| Hello China Watchers. I'm Tara Joseph, a long-time reader of China Watcher. I'm humbled to be your host this week while Phelim takes a short break. Don't worry; he'll be back in two weeks. I have just returned to the United States after living in Hong Kong for over 20 years. I was a journalist with Reuters covering Asia and twice served as president of the storied Foreign Correspondents' Club in Hong Kong. I then served as president of the American Chamber of Commerce, working with more than 600 U.S. companies over the stormy period of Hong Kong democracy protests, the introduction of the National Security Law and Covid travel restrictions. In today's China Watcher, I analyze why the U.S. should not give up on Hong Kong as Beijing tightens its grip 25 years after the handover. We also look at how the recent U.S. Supreme Court decision overturning Roe v. Wade played in China and introduce you to "Forbidden City" by VANESSA HUA, our book pick of the week. Enjoy! — Tara When I attended the ornate 20th anniversary celebration of Hong Kong's handover to China in a gleaming glass convention center on Victoria Harbor five years ago, the U.S.-Hong Kong relationship couldn't have been stronger. Trade between the U.S. and Hong Kong, one of its top export markets, was booming and ranged from agricultural products to high-level educational exchanges and major financial service deals. As president of the American Chamber of Commerce at the time, I spoke weekly to senior Hong Kong officials, including Chief Executive CARRIE LAM. She frequently attended AmCham events and every Thanksgiving, we hosted her at a turkey lunch with all the trimmings, plus frank and open dialogue. Now, as Friday's 25th anniversary of the Special Administrative Region approaches, Beijing's policies toward Hong Kong, most notably the 2020 National Security Law , have sabotaged the once cozy yet respectable ties between the Hong Kong government and Washington along with the business-to-government relationship. Lam is gone, replaced by a new, even more hard-line chief executive handpicked by Beijing: JOHN LEE, a former cop sanctioned by the United States for his role in quelling pro-democracy protests . Lee has recently vowed to punish those who criticize Hong Kong, not exactly endearing him to fans of free speech. From a Beijing perspective, Lee seems a natural follow-up to Carrie Lam, who is also sanctioned by the U.S. for her role in crackdowns over political freedom. President XI JINPING, who has not left the mainland since the Covid-19 outbreak two years ago, plans to visit Hong Kong on Friday for Lee's inauguration, putting his own personal stamp of authority on who really runs the region. Xi's last trip to Hong Kong was during the 20th anniversary of the handover from the U.K. Back then, he made a flowery speech to a large audience of diplomats, business leaders and journalists, warning the world not to cross any "red lines" when it came to Chinese national security in Hong Kong. This time, the trip will be in two short tranches, with paranoia running high over Covid exposure in Hong Kong. Rather than stay in the territory, Xi plans to commute by high speed train from neighboring Shenzhen under a veil of security. He is expected to attend a banquet at Lam's official residence today, officiate Friday at the anniversary ceremony and oversee Lee's swearing-in. Xi's speech this time is less likely to be a warning to the West, but more of a victory lap hailing its continued integration with China, with a tribute to Hong Kong-China patriots. From Beijing's perspective, Hong Kong has been brought to heel and sets a stunning example for the world to see. As one congressional aide told me a few months ago, "Hong Kong is done." On the political and human rights front, there are hundreds of pro-democracy protesters who remain in jail without bail or opportunities for a free trial. Freedom of the press has been squashed, and thousands of Hong Kongers who share American values of rule of law and free flow of information are leaving. Many American expats are leaving, too. Draconian Covid-19 quarantine policies, which all but curtailed international travel, have left a sour taste in a city once known as "Asia Lite," and the National Security Law has spooked Hong Kong residents who fear for the future of their families. Over 115,000 residents have left Hong Kong from 2020-2021, according to the immigration department. This year the number is swelling. Over 53,000 left in the first two weeks of March alone. Departees range from expats who have lived in Hong Kong for decades, to Hong Kong middle class who have taken up opportunities to live in the U.K., Australia and Canada. City streets are full of empty retail buildings and failed businesses and over 20,000 teachers have left for good. "The most concerning thing for me was the anxiety of not knowing what tomorrow will bring and what other changes the government might impose in addition to quarantine and the National Security Law. It brings a whole new definition to the word fluid," says one American business executive who recently fled Hong Kong after 25 years. "How do you even contemplate planning for your business with all these unknowns? For one, how do you attract talent?" the executive asked. Despite these major hurdles, Hong Kong's crucial role as a major business hub cannot simply be forgotten and buried. Every major U.S. financial institution has a sizable presence in Hong Kong. The number of companies in Hong Kong with parent companies in the U.S. was 1,267 late last year. Citigroup alone has about 4,000 employees in Hong Kong, and every major U.S. news outlet has a large presence in Hong Kong, including Bloomberg, Reuters, The Wall Street Journal and the Financial Times. The HK stock exchange is one of the largest and most liquid in the world. The Hong Kong dollar continues to be pegged to the U.S. dollar, providing a nest of safety in a volatile region. The flow of money in and out of mainland China, along with Hong Kong's solid infrastructure and low tax regime, make Hong Kong difficult to abandon. While Singapore may be a promising replacement, the city state has its own challenges, including a limited number of visas for foreigners and its own one-party system of government, not to mention its considerable geographical distance from Korea, Japan, China and other developed Asian economies. Instead of abandoning Hong Kong, the challenge now falls on the U.S. and business to maintain and develop a crucial presence in Asia. This means walking both a tough and fine line between engagement and criticism. Dismissing Hong Kong as "done" would also have catastrophic consequences for the U.S. human rights track record. Hundreds of Hong Kong pro-democracy advocates have been shut in prisons without bail. These are people and friends who share American values and trust. The U.S. government ought to continue taking a firm tone on Hong Kong. The Uyghur Forced Labor act recently implemented to ban imports from Xinjiang may serve as a guide for not acquiescing to crude human rights. In addition, American businesses should not pretend human rights are beyond their remit. The strength of U.S. companies should be in actually promoting American values and ESG principles. How can the U.S. promote sustainability and an alternative to China in countries across Asia, and sit on its hands when it comes to Hong Kong? "Every business has to decide for itself how to manage this difficult balancing act between human rights and profit. There are no cookie-cutter answers here," says MARK CLIFFORD, who lived in Hong Kong for more than two decades, and once served on the board of Next Media, which has had its assets frozen and leaders jailed. It's safe to say that with the 25th anniversary, Hong Kong's post-colonial era has been relegated to history. The next few years will be challenging for its residents and long-term foreign supporters. "I'm flying back to HK next Friday and I feel like I'm about to endure a prison sentence," says one American banker, returning for work. "Honestly put, Hong Kong has completely destroyed a free flowing, vibrant city at its core. And, as an American, I am struggling with the inevitability of a U.S.-China conflict." What a difference 25 years makes. And now, back to your regular programming ... TRANSLATING WASHINGTON There were numerous China-related developments at the G-7 and NATO meetings in Europe this week where Washington was center stage. — NATO'S CHINA MENTION: For the first time, NATO's long-term planning document included a mention of China, POLITICO's CORY BENNETT reported. The so-called Strategic Concept released Wednesday declared that China's "stated ambitions and coercive policies challenge our interests, security and values." NATO's declaration issued the same day also described "systemic competition" from China. "We are confronted by cyber, space, and hybrid and other asymmetric threats, and by the malicious use of emerging and disruptive technologies. We face systemic competition from those, including the People's Republic of China, who challenge our interests, security, and values and seek to undermine the rules-based international order. Instability beyond our borders is also contributing to irregular migration and human trafficking," it read. For the first time, the leaders of Japan, South Korea, Australia and New Zealand attended a NATO summit. "The new development certainly will make China feel uneasy, encircled and threatened," VIVIAN ZHAN, an associate professor specializing in Chinese politics at the Chinese University of Hong Kong, told Bloomberg on Tuesday. China indicated that it was concerned about any potential NATO activity in Asia. "We urge NATO to learn its lessons, and not to use the Ukraine crisis as an excuse to stoke worldwide bloc confrontation or a new Cold War," China's Ambassador ZHANG JUN told the U.N. Security Council on Tuesday. "We firmly oppose certain elements clamoring for NATO's involvement in the Asia Pacific, or an Asia Pacific version of NATO on the back of military alliances." — G-7'S CHINA ANXIETIES: The world's wealthiest democracies mentioned China a record 14 times in its 28-page communiqué. The leaders urged China to press Russia to pull forces out of Ukraine immediately and unconditionally, Reuters reported . It also covered issues related to Hong Kong, Taiwan, the South China Sea and human rights, including Xinjiang. "The G7 population accounts for only one-tenth of the world's total population. They are not qualified to represent the world," Foreign Ministry spokesperson ZHAO LIJIAN said Thursday. The G-7 on Sunday also announced a $600 billion global infrastructure initiative to counter China's "Belt and Road Initiative," through massive investments across emerging economies. The United States plans to leverage a total of $200 billion for the program over the coming five years through a combination of federal financing and private sector investments. But as of yet, it's hard to tell whether it will fall flat like last year's "Build Back Better World" commitment. — NEW PACIFIC ISLAND PARTNERSHIP: In an answer to China's relentless efforts to build alliances across Pacific Islands, the U.S., Australia, Japan, New Zealand and the United Kingdom officially formed the Partners in the Blue Pacific on Friday. The alliance hopes to deepen cooperation with the Pacific Islands in areas, including climate change, maritime security and prosperity. China's Zhao said on Monday that "such initiatives should not be designed to form exclusive blocs, still less target any third party or undermine its interests." In June, Chinese Foreign Minister WANG YI took a 10-day tour of the South Pacific Island. Although an ambitious multilateral pact on security and development fell through, China is unlikely to slow its expansion plan in the region, The Washington Post reported. — U.S.-TAIWAN TRADE TALKS: Deputy United States Trade Representative SARAH BIANCHI and Taiwan Minister-Without-Portfolio JOHN DENG held the inaugural meeting of the U.S.-Taiwan Initiative on 21st-Century Trade on Monday. "This initiative will unlock market opportunities, promote innovation and create inclusive economic growth for our workers and businesses," said Bianchi. Deng attended the meeting virtually as he tested positive for Covid-19 in Mexico. Taiwan President TSAI ING-WEN said the initiative is a "major breakthrough" Taiwan's official Central News Agency reported on Wednesday. China, once again, protested. Zhao on Tuesday said the U.S. should "stop all forms of official interaction with Taiwan, stop negotiating agreements with implications of sovereignty and of official nature with the Taiwan authorities."
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