Warning: Hong Kong Is Kinda Dangerous Now

Warning: Hong Kong Is Kinda Dangerous Now

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.


 

7 thoughts on “Warning: Hong Kong Is Kinda Dangerous Now

  1. Lenin, in his delusion, used to believe that capitalists would sell him the rope he’d use to hang them… I feel China has a better chance of pulling that off. As H says, we have problems resisting the lure of a 1.4B people market undergoing rapid growth… Too bad they’re engaged in internal ethnic cleansing and external aggression but the Kingdom of Mammon waits for no man…

    1. Xi has already been largely successful with this. All of their tech companies have grown by leaps and bounds over the past decade and a half by stealing the IP of the very companies that outsourced manufacturing to them. To the point they are now on equal footing with them and able to innovate on the same, if not better, level. The fact that we’re still outsourcing so much manufacturing to them demonstrates that we are either arrogant or just don’t care.

      1. Much of the “theft” of IP by Chinese firms was due to weaker foreign companies voluntarily signing technology agreements with a Chinese firm. An outstanding and early example was when the weakest of the three Japanese firms in the railroad equipment business agreed to such a deal after the two stronger Japanese firms refused the deal. Now the Chinese firm is a world leader. A similar stories were often repeated in subsequent years.

        No one forced US, EU & Japanese companies to enter into those deals. There were no Chinese troops in their board rooms. It was all done in the name of shareholders. Capitalism is not patriotic.

        1. Amen! Thank you derek for overstating the obvious in your second paragraph.

          In response to cdameworth’s assertion that “… we are either arrogant or just don’t care.”, I must say that the decision makers were and are arrogant AND just don’t care. In fact, they don’t care much for democracy, equality and the rights of all men. They would very much prefer a Putin or Xi and their autocracies to our messy democratic republic. My biggest worry is that they grow ever closer to getting what they think they want.

  2. In the age of data mining where the Internet and access to the same via wireless devices is ubiquitous (n addition to untold numbers of closed circuit cameras in public and private space around the world) anyone who imagines that they aren’t surveilled is fooling themselves.

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