This is the last of a series of four articles examining the political risk concerns related to human rights abuses in the People’s Republic of China (PRC).

Under British authority from the mid-19th century until 1997, Hong Kong was then formally integrated into the PRC as a “Special Administrative Region” (like Macau) under the “One Country, Two Systems” constitutional principle, which supposedly granted those territories the right to exert political, economic, and legal self-governance. Hong Kong has its constitution, named “Basic Law”. However, in recent years Beijing has sought to tighten its control over Hong Kong, impeding these freedoms, and sparking mass protests. The PRC's response to these protests, however, has only entailed a further crackdown on human rights. 

The most emblematic feature of this downward spiral is the recent National Security Law, which was inserted – under pressure from Beijing – into the Basic Law following the 2019 wave of protests, the largest the region had ever seen. Said protests started in reaction to a bill regarding the extradition of fugitives from Hong Kong to mainland China. However, they continued even after the bill was withdrawn, carrying more global demands for democratic reform. The protests were escalated by the large-scale police brutality (e.g., use of rubber bullets and tear gas, arbitrary arrests, ill-treatment in detention) to which partakers were subjected, attracting worldwide media coverage in the process. Inscribed in a global trend of increasing securitisation, the National Security Law is yet another example of the imposition of a purposely vague and all-encompassing definition of “national security”, invoking the usual alleged threats of terrorism and subversion, to justify the authorities’ infringement upon human rights, and the criminalisation of dissent. As concluded by Human Rights Watch, “Hong Kong’s judiciary and police have increasingly shown themselves to be tools of Chinese state control rather than enforcers of the rule of law”. Indeed, the Hong Kong Government has been complicit with Beijing in strengthening repressive policies towards its people, including an unprecedentedly large deployment of police forces. In February 2020, the HK Government increased the budget of the local police forces – including funds allotted to rubber bullets and tear gas.

In the name of “national security”, Hong Kong has been subjected to increased surveillance and censorship. In blatant violation of the freedoms of expression, association, and peaceful assembly enshrined in the Basic Law (as well as in the International Covenant on Civil and Political Rights), political opposition has been suppressed, independent media has been shut down, access to information has been restricted, CCP ideology has infiltrated the educational system, and civil society organisations have been disbanded. As a result, every year since 2019, Hong Kong’s place in the Human Rights Measurement Initiative’s ranking has been dropping dramatically. Furthermore, China’s “long arm” of transnational repression also threatens Hong Kong citizens living abroad.

While Hong Kong has historically attracted many businesses as a strategic transhipment port, the tightening of Beijing’s control is pushing foreign companies out. Referring to the strict pandemic-related travel restrictions as “a final straw after years of watching Beijing encroach on Hong Kong’s policy”, the presence of American companies has dropped to a two-decade low, and half of all European businesses are planning to relocate by 2023. Since the passing of the National Security Law, in particular, Hong Kong-based companies have seen employees emigrate, and head-hunters have struggled to attract talent.

“International financial centres depend on freedom — free flow of information and rule of law. Hong Kong has neither anymore. It doesn’t deserve to be taken seriously by the international financial community”, declared Mark Clifford, head of the Committee for Freedom in Hong Kong Foundation. 

In 2021, the US Departments of State, Treasury, Commerce, and Homeland Security issued a statement warning American businesses of “potential reputational, regulatory, financial, and, in certain instances, legal risks associated with their Hong Kong operations” following recent policy choices made by the Governments of the PRC and Hong Kong. In particular, the imposition of the National Security Law led to the spreading to Hong Kong of “business and rule of law risks that were formerly limited to mainland China”. The scope of the NSL encompasses foreign nationals working in Hong Kong, potentially leading to arbitrary detention, freezing of assets, etc. Businesses may be subjected to electronic surveillance without warrants and forced to surrender data to PRC and Hong Kong authorities. The increase in censorship negatively impacts businesses that rely on the media. Businesses must also be wary of engaging with entities that fall within the scope of the various sets of sanctions (e.g., restricting trade and blocking assets) imposed by Western countries.

Involvement with such entities may amount to (or at least be perceived as) contributing to human rights abuses, which is a moral hazard in itself, and also carries a high reputational risk. For example, in October 2022, the Hong Kong Government invited the leaders of Wall Street’s top institutions (e.g., Goldman Sachs, HSBC, JP Morgan Chase) to a banking summit destined to re-launch business in the financial hub after nearly three years of pandemic-induced isolation; the event is considered by many (including human rights activists, but also US legislators) as an attempt by the HK authorities to “whitewash” the brutal political crackdown that has occurred in recent years, and in which the participants have been warned that they are at risk of being “complicit”. More explicitly, during the 2019 protests, Apple was pressured by the local authorities to remove an app that enabled citizens to track the police. As a corollary, businesses that implement foreign sanctions are at risk of retaliation at the hands of the PRC or Hong Kong authorities.

Furthermore, business analyst William Nee warns that “the death of civil society leads to blind spots for companies assessing their operations, leading to greater social and political risks, and businesses must increase the scope and intensity of their human rights due diligence”. For example, Hong Kong’s largest pro-democracy trade union, the Hong Kong Confederation of Trade Unions, was pressured to disband, and its leaders were arrested. Affiliated unions, many of which were formed during the 2019 protests, are also under threat. Such denial of freedom of association does not bode well for labour rights in Hong Kong.

It is noteworthy that the corporate world seems particularly reluctant to disengage with China despite its record of proven human rights abuses, whereas there has been less reluctance in exiting smaller economies such as Russia and Myanmar. This seems to indicate that, in the business world, ethical values are malleable depending on the economic opportunities at stake. Human rights-focused ESG advice is available for companies in the form of dedicated reports, such as the UN’s 2021 guiding principles on business and human rights, and the more specific guidelines on the protection of human rights defenders.