U.S. to issue risky business warning for Hong Kong

For more than a year, officials in Hong Kong have busied themselves with implementing a national security law imposed on the territory by Beijing.

• That work intensified last month with the shutdown of the pro-democracy tabloid Apple Daily and promotion of a new number two official who is expected to focus on national security to the exclusion of other policy areas traditionally overseen from his position.
• “At least 230 members of Hong Kong district councils have announced plans to resign ahead of their likely disqualification” under rules approved by Beijing earlier this year that will soon be implemented in Hong Kong, Nikkei Asia reports.

The business implications of intensified national security rules have worried foreign companies in Hong Kong for months. Now hundreds of American companies with significant operations in the city are expected to get an official warning from Washington.

• The U.S. State Department is “poised to warn U.S. companies of the rising risks of operating in Hong Kong” and will “flag concerns about a range of threats, including China’s ability to obtain data that foreign companies store in Hong Kong,” the Financial Times reports.
• The warning, expected by the end of this week, would be the “first time the U.S. has issued a business advisory in relation to Hong Kong.”

Two laws are cited as raising concern:

• The national security law already in place in Hong Kong, “because it would allow Beijing to access data stored on servers” in the city.
• A broadly defined anti-sanctions law passed by Beijing last month, which “allows for the seizure of assets…in Hong Kong.”

Earlier, the Wall Street Journal reported that tech companies including Facebook, Twitter, and Google had threatened to leave the city if the Hong Kong government went ahead with a proposed “anti-doxxing” change to data-protection laws because it “put their staff at risk of criminal investigations or prosecutions related to what the firms’ users post online.”

Didi, Hong Kong, and data sovereignty

The developments in Hong Kong come at the same time that regulators in Beijing are targeting ride-hailing giant Didi and other large tech companies with data security reviews, new cybersecurity rules, and new procedures for listing overseas.

The reasons for these moves and their timing are unclear — some think they herald a Great Financial Decoupling, while others suggest a more limited reassertion of regulatory power by only loosely coordinated actors in Beijing — but one outcome is certain:

More Chinese companies will list in Hong Kong and mainland China, rather than overseas, and Beijing will have more influence over how they operate and manage their data.

See also:

• China says it opposes U.S. interference in internal affairs related to Hong Kong / Reuters (porous paywall)
  “China said on Tuesday it opposed the United States interfering in its internal affairs, in response to a report that Washington will warn U.S. companies of risks of operating in Hong Kong.”
• Hong Kong ‘doxing’ crackdown stirs further fears for business / FT (paywall)
  “Hong Kong chief executive Carrie Lam has dismissed concerns over the application of the new policies, stating the territory wants only to target ‘illegal doxing’…[however,] Lam likened the data privacy measures to the rollout of the national security law last year, which has radically altered the legal landscape of Hong Kong.”
• In latest China regulatory move, common data platform planned for Greater Bay area / Reuters (porous paywall)
• Biden team mulls digital trade deal to counter China in Asia / Bloomberg (paywall)
  The potential deal between countries such as Australia, Canada, Chile, Japan, Malaysia, New Zealand and Singapore “could set out standards for the digital economy, including rules on the use of data, trade facilitation and electronic customs arrangements.”