China Brief: 26 March - 1 April 2019

A2 Global's China Brief contains assessments of events and policies that may impact commercial interests, personnel, and assets throughout Greater China. This edition includes developments on Hong Kong's extradition law, China's launching of nationwide company inspections, and the reversal of Chinese ownership of a U.S.-based company. It also features China's import ban on a second Canadian rapeseed firm and the kidnapping of a Chinese student near Toronto. 

Hong Kong - Security risk: Low - Thousands march in protest over plans to extradite suspects to China 

China  - Political risk- Medium - Safety watchdog announces launch of nationwide company inspections

China & United States - Chinese ownership of U.S. technology company reversed 

China & Canada - China bans imports from second Canadian rapeseed firm 

Hong Kong -  Political risk - Minor - Administration limits number of offences meriting extradition to China 

China & Canada - Canada under pressure as Chinese student kidnapped near Toronto

Hong Kong – Thousands march in protest over plans to extradite suspects to China

HONG KONG – Security risk: Low

1 April: Thousands of people joined a march in Hong Kong island’s Wan Chai district on 31 March to protest against the local government’s plan to permit some suspects to be extradited to China. The peaceful march, which the organisers claimed attracted 12,000 people, was the first public display of opposition to the proposed extradition plan many fear erodes Hong Kong’s present British-based legal system. Chief Executive Carrie Lam has said the government will not drop the amendment to the territory’s extradition laws (see 27 March below).

Why it matters: A2 Global notes the march signals the level of widespread public concern over Hong Kong’s growing ties to China and threats to the territory’s present status. Further protests are likely, all with the concomitant risk of disorder. Foreign residents and visitors should avoid any protests in the territory, and companies should assess the potential risk such demonstrations may pose to their operations, assets or property.

China – Safety watchdog announces launch of nationwide company inspections 

CHINA – Political risk: Medium

29 March: On 27 March, China’s safety watchdog announced the launch of month-long nationwide inspections of mines, fire and transportation safety, and hazardous chemicals. The inspections will have a particular focus on ‘poor, chaotic and small’ companies – ensuring that the unqualified ones are shut down – and excessive or illegal storage of dangerous chemicals. Big data and other technologies will be used for real-time monitoring of chemical producers, while enhanced daily inspections and environmental impact assessment approvals are also planned.

Why it matters: The announcement follows the deadly chemical blast in Yancheng, in the eastern-central province of Jiangsu, on 21 March. The incident drew international scrutiny, including a U.N. human rights expert on 29 March urging China to fulfill its promises in implementing measures to mitigate chemical industry risks. A further deadly blast at a metal-moulding plant occurred in the same province on 31 March. A2 Global advises foreign companies with operations in China to regularly audit their health and safety practices at their sites to ensure that they are compliant with all relevant duty-of-care obligations. These should be undertaken by specialists, and supported with comprehensive policies. A2 Global advises businesses to also ensure the maintenance of compliance procedures and implementation of due diligence when engaging with third parties to avoid reputational damage. Companies sourcing products from China are advised to factor the risk of industrial accidents into their strategic planning.


China & United States – Chinese ownership of U.S. technology company reversed

28 March: On 27 March, a report by the Reuters news agency indicated that the Chinese gaming company Beijing Kunlun Tech Co Ltd (Kunlun) is being forced to divest itself of U.S.-based Grindr LLC (Grindr) – which owns an LGBTQ dating app – over national security concerns expressed by the Committee on Foreign Investment in the United States (CFIUS). CFIUS’s intervention was prompted by Kunlun’s plans to launch an initial public offering (IPO), a move that would have extended its ownership period. Kunlun’s buyout of Grindr three years ago had occurred without consultation of CFIUS, making a reversal possible.

Why it matters: CFIUS has not stated a reason for its intervention. Though acquisition reversals have been rare, CFIUS has in recent years blocked several other Chinese acquisitions of U.S. firms dealing in personal data. A2 Global notes the heightened reputational risks attached to companies dealing in personal data, especially those with potentially unscrupulous foreign ownership. This is due to growing fears that data can be used to blackmail users – including government officials. A2 Global warns that these risks could prompt users and advertisers to abandon such services. A2 Global advises U.S. companies being considered for investment from Chinese companies to be aware of these reputational risks, and Chinese companies considering acquisitions of U.S. companies to submit their plans to CFIUS for review.

China & Canada –  China bans imports from second Canadian rapeseed firm

27 March: On 26 March, China’s customs agency announced on its website that it has banned rapeseed imports from Viterra Incorporated, a Canadian grain processor, over allegedly contaminated rapeseed shipments.

Why it matters: The ban follows China blacklisting Richardson International Limited, one of Canada’s largest grain processors and the largest fully Canadian-owned exporter on 1 March. China is Canada’s largest customer of rapeseed – which accounts for 17 per cent of all Canadian exports to China, receiving around 40 per cent of Canada’s exports of the product. The ban is likely a further reprisal over Canada’s ongoing extradition of Chinese technology company Huawei Technologies’ CFO Meng Wanzhou to the United States. Reprisals have also included the detention of Canadian citizens resident in China. A2 Global reiterates its advice to U.S. and Canadian companies operating in China to factor in the possibility of reprisals. These could include delays in granting licences, processing shipments, and approving visas, as well as the detention of Canadian or American citizens in China. A2 Global advises U.S. and Canadian business executives and travellers to assess whether their business activities or relations with Chinese regulatory authorities might provide a pretext for detention or increased regulatory scrutiny.

Hong Kong – Administration limits number of offences meriting extradition to China

HONG KONG – Political risk: Minor

27 March: The territory’s administration on 26 March announced the number of offences meriting extradition to China had been reduced. This follows widespread opposition from the local and international business community. Government officials presented a revised bill allowing extraditions only for offences punishable by three years’ imprisonment, instead of one year as originally proposed. The new bill will also exclude crimes relating to taxes, securities and futures trading, intellectual property, company offences and unlawful use of computers from 46 offences – including bribery, fraud and money laundering. The bill is due to be presented to the local legislature on 3 April.

Why it matters: A2 Global notes the original declaration that Hong Kong would permit the extradition of suspects involved in economic crimes to China, Taiwan, and Macau created widespread concern, due to differing legal systems and interpretations of what may constitute a crime in the four jurisdictions. In addition, there remain concerns over the erosion of local legal protection due to pressure from Beijing to increase Hong Kong’s alignment to the mainland. This is regardless of treaty obligations intended to give the territory wide-ranging autonomy until China resumes full control in 2047. Such concerns are set to deepen regardless of the local government’s seeming willingness to compromise on the extradition issue.

China & Canada – Canada under pressure as Chinese student kidnapped near Toronto 

26 March: On 25 March, media outlets reported that a Chinese student had been violently kidnapped by four unidentified men with a stun gun on 23 March in a park in Markham, a city 30km north-east of Toronto, Ontario, Canada. Local police have published CCTV images of the vehicle the student was forced into and the attackers, as well as liaised with the Chinese consulate. On 26 March, the student was found approximately 200 km away from the location of the abduction, having sustained only minor injuries. No contact with the kidnappers has been made.

Why it matters: The kidnapping comes against a backdrop of increasingly strained relations between China and Canada, which have been marred by a diplomatic row in past months including incidents such as the extradition of Chinese technology company Huawei Technologies’ Chief Financial Officer Meng Wanzhou and reprisals such as China’s ban on Canadian canola shipments and the detainment of Canadian citizens resident in China. The kidnapping thus potentially invites closer attention from Chinese officials and pressures the Canadian government to show it is doing its utmost to ensure the student’s safety. As the student is reportedly a high-net-worth individual who drives a luxury sports car, A2 Global advises businesses with such individuals from China to review their safety protocol, including their dependants. Where necessary, they should enhance personal security.