03 June 2020 – Brasia Limited
China is to define a new national security law for Hong Kong. Will this impact business in the city?
At the end of May, after a 3-month delay due to the pandemic, the Chinese National Congress met in Beijing to define several political points. At this annual meeting, the congress decided that it will impose a national security law in Hong Kong. According to the committee, this law will prevent and punish any conduct that seriously undermines the region’s national security, including separatism, subversion of state power, terrorism, and activities by foreign forces, which may interfere with Hong Kong affairs.
Before we get to this point, it is important to understand Hong Kong’s history and the concept of “one country, two systems” which Hong Kong adopts in relation to China. On July 1, 1997, when Hong Kong returned to China, after being a British colony for over 150 years, “Basic Law”, a kind of Hong Kong mini-constitution, came into force. This Basic Law contains 160 articles, covering all aspects of the local constitution, such as, for example, the authorization for Hong Kong to enjoy a high degree of autonomy, with executive, legislative and judicial powers independent from China (article 2), continuity the capitalist regime in Hong Kong guaranteed for 50 years (article 5) and the continued adoption of common law, based on English law (article 8). In other words, even though Hong Kong returned to China, it continues with its laws, financial system and its own regime.
Such a decision by China to establish the security law for Hong Kong is seen by many as a contradiction to the mini-constitution of the special administrative region, since Article 23 provides that “The Hong Kong Special Administrative Region will enact laws on its own to prohibit any act of treason, secession, sedition, subversion against the Central Government, or theft of state secrets, to prohibit foreign political organizations or bodies from conducting political activities in the Region and to prohibit political organizations or bodies in the Region from establishing links with organizations or foreign political bodies”.
The US government has spoken out against the creation of this national security law. President Donald Trump mentioned last week that he would reconsider the new policy with the possibility of removing incentives for American companies based in Hong Kong. According to experts, such companies could consider moving to Shanghai, Mainland China, in search of lower costs, however such a change could not be advantageous since these companies would be subject directly to Chinese laws, and not to those of Hong Kong, damaging the US goal. The British government has also spoken out, potentially facilitating visas and issuing passports for qualified applicants.
But what will be the consequences for business in Hong Kong? Does this change Hong Kong’s position as a financial and business hub in Asia?
It appears that China has no intention of rescinding the autonomy of Hong Kong, its main source of foreign capital. September 2019 data shows that investments from Hong Kong represent two-thirds of foreign direct investment in China. It seems that Beijing’s motive would be to end the wave of protests that started in 2019 (demanding the withdrawal of an extradition bill) and inhibit any separatist movement in the territory, which does not interfere with the territory’s financial or legal system and it should not affect Hong Kong’s position as an intentional business hub.
Hong Kong is still an exceptional business hub
Despite the wave of recurring protests, Hong Kong is still an exceptional business center in Asia, with an excellent business infrastructure and highly skilled labor. In addition to English being one of the official languages, Hong Kong uses a commercial law system based on British common law, with which many companies in different countries are much more familiar and comfortable and which offers them more security than the courts of Mainland China.
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