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

If you are looking for a symbol of the state of Russian-Chinese relations, it floats in the waters of Hong Kong. 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 seize it – are a 10,000 ton demonstration of Beijing’s relaxation. its Moscow associations.

The 465ft Nord, believed to be owned by Alexey Mordashov, docked in Hong Kong last week, sparking a quasi-legalistic row between the United States and the city’s authorities. Mordashov, the largest shareholder in steelmaker Severstal PJSC, has been sanctioned by the European Union, the United Kingdom and the United States for his ties to Russian President Vladimir Putin. A State Department spokesman said Hong Kong’s reputation as a financial center “depends on upholding international laws and standards.” In response, the city government said it was fully implementing United Nations sanctions and had “no legal authority to act on unilateral sanctions imposed by other jurisdictions”.

This is not a legal question, of course. It’s all about geopolitics. The Hong Kong government’s protests that its hands are legally tied seem flimsy. The authorities may have no obligation to act on sanctions against Russia, but if they wanted a reason, you can be sure they would find one. Tyler Kustra, an assistant professor of politics at the University of Nottingham who studies economic sanctions, compares the situation to the scene in Casablanca when police captain Claude Rains was initially reluctant to shut down Humphrey Bogart’s cafe and casino because he has no excuse. Told to find one, he quickly orders everyone out – on the grounds that the game is taking place there.

It’s hard to imagine the northern stevedores sailing for Hong Kong from Vladivostok without at least an unspoken signal from the territory that it would not attempt to seize the ship. And it is just as difficult to conceive that Beijing did not contribute to this assurance. Hong Kong is nominally a special administrative region with a high degree of autonomy, but China has dramatically increased its control over the city over the past two years. In all cases, defense and foreign affairs are the responsibility of the central government; such a politically sensitive visit would likely fall under this rubric.

Washington’s complaints also undermine the suggestion that this is a matter of international law. Warning Hong Kong of damage to its reputation is weak tea. If the United States had a bigger stick to wield, it would surely wield it. After all, the city has already done a lot to smear its image as an open and liberal commercial and financial center – to the extent that some of its top officials, including Chief Executive John Lee, have been personally sanctioned by the United States for their role in eroding freedoms supposedly guaranteed under the terms of the former British colony’s return to China in 1997.

These measures are powerful. Lee’s predecessor, Carrie Lam, was also sanctioned, so no Hong Kong bank was willing to do business with her, even those in mainland China. In a 2020 interview, Lam lamented that she had to take her paycheck in cash, leaving her with piles of currency at home. Such is the power of the threat to cut financial institutions off from the dollar system.

With the yacht out of reach, this is where any retaliation from the United States and Europe is likely to be felt: against companies and individuals who provide services to the Russian ship or its entourage during their stay. . European Commission President Ursula von der Leyen said last month that the region would step up a crackdown on people trying to evade sanctions. Such warnings may mean little to those operating only locally; cross-border financial companies will take note.

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

The questions remain: why now, and what is the benefit of a trade hub like Hong Kong incurring the ire of two such large markets (assuming it has a choice)? There is need on both sides. Hong Kong would need an influx of wealthy individuals and capital. The city’s population fell by a record in the year to June, the main stock market index returned to pre-crash levels of 1997, and property prices are trending lower. For ultra-wealthy Russians traveling by sea, the city is adding another destination to an ever-shrinking list of safe ports – one with everything the modern oligarch could want, from world-class restaurants to a temperate climate . It certainly beats winters in Vladivostok.

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

More from Bloomberg Opinion:

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

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

• The Hong Kong dollar bears are oddly quiet. Thanking the UK: Matthew Brooker

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

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

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