{"id":82321,"date":"2021-07-01T09:53:10","date_gmt":"2021-07-01T14:53:10","guid":{"rendered":"https:\/\/www.consilio.com\/?p=82321"},"modified":"2022-11-07T09:54:40","modified_gmt":"2022-11-07T14:54:40","slug":"hong-kongs-national-security-law-what-does-it-mean-for-legal-teams","status":"publish","type":"post","link":"https:\/\/www.consilio.com\/hong-kongs-national-security-law-what-does-it-mean-for-legal-teams\/","title":{"rendered":"Hong Kong’s National Security Law: What Does It Mean for Legal Teams?"},"content":{"rendered":"

In the midst of a world reeling from COVID-19, China bypassed Hong Kong legislature to pass a new national security law essentially making it illegal to speak out against the Chinese government \u2013 removing the right to free speech previously enjoyed in Hong Kong and criminalizing the ongoing peaceful protests.\u00a0 As the third-most important banking center in the world after New York and London, and as the conduit between the Chinese and Western economies, it\u2019s important to understand what this could mean for Hong Kong\u2019s future.<\/p>\n

Hong Kong as Connector<\/strong><\/h2>\n

Consider Legos: There is a connector Lego that allows you to connect one structure to another.\u00a0 That is a good analogy for Hong Kong.\u00a0 It takes two vastly different banking systems (China and the US\/Europe) and allows them to seamlessly connect.\u00a0 There are two primary reasons why Hong Kong has been able to maintain such importance in the global financial landscape:<\/p>\n

    \n
  • The Hong Kong Monetary Authority (HKMA) requires similar controls to that of the US and Europe \u2013 namely transparency, proper accounting, and timely reporting. This assurance against things such as fraud and money laundering provide Hong Kong unfettered access to Western financial institutions in a way that China cannot.<\/li>\n
  • Since 1983, the Hong Kong Dollar has been pegged to the US Dollar, and Hong Kong sits on reserves of $440 billion, twice the value of all money in circulation in Hong Kong. The ability to seamlessly transact in US Dollars means Hong Kong can easily create banking instruments denominated in US dollars.\u00a0 As seamless as the creation of US dollar denominated banking instruments, Hong Kong also connects directly to New York financial hubs through proprietary technology, which pass through trillions of dollars in payments each year.<\/li>\n<\/ul>\n

    What Does the National Security Law Mean for Hong Kong’s Role in the Economy?<\/strong><\/h2>\n

    Since the passage of the new national security law last month, there have been many questions about what it will mean for Hong Kong\u2019s position as this connector between China and the US\/Europe.\u00a0 Remarks from the US White House include threats to remove the Hong Kong special position and impose sanctions.\u00a0 These threats have been responded to with similar threats by China.\u00a0 There are three scenarios to watch for here: best case, moderate, and extreme.<\/p>\n

    Best-Case: Hong Kong Risk Score<\/strong><\/h2>\n

    In a best-case scenario, Hong Kong might receive a higher risk score.\u00a0 It is rational to worry that Hong Kong\u2019s institutions, including the courts and central bank, might no longer remain independent.\u00a0 It is also rational to worry that corporate governance and transparency might dissolve. \u00a0Will an auditor note about possible fraud on a Chinese state-owned entity account equal sedition? \u00a0This worry might erode the perception of Hong Kong as a global banking hub and safe place to conduct business.<\/p>\n

    Moderate Outcome: Banking Shifts away from Hong Kong<\/strong><\/h2>\n

    A moderate outcome might mean the gradual erosion of Hong Kong as a banking hub, leading to a shift of banking activities to somewhere less controversial.\u00a0 Particularly, the portion of business that has no ties to China, which currently makes up two-thirds of currency trades and one-half of fund assets in Hong Kong.\u00a0 There is still no better place to do business with China than Hong Kong, though, so this business would remain.\u00a0 The loss of non-China business could be material for Hong Kong, but it could be partially replaced by increasing funds from China looking to invest globally.<\/p>\n

    Extreme Outcome: International Sanctions Affect Hong Kong<\/strong><\/h2>\n

    The most extreme outcome is that the US could impose sanctions which would create penalties for conducting business with individuals, firms, or banks operating in Hong Kong.\u00a0 The US could also impose additional administrative barriers which would clog the currently seamless banking function between the US and Hong Kong.\u00a0 These measures could destabilize Hong Kong as a financial hub and represent a major escalation by the US.\u00a0 In turn, that could cause China to retaliate against Western multinationals operating in China, and possibly encourage them to push harder at making the Yuan a global currency by incentivizing the use of payment systems built on Chinese technology and attracting foreign businesses that accept the Chinese way of doing business.<\/p>\n

    Much Remains to Be Seen in Hong Kong<\/strong><\/h2>\n

    It is most likely that we will fall somewhere between best case and moderate, as cooler heads prevail and political focus moves elsewhere.\u00a0 Both HSBC and Standard Chartered have voiced support for the new national security law and expressed hope that this will create a more cohesive business landscape and ease the increasing protests.<\/p>\n<\/div><\/div><\/div><\/div><\/div>

    <\/div><\/div><\/p>\n","protected":false},"excerpt":{"rendered":"

    The Hong Kong national security law will affect organizations\u2019 ability to do business in the region, but how much and in what ways?<\/p>\n","protected":false},"author":709803,"featured_media":84576,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[3167],"yoast_head":"\nHong Kong's National Security Law: What Does It Mean for Legal Teams? - Consilio.com<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.consilio.com\/hong-kongs-national-security-law-what-does-it-mean-for-legal-teams\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Hong Kong's National Security Law: What Does It Mean for Legal Teams?\" \/>\n<meta property=\"og:description\" content=\"The Hong Kong national security law will affect organizations\u2019 ability to do business in the region, but how much and in what ways?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.consilio.com\/hong-kongs-national-security-law-what-does-it-mean-for-legal-teams\/\" \/>\n<meta property=\"og:site_name\" content=\"Consilio.com\" \/>\n<meta property=\"article:published_time\" content=\"2021-07-01T14:53:10+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-11-07T14:54:40+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.consilio.com\/wp-content\/uploads\/2022\/08\/Hong-Kongs-National-Security-Law-What-Does-It-Mean-for-Legal-Teams1.png\" \/>\n\t<meta property=\"og:image:width\" content=\"400\" \/>\n\t<meta property=\"og:image:height\" content=\"200\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Annie Malloy\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.consilio.com\/hong-kongs-national-security-law-what-does-it-mean-for-legal-teams\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.consilio.com\/hong-kongs-national-security-law-what-does-it-mean-for-legal-teams\/\"},\"author\":{\"name\":\"Annie Malloy\",\"@id\":\"https:\/\/www.consilio.com\/#\/schema\/person\/56e638a0d44a5cf99c6e1e00ecd999a7\"},\"headline\":\"Hong Kong’s National Security Law: What Does It Mean for Legal Teams?\",\"datePublished\":\"2021-07-01T14:53:10+00:00\",\"dateModified\":\"2022-11-07T14:54:40+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.consilio.com\/hong-kongs-national-security-law-what-does-it-mean-for-legal-teams\/\"},\"wordCount\":1341,\"publisher\":{\"@id\":\"https:\/\/www.consilio.com\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.consilio.com\/hong-kongs-national-security-law-what-does-it-mean-for-legal-teams\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.consilio.com\/wp-content\/uploads\/2022\/08\/Hong-Kongs-National-Security-Law-What-Does-It-Mean-for-Legal-Teams1.png\",\"keywords\":[\"Institute\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.consilio.com\/hong-kongs-national-security-law-what-does-it-mean-for-legal-teams\/\",\"url\":\"https:\/\/www.consilio.com\/hong-kongs-national-security-law-what-does-it-mean-for-legal-teams\/\",\"name\":\"Hong Kong's National Security Law: What Does It Mean for Legal Teams? 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