Hong Kong: The risks ahead

A summary of the current situation on-the-ground in Hong Kong, prepared by Asia Intelligence

On 21 May 2020, the Chinese government proposed enacting a new law in Hong Kong on national security regulations, under the provisions of Annex III of its Basic law.

This proposal, while lacking many details, has created speculation and concern regarding the impact it may have on the political and business environment in Hong Kong.

Overview

In light of recent developments, saying that there is a growing sense of panic within the Protest Movement is probably an understatement. Right now, the leadership is still putting on a brave face and is trying their best to pacify the rank and file members. However, they know very well that they are fighting a losing battle. Reality is biting in. They have perhaps realised their bluff has been called and the rules of engagement just changed.

Most senior members of the Movement who have money and the resources are already making plans to leave Hong Kong, and some already have. Those who haven’t the means to leave have, realistically, only two options:

  1. To continue fighting with their ultimate aim of total destruction (their so called ”laam caau” /“burn with us”  idea, recently called “Phoenixism”), or
  2. To wash their hands of the Movement, hoping that the non-retrospective interpretation of the new National Security Law will provide them a chance at amnesty.

By adopting “Phoenixism”, the Movement knows very well that it will only work if there is a chance for Hong Kong to be reborn from the ashes; under the present circumstances, however, the strategy is losing its appeal and viability.

Protest Actions

The Movement is still pushing ahead with the June 4th and July 1st demonstrations, in principal, but support appears to be fading. The recent proactive police actions, supported by high level intelligence, has undermined the morale of peaceful protesters and dealt a blow to the radicals.  Added to this, the restrictions on public gatherings resulting from COVID-19, is making participation in mass protests and demonstrations a very risky and costly exercise.

June 4th demonstrations are looking increasingly like a hollow threat and non-starter.  July 1st may prove to be somewhat different, perhaps the last chance to let the radicals off the leash as such.  With relaxations on social distancing measures, July 1st may see an emboldened radical wing of the movement emerge, if only temporarily.

Funding

External funding for the Movement appears to be drying up. The HKSAR Government is actively investigating suspicious external funding sources, which will only escalate after the enactment of the National Security Law.

In short, this means external funding to the Movement will be choked off. Internally, the mere shadow of the National Security Law has sown fear to the extent that it has already significantly impacted domestic funding avenues.

Prospects of US Sanctions

The Movement’s last hope now seems to hinge on support from the western world, in particular USA. But the threat of economic sanctions and the various punitive measures announced by the current administration appear to be less severe than expected with seemingly limited effect. Moreover, the Chinese central government has anticipated such measures, prepared for them for months, and has considered all possible responses, including the effects of even the harshest sanctions from the US. Even the HKSAR Government appears well prepared to handle the US sanctions.

Presently, however, the US has enough problems of its own. Nancy Pelosi’s now infamous quote:

“A beautiful sight to behold”

which she used to describe Hong Kong’s riotous scenes, is now being widely re-quoted by Chinese news media when reporting on the ongoing riots and chaos spreading in the US.

Hong Kong Legislative Council (“LegCo”) Elections

The Movement’s plan to take over LegCo in September has been thrown into total disarray. Their ambitious 35+ plan now appears to be in jeopardy with the pending introduction of the NSL. The Pan-Democratic candidates’ risk of being disqualified is now exponentially increased with the passing of the NSL.

Right now, they seem to be running out of viable and convincing political options. Their platform 3 months ago looked viable, but is now built on shaky foundations, as any promise of democratic reform would sound rather hollow at this point.

Business Environment

The HKSAR Government and the Pro-Establishment Groups have greatly enhanced and improved their propaganda apparatus. Reportedly, the Hong Kong business sector is under growing pressure to declare a political stance – they are no longer being allowed to take a neutral position. Recently, major real-estate developers openly pledged their support of the National Security Law.

The proposed security law has also raised questions about whether Hong Kong’s current legal and economic environment will be sustainable. In a recent survey conducted by the American Chamber of Commerce:

  • Around 60% of the U.S. companies surveyed thought the proposed law might hurt their business; but
  • Around 71% said that they don’t have plans to move business operations out of Hong Kong at this time

The survey participants mentioned concerns that new security legislation in Hong Kong would be detrimental to the overall business environment and autonomy. Hong Kong’s success as an international business and finance hub has been seen by many companies to be based on it’s transparent, and largely separate legal and economic framework.

The Risks Ahead

The real risk is that radical elements within the Protest Movement will adopt a “no compromise, nothing to lose” stance through escalating protest actions and other high-risk activities, violence and property destruction. Without a clearly defined exit strategy for the Movement, this risk cannot be underestimated.

For companies that operate in Hong Kong, these developments present concerns in many respects including:

  • Business continuity planning
  • Employee safety and well-being
  • Working from home telecommuting arrangements
  • Critical staffing assignments
  • Considering other cities in the region on a contingency basis for a base of operations

While many Hong Kong companies have been forced to urgently address these issues during the COVID-19 crisis, the prospect of additional turbulence will require the review of existing contingency plans to make sure they are adequate in face of this uncertainty.

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