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July 16, 2020

HONG KONG: National Security Law impact – breakdown by sector (2)

BY Gabriel Wildau

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  • Absent a precipitating incident such as the arrest of an employee, non-financial corporates are unlikely to exit Hong Kong en masse.
  • But some companies may re-allocate resources within Asia, shifting non-China-specific corporate functions away from the city, while relying more on Chinese nationals for their remaining Hong Kong operations.
  • Journalism and civil society are most at risk from the law; many organizations will relocate, disband, or stop accepting foreign donations.

This note is part two in a series analyzing the impact of the National Security Law (NSL) on various sectors in Hong Kong and beyond. Part one examined financial services and travel and transit and contains an executive summary covering both parts. The current note examines non-financial companies and journalism, social media, and civil society. See also our overview of the law and initial warning on risks to business.

Non-financial corporates

Some multinational companies use Hong Kong primarily to serve their China-focused operations, while others use it as a regional headquarters for all of Asia. The latter category is more likely to scale back their operations in Hong Kong.

Relevant NSL provisions
Potentially all

Exit scenario and trigger

  • Prosecuting a Hong Kong employee of a high-profile multinational company. If the employee is imprisoned for peaceful activities that would have been permitted before the NSL, his employer would likely face strong international pressure to exit Hong Kong for ethical and reputational reasons – even if the prosecution did not compromise the company’s day-to-day operations. Other companies might face pressure to follow suit.

Muddle-through scenario

As previously mentioned, the NSL raises risks of surveillance and corporate espionage for companies in Hong Kong by eliminating any meaningful distinction between Hong Kong and mainland China for the purposes of operational security. Companies will extend existing precautions from mainland China to Hong Kong or remove sensitive data from Hong Kong entirely.

Absent a high-profile prosecution that generates pressure on companies for an abrupt exit, decisions at global headquarters about the distribution of personnel and other resources within Asia may still be influenced by a general sense that Hong Kong poses greater risks, while offering a reduced quality of life for expatriates. Employees could be relocated so that only those who work directly on China-related businesses remain in Hong Kong, while non-China-specific or pan-regional back office functions are shifted elsewhere in Asia.

In terms of recruitment, companies may increase reliance on mainland Chinese and native Hongkongers rather than expatriates. Such localization was already underway prior to the NSL and may now accelerate. Given the vagueness of the NSL, human resources decisionmakers may assess that mainland Chinese employees are better qualified to detect the invisible “red lines” that, if crossed, would trigger prosecution under the NSL. Relatedly, given that the distinction between mainland and Hong Kong has become less significant, companies may relocate some China-focused operations from Hong Kong to the mainland to be closer to customers and suppliers.

Journalism, social media, and civil society

Many foreign media organizations use Hong Kong as a regional headquarters and editing hub for their entire Asian operations. Visas for foreign journalists in Hong Kong have generally been far easier to obtain than for foreign journalists in mainland China.

Some Hong Kong-based activists and NGOs have received funding from foreign governments, philanthropies, and foreign NGOs.

Relevant NSL provisions

  • Article 9 empowers the Hong Kong government to take “necessary measures to strengthen … regulation over … schools, universities, social organizations, the media, and the internet.”
  • Article 21 defines the crime of Secession to include actions that “incite” the crime of Secession – potentially enabling prosecution of journalists, commentators, activists, or NGO personnel who allegedly promote independence. Article 23 does likewise for the crime of Subversion.
  • Implementation rules for Article 43 empower the Hong Kong police to demand that any “electronic platform” (e.g., news website or social media platform) remove any “electronic message” (e.g., news article or social media post) that “is likely to constitute an offense endangering national security or is likely to cause the occurrence of an offense.” The rules also require the publisher or platform to provide identifying information about the author of the offending message and offer “decryption assistance” to police. Company employees who fail to satisfy police requests are subject to jail time.

Exit scenarios and triggers

  • Tighter visa requirements for journalists or expulsions of resident journalists as retaliation for critical reporting and commentary could force foreign media to relocate their Asian hubs.
  • Prosecution of journalists for Secession under Article 21 could likewise prompt foreign media to exit Hong Kong.
  • Frequent demands that media outlets or social media platforms censor content would have a similar impact.
  • Prosecuting journalists and/or technology company employees who refuse to comply with censorship orders and/or requests to identify their users would trigger an exodus of media and/or technology companies from Hong Kong.

Muddle-through scenario

In Singapore, media cannot freely report on certain domestic political issues. Foreign media have grown accustomed to this situation, the red lines have become clear over time, and media continue to operate largely unobstructed. A similar scenario could enable foreign media to continue in Hong Kong under more restrictive but still tolerable conditions. The New York Times announced on 14 July that it will relocate some general Asian editorial operations from Hong Kong to Seoul, though Hong Kong-focused reporters will remain.

Charles Ho, owner of the pro-Beijing media group Sing Tao News, said that journalists in Hong Kong would remain free to report on pro-independence activism but could be expelled if they crossed into promoting the independence with their own voices. Media may eventually grow comfortable with this distinction.

Civil society
Foreign-funded NGOs and activist groups are likely to disband entirely or at least stop accepting foreign support.

Social media and internet messaging
Technology companies such as Facebook/WhatsApp, Google, Microsoft, and Zoom have suspended processing of requests from the Hong Kong government for user data, pending internal policy reviews. Apple is considering a similar suspension. Technology companies are likely to avoid storing user data within Hong Kong (many never did). Some social media and online messaging platforms may choose to obey government orders to censor specific posts and chat messages, so long as these orders are based on clear and relatively narrow definitions of which statements qualify as Secession, Subversion, Inciting Hatred, etc. The Hong Kong government may refrain from demanding that technology companies provide personal information on users, since doing so could provoke a standoff that could force the companies to exit.

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