Policies Towards Foreign Direct Investment

Hong Kong is the world’s third-largest recipient of foreign direct investment (FDI) according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2019. The HKG’s InvestHK encourages inward investment, offering free advice and services to support companies from the planning stage through to the launch and expansion of their business. 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 is currently 8.25 percent. 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, nor other similar regulations.

According to HKG statistics, 4,031 overseas companies had regional operations registered in Hong Kong in 2019. The United States has the largest number with 735. Hong Kong is working to attract more start-ups as it works to develop its technology sector and about 34 percent of 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 2018 through the World Trade Organization (WTO). https://www.wto.org/english/tratop_e/tpr_e/g380_e.pdf 

Business Facilitation

The Efficiency Office under the Innovation and Technology Bureau is responsible for business facilitation initiatives aimed at improving the business regulatory environment of Hong Kong.

The e-Registry (https://www.eregistry.gov.hk/icris-ext/apps/por01a/index) is a convenient and integrated online platform provided by the Companies Registry and the Inland Revenue Department for applying for company incorporation and business registration. Applicants, for incorporation of local companies or for registration of non-Hong Kong companies, 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.

Outward Investment

As a free market economy, Hong Kong does not promote or incentivize outward investment, nor restrict domestic investors from investing abroad. Mainland China and British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2018.

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 usually 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 then discuss draft bills and vote. Hong Kong’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Gazette is the official publication of the HKG. 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.

The Office of the Ombudsman, established in 1989 by the Ombudsman Ordinance, is Hong Kong’s independent watchdog of public governance.

Public finances are regulated by clear laws and regulations. The Basic Law prescribes that authorities strive to achieve a fiscal balance and avoid deficits. There is a clear commitment by the HKG to publish fiscal information under the Audit Ordinance and the Public Finance Ordinance, which prescribe deadlines for the publication of annual accounts and require the submission of annual spending estimates to the Legislative Council (LegCo). There are few contingent liabilities of the HKG, with details of these items published about seven months after the release of the fiscal budget. In addition, LegCo members have a responsibility to enhance budgetary transparency by urging government officials to explain the government’s rationale for the allocation of resources. All LegCo meetings are open to the public so that the government’s responses are available to the general public.

International Regulatory Considerations

Hong Kong is an independent 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 common law system is based on the United Kingdom’s, and judges are appointed by the Chief Executive on the recommendation of the Judicial Officers Recommendation Commission.. 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. 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. In January 2019, a newly-established Hong Kong Seaport Alliance (HKSA) announced that they had agreed to operate and manage 23 berths, a reported market share of 95 percent, across eight terminals at Kwai Tsing Container Terminal in a bid to deliver more efficient services to carriers and enhance the overall port’s competitiveness.  The CC subsequently launched, as a matter of priority, a probe, still underway as of March 2020, into whether the HKSA acted in contravention of competition rules.

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. The Arbitration Ordinance stipulates 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.

Third party funding for arbitration and mediation came into force on February 1, 2019.

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.

In January 2019, Hong Kong and mainland China signed a new Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the mainland and of Hong Kong to facilitate enforcement of judgments in the two jurisdictions. The arrangement, which is pending implementing legislation, will cover the following key features: contractual and tortious disputes in general; commercial contracts, joint venture disputes, and outsourcing contracts; intellectual property rights, matrimonial or family matters; and judgments related to civil damages awarded in criminal cases.

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) Ordinance 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 just under ten months, ranking 45th in the world for resolving insolvency, according to the World Bank’s Doing Business 2020 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 does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

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

The HKG offers an effective tax rate of around three to four percent to attract aircraft leasing companies to develop business in Hong Kong.

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 origin.

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 providing subsidized rent and financial support through incubation programs to early-stage startups.

The HKG offers additional tax deductions for domestic expenditure on R&D incurred by firms. Firms 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. Since 2017, the Financial Secretary has announced over HKD 120 billion (USD 15.3 billion) in funding 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.

HKD 20 billion (USD 2.6 billion) has been earmarked for the Research Endowment Fund, which provides research grants to academics and universities.  Another HKD 10 billion (USD 1.3 billion) has been set aside to provide financial incentives to foreign universities to partner with Hong Kong universities and establish joint research projects housed in two research clusters in Science Park, one specializing in artificial intelligence and robotics and the other specializing in biotechnology.  Another HKD 20 billion (USD 2.6 billion) has been appropriated to begin construction on a second, larger Science Park, located on the border with Shenzhen, which is intended to provide a much larger number of subsidized-rent facilities for R&D which are also expected to have special rules allowing mainland residents to work onsite without satisfying normal immigration procedures.

In September 2018, the HKG launched the Technology Talent Admission Scheme (TechTAS) and the Postdoctoral Hub Program (PHP) to attract non-local talent and nurture local talent. The TechTAS provides a fast-track arrangement for eligible technology companies/institutes to admit overseas and mainland technology talent to undertake R&D for them in the areas of biotechnology, artificial intelligence, cybersecurity, robotics, data analytics, financial technologies, and material science are eligible for application. The PHP provides funding support to recipients of the ITF as well as incubatees and tenants of Science Park and Cyberport to recruit up to two postdoctoral talents for R&D. Applicants must possess a doctoral degree in a science, technology, engineering and mathematics-related discipline from either a local university or a well-recognized non-local institution.

The HKG will set up a USD 256.4 million Re-industrialization Funding Scheme in 2020 to subsidize manufacturers, on a matching basis, setting up smart production lines in Hong Kong.

In May 2018, the Hong Kong Monetary Authority (HKMA) launched the Pilot Bond Grant Scheme with enhanced tax concessions for qualifying debt instruments in order to enhance Hong Kong’s competitiveness in the international bond market.

In February 2020, the Financial Secretary announced that the HKG will inject USD 44 million for a pilot subsidy scheme to encourage the logistics industry to enhance productivity through the application of technology.

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 in the mainland. The arrangement covers goods traded between mainland China and its trading partners, including ASEAN members, Australia, Bangladesh, Chile, Costa Rica, Iceland, India, New Zealand, Pakistan, Peru, South Korea, Sri Lanka, Switzerland and Taiwan.

The HKG launched in December 2018 phase one of the Trade Single Window (TSW) to provide a one-stop electronic platform for submitting ten types of trade documents, promoting cross-border customs cooperation, and expediting trade declaration and customs clearance. Phase two is expected to be implemented in 2023.

The latest version of CEPA has established principles of trade facilitation, including simplifying customs procedures, enhancing transparency, and strengthening cooperation.

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. Hong Kong’sSecurities and Futures Commission is considering new data storage rules for financial institutions.

Real Property

The Basic Law ensures protection of leaseholders’ rights in 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 51st for ease of registering property, according to the World Bank’s Doing Business 2020 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 generally provides robust intellectual property rights (IPR) protection and enforcement and for the most part has instituted an IP regime consistent with international standards. Hong Kong has effective IPR enforcement capacity, a judicial system that supports enforcement efforts with an effective public outreach program that discourages IPR-infringing activities.   Despite the robustness of Hong Kong’s IP system, challenges remain, particularly in copyright infringement and effective enforcement against the heavy, bi-directional flow of counterfeit goods.

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 Bern 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 888 infringement cases in 2019, a 6.6 percent decrease from 2018. Of these cases, 203 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, prosecuting end-use software piracy, and monitoring 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 requires applicants for new drug registrations make a non-infringement patent declaration. The Copyright Ordinance protects any original copyrighted work created or published anywhere in the world and criminalizes copying and distribution of protected works for business and circumventing technological protection measures. The Ordinance also provides rental rights for sound recordings, computer programs, films, and comic books; in addition to including 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.  In November 2019, an amendment bill to implement the Marrakesh Treaty was referred to the LegCo’s House Committee, which was however caught in a gridlock as it failed to elect a chairman after rounds of meetings.

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 amendments to the Copyright Ordinance that would enhance copyright protection against online piracy. As of February 2020, the Infringing Website List Scheme (IWLS) established by the Hong Kong Creative Industries Association to clamp down on websites that display pirated content reportedly included 60 infringing websites in the portal. In addition, 25 HKG agencies have been assigned with an individual password for checking with the IWLS prior placing digital advertisements and tenders.

The Patent Ordinance allows for granting 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 December 2019, the Original Grant Patent system came into operation. The new system takes into account the patent systems generally established in regional and international patent treaties, while retaining the existing re-registration system for the granting of standard patents.

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 March 2019, the HKG introduced into LegCo a draft bill to implement the Madrid Protocol. The bill is waiting for its second and third readings on the LegCo floor. Upon enactment of the bill and completion of other preparatory work, the HKG will liaise with the Mainland to seek application of the Madrid Protocol to Hong Kong beginning in 2022.

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.

There are eight types of IP rights for which the capital expenditure, such as registration expenditure and purchase cost, are deductible.

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.

Asset and wealth managed in Hong Kong posted a record high of USD 3.1 trillion in 2018 (the latest figure available), with two-thirds of that coming from overseas investors. In order to enhance the competitiveness of Hong Kong’s fund industry, open-ended fund companies as well as onshore and offshore funds are offered a profits tax exemption.

The HKMA’s 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. IFFO is an advisory partner of World Bank Group’s Global Infrastructure Facility.

Under the Insurance Companies Ordinance, insurance companies are authorized by the Insurance Authority to transact business in Hong Kong. As of March 2020, there were 163 authorized insurance companies in Hong Kong, 70 of them foreign or mainland Chinese companies.

The Hong Kong Stock Exchange’s total market capitalization dropped by 28.0 percent to USD 4.9 trillion in 2019, with 2,449 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.  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 2019, a total of 284 Chinese enterprises had “H” share listings on the stock exchange, with combined market capitalization of USD 823.9 billion. The Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects allow individual investors to cross trade Hong Kong and mainland stocks. In December 2018, the ETF Connect, which was planned to allow international and mainland investors to trade in exchange-traded fund products listed in Hong Kong, Shanghai and Shenzhen, was put on hold indefinitely due to “technical issues.”

By the end of 2019, 50 mainland mutual funds and 23 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 mutual recognition of funds programs with Switzerland, Ireland, France, the United Kingdom, and Luxembourg.

Hong Kong has developed its debt market with the Exchange Fund bills and notes program. Hong Kong Dollar debt stood at USD 278.0 billion by the end of 2019. As of February 2020, RMB 1,056.6 billion (USD 147.9 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 mutual market access scheme, allows investors from mainland China and overseas to trade in each other’s respective bond markets through a financial infrastructure linkage in Hong Kong.

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 2019, the net asset values of MPF funds amounted to USD 124.3 billion.

Money and Banking System

Hong Kong has a three-tier system of deposit-taking institutions: licensed banks (163), restricted license banks (17), and deposit-taking companies (13). 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 with 13.9 percent of HKD deposits throughout 200 branches. In total, the five largest banks in Hong Kong had more than USD 1.8 trillion in total assets at the end of 2018. 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 completed in 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. 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 are subject to the same set of supervisory principles and requirements applicable to conventional banks. The HKMA has granted eight virtual banking licenses by end-March 2020.

The HKMA’s Fintech Facilitation Office (FFO) aims to promote Hong Kong as a fintech hub in Asia. FFO has launched the faster payment system to enable banks customers to make cross-bank/e-wallet payments easily and created a blockchain-based trade finance platform to reduce errors and risks of fraud. The HKMA has signed nine fintech co-operation agreements with the regulatory authorities of Abu Dhabi, Brazil, Dubai, France, Poland, Singapore, Switzerland, Thailand and the United Kingdom.

Foreign Exchange and Remittances

Foreign Exchange

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. 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. The fund seeks higher returns through long-term investments and adopts a “passive” role as a portfolio investor. About half of the Future Fund has been 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, which follows the Santiago Principles, for an initial ten-year period. In February 2020, the HKG announced that it will deploy 10 percent of the Future Fund to establish a new portfolio focusing on domestic investments.

Hong Kong has several major HKG-owned enterprises 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 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 Stock Exchange adopts a higher standard of disclosure – ‘comply or explain’ – about its environmental key performance indicators for listed companies. Results of a consultation process to review its environmental, social and governance (ESG) reporting guidelines indicate strong support for enhancing the ESG reporting framework. It will implement proposals from the consultation process in July 2020. Because Hong Kong is not a member of the OECD, OECD Guidelines for Multinational Enterprises are not applicable to Hong Kong companies. The HKG, however, commends enterprises for fulfilling their social responsibility.

Mainland China ratified the United Nations Convention Against Corruption in January 2006, and it was extended to Hong Kong in February 2006. The Independent Commission Against Corruption (ICAC) is responsible for combating corruption and has helped Hong Kong develop a track record for combating corruption. U.S. firms have not identified corruption as an obstacle to FDI. 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.

Resources to Report Corruption

Simon Pei, Commissioner
Independent Commission Against Corruption
303 Java Road, North Point, Hong Kong
+852-2826-3111
Email: com-office@icac.org.hk

Hong Kong experienced sustained political unrest in 2019, with several protests turning violent at times. There were also instances of individuals detonating improvised incendiary devices or improvised explosive devices.  The U.S. Consulate General is not aware of recent incidents involving politically motivated damage to projects or installations, though protesters regularly vandalized companies linked to mainland China or associated with pro-government views.  Some companies faced pressure from mainland China to take political stances against Hong Kong protesters.  Beijing’s imposition of the National Security Law on June 30, 2020 has introduced heightened uncertainties for companies operating in Hong Kong.  As a result, U.S. citizens traveling or residing in Hong Kong may be subject to increased levels of surveillance, as well as arbitrary enforcement of laws and detention for purposes other than maintaining law and order.

Hong Kong’s unemployment rate stood at 3.3 percent in the fourth quarter of 2019, with the unemployment rate of youth aged 15-19 rising to 10.2 percent. In 2019, skilled personnel working as administrators, managers, professionals, and associate professionals accounted for 41.3 percent of the total working population. At the end of March 2019, there were about 391,500 foreign domestic helpers working in Hong Kong. In 2019, about 18,931 foreign professionals came to work in the city, more than 3,000 fewer than the previous year. 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.

Parties in a labor dispute can consult the free and voluntary conciliation service offered by the Labor Department (LD). A conciliation officer appointed by the LD will help parties reach a contractually binding settlement. If there is no settlement, parties can commence proceedings with the Labor Tribunal (LT), which can then be raised to the Court of First Instance and finally the Court of Appeal for leave to appeal. The Court of Appeal can grant leave only if the case concerns a question of law of general public importance.

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 2018, Hong Kong’s 846 registered unions had 911,593 members, a participation rate of about 25.06 percent. In 2019, 23 new worker unions formed as a result of the political protests. Hong Kong’s 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”).

The LT has the power to make an order for reinstatement or re-engagement without securing the employer’s approval if it deems an employee has been unreasonably and unlawfully dismissed. If the employer does not reinstate or re-engage the employee as required by the order, the employer must pay to the employee a sum amounting to three times the employee’s average monthly wages up to USD 9,300. The employer commits an offence if he/she willfully and without reasonable excuse fails to pay the additional sum.

Starting from January 2019, male employees with are entitled to five days’ paternity leave (increased from three days).

In January 2020, the HKG introduced bill amending the EO in order to increase the statutory maternity leave from the current ten weeks to 14 weeks. The bill is pending discussions in LegCo.

Effective May 1 2019, the statutory minimum hourly wage rate increase from USD 4.4 to USD 4.8.

In August 2019, Hong Kong was hit by widespread strikes resulting from Hong Kong’s political unrest. Strikers included aviation workers, teachers, lifeguards, security workers, and construction workers.

In February 2020, about 2,500 medical workers of the Hospital Authority took part in an industrial action, demanding the HKG close its border to mainland China to prevent the spread of  COVID-19. They ended the strike a few days later without getting their demands realized.

* Source for Host Country Data: Hong Kong Census and Statistics Department

Alan Brinker, Consul, Economic Affairs
U.S. Consulate General Hong Kong
26 Garden Road, Central