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What does Hong Kong’s security law mean for global businesses?

June 4, 2020, 11:29 PM UTC

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A new security law for Hong Kong, approved by China’s parliament last Thursday, “will only punish a small minority” of criminals and poses no threat to foreign businesses or Hong Kong’s stature as a global financial hub.

That was the message from Hong Kong chief executive Carrie Lam following her whirlwind trip to Beijing on Wednesday to meet with Chinese vice premier Han Zheng and other senior Chinese officials with oversight responsibility for Hong Kong.

The claim that the security law will have no impact on commerce in the territory has been repeated this past week in China’s state-controlled media, and by a chorus of Chinese diplomats, mainland legal scholars, and global companies with business operations in China.

“We reiterate that we respect and support laws and regulations that will enable Hong Kong to recover and rebuild the economy and, at the same time, maintain the principle of ‘one country two systems,'” British banking giant HSBC affirmed in a carefully-worded post on a Chinese social media platform Wednesday. London-based Standard Chartered, as well as British colonial-era trading houses Swire and Jardine Matheson, have offered similar public assurances.

And yet, the new law has sent a chill through Hong Kong’s foreign business community. In private, many expatriate bankers, investors, and business executives in the city profess deep misgivings about the vagueness of the legislation, and how it will be interpreted and enforced.

Of 180 U.S. companies surveyed recently by the American Chamber of Commerce in Hong Kong, more than 80% said they are concerned about China’s plan to foist new security measures upon Hong Kong. Fifty-three percent said they were “very concerned,” while 30% said they were “moderately concerned.” About 60% predicted the new law would harm their business.

Notably, though, 71% said that, for now, their companies have no plans to move capital, assets, or business operations out of Hong Kong.

Details of the new law remain unclear because the precise language of the bill is still being drafted in Beijing by members of a small committee of senior leaders from China’s ruling Communist Party. It was previously expected that work on the measure wouldn’t be complete until August. Hong Kong representatives to China’s National People’s Congress said Wednesday that fellow delegates are pushing for the new law to take effect before July 1, which marks the 23rd anniversary of Hong Kong’s return to Chinese sovereignty.

Proponents of the measure say it only targets perpetrators of four categories of crime: secession, subversion, terrorist activities and foreign intervention. They insist that law-abiding merchants, whether foreign or Chinese, have nothing to fear.

In an interview with Eastworld, Cora Chan, an expert on constitutional law at Hong Kong University, highlighted multiple ambiguities in the security law as it has been described so far by mainland authorities: How much power will the law grant to mainland security agents operating in Hong Kong? Will it criminalize speech as well as actions? Will final adjudication of the law fall to Hong Kong courts or some other authority?

Chan argues those ambiguities create long-run risks for foreign companies operating in Hong Kong at a time of escalating tensions over trade and national security.

U.S. President Donald Trump’s vow to punish Beijing by stripping Hong Kong of its special trade status with the United States only raises the stakes—and is certain to inflict far more pain on Hong Kong residents than leaders in the mainland.

More Eastworld news below!

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com

Eastworld news

Started from the bottom

While relations between China and Australia may be unravelling amid trade tensions and the COVID-19 pandemic, China is hoping that its friendliness with local-level Australian authorities can counteract the national government’s relative hostility. Victoria, one of Australia’s largest states, recently announced that it is pushing ahead with a commitment to China’s Belt and Road Initiative that saw China pledge investments and cooperation for infrastructure projects and advanced industries in the Australian state. The initiative has driven a wedge between state and national authorities, and Australian Prime Minister Scott Morrison has publicly come out against Victoria’s deal with China. He said, “[It is] usual practice for states to respect and recognize the role of the federal government in setting foreign policy.” Wall Street Journal 

The company of no brotherly love

When Dhirubhai Ambani, the head of India’s largest company Jio Platforms, suddenly passed away in 2002, he left a massive empire to be split between his two sons, Anil and Mukesh. Dhirubhani didn’t leave a plan for succession and the brothers quickly feuded and split up the conglomerate. Since then, Mukesh has become one of the richest men in the world with a net worth of $53 billion, while his brother Anil has teetered on the edge of bankruptcy. This Bloomberg profile of their relationship dives into how Mukesh won the ‘world’s most expensive sibling rivalry.’ Bloomberg

No sense in decoupling 

There might not be a Chinese company trusted less in the U.S. than SenseTime, a facial recognition and artificial intelligence Chinese unicorn valued at over $7 billion. Yet even as the company is blacklisted in the U.S. for its alleged role (which it denies) in suppressing and surveilling the Uyghur ethnic minority in the western Chinese province of Xinjiang, the company has maintained partnerships with American institutions like the Massachusetts Institute of Technology as well as financial backing from U.S. companies like Qualcomm. The Wire China shows this week that given the close personal and financial ties between people in China and the U.S., the U.S.'s potential decoupling from China may be more complicated than it appears. The Wire China

Feeling the pressure

In the wake of HSBC and Standard Chartered declaring support for Beijing's new Hong Kong law, there are early indications that the banks who side with Beijing may draw the wrath of U.S. authorities. A group of U.S. senators on Thursday proposed 'unprecedented' sanctions that would target “the banks that choose to finance the erosion of Hong Kong’s autonomy and put marginal profits ahead of basic human rights,” said Pennsylvania Senator Pat Toomey. Other U.S. senators criticized the bill, saying that targeting global banks may harm U.S. strategic interests and would be ineffective without multilateral support. The bill was proposed as thousands of Hong Kong citizens defied a police ban to commemorate the 31st anniversary of the Tiananmen Square Massacre on Thursday night. Bloomberg

Coronavirus by country

Cambodia is a hidden success story of the pandemic. As of this week, the country has reported only 125 total COVID-19 infections and zero deaths, which is quite a remarkable feat considering the country’s early response to the pandemic. In early February, as cases were just starting to rise in China, Cambodian prime minister made a state visit to Beijing, slammed reporters for wearing face masks, and refused to shut down flights to the country from China. As more cases began emerge later in February and March, however, Cambodia closed its borders to most foreigners, placed heavy restrictions on the movement of its citizens, and shuttered schools across the country. Observers also attribute Cambodia’s success to a combination of having a largely spread out and rural population, support from the WHO, and downright luck. However, Cambodia’s economy has been slower to open than neighbors like Vietnam, and the country may be on the edge of economic disaster since the pandemic has derailed apparel exports, tourism, and construction, the country’s three largest industries. Nikkei Asian Review

Markets and movers

Softbank – The Japanese tech conglomerate announced on Thursday that it will open a $100 million fund to support American “companies led by founders and entrepreneurs of color” in response to ongoing anti-racism protests in the U.S. The company says it will be the largest fund “providing capital to Black Americans and people of color” in the U.S. Axios

Gojek – On Wednesday, Facebook and Paypal announced investments in Gojek, Indonesia’s rising ride-hailing app turned super app that provide over 20 services such as digital payments. The exact value of the deal has not been disclosed, but the Financial Times reports Facebook likely invested a few hundred million dollars. Financial Times

Netease – The Chinese Internet and gaming giant is planning to raise close to $3 billion in a secondary listing on the Hong Kong stock exchange. The company is already listed on Nasdaq and its secondary listing in Hong Kong is seen as a defensive measure amid heightened scrutiny of Chinese companies on U.S. exchanges. Variety

Final figure

50.7

China’s factories are bouncing back, but the rest of Asia is still slow to revive its manufacturing to pre-pandemic levels. Several manufacturing surveys were published this week, measuring the Purchasing Managers Index (PMI), a number that reflects manufacturing activity compared to the previous month. A number above 50 marks growth, while below 50 means contraction. China reached 50.7, according to Caixin, marking the country’s first growth on the index since the pandemic hit. In May, countries like Vietnam, Malaysia, and the Philippines all reported higher manufacturing levels but all registered below 50 on the PMI scale, marking further contraction. Countries like South Korea and Japan saw their PMI’s decrease in May compared to April. Al Jazeera