HONG KONG -- In the first month since Beijing imposed a sweeping new national security law on Hong Kong, banks in the Asian financial hub have scrutinized their client rosters to reduce the risk of repercussions from China or the U.S.
Joshua Wong, one of Hong Kong's best-known pro-democracy activists, was recently questioned by HSBC over the origins of funds deposited into his account. Although Wong has held an HSBC account for over a decade, the London-based lender has never before made such an inquiry, he said.
Wong suspects banks in Hong Kong have been monitoring social media postings of activists ever since the national security law went into effect on June 30. The legislation outlaws activities that would cause national division or political unrest, and targets financial support received by offenders.
"Our money laundering unit is looking into activists and other subjects with political backgrounds," said an executive at a major bank operating in Hong Kong.
Lenders are not just wary of transactions involving activists. In March, a U.S. bank informed Bernard Chan, the top adviser to Hong Kong Chief Executive Carrie Lam, that the institution was closing his account.
The U.S. passed legislation in July that opens up sanctions against financial groups that deal with individuals involved in violating Hong Kong's self-governance. The penalties include exclusion from dollar settlements, a step that would significantly impact the affected lenders.
Although the action taken against Chan happened prior to the passing of the Hong Kong security bill, it reflects the mood of an industry sensitive to political risks.
Hong Kong financial authorities have repeatedly said banks have little to worry about regarding the security law. The Securities and Futures Commission says it is not aware of any aspect of the legislation that "would affect or alter the existing ways" in which the financial sector operates. The Hong Kong Monetary Authority says the law will not impact normal businesses.
However, the risk of being caught between the U.S. and China is growing for global companies and financial institutions.
Some enterprises have started to respond to the twin pressure. Naver, South Korea's biggest internet services company, has begun to back up user data in Singapore rather than Hong Kong. The New York Times newspaper decided to relocate part of its Hong Kong offices to Seoul.
Meanwhile, China is focusing on bolstering Hong Kong. At the end of June, the government in Beijing launched a pilot program facilitating the cross-border purchase of wealth management products.
"They probably don't want to be told that [Hong Kong's] status as a financial center was downgraded by the national security law," said a financial industry source.
Since April, $14 billion has flowed into Hong Kong, according to the Monetary Authority. Blockbuster initial public offerings by JD.com and other Chinese enterprises spurred this influx.
Ant Group, the financial arm of tech giant Alibaba Group Holding, recently announced plans for an IPO in Hong Kong as well. The aggregate market capitalization of the city's bourse rose to the highest in the world in rankings for July.
Financial transactions with China and the rest of the world will continue to grow, Joseph Yam, the former head of the Hong Kong Monetary Authority, said in a lecture Wednesday. He also said China needs to diversify its fund procurement sources, and that Hong Kong is still strong in that area.
Yam added that the U.S. financial sanctions will turn out to be a double-edged sword, but said he thinks Washington will be wise enough not to take those steps.