Businesses swallow ‘bitter medicine’ of Hong Kong security law

When 2m people took to Hong Kong’s streets last year to protest an extradition bill that would have allowed criminal suspects to be sent to mainland China, many bankers, lawyers and executives at global companies quietly backed them. 

But as violent protests have flared up again in recent days after Beijing said it would impose a national security law on the territory, that support has waned.

Several executives working in professional services in Hong Kong, including law firms, global and Chinese-owned banks, have told the Financial Times that they will stomach the new law — which critics fear could severely curb civil liberties in the financial centre — if it returns calm to the city.

“Do people here like the national security law?” said one senior lawyer at a global law firm in Hong Kong, who has come to reluctantly support the national security law. “It’s like asking, ‘Do people like bitter medicine with terrible side effects?’ The medicine will hurt for sure but we have no choice but to take it now.”

The change of heart comes after the city’s global image was transformed from a safe and flourishing centre to business to one of masked protesters and streets cloaked in tear gas.

The sentiment among some finance professionals has stuck, despite the threat that the US will remove Hong Kong’s special trade status that distinguishes it from mainland China.

Scant detail has been released on China’s national security law legislation, which was proposed last week at the National People’s Congress, the Communist party’s annual gathering of lawmakers in Beijing. The law, which is set to be approved by the rubber stamp parliament on Thursday, would prohibit “splittist, subversion, terrorism, any behaviour that gravely threatens national security and foreign interference”.

The move will give China’s Ministry of State Security, the country’s main domestic and external intelligence service, a hand in controlling the territory, said one person close to senior officials in Beijing.

“They’ll track people, listen to people and if people are showing signs of stepping out of line, they will take action against them,” the person said. “This is intended to prevent unrest from flaring up again, nipping the unrest in the bud before it happens.”

The American Chamber of Commerce in Hong Kong warned that the bill raised worrying questions about the rule of law in the city and its status.

“A Beijing inspired national security law leaves open an interpretation of how such an act will be enforced. How will it affect the rule of law? Will it mean limiting online, press and personal freedoms?” said Tara Joseph, president of AmCham, in a statement.

But companies in Hong Kong are desperate for an end to the turbulence, which has tipped the economy into a deep recession and severely disrupted the city’s financial sector. It has also become harder for businesses to recruit and keep talent.

“Hong Kong is dying,” said one senior executive at a global bank.

Stuart Witchell, the Asia-Pacific head of business advisory group Berkeley Research, said businesses had already been reconsidering their presence in the territory as a result of last year’s protests.

“Depending upon the volatility ahead, very likely we will see more senior management leave Hong Kong,” Mr Witchell said. “We may see not only foreign firms but some Hong Kong businesses assess their future plans.”

Banks such as HSBC and Standard Chartered, two of the sector’s largest employers in the city, have largely stayed silent as they attempted to strike a balance between angering Beijing and drawing the ire of the protesters. Behind closed doors, however, executives would often express sympathy for the protesters in the early days of the demonstrations.

Today, however, many multinationals and banks are willing to accept Beijing’s plan, said James Tunkey, chief operating officer at I-OnAsia, a Hong Kong-based risk advisory firm.

Police detain hundreds of protesters in Hong Kong’s central business district on Wednesday

Police detained hundreds of protesters in Hong Kong’s central business district on Wednesday © AFP via Getty Images

“We see scenarios where the developments in Beijing over the past week will be well received in boardrooms,” he said. “What we’re seeing is a path that looks beyond the 50-year timeframe.”

The relationship between Hong Kong and Beijing is governed by the “one country, two systems” model, whereby the city was allowed to retain a high degree of autonomy for 50 years following the handover from British to Chinese rule in 1997. But members of the Hong Kong establishment now argue that stopping unrest and ensuring the city’s status as an international finance hub is paramount.

The law “will bring Hong Kong society back to stability, and international financial activities will continue to be carried out in Hong Kong without worries”, said Joseph Yam, the first chief executive of the Hong Kong Monetary Authority and a member of the city’s Executive Council.

Mike Pompeo, US secretary of state, said on Wednesday that the US no longer considers Hong Kong autonomous from China, sparking concerns that Washington will revoke a special trade status granted to Hong Kong. But finance professionals have said that such a move, while highly symbolic, is still secondary to ridding the city of the chaos that has plagued it for months.

“There may be added scrutiny on payments to Hong Kong, but fundamentally we do not see a reason today to expect any restrictions on capital flows between the US and Hong Kong,” said Michael Spencer, Deutsche Bank’s Asia Pacific chief economist, on the potential loss of Hong Kong’s special status.

Hong Kong acts as a platform for moving capital in and out of China, with large state-owned Chinese banks rubbing shoulders with big western banks such as Citi and Goldman Sachs. One top executive at a state-owned bank said the city would no longer be useful to Beijing without an intervention such as the national security law. “People are making bombs. These are serious threats to our staff,” the person said. “If things continue like this, can anyone do business here any more?”

But acceptance of such encroachment has not come easy to people who, only a year ago, could not have imagined supporting such a law.

“Painfully, I’m willing to take the medicine now, despite the side effects,” said the senior lawyer.