HONG KONG MONITOR 21 May 2021

21 may 2021

A new development in the trial of Apple Daily owner and leading pro-democracy figure, Jimmy Lai, provided another defining dynamic underscoring the potential perils for foreign companies operating in Hong Kong. On Tuesday (18 May), Hong Kong’s Chief Executive Carrie Lam defended her government’s position to freeze assets held by Lai, including his majority stake in multi-million US dollar Next Digital media company, as he is still remanded in custody on charges of violating the national security law (NSL). The move was the first to directly target a listed company under the law, and it will likely bolster the perception of the potential to use the NSL as a politically expedient and weaponised tool against a commercial organisation and its people  deemed a threat to the government even on security grounds.

This issue spilled over to diplomatic relations between Taiwan and Hong Kong, particularly as it also impacted the Taiwan branch of the Apple Daily. Its office was forced to stop producing its print version as a cost-cutting exercise driven by declining ad revenue and politically motivated strains on business conditions in Hong Kong. It forced Taipei to issue a warning about the rising business risks to Taiwanese companies in Hong Kong, aggravating cross-straits relations to the point that the Lam administration closed the Hong Kong Economic, Trade and Cultural Office in Taipei on 18 May. These developments bear out the reality that the continued and rapid assimilation of Hong Kong into China, particularly driven by broader application of the NSL and perceived erosion of legal safeguards, will increasingly become the pre-eminent political risks facing companies for the rest of the year and beyond.

In protest-related developments, a showdown between the Hong Kong Police and the Hong Kong Alliance in Support of Patriotic Democratic Movements of China is centred on the latter’s intentions to hold a mass public vigil on the anniversary of the 1989 Tiananmen Square incident. The event is usually held at Victoria Park on 4 June. See details below.


GEOPOLITICS AND LOCAL IMPLICATIONS

On Saturday (15 May), the Taiwanese government warned that business risks have increased in Hong Kong after authorities in the territory enacted asset-freezing powers under the Beijing-imposed NSL for the first time. The warning followed Hong Kong authorities’ freezing of pro-democracy figure and Apple Daily-owner Jimmy Lai’s assets, including shares in his media publications, for allegedly violating the NSL. Taipei said that the move was a signal by Hong Kong to the international community that risks to companies are growing.

Taipei’s remarks came after the Taiwanese branch of the Apple Daily announced on Friday (14 May) that it was halting its print version over declining ad revenue and more difficult business conditions in Hong Kong due to political circumstances. The newspaper blamed boycotts by Hong Kong’s ‘pro-China forces’ for impacting its revenue.

The developments are likely to further diminish foreign business sentiment in the territory. Over 40 per cent of respondents in a 12 May AmCham survey revealed that US businesses planning to leave Hong Kong, with 60 per cent of respondents citing the NSL as the cause for their withdrawal.

Use of the NSL to freeze shares will serve as a further deterrent to foreign investment and undermine the territory’s status as an international finance hub. Legal procedures against Lai are almost certain to be closely watched by the global community, with increasing pressure within the EU to condemn Beijing’s increasing control over Hong Kong and clamp down on dissent.

The Apple Daily is well-known for voicing Beijing-critical views and the clampdown suggests that media freedom in Hong Kong will gradually be restricted to be on par with existing censorship and curbs in mainland China. Alleged boycotts by pro-Beijing elements against the Apple Daily and its reduced Taiwan operations also underscore the adverse business impact and pressure such groups exert on organisations they view unfavourably. Lai’s case will probably worsen the chilling effect the NSL has had on media organisations in Hong Kong.

In a separate but related development, Hong Kong’s constitutional and mainland affairs bureau said on 18 May that the territory’s representative office in Taiwan had temporarily halted operations. Taiwan’s Mainland Affairs Council said it ‘deeply regrets’ the move and vowed to keep its own office in Hong Kong open despite strained relations.

The suspension is likely a politically motivated reprisal and marks a worsening in relations between the two Greater China governments. Flashpoints for a further souring of relations include developments around Jimmy Lai and his newspaper, as well as moves by Taipei deemed to favour Hong Kong’s pro-democracy movement. Tensions are likely to result in diplomatic and commercial retaliation, impacting close trade relations between Taiwan and Hong Kong. Businesses with interests in Greater China should monitor the situation for updates and factor these into their strategic and operational planning.

Solidarity protests in Taipe for Hong Kong pro-democracy movement, 21 May 2021 / AP  


PUBLIC HEALTH AND SAFETY: COVID-19

On 17 May, the Hong Kong government announced a tightening of COVID-19 travel and quarantine restrictions for several countries, including Singapore, Malaysia, and Japan, effective as of Friday (21 May). The three countries, as well as Argentina, Kenya, Italy, and the Netherlands, have been deemed high-risk places. Non-Hong Kong residents who have been to these countries in the past 14 days before entering Hong Kong will be barred from entry to the territory.

Travellers who have been in these countries within the last 14 days will have to present a negative COVID-19 nucleic acid amplification test (or NAAT) carried out within 72 hours prior to departure. They will also have to undergo a 21-day hotel quarantine. The quarantine is shortened to 14 days for those that are fully vaccinated, with an added seven days of self-monitoring. Tightened restrictions come after the second postponement of the Hong Kong-Singapore travel bubble was announced earlier on 17 May following a rise in COVID-19 cases in Singapore.

Hong Kong democracy activist Joshua Wong, second left, at the 4 June 2020 vigil for the victims of the 1989 Tiananmen Square Incident, 4 June 2020 / AP


LOCAL POLITICAL AND SECURITY DEVELOPMENTS

Hong Kong’s Chief Executive Carrie Lam claimed on 18 May the local administration’s decision to freeze the assets of one of its leading political opponents could ‘reinforce’ Hong Kong status as an international financial hub. Lam was referring to the local government’s order to freeze the assets of detained democracy activist Jimmy Lai on 14 May, notably his majority share in the multi-million US dollar Next Digital media company. Lam said the move against Lai, who has been charged with a number of offences under the NSL and is awaiting trial, demonstrated her administration’s resolve in protecting Hong Kong and China’s national security.

The action against Next Digital was the first to be directed at a listed company under the NSL, and Lam’s remarks are unlikely to assuage many of the foreign companies increasingly concerned over the political, administrative, legal and reputational implications and costs of continuing to operate in Hong Kong. Her emphasis on security appeared intended to offset these concerns, despite clear evidence that the opacity and potential future use of the NSL is viewed by many overseas commercial entities as a greater threat to their operations.

Specific concerns include the heightened risk that the NSL may result in enforced access to commercially sensitive information and data and its corresponding impact on due diligence, duty of care and fiduciary obligations. Companies should continue assessing the medium- to long-term vulnerability of their staff, assets and operations to such outcomes and consider measures intended to mitigate these risks.

In other local political developments, Chief Executive Lam refused to comment on a question over whether Hong Kongers would legally be able to attend the yearly 4 June vigil commemorating the 1989 Tiananmen Square Incident. Lam was responding to a question about earlier local media reports suggesting that authorities were likely to clamp down on any activities related to the vigil. Participants in 2021 are under threat of arrest and may be barred from future elections. The vigil has traditionally been held in Victoria Park in Causeway Bay.

Despite indications that police will take action against those holding gatherings on 4 June, leaders of the Hong Kong Alliance in Support of Patriotic Democratic Movements of China are making preparations for the annual vigil, according to local media.

As a precautionary measure against an official ban on the vigil, organisers have encouraged participants to hold commemorative events across Hong Kong on 4 June at 2000 local time. Despite Hong Kong’s near ‘zero COVID’ pandemic situation with very little to no local virus transmission, authorities are likely to ban the vigil over ostensible COVID-19 concerns. Flouting of the ban and arrests will likely draw international scrutiny given the symbolic significance of the event, which has been held since 1990.

The alliance requested a meeting with the police to lobby for their application to hold pre-anniversary gathering in Victoria Park for 30 May. In the past, they held rallies prior to the actual anniversary date, followed by the larger vigil at Victoria Park. In 2020, the government denied the request to hold the gathering on the anniversary on coronavirus grounds, but this was largely ignored by hundreds of activists who participated for a relatively subdued and shortened gathering.

Meanwhile, the alliance’s president Lee Cheuk Yan has been sentenced by a Hong Kong court to 18 months in prison for organising and participating in pro-democracy events in August 2019. One of the vice-presidents of the organisation, Ho Chun Yan Albert – former chairman of the Democratic Party from 2006 to 2012, a solicitor and a former member of the Legislative Council of Hong Kong for District Council – was detained on 18 May for organising an unauthorised assembly and inciting others to take part in other unauthorised public gatherings in October 2020. The sentence will be imposed at District Court on 28 May. Jimmy Lai and Lee Cheuk Yan have also been named as defendants in this particular case. No further information has been made publicly available.

On 20 May, the Hong Kong Monetary Authority (HKMA) issued a warning to the public about a fraudulent website masquerading as The Bank of East Asia (BEA). The BEA has no affiliation to this fake website (hxxps://hkbea[.]nresidents[.]org), and warned that any bank customers who accessed or made any transactions on it should report the incident to the Hong Kong Police and the HKMA. The BEA’s official website is www[.]hkbea[.]com.

This was the third warning issued by the HKMA about fraudulent websites during this reporting period. On 18 May, the agency warned about fake sites and/or phishing email campaigns connected to the Bank of China (Hong Kong, BCHK) Limited and OCBC Wing Hang Bank Limited. During the month of May, there were similar warnings about DBS Bank (Hong Kong) Limited (6 May), The Hongkong and Shanghai Banking Corporation Limited (6 May), Far Eastern International Bank (12 May), and BCHK (13 May). At this rate, this represents a significant downward deviation in case numbers compared to April, when there were 18 reported cases.

While there are fewer so far this month, it should not be interpreted as a reduction in the cyber-fraud threat in Hong Kong. Staff should check that the website domain is the official one, watch for signs of possible fraudulent webpages, such as misspelt words, and avoid clicking on suspicious links. If in doubt regarding the authenticity of electronic communications (i.e. email, texts and instant messages), personnel should report it to the authorities and/or in-house cybersecurity teams. Do not reply, download attachments or open any links.

 

THE WEEK AHEAD

The dispute between Taipei and Hong Kong is set to intensify in the coming week, potentially leading to retaliatory activities that either immediately disrupt cross-border operations and mobility and/or impact longer term investment plans. The cycle of retaliation through the previous monitoring cycle indicates a continuation of this momentum. Reciprocity could manifest in the closure of the Taipei Economic and Cultural Office in Hong Kong as well as other similar scaling back of cross-straits activities.

As of Friday (21 May), the Hong Kong Police refused to authorise the annual Tiananmen Square vigil in Victoria Park on 4 June under COVID-19 related grounds. In 2020, a similar prohibition was issued, although a public gathering did take place albeit on a reduced scale and over shortened period. The alliance has also applied to hold a vigil march between Southorn Playground in Wan Chai district to the Hong Kong Liaison Office in Sai Wan district on the day with up to 6,000 people expected to take part. Though no decision has been made on the application, it is expected over the coming week. As the pandemic situation improves in Hong Kong, there is likely to be a gradual rise in the number of protest-related activities throughout the territory, particularly ones tied to the annual vigil begin this monitoring cycle.

 

UPCOMING PROTESTS 21 – 27 May

Friday 21 May 2021

1900: An activist has listed 12 potential locations on his Facebook page for pro-democracy protests. Further OSINT research revealed that this activist will hold his protest at Maritime Square, Tsing Yi Island under the banner, ‘721 Hong Kong, Kowloon and New Territories and you Shopping & Dinner’. This protest will be held to commemorate the so-called ‘721 incident’ or 21 July 2019 Yuen Long attack during Hong Kong’s period of mass unrest. The activist has previously frequently held demonstrations in venues including shopping centres, though the planned protests signal a resumption in his campaign following a brief hiatus. We do not anticipate significant disruption to local area businesses and travel as a result of these protests.

Pacific Place and Landmark shopping centres, Hong Kong Island, apm mall in Kwun Tong, Kowloon, as well as Sha Tin New Town Plaza and YOHO Mall, New Territories were also listed as possible protest venues.

 

PROTEST CHRONOLOGY 14 – 20 May

Nothing significant to report.