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In Hong Kong, a city that is adapting to life under a Beijing-imposed national security law and introducing its own version of it, global companies are bringing in practical barriers to doing business.
The US law firm Latham & Watkins is cutting its lawyers off from international databases. Deloitte and KPMG are asking staff to take burner phones when they visit. Though the firms have not said explicitly why they have done this, several other global companies are discussing whether to take similar measures.
These moves sometimes seem like overkill to affected staff, and to rival companies. Frustrated consultants say it has not been made clear why they can’t use their devices, noting that systems can be hacked from anywhere and that rival Big Four companies don’t take the same approach. Lawyers at other international firms say they do not take the Latham & Watkins approach, and have no plans to.
The problem is that many international businesses operating in Hong Kong are finding it harder than ever to understand what they need to worry about, and how much. In 2020, the US declared that it no longer considered Hong Kong to be autonomous from China. And now Beijing is prioritising security over economic growth. Police and security services have raided the offices of foreign due diligence firms on the mainland and Beijing introduced anti-espionage and data-sharing laws that, according to foreign chambers of commerce, are too vague and make it hard for multinationals to carry out normal business — though China has sought to clarify the rules.
“There is so much uncertainty as to, is there a risk or isn’t there a risk?” a Hong Kong-based consultant said. “Is Hong Kong really part of China when it comes to data security? People just don’t know. Some people are quite blasé about it . . . others are taking quite an extreme position.”
The uncertainty encourages companies to take a risk-averse approach. At some, there is a tussle between Asia-based partners who fear that introducing practical barriers will damage their business and alienate Chinese investors, and their US colleagues who are increasingly wary about China. The information vacuum favours the latter.
Last week Hong Kong published a detailed draft proposal of its own national security law, targeting espionage, treason and foreign political influence, a requirement under Article 23 of the Basic Law, which took effect after the 1997 handover. The bill is set to broaden the definition of state secrets to include data on the economic, social or technological development of Hong Kong or the mainland. The government had previously been holding meetings to brief business figures on the Article 23 plans. But it “hasn’t come out and said definitively, ‘this is OK and this isn’t’”, one said.
For years, Hong Kong’s international finance crowd has seemed to exist in a parallel universe to conversations about politics, but sentiment is starting to change. Political rhetoric in the territory is rattling many expats. Hong Kong chief executive John Lee has referred to a group of pro-democracy activists, who are self-exiled in the US, UK and Australia, as “street rats” and police have offered bounties for information leading to their arrest.
“Until now, someone like me who has no participation in politics has felt completely safe,” a senior expat banker said. “My assumption is they will leave me alone, because I’m not meddling in that part of the world. But there’s a question mark, right? Hong Kong has a whole bunch of firms that do due diligence — what if one of them pisses someone off?”
Burner phones and data curbs are unsettling, and a ban on disparaging China in initial public offering prospectuses has forced bankers in Hong Kong to think carefully about language. The uncertainty and tough rhetoric have got them speculating about other scenarios, too. One asked recently whether I thought Hong Kong expats might face travel bans, as some executives have done in mainland China, especially if they work on due diligence projects in which they might handle sensitive information about Chinese companies. Another said they wondered whether WhatsApp could be banned.
Officials have said they have “no intention” to ban any social media platforms under the new law. And it is difficult to know what reassurance Hong Kong’s government might offer. But it matters for Hong Kong’s global standing that people are raising these questions. “When I travel to Singapore it doesn’t occur to me to think, shall I take my phone?” the banker said. “People don’t think about it in London or Sydney. I think it’s very hard to be a regional centre if that’s how people start thinking.”
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