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Foreign Policy

Hong Kong has turn out to be significantly dangerous for worldwide enterprise

Since taking office in January, the Biden government has taken a number of steps to signal a clear line towards China while also making it clear to Beijing that there is room for cooperation on key issues such as climate change and global health. On July 16, four key US bureaucracies – the Departments of State, Treasury, Commerce and Homeland Security – issued important advice to American companies in Hong Kong, warning them of the dangers posed by Hong Kong’s new national security law. In light of the new law enacted last year, international companies “should be aware of the potential reputational, economic and legal risks associated with maintaining a presence or staff in Hong Kong,” the statement said.

It is rare for four leading US government agencies to speak with one voice. The advice is a product of both the growing tensions between Beijing and Washington and the very real and serious problems posed by the national security law. Previous U.S. administrations, more cautious about the relationship, would have likely been less likely to have raised concerns about the law or abstained from public comment. With the era of engagement now over, Washington has been more open in its criticism of China’s human rights record, which explains both recent advice and other critical statements made by senior officials about China in recent months.

Since taking office in January, the Biden government has taken a number of steps to signal a clear line towards China while also making it clear to Beijing that there is room for cooperation on key issues such as climate change and global health. On July 16, four key US bureaucracies – the Departments of State, Treasury, Commerce and Homeland Security – issued important advice to American companies in Hong Kong, warning them of the dangers posed by Hong Kong’s new national security law. In light of the new law enacted last year, international companies “should be aware of the potential reputational, economic and legal risks associated with maintaining a presence or staff in Hong Kong,” the statement said.

It is rare for four leading US government agencies to speak with one voice. The advice is a product of both the growing tensions between Beijing and Washington and the very real and serious problems posed by the national security law. Previous U.S. administrations, more cautious about the relationship, would have likely been less likely to have raised concerns about the law or abstained from public comment. With the era of engagement now over, Washington has been more open in its criticism of China’s human rights record, which explains both recent advice and other critical statements made by senior officials about China in recent months.

But the national security law is also a real danger for international companies in Hong Kong. The main criminal law provisions are vague and broad and have been used to target peaceful political activists, lawyers and mainstream politicians. The law also contains an extremely broad extraterritorial jurisdiction provision: Article 38 of the law covers acts taken by non-Hong Kong citizens outside Hong Kong. That means companies operating in Hong Kong, or even far away from Hong Kong, can get involved in cases involving prominent activists like Joshua Wong or Nathan Law, or mainstream politicians like Martin Lee or Margaret Ng. All four have been charged or investigated under either national security law or other criminal law provisions over the past year.

For private companies, the main provision of the new law is Article 43, which gives Hong Kong National Security Authorities far-reaching powers to search, seize, freeze assets and online censorship of those accused of violating the law. As the number of investigations and prosecutions continues to grow, companies could be asked to provide information about their customers, censor their online language, or block their bank accounts. In January, for example, the Hong Kong government forced local internet service provider Hong Kong Broadband Network to block access to HKChronicles, a website that wrote about the 2019 protest movement. Since then, other websites have also been blocked.

The reputational cost – not to mention the moral price – of supporting the Hong Kong government against human rights activism would be substantial for any company exposed to a subpoena from the Hong Kong Police Department’s National Security Division.

Companies operating in Hong Kong must also read the neglected implementing rules of Article 43 of the national security law. The implementing rules, enacted just days after the law itself in July 2020, largely expand the investigative powers of the Hong Kong police and limit the due process and privacy of the defendants. (One of us wrote about the rules for an updated information paper published to mark the one year anniversary of the implementation of the National Security Act.) According to the implementation rules, it will be even more difficult for companies to challenge police orders for information or censorship in court, as will it will be difficult for individuals charged under the National Security Act to protect themselves from unjustified snooping by the National Security Police.

Article 43 and the Implementing Rules have already been applied by the Hong Kong Government. In May, the Hong Kong police wrote to Israel-based web hosting company Wix urging the company to stop hosting the website for the Hong Kong Charter 2021, a pro-democracy and pro-autonomy manifesto issued by a group prominent exiles was launched activists. The letter, signed by an Annette Cheng on behalf of then Police Commissioner Chris Tang, threatened fines and jail sentences if the company refused. The company initially deleted the website and restored it days later, only after public outcry and media attention put pressure on the company to do so.

The government also has other tools to target private companies. Article 31 of the new law makes it clear that organizations – including not only international companies, but also national and international non-governmental organizations, the media and probably also academic institutions, think tanks and other research groups – can be prosecuted for violating the law. So far, the assets of three companies – all part of Jimmy Lai’s Next Digital group, which published the pro-democratic Apple Daily – have been frozen in connection with an investigation into national security law. Aside from these deeply worrying cases, Article 31 law enforcements are likely to remain relatively infrequent, but the provision highlights the very real risks that businesses and other organizations operating in Hong Kong face.

What should the international business community do? Corporations must continue to closely monitor the implementation of the national security law and be ready to react if the Hong Kong government tries to drag them into certain cases. In particular, businesses should study the United Nations Guiding Principles on Business and Human Rights, which provide a framework for businesses operating in confined spaces such as Hong Kong. Article 11 of the Guiding Principles states: “Businesses should … avoid violating the human rights of others and address adverse effects on the human rights in which they are party.”

Business groups, including the American Chamber of Commerce in Hong Kong and the US-China Business Council, should also support the Biden administration in its efforts to urge Beijing to change course in its increasingly tougher Hong Kong policy. For the past several years, Beijing has relied on the US economy to urge successive governments and key members of Congress to gently curb human rights abuses by Beijing. That dynamic seems to be changing as new regulations such as the National Security Act highlight the links between human rights, the rule of law, and an open and prosperous business environment. Going forward, western companies operating in Hong Kong, both publicly and privately, should express their concerns about the national security law and refuse to take action that violates the rights of activists, lawyers and politicians who oppose the ongoing crackdown battle .

Ultimately, the US government has limited influence over Beijing’s stance on Hong Kong – or, more generally, on human rights. The human rights crisis in Hong Kong will further fuel growing tensions between the US and China. Nevertheless, the Biden government must both signal its support for human rights activists in Hong Kong and protect the interests of US companies operating there. The July 16 deliberation is an important step in the right direction for the Biden government’s Hong Kong policy and its broader China policy. Unfortunately, it seems clear that further such efforts will be needed.

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