How Will The Hong Kong Security Law Affect It's Position As A Global Financial Hub

By Niamh Neville

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The controversial Hong Kong National Security Law, passed on the 30th of June 2020, has given Beijing unprecedented powers over Hong Kong. The new law’s provisions, which include 66 articles, are aimed are quelling dissent against both the HK and Beijing government. The legislation will override Hong Kong basic law, which had safeguarded the high degree of autonomy and the ‘one country, two systems’ framework since the handover in 1997.

Will this effect businesses?

Hong Kong is a key financial hub, with nearly 1,500 companies situating their regional headquarters within the city. As the Asian financial powerhouse, international investors have benefited from high standards of regulation and corporate governance as well as its judicious legal and monetary systems. Hong Kong’s crucial role within the financial markets is its ability to act as a vital intermediary between China and the globe. As tensions build due to China’s interference in Hong Kong’s government and legal systems, uncertainty has risen over whether Hong Kong can continue to remain a global financial centre as international governments and investors lose faith in Hong Kong’s governance and degree of autonomy.

Hong Kong’s legal privileges, which have given them access to the global financial systems, are dependent on the global faith in its regulatory system. America’s 1992 Hong Kong Policy Act, which has been threatened to be revoked in the wake of the recent events in HK, allows access to hard currency and is seen as a distinct customs zone to China, among other privileges.

While major banks have sought to suppress fears over the recent enacting of the Security Law, as Swire, Jardine Matheson, HSBC have all publicly backed it, there are legitimate concerns about uncertainty as Hong Kong seemingly begins to merge with China. According to the Financial Times, nearly a third of US Companies are considering shifting parts of their business’ out of the city, with 76% of 183 businesses surveyed by the American Chamber of Commerce saying they were concerned about the law. (see Riordan, FT)

Why is this important?

The major problems surrounding the implementation of the law is the uncertainty. Not only will the legislation override Hong Kong basic law, the vagueness of the articles gives critics reason to suggest that it could be used to undermine the independence of Hong Kong’s judiciary and rule of law. One particular niche in Hong Kong commercial law is arbitration. However, as the law begins to undermine Hong Kong’s rule of law and therefore their ability for impartiality, business may move to other Asian financial centres, such as Singapore, which has long been heralded as the alternative Asian financial hub.

However, the media and technology markets are more likely to be effected. The New York Times has already moved a third of its Hong Kong staff to South Korea due to fears over the law interfering with communication and freedom of speech. While the law allows the police to access social media user information when investigating national security cases, companies such as Google and Facebook have paused any new demands for data requests by the government. However, if they are not compliant with the new security law demands, the Hong Kong government has warned of legal ramifications. These developments are another symbol of the escalating tensions between the US and China, which in many cases, Hong Kong acts as a proxy contest between the two powers.

Lawyers will have to act pre-emptively and prepare for a volatile situation. Many foreign banks have offices in the hub, and American sanctions could leave clients and partners exposed, with consequences including the freezing of property or stopping access to the US financial system. Therefore, compliance will continue to become more complicated as companies begin emergency audits to estimate what clients could face sanctions. However, it is important to note that as the renminbi is not an international currency, Beijing doesn’t have the incentive to diminish Hong Kong’s prosperity as an international financial hub. Therefore, unless there is a strong international retaliatory action, any changes will be gradual and law firms and businesses will be able to adjust once further information about how companies can ensure compliance with the new law.

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Key Takeaways

· There are fears that Hong Kong is becoming merged with China

· The fear is that the law will affect communications and freedom of speech

· Unless there is strong international retaliation, firms will gradually comply with the new laws

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References

Hernández, Javier C. “Harsh Penalties, Vaguely Defined Crimes: Hong Kong's Security Law Explained.” The New York Times, The New York Times, 1 July 2020, www.nytimes.com/2020/06/30/world/asia/hong-kong-security-law-explain.html

Lewis, Leo. “Banks in Hong Kong Audit Clients for Exposure to US Sanctions.” Subscribe to Read | Financial Times, Financial Times, 9 July 2020, www.ft.com/content/7b2b593e-5029-48b5-9c27-ff7f5473d66e.

Paul, Katie. “U.S. Tech Giants Suspend Review of Hong Kong Data Requests, TikTok to Pull Out.” Reuters, Thomson Reuters, 7 July 2020, uk.reuters.com/article/uk-facebook-whatsapp-law-hongkong/u-s-tech-giants-suspend-review-of-hong-kong-data-requests-tiktok-to-pull-out-idUKKBN2471E5

Riordan, Primrose. “US Businesses Balk at Security Law but Most Opt to Stay in Hong Kong.” Subscribe to Read | Financial Times, Financial Times, 13 July 2020, www.ft.com/content/714309f7-c01d-4c16-bc55-a20255dff653

Ruehl, Mercedes. “Facebook, Google and Twitter Block Hong Kong from Accessing User Data.” Subscribe to Read | Financial Times, Financial Times, 6 July 2020, www.ft.com/content/08e9c0f4-132c-4097-a8df-59094befa57b.

“Why Business in Hong Kong Should Be Worried.” The Economist, The Economist Newspaper, www.economist.com/china/2020/07/18/why-business-in-hong-kong-should-be-worried.