Investors will lose as Beijing squeezes Hong Kong
Originally published in the Australian Financial Review.
International executives in Hong Kong were shocked last year when the Chinese Communist Party pressured Swire, the British-controlled conglomerate, to oust the chairman and chief executive of subsidiary Cathay Pacific for failing to squelch the democratic sympathies of some of its staff.
Rather than raise objections to Beijing’s meddling, however, many foreign businesses responded by banning their employees from sharing or even liking news stories and social media posts about Hong Kong politics.
This approach reflects a hope that business in Hong Kong can somehow carry on as normal, even while Beijing erodes the freedoms and autonomy that have underpinned the city’s prosperity since the handover from British control in 1997.
If the Cathay Pacific case failed to convince executives to open their eyes to what is happening, then Beijing’s latest move to force through a wide-ranging national security law in Hong Kong should focus their attention.
The proposed legislation, unveiled at the annual meeting of China’s rubber-stamp parliament on Friday, is designed to stop a repeat of last year’s unprecedented, rolling pro-democracy protests.
It is meant to outlaw separatism, subversion and “foreign interference”. But, as with similar laws in mainland China, it is likely to be used to crack down on legitimate government critics and peaceful protests. That will mean more prosecutions of even moderate opposition politicians and human rights activists.
The problem isn’t just the letter of the law but the manner of its introduction. Hong Kong was meant to implement national security legislation after the handover, but it failed to do so because of concerns about the impact on civil liberties. Now, Beijing is threatening to promulgate its own national security law in the city, bypassing Hong Kong’s Legislative Council.
That will take the Communist Party’s interference in Hong Kong’s supposedly autonomous system to a whole new level.
Of course, investors can live with authoritarianism, as many of the international companies that operate in mainland China already do. What they don’t like is uncertainty.
This dramatic intervention will shake confidence in Hong Kong’s independent legal system, which is the basis of the city’s role as a global financial centre and the main outpost for Australian business in Asia.
Once Beijing’s broadly defined view of national security concerns is applied to Hong Kong, it is inevitable that there will be many more cases when foreign businesses and their employees are caught, like Cathay Pacific, between their financial interests and the interests of the Communist Party.
Hong Kong, which thrived as a bridge between China and the West, will become a zone of contest, where sides must be chosen.
Fitch, the ratings agency, acknowledged this bleak picture last month when it downgraded Hong Kong’s debt because of the city’s “deep-rooted socio-political cleavages” and its “gradual integration” into China’s political system. The pace of that integration is likely to accelerate from here onwards.
The major restraint on Beijing has been Hong Kong’s role as China’s main financial centre. Much of the investment into and out of mainland China still flows through the city thanks to the rule of law, the Hong Kong dollar’s peg to the greenback and the city’s position as an independent customs territory.
Hong Kong’s unique international status is predicated on its autonomy from the Communist Party. As Beijing increasingly calls the shots in Hong Kong, pressure will grow in the US, Australia and other liberal democracies to curb its special treatment.
Foreign investors should try to warn their contacts in the Hong Kong government and Beijing about the risks to the city’s role as China’s financial valve if its governance structures are dismantled so quickly.
If they simply hope that the crackdown won’t affect them, they will be sorely mistaken.