Cold War 2.0 was the narrative du jour on Friday.
As tipped several days previous, Joe Biden is warning businesses (and, by extension, individuals) about the perils of operating in Hong Kong.
The advisory isn’t an order, per se. No one is required to beat a hasty retreat from the city. Rather, the White House is stating the obvious. Namely that Hong Kong is no longer an open society and the judiciary isn’t independent. Companies (and the people who work for them) are subject to the capricious, heavy hand of the Party. That could be a problem, especially in the event corporates are required to implement (or comply with) US sanctions on Chinese officials.
“It’s more [about] what may happen in Hong Kong,” Biden said, after meeting with Angela Merkel. “It’s as simple as that, and as complicated as that,” he added.
The risks companies face in China are increasingly present in Hong Kong, the advisory cautioned. Chinese policies undermine the legal and regulatory environment, according to the US.
The advisory warned companies they risk being surveilled electronically with no warrant. That’s amusing on two fronts. If you’re operating in Hong Kong, you’re tacitly accepting the likelihood of Party surveillance. It’s hard to imagine companies (especially multinationals accustomed to doing business abroad, often in unfriendly surroundings) don’t understand that, but apparently the Biden administration thinks it’s an underappreciated risk. Additionally, I’ll confess to emitting a chuckle at the notion that the Party would bother obtaining a warrant for surveillance or anything else, for that matter. That is: Of course they’ll surveil you with no warrant. They also search you without a warrant and arrest you without one too. (Down in the lobby: “Yes, hello, Xi sent me. Sure, I’ll wait. Is that complimentary coffee over there? Great. Oh, and I do have a warrant, by the way. But no rush.”)
The White House also told US companies they may find themselves in the compromising position of having to surrender corporate and customer data to the Chinese government. Now that’s “forced IP transfer.”
In Hong Kong, Beijing has “implemented actions that have undermined the legal and regulatory environment, which is critical for individuals or businesses to operate freely and with legal certainty,” the US said. “The developments over the last year in Hong Kong represent clear operational, financial, legal and reputational risks for multinational firms.”
Invariably, Xi will continue to tighten his grip over the city. At the same time, the US has little choice but to keep the diplomatic pressure on, both as it relates to Hong Kong and Taiwan, and in matters concerning Xinjiang.
Believe it or not, there’s something like consensus among “experts” that businesses don’t fully grasp the gravity of the situation. “While businesses have grown increasingly uneasy about the city’s shifting landscape, experts and consultants say the changes in Hong Kong have been so swift that many still haven’t sufficiently grappled with the inherent dangers,” Bloomberg wrote, in their coverage.
Count me incredulous. Multinationals have, for decades, done business in undemocratic locales where the rule of law is questionable. This isn’t an issue of inexperience. Indeed, corporates often thrive in such environments. Capitalist enterprises are, after all, exploitative by their very nature. Corporations do benefit from predictability and the rule of law, but they’re also adept at exploiting opportunities created by the absence of one, or both.
The situation in Hong Kong could be unique, though, for several reasons. Most obviously, the CCP isn’t some backwater autocracy easily bought off with petty bribes. And they damn sure can’t be strong-armed. That’s not to say there’s no corruption (although if you’re corrupt at a low level of government, you could be subjected to punishment from up the ladder). And it’s not to say there aren’t opportunities for savvy corporate operators to… well, to “operate,” with the scare quotes there to denote all of the things that word can mean when it comes to the interaction between big business and government. It’s just to say that no company, foreign or domestic, can run roughshod in China, something the country’s home-grown tech titans learned the hard way starting late last year.
It’s not terribly difficult to run afoul of Xi by accident, or to break some law you didn’t even know existed. Indeed, that’s really the crux of the issue and the point of the Biden administration’s advisory. Hong Kong’s new security laws made it clear that Beijing can reshape the entire operating environment (indeed, rewrite the rules governing society more generally) with almost no international repercussions.
Wall Street isn’t worried, though. As Bloomberg pointed out in the same linked article (above), Citi intends to hire at least 1,000 people in Hong Kong over the next half-decade and Goldman “is hiring 320 staff in China and Hong Kong, as China opens its $54 trillion financial market fully to foreign brokerages and asset managers.” Apparently, missing out on access to a $54 trillion market is the biggest risk of all.
Meanwhile, Xiaomi just overtook Apple to become the world’s second-largest maker of smartphones thanks to an 83% rise in shipments in the second quarter, according to initial estimates.