The decision of the Hong Kong government to press ahead with proposed amendments to its laws to let individuals be extradited to China could do long-lasting damage to its image as a sensibly-run international financial and investment centre, say finance and legal professionals.
The proposed change to Hong Kong’s Fugitive Offenders Ordinance, which was proposed by the government of chief executive Carrie Lam, would let China ask Hong Kong to extradite any individual within its borders that Beijing claims to have broken its laws. Vociferous opposition to the bill led over 1 million people to join a protest march on Sunday, according to organisers. Thousands more then protested outside the government’s Tamar headquarters on Wednesday, when the bill was meant to get a second reading at the Legislative Council. It ended up being delayed.
AsianInvestor and FinanceAsia reached out to dozens of senior financial executives during Wednesday afternoon to ask their opinions on the impact of the bill. Many declined to comment, and almost all of those who spoke would only do so on a background basis.
Almost everybody warned the extradition bill could prove damaging to Hong Kong’s appeal as an international financial hub with start-ups, particularly given the close links between politics, business and economics on the mainland.
“Prime brokers have been saying to us that it is an issue that is colouring decisions whether to set up the manager of the hedge fund in Hong Kong,” said a partner working for an international law firm. “Their belief is, if you are trading in A-shares and you possibly invest in or sell a controversial company that might upset people and mean you end up being extradited.”
One buy-side head of trading warned: “This will change Hong Kong.”
Other investment executives said the government’s attempt to push through such hugely unpopular legislation raises fears about its willingness to enact policies against Hong Kong's interests at China’s behest.
“If you want to be an international hub you need to feel safe, including when it comes to freedom of speech and the press. Unfortunately this isn’t a good thing for the Hong Kong economy at all; it sends a strong disconnect between what the Hong Kong people want and the government is going to do,” said the head of a family office that operates in Asia.
“It also sets a precedent that it won’t make decisions that are best for the Hong Kong economy, and may mean it won’t make logical decisions in areas like its currency and regulations.”
The attempt to pass the extradition law could also hurt Hong Kong’s favoured status with the US – and impact its ability to attract US citizens to do business and work in the Territory.
Under the United States-Hong Kong Policy Act of 1992, the city enjoys distinct and favoured treatment from the rest of China under US law. But a US State Department spokeswoman said this could be reviewed if US citizens in Hong Kong risked being subject to “China’s capricious judicial system”.
Several Hong Kong financial industry players told AsianInvestor and FinanceAsia that this risk was underappreciated.
“My main view is that Hong Kong is putting at risk the special status it has with the US unnecessarily,” said Stewart Aldcroft, Hong Kong-based chairman of Cititrust. “If the US and China do reach an agreement on trade the US may ignore this, but if there's no agreement then I expect the US will do a formal review.”
A fund manager agreed with Aldcroft, adding that US President Donald Trump may choose to alter the economic privileges that Hong Kong currently enjoys, and the city may then find itself caught up in the frays of the trade war.
“Getting down to brass tacks, the Hong Kong dollar’s peg to the greenback, already under pressure since last year from speculators, might be further under pressure – and asset prices may come under pressure too.”
Concerns about China encroaching on Hong Kong’s operations have been rising for several years.
Under the One Country, Two Systems agreement, Hong Kong is meant to enjoy broad autonomy over its operations, including independent rule of law and freedom of expression for 50 years after its handover from the UK to China in 1997. Hong Kong citizens and investment professionals fear the extradition law would erode this independence to the point of meaninglessness, with any Hong Kong-based individual who angered Beijing being extradited and punished by its politicised judicial process.
“The extradition law raises questions to international investors about the political stability and sovereignty of China over Hong Kong and the independence of Hong Kong,” a senior Hong Kong-based executive at a European asset manager said. “A lot of people come to list their shares here, and it’s always been seen as one of the safest places in the world. Plus this raises doubts about Hong Kong’s currency pegging, and it’s not something we would like to see.”
Lam’s push to introduce the extradition law is just the latest cause for alarm over China’s waxing influence over the autonomous territory. In 2015 Chinese police abducted several Hong Kong booksellers who had sold anti-Chinese books. Then in October 2018, Hong Kong’s government refused to renew the work visa of the foreign correspondent of the Financial Times after he helped to host a forum for democracy advocates in Hong Kong.
Most recently in April, jail sentences were passed down to leaders and activists involved in the Occupy Protest movement of 2014, another large-scale protest that covered key areas of Hong Kong for several weeks. This series of events has left financial industry participants concerned that the damage to Hong Kong’s international image is continuing to accumulate.
“I think it [the attempt to put through the extradition law] has already damaged Hong Kong’s appeal whether it goes through or not,” a senior executive for another family office told AsianInvestor and FinanceAsia in an email. “It’s the same as not renewing the FT journalist's visa, jailing pro-democracy leaders, banning parties and turning a blind eye to abduction.”
Some financial industry professionals also warned that the tensions Lam's government has created with this contentious legislation could bolster the credentials of rivals.
“As a finance centre Hong Kong will always survive, but again we appear to be making it easier for Singapore and Shanghai to compete,” Citi's Aldcroft told AsianInvestor and FinanceAsia.
This view was echoed by others. “Everything that’s bad for Hong Kong is seen as good for Singapore,” said the law partner.
Alison Tudor-Ackroyd, Jaycee Man, Kenan Machado and Joe Marsh also contributed to this article