Will China’s national security law break Hong Kong as a business hub?
The Biden administration in July issued a warning to US companies: Doing business in Hong Kong is increasingly risky. The advisory, released jointly by the departments of State, Treasury, Commerce, and Homeland Security, was basically a giant red flag cautioning companies and investors against the complications that are emerging under China’s national security law.To get more
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China imposed the sweeping legislation a little more than a year ago. It has since stifled Hong Kong’s pro-democracy movement and undermined its autonomy, rule of law, and free speech traditions.
This tenuous political climate has shaken Hong Kong, but it has not yet upended its status as a global financial capital. The United States’s advisory is recognition that this might change as China continues its crackdown in the territory. International businesses — and their employees — could soon find themselves entangled in national security law enforcement.
“We are entering a much more difficult phase in terms of Hong Kong’s traditional role as a key hub for international business, with all of the rule of law protections,” said Georgetown Center for Asian Law executive director Thomas Kellogg, who recently wrote an article for Foreign Policy on the potential risks companies face. “That seems to be changing.”
The question is whether businesses will heed these warnings.
China, for its part, is banking that Hong Kong’s infrastructure and economic climate will still make it a destination for foreign businesses in Asia despite the crackdown. After all, trade wars, tense Washington-Beijing relations, Beijing’s atrocious human rights record, and US sanctions have yet to stop most US firms from doing business in mainland China. And that may keep Hong Kong’s economic might intact while doing little to stop its democracy from crumbling.
Why companies need to be wary of the national security law
On July 1, 1997, Great Britain “handed over” Hong Kong to China on the promise that China would give Hong Kong a “high degree of autonomy” for 50 years, until 2047. The setup became known as “one country, two systems.”This preserved Hong Kong’s basic freedoms, including its independent judiciary and rights like freedom of the press. Under this arrangement, Hong Kong could also maintain its liberal economic and trade policies.
These two things aren’t fully separate. Hong Kong’s autonomy — especially its legal traditions, based on British common law — made it a stable and attractive place for global companies to do business, and the safe and reliable way to make inroads in mainland China. Hong Kong also maintained free-market policies, with an open economy and things like a convertible currency, which all facilitated international trade and business.
But if Hong Kong was once the West’s gateway to mainland China, the national security law is blurring that boundary. As the Biden administration warned: “Business and rule of law risks that were formerly limited to mainland China are now increasingly a concern in Hong Kong.”
So far, Hong Kong authorities have used the national security law to go after civil society groups, pro-democracy politicians, and journalists. But the national security law is so broadly and vaguely written — it criminalizes the offenses of secession, subversion, colluding with foreign powers, and terrorism, none of which is particularly well defined — that it can be hard to know whether an action would run afoul of the law until it’s too late.
That makes foreign companies and employees potentially vulnerable to everything from fines and penalties, like the suspension or revocation of necessary licenses, to even imprisonment for individuals if they’re found in violation of the national security law.
For instance, there are some concerns that even run-of-the-mill banking products, like financial analysis or market outlooks, could violate the law if the Chinese government feels they endanger its national security. It’s potentially the same if a company, say, does business or hosts a website linked to a pro-democracy activist. And none of it even has to happen within Hong Kong’s borders; the national security law is written so that it applies extraterritorially.
Beyond being targets of the law themselves, officials and experts worry that businesses will be roped into national security law enforcement.
