Hong Kong's National Security Regime Threatens Its Status as a Financial Hub - SOAS China Institute

//Hong Kong’s National Security Regime Threatens Its Status as a Financial Hub

Hong Kong's National Security Regime Threatens Its Status as a Financial Hub

Photo credit: LN9267 (Wikimedia Commons)

By Dennis Kwok | 27 June 2023

Hong Kong’s cherished status as an international financial hub is teetering on the edge of a precipice due to Xi Jinping’s national security agenda. The implementation of the Hong Kong National Security Law (NSL) in June 2020 has introduced a cloud of uncertainty over the once-esteemed common law system, creating a restricted and unpredictable business environment. It begs the question: Can Hong Kong’s national security regime coexist with its coveted position as a financial hub?


Xi’s national security agenda has expanded the scope of national security to encompass not only traditional concerns such as terrorism and extremism but also economic and cultural aspects. This broad and ill-defined concept places every facet of Hong Kong society, including finance, economic activities, and legal proceedings, under its jurisdiction. The implications are far-reaching and disconcerting, as it leaves businesses vulnerable to the whims of the authorities and undermines the city’s once-revered legal system.


The erosion of Hong Kong’s common law system stands as one of the most significant repercussions of the NSL. The judiciary, previously renowned for its commitment to fair trials, common law principles, and international human rights standards, has undergone a fundamental transformation. The Chief Justice’s failure to reaffirm the existence of separation of powers within the legal system, and as seen in the overruling of a judicial decision by Beijing to allow jailed media mogul Jimmy Lai to be represented by a British barrister, is indicative of the dwindling judicial independence in Hong Kong.


Article 47 of the NSL grants the government sweeping authority to interfere in civil and criminal court proceedings, without any possibility of judicial review once this Article is invoked. This provision supersedes local legislation and court decisions, exposing businesses to heightened risks of falling under shifting legal jurisdictions. The impartiality of Hong Kong’s courts, once relied upon by companies entering into contracts with Chinese counterparts, can no longer be taken for granted under the NSL. The independence of the judiciary is gradually eroding, and if Article 47 (together with Article 14) is to be used as a political tool by Beijing in light of the new interpretation made by the National People’s Congress in December 2022, Hong Kong’s courts may increasingly resemble the Party-controlled mainland courts.


The implementation of the NSL has introduced growing legal uncertainties, particularly in areas such as land leases. The inclusion of national security clauses in tender documents empowers the government to disqualify bidders and terminate leases on national security grounds, without any recourse for judicial remedy. Foreign buyers must exercise caution, as investments worth millions can be jeopardised under the guise of national security, while provisions within the NSL permit the retroactive application of such laws.


Additionally, China’s anti-sanctions law empowers Beijing to seize assets from entities implementing sanctions against China or refusing to comply with countermeasures. This places companies with a substantial presence in both China and the West in a precarious position, torn between the requests of democratic governments and the threats of retaliatory actions from Beijing. The update of the anti-espionage law even makes it possible for companies to violate the law in terms of basic information processing, collection and circulation, especially when conducting due diligence. All these laws and Xi’s push to reduce Chinese dependence on foreign technology even further complicate the business landscape, with companies becoming collateral damage in the crossfire of politics.


Beijing’s message to individuals and businesses in Hong Kong is clear: stay within the political red lines or face severe financial and legal repercussions. The cases of Jack Ma and Next Media serve as stark reminders of the consequences for crossing these ill-defined boundaries. However, the challenge lies in the shifting nature of these red lines, making it difficult for businesses to navigate the complex political landscape and avoid entanglement in legal disputes.


As a result of these new risks and uncertainties, businesses, capital, and workers are increasingly fleeing Hong Kong, posing a threat to the city’s status as an international financial centre. The exodus of capital and talent from Hong Kong indicates a changing landscape, where the city’s role is shifting from a global financial centre to a regional hub within China’s Greater Bay Area (GBA). With closer integration between Hong Kong and mainland China, the city’s reliance on the mainland deepens, and its future as a leading international financial centre hangs in the balance.


While it may be tempting to dismiss Hong Kong’s status as an international financial hub, such a notion would be simplistic. The reality is that its trajectory is being redirected towards a regional role in the Greater Bay Area (GBA) region. The GBA, encompassing China’s prosperous Guangdong region, presents significant economic opportunities and a GDP comparable to that of South Korea. Mainland banks and financial institutions are exerting increasing influence in Hong Kong. Chinese authorities could even consider the removal of the hard border between Shenzhen and Hong Kong to further facilitate the relocation of businesses and professionals.


To mitigate the growing legal and political risks, businesses should diversify their trade and investment activities in the region, reducing over-reliance on Hong Kong and China. Governments should play a proactive role in publishing and regularly updating business risk advisories for Hong Kong and China, and keeping businesses informed about emerging legal changes and potential pitfalls. It is crucial for democratic countries to monitor individuals responsible for the administration of law and justice in Hong Kong, leveraging mechanisms through the United Nations to uphold the rule of law.


Furthermore, judges in common law jurisdictions should consider resigning from Hong Kong’s Court of Final Appeal to avoid legitimising its eroded independence under the NSL. This symbolic act would send a powerful message and emphasise the importance of an independent judiciary in upholding the rule of law.



* This article was amended on 1st August 2023.

Dennis Kwok is the Executive Director and Co-Founder of the China Strategic Risks Institute (CSRI). He is also a Distinguished Scholar at Georgetown University, Walsh School of Foreign Service. He served as a Senior Fellow at the Harvard Kennedy School from 2021 to 2023 and was a former member of the Hong Kong Legislative Council representing the legal sector from 2012 to 2020.

The views expressed on this blog are those of the author(s) and are not necessarily those of the SOAS China Institute.