Hong Kong’s loss of special status could hurt startups

Technology transfers, international financial system access, and more at risk due to US decision.

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The United States' decision to remove special policy exemptions that had treated Hong Kong differently than mainland China could hurt Hong Kong's tech startup scene.

Although Hong Kong is not a manufacturing hub, there were 3,184 startups based in Hong Kong in 2019, up 43% from 2017, according to a government survey. The areas these startups focused on ranged from financial technology and e-commerce, to logistics and supply chain management.

On Friday, US President Donald Trump announced he had directed his administration to begin removing certain policy exemptions that gave Hong Kong preferential treatment over mainland China. Some of the policy exemptions that will be removed include export controls on dual-use technologies and Hong Kong's status of having separate customs and travel territories from the rest of China.

China's Foreign Ministry spokesperson Zhao Lijian said on Monday it strongly opposed the measures, which interfere with China's internal affairs.

"Cooperation between China and the US in the areas of economy, trade, and education is for mutual benefit and win-win results, he said.

"For some time, the US has been purposely oppressing Chinese companies for no good reasons other than a far-fetched excuse of national security."

Fears of tech transfer and international finance limitations

Paul Divecchio, a Boston-based US export control consultant told ZDNet under current rules, some export-restricted US technology could still go to Hong Kong without a validated export licence as long as a letter was signed assuring it would not be released to places such as mainland China. Licence exceptions like this are now likely to be removed, he said.

Hong Kong could also lose its eligibility to re-export certain technologies without a US re-export licence, he added. Around 6% ($10 billion) of mainland China's imports from the US were routed through Hong Kong in 2018, according to the Hong Kong government.

Bitcoin Association of Hong Kong President Leonhard Weese, meanwhile, told ZDNet that some double-taxation treaties may apply without Hong Kong's special status, so holding Hong Kong assets could become more attractive for US companies and residents.

On the other hand, Hong Kong could lose access to international wire transfers, USD holdings, and credit payments as Russia did after the US sanctioned the country, he said.

278 US companies had regional headquarters in Hong Kong as of 2019, according to government census data.

Naubahar Sharif, a researcher at the Hong Kong University of Science and Technology studying innovation told ZDNet some startups chose Hong Kong because of its leading universities, but most do so for access to the Chinese market and its advantages, including the rule of law, stability of currency exchange, a robust banking system, and the free flow of goods and services.

It's not clear yet whether the US' actions will be targeted at specific industries, or broadly, and to what extent, Sharif said. Removing Hong Kong's special status may make some foreign startups less willing to set up in Hong Kong, he added.

Ben Hsieh, who co-founded US and Latin America AI content testing startup Synapbox out of a Hong Kong accelerator program and is now COO, told ZDNet that Hong Kong's increasingly closer integration with mainland China could make entering the Chinese market easier.

"On the other hand, if it's an Asia-centric startup, then I would probably lean towards Singapore now instead of HK," he said.

Kevin Wong, CEO of Hong Kong and Taiwan wearable tech startup Origami Labs, told ZDNet his firm would be monitoring how the US and foreign entities view it in the future.

"We believe that our product will speak for itself, but anticipate there will be those that will not want to work with us given the shift in status," he said.

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