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Doing Business in Hong Kong

Market Overview

Amid a weak, uneven global economic recovery, the Hong Kong economy grew moderately in 2012. Hong Kong, a Special Administrative Region of the People’s Republic of China (PRC) since its reversion in 1997, has proven in past economic crises to be exceptionally resilient. Dominant and sustained drivers of economic growth include private consumption (retail), logistics and business services, real estate development (bolstered by ongoing public infrastructure works), and tourism. Hong Kong has benefited from continued economic integration with mainland China’s strong economy. In particular, Beijing’s policy of opening its service sector and gradually expanding the scope of the offshore Renminbi (RMB – the PRC’s currency) market in Hong Kong and the sustained high numbers of mainland Chinese visitors have strengthened Hong Kong’s economy.

Hong Kong is an ideal platform for doing business in Asia, especially for mainland China. Hong Kong is a free port that does not levy any customs tariff and has limited excise duties. Its strong rule of law and respect for property rights make it a strategic platform for U.S. companies, especially small- and medium-sized firms, seeking to do business in Asia. Hong Kong’s statutory trade promotion body, the Trade Development Council, seized upon this unique positioning to create the Pacific Bridge Initiative in late-2010, the first such agreement with a foreign government affiliate to explicitly support the U.S. National Export Initiative (NEI). Hong Kong’s businesses enjoy close links to mainland China and the rest of Asia. According to Hong Kong Government statistics, there are 1,388 subsidiaries of U.S. parent companies in Hong Kong, making the United States the largest source of subsidiaries in Hong Kong. Among those U.S. subsidiaries, 869 are regional headquarters or regional offices.

Hong Kong’s key characteristics are its openness, tourism, trade and investment.

  • Population: 7.17 million (end-year 2012).
  • Visitors: 48.6 million (2012).
  • GDP Per Capita: US$36,557 (2012).
  • GDP Growth: 1.4 percent (2012).
  • Trade to GDP Ratio: 360 percent (2012).
  • U.S. Exports: US$37.5 billion (2012).
  • Major Trading Partners: mainland China, United States, EU, Japan, and Taiwan.
  • Key characteristics: World-class infrastructure; free flow of information; no restrictions on inward or outward investment; no foreign exchange controls; no nationality restrictions on corporate or sectoral ownership; simple, low-tax regime; and world financial hub.

Hong Kong is a Special Administrative Region of China: Hong Kong enjoys a high degree of autonomy, except in foreign affairs and defense. It has its own common law legal system (as distinct from the PRC), currency, and customs jurisdiction. There are numerous business opportunities given Hong Kong's expertise in finance and marketing, sophisticated infrastructure, and access to mainland China’s manufacturing base. A majority of Hong Kong manufacturers have moved production to South China’s Pearl River Delta (PRD), with Hong Kong functioning as the region’s services and trade hub. Mainland China is Hong Kong’s largest trading partner.

Hong Kong enjoys gradually growing preferential access to the mainland: The Closer Economic Partnership Arrangement (CEPA) offers Hong Kong's products and firms preferential access to the mainland's market. CEPA goes beyond China's World Trade Organization (WTO) commitments, eliminating tariffs and allowing earlier or preferential access to some services sectors. Overseas companies can also benefit from CEPA. For trade in goods, foreign investors can set up production lines in Hong Kong to produce goods that meet the CEPA rules of origin requirements. For trade in services, companies incorporated in Hong Kong by foreign investors can make use of CEPA as long as they satisfy eligibility criteria of a “Hong Kong Service Supplier” (for example, they must be engaged in business operation in Hong Kong for three to five years) or by partnering with or acquiring a CEPA-qualified company.

Market Challenges

Increasing competition from the mainland: Even as integration has given Hong Kong greater market access and growth opportunities, higher costs in Hong Kong have led to a hollowing out of its manufacturing sector. Mainland rivals are becoming more competitive, even in sectors where Hong Kong has long been dominant, like container port operations, logistics, and related trade and financial services.

Foreign firms are bypassing Hong Kong: The trend of foreign firms heading directly to the mainland was accelerated by China’s 2001 admission to the WTO. Companies that go directly to China without sufficient due diligence, however, often face higher costs and longer delays than if they had first engaged a Hong Kong-based intermediary.

Market Opportunities

Excellent prospects for U.S. suppliers: Leading export sectors for U.S. firms include electronic components, medical equipment and pharmaceuticals, environmental technologies and services, aviation and airport equipment, transportation infrastructure, environmental technologies, safety and security equipment, financial services, education and training services, travel and tourism services, retail, and consumer goods such as packaged food, wine, cosmetics, and toiletries.

Hong Kong public infrastructure works valued at over US$16 billion are in various stages of planning or execution: These include Hong Kong International Airport Expansion Plan, Kai Tak Airport Redevelopment, Tourism Infrastructure and City Improvement, West Kowloon Cultural District, University of Hong Kong Campus Expansion, Ocean Park amusement park enhancement, Harbor Area Treatment Scheme, the Hong Kong-Macau-Zhuhai Bridge, multiple subway and light rail lines, and the Guangzhou-Shenzhen-Hong Kong Express Rail Link. Notably, over 9.9 percent of all Hong Kong Government procurement contracts were awarded to U.S. firms in 2012.

Hong Kong-based private procurement: Hong Kong is home to a large number of procurement agents and purchasing offices. Many purchasing decisions for major projects and conglomerates in Macau, mainland China, or other economies are made in Hong Kong.

Pacific Bridge Initiative – another strong reason to look at Hong Kong as a destination and platform: The Pacific Bridge Initiative (PBI) is a collaboration between the U.S. Commercial Service, the Hong Kong Trade Development Council, and other organizations to support President Obama’s National Export Initiative (NEI), which has the goal of doubling U.S. exports within five years and supporting two million U.S.-based jobs. The PBI was the first-ever collaboration with a foreign statutory trade body to support NEI objectives and has brought additional resources to U.S. exporters interested in selling to, or through, Hong Kong to reach the China or Asian regional markets. More information is available on the PBI Web portal at: www.hktdc.com/mis/pbi/en/Pacific-Bridge-Initiative---US-Hong-Kong-Business-Partnership.html.

SelectUSA – Hong Kong serves as a priority market to attract foreign investment to the U.S.: Established in 2011 by Executive Order of the President, SelectUSA is a government-wide initiative to promote foreign direct investment (FDI) in the United States to create jobs, spur economic growth, and promote American competitiveness. SelectUSA works in partnership with state, regional, and local economic development organizations to promote FDI into the U.S. and works on behalf of the entire nation, exercising strict geographic neutrality. SelectUSA chose 10 pilot markets, including Hong Kong, to initiate the program in 2012, because of the territory’s special role as a commercial and financial hub through which over 60 percent of China’s overseas investment flows. SelectUSA can work with locations in the U.S. interested in attracting FDI and with FDI support service providers (such as consultants, law firms, financial service providers, etc). For enquiries, please visit www.SelectUSA.gov or contact: (202) 482-6800 / (852) 2521-1467 in Hong Kong.

Market Entry Strategy

Hong Kong agents and distributors can increase sales of U.S. products in both Hong Kong and mainland China. Given mainland China's size and diversity, it is usually advantageous to work with different agents for different regions of mainland China. Hong Kong-based agents and distributors usually include Macau and Southern China in their coverage territory, and often have networks to other major regions in mainland China.

Hong Kong firms are eager to work with serious exporters. U.S. firms can show commitment to success in this market by using metric measurements, providing Chinese-language materials, responding quickly to inquiries, meeting relevant standards, and visiting the market for first-hand understanding and relationship building.

Companies considering entering this market should understand Hong Kong's fast-paced business climate. Decisions are made quickly. Firms must respond immediately to inquiries or risk losing opportunities to faster-moving competitors.