Lockton Global Solutions is working closely with Lockton Hong Kong on the developing situation around the change in special status between the U.S. and Hong Kong.
On Wednesday, May 27, the U.S. Department of State issued a statement that it could “no longer certify that Hong Kong continues to warrant (differential) treatment” from China, following Beijing’s proposal of a new security law. A U.S. law, passed last year, requires Hong Kong retains enough autonomy to qualify for a favorable trading relationship with the U.S.
Hong Kong and the U.S. have enjoyed a special status since 1992. In 2018, U.S. foreign direct investment exceeded $85 billion, with more than 1,300 U.S. multinationals and 85,000 U.S. citizens residing in Hong Kong.
A formal change in Hong Kong’s special status with the United States will expedite changes already underway in the region due to recent trade disruptions and the imposition of tariffs against China. COVID-19 further accelerated changes to regional investment patterns, although moves elsewhere for clients have proven to be costly and time consuming. A change in status in Hong Kong will impact an important financial and commercial hub for Asia.
In the short term, it is expected that Chinese and international insurers will continue to find solutions for clients locally and in the region. It is not expected that insurance law and regulation will be affected at this time, particularly as Hong Kong continues to operate under its “one country, two systems” common law. However, a change in status may alter the ability for U.S. companies to access reinsurance capacity. Many U.S. clients have accessed the Chinese market through Hong Kong to provide capacity in a hardening rate environment, and a change in status could make access to this market challenging.
The change in Hong Kong’s special status may more immediately affect change the application of tariffs. Nearly $67 billion of goods and services are traded between the U.S. and Hong Kong. The change in status may allow U.S. to sanction individuals and entities in Hong Kong, and it may change visa requirements for U.S. citizens traveling to Hong Kong.
Lockton Global Solutions is monitoring the situation closely and actively advising clients as they seek to respond to the geopolitical and economic risks in the region.