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Hong Kong Falling – China has dismantled civil society. What remains is risk.

CHINA has dismantled civil society in Hong Kong, creating risk for global innovators. Three developments establish this dangerous dynamic.

First, a recent publication by the Congressional-Executive Commission on China (CECC) offers a sobering assessment. In Hong Kong’s Civil Society: From an Open City to a City of Fear

[1], the CECC concludes that imposition of the Safeguarding National Security in the Hong Kong Special Administrative Region (the NSL) has “dismantled” Hong Kong’s civil society.

As global ruggers will recall, in June 2020, the People’s Republic of China (PRC) National People’s Congress Standing Committee unilaterally imposed the NSL on Hong Kong, significantly reducing Hong Kong’s autonomy and (facially, at least) increasing corporate risk. Offenses established by the NSL include secession, subversion, terrorist activities, and collusion with a foreign country or external elements to endanger national security. Penalties for offenses under the NSL can include criminal fines and imprisonment, including life imprisonment in certain circumstances. Both companies and people are subject to its prohibitions and prescriptions.

Initially, the full consequences of the enactment were unclear. The global business community held its collective breath, wondering how—and to what extent—the new law would be implemented.

But the CECC report confirms our worst fears:

The two years of the National Security Law crackdown have had a devastating effect on Hong Kong’s once-dynamic civil society. The authorities have suppressed not only the city’s democracy movement, but also its rich civic life. What have disappeared are not just rallies in the streets and an active, democratically elected political opposition, but also newspapers at newsstands, programs at Radio Television Hong Kong, books at book fairs, and more. The loss of self-governing autonomy at various professional councils and board rooms has contributed to the destruction of civil society. The civil life of Hong Kong has been changed, even if the streets, the buildings, the institutions, the names, and the titles still look the same. As Hong Kong University alumna Karen Cheung observes, “the university, much like the rest of Hong Kong, is not the same place anymore” now that “the most visible marks of the once lively environment of debate ha[ve] been erased.”

[2] Second—as if to add an exclamation point to this grim assessment—the Hong Kong Wanchai Law Courts convicted the first minors under the NSL, drawing a strong condemnation from the United Nations.[3] Most recently, China has begun to lay the groundwork for the regulation of strategic technology, such as Artificial Intelligence (AI), through enactment of the Internet Information Service Algorithmic Recommendation Management Provisions (IISARMP). The IISARMP became effective March 1, 2022.

As has been previously discussed,

[4] the IISARMP appear to establish a legal mechanism through which participants in the Chinese technology economy can be compelled to produce source code, business and trade secrets, and other intellectual property.

[5] Notably, the regulations have recently been revised to expand the list of PRC enforcement actors. “The authorities set to administer the provisions have expanded from the Cyberspace Administration of China (CAC) to include the Ministry of Industry and Information Technology, referred to as “telecommunications” authorities, the Ministry of Public Security, and the State Administration for Market Regulation (SAMR)[.]”

[6]Tackling Tips

Young ruggers are taught not to tackle head-first. It’s too dangerous. Instead, lead with your shoulder.

Doing business in Hong Kong is like tackling head-first.

U.S. guidance for businesses operating in Hong Kong

[7] previously identified four areas of concern: the NSL; data privacy risks; risks regarding transparency and access to critical business information; and risks for businesses with exposure to sanctioned Hong Kong or PRC entities or individuals.

[8] While the balance of the risks persists unabated, the NSL alone now functions to render much business in Hong Kong an unreasonably perilous affair.

[9] The risk posed by the NSL is dispositive: its implementation has subsumed the remaining risks, rendering them redundant and moot.

The NSL empowers Hong Kong law enforcement to conduct searches, including of electronic devices, for evidence in national security cases, and the NSL permits Hong Kong law enforcement to require Internet service providers to provide or delete data and other information relevant to national security cases, both without judicial oversight.  Furthermore, businesses and individuals should be aware that the NSL authorizes the Office for Safeguarding National Security, which is staffed by PRC security services, to collect data in Hong Kong.

[10] It is axiomatic that responsible corporate citizens comply with all laws and regulations in each jurisdiction in which they do business. And it follows that responsible global innovators now need to avoid doing business in Hong Kong. Reconciling the NSL with good corporate citizenship is a fool’s errand; compliance with the NSL is not a responsible option.

Imagine a different analysis. Imagine you intend to stay in Hong Kong and conduct business, as usual, in a fully compliant fashion. Or perhaps you see an opportunity presented by the rest of us heading towards the doors, and you think you have the resources and appetite to handle the attending compliance lift.

How, as a practical matter, would such global compliance—laudable in the abstract—play out in the specific context of post-NSL Hong Kong? Would a corporation seeking to comply with the NSL decline to support an employee prosecuted for refusal to produce the corporation’s own intellectual property? Would corporate officers cooperate as willing witnesses against the employee and on behalf of the PRC security services?

[11] Of course not. This all conjures up the legal axiom reductio ad absurdum: the approach is flawed as it necessarily leads to an absurd result.

In my experience, tackling headfirst can get you concussed. Then you’re no good to yourself or your team. You’re out of the fight.

The NSL, the CECC report, and the IISARMP  combine to argue forcefully against developing or sustaining a Hong Kong footprint. Global innovators that elect to remain in Hong Kong should be wide-eyed as to the context and redirect legal, compliance, and security resources to compensate for the significant, additional risk this now invites.

[1] Congressional-Executive Commission on China; Hong Kong’s Civil Society: From an Open City to a City of Fear (Oct 3, 2022 (https://www.cecc.gov/publications/commission-analysis/hong-kong%E2%80%99s-civil-society-from-an-open-city-to-a-city-of-fear?module=inline&pgtype=article).

[2] Congressional-Executive Commission on China (CECC); Hong Kong’s Civil Society: From an Open City to a City of Fear, n. 160-61.
[3] https://hongkongfp.com/2022/10/12/un-alarmed-by-sentencing-of-minors-under-hong-kong-security-law/
[4] See, e.g., Bloomberg (https://www.bloomberg.com/news/articles/2022-08-15/tech-giants-share-details-of-prized-algorithms-with-beijing?leadSource=uverify%20wall); BBC; and, CNBC.
[5] But not all agree. See, e.g., https://www.lawfareblog.com/dont-assume-chinas-ai-regulations-are-just-power-play
[6] DigiChina; Stanford University (Jan. 10, 2022)(https://digichina.stanford.edu/work/translation-internet-information-service-algorithmic-recommendation-management-provisions-effective-march-1-2022/)
[7] Hong Kong Business Advisory; Risks and Considerations for Businesses Operating in Hong Kong (July 16, 2021); https://home.treasury.gov/system/files/126/20210716_hong_kong_advisory.pdf
[8] Id.
[9] And the report doesn’t identify any reduction in the balance of the identified risks: data privacy; transparency; and risk to sanctioned persons and entities.
[10] Supra n. 3.
[11] Surely, the analysis would be complicated by the corporation’s own liability; the NSL states, inter alia, that “an incorporated or unincorporated body, such as a company or organization which commits an offense” under the NSL, may be subject to a criminal fine, making a Hong Kong supply-chain dependency risky for both company and employee.