Editor’s note: The following are remarks of Grenville Cross SC at the Singapore Chamber of Commerce Luncheon held on Thursday, June 30.
I am most grateful to your Chairman Alternate, Jacky Foo, for having invited me to address you today, and to share my thoughts on current issues. When Jacky first invited me, I was slightly taken aback, as I was not sure that a lawyer, and a prosecutor to boot, could have much to say that would be of any value to the business community, but he convinced me otherwise. After all, as Hong Kong’s legal system is fundamental to anybody who does business in this part of the world, it deserves to be better understood, particularly when it has sometimes been belittled by people whose motives are less than benign.
Today, moreover, marks the exact half-way point in the Basic Law’s “50-years unchanged” formula for the Hong Kong Special Administrative Region, and what better time to take stock of achievements past and to consider the way ahead. Quite clearly, the last 25 years have been something of a roller-coaster, and the journey has sometimes been bumpy, but I believe the city has emerged stronger from the experience, and better able to meet its future. To review 25 years in 20 minutes is a task beyond even me, but I will say something about legal strengths, business prospects and the shape of things to come, and I hope to slay several myths along the way.
Since 1997, Hong Kong’s development has been underpinned by its Basic Law, the remarkable instrument that embodies Deng Xiaoping’s “one country, two systems” governing policy. This policy, which provides that the capitalist system and way of life shall be unchanged for 50 years, provided the city with a great start in life in 1997, not least in respect of its legal arrangements. After all, Hong Kong’s greatest asset has always been the rule of law, and this has been at front and center of its development since 1997. The city’s legal system has not only inspired confidence in local residents, who regularly avail themselves of it, but also provided the business community with the certainty it needs for its stability and forward planning, often involving the Chinese mainland.
Over the past 25 years, Hong Kong has developed as a center for legal and arbitration services, and this has been a godsend for those wishing to take advantage of the China market. Indeed, according to the Queen Mary University of London’s 2021 International Arbitration Survey, Hong Kong ranks as the world’s third-most preferred seat of arbitration, with its arbitration laws following international practice. The case parties, by virtue of the city’s “one country, two systems” policy, enjoy particular advantages, and they can, for example, apply to mainland courts for interim measures in Hong Kong-seated arbitral proceedings administered by qualified Hong Kong arbitral institutions.
Through the Basic Law, the common law-based legal system has been maintained (Art.8), and the city has remained firmly plugged in to the traditions of the common law world. An independent Judiciary is stipulated by the Basic Law (Art.85), and this ensures, for example, that trials are fairly conducted, that litigants enjoy a level playing field, and that basic legal principles are respected in the adjudication of cases. Although, prior to 1997, judicial independence was simply a matter of convention, it is now, thanks to the Basic Law, constitutionally entrenched, and this has helped to secure the Judiciary’s position.
It is, moreover, heartening that the International Covenant on Civil and Political Rights, which contains the fair trial guarantees, applies in Hong Kong, by virtue of both the Basic Law (Art.39), and the National Security Law for Hong Kong (Art.4), and the significance of this cannot be overestimated. It has helped, for example, to ensure that the highest standards of criminal justice are maintained in trials of whatever nature, and that those accused of crime are fairly treated throughout the proceedings. Indeed, at the very outset of the national security law, it is stipulated not only that “human rights shall be respected and protected in safeguarding national security””, but also that the ICCPR “shall be protected in accordance with the law”. This close involvement of the ICCPR in our legal system has helped to ensure just trial outcomes, with rights of appeal being guaranteed to anybody convicted of an offence.
Although there have sometimes been criticisms of our judges in foreign parts, particularly when they handle national security cases, these cannot withstand close scrutiny. In discharging their duties, the judges are bound by the judicial oath, which requires them to “safeguard the law and administer justice without fear or favor”. They are all appointed by the chief executive on the recommendation of an independent commission, chaired by the chief justice, and they are chosen on the basis of their legal ability, professional standing and personal integrity. Although some people have claimed that judicial independence is being whittled away by state actors, insiders know such suggestions are spurious. As Hong Kong’s first post-1997 chief justice, Andrew Li Kwok-nang, explained on June 15, 2022, when discussing the first 25 years, “I can state that during this period, there has been no instance of interference with how a judge should adjudicate, and there has been no instance of interference with the process of judicial appointment”.
A central feature of Hong Kong’s legal progress has been the creation of the Hong Kong Court of Final Appeal in 1997, which has been vested by the Basic Law with the power of final adjudication and now presides over the city’s courts and jurisprudence
A central feature of Hong Kong’s legal progress has been the creation of the Hong Kong Court of Final Appeal in 1997, which has been vested by the Basic Law with the power of final adjudication and now presides over the city’s courts and jurisprudence. It comprises both permanent local judges and non-permanent judges from other common law jurisdictions, which is of itself highly unusual and they have pooled their talents to advance the rule of law. Over the past 25 years, these jurists have not only guided the city’s legal fortunes, but also established impeccable credentials for their Court. Their judgments, sometimes involving commercial issues, have been highly acclaimed, and they are frequently cited with approval in other common law jurisdictions around the world. Although anti-China forces have sought to undermine the “one country, two systems” policy by targeting the non-permanent judges, whom they hope to pressurize into resigning over the national security law, they have made little headway.
Although it is certainly true that several overseas judges resigned, the vast majority, who come from Australia, Canada, New Zealand and the United Kingdom, decided, in the best interests of Hong Kong, to ignore the pressure, and their reasons are illuminating. The UK’s Lord (Jonathan) Sumption, who joined the Court in 2019, pointed out in 2021 that the national security law “guarantees human rights”, and that the overseas judges will “serve the cause of justice better by participating in the work of Hong Kong’s courts”. On June 16, 2022, moreover, Canada’s former chief justice, Beverley McLachlin, the first female to sit in the Court after her appointment in 2018, announced her intention to remain, explaining that “the Court is completely independent and functioning in the way I was used to in Canada”. She then added “there’s no governmental influence, and, if there were, I wouldn’t be there”, which, of course, was reassuring for everybody in Hong Kong, even if it was the last thing that those abroad who spend their days trying to undermine the city wanted to hear.
It is, of course, almost unprecedented for any jurisdiction to allow foreign judges to sit on its top court, and I can think of no major common law jurisdiction where this occurs. It does not happen in, for example, Australia, Canada, New Zealand, Singapore or the United Kingdom, and the fact that China has countenanced it in Hong Kong is a great show of faith in the city’s legal system. It illustrates Beijing’s determination to ensure that Hong Kong remains a global city, connected to the common law world, and also its willingness to go the extra mile in terms of reassuring local people, given that some find the presence of overseas jurists to be comforting and a boost to their confidence in the judicial system. Although, thus far, all the overseas judges have come from Australia, Canada, New Zealand and the United Kingdom, there is no reason why in future the net should not be cast more widely, with eminent judges from, for example, India, Malaysia or Singapore being invited to serve.
Be that as it may, the success of the Court of Final Appeal is undoubtedly one of the major reasons why Hong Kong’s legal arrangements have been ranked so highly by objective observers at the international level. Whereas, for example, the World Justice Project’s Rule of Law Index is the world’s leading source for original, independent data on the rule of law, it has consistently rated the city highly. The Index covers 139 countries and jurisdictions, and it measures the rule of law based on the experiences and perceptions of the general public and in-country legal practitioners and experts worldwide. In the 2021 Index, Hong Kong ranked 19th, with what was called “a strong adherence to the rule of law”, which was significant in the aftermath of the failed insurrection of 2019-20, and illustrated the city’s resilience.
Indeed, although Hong Kong was just behind the UK, at 16th, and Singapore, at 17th, it was well ahead of many Western jurisdictions, such as France, which was 23rd, the United States, at 27th, and Greece, at 48th.. Quite clearly, this was an impressive ranking, and the Judiciary is entitled to much of the credit. It was a clear recognition of all the Judiciary has achieved since 1997, most notably in terms of safeguarding the rule of law, maintaining legal standards and resisting those bent on undermining the “one country, two systems” policy.
Although I cannot speak on your behalf, I imagine that the strength of the Judiciary must be profoundly reassuring to everybody in the business world as they contemplate the next 25 years. After all, if they are to succeed, private enterprises require effective legal mechanisms, political stability, and opportunities to make profits. If disputes require resolution, cases have to be handled by an experienced Judiciary that understands commercial operations and can achieve just outcomes, and this is one area where Hong Kong excels. Its anti-corruption regime, moreover, is renowned, and this is why the World Bank’s 2021 Worldwide Governance Indicators ranked Hong Kong, in the “Control of Corruption” category, as 15th out of the 209 countries and territories assessed, and as the second highest in Asia.
I believe, therefore, that the legal system, sustained as it is by the Basic Law, remains not only fit for purpose, but more than capable of rising to the challenges of the next 25 years. As with Singapore, it is a common law jurisdiction, and the only one in China, and this will not change. Indeed, on June 16, 2022, the incoming chief executive, John Lee Ka-chiu, pinned his colors firmly to the mast by declaring that “our commitment to the rule of law, to judicial independence, is unassailable”. He then added, in words that should resonate with everybody here today, that the rule of law “is the key to the confidence in Hong Kong, and our long-term prosperity and stability as an international financial and investment center”. This could hardly be clearer, and is surely comforting for anybody harboring concerns over the city’s future direction of travel.
Another integral part of Hong Kong’s legal system is, of course, its legal profession, which is more than capable of providing the business community with whatever legal services it may require, including in the Greater Bay Area. In anticipation of the city’s greater integration with the Chinese mainland, arrangements were introduced in 2020 to enable Hong Kong lawyers who pass the special qualifying examination to handle both civil and commercial cases (including litigation) in the nine mainland cities of the GBA. In 2021, 600 Hong Kong lawyers sat the examination, with a reportedly high pass rate, and the exercise is being repeated this month. The scheme is overseen by the Ministry of Justice, and those who qualify as “GBA lawyers” can be employed by mainland law firms or in the partnership associations between Hong Kong/Macao law firms and mainland law firms operating in the nine mainland cities. In consequence, new opportunities are opening up for local lawyers, and this is good not only for the legal profession but also for anybody who wants to do business in the GBA.
I have already mentioned the need that business has for political stability, and let me say something about how this has been ensured after the events of 2019-20. That, of course, was a traumatic time for Hong Kong, and there were concerted attempts to wreck the “one country, two systems” policy by people who wanted to undermine China. While the protest movement and its armed wing were creating mayhem on the streets, their sympathizers in the Legislative Council paralyzed its operations for over six months, halting the government’s work. Although many in the protest movement hoped to provoke an armed intervention by Beijing, the central authorities realized what was afoot and were canny enough not to fall into the trap that was being laid for them. In the initial stages, it was left to the police, the prosecutors and the judges to uphold the rule of law, but, as time went on, it became apparent that the police force lacked the legal tools it needed to regularize the situation, which meant the “one country, two systems” policy was in real peril.
Once, however, the central authorities enacted the National Security Law in 2020, and reformed the electoral arrangements in 2021 to prioritize patriotism, it became clear that the tide had turned and that the city was safe. Although the whole experience was traumatic, it was also cathartic, and it will never again be possible for hostile forces to create mayhem on the streets, or for political wreckers to infiltrate the body politic, and this is obviously welcome. Although now is not the time for any detailed consideration of the National Security Law, what can be said is that most places have national security laws, that Hong Kong’s law is milder by far than many others, and that, as we have seen, it is human rights heavy, with the ICCPR being prioritized in its application.
In any event, the National Security Law only targets individuals wishing to harm Hong Kong and China as a whole, whether through secession, subversion, terrorism, or collusion with foreign actors, and it in no way affects the business environment and the operation of the commercial law. On the contrary, the substantive law in Hong Kong that governs business and commercial transactions is unchanged, the jurisdiction of the courts over the adjudication of commercial disputes under the Basic Law is unaffected (Art.19), and the procedural rules in civil and commercial litigation continue to ensure due process. Any suggestions that businesses might inadvertently violate the National Security Law are misplaced, as the elements of each of the four offences are clearly defined. There must, moreover, always be a guilty act and a guilty mind before a prosecution is instituted, and the requirement of proof of intent to commit the crime, which exists for all serious crimes, cannot be satisfied by mere inadvertence.
What the National Security Law has done is to bring back the peace and stability that is always vital for commerce, and it now provides the business world with the confidence it needs going forward. Although the new law is only two years old, its tangible benefits are there for all to see. Since its implementation two years ago, the amount of funds raised through initial public offerings in Hong Kong exceeded HK$650 billion (in the 22 months from July 2020 to April 2022), which was an increase of over 30% compared with the two years before (in the 22 months from September 2018 to June 2020). Whereas the daily turnover of Hong Kong stocks since the implementation surpassed HK$150 billion (in the 22 months from July 2020 to April 2022), this was 60% higher than in the 12 months preceding the implementation (July 2019 to June 2020). Again, total deposits in the Hong Kong banking system reached HK$15.3 trillion in March 2022, an increase of about 10% compared with the situation prior to the implementation in June 2020.
These, I suggest, are the indicia of a city bouncing back, and it is no exaggeration to say that Hong Kong is, once again, one of the world’s most business friendly environments. I imagine this is why the World Competitiveness Yearbook 2022, published on June 15, 2022, has ranked it 5th , with a grading of 94.89 out of 100, in the annual ranking of the world’s 63 most competitive economies, based on its policies and focus on sustainability, which is up from seventh in 2021. Although Singapore was ranked 3rd (for which many congratulations), Hong Kong was well ahead of, for example, the United States at 10th, Germany at 15th, and the United Kingdom, at 23rd. Quite clearly, if Hong Kong was still engulfed in chaos, this ranking would not have been possible, and the return of stability has secured its position. I might mention here that Singapore, through its Internal Security Act, also has a highly effective national security regime, and this has contributed to its phenomenal economic and other successes in recent times, and there are clear parallels between the achievements of the two places.
The Fraser Institute, moreover, in its “Economic Freedom of the World 2021 Annual Report”, again ranked Hong Kong as the world’s freest economy, which was no mean feat, given the problems of the recent past. It shows, I suggest, that the city’s fundamentals remain sound, including, for example, its free trade policies, its banking and financial services, its foreign exchange market, its free flow of capital, its stock exchange (the world’s fourth largest IPO fundraising market in 2021), its aviation facilities and container port, and its role as the world’s largest offshore renminbi business center. It also enjoys excellent connectivity with the Chinese mainland and the rest of the world, and this is not about to change, far from it.
As Hong Kong’s future success and prosperity are closely linked to national development, far greater integration is inevitable, particularly in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), where, together with Shenzhen, it will be a “core engine” in powering cross-border trade, start-ups and investments. Under China’s current Five Year Plan (2021-2025), Beijing is supporting Hong Kong as it strengthens its traditional endeavors, including international finance, shipping and trade, but it is also encouraging it to diversify into other areas, which includes becoming an international innovation and technology center. As things stand, Hong Kong, which provides China with a window on the world and acts as a bridge for foreign investment into the mainland, is often described as a “super-connector”, and this is clearly as good a status as any to have at a time when China is on the cusp of becoming the world’s largest economy.
The foundations for this were laid back in 2003, by CEPA (Mainland and Hong Kong Closer Cooperation Partnership), which opened up early market access to the mainland for local and foreign companies. The more recent CEPA amendments have made things easier for the services sector, particularly for service suppliers and professionals wishing to establish enterprises on the mainland, and this will certainly help to facilitate greater integration between Hong Kong and the GBA. Whereas business people have been dealing with the Chinese mainland for many years, we will now see people from other walks of life, including IT experts and lawyers, becoming increasingly engaged, and I feel sure that fortune will favor the brave.
Indeed, after the National Security Law and the electoral reforms, the pace of economic integration will undoubtedly accelerate, and this will open up business opportunities for Hong Kong. In Shenzhen, where an infrastructure boom is underway, the Qianhai Cooperation Zone is slated for completion by 2025, and its development plan is geared to boosting Hong Kong’s technological and business ties with it. Since 2010, Qianhai has developed as a base for strengthening cooperation between Hong Kong and Shenzhen, and preferential measures have been introduced for Hong Kong businesses and people. By 2020, over 10,000 Hong Kong enterprises had registered in Qianhai, while over 100,000 of its permanent residents had conducted commercial activities there or taken up employment. On September 6, 2021, moreover, the Qianhai Plan was unveiled, and this will expand the zone by seven times. The plan contemplates institutional innovation, opening up, and the development of modern service industries over the next decade, with Hong Kong’s involvement being pivotal. The expanded Qianhai zone will be 1.5 times larger than Hong Kong Island, and it is expected to draw heavily on Hong Kong’s professional services.
One notable development to date, often overlooked, has been the progress of Qianhai’s judicial system. It allows, for example, Hong Kong, Macao, Taiwan and foreign enterprises that are registered in Qianhai to agree, when entering into civil or commercial contracts, on the choice of applicable law with the counterparty, with Hong Kong law being an option. In addition, the Qianhai Cooperation Zone People’s Court, established by the Shenzhen Court of International Arbitration, is adopting international commercial rules and allowing Hong Kong, Macao, Taiwan and foreign legal professionals to provide arbitration services. As of May 2020, mediators from Hong Kong had mediated 617 commercial disputes, while mediators from Macao, Taiwan and elsewhere had mediated 35. This, I suggest, is very good news for any companies planning to take advantage of Qianhai’s burgeoning opportunities, but this is by no means all.
In his election manifesto, John Lee also highlighted the need for Hong Kong to join the Regional Comprehensive Economic Partnership (RCEP), as soon as possible, and the chances of this happening appear to be good. In January 2022, Hong Kong applied to join the RCEP, and its 15 members, including Singapore, are already among its major trading partners, accounting for over 70% of Hong Kong’s total merchandize trade in 2021, and about 60% of its total trade in services and total investments (including inward and outward direct investment) in 2020. If, as we hope, Hong Kong joins the RCEP in the fairly near future, it will help to consolidate its position as a global financial center, while integrating it further into the regional industry chain.
In addition, Hong Kong’s goods, enterprises and services industry will stand to benefit from the RCEP regime, including rules of origin, tariff concessions, market access commitments and streamlined customs procedures, and this will lower trading costs for businesses and enhance competitiveness. Upon RCEP accession, Hong Kong would commit itself to more opening up, thereby attracting more inward investment from other members, and increased regional trade in services and electronic commerce will create more business opportunities in Hong Kong. It is, therefore, clearly important for Lee’s new government and the business community to plan together in the near future on how best to maximize the prospective benefits of RCEP membership.
In July 2021, after the US President, Joe Biden, issued his “Hong Kong Business Advisory”, which warned US companies of the dangers of doing business in Hong Kong, the American Chamber of Commerce in Hong Kong, to its credit, made its position abundantly clear. It explained that “this city has a crucial role to play as an international business hub”, and that it remained “a critical and vibrant facilitator of trade and financial flow between the East and West”. On January 18, 2022, moreover, AmCham disclosed, following a membership survey, that 41 percent of firm leaders were optimistic for the city’s business outlook, that 29 percent planned to expand their investments over the next two years, and that Hong Kong was “seen by the majority to be competitive as a global hub”. The AmCham president, Tara Joseph, commented that “Hong Kong has always renewed and refocused after challenging times”, and she was absolutely right. This is why, for example, the International Monetary Fund, in June 2021, declared that Hong Kong’s financial system remains resilient to future financial shocks and crises, pointing out that “the banking sector remains well capitalized, profitable, and non-performing loan ratios remain low”. With its sound fiscal policies, robust institutional frameworks and market infrastructures, it seems to me that Hong Kong has a sound financial infrastructure as it embarks upon the next 25 years.
As those who know Hong Kong well can confirm, its fundamental strengths have seen it through good times and bad. Indeed, the director-general of InvestHK, Stephen Phillips, has recently explained that these include a business friendly environment, a convenient geographical location at the heart of Asia, an attractive tax regime, a free and open market for capital and information, and a common law based legal system that is ideal for an international legal and dispute resolution center. He could also have added that the city is also one of the safest in Asia in which to live and work. Given these attributes, Beijing continues to see Hong Kong as the country’s window to global capital and, as China’s economy becomes the world’s largest, I would have thought that this is obviously the place to be. In 2016, the former governor, Chris Patten, said “nobody has ever made money betting against Hong Kong, and Hong Kong usually comes out on the right side of the argument, and certainly on the right side of history”, and, for once, he was quite correct.
In the short term, however, it is vital for Hong Kong to open up its borders to international travel as soon as possible, as it is its very connectivity that makes the city so important for China’s development. A global financial center requires openness, or else it will lose out to others. I very much hope the new government will be urgently reviewing its options, as normal business activity must resume. Once this is achieved, I have great hopes for the long term, and it is reassuring that Beijing has now indicated that it expects the “one country, two systems” policy to continue after 2047. This, after all, is what Deng Xiaoping always envisaged, and it is heartening news not only for the people of Hong Kong, but also for the world of business.
Grenville Cross is a senior counsel and professor of law, and was previously the director of public prosecutions of the Hong Kong Special Administrative Region.
The views do not necessarily reflect those of China Daily.
HONG KONG NEWS