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In Hong Kong, a city that is adapting to the national security law imposed by Beijing and rolling out its own version, multinational companies are erecting practical barriers to doing business.
US law firm Latham & Watkins is cutting off its lawyers from international databases. Deloitte and KPMG require employees to bring burner phones when they visit. Although the companies did not specify their reasons for doing so, several other multinational companies are discussing whether to take similar measures.
To affected employees and competitors, the moves sometimes seemed excessive. Frustrated consultants say it's unclear why they can't use their own equipment, noting that systems can be hacked from anywhere and that the Big Four rival companies won't take the same approach. Lawyers at other international law firms said they would not take Latham & Watkins' approach and had no plans to do so.
The problem is that many international businesses operating in Hong Kong are finding it harder than ever to understand what they need to worry about and how much to worry about. In 2020, the United States announced that it no longer considered Hong Kong to have autonomy from China. Beijing now prioritizes security over economic growth. Police and security services have raided the offices of foreign due diligence firms, and Beijing has introduced counterintelligence and data-sharing laws that, according to foreign chambers of commerce, are too vague and make it difficult for multinationals to conduct normal business – despite China's attempts to clarify the rules.
“There's so much uncertainty, are there risks?” said a Hong Kong-based consultant. “Is Hong Kong really part of China in terms of data security? People just don't know. Some people are very tired of it. . . . Others have taken quite extreme positions.”
Uncertainty encourages companies to adopt a risk-averse approach. In some quarters, there is a feud between Asian partners concerned that introducing physical barriers will hurt their business and alienate Chinese investors, and U.S. colleagues growing wary of China. An information vacuum favors the latter.
Last week, Hong Kong unveiled a detailed draft national security law targeting espionage, treason and foreign political influence, as required by Article 23 of the Basic Law, which came into effect after the handover in 1997. The bill seeks to expand the definition of state secrets to include data on the economic, social or technological development of Hong Kong or the mainland. The government has previously held several meetings to brief business people on the Article 23 plan. But one person said it “hasn't clearly said 'this is okay and this isn't okay'”.
For years, Hong Kong's international finance crowd seemed to exist in a parallel universe to the political conversation, but the mood is starting to change. Political rhetoric in the region unnerves many foreigners. Hong Kong Chief Executive Lee Ka-chiu has branded a group of pro-democracy activists living in self-exile in the United States, Britain and Australia “street rats” and police are offering rewards for information leading to their arrest.
“So far, people like me who are not involved in politics feel completely safe,” said a senior foreign banker. “My assumption is they won't bother me because I don't interfere in that part of the world. But there's a question mark, right? There are a bunch of companies in Hong Kong that do due diligence – what if one of them pisses off someone ?”
Unsettling burner phones and data restrictions, along with a ban on disparaging China in initial public offering prospectuses, are forcing Hong Kong bankers to carefully consider language. Uncertainty and tough rhetoric also have them speculating about alternative scenarios. I was recently asked if I thought Hong Kong expats might face a travel ban, as some executives have done in mainland China, particularly if they work on due diligence projects that may handle sensitive information about Chinese companies. Another user said they wanted to know if WhatsApp would be banned.
Officials said they have “no intention” to ban any social media platforms under the new law. And it's hard to know what guarantees the Hong Kong government will provide. But it is important for Hong Kong's global standing that people are raising these issues. “When I travel to Singapore, I don't think, should I bring my phone?” the banker said. “People in London or Sydney don't think about this. I think if people start thinking like this, it's going to be difficult to become a regional centre.”
kaye.wiggins@ft.com
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