What has Just happened?
At the end of last month, Hong Kong passed the national security law, a new piece of Beijing backed legislation that allows for the extradition of Hong Kong citizens to the Chinese mainland. Democracy advocates, human rights groups, and foreign governments have lined up to condemn the bill as a sign of China’s growing stranglehold over Hong Kong. It leaves some of the world’s largest businesses facing an unenviable choice: between losing out on the island’s unique financial possibilities and tacitly supporting an expansionist government.
What does this mean?
Hong Kong has the world’s thirty-first largest economy by GDP, putting it ahead of Malaysia, Denmark, and Columbia, and just behind fellow island juggernaut Singapore.[1] For years, its position as a hub for corporate enterprise has been undisputed; the new national security law has thrown this assumed knowledge into question.
By 2030, it is estimated that Hong Kong’s growth will more than halve, the result of the erosion of the territory’s economic climate.[2]
Despite a healthy performance on the stock market since the law was passed, China’s efforts to ‘stabilise’ Hong Kong have left businesses worried about their future. Fears of a potential monopoly of state sponsored businesses in the territory led 76% of respondents in an American chamber of commerce survey to say they were concerned about the situation in Hong Kong.[3]
Although it is unlikely that major international companies will leave the territory altogether, plans are already in place for some security firms to move operations to another disputed territory: Taiwan.[4] An exodus of companies from Hong Kong risks infuriating the Chinese government and heightening already fraught diplomatic tensions.
How does it impact the legal sector?
China’s forays into Hong Kong will undoubtedly lead to significant legal strain. Already, Britain has offered citizenship to millions of people in Hong Kong, whilst President Donald Trump has said the American Government now considers Hong Kong part of China,[5] a decision likely to frighten investors and law firms.
In addition, tech outfits fear that the famous great firewall of China - a form of state-wide internet censorship that blocks sites such as Facebook and YouTube – will be imposed on Hong Kong.[6] Last year, Facebook opened a new office in Hong Kong, and the legality of an imposed internet blackout will be hotly contested.
Hong Kong is likely to experience diminished personal freedoms, as well a period of relative economic stagnation. Law firms have begun helping companies to draw up mitigation plans, should the new security law prove as detrimental to the territory’s sovereignty as it appears.[7]
Additional concerns over data security and government censorship leave law firms in a tough spot.[8] For the Chinese government, the attempts to quell disquiet in Hong Kong may turn out to have disastrous long-term implications and risk stripping Hong Kong of the conditions that allowed the territory’s economy to boom.
Written by Jonathan Cook
Assessing Firms:
The topic concerns all international commercial law firms.
References:
[1] World Bank, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?most_recent_value_desc=true, 2020
[2] S&P Global Ratings, ‘Economic Research: Hong Kong’s Trend Growth to More Than Half by 2020’, (July 20th, 2020)
[3] The Economist, ‘Why Businesses in Hong Kong Should Be Worried’, (July 18th, 2020)
[4] Miaojung Lin, Samson Ellis, Kiuyan Wong, ‘Global Banks Look to Taiwan Expansion in Shift Away from Hong Kong’, Bloomberg, (July 21st, 2020)
[5] Michelle Toh and Laura He, ‘The US is Treating Hong Kong as Mainland China: Business is Starting to Do the Same’, CNN Business, (July 16th, 2020)
[6] Brenda Goh, Pei Li, ‘US Tech Giants Face Hard Choices Under Hong Kong’s New Security Law’, Reuters, (July 8th, 2020)
[7] Cannix Yau and Enoch Yiu, ‘National Security Law: Foreign Firms in Hong Kong Look at Plan B if Free Flow of Information Restricted’, South China Morning Post, (June 23rd, 2020)
[8] Primrose Riordan, ‘US Businesses Balk at Security Law but Most Opt to Stay in Hong Kong’, Financial Times, (July 13th, 2020)
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.