Cosco (Hong Kong) Group

Damaging blow to our lifeblood

PUBLISHED : Sunday, 04 September, 2011, 12:00am
UPDATED : Sunday, 04 September, 2011, 12:00am

The Basic Law is supposed to be a shield for Hong Kong, one which gives it autonomy in all things except foreign affairs and provides for its own courts to interpret that law. But Beijing and its local 'united front' chauvinists are doing their best to undermine it in various ways. The decision last week of the National People's Congress to enforce Beijing's concept of sovereign immunity on the city will have a lasting impact on Hong Kong's role in international commerce - its main reason for existence.

The decision was expected once the Court of Final Appeal, by a narrow vote, elected to refer to the NPC the matter of sovereignty immunity in a commercial claim against the Democratic Republic of Congo.

Perhaps fittingly, the decision came the same week as it was learned that one of China's largest state-owned enterprises, Cosco, was reneging on bulk carrier charter contracts with a Greek ship owner which led to the arrest of some Cosco ships in foreign ports. It was not as though Cosco, an arm of the Ministry of Communications, was unable to pay; it has access to any amount of funds from the state or from state banks. It was refusing to pay simply because it was losing money on charters signed in 2008. It may have a triple-A credit rating but what is that worth if it thinks that being big and Chinese and state-owned means it can tear up contracts?

In the light of the NPC decision, it is clear that no one is going to be bothering to arrest a Cosco ship in Hong Kong. Better wait until it docks in somewhere like Singapore, or Hamburg, or Cape Town. And if Cosco is assumed to be immune then, presumably, state-owned shipping lines from other countries can make similar claims.

Some lawyers anxious to ingratiate themselves with Beijing have praised the decision - made unanimously by the 157 members of the NPC Standing Committee - as clarifying the situation. In fact it does little of the sort. In the Congo case, the state itself was the defendant though the case was commercial. A Chinese state company stood to lose as well, as it actually possessed some of the assets claimed by the creditor.

What remains up in the air is the key issue: does the interpretation apply to commercial entities, trading as companies, which happen to be majority-owned by a government ministry? Or was the Congo case an unusual and exceptional case because there was no corporate intermediary?

That remains unclear and, as a result, lots of contracts which would otherwise have been signed in Hong Kong and subject to Hong Kong law will be signed elsewhere. That will be a loss for Hong Kong. Worse, there are also many deals which for practical purposes cannot be signed anywhere but in Hong Kong, so the risks of not being able to get satisfaction from the local courts will add to costs and deter business.

This is not just theory. The Cosco refusal to honour charter contracts had immediate effects on the whole shipping industry in which China plays a large and increasing role as charterer, mostly of bulk carriers and tankers. Shipping stock prices fell, borrowing costs for the industry rose and owners with charters to Chinese state companies received worried calls from their bankers. Latest reports say Cosco is paying up, probably under orders from more sensible people in higher positions in Beijing.

But the incident will not be forgotten by those wondering where and under what legislation they should be signing contracts. Indeed, it is sad that this is just the kind of issue on which the mainland could be learning from Hong Kong, with its long history of trade and reputation as a safe legal and banking haven and able to separate commercial from national issues. Hong Kong has long been a centre not just for deals with China but for deals involving traders in countries, particularly in Asia, which do not offer robust legal systems and thus prefer to sign deals according to Hong Kong law, even when the trade and investment does not pass through the city. That is what being an entrep?t is all about.

But self-styled patriots like to give the impression that the law is something foreign, an imposition which is at odds with Chinese culture. One such outspoken person is Lau Nai-keung who is a member of the Basic Law Committee of the NPC Standing Committee. Such is his ethnocentric disregard for the law that he has proclaimed that 'no matter how the court rules', it would not be acceptable for any domestic helper to be accorded right of abode. So, instead of the law, we should be relying on 'the Chinese way, which relies more on common sense, empathy and inclusiveness' - all traits, as we all know, of the Chinese Communist Party of which Lau is such a fervent supporter, and all traits especially note- worthy in regions where there are large non-Han minorities.

It is no wonder that decisions undermining Hong Kong's commercial position are made so readily, when interpretation of the Basic Law is in the hands of the likes of Lau and his fellow unelected delegates on the NPC Standing Committee.

'For the Chinese', Lau tells us, 'legality is no more than common sense', which clearly in his case appears to be the same as the party's current decrees underpinned by ethnic solidarity against non-Chinese. What a way to represent 'Asia's world city' to the nation at large. Lau's utterances remind me of those by Malay xenophobes who think that all Chinese Malaysians should go back to where their ancestors came from.

Philip Bowring is a Hong Kong-based journalist and commentator