Hong Kong became a Special Administrative Region (SAR) of the People’s Republic of China (PRC) on July 1, 1997, with its status defined in the Sino-British Joint Declaration and the Basic Law. Under the concept of “one country, two systems,” the People’s Republic of China (PRC) government promised that Hong Kong would be vested with executive, legislative, and independent judicial power, and that its social and economic systems would remain unchanged for 50 years after reversion. The PRC’s imposition of the National Security Law (NSL) on June 30, 2020 undermined Hong Kong’s autonomy and introduced heightened uncertainty for foreign and local firms operating in Hong Kong.
As a result, the U.S. Government has taken measures under Executive Order 13936 on Hong Kong Normalization to eliminate or suspend aspects of Hong Kong’s differential treatment, including issuing a suspension of licenses under the Arms Export Control Act, giving notice of termination of an agreement that provided for reciprocal tax exemption on income from the international operation of ships, establishing new marking rules requiring goods made in Hong Kong to be labeled “Made in China,” and imposing sanctions against several former and current Hong Kong and PRC government officials. On March 31, 2022, the Secretary of State again certified Hong Kong does not warrant treatment under U.S. law in the same manner as U.S. laws were applied to Hong Kong before July 1, 1997.
Since the imposition of the NSL in Hong Kong by Beijing, 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. The PRC’s 14th Five-Year Plan through 2025, which includes long-range objectives for 2035, lays out a plan for Hong Kong to become more closely integrated into the overall development of the Mainland and encourages deeper co-operation between the Mainland and Hong Kong. On March 5, 2022, PRC Premier Li Keqiang asserted that Beijing intends to exercise “overall jurisdiction over the two SARs,” referring to Hong Kong and Macau.
On July 16, 2021, the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security, issued an advisory to U.S. businesses regarding potential risks to their operations and activities in Hong Kong. These include risks for businesses following the imposition of the NSL; data privacy risks; risks regarding transparency and access to critical business information; and risks for businesses with exposure to sanctioned Hong Kong or PRC entities or individuals. The imposition of the NSL by Beijing, significant curtailments in protected freedoms, and the reduction of the high degree of autonomy Hong Kong enjoyed in the past has raised concerns among a number of international firms operating in Hong Kong.
Hong Kong is the United States’ twelfth-largest export market, thirteenth largest for total agricultural products, and sixth largest for high-value consumer food and beverage products. Hong Kong’s economy, with advanced institutions and regulatory systems, is bolstered by competitive sectors including financial and professional, trading, logistics, and tourism, although tourism has suffered devastating drops since 2020 due to COVID-19. The Hong Kong Government’s (HKG) adherence to a “Zero COVID” policy for most of the past two years has also imposed high economic costs on residents and businesses, and drastically reduced the number of visitors to the territory. Since Beijing’s 2020 imposition of the NSL on Hong Kong and the city’s implementation of COVID-19 travel restrictions, some international firms in Hong Kong have relocated entirely, while others have shifted key staff or operations elsewhere.
Hong Kong provides for no distinction in law or practice between investments by foreign-controlled companies and those controlled by local interests. Foreign firms and individuals can incorporate their operations in Hong Kong, register branches of foreign operations, and set up representative offices without encountering discrimination or undue regulation. There are no restrictions on the ownership of such operations. Company directors are not required to be residents of or in Hong Kong. Reporting requirements are straightforward and are not onerous. On economic issues, Hong Kong generally pursues a free market philosophy with minimal government intervention. The HKG generally welcomes foreign investment, neither offering special incentives nor imposing disincentives for foreign investors.
While Hong Kong’s legal system had been traditionally viewed as a bastion of judicial independence, authorities have placed considerable pressure on the judiciary over the previous year. Rule of law risks that were formerly limited to mainland China are now increasingly a concern in Hong Kong. In March 2020, two sitting UK judges resigned from the Hong Kong Court of Final Appeal, with the UK government citing a systematic erosion of liberty and democracy that made it untenable for those judges to sit on Hong Kong’s highest court.
The service sector accounted for more than 90 percent of Hong Kong’s nearly USD 367 billion gross domestic product (GDP) in 2021. Hong Kong hosts a large number of regional headquarters and regional offices, though Hong Kong’s deteriorating political environment and COVID-related travel restrictions have led some firms to depart. The number of U.S. firms with regional bases in Hong Kong fell over the previous decade. Approximately 1,260 U.S. companies are based in Hong Kong, according to Hong Kong’s 2021 census data, with more than half regional in scope. Finance and related services companies, such as banks, law firms, and accountancies, dominate the pack. Seventy of the world’s 100 largest banks have operations in Hong Kong.
1. Openness To, and Restrictions Upon, Foreign Investment
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 2021, with a significant amount bound for mainland China. The HKG’s InvestHK department 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, or other similar regulations.
According to HKG statistics, 3,940 overseas companies had regional operations registered in Hong Kong as of June 1, 2021. The United States has the largest number with 664. Hong Kong is working to attract more start-ups as it develops its technology sector, and about 28 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. 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.
Limits on Foreign Control and Right to Private Ownership and Establishment
The HKG owns virtually all land in Hong Kong, which the HKG administers by granting long-term leases without transferring title. Foreign residents claim that a fifteen 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-qualified lawyers may only practice the law of their home jurisdiction, provided the firm they are working for is licensed in Hong Kong to work in those jurisdictions. Foreign law firms may become “local” firms after satisfying certain residency and other requirements. Localized firms may thereafter hire local attorneys and must maintain at least a 1:1 ratio of local attorneys to registered-foreign lawyers, without exception. 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
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.
Hong Kong’s Companies Registry permits public inspection of company information such as the full identification number of company directors and secretaries and their residential addresses. This information is currently available on a paid basis. Starting October 24, 2022, the HKG will restrict public access to this information, citing a need to balance privacy protections and transparency. Those approved by the HKG as “specified persons” will continue to have unrestricted access to the Companies Registries. The ability to apply for status as a “specified person” is largely limited to those working in finance, law, and compliance. Government transparency advocates assert the changes will limit the free flow of information and facilitate fraud, corruption, and other business malfeasance.
As a free market economy, Hong Kong does not promote or incentivize outward investment, nor does it restrict domestic investors from investing abroad. Mainland China and the British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2020 (based on most recent data available).
The United States does not have a bilateral treaty on the avoidance of double taxation with Hong Kong, but the United States and Hong Kong have an agreement for the Exchange of Information Relating to Taxes, with protocol, signed at Hong Kong, March 25, 2014, and an agreement for Cooperation to Facilitate the Implementation of the Foreign Account Tax Compliance Act, signed at Hong Kong, November 13, 2014. As of April 2020, the HKG had Comprehensive Avoidance of Double Taxation Agreements (CDTAs) with 45 tax jurisdictions, and negotiations with fourteen tax jurisdictions are underway. In September 2018, the Convention on Mutual Administrative Assistance in Tax Matters signed by mainland China came into force for Hong Kong. As of February, 2022, the number of participating jurisdictions amounted to 144.
Hong Kong is a member of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting and joined the Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy (October 8, 2021), which provides for implementation of a global minimum corporate tax of fifteen percent. Hong Kong has a corporate income tax rate of 16.5 percent, which is higher than the agreed global minimum rate. However, effective tax rates for some multinational enterprises (MNEs) are lower than fifteen percent due to preferential regimes for granting tax breaks and exemption for specific activity. Announced in the latest budget speech in February 2022, the HKG will consider introducing a domestic minimum top up tax for MNEs. The top up tax will start with the 2024-2025 tax season to ensure that the effective tax rates for MNEs reach the global minimum effective tax rate to safeguard Hong Kong’s taxing rights.
Under the President’s Executive Order on Hong Kong Normalization, which directs the suspension or elimination of aspects of Hong Kong’s differential treatment, the United States notified the Hong Kong authorities in August 2020 of its termination of the Agreement Concerning Tax Exemptions from the Income Derived from the International Operation of Ships.
3. Legal Regime
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. To make or amend 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 regulatory and accounting systems are transparent and consistent with international norms. Rule of law risks that were formerly limited to mainland China are now increasingly a concern in Hong Kong.
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), Hong Kong’s legislature. 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 the government’s responses are available to the general public. However, the HKG maintains a special fund for “national security expenditures” that is not subject to public scrutiny. In February 2021, the HKG’s annual budget allocated HKD 8 billion (approximately USD 1 billion) to this fund, and the HKG refused to provide information on how this money would be spent.
On June 18, 2021, a subsidiary legislation was gazetted to implement the changes authorized under the Companies Ordinance. The new changes will gradually restrict the public from accessing certain information about executives in the Company Registry (CR) over three phases. Phase one starts on August 23, 2021 and allows new companies to have the option to withhold the usual residential addresses (URA) of directors and the full identification numbers (IDN) of directors and company secretaries from public inspection in hardcopy. Phase two starts on October 24, 2022 and will automatically swap out the URA and IDN of directors and company secretaries in the online CR with correspondence addresses and partial IDNs for public inspection. Phase three starts December 27, 2023 and allows all registered companies to retroactively apply to the CR to replace the URA and IDN of directors and company secretaries with their correspondence addresses and partial IDNs in hardcopy. “Specified persons” could apply to the CR for access to the protected information of directors and other persons.
Hong Kong’s Securities and Futures Commission issued a revised guideline in June 2021 requiring asset managers to disclose more information regarding their methodology for environment, sustainability, governance (ESG) funds, including the ESG focus, ESG investment strategy, expected proportion of ESG investment, any reference benchmark, and related risks. It also requires an ESG fund to conduct periodic assessment, at least annually, to assess how the fund has attained its ESG focus. To enhance transparency of ESG funds in Hong Kong, a central database of all SFC-authorized ESG funds is accessible through the SFC’s website.
International Regulatory Considerations
Hong Kong is an independent member of the WTO and Asia-Pacific Economic Co-operation (APEC). 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.
While Hong Kong is not a member of the Organization of Economic Cooperation and Development (OECD), it is a participant of the OECD’s Trade Committee and the Committee on Financial Markets. The HKG is in the process of implementing the OECD’s new minimum global corporate tax initiative, Base Erosion and Profit Shifting (BEPS 2.0).
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. In March 2020 two sitting UK judges resigned from the Hong Kong Court of Final Appeal, with the UK government citing a systematic erosion of liberty and democracy that made it untenable for those judges to sit on Hong Kong’s leading court.
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.
The imposition of the NSL and pressure from mainland China authorities raised serious concerns about the state of Hong Kong’s judicial independence. The NSL authorizes the mainland China judicial system, which lacks judicial independence and has a 99 percent conviction rate, to take over any national security-related case at the request of the HKG or the Office of Safeguarding National Security. Under the NSL, the Chief Executive is required to establish a list of judges to handle all cases concerning national security-related offenses. Legal scholars argued that this unprecedented involvement of the Chief Executive weakens Hong Kong’s judicial independence.
Media outlets controlled by the PRC central government in both Hong Kong and mainland China repeatedly accused Hong Kong judges of bias following the acquittals of protesters accused of rioting and other crimes. Some Hong Kong and PRC central government officials questioned the existence of the “separation of powers” in Hong Kong, including some statements that judicial independence is not enshrined in Hong Kong law and that judges should follow “guidance” from the government.
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 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 accurate and up to date information about significant controllers.
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 Antitrust Laws
The independent Competition Commission (CC) investigates anti-competitive conduct that prevents, restricts, or distorts competition in Hong Kong. In November 2021, the CC filed a case in the Competition Tribunal against three undertakings for participating in cartel conduct regarding the sale of inserters in Hong Kong.
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, and 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.
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 a Memorandum of Understanding with mainland China 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 inside 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 based on 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 as of February 2022 is still 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.
In May 2021, a new insolvency cooperation mechanism was concluded to allow for cooperation between Hong Kong and PRC Intermediate People’s Courts in three pilot areas, namely Shanghai, Xiamen, and Shenzhen. Liquidators from Hong Kong may apply to mainland courts for recognition of insolvency proceedings in Hong Kong, and vice versa. In December 2021, the Shenzhen Intermediate People’s Court ordered its first formal recognition for Hong Kong appointed liquidators and granted them powers to deal with assets located in mainland China, the first time under the new cooperation framework.
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 offenses 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.
4. Industrial Policies
The HKG does not have a practice of issuing guarantees or jointly financing foreign direct investment projects. 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 currently that Hong Kong residents own shares, that foreign equity is reduced over time, or that technology is transferred on certain terms.
However, the PRC’s 14th Five-Year Plan through 2025 with long-range objectives to 2035 does lay out a plan for Hong Kong to become an international innovation and technology hub, to become better integrated into the overall development of the Mainland, and to encourage deeper co-operation between the Mainland and Hong Kong related to innovation and technology. Closer alignment between the Hong Kong and mainland authorities on policies related to investment, innovation, and technology is expected.
The HKG offers an effective tax rate of around three to four percent to attract aircraft leasing companies to develop business in Hong Kong. To attract more maritime businesses to establish a presence in Hong Kong, the HKG also offers tax exemption or a reduced profit tax rate of 8.25 percent to eligible ship leasing and maritime insurance companies. 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.
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 130 billion (USD 16.7 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, the Science Park, and Cyberport.
In September 2021, the Securities and Futures (Amendment) Bill 2021 and Limited Partnership Fund and Business Registration Legislation (Amendment) Bill 2021 were passed to facilitate the re-domicile of foreign investment funds to Hong Kong for registration as Open-ended Fund Companies (OFCs) or Limited Partnership Funds (LPFs). To strengthen Hong Kong’s position as an asset management center, the HKG announced in March 2022 a proposal to provide tax concessions for the eligible family investment management entities managed by single‑family offices. Subject to certain conditions, the entities would be exempted from Hong Kong profits tax for its profits derived from certain qualifying transactions and incidental transactions.
In May2021, the HKG launched the Green and Sustainable Finance Grant Scheme to subsidize eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services.
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 was completed in September 2021.
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, Georgia, Iceland, India, Japan, Mongolia, Mauritius, 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 the Closer Economic Partnership Arrangement (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 show that a prospective employee has special skills, knowledge, or experience not readily available in Hong Kong.
Hong Kong generally allows free and uncensored flow of information, though the imposition of the NSL and subsequent Hong Kong legislation created certain limits on free expression, especially that which may be viewed as critical of the HKG or the mainland government. Thus, while Hong Kong authorities did not generally disrupt open access to the internet, there were numerous reports that the Hong Kong police, exercising powers granted by the NSL, required internet providers to block access to certain websites.
The freedom and privacy of communication is enshrined in Basic Law Article 30. The HKG has no requirements for foreign IT providers to turn over source code and does not interfere with data center operations. However, the NSL introduced a heightened risk of Mainland and Hong Kong authorities using expanded legal authorities to collect data from businesses and individuals in Hong Kong for actions that may violate “national security.” For more information, please refer to the Hong Kong business advisory released jointly by the Department of State, together with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security on July 16, 2021.
The NSL grants Hong Kong police broad authorities to conduct wiretaps or electronic surveillance without warrants in national security-related cases. The NSL also empowers police to conduct searches, including of electronic devices, for evidence in national security cases. Police can also require Internet Service Providers (ISPs) to provide or delete information relevant to these cases. In January 2021, the organizer of an online platform alleged that local Internet providers have made the site inaccessible for users in Hong Kong following requests from the Hong Kong government. One ISP subsequently confirmed that it blocked a website “in compliance with the requirement issued under the National Security Law.” In July 2021, Hong Kong police sent a letter to an Israel-based web hosting company demanding that the company remove a website and claiming that the website contained messages “likely to constitute offenses endangering national security.” In March 2022, Hong Kong police sent a letter to a UK-based human rights organization ordering the organization to remove its website within 72 hours or face potential fines and/or imprisonment under the NSL.
Hong Kong does not currently restrict transfer of personal data outside the SAR, but 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. The PRC’s Personal Information Protection Law (PIPL) does not apply to data for Hong Kong-based operations, and companies that wish to transfer mainland data that falls under the PIPL to Hong Kong would be required to undergo a PRC cybersecurity review.
In October 2021, the HKG amended the Personal Data (Privacy) Ordinance to introduce new provisions to combat doxxing acts and empower the Privacy Commissioner for Personal Data (PCPD) to carry out criminal investigations and institute prosecution towards doxxing-related offenses, including potentially against online platforms and service providers. The PCPD made its first arrest in December 2021 under this new legislation in which a suspect was arrested and accused of disclosing the victim’s personal details on an online platform.
In December 2020, Hong Kong’s Securities and Futures Commission (SFC) required licensed corporations in Hong Kong to seek the SFC’s approval before using the following for storing regulatory records: 1) premises controlled exclusively by an external data storage provider(s) located inside or outside Hong Kong, such as cloud service providers like Google Cloud, Microsoft Azure, or Amazon AWS; or 2) server(s) for data storage at data centers located inside or outside Hong Kong.
5. Protection of Property Rights
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.
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 strong intellectual property rights (IPR) protection and enforcement. Hong Kong has effective IPR enforcement capacity, and a judicial system that supports enforcement efforts with a public outreach program that discourages IPR-infringing activities. Despite the robustness of Hong Kong’s IP system, challenges remain, particularly in connection with 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. H 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). The Paris Convention for the Protection of Industrial Property, the Bern Convention for the Protection of Literary and Artistic Works, and the Universal Copyright Convention are applicable to Hong Kong. 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 substantial resources to IPR enforcement. CED works 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.
Other IPR challenges include end-use piracy of software and textbooks, internet peer-to-peer downloading, illegal streaming, 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 to make a non-infringement patent declaration. The Copyright Ordinance protects any original copyrighted work created or published anywhere in the world and criminalizes unauthorized copying and distribution of protected works. The Ordinance also provides rental rights for sound recordings, computer programs, films, and comic books, and includes 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 June 2020, Hong Kong passed legislation to implement the Marrakesh Treaty.
In November 2021, HKG launched a three-month public consultation on the proposal to update the Copyright Ordinance. The proposal is based on the 2014 Copyright (Amendment) Bill, which was shelved in 2016 amid opposition by pan-democratic Legislative Council (LegCo) members. The proposal covered five key areas to modernize the copyright regime, such as giving copyright owners a “technology-neutral exclusive communication right” and providing new copyrights exemptions for three purposes, including “parody, satire, caricature and pastiche; commenting on current events; and quotation of copyright works”. The three-month consultation ended in February 2022. The HKG released a summary of the public consultation process on April 19, 2022 stating that they will proceed with submitting the 2014 Copyright (Amendment) Bill, with minimal changes, to LegCo with the first half of 2022.
The Patent Ordinance allows for issuing a patent in Hong Kong based on patents issued by the United Kingdom and mainland China known as a “re-registration” system. Patents issued in Hong Kong have no effect in mainland China and vice versa. Patents issued in Hong Kong are capable of being tested for validity, rectified, amended, revoked, and enforced in Hong Kong courts. Hong Kong’s Original Grant Patent (OGP) system, which enables applicants to file patent applications directly in Hong Kong without having to go through the re-registration process, came into operation in December 2019. The OGP system co-exists with the re-registration system for the granting of patents, allowing applicants flexibility while applying for patent protections in Hong Kong. In June 2021, Hong Kong granted its first‑ever standard patent by original grant. As of end‑May 2021, the IPD received a total of 426 OGP applications, with 67 percent from non‑local Hong Kong residents.
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 allows for registration of trademarks relating to services. All trademark registrations originally filed in Hong Kong are valid for seven years and renewable for fourteen-year periods. Owners of trademarks registered elsewhere must apply in Hong Kong and satisfy all requirements of Hong Kong law. When evidence of use is required, such use must have occurred in Hong Kong. In June 2020, Hong Kong amended its Trade Marks Ordinance to provide a basis for the application of the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (Madrid Protocol). The HKG is expected to implement the Madrid Protocol in 2023 at the earliest.
Hong Kong has no specific ordinance to cover trade secrets; however, the government has a duty under its 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 during trade.
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.
Assets and wealth managed in Hong Kong amounted to USD 4.5 trillion in 2020 (the latest figure available), with almost two-thirds of that coming from overseas investors. To enhance the competitiveness of Hong Kong’s fund industry, OFCs as well as onshore and offshore funds are offered a profits tax exemption.
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. IFFO is an advisory partner of the 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 January 2022, there were 163 authorized insurance companies in Hong Kong; 67 of them were foreign or mainland Chinese companies.
The Hong Kong Stock Exchange’s total market capitalization dropped by eleven percent to USD 5.4 trillion in 2021, with 2,572 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 (SFC), 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 2021, 1,368 mainland companies were listed in Hong Kong, including a total of 296 “H” share listings on the stock exchange, with total market capitalization of around USD 4.3 trillion, or 79 percent of the market total. The Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects allow individual investors to cross trade Hong Kong and mainland stocks.
Cross-boundary Wealth Management Connect launched in September 2021 in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), which aims to integrate Hong Kong, Macau, and nine cities in the Mainland’s Guangdong Province together. The GBA, which still lacks major details, faces many challenges that are likely to stall its success, including coordinating three disparate legal systems, three different currencies, and removing barriers to the movement of capital and people. The Wealth Connect scheme will enable residents in GBA to carry out cross-boundary investment in wealth management products distributed by banks in the area.
Under the Mainland-Hong Kong Mutual Recognition of Funds scheme, eligible mainland and Hong Kong mutual funds were allowed to be distributed in each other’s market. Hong Kong also has mutual recognition of funds programs with Switzerland, Thailand, Ireland, France, the United Kingdom, and Luxembourg.
Hong Kong has developed its debt market with the Exchange Fund bills and notes program. Outstanding Hong Kong Dollar debt stood at USD 155 billion by the end of 2021. 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. As of December 2021, northbound trading under Bond Connect has attracted 78 out of the top 100 global asset management companies, and 3,233 international investors from 35 jurisdictions. Southbound trading under Bond Connect was launched in September 2021 to enable mainland institutional investors to invest in offshore bonds through the Hong Kong bond market.
In September 2021, the SFC revised its anti-money laundering (AML) and counter-financing of terrorism guidelines. The updated guidelines require financial institutions to apply additional due diligence and risk mitigation measures for cross-border correspondent relationships in the securities sector, such as determining through publicly available information whether the respondent institution has been subject to targeted financial sanctions or regulatory actions and obtaining senior management’s approval before establishing cross-border correspondent relationships. The guidelines also prohibit financial institutions from establishing or continuing a cross-border correspondent relationship with a shell financial institution.
In February 2021, the HKG announced it would issue green bonds regularly and expand the scale of the Government Green Bond Program to USD 22.5 billion within the next five years. In November 2021, the HKG issued USD 3 billion worth of U.S.- and euro- denominated green bonds and its inaugural offering of renminbi-denominated bonds. In February 2022, the HKG also announced that it would issue about USD 800 million worth of retail green bonds for the first time, with proceeds from the sale used for sustainable projects in the city.
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 December of 2021, the net asset values of MPF funds amounted to USD 152 billion.
A new listing regime for special purpose acquisition companies (SPACs) took effect on January 1, 2022 to provide an alternative to the traditional initial public offering (IPO) route. Under the city’s listing regime, a SPAC is required to raise IPO funds of a minimum of USD 130 million, and the trading of SPAC securities is restricted to professional and institutional investors only. Aquila Acquisition Corp, a SPAC backed by the asset management arm of mainland Chinese brokerage CMB International, made its trading debut on March 18, 2022. As of March 2022, the Hong Kong Stock Exchange has accepted a total of eleven SPAC applications.
Money and Banking System
Hong Kong has a three-tier system of deposit-taking institutions: licensed banks (159), restricted license banks (15), and deposit-taking companies (12). HSBC is Hong Kong’s largest banking group. With its majority-owned subsidiary Hang Seng Bank, HSBC controls more than 52.9 percent of total assets of banks in Hong Kong, followed by the Bank of China (Hong Kong), with 14.9 percent of total assets throughout 190 branches. In total, the five largest banks in Hong Kong had more than USD 2 trillion in total assets at the end of 2020. Full implementation of the Basel III capital, liquidity, and disclosure requirements was completed in 2019.
Hong Kong is a burgeoning cryptocurrency and digital asset hub in Asia. Cryptocurrency exchanges remain minimally regulated, despite a largescale crackdown in the Mainland. HKMA has announced plans to increase oversight of the market in an effort to combat scams and reduce volatility. In January 2022, HKMA announced plans for new crypto regulations, including guidelines for payment with stablecoins, investor protection policies, and digital asset authorities for licensed financial institutions.
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 counterterrorist financing controls, including the adoption of more stringent customer due diligence (CDD) process for existing and new customers. The HKMA stressed that “CDD measures adopted by banks must be proportionate to the risk level and banks are not required to implement overly stringent CDD processes.”
In May 2021, the HKG concluded a three-month consultation on legislative proposals to enhance Hong Kong’s anti-money laundering and counter-terrorist financing regime through the introduction of a licensing requirement for virtual asset services providers and a registration system for dealers in precious metals and stones. The government has yet to introduce a bill into the Legislative Council, as of end February 2022.
The NSL granted police the authority to freeze assets related to national security-related crimes. In June 2021 Hong Kong authorities froze the assets of flagship pro-democracy newspaper Apple Daily, which was subsequently forced to close. The HKMA advised banks in Hong Kong to report any transactions suspected of violating the NSL, following the same procedures as for money laundering. Hong Kong authorities reportedly asked financial institutions to freeze the bank accounts of media companies, former lawmakers, civil society groups, and other political targets who appear to be under investigation for their pro-democracy activities. Banks are also advised to disclose related property of clients who are found in breach of the NSL, according to the October 2021 guideline developed by the Hong Kong Association of Banks.
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 granted eight virtual banking licenses by the end of February 2022.
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 bank 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 Brazil, France, Poland, Singapore, Switzerland, Thailand, the United Arab Emirates, and the United Kingdom.
Foreign Exchange and Remittances
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.
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 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, which is called the Hong Kong Growth Portfolio (HKGP), focusing on domestic investments to lift the city’s competitiveness in financial services, commerce, aviation, logistics and innovation. Announced in February 2022, the HKG will inject HK$10 billion (USD 1.3 billion) to the HKGP, of which half will be used to set up the Strategic Tech Fund, and the other half will be used to set up a GBA Investment Fund.
7. State-Owned Enterprises
Hong Kong has several major HKG-owned enterprises classified as “statutory bodies.” Hong Kong is party to the Government Procurement Agreement (GPA) within the WTO framework. Annex 3 of the GPA lists as statutory bodies the Housing Authority, the Hospital Authority, the Airport Authority, the 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 policymaker. 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).
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.
8. Responsible Business Conduct
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 ESG reporting guidelines indicate strong support for enhancing the ESG reporting framework. It has implemented proposals from the consultation process since July 2020. Hong Kong is not a signatory of the Montreux Document on Private Military and Security Companies. Under the Security Bureau, the Security and Guarding Services Industry Authority is responsible for formulating issuing criteria and conditions for security company licenses and security personnel permits and determining applications for security company licenses.
In October 2021, the HKG announced its Climate Action Plan 2050, outlining strategies and targets for combating climate change and achieving carbon neutrality by 2050. Major decarbonization strategies cover four key areas, including net-zero electricity generation by ceasing the use of coal for daily electricity generation and increasing the share of renewable energy in the fuel mix for electricity generation to 15 percent, energy savings and green buildings, green transport, and waste reduction. The HKG will devote about USD 31 billion to take forward various measures on climate change mitigation and adaptation in the next 15 to 20 years.
The HKG has prioritized becoming a regional green finance hub and has introduced a number of initiatives over the last year to promote green finance, including mandating climate-related disclosures aligned with the Task Force on Climate-related Financial Disclosures recommendations by 2025, conducting the first climate stress test for the banking sector, and expanding the HKG’s Green Bond Program. Additionally, the HKG has announced it is exploring options to develop Hong Kong as a regional carbon trading hub.
The government offers several financial incentives to promote the adoption of electric vehicles (EVs) and to enhance EV charging infrastructure to attain zero vehicular emissions before 2050. The HKG extended the first registration tax concession period for EVs to March 31, 2024 and continues to allow enterprises to claim full profits tax deduction for their capital expenditure on the procurements of EVs in the first year. Gross floor area concessions were also granted to encourage developers to install more EV charging-enabled infrastructure in residential and commercial buildings.
In December 2020, a USD 25.6 million Green Tech Fund (GTF) began accepting applications. The GTF provides funding support to R&D projects which can help Hong Kong decarbonize and enhance environmental protection. Announced in February 2022, the HKG will inject an additional of USD 25.6 million to the GTF. A total of fourteen projects have been approved since the GTF was launched, and most of them are initiated by universities in Hong Kong.
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. Offenses 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 Peh, Commissioner
Independent Commission Against Corruption
303 Java Road, North Point, Hong Kong
10. Political and Security Environment
Beijing’s imposition of the National Security Law (NSL) on June 30, 2020 has introduced heightened uncertainties for companies operating in Hong Kong. As a result, U.S. citizens traveling through 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.
As of March 2022, police have carried out at least 160 arrests of opposition politicians and activists for alleged “national security” offenses, including one U.S. citizen, in an effort to suppress pro-democracy views and political activity in the city. Police have also reportedly issued arrest warrants under the NSL for at least thirty individuals residing abroad, including U.S. citizens. Since June 2019, police have arrested over 10,000 people on various charges in connection with largely peaceful protests against government policies.
Please see the July 16, 2021 business advisory issued by the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security, for a facts-based analysis of the risks for companies operating in Hong Kong.
As a result of Hong Kong’s decreased autonomy from China, the Department of Commerce removed many of the Department of Commerce’s License Exceptions. U.S. Customs and Borders Protection (CBP) requires goods produced in Hong Kong to be marked to show China, rather than Hong Kong, as their country of origin. This requirement took effect November 9, 2020. It does not affect country of origin determinations for purposes of assessing ordinary duties or temporary or additional duties. Hong Kong has requested World Trade Organization dispute consultations to examine the issue. As of March 2022, the Department of Treasury has sanctioned 42 Hong Kong and PRC officials for their role in undermining Hong Kong’s high-degree of autonomy as guaranteed by the Sino-British Joint Declaration.
The PRC government does not recognize dual nationality. In January 2021, the HKG moved to enforce existing provisions of the Nationality Law of the People’s Republic of China in place since 1997, effectively ending its longstanding recognition of dual citizenship in Hong Kong. The action ended consular access to two detained U.S. citizens as of March 2021 and potentially removed our ability to provide fulsome consular assistance to about half of the estimated 85,000 U.S. citizens then residing in Hong Kong. U.S.-PRC, U.S.-Hong Kong and U.S. citizens of Chinese heritage may be subject to additional scrutiny and harassment, and the mainland government may prevent the U.S. Embassy or U.S. consulate from providing consular services.
Hong Kong financial regulators have conducted outreach to stress the importance of robust anti-money laundering (AML) controls and highlight potential criminal sanctions implications for failure to fulfill legal obligations under local AML laws. However, Hong Kong has a low number of prosecutions and convictions compared to the number of cases investigated.
Under the President’s Executive Order on Hong Kong Normalization, the United States notified the Hong Kong authorities in August 2020 of its suspension of the Agreement between the Government of the United States of America and the Government of Hong Kong for the Surrender of Fugitive Offenders and termination of the Agreement between the Government of the United States of America and the Government of Hong Kong for the Transfer of Sentenced Persons. The United States also gave notice of its termination of the Agreement Concerning Tax Exemptions from the Income Derived from the International Operation of Ships. In response, the HKG notified the United States of its purported suspension of the Agreement Between the Government of the United States of America and the Government of Hong Kong on Mutual Legal Assistance in Criminal Matters.
11. Labor Policies and Practices
Hong Kong’s unemployment rate stood at 3.9 percent in the fourth quarter of 2021. The labor participation rate for men was 65 percent, while that for women was 54 percent. In 2021, skilled personnel working as administrators, managers, professionals, and associate professionals accounted for about 40 percent of the total working population. At the end of 2021, there were about 321,900 foreign domestic helpers, overwhelmingly women, working in Hong Kong. In 2021, about 13,800 foreign professionals, including 1,129 from the United States, came to work in the city under the city’s General Employment Policy, a five percent year-on-year decrease. 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 offense.
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 start 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, but the HKG took repeated actions that contrary to the principle of union independence. As of 2020, Hong Kong’s 1,355 registered employee unions had 907,839 members, a participation rate of about 25.6 percent. In 2021, however, threats and pressure from HKG and mainland officials, as well as from mainland-supported media outlets, led many unions and their confederations to disband. This included the Hong Kong Professional Teachers’ Union, Hong Kong’s largest union, as well as the Hong Kong Confederation of Trade Unions, which included more than 80 unions from a variety of trades and had more than 100,000 members.
Hong Kong’s labor legislation is in line with its international law obligations. 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 offense if he/she willfully and without reasonable excuse fails to pay the additional sum.
Recent changes to benefits and minimum wage are detailed as follows; as of January 2019, male employees are entitled to five days’ paternity leave (increased from three days). Effective May 2019, the statutory minimum hourly wage rate increased from USD 4.4 to USD 4.8. As of December 2020, the statutory maternity leave increased to fourteen weeks from ten weeks.
In November 2021, about 300 couriers working for a food delivery company engaged in a two-day strike, demanding increases in pay and work conditions. The strike ended after the company pledged to increase workers’ pay and make changes to the way it treated workers.
In February 2022, the HKG amended the EO to address issues arising from the city’s COVID measures. The amendment stipulates that employees’ absence from work for the purpose of complying with the government’s COVID restrictions under the Prevention & Control of Disease Ordinance will be deemed as sickness days under the Employment Ordinance. Laying off an employee for complying with government’s COVID restriction would be an unreasonable dismissal. In addition, the amendment allows an employer to dismiss an employee for non-compliance with the vaccination requirement or failure to produce proof of having been vaccinated, by any of the COVID vaccines recognized by HKG, after the employer requests proof after a specified period of time.
12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
As an advanced economy, there is little potential for DFC to operate in Hong Kong. However, there is scope for cooperation between companies based in Hong Kong with regional operations and DFC in connection with investments in less developed countries. Hong Kong is a member of the World Bank Group’s Multilateral Investment Guarantee Agency.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)