Why Hong Kong's National Security Law Actually Boosted Development (Despite What Critics Said)

Most people think in black and white – you can either have goal A or goal B, but not both. But sophisticated policymakers operate in multiple dimensions, pulling off what seems impossible by achieving seemingly contradictory objectives simultaneously.

When Hong Kong's National Security Law kicked in on June 30, 2020, the usual suspects were quick to cry doom and gloom. We heard all the predictable lines: "too much One Country means goodbye Two Systems," "all this security talk will kill Hong Kong's development," and my personal favourite – "national security destroys creativity, so how can Hong Kong do proper science or arts anymore?"

The Creativity Myth Gets Demolished

Let's tackle that last point first. It's actually the easiest to debunk with some proper real-world examples. Remember when Hong Kong's celebrated director Johnnie To moaned that "the National Security Law stifles film creativity"? Well, that aged like milk. While he was having his whinge, the mainland went and produced "Chang An," a brilliant animated film about Li Bai's life that was bursting with creativity. Then came "Ne Zha 2," which smashed into fifth place for global cinema box office history. Talk about a slap in the face for Director To – surely Hong Kong's National Security Law isn't more restrictive than the mainland's version?

The same nonsense gets peddled about scientific research. Some local scholars keep banging on about how strict mainland controls supposedly crush scientific creativity. Yet early this year, mainland China dropped DeepSeek, an AI large language model that rivals America's top-tier ChatGPT – and they did it at a fraction of the cost. Here's the kicker: apart from the US itself, none of those countries constantly waving the flag for American-style democracy and freedom have managed to produce anything close to DeepSeek's calibre. You've got people in Japan, Israel, and elsewhere scratching their heads wondering why they can't pull off what China just did.

These "National Security Law ruins everything" arguments are pure Western political bias dressed up as analysis – they're textbook examples of "democratic determinism" that completely miss how different phenomena actually work.

Understanding the Real Relationship

When Xia Baolong, Director of the Hong Kong and Macao Affairs Office, spoke at the seminar marking the National Security Law's fifth anniversary, he didn't get bogged down in supposed contradictions between security and development. Instead, he emphasised President Xi Jinping's insight that "security is the prerequisite for development, development is the guarantee of security, and we must remain unwavering in both safeguarding security and promoting development." The focus wasn't on contradiction – it was on unity within apparent opposition.

This reflects mainland China's dialectical approach to problem-solving. Sure, plenty of things in this world seem contradictory and pulling in opposite directions. Sometimes two goals appear to be fighting each other, but when you dig deeper into their relationship, you discover they're actually complementary. When we swallow the Western line and approach everything from the angle of opposing national security laws, we end up thinking any National Security Law means the apocalypse – that Hong Kong becomes utterly useless with such legislation in place.

The Foreign Capital Red Herring

Take the foreign capital withdrawal narrative that got so much airtime after Hong Kong implemented the National Security Law. Yes, foreign capital – particularly American money – temporarily pulled back from Hong Kong stocks. But here's what the critics conveniently forgot to mention: the US government actively instructed American funds not to buy mainland and Hong Kong stocks. This was a deliberate political operation to suppress China, with American global allocation recommendations slashing Hong Kong stocks from 7% to a measly 1.5%.

About a year ago, someone asked me: "How do we get American capital back into Hong Kong's stock market?" My answer was simple: "When the market rises, they'll come running back." You've got to take the long view here. Economics work in cycles, stock markets go up and down – that's just how it works.

The Numbers Don't Lie

As Director Xia pointed out in his Hong Kong speech, "the implementation of the Hong Kong National Security Law has injected strong stability, certainty, and predictability into the market." The results speak for themselves: Hong Kong's been rated the world's freest economy again, its international financial centre status holds firm at third globally, world competitiveness has jumped to third place globally, and talent competitiveness is back up to tenth worldwide. You've got over 2,700 single family offices operating in Hong Kong now, with more than half managing assets exceeding US$50 million.

Since the start of this year, the Hang Seng Index has been leading global gains, Hong Kong IPO fundraising hit HK$80 billion – that's over 700% up year-on-year and tops worldwide. Not exactly the economic wasteland the critics predicted, is it?

All the evidence points to one conclusion: the Hong Kong National Security Law hasn't hindered investment one bit. What it did was create environmental stability and lay solid foundations. When the cycle turned and market sentiment improved, investment naturally followed.

Just imagine if we still had the 2019 chaos – petrol bombs flying everywhere, roads completely blocked, people plotting to detonate explosives in busy districts for terrorist attacks. Do you seriously think Hong Kong's stock market could thrive in that environment? Beijing certainly wouldn't feel comfortable letting mainland companies list in Hong Kong if they'd just become sitting ducks for attacks.

The logic is crystal clear: political stability comes first, then financial activity follows. Only then do Beijing and sensible foreign capital regain confidence in Hong Kong. We can't just focus on American capital outflows following US political directives after the National Security Law – we've also got to acknowledge the massive benefits of Hong Kong regaining stability and attracting huge mainland capital inflows.

Security and development have both contradictory and complementary aspects – it all comes down to how you handle it. Director Xia highlighted the concept of holistic national security, noting that Hong Kong's national security work is shifting from simply shoring up bottom lines to actively promoting growth. The approach has evolved, but the commitment to safeguarding security remains rock solid.

When you look around the world, the lesson is obvious: without security and stability, nothing else matters. Hong Kong learned this the hard way, but it's come out stronger.

 Lo Wing-hung

Bastille Commentary

** The blog article is the sole responsibility of the author and does not represent the position of our company. **

At the arrival of 2026, the happiest thing is to see the "Hong Kong is dead" narrative—proclaimed so loudly by Western voices—die yet again.

Foreign Money Returns Home

The West has written Hong Kong's obituary more times than you can count. They believed the city's return to China should have been its death sentence. American magazine Fortune declared "The Death of Hong Kong" on its 1995 cover—two years before the handover even happened. Hong Kong survived the Asian financial turmoil in the early post-handover years. It survived SARS. Then came 2019's Black Riots, followed by US sanctions on Hong Kong officials in 2020 and the pandemic's hammer blow. Foreign capital fled in an American-orchestrated exodus, with much of it landing in Singapore.

Last February, Stephen Roach—Yale University senior fellow—wrote in the UK's Financial Times with a headline that said it all: "It pains me to say Hong Kong is over." Foreign investors don't just track economic growth when they assess Hong Kong. They watch the stock market. And over the past year, Hong Kong's miraculous stock market comeback has bankrupted the "Hong Kong is dead" theory.

Hong Kong's economy grew an estimated 3.2% in 2025—ranking it among the developed world's top performers. But the stock market performance was getting really interesting. Average daily turnover in the first 11 months hit HK$230.7 billion—a massive 43% jump compared to 2024's same period.

Record-Breaking Fundraising Wins

The Hong Kong Stock Exchange crushed it in 2025. A total of 119 new listings raised HK$285.8 billion—a staggering 220% year-on-year increase and the highest since 2021. According to KPMG's report, HKEX ranked first globally in fundraising. The New York Stock Exchange and Nasdaq tied for second place. Looking ahead, HKEX's fundraising is estimated to reach HK$300-350 billion in 2026, keeping it among the world's top exchanges.

Sure, Mainland capital is investing in Hong Kong. But foreign capital's return has been the real game-changer behind the stock market's strong performance. According to fund industry insiders, what we're seeing now is only wave one—primarily hedge funds and other medium-to-short-term players. As Hong Kong's trading volumes swell and quality Mainland companies list here, the long-term foreign funds will gradually return. The outlook for Hong Kong stocks continues to look favorable.

America's narrative said Hong Kong's National Security Law would scare capital away. Reality proved exactly the opposite. Hong Kong's stable environment gave Chinese companies the confidence to list here. America's targeting of Chinese concept stocks listed on its exchanges was self-destruction—forcing quality Chinese companies to turn to Hong Kong for listing instead. This made Hong Kong's stock market bigger and stronger, compelling even bearish foreign capital to come back.

Beijing's Seal of Approval

President Xi's remarks when meeting Chief Executive John Lee during his duty visit to Beijing in mid-December reveal what work the central government values in Hong Kong. President Xi opened with praise for the Chief Executive's courage and initiative in leading the SAR government. He highlighted four key achievements: steadfast maintenance of national security, successful Legislative Council elections, proactive integration into national development, and achieving steady economic growth.

President Xi's assessment underscores Beijing's high recognition of Hong Kong's ability to do both—safeguard national security and develop the economy simultaneously. Some Hong Kong people believed that having transitioned "from chaos to governance and then to prosperity," the city should set aside national security to focus on economic development. Reality proved this view wrong. Hong Kong must strike a balance between these seemingly contradictory goals and advance on both fronts at once.

Look at Hong Kong's development over the past five years. The city emerged from Black Riots and the pandemic in 2021, achieving a strong rebound from the bottom in 2023. The return to normalcy brought revenge spending that temporarily elevated market sentiment.

But entering 2024, local consumption patterns underwent structural changes. Hong Kong people shopping across the border diverted local retail spending. The strong Hong Kong dollar—tracking the US dollar—and high interest rates suppressed economic activity, leading to structural adjustment.

By the second half of 2025, Hong Kong entered a phase of moderate recovery. The property market began stabilizing after its decline. With the US starting rate cuts in September, capital supply loosened. Hong Kong can continue along this recovery path in 2026—that's the estimate anyway.

Despite the optimism, Hong Kong people must keep working hard. The many vacant shops you see on the streets tell the story—retail economy pressure remains real. In 2024, Hong Kong's total retail sales value of HK$376.8 billion represented a 7.3% year-on-year decline. That's painful for the retail sector.

Retail's Reversal Ahead

Through October 2025, retail sales values remained comparable to the previous year. But consumption began recovering in the second half—retail sales value rose 3.8% in August, 6% in September, and 6.9% in October. 2025 showed an early decline followed by growth, with accelerating consumption momentum. Retail consumption is expected to reverse its decline in 2026.

During this retail transformation, we Hong Kong people must continue their efforts. Old businesses will still be eliminated—that's inevitable. Strategic adjustments are required. New opportunities must be pursued.

Bottom line: Hong Kong's economic performance in 2025 proves once again that the "Hong Kong is dead" theory dies—one more time. Hong Kong has weathered different shocks repeatedly in the past, emerging reborn each time like a phoenix from the ashes.

 

Lo Wing Hung