Why the United States Won't Let Carrie Lam Have a Bank Account in China
Or Why America Really is Exceptional
The Chinese Communist Party (CCP) has historically been very sensitive about threats to its borders, as are most regional hegemons - the U.S. is quite active in this arena. The large “re-education” camps in Xinjiang and the possibility of an invasion of Taiwan are the most visible border issues in China today. Carrie Lam’s banking predicament only makes sense in the wider context of U.S. policy towards China’s borders, so a bit of preamble is necessary.
The spread of Tibetan Buddhism in the West in the 1960s is a good example when it comes to understanding these border disputes. Viewed in the West as a case of freedom of religion and national sovereignty, Western support for Tibet is seen by the CCP as support for a nationalist secessionist movement.
Historical CIA activities in Tibet make a good case for the Chinese position. From 1958 to 1972, the CIA maintained a “Tibetan program” which, according to the CIA at the time, “consists of political action, propaganda, paramilitary and intelligence operations”.
“In the political action and propaganda field, Tibetan program objectives are aimed toward lessening the influence and capabilities of the Chinese regime through support, among Tibetans and among foreign nations, of the concept of an autonomous Tibet under the leadership of the Dalai Lama.”
This support even extended to backing of the Chushi Gangdruk, the “Tibetan paramilitary force” mentioned in the memo which, if successful in its endeavours, would defeat Chinese forces in Tibet and establish a new government with the blessing of the United States. The CIA went so far as to arm the group and train members at Camp Hale in Colorado.
“In addition to providing relatively modest funding for the army, the CIA also flew several thousand Tibetans to Colorado where they trained them at Camp Hale from 1958 through 1964. Camp Hale is located at 11,000 feet in altitude, and thus as close as the CIA could get to the Himalayas in the continental U.S., and was the former military training site for the Army’s 10th Mountain Division ski corps during World War II …”
Unsurprisingly, China considered this to be state support for terrorism.
China also considered the British treaty, the Simla Convention (which also drew the McMahon Line which defines the China-India border today), granting Tibet independence in 1914 to have been illegal. China signed the draft but not the final agreement, but Britain and Tibet later agreed that a Chinese signature was not necessary. Finally, Tibet pushed Chinese officials out of the country in 1949 when it appeared Mao’s communist forces would win the civil war. However, Britain conceded Tibet was in China’s sphere of influence, and the People’s Liberation Army marched into the country and annexed it in 1950.
Britain’s initial aim was material and economic in nature - to create a buffer state between India and China, in order to secure British India’s borders. But it was difficult to argue that Tibet was fully autonomous - surely it was not ethnically Han, but it had been under Chinese control - or “suzerainty” - for hundreds of years. China meanwhile has asserted its sovereignty over Tibet - that Tibet is under Chinese control. British politicians have quibbled over these definitions, but it seems fair to say that sovereignty is historically established via might rather than right, with the latter being legitimated by the former. Britain, of course, quickly develops a distaste for this kind of human rights language when Scotland, Wales, and especially Ireland are brought up.
This historical view of Tibet as being in the orbit of China for centuries contrasts intensely with the popular Western imagination concerning China and Tibet, coloured by a history of “Free Tibet” bumper stickers and Buddhist meditation - an activist history that is decidedly ignorant of the political history, and a narrative of the kind that helps garner support for Western intervention in China under the guise of human rights or “international law”. That is, it’s fine for the United Kingdom to go to war with Argentina to contest ownership of the Falklands - this is the sort of thing nations do, after all - but it is supposedly criminal what China does in Tibet, or any other Chinese border region.
This isn’t to say Chinese actions in Tibet can’t be unjust - they’re just not extraordinary or unusually expansionist, and it’s important to understand the CCP’s perspective - they do not agree with the Western consensus, and they don’t act in a way that makes sense unless their position is understood. Just as Britain would contest that it is evil for maintaining control of Ireland by military force, China would contest being cast as a villain for subsuming Tibet.
The situation in Hong Kong has produced a similarly tangled case, where Westerners are largely ignorant of the situation now and in the past, but are eager to support Western interventionist policies - policies which China views as sedition. The democracy movement in Hong Kong is not just about local autonomy and resistance to the CCP, it’s also about the vital political advantage conferred on Western powers by maintaining these zones of resistance along China’s border, preventing internal stabilization and external expansion. Better to fight them there than here.
This has produced a type of democratic movement whose politics are nearly incomprehensible to liberal Westerners - both Nancy Pelosi and Mitt Romney have been outspoken in their support for the protesters, and appeals to President Trump to “liberate” Hong Kong confound any attempt to place the situation on the left/right spectrum of politics. Some protesters have even appealed to the U.K. to “liberate” them, preferring British rule to the CCP. Most Western liberals would be uncomfortable supporting a return of British rule in Hong Kong, given it went to war with China twice in order to addict its population to heroin for profit.
While the British government has largely demurred, the United States has actively intervened, and the way in which they’ve done so illustrates how powerful America is when compared to Britain or China.
The United States passed the Hong Kong Human Rights and Democracy Act (HKHRDA) on November 27, 2019. This bill extends not only to Hong Kong but establishes sanctions on all of China. The first shot of the U.S.-China trade war was fired in January of 2018. Keeping in mind that the U.S. has been keeping migrant children in cages for some time now, it’s prudent to view the HKHRDA in this context - less a concern for human rights or a belief that there could be a successful “democratic revolution” in Hong Kong, more that this is a trade war in full swing and Hong Kong provides a clever access point for China-wide sanctions.
In July of this year Trump enacted the Hong Kong Autonomy Act 2020 (HKAA) via an Executive Order, allowing individuals and entities in China to be sanctioned. A few days later the Uyghur Human Rights Policy Act of 2020 was also passed, sanctioning members of the CCP associated with the administration of Xinjiang.
By early August the U.S. had made use of the HKAA by imposing sanctions on 10 individuals within the Chinese government.
How does this relate to “matters of U.S. interest in Hong Kong”, as the HKAA puts it? Whatever the technical merits of charging China with human rights violations, what can the United States really do to individual politicians in China?
Well, Carrie Lam is one of the 10 individuals targeted by the HKAA, and it means she can’t have a bank account. She’s been storing stacks of paper money in her home (she makes $627,200 USD a year).
Carrie Lam is Hong Kong’s “Chief Executive”, a position created for the 1997 handover of Hong Kong from the United Kingdom to China. Although the British position of governor is historically rather despicable - Sir Richard Graves MacDonnell, who was previously Governor of Nova Scotia, had a residence built at the top of Victoria Peak and made the journey now made by tourist tram via a palanquin carried by locals - Carrie Lam is a more relevant figure of contempt today for her being the local face of the Chinese Communist Party.
A lifelong Hong Kong bureaucrat, Lam has been pivotal in suppressing the local “democratic” movement, deploying police and perhaps even triad (local criminals) to assault protesters.
But why is it that even Chinese banks, affiliated with the CCP, are afraid to do business with Carrie Lam? What could the U.S. possibly do to threaten Chinese banks?
To put it bluntly, business on earth is conducted with the U.S. Dollar. When you buy and sell oil, you do it in USD, not the Yuan. When a country - even a country like China - wants to store money as a currency reserve, they buy USD to save. In fact China holds over 3 trillion USD in reserve - compare that to Canada’s 90 billion or the U.K.’s 177 billion.
When the United States wishes to sanction foreign people or countries, they simply pass a domestic U.S. bill which allows them to sanction any banks or businesses which transact with the sanctioned individuals or countries. Any bank which holds money for Carrie Lam risks being blacklisted by the United States, and thus the world. While it would be a bold move for the U.S. to sanction a Chinese bank and disrupt both the global financial system and Chinese participation in it, failing to do so would also bring American legitimacy, and so a number of other active sanction regimes, into question.
Logistically, the U.S. Department of the Treasury deals with sanctions through its Office of Foreign Assets Control (OFAC), which keeps a “Specially Designated Nationals” list (SDN). All financial institutions maintain an OFAC screening system in order to catch U.S. sanction violations and avoid reprisals, and this has been the case since the 1990s. That is, financial institutions go out of their way to investigate and report violations of U.S. sanctions.
According to a Georgetown Law paper detailing the sanctions system:
“OFAC has imposed hundreds of millions of dollars in civil penalties on U.S. and foreign financial institutions and companies for failing to appropriately block or reject, or for defrauding U.S. financial institutions into processing, illegal transfers involving a targeted country or SDN.”
This sanction regime is enforced by financial institutions - that is, they report on themselves - because the repercussions for failing to do so and being caught are severe. Thanks to the USA PATRIOT Act these infractions are defined as criminal money laundering operations. For instance, if you’re caught selling medicine to Iran, the U.S. might claim that you have been involved in money laundering.
“The result of this designation is severe: the institution may be prohibited from maintaining correspondent accounts with U.S. financial institutions, thereby cutting off access to U.S. dollar payment systems and business in the United States generally.”
A Macau-based bank lost 34 percent of its deposits and went into receivership (being unable to operate any longer) just for being accused of violating U.S. sanctions and dealing with North Korea.
For another example of what American sanctions look like in action we can look at the Nord Stream 2 pipeline. The U.S. has now targeted insurance and certification companies in Denmark, nullifying the Danish government’s attempt to finish construction of the pipeline. These Danish companies have stopped their work for fear of U.S. reprisals.
No other country on earth can accomplish this sort of sanctioning, because no other country has such enormous leverage. The global financial system operates in USD, America holds the monopoly on printing USD, and you can count on never doing business again so long as you interact with a designated enemy of the United States. As much as China or Britain or France of Germany might wish they could do this, they cannot - they simply occupy a lower economic standing than the United States, and lack the financial infrastructure afforded by the power of the USD, which is in turn propped up by the “security” provided by the world’s largest military. America is the country that is too big to fail.
In this sense, the United States has the ability to influence the domestic policy of other nations if they have a good enough excuse - human rights being, historically, the most popular choice. The material financial benefit of holding such power should inspire a healthy skepticism as to the sincerity of sanctioning foreign entities for matters of human rights, given that the United States is the only country which has claimed it will invade the Hague should any American be accused of war crimes in the International Criminal Court, has chosen to continue using cluster munitions, and still uses white phosphorous munitions. Good luck sanctioning the United States to pressure them into changing their positions.
This is not to say that China has not committed human rights violations, but rather to point out that the self-proclaimed enforcer of global human rights is one of the greatest transgressors of those human rights - and so should not be believed too quickly when this line of reasoning is presented to explain acts of foreign intervention.
Tellingly, the Chinese have counter-sanctioned several U.S. officials, but in a much different way - they are simply banned from entering China. Similarly China has slapped massive tariffs (212 percent) on Australian wine to signal their displeasure with Australian economic policy towards China.
The United States used to pressure foreign powers in this more mercantile fashion, for instance when they pursued sanctions against Japan following the invasion of China.
Rather than threatening companies who dealt with Japan, the U.S. passed the Export Control Act (ECA) of 1940 - which simply meant that the U.S. itself would not export certain vital materials to Japan. It took some time for the U.S. to work up the courage to ban the export of oil to Japan - while the ECA banned aviation fuel, it was perceived as a big step towards open hostilities to ban oil exports. It just so happened that Japan imported around 80 percent of its oil from the U.S., so this was devastating enough despite the U.S. not exerting control over non-U.S. entities.
When Japan tried to buy oil from the Dutch, the Dutch intentionally made counter-offers so poor that no deal could be made - but this reflects American diplomatic power rather than sheer dominance of the global economic system. America was powerful but not inordinately so, and the Dutch were predisposed to hostility towards Japan given the vulnerability of their massive colonial assets in the region - which Japan would in fact later take by force in order to sustain its military requirements for rubber and oil.
Shortly after Nazi Germany invaded the Soviet Union in June of 1941, the U.S. decided it was an opportune and politically popular moment by late July to freeze all of Japan’s foreign assets, with Dutch and British cooperation. The loss of income from foreign investments was so devastating that Japan’s postwar recovery would be almost entirely dependent on U.S. aid.
The United States had been angling to secure trade with China and Southeast Asia for half a century by the time it went to war with Japan. Following the Russo-Japanese War of 1904-5, the U.S. deployed the Great White Fleet to Japan as a not-so-subtle reminder that the U.S. Navy, unlike the Russian navy, was able to beat the Japanese navy if it ever came to that. The U.S. would even develop War Plan Orange in 1919, which envisioned a naval war with Japan which would decide economic dominance of Asia.
It’s important then to see that America did not spring into action against an aggressive Japan in 1941 - rather it had identified Japan as its key economic competitor in the region by the turn of the century, which would have to be contained and minimized if the U.S. was to maintain access to the Chinese market and Southeast Asia. War with Japan was, if anything, convenient and in the interest of the United States. Indeed, winning the war with Japan subordinated the Japanese economy to the U.S. economy while at the same time largely pushing British and Dutch influence out of the region by way of decolonization and integration with an American-led global economy.
Today’s trade war with China and its subsequent sanction regime is an evolution of this earlier state of affairs - now it is China which has emerged as a modern nation able to compete with the European powers and which threatens America’s economic interests in Asia. Japan is now happily an American ally - after all Japan had invaded China for its resources, and to see the Chinese mobilize their own resources and develop as a modern nation right next door has been deeply concerning, considering their size. When China was a disorganized society of rural peasants it presented an enormous market ripe for exploitation, but now that the vast resources of the country have been mobilized domestically it presents a threat exponentially larger than that of Japan in the previous century.
Carrie Lam’s situation seems a bit funny, even as if she’s gotten her just desserts if you’re sympathetic to the sanctioning of a wealthy Chinese bureaucrat who has clamped down on democratic protests. But this is just the “propaganda field”, as the CIA so eloquently put it - the realm of television pundits whipping up support in the electorate. The U.S. State Department doesn’t really think Carrie Lam is particularly evil, but it’s necessary that this is the media narrative - otherwise it looks like a stronger power is crushing a weaker one, and that doesn’t win much popular support.
The reality is that these sanctions are part of a much more existential war for Asia’s economic power, in which the U.S. wishes to stymie the Belt and Road Initiative in Xinjiang - China’s attempt to skirt American naval superiority by building a land route to Europe and a sea route to Africa and around Russia - and maintain Taiwan as a way to keep China out of the South China Sea.
Given America’s extra-territorial powers thanks to its position at the top of the global financial system, it’s in the interest of the U.S. that it both support “independent” trade partners in Asia and keep China from extending its borders.
The U.S. is not in the business of swallowing up foreign territory, rather it’s in the business of “opening up” foreign markets, which allow it to buy up raw materials, find export markets, and make use of cheap labour. China does not have the same ability to project power globally, but it wants that power - and so it’s in the best interest of the U.S. to prevent this from coming to be.
The lay Western perspective on China is one of a giant authoritarian powerhouse, busy ethnically cleansing its border regions and readying an invasion of Taiwan, all the while aggressively building artificial islands in order to illegally project its navy into the South China Sea. But underneath the layer of propaganda, Western analysts openly understand that China is still struggling to achieve what the United States achieved long ago, that it is still trying to stand up on its own and push Western powers away from its borders, and then from Southeast Asia. But it is still surrounded, and it is still stumbling, and it is much better for America to fight China in China, and sooner than later.