A new law giving Chinese courts the authority to enforce rulings in commercial disputes in Hong Kong comes into effect on Monday, further reducing the barriers between the Hong Kong and Chinese legal systems.
The law puts into effect an agreement signed between China’s supreme people’s court and the government of Hong Kong in 2019 and is designed to reduce the need for re-litigation in civil and commercial disputes, in cases where there is a connection to mainland China.
However, concerns have been raised that the law will tarnish Hong Kong’s reputation as a global business hub. International companies have traditionally chosen to base themselves in Hong Kong in part because the territory provides access to mainland China while ensuring robust rule of law protection in commercial disputes as a result of Hong Kong’s independent legal system, which is based on English common law.
The ordinance “further erodes the differences between the legal systems of Hong Kong and the mainland,” said Andrew Collier, managing director at Orient Capital Research, a financial research firm.
In 2019, a proposed extradition bill, which would have allowed people wanted by the police in mainland China to be deported from Hong Kong, sparked huge protests as millions of Hongkongers decried the erosion of the legal and political barriers between Hong Kong and China.
Those protests evolved into a mass pro-democracy movement, which resulted in more than 10,000 people being arrested. The protests were eventually crushed by a harsh national security law, which Beijing said was necessary to restore stability to the city, but which critics and foreign governments say has been used to criminalise dissent.
Some of the fears about the extradition bill stemmed from the fact that criminal proceedings in China are influenced by the ruling Chinese Communist party, and criminal courts have a conviction rate of 99%. In civil and commercial matters, however, China’s performance on rule-of-law rankings has improved on international measures in the past 20 years. The World Bank ranks China as being in the top 50% of countries in terms of overall rule-of-law performance. Compared with Hong Kong, commercial disputes in mainland China are dealt with more quickly and at lower cost.
“The reality is that for the most part, it’s not like the mainland civil and commercial courts are completely awful,” said Kevin Yam, a senior fellow at Georgetown University’s Center for Asian Law and former commercial litigator in Hong Kong. But, Yam added, the developments related to the national security law since 2020 have created a backdrop of uncertainty for businesses and wealthy individuals alike. Yam himself is wanted by the Hong Kong police because of his criticism of the national security law and support for the pro-democracy movement.
There is concern that the new ordinance will damage Hong Kong’s reputation as a global wealth management hub. Asset managers may no longer be able to advise wealthy clients with total confidence that their investments would be protected in Hong Kong. “Wealthy Chinese and foreigners alike have been concerned about their personal safety and the security of their assets in Hong Kong, and these judgments will convince many more to move to Asian or western destinations,” Collier said.
The managed assets in Hong Kong amounted to $3,912bn in 2022, down 14% on 2021, according to the Securities and Futures Commission. Many wealthy people, including Chinese citizens, no longer see Hong Kong as being a destination that is out of reach from arbitrary confiscation from mainland authorities. The ordinance also allows for civil awards made in criminal cases in the mainland to be enforced in Hong Kong, which “create[s] paths for enforcing aspects of PRC criminal law in [Hong Kong],” said Yam.
Nick Chan, the chair of the legal committee of the Hong Kong General Chamber of Commerce, said law-abiding and contract-abiding business people had nothing to worry about: “People who commit financial crime in China … have a lot to lose because they managed to move their assets here under one country, two systems. Under the old arrangement, there wasn’t anything that could be done lawfully to get these potentially stolen assets.”
The ordinance covers civil and commercial matters, with certain exclusions, and also allows for judgments reached in Hong Kong to be enforced in the mainland.
