Hong Kong may be small, but it has big ambitions to serve as a gateway to Asia, home to some of the most vibrant economies in the globe. Fortunately Hong Kong also holds great potential: low tax rates, world-class airports, seaports and other infrastructure, and a remarkably open business environment, as well as proximity to China and strong ties with Southeast Asia, all work heavily in its favor.
While the runaway Chinese economic engine is slowing its gears, the country's economic growth is still expected to clock in at 7 percent this year, well ahead of Japan, the U.S. or Europe. And Southeast Asia, a gigantic market of over 620 million people with a rising wealth class, is poised to become a much greater player in the global economy once the ASEAN-Hong Kong Free Trade Area agreement between Southeast Asian countries kicks off next year.
Already, many multinational companies choose Hong Kong as the base from which to conduct business in the rest of Asia. As of last count, there were 1,389 global firms that had established regional headquarters in the city. These include some of the biggest names in the financial world, such as BNY Mellon and Vanguard Group.
Even in today's hyper-connected, virtually enhanced world, geographic location matters. "We need a very strong presence here because this is where our clients are," said Rosemarie Kriesel, Managing Director, BNY Mellon. "We also value the city's strategic positioning in the region - we can get to any of our offices within a maximum of six hours." Of course, the ease of doing business in Hong Kong is also a major draw. "The whole infrastructure is very supportive and conducive to our business aspirations," said Kriesel.
In April, I traveled to Hong Kong for one week to report on the government's "Think Asia, Think Hong Kong" campaign and see for myself. The aim of this campaign is to lure even more global businesses to set up regional headquarters in the city. From April 12 to 18, my days (and nights) were booked. I met with some of Hong Kong's top businessmen, visited an electronics fair and toured the city's busy high-tech startup incubator called Cyberport. Here are a few things I learned about the benefits of setting up shop in Hong Kong for foreign companies:
- Taxes. I am happy to report that Hong Kong probably has the lowest tax rates in the world: 15 percent maximum on individual earnings and 16.5 percent for corporate profits. What's more, there is no value-added tax, capital gains tax, estate duty tax, or withholding tax on dividends and interest. Only income derived from the city is taxable, that earned elsewhere is not.
- Free and competitive economy. For 20 consecutive years, the U.S.-based Heritage Foundation has ranked Hong Kong the freest economy in the world in its yearly list of Economic Freedom. If that's not enough for you, Canada's Fraser Institute has also consistently ranked Hong Kong number one in terms of economic freedom. Hong Kong also ranked the third easiest place in the world to do business, according to the World Bank's Doing Business Report 2015.
- No foreign exchange controls. Capital flows freely in and out of the city. Now, this is an especially important factor if you want to establish a presence in other Asian countries through Hong Kong.
- Language. You don't have to speak Chinese to survive here. Given its status as a former British colony, both Cantonese and English are the official languages of Hong Kong. This means all official signs and announcements must be written in English, while all government officials, including police and immigration officials, must be able to communicate in English. Most business people, shop assistants, restaurant workers and hotel staff are also competent in English.
- Close ties with China, High Degree of Autonomy. This is perhaps the biggest reason why companies all over the world want to come to Hong Kong. It's the entry point to China, the biggest economy in Asia, with a population of more than a billion, but it's not China, meaning the business culture is far more open. China's official policy toward Hong Kong is "One Country, Two Systems."
A quick history lesson: the British government returned Hong Kong to China on July 1, 1997, when it became a Special Administrative Region (SAR). What does this mean? Simple. While Hong Kong is now politically part of China, it still enjoys a high degree of autonomy in terms of executive, legislative and judicial power, and it continues to participate in international forums such as the World Trade Organization and the Asia-Pacific Economic Cooperation, in its own right.
China also wants to develop Hong Kong both as an offshore renminbi (that's the Chinese currency) business center and an international asset management hub. And it has designed policies to enhance Hong Kong's status as an international center for financial services, trade and shipping. So the opportunities Hong Kong offers are only going to get better for overseas firms.
If your interest is piqued, now might be the time to find out more. Click this link for more details about the how to do business in Asia through Hong Kong.