Hong Kong Has Gotten Seriously Risky for International Business

Since taking office in January, the Biden administration has taken a series of steps to signal a firm line on China, while at the same time making clear to Beijing that there is room to collaborate on key issues such as climate change and global health. On July 16, four key U.S. bureaucracies—the departments of State, Treasury, Commerce, and Homeland Security—issued an important advisory to American businesses in Hong Kong, warning them of the dangers posed by Hong Kong’s new national security law. In light of the new law, which was imposed last year, international businesses “should be aware of the potential reputational, economic, and legal risks of maintaining a presence or staff in Hong Kong,” the statement declared.

It’s rare to see four top U.S. government agencies speaking with one voice. The advisory is a product of both the growing friction between Beijing and Washington, and the very real and serious problems posed by the national security law. Past U.S. administrations, more cautious around the relationship, would likely have registered concerns over the law in a less high-profile way or would have refrained from public comment altogether. With the era of engagement now over, Washington is more open in its criticism of China’s human rights record, which explains both the recent advisory and other critical statements made on China by senior officials over the past few months.

But the national security law is also a genuine hazard for international businesses in Hong Kong. Its core criminal provisions are vague and overbroad, and they have been used to target peaceful political activists, lawyers, and mainstream politicians. The law also contains an extremely broad extraterritorial jurisdiction provision: Under Article 38 of the law, actions taken outside Hong Kong by non-Hong Kong citizens are covered. This means that businesses operating in Hong Kong—or even far from Hong Kong—can be dragged into cases involving prominent activists like Joshua Wong or Nathan Law, or more mainstream politicians like Martin Lee or Margaret Ng. All four have faced criminal charges or investigations, either under the national security law or other criminal provisions, over the past year.

For private companies, the key provision of the new law is Article 43, which gives the Hong Kong national security authorities broad powers to engage in search, seizure, freezing of assets, and online censorship of those accused of violating the law. As the number of investigations and prosecutions under the law continue to grow, companies could be called upon to provide information on their customers, to censor their online speech, or to freeze their bank accounts. In January, for example, the Hong Kong government forced local internet service provider Hong Kong Broadband Network to block access to HKChronicles, a website that features writing on the 2019 protest movement. Since then, other websites have been blocked as well.

The reputational cost—not to mention the moral price—of aiding the Hong Kong government’s crackdown on rights activism would be significant for any company that found itself on the receiving end of a subpoena from the National Security Department of the Hong Kong Police.

Businesses operating in Hong Kong also need to read the little-noticed implementation rules for Article 43 of the national security law. Issued just days after the law itself in July 2020, the implementation rules broadly expand the investigatory powers of the Hong Kong Police and cut back on due process and privacy protections for the accused. (One of us wrote about the rules for a recent briefing paper, published on the one-year anniversary of the national security law’s implementation.) Under the implementation rules, it will be even tougher for businesses to challenge police orders for information or censorship in court, just as it will be difficult for individuals accused of crimes under the national security law to protect themselves from unwarranted snooping by the national security police.

Article 43 and the implementation rules have already been put to use by the Hong Kong government. In May, the Hong Kong Police wrote to the Israel-based web-hosting company Wix, demanding that the company stop hosting the website for the 2021 Hong Kong Charter, a pro-democracy and pro-autonomy manifesto launched by a group of prominent exile activists. The letter, signed by one Annette Cheng on behalf of then-Commissioner of Police Chris Tang, threatened fines and jail time if the company refused to comply. The company initially took down the website, restoring it days later, only after a public outcry and media attention increased pressure on the company to do so.

The government also has other tools to target private companies. The new law’s Article 31 makes clear that organizations—including not just international businesses but also domestic and international nongovernmental organizations, media outlets, and presumably also academic institutions, think tanks, and other research groups—can be prosecuted for violating the law. Thus far, three companies—all part of Jimmy Lai’s Next Digital group, which published the pro-democracy Apple Daily—have had their assets frozen in relation to a national security law investigation. Those deeply troubling cases aside, Article 31 prosecutions will likely remain relatively rare, but the provision does point to the very real risks that businesses and other organizations operating in Hong Kong face.

What should the international business community do? Companies need to continue to monitor the implementation of the national security law closely and be ready to respond if and when the Hong Kong government attempts to drag them into particular cases. In particular, companies should study the United Nations Guiding Principles on Business and Human Rights, which provide a helpful framework to companies operating in closing spaces like Hong Kong. Article 11 of the Guiding Principles states: “Business enterprises should … avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved.”

Business groups, including the American Chamber of Commerce in Hong Kong and the US-China Business Council, should also support the Biden administration in its efforts to press Beijing to change course on its increasingly hard-line Hong Kong policy. In years past, Beijing has been able to count on the U.S. business community to push successive administrations and key members of Congress to soft-pedal human rights violations by Beijing. That dynamic seems to be changing, especially as new rules like the national security law make clear the connections between human rights, rule of law, and an open and thriving business environment. Going forward, Western companies operating in Hong Kong should make clear, both publicly and privately, their concerns with the national security law, and they should refuse to take steps that would violate the rights of activists, lawyers, and politicians fighting against the ongoing crackdown.

At the end of the day, the U.S. government is limited in terms of its ability to influence Beijing’s approach to Hong Kong—or to human rights more generally. Hong Kong’s human rights crisis will continue to feed the growing tensions between the United States and China. Still, the Biden administration needs to both signal its support for human rights activists in Hong Kong and protect the interests of U.S. businesses operating there. The July 16 advisory is an important step in the right direction for the Biden administration’s Hong Kong policy and its broader China policy. Sadly, it seems clear that more such efforts will be needed.