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Treasury's Mnuchin says U.S may restrict capital flows through Hong Kong

WASHINGTON (Reuters) - U.S. Treasury Secretary Steven Mnuchin said on Thursday he was working on various capital markets responses to China’s Hong Kong Security law, including some measures that could restrict capital flows through the territory.

Speaking to reporters on a video call, Mnuchin said his primary focus in the U.S. response to China’s Hong Kong clampdown was through the President’s Working Group on Capital Markets, an interagency group of U.S. financial regulators.

President Donald Trump ordered here the Treasury-led group last week to recommend in 60 days actions to protect U.S. investors from Chinese companies' failure to adhere to U.S. accounting standards and disclosure rules.

Asked if Treasury was considering measures that could restrict flows of U.S. capital through the Hong Kong market, he said: “We are -- I don’t want to prejudge what the report will be, but we will come back with a variety of recommendations.”

He said the President’s Working Group will examine accounting issues related to Chinese companies and will produce a thorough report “that strikes the right balance between protecting our capital markets and dealing with this situation as well.”

China’s plans for the national security law, which erodes Hong Kong’s autonomy, prompted Trump to begin withdrawal of Hong Kong’s special treatment under U.S. law. The issue, along with the coronavirus pandemic, is among several that have raised tensions between the world’s two largest economies since they signed a sweeping trade deal in January.

Mnuchin said he expects China to meet its obligations under the Phase 1 deal, which calls for a $200 billion increase in Chinese purchases of U.S. goods over two years and improved protection for U.S. intellectual property.

“As of now we believe they are in the process of meeting their obligations but we’re keeping a close watch on that,” Mnuchin added.

Reporting by David Lawder; Writing by Andrea Shalal; Editing by Tom Brown