(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here.
China threatened unspecified “strong countermeasures” if the U.S. Congress enacts legislation supporting Hong Kong protesters, in a sign of the deepening strain between the world’s two largest economies as they attempt to seal a trade deal.
China’s foreign ministry issued the warning Wednesday after the U.S. House passed a package of measures backing a pro-democracy movement that has rocked the former British colony for more than four months. Among them was the Hong Kong Human Rights and Democracy Act, which subjects the city’s special U.S. trading status to annual reviews and provides for sanctions against officials deemed responsible for undermining its “fundamental freedoms and autonomy.”
QuickTake: How the U.S. Congress Is Riling China on Hong Kong
While the legislation must also pass the U.S. Senate and be signed by President Donald Trump to become law, it already has strong bipartisan support in the Republican-run upper chamber. The Hong Kong measures were passed by the Democrat-controlled House by unanimous voice votes Tuesday.
Chinese Ministry of Foreign Affairs spokesman Geng Shuang warned American lawmakers to stop meddling in China’s internal affairs “before falling off the edge of the cliff,” without specifying how it would retaliate. The House action “fully exposes the shocking hypocrisy of some in the U.S. on human rights and democracy and their malicious intention to undermine Hong Kong’s prosperity and stability to contain China’s development,” Geng said.
Both Trump and Chinese counterpart Xi Jinping have so far prevented the international uproar over Hong Kong from scuttling their trade talks. The two sides went ahead with negotiations and reached some broad agreements last week, even though the House vote was widely expected at the time.
“I don’t think this will undermine the prospect of signing a partial deal next month,” said Wang Huiyao, an adviser to China’s cabinet and founder of the Center for China and Globalization in Beijing. “The Hong Kong bill is not a done deal and there is still room for redemption.”
A spokesman for the Hong Kong government “expressed regret” over the House action, which came hours before Chief Executive Carrie Lam addressed a raucous session of the Legislative Council. She barely managed a few words before pro-democracy lawmakers forced her to stop talking. She ended up delivering her annual policy address via video instead.
While the pro-democracy bloc only comprises about a third of lawmakers, Wednesday’s display showed they have the ability to shut down debate on major economic initiatives. That spells even more trouble ahead for an economy sliding into recession as protests against Beijing’s grip over the city grow increasingly violent.
China’s retaliation threat against the U.S. roiled markets during Asian trading, at one point wiping out a 0.8% rally in the regional equity benchmark.
U.S. lawmakers have embraced the Hong Kong protesters’ cause as the yearlong trade war fuels American support for pushing back against China, and they have hosted some of the city’s activists on Capitol Hill in recent weeks. The National Basketball Association’s struggle to manage Chinese backlash against a Houston Rockets executive’s support for the movement has only focused wider attention on the debate.
On Tuesday, the House passed H.Res. 543, a resolution reaffirming the relationship between the U.S. and Hong Kong, condemning Chinese interference in the region and voicing support for protesters. Lawmakers also passed the Protect Hong Kong Act, H.R. 4270, which would halt the export to Hong Kong of crowd-control devices such as tear gas and rubber bullets.
Representative Chris Smith, a New Jersey Republican and a sponsor of the main Hong Kong bill, predicted that the Senate would pass the legislation and dismissed the threats from Beijing.
“Retaliation, that’s all they ever talk,” Smith told Bloomberg TV. “They try to browbeat and cower people, countries, presidents, prime ministers and the like all over in order to get them to back off. We believe that human rights are so elemental, and so in need of protection. And that’s why the students and the young people are out in the streets in Hong Kong virtually every day.”
In addition, the House adopted a resolution by Foreign Affairs Committee Chairman Eliot Engel of New York and the panel’s top Republican, Michael McCaul of Texas, urging Canada to start U.S. extradition proceedings against Huawei Technologies Co. executive Meng Wanzhou. The resolution, H.Res. 521, also calls for the release of two Canadians detained in China and due process for a third sentenced to death for drug smuggling.
Republican Senators Rick Scott of Florida, Ted Cruz of Texas and Josh Hawley of Missouri visited Hong Kong over the two-week congressional recess that ended Tuesday. Hawley met with local pro-democracy activist Joshua Wong and got into a back-and-forth with Lam over whether Hong Kong is a becoming a “police state.”
The Chinese Ministry of Foreign Affairs’ local branch in the city issued a separate statement warning the U.S. against “playing the Hong Kong card.” “They are lifting the stone only to drop it on their own feet,” it said.
David Zweig, an emeritus professor at the Hong Kong University of Science and Technology and director of Transnational China Consulting Ltd., noted that the U.S. legislation stopped short of altering the Hong Kong Policy Act of 1992, which provides the city’s special trading status. So both the bill and any Chinese retaliation would have limited impact.
“China needs to posture with a retaliation of some kind,” Zweig said. “But this is really a secondary issue as long as they keep the Hong Kong Policy Act intact. The House could have gone much further with the Hong Kong Policy Act. And they didn’t.”
(Updates with legislative disruption in seventh paragraph)
--With assistance from Li Liu, Sofia Horta e Costa, Christopher Anstey, Anna Edgerton, Shelly Banjo and Eric Lam.
To contact the reporters on this story: Iain Marlow in Hong Kong at email@example.com;Daniel Flatley in Washington at firstname.lastname@example.org;Dandan Li in Beijing at email@example.com
To contact the editors responsible for this story: Brendan Scott at firstname.lastname@example.org, ;Joe Sobczyk at email@example.com, John Harney
For more articles like this, please visit us at bloomberg.com
©2019 Bloomberg L.P.