Beijing’s national security legislation has forced technology firms to reconsider their presence in Hong Kong. The nimblest among them — the territory’s start-ups — are already moving data and people out, or are devising plans to do so.
The polarizing legislation has upended Hong Kong’s technology scene just as it seemed on a path to becoming a regional hub.
Entrepreneurs now face a wave of concern from overseas clients and suppliers about the implications of running data and Internet services under the new regime of vastly expanded online policing powers. Many are making contingency plans and restructuring their operations away from Hong Kong.
Their actions could foreshadow similar decisions from Internet giants such as Facebook Inc, Alphabet Inc’s Google and Twitter Inc, all of which confront the same set of uncertainties.
“We are now in a dilemma. If we follow the law in Hong Kong, we may violate other countries’ regulations,” said Ben Cheng(鄭斌彬), cofounder of software company Oursky. “We worry that people will not trust us someday if we tell them we are a Hong Kong-based company.”
Oursky has already had trouble in the short period since the legislation came into force, with some foreign cloud-computing service providers refusing to work with Hong Kong-based entities and reviewing the practice, Cheng said, without elaborating.
To circumnavigate these issues, his company is to set up offices in the UK in about a year and then expand to Japan.
Technology companies that handle data are particularly vulnerable under the new legislation. Police can ask them to delete or restrict access to content deemed to endanger national security, with non-compliance punishable with a fine of HK$100,000 (US$12,901) and six months in jail for representatives of infringing publishers.
Such provisions put technology companies under “tremendous risk and liability,” Hong Kong Legislator Charles Mok (莫乃光) said.
“It’s a signal to these companies to be very careful. If you want to be safe and you don’t want the uncertainty, then maybe you have to leave Hong Kong,” Mok said.
Hong Kong has grown into an attractive destination for fintech entrepreneurs, and its close proximity to Shenzhen and the Greater Bay Area has helped foster research and development ties between start-ups and Chinese universities.
Hong Kong had been expected to reach US$1.7 billion in data center revenue by 2023, rivaling Singapore, whose server market brought in US$1.4 billion last year, according to Structure Research data.
All that is now under threat.
Pro-democracy protests last year spooked the investors and tourists vital to the economy. Then the COVID-19 pandemic struck — and struck again.
To many of the territory’s entrepreneurs, the legislation was the final straw.
More than half of Measurable AI’s clients are US-based. The Hong Kong firm tracks business receipts, and provides transactional data to hedge funds and corporations, many of whom have expressed concern about how data trade might be affected by the legislation, as well as Washington’s retaliatory measure of rescinding Hong Kong’s special trade status.
“Right now might be a good time for us to rethink how we can restructure or have the operations outside of Hong Kong,” Measurable AI cofounder Heatherm Huang (黃何) said, adding that the company is accelerating plans to migrate parts of its business development and sales to Singapore and New York.
“Doing a start-up in Hong Kong is already difficult. It’s a super expensive city,” said Scott Salandy-Defour, cofounder of energy-tech start-up Liquidstar.
Even before the legislation, the situation in the territory was fraught, with US-China tensions over everything from trade to human rights.
Investors have become very cautious about people and businesses with ties to China, and the legislation “is like the last nail in the coffin,” said Salandy-Defour, who is planning to relocate to Singapore.
One founder of an edtech venture, who like several executives interviewed asked not to be identified, said that their company had transferred all its data to portable offline storage in case there was a need to leave Hong Kong.
“This would be just a short-term phenomenon. I think after they understand the society is more stable, businesses will come back,” Chinese University of Hong Kong associate professor of economics Terence Chong (莊太量) said. “Hong Kong is the gateway to China. If they want to have access to China’s market, it is the best place for them.”
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