Hong Kong’s New Security Law Brings Fresh Anxiety to Finance Hub

(Bloomberg) -- Hong Kong’s leader John Lee has spent the past year trying to revive the city’s business environment that’s been battered by pandemic curbs and China’s economic slowdown. His decision to enact a domestic security law risks undermining those efforts.

The planned legislation, outlined in a briefing by Lee on Tuesday, is more expansive than some business leaders were anticipating and threatens to exacerbate tensions with the US. While it’s too early to tell how banks and other big employers will ultimately respond, members of the finance community privately expressed concern over a potential chilling effect on open discussion of economic and policy issues.

Hong Kong’s push to pass its own security legislation lays bare the challenge facing city leaders. While President Xi Jinping has called on the city to retain the “distinctive status and advantages” that separate it from the mainland, the former British colony has also been tasked with eliminating dissent against the ruling Communist Party. 

A crackdown under a Beijing-drafted security law imposed in 2020 — a precursor to plans for the local measure — has diminished Hong Kong’s freedom of expression and the legal system foundational to its reputation as a frictionless global hub. The city’s future as an international finance center will partly depend on how the government applies the law.

“The law is generating lots of uncertainty for the Hong Kong business community, in ways that could do damage to Hong Kong’s reputation as a leading global business hub,” said Thomas Kellogg, a law professor at Georgetown University in Washington. 

Provisions warding against contact with overseas organizations could narrow the space for chambers of commerce, think tanks and economic research outfits to talk freely, he said: “The free flow of information is the lifeblood of any vibrant market economy.”

That document landed in the same week a law passed allowing the enforcement of mainland Chinese court rulings in Hong Kong in civil and commercial disputes — a move that could benefit litigators but fanned fears that Beijing’s legal framework is bleeding into the former British colony’s common law system.

A spokesperson for the Hong Kong government said the new security law would improve the city’s legal system while protecting “individual rights and freedoms.” “Members of the public need not worry that they will unwittingly violate the law,” the spokesperson said.

For decades, Hong Kong’s efforts to pass its own security legislation, as mandated by Article 23 of its mini constitution, were thwarted by fierce public opposition. The Beijing-drafted law has eradicated such protests in the city, meaning Lee will face little opposition.

Behind closed doors there are concerns. Article 23’s introduction stoked renewed anxiety among executives of crossing a red line unintentionally, according to one person at a global fund based in Hong Kong, who declined to be identified discussing sensitive matters. 

The law was expected to be a mini version of Beijing’s legislation but the proposal makes it seem more expansive, said the person who handles government relations. That’s prompted a flurry of questions from executives about whether they need to adjust business practices, the person said. 

One barrister said the ambiguous definition of state secrets meant people risked breaching the law by commenting on the city’s economic development. 

Secretary for Security Chris Tang said the government would consider including adding a “public interest” exemption in the theft of state secrets offense, during a session of the legislature on Tuesday. People had flagged that leaks made in “significant public interest” shouldn’t be subject to the law, Tang added. 

The suggested wording prohibits the acquisition or publication of potentially harmful information relating to the economic and social development of the city, as well as major policy decisions. That puts journalistic work under the spotlight. Australian reporter Cheng Lei said she was jailed in mainland China for releasing an official document minutes before the government, an act considered to be leaking a state secret.

Two traders, who asked not to be identified as they weren’t authorized to speak publicly, shrugged off any immediate implications, saying they were already used to dealing with mainland China’s broad definition of state secrets given daily cross-border correspondence with colleagues. Almost anything can be a state secret these days, one said. 

Other concerns stemmed from how the new security law would be implemented. Hong Kong Rule of Law Monitor, a group of city lawyers based overseas, said in a statement they found the proposed procedural changes “more terrifying” than the offences. The document calls for “eliminating certain procedures” to ensure “timely trials,” which could result in denying defendants certain rights, they noted.

Hong Kong’s guarantee of free speech, enshrined in the Basic Law, could also be further eroded. The external influence provisions seemingly target any “foreign criticism of government policy,” said Michael C. Davis, a human rights scholar and professor of law and international affairs at Jindal Global University in India. 

“What foreign universities and scholars will want to take the risk of serious academic engagement or funding in Hong Kong on political issues?” he added. That focus was particularly concerning given many business people have ties with overseas bodies, said one executive who declined to speak publicly on sensitive issues. 

Hong Kong’s push to assert its legal powers beyond the city’s borders also risks flaring geopolitical relations — something likely to displease investors. Tension in the US-China relationship is the top source of business challenges over the coming 12 months, according to an American Chamber of Commerce in Hong Kong survey published this week.  

“If the law is used to threaten, for example, US citizens, then the US government will certainly respond to that infringement on its sovereignty,” added Kellogg, the legal expert. The government’s decision to put HK$1 million ($127,900) bounties on the heads of overseas activists wanted for security crimes has already been condemned by Washington. 

“The United States will look carefully at the final law to understand implications for US citizens, investments, and companies,” said a US Consulate General spokesperson. The US will speak out against any efforts to suppress freedoms or engage in “transnational repression,” they added.

While Hong Kong’s proposal criticizes the US and UK for their efforts to step up spying operations on China, it also made repeated reference to precedents set in national security laws in countries where activists have fled, including Canada and Australia. 

Such parallels are misleading as Hong Kong lacks the safeguards of the UK and US judicial systems, said Eric Yan-ho Lai, a research fellow at Georgetown Center for Asian Law. “The chief executive has the ability to designate judges and the government can prevent access to lawyers by banning foreign lawyers,” he added. 

A government spokesperson said such comparisons were designed to help “the public to understand what the problems are.” 

Many of the concerns around the law echo anxieties voiced after China imposed the national security law, including that it would thwart the city’s appeal as a financial hub. So far the city’s vast capital markets and its function as a gateway to China’s massive economy have proved resilient, even if the hub’s global reputation has been eroded. 

Still, for business people already concerned about the national security law’s impact on their safety, as well as the government’s reach into their private lives, Article 23 is a fresh worry, said Andrew Collier, managing director at China-focused Orient Capital Research. 

To them, the new security measure is just going be seen “as another nail in the coffin,” he added.

--With assistance from Siuming Ho, Shirley Zhao, Kiuyan Wong, Sarah Zheng, Shawna Kwan, Xinyi Luo and Alan Wong.

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