Foreign tech companies are considering their future in Hong Kong after the imposition of a controversial new law that threatens harsh penalties for content that "endangers national security."
"The Great Firewall of China is now imposed on Hong Kong, severely damaging our reputation as a telecommunications hub," said Charles Mok, who represents the IT sector in the legislature.
He warned in a newspaper column that the National Security Law allows the government to "review online speech, shut down platforms, obtain any electronic records, and even monitor communications, but without any mechanism to monitor abuse of power.
"It is a direct threat to Hong Kong's freedom of information, privacy protection and free speech," he said.
The law was introduced at midnight on July 1 without anyone in the city, including leader Carrie Lam, having seen it.
It was imposed directly by Communist Party rulers in Beijing, skirting the city's constitution, which has allowed it to maintain its western-style legal and political institutions since reverting to Chinese control in 1997.
The law sets penalties for crimes of secession, subversion and "collusion with foreign forces." It overrides Hong Kong law, although it's not limited to activities in Hong Kong – individuals and companies can be held responsible for alleged security breaches that occur anywhere in the world.
Of particular concern to telcos and other service providers are rules that allow police to order them to delete and decrypt content and to pass on user personal data. They face punishment for not cooperating. Police may also enter premises without a warrant or court order and seize equipment and freeze financial assets.
At this early stage the only visible impact on the foreign tech sector has been Facebook, Google and others announcing they have suspended data requests from Hong Kong authorities. Chinese-owned TikTok, already under pressure from the US government, announced it was leaving the city altogether.
Lim May-Ann, managing director of Singapore-based consultancy TRPC, warned of the lack of certainty around the new law.
"Because businesses work best under regulatory clarity, the 'known unknowns' here will create quite a large blip in doing business in Hong Kong. At best, it will stop or slow further investment in the city, but we have seen some companies (TikTok) take flight, and others may soon follow."
A survey by the American Chamber of Commerce in Hong Kong, issued shortly after the law was introduced, found that 78% are "extremely" or "somewhat concerned" about it.
For most foreign firms their responses will evolve over time and according to their businesses.
For example, while Facebook and Google content is not accessible in China, they do have China advertising businesses that they run out of Hong Kong, so they have a financial incentive to stay in the city.
Ross O'Brien, ICT practice leader at Hong Kong-based Intercedent Asia, says China is betting that these companies will compromise to maintain their business.
He points out Hong Kong currently has no onshore data retention rules and expects that social media companies will gradually shift potentially sensitive data offshore.
For big cloud firms such AWS and Azure, however, he thinks it likely they will eventually stop investing in Hong Kong.
It won't happen suddenly, he said, "more of a withering on the vine."
As for telcos, Hong Kong is Asia's biggest subsea cable hub, with 108 terabits of built capacity, according to regulator Ofca.
But this role is already under threat from the US's unwillingness to allow Hong Kong-connected cables to land in the country.
It seems likely the city will continue as a major regional hub, but inevitably other countries such as Taiwan, Singapore and Japan will become the prime destinations linking to the US.
— Robert Clark, contributing editor, special to Light Reading