Foreign firms learn to adapt to National Security Law

July 13, 2020 08:09
Chief Executive Carrie Lam signs the promulgation of the national security law which took effect upon gazettal on June 30. Photo: HK Govt

Like everyone else, foreign companies are studying the new National Security Law (NSL) with fear and uncertainty. How should they adapt to the new reality of Hong Kong ?

Operating here will become similar to working in the mainland. “What President Xi Jinping most cares about is loyalty and control,” said a European business consultant. “For him, they are more important than business.”

This means that companies and their employees must support, and be seen to support, the government. They must not allow their staff to join protests, in person or electronically. They will dismiss those who do. Since the NSL has a global reach, companies will have to supervise their operations and staff outside Hong Kong to ensure that they do not contravene it. Their executives abroad must be careful whom they meet and what they say, especially in public.

One British lawyer said that her clients were most concerned about two aspects of the law. “They wonder if their data and material will be safe.” Under the law, the police can demand access to data which they deem to be a threat to national security.

“The second anxiety concerns the independence of the judiciary,” she said. “If your opponent in court is an important Chinese state firm, will you receive a fair hearing? Will the judge treat Chinese and foreign companies equally? If not, that would be a game-changer.”

The law limits information critical of China and Chinese companies. Unsure of the scope of the law and how it will be applied, the media, publishers and writers of research reports will censor themselves. An analyst with a U.S. investment bank said that he reserved criticism of such companies for face-to-face meetings with clients. “If we write them down, the content may be leaked or hacked,” he said.

“A person who provides state secrets or intelligence concerning national security for a foreign country or an institution, organisation or individual outside the mainland, Hong Kong, and Macao of the PRC shall be guilty of an offence,” states Article 29 of the NSL. Is negative information about a government company that has not been published a state secret?

In most difficulty are U.S. companies who face the risk of conflicting sanctions from both their own and the Chinese governments. Last Thursday, the U.S. government imposed visa and asset sanctions on several Chinese officials, including Politburo member Chen Quanguo, for what it called "gross violations of human rights" in Xinjiang.

Last week the Financial Times reported that U.S. and European banks here were conducting emergency audits of their clients to identify Chinese and Hong Kong officials and corporates that could face U.S. sanctions under the Hong Kong Autonomy Act. The legislation awaits the signature of President Trump to become effective. If someone is sanctioned, the banks must cut him off, the newspaper quoted a person at one of the banks as saying.

Paragraph four of Article 29 of the NSL says that it is an offence to impose sanctions or blockade, or engage in other hostile activities, against the HK SAR or the PRC. How is a U.S. bank with an account of a Chinese official sanctioned by Washington to square this circle?

A European businessman with a long experience in Asia said that, after the NSL, foreign firms would not leave Hong Kong in the short term. “The city has much to recommend it – proximity to China, easy reach to Asian countries, all the professional service you need and a specialised staff built up over many years. A company may wish to move – but will these staff members be willing to go?”

How about attacks on their data systems and controls on information? “They are used to working in the mainland, Russia and Saudi Arabia, with controls on information and attacks on their data/e-mail. They have the needed systems in place. If they cannot obtain information they need in Hong Kong, their head office can obtain it from elsewhere,” he said.

He said that the biggest impact of the NSL will be on academic, journalism, publishing and information. “If civil society changes and people become less friendly and open, Hong Kong will not be such an attractive place and expats will not want to work here. This is happening in academia. Hong Kong institutions are declining foreign partnerships they would have accepted before; more subjects are sensitive,” he said.

Foreign companies here will have to hire those who understand mainland as well as Hong Kong law and those with good connections in Beijing. They need people to advise them on the legal, regulatory and personnel changes in the mainland that may be partially reported in the media, if at all. They need a bridge to the Beijing government.

The world has changed. Now, we must learn to live in it.

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A Hong Kong-based writer, teacher and speaker.