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Friday, Jan 22, 2021

National security law: foreign firms in Hong Kong look at plan B if free flow of information restricted

Senior executive at investment company says it is preparing plans to mitigate the impact of the law once it is passed. Internet industry association chief says some clients had planned to expand data centres or cloud services in Hong Kong but are now looking elsewhere

A number of foreign firms in Hong Kong are drawing up contingency plans, such as relocating some operations, as protection against any investment repercussions from the impending national security law, industry insiders say.

Their concerns centred on whether the law being drawn up by Beijing would restrict the free flow of information in the city and hamper business development, Lento Yip Yuk-fai, chairman of the Hong Kong Internet Service Providers Association, said on Monday.

“Some clients originally planned to expand their data centres or cloud services in Hong Kong, which serves as a data centre hub,” he said. “But after news of the security law surfaced, they withdrew their plans and indicated to me that they were now considering moving their data centres or cloud servers to countries such as Singapore, Japan and Malaysia.”

The American Chamber of Commerce in Hong Kong (AmCham) found in a recent survey that 30 per cent of 180 members had plans to move capital, assets or operations from the city and were eyeing the United States, Tokyo, Singapore and Taipei as potential destinations.

The law, which could be passed as early as this month, will outlaw acts of secession, subversion, terrorism as well as collusion with foreign and external forces to endanger national security.

On Saturday, state news agency Xinhua outlined more details of the legislation including that the law would provide safeguards to uphold international human rights standards and other freedoms.

The Hong Kong government must also establish new institutions designed to protect national security, and allow mainland Chinese agencies to operate in the city “when needed”.

One senior executive at a medium-sized investment company said it was preparing plans to mitigate the impact of the law once it was passed. He declined to elaborate on his company’s plans, but did not rule out relocating some operations.

“We have to make plans to anticipate business sentiment in the city and also out of an abundance of caution in case parts of the law are defined very narrowly, especially on foreign involvement,” he said.

Yip said many clients were concerned the law would turn Hong Kong into just another mainland Chinese city with restrictions on information.

“These firms are worried that if a firewall is imposed on them to control incoming and outgoing network traffic, the city’s free flow of information might be undermined,” he said.

“They may feel uncertain about the city’s business development and therefore reconsider their investment plans.”

Prominent businessman and former lawmaker James Tien Pei-chun said foreign business groups he met told him their members had not made any plan B yet.

“The group leaders indicated to me that their members would like to wait and see enforcement details first before making any contingency plans,” he said.

However, Tien said some foreign professionals, such as lawyers and accountants, were concerned their clients’ information could be seized and searched on suspicion of breaching the law.

“But for British or US firms in the finance sector, they are not too worried as they tend to believe that China will maintain Hong Kong’s status as a financial centre,” he said.

Tien said some French and Italian firms viewed the law positively, hoping it might calm the social unrest that erupted a year ago and revive consumption in the retail and dining sectors.

Hong Kong General Chamber of Commerce chief executive George Leung Siu-kay said the body had no information on whether members had made plans. But he noted monetary data and exchange rates had not shown capital outflow or companies retreating from Hong Kong.

“Personally, as a veteran economist, I don’t think companies can easily make a plan B to replace Hong Kong. The city has the banking, rule of law and talent to support the companies to run their business in Asia-Pacific. Singapore may be the closest one but still cannot fully replace Hong Kong,” Leung said.

He also said many of the chamber’s 4,000 members, which include players such as HSBC, Jardines and Swire Pacific, used Hong Kong as a gateway to the Greater Bay Area.

“If these companies skip Hong Kong and directly operate in mainland cities, or if they move out of Hong Kong to overseas cities to manage their mainland businesses, they will still be under the mainland’s national security law which is more restrictive than Hong Kong,” Leung said.

“Unless a company wants to completely cut off any China operations, I do not see why they need to have a plan B to move out of Hong Kong to other cities.”

However, the International Chamber of Commerce – Hong Kong said the international community would see a troubling erosion of the city’s high degree of autonomy and overseas talent would be unwilling to come and work in Hong Kong as a result of the law.

“An important aspect of the Basic Law is that … the important values and freedoms required to transact business competitively in Hong Kong, such as the rule of law and the free flow of information, are fully ring-fenced and protected by the ‘two systems’ concept,” it said.

“But the way in which the national security law is being introduced breaches this fence and is a considerable cause for further concern that it could be the precedent for further breaches in the future.”


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