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A Reply to Joe Tsai on Hong Kong

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US Treasury Secretary Janet Yellen

San Francisco / June 15, 2021

In an interview on CNBC before tonight's game between the Milwaukee Bucks and Brooklyn Nets, Nets Owner Joe Tsai defended the National Security Law in Hong Kong. Andrew Ross Sorkin asked about the "human rights issues" in Hong Kong, and Tsai gave a long response:

I live in Hong Kong, right, so everybody is worried I still think it’s kind of funny that people call me up, you know, on these big zoom calls and say, Joe, where are you and I say I’m in Hong Kong and they say oh, are you okay, right? Well, over the last year, they impose the National Security Law. Hong Kong is one of the very few places that did not have national security legislation in place. What is this for? It’s against sedition, it’s against people that advocate splitting up Hong Kong as a separate country. These are things that are not allowed. You know why? Because Hong Kong used to be a colony, you know, a few 100 years ago, China lost Hong Kong to the Brits because of the Opium War. The British wanted to sell opium into China and as a result of some battles, China had to give, carve up Hong Kong, gave it up. This is a very scarring kind of history of China having foreign powers come in and carve up your territories. So, for, so if you put yourself in the Chinese people’s mindset, you know, if you’re a Chinese citizen, I look at this history, I want to make sure that we prevent foreign powers from carving up our territories. I think Hong Kong ought to be seen in that context, you know, I think there’s a lot of criticism of, you know, the democratic freedoms or freedoms of speech is being suppressed. But overall, since they instituted the National Security Law, everything is now stabilized. In 2019, when people were protesting on the streets, I was actually afraid to walk onto the street. You know why? Because I speak Mandarin and they were targeting every person that spoke Mandarin because they would assume that you come from the mainland. You know while I actually grew up in Taiwan where you know they speak Mandarin there. And so, I actually felt physically threatened with, with these protesters, right. So, I think now we have more stability. Hong Kong is going to be fine. You know why because it’s a free market economy. When you invest in Hong Kong, free flow of capital, you put money into the Hong Kong Stock Exchange today and in Hong Kong dollars, tomorrow you can take it out in US dollars. There’s a free flow of capital. It’s also, it also has the most benign tax system there is for capital formation. The income tax rate is only 15% and then there’s no capital gains rate, no taxes on capital gains, dividends, and so if you want to invest in Hong Kong, great for capital formation.

I agree with Joe Tsai that the British wronged China in the Opium War. But that wrong does not legitimate the imposition of the National Security Law in Hong Kong today. When the British returned Hong Kong to the Chinese Community Party in 1997, the CCP promised there would be "one country, two systems". When Hong Kong was under British control, a very dynamic legal, cultural, and political system developed in that city. China is now eroding those idiosyncrasies and this crosses a line.


For example, free speech is evaporating in Hong Kong. Many people who work in financial services are no longer comfortable stating their views on current affairs in the workplace because they are afraid the CCP is listening. Free speech is very important for economic growth because the non-conformists with idiosyncratic views try new things that result in new business formation and capital creation.

In other parts of the interview, Tsai mentions that the average Chinese citizen is happy with their leadership because per capita incomes are rising and the welfare of the normal Chinese household is improving. This is true, but that way of thinking does not rationalize the erosion of "one country, two systems" in Hong Kong. Per capita incomes are falling in Hong Kong. The dynamism in Hong Kong's economy will decrease because the rich are fleeing to London and Singapore. Cities need wealthy individuals to invest in startups, hedge funds, and up-and-coming businesses.

Many countries took advantage of China in the 19-20th centuries. I understand the desire to reclaim control of Hong Kong and Taiwan and re-assert power on the international stage. Every political community has grievances and ambitions. I want business leaders like Alibaba Co-Founder Joe Tsai to recognize that the rule of law and human rights must guide those ambitions.

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