Establishing Business in Asia by Elizabeth Thomson
Hong Kong is an unusual city: once governed by the British, still very Westernized, but firmly within the Greater China region. It has recently been officially termed “Asia’s World City”. To the average Westerner, Hong Kong means many things
With its massive population of 1.4 billion, China represents the world’s biggest potential market and one that is being steadily modernized. Hong Kong has forged close economic ties with the mainland, especially since China launched economic reforms and its open-door policy in 1978. The mainland is Hong Kong’s largest trading partner. With China now a full member of the World Trade Organization (WTO), but still an awkward place for foreigners to do business, Hong Kong stands out like never before as a ‘gateway’ city. China’s Guangdong province is only a short train, bus, plane or boat ride away. Hong Kong has much to offer entrepreneurs in its own right. Its externally oriented, trade-powered economy flourishes in an environment that is characterized by free trade, free flow of capital without exchange controls, low personal and corporate taxes and no capital gains taxes. For the past eight years, studies have identified Hong Kong as the world’s freest economy. Establishing a presence in Hong Kong is vital, since it is where most agencies needed to facilitate business in China (banking, sourcing) are based. Furthermore, Hong Kong offers a better overall business infrastructure than other Asian centers. From general operational support to banking and incorporating, all the essential ingredients are in place in Hong Kong for conducting successful business as the prime financial hub of Asia. With its exceptional trade and transport facilities and its central location relative to Asia’s main centers of business, Hong Kong is the ideal window through which to export to or from Asia. And with a commercial history built upon a foundation of trade, Hong Kong has a wealth of financial, legal and logistics expertise to facilitate all kinds of trade.
Along with the advantages it holds for importers and exporters, setting up in Hong Kong offers a large number of other benefits that, taken together, no other Asian center, from Kuala Lumpur to Shanghai, can match. Hong Kong has no capital gains tax, sales tax or VAT, and personal and corporate income taxes are extremely low ? from zero tax to 15% personal tax and 16% corporate tax. Hong Kong serves as an ideal low-tax base, as it is quite possible to structure transactions so that no local taxes are payable. Hong Kong has an educated and mobile work force, among which English is used extensively. Since the handover on July 1, 1997, it has been business as usual in Hong Kong. Elections, part of a gradual move towards broader-based democracy, were held in May 1998, and the voter turnout was much higher than expected. From the movement of capital through to construction, Hong Kong’s civil administrators and work force have a deserved reputation for getting things done quickly. Much of that efficiency is inspired by the government’s commitment not to meddle unnecessarily in business. From schools to parks, supermarkets, clubs and sports and entertainment venues, Hong Kong’s legacy is in its cosmopolitan atmosphere, making it a comfortable place to live for people around the world. It has been said, in fact, that: “Hong Kong is like New York ? it’s just full of Chinese.”
Hong Kong’s banking system is diverse, secure, transparent, competitive and well regulated. It boasts a healthy list of positive attributes. It is the world’s ninth largest international banking center, as determined by the volume of external transactions. The Hong Kong dollar is pegged to the U.S. dollar at a rate of 7.78:1. The peg, under attack by speculators early in 1998, was successfully defended by the Hong Kong Monetary Authority ? a factor that underlined the stability of the currency, especially in the face of sharply devalued currencies elsewhere in the region. From a currency standpoint, Hong Kong’s commercial playing field is clearly defined. Some 75 of the world’s top 100 largest banks are represented in Hong Kong. These banks are stable, secure institutions and provide an infinite range of financial expertise and opportunities. At the end of August 2002, Hong Kong was home to 134 licensed banks, 48 restricted license banks and 45 deposit-taking companies, as well as representative offices for another 102 foreign banks. Of the 227 authorized institutions, 198 are beneficially owned by interests from more than 30 countries. The banking sector is highly competitive, encompassing a broad range of expertise. Hong Kong’s trading roots have ensured that its banks are well versed in all aspects of trade finance. Project finance is also a major strength, because of the funding requirements for deals in China. It is possible for companies to get credit on better terms than are normally available in many other countries. The kinds of bank accounts available include: Hong Kong dollar chequing/savings, multi-currency savings, US dollar chequing/savings and letter of credit accounts. A bank account can be opened in 24 hours. Consistent with the rest of the business environment in Hong Kong, there is minimal red tape in the banking sector, although proper due diligence procedures are certainly followed. Foreigners can operate bank accounts and act as signatories. Bearer, or crossed, cheques are used in Hong Kong. Cheques need to be appropriately marked (crossed) so that only the bearer can cash them. Hong Kong’s banking sector is large and diverse with most of the world’s largest banks represented. When choosing a bank, it is important to try to talk with as many banks as possible. Each bank has its own set of guidelines, and these change regularly according to various factors, such as a bank’s exposure to certain sectors. If a smaller local bank is considered, there are some issues to bear in mind. It could take several days to open a letter of credit (L/C). And when it is opened, it could be channelled through correspondent banks, which could be time consuming. Larger, international banks are more likely to be aware of your needs, and documents can be moved through their integrated networks more quickly.