Report: Investors Exposed to Risk of Human Rights Violations via Hong Kong Stock Exchange

Report: Investors Exposed to Risk of Human Rights Violations via Hong Kong Stock Exchange

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Hong Kong Watch, a UK-based human rights organization, released a report on June 11 warning that investors face significant risks of exposure to human rights violations via the Hong Kong Stock Exchange. The report found a concerning number of U.S. sanctioned entities from mainland China have securities available for purchase by foreign investors in Hong Kong, raising concerns about complicity with the Chinese Communist Party’s human rights abuses.

The report, titled “Risky Business: How Sanctioned Entities Access Capital via Hong Kong,” analyzes recent regulatory and policy changes that incentivized mainland Chinese entities to list in Hong Kong instead of other offshore markets with stricter due diligence standards, such as the New York Stock Exchange.

According to the report, mainland Chinese companies dominate the Hong Kong equity market, comprising 90 percent of new listings and 97 percent of total initial public offering (IPO) proceeds. It also identifies 79 of 117 U.S.-sanctioned entities engaged in securities trading on the HKEX. Of these, 19 are directly listed on the Main Board, while 60 are accessible through the Stock Connect programs with the Shanghai and Shenzhen exchanges. This means that investors in the Hong Kong stock market may unknowingly invest in companies that are involved in human rights abuses or are in violation of U.S. sanctions.

Authored by Thomas Benson, senior research and policy advisor at Hong Kong Watch, the report draws on open-source research to highlight the strategic role of Hong Kong’s equity market for Beijing.

In a press release, Benson said to overseas institutional investors of Hong Kong’s equity markets, “This report illustrates why and how Hong Kong equity markets are of key strategic importance to the Beijing government, and how mainland companies with ties to human rights violations are able to use Hong Kong to access international capital markets and overseas investors.

“We hope that governments and business both heed the warnings contained within this report,” he added.

The report was released on June 11 at the Hudson Institute in Washington, D.C., with upcoming presentations scheduled at the UK Parliament in London and the European Parliament in Brussels later this month.

The U.S. government constantly updates trade restriction lists to target foreign governments, companies, and individuals involved in human rights violations and national security threats.

On March 25, the Department of Commerce’s Bureau of Industry and Security added 80 entities to its entity list, a large portion of which are Chinese companies linked to Chinese military collaboration, further underscoring the risks outlined in the report.

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