Tag: hong kong

Taipei, Taiwan – As Hong Kong moves forward with controversial new national security legislation, its foreign business community is expressing reservations – albeit quietly – about how new rules concerning “state secrets” could affect the international financial hub’s competitiveness and ease of doing business.

Until February 28, the Hong Kong government is canvassing views on its plans to implement “Article 23” of the Chinese territory’s mini constitution, which stipulates the need to ban crimes including treason, secession, sedition, subversion and theft of state secrets.

After meeting foreign diplomats and business representatives last week, Justice Secretary Paul Lam reported that “everyone is on the same page” on the need to pass the legislation.

Lam said that while some members of the public had “concerns” and “questions,” it would be going too far to say they expressed “worries”.

It was not long before Lam’s upbeat characterisation of sentiment began to look misplaced.

In interviews with local media, the heads of the Indonesian and German chambers of commerce said businesses were concerned about how the law would be enforced and whether it would bring the former British colony into further alignment with the Chinese mainland.

Speaking anonymously to Bloomberg News, several attendees of the consultation session said officials only answered about four questions and left some of those present unsatisfied.

Hong Kong’s proposal, which faces little prospect of opposition in the city’s legislature after an electoral overhaul that effectively barred pro-democracy candidates, builds on sweeping national security legislation imposed by Beijing in 2020, following mass pro-democracy protests that turned violent.

Under the Beijing-drafted national security law, Hong Kong’s political opposition, pro-democracy civil society, and independent media have been all but wiped out.

“Many senior executives already concerned about the tightening atmosphere in Hong Kong will see the new laws as merely heightening their fears,” Andrew Collier, the founder and managing director of Orient Capital Research in Hong Kong, told Al Jazeera.

“Article 23 also is a signal that the Hong Kong domestic politicians, and not just the mainland officials through the NSL, are now focusing on security in order to please Beijing.”

Hong Kong’s government appears to be sending the message that political control trumps all else, including the economy – much like in mainland China, Collier said.

For more than two decades after its return to Chinese sovereignty, Hong Kong’s reputation as a business hub was buttressed by a trusted legal system inherited from the British and Western-style civil liberties.

That image has suffered successive blows in recent years, from mass unrest and property destruction during the 2019 pro-democracy protests, to Beijing’s security crackdowns and some of the world’s longest-lasting COVID curbs during the pandemic.

Even voices known for their bullish views on China have lamented the city’s decline.

In an opinion piece in the Financial Times this week, Stephen Roach, the former chairman of Morgan Stanley Asia, declared that “Hong Kong is now over”.

“In the spring of 2019 at the onset of the democracy protests, the Hang Seng Index was trading at nearly 30,000,” Roach said, referring to the benchmark index of the city’s stock market.

“It is now more than 45 per cent below that level at 15,750. Milton Friedman’s favourite free market has been shackled by the deadweight of autocracy.”

A Hong Kong government spokesperson told Al Jazeera that enacting national security legislation is the “inherent right of every sovereign state” and that the government’s proposed definition of state secrets is “in line with international practices”.

The spokesperson also said the provisions related to state secrets would “only cover acts committed without lawful authority” and the introduction of a “public interest” defence was under consideration.

When Hong Kong was once known for a culture of vigorous protest, public demonstrations against Beijing or city officials were practically unheard of in the post-NSL era.

The muted opposition to enacting Article 23 is a sign of the times.

In 2003, when Hong Kong’s government last attempted to pass legislation related to Article 23, half a million people took to the streets in the largest protests the city had ever seen.

When pro-government broadcaster TVB recently asked members of the public for their opinions on the proposed legislation in a series of street interviews, person after person demurred.

Kevin Yam, a senior fellow at Georgetown’s Center for Asian Law and former Hong Kong lawyer who is wanted by city authorities for alleged national security offences, said Article 23 may do to Hong Kong’s economy what the NSL did to civil society.

“With the NSL to the extent it affected business, it was more about creating a climate of fear. It was more a vibe. It was more the loss of qualified personnel who chose to leave Hong Kong. It’s more indirect,” Yam told Al Jazeera from Australia, where he lives in exile.

“Whereas this time around, if we look at the sorts of things that businesses might need to worry about in terms of implications of these changes, it impacts them much more directly,” Yam said.

State secrets

Of particular concern for businesses is Article 23’s provisions about state secrets, which some fear will be used to adopt mainland China’s expansive definitions of espionage and hamper companies’ ability to gather and share information as part of routine operations.

Observers have noted that the definition of state secrets in Hong Kong’s proposed legislation is nearly identical to the wording in China’s Law on Guarding State Secrets.

In mainland China, foreign consulting firms Capvision Partners, Mintz Group and Bain & Company were raided last year as part of a campaign targeting alleged espionage.

Beijing has also demonstrated that even the most seemingly minor infractions can have serious consequences, as in the case of Chinese-Australian journalist Cheng Lei, who spent nearly three years in prison after breaking a news embargo by a few minutes.

In January, Chinese state media reported that a citizen had been “punished by national security agencies in accordance with the law” after sharing fabricated evidence of environmental problems in China’s seafood industry with a foreign NGO.

“The big worry is Hong Kong moving in the same direction to what we’re seeing on the mainland right now,” Nick Marro, a China analyst at the Economist Intelligence Unit, told Al Jazeera.

“One of Hong Kong’s biggest strengths structurally and historically has been the fact that you don’t have that uncertainty around red lines like you do in mainland China. You have historically been able to talk about things that are politically sensitive.”

While such risks may be seen by some foreign firms as the cost of doing business in the world’s second-largest economy, they may be harder to accept in a Hong Kong that is both much smaller and less free.

If Hong Kong loses its openness, its historic selling point, companies may begin redirecting investment and hiring elsewhere, the head of one foreign business chamber in Hong Kong said.

“One of the things that comes across from the business community is we get it; we understand that this law needs to be enacted,” the person told Al Jazeera, requesting anonymity.

“For us, the key issue is going to be cost of implementation and differentiation of Hong Kong vis-à-vis the mainland.”

Despite officials’ insistence that the city is still a welcome home for foreign companies and their regional offices, the first two chapters of the government’s consultation paper on the national security law tell a different story, the person said.

“Out of those 42 paragraphs, exactly one mentions Hong Kong’s role as an international city, and exactly one paragraph mentions that this is a place where people come to engage, and where there’s interchange. All the other 41 concern all the threats there are to security and safety here,” the representative said.

“If you read it from the perspective of a businessperson, you kind of think, ‘Well, I just want to do business there. Am I welcome?’”

Taipei, Taiwan – Like many Hong Kongers, accountant Edelweiss Lam spent the last week watching the city’s stock market wipe out 14 months of gains as the Hang Seng Index fell below the psychological threshold of 15,000 points.

It was not the first time Lam, who has been investing on and off in Hong Kong stocks since the late 1990s, had seen it happen.

The index dropped below 15,000 points during SARS in 2003, the Global Financial Crisis in 2008, and zero-COVID lockdowns in 2022.

But while ebbs and flows are part of the investment game, Lam said watching the key measure of Hong Kong’s stock market tumble “back to square one” felt different this time.

“It seems I cannot see the future,” Lam told Al Jazeera by phone from Hong Kong.

The reason, Lam said, is China.

As Beijing increases its control over all aspects of life in Hong Kong, including the economy, and gloom persists about the state of China’s post-pandemic recovery, investors have been voting with their money and looking to other markets.

More than a quarter-century after Hong Kong’s return to China, the Hang Seng is more or less back to where it was during its final days as a British colony.

On Friday, the index hovered below 16,100 points – lower than it was on July 1, 1997, the day of the handover.

Over the same period, stocks in the United States, Japan and other popular markets have flourished.

Investors in the SP500, the most popular measure of the performance of the US market, have seen their money grow nearly 10-fold since 1997.

“If there’s any new announcement from the Chinese government about regulations or the control of some industry, then the market can fluctuate very seriously,” said Lam, whose investment portfolio includes blue chip stocks, fixed-term deposits and property.

“The relationship between Hong Kong and China is closer and closer, the control is tighter, so we cannot ignore what they are doing in China.”

Hong Kong has had a front-row seat to China’s crackdowns in recent years, from the imposition of a draconian national security law on the city to tightening regulation of corporate giants such as Alibaba and Tencent and raids on foreign companies on the Chinese mainland.

Many of China’s biggest companies are dual-listed in Hong Kong and China and make up a large portion of the Hang Seng Index along with Chinese banks and other tech companies.

At the same time, China’s economy has struggled to recover from the impact of COVID-19 and Beijing’s harsh pandemic restrictions, amid nagging structural issues including a shrinking population, high local government debt, and a slow-moving real estate crisis.

Gross domestic product officially grew 5.2 percent in 2023 – the weakest performance in decades, excluding the pandemic.

Despite Beijing’s insistence that China is open for business, foreign investors’ confidence is waning.

Last year, China recorded the first drop in foreign direct investment in 12 years, with inflows declining 8 percent to $157.1bn.

“When we look at broader business sentiment both for the financial sector and for the general economy – first and foremost, economic fundamentals both in Hong Kong and in China are not doing very well at the moment,” Chim Lee, a China analyst at the Economist Intelligence Unit, told Al Jazeera.

Lee said China hitting its economic growth target last year was “not particularly impressive” as Beijing set a relatively weak target.

Analysts estimate that some $6 trillion – the equivalent of over one-quarter of the entire output of the US economy – has been wiped off stock markets in China and Hong Kong since early 2021.

China’s CSI 300 Index, which measures the top 300 companies on the Shanghai and Shenzhen stock exchanges, has fallen more than 40 percent over the past three years, while the Hang Seng has fallen 50 percent over the same period, according to Bloomberg data.

Investors are instead flocking to other markets like Japan and the US where analysts predict a bullish 2024.

The Nikkei 255 Index, an index of the Tokyo Stock Exchange’s top companies, posted highs not seen in over 30 years last week, while the S&P 500 in New York closed at an all-time high for the sixth day in a row on Thursday.

“[Hong Kong’s] economy may now be no more than a large rounding error on China’s GDP but it still plays an important role in finance and capital market transactions for and with the Mainland. So it’s self-evident that bearish sentiment and beaten up stock price valuations in China proper wash over into [Hong Kong] too,” George Magnus, an associate at Oxford University’s China Centre and Research Associate at SOAS, London, told Al Jazeera.

Hong Kong’s declining rights and freedoms – which are supposed to be guaranteed until 2047 under an agreement known as “one country, two systems” – have added fuel to the crisis of confidence.

Since the passage of the national security law in 2020, the city’s political opposition and independent media have been all but wiped out and hundreds of people have been arrested for non-violent offences related to activism and speech.

Hundreds of thousands of Hong Kongers have left the city amid Beijing’s tightening control along with their money.

Lam said she decided last year to move her pension fund overseas and she plans to sell her remaining stock investments in Hong Kong at a loss.

“They say they want to do something, but we don’t see real action,” Lam said of the government’s policy on the economy.

In October, Hong Kong slashed stamp duty on property sales and stock transfers, but consumption and tourism have yet to recover to pre-pandemic levels.

Analysts say that reviving both Hong Kong and China’s economy will take much bolder action.

Beijing is considering a potential $278bn rescue plan for the stock market, Bloomberg reported this week, citing sources close to the matter, but many analysts argue broader structural reforms are needed to restore investor confidence.

A similar rescue plan deployed after a tumble in China’s stock market in 2015 produced mixed results – even though the government moved quickly and the overall economy was on a stronger footing.

Memories of that rescue plan and concerns that Beijing will not make difficult but necessary reforms are one reason why the rescue plan has been met with a lukewarm response, said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis.

“Here it’s really the market saying, I’m sorry you’re not growing. I don’t trust your numbers; your future looks gloomy – which wasn’t the case in 2015. It was perceived to be a temporary shock, so I think this is, to start, the difference,” Garcia Herrero told Al Jazeera.

Beijing arguably also has less room to manoeuvre this time thanks to its high levels of debt and limited scope of monetary easing.

“They’ve used so many bullets, the credibility of the next bullet is lower,” she said.