Beijing seeks to reassure companies about Hong Kong security law

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China has sought to reassure international investors that a national security bill that critics say seriously threatens Hong Kong’s autonomy would rather improve the business environment in the Asian financial center.

Speaking one day after the return of pro-democracy protesters to the streets of Hong Kong following an interruption during the coronavirus epidemic, Xie Feng, commissioner of the Chinese Ministry of Foreign Affairs in Hong Kong, said that the proposed legislative changes would restore calm after a year of unrest.

“The international community can be assured of Hong Kong’s laws,” said Mr. Xie. “The legislation will alleviate great concern from local and foreign business circles over the violent and terrorist forces that are trying to spoil Hong Kong. . . and create a more legal, reliable and stable business environment for foreign investors. “

The speed with which Beijing announced its intention to impose new legislation in Hong Kong last week surprised many investors and raised concerns about the city’s future as a global financial hub.

The proposal to draft the law is expected to be adopted by the Chinese legislature on Thursday. It would ban treason, secession, sedition and subversion, and allow the Chinese state security services to maintain a formal presence in the semi-autonomous territory.

Hong Kong is required to implement an anti-subversion law under its mini-constitution, the Basic Law, which gives the city a high degree of legal and political autonomy from Beijing. Critics say Beijing’s plan to impose laws on the city threatens to undermine the rule of law in the city.

Police fired tear gas on Sunday and arrested around 180 of the thousands who marched to protest the new law.

Sunday in Hong Kong, riot police take part in pro-democracy rally © AFP via Getty Images

Xie told a gathering of the Hong Kong diplomatic community, chambers of commerce, and reporters that the bill also aims to improve the state of the Hong Kong economy, which fell into recession for the first time in ten years last year.

“Only in this way can Hong Kong strengthen its status as an international financial, commercial and maritime center, and Chinese and foreign companies will have a more profitable future here,” said Xie.

Investors are scrambling to understand the implications of China’s decision to impose the law.

The Asian financial center’s Hang Seng benchmark fell 1.8% on Monday morning, before recovering those losses to close 0.2% higher.

Line chart of the Hang Seng Index showing Hong Kong stocks affected by security concerns

” It’s quiet. It’s really calm, “said Andy Maynard, Hong Kong-based strategist at China Renaissance, on Monday. “People are pretty much excluded. . . liquidity is not that great and turnover is down significantly. “

Maynard said traders are holding their breath for possible reprisals from Washington amid growing trade friction between the United States and China. The Hang Seng Index fell 5.6% on Friday after Beijing announced the bill.

Some investors in the city have redefined their portfolios in recent weeks, fearing that political tensions will resume.

Ronald Chan, founder of the Hong Kong-based Chartwell Capital fund, said he had cut his allocation to the city’s equity significantly before the security law was announced. Rather, it has more cash and is looking for opportunities in Japan.

“We all knew it was going to happen. We did what we could to cover the market and prepare for the storm ahead, ”said Chan. “National security law could be the breaking point between China and the United States.”

Other investors have said the city’s market is at risk of malfunctioning until the way the law is enforced is clarified.

“News from security law will cause the Hang Seng Index to underperform generally until we see how far the Chinese Communist Party is ready to go in this direction,” said Richard Harris, an investor. based in Hong Kong and former director of Citigroup and JPMorgan in the city.

“Is it just going to be a sword of Damocles hanging over Hong Kong, or are they going to embrace the idea of ​​national security broad enough to stop all opposition? It will take time to become visible. “

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