HONG KONG - The Hong Kong stock market, already trading near four-year lows, is weighted down by an array of financial concerns: the bursting of a property bubble, the tech slump, low consumer confidence and lack of a decisive U.S. recovery that would spur Asia's exports.
That would be enough to give any investor or executive the blues. But a proposed national security law is giving them the willies, and that has created a cloud of uncertainty over the Hang Seng index of 33 blue-chip companies. It's also weighing on trading of these stocks overseas: China Unicom (nyse: CHU - news - people ) has fallen from $10.55 in early March to close yesterday at $6.43; China Mobile (nyse: CHL - news - people ) has slipped from a mid-May high of $17.61 to $12.80.
Five years after Britain handed Hong Kong over to China, the Hong Kong government says it will enact a law prohibiting acts of treason, secession, sedition and subversion against the Chinese government. The business community--particularly the foreign business community--worries that China's definition of these crimes will be far stricter than that of most liberal democracies.
Hong Kong officials say the law conforms to international covenants protecting rights and freedoms, and says mainland China didn't force Hong Kong to adopt these terms. "These proposals were entirely generated by Hong Kong officials," says Hong Kong Secretary for Security Regina Ip, who like other ministers, serves at the pleasure of Hong Kong's chief executive, handpicked by Beijing. "There is no question of extending mainland national security laws or mainland systems into Hong Kong."
The business community is not buying it. "There are concerns," says Frank Martin, president of the American Chamber of Commerce in Hong Kong. "We don't want to see any erosion in the legal system or any of the institutions that have made Hong Kong a regional financial center. That includes the rule of law, the independence of the judiciary, the free flow of information and all of the fundamental freedoms that are guaranteed under the Basic Law [that governs Hong Kong]."
The proposal has introduced a measure of hard-to-calculate political risk for Hong Kong's already struggling markets. In recent years, there has been the drip, drip, drip of Hong Kong's autonomy flowing out to the South China Sea.
Back in 1999, Beijing--which lacks a modern court system--overturned a Hong Kong court ruling on immigrants from the mainland. In April, Harry Wu, an American citizen who is barred from entering China because of his criticism of Chinese prison labor, was turned back when he landed in Hong Kong, despite rules permitting Americans to visit Hong Kong without a visa. This summer, [practitioners] of Falun Gong--a [spiritual] group banned in China--were prosecuted for demonstrating on a Hong Kong sidewalk.
Businesses see Hong Kong increasingly adopting China's ways. "Hong Kong's greatest advantage for business is its high standard for commercial law and predictable and just equality of treatment under the law," says Anthony M. Miller, Asia managing director for Ramius Capital Group, a New York investment firm that manages $3 billion. "As global fund managers, we look to invest in markets that maintain reliable rule of law."
A summary of the law has been released, but business groups have been pressing unsuccessfully to see the exact legal language. There are many questions. Are company balance sheets a state secret in a country working to modernize its state-owned enterprises? Would China interpret a peaceful demonstration advocating, say, independence for Taiwan as "aiding, abetting and counseling" treason?
Already, many critics of the law in the business community refuse to discuss their concerns publicly for fear it will hurt their ability to do business in China. This striking self-censorship might come in handy after the law is enacted, since no one knows exactly what acts Beijing, and thus Hong Kong, might criminalize. Anyone guilty of inciting violence or public disorder faces up to seven years behind bars. Those found guilty of acts of treason, secession, subversion or sedition could face life imprisonment.
"The central government will be in a position to decide what is a state secret," says Siu-Lan Law, general secretary of the Hong Kong Journalists Association. "We have every reason to worry."
Publishers call the proposal a threat to Hong Kong's traditions of a free press. "If a paper is charged with treason, how do you attract advertisers?" asks Kin-Ming Liu, general manager of Apple Daily, Hong Kong's feistiest daily newspaper. "Who will invest in a magazine that may run afoul of the government?"
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Indeed.
http://www.forbes.com/2002/10/31/cz_rm_1031hongkong.html
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