Businesses in Hong Kong fear collateral damage from security law

Beijing’s new national security law for Hong Kong is more draconian than many businesses had feared, especially clauses that could be used to target foreign citizens, the handling of “state secrets” and data security, warned lawyers, academics and investors.

The ability under the law for security agencies to arrest foreign nationals, including businesspeople, and send them to the mainland for trial as well as other uncertainties could raise risk premiums in the city, they said.

But others argued the law could bring greater stability after a year of pro-democracy street protests in the Asian financial hub by reducing confrontations between police and demonstrators in Hong Kong.

“Everybody is scared, including the biggest financial institutions,” said Jiangyu Wang, a law professor at the City University of Hong Kong, who said he had been consulted by international banks on how to prepare for the new law.

Passed on Tuesday by China’s rubber stamp parliament, the legislation targets crimes such as subversion, secession, terrorism and colluding with foreign elements to endanger national security. Penalties include jail terms of up to life imprisonment.

Many of the articles are vaguely defined, lawyers said, such as Article 29. This states that anyone who “steals, spies, obtains with payment, or unlawfully provides State secrets or intelligence concerning national security [to] a foreign country or an institution, organisation or individual . . . shall be guilty of an offence”.

This could make it tricky for foreign businesses dealing with Chinese government entities and state-owned enterprises, lawyers said. Information obtained about them could be regarded as a “state secret”.

Antony Dapiran, author of a book about the Hong Kong protests and a former corporate lawyer, said the “bottom line” for foreign business in Hong Kong was whether they were “able to enforce a contract against a Chinese company”.

While this was not yet in question, pro-Beijing businesses would feel emboldened by the laws, he said. “Companies operating here will increasingly find themselves under pressure to . . . show their loyalty to the Chinese government.”

A number of foreign businesses, such as Hong Kong’s longstanding conglomerates Swire and Jardine Matheson as well as global bank HSBC, have already publicly backed the law, while the Hong Kong General Chamber of Commerce has argued the legislation will “restore stability” to the territory. 

Another source of concern for businesses was that the law applied to individuals anywhere, whether they were in Hong Kong or overseas or were Chinese or foreign nationals.

Davyd Wong, a corporate lawyer in the city, said business executives or others who had been critical of China might be wary of attending a conference in the city or even transiting through Hong Kong’s airport.

The Canadian government on Wednesday warned its citizens in Hong Kong they would be “at increased risk of arbitrary detention on national security grounds and possible extradition to mainland China” as a result of the laws.

Companies, such as tech groups, fear they will also be asked to hand over user data or be ordered to conduct covert surveillance to assist national security investigations, lawyers said. The law gave the Hong Kong police the ability to order social media accounts to be frozen or deleted. Twitter, Facebook and Google all have offices in Hong Kong.

“It’s not about where the data is or where your service is provided. It’s about how much leverage you can get over the company to comply,” said a Beijing-based lawyer who asked not to be named.

The other risk for business was the international fallout from the law, with the US threatening to sanction individuals in Hong Kong and China who were responsible for its introduction.

If banks in Hong Kong complied with the sanctions and refused to allow sanctioned individuals to do business with them, they could be in violation of the security law. “This puts business in an extremely difficult position,” said Professor Wang.

Jun Bei Liu, a portfolio manager at Tribeca Investment Partners, said Hong Kong would remain a financial hub given its access to mainland China. But investors would place a higher risk premium on the city while business would increasingly look for alternative venues for regional headquarters.

“Corporates and multinationals will think twice,” she said.

Others said such fears were overblown. David Donald, a law professor at the Chinese University of Hong Kong, said Beijing needed a global financial hub as long as the renminbi was not an international currency.

“The economics mean that China does not have the slightest incentive to diminish Hong Kong’s prosperity,” he said.

An asset manager in Hong Kong said mainland clients, who were previously fearful of speaking Mandarin in public in the territory owing to the backlash against China, were looking to increase their investment in Hong Kong after the law came into effect.

“Beijing wants Hong Kong to work,” one senior Hong Kong executive said.