‘Expats’-free zone ahead…

…but if you must.

David Webb on the government’s decision not to release the findings of its Task Force on Enhancing Stock Market Liquidity…

…we awaited [the task force members’] report with keen interest. Would they, for example, recognise that the dollar amount of liquidity is a function of company valuations, which in turn reflect the discount applied by investors for the lack of disclosure, lax reporting deadlines, unbounded capital-hoarding, lack of class action rights, fake INEDs elected by controlling shareholders, and so forth? Would they perhaps recognise that racing to the bottom by allowing listings of second-class shares with weaker voting rights was the wrong direction? Would they recognise that introducing a higher-trust framework is the patriotic thing to do, because the resulting higher equity valuations would lower the cost of capital for the nation’s issuers and make the PRC economy more competitive?

…Hong Kong, unfortunately, is back-tracking on disclosure too, and the TFESML report has not been published. So we filed a request for the report under the non-statutory Code On Access To Information (HK still lacks a freedom of information law and a Government archives law). On 23-Jan-2024, the Secretary for Financial Services and the Treasury (via a minion) came back to us, rejecting the request. Their reasons for the rejection, if genuine, should ring alarm bells. 

Also spooking some investors – a Mainland-Hong Kong reciprocal agreement on enforcement of civil and commercial judgements comes into effect… 

“While it is essential to maintain a clear demarcation between the legal system of the Mainland and that of Hong Kong, it is necessary to construct linkages between the two systems so that the unique advantages offered by Hong Kong’s common law system may be fully utilised to serve the national interests of China as a whole,” Lam told an audience of around 200 people at the Hong Kong Convention and Exhibition Centre.

…Investors have been concerned about the protection of their assets in Hong Kong and the impact of the ordinance on the city’s common law system, according to wealth managers who spoke with Nikkei Asia in December.

But Lam on Monday said there was a need to strike a balance between reciprocal enforcement and the protection of rights, saying that “only judgments obtained properly and fairly will be recognised and enforced [in Hong Kong].”

The Evergrand winding-up case could be a test of this new arrangement, but maybe won’t be (it doesn’t cover bankruptcies)…

Practitioners question whether any decision by Chan in the Evergrande case will be carried out in the mainland. Lawyers told Nikkei Asia that the response by Chinese courts so far suggests the joint insolvency regime will have little long-term impact. One insolvency lawyer described the arrangement as “political goodwill” by Beijing.

Jonathan Leitch, a restructuring partner at Hogan Lovells, said mainland Chinese courts reserve the right to refuse a request from Hong Kong if it would “offend public order or good morals.”

“The PRC (People’s Republic of China) courts have reserved discretion to refuse recognition if the PRC court considers there are ‘other circumstances’ which do not warrant recognition,” Leitch said. “How widely this discretion will be exercised is not really fully known, as there have been relatively few cases where the protocol has been invoked.”

And Eric Yan outlines his expectations of the Article 23 local NatSec law. Key points: a brief consultation period will confirm that there is little scope for amendment; look for confluence with Mainland laws (Anti-Foreign Sanctions, Foreign Relations, Anti-Espionage); look for vague definitions (‘foreign agent’, ‘political organization’); look for restricted due-process and other rights, in breach of international HR conventions. We will find out more today. 

On YouTube, a short BBC News item on what the Jimmy Lai trial shows about press freedom and rule of law in Hong Kong.