Hong Kong companies fear being crushed between China and the US

US corporate groups say a warning from the Biden government about the risks of doing business in Hong Kong made their lives difficult as they face a full security crackdown from China.

Citing the introduction of a strict national security law on Chinese territory last year, the US “economic consultancy” warned on Friday of increased surveillance of business data and a threat to freedom of information from Hong Kong’s actions against the previously free media.

However, business people in the city said they were already aware of the risks and complained that the advice had made it difficult for them to convince their headquarters of the continued benefits of doing business in the area.

“The general tone is that business doesn’t need foggy bottom to tell them there are risks or how to manage them,” said one person close to US multinationals, referring to the US State Department.

The American Chamber of Commerce issued a statement shortly after the report was published, emphasizing the value its members attach to doing business in the city.

“This makes it even more complex to be an American businessman in Hong Kong,” said Tara Joseph, president of the American Chamber of Commerce, of the advice.

“It may have been a little worrying why it is being laid out that way, and people are wondering if Hong Kong is at increased risk of being crushed in US-China tensions if Hong Kong still has special qualities.”

Since the introduction of the National Security Law last year, prisons have been filling up, people deemed disloyal to China are being targeted by the government, and the civil service, media and education system are being rebuilt to match those in mainland China approximate.

But the shift has not resulted in an exodus of banks and overseas corporations eager to capitalize on China’s pandemic recovery and promise of financial market liberalization in the mainland.

An anti-government protester holds a tear gas canister during a protest in Hong Kong in October 2019 © Tyrone Siu / Reuters

A member of the US business community in Hong Kong said that while many were “appalled” that police were driving pro-democracy activists in unmarked vans, they did not see it as relevant to their business. “Over 90 percent of the Fortune 500 are in Hong Kong and they’re not going anywhere. China is still the world’s strongest consumer market, ”added a US banker in Hong Kong.

Joseph said there are a number of reasons why companies want to stay in Hong Kong. “[Hong Kong is] tax efficient, it’s an international hub and there’s a reason corporate legal teams are based here. “

However, US officials say China “cannot have both” and insist that the political situation will affect the business environment. Biden issued the recommendation in part because he felt companies weren’t taking escalating risks seriously enough, one told the Financial Times.

“Imposing a mainland system is simply incompatible,” said another US official.

Hong Kong companies have tried to adapt to the new security regime. They have trained staff how to respond when authorities search their offices and request documents without a court order. It is becoming increasingly uncomfortable to store data in the city and some have relocated their servers abroad.

The Hong Kong government is pursuing a number of other laws that have caused further inconvenience. She confirmed on Friday that she will be following tough anti-doxing laws, the details of which have worried US tech companies like Google and Facebook. Under the laws, which operate out of court, employees could face jail sentences for failing to remove material posted online on the orders of the city’s data protection officer.

Despite the US moves, there is no sign of China or the Hong Kong government changing course. “The words and deeds of foreign business leaders fully demonstrate that the business environment in Hong Kong after the implementation of the [security law]. On the contrary, it just got better, ”said Edward Yau, city trade minister.

A Chinese flag is hoisted in front of a light show celebrating the centenary of the Chinese Community Party and the anniversary of Hong Kong's return to Chinese rule on July 1 in Tamar Park, Hong Kong.

A Chinese flag is hoisted in front of a light show celebrating the centenary of the Chinese Community Party and the anniversary of Hong Kong’s return to Chinese rule on July 1 in Tamar Park, Hong Kong. © Chan Long Hei / Bloomberg

Analysts doubt what the US advice will do beyond political posing. It does not contain any new legal obligations for US business, although the US separately sanctioned seven middle-level Chinese officials in Hong Kong, a move that exposed the US as a “paper tiger.”

Kurt Tong, former US Consul General in Hong Kong, said: “The US government is discovering that there are few ways to punish China for broken promises in Hong Kong-specific ways without seriously promoting US interests and long-time residents of Hong Kong damage. ”

The attempts by the Chinese government to roll back the sanctions could, however, make the balancing act more difficult for the US business in Hong Kong.

Beijing’s recently passed laws allow sanctions to be imposed on anyone who helps foreign nations enforce sanctions against Chinese companies and officials. The US said the legislation does not specifically exempt Hong Kong-based companies.

Enforcement of anti-sanctions laws in the city could force companies to separate their China and Hong Kong businesses from the rest of their global business, said Douglas Arner, law professor and financial regulation expert at the University of Hong Kong.

However, Christine Savage, sanctions expert and partner at King & Spalding, warned there was no guarantee this would protect companies from possible punitive action by Beijing.

“There is certainly concern that retaliatory measures could still occur” [because] The national security law contains language that suggests that in China you may be held responsible for actions you take outside of China, ”she said.

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