An oligarch’s yacht and 10,000 tons of love for Putin

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If you’re looking for a symbol of the state of Russian-Chinese relations, it’s floating in Hong Kong waters. Whatever reservations Chinese leader Xi Jinping may have expressed about the course of the war in Ukraine, the arrival of a Russian oligarch’s $500 million superyacht — and the city government’s refusal to confiscate it — is a 10,000-ton one – Depicting how relaxed Beijing is about its Moscow associations.

The 465-foot Nord, reportedly owned by Alexey Mordashov, moored in Hong Kong last week, sparking a quasi-legal row between the US and city authorities. Mordashov, the largest shareholder in steelmaker Severstal PJSC, has been sanctioned by the European Union, Britain and the US for his ties to Russian President Vladimir Putin. A Foreign Ministry spokesman said Hong Kong’s reputation as a financial center “depends on compliance with international laws and standards”. In response, the city government said it fully enforces United Nations sanctions and has no “legal authority to take action against unilateral sanctions imposed by other jurisdictions.”

This is not a legal issue, needless to say. It’s about geopolitics. The Hong Kong government’s protestations that its hands are legally tied look tenuous. Authorities may not be required to respond to Russia’s sanctions, but if they wanted a reason, rest assured they would find one. Tyler Kustra, an assistant professor of politics at the University of Nottingham who researches economic sanctions, compares the situation to the scene in Casablanca, when police captain Claude Rains initially refuses to close Humphrey Bogart’s cafe and casino because he has no excuse. When asked to find one, he quickly orders everyone out – on the grounds that there is gambling going on there.

It is hard to imagine that the Nord’s handlers sailed from Vladivostok to Hong Kong without at least a tacit signal from the territory that it would not attempt to seize the ship. And it is similarly difficult to imagine that Beijing was not involved in that assurance. Hong Kong is nominally a special administrative region with a high degree of autonomy, but China has significantly increased its control of the city over the past two years. In any case, defense and foreign affairs are central government affairs; such a politically sensitive visit would probably fall into this category.

Washington’s complaints also undermine the notion that this is an issue of international law. Hong Kong’s warning about the damage to its reputation is weak tea. If the US had a bigger stick to wave, they would certainly wave it. After all, the city has already done much to tarnish its image as an open, liberal business and financial center — to the extent that some of its top officials, including Chief Executive John Lee, have been personally sanctioned by the US for their role in eroding freedoms , allegedly guaranteed under the terms of the former British colony’s return to China in 1997.

These measures are effective. Lee’s predecessor Carrie Lam was also sanctioned, with the result that no bank in Hong Kong was willing to do business with her – not even those in mainland China. In a 2020 interview, Lam lamented the fact that she had to take her salary in cash, leaving her at home with a pile of cash. Such is the power of the threat to cut off financial institutions from the dollar system.

Since the yacht is out of range, it is here that all US and European retaliation will likely be felt: against companies and individuals providing services to the Russian ship or its entourage during its stay. European Commission President Ursula von der Leyen said last month that the region would step up crackdowns on people trying to evade sanctions. Such admonitions may mean little to those who work only locally; cross-border finance companies will take note of this.

Action against Hong Kong over even a single ship is unlikely. As Kustra points out, the US and Europe are far more interested in preventing the flow of weapons or other sensitive materials that would aid Russia’s war effort. Sanctioning luxury yachts makes life difficult for tycoons who have enabled Putin and benefited from his rule, but it’s a relative sideshow.

The questions remain: why now, and what’s the benefit to a trading hub like Hong Kong in provoking the wrath of two markets that big (assuming it had a choice)? The need is on both sides. Hong Kong could use an influx of wealthy individuals and capital. The city’s population has fallen by a record for the year to June, the main stock index is back to pre-crash 1997 levels and house prices are trending down. For super-rich Russians at sea, the city adds yet another destination to a shrinking list of safe havens – one with everything the modern-day oligarch could desire, from world-class restaurants to a temperate climate. It certainly beats the winters in Vladivostok.

An unholy alliance? Like Bogart in Casablanca, Hong Kong and Russia see it more as the beginning of a beautiful friendship.

More from the Bloomberg Opinion:

• You can’t just take the townhouse of a Russian oligarch: Chris Hughes

• There is a way to wean India off Russian weapons: Mihir Sharma

• HK dollar bears are oddly calm. Thanks to the UK: Matthew Brooker

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Matthew Brooker is a Bloomberg Opinion columnist covering finance and politics in Asia. A former editor and bureau chief of Bloomberg News and deputy business editor of the South China Morning Post, he is a CFA charterholder.

For more stories like this, visit bloomberg.com/opinion

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