On July 16, 2021, the Biden administration issued a Hong Kong Business Advisory highlighting changes in the political climate of China and Hong Kong. The advisory, titled “Risks and Considerations for Businesses Operating in Hong Kong,” was issued by the Treasury, State, Commerce, and Homeland Security Departments. In addition, the U.S. added seven Chinese officials working in China’s main government office in Hong Kong to the sanction list.

The advisory draws the attention of businesses, individuals, and other entities, including academic institutions, research service providers, and investors that operate in Hong Kong, or have business relations with businesses there, to changes in Hong Kong’s laws and regulations. The change in the legal landscape is expected to affect businesses and individuals with operations in Hong Kong.

The advisory categorized the risks as follows: risks for businesses following the imposition of the National Security Law (NSL), data privacy risks, risks regarding transparency and access to critical business information, and risks for businesses with exposure to sanctioned Hong Kong or People’s Republic of China (PRC) entities or individuals.

Overview and Scope of National Security Law

In June 2020, the PRC unilaterally imposed the NSL on Hong Kong. The imposition of the NSL has significantly reduced the autonomy and freedom of Hong Kong, contrary to the treaty signed in 1997 after ousting British rule, where China pledged to treat Hong Kong differently in its capitalist form. NSL established offenses such as secession, subversion, terrorist activities, and collusion with a foreign country or external elements to endanger national security. Specific judges were appointed to hear NSL cases.

The NSL has established an Office for Safeguarding National Security (OSNS) in Hong Kong. This office is staffed by PRC security forces and is not subject to Hong Kong’s jurisdiction and judiciary. The cases will be tried by the OSNS, rather than the Hong Kong Courts.

Overall, the advisory characterized China’s move in Hong Kong as dominant and aimed at making Hong Kong’s laws arbitrary. The power granted to the OSNS with a limited overview of the judicial authority is concerning to the international business community.

Who May Be Affected by the NSL

Businesses that are operating in Hong Kong, as well as individuals or businesses conducting business on their behalf, are subject to the laws of Hong Kong, including the NSL.

Hong Kong has arrested individuals under the NSL for publishing newspaper articles, participating in routine democratic processes, expressing an opinion regarding the government or the Chinese Communist Party, and attending public gatherings. Penalties include criminal fines and imprisonment, including life imprisonment for certain offenses. Hong Kong officials have also arrested foreign nationals under the NSL, including one U.S. citizen. Upon arrest, travel documents may be confiscated, and individuals may be prevented from departing Hong Kong. Amendments to Hong Kong’s immigration laws went into effect on August 1, 2021. Hong Kong can place exit bans on individuals seeking to depart the country, including non-residents.

General Concerns over the NSL

Departing from Hong Kong’s tradition of respecting data privacy, NSL has granted broad authority to Hong Kong law enforcement to conduct wiretaps or electronic surveillance on approval of the chief executive rather than the courts, in national security-related cases. In cases of national security, Hong Kong law enforcement may also conduct searches, including electronic devices. The NSL also permits law enforcement to require internet services to delete data and other information relevant to national security cases, also without judicial oversight.

With growing concerns over the change in the business and political climate between China and Hong Kong, the U.S. Chamber of Commerce has said that the business environment is “more complex and challenging,” and that it would help members navigate the changes. The Chamber reiterated that Hong Kong remains a valuable business center.

Doug Barry, communications Director for the U.S.-China Business Council, who also runs a Washington-based group with American companies doing business in China, said “[n]othing in the advisory will come as a surprise, other than perhaps to see so many grave risks presented on one government letterhead.” He said companies will continue to manage such risks “for as long as they can,” and “The key test is how the laws are implemented.”