| I'm Malcolm Scott, international economics enterprise editor in Sydney. Today, Rebecca Choong Wilkins looks at Hong Kong's new security law. Send us feedback and tips to ecodaily@bloomberg.net or get in touch on X via @economics. And if you aren't yet signed up to receive this newsletter, you can do so here. Hong Kong seems to be stuck in a Catch-22 when it comes to security. China's President Xi Jinping has called on the city to retain the "distinctive status and advantages" that separate it from the mainland. But the former British colony has also been tasked with eliminating dissent against the ruling Communist Party with new laws that unnerve foreign firms. In a bid to somehow square that circle, Chief Executive John Lee has launched a one-month consultation for a new security framework. That has vaulted the issues back into the minds of local and foreign businesses shaken by the pandemic, China's economic slowdown and Beijing's sweeping security framework — imposed in 2020 to quell fierce pro-democracy protests and a precursor to this local law. It all comes at a time when many just want to get down to business. The city's AmCham annual survey notes two thirds of respondents think the best way to improve US-Hong Kong relations is for both sides to stop bringing up security topics. But here we are again discussing issues that threaten to undermine efforts to prove it's business-as-usual in 'Asia's World City'. The problem is, the planned security legislation is somewhat broader than some business leaders were anticipating. While it's too early to tell how banks and other big employers will ultimately respond, members of the finance community are privately expressing concern over a potential chilling effect on open discussion of economic and policy issues. A key issue is over the expanded definition of state secrets to mirror mainland China. This forbids acquiring or publishing harmful information that's related to the economic and social development of the city. One barrister said the ambiguous definition of state secrets meant people risked breaching the law by commenting on the city's economic development. (Secretary for Security Chris Tang has said the government would consider including adding a "public interest" exemption.) Hong Kong's push to assert its legal powers beyond the city's borders also risks flaring geopolitical relations — something likely to displease investors. Targeting, say, American citizens would certainly trigger a US response to an infringement its sovereignty, one legal scholar points out. The government has already put HK$1 million ($127,900) bounties on the heads of overseas activists wanted for security crimes. Many of the concerns around the law echo anxieties voiced about measures taken to crackdown on protests back in 2019-20, including that these would thwart the city's appeal as a financial hub. A spokesperson for the Hong Kong government has said said the new security law would improve the city's legal system while protecting "individual rights and freedoms." So far, the city's vast capital markets and its function as a gateway to China's massive economy have proved resilient, even if the hub's global reputation has been eroded. The new law is yet another test for that status. - The IMF chief said the Federal Reserve and other major central banks face more risks by easing monetary policy too early rather than too late.
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