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Successfully investing in Hong Kong (S.A.R.)


last updated on 19 May 2021 | reading time approx. 4 minutes




How do you assess the current economic situation in Hong Kong?

Hong Kong's Gross Domestic Product (GDP) shrank by around 6 per cent in 2020. This is particularly caused due to the ongoing closure of the borders. Retail, gastronomy and the hotel industry suffer most from this. For example, the number of tourists in 2020 fell by over 90 per cent compared to the previous year. This has also affected Hong Kong’s airlines, which have had to lay off a large number of their employees or send them on unpaid leave. Due to stimulus measures by the Hong Kong government and Hong Kong's position as one of China's and the world's most important trading partners, it is expected that there will be somewhat of a recovery in 2021, with GDP growth of 3.5 to 5 per cent. If global vaccination and other efforts to curb the Covid-19 virus are successful, it can be assumed that existing travel restrictions will also be eased and possibly even (partially) lifted. This should provide a further stimulus for Hong Kong's economy, especially for the hard-hit retail and tourism sectors. The real estate sector came and is coming through the current crisis comparatively unscathed.

It should be noted that Hong Kong is one of the freest economies in the world and has held and continues to hold the top position for many years. Although very small in terms of population, Hong Kong ranks in the top 10 or top 20 in the world in many areas. This includes, for example, the import and export of trade goods, the export of services or the position in the foreign exchange market (especially in the offshore Renminbi (RMB) market). The Hong Kong Stock Exchange is one of the largest in the world and the city is one of the most important financial centers in Asia and worldwide. Additionally, the airport is the world's busiest airport in terms of cargo and the container port is among the top 20 container ports in the world in terms of throughput. In the course of the recovery of the world economy and especially in China, further growth can be expected here. As a free port, Hong Kong does not levy customs duties on imports and exports.

How would you describe the investment climate in Hong Kong? Which sectors offer the largest potential?

The legal framework makes investing in Hong Kong very easy. As mentioned above, Hong Kong is one of the freest economies in the world. Beijing's political interventions have not changed this so far. The interventions still relate exclusively to the political leadership of the city, while the economic policy and the corresponding legal framework have not been touched. There are no indications that this will change in the coming years.

Due to its position as an international financial center, low taxes as well as the uncomplicated incorporation of companies, Hong Kong continues to be an attractive headquarter for ventures in the Asia-Pacific region. Likewise, Hong Kong can be a good choice for planned business activities in China, e.g. for import and export, before establishing a direct subsidiary in China with much higher (cost and bureaucracy) effort. This is also reflected in the fact that Hong Kong remains the largest source of foreign investment in China (about 47 per cent in 2019). Finally, Hong Kong offers the advantage that capital and information can flow freely, unlike in mainland China.

Hong Kong and China have also concluded an agreement on the mutual recognition of court judgments in civil and commercial matters, which eliminates the otherwise inevitable need to resort to international arbitration and thus can provide greater legal certainty.

A major focus of investment in Hong Kong continues to be infrastructure and housing. Important projects include the Lantau Tomorrow Vision project (land reclamation and construction of a district with up to 400,000 apartments – a very controversial project that is currently frozen), the expansion of the airport (under construction), construction of additional highways and residential areas, but also investments in waste disposal or seawater desalination. This offers business opportunities for German specialists in particular, example.g. in the field of engineering services or environmental technology (facades, windows, waste disposal).

In addition, the Hong Kong government is promoting small and medium-sized enterprises to make the city attractive as a location for start-ups as well, especially in e-commerce, which promises high growth potential.


What challenges does a German entrepreneur face when engaging in Hong Kong?

In particular, rents are very high in Hong Kong. This also affects the salary level. For wages and salaries, significantly higher costs must be expected than in mainland China, for example. On the other hand, a large number of the very well-educated Hong Kong citizen speak Mandarin in addition to Cantonese, as well as very good to fluent English, which is a great advantage when hiring staff. However, the attraction of tech giants such as Huawei or Tencent as well as other companies perceived as currently “trending” in the immediate vicinity in Shenzhen and the Pearl River Delta should not be underestimated. As elsewhere, there may be more or less pronounced differences in mentality and cultural barriers, which places higher demands on the social skills of professionals and managers.


Where do you see Hong Kong heading in the future?

We see no indications that Hong Kong's role as a trading and financial metropolis will diminish in the future; on the contrary, Hong Kong is likely to maintain and further strengthen its position in this regard. According to the “Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area” of the Chinese central government, Hong Kong will link up with the core centers of Macao, Guangzhou and Shenzhen in the Pearl River region to an even greater extent than before and will be a main driver for the further economic development of the region. In doing so, the framework plan calls for Hong Kong to maintain, consolidate, and further expand its status as an international financial, transportation, and trade center, an aviation hub, and a global offshore Renminbi (RMB) trading center, as well as an international asset and risk management center.

Hong Kong has many strengths that are the cornerstones of economic success. These include a level playing field for businesses, a simple tax system and low taxes, free flow of capital and information, highly efficient markets, world-class infrastructure, rule of law, etc. Hong Kong as “one country, two systems” remains unique and continues to offer tremendous development potential as a gateway to China, enhanced by its close integration into the Greater Bay Development Plan. Economic engagement will therefore continue to bring a wide range of benefits to investors.


Are Beijing's increased influence and new regulations in Hong Kong affecting economic activity?

Despite all interventions, Hong Kong continues to enjoy very considerable freedoms compared to the mainland. As mentioned above, Beijing's influence currently affects “only" Hong Kong's political leadership. Interventions in economic freedoms have not occurred and are not likely to occur. Similarly, Hong Kong's business community and citizens continue to enjoy significantly greater freedoms than on the mainland. Hong Kong is expected to retain its role as China's gateway to the world and vice versa, and thus its special status. This is supported, among other things, by the plans for many years into the future in which Hong Kong plays a decisive role, such as the Greater Bay Development Plan.

Within Hong Kong, it can be noted that especially in the area of professional law, regulations have been tightened by professional organizations. For example, there has been a significant decrease in the number of so-called “Registered Foreign Lawyers” and the number of “Registered Foreign Law Firms” that do not want to work with the new requirements or have ceased their practice for other reasons.

However, for foreign investment outside these specific, highly regulated service sectors, we still see an open market that welcomes investment.


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Dr. Thilo Ketterer


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