Far East Economic Review: HONG KONG: Business: The Biggest Victim

By Philip Segal/HONG KONG
Issue cover-dated December 19, 2002

REMEMBER WHEN the world's attention was focused on Hong Kong's handover to China in 1997? After a few speeches and the arrival of some mainland Chinese soldiers, nothing much changed that day, and the hordes of dignitaries and journalists went away.

It turns out perhaps they were five years early. The handover looks to be happening now, as the government seeks to push through sweeping changes that could affect the very way of life in Hong Kong, as well as how businesses assess the risk of operating in China's special administrative region.

In 1997, there was no sudden erosion of personal liberties, no perceptible shifting in the way business was done in Hong Kong--Asia's most important financial center outside Tokyo and the one city that China needs most to raise the money it requires to keep growing.

So what's so big about these coming changes? Put simply, the common-law foundation that made Hong Kong great is for the first time being intertwined with the more unpredictable and heavy-handed rule by legal decree introduced 53 years ago by the Chinese Communist Party. If Hong Kong has rule of law by courts that interpret the law, China has rule by the law, in which courts are subservient to leaders.

Under the new laws, fund managers running joint ventures with affiliates of Taiwan's pro-independence party, for instance, could find themselves in hot water. Other measures may get journalists jailed for stealing "state secrets" if government officials leak economic statistics. That could make it very hard for the press to do its job properly.

The government in September released initial proposals for a variety of potentially intrusive new laws known as the Article 23 measures, named after the part of Hong Kong's Basic Law, or mini-constitution, that mandates the outlawing of such acts as "subversion."

The government waited five years before acting in a real hurry. Despite circulating vague proposals, it has issued no formal "white paper" with the exact language of the draft laws. "We've not seen in black and white how the legislation will be drafted," says Anson Chan, the former head of the civil service and No. 2 to Chief Executive Tung Chee-hwa and former Governor Chris Patten. "The devil is in the detail."

The new laws are nothing less than the clash of legal systems that much of the world thought it would see in 1997 when Hong Kong returned to China under the "one country, two systems" formula. In addition to possession of state secrets and subversion, Article 23 orders Hong Kong to outlaw treason, secession and sedition, but the government uses definitions so broad as to frighten those concerned with the preservation of civil rights.

On December 9, the Hong Kong Bar Association said the proposals were "based upon feudal notions of treason" that are not clear or precise enough to protect fundamental rights and freedoms. The proposal for outlawing secession "fails to recognize the possibility of a secessionist cause being a legitimate political demand in the form of an exercise by a people of the right to self-determination," the association said.

Hong Kong already outlaws most Article 23 offences. But Article 23 is tricky because of the potentially explosive combination of two systems of law. "One country, two systems" is supposed to separate the systems, after all, not have elements of both at work in both jurisdictions.

Getting the handover right in this financial centre matters to many more than just its residents. China doesn't want to make so many changes that panic ensues. Hong Kong had to lash its currency to the U.S. dollar in 1983 to prevent alarm after it became clear Britain was preparing to hand its colony back. After the Tiananmen Massacre in Beijing in 1989, thousands of well-to-do Hong Kong people lined up for foreign passports as potential escape routes.

But if some Hong Kong's citizens have shown how nervous they are about Beijing rule, the city's business elite hasn't. What is almost unprecedented now, and what probably worries China as much as mass protests, is a newly critical tone that business is taking toward the Article 23 plans before they are introduced to the Legislative Council where a pro-Beijing majority will ensure it passes.

Banker David Li, who represents the banking industry in the Legislative Council (and who is a director of Dow Jones, the owner of the REVIEW), told the American Chamber of Commerce in early December that executives from more than 10 foreign banks hoped the Hong Kong government would spell out the exact wording of the proposals. He said banks were worried about their potential to stifle the free flow of information here.

For Hong Kong's reticent business leaders that amounted to shouting from the rooftops. Li and individual bankers declined subsequent comment, but the message was clear. It followed an unusually frank letter to Secretary for Security Regina Ip from the British Chamber of Commerce. In its "Dear Regina" letter, it recommended much narrower definitions of "sedition" and "state secrets" than those proposed by the administration.

On state secrets, the chamber said: "The problem here is that the expression 'state secret' is borrowed from Chinese law and usage. If the principle of 'one country, two systems' is to be maintained, it is essential that the definition of a 'state secret' under Hong Kong law is not as widely drawn as it is under mainland law." The aim was "to remove any possibility that economic information or other data not related to genuine security concerns, could be considered a 'state secret.'"

American Chamber of Commerce Chairman Jim Thompson is unusually outspoken on Article 23. "We think the present government will enforce it fairly. But when future people in Hong Kong are in charge, they may interpret it differently," he says, calling for narrower definitions of what constitutes state secrets, subversion and seditious publications.

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Nothing will likely change the day after the Article 23 laws are passed. But this may mean nothing. Britain had harsh laws on the books in Hong Kong, but showed great restraint against using them. China has displayed no such restraint. In fact, its officials have supported what could be some worrying scenarios for Hong Kong's freedoms.

Take the theft of state secrets. In 1994 mainland-born Hong Kong journalist Xi Yang was sentenced to 12 years in jail on the mainland for stealing state economic secrets--a leak on interest-rate policy and possible gold sales from a Bank of China source who was jailed for 15 years. The official Xinhua news agency said Xi's action caused China "serious loss," though it's still hard to see what that was.

That sort of thing could happen in Hong Kong post-Article 23. The government proposes to expand on the current Official Secrets Ordinance by introducing "a new offence of unauthorized and damaging disclosure of protected information obtained by unauthorized access," according to Secretary of Justice Elsie Leung. In future, unless the government formally releases information, anyone holding that information could be prosecuted for theft of state secrets. To establish whether a secret was stolen, all the state might have to show is that a person was "unauthorized" to have that information.

State secrets include "information relating to relations between the central authorities of the People's Republic of China" and Hong Kong. Lawyer Ronnie Tong, an opponent of the proposals, demanded much greater detail because "uncertainty will lead to self-censorship."

In a pamphlet, Tong said the interests of the central authorities can be pretty much what China wants. ". . . There is no safeguard that interests of the central authorities will not be defined by mainland concepts and such definitions may not be reviewable by the local courts," he said. Finally, note how it is proposed to enforce the new laws: With new police powers of emergency entry, search and seizure, without any court order needed.

HONG KONG MAY BOW TO BEIJING

The two measures that cause the most disquiet are the creation of an offence of subversion, for which there is no guidance in common law, and giving the government power to "proscribe" organizations. Once a group is proscribed, it would be a crime to "organize or support activities" of it. Do you do business with a group that China doesn't like? Say, a big business group in Taiwan that supports Taiwan independence? Or what about a company that sells weapons to Taiwan and works with its Defence Ministry?

"This is the worst of all proposals in the consultation paper," wrote Hong Kong lawyer Audrey Eu, a former head of the Hong Kong Bar Association. The law would be "a bridge for extending the mainland system to Hong Kong. Once the [Chinese] government has banned an organization on national security grounds, it is difficult to expect Hong Kong authorities or Hong Kong courts to contend a different view."

Even Hong Kong agrees with that last part. Its consultation document on the proposed laws concedes that the territory "may not be in a position to determine whether an organization poses a threat to national security." Therefore, largely "we should defer to the decision of the central authorities based on the comprehensive information that it possesses."

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Since the handover in 1997, time after time Hong Kong's institutions have come under fire from inside Hong Kong or directly from China. Newspapers were warned by China not to report the views of pro-independence politicians in Taiwan; Chinese government organizations were retroactively exempted from a variety of Hong Kong laws in 1998; and most notably, Hong Kong's Court of Final Appeal was overruled by Beijing on an immigration case after it delivered a unanimous decision in 1999 at odds with what the Hong Kong government wanted. Meanwhile, Hong Kong is under less scrutiny by the big Western powers. This may have encouraged the government to press ahead with its plans.

Given the signs since 1997, it is no surprise that the Article 23 laws are potentially harsh. But did Beijing push Hong Kong into acting now? And what interest does China have in eroding Hong Kong's rule of law, given that it is a major business advantage for the territory?

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