International investors should be very worried about the Hong Kong government's move to ban face masks. It isn't whether I'm allowed to wear my "V For Vendetta" Guy Fawkes mask to the next protest that's an issue. It's that the government can now do whatever it wants, unilaterally.
The mask law, ordered into being on Friday, may be the "beginning of a draconian crackdown," shareholder activist and former investment banker David Webb says.
Now that Chief Executive Carrie Lam has taken that step, she can unilaterally block the Internet, censor the media, stop bank withdrawals, curb stock market sales, keep people in jail for extended periods without charge, or take whatever action she decides is necessary in an "emergency or public danger."
Kyle Bass, the U.S. hedge fund manager and chief investment officer at Hayman Capital Management, noted on his Twitter account (well worth watching, by the way) that "failed leader Carrie Lam can now officially confiscate bank accounts and assets without recourse. The HK legal system is essentially gone."
The embattled and highly unpopular Lam invoked the Emergency Regulations Ordinance from 1922 so that she could implement an anti-mask law without the need to go through the normal process of passing a bill into law. She can use that colonial-era ordinance to "make any regulations whatsoever" that she "may consider desirable in the public interest."
To combat protests that are fundamentally about making sure Hong Kong remains free, unlike mainland China, she has started to act exactly as the Communist Party in Beijing would. Order something, and it will be so. The pro-Beijing administration enforces laws only when they suit its purposes; they appear to be backed by a once-impartial judiciary that keeps taking its side.
"We are moving away from the rule of law toward rule by law," Alan Leong, chairman of the pro-democracy Civic Party, explains in an editorial in The New York Times.
Whether on purpose or by accident, Lam has created an even greater emergency. Demonstrations, arson and vandalism caused the city's subway to shut entirely on Saturday, the morning after the unmasking occurred. Lam will undoubtedly use this as further justification to crack down harder. Agent provocateurs from the police force have been disguised as protesters to start the firebomb throwing.
"We already knew that 'One Country, Two Systems' was dying; now we know that the rule of law is dying too," Leong concludes.
Is it an emergency, or not?
The emergency ordinance was introduced almost a century ago, in 1922. It hasn't been used in Hong Kong since 1967. That's when a violent pro-Communist bombing campaign during China's Cultural Revolution killed 51 people in Hong Kong, including two children who died picking up a bomb dressed as a present.
Lam, who banned face masks three days after her visit to Beijing to celebrate the 70th birthday of the People's Republic of China, insists the city is not in a state of emergency. But she has invoked the state-of-emergency law.
Webb, the shareholder activist, says the Emergency Regulations Ordinance is probably unconstitutional. It violates the Basic Law, Hong Kong's mini-constitution, which went into effect in 1997 when the United Kingdom handed Hong Kong back to China.
The Basic Law says only the Legislative Council, Hong Kong's congress, can make laws. It also says that older laws that contradict the Basic Law are null and void. All 24 pro-democracy lawmakers have challenged Lam's use of the ordinance to bypass them and Hong Kong's regulatory process. I doubt they'll get very far.
A student from City University and an unemployed woman became the first people charged with violating the new law. They can be punished with a fine of HK$25,000 (US$3,187) or a year in jail.
I haven't been wearing a mask to any of the protests that I've attended. I don't see the need. But I'll consider it now...
Money on the move
Webb notes that the anti-mask law may well violate Hong Kongers' right to privacy, too. We are promised freedom of speech and freedom of assembly, and people exerting those rights legally should be free of retribution from employers in Hong Kong, where airline Cathay Pacific (CPCAY) has fired people for pro-demonstration social media posts. They also face Chinese border guards if they try to get into mainland China's facial recognition fortress.
The drip, drip, drip away of freedoms in Hong Kong, coupled with the crackdown on the pro-democracy protests, is encouraging Hong Kongers to move their money abroad. Bass, the hedge fund manager, has said anyone with assets in Hong Kong dollars should switch them into U.S. dollars immediately.
One Singapore-based real estate fund manager tells me that private bankers in his home city are inundated with a flood of cash from Hong Kong's well-to-do. The Singapore wealth management business of HSBC (HSBC) , Hong Kong's biggest bank, is surging as clients transfer money.
Goldman Sachs estimates that US$4 billion in deposits previously in Hong Kong dollars has moved into Singapore as of August.
Hong Kong homeowners are looking to hedge their bets with investment in Singapore, while businesses are also looking for backup locations in Southeast Asia's financial hub.
"Landlords and agents are looking like crazy for space for companies and people from Hong Kong," the fund manager in Singapore says.