HONG KONG MONITOR 16 July 2021

16 july 2021

The Hong Kong government indirectly advanced its ambitions of crowding out oppositional voices this cycle (9-15 July), when a key pro-democracy organisation announced that it was effectively terminating its staff. The Hong Kong Alliance in Support of Patriotic Democratic Movements of China, which has led the organisation of the annual Tiananmen Square vigil, will also reduce the number of standing committee members. These ‘preventative measures’ serve as a warning to organisations deemed a threat to the government, exposing them to politically influenced legal liabilities under the national security law (NSL), and deals another blow to the cohesiveness of the pro-democracy movement, especially after the closure of the popular Apple Daily newspaper. 

Maintaining the momentum of political risk warnings to businesses operating in the territory was an announcement by the US government on Tuesday (13 July). This warning pertained to data security and the potential for the Chinese government to gain access to information stored in Hong Kong’s jurisdiction. A Chinese foreign ministry spokesman however rebuffed the warning while levelling accusations of Washington having ‘double standards.’ This development is evocative of similar warnings over a proposed anti-doxxing and upcoming de facto ‘exit ban’ laws that can be weaponised against foreign businesses, particularly those from countries deemed a strategic competitor to China.

An event that sat outside of the monitoring cycle, but has potential ramifications for businesses dealing with cryptocurrencies, was the 8 July dismantling of a money-laundering syndicate. This was a unique arrest operation dubbed ‘Coin Breaker’. The syndicate laundered money via unnamed cryptocurrency exchanges to the value of USD185 million, making it the first such known case in Hong Kong. This investigation is expected to reveal an extensive organised crime network that could tap into the accounts of legitimate businesses or companies that have links to those businesses domestically and abroad. The operation also reinforces the perception of the negative aspects of cryptocurrency trading, which will ultimately reinforce the government’s efforts at regulating the industry.

Evidenced collected from Operation Coin Breaker, 15 July 2021 / The Standard


GEOPOLITICS AND LOCAL IMPLICATIONS

On Saturday (10 July), the Hong Kong Alliance in Support of Patriotic Democratic Movements of China announced that seven of the 14 members of its standing committee will step down and all of its staff will be terminated by the end of July. The ‘preventative measures’ were taken in anticipation of potential law enforcement action, given ‘growing political and legal risks.’ The organisation is best known for organising an annual rally and candlelight vigil commemorating the 1989 Tiananmen Square Incident.

Downsizing of the organisation reflects the shrinking space for civil society in Hong Kong and will be of concern to international observers and governments. This has been a clear area of concern for foreign governments, especially those in the west that have cited suppression of human rights and democratic freedoms as rationale to impose diplomatic and economic punitive measures.

The European parliament in response to Beijing’s human rights abuses recently overwhelmingly passed a non-binding resolution calling for governments to hold diplomatic boycotts of the Beijing 2022 Winter Olympics scheduled for February, implement further sanctions, provide emergency visas to Hong Kong journalists, and provide additional support to Hong Kongers relocating to Europe. Although the resolution is non-binding, it illustrates Europe’s increasing assertiveness against the Chinese government and will worsen bilateral tensions. Should European countries adopt any of the measures, then Beijing may respond with diplomatic and/or commercial retaliation targeting businesses in Hong Kong whose home governments have taken action.

On 13 July, the US government warned American businesses about the growing risks of operating in Hong Kong and also updated a previously issued warning on Xinjiang. Washington’s warning relates to threats to US businesses, including the Chinese government’s ability to gain access to data that foreign companies store in Hong Kong, as well as a new law that enables Beijing to impose sanctions against individuals or entities involved in making or implementing discriminatory measures against Chinese citizens or entities. Chinese foreign ministry spokesman Zhao Lijian criticised the warning for demonstrating the US government’s ‘double standards’ and ‘political manipulation.’ Zhao said that the rights of foreign investors in Hong Kong are protected by Hong Kong’s laws, including the Basic Law.

The warning will draw further attention to escalating political risks to foreign companies in Hong Kong, probably denting investor and business sentiment. Zhao’s remarks are unlikely to ease investors’ concerns, given noticeable erosion of Hong Kong’s common law-based legal system through hybridisation with the NSL.

The freezing of the Apple Daily news outlet’s assets under a national security probe and its subsequent closure are very likely to have contributed to the current alarm by the US and European governments. Of further concern is a proposed anti-doxxing law that could hold businesses and their respective staff criminally and civilly liable for online content by users that is deemed to breach local laws. A de facto ‘exit ban’ law is also set to come into effect from 1 August. Cumulatively, these laws provide local authorities with a broad array of tools, which could be used to exact diplomatic and/or commercial retaliation should the home government of the business fall out of favour with the Beijing or Hong Kong governments. Washington’s upcoming imposition of sanctions will probably serve as a litmus test illustrating the extent to which China’s new anti-foreign sanctions law will be utilised.


PUBLIC HEALTH AND SAFETY: COVID-19

On Monday (12 July), Hong Kong’s 33-day streak of no local infections ended after a variant strain was detected in a 50-year-old baggage handler on Sunday (11 July), leading to mass testing of thousands of airport workers. The man lives in Wong Tai Sin, New Kowloon, Kowloon, and last went to work on 10 July.

A subsequent epidemiological investigation found the case to be related to four previously imported cases from Russia. The worker may have been infected by undiagnosed aircrew. The worker was infected with the highly transmissible Delta variant. 

In a separate but related development, Chef Executive Carrie Lam on 12 July told Metro Radio she has requested guidance from Beijing on when a broader reopening of the border with Hong Kong may be permitted, and possible travel volumes.

Also on 12 July, one foreign passenger arriving on a Lufthansa flight from Frankfurt, Germany tested positive upon arrival. Two others were found to be non-compliant with testing requirements, and as a result, the Hong Kong government banned all Lufthansa Airlines passenger flights from 16 to 29 July.

The CHP on 13 July announced the investigation of one new imported COVID-19 case involving a 27-year-old woman from Cambodia. The following day, the CHP reported three new imported COVID-19 cases, including two fully-vaccinated arrivals. The arrivals from Namibia, Ghana, and Cyprus all tested positive for the highly transmissible Delta variant. The man from Namibia had been fully immunised with the Pfizer-BioNTech vaccine, while the woman from  had been inoculated with the Russian-made Sputnik V vaccine.

On 15 July, the CHP reported no new COVID-19 cases. Over the past 14 days, the CHP registered 32 cases, including 30 classified as imported.

In COVID-19-related travel developments, the UK government moved Hong Kong to its ‘green list’, allowing travellers from Hong Kong to travel and arrive in the UK without undergoing any quarantine. Incoming travellers will, however, have to undergo a COVID-19 test that leads to a negative result at least three days before departure and two days after arrival. This new rule will come into force from 0400 UK time on 19 July.

Visitors at the annual Hong Kong Book Fair, Hong Kong Convention and Exhibition Centre, Wan Chai.Traders were selling fewer books deemed politically sensitive as they try to avoid violating the NSL, 14 July 2021 / AP / Matthew Cheng


LOCAL POLITICAL AND SECURITY DEVELOPMENTS

On 12 July, police arrested at least five individuals said to be tied to pro-independence group Returning Valiant on suspicion that they were planning improvised explosive device attacks, according to local media reports on 12 July. Four males and one female aged 15-37 were detained in the operation, according to broadcasters TVB and RTHK. Two of them allegedly provided funds, while another two are alleged to have purchased bomb-making materials. The arrests come after a series of arrests, including of Returning Valiant members, on 6 July in connection with the same bomb plot. Renewed arrests further underscore the security risks posed by extremist elements of the pro-democracy movement. Security and operations managers should assess the impact of such risks on the safety of their staff, assets, and operations.

The Hong Kong Monetary Authority (HKMA) issued a press release on 13 July alerting members of the public about fraudulent websites and phishing instant messages masquerading as the Hang Seng Bank, Limited. The HKMA press release emphasised that banks will not send SMS or e-mails with embedded hyperlinks that direct them to the banks’ websites to conduct transactions, and that they will not request personal information. The HKMA’s warning underscores the financial and security risks posed by fraudulent communications from cybercriminals and fraudsters impersonating businesses.

On 14 July, Hong Kong Security Secretary Chris Tang said although terrorists attacks are possible, there is no specific intelligence indicating Hong Kong is likely to be targeted by terrorists. Tang’s remarks come despite the foiling of an alleged bomb plot last week. Tang said the last terrorist incident occurred less than two weeks ago, referring to the lone-wolf attacker that died after stabbing and injuring a police officer. Hong Kong’s terrorism alert level remains at ‘moderate’, according to Tang, who said that if the alert level is raised, then bag searches for rail and bus passengers may become frequent in the territory. Airport-bound vehicles could also be searched, as well as flight passengers’ luggage. Tang said that perpetrators of violent attacks in recent years were motivated by ‘seditious messages and fake news’, citing the 1 July lone-wolf attacker as an example.

Tang’s remarks reinforce Hong Kong’s overall terrorism risk profile, which remains comparably low despite recent developments. They also suggest that authorities remain alert to potential incidents, which they will probably link to the pro-democracy movement as a whole. Nonetheless, Tang’s comments also highlight the always prevalent threat of terrorist incidents relating to lone-wolf attackers. Individuals carrying out such attacks may be politically radicalised and/or may be doing so due to serious mental illness.

On 15 July, the Hong Kong police announced the dismantling of a money-laundering syndicate and arrested four individuals during an operation called ‘Coin Breaker.’ Raids were executed in Wong Chuk Hang (Hong Kong Island), Prince Edward (Kowloon), Tuen Mun (New Territories), Tun Shui Wai (New Territories) and Mong Kok (Kowloon).

This was a unique arrest operation  - this syndicate used cryptocurrency, specifically USDT, to launder approximately USD185 million, making it the first such known case in Hong Kong. The group made hundreds of transactions to more than 200 local and overseas bank accounts from February 2020 to May 2021. The operation also reinforces the perception of the negative aspects of cryptocurrency trading, which will ultimately reinforce the government’s efforts at regulating the industry. In May 2021, city regulators restricted trading on cryptocurrency platforms to institutional investors, a move which was aimed at tightening anti-money laundering and counter-terrorism financing efforts.

 

THE WEEK AHEAD

US-China developments are likely to garner the most attention in the coming week, especially in relation to Washington’s imposition of sanctions against Chinese officials in Hong Kong over its suppression of pro-democracy efforts. Additionally, the upcoming travel of US Deputy Secretary of State Wendy Sherman to South Korea, Japan and Mongolia is likely to remain isolated to those three after Beijing reportedly refused to arrange a meeting with Sherman’s Beijing counterpart. There was uncertainty as to whether Sherman would travel to Tianjin to meet Xie Feng, a foreign ministry official responsible for US affairs.

On Thursday (15 July), President Biden confirmed earlier media reports that his administration will sanction a number of mainland Chinese officials in Hong Kong linked to that country’s now enforced NSL, while also warning US companies of the risks of conducting business in the territory. Full details of what Biden termed a ‘business advisory’ to US commercial interests are due to be announced later on Friday (EDT).

Imposing any sanctions on Hong Kong-based mainland Chinese officials, most of whom are presumed to be linked to the security aspects of the NSL, is a largely symbolic gesture intended to signal US government disapproval of Beijing’s policies and in line with more stringent earlier measures that materially affected the financial interests of senior Hong Kong politicians and administrators. The business advisory is a far more significant move as any intervention by Washington in the operation of private US business overseas interests carries the implied threat that failure to comply with such a warning may result in the introduction of more direct action and measures.

A well-sourced Financial Times report published earlier this week noted one concern is the security of key commercial sensitive information held by US companies in Hong Kong. There have been concerns since the introduction of the NSL in June 2020 that such data may be compromised by China’s insistence it is open to scrutiny by its auditors and security organisations as a condition of trading in the territory. Other Western nations may follow the US move, either for legal or political reasons, further adding to perceptions over Hong Kong’s future utility as a key regional financial centre. Beijing’s response to the US actions may well add to such concerns.


UPCOMING PROTESTS 16 – 22 July

Upcoming significant dates in the pro-democracy calendar are likely to draw out small numbers of activists for memorial gatherings, including of deceased pro-democracy activists:

  • 21 July: Memorial for the 21 July 2019 Yuen Long attack
  • 22 July: Memorial for Yin-lam Chan


PROTEST CHRONOLOGY 9 – 15 July

Tuesday 13 July

1200: Activists from the pro-democracy League of Social Democrats protested outside the China Liaison Office, Sai Ying Pun, Western district, Hong Kong Island, holding up images of political prisoners. The demonstration was held on the four-year anniversary of the death of Chinese Nobel Peace laureate Liu Xiaobo. Police cordoned off the small demonstration, which passed off peacefully. The demonstration shows the continued potential for street-level protest activity in and around politically sensitive anniversaries, particularly memorials commemorating deceased activists and protesters. Flashpoints for such protests include areas around government buildings.

Wednesday 14 July

2100: There was a memorial gathering at Pacific Place, Admiralty, Hong Kong Island for deceased protester Marco Ling-kit Leung. As of the time of compiling this situation report, reports have been emerging on social media of people gathering for this memorial gathering. No further details have been made available.