The large-scale arrests of pro-democracy activists in Hong Kong on 18 April 2020 have underlined how tensions are still boiling away, notwithstanding the impact of the COVID-19 outbreak. Businesses should prepare for further civil unrest, as the threat from the virus recedes, and as frictions rise. Events in Hong Kong may impact U.S. China relations at this difficult time.

The Arrests

On Saturday 18 April 2020, the Hong Kong police arrested many prominent pro-democracy figures, including Martin Lee Chu-ming, a barrister and activist, Albert Ho Chun-yan, former chairman of the Democrat Party, and Jimmy Lai Chee-ying, the owner of Apple Daily, a major opposition newspaper, amongst others.

These arrests related to the arranging of, and participating in, unauthorised protests in 2019, and highlighted how the spread of the coronavirus from Wuhan to Hong Kong had merely suppressed political tensions on a temporary basis. These frictions now seem liable to reignite, just as a degree of normality returns to Hong Kong.
Increasing Mainland Pressure

The arrests came after Luo Hui-ning, head of the Central Government Liaison Office, described the earlier protests as a “major blow” to the rule of law in Hong Kong, in a speech on 15 April 2020, and called for the adoption of national security measures – suggesting that the Chinese authorities were losing patience, and wanted to see some action.

Of course, the Hong Kong and Chinese governments can point to justifications for action. One is the rising number of recent bombing incidents. These “terrorist-styled attacks” have been mostly small in nature, generally using pipe bombs, but are increasing in frequency.

The attacks do now pose a genuine threat to public security – and to perceptions of Hong Kong’s stability. Indeed, the Commissioner of Police himself was targeted on 20 April, when an Improvised Explosive Device (“IED”) was sent to his office. No casualties resulted, but a lot of smoke was exuded, and only minor damage caused.

The stance of opposition politicians is, perhaps, another key motive. The pro-democrat camp has, through filibustering, delayed for months the appointment of a chairman of the important House Committee of the Legislative Council – and some opposition politicians have voted against the government’s financial relief package, at a time of deep crisis.

Comparable moves could render governing Hong Kong impossible in the months ahead, particularly if the opposition does well in Legislative Council elections in September 2020, as seems likely. Both the Beijing and Hong Kong governments will want to forestall any such outcome.

Fighting A Rear-Guard Action

Of course, the protest movement will push back – not least as polling suggests that support is still strong. Many young radicals are openly calling for revenge, and will be difficult to restrain following the arrests of political leaders.

In terms of tactics, the establishment of pro-democratic trade unions in late 2019 had promised more influence in professional circles, and should strengthen electoral prospects ahead of Legislative Council polls in September 2020.

Similarly, the opposition is using judicial reviews of police actions, or of legislation, for political ends. In response, Beijing’s disdain for Hong Kong’s still independent judicial system is swelling; recent unconfirmed media reports allege interference as to decisions on the appointment of justices.

However, these measures appear more and more like rear-guard actions – meaning that a return to violent street conflict seems likely, in time. Any new protests would strengthen the more radical elements in the protest movement, but would also elicit a robust response from the Police Force, which sees scant reason for compromise after months of vilification through a weaponised social media campaign. As such, the real risk of instability is rising.

The Implications For Business

A resumption of the political contest poses certain threats to business. At the least, new contest in the streets will result, once again, in instability, and will further erode Hong Kong’s administrative capacity.

To date, the Department of Justice has been ineffective in prosecuting protest-related cases, raising questions as to how to regain control. After all, there is clearly little point in large scale arrests if the cases cannot be heard expeditiously. Over time, though, as prosecutions of riot suspects proceed, and convictions result, attacks on the judiciary may follow.

An additional threat is a change in temper, with a new, gritty nastiness emerging. A racist tone has emerged amongst protesters, aimed alike at foreigners without masks, and at mainlanders “threatening infection”. Equally, Beijing’s inclination to see its opponents as “foreign stooges” adds to distrust, as will the growing tensions between the US, China and Taiwan. A risk, then, is that this tone affects Hong Kong’s commercial environment, making it hard to remain neutral between loyalist “blue” and opposition “yellow” camps.

The economic crisis presents further threats, to Hong Kong’s dollar peg, to the banking sector, and to the property market. Any crisis, or large-scale distress, will only inflame the political situation, particularly if the government uses financial relief to ensure loyalty, or if Beijing entrenches its control over Hong Kong more deeply. Once again, such developments could harm the business climate.

Fitch Ratings have downgraded Hong Kong, citing a “second major shock” from the Coronavirus after prolonged social unrest in 2019.

Hopes Of A Settlement

Of course, there is still some scope for hope. The establishment of an independent commission to examine the extradition law and subsequent political contest may yet ease short-term tensions.

Equally, the departure of more controversial government figures, such as Chief Executive Carrie Lam or Secretary for Justice Teresa Cheng Yeuk-wah, might bring some moderates over to the government side.

A long-term strategic solution is theoretically possible, but only if a statesmanlike position can be adopted by mainland leaders, and if the pro-democracy camp can show some maturity and cohesion, whilst also containing more radical elements. It would be necessary for the camp to renounce violence and unite behind a single agenda. A settlement would be an outwardly simple exchange: electoral reform for the Chief Executive’s office, in return for an acceptable national security law.

Without such actions, though, the situation risks deteriorating in the months ahead.

What To Do

Hong Kong’s relative success in handling the virus outbreak should not distract from the longer-term challenges emerging from the political contest. New protests may yet emerge, posing the risks of disruption, even as the authorities take steps to tighten security provisions.

Businesses should prepare accordingly. Key actions to take might include:

• Re-assessment of contingency plans to take account of changing threats.
• Establishment of plans to deal with sudden, and potentially lengthy, disruptions.
• Monitoring for the emergence of new union cells within businesses.
• Examination of the risks of being branded as loyal to one or another side.
• Consideration of information security, in the context of a changing environment.
• Establishment of plans to deal with bomb threats, hoaxes, or real events.
• Development of operational redundancy, such as that within communications and payments systems.
• Establishment of measures to deal with civil disorder, should it arise.
• Large companies may wish to disperse capabilities around the region.

SVA (www.stevevickersassociates.com) is a specialist risk mitigation, corporate intelligence and risk consulting company. The firm serves financial institutions, private equity funds, corporations, high net-worth individuals and insurance companies and underwriters around the world.

SVA has a dedicated crisis management team which, for our retained clients, stands ready to assist companies during crisis situations. Retained clients pay an annual fee for a 24-hour response capability.

SVA is based in Hong Kong and is the only firm with the local and senior expertise drawn from Intelligence, Operations and research functions of the former Royal Hong Kong Police Force.