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2019-20 Hong Kong protests (Image: Flikr/Studio Incendo)

Beijing’s swift action to tighten its grip on the once-freewheeling financial centre of Hong Kong has handed Australia yet another problem in its increasingly fractured relationship with the People’s Republic of China.

To make matters worse, US Secretary of State Mike Pompeo wants to remove Hong Kong’s special status for trade and investment.

The Hong Kong Special Administrative Region that Xi Jinping appears determined to make not-quite-so-special is home to about 100,000 Australians as well as about 6000 Australian-owned businesses, according to the latest figures from the Department of Foreign Affairs and Trade.

While there are a handful of Australian corporations in the city — led by financial services group Macquarie, which has its Asia headquarters high up in Hong Kong’s gleaming International Financial Centre — most Australian businesses in Hong Kong are small to medium enterprises.

In turn, the majority of these are trade and service businesses run by expatriate Hongkongers who have gained Australian citizenship.

Indeed, the face of Australian business in Hong Kong has become increasingly Chinese in recent decades.

A quick glance at the Platinum Partners of the Australian Chamber of Commerce — companies that pony up more cash each year to be front and centre of the group’s activities — tells the tale.

Along with Macquarie are ANZ and the Commonwealth Bank — which has a major research and development hub in the city — Telstra and former Australia construction group Leighton (now Dutch owned) as well as a laundry-list of large Hong Kong companies, including Li Ka-Shing’s CK Infrastructure, CLP Holdings Limited, Chow Tai Fook Holdings and Asia Miles.

None of this obviates the real problem for Australians, and probably more particularly Australian businesses as Beijing makes official its new status: that new laws curbing any kind of dissent suddenly make Hong Kong as risky as the mainland where the law can be applied capriciously.

To underscore these fears, business groups and diplomats as well as human rights groups have spoken out against the new laws. It may be the last time they can.

Beijing and the compliant Hong Kong government are striving to reassure business that nothing will change; the unspoken pact is more control and more certainty for business in the shape of no more disruption on the streets.

But Beijing has form in quickly taking the next step, and the logical conclusion is a deteriorating of the Hong Kong legal system that underpins the business environment.

The latest stoush between the Xi Jinping administration and the latest and least diplomatically savvy iteration of the Coalition government happens to come after last year’s ignominious signing of a so-called “free trade” agreement between Australia and Hong Kong.

This was not worth the paper it was written on at the time because it was fairly clear that, a) Beijing’s embrace was tightening quickly; and, b) Chinese firms rampantly use Hong Kong as a conduit point for trade. It’s impossible to separate what’s from China and what is from Hong Kong.

Trade and investment between Australia and Hong Kong is healthy. In 2018-19, Hong Kong was Australia’s 10th most important destination for merchandise exports at $8 billion, and seventh-largest services export market at $3 billion.

Hong Kong was the fifth largest source of total foreign investment, with a stock of $118.8 billion at the end of 2018. Hong Kong was also the 11th largest destination for Australian investment, with a stock of $52 billion at the end of 2018.

Now, the FTA  looks even more like a fairly sad joke. Suddenly, too, the message from Canberra to Australian exporters could not be clearer: diversify, diversify — away from China.

And yes, that now quite explicitly means Hong Kong too, especially with the US set to use Hong Kong as a pawn in its ongoing battle with China.

Meanwhile, as Australians in Hong Kong nervously watch events unfold, many are preparing for something that has for a few years now seemed inevitable — relocating or returning to Australia.

The new security laws have triggered talk of mass migration both for Hongkongers with foreign passports — the US, UK, Taiwan, Canada and Australia being the main destinations.

How will the Australian government handle such an influx, and will China use it to Beijing’s advantage?