The newly imposed national security law in Hong Kong looks set to inhibit opinions of investment professionals working in the territory and undermine free flow of information. Both are fundamental to the smooth operating of an international financial centre.
The new law was approved unanimously by the National People’s Congress (NPC) without any public consultation on June 30, and was imposed upon Hong Kong on the same night without any of its politicians having a say – or even getting a look at the new rules.
As it transpires, the new law tackles crimes under the four categories of secession, subversion, terrorism, and collusion with foreign forces. It also fulfils the purpose of the extradition bill that began the protests in Hong Kong, by letting Beijing to force Hong Kong criminal suspects face trials in mainland China.
International criticism to the new law has been swift and widespread, for many reasons.
welcoming Hong Kongers
First, it appears to fatally undermine the “One Country, Two Systems” principle enshrined in the Basic Law, which was meant to last until 2047 after Hong Kong was transferred from British to Chinese rule in 1997.
For a start, the new law criminalises public proclamations of independence or anti-China government claims – curtailing the freedom of expression guaranteed under the Basic Law. They also operate outside of Hong Kong's judicial system; the chief executive gets to appoint judges to try national security cases.
In addition the new rules are vaguely defined – which practically allows Beijing to apply them to whatever situation it wishes. For instance, simply chanting the slogan “liberate Hong Kong, revolution of our time” is against the new law, the Hong Kong government said in a statement on July 2.
Effectively this undermines free expression and criticism. Experts and financial professionals will be increasingly loathe to offer unvarnished views about China-related subjects, as will financial analysts and economists based in Hong Kong. And stock traders could well wonder whether they could be accused of being ‘subversive’ for shorting the stocks of state-owned firms.
Perhaps most egregiously, the new law can be applied to non-Hong Kong individuals, wherever they may be. Practically speaking, individuals living anywhere on earth risk arrest upon arriving in Hong Kong or China if they have said or done anything that might run afoul of the broad and ill-defined law.
This will likely have a chilling effect on the city's foreign relations and the ability of Hong Kong-based companies to attract international talents. It'll also likely cause further outflows of wealth, beyond the money that Hong Kong wealthy individuals have already shifted.
Other markets are taking note. Japanese prime minister Shinzo Abe said on June 20 that his country would “actively promote” the entry of financial professionals from Hong Kong to help make Japan a premier financial centre in the region. It is now considering visa waivers, tax advice and free office space for asset managers, traders and bankers from Hong Kong.
Taiwan has similarly prioritised attracting disaffected Hong Kong citizens, while the UK has offered residency, and then citizenship, to up to three million Hong Kongers holding British National Overseas passports, dating from the time when the UK was still in charge. Australia is preparing plan to offer support to Hong Kong residents.
The US had also said it will bar the export of weapons and sensitive technology to Hong Kong, as it revokes the territory’s special trade status, while the US House of Representatives has approved new sanctions that penalise banks doing business with Chinese officials. That bill will need to be approved by the Senate and signed by President Donald Trump.
Despite this fallout, financial institutions and conglomerates in Hong Kong have lined up to proclaim their support for the national security law.
Early last month, HSBC said in a post on social media account that “it respects and supports all laws that stabilise Hong Kong’s social order and boost the economy to develop prosperously”. Standard Chartered and Jardine Matheson voiced similar support for the legislation.
Meanwhile, financial secretary Paul Chan said in a blog post on June 28 that the banking and wealth management sectors generally agree that the new law would help restore social order and safety and create a stable and favourable social environment for businesses, investments and living.
HSBC's supportive statements for the new law have drawn harsh criticism from western politicians and investors. It isn't difficult to imagine there being cynical motivations behind such words. These organisations are, after all, keen to expand into China and need Beijing's largesse to do so. Failing to stand up for policies that it overtly favours could well hurt such aspirations.
At any rate, the sangfroid of these organisations has yet to bear fruit. Major clashes broke out between police and thousands of defying protesters on Wednesday (July 1), the first day of the national security law’s implementation. In the end 370 people were arrested, 10 of whom were arrested on suspicion of offending the national security law.
As one political commentator said, the new law may quell the actions of many dissidents but it risks making the actions of a committed hardcore even more radical, creating martyrs of those who get severely punished.
By coming down so heavily on embarrassing protests and criticism, China risks undermining Hong Kong’s skilled labour force and diminishing its financial status, and it removes a vital societal pressure valve – the right to protest. The consequences could prove painful, and irrevocable.