(Bloomberg) — President Joe Biden said his administration will issue an advisory cautioning U.S. companies about the risks of doing business in Hong Kong because of “what may happen” as China continues to tighten its control over the territory.

“The situation in Hong Kong is deteriorating and the Chinese government is not keeping its commitment that it made, how it would deal with Hong Kong,” Biden said at a White House news conference alongside German Chancellor Angela Merkel on Thursday.

“It is more of an advisory as to what may happen in Hong Kong,” Biden added. “It’s as simple as that, and as complicated as that.”

The advisory is expected to be issued on Friday. It will underscore how swiftly China’s push for more control over Hong Kong has brought an end to the “one country, two systems” approach that Beijing had promised when it resumed oversight of the former British colony in 1997.

That’s proved a death knell for the territory’s independent judiciary, pugnacious media and lively protest movements.

While the advisory won’t order companies to scale back investments or leave Hong Kong, Biden administration officials worry that major banks and other multinational businesses with headquarters in the city haven’t yet come to grips with just how much the landscape there has changed and how much risk they now face.


The key message in the administration’s “business advisory” will be that Hong Kong’s once-independent legal system is now essentially as subject to government interference as mainland China’s, where the ruling Communist Party has almost complete control, according to people familiar with the order, who asked not to be identified discussing the document before it’s public.

Beijing pledged a “firm response” to any action by Washington. “We urge the U.S. side to stop interfering in the Hong Kong issue and China’s internal affairs in any form,” Chinese Foreign Ministry spokesman Zhao Lijian told a regular news briefing Friday in Beijing.

Financial Capital

The advisory won’t demand specific action by the banks, businesses and investors that have transformed Hong Kong into one of the world’s financial capitals alongside London and New York. Instead it’s meant to underscore the threats — legal, financial and otherwise — the U.S. sees as Beijing consolidates its grip.

While businesses have grown increasingly uneasy about the city’s shifting landscape, experts and consultants say the changes in Hong Kong have been so swift that many still haven’t sufficiently grappled with the inherent dangers. At the same time, they argue that the situation may not be as dire as the U.S. says, and they don’t anticipate massive departures.

“Non-Chinese firms should recognize that Hong Kong presents both unique business opportunities and newly compounded risks,” said Kurt Tong, a partner at the Asia Group consulting firm. “There is no safety in numbers, but neither should firms join a stampede to exit.”

According to the people, the advisory will warn firms about the potential ramifications of Hong Kong’s national security law, imposed on the city by Beijing, which prohibits collusion with foreign forces or anything construed as subverting the authority of the central government. Data that foreign companies store in Hong Kong could also be at risk, they said.


So far, many financial institutions have actually ramped up hiring.

Citigroup Inc. said in May that it plans to hire more than 1,000 professionals across its wealth franchise in Hong Kong over the next five years, stepping up its expansion amid an increasingly heated grab for talent in the region. Goldman Sachs Group Inc. is hiring 320 staff in China and Hong Kong, as China opens its $54 trillion financial market fully to foreign brokerages and asset managers.

Even without making specific demands, the U.S. advisory will mark a stunning turnaround for a city that still hosts the world’s biggest banks and for decades marked an entry point to China as its development accelerated beginning in the 1980s.

China’s “one country, two systems” approach to Hong Kong had already been under pressure before massive anti-government protests erupted in 2019. Under President Xi Jinping, Beijing quickly moved to silence independent voices, arresting protest leaders, imposing a national security law that allows for the extradition of people accused of crimes to China and forcing the closing of Apple Daily, a high-profile media outlet critical of corruption and the Communist Party.

Geopolitical tensions are nothing new for companies that do business in China. But an “anti-foreign sanctions” law that China’s rubber-stamp parliament passed in June will put multinationals in a difficult position because it may force companies to weigh complying with U.S. sanctions on Chinese entities against the risk that China may punish them for doing so.

“Chinese counterparties are nervous about agreeing to comply with foreign sanctions,” said Adam Smith, former senior adviser in the Treasury Department’s sanctions unit and now a partner at Gibson, Dunn & Crutcher. “It’s creating an ‘us versus them’ scenario for multinational businesses.”

The advisory on Friday will mark a further step in the Biden administration’s far more pessimistic tone about Hong Kong in the months since the Trump administration rolled back the city’s special trade privileges, saying the former British colony’s “high degree of autonomy” was quickly eroding.

China’s erosion of Hong Kong’s freedoms — and the U.S. response — has been a driving force for worsening ties between the world’s two biggest economies. Starting under President Donald Trump, Beijing and Washington were increasingly at odds over issues including trade, technology, the origins of the Covid-19 pandemic and human rights.

(Updates with Chinese Foreign Ministry response in eighth paragraph.)

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