Why Hong Kong and Macau?
Summary of Hong Kong
Area: 1,108 km2
Population: 7.5 million
Urban population: 100%
Population density: 7,039.7 people per km2
Population growth rate (change): 0.9%
Official languages: Cantonese and English
Currency: Hong Kong Dollar (HKD); Macanese Pataca (MOP) in Macau
Nominal GDP: US $363 billion
Real annual GDP growth: 3%
GDP per capita: US $48,517.4
Annual inflation rate: 2.4%
Unemployment rate: 2.8%
General government gross debt: 0.1% of GDP
Fiscal balance: 2% of GDP
Current account balance: US $12.6 billion/3.5% of GDP
Exports of goods to UK: £7,719 million
Exports of services to UK: £1,695 million
Imports of goods from UK: £7,919 million
Imports of services from UK: £3,490 million
[Source – FCO Economics Unit (May 2019), World Bank]
The Chinese Special Administrative Regions (SARs) of Hong Kong and Macau consist of over 230 islands on either side of the Pearl River Delta in South China, and are surrounded by the Chinese province of Guangdong to the north and the South China Sea to the west, south and east.
Together with Shenzhen, Guangzhou, Zhuhai and a number of smaller cities in Guangdong Province on the Chinese mainland, Hong Kong and Macau form a core part of the Pearl River Delta (PRD) metropolitan region, or Greater Bay Area, the most densely populated region in the world.
Hong Kong City is located on the island of Hong Kong, and this – together with the large island of Lantau (containing Hong Kong International Airport) – plus Kowloon, the New Territories and over 230 other islands, make up the Hong Kong SAR to the east of the Pearl River estuary, now joined to Macau on the west of the estuary by the new 55 km-long Hong-Kong-Zhuhai-Macau Bridge (HZMB), which opened in October 2018.
Most of the land is hilly or mountainous, the highest point being just over 950 m high, and with the exception of the densely-populated urban areas, is mostly grassland or semi-tropical woodland, with a number of national parks and nature reserves. The climate is subtropical, with hot humid summers including typhoons, and milder winters.
Due to the lack of space, much of the land has been reclaimed from the sea, and densely-populated urban areas consist of many high-rise buildings, with Hong Kong having the world’s largest number of skyscrapers.
[Source – https://www.britannica.com/place/Hong-Kong]
Hong Kong is an exceptionally competitive financial and business hub. It is the world’s eighth-largest trading economy and one of Asia’s leading financial and business centres. With its regulatory efficiency and openness to global commerce, it is an international financial centre that acts as a conduit into and out of China for both goods and capital, and has been ranked the freest economy in the world by the Heritage Foundation for 24 consecutive years (see: https://www.heritage.org/index/country/hongkong), and is ranked fourth in the World Bank’s 2019 Ease of Doing Business index (see: http://www.doingbusiness.org/en/data/exploreeconomies/hong-kong-china).
In addition it is a popular base for hosting regional headquarters or representative offices covering not just Hong Kong but Mainland China, East and Southeast Asia too, and it is the leading telecommunications hub for the Asia-Pacific region, and the premier offshore-centre for trading in the Renminbi (RMB) Chinese currency.
It has the world’s busiest airport for international cargo, one of the world’s busiest container ports, the second-largest private equity centre in Asia, the third-largest stock market in Asia and the seventh-largest in the world.
There are extensive historical ties between the UK and Hong Kong, and English is one of Hong Kong’s two official languages. It has a legal system based on that of the UK, strong Intellectual Property rights protection, little tolerance for corruption and a high degree of transparency enhancing government integrity.
With strong government support and a vibrant entrepreneurial climate, Hong Kong is uniquely placed as one of the world’s pre-eminent business locations.
[Source – FCO Overseas Business Risk: Hong Kong, gov.uk, Heritage Foundation, World Bank, Mazars CPA Limited, InvestHK]
The People’s Republic of China (PRC) is responsible for Hong Kong’s foreign affairs and defence. However, Hong Kong enjoys a high degree of autonomy in the other areas of its governance, including economic and trade affairs.
The Sino-British Joint Declaration outlines the 'One Country, Two Systems' model for the Hong Kong Special Administrative Region, and the Basic Law – which encompasses the key features of the Joint Declaration, such as Hong Kong’s special status, autonomy, the continuation of its capitalist system, common law legal system, rights and freedoms – is effectively Hong Kong’s constitution.
Ms Carrie Lam is the current Chief Executive of the Hong Kong SAR Government, elected in March 2017 for a five year term, and Hong Kong’s parliament is the Legislative Council (LegCo), with forty of its seventy seats directly elected. The remaining thirty seats, filled by representatives of 'functional constituencies', are selected mainly by the business sector and the professions.
Members of LegCo serve for a term of four years, with the most recent elections, for the 6th Legislative Council of Hong Kong, in September 2016. A few additional by-elections took place in March 2018 following legal action and disqualification of some elected legislators.
There are currently issues and much debate around the constitutional relationship between the SAR and Mainland China, with pro-Beijing and pro-democracy supporters highly polarised, but recent changes to LegCo’s rules of procedure may help to resolve some of these concerns over time.
[Source – FCO Overseas Business Risk, gov.uk]
Business and human rights
Despite some concerns that there has recently been pressure from the mainland, basic rights and freedoms are well-respected in Hong Kong.
There are mechanisms in place to investigate and punish cases of abuse and corruption, civilian authorities maintain effective control over the Hong Kong Police Force, and Hong Kong has an independent judiciary, with judicial independence generally respected by the Hong Kong Government.
The law protects the right of workers to form and join independent unions and conduct legal strikes, and there are no government restrictions on access to the internet.
[Source – FCO Overseas Business Risk, gov.uk]
Hong Kong is a small, open economy and an international financial centre that acts as a major conduit into and out of China for both goods and capital. Consequently Hong Kong’s economy is strongly influenced by conditions in the global economy, and increasingly by Mainland China, which currently receives between 50% and 60% of Hong Kong’s total exports. However, Hong Kong benefits from a well-capitalised banking system and a strong fiscal position.
The four main economic sectors of Hong Kong are:
trade and logistics
The economy grew 3.8% (year-on-year) during 2018, with a ten-year average annual GDP growth of 2.7%. Growth is expected to be constrained by the slow global economic recovery impacting on exports of goods, but domestic demand will remain stable.
[Source – DIT Trade and Investment guide: Hong Kong, FCO Overseas Business Risk, gov.uk, IMF World Economic Outlook Database]
Trade with Mainland China
The Hong Kong economy has been transformed over the past two decades. Much of its manufacturing has now moved to the neighbouring Pearl River Delta (PRD) region of southern China as Hong Kong’s economy becomes increasingly connected with Mainland China’s through the Closer Economic Partnership Agreement (CEPA). For further details visit: https://www.tid.gov.hk/english/cepa/cepa_overview.html.
Under this agreement, Hong Kong companies (including UK companies with substantive business operations in Hong Kong for 3-5 years) get preferential access to the Mainland China market, allowing tariff-free importing of goods and services of Hong Kong origin into Mainland China. There are also agreements or arrangements on mutual recognition of professional qualifications.
As the PRD region becomes a leading free trade area, the Greater Bay Area initiative will allow increasing economic integration between the cities of Hong Kong, Macau, Guangzhou, Shenzhen and other Mainland Chinese cities in Guangdong Province.
Mainland Chinese authorities unveiled the outline development plan for the Guangdong-Hong Kong-Macau Greater Bay Area in February 2019, showcasing their intention to develop the region into a role model of high quality development, enriching the practice of 'One Country, Two Systems' and providing increased development opportunities for Hong Kong.
The plan is to turn the Bay Area into a vibrant world-class city cluster, a globally-influential international innovation and technology hub, an important support pillar for Mainland China’s Belt and Road Initiative, a showcase for in-depth co-operation between the mainland and Hong Kong and Macau, and a quality region in which to live, work and travel.
[Source – FCO Overseas Business Risk, gov.uk, Xinhua News Agency]
The economy of Macau SAR is reliant on casino gaming and tourism. The majority of patrons are from Mainland China and Hong Kong SAR, where casino gaming is illegal. The industry is many times larger than that in Las Vegas.
The new Hong Kong-Zhuhai-Macau Bridge opened in October 2018, providing quicker access to Hong Kong and its international airport. This, together with the expansion of the Guangdong-Hong Kong-Macau Greater Bay Area as a key part of Mainland China’s Belt and Road Initiative, are ensuring the growth of Macau’s emerging industries, such as its prominent convention and exhibition (MICE) sector, creative industry and finance sectors.
For information on the Macau Government’s fiscal incentives to encourage investment in Macau, visit the Macao Trade and Investment Promotion Institute (IPIM) at: https://www.ipim.gov.mo/en.
[Source – Macao Trade and Investment Promotion Institute (IPIM)]
In addition to being a springboard into the Mainland Chinese market, Hong Kong is also a natural business hub for Southeast Asian markets and the wider Asia-Pacific region. Hong Kong is:
situated in a central position in East Asia
adjacent to ASEAN markets of Southeast Asia
within five hours flying time of half the world’s population
a major base for the regional operations of international business
Hong Kong is the second-largest Foreign Direct Investment (FDI) recipient in Asia after Mainland China, a position it has held for 18 consecutive years.
[Source – DIT Trade and Investment guide: Hong Kong, gov.uk]
UK and Hong Kong trade
Many historic ties and affinities between Hong Kong and the UK still endure, and the UK enjoys a positive, forward-looking relationship with the Hong Kong SAR Government, and mutually beneficial co-operation in a wide range of areas.
Hong Kong continues to be a very significant business partner for the UK – and also the principal gateway into, and increasingly out of, Mainland China, particularly the Pearl River Delta (PRD) and Greater Bay Area – and is the UK’s second-largest market for goods in Asia Pacific after Mainland China. UK goods and services exports to Hong Kong were £11.4 billion in 2018.
Top UK exports to Hong Kong include:
miscellaneous manufactured articles
power generating machinery and equipment
telecommunications and sound recording/reproducing equipment
electrical machinery and appliances
professional, scientific and controlling instruments and appliances
beverages, spirits and vinegar
plastics and plastic products
clocks and watches
meat and meat preparations
Many of these items are ultimately destined for other markets in Asia and around the world, and are re-exported by Hong Kong.
Benefits for UK businesses exporting to Hong Kong
Benefits for UK businesses exporting to Hong Kong include:
open, transparent and competitive market
English is widely understood
strong IP rights protection
well-established and familiar rule of law (based on English Common Law)
a key part of the Greater Bay Area
a springboard for business with Mainland China and Southeast Asia
Contact a DIT export adviser at: https://www.great.gov.uk/contact/triage/location/ for a free consultation if you are interested in exporting to Hong Kong.
Contact UK Export Finance (UKEF) about trade finance and insurance cover for UK companies. You can also check the current UKEF cover position for Hong Kong. See: https://www.gov.uk/guidance/country-cover-policy-and-indicators#hong-kong.
[Source – DIT Trade and Investment guide: Hong Kong, UKEF, gov.uk]
In Transparency International's latest 2018 Corruption Perceptions Index (announced Jan 2019), Hong Kong is ranked 14th out of 180 countries (the UK ranks 11th): https://www.transparency.org/country/HKG
Hong Kong is ranked 4th out of 190 countries in the World Bank’s 2019 Ease of Doing Business Index (the UK ranks 9th): http://www.doingbusiness.org/en/data/exploreeconomies/hong-kong-china
The World Economic Forum’s Global Competitiveness Report 2018-19 ranks Hong Kong 7th out of 140 (the UK ranks 8th): http://reports.weforum.org/global-competitiveness-report-2018/country-economy-profiles/#economy=HKG
Hong Kong is ranked 1st out of 180 countries in the Heritage Foundation’s 2019 Index of Economic Freedom (the UK ranks 7th): https://www.heritage.org/index/country/hongkong
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