How Investors Should Look at Hong Kong After Latest Activist Sentencing
Hong Kong is at the top of the news agenda today, and for all the wrong reasons.
The Hong Kong High Court has handed down sentences of up to 10 years in prison to 45 pro-democracy politicians, essentially punished for standing in opposition to the government.
Their crime? Organizing an informal primary to select candidates for an upcoming government election. If elected to a majority, the pro-democracy activists intended to block the budget and the administration’s efforts to govern, forcing the city’s leader to resign.
That’s called "opposition politics," in a democratic world. It’s called "subversion" here in Hong Kong.
Mainland China inserted national-security legislation into Hong Kong law without local input.
The convictions are ridiculous, and show just how much Hong Kong has lost the civil liberties that made it a prized location for business and investment in Asia. It indicates just how much Hong Kong law has become an extension of Chinese Communist Party rule, where all opposition to the government is illegal, and even criticizing official policy puts you in danger.
Hong Kong had the draconian National Security Law “inserted” onto the law books by Beijing in June 2020. The law was forced on Hong Kong without any input from its citizens or lawmakers, allowing the authorities to punish a wide range of transgressions threatening “national security.”
What is national security? That’s never really defined. When asked, the police sometimes say something “may” constitute an offense. Suffice to say, going up against the authorities in any way can run you afoul of the law.
National security? Better not do anything we don’t like.
In Hong Kong, citizens have been convicted under this law or a colonial-era sedition law for the likes of: wearing a T-shirt with a protest slogan; publishing a satirical animal-cartoon book featuring wolves and sheep; writing protest-slogan graffiti; and writing political social-media posts.
The protest hymn "Glory to Hong Kong" has been ruled by a court to be an actual weapon, like a knife or a gun, just as dangerous, and banned on that grounds.
I used to write quite a bit about geopolitics, and the tensions between China and the United States. I also wrote extensively about the market-moving pro-democracy protests in 2019 in Hong Kong. The China tensions will mount higher again under president-elect Donald Trump. But I’ve stopped writing about politics in Hong Kong because there aren’t any. There’s little point.
Now, we have 45 pro-democracy politicians imprisoned for years, the longest sentence reserved for former Hong Kong University law professor Benny Tai, who was handed down 10 years. The High Court ruled that he was the “mastermind” behind the unofficial-primary scheme.
Joshua Wong, nominated last year alongside five other activists for the Nobel Peace Prize, received four years and eight months in prison.
They and the 43 other politicians have been in jail for the better part of four years already, awaiting trial. A total of 55 democrats were rounded up on January 6, 2021, over the unofficial primary held in July 2020. Hong Kong denies bail to most such “suspects” prior to their conviction. To secure shorter sentences, 31 pleaded guilty, while 14 went to trial.
According to Hong Kong’s secretary for security, Chris Tang, the heavy sentences reflected the “severity of the offense.”
Does it really? Can we say that holding an unofficial political vote of any kind warrants any time behind bars, at all?
China and Hong Kong like to cite "stability" as a reason for these draconian laws. But "stability" really means "leave us in charge." It denotes a lack of progress and change.
The U.S. government calls the trial and guilty verdicts a “politically motivated prosecution,” convicting citizens for “peacefully protesting in political activities,” behavior meant to be protected in Hong Kong, like freedom of speech. It has called for the politicians to be released.
Today, Catherine West, the British minister responsible for the Indo-Pacific, said the sentencing is a “clear demonstration” of the Hong Kong authorities using the national-security law “to criminalize political dissent.”
Hong Kong is this week running the third edition of its annual Global Financial Leaders’ Investment Summit. The city’s central-bank equivalent, the Hong Kong Monetary Authority, and stock-market regulator, the Securities and Futures Commission, seek to bring major Wall Street financiers to town to promote the city as an investment destination, and Hong Kong as a financial center for investing into Asia.
So this decision raises the question as to whether U.S. investors should allocate their investment dollars in a direction that supports a suppressive administration and system. There’s a case to be made that U.S. investors should not invest into Chinese companies listed on Wall Street, or Hong Kong-listed companies.
“The Hong Kong government is seeking U.S. investments in the very same week that it brutally silences free speech and jails pro-democracy advocates,” noted U.S. Representative Chris Smith, the chair of the Congressional-Executive Commission on China, as quoted by Reuters. “The Chinese government is asking U.S. financial institutions to subsidize their repression in Hong Kong.”
The Hong Kong and Chinese stock markets have been in the doldrums for years, becalmed by the stop-start recovery coming out of a costly and ultimately futile battle, inside mainland China, to eliminate COVID-19. But they’ve sparked to life this year with the pledge from Beijing to pump fiscal stimulus as well as adapting monetary policy to bring the property market back to life, and restore consumer and business confidence.
Sitting here in Hong Kong, I examine the prospects of those efforts meeting success. I run the rule over stocks across Asia. I identify China candidates for rebound if I think the stock will move.
But on a personal level, I find it hard to recommend investing in Hong Kong after such court convictions. When it comes to our investment decisions, should we follow the conviction of the wallet or our heart?
At the time of publication, McMillan had no positions in any securities mentioned.