The Fall Of Hong Kong

Why Hong Kong Matters to the United States

Hong Kong has been a valuable partner to the United States for decades, and consequently, the United States has an important stake in the city’s future. Hong Kong is the 15th-largest export market for the United States and a top destination for U.S. consumer products. As of 2023, approximately 1,300 U.S. companies were based in Hong Kong, with banks, law firms, accounting firms, and other financial services the most prominent among this group. What is more, roughly 84,000 Americans live in Hong Kong, while about 250,000 Hong Kong–born immigrants live in the United States.

Hong Kong’s long-standing business climate — characterized by open markets, judicial independence, rule of law, and the free flow of information — has helped embed the city at the center of global trade and investment networks and positioned it as a critical interface between mainland China and the rest of the world. Hence, beyond the bilateral commercial and people-to-people ties, Hong Kong has served as an entrepôt between the United States and the rest of the People’s Republic of China (PRC), playing a critical role in trade, investment, finance, travel, and legal services. Until recently, the people of Hong Kong enjoyed considerable civil liberties relative to those in mainland cities. As a result, beyond the clear utilitarian value of how Hong Kong has benefited the United States and the world commercially, support for Hong Kong’s political pluralism and vitality — and the human rights of the city’s residents — had long been core to U.S. policy toward the city.

Yet since 2019, Beijing has taken major steps to significantly erode the once-high degree of political, judicial, and economic autonomy Hong Kong has enjoyed since its handover from the United Kingdom in 1997. The most dramatic of these moves was the imposition of a sweeping national security law in 2020, the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (NSL), which marked the key turning point of a years-long effort by Beijing to extend its de jure and de facto control over internal elements of the city’s governance and way of life. The move followed several years of increasing social activism and demands by Hong Kong residents on a range of issues, including for Chinese authorities to fulfill their pledge in the Basic Law to allow for universal suffrage by Hong Kong’s population for the members of the Legislative Council (LegCo) and the chief executive. With major protests emerging during the “Occupy Central” movement of 2014, Beijing began to tighten its grip, culminating in the harsh crackdown on pro-democracy protests and marches in 2019. Authorities followed the NSL with electoral reforms to ensure that Hong Kong is governed by “patriots,” thereby disqualifying many viable candidates for no other reason than the perception that they are not sufficiently “pro-Beijing.” With these concerted legal and political efforts, capped by the recently adopted Article 23–based Safeguarding National Security Ordinance, Beijing has gone a long way to undermining Hong Kong’s “high degree of autonomy” promised in the Joint Declaration, weakening the civil liberties of its residents, and degrading the independence of its legal and judiciary system. Taken in total, these developments have substantially eroded the “One Country, Two Systems” (一国两制) framework that has been in place since 1997 and was supposed to remain intact until 2047, casting a pall over the city’s future as a regional — and global — financial and economic hub.

Beijing’s erosion of the “One Country, Two Systems” framework came at an inflection point in U.S.-China ties. When the NSL was adopted, Washington and Beijing were sparring over the origins of Covid-19, but tensions had grown in prior years. The Trump administration had jettisoned strategic engagement in favor of a more punitive approach, reflecting built-up frustration in Washington over China’s unfair trade practices, growing regional assertiveness, deteriorating domestic human rights conditions, and increased economic coercion. The events of 2019–2020 also took place amid growing concern in Washington about the centralization of decisionmaking authority in China’s political system under Xi Jinping and the entrenchment of a statist, security-driven approach to economic and political governance on the mainland. Since 2014, the Xi administration had been centralizing power in party organizations and overhauling the mainland’s national security architecture to address a host of perceived external and internal threats, while continuing to advance the country’s international power and influence. Anti-corruption campaigns targeting political rivals, a suite of new security policies, and crackdowns on civil society were part of this push.

Against the backdrop of these developments, Washington and partner capitals tracked the growing activism and protests of 2019 and the subsequent 2020 NSL closely. Congress and the Trump administration quickly enacted punitive measures on individuals and entities involved in eroding Hong Kong’s autonomy, signaled support for the human rights and civil liberties of Hong Kong’s residents, and began to pare back privileges granted to the special administrative region (SAR) based on an expectation of its sustained autonomy — for example, by curbing differential treatment for Hong Kong relative to mainland China under U.S. export controls.

Amid growing U.S.-China tensions on other issues ranging from technology to Taiwan, as well as the ongoing wars in Ukraine and the Middle East, Hong Kong features less prominently in today’s policy conversations. Its Covid-19 control policies arguably compounded this problem, as few international travelers could visit the city for three years. As a result, international perspectives on Hong Kong risk being out of step with the reality on the ground. With that in mind, this report aims to provide an objective analysis of Hong Kong’s status based on on-the-ground discussions with various stakeholders in the city, open-source research, and consultations with the business community, policymakers, and the Hong Kong diaspora.

Two of the coauthors (Blanchette and Kennedy) visited Hong Kong in September 2023, and over nine days conducted 35 interviews with a wide range of stakeholders, including representatives from the Hong Kong government, former Hong Kong government officials, members of the LegCo, executives from local and multinational companies and financial institutions, university professors, local and international journalists, NGO leaders, and public interest legal experts. Interviews were also conducted with experts, members of the overseas Hong Kong community, and U.S. policymakers before and after this trip. These discussions were supplemented by wide reading of primary and secondary sources about Hong Kong, China, and U.S.-China relations.

The goal of this project is to understand ongoing developments in Hong Kong’s political, legal, and economic environment; likely implications for the city’s future as a global business hub; and the options available for U.S. policymakers to preserve a productive relationship that advances U.S. commercial interests and is supportive of any remaining autonomy, consistent with Beijing’s international commitments.

There are several key findings of this report:

• An authoritarian turn in China under Xi Jinping has significantly eroded Hong Kong’s “high degree of autonomy” that was supposed to be maintained until 2047. These challenges are compounded by divisions within the SAR about its appropriate roles within China (and globally) due to growing U.S.-China geostrategic tensions.

• There remains some resilience of autonomy, and life in Hong Kong is qualitatively different than in other mainland Chinese jurisdictions. However, the overall trend is clearly in the direction of further erosion of autonomy across nearly all domains — the legal and political system and civil society, as well as the climate for companies and investors. Not all of this erosion can be captured quantitatively. Such change does not become obvious until one sees how on-the-ground actors are adjusting — often in subtle ways — to a new political-legal reality.

• The U.S. government should reevaluate its current approach to Hong Kong and consider some adjustments. Its policy should be rooted in a pragmatic understanding of what strategies are likely to be most productive (or counterproductive) for U.S. interests and Hong Kong’s autonomy and resilience, rather than symbolic measures. The choice is between three broad policy alternatives:

1. Penalization. This approach would enact punitive measures against the individuals and entities most closely involved in the erosions of Hong Kong’s autonomy, seeking to raise the costs to Beijing for its behavior.

2. Resignation. This would assume that Washington and partners are powerless to change clear trends toward erosion in Hong Kong’s autonomy, and it would seek to remove, incrementally, all policy exemptions giving the SAR special treatment under U.S. law.

3. Strategic Engagement. This more proactive approach would seek to extend the SAR’s distinctiveness — and its remaining autonomy — within the PRC for as long as possible, by solidifying practical interactions between state and non-state actors in the United States and Hong Kong but also, when necessary, using punitive measures in a more targeted manner.

The Pathway to the Current Dilemmas over Hong Kong

After over 150 years of British rule, Hong Kong reverted to Chinese sovereignty in 1997. This followed the 1984 Sino-British Joint Declaration (“Joint Declaration”), which set the conditions for this transfer. Beijing committed to permit Hong Kong a “high degree of autonomy” from the mainland for five decades, except in foreign affairs and defense. Beijing frames this arrangement as “One Country, Two Systems,” a national unification policy Deng Xiaoping outlined for Taiwan and Hong Kong in the early 1980s. Pursuant to the Joint Declaration, China’s National People’s Congress (NPC) enacted the Basic Law of the Hong Kong Special Administration Region of the People’s Republic of China (“Basic Law”) in 1990, a de facto “mini-constitution” for Hong Kong. The Basic Law enshrined this “One Country, Two Systems” arrangement for Hong Kong’s governance.

For roughly two decades after returning to China’s control, the city enjoyed a relatively high degree of autonomy, facilitating its prosperity and success as a global business hub. Even as China, under Xi Jinping, took a more pronounced authoritarian turn beginning in 2013, Hong Kong’s courts, its civic freedoms, and its economic and regulatory environment all possessed relative autonomy. U.S. policy toward Hong Kong largely reflected this. Under the 1992 United States-Hong Kong Policy Act (USHKPA), Washington treated the Hong Kong SAR as distinct from the rest of China in trade, finance, immigration, and other fields based on the assumption that China was committed to maintaining the city’s autonomy through 2047. The USHKPA was designed to bolster the SAR’s autonomy through this distinct treatment.

While Beijing had incrementally made tactical curtailments of Hong Kong’s freedoms in the initial decade after the handover in 1997, its efforts intensified from the mid-2010s. These efforts fueled sequential local protests in Hong Kong. In 2012, for example, more than 90,000 residents, by one estimate, took to the streets to oppose proposed amendments to the city’s school curriculum intended to foster Chinese national identity. In 2014, hundreds of thousands came out to support universal suffrage as part of the “Umbrella Movement” — named for the use of umbrellas to defend against police pepper spray. A new high in public protest was reached in 2019, in response to a Beijing-endorsed legislative proposal to enable extradition to mainland China of criminals accused in Hong Kong. Then chief executive Carrie Lam later withdrew the proposal, but the repression of protestors drew global attention. As a result, the pro-democracy movement received greater public support; in the November 2019 district council elections, voters delivered the pro-democracy camp a majority of seats.

This marked a turning point in Beijing’s approach, with the Xi administration apparently feeling that there was a political crisis emerging that could no longer be managed through traditional means and that fulfilling Beijing’s original pledge to maintain Hong Kong’s autonomy and widen suffrage would undermine China’s sovereignty over the city and erode Chinese Communist Party (CCP) control. In June 2020, the NPC Standing Committee bypassed Hong Kong’s legislature to impose sweeping national security legislation on the city. The NSL sent shockwaves through Hong Kong and the international community owing to its expansive conception of national security. It adopted broad and vague definitions for crimes such as subversion, terrorism, secession, and collusion with foreign forces, and it effectively criminalized public dissent of any variety. In the years since, the law has been used to disqualify pro-democracy candidates from public office, decimate opposition parties, curb media freedoms, and quiet public complaints about central government erosion of Hong Kong’s autonomy.

The events of 2019–2020, particularly the adoption of the NSL, accentuated the polarization of views among Hong Kong residents about the city’s future in ways that have continued in the years since. A central theme of this debate is over what it means to preserve Hong Kong’s way of life. Pro-establishment stakeholders highlight that Hong Kong has never been fully autonomous or a multi-party democracy in which political leaders were chosen through open elections. Moreover, in their view, Hong Kong residents are apolitical, and they value stability most of all. The push for universal elections, for this camp, is a deviation from the past and tantamount to advocating for a Hong Kong that is entirely independent from the PRC. Those who identify more with the opposition or “pro-democracy” camp point to the fact that although Hong Kong was never a democracy due to British rule, the city has a long history of rule of law, a vigorous civil society, an independent media, an open economy, and direct elections for a portion of the city’s political leadership. In their view, the move toward universal suffrage and opposition to the NSL was important for consolidating and protecting these underlying features of the city’s life. This division about the essence of Hong Kong and its future was on full display during this project’s interviews.

Signs of Resilience and Erosion of Autonomy

Defining Autonomy

The goal of the 2023 trip was to assess how Beijing’s tightened grip has affected the city’s autonomy and to evaluate confidence among key stakeholders, such as foreign and domestic businesses, university faculty and students, and the general public, about the city’s future.

One challenge in assessing the degree of backsliding in Hong Kong is formulating a clear conception of “autonomy” and determining what would constitute a “high degree” of local discretion.

For the purposes of this analysis, autonomy can be conceptualized in two ways:

• First, differences in the way of life between mainland China and Hong Kong, in terms of political liberties, the legal system, social norms, and economic openness — in other words, the extent to which a “One Country, Two Systems” framework is evident in practice. The narrower the gap between these “systems,” the less autonomy there is for Hong Kong.

• Second, the authority Hong Kong officials and members of society have to make their own decisions about the city’s way of life and its system. The more authority for keeping (or changing) this system that lies in Beijing, the less autonomy the SAR has.

These two ways of measuring autonomy were referenced when evaluating trends in the city’s status. Through interviews, review of primary documents, and further research, this report identifies signs of retained resilience but also clear erosion of autonomy across three key areas: governance, the economy, and civil society. While in every instance it is a mixed picture, in most domains, more signs of erosion than resilience were evident, and the general trajectory is toward continued erosion going forward.

Legal and Political Environment

ELECTORAL SYSTEM

The most obvious loss of autonomy since 2020 is in Hong Kong’s political environment. Far from moving toward universal suffrage as promised under the Basic Law, Beijing now has almost total control of the selection of Hong Kong government authorities. Much of this relates to the adoption and implementation of the NSL and the use of older colonial-era laws to crack down on freedom of association and expression, as well as a set of electoral changes that were enacted in 2021. As one interlocutor shared, these reforms were designed to intentionally remove the “electoral” element from Hong Kong’s political system. Candidates must now be vetted for political loyalty to Beijing, with the aim of a city governed by “patriots.” In addition, the LegCo has been expanded (from 70 to 90 seats), while the number of seats elected directly by Hong Kong residents has been reduced (from 35 to 20). Further, the power of an election committee composed largely of Beijing-controlled organizations to vet and choose legislative candidates has been expanded. Later “reforms” to district council elections in 2023 likewise dramatically reduced the number of seats chosen directly by the populace (from around 90 percent, or 452 of 479, to around 20 percent, or 88 of 470), with most of the remainder chosen by the chief executive and government-appointed committees. Candidates up for election via direct vote must still be vetted for their political loyalty.

Pro-democracy representation was largely snuffed out by the introduction of these rules, in effect disqualifying those with a history of criticizing Beijing or the Hong Kong government for departing from the political reforms promised in the Basic Law. Simultaneous to these electoral changes, pro-democracy lawmakers were detained for charges under the NSL. In 2021 (the latest LegCo election), only one non-establishment candidate was elected, representing a dramatic drop from 2016, when pro-democracy and centrist or localist candidates won a third of seats.

Several interlocutors suggested that these changes move Hong Kong’s legislature and district council closer to the mainland’s NPC model, with representation controlled from the top down and no real resistance to proposals from Beijing. Elections for seats in the legislative council and district council continue to be contested, but voter interest has declined precipitously in line with pre-vetting of candidates. In the recent district elections of December 2023, for example, voter turnout stood at a mere 27.5 percent, a new record low, down from a high of 71 percent in 2019 amid the pro-democracy protests. Turnout at the 2021 LegCo elections was a record low of 30.2 percent, down from 58 percent in 2016.

RULE OF LAW AND JUDICIAL INDEPENDENCE

Hong Kong’s strong rule of law tradition has long served as the backbone of its economic success, and in fact Hong Kong’s legal system remains qualitatively different from the one on the mainland in some important ways. Conservative voices interviewed for this report suggested that the then-forthcoming national security legislation, as stipulated under Article 23 of the Basic Law, would be necessary in part because Beijing has shown restraint in exercising its privileges to impose national laws on the SAR. For example, Beijing has not extended its Anti-Foreign Sanctions Law or Counter-Espionage Law to Hong Kong. Interlocutors in this Beijing-leaning group also cited Xi Jinping’s 2022 speech emphasizing that Hong Kong remains a Common Law system as evidence that Beijing is committed to preserving Hong Kong’s legal system and judicial independence.

Furthermore, some suggested that Hong Kong’s national security law is not out of step with international practice; many Commonwealth of Nations countries have national security legislation of some variety. They highlighted specifics around the implementation and scope of the 2020 NSL — such as the fact that issuance of charges, warrants, and arrests under the law have been public and visible — to suggest that the legal system remains transparent. Of course, in these countries, national security legislation is embedded in an independent rule of law system that is accountable to voters and faces scrutiny from an independent media, so the comparison has only a superficial logic. Perhaps the most important distinction is that Hong Kong increasingly has less discretion to define its own local national security concerns in the face of Xi Jinping’s expansive framework of the “holistic view of national security” (国家安全观). While the final Article 23 national security law did not contain any references to Xi or his “outlook,” the “public consultation” document released in January by the Hong Kong government made explicit reference to both Xi and his “holistic view of national security.”

One important measure of judicial independence is a record of court rulings that go against the Hong Kong government and the clear interests of Beijing. In a prominent case this past year, a judge blocked a government effort to ban the broadcast or distribution of “Glory to Hong Kong,” a song largely understood as an unofficial protest anthem, on online platforms such as YouTube. In recent years, Hong Kong’s courts have also fended off government challenges to the rights of same-sex couples. As another example, the Court of Final Appeal, the city’s highest court, overturned the conviction of a journalist accused of making false statements to access car registration records while investigating attacks on pro-democracy protestors in 2019. Despite high-profile departures in the years since the 2020 NSL, foreigners still serve as judges in Hong Kong’s Court of Final Appeal and foreign law firms remain among the most respected in the city, representing clients on a wide variety of issues.

Key Provisions of 2020 National Security Law

• Establishes new committee responsible for managing national security affairs in Hong Kong (12), chaired by the SAR chief executive (13) but supervised by and accountable to the central government in Beijing (12) — including through direct oversight by Beijing-vetted secretary-general (13) and national security advisor (15). Committee’s work is not subject to judicial review (14).

• Sets up a powerful new central government office tasked with overseeing and supporting national security affairs in the SAR (48–53), with the power to take over national security cases in certain instances (55–56).

• Vests power of interpretation of the NSL in the NPC Standing Committee (65).

• Extends to a vast jurisdiction, including to alleged violations by non–Hong Kong residents overseas (38).

• Requires all candidates for public office to swear oath of allegiance to the SAR (6) — a more expansive provision than in the Basic Law — and disqualifies those convicted for national security–related charges from running in elections (35).

• Circumvents due process in trial procedures, including removing presumptive approval of bail (42), closed trials in certain instances (41), and appointment/removal of judges by the chief executive (44).

• Commits the SAR to promoting national security education among public, including in schools, universities, and civil society organizations, in the media, on the internet (10).

Note: The numbers in parentheses refer to the relevant articles of the NSL. Source: Information gathered from the 2020 National Security Law.

Yet, while Hong Kong’s legal system may remain qualitatively different than that of mainland China, there are signs of substantial erosion. The 2020 NSL clearly pared back judicial independence as well as due process. One need only look at the administrative build-out of NSL governance and security architecture, which formalizes Beijing’s influence over judicial affairs in the city when national security, broadly and vaguely defined, is concerned. The NSL stood up a new committee equipped with broad authority for national security matters in the SAR, led by the Beijing-aligned chief executive, accountable to and supervised by Beijing, and not subject to judicial review. Local authorities may hand-select personnel in law enforcement and prosecution to manage national security cases and appoint and remove judges to hear national security cases. The Hong Kong government may conduct NSL-related trials without a jury. The central government in Beijing also stood up an office to monitor national security matters in the SAR, and it can take over NSL cases under certain circumstances, including where a “foreign country or external elements” are involved. The NSL rests power of interpretation with the NPC Standing Committee.

Simultaneous with the build-out of the NSL architecture, older legislation has been repurposed to cover security-related crimes not covered by the NSL itself, including a colonial-era sedition law that remained dormant for 50 years. A large number of opposition activists and politicians have been pursued under the NSL and related ordinances in recent years. As of February 23, 2024, 291 people had been arrested for suspected activity endangering national security since the NSL was enacted. Of these, 174 individuals (and five companies) have been charged under either the NSL or other laws, and 111 have been convicted or await sentencing; 32 have been convicted or await sentencing under the NSL. Cash bounties have been issued for information leading to arrest of least 13 opposition figures and activists overseas, compounding an environment of fear even for activists who manage to escape Hong Kong.

▲ Figure 1: Individuals Arrested and Charged in Hong Kong under the NSL and Related Security Ordinances, July 2020–December 2023. Source: Authors’ calculations based on Lydia Wong et al., “Tracking the Impact of Hong Kong’s National Security Law,” ChinaFile, April 9, 2024.

The first large-scale case under the NSL came in February 2021, when 47 pro-democracy activists were charged with “conspiracy to commit subversion” for efforts to improve pro-democrats’ electoral chances and force a positive government response to the ongoing protests. Of the 47 charged, 31 pleaded guilty. The trial for the 16 pleading not guilty began in February 2023, almost two years later. Their trial had no jury, and the three presiding judges were all appointed by the chief executive (with approval of a Beijing-controlled committee) under the NSL. Another prominent and ongoing case involves Jimmy Lai, a UK citizen and a long-standing critic of Beijing, charged under the NSL on counts of colluding with foreign forces and, under the sedition law, with publishing seditious material. Lai founded the Apple Daily, among the most popular newspapers in Hong Kong, which ran until June 2021, when it was forced to close after Hong Kong authorities raided and froze the assets of its publishing company under authority of the NSL.

Local lawyers suggest there is insufficient due process for those accused of security-related crimes. Authorities have the power to detain defendants indefinitely without bail as long as the crime in question is a national security–related one. Trials and pretrial detention times for political charges have been lengthy. Some of the “Hong Kong 47” defendants, for example, were jailed for nearly two years before their trial began. Jimmy Lai spent over 1,000 days in pre-trial detention. His trial was slated to begin December 2022, but was delayed a year after Hong Kong authorities rejected his choice of legal representation.

The actual adoption in March 2024 of the Article 23–based national security ordinance provides additional evidence of the erosion of the SAR’s political autonomy. Local advocates argue that an additional version was needed to fill in the gaps of the 2020 laws passed by the NPC, to account for additional kinds of violations, including colluding with external forces, insurrection, sedition, and espionage. Moreover, they emphasize that because of Hong Kong’s Common Law system, implementation of the law would align with Hong Kong’s historic respect of due process. That said, the law is far from reassuring. It was sprung on the public with little warning, rushed through its review, and adopted by a LegCo bereft of diverse voices in a vote of 89–0. There is sufficient vagueness in terms such as “state secrets” and “external forces” that could give the Hong Kong government substantial leeway in charging and prosecuting defendants.

Key Provisions of the Article 23–based Safeguarding National Security Ordinance

• Builds on 2020 NSL by targeting five offenses, broadly and vaguely defined — treason, insurrection, sabotage, “external interference,” and theft of state secrets and espionage (parts 2–6).

• Empowers the chief executive to make subsidiary legislation deemed necessary to protect national security (110).

• Gives police and courts power to extend pre-charge detention period, restrict access to lawyers in certain cases (76–78).

• Allows major offenses, such as “sabotage” and “external interference,” to apply to persons for activities committed outside of Hong Kong (9).

• Moves toward mainland’s broad definition of “state secrets,” to include “secrets” on the economic, technological, and social development of mainland China or the SAR (29).

• References “external interference” frequently throughout, consistent with SAR officials’ emphasis on protecting the city from “foreign forces.”

Note: Unless specified otherwise, numbers in parentheses refer to the relevant articles in the ordinance. Source: “Safeguarding National Security Ordinance,” Government of the HKSAR Gazette, March 23, 2024; and Ricardo Barrios, Hong Kong Adopts New National Security Ordinance: Article 23 (Washington, DC: Congressional Research Service, April 1, 2024).

DAY-TO-DAY GOVERNANCE

Interlocutors shared various perspectives on the degree to which Hong Kong operates autonomously from Beijing in terms of day-to-day governance. One former top official suggested that the fact that the People’s Liberation Army has never been called on to intervene is a sign of Hong Kong’s sustained autonomy. Another former official emphasized a need for realism about the extent of autonomy that Hong Kong as “a local city,” like any city within China, would be granted under the PRC system (which is not a federal system). On the other side of the equation, interlocutors noted that Hong Kong’s civil servants are largely trained to be apolitical, which means they are not able to defend their self-interest and authority when challenged. Two interview sources outside the government suggested that self-censorship among authorities in Hong Kong is on the rise, and although officials may not be receiving direct orders from Beijing, they see it within their professional interests to try to guess what Beijing’s preferences are and to adapt accordingly. Such a dynamic, which is also not uncommon in the mainland, leads to officials often taking more hardline stances than Beijing has requested or potentially desires. While some interlocutors indicated that this dynamic is part of an “adjustment period” as Hong Kong navigates the post-NSL period, it seems likely that this is a lasting, not transient, trend.

Economy and Business Environment

FINANCE AND MONETARY POLICY

Hong Kong has long had among the world’s most vibrant financial sectors, which represents almost a quarter of the city’s GDP and employs over 7 percent of its population. Local authorities clearly want to preserve this reputation. Monetary policy, macro-prudential regulation, governance of the securities market, and maintaining the peg of the Hong Kong dollar to the U.S. dollar appear largely unchanged since the imposition of the NSL. Innovation in the financial sector remains a focus. Hong Kong is, for example, building out regulatory infrastructure for crypto assets. The city government has issued green bonds that align incentives in favor of decarbonization and instituted disclosure requirements to promote environmental, social, and governance (ESG) goals. Government interlocutors pointed to Hong Kong’s role in resolving a U.S.-China audit dispute in 2022 — inspectors from the U.S. audit watchdog Public Company Accounting Oversight Board (PCAOB) reviewed Chinese audit documents on the ground in Hong Kong — to suggest the city was poised to remain a bridge between the mainland and international markets in the years ahead.

That said, financial sector resilience is not guaranteed. Political instability is a key concern for investors. Many clients of Hong Kong’s private wealth managers, for example, including clients from mainland China, have relocated assets away from the city to the benefit of other regional hubs such as Singapore. Looking ahead, foreign and local businesses and investors have expressed concern that Article 23 and uncertainties associated with broad definitions of key terms like “state secrets” may complicate the picture, jeopardizing research and acquisition of economic and financial data.

Beyond this, greater financial integration of Hong Kong and mainland China and involvement from Beijing in this integration are clear trends. “Stock connect” programs, launched before the NSL, enable cross-border investments between Hong Kong and mainland markets. These require extensive consultations with the central government and creation of special systems to allow funds from mainland China to enter Hong Kong’s capital market and economy. In mid-2023, the Hong Kong stock exchange introduced RMB-denominated shares, potentially aiding Beijing’s efforts to drive up use of the Chinese yuan overseas. In January 2024, the Hong Kong Monetary Authority introduced further measures to deepen financial links with the mainland.

THE REAL ECONOMY

Trends in the real economy are a mixed picture. Hong Kong’s economy is still dominated by local private firms and remains deeply connected to global supply chains. The city’s formal approach to international commercial engagement has been stable since 2019, with few formal restrictions on flows of goods and capital. According to U.S. consul general Gregory May, foreign businesses have also been largely spared non-tariff barriers to trade (unlike the situation on the mainland). Businesses involved in pro-democracy activism have encountered trouble, but Hong Kong remains a substantially freer economy than the mainland (ranked second globally in a long-running index).

Hong Kong authorities appear determined to retain this status, and they still clearly consider the city the connective tissue linking China and the rest of the world — not just through trade but also through arts, sciences, and technology. Hong Kong has signed 250 bilateral agreements with other countries in areas covering trade, taxation, and investment protection and promotion. The SAR is applying to join the Regional Comprehensive Economic Partnership (RCEP). Chief Executive John Lee frequently refers to the city as a “super-connector” in China’s international relationships (aligning with terminology deployed by Beijing).

Even so, research for this report revealed declining autonomy in many areas that will likely jeopardize Hong Kong’s economic resilience going forward. Local officials with whom the authors spoke were careful not to directly criticize Beijing’s economic policies. They blamed the pandemic and U.S.-China tensions for Hong Kong’s economic troubles over the past years, not policies from Beijing. Similarly, the authors witnessed limited willingness of officials and others in Hong Kong to offer alternative estimates of China’s economic growth rate or challenges that differ from official data and positions. Such differing assessments were common in the authors’ previous engagements with Hong Kong officials in the pre-NSL period.

Hong Kong is aligning with the positions of mainland China in international economic bodies as well. In 2021, Hong Kong stepped in to block the election of an official representing “Chinese Taipei” (the name Taiwan uses when participating in international bodies) to serve as the chair of the World Trade Organization (WTO) government procurement committee, aligning with Beijing’s declared position. The election was uncontested and most other parties were in support. Pro-Beijing interlocutors claimed the Hong Kong position was made on its own, not directed by Beijing. But many capitals have warned that such trends amplify Beijing’s voice in international bodies. Further, interviews also revealed that Hong Kong authorities do not believe Chinese Taipei has a right to join the RCEP — another sign of alignment with Beijing’s positions.

Simultaneously, the SAR government is driving forward greater economic integration with the mainland, a trend that aligns with the Xi administration’s articulated priorities for the national economy. Many interlocutors highlighted the “Greater Bay Area” (GBA), which connects Hong Kong, Macau, and nine cities in Guangdong, and they identified specific policies designed to promote regional integration and innovation. One was the Hetao Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone, announced in 2017, which follows a “one zone, two parks” model purportedly to reflect a “One Country, Two Systems” framework. Yet the clear intent is to reduce the relevance of the boundary between Hong Kong and the mainland. Beijing has been explicit about leveraging Hong Kong’s international reputation and positioning to advance national priorities, such as industrial and technology upgrading. Indeed, the GBA intends to incubate technology companies and research institutes in areas critical to Xi’s high-tech vision, such as semiconductors, AI, aerospace, and biomedical technology. Yet when various Hong Kong officials were asked how coordination within and among the GBA localities would work, there was little by way of concrete — or convincing — answers. It is arguably the case that Beijing would play a key role in facilitating GBA integration.

▲ Figure 2: Share of Hong Kong’s Total Goods Trade by Selected Region, 2013–2023. Source: Authors’ calculations based on “Table 325-43011A: Number of regional headquarters by selected location of parent company,” December 21, 2023, Hong Kong Census and Statistics Department.

Relatedly, interviews for this report demonstrated greater interest than ever before among Hong Kong authorities in the need for industrial policy to promote the city’s role in various industries, including ICT and pharma. Government interlocutors referred frequently to “blueprints” and “plans” for R&D and innovation, including joint efforts with the mainland. Despite making integration with Shenzhen and other mainland cities in the GBA a priority, officials were hard pressed to marshal evidence that the initiative would actually strengthen Hong Kong’s economy.

▲ Figure 3: Multinational Firms with Hong Kong as a Regional Headquarters, 2000–2023. Source: “Table 325-43011A,” Hong Kong Census and Statistics Department, December 21, 2023.

As a sign of closer integration, for the first time in at least 30 years companies from the mainland with regional headquarters in Hong Kong outnumbered U.S. ones in 2022. U.S. firms operating in Hong Kong have fallen continuously in the past years, reflecting growing anxiety among the U.S. business community. Eighty percent of U.S. businesses surveyed by the American Chamber of Commerce (AmCham) HK in late 2021 said the NSL had impacted their operations. While many U.S. firms and investors plan to remain in the city, less than a third of U.S. companies surveyed by AmCham HK at the end of 2023 planned to expand investment in the next two years. Aside from U.S.-China ties and a slowing Chinese economy, challenges related to the political and legal environment ranked high among the list of complaints. Some business travelers now revert to “burner” devices when traveling to Hong Kong — mirroring a common practice for the mainland — due to concerns about government surveillance. Crackdowns on due-diligence and consulting firms on the mainland, including the Mintz Group and Capvision, and Beijing’s increasingly draconian approach to security have not helped investor confidence in Hong Kong.

Civil Society

Space for Hong Kong’s once vibrant civil society has shrunk substantially in the past years. According to major indices tracking freedom of expression, assembly, and association, Hong Kong’s position has worsened substantially since 2020, although the situation remains qualitatively different from any mainland city. Criminal charges under the NSL and other security-related legislation, high-profile detainments, and the risk of legal difficulties have led to the closure of many independent news outlets and NGOs either by force or preemptively, while journalists, academics, and activists operate in an environment of self-censorship and fear. This trend has accelerated in the wake of the Article 23 national security law.

NGOs

According to NGO interlocutors, conditions have deteriorated considerably, and NGOs are reportedly dissuaded informally from engaging in policy advocacy. Many civil society organizations, particularly those with international connections, have been forced to disband or relocate. A 2023 report from Amnesty International estimated over 100 civil society organizations have left or been shut down since the enactment of the NSL in July 2020. The group itself famously closed its two offices in Hong Kong in October 2021, citing the NSL which “made it effectively impossible for human rights organizations in Hong Kong to work freely and without fear of serious reprisals from the government.”

For civil society groups that continue to operate in Hong Kong, barriers to resourcing and operations have grown. Amended guidelines for charitable groups specify that any group that “takes part in acts or activities . . . contrary to the interests of national security” will not be qualified (or will be disqualified) as a charitable organization. The bounds of acceptable behavior have become more uncertain, given the vague and expanding definition of national security and sensitivity to it under both national security laws and related legislation. Civil society organizations report challenges in obtaining essential services, as providers increasingly worry about running afoul of security restrictions, according to those interviewed for this report. Those receiving international funds, hiring non-local staff, or having overseas connections worry about the potential application of the joint national security laws (which cover foreign collusion) to their work. In a high-profile case illustrative of government paranoia and associated risks for NGOs around foreign engagement, Hong Kong national security authorities in March 2022 pursued a UK-based NGO (Hong Kong Watch) for breach of the NSL.

MEDIA AND PUBLISHING

Media freedoms are also generally on a downward trend, although local and international journalists interviewed felt that the reporting environment in Hong Kong is still more open than in the rest of China. This is a relatively low bar, however, given that Beijing has kicked out a substantial portion of the U.S. press corps in the mainland. Hong Kong’s English and Chinese press still run stories about Chinese politics, economics, and society that would not be able to run in the mainland. Journalists remain able to conduct interviews and cover most events largely free of harassment, interlocutors shared.

That said, the NSL and the revival of colonial era anti-sedition laws have left a clear mark. On an index of press freedom from Reporters Without Borders, Hong Kong dropped from 58th in 2013 to 140th in 2023, of the 180 countries and territories included. Prominent independent news outlets have been forced to close, with leadership staff arrested. Most notable was Apple Daily in June 2021, but Stand News (a free online news site that adopted a generally pro-democracy editorial position) was also forcefully shut down that year. At least five other independent media outlets chose to close, citing heightened risks for staff. Public broadcaster Radio Television Hong Kong (RTHK) overhauled its programming under new pro-government management.

Foreign publications have gotten in trouble for routine coverage of political events. Hong Kong authorities, for example, reprimanded the Wall Street Journal and New York Times in December 2021 for publishing op-eds on Beijing’s bid to prevent low turnout during the city’s inaugural “patriots only” LegCo election that month and warned they may be guilty of “incitement.” Some journalists shared that the breadth of stories Hong Kong media can cover has narrowed significantly, particularly concerning sensitive topics such as the Hong Kong government, the question of autonomy, and the NSL. Corporate and government records once available to journalists have been shut down or made more difficult to access, interlocutors shared. Foreign journalists who covered the 2019 pro-democracy protests have had visa applications or renewals denied. The New York Times, prominently, moved a third of its Hong Kong–based staff to Seoul following imposition of the 2020 NSL.

Changes have contributed to a climate of fear and self-censorship. The Foreign Correspondents’ Club of Hong Kong, for example, suspended its annual Human Rights Press Awards in 2022 out of concern that its plans to recognize the pro-democracy outlet Stand News would put staff and members at risk under the NSL and anti-sedition law. A string of arrests under the laws have accentuated the climate, including most notably that of Jimmy Lai. Some journalists and editors simply choose to avoid stories that may be seen by the Hong Kong government or Beijing as too sensitive even in the absence of any codified prohibition. Better safe than sorry is a posture that many have adopted.

While bookstores still have a range of books, particularly in English, the spectrum of views in Chinese-language books and periodicals in particular has narrowed considerably, as has the distance between the types of material that one would find in Hong Kong versus mainland Chinese bookstores. There are no longer books available that dig into the professional and personal lives of Chinese officials, for example, and there is a narrower range of books on China’s political history. Instead, more copies of the collected works of Xi Jinping and CCP documents fill the shelves of bookstores.

UNIVERSITIES

At universities, the formal tenure and promotion systems, open library access, and curriculum structure largely remain intact from the pre-NSL days. Some university leaders (presidents, provosts, and deans) have shown substantial courage to protect their universities, schools, programs, and students while faced with significant external pressure to limit research, push out heterodox views and faculty, and circumscribe debate and exploration among students. One source said that the worst time for university life was in 2020–2021, but that the situation has stabilized since then. A dependable source said that law schools have been largely able to preserve academic freedom, with their curriculum remaining the same as prior to 2019. Cooperation remains between Hong Kong law schools and those in the West, including the University of Pennsylvania, Harvard, and Columbia, among others, one source shared.

Although formal systems protecting academic freedom remain intact, both external and internal pressures threaten the future of Hong Kong’s globally respected universities. There has been substantial pressure on universities to voluntarily introduce “patriotic” coursework to stay in the good graces of city authorities and Beijing. In August 2022, after Xi visited Hong Kong, the Hong Kong Education Bureau distributed thousands of copies of his speech to schools across the city. Interviews with relevant parties revealed that the Chinese University of Hong Kong (CUHK) “reorganized” its Universities Service Center for Chinese Studies to make its collection of Chinese documents unavailable to scholars in Hong Kong, and that online forums for students and teachers have been closed down or made unavailable in Hong Kong.

Informal pressures on academics to self-censor have grown. Interlocutors said that on some campuses, “patriotic” faculty members have started social media and whisper campaigns to attack other faculty members and block promotions, some of whom have responded by leaving those universities and Hong Kong altogether. Prominent scholars have faced disciplinary action from Hong Kong authorities or from universities themselves. Soon after NSL enactment, the University of Hong Kong’s governing board moved to fire key 2019 protest organizer Benny Tai under pressure from pro-Beijing lawmakers. Academics now worry about being overlooked for tenure or having their contracts cut short for political expression. University community members interviewed for this report also expressed concerns about the how the Article 23 NSL, which had yet to be passed at that point, could further chill Hong Kong’s research environment by adding uncertainty about what topics and research methods may violate national security.

These changes have catalyzed a brain drain and created a less robust and diverse academic ecosystem. Indeed, research showed that most new applicants for open positions in social sciences and humanities are PRC citizens with Western academic training, with a major drop in applications from scholars from Europe and North America. One of Hong Kong academia’s traditional strengths is that it attracted top-tier talent from around the world, so a diminishment of that advantage would be a great detriment to the city’s human capital. The 2022–2023 period saw the highest turnover in 20 years at Hong Kong’s eight government-funded universities, with 380 academics leaving, marking a 7.6 percent increase from the year before. Quality scholarship on a range of issues beyond domestic Chinese politics and society is at stake.

FREEDOM OF RELIGION

Both the 2020 NSL and the 2024 Article 23 national security ordinance raise worrying questions about the protection of religious freedom in Hong Kong. In October 2022, Pastor Garry Pang Moon-yuen was jailed for a total of 13 months after being found guilty of sedition and seditious speech. In May 2022, 90-year-old cardinal Joseph Zen Ze-kiun was arrested under the NSL on the charge of “collusion with foreign forces.” Later that year, Zen and five others were found guilty of failing to register a fund that supported individuals arrested in connection with the 2019 protests. Given the focus from the twin national security laws on punishing individuals who support or aid ill-defined “external interference,” the space for Hong Kong’s vibrant Catholic community is certainly at risk, given that it communes directly with Rome (as opposed to the Chinese Patriotic Catholic Association in the mainland). As Cardinal Stephen Chow Sau-yan stated in a 2023 interview, “If you come out with something that violates the national security law, then that’s a problem.” He added, “In the past, you could freely say whatever you want. Now you have to be careful how you say it.”

Summary

Hong Kong is not yet like a regular city in mainland China, but the trajectory is clear and worrying. Areas of resilience remain, but in ways that look largely unsustainable, for example, coming down to the impressively brave behavior of discrete individuals, such as university administrators fighting off curriculum changes. As one analyst shared, Hong Kong is perhaps closer to how Chinese cities operated in 2004–2005 under Hu Jintao: when governance was less ideologically oppressive, there were more open consultations with government authorities, civil society organizations were constrained but growing, and village leaders were chosen through direct elections.

The text of the Joint Declaration and elements of the Basic Law indicate that Hong Kong has certain political, social, and economic rules and practices that will remain different from the rest of China, and the decision of whether (and how) to change them rests in part with the officials and people of Hong Kong. However, the reality appears to be that when push comes to shove — both figuratively and literally — the extent of autonomy that Hong Kong authorities have is determined unilaterally by Beijing. Hong Kong can propose how the boundary is drawn and what powers its officials have, but it can only do so through requests. In an interview for CSIS’s China Field Notes podcast, LegCo member Regina Ip noted that Hong Kong could make proposals to and have consultations with Beijing, but that policy across a wide range of domains was ultimately at Beijing’s discretion.

Within Hong Kong, there is debate about the city’s future and whether the developments of the past years have been positive or negative. There is a clear divide between conservatives, who believe Hong Kong is finally stable and better than it has ever been, and liberals, who believe the city’s vitality is in the process of being snuffed out. One person with a conservative perspective said, for example, that “the ‘one country’ part of ‘one country, two systems’ was ignored by everyone, but things are much better now.” By contrast, liberals are deeply disheartened. One shared that they feel Hong Kong now is a “semi-police state.” They sense a drumbeat toward the city’s “mainlandization.”

The distribution of views on these issues is difficult to discern. For one, elections no longer address these questions. Campaigns at the district level, for example, largely focus on bread-and-butter issues with debates about Hong Kong’s degree of autonomy and critiques of Beijing’s oversight largely off limits. Low turnout at elections since the NSL may reflect silent protest, but it may also simply reflect disinterest in politics as elections become less consequential. Public opinion polls on these topics are also a thing of the past, for the same reasons.

As a result of this trajectory, there has been an exodus of Western expatriates and their families from Hong Kong. In a keynote address at CSIS in January 2023, U.S. consul general May estimated that 15,000 U.S. citizens — representing 20 percent of the American population in the city — had left Hong Kong over the past two years, for reasons that included Covid-19 lockdowns but also Beijing’s ongoing crackdowns on democratic freedoms and those who advocate for them. Those who remain do so for distinctive personal and professional reasons that set them apart from many of their colleagues. Very few Westerners are moving to Hong Kong. For the population overall, at least a third of Hong Kong residents suggested interest in emigrating overseas in late 2023. At the same time, the number of mainland Chinese moving to Hong Kong has grown. One consequence is that Mandarin is now far more common than in years past, and Cantonese is far less commonly heard.

▲ Figure 4: Hong Kong Migration Trends (Net inflow/outflow, thousands). Source: Authors’ calculations based on “Table 110-01003: Population Growth by Component,” Census and Statistics Department, The Government of the Hong Kong Special Administrative Region, February 20, 2024.

Implications for U.S. Policy Options

Washington adjusted its approach to Hong Kong in light of the events of 2019–2020. Congress passed the Hong Kong Human Rights and Democracy Act of 2019 (HKHRDA) before the NSL, in response to the proposed extradition bill and ensuing pro-democracy protests. The effort was intended to signal U.S. support for human rights and democracy and to pressure Hong Kong authorities to shelve the bill — requiring, among other measures, the secretary of state to certify annually whether Hong Kong remains sufficiently autonomous to justify special treatment under U.S. law (and authorizing the president to revoke privileges if not). Soon after the NSL was passed, Congress passed the Hong Kong Autonomy Act (HKAA) to sanction officials and entities contributing to the erosion of Hong Kong’s autonomy. Through executive action following the HKAA, the Trump administration sanctioned individuals involved with the NSL and decertified Hong Kong’s special status under U.S. law, pursuing several measures to remove policy exemptions for Hong Kong relative to the PRC.

U.S. policy toward Hong Kong remains rooted in a determination to support the SAR’s autonomy, prosperity, and way of life; to protect American individuals and firms in Hong Kong; and to promote the human rights and democratic freedoms of Hong Kong residents. Even as international attention to Hong Kong has declined, the city’s status continues to evolve. The most prominent recent development is the passage of Hong Kong’s own national security legislation, under Article 23 of the Basic Law (the repeat of an effort stopped by public protest in 2003). In past years, Beijing has also continued to flesh out its security apparatus to reflect heightened vigilance around perceived domestic and external threats — broadening the definition of “state secrets” and espionage, for example.

Given these dynamics, it is an appropriate time for Washington to revisit its approach to Hong Kong. This report identifies three alternative approaches for U.S. policymakers to consider.

Penalization. One option is a “penal” approach, rooted in punishing Beijing for its encroachments on Hong Kong’s autonomy. This strategy arguably most closely mirrors the U.S. approach over the past few years. Washington has sanctioned PRC officials and those Beijing has appointed to positions of authority in Hong Kong, including SAR chief executive John Lee. Such sanctions are aimed at raising the costs to Beijing for its behavior. Some argue Washington has further to go, for example shutting down or limiting privileges of Hong Kong Economic and Trade Offices (HKETOs) in the United States or imposing new sanctions on individuals involved in Article 23 formulation. One risk of this penalization strategy is that it could further erode Hong Kong’s economy, by, for example, pushing sanctioned Hong Kong officials closer to Beijing.

Resignation. Another alternative, what might be called “resignation,” would be based on the fact, as detailed in this report, that Hong Kong’s autonomy is on a trajectory of erosion that is likely to continue as long as Xi Jinping leads the CCP. Observers will likely see greater explicit presence of the CCP in Hong Kong, less meaningful elections, narrower space for civil society, more restrictions on information and the media, intensified promotion of “patriotic” education, continued undermining of academic freedom at universities, and a greater use of industrial policy and state tools for economic policies.

Given these trends, the United States could accept and adapt to this reality by removing, step by step, all the policy exemptions that give Hong Kong distinct treatment from China under U.S. law and instead interact with the SAR as just another city in the PRC. There is already evidence of this approach. In line with the Trump administration’s decertification of the SAR’s special status under U.S. law in 2020, U.S. Customs and Border Protection required all goods imported from Hong Kong to use the label “Made in China,” rather than “Made in Hong Kong,” for example (which the WTO later ruled a violation of international trade rules). This broader strategy would translate into wholesale changes in bilateral relations across trade, investment, travel, law enforcement, and other areas. Under this approach, the United States would also oppose Hong Kong’s participation in international organizations, including the WTO, International Monetary Fund, International Olympic Committee, and others.

The upside of this strategy is that it conforms to the SAR’s most likely trajectory and accepts that Washington and partners are powerless to change that larger trend. Underlying historic U.S. Hong Kong policy was an assumption that China had committed to maintain the SAR’s autonomy until 2047 in ways that justified having a separate relationship with Hong Kong. A resignation strategy acknowledges that the transition period to full takeover by Beijing is over prematurely, and that the facets of political life, the economy, and civil society that made Hong Kong unique are disappearing and unlikely to return.

The downside of this strategy is that it risks accelerating Hong Kong’s loss of autonomy in every dimension. Beijing will likely conclude it has no choice (or even see this as an opportunity) but to install the CCP more rapidly and make other changes to Hong Kong’s political economy (including eliminating the Hong Kong dollar, for example). While it is right to blame Beijing for Hong Kong’s eroded autonomy thus far, it is worth asking whether pushing the city closer into Beijing’s orbit is in Washington’s strategic interests. In the authors’ view, this is a “feel good” strategy that is unlikely to bring substantial benefits for the United States. Criticizing foreign judges for serving in Hong Kong, for example, may inadvertently reduce safeguards against erosion of judicial independence. Even if this strategy weakens Hong Kong, the SAR’s overall economic heft is small enough on a relative perspective that it will be unlikely to hurt Beijing much.

▲ Figure 5: Hong Kong’s GDP as a Share of China’s Nominal GDP, 1990–2022. Source: Authors’ calculations based on “GDP, current prices,” International Monetary Fund, 2024.

Strategic Engagement. The other alternative is to pursue strategic engagement with Hong Kong, across as many domains as possible and for as long as possible, in order to extend the SAR’s distinctiveness, if not pockets of autonomy, within the PRC for as long as possible. The existence of a Hong Kong that runs according to somewhat different rules than the rest of China is a model for other parts of China to see, a place within China with access to a variety of ideas and information and where there are greater legal protections for international business. The U.S. goal here would be to help Hong Kong remain a modest island of openness in relative terms within an authoritarian socialist country. This approach, even while creating immigration and asylum pathways for Hong Kong residents wishing to leave, recognizes that the vast majority will stay in the city — and it is important to support their freedoms. It also recognizes the value that people from all sides in Hong Kong place on a strong and unique relationship with the United States. Furthermore, the strategic engagement approach should not shy away from punitive measures where appropriate, as well as public criticism of further backsliding.

From this perspective, while sanctions and other punitive measures must remain on the table, the most appropriate U.S. strategy would be to focus on strengthening practical interactions between the United States and Hong Kong. This could include government-to-government communication and dialogue, but it would most certainly involve expanding societal level connections. It would be important to bring a wide range of voices from Hong Kong to the table, both those with pro-government positions and those who are much more critical of the current trajectory — including those forced, for at least the moment, to reside outside the SAR. Track-1 and Track-2 dialogues between U.S. and Hong Kong officials, businesses, universities, think tanks, the media, civil society organizations, and others would go a long way toward reducing misunderstandings on policies and their motivations. Reinstating Fulbright exchanges to and from Hong Kong would be a valuable part of this approach. The overall goal is to slow, where possible, Hong Kong’s slide away from autonomy by reinforcing the connective tissue between the United States and all key actors in Hong Kong, government officials and pro-democracy activists alike.

Deciding how to choose from among these three options is far from easy, as it requires a sense not only of Hong Kong’s trajectory but also of what would be most effective in the long run, not simply in reaction to any specific development or crisis.

As with China policy more generally over the past five decades, Washington adopted an engagement policy toward Hong Kong for many years. However, whereas the approach toward China as a whole was geared toward trying to coax reform within China and integrate it into the international system, engagement with Hong Kong was driven not by a goal to change the city, but rather to use the United States’ limited leverage to preserve the city’s economic and social openness for as long as possible.

The Hong Kong of 2024 looks substantially different than that of 2020, let alone 1997, when the city reverted to PRC sovereignty. The SAR’s autonomy has been substantially eroded by Beijing’s tightening grip. An increasingly closed-off, security-focused Xi administration looks unlikely to reverse course — for Hong Kong or for the country as a whole. This trajectory has resulted in a wave of U.S. sanctions aligned with the penal approach, geared to punishing Beijing and its local allies for reversing course on One Country, Two Systems. The “resignation” approach would extend this logic further.

The view of this report’s authors is that a policy built entirely around punishments or giving up on Hong Kong would be counterproductive and result in the further undermining of whatever autonomy remains. As this report has shown, spots of resilience persist, and the best policy approach to managing the challenge of Hong Kong will be rooted in a strong understanding of how its citizens, government authorities, businesses, and civil society organizations envision their city’s future. There remains substantial debate within the city (and among its residents who have moved abroad) about whether developments of the past years have been positive or negative for Hong Kong and how the rest of the world, including the United States, should respond. Although there may be a need for sanctions in certain instances, symbolic opprobrium need not be the central tenet of U.S. policy. Washington would be wise to focus on sustaining what space remains for civic engagement, foreign interaction, and political debate. Such an approach will require patience and persistence, but it lies firmly within U.S. interests.

Scott Kennedy is senior adviser and Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies (CSIS). A leading authority on Chinese economic policy and U.S.-China commercial relations, Kennedy has been traveling to China for 36 years. His specific areas of expertise include industrial policy, technology innovation, business lobbying, U.S.-China commercial relations, and global governance.

Lily McElwee serves as deputy director and fellow in the Freeman Chair in China Studies at CSIS, where she researches Chinese foreign policy, U.S.-China relations, and EU-China relations. She is currently writing a book on the history of U.S. investment gatekeeping amid the rise of China as a strategy and policy fellow with the Smith Richardson Foundation.

Jude Blanchette holds the Freeman Chair in China Studies at CSIS. Previously, he was engagement director at the Conference Board’s China Center for Economics and Business in Beijing, where he researched China’s political environment with a focus on the workings of the Communist Party of China and its impact on foreign companies and investors.