HONG KONG: It is known as one of Asia’s most vibrant financial centres — a base for more than 70 of the world’s 100 largest banks and the regional headquarters of over 30 multinational banks.
Hong Kong’s freewheeling economy and open capital flows, backed by an independent judiciary and rule of law, have been its strengths.
It also serves as a gateway to mainland China for international companies reaching out to a consumer market of more than 1.4 billion people.
But Hong Kong’s position as a leading financial hub is said to be under threat following the introduction of China’s new national security law, which took effect on Jun 30.
Already, United States President Donald Trump has signed an executive order revoking the city’s trade privileges with the US, which have generated an estimated US$38 billion in annual trade between the two sides.
He also signed a law authorising sanctions on Chinese officials and organisations — including banks — that are found to have undermined Hong Kong’s autonomous status.
Businessmen like Mr Conrad Ho believe that such actions, if the US pursues its latest course of action aggressively, will have more ramifications for Hong Kong.
“Even if nothing comes of it, foreign capital could become much warier about investing in Hong Kong,” says the founder and executive director of Coho Group, which manages a portfolio of finance, technology and retail assets.
Watch: The impact of Hong Kong's new security law (49:52)
He knows there is a risk that Hong Kong will lose its competitive edge over other Asian cities like Singapore.
“One financial firm that my company works with is being forced to move to Singapore because their investors find Hong Kong to be too risky and unsafe,” he cites. “Previously, global investors perceived Hong Kong as being independent.”
But he supports the new national security law because “it’ll create more stability” in a city rocked by months of protests. A politically stable Hong Kong, he believes, will be good for business and the economy.
“That’s something Hong Kong needs right now,” he says.
It is a new reality for Hongkongers, now that Beijing has given itself powers to override the semi-autonomous region’s local laws and crack down on various political crimes, including acts of secession, subversion, terrorism and collusion with foreign forces.
But will it be a return to stability and continued faith in Hong Kong, or will the threat to its autonomous status contribute to its decline? The programme Insight examines what the future holds for the city. (Watch the episode here.)
WHITHER JUDICIAL INDEPENDENCE?
A key point of contention is the impact the security law might have on judicial independence and rule of law, as the Chinese parliament’s top decision-making body has the final say in interpreting the law.
The National People’s Congress Standing Committee is not familiar with Hong Kong common law and is likely to “import some of the mainland concepts”, believes University of Hong Kong chair of public law Johannes Chan.
“What they don’t realise is that the economic success of Hong Kong depends on a whole range of things, and among them, no less important is the judicial (and) legal system,” says the professor.
“Once you ... undermine the legal system, you’ll inevitably affect the economic system and Hong Kong. By then, if the legal system is ... no longer effective, there’d be very little difference between Hong Kong and Shenzhen or Hong Kong and Shanghai.”
Despite these concerns over judicial impartiality, some observers believe the level of trust within the business community remains high. It will not “instantly evaporate”, says Lee Kuan Yew School of Public Policy visiting senior research fellow Drew Thompson.
“Plenty of international businesses have trust in China. And they have major investments in relationships with the government and business entities on the mainland, as well as in Hong Kong,” he adds.
“That said, all international businesses potentially fall under the national security law simply because they’re foreign. So the risks of doing business in Hong Kong have definitely increased. International businesses ... can’t count on Hong Kong’s legal system to be independent.
The potential for returns is still there, so I don’t think Hong Kong is going to become a pariah in that sense. But it’s definitely going to give international companies pause.
Companies and financial institutions have voiced support for the security law, notably British banking giants HSBC and Standard Chartered, two of the biggest banks in Hong Kong.
HSBC, however, did so only after Hong Kong’s former leader, Leung Chun-ying, blasted the lender — which generates most of its profit in Hong Kong and Asia — for not taking a “stance” after the United Kingdom criticised the law.
Most businesses need not worry unless they are providing funding for subversives, believes Hong Kong Federation of Trade Unions president Stanley Ng.
“Those acting in the name of ‘business’ whilst advocating Hong Kong’s independence or unrest or terrorism ... will definitely be sanctioned. So they must immediately move their assets and register (their business) elsewhere,” he says.
“That’s totally understandable, though other businesses ... shouldn’t be affected.”
HOW MUCH LEVERAGE DOES THE U.S. HAVE?
Hong Kong’s current chief executive, Mrs Carrie Lam, has also given assurances that judicial independence will not be compromised. But the implementation of the new law continues to draw international criticism, including from the Trump administration.
Disastrous as the US’ tough line on China may seem for Hong Kong’s economy, however, some observers believe it lacks substance and teeth.
“You’re going to see a lot of this rhetoric going back and forth, and because of the coming election ... China-bashing, perhaps, will win some of the votes,” says Mr Bernard Charnwut Chan, the Non-official Convenor of the Executive Council.
“But do they really want to go against China? I don’t think so because Trump cares about the economy. Without China as a potential buyer (for) agricultural products and other things ... would that help the US?
“I just can’t imagine that the US will want to go and censure Hong Kong, because it’ll not only hurt us, but equally it’ll hurt them.”
The timing is key, agrees Assistant Professor Eric Lau from The Open University of Hong Kong’s Lee Shau Kee School of Business and Administration. “Trump wants to be re-elected, so he wants to make more news to benefit his election.”
Hong Kong imports more goods from the US than vice versa. The US’ trade surplus last year was US$26 billion (S$36 billion), so “if a trade war starts, the loser would be the US”, he points out.
Professor Jean-Pierre Cabestan from Hong Kong Baptist University’s Department of Government and International Studies has a “hunch” that any US sanctions would be “symbolic”.
“I don’t think it’s in the US’ interest to destabilise Hong Kong as a financial hub (and) penalise American companies or fund companies present in Hong Kong,” he says.
Still, sanctions could have an impact, warns Mr Thompson, such as on “the ability to do financial transactions with named individuals” or on their ability to obtain visas and travel to the US. “It might make them pariahs,” he says.
“When an individual, entity or company has been named to the Entity List, very frequently other countries’ banks won’t want to do business with that person because of the risk they potentially face.
“But at this point, it’s too soon to tell how aggressively (sanctions) will be enforced.”
CONCERN OVER AN EXODUS
Even as China’s new law may potentially have a chilling effect on business, it has cast a pall over the city’s residents. Anxiety and defiance, with protesters taking to the streets, have become the norm.
Beijing has established an office in Hong Kong to enforce the law, but its terms are “vague”, says Prof Chan.
“We don’t know ... what its powers will be, but it’s a fairly scary idea to have a national security unit that’s almost a parallel police force.”
Uncertainty about the city’s future has sparked concern about a new wave of emigration — more than 20 years after the exodus that took place during the 1997 handover of the city from British to Chinese rule.
So far, the UK has offered a path to citizenship for nearly three million Hong Kong residents. Australia and Taiwan have also opened the door to residency in the event of an exodus.
Already, some 50,000 people emigrated from the city of 7.5 million people in the second half of last year. “Many people who can afford to leave are thinking now of leaving, making plans,” says Democratic Party founder Martin Lee.
“Some of the people living here (have) already got passports from Canada, Australia, and they could just pull out quickly, easily. And I’m afraid a lot of tycoons will go.”
An exodus could erode a skilled core of professionals and managers in the society.
“Historically, Hong Kong has enjoyed having skilled talent from both the West and from mainland China,” notes Mr Ho, who is now concerned that the actions of the US and the pro-democracy protests will have a damaging impact on this.
“Due to all the recent troubles, I’m quite worried that the talent pool we’ve accumulated ... may be lost.”
The local government, however, is not worried about the problem of emigration. “This is nothing new for Hong Kong,” says Mr Chan, who was Mrs Lam's campaign manager when she ran for office.
“We’ve gone through crises in the 60s, in the 80s ... even in the 90s. So we’ve had that so-called brain drain many times ... If you look back, after each crisis, you see a new rise for Hong Kong.
“We saw people leaving, but we also saw people coming in ... So I’m quite confident that Hong Kong will survive. People will always find opportunities to come back.”
ABSENT A COMPROMISE, A LOT TO LOSE
With Hong Kong being brought closer into China’s fold, however, many Hongkongers worry that their city will eventually lose the characteristics — like free speech, judicial independence and rule of law — that have made it what it is today.
Its uniqueness and economic importance have also begun to wane following the rise of Chinese megacities like Beijing, Chongqing, Guangzhou, Shanghai and Shenzhen. Other than Chongqing, they each boast an economy bigger than Hong Kong’s now.
So is Hong Kong at risk of losing its identity and becoming just another Chinese city?
“As Hong Kong’s autonomy erodes, so does its uniqueness as well as its values in the eyes of many people, particularly in international businesses. That autonomy, though, was seen as a threat by Beijing,” said Mr Thompson.
“I don't think that Hong Kong will ever be just another city, but certainly its uniqueness, its vibrancy and its overall importance vis-a-vis the rest of China has diminished considerably.”
Despite this gradual convergence of Hong Kong and the mainland, Mr Chan does not doubt that Beijing “continues to believe in Hong Kong ... (and) ‘one country, two systems’”.
“That’s the key, because they’ll do everything to make sure it works. So I can’t imagine why China would want to hurt Hong Kong, provided that you don't try to hurt them,” he says.
That sentiment is shared by Jessica, who supports the security law. Using a pseudonym for fear of suffering retaliation, she says the violent protests are affecting livelihoods and must stop. Stability, she feels, is key to Hong Kong’s economic future.
“How can we strip away the rights of business owners who want to still operate their businesses?” the 29-year-old questions. “They’re unable to bring home resources to provide for their family.”
Mr Chan thinks Hong Kong was “too free in the past” and had “gone too far” with allowing people to talk about gaining independence from China in future.
“We do have a young generation — you may call them naive or what — but then, some actually think that Hong Kong can survive on its own, which I think is still ridiculous,” he says.
With the new law, Mr Ho believes the authorities can “more effectively and, possibly, more surgically” stop people “inciting hatred across Hong Kong’s different groups”. He adds: “For that, Hong Kong will be a better place in the long run.”
For now, it remains unclear how the crisis will end. But it looks set to be a battle with little hope for a compromise.
“It’s true that we shouldn’t condone those violent acts, but you have to ask the question — what forced those young people to resort to what they’ve done? There are far more serious and deep-rooted causes,” says Prof Chan.
“If we don’t address those issues, a high-handed, draconian law would never resolve the issues.”
Watch this episode here. The programme Insight airs on Thursdays at 9pm.