A potential travel warning

Hong Kong

Hong Kong is undergoing a major debate over a new law that started with a murder in Taiwan and has led to a rare, and forceful, pushback from the local and international business communities. The implications of this new law, however, are of interest to a wide range of international business players that have any connection to mainland Chinese business. From private banks serving Chinese high-net worth individuals living in Hong Kong to anyone investing in China or co-investing with Chinese financiers in an overseas project, the new law could make Hong Kong a danger zone for some business people in a way it never has been before.

One country, two systems

At the heart of the issue is Hong Kong’s distinct status from China in legal systems. Guided by the philosophical framework of ‘One Country, Two Systems’. Mainland Chinese jurisdiction is theoretically limited to foreign affairs and military matters.

One issue left helpfully vague was extradition. The many Chinas of Greater China (i.e., mainland China, Hong Kong, Taiwan and Macao) do not have formal extradition treaties. Hong Kong has many agreements with developed nations in Asia, Europe and North America. However, concerns about China’s legal system have left it a topic best neglected until now.

Criminals convicted in Macao are living comfortably in Hong Kong and likewise one famous Hong Kong fugitive lived for years in Taiwan, dying there after trying for decades to get charges against him dropped.

But a recent horrific murder in Taiwan, of a Hong Konger against a Hong Konger, which saw the alleged killer flee to Hong Kong and escape justice, has changed things. The nature of the original killing, and public outrage against it, has seen the Hong Kong government take the opportunity to propose a new law that would allow for the Greater China regions, as well as other jurisdictions, to make arrest requests enforceable across borders.

The pushback to the proposed new law was swift and vociferous. What was surprising was that much of the resistance came from the commanding heights of the business community, normally a compliant partner of government policy initiatives.

Business bites back

Pro-democracy politicians and activists frequently and noisily protest government policy, especially any encroachment that looks to restrict rights and freedoms or extend Beijing’s reach into Hong Kong. In recent years, concerns have been heightened over the extrajudicial renderings (i.e., kidnappings to the mainland) of booksellers publishing and selling books critical of Communist Party leadership and, in one case, the kidnapping of billionaire mainland businessman Xiao Jianhua from the Four Seasons Hotel in the heart of the Hong Kong business district.

The latter strikes closer to the concerns of the business community. In China, business disputes can be cause for people to be seized and held incommunicado for long periods of time. What would be considered a commercial or civil legal issue in other countries for lawyers and accountants to dispute and resolve, can be elevated to criminal status and a friendly police force could seize business opponents for extended periods.

Furthermore, nationals of some countries – especially business people – have been subject to detention, with or without conviction, as part of diplomatic disputes. Witness Canadians Michael Kovrig and Michael Spavor held without charge in connection to, many believe, Canada’s arrest and potential extradition to the USA of Huawei CFO Meng Wanzhou, or the conviction and jailing of Australia’s Stern Hu of Rio Tinto.

Hong Kong has been seen as almost completely immune to this and the aforementioned extrajudicial renderings have been seen as aberrations. However, formalising the ability for China to request and receive accused persons could change this.

Who is at risk?

When the news broke of a potential change in the law, one senior mainland political office holder, Chen Shimin, put a scare among the mainland Chinese who may be hiding out in Hong Kong. A member of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), China’s top political advisory body, Chen claimed that there are more than 300 such individuals and the mainland authorities, “have the name of every single one”. As the former vice minister of public security from 2009 to 2017, his words carried considerable weight.

A wide range of members of the business community stood up to say “bad idea”. Normally quiescent senior business leaders spoke out, but the real headline generator was the official position of The Hong Kong General Chamber of Commerce, the first among equals of Hong Kong’s big four business associations. The organisation expressed deep concern in a report, specifically noting that while safeguards existed in arrangements with other countries, it feared these safeguards would not apply in an arrangement with China. Other prominent local business groups have also expressed worries.

The international business community mostly made quiet representations, but again the biggest in class, the American Chamber of Commerce in Hong Kong, has expressed itself more directly, stating the “Mainland criminal process has deep flaws, including lack of an independent judiciary, arbitrary detention, lack of fair public trial, lack of access to legal representation and poor prison conditions”.

Nine ‘economic crimes’ removed

The Hong Kong government responded by removing nine categories (from an original 47) from the proposed list of crimes that would merit extradition. Specifically, they are:

  • the unlawful use of computers;
  • environmental pollution or protection of public health;
  • intellectual property, copyright, patents or trademarks;
  • exportation or importation of goods control;
  • the international transfer of funds;
  • bankruptcy, companies, securities and futures trading;
  • fiscal matters, taxes or duties; or
  • false or misleading trade descriptions.

Prior to the amendments, a dispute over unpaid wages in a bankruptcy, or a simple trademark dispute, could have seen business people sent from Hong Kong to China. Any investor into China who had a business problem that fell afoul of one of these laws could be at risk. A director or investor travelling through Hong Kong could find themselves picked up for unpaid taxes by an investee company in China.

One of the reasons that business organisations are concerned with the wording of law is that Hong Kong’s judiciary is seen as an honest broker who will apply the law as it is written. So, the wording matters. The current plan is for decisions to be made on a case-by-case basis by Hong Kong judges.

Not just business (but lots of business)

But even the local Law Society and Bar Association are currently against the new law as it stands, citing exposure to a range of less desirable of legal environments, not just mainland China.

Human rights groups like Amnesty International and Human Rights Watch have expressed their concerns as has a U.K. parliamentary group, who are calling the HK-UK agreement into question if Hong Kong proceeds with the planned legal changes. Taiwan, the source of the original case, would not sign an agreement with Hong Kong if its concerns about Taiwanese being sent to mainland China are not allayed.

The American Chamber, for one, was not buying it the concessions. The changes were welcome, but not enough. Post-changes, they stated that, “The new arrangements could be used for rendition from Hong Kong to a number of jurisdictions with criminal procedure systems very different from that of Hong Kong … without the opportunity for public and legislative scrutiny of the fairness of those systems and the specific safeguards that should be sought in cases originating from them.” Furthermore, “We strongly believe the proposed arrangements will reduce the appeal of Hong Kong to international companies considering Hong Kong as a base for regional operations,” the American Chamber said.

Moving forward

The Hong Kong government and mainland Chinese officials are currently lobbying local business organisations to gain support for the new law, aiming to explain the law in a way that gains support, even if only grudgingly so.

However, insisting on the report in its current form could damage confidence in Hong Kong’s uniqueness as a more “normal”, but developed economic nation status. Investors who felt safe travelling to Hong Kong to resolve business differences with Chinese partners or co-investors may choose to hold their meetings elsewhere rather than risk deportation from Hong Kong.

The law is not a fait accompli and conversations with various business groups are ongoing (by contrast, human rights groups and local opposition politicians are getting little traction in their protest). Ultimately, the mainland China priority is to have legal recourse to acquire persons who are, by their definition, fugitives hiding in Hong Kong, thereby obviating the need for publicly damaging illegal renditions. This priority will be respected in the long term.

However, concessions to the concerns of local and international business people, the most influential parties in Hong Kong in this case, remain to be addressed in a way that brings them onside and reassures investors into China, from Hong Kong and abroad.