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Beijing tightens grip on Hong Kong with the passage of national security law
Key Takeaways
  • China’s National People’s Congress passed a draft proposal for Hong Kong national security legislation on May 28, paving the way for Chinese authorities to tighten their control over the semi-autonomous region.
  • While the details of the new law are not yet drafted, it is likely to resemble China’s own national security law, which allows state authorities to prosecute individuals for sedition, secession, subversion, terrorism, and foreign interference.
  • Some Western governments see this move circumventing Hong Kong’s independent legislature and overriding its autonomy. The Trump administration has declared that Hong Kong is now “no longer autonomous”, laying the groundwork for revocation of the territory’s special trade status with the US, among other potential sanctions.
Our View

The passage of this legal proposition marks a hardening of Beijing’s stance on Hong Kong. In the short term, leading up to the enaction of the national security law and Hong Kong’s legislative council elections, this is likely to trigger further social unrest and protests in Q3. In the medium to long term, this move will raise serious questions about Hong Kong’s rule of law. If Beijing is seen as encroaching on the semi-autonomous territory’s institutions and eroding its unique advantages compared to other cities in China, Hong Kong’s appeal as a center for international business is likely to diminish.

Business Implications

In the short-term, although Hong Kong will remain an irreplaceable financial hub connecting China to international capital markets, increasing political instability and loss of special trade status with the US is likely to significantly impact demand in sectors such retail, tourism, and logistics. Looking to the future, companies that are active in Hong Kong should take stock of their exposure. There is a real risk that Beijing will prioritize political control over the territory’s economy and business environment. With this in mind, firms should create contingency plans to mitigate potential impacts from rising political and economic risks.

Boyang Xue, Analyst for Northeast Asia