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Big Tech's Stand on Hong Kong Law Reveals Wider Fears at Foreign Firms

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07/07/2020 | 12:55pm EDT

By Dan Strumpf and James T. Areddy

HONG KONG -- The stand taken by several American tech giants against China's national-security law in Hong Kong brings into the open concerns many foreign companies in the city are discussing internally but executives dare not talk about publicly for fear of getting dragged into the political fray.

By suspending the processing of Hong Kong government requests for user data, Facebook Inc., Twitter Inc. and Alphabet Inc.'s Google put up a united front in challenging the law that is the sharp edge of Beijing's crackdown on the city's protest movement. The opaque and top-down nature of the law has sown fear among companies and lawyers who have scrambled to interpret new rules that are only published as they take effect.

The Silicon Valley giants -- shut out of the censored internet on China's mainland -- have less to lose than many other foreign companies with offices in Hong Kong. Businesses in the city typically have operations in China and more at stake by stepping into Beijing's crosshairs. Many also store data in Hong Kong that falls under sweeping new powers of scrutiny and disclosure handed to law enforcement agencies.

Although there are likely millions of combined users of the companies' messaging apps and social media platforms in Hong Kong, the city is insignificant for their revenue on a global scale. The reputational risk in the West of being seen as working with Chinese authorities to stamp out dissent in the city is much larger. Facebook cited human-rights concerns in its decision.

"Companies headquartered in the U.S. or overseas are going to face pressure in their home governments and in their home jurisdictions that they shouldn't be complying with these sorts of orders, particularly when it comes to people being arrested and charged under this law," said Antony Dapiran, a Hong Kong-based lawyer and writer.

On Tuesday, additional U.S. tech firms said they were suspending processing requests for user data in the city. A Microsoft Corp. spokeswoman said the company, which also owns the Skype communications service, is "pausing" its responses to requests from Hong Kong authorities as it reviewed the law. Microsoft's LinkedIn, one of the few Western social-media companies to operate in the mainland, is also suspending responses to local law enforcement requests, the company said.

China's TikTok, the short-video platform owned by technology titan Bytedance Ltd., said Tuesday it would pull out of Hong Kong within a week in light of "recent developments" in the city. Also Tuesday, Zoom Video Communications Inc. said it would pause its cooperation with Hong Kong authorities' requests for user data.

Until now governed by a British-type legal system, Hong Kong suddenly faces limits on dissent more commonly associated with mainland China. The new law overrides key Hong Kong freedoms that many of the city's 7 million residents exercised in citywide protests over the past year. The U.S. and some other Western governments say they are recalibrating trade and other policies toward the city to reflect its greater control by Beijing.

Hong Kong's government late Monday enacted a legal framework for police to enforce bans on activities considered counter to China's national-security interests.

Dropped without prior warning, and taking immediate effect, the rules state that police can conduct investigations for suspected violations, in some cases in secret without warrants. The rules also give police powers to collect suspect data or order it deleted online, in line with how authorities in mainland China limit internet dissent throughout the country.

Refusal to comply with orders to remove content or hand over messages and user data is an offense liable to a fine or up to a year in jail.

Business executives say privately that they are just getting their heads around the law and new rules to gauge how it impacts their activities, from publishing financial reports to storing data. Many businesses that operate in mainland China use Hong Kong as a regional headquarters.

"This is new territory for us," said the head of research at an international investment bank who now worries about what authorities might find actionable in the tens of thousands of pages his team publishes annually.

Several executives say remaining compliant will require companies to operate as they do in cities like Beijing and Guangzhou, where police regularly order businesses to adjust or remove language on corporate websites deemed illegal for touching on issues such as Chinese economic policy and foreign affairs.

On Tuesday, local media reported that the new office created by Beijing to administer the national-security law would be based in a hotel in the residential neighborhood of Tin Hau, overlooking a popular protest gathering site. Tuesday night, workers could be seen erecting a flagpole and more than a dozen police stood in front of the hotel.

Regina Ip, an advisor to Hong Kong's administration and chairwoman of the pro-Beijing New People's Party, said the moves by the tech giants to suspend data requests from the government are an "overreaction and based on misunderstanding of the scope of the new law."

"Day-to-day data requests are nothing to do with national-security offenses," she said.

Analysts and legal experts say that in mainland China, businesses have years of experience dealing with adapting to Beijing's controls. In Hong Kong, they say, the novelty of the new rules coupled with their apparent wide reach is leading many to assume the worst about its application -- while executives refrain from speaking out against it.

The American Chamber of Commerce in Hong Kong was a strident critic of the now-shelved extradition law that sparked protests here last year. After Beijing this year announced its intention to bypass Hong Kong's government and impose a national-security law, the business group called the move alarming for U.S. businesses, adding it could "jeopardize future prospects for international business."

After the law took effect last week, the group took a more subdued tone, saying it will 'take time for the business community to digest details of the law, but we hope it will not impact the dynamism and benefits of this great city."

A spokeswoman for the chamber said it is conducting a survey of its membership regarding the national-security law and said it had no further comment on the law until the survey's completion.

Several legal experts said that laws in mainland China offer a better template than Hong Kong's common-law system for understanding the rules' application. On mainland China, laws typically offer broad guidelines for behavior, and the nature of the prohibitions become clearer only as enforcement takes place, they said.

"We'll see what it means in the enforcement," said Kent Kedl, managing partner for greater China and North Asia at Control Risks, a risk-advisory firm, of the law. "Just because they can, doesn't mean they will."

--Joyu Wang and Newley Purnell contributed to this article.

Write to Dan Strumpf at daniel.strumpf@wsj.com and James T. Areddy at james.areddy@wsj.com

 

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