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New national security provisions will further erode Hong Kong’s already fading status as a safe haven for foreign businesses and media focused on the China market, while impeding U.S. and European efforts to find common ground with Beijing on economic matters. On Jan. 30, Hong Kong’s Security Bureau released a document laying out the government’s intentions and content proposals for a local version of a National Security Law (NSL). In broad terms, the proposal expands the definition of a ”state secret” to align with China’s, effectively including any information that could endanger national security, like information related to governmental policy decisions, economic and social developments, and Hong Kong’s relationship with China. In combination, these are large and ill-defined categories of information that would give the Hong Kong government wide leeway in interpretation and application. In verbiage, the document aligns closely with common Chinese Communist Party (CCP) narratives about hostile foreign forces attempting to sow ”color revolutions” in China, and its text in many places references Western national security laws as a means to justify Hong Kong’s national security proposals, mirroring an increasingly common CCP media tactic to divert Western criticism of Chinese policy proposals.

The document expands the definition of espionage to include alleged misinformation as well as ”obtaining any information” that is ”for a purposeful use by an external force.”

”External interference” in Hong Kong’s affairs (e.g. the propagation of ”anti-China ideology” or denigration of Chinese authorities) is another key theme, with the document specifically referencing operations by non-governmental organizations and ”shadow organizations” — likely a reference to perceived clandestine foreign influence networks or banned Hong Kong civil society organizations exerting influence from overseas — in addition to traditional foreign intelligence agencies. Accordingly, it allows the Secretary of Security to dissolve any organizations that he/she believes endanger national security.

Targeted ”external interference” efforts also include any efforts to hurt or threaten the reputations of public persons or put ”spiritual pressure” on Hong Kongers to conduct activities against Hong Kong’s interests.

Beijing imposed a narrower NSL on Hong Kong in June 2020, which criminalized secession, subversion, terrorism and collusion with foreign organizations, but did not address treason, sedition, theft of state secrets or foreign political operations. Hong Kong authorities used this earlier law to end major pro-democracy demonstrations, jail and exile protest leaders, and eliminate political opposition parties.

A local NSL in Hong Kong will likely pass this year, perhaps as early as mid-year, as it comes amid a broader push by Beijing to counter perceived national security and espionage threats as geopolitical competition with the West grows. The bill is open for public consultation through Feb. 28, and both Hong Kong Chief Executive John Lee and the Hong Kong legislature have stated in recent months that it will be passed in 2024. Given pro-Beijing officials’ complete takeover of Hong Kong’s erstwhile independent executive and legislative branches, passage could come as early as mid-year if the Legislative Council fast-tracks deliberations about the bill, as is likely given that lawmakers are politically motivated to show their alignment with Beijing’s wider campaign to counter perceived Western security threats. U.S., Dutch and Japanese restrictions on chip exports to China in late 2022 and early 2023 have prompted a more active approach from Beijing on countering foreign efforts to ”contain China’s development,” in Beijing’s parlance. These efforts have included more active use of export restrictions (e.g. on gallium and germanium, rare earths critical to Western chips supply chains) as well as new and expanded laws, like the Counter-Espionage Law and the Law on Guarding State Secrets. Along with Beijing’s perception of Hong Kong as a conduit for global investment and business ties, the Chinese Communist Party over the decades has seen Hong Kong as a weakness in China’s armor against foreign influence, particularly during periods of instability, like the 1989 Tiananmen Square Massacre, the 2014 Umbrella Movement and 2019-2020 pro-democracy protests in Hong Kong, and the 2022 White Paper protests in China. As such, with China’s economic competition with the West accelerating, a local NSL in Hong Kong is seen as long overdue.

The NSL will increase legal risks for foreign organizations and personnel in Hong Kong, reducing the territory’s utility as an operating base for foreign media, businesses and investors, while further obstructing U.S. and European efforts to mitigate competition with China. Given the risks to the business environment and China’s relations with the West, Beijing could instruct Hong Kong authorities to again delay a local NSL. But in the past six months, Beijing has accelerated legal and institutional efforts to protect China’s security interests, and so another delay seems unlikely. Once implemented, this local NSL will more closely align security-related laws with the mainland, and will threaten to incrementally worsen the attractiveness of the business environment in Hong Kong. Up to this point, Hong Kong’s Beijing-imposed National Security Law has mainly targeted local Hong Kongers — and very rarely businesses — with political or civil society aspirations that run counter to Beijing’s. Because of this, Hong Kong has maintained some semblance of societal and legal separation from mainland China, especially as mainland Chinese authorities crack down on foreign due diligence work and mobilize the public to root out foreign espionage campaigns (real or perceived). However, this distinction will fade with a local NSL that targets leaks of a whole host of supposed state secrets (including governmental policy and economic information that was formerly public knowledge), ”shadow organizations” with tenuous links to Western governments, and any entities that could be construed to be carrying out destructive foreign influence (e.g. lobbyists, human rights groups, or highly-connected business persons). Most immediately, this will present the threat of national security trials — trials which, as of December 2023, had a 100% conviction rate — against business leaders or their local connections, though locals will remain more at risk than foreigners. More broadly, this evolution will likely prompt outcries from Western governments about China’s broken promises for human rights in Hong Kong, risking yet more Western sanctions and subsequent Chinese economic retaliation that will impede already ill-fated efforts by the United States and Europe to limit the scope of economic competition with China.

  • The local NSL will curb Hong Kong’s status as a window into China, with foreign media losing access to actionable information flows about the trajectory of policy in one of the world’s largest markets. Thus, Hong Kong’s utility as a headquarters for foreign companies’ operations in China and Asia will likewise further diminish.
  • Hong Kong’s legal and financial restrictions remain looser than China’s, and thus despite a local NSL the territory will maintain some utility as an investment conduit into and out of China, but Beijing’s efforts to unify the legal, judicial, and financial markets of Hong Kong with China’s Greater Bay Area megacity will threaten this investment status over time.
  • When Britain handed over control of Hong Kong to China in 1997, Beijing pledged to leave Hong Kong’s freedoms and way of life intact for 50 years, or through 2047.

Source: Stratfor | January 30, 2024