Hong Kong’s legal ambiguity risks eroding foreign business confidence

Hong Kong’s legal ambiguity surrounding the June 4 anniversary of the 1989 Tiananmen Square crackdown has raised concerns among the city’s foreign business community. The government’s unwillingness to clarify the legal status of the commemorations, which are now deemed illegal under the Beijing-imposed national security law (NSL), is causing unease among companies who have long valued the British-inherited legal system as a key factor in choosing Hong Kong as a corporate base.

The NSL, which established vaguely-defined offences such as secession, subversion, terrorism, and collusion with foreign forces, has led to an atmosphere of legal uncertainty in the territory. Eric Lai, a non-resident fellow at Georgetown Center for Asian Law, believes this is intentional: “The more ambiguous the red lines, the greater efficiency for the authorities to control the society, or to use the government terms, to regulate the ‘soft resistance’.”

In a survey conducted by the American Chamber of Commerce earlier this year, 35% of participants said they believed the rule of law had “worsened” in Hong Kong, and 19% said it had “worsened a lot”. Additionally, 40% reported being impacted by the NSL, primarily through the departure of Hong Kong staff or decisions over Hong Kong as a future corporate headquarters. Lai warns that business confidence in Hong Kong may further decline if the city loses the characteristics that distinguish it from the Chinese mainland, where legal processes are opaque and subordinate to the ruling communist party.

Kevin Yam, a former Hong Kong solicitor and activist now based in Australia, highlights the downstream impact of the NSL on the legal community, affecting future career decisions by lawyers, even those specialising in non-political commercial and business law. He suggests that the legal atmosphere may also impact long-term decisions by businesses, such as whether to renew a lengthy commercial lease or replace departing employees with new hires.

According to the Statistics Census Department, regional headquarters for foreign companies in Hong Kong dropped from 1,541 in 2019 to 1,411 in 2022, with nearly 60,000 staff positions lost over the same period. A record 13 million square feet of office space is currently empty in the city, including some of its most prestigious spaces typically reserved for multinationals.

Charles Mok, a former Hong Kong legislator who represented the IT sector, said that some companies may remain in Hong Kong but approach doing business more like they do in mainland China, which has traditionally been a much more volatile business environment. “The lack of clarity is hurting businesses in Hong Kong, but in the end, the thinking may be, if these foreign businesses can live with such operating conditions in China, why can’t they do the same in Hong Kong?”