HONG KONG MONITOR 2 April 2021

2 april 2021

Beijing took another step towards assimilating Hong Kong politically over the monitoring period  (26 March – 1 April), when China’s National People’s Congress (NPC’s) Standing Committee endorsed a plan to reduce the number of opposition politicians able to be elected to Hong Kong’s Legislative Council (LegCo). Meanwhile, the Hong Kong government added another layer of opaqueness to conducting business in the territory when it announced that it would tighten access to the Companies Registry. The register is a critical repository of information on trading companies, including details on directorships and owners. By restricting access on the type of searchable information, it will elevate transparency concerns and corruption risks for businesses with current or future interests in Hong Kong.

In public health and safety, friendlier days are ahead in the travel and business environments following recent developments. The Hong Kong government lifted the temporary distribution stoppage of the Pfizer-BioNTech vaccine after an investigation revealed defective packaging with some vaccine batches. The vaccine will roll out again from Monday (5 April). Elsewhere, the government also relaxed some restrictions for international travellers from low-risk countries. Those travellers will be subject to fewer days quarantine days.

In local political and security developments, a Hong Kong court delivered guilty verdicts to seven leading pro-democracy politicians and activists on charges of unauthorised assembly during protests in 2019. While the verdicts were anticipated, it sends out a stark warning to the pro-democracy movement, dissuading them from engaging in any activities deemed a threat to the government. Internationally, Hong Kong can expect sharp criticism and possible sanctions from foreign governments, likely soon after sentencing on 16 April. Hong Kong and Beijing’s response to any punitive measures elevates political risks for foreign operators in the territory.

 

GEOPOLITICS AND LOCAL IMPLICATIONS

On Tuesday (30 March), the NPC’s Standing Committee unanimously endorsed plans that will effectively end any meaningful opposition presence in Hong Kong’s Legislative Council (LegCo), the territory’s de facto parliament. Following the earlier detention of scores of elected opposition politicians and activists, Beijing’s decision to reduce the number of directly-elected seats in LegCo from 50 per cent to around 20 per cent and give wide-ranging powers to the body responsible for elections was widely anticipated. 

Local media on 30 March also reported that the Hong Kong government would, with immediate effect, greatly restrict public access to company directors’ personal data held on the Company Register.

While the further restriction on political activity is certain to draw international condemnation from mainly democratic countries, most foreign commercial interests will have anticipated Beijing’s well-signalled action and prepared for a further deterioration in ties between China and the West. The implications of any restriction of access to the Company Register, clearly intended to prevent journalists from researching individuals in the local business community, are likely to have a more immediate operational impact if they prevent due diligence and other legally required fiduciary checks.

The government remains opaque over who may gain access to all relevant data held in the Company Register, but any indication that investors, law firms or professional investigatory agencies are denied key information will further erode international confidence in Hong Kong’s role as a key global financial and commercial centre.

Possible candidates in future Hong Kong elections will be vetted by a special national security unit within the territory’s police force before being further vetted by two committees to confirm their ability to participate in polls. The changes form part of sweeping reforms to Hong Kong’s electoral system included in a new version of the Basic Law’s Annexes 1 and 2 approved by China’s legislative body on 30 March.

The vetting is to gauge whether candidates back the Basic Law and are loyal to the Hong Kong Special Administrative Region. The number of directly elected seats in the legislature was also reduced from 35 to 20. Forty new seats will be filled by the Election Committee. Also on 30 March, Chief Executive Carrie Lam announced that the Legislative Council election will likely be held in December.

While major changes to Hong Kong’s electoral system were anticipated, the inclusion of vetting by the police is unexpected and will further raise concerns around political opposition in the territory. The UK government responded to the changes by on 30 March accusing China of breaching the 1984 Joint Declaration. The EU, Japan, and the US, which on 31 March also condemned the electoral changes. Beijing responded by accusing the countries of meddling in China’s internal affairs.

London is increasingly likely to move from rhetoric to more concrete sanctions on Chinese and Hong Kong interests given recent retaliatory Chinese sanctions on UK individuals and entities over the UK’s Xinjiang-related sanctions. The sanctions contributed towards increased solidarity within the UK government on adopting a tougher stance towards China. Foreign companies should assess the impact of likely retaliation by Western and Western-allied countries against the sweeping electoral changes on their interests in Hong Kong.     

Hong Kong’s BioNTech COVID-19 vaccination scheme has been suspended since 24 March 2021, EPA/EFE


PUBLIC HEALTH AND SAFETY: COVID-19

On Monday (29 March), public health officials announced the opening of various leisure facilities from Thursday (1 April) as the current wave of coronavirus (COVID-19) infections subsides. However, most other measures including gathering restrictions will be extended for two weeks. Cases in Hong Kong have fallen to relatively low-digit figures, with 10 new cases on 29 March, including one of unknown origins. No community transmission was recorded over the weekend of 27-28 March.

The government also relaxed some restrictions for international travellers. Arrivals from low-risk countries such as Australia, New Zealand, and Singapore will be subject to a 14-day hotel quarantine, down from the previous 21-day requirement. Hotel quarantine is followed by a seven-day home quarantine. Travel restrictions for those departing from the UK will also be removed as pandemic conditions improve. Additionally, travel bubble agreements with 16 countries are still under negotiations.

The announcement comes after the Hong Kong government on Sunday (28 March) said that an initial investigation revealed that there was no risk in the Pfizer-BioNTech vaccine. The investigation was conducted following reports of defective packaging.

The announcement by authorities to resume usage of the German-developed vaccine will alleviate immediate concerns about its suspension being linked to politically motivated retaliation. However, broader political risks to foreign drug-makers involved with COVID-19 vaccines are likely to remain while Beijing’s vaccine diplomacy efforts falter.

Additionally, despite reduced quarantines for low-risk countries and pending travel bubble agreements, granting of exemptions to travel restrictions only to those who have received Chinese-made vaccines coupled with potential resistance to those vaccines are likely to remain a complicating factor for foreign companies in the territory. Such concerns, combined with the apparent pursuit of a ‘zero-COVID’ strategy by Hong Kong authorities suggests that mobility restrictions will remain an impediment in the medium-term outlook.

Martin Lee, the 82-year-old barrister often called the “father of democracy” in Hong Kong, before the verdict on Thursday, 31 March 2021, Isaac Lawrence/Agence France-Presse/Getty Images


LOCAL POLITICAL AND SECURITY DEVELOPMENTS

On 1 April, a Hong Kong court found seven leading pro-democracy politicians and activists guilty on charges of unauthorised, albeit peaceful, assembly during protests in 2019. Long-standing political leader Martin Lee, one of the founders of the Democratic Party that became the largest opposition movement in the local legislature, and media tycoon Jimmy Lai were among those convicted. Sentencing is due on 16 April.

The maximum term for the offence, which is contained within Hong Kong’s colonial-era legal statutes rather than China’s imposed national security law, is five years. Given that all defendants are over 60 years of age any prison terms are unlikely to exceed 18 months.

The guilty verdicts were anticipated by most local observers, with attention now focusing on the sentencing. The international response, notably relating to any further sanctions imposed on individuals, institutions or broader ties with Hong Kong, can be expected to be delayed until the sentences are announced. However, on 30 March the US government announced that the territory no longer warranted preferential treatment under the Hong Kong Policy Act, legislation that enabled Washington to maintain a special relationship with the territory.

Additionally, legislators in many democratic countries, particularly in North America, Europe and Australasia, can be expected to call for tighter sanctions against Hong Kong if the seven defendants are imprisoned. China and Hong Kong would almost certainly respond, adding increased pressure on many foreign commercial interests and, potentially, their expatriate staff. International companies in Hong Kong and China should reassess their vulnerability to any actions that may compromise the safety and security of their staff as well as impact operations and assets in the immediate outlook.                   

THE WEEK AHEAD

A great deal of attention will likely focus on the Hong Kong government’s COVID-19 vaccination efforts in the coming week as public and business confidence will likely rise when the Pfizer-BioNTech vaccine rolls out from 5 April. Secretary for the Civil Service Patrick Nip said that a new batch of 300,000 doses will arrive in the territory on Saturday (3 April) and those who missed their second doses will be allotted a new booking next week, of which they will be notified from Friday (2 April).

Nip urged registration for the immunisation programme, as only about 461,000 residents, or approximately 7 per cent of the population aged 16 or over, have received their first vaccine dose since the programme was launched in late February. The announcement comes as Hong Kong on 1 April recorded 13 new COVID-19 cases, two of them local infections with unknown sources. The other 11 cases were imported. Official resumption of the German-developed vaccine’s usage will likely accelerate Hong Kong’s vaccination programme in the near-term and allow for a quicker normalisation of business operations and travel.

Protest events continue to remain in low single-digits and are mainly led by prominent pro-democracy movement figures. Each of these demonstrations occur in high-profile venues to attract public attention, but very often they take place without any police presence these days. There are limited to no disruption to local area business and travel, rendering these events as largely symbolic and performative. For the coming week, there are no announced scheduled protests, especially during the long holiday weekend. See details below.

 

UPCOMING PROTESTS 26 March – 1 April

No protests have been announced.

 

PROTEST CHRONOLOGY 19 – 25 March

Monday 29 March

1230: An individual pro-democracy activist held a demonstration outside of the High Court in Admiralty, Hong Kong Island, to show solidarity with local activists at a court hearing. The protest follows a trend of demonstrations in the vicinity of courts in solidarity with activists facing hearings.

Wednesday 31 March

1245 and 1500: An individual pro-democracy activist held a protest titled ‘Don’t forget 831 and lunch with you at Langham Place and Prince Edward MTR station, Mong Kok district, Kowloon. The protest commemorated the 31 August Prince Edward station incident, a significant date in the pro-democracy calendar. On 31 August 2019, Hong Kong police allegedly attacked protesters and non-participants at Prince Edward MTR station in Mong Kok district, Kowloon. There was no significant disruption to local area businesses and travel due to this protest.