In the late hours of June 30, 2020, the Standing Committee of the National People’s Congress (NPC), China’s rubber-stamp parliament, passed “The Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region.” The National Security Law (NSL) was enacted without consulting Hong Kong, and its details were kept secret until the official text was released.

The Pretense of National Security

China justified the NSL—which criminalizes acts of secession, subversion, terrorism, and collusion with foreign forces—on the pretense of protecting national security. But the real purpose is to maintain the Chinese Communist Party’s monopoly on power by restricting basic human rights, particularly freedom of the press.

President Xi Jinping places “stability” above freedom. He has argued that “Freedom is the purpose of order, and order the guarantee of freedom.” While there is some truth to his statement, the real meaning is that China’s ruling elite will not tolerate dissent. Individuals may be free to communicate ideas, but only those consistent with “socialist principles.” This dictum is made clear in Article 51 of the PRC Constitution, which states: “Citizens of the People’s Republic of China, in exercising their freedoms and rights, may not infringe upon the interests of the State, of society or of the collective.”

Freedom and Order: A Liberal View

Xi’s view of the relationship between freedom and order is in stark contrast to that of classical liberals for whom liberty is the essential means to an emergent or spontaneous order, not the purpose of order. As James M. Buchanan has argued, “The ‘order’ of the market emerges only from the process of voluntary exchange among the participating individuals.”

And as F. A. Hayek emphasized, the spontaneous order of the market depends on a free-market price system, private property rights, and limited government under a just rule of law:

Under the enforcement of universal rules of just conduct, protecting a recognizable private domain of individuals, a spontaneous order of human activities of much greater complexity will form itself than could ever be produced by deliberate arrangement, and in consequence the coercive activities of government should be limited to the enforcement of such rules.

The spontaneous order of the marketplace would not be possible without a free market for ideas and the protection of persons and property.

The Demise of Freedom in Hong Kong

In the case of Hong Kong, NPC Vice Chairman Chen Wang proclaimed that the NSL was necessary to “safeguard Hong Kong’s long-term prosperity and stability” in the wake of the pro-democracy and anti-extradition demonstrations in June 2019. Once the law was in place, order was restored in Hong Kong—but only at the cost of freedom. Now the rule of law, limited government, and the free market for ideas—all of which made Hong Kong a sanctuary for free markets and free people—are under assault.

Shortly after the law was passed, there was a clampdown on pro-democracy advocates, most notably Jimmy Lai, the founder of Hong Kong’s leading market-liberal newspaper, Apple Daily. A long-time, harsh critic of Beijing’s authoritarian regime, Lai was arrested on August 10, 2020. His alleged crime was conspiring with foreign governments to undermine the PRC’s national security by calling for sanctions and other measures. But what the authorities really wanted to do is to silence his voice and the voices of all those who want to rein in the power of the Chinese Communist Party(CCP) and maintain a genuine rule of law and freedom of expression.

The NSL is vague enough so that those living in Hong Kong, or even outsiders,could face criminal charges, including life imprisonment, for violating the law. As Elaine Pearson, Australian director of Human Rights Watch, notes: “The wording is broad enough to include many forms of peaceful activism and exercise of fundamental rights, such as petitioning foreign governments to press Hong Kong or China to respect rights guaranteed under their laws.”

The NSL jeopardizes Hong Kong’s independent judiciary with the opening of a Beijing-controlled security office in Hong Kong (the “Office for Safeguarding National Security”) and by giving China sole authority to interpret and adjudicate the NSL. Those provisions of the law are already having a chilling effect on free speech and are sure to undermine one of Hong Kong’s biggest attractions for foreign businesses—namely, the free flow of information.

Earlier this month, on June 17, more than 500 police officers raided Apple Daily’s headquarters and arrested the chief editor, Ryan Law, at his home. Hong Kong’s secretary for security, John K. C. Lee, warned the public and other journalists not to support Apple Daily, which he accused of publishing articles that threaten national security. He defended his actions, as being in accordance with the new security law, and argued:

It is plainly wrong to suggest that the police operation and asset freezes in Hong Kong have anything to do with “offending Beijing.” The arrests relate to an alleged conspiracy involving the exploitation of journalistic work as a tool to commit collusion with a foreign country or external elements to impose sanctions or engage in other hostile activities against the People’s Republic of China and Hong Kong. This is a serious offense under Hong Kong’s national security law and will be handled in accordance with the law.

He went on to say that all nations have a right to safeguard their national security, and assured the world that “Hong Kong remains a secure, open and dynamic environment that welcomes investors and entrepreneurs from around the world.”

One week later, on June 24, Mr. Lee froze the assets of Apple’s parent company, Next Digital Ltd., and ended the era of Apple Daily, which began publishing in 1995, two years before the city state was handed over to the mainland. Jimmy Lai’s objective, as owner and founder, was to maintain the principles and institutions that made Hong Kong a bastion of freedom and prosperity. With the NSL and the deflated free market for ideas, especially those critical of the PRC’s authoritarian regime, Hong Kong’s future as a free society is dubious. As Lai told the BBC, “Without the rule of law, people who do business here will have no protection.”

The reality, as L. Gordon Crovitz and Mark L. Clifford (both members of Next Digital’s board of directors) point out, is that “the free flow of information enabled prosperity and broad freedom.” Now, under the NSL, authorities have the power to prohibit shareholders on the Hong Kong Stock Exchange from exercising their voting rights, and “bank accounts can be frozen on the order of a single official, destroying private enterprise as well as freedom.”

Although Hong Kong officials appear sanguine about Hong Kong’s future, the clash between law and liberty has introduced a fracture in the city’s institutional infrastructure that will be difficult to repair as long as China seeks to rule by decree and disparage a genuine rule of law.

China’s Challenge​

The challenge for China, as expressed by Premier Li Keqiang, is “to get the relationship right between the government and the market”—and, in so doing, boost the “vitality of the market.” Yet, focusing only on markets for goods and services is insufficient. It is also essential to nourish a free market in ideas, if law is not to dominate liberty.

A just rule of law that safeguards persons and property is instrumental in this sense. That is why we should listen to Wu Jinglian, one of China’s leading voices for reform, who stated in 2005 that “only by matching the rule of law with the market economy can we achieve total success.”

Economists need to invest more human capital in understanding the role of a free market in ideas for human progress. Hong Kong’s sudden movement away from an open society—to one that criminalizes journalists for criticizing excessive government power and the CCP—is bound to have adverse effects on social and economic harmony.

Even though it is too early to see the full extent of those effects, it is not too early to heed the wisdom of Ronald Coase and Ning Wang, who in 2012 wrote: “When the market for goods and the market for ideas are together in full swing, each supporting, augmenting, and strengthening the other, human creativity and happiness stand the best chance to prevail.”