2018 Investment Climate Statements: Hong Kong

Policies Towards Foreign Direct Investment

Hong Kong is the world’s second-largest recipient of foreign direct investment (FDI) according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2016. The HKG’s InvestHK encourages inward investment. U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis. Hong Kong does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment in a sector of the economy.

Capital gains are not taxed, nor are there withholding taxes on dividends and royalties. Profits can be freely converted and remitted. Foreign-owned and Hong Kong-owned company profits are taxed at the same rate – 16.5 percent. The tax rate on the first USD 255,000 profit for all companies will fall to 8.25 percent in 2018. No preferential or discriminatory export and import policies affect foreign investors. Domestic industries receive no direct subsidies. Foreign investments face no disincentives, such as quotas, bonds, deposits, or other similar regulations.

According to HKG statistics, 3,752 overseas companies had regional operations registered in Hong Kong in 2017. The U.S. has the largest number with 726. About 37 percent of the start-ups in Hong Kong come from overseas.

Hong Kong’s Business Facilitation Advisory Committee is a platform for the HKG to consult the private sector on regulatory proposals and implementation of new or proposed regulations.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors can invest in any business and own up to 100 percent of equity. Like domestic private entities, foreign investors have the right to engage in all forms of remunerative activity.

The HKG owns all land in Hong Kong, which the HKG administers by granting long-term leases without transferring title. Expatriates claim that a 15 percent Buyer’s Stamp Duty on all non-permanent-resident and corporate buyers discriminates against them.

The main exceptions to the HKG’s open foreign investment policy are:

• Broadcasting – Voting control of free-to-air television stations by non-residents is limited to 49 percent. There are also residency requirements for the directors of broadcasting companies.
• Legal Services – Foreign lawyers at foreign law firms may only practice the law of their jurisdiction. Foreign law firms may become “local” firms after satisfying certain residency and other requirements. Localized firms may thereafter hire local attorneys, but must do so on a 1:1 basis with foreign lawyers. Foreign law firms can also form associations with local law firms.

Other Investment Policy Reviews

Hong Kong last conducted the Trade Policy Review in 2014 through the World Trade Organization (WTO). https://www.wto.org/english/tratop_e/tpr_e/g306_e.pdf 

Business Facilitation

The Economic Analysis and Business Facilitation Unit under the Financial Secretary’s Office is responsible for business facilitation initiatives aimed at improving the business regulatory environment of Hong Kong. The HKG’s business facilitation mechanism provides for equitable treatment of women and underrepresented minorities. InvestHK, a government agency, seeks to attract and retain FDI of strategic importance to the economic development of Hong Kong.

The e-Registry (https://www.eregistry.gov.hk/icris-ext/apps/por01a/index ) is an online platform provided by the Companies Registry and the Inland Revenue Department for applying for company incorporation and business registration. Applicants must first register for a free user account, presenting an original identification document or a certified true copy of the identification document. The Companies Registry normally issues the Business Registration Certificate and the Certificate of Incorporation on the same day for applications for company incorporation. For applications for registration of a non-Hong Kong company, it issues the Business Registration Certificate and the Certificate of Registration two weeks after submission.

The HKG defines small and medium-sized enterprises (SMEs) as any manufacturing enterprise employing fewer than 100 persons, or any non-manufacturing enterprise employing fewer than 50 persons. The HKG has set up multiple programs to assist enterprises in securing trade finance and business capital, expanding markets, and enhancing overall competitiveness. These support measures are available to any enterprise in Hong Kong, irrespective of its origin.

Outward Investment

As a free market economy, Hong Kong does not promote or incentivize outward investment, nor restricts domestic investors from investing abroad. Mainland China and British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2016.

Hong Kong has bilateral investment agreements with Australia, Austria, the Belgium-Luxembourg Economic Union, Canada, Chile, Denmark, Finland, France, Germany, Italy, Japan, South Korea, Kuwait, the Netherlands, New Zealand, Sweden, Switzerland, Thailand, the United Kingdom and ASEAN. Trade agreements concluded with Bahrain, Myanmar, Mexico, and the United Arab Emirates are currently pending completion of internal procedures by each party concerned. The HKG is currently negotiating agreements with Iran and Russia. All such agreements are based on a model text approved by Mainland China through the Sino-British Joint Liaison Group. U.S. firms are generally not at a competitive or legal disadvantage, since Hong Kong’s market is open and its legal system impartial.

Hong Kong has a free trade agreement (FTA) with Mainland China, called the Closer Economic Partnership Arrangement (CEPA). This provides tariff-free export to Mainland China of Hong Kong-origin goods and preferential access for specific services sectors. CEPA has gradually expanded since its signing in 2003. Under the CEPA framework, Hong Kong enjoys liberalized trade in services using a “negative list” that covers 134 service sectors for Hong Kong and grants national treatment to Hong Kong’s 62 service industries. Hong Kong also enjoys most-favored nation treatment, with liberalization measures included in FTAs signed by Mainland China and other countries automatically extended to Hong Kong. In June 2017, Hong Kong and Mainland China signed an investment agreement and an economic and technical cooperation agreement. The investment agreement, effective from January 2018, includes provision of national treatment and non-services investment using a negative list approach.

Hong Kong has FTAs with New Zealand, member states of the European Free Trade Association, Chile, Macau, and ASEAN. These agreements are consistent with the provisions of the WTO. Hong Kong is negotiating FTAs with Georgia, the Maldives and Australia.

The United States does not have a bilateral treaty on the avoidance of double taxation with Hong Kong, but has a Tax Information Exchange Agreement and an Inter-Government Agreement on the Foreign Account Tax Compliance Act with Hong Kong. As of March 2018, the HKG had Comprehensive Avoidance of Double Taxation Agreements with 39 tax jurisdictions. It has signed agreements with fifteen jurisdictions on the automatic exchange of financial account information in tax matters. Effective from February 2018, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters signed by Mainland China extends to Hong Kong.

Transparency of the Regulatory System

Hong Kong’s regulations and policies typically strive to avoid distortions or impediments to the efficient mobilization and allocation of capital and to encourage competition. Bureaucratic procedures and “red tape” are transparent and held to a minimum.

In amending or making any legislation, including investment laws, the HKG conducts a three-month public consultation on the issue concerned which then informs the drafting of the bill. Lawmakers discuss draft bills and then vote. Hong Kong’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Gazette is the official publication of the Hong Kong government. This website https://www.gld.gov.hk/egazette/english/whatsnew/whatsnew.html  is the centralized online location where laws, regulations, draft bills, notices and tenders are published. All public comments received by the HKG are published at the websites of relevant policy bureaus.

International Regulatory Considerations

Hong Kong is a member of WTO and Asia-Pacific Economic Co-operation (APEC), adopting international norms. It notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade and was the first WTO member to ratify the Trade Facilitation Agreement (TFA). Hong Kong has achieved a 100 percent rate of implementation commitments.

Legal System and Judicial Independence

Hong Kong’s legal system is based on the rule of law and the independence of the judiciary. Regulations or enforcement actions are appealable and they are adjudicated in the court system.

Hong Kong’s commercial law covers a wide range of issues related to doing business. Most of Hong Kong’s contract law is found in the reported decisions of the courts in Hong Kong and other common law jurisdictions.

Laws and Regulations on Foreign Direct Investment

Hong Kong’s extensive body of commercial and company law generally follows that of the United Kingdom, including the common law and rules of equity. Most statutory law is made locally. The local court system, which is independent of the government, provides for effective enforcement of contracts, dispute settlement, and protection of rights. Foreign and domestic companies register under the same rules and are subject to the same set of business regulations.

The Hong Kong Code on Takeovers and Mergers (1981) sets out general principles for acceptable standards of commercial behavior.

The Companies Ordinance (Chapter 622) applies to Hong Kong-incorporated companies and contains the statutory provisions governing compulsory acquisitions. For companies incorporated in jurisdictions other than Hong Kong, relevant local company laws apply. Effective from March 2018, the Companies Ordinance requires companies to retain information about significant controllers accurate and up-to-date.

The Securities and Futures Ordinance (Chapter 571) contains provisions requiring shareholders to disclose interests in securities in listed companies and provides listed companies with the power to investigate ownership of interests in its shares. It regulates the disclosure of inside information by listed companies and restricts insider dealing and other market misconduct.

Competition and Anti-Trust Laws

The independent Competition Commission (CC) investigates anti-competitive conduct that prevents, restricts, or distorts competition in Hong Kong. The CC issued in August 2017 its first five-year block exemption order (BEO) for vessel sharing agreements in consideration of the economic efficiencies generated by such agreements. The CC, however, did not issue a BEO for voluntary discussion agreements (VDAs), which relate to particular shipping routes, on the grounds that such agreements do not enhance overall economic efficiency. This is in contrast to such exemptions given by other jurisdictions such as the U.S., Canada, Malaysia and Singapore.

In March 2017, the CC brought its first case before the Competition Tribunal (CT) for alleged bid-rigging by five information technology companies. A trial is scheduled for June 2018.

Expropriation and Compensation

The U.S. Consulate General is not aware of any expropriations in the recent past. Expropriation of private property in Hong Kong may occur if it is clearly in the public interest and only for well-defined purposes such as implementation of public works projects. Expropriations are to be conducted through negotiations, in a non-discriminatory manner in accordance with established principles of international law. Investors in and lenders to expropriated entities are to receive prompt, adequate, and effective compensation. If agreement cannot be reached on the amount payable, either party can refer the claim to the Land Tribunal.

Dispute Settlement

ICSID Convention and New York Convention

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) apply to Hong Kong. Hong Kong’s Arbitration Ordinance provides for enforcement of awards under the 1958 New York Convention.

Investor-State Dispute Settlement

The U.S. Consulate General is not aware of any investor-state disputes in recent years involving U.S. or other foreign investors or contractors and the HKG. Private investment disputes are normally handled in the courts or via private mediation. Alternatively, disputes may be referred to the Hong Kong International Arbitration Center.

International Commercial Arbitration and Foreign Courts

The HKG accepts international arbitration of investment disputes between itself and investors and has adopted the United Nations Commission on International Trade Law model law for domestic and international commercial arbitration. It has with Mainland China a Memorandum of Understanding modelled on the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) for reciprocal enforcement of arbitral awards.

Under Hong Kong’s Arbitration Ordinance emergency relief granted by an emergency arbitrator before the establishment of an arbitral tribunal, whether in or outside Hong Kong, is enforceable. In January 2018, the Arbitration Ordinance clarified that all disputes over intellectual property rights may be resolved by arbitration.

The Mediation Ordinance details the rights and obligations of participants in mediation, especially related to confidentiality and admissibility of mediation communications in evidence.

The HKG amended the Arbitration Ordinance and the Mediation Ordinance in 2017 to make it clear that third party funding for arbitration and mediation, respectively, is permitted under Hong Kong law. The amendments have not yet come into force.

Foreign judgments in civil and commercial matters may be enforced in Hong Kong by common law or under the Foreign Judgments (Reciprocal Enforcement) Ordinance, which facilitates reciprocal recognition and enforcement of judgments on the basis of reciprocity. A judgment originating from a jurisdiction that does not recognize a Hong Kong judgment may still be recognized and enforced by the Hong Kong courts, provided that all the relevant requirements of common law are met. However, a judgment will not be enforced in Hong Kong if it can be shown that either the judgment or its enforcement is contrary to Hong Kong’s public policy.

Bankruptcy Regulations

Hong Kong’s Bankruptcy Ordinance provides the legal framework to enable i) a creditor to file a bankruptcy petition with the court against an individual, firm, or partner of a firm who owes him/her money; and ii) a debtor who is unable to repay his/her debts to file a bankruptcy petition against himself/herself with the court. Bankruptcy offences are subject to criminal liability.

The Companies (Winding Up and Miscellaneous Provisions) (Amendment) Bill, enacted in February 2017, aims to improve and modernize the corporate winding-up regime by increasing creditor protection and further enhancing the integrity of the winding-up process.

The Commercial Credit Reference Agency collates information about the indebtedness and credit history of SMEs and makes such information available to members of the Hong Kong Association of Banks and the Hong Kong Association of Deposit Taking Companies.

Hong Kong’s average duration of bankruptcy proceedings is 0.8 year, ranking 43rd in the world for resolving insolvency, according to the World Bank’s Doing Business 2018 rankings.

Investment Incentives

Hong Kong imposes no export performance or local content requirements as a condition for establishing, maintaining, or expanding a foreign investment. There are no requirements that Hong Kong residents own shares, that foreign equity is reduced over time, or that technology is transferred on certain terms.

The HKG allows a deduction on interest paid to overseas associated corporations and to provide an 8.25 percent concessionary tax rate derived by a qualifying corporate treasury center.

In July 2017, the HKG enacted the amendments to the Inland Revenue Ordinance, which lowers the current corporate tax rate from 16.5 percent to an effective tax rate of around 3 to 4 percent, so as to attract aircraft leasing companies to develop their business in Hong Kong.

In March 2017, the HKG required in leases of two designated land sale sites that developments include construction of a cinema so as to promote growth in Hong Kong’s film industry.

Hong Kong-registered companies with a significant proportion of their research, design, development, production, management, or general business activities located in Hong Kong are eligible to apply to the Innovation and Technology Fund (ITF), which provides financial support for research and development (R&D) activities in Hong Kong. Hong Kong Science & Technology Parks (Science Park) and Cyberport are HKG-owned enterprises which provide subsidized rent and financial support through incubation programs to early-stage startups.

In October 2017, the HKG announced additional tax deductions for domestic expenditure on R&D incurred by firms. Firms will enjoy a 300 percent tax deduction for the first HKD 2 million (USD 255,000) qualifying R&D expenditure and a 200 percent deduction for the remainder. In February 2018, the Financial Secretary set aside HKD 50 billion (USD 6.4 billion) to support innovation and technology development in Hong Kong. These funds are largely directed at supporting and adding programs through the ITF, Science Park, and Cyberport.

Foreign Trade Zones/Free Ports/Trade Facilitation

Hong Kong, a free port without foreign trade zones, has modern and efficient infrastructure making it a regional trade, finance, and services center. Rapid growth has placed severe demands on that infrastructure, necessitating plans for major new investments in transportation and shipping facilities, including a planned expansion of container terminal facilities, additional roadway and railway networks, major residential/commercial developments, community facilities, and environmental protection projects. Construction on a third runway at Hong Kong International Airport is scheduled for completion by 2023.

Hong Kong and Mainland China have a Free Trade Agreement Transshipment Facilitation Scheme that enables Mainland-bound consignments passing through Hong Kong to enjoy tariff reductions on the Mainland. The arrangement covers goods traded between Mainland China and its trading partners, including the ASEAN members, Australia, Bangladesh, Chile, Costa Rica, Iceland, India, New Zealand, Pakistan, Peru, South Korea, Sri Lanka, Switzerland and Taiwan.

The Financial Secretary announced in 2018 that the HKG will establish a Trade Single Window (TSW) to provide a one-stop electronic platform for submitting trade documents, promoting cross-border customs cooperation and expediting trade declaration and customs clearance. The HKG has planned to launch the TSW in three phases. Phase 1 will be rolled out in mid-2018 covering more than 10 types of trade documents whose applications could be made on a voluntary basis. Phases 2 and 3 are expected to be implemented in 2022 and 2023, respectively.

Performance and Data Localization Requirements

The HKG does not mandate local employment or performance requirements. It does not follow a forced localization policy making foreign investors use domestic content in goods or technology.

Foreign nationals normally need a visa to live or work in Hong Kong. Short-term visitors are permitted to conduct business negotiations and sign contracts while on a visitor’s visa or entry permit. Companies employing people from overseas must demonstrate that a prospective employee has special skills, knowledge, or experience not readily available in Hong Kong.

Hong Kong allows free and uncensored flow of information. The freedom and privacy of communication is enshrined in Basic Law Article 30. The HKG is required to follow due process and warrant requirements to engage in electronic surveillance or demand most communications records from telecoms providers. The HKG has no requirements for foreign IT providers to turn over source code and does not interfere with data center operations.

Hong Kong does not currently restrict transfer of personal data outside the SAR, but the dormant Section 33 the Personal Data (Privacy) Ordinance would prohibit such transfers unless the personal data owner consents or other specified conditions are met. The Privacy Commissioner is authorized to bring Section 33 into effect at any time, but it has been dormant since 1995.

Real Property

The Basic Law ensures protection of leaseholders’ rights in the long-term leases that are the basis of the SAR’s real property system. The Basic Law also protects the lawful traditional rights and interests of the indigenous inhabitants of the New Territories. The real estate sector, one of Hong Kong’s pillar industries, is equipped with a sound banking mortgage system. HK ranked 55th for ease of registering property, according to the World Bank’s Doing Business 2018 rankings.

Land transactions in Hong Kong operate on a deeds registration system governed by the Land Registration Ordinance. The Land Titles Ordinance provides greater certainty on land title and simplifies the conveyancing process.

Intellectual Property Rights

Hong Kong’s commercial and company laws provide for effective enforcement of contracts and protection of corporate rights. Hong Kong has filed its notice of compliance with the Trade-Related Aspects of Intellectual Property Rights (TRIPs) requirements of the WTO. The Intellectual Property Department, which includes the Trademarks and Patents Registries, is the focal point for the development of Hong Kong’s IP regime. The Customs and Excise Department (CED) is the sole enforcement agency for intellectual property rights (IPR). Hong Kong has acceded to the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, and the Geneva and Paris Universal Copyright Conventions. Hong Kong also continues to participate in the World Intellectual Property Organization as part of Mainland China’s delegation; the HKG has seconded an officer from CED to INTERPOL in Lyon, France to further collaborate on IPR enforcement.

The HKG devotes significant resources to IPR enforcement. Hong Kong courts have imposed longer jail terms than in the past for violations of Hong Kong’s Copyright Ordinance. CED works closely with foreign customs agencies and the World Customs Organization to share best practices and to identify, disrupt, and dismantle criminal organizations engaging in IP theft that operate in multiple countries. The government has conducted public education efforts to encourage respect for IPR. Pirated and counterfeit products remain available on a small scale at the retail level throughout Hong Kong. CED detected a total of 916 infringement cases in 2017, an eight percent increase from 2016. 202 of these cases involved internet crime.

Other IPR challenges include end-use piracy of software and textbooks, internet peer-to-peer downloading, and the illicit importation and transshipment of pirated and counterfeit goods from Mainland China and other places in Asia. Hong Kong authorities have taken steps to address these challenges by strengthening collaboration with Mainland Chinese authorities, prosecution of software end-use piracy, and monitoring of suspect shipments at points of entry. It has also established a task force to monitor and crack down on internet-based peer-to-peer piracy.

The Drug Office of Hong Kong imposes a drug registration requirement that applicants for new drug registrations must make a non-infringement patent declaration. The Copyright Ordinance protects any original copyrighted work created or published by any person anywhere in the world. Amendments to the ordinance criminalize the copying and distribution of infringing printed works in business and the act of circumventing technological protection measures; provide rental rights for sound recordings, computer programs, films, and comic books; and include enhanced penalty provisions and other legal tools to facilitate enforcement. The law defines possession of an infringing copy of computer programs, movies, TV dramas, and musical recordings (including visual and sound recordings) for use in business as an offense, but provides no criminal liability for other categories of works.

The HKG has consulted unsuccessfully with internet service providers and content user representatives on a voluntary framework for IPR protection in the digital environment. It has also failed to pass a further amendment to the bill that would enhance copyright protection against online piracy. In October 2017, the Hong Kong Creative Industries Association announced that its pilot run of an Infringing Website List Scheme had removed the advertisements on infringing websites by 50 brands in Hong Kong and reduced traffic of a number of infringing websites by 14 percent on average.

The Patent Ordinance allows for granting of an independent patent in Hong Kong based on patents granted by the United Kingdom and Mainland China. Patents granted in Hong Kong are independent and capable of being tested for validity, rectified, amended, revoked, and enforced in Hong Kong courts. In June 2016, the Legislative Council (LegCo) passed an “original grant patent” (OPG) bill that, while retaining the current re-registration system for the granting of standard patents, takes into account the patent systems generally established in regional and international patent treaties. The HKG will implement the OGP system in 2019 upon the completion of all preparatory work.

The Registered Design Ordinance is modeled on the EU design registration system. To be registered, a design must be new and the system requires no substantive examination. The initial period of five years protection is extendable for four periods of five years each, up to 25 years.

Hong Kong’s trademark law is TRIPS-compatible and allows for registration of trademarks relating to services. All trademark registrations originally filed in Hong Kong are valid for seven years and renewable for 14-year periods. Proprietors of trademarks registered elsewhere must apply anew and satisfy all requirements of Hong Kong law. When evidence of use is required, such use must have occurred in Hong Kong. In December 2017, the HKG announced that it was working to implement the Madrid Protocol.

Hong Kong has no specific ordinance to cover trade secrets; however, the government has a duty under the Trade Descriptions Ordinance to protect information from being disclosed to other parties. The Trade Descriptions Ordinance prohibits false trade descriptions, forged trademarks, and misstatements regarding goods and services supplied in the course of trade.

The HKG has accepted recommendations from a 2015 report by the Working Group on IP and set aside about USD 3 million in the coming three years to introduce new support measures. In April 2018, the HKG introduced to the LegCo a bill to expand from five categories to eight the scope of tax deductions for capital expenditure incurred for the purchase of IP rights.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

There are no impediments to the free flow of financial resources. Non-interventionist economic policies, complete freedom of capital movement, and a well-understood regulatory and legal environment make Hong Kong a regional and international financial center. It has one of the most active foreign exchange markets in Asia.

A Deposit Protection Scheme (DPS) protects depositors up to a maximum of HKD 500,000 (USD 64,100) per depositor per bank. While Hong Kong requires locally licensed banks to participate in the DPS fund, overseas-incorporated banks may apply for an exemption if a comparable scheme in their home jurisdiction covers deposits taken in by its Hong Kong branches.

The Hong Kong Monetary Authority’s (HKMA) Infrastructure Financing Facilitation Office (IFFO) provides a platform for pooling the efforts of investors, banks, and the financial sector to offer comprehensive financial services for infrastructure projects in emerging markets. In March 2018, IFFO joined the Global Infrastructure Facility as an advisory partner, contributing to the World Bank Group and international efforts to help make more infrastructure projects bankable.

Under the Insurance Companies Ordinance, insurance companies are authorized by the Insurance Authority to transact business in Hong Kong. As of December 2017, there were 160 authorized insurance companies in Hong Kong, 71 of them foreign or Mainland Chinese companies.

The Hong Kong Stock Exchange’s total market capitalization rose by 37.5 percent to USD 4.4 trillion in 2017, with 2,118 listed firms at year-end. Hong Kong Exchanges and Clearing Limited, a listed company, operates the stock and futures exchanges. The Securities and Futures Commission, an independent statutory body outside the civil service, has licensing and supervisory powers to ensure the integrity of markets and protection of investors.

No discriminatory legal constraints exist for foreign securities firms establishing operations in Hong Kong via branching, acquisition, or subsidiaries, and rules governing operations are the same for all firms. No laws or regulations specifically authorize private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control.

In 2017, a total of 252 Chinese enterprises had “H” share listings on the stock exchange, with combined market capitalization of USD 867.7 billion. The Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects allow individual investor to cross trade Hong Kong and Mainland stocks. The ETF Connect, which will allow international and mainland investors to trade in exchange-traded fund products listed in Hong Kong, Shanghai and Shenzhen, is expected to start operation in the second half of 2018.

By the end of 2017, 50 Mainland mutual funds and ten Hong Kong mutual funds were allowed to be distributed in each other’s markets through the Mainland-Hong Kong Mutual Recognition of Funds scheme. Hong Kong also has a mutual recognition of funds program with Switzerland.

Hong Kong has developed its debt market with the Exchange Fund bills and notes program. Hong Kong Dollar debt stood at USD 230 billion by the end of 2017. In ten years to November 2017, RMB 833.6 billion (USD 133.4 billion) of offshore RMB bonds were issued in Hong Kong. Multinational enterprises, including McDonald’s and Caterpillar, have also issued debt. The Bond Connect, a new mutual market access scheme that allows investors from Mainland China and overseas to trade in each other’s respective bond markets, was launched in July 2017.

The HKG requires workers and employers to contribute to retirement funds under the Mandatory Provident Fund (MPF) scheme. Contributions are expected to channel roughly USD five billion annually into various investment vehicles. By the end of 2017, the net asset values of MPF funds amounted to USD 108.1 billion.

Money and Banking System

Hong Kong has a three-tier system of deposit-taking institutions: licensed banks (154), restricted license banks (19), and deposit-taking companies (17). HSBC is Hong Kong’s largest banking group. With its majority-owned subsidiary Hang Seng Bank, HSBC controls more than 40.3 percent of Hong Kong Dollar (HKD) deposits. The Bank of China (Hong Kong) is the second-largest banking group with13.9 percent of HKD deposits throughout 200 branches. In total, the five largest banks in Hong Kong had more than USD 1.7 trillion in total assets at the end of 2017. Thirty-five U.S. “authorized financial institutions” operate in Hong Kong, and most banks in Hong Kong maintain U.S. correspondent relationships. Full implementation of the Basel III capital, liquidity, and disclosure requirements is expected by January 2019.

Credit in Hong Kong is allocated on market terms and is available to foreign investors on a non-discriminatory basis. The private sector has access to the full spectrum of credit instruments as provided by Hong Kong’s banking and financial system. Legal, regulatory, and accounting systems are transparent and consistent with international norms. The HKMA, the de facto central bank, is responsible for maintaining the stability of the banking system and managing the Exchange Fund that backs Hong Kong’s currency. Real Time Gross Settlement helps minimize risks in the payment system and brings Hong Kong in line with international standards.

Banks in Hong Kong have in recent years strengthened anti-money laundering and counter-terrorist financing controls, including the adoption of more stringent customer due diligence (CDD) process for existing and new customers. Between 2015 and 2016, the HKMA received 95 complaints about banks rejecting applications to open business accounts. In September 2016, the HKMA issued a circular stressing that “CDD measures adopted by banks must be proportionate to the risk level and banks are not required to implement overly stringent CDD processes.”

The HKMA welcomes the establishment of virtual banks, which will be subject to the same set of supervisory principles and requirements applicable to conventional banks. Industries expect that the HKMA will issue guidelines on authorization of virtual banks in May 2018.

In March 2016, the HKMA set up the Fintech Facilitation Office (FFO) to promote Hong Kong as a fintech hub in Asia. Seven banks in Hong Kong have joined an HKMA-led blockchain-based trade finance proof-of-concept to digitize and share trade documents, automate processes and reduce risks and fraud. In November 2017, the HKMA and the Monetary Authority of Singapore signed an MOU to jointly develop a cross-border trade-finance blockchain platform.

Foreign Exchange and Remittances

Foreign Exchange Policies

Conversion and inward/outward transfers of funds are not restricted. The HKD is a freely convertible currency linked via de facto currency board to the U.S. dollar. The exchange rate is allowed to fluctuate in a narrow band between HKD 7.75 – HKD 7.85 = USD 1.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies. Hong Kong has no restrictions on the remittance of profits and dividends derived from investment, nor reporting requirements on cross-border remittances. Foreign investors bring capital into Hong Kong and remit it through the open exchange market.

Hong Kong has anti-money laundering (AML) legislation allowing the tracing and confiscation of proceeds derived from drug-trafficking and organized crime. Hong Kong has an anti-terrorism law that allows authorities to freeze funds and financial assets belonging to terrorists. Effective from July 2018, travelers arriving in Hong Kong with currency or bearer negotiable instruments (CBNIs) exceeding HKD 120,000 (USD 15,385) must make a written declaration to the CED. For a large quantity of CBNIs imported or exported in a cargo consignment, an advanced electronic declaration must be made to the CED.

Sovereign Wealth Funds

The Future Fund, Hong Kong’s wealth fund, was established in 2016 with an endowment of USD 28.2 billion and seeks higher returns through long-term investments. The Future Fund adopts a “passive” role as a portfolio investor, and will be placed with the Exchange Fund, which follows the Santiago Principles, for an initial ten-year period. About half of the Future Fund will be deployed in alternative assets, mainly global private equity and overseas real estate, over a three-year period. The rest is placed with the Exchange Fund’s Investment Portfolio, part of which is a multi-currency portfolio invested in the major fixed-income markets.

Hong Kong has several major HKG-owned enterprises, which are classified as “statutory bodies.” Hong Kong is party to the Government Procurement Agreement (GPA) within the framework of WTO. Annex 3 of the GPA lists as statutory bodies the Housing Authority, Hospital Authority, Airport Authority, Mass Transit Railway Corporation Limited, and the Kowloon-Canton Railway Corporation, which procure in accordance with the agreement.

The HKG provides more than half the population with subsidized housing, along with most hospital and education services from childhood through the university level. The government also owns major business enterprises, including the stock exchange, railway, and airport.

Conflicts occasionally arise between the government’s roles as owner and policy-maker. Industry observers have recommended that the government establish a separate entity to coordinate its ownership of government-held enterprises and initiate a transparent process of nomination to the boards of government-affiliated entities. Other recommendations from the private sector include establishing a clear separation between industrial policy and the government’s ownership function, and minimizing exemptions of government-affiliated enterprises from general laws.

The 2012 Competition Law exempts all but six of the statutory bodies from the law’s purview. While the government’s private sector ownership interests do not materially impede competition in Hong Kong’s most important economic sectors, industry representatives have encouraged the government to adhere more closely to the Guidelines on Corporate Governance of State-owned Enterprises of the Organization for Economic Cooperation and Development (OECD).

Privatization Program

All major utilities in Hong Kong, except water, are owned and operated by private enterprises, usually under an agreement framework by which the HKG regulates each utility’s management.

The Hong Kong Corporate Citizenship Program (HKCCP) organizes a series of activities and seminars and grants awards for good corporate citizenship. Amendments to the Companies Ordinance mandate listed companies and larger private companies to report on their corporate environmental policies and performances. In January 2017, the Hong Kong Stock Exchange adopted a higher standard of disclosure – ‘comply or explain’ – about its environmental key performance indicators for listed companies. Hong Kong is not a member of the OECD, and hence, the OECD Guidelines for Multinational Enterprises is not applicable to Hong Kong companies. The HKG, however, commends enterprises for fulfilling their social responsibility.

Hong Kong has an excellent track record in combating corruption and U.S. firms have not identified corruption as an obstacle to FDI. The Independent Commission Against Corruption (ICAC) is responsible for combating corruption. A bribe to a foreign official is a criminal act, as is the giving or accepting of bribes, for both private individuals and government employees. Offences are punishable by imprisonment and large fines.

The Hong Kong Ethics Development Center (HKEDC), established by the ICAC, promotes business and professional ethics to sustain a level-playing field in Hong Kong. The International Good Practice Guidance – Defining and Developing an Effective Code of Conduct for Organizations of the Professional Accountants in Business Committee published by the International Federation of Accountants (IFAC) and is in use with the permission of IFAC.

Hong Kong is not a party to the United Nations Anticorruption Convention, nor a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:
Simon Pei, Commissioner
Independent Commission Against Corruption
303 Java Road, North Point, Hong Kong
+852-2826-3111
com-office@icac.org.hk

Hong Kong is politically stable, with demonstrations almost always peaceful. The U.S. Consulate General is not aware of recent incidents involving politically motivated damage to projects or installations.

Hong Kong’s unemployment rate rose slightly to 2.8 percent in the fourth quarter of 2017, with the unemployment rate of youth aged 15-19 at 7.9 percent. In 2016, skilled personnel working as administrators, managers, professionals, and associate professionals accounted for 38 percent of the total working population. At the end of 2017, there were about 370,000 foreign domestic helpers working in Hong Kong. In 2017, about 20,200 foreign professionals came to work in the city. The Employees Retraining Board provides skills re-training for local employees. To address a shortage of highly skilled technical and financial professionals, the HKG seeks to attract qualified foreign and Mainland Chinese workers.

The Employment Ordinance (EO) and the Employees’ Compensation Ordinance prohibit the termination of employment in certain circumstances: 1) Any pregnant employee who has at least four weeks’ service and who has served notice of her pregnancy; 2) Any employee who is on paid statutory sick leave and; 3) Any employee who gives evidence or information in connection with the enforcement of the EO or relating to any accident at work, cooperates in any investigation of his employer, is involved in trade union activity, or serves jury duty may not be dismissed because of those circumstances. Breach of these prohibitions is a criminal offence.

According to the EO, someone employed under a continuous contract for not less than 24 months is eligible for severance payment if: 1) dismissed by reason of redundancy; 2) under a fixed term employment contract that expires without being renewed due to redundancy; or 3) laid off.

Unemployment benefits are income and asset tested on an individual basis if living alone; if living with other family members, the total income and assets of all family members are taken into consideration for eligibility. Recipients must be between the ages of 15-59, capable of work, and actively seeking full-time employment.

Local law provides for the rights of association and of workers to establish and join organizations of their own choosing. The government does not discourage or impede the formation of unions. As of 2016, Hong Kong’s 828 registered unions had 888,466 members, a participation rate of about 24.9 percent. Its labor legislation is in line with international laws. Hong Kong has implemented 41 conventions of the International Labor Organization in full and 18 others with modifications. Workers who allege discrimination against unions have the right to a hearing by the Labor Relations Tribunal. Legislation protects the right to strike. Collective bargaining is not protected by Hong Kong law; there is no obligation to engage in it; and it is not widely used. For more information on labor regulations in Hong Kong, please visit the following website: http://www.labour.gov.hk/eng/legislat/contentA.htm  (Chapter 57 “Employment Ordinance”).

Overseas Private Investment Corporation coverage is not available in Hong Kong. Hong Kong is a member of the World Bank Group’s Multilateral Investment Guarantee Agency.

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Alan Brinker, Consul, Economic Affairs
U.S. Consulate General Hong Kong
26 Garden Road, Central
Hong Kong SAR, PRC
+852-2841-2489
information_resource_center_hk@yahoo.com