New Chinese Law Further Erodes Separation Between Hong Kong and Mainland

Hong Kong’s reputation as a global business hub is expected to be further tarnished with the implementation of a new law that gives Chinese courts the power to enforce rulings in commercial disputes. The law, which comes into effect today, aims to reduce the need for re-litigation in civil and commercial disputes that have a connection to mainland China. However, critics have expressed concerns that this move erodes the differences between the legal systems of Hong Kong and mainland China.

International companies have traditionally chosen to base themselves in Hong Kong due to its access to mainland China, while still benefiting from the territory’s independent legal system based on English common law. The new law raises fears that Hong Kong’s robust rule of law protection in commercial disputes may no longer be guaranteed. This development could impact Hong Kong’s status as a global business hub.

The concerns surrounding the new law stem from previous protests in Hong Kong. In 2019, millions of Hongkongers took to the streets to denounce an extradition bill that would have allowed individuals wanted by mainland China to be deported from Hong Kong. The large-scale pro-democracy movement that followed resulted in the arrest of more than 10,000 people. The protests were eventually suppressed with the implementation of a national security law, which critics argue has been used to stifle dissent.

While mainland China’s performance in rule-of-law rankings for civil and commercial matters has improved in the past two decades, there are still concerns about the influence of the ruling Chinese Communist Party and the high conviction rate in criminal proceedings. The introduction of the new law further adds to the uncertainties surrounding doing business in Hong Kong.

The implementation of this law could also impact Hong Kong’s position as a global wealth management hub. Wealthy individuals and asset managers may no longer feel confident that their investments and assets will be protected in Hong Kong. There is already a growing perception among wealthy Chinese and foreigners that their assets are no longer safe from arbitrary confiscation by mainland authorities.

Furthermore, asset managers may have to consider advising their clients to move their assets to other Asian or Western destinations. If Hong Kong loses its appeal as a safe and stable financial center, it could result in a decline in managed assets. In 2022, the managed assets in Hong Kong dropped by 14% compared to the previous year.

While some argue that law-abiding businesspeople have nothing to worry about, the new law has raised concerns about the potential seizure of assets that may have been moved to Hong Kong as a result of its previous legal framework. The law covers civil and commercial matters with certain exclusions and also allows for judgments reached in Hong Kong to be enforced in mainland China.

Hong Kong’s business community now faces an uncertain future as the new law takes effect. The erosion of legal and political barriers between Hong Kong and mainland China continues to generate unease among businesses and individuals alike. The impact of the law on Hong Kong’s reputation as a global business and wealth management hub remains to be seen, but there are concerns that it may disrupt the city’s standing in the international community.