Hong Kong

Business Environment

Hong Kong is the world's tenth-largest trading entity and ninth-largest banking centre. At the end of 1999 Hong Kong was home to 285 financial institutions, including 76 of the world’s top 100 largest banks. The banking system held external assets of US$482 billion at the end of November 1999. Hong Kong’s stock market capitalisation of US$540 billion at the end of November 1999, made it the 10th largest in the world.

Hong Kong has a mature and active foreign exchange market due to an absence of exchange controls and a favourable time zone location. The daily turnover of foreign exchange and derivatives trading is about US$79 billion, almost half of which is in US$/yen and US$/HK$ market. Around 60% of banking business is denominated in foreign currencies. The Hong Kong dollar is freely convertible. There are no restrictions on capital movements in to or out of Hong Kong. Foreigners can repatriate their capital or funds out of Hong Kong and borrow Hong Kong dollars in the Hong Kong market. There are no restrictions on the trading or ownership of securities or property, or in the setting up or owning of companies by foreigners.

A business or a partnership must be registered with the Company's Registry as a local company or an overseas company. Overseas companies are defined as those incorporated outside of Hong Kong. The total number of overseas companies on register at the end of 2001 was 6,457. The total number of local companies on register was 510,380.

Doing Business in Hong Kong (Government of Hong Kong)

Banking

Hong Kong maintains a three-tier system of deposit-taking institutions: licensed banks, restricted licence banks, deposit-taking companies. Overseas banks may also establish local representative offices. The Hong Kong Monetary Authority is the licensing authority responsible for the authorisation, suspension and revocation of all types of authorised institutions. Only licensed banks may operate current and savings accounts, and accept deposits of any size and maturity from the public and pay or collect cheques drawn by or paid in by customers. Restricted licence banks are principally engaged in merchant banking and capital market activities. They may take deposits of any maturity of HK$500,000 (about US$64,103) and above. Deposit-taking companies are mostly owned by, or otherwise associated with, banks. Deposit companies may engage in a range of specialised activities, including consumer finance and securities business. They may take deposits of HK$100,000 (about US$12,821) or above with an original term of maturity of at least three months. Overseas banks without one of the three types of licenses may establish local representative offices in Hong Kong. Representative offices are not allowed to engage in any banking business and are confined mainly to liaison work between the bank and Hong Kong customers.

Securities

The Securities and Futures Commission (SFC) administers the laws relating to the protection of investors and regulation of any activities relating to securities and commodities trading/advising, securities margin financing and non-bank retail leveraged foreign exchange market in Hong Kong. The existing legislation requires a person to apply for different licences of regulated securities activity. There are currently 12 different types of licence. However, when the new Securities and Futures Ordinance becomes operational in 2002, each licensed person will only need one licence to carry on different types of regulated activity. However operators engaged in securities margin financing will be restricted to that activity under the new regime. The existing 12 types of licence will be categorized into nine types of regulated activity. The types of licenses are: licensed corporation, licensed representative, licensed representative - responsible officer; provisional licence - representative; temporary licence – corporations and representatives; and registered institutions. The nine types of regulated activity are: dealing in securities; dealing in futures contracts; leveraged foreign exchange trading; advising on securities; advising on futures contracts; advising on corporate finance; providing automated trading services; securities margin financing and asset management.

Insurance

Insurers and insurance intermediaries are regulated by the Insurance Authority. A captive insurer is required to maintain a solvency margin determined on 5% of the net premium income or 5% of the net claims outstanding, whichever is greater, and subject to a minimum of HK$2 million.

Shipping

Hong Kong had 684 ships on register, with total registered tonnage of 14,193 million gross tonnes: Hong Kong Shipping Register.

Taxes

Corporate tax in the 2003/2004 financial year: 17.5%. Only the profits or income arising from Hong Kong are subject to tax. Offshore profits, capital gains, dividends and most bank deposit interest income are exempt from tax. Profits from qualifying debt instruments or profits derived from the business of reinsurance of offshore risks are no long exempt from tax and do not qualify for a concessional rate of 8.75%. Interest from Hong Kong bank deposits is exempt from Hong Kong profits tax (provided the deposit is not used to secure or guarantee a loan), as are profits earned by authorised mutual funds, unit trusts and certain collective investment schemes. The rate of deeming assessable profits from royalty type payments for the use in Hong Kong of intellectual property is 30% of the payment, with the effective tax rate on such payments at 5.25%. Hong Kong has no sales tax or value-added tax. Estate duty ranges from 0% to 15% and applies only to companies owning assets in Hong Kong. Stamp duty is payable on securities transactions by both seller and buyer (0.1% each). Customs duties are payable on imports. Source: Hong Kong government and KPMG Corporate Tax Rate Survey 2003.

More information is available at:
US Commercial Service: Hong Kong Commercial Guide FY2002.

Stock Exchange
The Hong Kong Exchanges and Clearing Limited (HKEx) is the holding company of the Stock Exchange of Hong Kong Limited, the Hong Kong Futures Exchange Ltd. and Hong Kong Securities Clearing Company Ltd. The Growth Enterprise Market (GEM) is an alternative stock market operated by the HKEx for 'high growth, high risk' businesses that do not fulfil the requirements for listing on the main board of the exchange. GEM is designed for professional and informed investors. HKEx went public in June 2000 and is regulated by the Securities and Futures Commission of Hong Kong. During 2001 the benchmark Hang Seng index plunged 24.5%, making it the worst performing major Asian market index for 2001. Link: Hong Kong Exchanges and Clearing Limited

Contacts
Companies Registry
Queensway Government Offices
66 Queensway
Hong Kong
Tel: 2867 2600/2867 2604
Internet: www.info.gov.hk/cr/

Securities and Futures Commission
12th Floor, Edinburgh Tower
The Landmark
15 Queen's Road Central
Hong Kong
Tel: 852-2840-9222 and 852-2842-7666
Fax: 852-2521-7836
Internet: www.hksfc.org.hk

Hong Kong Monetary Authority
30th Floor
3 Garden Road
Central, Hong Kong
Tel: (852) 2878 8196
Fax: (852) 2878 8197
E-mail: hkma@hkma.gov.hk
Internet: www.info.gov.hk/hkma/index.htm

The Securities and Futures Commission
12th Floor, Edinburgh Tower
The Landmark
15 Queen's Road Central, Hong Kong
Tel: 852-2840-9222
Fax: 852-2521-7836
E-mail: enquiry@hksfc.org.hk
Internet: www.hksfc.org.hk

Office of the Commissioner of Insurance
21st Floor, Queensway Government Offices,
66 Queensway,
Hong Kong.
Tel: (852)2867 2565
Fax: (852)2869 0252
E-mail: iamail@oci.gov.hk
Internet: www.info.gov.hk/oci/index.htm

Hong Kong Exchanges and Clearing Limited
12/F One International Finance Centre
1 Harbour View Street
Central, Hong Kong
Tel: (852) 2522 1122
Fax: (852) 2295 3106
Email: info@hkex.com.hk
Internet: www.hkex.com.hk

Latest available figures

Jurisdiction Description
On 1 July 1997 China resumed its sovereignty over Hong Kong after about 150 years of British colonial control. Under the handover agreement Hong Kong is classified as a special administrative region of China and operates under the 'one country, two systems' policy pledged by China's central government. The Sino-British Joint Declaration (1984) and the Basic Law allows Hong Kong to retain a high degree of autonomy in most matters except foreign and defence affairs for 50 years after the handover. Hong Kong continues to participate in international agreements and organisations under the name 'Hong Kong, China'. Hong Kong is made up of Hong Kong island, Kowloon, the New Territories, and numerous small islands.

Population (end-2002)
6.81 million. English and Cantonese are the languages of administration and commerce. Mandarin Chinese is becoming more common.

Currency
Hong Kong dollar. US$1 = HK$7.8 (February 2003)

Legal system
The Basic Law (approved in March 1990 by China’s National People’s Congress) is Hong Kong’s ‘mini-constitution'. The legal system is based on English common law. Court of Final Appeal in the Hong Kong Special Administrative Region

Government
Hong Kong is governed by a chief executive, a cabinet of 14 principal officers, and a 60-seat Legislative Assembly (LegCo). The Basic Law allows for the 'gradual and orderly' progress toward the ultimate aim of electing the chief executive and all members of the legislature by universal suffrage after 2007. However China's government ruled in April 2004 that it would not permit direct election of the chief executive in 2007 or of LegCo in 2008. The chief executive is responsible for appointing the principal officers for the cabinet. Except for the appointment, removal and discipline of officials and the adoption of measures in emergencies, the chief executive consults the cabinet on all major policy matters. The chief executive is elected by an 800-member election committee for a five-year term. The election committee seats are split equally between four sectors: (1) industrial, commercial and financial; (2) the professions; (3) labour, social services and religious groups; and (4) members of the Legislative Council, local deputies to the National People’s Congress, representatives of local members of the National Committee of the Chinese People's Political Consultative Conference and representatives of district-based organizations. The 60 LegCo members are chosen through two separate sets of votes. Thirty members are selected by universal suffrage in geographic constituencies. The other 30 legislators are selected through 'functional constituencies', which represent business and professional groups. The functional constituencies have an electorate of about 200,000 voters, which includes companies and other groups. In Hong Kong's five geographic constituencies, allocated one seat for each 100,000 registrants, each voter casts a single vote for a party list. Under the proportional-representation system, the number of ballots cast is divided by the number of available seats. Any party with more than that number of votes wins a seat and has that number of votes deducted from its total. Parties with the highest total of voters after the round of deductions get the remaining seats. Legco members serve four-year terms.

Executive branch
Chief of state: President of China JIANG Zemin (since 27 March 1993)
Head of government: Chief Executive TUNG Chee-hwa (since 1 July 1997)

Executive Council
Chief secretary for administration: Donald Tsang Yam-kuen
Financial secretary: Henry Tang
Secretary for justice: Elsie Leung Oi-sie
Secretary for commerce, industry and technology: John Tsang
Secretary for housing, planning and lands: Michael Suen Ming-yeung
Secretary for education and manpower: Arthur Li Kwok-cheung
Secretary for health, welfare and food: Yeoh Eng-kiong
Secretary for the civil service: Joseph Wong Wing-ping
Secretary for home affairs: Patrick Ho Chi-ping
Secretary for security: Ambrose Lee
Secretary for economic development and labour: Stephen Ip Shu-kwan
Secretary for the environment, transport and works: Sarah Liao Sau-tung
Secretary for financial services and the treasury: Frederick Ma Si-hang

Elections
The Legislative Council elections were last held 10 September 2000. The next election is due to be held on 12 September 2004. Election results 2000 (% of vote): Democratic Party 12 seats (34.7%); Democratic Alliance for the Betterment of Hong Kong 11 seats (29.68%); Liberal Party eight seats (N/A), Hong Kong Progressive Alliance five seats; Frontier two seats; Association for Democracy and People’s Livelihood one seat; Non-affiliated members 21 seats. Voter turnout: 43.6% or 1.33 million registered voters. Hong Kong’s chief executive, Tung Chee Hwa, was re-elected for a second term by the jurisdiction’s election committee in March 2002. The next vote for chief executive is due to be held in 2007.

Political Parties
Democratic Party (Martin Lee Chu-ming, chairman); Liberal Party (James Tien Pei-chun, chairman); Democratic Alliance for the Betterment of Hong Kong (Tsang Yuk-sing, chairman); Frontier Party (Emily Lau Wa-hing, chairwoman); Hong Kong Progressive Alliance (Ambrose Lau Hon-chuen); Alliance for People’s Democracy and Livelihood (NA); Citizens’ Party (Alex Chan, chairman); Hong Kong Democratic Foundation, (Patrick Shiu Kin-ying, chairman); Association for Democracy and People's Livelihood (Frederick Fung Kin Kee, chairman).

Economic overview
Hong Kong is a free market economy dependent on international trade and finance. The services sector accounts for about 85% of GDP and employs about 87% of the work force. Principal services: import/export trade, financing, real estate, business services, and tourism (13.1 million arrivals in 2000). Manufacturing: textiles, clothing/apparel, electronics, watches and clocks, and chemical and industrial machinery. As a regional transhipment trading hub for mainland China, Hong Kong has a thriving export and re-export business. China is Hong Kong's largest trading partner, and accounts for about one-third of Hong Kong's total exports. Since the accession of China to the World Trade Organisation at the end of 2001 other centres are expected to compete for the re-export business. Hong Kong is already a member of the World Trade Organisation and the International Monetary Fund. Hong Kong has the world's busiest container port, which handles about 18 million TEU's (twenty-foot equivalent units) of cargo annually.

National accounts (2003)
Gross national product had a real decline of 4.8%. At current market values GNP increased by 0.6% over 2002 to HK$1,269 billion. GDP was estimated at HK$1,235 billion at current market prices. GDP composition by sector: Wholesale, retail and import/export trades, restaurants and hotels: 26.7%; financing, insurance, real estate and business services: 22.6%; community, social and personal services: 21.8%.

Balance of trade (2002)
Exports (including re-exports) of goods: US$200.07 billion. Imports of goods US$212.56 billion. Services balance of trade surplus: US$20.9 billion or 86.6% of the value of imports of services in 2002. Overall balance of payments surplus: US$15.82 billion or 6.9% of the total value of imports of goods and services in 2002.

Deflation rate (CPI) (2002)
-3%

Labour force (September - November 2003)
Total labour force: 3,482,000. Unemployment: 7.5%. Labour force — by occupation: wholesale and retail trade, restaurants, and hotels 31%, social services 11%, manufacturing 6.6%, financing, insurance, and real estate 13.1%, transport and communications 5.5%, construction 2.7%, other (including civil service) 30.1%.

Government accounts (2001-2002 revised)
Revenues US$22.2 billion. Total expenditures: US$31.2 billion, made up of US$26 billion in operating expenditures and US$5.2 billion in capital expenditures. Government’s overall budget deficit for the financial year ending 31 March 2003 is forecast at US$8.97 billion. Financial year: (1 April - 31 March).

Fiscal Reserves (31 March 2004 forecast)
HK$239.1 billion at end-March 2004 (US$30.7 billion). Equivalent to 11 months of government expenditure.

Debt (September 2002)
Government debt: none. Guaranteed debts: US$331.4 million.

Holidays (2004)
General holidays (days on which banks, schools, public offices and government departments close). 1 January (New Year’s Day), 22-24 January (Chinese New Year), 5 April (Monday after Ching Ming Festival), 9 April (Good Friday), 10 April (day after Good Friday); 12 April (Monday after Easter), 1 May (Labour Day), 26 May (Birth of Buddha), 22 June (Dragon Boat Festival), 1 July (Hong Kong Special Administrative Region Establishment Day), 29 September (day after Mid-Autumn Festival), 1 October (National Day), 22 October (Double Nine or Chung Yeung Festival), 25 December (Christmas Day), 27 December (First week-day after Christmas). In addition there are 12 statutory holidays on which all employees receive either a holiday or, by arrangement with their employer, another day in lieu. For a full list go to Holiday Festival: click here.

Time Zone
GMT plus 8 hours. There is no summer time clock change.

Sources
Hong Kong Government
Census and Statistics Department
Hong Kong Monetary Authority
International Monetary Fund
US State Department
Holiday Festival