Hong Kong Business Risks

 For the first time, on 16 July, the United States government issued a joint advisory on the risks of conducting business, studying, and investing in Hong Kong. This release is a direct response to the June 2020 National Security Law (NSL) that Beijing imposed on Hong Kong which effectively crushed the autonomous region’s special freedoms and extended the risks that foreign businesses and travelers face in Mainland China to Hong Kong.

The subtext of the advisory is that certain multinationals in Hong Kong now face two-way political risk as the U.S.-China decoupling continues, albeit incrementally. As the number of U.S. sanctions on Chinese and Hong Kong individuals and entities grow, businesses will be forced to pick a side: adhere to U.S. sanctions and be penalized by China or potentially violate U.S. sanctions to maintain access to Chinese markets.

The key risks mentioned in the report are outlined below:

Detainment and “Exit Ban”

• The National Security Law broadly defines offenses that threaten the national security interests of Beijing and is administered through a parallel and opaque legal system not subject to Hong Kong’s legal system. The NSL applies to anyone present in Hong Kong, regardless of nationality. Foreign nationals, including a U.S. citizen, have already been arrested under the NSL. While the current risk of foreigners being detained under the NSL is low (especially for those in the field of finance), the risks to foreigners posed by the NSL will increase over time.

• Effective 01 August, a new amendment to Hong Kong’s immigration law will require airlines to provide passenger and crew information to authorities before flights depart. This new law opens the door for officials to prevent certain passengers, including non-residents, from boarding planes. In mainland China, “exit bans” are used compel travelers to take part in investigations. The likely purpose of the new law is to prevent democracy activists and other political dissidents from leaving Hong Kong where they can be monitored and arrested, posing less of a political threat than they would in the diaspora.

Data Privacy

• The NSL allows authorities to:

  • conduct wiretaps or electronic surveillance

  • search and seize electronic devices

  • require Internet service providers to produce or delete any corporate or consumer data

With zero transparency or accountability, the NSL supersedes all data privacy provisions enshrined in Hong Kong, allowing the Office for Safeguarding National Security (OSNS) in Hong Kong, which is staffed by PRC security services to investigate and detain anyone who it deems a threat to China’s national interest.

Transparency & Access to Information

• The NSL has dissolved freedom of press in Hong Kong. Journalists have been prosecuted and media outlets have been closed over national security concerns. The city’s public radio station is also now under tight censorship.

• It should be assumed that all media based in Hong Kong now reflects the political agenda of Beijing.

Compliance and Political Risk

• The U.S. has placed sanctions on several individuals and entities within Hong Kong, barring U.S. businesses and nationals from transacting with them. For more information on U.S. sanctions, please visit the U.S. Department of the Treasury website.

• Businesses that do comply with U.S. sanctions are in contravention of Chinese law and may be subject to a wide range of severe legal repercussions.