Hong Kong national security law: UK needs a new law too, or more firms like HSBC will side with China

As we move deeper into July, the effects of the national security law are already making themselves felt " not only within Hong Kong, but far beyond its borders, thousands of miles away in the territory's former colonial ruler.

Britain, which opposes the law, worries that the enactment of the law establishes a precedent for China to thwart British interests anywhere in the world.

This is because, despite China's furious assertions to the contrary, Britain sees its national interest as being intertwined with Hong Kong in two ways: first, it is a party to the Joint Declaration under which China promised that Hong Kong people would continue to enjoy their basic freedoms for 50 years after the handover in 1997, and second, there are hundreds of thousands of British nationals in Hong Kong.

In British eyes, if China breaches the Joint Declaration or if British nationals are endangered, its own interests are compromised.

Yet four British companies (HSBC, StanChart, Swire and Jardines), under pressure from China, have endorsed the controversial law.

British companies' apparent support for what London sees as an erosion of freedoms highlights a weakness in the UK's legal framework. There is currently no basis to sanction companies for supporting governments that damage British interests.

It is this lack that left the four British organisations vulnerable and they still are: most of their business is China-sourced.

More companies could side with China in future unless Britain considers changing its law to give them the ability to say 'no' to outside pressure. It could do this by legally prohibiting companies from supporting any government deemed to be damaging British interests.

This is not untested theory: we saw it work with the Bribery Act, which gave British companies the perfect excuse to refuse to do special favours for overseas business counterparts. After 2010, they could say "I'd love to arrange a Disneyworld vacation for your family, but this new British law forbids it." No-one likes paying bribes, and the law made it easier not to.

In the same way, Britain could enable its multinationals pressured by Beijing to say: "I'd love to declare my support for the Communist Party's latest idea, but it's against UK law for me to do so."

The current Conservative government in the UK, which prides itself on being business-friendly, is resistant to the idea of legislating in this way. The idea of even more law to regulate business behaviour is unattractive.

Yet there is a precedent for reining in corporate behaviour. Companies are not allowed to pollute or to endanger their workforce, for example. Even their freedom to make public utterances is restricted if it is discriminatory, breaches official secrets, is libellous, or falls into other forbidden categories.

Any new rules should, of course, only apply in limited circumstances to avoid reducing corporate freedom. The rules should empower companies rather than hamstring them. Only if proposed actions would endanger the rule of law, freedom of speech and democracy, and on top of that would harm British interests, would there be a case for sanction. That sanction could be a fine, possible loss of operation permit, or something more serious.

The downside of such legislation is worth examining. First, some say it is not possible to succeed commercially in China without aligning politically. Second, there is a view that the UK would lose business if it restricts commercial behaviour. Both these ideas are exaggerated.

The importance of political alignment is very unclear. The political and cultural advice multinationals receive from their own in-country experts is not as reliable as they think. Large companies employ "government relations" managers, and those people supposedly have special ability to understand Chinese policymakers. Yet those experts are part of the machinery of the companies' China subsidiaries, which are even more motivated than head office to maximise China profits. Outside counsel typically view such "experts" as risk centres. Their selectively sourced research is skewed towards the Communist Party's world-view, and yet is treated as gospel by their bosses in London.

As for the risk that multinationals will simply leave the UK and reincorporate elsewhere, depriving Britain of tax revenue and employment, how credible is this? The same threats were made in 2016 vis-a-vis Brexit, and came to nothing.

Besides, the four British companies that endorsed the national security law are enormous, with tens of thousands of individual employees. Many of those individuals " including those in senior positions " are likely to disagree with their leaders' stance on the national security law.

HSBC's largest shareholder, Aviva, publicly criticised the decision to endorse it. So why would companies blame the UK for making them refuse to do something they probably don't want to do anyway?

In my own humble corner of the Chinese corporate world, having worked in mainland China for 16 years, I have felt the kind of pressure the individuals in these companies may feel. I do not accept that such pressure is irresistible. Besides, many Chinese do not support hard-line party policy. When foreign companies publicly agree with hardliners, it undermines the efforts of those in China who would like a more moderate approach.

Nicolas Groffman, who practised law in Beijing and Shanghai, is a partner at law firm Harrison Clark Rickerbys in London

This article originally appeared on the South China Morning Post (SCMP).

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