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International Law

Hong Kong’s Dwindling Identities and Liberties

Neeraja Rajesh

From the Star Ferry Riots (1966) to the Anti- Extradition Bill Protests (2019), the city-state of Hong Kong is no stranger to the fight against arbitrariness and the concomitant sacrifices demanded by a thirst to retain its identity. Impediments to basic freedoms have plagued the region incessantly, ultimately culminating in the ‘Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region’ a gambit by PRC to quell dissent, once and for all.

As the curtain fell on the Second Convention of Peking (1898), the then British Prime Minister Margaret Thatcher and Chinese Premier Zhao Ziyang signed the ‘Sino-British Joint Declaration on the Question of Hong Kong’ (1984) laying the premise on which the Chinese were to resume control of the region ceded to the British after the first Opium War (1842). The return of control in 1997 was underpinned by the caveat enshrined in Article 3 of the Declaration paving the way for the “one country, two systems” formula. The Declaration, implemented through the Basic Law of Hong Kong, in principle, was to secure for the people a “high degree of autonomy” in their way of life until 2047.

The Unrest

The recent protests in Hong Kong began in March 2019 and were sparked by the proposed amendments[1] to the Fugitive Offenders Ordinance which threatened to defeat the rule of law and deny even basic judicial fairness to alleged criminals who were to be extradited and tried in Mainland China. Even though the bill was eventually withdrawn in  October 2019, the pro-democracy protesters asserted it was “too little, too late” and decided they would settle for “five demands, and not one less”, turning the uprising into a wider anti-government protest. It was in the backdrop of this turmoil that the Standing Committee of the 13th National People’s Congress (NPC) enacted the National Security Law (NSL), which was subsequently promulgated by Chief Executive Carrie Lam (30th June 2020) in Hong Kong Special Administrative Region (hereinafter HKSAR) to purportedly “safeguard national security, and lasting peace, stability and prosperity in Hong Kong”.

Since the enactment, Beijing’s crackdown on dissent has been anything but subtle. The launch of the national security crime hotline enabling Pro-Beijing informants, the arrests of the sitting and former Legislative Council members,[2]  the arrest of the 12 Hong Kong Activists, their 9 aides, the firing of a teacher for propagating “separatist sentiments”, the introduction of the loyalty pledge for civil servants, and the amendments to the National Flag and National Emblem laws (criminalizing insult) are just some of the most recent instances of the Mainland’s crackdown on HKSAR under the guise of the NSL; the constitutionality of which in itself has been called into question. Art. 23 of Basic Law calls upon HKSAR to enact a legislation on this front. Art. 18(2) allows for the application of national laws in HKSAR only if listed in Annex III. Although Art.18(3) allows the Standing Committee of the NPC to amend Annex III after consultations, save for defence and foreign affairs, the provision is residuary. Only matters outside the limits of the autonomy of the Region may be specified by such law.

The Global Financial Centre

A magnificent harbour, a robust rule of law and an effective regulatory mechanism made the region the financial behemoth it is today. Founded in 1891, the region boasts the seventh-largest stock exchange in the world with a market cap of $4.23 trillion. More than 50% of the listed companies operate from the Mainland, and HKSAR contributes to over 72% of the FDI in China. However, over the years, Hong Kong’s share in China’s GDP has fallen from 16% in 1997 to less than 3% in 2018.

Even when riled by protests, Hong Kong remains the trade and finance centre of the world with an average applied tariff rate of 0%. The region ranks second in the 2020 Index of Economic Freedom after consistently being ranked the freest all through 1995-2019. HKSAR owes more than 90% of its GDP to its thriving service sector and bolsters its business environment with both its free trade policy and an attractive tax regime unparalleled by its Mainland competitors. With the standard personal income tax rate at 15% and the top corporate tax rate at 16.5%, the overall tax burden stands at a mere 14.1% of the total domestic income.  Nonetheless, the region was not left unscathed by the persistent protests, the economic fallout from the pandemic and the U.S.-China trade war. Unemployment has surged to a 15 year high of 6.4%, the economy has contracted by 9% year on year in the second quarter (the fourth consecutive contraction) and exports of services plunged by a record 46.1%. 

The Dwindling Identity

21st May 2020 marked a watershed moment for the global financial hub as Mainland poised itself to enact a new NSL and the benchmark Hang Seng Index closed at 22,930.14, after plummeting 5.6%, recording the largest daily percentage drop since July 2015. What is notable is that, unlike its predecessor[3], the new legislation was not even subject to perfunctory consultations. The exact provisions of the legislation were made public only after the enactment on 30th June. Investor sentiments, by then, seemed to have turned on its head with the Index climbing 2.9% on the first trading day since the enactment (2nd July) driven primarily by Mainland intervention and investor expectation of stability in the region. Despite the rise in unemployment rates and the mounting private sector debt, the market seemed optimistic with the imminent dual listing of the fintech giant Ant Group dual listing in Hong Kong and Shanghai’s Star Market.[4] This bout of growth, however, may belie the more drastic repercussions of the policy change effected by the NSL and the eclipsing role of Shenzhen in Mainland’s bay area scheme.

At the heart of the concern lies Art. 38 of the NSL which asserts extra-territorial jurisdiction over non-residents. This expands the reach of Chinese criminal laws which typically followed the principle of “dual criminality” when penalizing foreign offenders. Consequently, several nations have suspended their extradition treaties with Hong Kong. The wide ambit of the legislative object (i.e., preventing, suppressing and imposing punishment for the offences of secession, subversion, organisation and perpetration of terrorist activities, and collusion with a foreign country or with external elements) only compounds the existing trepidation. The legislation is plagued with such ambiguity that any amount of sympathy for the pro-democracy movement could draw the ire of Beijing.

Art. 29(4) outlaws the imposition of sanctions or blockade, or engaging in other hostile activities against HKSAR and PRC, deeming such acts to be collusion with a foreign country or with external elements to endanger national security. The obligation of imposing sanctions pitted against possible contravention of NSL might push entities to reevaluate their relationship with Hong Kong and prompt them to move their investments to more stable and viable regions. Social Media companies also fear being made forced allies in this crackdown on dissent through the mandate in Art.43, compelling the publisher and service provider to assist in the investigation of cases endangering national security, or risk freezing, forfeiture or confiscation of assets. Their personnel can be penalized with prison sentences ranging from three years to life imprisonment. Additionally, Art. 40 confers on Mainland exclusive jurisdiction over cases posing major and imminent threats, involving serious situations hampering the enforcement of NSL or even cases deemed complex due to the involvement of external elements (Art. 55). Art. 59 mandates disclosure of information pertaining to such offences before the Mainland judiciary which has little to no independence from the State exacerbating the existing concerns.

This draconian legislation only begins to scratch the surface of the possible triggers to an investor relocation. The most recent cause of concern was President Xi Jinping’s address on the 40th anniversary of the establishment of Shenzhen SEZ. HKSAR was a key driver of the development process which turned Shenzhen, a tiny coastal village, into the manufacturing powerhouse that it is today. However, Mainland’s move to cast Shenzhen as the star of the Greater Bay Area Plan[5], the incentives given by the National Development and Reform Commission and Shenzhen’s eclipsing GDP[6] are factors which could gravely undermine the position of HKSAR. Beijing seems to be sending a clear message; HKSAR needs to toe the line or risk falling out of favour with the Mainland, jeopardizing the future of the once vibrant financial hub.

The current uncertainty spells out a negative risk premium and may prompt investors to reallocate their capital to other more viable regions. Mainland itself offers up two possible options with Shenzhen and Lingang New Area of Shanghai’s FTZ. Both regions boast of liberalized trade frameworks, streamlined customs and administration procedures and cross border and local financing opportunities. HKSAR also finds itself a rival in Singapore, the country outranks the region in the ease of doing business, economic freedom and in 2019 while FDI into Hong Kong saw a 48% drop, Singapore boasted a 42% increase according to the United Nations Global Investment Trend Monitor. Though the Monetary Authority of Singapore denies any “significant” flow of money rerouted to the country from HKSAR, Goldman Sachs estimated a record $3-4 billion outflow of Hong Kong deposits to Singapore as early as August 2019, spelling out what could possibly be a turbulent fight to retain the vibrancy of the once-thriving financial hub.

Conclusion

The melting pot of Asia has been embroiled in an ongoing battle to retain its identity for the better part of almost two years; a fight against oppression not uncommon to most corners of the world today. International condemnation has been met with one response: ‘Hong Kong is an internal matter’. Mainland has been priming new inwards into the Chinese economy for decades and seems willing to go the distance. Unless Beijing can hollow out Hong Kong leaving behind just the shell of the once unfettered society, it may eventually seek to position Shenzhen or Shanghai as the new gateways to the second-largest economy in the world, cementing further a China-centred global trading network. The new Hong Kong BN(O) visa introduced by the U.K. government; the revocation of the preferential economic treatment under the United States-Hong Kong Policy Act 1992, the imposition of sanctions under the Hong Kong Human Rights and Democracy Act of 2019 and the Hong Kong Autonomy Act of 2020 by the U.S. government, and the EU sanctions limiting dual-use goods and technology have done little to dissuade the Mainland crackdown. The European Union’s resolution to approach the International Court of Justice over the breach of International Covenant on Civil and Political Rights and the Sino-British Joint Declaration might pave the way ahead but only time will tell if the international sentiments remain a staunch ally or if trade considerations eclipse civil liberties.

The author is a BBA LL.B. (Hons.) Candidate at JSS Law College, Mysuru.


[1] Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation (Amendment) Bill (Section 3A)

[2] Arrests of pro-democracy legislators on charges of “contempt” and “interfering” for the scuffle that broke out on May 8, 2020 during the House Committee Meeting

[3] National Security (Legislative Provisions) Bill, 2003

[4] The IPO currently remains suspended and the market suffered an expected setback when coupled with the uncertainty of the U.S. Elections.

[5] The plan is geared towards regional integration to create a technology and finance behemoth set to rival California’s Silicon Valley by 2035.

[6] Shenzhen’s GDP stands at nearly 2.7 trillion yuan (U.S.$ 396.9 billion) as against  Hong Kong’s GDP at HK$2.87 trillion (US$366 billion).

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