Threatens China Asia's financial center

China, Hong Kong, Security Law, Beijing

The Hong Kong Bar Association fears that this will set up a parallel law enforcement system in the financial metropolis. The law is another big step towards the fact that Hong Kong loses its special rights, which now distinguish it from other Chinese cities - and which makes it so attractive for international companies.

The countries of the seven largest industrial nations (G7) had recently expressed their displeasure with Beijing's plans in a joint statement. Earlier this week, EU Commission President Ursula von der Leyen warned that China risks “very negative consequences” if it continues to introduce this law.

The warning from the Leyens

Hong Kong has long been a paradise for the international economy - and not just because of the high quality of life and low taxes. One of the most important points is that although the metropolis formally belongs to China, unlike mainland China, it has a functioning legal system.

Judges decide on cases independently and are only obliged to comply with the law, security authorities have to answer for their actions. Law can be sued. There is freedom of the press and freedom of expression. Critics now see all of this endangered by the Security Act.

There are two main concerns for legal experts regarding Hong Kong's national security law. According to a summary of the law by the state news agency Xinhua, among other things, it provides for China to set up a national security office in Hong Kong to collect intelligence and deal with crimes against national security. What exactly falls under this is not specified.

The Hong Kong Bar Association has warned that this move would create a parallel law enforcement system where one part - the mainland security bureau - may not be subject to the usual legal scrutiny and accountability that Hong Kong law enforcement has.

The law also provides that all other laws - including the right to freedom of expression, assembly and freedom of the press - would be subordinate to the national security law. So what if a company writes a critical analysis, is that already considered a violation of the Security Act?

Business representatives observe that the situation in Hong Kong has continued to deteriorate over the past few years. "The alignment with mainland China has been noticeable since today's President Xi Jinping took office and is taking place in different steps," says Wolfgang Niedermark, head of the German Chamber of Commerce in Hong Kong, in an interview with Handelsblatt. “We are all aware of this erosion process. We are concerned about the long-term stability of 'One Country, Two Systems' ”, says Niedermark.

The “one country, two systems” formula is in jeopardy

Beijing committed itself to this principle when Great Britain returned Hong Kong in 1997. It was supposed to guarantee that while Hong Kong is formally part of China, it has its own laws.

Others are also observing the erosion of this promise. Since China's head of state and party Xi Jinping took power, according to Chris Patten, the last British governor of Hong Kong, "the screws in Hong Kong have gradually been tightened". This manifests itself on various levels, which are increasingly affecting companies directly.

In the past few years and weeks there have been several incidents in which companies in Hong Kong were put under political pressure to take positions in the interests of the central government. Beijing usually presses companies through its state media and calls for a boycott if the company does not behave as it should.

According to observers, the number of incidents increased with the protests last year. "It's definitely been a lot more intense and explicit since last year," said Antony Dapiran, a Hong Kong lawyer and author of a book about the protests. Companies will have to get used to it, he believes. "That's nothing that can stop them," said Dapiran

The most recent example is the UK banking house HSBC. After the company was put under public pressure to comment positively on the security law, HSBC Asia boss Peter Wong had himself photographed signing a petition for the controversial security law. The photo was subsequently published on Chinese social networks. There was also influence at other companies.

The pressure from Beijing is increasing

According to media reports, Chinese banks asked their Hong Kong employees to sign the petition for the security law. Last year, the Hong Kong airline Cathay Pacific fired employees who had responded positively to the protests against Beijing's increasing influence. The four major European auditors Deloitte, EY, PwC and KPMG publicly distanced themselves from employees after they had supported the protests in Hong Kong with a newspaper advertisement.

According to diplomatic circles, European companies have also been pressured in recent weeks to make public statements in favor of the national security law. The German Chamber of Commerce Abroad in Hong Kong claims not to have heard of such attempts to exert influence. "German companies were not put under pressure to take a position on the security law," says AHK boss Niedermark.

They were also not asked to sign the petition. No German company signed the petition. There are currently no indications that other European companies have been put under such pressure as in the case of HSBC. This is a threshold that no one has yet crossed. “That doesn't mean that it won't come, but it hasn't been the case so far,” says Niedermark.

It is new that companies are worried about it at all. Attempts to influence companies were unknown in Hong Kong for a long time. Attempts to put companies under pressure with the help of state-controlled media, for example, have so far been particularly successful in mainland China.

In an interview with journalists, Chris Patten demanded that there must be consequences for the increasing pressure on international companies. "We let China get away with it all along," said the Briton. The Beijing government will continue with its methods if there are no severe sanctions.

The prominent Hong Kong publisher Jimmy Lai, who is one of Beijing's harshest critics, is also alarmed. He sees in the new security law an abolition of the Basic Law of the financial metropolis. "Without legal protection, business has no protection unless you bribe the officials who have power over you," he warns.

The fear of the company

Beijing and Hong Kong government officials have consistently insisted that companies shouldn't worry about national security law. But diplomats and foreign business representatives are not convinced.

"It depends on how the law is implemented," says AHK boss Niedermark. Beijing argues that it only affects “extremists”. "But companies are unsure whether this will affect employees of international companies in a few years", says Niedermark. Both diplomats and business representatives repeatedly express these concerns to government officials.

The security law is one of Beijing's most far-reaching encroachments in recent months and years. Before that, there were many small and large changes that German companies also felt.

The companies no longer see themselves as supported by the Hong Kong authorities in the way they have been for a long time. And in other areas too, such as education, freedom of the press and freedom of expression, elementary elements of democracy in Hong Kong were threatened long before the planned security law.

It was only in early June that the Hong Kong parliament passed a law providing for up to three years' imprisonment for anyone who insults or plays "distorting or degrading" the Chinese national anthem.

An increasing dominance of Chinese companies in Hong Kong has been observed for a long time. Over the past few years, their share has continued to grow. "Hong Kong is likely to become a Chinese offshore hub," said Alicia Garcia Herrero, chief economist for the Asia-Pacific region at analyst firm Natixis.

As a national offshore center, it could enjoy some tax breaks and leeway for dollar-denominated investments. But Hong Kong will no longer be a global financial center like it is today, in which most of the actors are global players, said Garcia Herrero.

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