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The only part of Hong Kong’s new safety regulation that considerations trade essentially the most

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Since Beijing enacted the new national security law tailor-made for Hong Kong on June 30, the business community in the city has expressed concern over the legislation that gives authorities broad power to crack down on acts seen as threatening national security.

Businesses’ high level of concern is due to the “ambiguity of the law,” said Tara Joseph, president of the American Chamber of Commerce in Hong Kong (AmCham). The law is written vaguely enough that any criticism of the Chinese government or actions that penalize China could potentially violate its terms.

The broadly-defined offenses mandate harsh sentences. Individuals could face life in prison and businesses supporting sanctions against China could get their business permits revoked.

“Even though the law has been enacted and translated, there’s still a lot of question marks about what this means, what areas are a red line, a no-go zone, and what aren’t,” she said. “It’s not as well drawn up and as well explained as to make people feel comfortable living under that law.”

Even though 76% of respondents to a new AmCham survey say they are anxious about the law, Hong Kong’s business community is not yet taking concrete steps in response, such as moving operations out of the city. In an Eastworld Spotlight conversation with Fortune’s Clay Chandler this week, Joseph discussed the key findings of the survey and the challenges Hong Kong faces as it remains caught in the clash between the world’s top superpowers, the U.S. and Beijing. The conversation below has been edited for length and clarity.

Fortune: Commentators have deemed Hong Kong ‘dead’ many times; it’s been in a constant state of change since the 1997 handover. Is this time—with the national security law—different?

Tara Joseph: It is different, and people are calling this now “the new normal” in terms of the national security law that’s been passed. In my view, it’s anything but normal in terms of what we’ve been used to in terms of how we lived under “one country, two systems” in Hong Kong. The new national security law brings a lot of issues to the floor in terms of values [such as rule of law, transparency, and free flow of information,] and it’s a big change from how Hong Kong has operated before.

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There are areas that companies haven’t had to deal with before that they may now have to contend with. [Companies] will be looking at areas like data security, about what their employees say about, [or] what does it mean to have ‘foreign collusion.’ They will be looking at a lot of areas where people didn’t feel uncomfortable before in what was a dynamic, gateway city. So it’s a different tune for sure. 

What are the key findings of the AmCham’s survey about the new law?

The level of concern has risen with the enactment of the national security law… and the main reasons were the ambiguity of the law. Even though the law has been enacted and translated, there’s still a lot of question marks about what this means, what areas are a redline, a no-go zone, and what aren’t. It’s not as well drawn up and as well explained as to make people feel comfortable living under that law. 

Another aspect is there’s a feeling that parts of this national security law undo the rule of law in Hong Kong, which is actually the key and the main factor why many international companies operate in Hong Kong. It’s an internationally recognized system of law, there is due process of law, etc. 

Are businesses considering leaving this city?

More than half said they weren’t planning to leave Hong Kong yet. Departures from Hong Kong, if they were to happen, would be in the medium- to long-term. There is still a wait-and-see [attitude] as to how this new law is going to affect companies. 

There’s so much going on in the world right now, between the US-China geopolitical issues, a trade war, COVID, and recession. We’re not exactly at a point where people are gonna make snap decisions to begin with. And also for many U.S. companies and other multinationals operating in Hong Kong, some of these firms have a thousand people. You don’t just pick up and go. This type of planning, back-up planning, will take months if not years to really follow through properly.

Another really important aspect of this [is] that there’s no real replacement… for Hong Kong in the rest of Asia. People might look at Singapore and say well rule of law, colonial system, a system we understand because it’s in English. But the size of the capital markets in Hong Kong, the flow of money that takes place here, is one of the largest in the world. Singapore can’t just pick that up in a heartbeat. Shanghai was supposed to become a major financial center for the world, that hasn’t happened. And Hong Kong is really important as a financial center. So this is an issue that may keep companies here for a while to come. 

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What kind of data security concerns should foreign businesses in Hong Kong have over the new national security law?

[I]nternational financial institutions here [have] a lot of client data, and Hong Kong is a place where there is free flow of information. People were pretty comfortable setting up their systems here. Now the question is whether that data is at risk. We do not have the cybersecurity law in Hong Kong the way it’s been passed in mainland China. But with this new national security law, could someone walk into a major corporation’s office and say, “I’d like to see that data now, please.” Or is it possible for someone to actually take that data one way or another? These are issues that maybe have been thought of but are suddenly being explored in depth and in detail.

The national security law says explicitly that any individuals or organizations supporting sanctions against China will be found in violation of the law. How should financial institutions respond to U.S. sanctions targeting Chinese officials?

It is very difficult and [businesses should] really be careful about how they’re handling different people’s money, and maybe causing them to, in a sense, take sides based on whether they’re an American company or a Chinese company. 

Hong Kong has suddenly become smack in the middle of a disagreement between the U.S. and China. In some people’s mind, it’s become the New Berlin where we’re really at the edge of a difficult point and a difficult confrontation, and that could have a very difficult impact on business.

Another aspect that worries people is the extraterritorial aspect of the law. If you’re a company operating in Hong Kong and something happens in Hong Kong that’s deemed to affect the national security of Hong Kong, your company could be liable outside of Hong Kong.

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So I guess businesses are really going to have to ask the question over the coming few months about how valuable Hong Kong is as a financial center… Are those rewards worth the risk? I think what everyone realizes is the risk is higher than it used to be.

Hong Kong used to essentially feel like it was no risk, a no risk zone; that’s changed in the so-called new normal, and that happened almost overnight. It’s going to take a while for people to digest it and recognize how difficult it actually will be.

Looking at the Hong Kong issue as it factors into U.S.-Beijing relations, is there any sense in Washington that the U.S. might consider de-escalating the confrontation with China?

I really have not heard de-escalation at all. Hong Kong is fully caught up in the U.S.-China relationship. I think there is a very strong sense [in Washington] that China has stepped over its bounds in terms of Hong Kong and encroached on Hong Kong in a way that’s not acceptable. It would not be surprising to see further actions take place very soon, sanctions on Chinese, potentially Hong Kong officials. 

[Hong Kong] is just a dynamic and amazing business city. Can we crawl back from it at this point? The jury is still out, but the way in which the U.S.-China relationship is going right now, whether it’s a Trump presidency or a Biden presidency, I think it’s becoming more and more difficult every day. 

This story is part of Eastworld Spotlight, a series of conversations on matters of business, tech, and finance with executives, experts, entrepreneurs, and investors in Asia. Subscribe to Fortune’s Eastworld newsletter to get them in your inbox.

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