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When Chinese agents abducted a bookseller critical of Beijing and a politically connected tycoon from semi-autonomous Hong Kong, many foreign investors said privately that they were thorns in Beijing’s side.

As the Hong Kong government ratcheted up the pressure on the city’s democracy movement, prosecuting activists, blocking opposition politicians from running in elections and banning a political party, investors said local politics did not affect business.

Corporate executives have looked the other way as Beijing has emphasised its “comprehensive jurisdiction” over Hong Kong, reversing the self-restraint that marked the early years of the “one country, two systems” arrangement, under which China granted the city a “high degree of autonomy” and civic freedoms for 50 years after the British handed it back in 1997.

In this photo taken on August 14, 2018, Victor Mallet, a Financial Times journalist and vice president of the Foreign Correspondents' Club (FCC) (R) speaks with Andy Chan, founder of the Hong Kong National Party, during a luncheon at the FCC in Hong Kong. - Hong Kong has refused to renew the visa of a senior Financial Times journalist who hosted a talk by an activist advocating the city's independence from China, the newspaper said on October 5, 2018. (Photo by Paul Yeung / POOL / AFP) (Photo credit should read PAUL YEUNG/AFP/Getty Images)
Andy Chan and the FT's Victor Mallet at the FCC in Hong Kong © AFP

But the Hong Kong government’s decision to in effect expel Victor Mallet, the Asia news editor for the Financial Times, has finally pushed some representatives of the international business community to confront the growing threats to Hong Kong’s rule of law, the cornerstone of the city’s success as a global financial centre.

“As the issues mount up, it’s getting more difficult to sweep them under the carpet,” says Tara Joseph, president of the American Chamber of Commerce in Hong Kong. “The free flow of data and information is absolutely crucial to the reputation of this financial market.”

The government declined to renew Mr Mallet’s work visa — and then refused to let him enter the city in November — after he hosted a talk at the city’s Foreign Correspondents’ Club by Andy Chan, an advocate of the city’s independence whose Hong Kong National party was subsequently banned.

Charles Mok, a former IT executive who represents the sector in Hong Kong’s partially democratic Legislative Council, says investors have been shaken by the decision. “Previously when I went abroad to promote investment, people asked me whether they could make money, but now they are asking about freedom of expression and rule of law-related problems,” he says.

Hong Kong is much less important to Beijing in terms of economic output than it was in 1997, with its gross domestic product equivalent to just 3 per cent of China’s, compared to nearly 20 per cent at the handover. But it remains a key financial centre, for foreign money coming in to China and, increasingly, for Chinese capital going out.

A pro-democracy demonstrator burns a letter next to pictures of missing staff members of a publishing house and a bookstore during a protest to call for an investigation behind their disappearance, outside the Chinese liaison office in Hong Kong...A pro-democracy demonstrator burns a letter next to pictures of missing staff members of a publishing house and a bookstore, including Gui Minhai, a China-born Swedish national who is the owner of Mighty Current, Cheung Jiping, the business manager of the publishing house and Causeway Bay Books shareholder Lee Bo (L-R), during a protest to call for an investigation behind their disappearance, outside the Chinese liaison office in Hong Kong, China January 3, 2016. Hong Kong opposition lawmakers protested on Sunday outside Beijing's representative office in the Chinese-ruled city over the disappearance of a bookseller who specializes in publications critical of the Communist Party government. REUTERS/Tyrone Siu
Pro-democracy demonstrators hold pictures of missing staff members in Hong Kong © Reuters

With the Hong Kong government under pressure from President Xi Jinping to curb opposition to Beijing’s rule, legal experts say that investors — and the government — should be much more concerned about the erosion of the city’s freedoms and autonomy.

If Beijing’s influence continues to grow in the medium term, Hong Kong risks losing its preferential access to global markets, which is premised on the maintenance of the promised “high degree of autonomy”.

“The situation is very serious,” says Ho-fung Hung, a professor of Chinese political economy at Johns Hopkins University, warning that Hong Kong risks being hurt by the deteriorating US-China relations. “Western governments can no longer pretend that Hong Kong has genuine autonomy from Beijing.”

Hong Kong’s one country, two systems arrangement, as it was christened by former Chinese leader Deng Xiaoping, is a unique political experiment, to see if a city with many political freedoms can survive and prosper inside the world’s most powerful authoritarian state. 

A political compromise between the UK and China, it is ridden with conflicts and contradictions. 

Hong Kong’s Basic Law, the city’s mini-constitution, guarantees civic rights and judicial independence and ostensibly limits Beijing’s role to defence and foreign affairs. But it also requires the Hong Kong government to implement “directives” issued by Beijing, to enact laws to prohibit “treason, secession, sedition and subversion” [which it has yet to do] and gives Beijing the power to overrule Hong Kong’s judges by issuing “interpretations”.

Jasper Tsang, a former Legislative Council president, says the arrangement relies on “mutual understanding” between the Chinese government and Hong Kongers.

Chinese President Xi Jinping, accompanied by Hong Kong Chief Executive Leung Chun-ying, rear left, and chief executive-elect Carrie Lam, rear right, arrives at Hong Kong's airport, Thursday, June 29, 2017. Hong Kong is planning a big party as it marks 20 years under Chinese rule. But many people in the former British colony are not in the mood to celebrate. Fireworks, a gala variety show and Chinese military displays are among the official events planned to coincide with a visit by Chinese President Xi Jinping starting Thursday for the occasion. (AP Photo/Kin Cheung)
The Hong Kong government is under pressure from President Xi Jinping, centre, to curb opposition to Beijing’s rule © AP

But Mr Tsang, who is one of Beijing’s most prominent supporters in Hong Kong, argues that pragmatic consensus has fallen apart over the past few years as Beijing and Hong Kong have become locked in a “vicious circle”.

“On the one hand, Hong Kong people seem to feel that the central government is now tightening up its control, taking away the room for manoeuvre which was given to Hong Kong people during the early years after the handover,” he says. “On the other hand, Beijing seems to become more and more worried about Hong Kong independence and about the alienated, hostile attitude of young people in Hong Kong towards the central government.”

Joshua Wong, a 22-year-old student activist who was jailed for his part in the pro-democracy Occupy protests of 2014, argues that “as long as President Xi leads China, there is no chance for democracy in Hong Kong”.

That sentiment has driven a growing number of young people to turn their backs on China. In citywide elections in 2016, about one in five Hong Kongers voted for candidates who supported self-determination or independence. Opinion polls have shown that backing for independence tends to be stronger among young people.

This trend has alarmed China’s Communist party leadership, which sees separatism — whether in Tibet, Xinjiang or Hong Kong — as a fundamental threat to the party’s legitimacy.

On a rare visit last year to celebrate 20 years since the handover, Mr Xi warned Hong Kongers not to cross a “red line” by “endangering China’s sovereignty and security” or “challenging the power of the central government”.

“We’re under a lot of pressure from Beijing,” says one Hong Kong government official. “Unless we can show that we’re tackling the independence issue, the pressure on Hong Kong will continue to increase.”

Jasper Tsang Yok-sing, President of Hong Kong's Legislative Council, speaks to the press in Tokyo on March 12, 2015. Tsang is here to exchange views with Japanese officials including Japanese State Minister for Foreign Affairs Minoru Kiuchi. AFP PHOTO / Yoshikazu TSUNO (Photo credit should read YOSHIKAZU TSUNO/AFP/Getty Images)
Jasper Tsang, who is one of Beijing’s most prominent supporters in Hong Kong, argues that pragmatic consensus has fallen apart over the past few years as Beijing and Hong Kong have become locked in a 'vicious circle' © AFP

Philip Dykes, chairman of the Hong Kong Bar Association, the city’s regulatory body for barristers, fears that the rule of law is starting to fall victim to this political crackdown. He argues Mr Xi’s “red line” is a vague, catch-all term that can be used arbitrarily against dissenters. “You will know when you’ve crossed it, even if you can’t see it,” he says.

The media and business communities were caught off guard by the unprecedented decision involving Mr Mallet, the first time a foreign journalist has been denied a visa since the handover.

Activists say the incident is a less serious blot on Hong Kong’s record than the abduction of bookseller Lee Bo, who disappeared in 2015, and tycoon Xiao Jianhua, who was taken from a Hong Kong hotel in 2017 and is believed to be in custody in Shanghai. Nor is it as grave, they say, as the Hong Kong government’s use of vague colonial laws and creative administrative measures to weaken the democracy movement.

But western diplomats say they were disturbed by the expulsion of Mr Mallet because of the capricious nature of the decision and the use of a repressive tool straight out of Beijing’s playbook, which suggests that Hong Kong is slowly becoming like any other Chinese city.

The Hong Kong government has refused to give its reasons for in effect expelling Mr Mallet, although pro-Beijing politicians and Chinese state media have linked the decision to his hosting of the talk by Mr Chan. He chaired the event in August in his capacity as the acting president of the FCC, which has a long history of hosting discussions with political figures, including senior Hong Kong and Chinese officials.

In a climate of “increasing pressure” on one country, two systems, Mark Field, the UK’s minister for Asia, warns that incidents such as the visa denial for Mr Mallet “will affect business confidence in Hong Kong”.

Analysts at investment banks in Hong Kong are already reluctant to criticise the Chinese government or Chinese state-owned companies for fear of government retribution, according to the head of research for one global bank.

These concerns about freedom of speech have compounded deeper fears about “mainlandisation”, as opposition politicians call it.

Pro-democracy activist Joshua Wong walks out of the Court of Final Appeal after being granted bail in Hong Kong, China, October 24, 2017. REUTERS/Bobby Yip
Joshua Wong, a 22-year-old student activist who was jailed for his part in the pro-democracy Occupy protests of 2014, argues that 'as long as President Xi leads China, there is no chance for democracy in Hong Kong' © Reuters

Legal experts are particularly unnerved by Beijing’s willingness to use its constitutional power to overrule Hong Kong’s independent legal system. In one case in 2016, Beijing required the removal of legislative councillors deemed disloyal and last year it declared that part of a new high-speed rail station in the heart of Hong Kong was mainland territory that would be guarded by Chinese law enforcement.

“It’s the epitome of anti-rule of law to have decrees from a dictatorship infiltrating our legal system,” says Mark Daly, a human rights lawyer who is defending Mr Chan in his appeal against the prohibition of the HKNP. “There’s no self-restraint by Beijing.”

Eric Cheung, a law lecturer at the University of Hong Kong, puts it more starkly. “We are shifting from rule of law to rule by law,” he says. “Now what Beijing says is the law.”

Priscilla Leung, a pro-Beijing legislative councillor and a barrister, dismisses this critique, arguing that democracy activists are trying to turn the rule of law into a “slogan” in order to “fight for their political objectives”.

She says it is supporters of Occupy and those calling for independence from China who are undermining political stability. “The rule of law is the spirit to follow the law, respect the law and uphold the supremacy of law,” she adds.

Her comments echo Beijing and Hong Kong officials, who have rejected the expanding chorus of criticism, including from previously reticent international business chambers in Hong Kong and foreign governments.

Hong Kong’s Department of Justice says “it is misconceived to think that upholding national unity and territory integrity is contrary to the rule of law”. It added that “the rule of law is ingrained in our daily lives . . . including in the way business is conducted”.

Some businesses continue to believe they can thrive despite pressure from Beijing. “I’m not that happy about the growing mainland influence but there’s not much we can do about it,” says one executive at a Hong Kong conglomerate. “We still see many opportunities in Hong Kong regardless of politics.”

But others are urging the government to reverse course before it is too late.

“We’re not at the point where people are pulling out,” says Ms Joseph of the American Chamber of Commerce. “What would it take? It might take people feeling their data are being taken or reviewed or a sense that it’s not an even playing field in terms of western versus mainland businesses.”

In a recent valedictory speech, retiring senior judge Robert Tang warned of the wider battle ahead, calling for the public to defend the rule of law so “it cannot be taken from us easily”.

“Make your voice heard and your vote count,” he urged Hong Kongers. “Believe me, the price of freedom is indeed eternal vigilance.”

Additional reporting by Nicolle Liu in Hong Kong

Free press Room for criticism is shrinking

Although many Hong Kong media outlets are controlled by tycoons with Chinese business interests, including the Alibaba-owned South China Morning Post, local journalists have long chafed against any restraints.

But resistance is getting tougher, as the authorities shift from a strategy of co-opting media owners to more overt efforts to influence coverage.

Francis Lee, a journalism professor at the Chinese University of Hong Kong, says that the “basic game is changing”, with the local government and Beijing “no longer so afraid of directly intervening”.

He cites a recent meeting in Beijing, where the Communist party’s propaganda chief warned a delegation of Hong Kong editors not to let foreign forces turn the city into a base for the subversion of the mainland.

Hong Kong journalists say they often come under pressure from editors to drop stories that would upset Beijing, or simply refrain from pitching them in the first place.

In the arts world, too, there has been a growing number of incidents where organisers fearful of angering the authorities have cancelled movie screenings, talks and projects that would once have raised few eyebrows.

The Hong Kong Journalists Association, which represents local reporters, warned last month that the “death knell” for freedom of speech in Hong Kong has sounded.

“Freedom of expression, of publication and of the press are fundamental factors to Hong Kong’s success,” it said in a statement. “If voices critical of Beijing’s policies cannot be tolerated today, who is to say when a report forecasting a devaluation of [the] renminbi will be disappeared?”

Some analysts say that Beijing wants Hong Kong to mimic Singapore, where speech and the media are tightly controlled but business thrives.

But Mark Clifford, executive director of the Asia Business Council, a think-tank in Hong Kong, argues that, unlike Singapore, free speech and a vibrant media scene have been vital to Hong Kong’s prosperity over the years. 

“Hong Kong has a tradition of freedom,” he says. “We’re different. It’s always been a very political city.”

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