How Hong Kong’s US-Sanctioned Hardline Leader John Lee Is Co-Opting the Web3 Industry for the Mainland’s Ambitious Blockchain Agenda

John Lee was not your average politician who made up the relatively moderate political class that has defined Hong Kong’s unique democracy following the end of British rule. John Lee was a 20-year veteran of Hong Kong’s police agency, starting off as a beat-cop fighting the Triade to later becoming the CCP’s guy to usher in an era of political repression and the premature return of Hong Kong’s sovereignty (derived from their formerly independent democratic institutions) to their new masters in Beijing1. John Lee has put bounties on peaceful protesters going on to say at a press conference:

“We should treat the people wanted by police, especially those who violated the national security law, as rats in the street that should be avoided for our sake.” - John Lee, Chief Executive of Hong Kong

When the bill sparked massive street demonstrations, he stood by it. He emerged as a prominent figure representing the local government in press briefings. The police, led by Mr. Lee in his role as security chief, faced backlash for their extensive deployment of water cannons, tear gas, rubber bullets, and at times, live ammunition during clashes with the demonstrators. Lee strongly criticized the protests and staunchly defended the Hong Kong police's use of force, claiming that the violent actions of certain protesters amounted to "terrorism" and "extremism"3. Lee has also “laughed off” the multiple Western sanctions placed against him for repeated and systematic human rights violations4.  

YouTube also blocked his campaign account following the imposition of U.S. sanctions on him. Lee was sworn in as Chief Executive of Hong Kong by Xi Jinping in 2022, with President-for-Life Chairman Xi praising his work implementing Hong Kong’s authoritarian “National Security Law”5. Under Lee’s leadership, Hong Kong has increasingly become a safe haven for Russia to launder money into the traditional financial systems, even allowing oligarchs to park their sanctioned yachts there6. 

So, you might ask yourself what this has to do with Web3. The answer is: anything to do with Hong Kong’s role in the crypto, Web3, or blockchain industries over the past 2-years has been a direct result of his agenda. During the inauguration of the Hong Kong Web 3.0 Association, Chief Executive John Lee of Hong Kong conveyed his optimism toward the industries’ collaboration with the government to “expedite innovation and financial progress in Hong Kong.” He also expressed his desire to attract additional talent and businesses while encouraging major U.S. crypto exchanges like Coinbase to establish a presence in the city7.  

John Lee has also helped Hong Kong be a sandbox or test for much of the work China is doing with public blockchains, serving as a launch pad to the entire globe. Many Chinese State-Owned tech companies and financial institutions have already flocked to the city to issue products under the HKMA regulatory framework, and more importantly to sell products to Web3 and crypto companies from across the globe. This type of economic innovation is exactly what Beijing wants to see in Hong Kong as many Western businesses leave the city due to the tightening of the CCP’s control over both economic activities and civil liberties. 

Over the past three years the city has advanced multiple regulatory frameworks for crypto and Web3, providing regulatory clarity for projects that are looking for jurisdictions that can provide clear and workable regulations for the industry. This includes the regulation of Over Counter (OTC) exchanges, centralized exchanges (Bitfinex, DigiFinex, Binance, OKX, Huboi, KuCoin), and the issuance of tokenized financial products or Real-World-Assets (RWAs) (which use blockchain technology to tokenize products such as real estate, commodities, art)8. In his policy address delivered on October 19th, John Lee mentioned a proposal for a bill that aims to establish a regulatory framework for virtual asset providers. The address also highlighted the efforts of the Hong Kong Monetary Authority (HKMA), the city's de facto central bank, in conducting market consultations on the regulation of stablecoins. 

According to John Lee, the 14th Five-Year Plan explicitly supports Hong Kong in establishing itself as an international hub for Web3 innovation and technology.  To accelerate the development of the Hong Kong Web 3.0 ecosystem, the government has allocated HKD 50 million to Cyberport in its previously announced budget. Additionally, Cyberport has set up a Web3 base to further support this initiative. Hong Kong’s Cyberport has signed a MoU with the United Arab Emirates government’s Dubai Future Foundation, which seeks to draw AI and crypto companies from both the East and West9. John Lee oversaw the signing ceremony with a counterpart from the UAE. This shows his increasingly personal involvement in promoting Hong Kong’s initiatives in Web3. 

More recently, at the Hong Kong FinTech Week 2023, Lee highlighted Hong Kong's pivotal role in the global fintech landscape, emphasizing the city's unique position under the "one country, two systems" principle that offers unparalleled opportunities for fintech businesses. The event, marking its eighth annual edition, attracted over 500 speakers, 650 exhibitors, and participants from more than 90 economies. Mr. Lee outlined the SAR Government's commitment to fostering the growth of fintech and its integration with the real economy, including initiatives to enhance Hong Kong's competitiveness as a financial hub. These initiatives include reforms in securities, the establishment of an Integrated Fund Platform by HKEX, and the promotion of green fintech to position Hong Kong as a green fintech hub. Additionally, efforts to strengthen connectivity with Mainland China's financial markets and the expansion of mutual market access programs like Bond Connect and Stock Connect were discussed10. 

Under Lee’s leadership the Cyberport has partnered with many Chinese provinces to help expand cross-border trade using blockchain technology with companies like Huawei, Tencent, and Red Date Technology11. They also have set up permanent government bodies with millions of dollars in state funds for the sole purpose of promoting the cities’ role in the blockchain and Web3 industry. The latest example being the establishment of a Web3 task force made up of multiple agencies and companies that seeks to host events and ease policy issues hindering Hong Kong from achieving its Web3 aspirations12. The implications of his actions (both in the police force and as Chief Executive) on the existence of democracy and civil liberties in Hong Kong should not be overlooked by crypto executives and developers that’re currently flocking to the city. 

Footnotes

1 John Lee: Who is Hong Kong's new hardline pro-Beijing leader? – BBC (Jul 2, 2022) 

2 National security law in Hong Kong: 8 wanted suspects should be treated like ‘rats in the street’, city leader John Lee says – South China Morning Post (Jul 7, 2023)

3 They will ‘live in fear’: Hong Kong’s John Lee invites ‘anyone’ to help police arrest wanted overseas democrats – Hong Kong Free Press (Jul 4, 2023)

4 Hong Kong’s John Lee ‘laughs off’ US sanctions – DW News (Oct 12, 2022)

5 Xi administers oath of office to HKSAR Chief Executive John Lee – Xinhua (July 1, 2022)

6 Hong Kong nixes US sanctions on Russian-owned superyacht – Associated Press (Oct 11, 2022)

7 Hong Kong Chief Executive: Hong Kong should become a leader in Web3.0 technology – TokenInsight (Apr 11, 2023)

8 Hong Kong Chief Executive proposes statutory licensing for VASPs in his policy address – CryptoSlate (Oct 21, 2022)

9 https://www.cyberport.hk/files/63e61df7c8f64605390238/20230209_Cyberport Signs MoU with Dubai Future Foundation.pdfCyberport Signs MoU with Dubai Future Foundation – Cyberport (Feb 10, 2023)

10 Speech by CE at Hong Kong FinTech Week 2023 – Hong Kong Special Administrative Region (Nov 2, 2023)

11 Huawei Cloud Signed MoU with Cyberport to Drive AI & Web3 Industry Development in Hong Kong - Huawei Cloud (Feb 7, 2024)

12 Task Force on Promoting Web3 Development established - Hong Kong Special Administrative Region (June 30, 2023)