Politics in Hong Kong – Implications

for Business and Governance

SVA
The decision by the National People’s Congress (“NPC”) of China to bar two
“localist” representatives from Hong Kong’s Legislative Council (“LegCo”) and the
likely future introduction of national security legislation are sure to heighten
political tensions. The moves are seen as a challenge to Hong Kong’s autonomy
and the rule of law, posing potential longer term risks to business in the Special
Administrative Region (“SAR”).

Recent Political Developments

Political tensions in Hong Kong have mounted since elections in September for
the Legislative Council (“LegCo”), the first such polls after the Occupy Central
protest movement challenged the government in late 2014.
The polls for Hong Kong’s legislature on 4 September were tense, not least as
the authorities disqualified six advocates of Hong Kong’s independence from
running. Even so, the results saw the pro-establishment group, led by the
Democratic Alliance for the Betterment of Hong Kong (“DAB”), win 40 seats, the
pan-Democrat camp secure 24 seats, and new localist groups take six seats.

Problems with Oaths of Office

The elections resolved no divisions, though. Rather, a much more acrid
atmosphere emerged after two of the localists, Sixtus Baggio Leung and Yau
Wai-ching, in October refused to take the standard oath of office, but instead
voiced profanities and held banners proclaiming that Hong Kong is not China and
in doing so incurred the wrath of the central government and many Hong Kong
locals.
The president of the LegCo accordingly ordered their removal, and the Hong
Kong government requested a judicial review of a subsequent decision to let
them swear their oaths again. Before the courts could rule, though, the Standing
Committee of China’s National People’s Congress (“NPC”) on 7 November found
that the two localists could not take the oath, exercising a power afforded by
Article 104 of the Basic Law, Hong Kong’s mini-constitution.
The Chief Executive of Hong Kong, Leung Chun-ying, then announced that he
would move forward with national security legislation in line with Article 23 of the
Basic Law, a piece of legislation shelved since 2003, when it provoked massive
protests from Hong Kong’s people.
What has changed?
The government’s request for a judicial review had already prompted heated
discussion about the separation of powers in Hong Kong. Now, the NPC’s
decision and a clear move towards national security legislation will ensure that
debate will focus on the bigger question of the broader future of the One Country,
Two Systems regime under which Hong Kong enjoys considerable autonomy.
This raising of the stakes has heightened the threat of further political turbulence.
Beijing has little desire to compromise, epitomised in a refusal to alter electoral
reforms, the capture of some booksellers, and official rhetoric branding
opponents as “terrorists”, notwithstanding differences of opinion within the
Chinese Communist Party.

Nor is the opposition becoming more temperate. Many localists will react angrily
to the removal of their representatives; indeed, a protest on 6 November turned
violent. The prospect of further confrontation as the government moves forward
with national security legislation and ahead of the March 2017 Chief Executive
election is real.

Implications for International Business

The international business community, which has come to rely on Hong Kong’s
stable political environment and the rule of law, now faces a number of potential
risks.
One challenge relates to Hong Kong’s institutions. The LegCo is at an impasse,
unable to tackle even basic work-a-day issues. Securing funds is hard, which
may encourage the Chief Executive to circumvent the chamber or to scale back
his ambitions. A real concern is thus that related government work slows or even
halts, which could aggravate the social tensions that underpinned Occupy
Central and that may worsen if the economy slows.
Another risk relates to the rule of law. The localist political challenge has
demonstrated the weakness of the local Hong Kong government. Already
lethargic officials caught between demands from Beijing and the Hong Kong
people routinely fail to act. Partly in response, Beijing has increasingly turned to
the Central Government Liaison Office, which has gained sway at the expense of
the formal Hong Kong government. National security legislation will only add to
its clout.
The Liaison Office has nebulous constitutional standing. Questions hover over
whether its decisions are open to judicial review. Moreover, its lack of
transparency offers opportunities for China’s state owned enterprises, special
interest groups, including the Heung Yee Kuk or Rural Affairs Office, to champion
their interests in behind-the-scenes meetings.
A third challenge is more tangible. Protests may break out, some of which might
degenerate into riots as in Mong Kok in February 2016, given radical groups’
penchant for confrontation, the poisonous culture of protest, and Beijing’s tough
stance. A spate of civil disorder could pose risks to certain business, impeding
access, damaging property, and perhaps even harming employees, even if the
immediate threat is manageable.

Conclusion
The decision by the National People’s Congress to intervene in Hong Kong
politics and the desire of the Chief Executive to move ahead with national
security legislation raises the risk to business, by weakening local Hong Kong
government, undermining the rule of law and adding to the risk of further protests
or riots disrupting commercial activity.
International businesses need to respond to these risks by carrying out:
 An assessment of their exposure to Hong Kong government stasis,
considering matters such as a reliance on government payments for big
projects, approvals for licenses, legislative change or broader administrative
needs.
 An examination of the intensity of links of the company, or any prospective
partner, with the Central Government Liaison Office, on top of an
understanding of its ties to Hong Kong’s authorities, where relevant.
 An assessment of the integrity of communications and business security in
the context of the prospective introduction of national security legislation.
 An assessment of the future reliability of the local court system in any cases
against a Chinese state-owned enterprise or an individual with strong links to
mainland China’s government, taking into account the nature and length of
any contract or investment in question.
 A re-examination of plans drawn up during Occupy Central, which sought to
ensure the protection of employees and company property in the event of
protests or riots. These plans should include measures how to assist
employees who find themselves affected by pepper spray or CS smoke.