When I was the Financial Times correspondent in Hong Kong from 2015 to 2018, I was regularly asked to brief international investors about the city’s political outlook. Each time, I told them that Beijing’s squeeze on Hong Kong was intensifying and foreign businesses would not be spared.
My remarks were often greeted with a combination of eye-rolls and grimaces. Not infrequently, indignant executives would reject my view with retorts such as “I can still say whatever I like at the Hong Kong Club” – the rarefied drinking hole of choice for the business elite.
So, when Beijing promulgated an alarmingly draconian and far-reaching national security law in Hong Kong this week, I was not surprised to hear some foreign executives brush it off as a purely political development that will ensnare troublesome protesters but leave businesses well alone.
I understand that investors need to maintain a level of self-deceptive optimism in order to embrace the inevitable risks of doing business. But it would be a grave mistake to ignore how much the new law changes Hong Kong.
To understand what lies ahead, investors need only read about what has been happening in mainland China and Hong Kong over the last few years: flagrant interference in foreign businesses, abductions of executives and a regulatory playing field tilted in favour of the Chinese Communist Party.
Hong Kong’s modern prosperity has been based on a unique combination of access to China’s fast-growing economy and protection from the Party and its repressive and capricious ways. But the national security legislation brings the Party’s methods of governing and law enforcement to Hong Kong.
That means Chinese secret police can now operate freely in Hong Kong, with no legal restraint. More importantly, by unilaterally imposing the law, Beijing has ended the pretence that Hong Kong’s government and regulators have any autonomy. The new “Basic Law” in Hong Kong is: what the Party says, goes.
The Party’s view of national security is not limited to squelching political activists. With economic performance so vital to the Party’s legitimacy, keeping control over the business world is a national security concern for Beijing.
That means ordering Chinese hedge fund managers not to sell shares when a market slide would be bad for the Party. And it means ordering foreign companies to sack their bosses because some of their employees support democracy, as happened last year in the case of airline Cathay Pacific, which is controlled by the UK’s Swire family.
When I was reporting in Hong Kong, it became commonplace for Chinese companies to tell the stock market that their CEO or chairperson had disappeared. Weeks, sometimes months, later they would announce that the executive had been “assisting investigations by mainland judicial authorities” – a euphemism for secret detention.
Some of China’s highest profile businesspeople suffered this fate, including Wu Xiaohui of Anbang and Guo Guangchang of Fosun. Xiao Jianhua, a well-connected financier, was even abducted from Hong Kong’s Four Seasons Hotel by Chinese agents and remains incommunicado to this day. Whatever they did or did not do, there was no illusion of due process.
It is not just Chinese tycoons at risk. In 2018, the Chinese government detained a low-profile Canadian businessmen, Michael Spavor, alongside Canadian think-tank researcher Michael Kovrig, in a brazen act of hostage-taking designed to force Canada to release Huawei executive Meng Wanzhou.
The problem is far bigger than the safety of executives. Other key planks in Hong Kong’s success are under threat, such as free access to information and the rule of law itself.
Beijing views the spread of potentially damaging news about the economy as a national security threat, even if it is true. Investment banks in Hong Kong have been self-censoring their research on China for several years. But the room for honest commentary will be further reduced. The new law explicitly calls for tighter management over foreign media organisations, many of which have their regional headquarters in Hong Kong and are an indispensable source of financial information about China.
Some foreign executives have argued that the rule of law can survive for commercial issues, even as Hong Kong’s individual freedoms are eroded. They point to the example of Singapore, where foreign investors steer clear of government criticism but still trust the courts to arbitrate business disputes. But the equivalence is false.
Most international companies in Singapore are there to do business with the rest of Asia, not with Singapore. Hong Kong is all about doing business with China. With Beijing taking direct control over Hong Kong’s governance, who will trust the city’s regulators to act impartially? Which foreign companies will dare to bring legal cases against Chinese state-owned companies or influential private entities?
Western investors must also face the heightened risk of political blowback back home. Hong Kong has gone from being the great connector of East and West to becoming the frontline of an emerging new Cold War. British bank HSBC is one of many that has been caught in the middle, attacked by Chinese officials for being slow to support the national security law and lambasted by British Foreign Secretary Dominic Raab for backing the legislation. The threat of US sanctions against Hong Kong sharpens the risk even further, given Washington’s ability to act as a global financial policeman.
Foreign executives are reluctant to publicly acknowledge these risks, for fear of attracting Beijing’s ire. But, even as they hope to keep their heads down, they should understand that Hong Kong has changed forever.
Ben Bland is a research fellow at the Lowy Institute and the author of Generation HK: Seeking Identity in China’s Shadow