IN rejecting Hong Kong journalist Xi Yang's appeal against his Draconian 12-year sentence for ''stealing state financial secrets'' the Beijing Supreme People's Court has shown itself neither open nor merciful. The hearing was held in secret, apparently in some haste, and is widely thought to have been no more than a formality. Among those who know the Chinese judicial system, the fear is that the rejection was a foregone conclusion. The fact that the verdict was later announced to an audience of 200 people outside the court suggests a cynical attempt to satisfy some of the legal niceties which were so blatantly ignored after the original sentence handed down by the Intermediate People's Court last month. Then, much of the outcry was based on the fact that the trial was held in secret, the charges not publicised and the verdict neither announced nor, as Chinese law requires, posted outside the court. But, at bottom, the public announcement was no more than political showmanship designed to deflect criticism of the procedures without addressing the substance of Hong Kong's objections. The fundamental issue is not how the case was handled, but whether Xi's actions constitute a criminal act at all, and whether anyone should be sentenced to 12 years for publicising revised interest rates or changes in policy on international gold transactions in advance of their official announcement. The reason the community is united in its anger at the way the case has been handled is not only its objection to the severity of the punishment, but the vagueness of the charges and the lack of definition in Chinese law at what constitutes a state secret. From the limited information available, what Xi did seems very much to fall within the average Hong Kong reporter's definition of normal journalistic endeavour. That is to say he sought and received information and published it. Failure to make clear what is or is not out of bounds, and the severity of the punishments handed out to those who overstep this invisible and moveable mark, are a clear danger signal to Hong Kong reporters that they will be subject to arbitrary and heavy-handed punishment for doing their jobs to the best of their abilities. Worse, there is the suspicion that Xi was punished with such severity because he was a mainlander who did not yet qualify for permanent Hong Kong residency. Foreign journalists, and probably also Hong Kong reporters, would almost certainly have got away with nothing more than a reprimand or, at worst, an expulsion. What China can do to its own citizens before 1997, it will feel at liberty to do to Hong Kong people after 1997, putting at risk the promises of press freedom contained in the Basic Law and the Joint Declaration. What has troubled the business community, including many pro-China figures, however, is that the information concerned was the kind of routine data businessmen investing in China rely on to make sound decisions. By denying them access to such basic information China is damaging their investments and its own development. China still has opportunities to rethink its position, provide a fuller explanation of Xi's case, if possible reverse the verdicts in the Chinese People's Supreme Court and set the parameters more clearly and less restrictively for the future. If it fails to do so, it risks damaging not only media confidence and freedom in the territory, but also the Hong Kong and international business confidence on which its economic success is so heavily based.