Can Hong Kong be a global city without public trust?

Then came the protests.

In the latter half of 2019, as millions of people took to Hong Kong’s streets to demonstrate against Beijing’s increased influence over the city’s nominally independent political system, inquiries spiked to 50 or 60 calls per day. Lo says calls have doubled to 100 calls per day since last July, when Beijing imposed a National Security Law (NSL) in Hong Kong that has been used to snuff out dissent and stifle free expression in the city. 

“Our phones just keep ringing,” says Lo. The majority of his clients—mostly local Hong Kong families and individuals who work in the finance industry, education, and the civil sector—are concerned that the law is eroding freedoms like free speech and access to a liberal education system that Hong Kong residents long enjoyed.

The phone in Lo’s office isn’t the only alarm bell signaling an exodus. 

In 2020, Hong Kong recorded a net outflow of 49,900 residents, the highest such figure in the past decade. The government attributes the population decline to the pandemic and argues that COVID has kept Hong Kong residents abroad for longer than normal.

The U.K. government estimated last October that 320,000 Hong Kong residents may move to the U.K. in the next five years through a British National Overseas (BNO) visa. Up to 5.4 million of Hong Kong’s 7.5 million residents are eligible to apply for BNO status, which the U.K. automatically grants to Hong Kong nationals born before the U.K. handed Hong Kong over to Beijing in 1997. In response to the NSL, the U.K. tweaked BNO visas to open a pathway to citizenship for Hong Kong nationals leaving the city. Since Jan. 31, the U.K. has received 34,000 BNO visa applications, the U.K. home office reported in May.

In the past year, the NSL, which local legislators say was needed to restore stability to the city after months of protests, has been deployed to quash the Hong Kong protest movement, silence and jail some of the city’s top pro-democracy figures, and restructure the city’s parliament, schools, civil service departments, and court system in Beijing’s interest. 

Even as some Hong Kong residents flee and the city’s democratic institutions undergo a draconian reckoning, Beijing’s law may be doing little to erode the city’s status as a financial hub. Many U.S.-based multinationals, Chinese banks, and other foreign financial institutions seem fine playing by Beijing’s new rules. At the same time, though, the national security law has exacerbated public distrust of the government, and that discontent is jeopardizing Hong Kong’s status as an international hub—the very thing the law was supposed to safeguard.

What is the National Security Law?

When Beijing introduced Hong Kong’s national security legislation during its annual Two Sessions political meeting in May 2020, it was the first time the central government unilaterally imposed legislation on the Special Administrative Region. According to Hong Kong’s Basic Law—a mini-constitution enshrining the separation of powers between Beijing and Hong Kong—the city’s local legislature is responsible for introducing a national security law itself. 

“The speed with which Beijing executed the law, seemingly without consulting with the elites of Hong Kong, including the government, was surprising,” says Victor Shih, a Chinese politics expert at the University of San Diego. 

Critics argue Beijing’s imposition of the NSL shattered the “one country, two systems” framework that had ensured Hong Kong’s “high-degree of autonomy” when the former British colony came under Beijing’s thumb 24 years ago. 

Weeks after Beijing imposed the NSL, the U.S. signed the Hong Kong Autonomy Act into law, claiming Hong Kong was not independent enough from the mainland to merit the designation. The act revoked privileges that lowered tariffs on imports from Hong Kong and pledged to sanction officials who contributed to the decline of freedoms in the city. 

The NSL targets four criminal acts of secession, subversion, terrorism, and foreign collusion. Proponents of the law, such as Hong Kong chief executive Carrie Lam, argued that implementing the NSL was necessary to “restore stability” after months of disruptive protests.

Throughout the summer and fall of 2019, the protests entered everyday life, with tear gas deployed multiple times in the heart of Hong Kong’s financial district during lunchtime demonstrations and pitched battles between protesters and police every weekend. 

On Aug. 12, 2019, Hong Kong International Airport closed for the day after protesters flooded one of its terminals. In November, students occupying Hong Kong Polytechnic University and the Chinese University of Hong Kong shut down some of the city’s main thoroughfares for days after taking over the highways and sparring with police.

On June 30, 2020, the day Beijing promulgated the NSL in Hong Kong, Lam said the scope of the law would be “clearly defined” and would target only an “extremely small minority” of people. 

In fact, the law’s scope is enormous; it claims to apply even to non–Hong Kong residents living outside Hong Kong jurisdiction—i.e., everyone on earth—and, one year on, what actions and behaviors may violate the law remain undefined.

To date, more than 100 people have been arrested for crimes relating to the NSL. The majority came in January, when police arrested 53 pro-democracy activists, including former lawmakers, in a single day. Forty-seven of the arrested were charged with subversion for organizing an unofficial primary election late last year. Authorities have arrested other citizens for displaying slogans popular during the 2019 protests, which the government now deems seditious. 

Beyond the arrests, officers have censored dozens of books in the city’s libraries on the grounds that the titles may violate the NSL, scrapped films that “endanger national security” from Hong Kong cinemas, and crafted new curriculum to promote national security education in Hong Kong schools. April 15 is now National Security Education Day in Hong Kong. During the inaugural holiday this year, school children on field trips played with toy machine guns under the watchful eye of Hong Kong’s police force. 

Back in classrooms, the Education Bureau warned teachers not to promote critical discussion of the new NSL curriculum, which requires students as young as 6 to learn the “13 areas” of national security and understand what counts as secession, subversion, terrorism, and foreign collusion. But even Hong Kong’s leaders won’t offer clarity on those terms.

“I believe media friends have the ability to grasp what kind of activities endanger national security,” Lam said at a recent press conference in response to a question about how the press may violate the law. “It is fine to criticize the Hong Kong SAR government, but if there is an intent or organizing of activities to incite or subvert the government, that is another thing.”

Experts say the NSL’s broad wording and sweeping powers granted by Beijing make the National Security Law’s office more powerful than any other institution in Hong Kong. Beijing has reportedly assigned up to 4,000 national security and Hong Kong police officers to enforce the law. The officers have taken over two hotels in Hong Kong as temporary offices, but the government in April allotted a 11,500-square-meter site overlooking Hong Kong harbor for a permanent national security headquarters. 

“We have no idea what the red lines are,” says Alfred Wu, a Chinese politics professor at the National University of Singapore. “Everything is unclear.” 

Shih expects the crackdown on Hong Kong’s institutions to intensify.

“They’re going to expand their target list. They’re going to add more organizations, companies, and individuals to their list of investigation and prosecution,” says Shih. “It’s just a classic case of mission creep.”

The chilling effect

In addition to actual enforcement, the law’s specter has chilled corners of Hong Kong society that once pulsed with life and forced business to rethink how they operate in the city.

Artists say they’re practicing self-censorship and are on high alert after a pro-Beijing newspaper ran an editorial in March saying that the government had distributed nearly $2 million in funds to arts and theater organizations in the city that violated the NSL by producing work that criticized the government. 

Prominent academics in Hong Kong, like the liberal-minded political scientist Ivan Choy, have announced that they will stop writing columns in city newspapers due to political sensitivities related to the NSL. 

After the law was implemented, major tech firms like Facebook, Google, and Twitter announced that they would stop responding to requests from the Hong Kong government to hand over user data just as Hong Kong citizens began erasing themselves from social media. 

Facebook has also pulled out of three separate projects to build Internet cables between Hong Kong and the U.S. because of U.S. government concerns about Beijing’s increasing influence in the city and fears that it could use the cable to steal data.

In May, Hong Kong police reportedly wrote to Israeli website manager Wix to demand the company remove a pro–Hong Kong democracy website from its servers, claiming that hosting the site violated the NSL. Wix, headquartered 5,000 miles away from Hong Kong, removed the website, but reinstated it after the site’s creator, Nathan Law—a pro-democracy politician granted political asylum by the U.K. in April—made the case public. Wix says the account was taken down by mistake. Law posted a letter showing that Hong Kong authorities threatened Wix employees with fines and jail time if they did not comply. Wix did not respond to Fortune’s request to confirm the threat or if Hong Kong followed through with any punitive measures. 

The NSL has effectively shut down one publicly listed company in Hong Kong. 

On June 17, 500 police officers raided the offices of pro-democracy tabloid Apple Daily, sifted through reporters’ notebooks, and arrested five of the newspaper’s top editors and executives under suspicion of violating the NSL.

The same day, national security officers froze $2.3 million in assets of Apple Daily parent company Next Digital, which is listed on the Hong Kong stock exchange, choking off the newspaper’s ability to pay staff or receive payments from vendors. The asset freeze amounted to a death sentence, and last week Apple Daily printed the last edition of its paper, pulled its articles from the Internet, and laid off its staff. Next Digital will cease operations by Thursday, according to Bloomberg. 

Shih argues that the Next Digital case should be a warning sign to all companies operating in the city. 

“The bar for freezing assets is typically very high in Hong Kong,” says Shih. Hong Kong authorities previously needed a court order to freeze assets, but the national security office can now unilaterally order such moves. “But if the [Chinese Communist Party] authorities have no interest in protecting companies or individuals in Hong Kong, you can easily see a lot more assets being frozen or confiscated for national security reasons.”

Tara Joseph, president of the American Chamber of Commerce (AmCham) in Hong Kong, says that Hong Kong’s Apple Daily crackdown represented a “shot across the bow” to the business community in Hong Kong. “Can you have a major global financial hub that has a strong financial infrastructure, a world-class exchange, a world-class group of executives in finance, without the free flow of information?” she asked.

In May, AmCham reported that 42% of its surveyed individuals were planning to depart Hong Kong, with 62% of those claiming they want to leave because of the NSL.

“The rule of law is the backbone to Hong Kong’s status as an international hub,” says Joseph. Hong Kong’s existing common law system aided the city’s growth into a financial hub, helping convince multinational firms from around the world to set up shop. Now, says Joseph, “there is concern over the ambiguity of the [NSL]. For business, the choice is to adjust or to go.”

For businesses that don’t comment on politics or advocate for democracy outside their home countries, adjusting to the NSL may be as simple as ensuring they do not provide financial services to those prosecuted under the law. To that end, David Donald, a corporate law professor at the Chinese University of Hong Kong, said that the Apple Daily crackdown won’t scare financial services companies.

“If you take [the Apple Daily crackdown] to a banker, the bankers would think, okay, I don’t see any change, everything is operating fine,” Donald says. Bankers attribute the case to the government’s singular disdain for Apple Daily founder Jimmy Lai, an outspoken critic of the local government and Beijing, Donald says.  

Big banks react

Fortune reached out to 13 of the city’s largest investment banks including Morgan Stanley, JPMorgan, and HSBC, as well as four auditing firms including Deloitte and PricewaterhouseCoopers, to ask if and how the law has changed the way they operate in Hong Kong. 

All but one of the institutions either declined to comment or did not respond to Fortune’s requests. U.S.-based Citigroup, which did respond, presented an optimistic outlook, noting that “merger raising and merger and acquisition activity are near record levels” in Hong Kong. The bank also said it plans to hire 1,000 additional staff members in the city.

“Hong Kong’s status as a key global financial center was developed over decades, and it has the infrastructure and opportunities to support further growth,” a Citigroup spokesperson said. UBS and HSBC did not respond to Fortune’s requests for comment but have also announced plans to ramp up hiring in Hong Kong this year. Goldman Sachs confirmed that more than half of its 400 new hires in Greater China for 2021 will be based in Hong Kong. 

The law so far has not impeded the free flow of money that makes Hong Kong a valuable conduit between China and the West. 

“The city…will continue to benefit mainland companies that can reach the world via Hong Kong, while foreign companies can leverage Hong Kong’s sophisticated business and legal regimes to get access to mainland China’s domestic market,” said a spokesperson at the government-run consultancy InvestHK. So far, the data aligns.

In 2020, the Hong Kong Stock Exchange (HKEX) rode a wave of mainland Chinese company listings to rank as the world’s second-largest IPO market. In a midyear report, auditing firm KPMG noted that the Hong Kong stock exchange raised $27.5 billion in 46 IPOs in the first half of 2021, the bourse’s strongest-ever performance to start a year. 

“In the last two years, Hong Kong’s financial markets have demonstrated their resilience and relevance…Hong Kong remains unequivocally the best market for the world to access China; and for China to access the world,” HKEX said in a statement.

Meanwhile Hong Kong’s benchmark Hang Seng index has gained nearly 20% since the NSL was introduced. 

“The National Security Law is aimed at tightening social and political control, but mostly not about changing the city’s economics, so that the multinationals will feel comfortable and continue to stay in Hong Kong,” said Steve Tsang, director of the SOAS China Institute in London.

Still not “business as usual”

Nevertheless, the imposition of the NSL and its suppression of free speech has instilled a palpable paranoia across Hong Kong that has disrupted the return of “business as usual.” Most notably, the law has stoked public resentment and distrust of the government that undermine a COVID-19 vaccine campaign that’s essential for a post-pandemic reopening. 

Hong Kong has provided at least one vaccine dose to just 29% of its population since launching its inoculation drive in February. Misinformation and a lack of incentives are partly responsible for Hong Kongers’ reluctance to take the jab, but according to a survey conducted in April and May by the Chinese University of Hong Kong (CUHK), “no confidence in the government’s recommendations” was the No. 2 reason for not receiving a vaccine (behind fear of side effects). 

And at least some of the unvaccinated are deliberately refusing to get vaccinated as a form of protest. 

“When all of a sudden you can no longer attend mass protests, [refusing to get the vaccine] becomes the only way to express dissatisfaction toward the government,” says Riva, 26-year-old research assistant in Hong Kong, who has not been vaccinated and declined to share her full name because of fear of political retaliation. 

“There is a lack of confidence in vaccine manufacturers and the government,” Paul Kay Sheung Chan, chairman of the department of microbiology at CUHK Medicine and co-leader of the survey, said in a June press release about the study. “We hope the incentive plans introduced by the government and private sectors recently can boost the vaccination rate.”

In June, Hong Kong’s government and top private sector firms released a raft of incentives to boost the city’s vaccine uptake. The government’s measures allowed vaccinated individuals to gather in larger groups and avoid some quarantines, while private incentives included vaccine lotteries for cash prizes, cars, and a free apartment.

The measures may help explain why the city’s vaccination has nearly doubled from distributing 30,000 doses per day in early June to roughly 52,000 doses per day this week. Still, at its current pace, Hong Kong will not vaccinate 70% of city residents until mid-November.

With herd immunity a distant dream, Hong Kong’s government has resorted to harsh travel restrictions to stymie the spread of the coronavirus. Hong Kong bans all nonresidents from entering its borders, and all travelers—even those who are vaccinated—must quarantine in hotels upon arrival, some for as long as 21 days.

The measures have almost certainly saved lives. Hong Kong’s 11,917 cases and 210 deaths are a fraction of the toll COVID-19 has wrought in places like London and New York. But as public health experts note, Hong Kong cannot stay closed off forever, and the city’s vaccine campaign has failed to keep up with other global financial hubs even with its bountiful vaccine supply. 

As Hong Kong’s borders remain locked, financial hubs like New York, Singapore, and London are dropping COVID-19 restrictions after providing at least one jab to 56%, 57%, and 76% of residents, respectively. 

Eddie Yue, chairman of the Hong Kong Monetary Authority (HKMA), wrote on June 1 that if Hong Kong’s vaccination rate continues to lag it could hurt Hong Kong’s “competitiveness as an international financial center” as other cities begin to resume travel. “This is a real and looming threat that Hong Kong cannot afford to overlook,” he wrote.

In the first quarter of 2021, Hong Kong’s economy grew by 7.9% thanks to exports to China and the U.S. The property market has also remained resilient, as lived-in home prices are nearing record highs set in May 2019, before the protests began.

But the recovery has been uneven. Air passenger traffic is down 90% from pre-pandemic levels, and sectors like tourism, hospitality, and the airline industry are continuing to bear the brunt of the tourist drought. Hong Kong’s unemployment rate is at 6%, down from a high of 7.2% last December but nearly double what it was before the pandemic in 2020.

Earlier this month, Lam said in a speech that the implementation of the NSL has gone “a long way toward ensuring the long-term prosperity and stability of Hong Kong.”

To fulfill that promise, the government must win the trust of Hong Kongers, some of whom see refusing to be vaccinated as this city’s last means of legal dissent.