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China’s Hong Kong Security Law – The Final Straw For Western Corporates?

What’s happening? China's planned imposition of national security legislation in Hong Kong has led to US President Donald Trump warning his administration will take the move very seriously. China's National People's Congress announced that it would exercise its constitutional power to create a legal framework and enforcement mechanism prohibiting secession, foreign interference and actions against the central government, following last year's pro-democracy unrest in Hong Kong. The move could lead to the US State Department removing certification that the territory retains enough autonomy for favourable status, meaning that the city could lose a number of trading benefits from the US.
 
Why does this matter? China’s intention to impart this security law on Hong Kong has a myriad of global consequences.
 
We noted last year how growing civil unrest in Hong Kong was threatening the city’s future as a globally recognised financial hub. Any action taken by the US State Department to change the status of Hong Kong may also have an impact in this regard. As the above article notes, almost every large US financial firm has a presence in Hong Kong, which is also home to 85,000 US citizens.
 
During last year’s pro-democracy protests in Hong Kong, some western brands found themselves caught in the crossfire, having to navigate keeping the Chinese and Hong Kong governments onside while not angering protesters. It is notable that high-profile corporates – Apple and Google for example – did seem to make concessions to Beijing by removing certain applications from their respective app stores.
 
During the past 12 months, China has made its rules of engagement clear to corporates. In addition to angering Beijing over support for protesters in Hong Kong, brands have also fallen foul of the government when operating in Taiwan. As we’ve previously pointed out, almost every corporate seems to back down in the face of pressure from China, reminding the world just how important the Chinese market has become. 
 
Despite this, it’s worth questioning whether a growing focus on human rights from corporate stakeholders will force companies to reconsider their relationship with China in light of this law. Additionally, it’s possible the hostility shown by the Trump Administration towards Beijing means firms will soon face a choice between siding with the US or China.
 
Lateral thought from Curation – We mentioned last week how China could bolster its diplomatic position by developing and commercialising a vaccine to treat Covid-19.
 
It is a point worth mentioning briefly here – if the world relies on China to recover from the pandemic, how much more political leeway will Beijing find itself with?


Nick Finegold is Founder & CEO of Curation Corp, an emerging and peripheral risks monitoring service.

 

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