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A hotel-turned-security office signals Hong Kong’s big chill

July 9, 2020, 11:36 AM UTC

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Priceline.com, the global travel site, touts the MetroPark Hotel in Hong Kong’s bustling Causeway Bay neighborhood as combining “warm hospitality with a lovely ambiance” and putting “everything the city has to offer just outside your doorstep.” Good luck trying to book a room there.

Occupancy rates at other Hong Kong hotels remain at all-time lows amid the pandemic. But the four-star, 266-room MetroPark is sold out, indefinitely, thanks to a VVIP who checked in Wednesday. The guest: the newly-established Office for Safeguarding National Security of the Central People’s Government of the People’s Republic of China in the Hong Kong Special Administrative Region.

The office, which has commandeered the MetroPark as its headquarters, is part of a sweeping new institutional infrastructure created to oversee Hong Kong’s enforcement of national security legislation Beijing imposed on the territory last week.

The law also establishes:

  • A new Committee for Safeguarding National Security to be chaired by Hong Kong’s chief executive but include a new national security adviser appointed by Beijing and operate “under the supervision of and accountable to” central government authorities.
  • A new national security department within the Hong Kong police force with wide powers to interrogate, tap phones, monitor internet activity, seize private assets, and conduct warrantless searches.
  • A new section in Hong Kong’s Justice Department to prosecute national security cases with the authority to conduct trials in secret, without a jury, and detain suspects without bail.

The office’s new chief, Zheng Yanxiong has said he would enforce the new law “without infringing on the legitimate rights and interests of any individual or organization.”

But the law grants Zheng’s office, which answers directly to Beijing, broad discretionary authority in dealing with those deemed a national security threat. It is unclear how many agents will work in the 33-story MetroPark tower, but the new law states explicitly that they are to operate beyond the scrutiny of Hong Kong’s residents or local courts and “shall not be subject to inspection, search or detention” by local police.

As Dan Strumpf notes in the Wall Street Journal, the speed with which MetroPark was transformed into a base for mainland intelligence is a measure of “how quickly this cosmopolitan financial center is changing” since the June 30 enactment of the law—and of Beijing’s determination to quell large and increasingly violent anti-government protests.

Prior to the law’s enactment, mainland security agents weren’t allowed to come and go openly in Hong Kong (though that didn’t stop them from abducting a Hong Kong bookseller who peddled titles embarrassing to President Xi in 2015, or seizing a mainland billionaire from the Four Seasons Hotel in 2017). Now they will operate from a skyscraper overlooking Victoria Park, a rallying site for anti-government demonstrations.

It remains unclear whether Beijing’s surprise decision to foist a national security law on the city will damage Hong Kong’s status as the region’s financial capital. The main effect of U.S. attempts to punish China by pressuring Chinese companies to delist from American exchanges will be to redirect those companies to the Hong Kong exchange, providing a bonanza to the city’s financial industry.

Rumors this week that the Trump administration might seek to limit the ability of Hong Kong banks to purchase dollars drew ridicule from analysts and global bankers. Meanwhile, China’s central bank last week announced a “Wealth Management Connect” initiative that promises a torrent of mainland money for investment in financial products in Hong Kong and Macau. Hong Kong’s stock market has gained about 7% since the security law took effect.

But there’s no denying that the breadth of the new law—and the zeal with which it’s being implemented—has spooked foreign executives here and sent a chill through local dissenters.

One source of concern is the vagueness of the four new categories of national security offenses identified by the law: secession, subversion of state power, terrorism, and collusion with a foreign country.

Another is the severity of the potential punishments. Persons found guilty of committing “grave” offenses face up to life in prison and must be incarcerated for a minimum of ten years. Companies or organizations found guilty of national security offenses are subject to fines and may have their licenses and business permits revoked. The bill even includes an extraterritorial jurisdiction clause that asserts China’s authority to punish offenses committed “outside the region by a person who is not a permanent resident of the region.”

Foreign executives contemplate a kaleidoscope of risk scenarios: Must my firm publicly declare support for the security law? What if my employees participate in a protest or post something deemed seditious on social media? If the U.S. adopts sanctions against China and my company adheres to them, will we face prosecution on national security grounds in Hong Kong?

Many privately cheered announcements by Facebook, Twitter, and Google this week that they are suspending the processing of Hong Kong government requests for user data, effectively putting up a united front against the new law. But the tech firms can afford to take such a principled stand because they are shut out of China’s mainland. For other global businesses, it’s a much harder decision.

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

No middle road

Li Ka Shing, Hong Kong’s wealthiest tycoon and retired head of the Hong Kong conglomerate CK Hutchinson, built his fortune by being able to navigate both China and the west. But as his company’s recent struggles show, straddling the divide is becoming increasingly difficult amid escalating tensions between Beijing and the U.S. CK Hutchinson earns 80% of its revenue overseas, yet its stock has declined 30% in value in the last year on Hong Kong’s exchange as the company has lost out on major contracts abroad due to the company’s perceived ties to the Chinese government. In China, meanwhile, Li has drawn criticism for not being supporting enough of the Chinese Communist Party even though he has voiced support for the nw Hong Kong public security law. As Li’s recent struggles indicate, it may grow increasingly hard for multinationals to pacify both sides of the Pacific. Bloomberg

Tech takes sides

Tech companies from China to the United States are being forced to reckon with Hong Kong's new reality. On Tuesday, major tech firms including Facebook, Google, and Twitter announced that they would temporarily stop sharing data with the Hong Kong government amid new Internet rules imposed amid Beijing’s new national security law in the city. Apple was a notable outlier in this group, saying it is still assessing the implications of the law. The iPhone maker has a lot more to lose in taking a stand in Hong Kong since it has an established mainland business whereas other American tech giants are banned there. The Chinese-owned Tiktok, on the other hand, announced that it was pulling out of Hong Kong completely even as the White House said it was mulling banning the app in the U.S. Fortune

Campus wars

Over the past year, the University of Rochester in New York has become a hotbed of U.S.-China tensions. In the fall of 2019, a group of campus Republicans announced that it was holding talks about human rights issues in Tibet and Xinjiang. The university’s Chinese Students Association objected to the events and some students even called for their cancellation. The incidents sparked campus unrest, with  competing talks and graffiti scrolls. In this feature from the South China Morning Post, journalist Eric Fish provides a nuanced portrait of how escalating geo-political tensions are playing out on campuses across the U.S. and around the world. South China Morning Post

Supplying the world's demand

More than ever before, the world needs China’s medical supplies. Before the pandemic, the Peterson Institute for International Economics said China exported more respirators, surgical masks, medical goggles and protective garments than the rest of the world combined. Amid the pandemic, its dominance in supplying medical equipment has only grown. With government support, entrepreneurial ventures, and the conversion of privately-owned plants into medical supply factories, China has led the production of masks, personal protective equipment, and testing kits. From March to May, for example, China produced 70.6 billion masks—50 billion more than the entire world produced in 2019. New York Times

Singapore's fraternal fight

After a frenzied nine-day campaign, Singaporeans are heading to the polls on Friday to elect a new parliament. Singapore Prime Minister Lee Hsien Loong called the election in June, hoping that his ruling People Action Party (PAP) could translate success in Singapore’s falling rate of COVID-19 infections into a streak of unbroken dominance in the city state’s government, where the PAP currently controls 83 of 89 seats. Lee’s party is widely expected to remain dominant, yet he is facing a challenge this year from an unexpected foe—his estranged brother. His brother, Lee Hsien Yang, joined the opposition Progress Singapore Party last month, and has called the PAP “dangerous for the future of Singapore” and is urging Singaporeans to send a wake-up call to his brother’s party. South China Morning Post

 

Coronavirus by country

Bangladesh has been one of Asia’s hardest-hit countries by the pandemic. Thus far, the south Asian country has reported over 172,000 confirmed cases of COVD-19 and over 2,100 deaths. The country went into lockdown from March 23 to May 30, but after reopening in June, Bangladesh’s numbers have continued to rise and the country has recorded 50,000 cases in the last two weeks. The pandemic has been devastating for Bangladesh’s garment industry, which makes up 80% of the country’s exports, and has also led to a backlash against the nearly one million Muslim Rohingya refugees who fled Myanmar in recent years amid government persecution. Even amid cramped living conditions, Rohingyas in Bangladesh have thus far avoided devastating outbreaks, and there has been less spread detected among the refugees than in surrounding communities. Still, anti-Rohingya discrimination is on the rise as Bangladeshis have blamed the refugees for facilitating the spread of the virus. Nikkei Asian Review

Markets and movers

Didi Chuxing – China’s ride-hailing giant announced on Wednesday that it will partner with the Chinese central bank to pilot a digital currency on its platform. The details of the partnership remain private, but, as Naomi Xu-Elegant writes for Fortune, “Didi’s huge customer base, existing digital payment infrastructure, and range of services make it an ideal platform for the digital currency’s biggest trial so far.” Fortune

Sequoia Capital – The venture capital firm announced on Monday that it will launch a $1.3 billion fund that it will invest in India and Southeast Asia. Sequoia, which already has backed major startups in Southeast Asia like the ride-hailing giant Gojek, is seeking to strengthen its foothold in the region’s startup ecosystem even while other funders tighten their wallets amid the pandemic. TechCrunch

SMIC – China’s largest chipmaker, the Semiconductor Manufacturing International Corp, is preparing to raise up to $7.5 billion in its upcoming secondary listing on the Shanghai STAR stock exchange. The company’s expected debut in Shanghai later this month may rank as the world’s largest offering of the year and may help bolster China’s ambitions to build a globally competitive chipmaker. Bloomberg

Final figure

924%

On Thursday, the stock price for QuantumCtek Co., a Chinese information security company, closed 924% above its opening price after its debut on the Shanghai’s STAR stock exchange. The company’s soaring stock is just the latest example of China’s hot streak. Over the past eight days, Chinese stocks have gained over $1 trillion in value, a bonanza that some attribute to encouragement from state media. Amateur individual investors make up the majority of China’s stock trades, which gives the government an opportunity to inject confidence into the market. The last boom in 2015, which was similarly bolstered by government messaging, preceded a large crash, but investors say they are being more cautious this time around. Bloomberg