Employees caught in the middle as China pressures businesses over Hong Kong

[HONG KONG] As Hong Kong seethes with protests against China's rule, Beijing is increasingly pressuring the business world to take its side. Businesses, both global and local, are falling in line - and their employees are caught in the crossfire.

The most dramatic example came on Friday, when Rupert Hogg, the chief executive of Hong Kong-based Cathay Pacific Airways, resigned in the face of Chinese pressure after some of the airline's workers participated in the demonstrations.

Now, global accounting firms are coming under the same pressure.

The Big Four firms - PwC, Deloitte, KPMG and Ernst & Young, now known as EY - put out statements distancing themselves from a full-page ad supporting the demonstrations that appeared in Hong Kong's Apple Daily newspaper on Friday. The ad was signed and paid for by a group of anonymous employees of the firms.

"We will never fear or compromise with injustice and unfairness," the text of the ad read.

In response, PwC declared that the ad "does not represent the firm's position," adding, "We firmly oppose any action and statement that challenge national sovereignty."

It is not clear whether the companies' statements will be enough. The Global Times, a tabloid controlled by the Chinese Communist Party, has urged the firms to "fire employees found to have the wrong stance on the Hong Kong situation".

Mainland Chinese internet users have warned them against "becoming the next Cathay Pacific". David Webb, the publisher of the financial and corporate governance website Webb-site in Hong Kong, said Mr Hogg's resignation was "shocking and shameful," adding that "it's an illustration of the influence that can be brought to bear by the mainland government on Hong Kong businesses."

"I think it would have all the CEOs of the major companies looking over their shoulder and wondering whether they will be next to be held accountable for the actions of their employees," he said.

For Hong Kong's workers and businesses, that means growing tensions in the workplace, a perhaps familiar feeling in places like Google and Amazon where workers have used social media and other platforms to take a more activist stance.

Joseph Lai, a 46-year-old employee of a Chinese manufacturer who marched in Hong Kong's mass demonstration on Sunday, said he no longer tries to make his mainland colleagues understand why people in Hong Kong are unhappy. But he said he was not worried about what might happen if his bosses found out that he was taking to the streets.

"In that case, I'll look for another job," he said. "If we don't come, how can we say we're Hong Kong people?"

China's biggest threat is also its greatest promise: a vast market of 1.4 billion people and an economy that, while slowing, is still growing at a pace that most countries would envy. For global companies like Cathay, lack of access could be devastating.

Earlier this month, the Chinese authorities forbade Cathay employees who participated in protests to do any work involving flights to mainland China and demanded to see lists of workers who fly in or over its territory. The mainland accounts for nearly a quarter of Cathay's destinations. Still more of its flights go over Chinese airspace, which would mean expensive rerouting if it did not comply.

Its main shareholder, Swire Pacific, is one of Asia's largest conglomerates, with extensive interests in China including property, beverages and trading. Air China, a state-run airline, also holds a significant Cathay stake.

China wields tremendous economic power over Hong Kong. It accounts for half of the territory's trade, according to government statistics, as Chinese exporters take advantage of its traditionally low barriers to other countries.

China provides about a quarter of all foreign investment in Hong Kong directly, and probably much more when money that flows through tax havens like the British Virgin Islands is counted.

The mainland supplies more than a quarter of Hong Kong's electricity and most of its drinking water. More than three quarters of its tourists come from the mainland.

On the other hand, Hong Kong's importance to China has dwindled, but Beijing still needs it as a financial hub. Most foreign investment into China flows through the territory. Mainland Chinese companies also raise money through Hong Kong, where global investors have put US$2.6 trillion in Chinese company stocks.

Beijing has warned that the protests threaten Hong Kong's future prosperity. On Sunday, it said it approved a plan to further open up the economy of Shenzhen, a booming city just across the border from Hong Kong, suggesting that it wants to increase competition between the two cities.

For years, businesses in Hong Kong have been able to prosper by staying out of politics. But under China's current leader, Xi Jinping, the Communist Party has amassed more power and intruded into more parts of Chinese life, including business. It has also taken an increased interest in Hong Kong affairs since protests in 2014, known as Occupy Central, that also challenged China's policies toward the territory.

Mainland Chinese consumers and businesses, often egged on by state media that criticises any foreign business that does not appear to show the country proper respect, have also emerged as forces in their own right.

The result has been a near-daily campaign to prod companies like Versace, Coach and Givenchy to apologise to China for implying in their products and websites that Hong Kong was a separate country.

On Weibo, the Chinese social media platform, mainland Chinese internet users started a #BoycottCathayPacific hashtag, which was viewed half a million times.

Analysts at the state-owned Industrial and Commercial Bank of China put a "strong sell" rating on the stock because of what it called "poor crisis management."

On the other hand, companies risk going too far in placating China. When actress Liu Yifei last week publicly supported the Hong Kong police, protesters called for a boycott of "Mulan", the live-action Disney film set to be released next year in which she will play the title character.

While Cathay has been the most visible example of pressure on Hong Kong business, it was by no means the first.

In early July, the maker of Pocari Sweat, a Japanese sports drink popular in Hong Kong, pulled its advertising from TVB, Hong Kong's dominant broadcaster, which has been accused by protesters of having a pro-Beijing bias. But it said in two subsequent statements that it upheld the "one country, two systems" principle.

Last week, property tycoon Peter Woo, the former chairman of the real estate company Wheelock and its subsidiary Wharf Holdings, criticised protests that had turned violent. His comments came after Hu Xijin, the editor-in-chief of The Global Times, attacked one of Woo's shopping malls for "kowtowing" to the protesters by allowing them to remove the Chinese flag from a flagpole and throw it into the sea. Hu also criticised the mall for barring the police to avoid the sort of clashes that have taken place at other shopping centers.

The pressure on the Big Four accounting firms illustrates how the global companies can become targets, too.

The employees' ad that ran in the Apple Daily newspaper Friday resulted from a crowdfunding effort that raised US$9,873 from 264 people, according to the crowdfunding website GoGetFunding.

It inflamed many mainland Chinese nationalists online who were already angry at PwC for what they saw as an initial weak response to the protests.

An article on Aug 5 in the Global Times quoted the company as saying it respects the "people's right to freedom of speech." The newspaper called it "fence sitting."

This was not the first time that the employees of the Big Four accounting firms have broken ranks with their bosses. In 2014, during the Occupy Central protests, the companies published an ad saying the protests would harm Hong Kong's status as a financial centre.

The employees responded with another ad in the Apple Daily that said, "Hey boss, your statement doesn't represent us."

For any company, restraining employees from speaking out can be tough. But in Hong Kong, it could become a necessity.

"For any of these organisations, it is necessary for them, within the framework of the law, to constrain or to require their employees not to touch the bottom line of the law," said Wang Jun, chief economist at Zhongyuan Bank, a commercial bank based in central China. "I think that is very important."

NYTIMES