China's President Xi Jinping delivers a speech after arriving for the upcoming handover anniversary by train in Hong Kong, Thursday, June 30, 2022.
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25 years after the handover, Xi and Lee demonstrate Beijing’s iron grip on Hong Kong

Foreign companies and investors should not assume they can continue to pursue commercial success by steering clear of the city’s politics, Valarie Tan and Katja Drinhausen caution.

Xi Jinping’s two-day visit to Hong Kong – his first official trip outside mainland China since January 2020 – is meant to signal that Beijing has the former British colony well under control 25 years after taking over. The pro-democracy demonstrations and weeks of deadlock between protestors and the government that shook the city in 2019 and early 2020 are indeed long over and Beijing has bestowed a stability of sorts on its global trading hub. But it has also created a new climate of fear and uncertainty that international companies and investors have to grapple with in new ways. Avoiding politics to focus on business is no longer an option as Beijing expects loyalty to its all-encompassing vision of security from public- and private-sector stakeholders.

Xi wants Hong Kongers to “love the motherland”

The UK’s handover of the city back to China on July 1, 1997, came hand in hand with Beijing’s promise to preserve until 2047 Hong Kong’s social and economic systems as well as its rights and freedoms. But Xi Jinping is officially reneging on this pledge only half way through. At the heart of China’s efforts to reform Hong Kong identity so much more quickly is Xi’s dream of the “great rejuvenation of the Chinese nation” by 2049 – of a prosperous global power led by the Chinese Communist Party. It has no room for a city prodigal with money and civic freedoms to thrive as a political outlier whose residents can openly criticize Communist rule. Xi wants Hong Kongers to “love the motherland” that made it prosperous and to be loyal to Beijing.

Since the introduction of the Hong Kong National Security Law (HKNSL) two years ago, the city has seen profound changes and more are looming. On July 1, John Lee, Hong Kong’s former hardline security chief, takes over in as Chief Executive of the city’s Legislative Council. He has pledged a “new chapter” for Hong Kong, one that will include law-and-order measures that will iron-clad Beijing’s control. Article 23 of the city’s Basic Law calls for laws “to prohibit any act of treason, secession, sedition, subversion“ – and it forms the basis of a planned series of laws protect against fake news and foreign sanctions and  improve cybersecurity defenses in the city. 

These measures look set to provide respectable legal cloaks to a growing number of purely political red lines. As on the mainland, content regulations and cybersecurity stipulations will likely make target of a wide variety of information deemed harmful to the government and encourage the creation of a censorship regime for Hong Kong. Xi has already called on media to be patriotic – and the city’ police commissioner, Raymond Siu Chak-yee, warned citizens who watch a banned documentary on the Hong Kong protests are violating the HKNSL. More authority and resources to investigate and watch will help the police to catch those that err.

The social and political fabric of Hong Kong has changed

Beijing remains focused on the forceful integration of the city. The central government saw Hong Kong’s sustained mass protests in 2019, the ensuing landslide victory of its pro-democracy camp and low identification with the People’s Republic as a threat to its sovereignty over the city and even its territorial integrity. The solution was to impose a core component of Beijing’s understanding of national security: absence of collective dissent. The sweeping measures that followed have changed the social and political fabric of Hong Kong. It now has national security sections in police and judiciary, mainland security forces operating locally – and media, civil society organizations and activists that have been targeted for a range of non-violent acts.

Hong Kong’s government is now first and foremost accountable to Beijing – the new health secretary, Lo Chung-mau, for instance, is a staunch believer of China’s “zero-Covid” policy. And the city’s cultural and business elites are also coming under increasing pressure to put Beijing first. In the last two years, harsh crackdowns under the HKNSL have systematically undermined democratic checks and balances – opposition legislators, activists, unions, free media, the right to demonstrate. Judicial independence, once Hong Kong’s selling point as a global trading hub, has been eroded as judges and lawyers, including foreign ones, may now be deemed to be violating loyalty or exerting “foreign influence” if their decisions run against China's interests.

There is still money to be made in a city that retains its “capitalist system”, as the Basic Law puts it, even after losing its “previous […] way of life”. But foreign companies and investors should be aware that the HKNSL and planned steps beyond are making the environment for commercial success ever harsher. Under Chief Executive Lee, new laws will soon demand greater regulatory compliance from individuals, but also from companies. Businesses will be legally obliged to ensure that their operations, employees’ behavior and social media content (to name but a few) do not trigger the ire of Beijing. Under its control, staying out of politics will become impossible.