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Investors edgy as US-China spar over Hong Kong

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Investors are cautious amid rising tensions between US and China over a proposed national security law that is widely perceived as hurting Hong Kong’s status as an international financial center.

US officials say the new law, expected to be passed on May 28, would prevent Hong Kong from maintaining a high degree of autonomy, and trigger US sanctions.

Currently Hong Kong enjoys a special status under US laws and rescinding it would effectively mean treating the Asian financial hub no differently than any other Chinese city, opening it to US tariffs, sanctions, and export restrictions that apply to China.

China says the national security laws would ban sedition, secession, and subversion of China’s central government.

Hong Kong’s Hang Seng index was down 0.93% after pro-democracy protestors resumed their agitation on Sunday following Beijing’s move, which they say would be a blow to autonomy and the civil liberties.

“If America wants to escalate the issue further, the nuclear option would be to remove the special status Hong Kong enjoys under US, law which would effectively reduce Hong Kong’s status to that of just another Chinese city,” Christopher Wood of Jefferies & Co. said in his note ‘Greed & Fear’.

“US financial and business interests would certainly be opposed to any such move. But it does not seem at the moment that the corporate sector’s lobbying power is working, with Donald Trump having seemingly decided that blaming China for Covid-19 is the best strategy for his re-election.”

He said the best hope for an improvement in US-China relations would be if the virus disappears as quickly, in line with his base case of a three-four month cycle.

“For this would allow the Donald to pivot back to focus on the positive, namely a recovering American economy and even a China trade deal, if Beijing has not walked out of the negotiations by then.”

Nikkei and S&P up

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