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This week on COVID-19: Chinese policy toward Hong Kong creates new risks

DuckerFrontier, June 4, 2020

The Lens is a weekly newsletter published by DuckerFrontier’s Global Economics and Scenarios team to highlight developments and trends that will have the highest impact on business scenarios. Our teams of analysts are conducting research into the potential impacts of the novel coronavirus (COVID-19) on the global economy and business environment. Subscribe today to receive the latest insights on COVID-19 business impacts in your inbox every Thursday.

Read an excerpt from this week’s edition of The Lens below as you prepare your business for coming changes.

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 Chinese cities, 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

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