HONG KONG, CHINA - AUGUST 28: Protesters stick posters and notes on the outside of the Cathay Pacific offices during a rally against White terror and the dismissal of Cathay Pacific staff on August 28, 2019 in Hong Kong, China. Pro-democracy protesters have continued demonstrations across Hong Kong since 9 June against a controversial bill which allows extraditions to mainland China as the ongoing protests surpassed the Umbrella Movement five years ago, becoming the biggest political crisis since Britain handed its onetime colony back to China in 1997. Hong Kong's embattled leader Carrie Lam apologized for introducing the bill and declared it "dead", however the campaign continues to draw large crowds to voice their discontent while many end up in violent clashes with the police as protesters show no signs of stopping. (Photo by Chris McGrath/Getty Images)
Pro-democracy protesters at a rally in support of fired Cathay Pacific workers © Getty

On July 28, Hong Kong police arrested 17 people for their alleged participation in a riot in the territory’s premier business district. The accused included students, chefs, clerks, a teacher, a nurse and, fatefully for Hong Kong’s corporate sector, a young pilot for Cathay Pacific Airways.

Within two weeks the chance arrest of Liu Chung-yin, 30, whose arraignment is pending, had plunged his employer into the biggest political crisis since its establishment in 1946 and shaken relations between Hong Kong’s business community and China’s ruling Communist party in Beijing. 

On August 9, China’s aviation regulator accused management at Hong Kong’s de facto flag carrier and its controlling shareholder, Swire Pacific, of not acting quickly enough to discipline Mr Liu and other employees alleged to have participated in illegal or violent protests that have rocked the territory during almost two months of protests against a controversial extradition bill

Alongside Jardine Matheson, Swire is one of two British trading houses established in Hong Kong in the 19th century that still have extensive operations in both China and Hong Kong. 

The Civil Aviation Administration of China said Cathay’s handling of employees accused of participating in the protests constituted an intolerable safety hazard in view of the airline’s dozens of daily flights that either service Chinese cities or transit the country’s airspace en route to long-haul destinations in Europe, the US and elsewhere.

The CAAC’s warning shot came just days after John Slosar, Cathay’s non-executive chairman, said the airline “wouldn’t dream of telling [employees] what they have to think about something” as it reported profits of HK$1.35bn ($172m) after two consecutive years of losses.

On August 16, Cathay’s top two executives, including chief executive Rupert Hogg, tendered their resignations, triggering a rush by other leading Hong Kong companies to publish statements condemning all illegal assemblies and violent protests. 

The controversy has hit shares in Cathay, which in April had rebounded almost 40 per cent from a five-year low in October 2018. Rocked by both the turmoil in Hong Kong and the CAAC rebuke, they have lost 7 per cent since the end of July. Shares in Swire, meanwhile, have fallen about 12 per cent, while Hong Kong’s benchmark Hang Seng index has shed 7.6 per cent.

“It’s a very alarming development,” said one Cathay insider. “Swire has always seen itself as being well-connected in mainland China, where of course it has massive investments outside the airline.”

Swire declined to comment on the issue.

In addition to its 45 per cent holding in Cathay and other aviation businesses, which accounted for 18 per cent of Swire’s 2018 revenues, its interests in mainland China range from high-end hotel and retail developments to 18 Coca-Cola bottling plants. Swire is among the most exposed of Hong Kong’s largest companies to mainland China, with the country accounting for about half of all the group’s revenues. 

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Air China, the country’s flag carrier, is Cathay’s second-largest shareholder with a 29.9 per cent stake.

While services in north Asia including China account for only about 20 per cent of Cathay’s business, at least 70 per cent of its flights pass through Chinese airspace. 

The resignations of Mr Hogg and his deputy, Paul Loo, shocked their peers in boardrooms across Hong Kong. They have long assumed they would be left alone by Beijing so long as they did not openly challenge Beijing’s authority over the former British colony or criticise its management of the “one country, two systems” formula under which the territory has been granted wide-ranging autonomy until 2047.

Mr Hogg and lawyers for Mr Liu declined requests for comment. Mr Loo could not be reached for comment.

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Wang Qishan, China’s vice-president, once told a senior UK executive that the Communist party was far more tolerant of Hong Kong than other Chinese territories because it viewed the city as a “stepchild”, according to a person familiar with the exchange. It is harder, Mr Wang noted, to hit a stepchild than it is your own children.

But as the turmoil in Hong Kong threatens to cast a pall over the 70th anniversary of the establishment of the People’s Republic of China on October 1, the Communist party is losing patience with the protest movement and companies that do not take a clear-cut stand against it.

“The message from Beijing is clear,” said one veteran banker who has worked for decades with many of Hong Kong’s leading blue-chip companies. “Are you part of the solution or part of the problem?”

A senior executive at Jardines, the territory’s biggest employer and largest landlord in the Central business district, agreed: “The Chinese government is setting new terms in the way we operate.”

“We want to be seen as a good Hong Kong corporate citizen because we want to keep working there,” this person added.

Last week, as pressure was building on Swire to make top-level management changes at Cathay, Jardines issued a statement saying it was “deeply saddened and concerned” by violent protests that “seriously threatened the wellbeing of our community and has taken a significant toll on the whole of Hong Kong and its international standing”.

Similar statements were published in local newspapers by many of Hong Kong’s richest Chinese tycoons, including Li Ka-shing and his two heirs, Victor and Richard.

But one person close to Cathay noted that the airline is in a far more precarious position vis-à-vis the mainland than its British or Chinese Hong Kong peers. “They have an absolutely existential relationship to the mainland and anywhere in the world airlines just have to do what aviation regulators say,” the person said. “They’re also walking a delicate line with a unionised and pretty vocal workforce who have got a lot to say about issues at home.”

Cathay said last week that it had a “zero-tolerance approach to any support for or participation [by its employees] in illegal protests, violent activities or overly radical behaviour”, but “fully supports the upholding of the Basic Law and all the rights and freedoms afforded by it”.

Rebecca Sy, former chairwoman of the Hong Kong Dragon Airlines Flight Attendants' Association, addresses a rally organized by the Hong Kong Confederation of Trade Unions (HKCTU) at Edinburgh Place in the Central district of Hong Kong, China, on Wednesday, Aug. 28, 2019. Hundreds of people gathered in Hong Kong to demand Cathay Pacific Airways Ltd. rehire workers who left the troubled carrier after supporting the city's pro-democracy protests, in a case that has raised fears about dwindling free speech in the former colony. Photographer: Chan Long Hei/Bloomberg
Rebecca Sy, former head of the cabin crew union at Cathay Dragon, a regional airline owned by Cathay, said she was fired after being presented with posts from his personal Facebook page © Bloomberg

As Cathay and Swire scramble to get back in the CAAC’s good graces, many of their employees believe the companies have gone too far, especially in pressuring or sacking staff for seemingly harmless expressions of support for the protest movement.

Rebecca Sy, head of the flight attendants union at Cathay’s regional subsidiary, said on Friday that she had been fired after being presented with a printout of posts from her personal Facebook page. Ms Sy said she was not told which posts were the cause for her dismissal.

The controversy has caused a rift among Cathay’s workforce, often pitting younger employees concerned about the long-term implications of the extradition bill against older colleagues worried about the security of their approaching retirements. Even WhatsApp groups used by employees to share cab rides to and from Hong Kong’s airport have splintered, with “yellow ribbon” groups for those that support the protest movement and “blue ribbon” groups for those that do not.

“Everybody’s frightened,” said one Cathay pilot. “A lot of crew have changed their Facebook names to something unrecognisable.”

“What’s happening at Cathay,” he added, “is how Hong Kong is going to be in future.” 

Additional reporting by Jamil Anderlini in Hong Kong 

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