By James Pomfret and Greg Torode
HONG KONG, March 21 (Reuters) – The global business community in Hong Kong is on edge following vague provisions in the new national security law pertaining to state secrets and connections to foreign entities. This has prompted many foreign firms to enhance their contingency plans in response to the heightened political risk in the financial hub.
In light of concerns around data security, several corporations are now treating Hong Kong similar to mainland China and safeguarding sensitive information from local teams, according to an experienced executive advising international firms.
Meanwhile, a hedge fund executive revealed that their fund is seeking legal counsel on navigating interactions with regulators and government officials due to the ambiguous state secrets provisions within the new law.
“It boils down to a lack of trust in the Hong Kong government, which is seen as subservient to China,” noted a foreign executive who recently met with senior officials in Hong Kong.
The unease surrounding security issues has led to more than a dozen businesspeople declining to be identified when speaking to Reuters on the matter.
On Tuesday, Hong Kong’s legislature unanimously approved the law, which amends a previous national security law established by China four years ago and includes harsher penalties for offenses such as sedition and external interference.
Scheduled to take effect on March 23, the new legislation has drawn endorsements from organizations like the Hong Kong General Chamber of Commerce, which believes it will create a “safer destination for local and foreign businesses and professionals operating there.”
In defense of the law, Hong Kong and Chinese government officials have argued that it is not more severe than security measures in countries like the United States, Britain, and Singapore.
However, some legal experts have expressed concerns over the broad definitions surrounding crimes related to external interference, espionage, and state secrets, creating an atmosphere of uncertainty.
The Uncharted Territory of Implementation
Interviewed businesspeople emphasized that the new law poses a potential threat to Hong Kong’s global standing by aligning it more closely with China’s stringent national security framework under President Xi Jinping.
“For the international business community and financial investors, Hong Kong’s common law tradition and equity rule are as crucial as information transparency and currency stability,” remarked Weiheng Chen, senior partner at Wilson Sonsini, a U.S-based law firm.
“The implementation of this legislation within the existing common law system will require close monitoring and evaluation,” added Chen, who oversees the Greater China practice.
The lack of clarity on terms and law enforcement procedures spurred a hedge fund to update its contingency plans, as an executive disclosed.
“We are urgently seeking guidance on whether our research may venture into precarious areas and how to manage relationships with foreign government-linked wealth funds while ensuring the safe sharing and storage of research findings,” the executive explained.
“While our preference is to remain in Hong Kong, Singapore stands as our backup plan if necessary,” they added.
In the past year, the Chinese authorities tightened information access, restricted content on Chinese corporate databases, and cracked down on due diligence firms, exemplified by the arrest of five Mintz Group executives at their Beijing office.
Highlighting the evolving risks, a long-time corporate investigator in Hong Kong mentioned that activities like fraud investigation and due diligence, involving close scrutiny of assets and companies, might no longer be feasible.
According to three due diligence executives, the mounting risks have spurred consolidation in the industry, prompting some professionals to depart the city.
“China’s security realm is extending into Hong Kong, encompassing data regulations as well,” warned the corporate advisor. “While Hong Kong retains a semblance of openness, the broader trajectory is unmistakable.”
(Additional reporting by Kane Wu, Xie Yu, Clare Jim, Anne Marie Roantree and Hong Kong newsroom; Editing by Miral Fahmy)
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