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Country Commercial Guides for FY 2000:
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CHAPTER VII: INVESTMENT CLIMATE
A. Openness to Foreign Investment
The Hong Kong Special Administrative Region, China, hereafter referred to as Hong Kong, pursues a free market philosophy, and there is minimum government interference with corporate initiative. The government maintains that its August 1999 US$15 billion intervention in the stock, futures, and a currency market to thwart "manipulators" was a one-off event. It welcomes foreign investment. It offers no special incentives nor does it impose disincentives for foreign investors. Hong Kong's well-established rule of law is applied consistently and without discrimination. There is no distinction in law or practice between investments by foreign-controlled companies and those controlled by local interests.
There are no direct subsidies to domestic industries and, as a duty free port, no tariff barriers. There is no discrimination against foreign investors either at the time of initial investment or afterwards. There is no capital gains tax nor are there withholding taxes on dividends and royalties. Profits can be freely converted and remitted. Foreign-owned and domestically owned firms are taxed at the same rate, 16 percent of profits. There are no preferential or discriminatory export and import policies which affect foreign investors.
There are no disincentives to foreign investment such as limitations on the use or transfer of foreign currency, or any system of quotas, performance requirements, bonds, deposits, or other similar regulations. There is no anti-trust law. Certain sectors of the economy are dominated by monopolies or cartels, not all of which are regulated by the Hong Kong Government. These entities do not necessarily discriminate against U.S. goods or services, but they can use their market position to block effective competition. The Hong Kong Code on Takeovers and Mergers (1981) sets out general principles for acceptable standards of commercial behavior.
With few exceptions, the Hong Kong Government does not attempt to limit the activities of foreign investors either in specified projects or sectors. Foreign investment in Hong Kong flows freely into the industrial sector as well as into services, franchises, restaurants, the entertainment industry, and the ownership of property, both residential and commercial. There are certain exceptions:
- Telecommunications -- The Hong Kong Government opened the previously-monopolized international telecommunications services market to full competition on January 1, 1999, and will open the external facilities market to additional competition on January 1, 2000. However, after conducting the 1998 Review of Fixed Telecommunications, the government decided in May 1999 not to issue any further licenses for the local fixed network market, now contested by four companies, until 2003.
- Broadcasting -- In January 1998, the Hong Kong Government opened the broadcast uplink market to full competition. Several months later, after a policy review, it announced its intention to open the entire television sector to full competition. The only restrictions that will remain are those that limit foreign ownership to 49 percent.
- Legal Services -- Until recently, foreign lawyers were not allowed to practice Hong Kong law in Hong Kong (though they have been able to practice foreign and international law). However, as of spring 1996, foreign lawyers could apply to take the Hong Kong Bar Examination and, if successful, practice Hong Kong law. Foreign law firms may not hire local lawyers to advise on Hong Kong law, but may themselves become "local" firms (after satisfying certain residency and other requirements) and thereafter hire local attorneys. They also can form associations with local law firms.
- Financial Services -- In September, 1994, a one-branch restriction on overseas banks licensed after 1978 was relaxed. Overseas banks are now permitted to set up one regional office and one back office, in separate buildings, to conduct such activities as strategic planning, general liaison with correspondent banks and corporate entities, and processing and settlement of transactions already entered into by the branch office. Moreover, foreign banks may acquire a controlling interest in a local bank that has unlimited branching rights.
- Government Contracts -- Hong Kong's record for open and fair government procurement is generally without blemish. Hong Kong joined the WTO Agreement on Government Procurement in June 1997. Tenders are now covered by the Agreement on Government Procurement of the World Trade Organization (WTO GPA), and a Review Body on Bid Challenges has been set up by the Government to handle challenges made against alleged breaches of the WTO GPA.
Foreign firms and individuals are allowed freely to incorporate their operations in Hong Kong, to register branches of foreign operations, and to set up representative offices without discrimination or undue regulation. There is no restriction on the ownership of such operations. Company directors are not required to be citizens of, or resident in Hong Kong. Reporting requirements are straightforward and not onerous.
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. Hong Kong remains a member of the World Trade Organization in its own right and a separate customs territory.
Formalities are minimal for company incorporation and business registration. Foreign and domestic companies register under the same rules and are subject to the same set of business regulations.
The Hong Kong Government's Industry Bureau encourages inward investment as a means to introduce new or improved products, processes, designs and management techniques. U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis.
According to the Hong Kong Government's survey of regional representation by overseas companies in Hong Kong, 2,449 regional operations by overseas companies were identified in Hong Kong in 1998. Among these companies, 819 were regional headquarters and 1,630 were regional offices. The United States of America has the largest number of regional headquarters in Hong Kong (194 companies), followed by Japan (109 companies) and the United Kingdom (95 companies). The major lines of business of the regional headquarters included wholesale/retail, import/export, finance and banking, manufacturing, and transport and related services. In terms of attractiveness of investment climate in Hong Kong and China for the next five years, the survey showed that more than 73 percent (among 624 respondents) of these overseas companies were of the opinion that the investment climate was favorable in both areas.
B. Conversion and Transfer Policies
There are no restrictions on conversion and inward or outward transfer of funds for any purpose. The HK dollar is a freely convertible currency that, since late 1983, has been linked to the U.S. dollar at an exchange rate of HK$7.8 = US$1. Authorities are committed to exchange rate stability through maintenance of the linked rate. There is no allocation of foreign exchange.
C. Expropriation and Compensation
The U.S. Consulate General is not aware of any expropriation actions in the recent past. However, expropriations of private property may occur if it is clearly in the public interest, but only for well-defined purposes such as implementation of public works projects. If this is the case, then expropriations are conducted through negotiations, in a non-discriminatory manner in accordance with established principles of international law. Due process and transparency of purposes are observed. Investors in and lenders to expropriated entities receive prompt, adequate, and effective compensation. Property may be acquired under the State Land Resumption Ordinance, the Land Acquisition Ordinance, the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance or the Roads Ordinance. These ordinances provide for payment of compensation. If agreement cannot be reached on the amount payable, either party can refer the claim to the Land Tribunal for jurisdiction.
D. 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 Hong Kong Government. Private investment disputes are normally handled in the courts or via private negotiation. Alternatively, disputes may be referred to the Hong Kong International Arbitration Center.
The Hong Kong Government accepts international arbitration of investment disputes between itself and investors. Following reversion to Chinese sovereignty on July 1, 1997, Hong Kong continued to apply provisions of the International Center for the Settlement of Investment Disputes (ICSID, known as the Washington Convention) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Hong Kong and China reached consensus in June 1999 on an arrangement parallel to the New York Convention for the reciprocal enforcement of arbitral awards, since the New York Convention, being an international agreement, is no longer applicable to the enforcement of arbitral awards between Hong Kong and China. The two parties signed a Memorandum of Understanding in June 1999 on the arrangement and the Hong Kong government expects the arrangement will come into effect in 1999 upon the passage of the Arbitration (Amendment) Bill by the Legislative Council. Hong Kong has also adopted the United Nations Commission on International Trade Law (UNCITRAL) model law for international commercial arbitration.
The local court system provides effective enforcement of contracts, dispute settlements and protection of rights, including intellectual property. Secured interests in property are recognized and enforced. Application for enforcement of arbitral award made by China or Hong Kong made after July 1, 1997 shall be enforced according to this arrangement.
In case the application for enforcement fails to be made to the court in China or the court of Hong Kong between July 1, 1997 and the effective date of this arrangement for some reasons, the applicant who is a legal person or some other organization may apply within six months after this arrangement has become effective and the applicant who is a natural person may apply within one year after this Arrangement has become effective. For cases which the court of Hong Kong or China between July 1, 1997 and the effective date of this arrangement, has refused to accept or to enforce the arbitral award, the parties of the cases will be allowed to make fresh application.
Hong Kong's legal system is firmly based on the rule of law and the independence of the judiciary. Courts of justice in Hong Kong include the Court of Final Appeal; the High Court (composed of the Court of Appeal and the Court of First Instance); the District Court; the Magistrate's Courts; the Coroner's Court; and the Juvenile Court. There is also a Lands Tribunal, Labor Tribunal, and other statutory tribunals. On July 1, 1997, the Court of Final Appeal replaced Britain's Privy Council as Hong Kong's highest court when Hong Kong reverted to Chinese sovereignty.
The Hong Kong Government owns all land, granting long-term leases without transferring the title. Local and foreign leaseholders are given equal treatment.
E. Performance Requirements/Incentives
Consistent with its generally non-interventionist economic philosophy, Hong Kong imposes no export performance or local content requirements as a condition for establishing, maintaining or expanding a foreign investment. Hong Kong offers no special privileges to attract foreign investment. There are no requirements that Hong Kong residents own shares, that foreign equity be reduced over time, or that technology be transferred on certain terms. Such matters are left to the market. While pledging to steer clear of market intervention, in 1996 the Hong Kong Government pledged to establish a technology-centered industrial park and to spend greater efforts promoting service exports.
All of Hong Kong is a duty-free zone, as it is a free port. Subject to non-discriminatory application of excise taxes and restricted entry in some sectors, as noted above (e.g. broadcasting, electric power, etc.), local and foreign firms are free to take advantage of investment opportunities as they arise.
F. Right to Private Ownership and Establishment
Hong Kong law and regulations provide for the right of foreign and domestic private entities to establish, own and to dispose of interests of business enterprises. Foreign investors are generally allowed to engage in all lawful forms of remunerative activity. Restrictions on the latter involve regulated entry of practice in the mass transit, electric power generation, medical services, legal, telecommunications and broadcasting sectors. The Hong Kong Government does not generally engage directly in business activity via public enterprises, preferring to leave this to the private sector. In general, business privileges, franchises and land development rights are granted on the basis of competitive equality.
G. Protection of Property Rights
Hong Kong's commercial and company laws provide for effective enforcement of contracts and protection of corporate rights. The Intellectual Property Department, which includes the Trademarks and Patents Registries, is the focal point for the development of Hong Kong's intellectual property regime. The Customs and Excise Department is the principal enforcement agency for intellectual property rights (IPR). The Hong Kong Government has taken significant steps to improve its intellectual property rights regime and step up enforcement. As a result of these efforts and progress in controlling illicit production, the United States Trade Representative took Hong Kong off the Special 301 Watchlist in 1999.
In mid-1998, Hong Kong adopted the "Prevention of Copyright Piracy Ordinance," which required compact disc producers to register with the government, and authorized Hong Kong Customs to inspect factories. Implementation of this law appears to have reduced illegal production of copyrighted products significantly. Separately, the Customs and Excise Department, which has a special IPR unit, stepped up raids against retail shops selling pirated goods. Using enforcement tools from the June 1997 Copyright Law, Customs officers have been able to substantially increase seizures of pirated goods, and curtailed activity at several of the most notorious retail centers.
Nonetheless, piracy remains a serious problem. Illicit production continues, though it is difficult to quantify. At the retail level, pirated films, music, and software are widely available at hundreds of shops, despite Customs' enforcement efforts. Corporate use of unauthorized software is common. In an effort to control these problems the government has announced additional steps: establishment of a special Customs Anti-Piracy Task Force; launching of a campaign to persuade companies to use legitimate software; and drafting of new legislation to treat piracy as an "organized and serious crime," to close a perceived loophole in the law regarding corporate use of pirated software, and to ban use of video recorders in theaters.
Hong Kong successfully localized its intellectual property laws to ensure the maintenance of a strong legal regime after the July 1997 reversion to China. Protection continues under both local laws and international conventions, which continue to apply to Hong Kong. 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 China's delegation.
The 1997 copyright ordinance protects any original copyright work created or published by any person anywhere in the world. It provides for rental rights for sound recordings and computer programs but not films. It provides for enhanced penalty provisions against copyright piracy and additional legal tools to facilitate enforcement. It decriminalizes parallel imports of copyrighted products one year after their release anywhere in the world, but maintains civil penalties. Registration is voluntary.
The patent ordinance, approved in June 1997, allows for granting of an independent patent in Hong Kong based on the patents granted by the UK and the Chinese Patent Offices. The patent granted in Hong Kong would be independent, and would be capable of being tested for validity, rectified, amended, revoked and enforced in the Hong Kong courts in accordance with Hong Kong law. Based on the law, Hong Kong has established an independent patents registry. Continuity is preserved so that pre-existing patents eligible for protection continues to enjoy protection in Hong Kong.
The new registered designs ordinance is modeled on the proposed EU design registration system, with certain modifications. To be registered, a design must be new. The system requires no substantive examination. Protection will be for an initial period of five years, and may be extended for four periods of five years each, up to a maximum of 25 years.
Hong Kong's existing trademark law is not dependent on that of the UK, and so does not need to be "localized." The law is already TRIPS-compatible, and is in the process of being modernized. 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 been in Hong Kong. Trademarks are registered under the Trademarks Ordinance, with provisions similar to trademarks legislation in the United Kingdom. The Trademarks (Amendment) Ordinance, which came into effect in 1992, extends the trademarks law to allow for registration of trademarks relating to services.
Hong Kong has no specific ordinance to cover trade secrets. Under the Trade Description Ordinance, however, the government has the duty to protect the information being disclosed to other parties. The Trade Description Ordinance prohibits false trade descriptions, forged trademarks and misstatements in respect of goods supplied in the course of trade.
The Legislative Council passed an Intellectual Property (World Trade Organization Amendment) bill in May 1996 to fulfill Hong Kong's international obligation as a WTO member. The bill expanded the definition of what can be trademarked, provided new anti-piracy tools to the Hong Kong Government and provided for civil detention orders at the border to stop import of infringing product. The Hong Kong Government has claimed a developing country status exemption to the Trade-Related Intellectual Property requirements of the World Trade Organization. In theory, this gives Hong Kong five years to phase in the requirements.
The Government has committed, however, to meeting the requirements well within that period.
H. Transparency of the Regulatory System
Hong Kong's body of law and regulation implicitly and explicitly promotes competition in all forms of economic endeavor. The only exceptions are those previously mentioned, where entry is restricted. Tax, labor, health and safety and other laws and policies avoid distortions or impediments to the efficient mobilization and allocation of investment. Bureaucratic procedures and "red tape" are held to the minimum and are equally transparent to local and foreign investors. In November 1996, the Consumer Council published a study report to recommend the setting up of competition law and an independent Competition Authority to investigate any anti-competitive practices. The Hong Kong Government is examining these recommendations.
I. Efficient 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 have greatly facilitated Hong Kong's growing role as a regional and international financial center. As noted earlier, the government maintains its August 1999 US$15 billion intervention in the stock, futures, and currency markets to thwart "manipulators" was a one-time event. Hong Kong has continued to enjoy substantial economic autonomy following its reversion to Chinese sovereignty on July 1, 1997. Chinese leaders have repeatedly underscored China's intention to abide by the provisions of the Sino-British Joint Declaration and China's Basic Law for Hong Kong, which amplify the meaning of "one country, two systems" to include separate monetary systems, separate financial and regulatory systems, and separate budgetary regimes. Hong Kong's foreign exchange markets handled an average daily turnover of US$78.6 billion in 1998, making it the seventh largest in the world. By the end of 1998, Hong Kong had 172 licensed banks (141 were incorporated overseas), 60 restricted licensed banks (25 were incorporated overseas), 101 deposit-taking institutions (two were incorporated overseas), and 141 representative offices (all were set up by foreign banks). Thirty-two American "authorized financial institutions" operate in Hong Kong, including seven of the top 10 U.S. banks. U.S. banks licensed in Hong Kong are listed in Appendix E(f) below. Most banks in Hong Kong maintain U.S. correspondent relationships.
Hong Kong's five largest banks, in terms of total assets (1998), are as follows:
Rank Institution Total Assets (US$ billion) 1 Hong Kong & Shanghai 189.4 Banking Corporation (HSBC) 2 Bank of China Group 113.1 3 Hang Seng Bank Ltd. 53.9 4 Bank of East Asia, Ltd. 17.4 5 Dao Heng Bank 16.0 Sources: Companies' annual reportsHong Kong has a three-tier system of deposit-taking institutions: licensed banks, restricted license banks, and deposit-taking Companies. Only licensed banks can offer current (checking) or savings accounts. The Hong Kong & Shanghai Banking Corporation (HSBC) is Hong Kong's largest banking group. With its majority-owned subsidiary Hang Seng Bank, and 372 branches, the group controls more than 40 percent of Hong Kong dollar deposits. The 12 banks of the Bank of China Group comprise the second-largest banking group (370 branches), and control 24 percent of Hong Kong dollar deposits.
Credit is allocated strictly 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 Hong Kong Monetary Authority (HKMA) functions as its de facto central bank. The HKMA is responsible for maintaining the stability of the banking system and managing the Exchange Fund backing Hong Kong's currency -- linked to the U.S. dollar at HK$7.8 = US$1. HKMA, with the assistance of the banking sector, has upgraded Hong Kong's financial market infrastructure. For example, the interbank payment system based on Real Time Gross Settlement principles was installed in December 1996. The new system helps minimize risks in the payment system and brings Hong Kong in line with international standards. In March 1997, the Hong Kong Mortgage Corporation (HKMC) was set up to promote the development of the secondary mortgage market in Hong Kong. The HKMC is 100 percent owned by the Government through the Exchange Fund. The HKMC purchases residential mortgage loans for its own retained portfolio, and then repackages mortgages into mortgage-backed securities for sale. In 1998, the HKMC has issued US$666.7 million worth of unsecured debt securities in the local debt market.
Insurance: Under the Insurance Companies Ordinance, insurance ompanies are authorized by the Insurance Authority to transact business in Hong Kong. Hong Kong has the highest number of authorized insurance companies in Asia. At the end of 1998, there were 209 authorized companies: of these, 104 were foreign companies from 27 countries. In terms of assets, of the world's top 10 insurance companies, six have branch offices or subsidiaries in Hong Kong. In addition, premium income from insurance services in Hong Kong is the fifth highest in Asia (after Japan, South Korea, Taiwan and China) and the 24th highest in the world.
Stock and Futures Markets: With a total market capitalization of US$341.3 billion and 680 listed firms at year-end 1998, the Stock Exchange of Hong Kong (SEHK) was ranked second in Asia after Tokyo, and eleventh in the world in terms of capitalization. The SEHK launched regional derivative warrants and convertible bonds in 1997. In August 1998, the government made its first ever intervention on the stock and futures markets because speculators reportedly manipulated the market using a "double play" approach in which speculators sold Hong Kong dollars (driving up interest rates and causing the stock market to fall) to profit from short stock and futures positions. The government spent US$15.3 billion to buy all 33 Hang Seng Index constituent stocks and futures. The intervention aroused controversy locally and overseas. An independent company, the Exchange Fund Investment Limited (EFIL), was later established by the government to dispose of its stock portfolio in the form of mutual funds. At the end of April 1999, the SEHK had grown to 684 firms with total market capitalization of US$433.5 billion. The government has proposed the stock and futures exchanges be merged and demutualized with a target merger date in early 2000.
There are no discriminatory legal constraints to foreign securities firms establishing in Hong Kong via branching, acquisition, or establishing subsidiaries. In practice, foreign firms typically establish in Hong Kong as subsidiaries. Rules governing operations are the same, irrespective of ownership. There are no restrictions on cross-border capital flows.
The SEHK plays a significant role in raising capital for Chinese state-owned enterprises. A memorandum of understanding on regulatory cooperation between Chinese and Hong Kong stock and regulatory authorities signed in June 1993 provides a framework for Chinese state enterprises to raise equity (through the issuance of so-called "H" shares) in Hong Kong provided they meet Hong Kong regulatory and accounting requirements. These "H" shares are denominated in renminbi, but must be purchased in Hong Kong dollars. In 1998, a total of 41 chinese enterprises had "H" share listings on the SEHK, with market capitalization of US$4.3 billion.
The Hong Kong Futures Exchange Ltd. provides a market for Hang Seng Index futures and options. At the end of 1998, futures contracts for seventeen local stocks traded at the Exchange: CITIC Pacific, Cheung Kong Holdings, CLP Holdings, HSBC Holdings, Hang Seng Bank, Henderson Land, Hong Kong Telecom, China Telecom, Hopewell Holdings, Hutchison Whampoa, New World Development, Sun Hung Kai Properties, Swire Pacific 'A', Wharf Holdings, China Resource Enterprise, Hong Kong Electric Holdings and Shanghai Industrial Holdings.
Since 1990, Hong Kong has made a concerted effort to develop a local debt market with the launching of the Exchange Fund bills and notes program. Maturities now extend to ten years. Hong Kong dollar debt (public and private) has increased gradually, from US$3.46 billion at the end of 1989 to US$50 billion by the end of 1998. Regional infrastructure financing requirements, continued high regional GDP growth rates, and increasing investor demand are projected to stimulate further development of the local debt market. 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 to protect investors, while the exchanges' own Association serves as the first line of regulatory defense.
The Hong Kong Government has begun work on a Mandatory Provident Fund to encourage workers and employers to contribute to retirement funds. Contributions are expected to channel U.S. $3 to 4 billion per year into various investment opportunities. Schemes are expected to begin operations in early 2000.
Portfolio investment decisions are left to the private sector. There are no laws or regulations that specifically authorize private firms to adopt articles of incorporation/association which limit or prohibit foreign investment, participation or control.
J. Political Violence
Hong Kong is politically stable and secure. The U.S. Consulate General is not aware of any incidents over the past few years involving politically motivated damage to projects or installations. There has been no major unrest in Hong Kong since China's Cultural Revolution spilled across the border in 1967. The protests in Hong Kong related to the May 1999 accidental bombing of China's embassy in Belgrade were peaceful and orderly.
K. Corruption
Hong Kong has a good track record in combating corruption. U.S. firms have not, for the past three decades, identified corruption as an obstacle to foreign direct investment. The Independent Commission Against Corruption (ICAC) is responsible for combating corruption. The ICAC was established in 1974, three years after enactment of the Prevention of Briberies Ordinance. The ICAC is independent of the public service and the ICAC Commissioner is responsible directly to the Chief Executive (formerly to the Governor). 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. Of the 4,014 corruption reports filed in 1998 (more than one-third were ultimately investigated), 58 percent involved the private sector, 14 percent the police, 22 percent other government bodies, and six percent public bodies such as the Legislative Council, Urban Councils, and universities. Penalties are stiff. For example, a civil servant who solicits or accepts any advantage without special permission of the Government can receive one year's imprisonment and a HK$100,000 fine if convicted. Individuals in both the private and public sector can receive up to seven years imprisonment and a HK$500,000 fine for offering, soliciting or accepting a benefit for performance or non-performance of an official duty.
L. Bilateral Investment Agreements
Hong Kong is negotiating a series of bilateral investment agreements -- the Hong Kong Government calls them "Investment Promotion and Protection Agreements" -- with major foreign investors. To date, Hong Kong has signed agreements with Australia, Austria, Belgium, Denmark, France, Germany, Italy, Japan, Korea, the Netherlands, New Zealand, Sweden, Switzerland and United Kingdom. The Hong Kong Government has initialed agreements with Canada and Vietnam. It is negotiating agreements with Singapore, Thailand, and the United States. All such agreements have been based on a model text approved by China through the Sino-British Joint Liaison Group. The United States and Hong Kong began discussing a bilateral investment agreement in 1996 and, although good progress has been made, have not yet finalized an agreement as of this writing.
M. OPIC and Other Investment Insurance Programs
Overseas Private Investment Corporation (OPIC) coverage is not available in Hong Kong. Hong Kong is a member of the World Bank Group's Multilateral Investment Guarantee Agency (MIGA).
N. Labor
For most of the last decade, Hong Kong's unemployment rate hovered around two percent as the economy continued a rapid structural transformation from manufacturing to a financial and services center. The burgeoning services sector easily absorbed displaced manufacturing workers. The unemployment rate in 1997 was 2.2 percent, after reaching 2.6 percent in the fourth quarter of 1996. During the period of February to April 1999, unemployment has risen to 6.3 percent, reflecting the impact of regional economic turmoil. As part of a package of measures adopted in February 1996 to combat rising unemployment, the Hong Kong Government began curtailing its labor importation schemes. The measures, seen as a response to union and pro-labor legislative pressure, 1) replaced the General Importation of Labor Scheme for skilled and semi-skilled workers (with its 25,000-worker quota) with the Supplementary Labor Scheme (with a 2,000-worker preliminary limit and a ban on foreign workers in 26 professions), 2) provided for expanded recruitment of local construction workers for the now completed Chek Lap Kok airport and related infrastructure projects, and, 3) imposed stricter local recruitment criteria before local firms can hire foreign workers. Qualified foreign professionals, technical staff, administrators and managerial personnel are not affected, nor are foreign domestic helpers. An employee retraining board, established in 1992, provides skills retraining for local employees to cope with ongoing structural change in the economy. Labor-management relations are generally smooth. The average number of days lost due to industrial conflicts is one of the lowest in the world (0.28 worker days lost per 1000 workers in 1997). In early 1996 labor groups achieved their goals of scaling back labor importation and boosting severance pay. In 1997, membership in Hong Kong's 538 registered unions totaled 647,908, a participation rate of about 21.85 percent. Hong Kong has implemented 31 conventions of the International Labor Organization in full and 18 others with modifications. Hong Kong continued to adhere to these conventions after reversion to Chinese sovereignty on July 1, 1997.
O. Foreign Trade Zones/Free Ports
Hong Kong is a free port without foreign trade zones.
P. Foreign Direct Investment Statistics
Table 1: Hong Kong Total Value of Net Assets at Historical Costs Attributed to Inward Foreign Direct Investment in U.S.$ Billions
Country 1994 1995 1996 1997 Japan 21.2 24.5 36.2 48.2 UK 20.7 21.2 24.2 27.8 China 17.2 19.1 22.3 28.0 USA 11.2 12.0 16.1 21.0 Italy 2.2 2.3 2.6 2.6 France 1.8 1.7 2.3 7.2 Germany 1.2 1.6 1.8 2.1 Netherlands 1.3 1.6 2.1 6.6 Others 9.8 12.3 19.3 28.2 Total 89.7 99.7 126.9 169.7
Source: Hong Kong Government Industry Department and Census and Statistics Department
Note: Figure for Italy in 1997 captured investment value for non-manufacturing sector only.
Table 2: Overseas Investment in Hong Kong Manufacturing Number, Cumulative Values, and Employment in 1997
(Major Source Countries)
Country Number of Investment Number of Investments (US$ Million) Employees Japan 128 2,673 15,228 U.S.A. 72 1,342 11,915 China 35 444 12,665 UK 38 382 12,825 Netherlands 16 361 5,594 Switzerland 13 131 2,922 Singapore 22 182 3,208 Others 111 972 N/A Total 435 6,488 59,968Note 1: Sources for Tables 1-6 include: 1997 Survey of Overseas Investment in Hong Kong's Manufacturing Industries, Hong Kong Government Industry Department
Note 2: No. of employees of a particular country refers to the total no. of employees of manufacturing companies with the corresponding country's investment (e.g. wholly owned or joint venture). Therefore, the figures do not add up to the total due to overlapping. These figures were not published in the survey but given by the Industry Department on request.
Note 3: Investment refers to total investment at original cost which includes stock of fixed assets at original cost plus working capital. US$1 = HK$7.8
Note 4: Data totals may reflect rounding.
Table 3: Overseas Investment in Hong Kong Manufacturing by Industry, 1994, 1995, 1996 and 1997 US$ Millions (%)
Industry 1994 1995 1996 1997 Electronics 1,705 1,939 2,109 2,576 (30.2) (31.3) (34.3) (39.7) Electrical 543 570 654 653 Products (9.6) (9.2) (10.6) (10.1) Chemical 399 525 480 349 Products (7.1) (8.5) (7.8) (5.4) Food & 462 341 384 526 Beverages (8.2) (5.5) (6.2) (8.1) Printing & 228 317 293 404 Publishing (4.1) (5.1) (4.8) (6.2) Transport 243 267 278 311 Equipment (4.3) (4.3) (4.5) (4.8) Others 1,572 1,658 1,397 1,668 (28.0) (28.8) (22.7) (25.7) Total 5,637 6,191 6,150 6,488Note: Figures in parentheses denote percentage share of annual stock of investment.
Table 4: U.S. Investment in Hong Kong Manufacturing By Industry, at historical cost in US$ Millions (%)
Industry 1994 1995 1996 1997 Electronics 788 854 759 756 (51.7) (50) (46.1) (56.3) Electrical 147 156 143 113 Products (9.6) (9.1) (8.7) (8.4) Chemical 120 132 122 65 Products (7.9) (7.7) (7.4) (4.9) Metal Products 97 123 139 87 (6.3) (7.2) (8.4) (6.4) Paper Products 83 161 194 60 (5.5) (9.4) (11.8) (4.5) Textiles & 81 52 46 49 Clothin (5.3) (3) (2.8) (3.7) Plastic Products 24 28 29 25 (1.6) (1.6) (1.7) (1.8) Food & 21 33 33 30 Beverages (1.4) (1.9) (2.0) (2.3) Printing & 17 10 13 17 Publishing (1.1) (0.6) (0.8) (1.3) Others 146 164 171 141 (9.6) (9.6) (10.4) (10.5) Total 1,524 1,707 1,648 1,342Note: Figures in parentheses denote percentage share of annual stock of investment.
Table 5: Japanese Investment in Hong Kong Manufacturing by Industry, at historical cost in US$ Millions (%)
Industry 1994 1995 1996 1997 Electronics 500 748 892 1,197 (26.3) (31.2) (38.4) (44.8) Electrical 339 398 420 516 Products (17.8) (16.6) (18.1) (19.3) Textiles & 210 207 85 46 Clothing (11.0) (8.6) (3.7) (1.7) Watches & 157 179 160 130 Clocks (8.2) (7.5) (6.9) (4.9) Photographic & 126 144 111 45 Optical Goods (6.6) (6) (4.8) (1.7) Printing & 95 187 150 175 Publishing (5.0) (7.8) (6.4) (6.5) Food & 96 129 146 171 Beverages (5.0) (5.4) (6.3) (6.4) Basic Metal 24 32 N/A 30 (1.2) (1.3) (1.1) Others 359 374 360 365 (18.9) (15.6) (15.5) (13.7) Total 1,906 2,397 2,323 2,673Note: Figures in parentheses denote percentage share of annual stock of investment.
Table 6: Chinese Investment in Hong Kong Manufacturing by Industry, at historical cost in US$ Millions (%)
Industry 1994 1995 1996 1997 Tobacco 350 119 86 101 (64.0) (27.3) (25.5) (22.8) Transport N/A 291 139 130 Equipment (66.8) (41.2) (29.3) Food & N/A N/A N/A 99.9 Beverages (22.5) Electronics 73 N/A N/A N/A (13.4) Metal Products N/A 48 N/A N/A (11.1) Electrical 23 N/A N/A N/A Products (4.2) Chemical N/A N/A 81 N/A Products (24) Others 101 -27 31 113 (18.4) (-6.2) (9.2) (25.4) Total 547 435 337 444Note: Figures in parentheses denote percentage share of annual stock of investment.
Table 7: Overall Overseas Investment in Hong Kong at 12/31/1997 at historical cost in US$ Billions
Country Manufacturing Non-Manufacturing Total Japan 2.7 45.5 48.2 U.K. 0.4 27.4 27.8 China 0.4 27.5 28.0 U.S.A. 1.3 19.7 21.0 Italy N/A 2.6 2.6 France 0.1 7.2 7.2 Netherlands 0.4 6.2 6.6 Thailand 0.2 4.5 4.7 Singapore 0.2 2.3 2.5 Germany 0.1 2.1 2.1 Others 0.8 18.2 19.0 Total 6.5 163.2 169.7Sources: Industry Department and Census and Statistics Department, Hong Kong
Note 1: U.S. Government statistics differ from the Hong Kong Government statistics. According to U.S. Government statistics, U.S. investment in Hong Kong stood at US$19.27 billion at the end of 1997.
Note 2: Data totals may reflect rounding.
Table 8: Amount and Growth of U.S. Investment in Hong Kong for 1996/97/98 in US$ Millions
Category 1996 1997 1998 % change 1998/97 Petroleum 543 594 600 1.0 Manufacturing 2,563 2,942 3,122 6.1 Wholesale 5,322 4,890 5,054 3.4 Depository Institutions 1,578 1,845 1,637 -11.3 Financial/ Insurance/ 2,863 3,592 5,007 39.4 Real Estate Services 992 1,074 1,009 -6.1 Others 828 4,329 4,373 1.0 Total 14,689 19,266 20,802 8.0Note 1: The U.S. Department of Commerce estimates the total U.S. direct investment position in Hong Kong at historical cost (the book value of U.S. direct investors' equity in, and net outstanding loans to, their foreign affiliates).
Note 2: USDOC statistics differ from HKG statistics. Per Table 7 above, the latter indicates total U.S. investments of US$16.5 billion at year-end 1997.
Note 3: 1998 figures are preliminary, and are subject to further revision. They differ significantly from earlier numbers, as the base year has been changed from 1989 to 1994.
Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, U.S. Direct Investment Position Abroad on a Historical Cost Basis.
Table 9: Japanese Investment in Hong Kong in Yearly Flows for 1990-1998 in US$ Millions
Year Amount 1990 1,785 1991 925 1992 735 1993 1,238 1994 1,133 1995 1,125 1996 1,540 1997 705 1998 589Note: ** Japanese statistics differ from HKG statistics.
Source: Japan Ministry of Finance. Figures are direct investment flows per Japanese Fiscal Year (April 1 to March 31).
Exchange rate: 1996 (average): 108.78/US$ 1997 (average): 120.99/US$ 1998 (average): 130.75/US$Table 10: Japanese Investment in Hong Kong Sectoral Breakdown for 1990/1996/1997/1998 in US$ Millions
Sectors 1990 1996 1997 1998 Manufacturing 113.50 409.00 218.00 106.00 Finance 398.00 302.00 154.00 189.00 Trade 752.00 229.00 173.00 246.00 Service 102.00 60.00 61.00 39.00 Real Estate 348.00 117.00 63.00 0.00 Transport 31.00 30.00 16.00 0.00 Others 36.00 392.00 21.00 12.00 Total 1,780.50 1,540.00 705.00 589.00Source: Japanese Ministry of Finance.
Exchange rate: 1996 (average): 108.78/US$ 1997 (average): 120.99/US$ 1998 (average): 130.75/US$Table 11: Hong Kong Overseas Direct Investment in Selected Economies
As of May 1997 in US$ Billion
Country Cumulative Value* Reference Period Ranking** China 266.9 End-1996 1st Indonesia 15.6 End-Mar 1997 3rd Thailand 2.7 End-Sep 1996 2nd Taiwan 2.0 End-1996 3rd Vietnam 3.1 End-1996 3rd Philippines 0.72 End-1996 3rd Singapore 2.7 End-1992 4th South Korea 0.65 End-1996 5th Malaysia 1.1 End-1995 N/A United States 1.3 End-1995 28th Australia 0.6 End-June 1996 12th Japan 0.72 End-Mar 1995 7thNote: * Except those for Singapore, Thailand, the United States and Australia, all investment figures are compiled on approval basis. Direct comparison of the figures is not recommended, though, due to different definitions and coverages adopted by the governments of the countries concerned.
** Hong Kong's ranking in the country concerned
According to the United Nations World Investment Report 1996, Hong Kong was the fourth-largest outward investor in the world in 1995. Hong Kong, at US$25 billion, was outranked only by the United States (US$95.5 billion), the U.K. (US$37.8 billion) and Germany (US$35.3 billion). The report also noted that Hong Kong was the sixth-largest recipient of capital inflows in Asia, with the amount reaching US$2.1 billion.
Source: Hong Kong Government
Table 12: Hong Kong's Pledged and Actual Direct Investment in China in US$ Billions and Percent Share of Total Investment in China
Year Amount Pledged Actually Share of Total Invested Investment 1990 3.8 1.9 58 1991 7.2 2.4 60 1992 40 2.5 69 1993 74 17.2 66 1994 49 20.0 60 1978-April 1999 297.6 138.4 50Source: PRC Ministry of Foreign Trade and Economic Cooperation (MOFTEC)
Table 13: Major Foreign Investor Firms
United States: Motorola, Chase Manhattan, Sea-land, Exxon, Citibank, Mobil, Caltex, AT&T, IBM, Kodak, Bank of America, American International Group, Coca-Cola, Pepsi-Co, Pacific Waste Management.
Japan: Kumagai Gumi, Yaohan, Jusco, Daimaru, Mitsubishi, Uny, Nishimatsu, Daido Concrete, C. Itoh.
United Kingdom: Inchcape Pacific, Cable and Wireless, Hong Kong and Shanghai Banking Corporation, Standard Chartered Bank, Jardine Matheson,Swire Pacific Group, P & O Shipping.
West Europe: Carlsberg (Denmark), Hong Kong Petrochemicals (Italian/Korean/Chinese joint venture), Siemens, Heraeus (Germany), Philips (Netherlands); Bouygues/Dragages, Bachy-Soletanches, Banque National de Paris, Banque Indosuez, Chanel, Cartier, Christian Dior, Remy (France), Erikson, Asea Brown Boveri, Tetrapak, Electrolux (Sweden).
China: China Investment and Trust Corporation (CITIC), China Resources, China Merchants, Bank of China, China Travel Services, China Overseas Construction, Guangdong Enterprises, Yue Xiu Enterprises, China Everbright, Shanghai Industrial.
Asia: San Miguel Brewery (Philippines), News Corp., Pioneer (Australia), Sime Darby, Shangri-la/Kerry Trading (Malaysia), Park View Properties (Taiwan), Lippo Group (Indonesia), C.P. Pokphand (Thailand).
NOTE: This list is not in rank order nor is it comprehensive.
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