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26Jun

How The Extradition Bill Can Harm Your Business

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Hong Kong has thrived as one of the pre-eminent centres for investment and commerce by multinational companies. Moreover, as the courts are independent of the plethora of regulations from the mainland, foreign companies have the security to invest there, reinforcing Hong Kong’s pivotal role as a nucleus of finance and commerce on the global stage. 

However, Beijing has become increasingly assertive over Hong Kong in recent years, with the latest tightening of the reins embodied in an extradition bill. The bill, if approved, puts Hong Kong citizens and foreign nationals at risk of being sent to China for trial. This has the capabilities of eroding Hong Kong’s semi-autonomous status and credibility as a regional and international commercial hub.

Hong Kong’s current turmoil reflects China’s insatiable thirst for power, but sheds little light on the impacts on businesses and its neighbouring countries. More importantly, how can it affect your business decisions?

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Fall of the regional hub

The passage of the extradition bill will irrevocably tarnish Hong Kong’s reputation and attractiveness as an international commercial hub. Merchants, both locals and foreigners, will be vulnerable to the charges of corruption or other forms of business regulations in China as bribery remains on the list of offences that could lead to extradition.

Such situations provide an ideal breeding ground for the outflow of businesses from Hong Kong due to the fear of being charged regardless of legitimacy of the crimes committed. This is also worrisome for Singapore’s export and logistics industries given that Hong Kong occupies that top position of our largest export destination with 19% of our total exports at a value of US$60.8 billion

This could potentially lead to the overstocking of inventories for logistics firms and rising inventory costs due to the fall in demand for our exports from businesses situated in Hong Kong. If the downturn sustained, it could lead to the shrinkage of the local logistics scene.

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An unlikely entrant

China’s ongoing tensions with the United States (US) could encourage US to intervene as Hong Kong’s ally. With the escalation of the US - China trade war, the accompanying legislation and regulations will make it harder for Chinese companies to raise capital in the US. Hong Kong will thus be immensely valuable to China as an offshore financial and commercial centre.

Moreover, the United States - Hong Kong Policy Act established by the United States Congress in 1992 gives Hong Kong a special status for international customs and commercial purposes. The Act explicitly empowers the US president to suspend some or all of Hong Kong’s economic privileges should the president determine that “Hong Kong is not sufficiently autonomous to justify treatment under a particular law of the United States”

As the US is currently advocating an aggressive stance against the Chinese government, it heightens the chance for a revocation of Hong Kong’s privileges to occur. The retraction of special economic privileges thus increases the cost of production for businesses and uncertainties in the business environment.

Battle of the Asian tigers

Nonetheless, there is one country who stands to gain from the unrest in Hong Kong.

Singapore, being Hong Kong’s old adversary for crown as the global financial and commercial hub, can finally solidify its position as the unrivalled destination for investments. Businesses headquartered in Hong Kong are starting to relocate their operations offshore, especially to Singapore. This is attributed to Singapore’s strong -and autonomous- legal framework and our friendly terms with China. The influx of businesses such as finance and manufacturing could potentially bolster our commerce and logistics industries.

However, the current situation in Hong Kong has not reached the tipping point for businesses to flood into Singapore. The relocation is more of a stream as opposed to a high magnitude flood.

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What now?

Given our proximity to the epicentre of the disruptions, Singapore is likely to experience severe repercussions should the situation in Hong Kong worsen. 

It is imperative for our businesses, especially those in the logistics and supply chain industry, to possess the capabilities of forecasting future upswings and downturns for the avoidance of losses arising from overflowing inventories.

Partnering with a credible logistics partner thus provides you with the much needed foresight for you to manage the reins of your business.

The pictures used in this article are solely for illustration purposes and do not reflect Roadbull Logistics Pte. Ltd.'s stance on the extradition bill.

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