Joshua M. Zimmerman

What Hong Kong’s national security law makes clear: politics trumps business

Broad, extraterritorial law spells out the stakes to multinationals – comply with China’s political bottom lines and access the mainland market, or stay away

Although the law is a big change for Hong Kong, any global business accustomed to navigating the mainland should be able to adjust to the new reality

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A Chinese flag is held aloft during a rally in Hong Kong in support of the national security law on June 30. Photo: EPA-EFE

Joshua M. Zimmerman

Published: 3:00am, 9 Jul 2020Updated: 6:06am, 9 Jul 2020

The narrative in the international financial press is that Hong Kong’s new national security law will disrupt markets, could expose companies and their employees in Hong Kong to vague, politically motivated charges and may spark global sanctions and massive capital outflows, degrading Hong Kong’s status as an international financial hub.

The law’s language is very broad, its reach global. A company’s business licence may be revoked and its funds confiscated, for example. There is scope for the Hong Kong police to search premises, seize travel documents and freeze assets without a warrant. Trials involving state secrets may be closed to the media and tried without a jury.

Businesses in Hong Kong could, in theory, face consequences for the activities of their employees anywhere in the world. Consulting, equity research, lobbying and other corporate pursuits considered essential to the smooth functioning of financial markets in the West could be prosecuted. The buffer that Hong Kong once provided to firms that offended mainland interests has largely evaporated.

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What you should know about China's new national security law for Hong Kong

But anyone who concludes that China’s leaders have not properly thought through the law’s impact on business in Hong Kong misses the point. The law accomplishes exactly what China wants it to do. It crystallises China’s priorities for Hong Kong: in any conflict between China’s political imperatives and business, politics will always trump business.

China wants Hong Kong to retain its financial prominence, but on China’s terms. Hong Kong’s key advantages over other Chinese cities – a convertible currency pegged to the US dollar and backed by massive foreign reserves, one of the world’s deepest stock markets, low taxation and ease of doing business, a conduit for foreign investment into China and a safe haven for assets coming out of China – will continue to serve Beijing’s interests.

Those interests will be better served if Hong Kong remains an international financial and commercial hub. Accordingly, China is happy for foreigners to do business in Hong Kong – as long as they are friendly and politically reliable.

A woman walks past Exchange Square in Central, Hong Kong, where the Hong Kong stock exchange is located, on May 29. Photo: Sun Yeung

Think of the national security law as a sorting mechanism: companies that will not comply with China’s political bottom lines are encouraged to stay away, while companies willing to abide by China’s rules have a leg up on the nation’s massive economy. Businesses must decide for themselves whether to accept this bargain.

If that means some multinationals and investors pull out of Hong Kong, so be it. Plenty of others will remain. Some high-profile departures may open the door for more mainland firms and professionals to play a larger role in Hong Kong, a net positive from Beijing’s standpoint.