Hong Kong is global trade hub for world’s most brutal regimes, report says

Hong Kong has become a global trade hub for “the world’s most brutal regimes”, according to a report examining the city’s role in facilitating the flow of goods to countries under sanctions by the west, including Russia, Iran and North Korea.

A report published on Monday by the Committee for Freedom in Hong Kong Foundation, a campaign group, found that between 2021 and 2022, exports of semiconductors from Hong Kong to Russia roughly doubled to $400m (£310m), second only to shipments from mainland China. Semiconductors are vital to Russia’s war effort as they are a component in weaponry such as drones and cruise missiles.

The report analysed Hong Kong’s exports in a five-month window in 2023, with a particular focus on items from the Common High Priority List (CHPL), a list developed by the US government to identify items sought by Russia for its weapons programme. The researchers found that between August and December 2023, Hong Kong exporters shipped nearly $2bn worth of goods to Russian buyers. Nearly 40% of those exports, by value, came from items on the CHPL, including various categories of semiconductors.

One of the companies featured in the report is Piraclinos Limited, a charcoal and fertiliser supplier. According to the report, in December 2023, Piraclinos shipped more than $2.5m of electronic integrated circuits and other CHPL items to VMK, a Russia-based company that has been targeted by US sanctions. Piraclinos has been approached for comment.

Hong Kong has long been a hub for international business operations, above board and illicit. The ease of setting up companies, a process that takes just a few days in Hong Kong, allows individuals to seamlessly create new avenues for transferring goods and payments, and mask their identities through shell companies, even when they are in the sights of the western authorities.

In one example detailed in the report, a Hong Kong-based company, Arttronix, was dissolved days after it was targeted by US sanctions for supplying electronic components to Iran. One year later, Arttronix’s owner set up a new company under a different name. It is not clear if the new company is also involved in exporting electronics to Iran, but the owner “never should have been able to start a new company,” said Samuel Bickett, the report’s author.

Hong Kong’s role in sanctions busting is in part a byproduct of it being one of the busiest shipping hubs in the world. But, according to a separate report published by the Carnegie Endowment for International Peace last year, it is also “a direct consequence of Hong Kong’s increased subservience to China”.

“Beijing’s crackdown has played a major role here,” Bickett said. Companies in Hong Kong “openly flout the sanctions and show no interest in even paying lip service to them”.

Trade between China and Russia has boomed since the start of the war in Ukraine. Last year, bilateral trade reached $240bn, a record high.

US and allied efforts have been “inadequate to halt the flow of prohibited western goods from Hong Kong to Russia,” the report concludes. “Creating and replacing corporate identities is very easy to do and difficult to track”.