Hong Kong companies fear being crushed between China and the US

U.S. business groups say a Biden administration warning about the risks of operating in Hong Kong has made life difficult for them as they navigate China’s security crackdown.

Citing the introduction of a tough national security law in Chinese territory last year, the US “Business advice” on Friday warned of increased surveillance of trade data, as well as threats to freedom of information by Hong Kong’s restriction on previously free media.

But city employers said they were already aware of the risks and complained that the advice made it difficult for them to convince their headquarters of the continued benefits of operating in the territory.

“The general tone is that the business community doesn’t need Foggy Bottom to tell them there are risks or how to manage them,” a person close to U.S. multinationals said in reference to the U.S. State Department.

The US Chamber of Commerce issued a statement shortly after the notice was issued highlighting the value its members attached to the operation in the city.

“This adds another layer of complexity to being an American businessman in Hong Kong,” said about adviser Tara Joseph, president of the American Chamber of Commerce.

“Perhaps it was a little worrying why it is set this way, leaving people wondering if Hong Kong has a higher risk of being crushed by US-China tensions when Hong Kong still has special qualities.”

Since the introduction of the National Security Act last year, prisons have been filled, people considered disloyal to China have been subject to government and civil service reform, the media and education systems for bring them closer to those of mainland China.

But the change has not led to an exodus of foreign banks and companies, which want to take advantage of the recovery from China’s pandemic and the promise of financial market liberalization on the mainland.

A member of the American business community in Hong Kong said that while many were “horrified” by police withdrawing pro-democracy activists in unbranded vans, they do not see it as relevant to their business. “More than 90% of the Fortune 500 is represented in Hong Kong and they are going nowhere, China still represents the strongest consumer market globally,” an American banker added in Hong Kong.

Joseph said there were a number of reasons why businesses want to stay in Hong Kong. “[Hong Kong is] efficient in fiscal terms, it is an international center and there is a reason why corporate legal teams are based here. “

However, US officials say China “cannot have it in both directions” and insist the political situation will affect the business environment. Biden issued the warning, in part because he believed companies were not taking the risks of climbing seriously enough, one told the Financial Times.

“Imposing a continental system is not compatible” with being an attractive international financial center, another U.S. official said.

Hong Kong businesses have tried to adapt to the new security regime. They have trained staff to respond if authorities raid their offices and request documents without court orders. Increasingly awkward to have data in the city, some have moved their servers out.

The Hong Kong government is following a number of other laws that have caused the most inconvenience. On Friday he confirmed he would pursue antidressing laws, the details of which affect U.S. tech companies like Google and Facebook. Under the laws, which apply extrajudicially, employees could go to jail for not removing material posted online under the orders of the city’s privacy commissioner.

Despite U.S. movements, there are no signs of a change of direction on the part of China or the Hong Kong government. “The words and deeds of foreign business leaders fully demonstrate that the business environment in Hong Kong has not been undermined since the implementation of the [security law]. On the contrary, it has improved even more, “said Edward Yau, the city’s trade secretary.

Analysts question what American advice will achieve beyond political stance. It contains no new legal obligations for U.S. business, although the U.S. separately sanctioned seven middle-class Chinese officials in Hong Kong, a move the Chinese state media declared exposed the U.S. as a “paper tiger.” “.

Kurt Tong, former U.S. Consul General in Hong Kong, said: “The U.S. government is discovering that there are few ways to punish China for its unfulfilled promises in a specific way to Hong Kong without also seriously harming the interests of the United States and its longtime residents. ”

However, the Chinese government’s attempts to back down against sanctions could harden the balancing act of U.S. companies in Hong Kong.

Laws recently passed by Beijing allow anyone who helps foreign nations to impose sanctions on Chinese companies and officials to impose sanctions. The U.S. said the legislation did not explicitly exempt Hong Kong-based operations.

Enforcement of sanctions laws in the city could force companies to separate their operations in China and Hong Kong from the rest of their global business, said Douglas Arner, a law professor and financial regulation expert at the city. University of Hong Kong.

But Christine Savage, a sanctions expert and partner at King & Spalding, warned that there was no guarantee that this would protect companies from possible punitive actions in Beijing.

“Undoubtedly, there is concern that there may still be retaliatory measures [because] the national security law has a language that suggests that China can be held accountable for actions it takes outside of China, ”he said.