On June 30, China issued the new National Security Law for Hong Kong.
The Security Law lends Beijing extensive control over Hong Kong SAR. To be fair, a Security Law was much overdue and did not come out of the blue.
Indeed, ever since Hong Kong returned to be part of China in 1997, the Chinese Central Government has been asking Hong Kong to issue its own Security Law. Hong Kong Basic Law also prescribes the issuance of a proper security law, which Honk Kong government never released due to the recurrent public protests that aroused any single time they tried to do it.
The Security Law The introduced four new crimes into Hong Kong legislation, which are secession, subversion against the central Chinese Government, terrorist activities, and collusion with foreign forces to endanger national security. Under this new law, China can (and will) establish a local branch of the National Security Office to oversee the law enforcement and to investigate any possible violation of the Security Law. Also, the violators of the Security Law will be judged by Mainland China’s justices and will be imprisoned there if found guilty. In particular, this last provision is the one that attracted the fiercest critics by both Hong Kongers and foreign Governments.
Anyhow, from a business perspective, in the short and medium-term nothing is going to change dramatically. It is true that, in the most likely long-term scenario, Hong Kong’s institutions will face gradual decay. Also, Hong Kong may turn from a globalised financial centre to a more regional (or Chinese) one. But, at the moment, the rule of law is still in place, and the judiciary system is untouched, at least for what concern foreign companies and individuals and all the business-related cases. It is unlikely that this is going to change soon or suddenly. We will more likely witness a slow and progressive erosion of the rule of law, which will give investors the time to reorganise their business according to the new scenario wisely.
As reported by The Economist in its last issue “Hong Kong’s financial world say that its role in the global system is not threatened by social unrest and geopolitics. China’s security law (…) will dampen the protests. Both HSBC and Standard Chartered have voiced support for it. According to five sources, there is no sign of international bank depositors pulling money from Hong Kong in the past two weeks.”
At the same time, the current situation, together with the risk of escalation of the trade war between China and the U.S., could even be an opportunity for Hong Kong. Indeed, lately, Hong Kong became more and more the favourite destination for secondary listings for Chinese companies already listed on NYSE. In the last months, market giants such as Alibaba, NetEase and JD.com. were listed on the HKSE. The recent restrictions to Chinese companies’ chances to get access to the U.S. capital market likely played a role in their choice. Also, a possible encouragement by the Chinese Government could have been persuasive enough to drive them to the decision to go for a secondary listing in Hong Kong.
Whatever it has been, the feedbacks from the local operators and the recent trend of Chinese companies choosing Hong Kong stock exchange for their listing, give us hope for the future of Hong Kong as an energetic Financial Center.