Navigating Geopolitical Storms: The Impact of Transnational Repression on Investments in China and Hong Kong

In the ever-shifting landscape of global investments, few regions have become as polarizing—and as perilous—as Hong Kong. Once a beacon of financial freedom and a bridge between East and West, the city now faces a perfect storm of geopolitical risks, driven by China's escalating transnational repression. For Canadian and global investors, the question isn't just about where to allocate capital, but how to survive the turbulence while capitalizing on opportunities.

The Shadow of Transnational Repression

China's use of the 2020 National Security Law (NSL) and its aggressive tactics to silence dissent have transformed Hong Kong from a stable hub into a high-risk zone. The NSL's extraterritorial reach, particularly Article 38, allows Beijing to pursue pro-democracy activists and critics living abroad, creating a climate of fear. Cases like Carmen Lau, a Hong Kong-based activist in the UK, or Jimmy Lai, a publisher facing phishing attacks and death threats, illustrate the personal toll—and the broader chilling effect on free expression.

For investors, this isn't just a human rights issue; it's a red flag. The erosion of judicial independence and the use of bounty systems to intimidate dissidents signal a regime prioritizing control over stability. When legal frameworks are weaponized, trust erodes, and capital flees.

Canadian Investments: A Case Study in Reallocation

Canada's experience offers a cautionary tale—and a playbook for adaptation. From 2023 to 2025, Canadian direct investment in the Chinese mainland stagnated at $11.29 billion, while investments in Hong Kong soared to $30 billion, a threefold increase. This shift wasn't random; it was a calculated move to mitigate risks tied to China's transnational repression.

Scotiabank, a key Canadian player in China, saw its assets in the mainland dip to $4.48 billion in 2020, a 13.5% drop. Meanwhile, Canadian pension funds and insurance companies pivoted to Hong Kong, where the perceived stability of the legal system and lower political risk made it a safer bet. The Canadian government's Countering Foreign Interference Act (Bill C-70) further incentivized this shift by criminalizing foreign state-sponsored harassment, giving investors a legal shield.

Global Implications: A Fragile Equilibrium

The ripple effects extend beyond Canada. U.S. sanctions on Chinese officials and the FBI's conviction of agents like Ping Li for acting as PRC agents signal a global crackdown on transnational repression. Yet, the NSL's reach remains a double-edged sword. While it deters foreign investment in the mainland, it also drives capital to Hong Kong's financial sector, which retains its unique advantages—open capital markets, common law, and a separate customs union.

However, this isn't a panacea. Hong Kong's reputation as a “safe haven” is fraying. The U.S. Department of State's 2024 report noted that Beijing's influence over Hong Kong's judiciary and law enforcement has created an environment where foreign investors face arbitrary detention risks. For example, U.S. citizens who criticize China could now face arrest under the NSL, a chilling deterrent for diplomatic and business travel.

Strategic Moves for Investors

For investors navigating this minefield, the key is to balance caution with opportunity. Here's how to approach it:

1. Diversify Exposure: Shift capital to sectors in Hong Kong that are less politically sensitive, such as technology (e.g., fintech firms like Ant Group) or healthcare (e.g., MedTech startups). These industries are less likely to be weaponized in geopolitical disputes.
2. Hedge Against Political Risk: Use derivatives or insurance products to mitigate exposure to policy shifts. For instance, gold or U.S. Treasury bonds can act as safe havens if Hong Kong's market volatility spikes.
3. Leverage Hong Kong's Unique Position: While the city's autonomy is under threat, its role as a global financial center remains intact. Prioritize investments in Hong Kong's infrastructure, real estate, and tech sectors, which still offer growth potential.
4. Monitor Legal Developments: Track changes in laws like the NSL and Canada's Bill C-70. Legal clarity—or lack thereof—will dictate where capital is safest.

The Bottom Line: Risk vs. Reward

Hong Kong's future is uncertain, but its economic engine hasn't ground to a halt. For investors with a high risk tolerance, opportunities exist in sectors insulated from political interference. For others, the message is clear: diversify, hedge, and stay informed.

As the world watches Beijing's grip on Hong Kong tighten, the lesson is simple—invest in resilience. Markets will always find a way to adapt, but those who ignore the storm will be the ones left stranded.