American businesses in Hong Kong face operational risks similar to those in mainland China, says US envoy

The US consul general in Hong Kong warned American businesses that the operational risks they face in Hong Kong are resembling those now in place in mainland China.

Washington’s top diplomat in the city, Hanscom Smith, said Hong Kong’s “strength as a business hub will continue to erode” if it stays on its current trajectory. His grim take came days after the city marked its 25th anniversary of being handed over from British to Chinese rule.

“Just 25 years into the 50 years of a high degree of autonomy promised by Beijing, business and rule of law risks that were formerly limited to the mainland are now increasingly a concern here in Hong Kong,” Smith said on Wednesday at an online seminar hosted by the Center for Strategic and International Studies, a Washington-based think tank.

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“The national security law and actions taken by the mainland and Hong Kong authorities may negatively affect their staff,” he added, listing areas of risk involving “finances, legal compliance, data security, operations, and reputation.”

Smith gave examples of what he saw as heightened risks associated with electronic surveillance without warrants, the surrendering of corporate and customer data to authorities, diminished press freedom, and uncertainties in how Beijing retaliates against companies that comply with sanctions imposed by the US or other countries .

“Please let me also stress that the United States wants Hong Kong to succeed,” the American envoy said. “For Hong Kong to flourish again, Beijing must honor its commitments to preserve its autonomy.”

Smith’s remarks contrasted sharply with the high-level celebrations the Hong Kong government organized for the handover anniversary last Friday, as Chinese President Xi Jinping hailed the city’s successes and improvements in the quarter century since it returned to Beijing’s fold.

Xi underscored Beijing’s “full jurisdiction” over the special administrative region while saying the city’s “high degree of autonomy” to rule itself per the agreement between Britain and China leading to the handover on July 1, 1997 would remain.

The visit was Xi’s first outside the mainland since 2020 when the coronavirus pandemic hit. It was also the Chinese leader’s first visit since Beijing drew widespread international criticism over its tightened grip on Hong Kong by introducing the national security law and election reforms following large protests in the city in 2019.

Last July, Washington issued an advisory to warn American businesses about risks to their operations and activities in Hong Kong, voicing concerns two years after the national security law’s implementation in 2020.

Following Smith’s remarks on Wednesday, Tara Joseph, former president of the American Chamber of Commerce in Hong Kong, said Hong Kong still had a well-respected financial infrastructure-including its monetary authority, tax system, stock exchange and banking system-but asked whether these attributes could withstand the political changes.

“Will [these institutions] be overridden, will the human connectivity and human sense of what’s happening in Hong Kong when it comes to rule of law, freedoms of media really start to impinge on that comfort with what is a pretty good financial infrastructure? ” asked Joseph, now senior director at Strategy Risks, an advisory firm for businesses.

“We haven’t seen it really falling apart yet … but you have got to ask the question: if the rule of law is starting to erode, how long can that golden goose remain untouched?” Joseph added. “I think there’s a huge amount of risk now.”

Many companies had reached the conclusion that Hong Kong’s environment has become more “challenging” and have been making moves accordingly, said Jessica Bartlett, global head of financial crime legal at Barclays.

“They contingency-plan a lot more. They invest a lot more in their legal and compliance functions than they had to historically. They may look at diversifying across the region, ”Bartlett said.

Top Beijing diplomat urges foreign governments to present Hong Kong objectively

Charles Mok, a former Hong Kong lawmaker who is now a visiting scholar at Stanford’s Global Digital Policy Incubator, said Beijing was aware of the problem. “But the bad news is even if they are meeting these international chambers and said they are listening to them, my worry is that they have their own script all along,” Mok said at Wednesday’s event. “I think the answers were already written in the books of [China’s Communist Party]. ”

Hong Kong’s status as a global hub for international finance and trade has been waning. About 80 per cent of the American Chamber of Commerce in Hong Kong’s members reported in January that their operations had been affected by national security law, with 47 per cent saying staff morale had suffered and 45 per cent losing employees to emigration.

Meanwhile, another survey released by the European Chamber of Commerce in Hong Kong in May said nearly half of European companies were considering leaving the city sometime this year.

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