Hong Kong and the New Opium War

Today, Hong Kong is once again the scene where the great powers settle their trade struggles

In the 19th century, Hong Kong was one of the theaters that framed the Opium Wars (1839-1860), a conflict that faced the United Kingdom, France, and Russia on the one hand, and China on the other, and whose cause was the interests on the opium trade. As a consequence of the Second War, Hong Kong passed into British hands. Today, Hong Kong is once again the scene where the great powers settle their commercial struggles.
In 1997, the United Kingdom ceded control of Cantonese territory to China with a series of conditions. Among which was the autonomy of the region under the principle of one country, two systems. Thus, Hong Kong became a special administrative region within Chinese territory. Since then, China has become increasingly active in Hong Kong's domestic politics. Proof of this is Beijing's recent adoption of the security law that erodes Hong Kong's security independence. 
Amid the tension between China and its special administrative region, the Trump Administration has revoked economic privileges in fiscal, customs, and financial matters that underpinned Hong Kong as the commercial and financial hub of the region. If, to the commercial plane, we add the sanctions to high officials of the Hong Kong and Chinese governments, the inclusion of large Chinese companies, such as Huawei, in the Designated Entity List of the Department of Commerce, or the adoption by China of antidote regulations that nullify the previous measures in their jurisdiction, we find ourselves in a situation of alarming legal uncertainty and a foreseeable escalation of tension between the two powers.
The slowdown in Chinese growth, together with the failure of the executive's efforts to avoid the slowdown, have created the right climate for the Chinese government to put even more emphasis on developing the largest infrastructure project in history that will consolidate its influence in Central Asia, Europe, Africa and Southeast Asia. This new Marshall Plan, known as One Belt One Road is the axis on which Chinese economic diplomacy pivots, which not only seeks to consolidate its geopolitical influence, but also to open and consolidate its position in new markets. In order to undertake this enormous task, the Chinese government requires strategic partners and access to a wide financial market that allows it to access the necessary funds to implement this macro project, and it is here that Hong Kong has positioned itself as the center ideal for undertaking the ambitious roadmap of its economic diplomacy.
Due to its preferential treatment, its status as a former British colony and its competitive tax environment, Hong Kong had become the natural access to China for foreign investors and capital who found safety under the umbrella offered by the legal system, common law, and the brand, HK, in financial and capital markets. On the other hand, the large Chinese groups used Hong Kong not only as a meeting point with foreign capital, but also as access to international markets, an ideal legal environment to channel Chinese investments abroad. Thus, the Hong Kong Stock Exchange is considered one of the most important and safest places in the world; its design and safety is comparable to the London Stock Exchange. Therefore, Hong Kong was for Hong Kongers, Chinese and foreigners, the natural meeting place to close foreign operations to China, and from China to the world. Institutions such as the British bank HSBC (which owes its origin to the Second Opium War) is a clear example of prosperity set on the now questioned principle of one country, two systems.
This whole geopolitical puzzle has taken out of the game who is probably the worst harmed after China; the United Kingdom, who witnesses the crisis at the worst possible moment. On one hand, it needs to strengthen and consolidate its relations with the US, and on the other, maintain a good tone with China (where its companies have significant investments). At the same time, the United Kingdom needs to close in record time a good agreement with the EU, which, in turn, is immersed in protectionist policies that seek to shield its markets from the landing of public and subsidized Chinese companies, as well as limit investment in strategic sectors for reasons of public order and national security. The new European policy may lead the Chinese authorities to adopt "counter measures" against European companies, which, when added to the current trade tension, North American sanctions, and Chinese antidote regulations, may turn their operation in Hong Kong into a real legal minefield.
The protests in Hong Kong, the measures of the Trump Administration, the territorial conflicts in the China Sea, the struggle for technological supremacy, the always pending issue of Taiwan, or the ambition of the Chinese government to grow in political, economic and commercial influence, have placed Hong Kong in the midst of the perfect storm and as a prime candidate for collateral damage. Hong Kong risks losing its status as a regional hub to other emerging markets, such as Singapore. In the midst of this endless maze, it seems that Hong Kong is once again the battlefield and focus of the great powers that once fought for control of opium and now compete for commercial and financial control of the region.

José María Viñals Camallonga

Partner, Squire Patton Boggs.

Original article published on Fide's blog in El Confidencial in Spanish.