Businesses beware: The ghost of Hong Kong should be a warning

In boardrooms across the world, corporate leaders are asking the same question with increasing unease: ‘Can we safely do business with the Chinese Communist Party (CCP)?’ The fate of Hong Kong offers an answer. Hong Kong enjoyed a profitable and mutually beneficial relationship with the CCP. International treaties protected the city from the CCP’s incursions. In spite of all this, the CCP effectively engaged in a hostile takeover of Hong Kong. It seized assets, prosecuted those who did not comply, and — in the past few weeks — transformed the city into a puppet regime through sweeping changes to its electoral rules. It left Hong Kong standing, but ripped out its soul. 

The CCP did so primarily through the National Security Law, which instantaneously eradicated the city’s laws and traditions. Under this law, individuals face potential life imprisonment for intentionally vague offenses like “subversion” and “collusion.” The CCP uses the law to intimidate potential opponents through show trials, such as the recent prosecution of billionaire and Hong Kong democracy activist Jimmy Lai. The statute gives the CCP oversight of Hong Kong’s government and once-independent judiciary, abolishes the right to a jury trial, and enables extradition to the Chinese mainland. It eradicates free expression, free press, and free association. It is anathema to a free people and a mortal threat to free enterprise. 

More ominously, the wording of the statute applies to everyone without jurisdictional limit. The CCP can charge anyone on Earth — regardless of their citizenship or where they live — with violating the intentionally vague law, subjecting them to a Kafkaesque nightmare if they ever step foot into a country that extradites to China. The CCP has already publicly released indictments under this law against U.S. and U.K. citizens. It is unknown how many similar indictments are presently under seal. The law applies to companies as well, which could face fines, asset seizures, or worse, if the CCP deems them insufficiently loyal.

Hong Kong’s fate is more than a tragedy. It is a warning to any institution that thinks it can do business with China and come out unscathed.

The CCP has a single animating principle: ensuring that it has a monopoly on all power — economic, political, or otherwise. All other sources of power are an existential threat. It does not matter if you are a rural Chinese pastor displaying the Ten Commandments rather than Chairman Xi’s orthodoxy, or the general manager of an NBA team tweeting support for democratic protesters. Once it considers you a rival power, the CCP will use its ever-increasing arsenal to subvert and ultimately destroy you.

Subversion is insidious. In business, it happens when a company heavily relies on Chinese market share or suppliers to meet its bottom line. No corporate executive wants to ignore — let alone tacitly support — human rights violations and anti-democratic practices. Once entangled with the Chinese market, however, they often find themselves with little choice. The CCP uses its economic leverage aggressively and effectively. A short time ago, the notion that the Chinese government could control the political stance of sports leagues, movie studios, or universities was laughable. No one is laughing now. 

Destruction occurs when executives, in the pursuit of short-term profits, ultimately lose the inherent value of their business. In this instance, the CCP uses forced technology transfers, mandatory joint ventures with state-owned enterprises, and other means to acquire the intellectual property of companies seeking access to China’s economy. After stealing the IP, the CCP turns it against its creator, providing it to state-sponsored entities whose sole purpose is to bankrupt the victim company and steal its market share. Those minimizing the risk should survey the vast graveyard of American companies harmed by the CCP’s tactics. Among the many examples is American Superconductors, which suffered nearly a billion dollars in losses after its largest customer, the Beijing-based Sinovel, stole the company’s proprietary software.       

Doing business with the CCP and plunging into the Chinese market is tempting. It is also fraught with peril.

A binding treaty and hundreds of billions of dollars in yearly profits did not protect Hong Kong. What hope then does any company — no matter how large — have against the CCP’s predations?

Hong Kong is now a phantom on the coast of the South China Sea. The city still stands, but everything it stood for has fallen. Business leaders must heed the warning of the ghost of Hong Kong. With the city’s fall, the CCP has made one thing clear: It will not stop until it is in complete control.

Matthew J. Cronin currently serves as the National Security & Cybercrime Coordinator at the Department of Justice’s Executive Office for United States Attorneys. All statements made in this article reflect his own views and opinions and not those of the United States of America or the Department of Justice.