US plans to rollback special status may erode Hong Kong’s startup ecosystem

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For two months, the people of Hong Kong waited in suspense after China’s legislature approved a new national security law. The legislation’s details were finally made public yesterday and almost immediately went into effect. As many Hong Kong residents feared, the broadly written new law gives Beijing extensive authority over the Special Administrative Region and has the potential to sharply curtail civil liberties.

In response, the United States began the first measures to end the special status it gives to Hong Kong, with the Commerce and State Departments suspending export license exceptions for sensitive U.S. technology and blocking the export of defense equipment.

Much remains uncertain. Hong Kong had also previously enjoyed many freedoms that do not exist in mainland China, under the “one country, two systems” principle put into place after the United Kingdom returned control to China. After announcing the new policies, the U.S. government said further restrictions are being considered. Under special status, Hong Kong had privileges including lower trade tariffs and a separate customs and immigration designation from mainland China, but now the future of those is unclear.

Equally opaque is how the erosion of special status and the new national security law will impact Hong Kong’s startups in the future. In conversations with TechCrunch, investors and founders said they believe the region’s ecosystem is resilient, partly because many companies offer online services — especially financial services — and have already established operations in other markets. But they are also keeping an eye on further developments and preparing for the possibility that key talent will want to relocate to other countries.

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