Doing Business in Hong Kong

A Hot Tip about Business Environment in Hong Kong SAR

Posted on: 24 Mar 2010

Market Overview

• Hong Kong prospects are bright, in spite of the global economic downturn. The global economic crisis caused a sharp reduction in growth rates in the region through mid-2009, including in Southern China. However, economic and business barometers point toward a sustained resumption of growth in 2010. Hong Kong, a Special Administrative Region of the PRC since its reversion in 1997, has proven itself in past economic crises to be exceptionally resilient. Ongoing government economic efforts focus on speeding up local infrastructure projects, providing low-cost loans to SMEs, gradually expanding the scope of Chinese currency (RMB) business in Hong Kong and sustaining high numbers of mainland Chinese visitors.


• Hong Kong is an ideal market platform for doing business in Asia, especially mainland China. Hong Kong is a free port with virtually no duties or tariffs. 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 businesses typically know, and have close links to, markets in mainland China and the rest of Asia. According to Hong Kong Government statistics, 3,580 regional operations of overseas companies were registered in Hong Kong in 2009. The United States is home to the largest number of foreign companies basing regional headquarters and offices in Hong Kong (815 companies).


• Hong Kong’s Key Characteristics are its openness, tourism, trade and investment. Population: 7 million (year-end 2009). Visitors: 26.5 million (Jan- Nov 2009). GDP Per Capita: US$30,811 (2008). GDP Growth: -2.4 percent (3Q/2009). Trade to GDP Ratio: 349 percent (2008). U.S. Exports: US$13.6 billion, 4.9 percent of Hong Kong's imports (Jan – Oct 2009). Major Trading Partners: Mainland China, U.S., 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 center.


• 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. Hong Kong's financial, marketing and technical expertise and sophisticated infrastructure, combined with the mainland’s manufacturing base, create wide-ranging business opportunities. 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 arrangements to the mainland: This free trade agreement offers Hong Kong's products and firms preferential access to the mainland's market. The Closer Economic Partnership Arrangement (CEPA) goes beyond mainland China's World Trade Organization (WTO) commitments, eliminating tariffs and allowing earlier or preferential access to some services sectors. Overseas companies can partner with, invest in, or acquire, outright a CEPA-qualified firm in Hong Kong, as well as themselves benefitting from CEPA treatment after meeting certain residence and other eligibility requirements.


Market Challenges

• Increasing competition from the mainland: Even as integration has meant that Hong Kong’s mainland China market access and opportunities have grown, higher costs in Hong Kong have led to a hollowing out of its manufacturing sector. Mainland rivals present increasing competition, even in sectors where Hong Kong has long been dominant, like container port operations, logistics and related trade services.


• Firms are bypassing Hong Kong: The trend of foreign firms heading directly to the mainland was accelerated by China’s 2000 accession to the WTO. Companies that go directly to mainland China market without sufficient due diligence, however, often face higher costs and longer delays than if they had first engaged a Hong Kong-based intermediary.


• Pearl River Delta Slowdown: Contraction in the global economy caused weakness in the Chinese export sector, including for Hong Kong-owned factories in Southern China/Pearl River Delta. This led to a marked decline in cargo shipments through the Hong Kong port and airport. The nascent global economic recovery as of the end of 2009 was expected to generate only slower-thannormal growth rates in the economies of Hong Hong’s significant trading partners, with the possible exception of China.


Market Opportunities

• Hong Kong public infrastructure works valued at over US$16 billion are in various stages of planning or execution, including: Hong Kong International Airport Expansion Plan, Kai Tak Airport Redevelopment, Tourism Infrastructure and City Improvement, West Kowloon Cultural District, Hong Kong University Campus Expansion, enhancement of Ocean Park, 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. The Hong Kong Government will likely continue its acceleration of spending on major infrastructure projects as part of its plan to counteract the economic downturn.


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


• Hong Kong-based Procurement: Hong Kong is home to a large number of procurement agents and purchasing offices. U.S. suppliers who take time to investigate these networks will find that many purchasing decisions for major projects and conglomerates in Macau, mainland China or other economies are made in Hong Kong. In addition, over 20 percent of all Hong Kong Government procurement contracts were awarded to U.S. firms in 2009.


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.



Read the full market research report

Posted: 24 March 2010

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