The legal and institutional structure of Hong Kong has changed, according to a report by US think tank Atlantic Council outlining key differences since 2019 and business recommendations, most notably for financial firms.

Since 2019, Hong Kong’s legal and institutional structure has «fundamentally changed», according to an Atlantic Council report authored by Logan Wright, China specialist and partner at independent research firm Rhodium Group.

«Over the past three years in Hong Kong, a system based upon legal and institutional restrictions on government action founded on the Basic Law and British common law has shifted toward a system governed by political norms reinforced by the National Security Law,» the report said.

«In that process, those dominant political norms have changed significantly from those that had governed the 'one country, two systems' policy since the handover of sovereignty in 1997, and are increasingly driven by priorities in Beijing, rather than the previously dominant local leadership of Hong Kong.»

Five Areas

According to the report titled «Fractured foundations: Assessing risks to Hong Kong’s business environment», there are five critical areas of change and risks to the city’s business environment. 

This includes the future of Hong Kong's currency peg; sanction-linked compliance risks; the local legal environment; free press and information flow; and data security. 

Recommendations

In order to address these concerns, the report recommends that the business community speak collectively and communicate to Beijing about the consequences of uncertainty over Hong Kong’s status. 

«One of the most significant elements of leverage foreign businesses hold over Hong Kong authorities and Beijing is the fact that Hong Kong must protect its own public image as a major global financial center,» it said.

Other recommendations include investments in compliance infrastructure and the development of risk mitigation strategies. Day-to-day, it also suggests that businesses monitor pro-Beijing media in Hong Kong, US-China political trends and key data (national security cases and outcomes, foreign population and legal outcome) while emphasizing the importance of an independent media.

Parallel System

Under the new environment, the National Security Law implemented in 2020 created «a parallel system of authority operating both behind and above Hong Kong’s system of government established by the Basic Law and the Sino-British Joint Declaration of 1984».

«When changes of this magnitude occur, it is difficult for anyone to know what shifts are transitory, and what adjustments will end up becoming permanent features of Hong Kong’s political and commercial environment,» the report explained.

«As political norms in Beijing are increasingly important in shaping outcomes in Hong Kong, particularly in the expanding universe of security-related matters, businesses must consider avenues beyond Hong Kong’s traditional legal and institutional channels to defend their interests.»