There are potential barriers to foreign nationals educated 
in the United States remaining in the country, if they so 
desire. The available visas generally are of limited number and 
duration, and are often tied to employment, creating various 
problems for the foreign nationals, including the risk of 
exploitation by their employers. At the same time, some people 
are concerned that Chinese students may pose a risk if they are 
actually operatives for the PRC Government or Chinese companies 
seeking access to U.S. technology. The fear is that Chinese 
students are a potential source of governmental or corporate 
technological espionage.
    If your goal is to establish a new avenue for Chinese and 
other foreign students to remain in the United States, 
contribute to the U.S. economy and society, and possibly become 
U.S. citizens, you may want to contact my colleagues at CRS who 
are experts on U.S. immigration policy.

Q.3. The Financial Action Task Force issued guidance 
encouraging Governments to work with financial institutions on 
containment efforts and emerging risks due to COVID-19. The 
Hong Kong Monetary Authority (HKMA) has acknowledged that anti-
money laundering (AML) and terrorism illicit finance (TIF) 
prevention measures will be impacted. Is the U.S. working with 
Hong Kong or China to develop international standards to 
strengthen AML and TIF measures? Is the Financial Crimes 
Enforcement Network working with Hong Kong's Joint Financial 
Intelligence Unit to identify possible AML/TIF implications of 
COVID-19? According to the HKMA, Hong Kong is experiencing an 
increase in fraudulent banking websites, phishing attacks, and 
other consumer scams. How is the U.S. in a position to learn 
from these vulnerabilities and prevent them from taking hold 
here?

A.3. The Hong Kong Monetary Authority (HKMA) sent a letter to 
all authorized institutions (AIs) on April 7, 2020, on 
``Coronavirus disease (COVID-19) and Anti-Money Laundering and 
Counter-Financing of Terrorism (AML/CFT) measures.'' The letter 
shared observations and offered support, guidance, and 
assistance. The focus of the letter seemed to be on the risks 
of the increase in remote and online banking and financial 
transaction activity, and commercial scams and fraud. The 
FATF's guidance similarly discussed how greater use of remote 
working arrangements and the increase in online financial 
transactions has created an expanded market for online fraud, 
scams, security breaches, and ransomware.
    In its 2019 report on Hong Kong, the State Department 
stated, ``U.S. Federal law enforcement agencies continued to 
cooperate effectively with the Hong Kong disciplined services, 
which is composed of police, customs, and immigration 
elements.'' U.S. Treasury and FBI agents are located in Hong 
Kong, and work closely with their HKSAR counterparts to address 
AML/CFT issues. Presumably, those interactions provide an 
opportunity for both Governments to learn from each other's 
experiences and take suitable measures to minimize identified 
vulnerabilities. This close cooperation may be at risk, 
depending on how the Trump administration implements the 
changes in U.S. policy toward Hong Kong announced on May 28, 
2020.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                       FROM PETER HARRELL

Q.1. According to reports, China is planning to launch its own 
digital currency, the Digital Currency Electronic Payment. Do 
you believe the launch of this digital currency has the 
potential to lessen the impact of U.S. sanctions, as more 
transactions are able to circumvent the U.S. global reserve 
currency model?

A.1. I am concerned that rising global use of digital 
currencies will undermine the impact of U.S. sanctions. A 
number of commentators have argued that the U.S. dollar remains 
dominant globally, and that that enduring dollar dominance 
means that the risks of cryptocurrency enabled sanctions 
circumvention are limited. But this argument misses the mark. 
First, at a conceptual level, it is entirely plausible that the 
U.S. dollar will remain dominant, but that there will be 
sufficient quantities of cryptocurrency related transactions 
that rogue actors like North Korea and Iran would be able to 
engage in enough transactions that the impact of U.S. sanctions 
on these rogue actors will be limited. Second, I look at the 
behavior of rogue actors themselves, and we see plenty of 
evidence that countries like Iran and North Korea are extremely 
interested in cryptocurrency as a sanctions circumvention tool. 
Clearly if Beijing sets up an effective global Chinese 
cryptocurrency payments system, that is going to be of great 
interest to U.S. adversaries and will likely help them evade 
sanctions, even if it does not pose a significant threat to the 
overall dominance of the U.S. dollar as a global reserve 
currency.

Q.2. In your work to develop sanctions on other countries for 
the previous Administration, what other nonfinancial options 
were considered? Were they utilized, and to what effect?

A.2. Over the last 15 years, the financial sector has been the 
focus of much U.S. sanctions policy. But as we are seeing with 
the Trump administration's recent focus on sanctions on the 
maritime sector, the U.S. has significant leverage over other 
economic sectors as well. I think we need a comprehensive 
approach to thinking about our economic leverage that looks at 
it across the board, and that is not only narrowly focused on 
our financial sector leverage.

Q.3. There is regular discussion that overuse of sanctions 
could lead to the erosion of the dollar's primacy. Do you take 
that seriously, and how should that impact our approach to Hong 
Kong?

A.3. I do not think that America's use of sanctions is likely 
to lead to a large-scale erosion in the use of the dollar, 
which is primarily driven by other global macroeconomic, 
financial, and trade policies. That said, I do think that 
America's aggressive use of sanctions is spurring a number of 
Governments to get serious about establishing dedicated payment 
channels that do not use the dollar and will allow 
circumvention of sanctions. These have not come to scale yet, 
but this is a risk that U.S. policymakers need to take 
seriously.

Q.4. If existing or proposed sanctions can't deter the Chinese 
Government from a further crackdown--if China is willing to 
bear the costs as a matter of national importance--how would 
you recommend responding?

A.4. We have to be candid that U.S. sanctions are unlikely to 
fundamentally change Beijing's approach to Hong Kong. As you 
suggest, Senator, China has proven that it is prepared to bear 
costs to achieve its objectives, and I do not see that changing 
in the near or mid-term. This is why I have argued that we 
should situate our response to Hong Kong within a broader U.S. 
strategy towards China. We may not change China's policy on 
Hong Kong, but we may succeed in deterring other aggressive 
actions by China both within its own borders and globally.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR MENENDEZ FROM PETER HARRELL

Q.1. There are several questions about the efficacy of broad 
new secondary sanctions on foreign banks which may or may not 
have knowingly contributed to undermining Hong Kong's autonomy.
    Do you think that that sort of sanctions approach is likely 
to be effective in changing Beijing's behavior?

A.1. I think that U.S. secondary sanctions are reasonably 
effective in convincing major Chinese banks, and international 
banks operating in Hong Kong and China, to avoid business that 
U.S. sanctions prohibit. In recent weeks, for example, there 
has been press coverage of the fact that many banks with 
operations in Hong Kong are trying to identify Chinese 
officials who may be sanctioned over China's takeover of Hong 
Kong and that the banks will likely exit those relationships. I 
also think that sanctions can send an important diplomatic and 
moral signal of condemnation.
    However, we need to be realistic that U.S. pressure is 
unlikely, at this point, to convince Beijing to withdraw its 
national security law or refrain from essentially terminating 
Hong Kong's political autonomy. Thus, we should think about the 
U.S. response as being not only about Hong Kong, but also about 
how we can try to deter Chinese aggression and repression 
elsewhere, such as against Taiwan and other Chinese neighbors.

Q.2. Do you have any concerns that this sort of secondary 
sanctions regime may have unintended consequences?

A.2. I am concerned that U.S. sanctions on China can have 
unintended consequences. China, unlike Iran or Venezuela, has a 
massive, sophisticated economy and is deeply connected with 
global markets. I have long urged the U.S. Government to much 
more rigorously assess and model the potential impacts of U.S. 
sanctions--both intended and unintended--to help mitigate 
unintended adverse consequences.

Q.3. Do you believe such an approach would garner the support 
of U.S. allies like the European Union, Japan, Australia, and 
others, whose support is critical to getting China to stop its 
assault on Hong Kong's freedoms?

A.3. I am optimistic that U.S. allies in Europe, at least, 
would join the U.S. in sanctioning individual Chinese officials 
responsible for repression in Hong Kong. Both the European 
Union and the U.K. have legal authorities to sanction 
Government officials involved in repression and human rights 
abuses, and I am optimistic that the growing global outcry over 
Beijing's authoritarianism, especially in Europe, would 
persuade allies to join the U.S. in a campaign of targeted 
sanctions.

Q.4. Would a more tightly target set of primary sanctions on 
financial institutions which knowingly acted to undermine Hong 
Kong be a more appropriate approach to financial sanctions?

A.4. I actually think that if the U.S. sanctions a foreign 
financial institution--which is a dramatic step that the U.S. 
should take only in rare cases where the financial institution 
has engaged in egregious wrongdoing at a policy level in many 
cases it makes sense to impose secondary sanctions on the 
institution, rather than imposing only primary sanctions. While 
imposing secondary sanctions, as opposed to just primary 
sanctions, may be more provocative to allies, primary sanctions 
on foreign financial institutions without secondary sanctions 
risks creating perverse incentives for financial institutions 
to simply set up channels that exist outside U.S. jurisdiction.

Q.5. Given the moral obligation we owe to the people of Hong 
Kong, would you recommend consideration of any separate visa 
treatment for Hongkongers subject to political prosecution or 
other human rights abuse? Are there other positive incentives--
diplomatic support for democracy activists, for example--that 
we should consider along with coercive measures aimed at 
Beijing?

A.5. I fully support measures to expand the ability of ordinary 
Hongkongers to travel and study in the U.S. The recent 
Executive order on Hong Kong normalization included provisions 
that terminated preferential treatment for Hong Kong passport 
holders as compared to PRC passport holders and terminated the 
Fulbright exchange program. Both of these programs benefit 
regular Hongkongers and contribute to people-to-people 
exchanges on both sides. The United States should revoke both 
of these decisions and instead place increased scrutiny on 
those who have close ties to the CCP and related Government 
offices.

Q.6. Just last month, the Trump administration published the 
United States Strategic Approach to the People's Republic of 
China. How should the U.S. response to Hong Kong fit into that 
overall approach towards China and towards deterring the next 
incidence of Chinese aggression?

A.6. Within the United States Strategic Approach to the 
People's Republic of China, the Trump administration 
articulates a strategy to ``prevail against the challenges the 
PRC presents and to compel Beijing to cease or reduce actions 
harmful to the United States' vital national interests and 
those of our allies and partners.'' The U.S. response to 
defending Hong Kong's democracy through releasing statements 
and potentially freezing the assets of those who have 
undermined Hong Kong democracy sends a message to Beijing, as 
well as allies and partners, that the United States will defend 
the vital national interests of its allies and partners.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                       FROM PETER HARRELL

Q.1. Mr. Harrell, the United States has an array of policy 
options in response to China's decision to impose new national 
security laws on Hong Kong. How do we create real costs for 
Chinese State security officials as well as companies and 
individuals that promote violence against Hong Kong residents 
or limit Hong Kong's autonomy and freedoms, while limiting the 
blowback on U.S. and allied economies?

A.1. Senator, I think that targeted sanctions on Chinese 
officials can send a valuable diplomatic and political message, 
and the threat of sanctions against Chinese companies, such as 
AI companies potentially involved in surveillance, can deter 
some companies from actively supporting Chinese efforts to 
erode Hong Kong's autonomy and freedoms. But I also think that 
we need to be realistic about the limits of sanctions as a 
policy tool in shaping Chinese actions towards Hong Kong: 
sanctions are unlikely to fundamentally change Beijing's 
strategic calculus towards the territory. This is why I urge 
U.S. policymakers to embed our response to Hong Kong in a 
larger strategy toward China that focuses on constraining a 
range of Chinese malign activities, rather than a narrow focus 
on deterring a set of actions that, practically speaking, we 
are unlikely to deter.

Q.2. Mr. Harrell, your policy recommendations include directing 
the Treasury Department and other agencies involved in the 
Committee on Foreign Investment in the United States (CFIUS) to 
treat investments from Hong Kong-domiciled companies comparably 
to investments from mainland Chinese companies, as well as 
directing the Commerce Department to begin treating most 
exports of sensitive and dual-use goods to Hong Kong similarly 
to the way it treats exports of such goods to mainland China. 
Do the relevant Federal agencies need any additional 
authorities from Congress to implement these measures?

A.2. No. The Commerce Department and Treasury Departments have 
adequate authorities to implement these recommendations under 
existing law.
    Entirely unrelated to Hong Kong, however, one area that 
Congress should look at legislative changes to strengthen U.S. 
tools to combat unfair Chinese practices is antitrust. I think 
that tougher enforcement of U.S. antitrust laws has significant 
potential to help fight predatory Chinese trade practices, 
particularly if U.S. lawmakers amend U.S. antitrust law to 
focus on a broader range of harms than antitrust law's current 
consumer-welfare focus.

Q.3. Mr. Harrell, in the wake of China's decision to impose new 
national security laws on Hong Kong, should the United States 
consider providing temporary protected status or some other 
status to Hong Kong residents who credibly fear Chinese 
Government persecution?

A.3. The United States should consider providing temporary 
protected status or consider a way to allow those facing 
increased political pressure or Chinese Government persecution 
to claim asylum in the United States. However, in the short 
term, the U.S. Government should consider revoking the section 
of the Executive order on Hong Kong normalization that revokes 
privileged access for Hong Kong passport holders from that of 
PRC passport holders.

Q.4. Mr. Harrell, the Trump administration's National Defense 
Strategy views China through the lens of great power 
competition. In your written testimony, you urged the U.S. to 
use a range of tools in response to China's aggressive efforts 
to erode Hong Kong's autonomy, but you did not discuss military 
tools. Would an increase in U.S. defense spending have a 
meaningful impact on China's erosion of Hong Kong's autonomy?

A.4. Senator, the way we will ultimately prevail in great power 
competition with China is by making sufficient investments here 
at home that we continue to lead technologically and 
economically, as well as militarily. While we need adequate 
defense spending, the most important long-term spending 
priorities to win in an era of great power competition are 
smart domestic investments.

Q.5. Mr. Harrell, will China's decision to impose new national 
security laws on Hong Kong further embolden Beijing to escalate 
its posture toward Tibet and Taiwan?

A.5. Beijing's proposal and implementation of the National 
Security Law on Hong Kong is part of a longer trend towards 
maintaining and expanding territorial sovereignty and 
integrity. As clearly articulated by then-State Council Dai 
Bingguo in 2009, China's core national interests include 
upholding basic systems and national security, sovereignty and 
territorial integrity, and economic and social sustained 
development--this includes Tibet and Taiwan. Beijing's 
crackdown of Tibet has already happened. Before Chen Quanguo 
was promoted to Xinjiang Party Chairman, he oversaw the 
suppression of religious rights of Tibetan monks, implementing 
the practice of ``collective punishment,'' where county-level 
governments within Tibet turned to impose collective punishment 
on families, communities, villages, or monastic institutions to 
deter individuals from engaging in ``prohibited behavior.'' 
Similarly, while the detention of Tibetan monks have not been 
observed on the same level as the Uyghurs in Xinjiang, there 
have been similar reports of re-education centers for such. Now 
that Beijing has essentially dissolved one country, two 
systems, Taiwan is now its next biggest challenge to solve with 
regards to reunification.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR CORTEZ MASTO FROM PETER HARRELL

Q.1. You spoke about the importance of situating the U.S. 
response to China's aggression in Hong Kong within a broader 
strategy, one that includes building resiliency here at home 
and among our close partners and allies. As you know, 2 years 
ago Congress reformed the CFIUS process. And, as you've 
mentioned, we're starting to see some European countries taking 
steps to review Chinese investments in critical sectors. What 
more can the Treasury Department and the whole U.S. Government 
do to help those allies emulate a CFIUS like process?

A.1. Both Europe and several U.S. allies in Asia have recently 
either moved to expand the scope of their own national security 
reviews of inbound investment or are discussing doing so. In 
March, for example, the European Commission issued guidance 
with the goal or protecting European firms in the healthcare 
sector and other critical infrastructure from predatory 
takeovers. India in recent months has strengthened its review 
of investments from neighboring countries, a move primarily 
directed at China.
    I would like to highlight two things the U.S. should do to 
help advance these efforts. First, with allies that are already 
strengthening their own national security reviews of inbound 
investments, the U.S. should work on sharing information about 
both trends in Chinese global investment and specific 
transactions to the greatest extent possible. Second, in parts 
of the developing world, for example in many African countries, 
the legal regimes and practical capacity to review inbound 
investments for national security concerns remains extremely 
limited. I recommend that the Treasury Department and State 
Department examine the feasibility of providing technical 
assistance to Governments to develop appropriate legal regimes 
and capacity, much as they currently provide capacity-building 
assistance on AML, counterterrorism finance, and other areas of 
regulatory law.

Q.2. At the hearing I posed a question to all witnesses about 
how American and European companies are receiving pressure from 
the Chinese Communist Party (CCP) to endorse the national 
security law and other CCP actions toward restricting freedom 
and civil liberties in Hong Kong. I appreciated your response 
on the extent of the issue of CCP influence on these companies. 
What can Congress do to support American companies and 
universities experiencing CCP Government pressure and 
propaganda? How can the U.S. Government incentivize or empower 
American companies to resist CCP pressure on issues of human 
rights and civil liberties?

A.2. The U.S. Government can continue to publicize and 
highlight the CCP's efforts to spread propaganda and to stifle 
free speech on campus. This includes not just educating private 
companies and universities on the threat that they face in 
terms of IP theft, but also more collaboration and feedback on 
propaganda efforts and threats to free speech. Congress can 
also support private companies and universities by releasing 
statements that condemn CCP Government pressure and propaganda. 
Regular U.S. Government reports, or think tank reports 
sponsored by the U.S. Government, on the threats that companies 
and universities face from Beijing can also highlight gaps of 
knowledge and allow companies and universities to identify 
where their vulnerabilities are. Congress should also encourage 
both universities and the private sector to create a code of 
conduct on their dealings with China to encourage them to adopt 
high-standard practices.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
                       FROM PETER HARRELL

Q.1. In a Wall Street Journal article, ``U.S.-China Dispute 
Growing Harder To Solve'', you were quoted saying that 
sanctioning portions of the Chinese Government or officials are 
``diplomatic messaging measures.''
    Should we assume that China is going to implement some form 
of the proposed security law and if so, what is the best way to 
influence the stringency of the law and the subsequent 
implementation of it?

A.1. China already has and will continue to implement the 
National Security Law in Hong Kong. The United States has 
already revoked Hong Kong's special economic status, revoked 
license exceptions for exports to Hong Kong, and the 
extradition treaty between the United States and Hong Kong, and 
none of these actions have deterred Beijing from continuing to 
implement the National Security Law. Unfortunately, Hong Kong, 
like Taiwan, Macau, and Xinjiang, are chief among Beijing's 
core national interests. As we are seeing with Hong Kong, China 
is prepared to bear significant costs in order to pursue its 
core interests and I think we should be realistic about the 
likelihood that measures such as targeted sanctions will cause 
Beijing to change its chosen path. However, Congress and the 
U.S. Government should nonetheless impose such sanctions to 
signal to Beijing its disapproval, to shape the global 
narrative, and to potentially deter Beijing from taking even 
more aggressive action in the future.

Q.2. As opposed to Mainland China, Hong Kong is not a 
manufacturing hub. The U.S. maintains a $23 billion trade 
surplus with Hong Kong. The territory exported $4.8 billion 
last year to the U.S., about 1 percent of what China exports to 
the United States. In 2018, Hong Kong was the 5th largest 
market for American consumer oriented agricultural products and 
the 7th largest market for total U.S. agricultural product 
exports.
    Since the United States enjoys such a large trade surplus 
with Hong Kong, what would be the potential ramifications for 
Hong Kong, China, and American companies, particularly farmers, 
if the United States executed a similar tariff treatment 
towards Hong Kong as China?

A.2. As you note, Senator, the U.S. imports comparatively 
modest quantities of goods that are made in Hong Kong, with a 
total value of approximately $4.8 billion. Subjecting these 
goods to the tariff rates that the U.S currently imposes on 
China is going to have a comparatively small economic impact 
from macroeconomic perspective given the comparatively small 
value of the imports. The larger potential impact would, as 
your question implies, come if Hong Kong retaliates to the 
higher U.S. tariffs by subjecting U.S. goods exported to Hong 
Kong to higher rates, given that the U.S. had goods trade 
surplus totaling $31.0 billion with Hong Kong in 2018. While I 
take this risk seriously, and I think we need a careful 
evaluation of America's overall tariff strategy towards China, 
I also think that we fundamentally cannot continue to treat 
Hong Kong as separate from China where Beijing increasingly 
does not do so.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                       FROM PETER HARRELL

Q.1. The SWIFT payment system is the backbone on which most 
financial transfers take place. However, China is developing 
its Cross-Border Inter-Bank Payments System (CIPS) as a SWIFT 
alternative. Right now, the Administration is pushing Chinese 
firms out of the western financial system and the Chairman of 
the Securities and Exchange Commission supports delisting 
Chinese companies from U.S. stock exchanges. Can you address 
the pro and cons of forcing Chinese businesses out of western 
monitored financial institutions?

A.1. The United States should avoid completely decoupling 
Chinese financial institutions from the U.S. financial system. 
Instead, the United States should push for transparency and 
accountability from Chinese firms that wish to be integrated 
into the U.S. financial system, and should require that they 
meet our standards. While the United States should not allow 
Chinese firms to raise money from U.S. companies for goals that 
are directly contrary to U.S. foreign policy goals and U.S. 
national security, complete financial decoupling between the 
United States and China reduces U.S. control over the global 
financial system, and decreases the leverage that the United 
States has with tools like sanctions.

Q.2. There are thousands of Chinese students in colleges and 
universities across the United States. Many of those students 
go on to earn advanced degrees in STEM fields and are an 
important part of the academic research environment in the U.S. 
However, when they graduate, the American immigration system 
forces those recently educated individuals to leave the U.S. 
and put their education to use elsewhere. How can we better 
leverage high-skilled immigration to more effectively compete 
in the global economy? Does the U.S. have a strategy for 
utilizing human capital to maintain a U.S. competitive 
advantage?

A.2. The United States should adjust its immigration policy to 
allow those highly educated individuals in STEM fields to 
remain in the United States and pursue a career. For example, 
since 2005, H-1B visas have been capped at 85,000 people per 
year, when over double the amount of people apply for H-1B 
visas every year. In addition, the Optional Practical Training 
program, which was recently revoked by the Trump 
administration, allows STEM students who are on a F-1 visa to 
work up to 3 years after graduation in the United States.

Q.3. The Financial Action Task Force issued guidance 
encouraging Governments to work with financial institutions on 
containment efforts and emerging risks due to COVID-19. The 
Hong Kong Monetary Authority (HKMA) has acknowledged that anti-
money laundering (AML) and terrorism illicit finance (TIF) 
prevention measures will be impacted. Is the U.S. working with 
Hong Kong or China to develop international standards to 
strengthen AML and TIF measures? Is the Financial Crimes 
Enforcement Network working with Hong Kong's Joint Financial 
Intelligence Unit to identify possible AML/TIF implications of 
COVID-19? According to the HKMA, Hong Kong is experiencing an 
increase in fraudulent banking websites, phishing attacks, and 
other consumer scams. How is the U.S. in a position to learn 
from these vulnerabilities and prevent them from taking hold 
here?

A.3. Both FinCEN and Hong Kong's Joint Financial Intelligence 
Unit are part of the Egmont Group, an international 
organization which allows members to exchange expertise and 
financial intelligence to combat AML and counterterrorist 
financing (CTF) issues. Both the United States and Hong Kong 
are both also part of the Financial Action. Task Force, which 
does work together to develop international standards to 
strengthen AML/CTF efforts, as well as other issues. If Hong 
Kong continues and decides to share information with the United 
States on the actors behind the fraudulent banking websites, 
phishing attacks, other consumer scams, and the tactics that 
they use, the United States can use this information to develop 
their own internal red flags to spot these actors and tactics 
to protect U.S. consumers.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                      FROM ERIC B. LORBER

Q.1. According to reports, China is planning to launch its own 
digital currency, the Digital Currency Electronic Payment. Do 
you believe the launch of this digital currency has the 
potential to lessen the impact of U.S. sanctions, as more 
transactions are able to circumvent the U.S. global reserve 
currency model?

A.1. The launch of the Digital Currency Electronic Payment 
system may pose certain risks to the effectiveness of U.S. 
economic sanctions, but it is important to keep digital 
currency projects such as this in proper context. Such 
initiatives, as a general matter, could be considered a 
challenge to the efficacy of U.S. economic sanctions because 
they facilitate nondollarized transactions. However, if China 
wanted to set up an exclusive economic zone that only relied on 
the Yuan for transactions, that system would likewise not be 
subject to U.S. jurisdiction. The point is that if a country 
wants to avoid U.S. sanctions, it could do so with fiat 
currency; it does not need a digital currency to facilitate 
such a system. It becomes a threat to U.S. sanctions power if 
the financial ecosystem in that zone becomes sufficiently large 
that it is wholly self-sustaining and doesn't require access to 
the U.S. financial system at all. In such a situation, the 
power of U.S. sanctions would be limited.

Q.2. You note the importance of coordinating with other like-
minded countries to protect interests in Hong Kong. Are you 
aware of progress on that front?

A.2. I am not aware of specific United States Government 
initiatives.

Q.3. There is regular discussion that overuse of sanctions 
could lead to the erosion of the dollar's primacy. Do you take 
that seriously, and how should that impact our approach to Hong 
Kong?

A.3. Yes, that is a valid concern and one that needs to be 
considered each time the United States ramps up a sanctions 
program. To appropriately scope the impact and limit the risks 
to the dollar's primacy, I would recommend targeting those 
individuals directly involved in the efforts to impose the 
national security law in Hong Kong. Sanctions can be a powerful 
tool, and they are most effective--and have the most support 
among our partners, allies, and those in the private sector--
when they are focused on specific, illicit activity. Targeting 
those individuals most directly involved will send a signal 
that the United States is deeply disturbed by such activity and 
will impose consequences in a smart and limited fashion.

Q.4. If existing or proposed sanctions can't deter the Chinese 
Government from a further crackdown--if China is willing to 
bear the costs as a matter of national importance--how would 
you recommend responding?

A.4. In this scenario, the United States should allow 
Hongkongers to emigrate to the United States. Many of the 
residents in Hong Kong are highly educated, with deep expertise 
in financial markets and other white-collar industries. Beyond 
the moral imperative at play here, helping those in Hong Kong 
emigrate to the United States is a win-win-win for the United 
States. It promotes the health of the U.S. economy by adding 
valuable new intellectual capital; undercuts China's ability to 
benefit from their talents and productivity; and helps those 
around the world who value democracy and freedom.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR MENENDEZ FROM ERIC B. LORBER

Q.1. Under the 2019 Hong Kong Human Rights and Democracy Act, 
Congress provided the Administration with a new sanctions 
framework, including ways to invoke the Global Magnitsky law, 
and to use its broad IEEPA authorities. We did so in the hopes 
of giving the Administration tools to target responsible 
parties in Beijing, not just to deprive Hong Kong of its 
benefits as a separate customs and trade territory. What 
recommendations would you make to this Committee--and the 
Administration--about how to effectively target these 
authorities?

A.1. First and foremost, I would recommend that the 
Administration use these authorities to show a willingness to 
push back on China's efforts to undermine the rights of 
Hongkongers. While the use of such sanctions could be 
escalatory, it is clear that the Chinese are intent on 
escalating in Hong Kong and further incorporating the city into 
the CCP's authoritarian security State.
    Second, I would recommend targeting those individuals 
directly involved in the efforts to impose the national 
security law in Hong Kong. Sanctions can be a powerful tool, 
and they are most effective--and have the most support among 
our partners, allies, and those in the private sector--when 
they are focused on specific, illicit activity. Targeting those 
individuals most directly involved will signal that the United 
States is deeply disturbed by such activity and will impose 
consequences in a smart and limited fashion.

Q.2. There are several questions about the efficacy of broad 
new secondary sanctions on foreign banks which may or may not 
have knowingly contributed to undermining Hong Kong's autonomy.
    Do you think that that sort of sanctions approach is likely 
to be effective in changing Beijing's behavior?

A.2. The Chinese Communist Party has made clear in recent weeks 
that it will aggressively crack down on peaceful protesters and 
the prodemocracy movement in Hong Kong. Since the 
implementation of the national security law, which was more 
draconian than many expected, the CCP has worked with Hong Kong 
police authorities to silence dissent within the city. This is 
a hard case for sanctions to be effective, as the CCP has 
evidently determined that it is willing to risk punishment and 
international condemnation to take greater control of the city. 
Nevertheless, sanctions that target this activity and those 
supporting this activity (e.g., certain financial institutions) 
can be impactful in preventing the CCP from taking further 
actions. To date, the U.S. response to China undermining 
freedoms and rights in Hong Kong has been relatively muted. 
Aggressive use of existing authorities and newer authorities 
such as the Hong Kong Autonomy Act have the potential to change 
that dynamic and make it clear to the CCP that there will be a 
serious price to pay if they continue cracking down in Hong 
Kong.

Q.3. Do you have any concerns that this sort of secondary 
sanctions regime may have unintended consequences?

A.3. Any time the United States creates a primary or secondary 
sanctions program, there is a risk of unintended consequences. 
In this case, the primary risk pertains to targeting financial 
institutions that are economically important. For example, if 
the United States targeted major Chinese financial institutions 
for their support of individuals undermining the rights and 
freedoms in Hong Kong, this could have serious impacts on 
financial markets and on the U.S.-China relationship. In 
addition, there is also a risk that, by targeting financial 
institutions with secondary sanctions, they may decide to leave 
Hong Kong altogether, which could further allow the CCP to 
absorb the city into the mainland.
    To limit these potential consequences, as I noted in my 
written testimony, the secondary sanctions must be carefully 
calibrated and imposed only when there is evidence that the 
financial institution knowingly provided significant support to 
the efforts of certain individuals or entities to undermine the 
rights and freedoms of those in Hong Kong. Such a powerful-yet-
targeted approach would deter those financial institutions from 
knowingly helping such malign activities while at the same time 
ensuring that the United States does not sanction financial 
institutions in a way that does not achieve U.S. policy 
objectives.

Q.4. Do you believe such an approach would garner the support 
of U.S. allies like the European Union, Japan, Australia, and 
others, whose support is critical to getting China to stop its 
assault on Hong Kong's freedoms?

A.4. A multilateral sanctions campaign with the United States, 
Canada, Australia, the United Kingdom, the European Union, and 
Japan would be impactful. I believe that this campaign, as 
described above, could garner the support of these partners and 
allies if executed in close consultation with them. For 
example, if the United States were to use the Hong Kong 
Autonomy Act to designate a U.K. financial institution, clearly 
that would not garner support from the United Kingdom. However, 
if the United States embarked on a targeted, limited sanctions 
campaign that accounted for the interests of these allies and 
partners and coordinated to the extent feasible with them, I 
think they would offer support and be willing to participate.
    Coordination with key U.S. allies and partners must be part 
of any broader strategy the United States pursues in its 
competition with China. Given the international condemnation of 
the Chinese Communist Party's efforts to undermine the rights 
and freedoms of those in Hong Kong, enlisting these allies and 
partners on this specific issue should be a focus of this 
Administration as it aims to increase cooperation in its 
efforts to counter China across a range of topics.

Q.5. Would a more tightly target set of primary sanctions on 
financial institutions which knowingly acted to undermine Hong 
Kong be a more appropriate approach to financial sanctions?

A.5. I believe that a tightly focused set of primary sanctions 
could be an appropriate way to target financial institutions 
knowingly acting to undermine Hong Kong. However, in the case 
of the Hong Kong Autonomy Act and the prohibitions it 
delineates, I am not sure it would be more impactful or 
targeted. The penalties contained in the HKAA for foreign 
financial institutions include prohibitions on correspondent 
banking activities for designated banks. Such prohibitions--
which would cut those financial institutions off from the U.S. 
financial system--would make it extremely difficult, if not 
impossible, for that financial institution to survive. It would 
effectively have the same impact as designating the financial 
institution as a Specially Designated National (SDN).

Q.6. Just last month, the Trump administration published the 
United States Strategic Approach to the People's Republic of 
China. How should the U.S. response to Hong Kong fit into that 
overall approach towards China and towards deterring the next 
incidence of Chinese aggression?

A.6. The U.S. response to Hong Kong should be a key element of 
the Administration's approach towards China. In particular, 
standing up for freedom-loving people in Hong Kong signals that 
the United States will not abandon those it supports in the 
face of Chinese aggression. While the United States must remain 
flexible in its relationship with China, the U.S. must also be 
willing to challenge China's malign activities when and where 
appropriate. The U.S. response to China's aggression in Hong 
Kong is important for deterring future Chinese efforts to 
undermine the freedoms and rights of Hongkongers and making it 
clear that the United States will not sit idly by as the CCP 
pursue aggressive policies around the world.
    Further, coordination with key U.S. allies and partners 
must be part of any broader strategy the United States pursues 
in its competition with China. Given the international 
condemnation of the Chinese Communist Party's efforts to 
undermine the rights and freedoms of those in Hong Kong, there 
is opportunity to enlist these allies and partners on this 
specific issue as the Trump administration aims to increase 
cooperation in its efforts to counter China across a range of 
topics.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR CORTEZ MASTO FROM ERIC B. LORBER

Q.1. You spoke about the importance of situating the U.S. 
response to China's aggression in Hong Kong within a broader 
strategy, one that includes building resiliency here at home 
and among our close partners and allies. As you know, 2 years 
ago Congress reformed the CFIUS process. And, as you've 
mentioned, we're starting to see some European countries taking 
steps to review Chinese investments in critical sectors. What 
more can the Treasury Department and the whole U.S. Government 
do to help those allies emulate a CFIUS like process?

A.1. The U.S. can take several steps to help our allies and 
partners emulate a CFIUS-like process. While many countries 
have already developed and are employing such a process (e.g., 
our allies in the European Union), many vulnerable and 
strategically important partners are just embarking on 
developing such processes. For these jurisdictions, providing 
insight into the key issue areas (e.g., whether to make certain 
transaction submissions mandatory or discretionary, what types 
of technologies should trigger a review, whether the CFIUS-like 
entity can unwind transactions) would be helpful as they 
consider how to best formulate these processes. A concerted 
campaign by the interagency to identify these jurisdictions and 
provide them with such technical support is an important 
initiative.
    The U.S. Government can also do more to help foreign 
companies understand the threat posed by Chinese efforts to 
steal intellectual property or exploit their technology. In the 
United States, companies have become acutely aware of China's 
commercial espionage efforts, in part due to the success of 
these efforts. Companies in certain high-tech industries in 
other jurisdictions may not sufficiently understand these risks 
nor take the necessary legal and prudential steps to limit 
them. Working with partner Governments to highlight how China 
has engaged in commercial espionage in the United States--as 
well as recommending steps these non-U.S. companies may want to 
consider taking--would further bolster our partners' defenses 
against predatory Chinese economic practices that can undermine 
U.S. national security.

Q.2. At the hearing I posed a question to all witnesses about 
how American and European companies are receiving pressure from 
the Chinese Communist Party (CCP) to endorse the national 
security law and other CCP actions toward restricting freedom 
and civil liberties in Hong Kong. I appreciated your response 
on the extent of the issue of CCP influence on these companies. 
What can Congress to do support American companies and 
universities experiencing CCP Government pressure and 
propaganda? How can the U.S. Government incentivize or empower 
American companies to resist CCP pressure on issues of human 
rights and civil liberties?

A.2. This is a difficult issue for American companies, who now 
find themselves in a challenging position: continuing to want 
to do business in a market where they have historically enjoyed 
success while at the same time wanting to abide by U.S. laws 
and regulations and ensuring they do not undercut the freedoms 
and rights of the people of Hong Kong. The CCP has forced this 
choice on them by effectively threatening certain multinational 
companies in Hong Kong that they must endorse the national 
security law or suffer the consequences, including a cut off 
from access to Chinese business in the city and on the 
mainland.
    The United States can support its companies by bolstering 
them in the face of Chinese pressure. For example, the CCP has 
added and threatened to add U.S. companies to the so called 
``unreliable entities list,'' essentially a blacklist of 
companies that may not be able to do certain business in China. 
The purpose of this list is clear; to compel U.S. companies to 
abide by China's foreign policy preferences, including either 
endorsing or refusing to condemn the CCP's efforts to undermine 
the rights and freedoms of those operating in Hong Kong. The 
United States should consider offering incentives to these 
companies (e.g., tax incentives) as a way to offset this 
pressure. In particular, such incentives would help those U.S. 
companies continue to resist China's efforts to force them to 
abide by the CCP's authoritarian dictates.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
                      FROM ERIC B. LORBER

Q.1. In recent years, the U.S. has imposed unilateral 
sanctions, including the sanctions against Iran, Russia, and 
Venezuela. As a deterrent to Russia's overreach in Crimea, 
unilateral sanctions were considered, but determined to be not 
as effective as multilateral sanctions.
    Following China's recent actions towards Hong Kong, other 
countries like Canada, Australia, the United Kingdom, and Japan 
condemned China's efforts and threatened sanctions should they 
follow through with threats included in the new national 
security law.
    Would coordinated sanctions with Canada, Australia, United 
Kingdom, and Japan effectively influence China to alter their 
behavior towards Hong Kong? What is the possibility their 
hostility towards Hong Kong could escalate?

A.1. A multilateral sanctions campaign with the United States, 
Canada, Australia, the United Kingdom, and Japan would be both 
economically and symbolically impactful. First, it would signal 
to non-U.S. financial institutions the real risks of continuing 
business as usual in Hong Kong. These institutions may also 
find a lack of support from their home Governments if they do 
business with persons listed under the Hong Kong Autonomy Act. 
Second, it would make clear that the international condemnation 
of China's efforts to undermine the freedoms and rights of 
Hongkongers has teeth. While such an approach may not 
ultimately deter China from taking more aggressive action in 
Hong Kong, it would signal that countries around the world are 
willing and able to stand up to Chinese bullying and the CCP's 
authoritarian impulses.
    Coordination with key U.S. allies and partners must be part 
of any broader strategy the United States pursues in its 
competition with China. Given international condemnation of the 
CCP's efforts to undermine the rights and freedoms of those in 
Hong Kong, enlisting these allies and partners should be a 
focus of this Administration as it aims to increase cooperation 
to counter China across a range of topics.

Q.2. As opposed to Mainland China, Hong Kong is not a 
manufacturing hub. The U.S. maintains a $23 billion trade 
surplus with Hong Kong. The territory exported $4.8 billion 
last year to the U.S., about 1 percent of what China exports to 
the United States. In 2018, Hong Kong was the 5th largest 
market for American consumer oriented agricultural products and 
the 7th largest market for total U.S. agricultural product 
exports.
    Since the United States enjoys such a large trade surplus 
with Hong Kong, what would be the potential ramifications for 
Hong Kong, China, and American companies, particularly farmers, 
if the United States executed a similar tariff treatment 
towards Hong Kong as China?

A.2. The impact on aligning U.S. trade policy towards China 
with its stance towards Hong Kong would not necessarily 
negatively impact U.S. manufacturing and export of U.S.-origin 
products to Hong Kong. As the question notes, the United States 
enjoys a significant export surplus vis-a-vis Hong Kong, and 
the export of U.S. goods would not automatically be hit by U.S. 
tariffs.
    However, China may increase tariffs in a targeted way on 
U.S. manufacturers sending goods to Hong Kong as retaliation 
for the change in U.S. tariff policy. Such action could 
negatively impact U.S. exporters of goods to Hong Kong. In 
addition, throughout the imposition of U.S. tariffs on China, 
Hong Kong has acted as an effective ``pass through'' whereby 
goods from China flow to Hong Kong and then to the United 
States. As a result, many U.S. tariffs do not apply to these 
goods. An alignment of U.S. tariff policy towards Hong Kong 
with its policy towards the mainland may increase the impact of 
U.S. tariffs on goods coming out of China because this ``pass 
through'' may no longer be an effective way to reduce the 
impact of these restrictions.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                      FROM ERIC B. LORBER

Q.1. The SWIFT payment system is the backbone on which most 
financial transfers take place. However, China is developing 
its Cross-Border Inter-Bank Payments System (CIPS) as a SWIFT 
alternative. Right now, the Administration is pushing Chinese 
firms out of the western financial system and the Chairman of 
the Securities and Exchange Commission supports delisting 
Chinese companies from U.S. stock exchanges. Can you address 
the pro and cons of forcing Chinese businesses out of western 
monitored financial institutions?

A.1. There is a risk that, as Chinese financial institutions 
and companies move out of the financial piping established by 
the United States and European Nations (e.g., SWIFT), it could 
decrease visibility into the activities these financial 
institutions may be undertaking. That said, if Chinese 
financial institutions were trying to conduct transactions with 
U.S. or EU financial institutions using CIPS or another system, 
they would likely still need to provide relevant information to 
their U.S. or EU counterparts. Otherwise, those counterparts, 
fearing entanglement in potentially illicit activity, would be 
wary of doing such business. So while I do think there could be 
some impact on visibility, without a greater shift away from 
transactions with U.S. and EU financial institutions, that 
impact may be limited.
    It is also worth noting that, to the extent in which these 
Chinese financial institutions may not be abiding by relevant 
AML and sanctions laws and regulations, there is a real risk in 
allowing them to continue operating in U.S. and EU financial 
markets.

Q.2. There are thousands of Chinese students in colleges and 
universities across the United States. Many of those students 
go on to earn advanced degrees in STEM fields and are an 
important part of the academic research environment in the 
United States. However, when they graduate, the American 
immigration system forces those recently educated individuals 
to leave the U.S. and put their education to use elsewhere. How 
can we better leverage high-skilled immigration to more 
effectively compete in the global economy? Does the U.S. have a 
strategy for utilizing human capital to maintain a U.S. 
competitive advantage?

A.2. Leveraging human capital to maintain a U.S. competitive 
advantage is a key component of the U.S. competition with China 
and ensuring the continued success of the U.S. economy. While I 
cannot speak to the current U.S. strategy for utilizing such 
intellectual capital to ensure this continued success, I do 
think that the United States should help those in Hong Kong 
come to the United States. Many Hong Kong residents are highly 
educated, white-collar workers who would bring significant 
human capital to our economy. We should allow them to come to 
this country and become productive members of our economy if 
they so choose.

Q.3. The Financial Action Task Force issued guidance 
encouraging Governments to work with financial institutions on 
containment efforts and emerging risks due to COVID-19. The 
Hong Kong Monetary Authority (HKMA) has acknowledged that anti-
money laundering (AML) and terrorism illicit finance (TIF) 
prevention measures will be impacted. Is the U.S. working with 
Hong Kong or China to develop international standards to 
strengthen AML and TIF measures? Is the Financial Crimes 
Enforcement Network working with Hong Kong's Joint Financial 
Intelligence Unit to identify possible AML/TIF implications of 
COVID-19? According to the HKMA, Hong Kong is experiencing an 
increase in fraudulent banking websites, phishing attacks, and 
other consumer scams. How is the U.S. in a position to learn 
from these vulnerabilities and prevent them from taking hold 
here?

A.3. I am not aware of any specific initiatives by FinCEN or 
other U.S. authorities to work with Hong Kong's Joint Financial 
Intelligence Unit to address the AML/TIF Implications of COVID-
19.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                       FROM LEE CHEUK YAN

Q.1. There is regular discussion that overuse of sanctions 
could lead to the erosion of the dollar's primacy. Do you take 
that seriously, and how should that impact our approach to Hong 
Kong?

A.1. It is difficult to answer for me.

Q.2. If existing or proposed sanctions can't deter the Chinese 
Government from a further crackdown--if China is willing to 
bear the costs as a matter of national importance--how would 
you recommend responding?

A.2. With a reckless Government that do not care about the well 
being of its own people, it is sad that both Hong Kong People 
and Chinese People may have to suffer because the hegemony 
ideology of Xi Jingping.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                       FROM LEE CHEUK YAN

Q.1. The SWIFT payment system is the backbone on which most 
financial transfers take place. However, China is developing 
its Cross-Border Inter-Bank Payments System (CIPS) as a SWIFT 
alternative. Right now, the Administration is pushing Chinese 
firms out of the western financial system and the Chairman of 
the Securities and Exchange Commission supports delisting 
Chinese companies from U.S. stock exchanges. Can you address 
the pro and cons of forcing Chinese businesses out of western 
monitored financial institutions?

A.1. I do not have the expertise to answer this.

Q.2. There are thousands of Chinese students in colleges and 
universities across the United States. Many of those students 
go on to earn advanced degrees in STEM fields and are an 
important part of the academic research environment in the 
United States. However, when they graduate, the American 
immigration system forces those recently educated individuals 
to leave the U.S. and put their education to use elsewhere. How 
can we better leverage high-skilled immigration to more 
effectively compete in the global economy? Does the U.S. have a 
strategy for utilizing human capital to maintain a U.S. 
competitive advantage?

A.2. There are now already a lots of very highly educated 
Chinese graduates being able to remain in U.S. including the 
princeling generation.

Q.3. The Financial Action Task Force issued guidance 
encouraging Governments to work with financial institutions on 
containment efforts and emerging risks due to COVID-19. The 
Hong Kong Monetary Authority (HKMA) has acknowledged that anti-
money laundering (AML) and terrorism illicit finance (TIF) 
prevention measures will be impacted. Is the U.S. working with 
Hong Kong or China to develop international standards to 
strengthen AML and TIF measures? Is the Financial Crimes 
Enforcement Network working with Hong Kong's Joint Financial 
Intelligence Unit to identify possible AML/TIF implications of 
COVID-19? According to the HKMA, Hong Kong is experiencing an 
increase in fraudulent banking websites, phishing attacks, and 
other consumer scams. How is the U.S. in a position to learn 
from these vulnerabilities and prevent them from taking hold 
here?

A.3. I do not have the expertise to answer this question.
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