Hong Kong Foreign Direct Investments

Foreign Investment Incentives

Hong Kong offers no special incentives to overseas investors or foreign-owned firms. Nevertheless, its free-port status, low tax rates, good infrastructure, relative freedom from government interference and substantial available capital make it attractive to potential investors and thus competitive with other countries in the region that do offer specific incentives.

Restrictions on Foreign Investment

The simplicity of procedures for investing, expanding and establishing a local company is a major attraction for foreign investment in Hong Kong. It is relatively easy to start a company: ready-made company, also known as shelf companies, are widely available and enable a businessperson to walk off a plane in the morning and start operating a firm in the afternoon. The government’s special industrial-land policy features somewhat more complex rules, but it is still less demanding than the policies of many other Asian investment centres.

Controls on new investments are almost non-existent, and there are no exchange controls. However, new building construction requires permits, and polluting industries face increasingly strict controls. Moreover, pharmaceutical operations face strict rules on importation, manufacture, sale and distribution; the Department of Health oversees compliance.

There is no investment-approval procedure directed specifically towards foreign investors. All businesses must comply with the registration requirements of the Companies Ordinance and subsequent amendments. Except for state-owned activities, there are almost no limits on foreign investors. An exception is broadcasting and cable: foreign ownership of local broadcasting stations or cable operators may not exceed 49%. The handover did not affect the free movement of foreign equity. The Basic Law safeguards “free movement of goods, intangible assets and capital”.

The government amended and enacted the Companies Ordinance (Companies (Amendment) Ordinances 2003) in February 2004, based on the recommendations of the Standing Committee on Company Law Reform. Companies (Amendment) Ordinances 2003 aims to enhance shareholders’ protection, update the requirements on directorships, simplify the requirements for registration of foreign companies and make structural changes to modernize the ordinance.

Exchange Controls

Hong Kong imposes no controls on foreign exchange, and no restrictions on entry and repatriation of capital or on conversion and remittance of profits and dividends derived from direct investments. Investors bring their capital into Hong Kong through the open exchange market and remit it the same way.

Hong Kong has tried to reassure nervous investors. For example, it has signed investor-protection agreements with trading partners to guarantee free transfer of funds.

In July 2002 the Legislative Council (Legco) approved anti-money-laundering legislation allowing the tracing and confiscation of proceeds derived from drug-trafficking and organized crime. In the same month, the Legco also enacted a new anti-terrorism law allowing authorities to freeze funds and financial assets believed to belong to terrorists, as required by UN Security Council Resolution 1373. Following passage of the new laws, in September 2002 the Hong Kong Monetary Authority (the central bank) ordered banks to submit report cards outlining the steps they had taken in the fight against terrorist financing.

Foreign Trade

The Basic Law stipulated that Hong Kong would independently participate in international trade agreements and issue independent certificates of origin after the handover. The transition agreements ensure that Hong Kong retains its border controls with China, its own customs procedures and the right to conduct international trade relations. Hong Kong is a member of the World Trade Organization and the Asia-Pacific Economic Co-operation (APEC) forum, which is moving to liberalize the region’s import restrictions by 2010-20.

Some 90% of Hong Kong’s exports were re-exports. Using competitive manufacturing bases in China, Hong Kong has become the world’s leading re-exporter of garments, imitation jewellery, travel goods, handbags, umbrellas, artificial flowers, toys and clocks. In recent years, however, there has been increasing use of direct shipments or transshipments of goods manufactured in mainland China to overseas markets at the expense of re-exports through Hong Kong. This trend should increase in future, now that China is a member of the WTO.

Apart from re-exports, Hong Kong’s domestic exports consist mostly of the following: (1) textiles; (2) clothing apparel; (3) machinery, equipment, apparatus, parts and components; and (4) consumer electrical and electronic products. Its main imports include raw materials, consumer goods, capital goods, foodstuffs and fuels.

Hong Kong’s major export markets are mainland China, the United States, Japan and Germany. Its main sources of imports are mainland China, Japan, Taiwan and the US.

Hong Kong also had a clear interest in China’s WTO entry, which occurred in December 2001. As well as obliging China to respect multilateral rules and disciplines, membership curtails other countries’ freedom to take unilateral trade sanctions against it and ensure that trade disputes are settled through binding international arbitration. Since more than half of China’s exports pass through Hong Kong, liberalized trading rules for China will significantly benefit Hong Kong.

In general, any person who imports or exports any goods must lodge an import/export declaration with the Customs and Excise Department within 14 days after the importation or exportation of goods. The declaration can be made on a prescribed form or via Electronic Data Interchange Service. At the time of lodging declarations, importers and exporters must pay a declaration charge and/or export clothing training levy.