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A Chinese No-Go Zone

Hong Kong skyline.
Hong Kong. Photo by Gonzalo Pineda Zuniga.

For a lot of Western business leaders, finding the right response to China’s draconian new security law is a difficult exercise of balancing competing interests. For me, it was easy.

The day after the new law’s text was made public – after it had already been approved by China’s rubber-stamp legislature and as it was being implemented in Hong Kong – I issued a strict policy for all Palisades Hudson Financial Group staff:

There is to be no PHFG business travel to or through China, including Hong Kong and Macau but excluding Taiwan. This prohibition includes making connections at any airport or seaport in those jurisdictions. This policy will remain in effect until further notice. I anticipate that there will be no exceptions.

The reason this was so easy for me is that my firm has no presence in Hong Kong and no clients in China, although we do work with foreign nationals and American expatriates in other locations abroad. I can thus continue to use this blog to criticize the unreliability of Chinese business and economic data, the opacity and capriciousness of its legal system, and the political disenfranchisement of nearly all its people, without worrying about retaliation against local employees or losing access to an important market. Many other CEOs lack that luxury.

But I do need to worry about potential retaliation against me personally, or even against my employees, if we put ourselves within reach of Beijing’s security apparatus. The law specifies that it can apply to violations committed “outside the region by a person who is not a permanent resident of the region.” Donald Clarke, a professor of law at George Washington University, wrote that the law is “asserting extraterritorial jurisdiction over every person on the planet.” So I coupled my new business no-go policy with a warning to my staff.

“I strongly urge all of you to avoid travel to or routes taking you through China, including Hong Kong and Macau,” I wrote in a companywide email. “Be careful when visiting other places in the region, including Singapore, Malaysia, Indonesia, Vietnam and Thailand. If I were traveling to those places, I would route myself to arrive from the west (such as through the United Arab Emirates) or the south (via Australia), to avoid putting Hong Kong or Beijing on my flight path. I would try to approach Taiwan via Hawaii, Japan or South Korea.

“China’s new security law seems to be aimed primarily at crushing dissent and quelling criticism of the Chinese Communist Party in Hong Kong, but it is written to apply to anyone who says or writes anything offensive to the Beijing government, anywhere in the world. The positions I have taken and will continue to take in Current Commentary [this blog] would presumably run afoul of the law’s strictures against ‘inciting hatred’ against the Chinese regime. The provisions applying those sanctions to those who are charged with ‘collusion with foreign forces’ expose all of you to vicarious liability for my public views.

“If you think it is unlikely that China would arrest and detain you while transiting Hong Kong because of something I wrote in the blog, I agree. It is unlikely, at least right now. I think the law’s secondary target, beyond protesters in Hong Kong, is critics in the large Chinese diaspora whose experiences with and advocacy of freedom – communicated in Chinese – would be a much bigger challenge to the regime. But the law essentially gives China a ‘legal’ basis to grab almost anyone at any time. Given the tensions between the United States and China, and the fact that I do write regularly and critically about the regime, I advise against taking the risk.”

Thanks to my firm’s negligible exposure to China, making that country a business no-go zone is as easy as applying that status to Iran or North Korea. But what should other CEOs do if they have an office full of employees in Hong Kong, or if losing access to China’s market might mean a lot of staff inside and outside that country would lose their jobs?

I can’t say. Or, more accurately, I won’t say. I don’t think it is sensible to suppose I can run other people’s companies better than they can. But I know that I now would view Hong Kong as no different, from a business climate standpoint, than other Chinese business centers such as Beijing, Shanghai and Guangzhou. No different except, of course, for the unrest and uncertainty that bringing China’s authoritarian system to the former British colony has provoked.

In these CEOs’ place, I would strongly consider moving all my expatriates out of China. I would try to offer foreign postings in safer places to as much of my local staff as I could. I would definitely try to reconfigure or diversify my supply chains and markets. I would bolster my company’s finances to cushion the effect of pulling back from the world’s largest labor force and its second-largest economy. And I would reinforce my data and intellectual property security, because China is known to help itself to assets it cannot get another way.

China’s move on Hong Kong will trigger a variety of political responses, including greater acceptance of emigrants from that city – and, I hope, from Taiwan as well. But the larger impact might come from the collective effect of thousands of businesses and millions of travelers concluding that under its current regime, China is not a safe place to be. Perhaps not even to make a cruise ship port call or to catch a connecting flight to a neighboring country. I will not travel there for the foreseeable future. For their sake, I hope my colleagues stay away too.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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