Beijing’s grip on Hong Kong

Beijing A year ago, people pushed their way through the narrow streets of the financial metropolis of Hong Kong. It was the first time that around a million people prostituted against a law that would have made it possible to extradite suspects to mainland China. The mass demonstrations showed very clearly that the protest movement is supported not only by individuals but by a large part of the population. They are all afraid for their freedom.

The extradition law, on which the protests sparked a year ago, was still averted. But the new national security law that the central government in Beijing is now planning to enact for Hong Kong goes beyond what the protesters feared at the time, critics say. The Chinese legislature is expected to finally nod the law early next week and then take effect quickly.

The Hong Kong Bar Association fears that this will create a parallel law enforcement system in the financial metropolis. The law is another big step towards Hong Kong losing its special rights, which now differentiate it from other Chinese cities – and making it so attractive to international companies.

The countries of the seven largest industrialized nations (G7) had recently expressed their resentment about Beijing’s plans in a joint statement. Earlier this week, EU Commission President Ursula von der Leyen warned that China could risk “very negative consequences” if it continues to implement 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 the metropolis is formally part of China, but in contrast to mainland China it has a functioning legal system.

Judges decide cases independently and are only committed to the law, and security agencies 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 under threat from the Security Act.

Legal experts are particularly concerned about Hong Kong’s national security law by two points. According to a summary of the law by the state-run Xinhua news agency, it provides, among other things, for China to set up a national security office in Hong Kong to collect intelligence information and deal with crimes against national security. What exactly falls under this is not specified.

The Hong Kong Bar Association warns that this move would create a parallel law enforcement system in which part – the mainland security agency – may not be subject to the usual legal controls and accountability that apply to Hong Kong law enforcement agencies.

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

Business representatives are observing that the situation in Hong Kong has already deteriorated in recent years. “Alignment with the Chinese mainland has been evident since President Xi Jinping took office and is taking different steps,” said Wolfgang Niedermark, head of the German Chamber of Commerce in Hong Kong, in an interview with Handelsblatt. “We all perceive this erosion process. We are concerned about the long-term stability of ‘One Country, Two Systems’, ”said Niedermark.

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

Beijing committed to the principle when Britain returned Hong Kong in 1997. It should guarantee that Hong Kong is formally part of China, but has its own laws.

Others are also witnessing the erosion of this promise. Since China’s head of state and party leader Xi Jinping came to power, Chris Patten, the last British governor of Hong Kong, has “gradually tightened the screws in Hong Kong”. This manifests itself on various levels, which also increasingly affect companies directly.

There have been several incidents in recent years and weeks in which companies in Hong Kong have been politically pressured to take positions in the interests of the central government. Most of the time Beijing presses companies through its state media and calls for boycott, for example, if the company does not behave as it is desired.

According to observers, the incidents increased with the protests last year. “It has definitely been a lot more intense and explicit since last year,” says Antony Dapiran, a Hong Kong lawyer and author of a book about the protests. Companies have to get used to it, he believes. “It’s not something that can stop them,” said Dapiran

The most recent example is the British bank HSBC. After the company was publicly pressured to comment positively on the safety law, HSBC Asia chief Peter Wong had his picture taken as he signed a petition for the controversial safety law. The photo was then published on Chinese social networks. Other companies also exerted influence.

The pressure from Beijing is increasing

According to media reports, Chinese banks have asked their Hong Kong employees to sign the security law petition. Last year, Hong Kong airline Cathay Pacific fired people 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 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 positive public statements about the national security law. The German Chamber of Commerce in Hong Kong does not want to have heard of any attempts to influence it. “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 had signed the petition. There are currently no signs that other European companies have been put under as much pressure as in the case of HSBC. This is a threshold that no one has yet crossed. “This does not mean that it will not come, but it has not been so far,” says Niedermark.

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

Speaking to journalists, Chris Patten said that there must be consequences for the increasing pressure on international companies. “We let China get away all the time,” said the Briton. The government in Beijing would continue with its methods if there were no severe sanctions.

The prominent Hong Kong publisher Jimmy Lai, who is one of Beijing’s harshest critics, is also alarmed. He sees the new security law as an abolition of the basic law of the financial metropolis. “Without law 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 keep insisting that companies should not worry about the 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 does argue that it only affects “extremists”. “But the companies are unsure whether it will not 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 has been one of Beijing’s most far-reaching interventions 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 supported by the Hong Kong authorities in the way it was for a long time. And in other areas such as education, freedom of the press and freedom of expression, elementary elements of democracy in Hong Kong were threatened long before the security law that was now planned.

It was not until the beginning of June that the Hong Kong parliament passed a law that would impose prison terms of up to three years for people who insult the Chinese national anthem or play it “distorting or degrading”.

An increasing dominance of Chinese companies in Hong Kong has also been observed for a long time. In recent years, their share has continued to grow. “Hong Kong is likely to become a Chinese offshore center,” said Alicia Garcia Herrero, chief economist for the Asia-Pacific region at Natixis.

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

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