By Hong Kong Commissioner for Economic and Trade Affairs Donald Tong - 05/21/12 01:00 PM EDT
This year marks a significant milestone for Hong Kong as we commemorate the 15th anniversary of the establishment of the special administrative region. While some questioned whether the novel “One country, two systems” principle would be successful, it is evident that Hong Kong not only endures, but thrives. The example of the past 15 years has cemented confidence in the city and its prospects.
As American businesses and investors emerge from the malaise of the global economic crisis, they will find in Hong Kong a capable and willing partner; Hong Kong’s resilience and its strategic location at the doorstep of the mainland of China offer exceptional opportunities.
Hong Kong retains its British Common Law legal tradition, which is underpinned by an independent judiciary. Our strong foundation of the rule of law offers familiarity.
We maintain a simple and transparent tax regime. Income tax is capped at 15 percent while taxes on profits are capped at 16.5 percent. We have no sales or value-added tax. We do not impose capital gains or inheritance taxes.
The relatively low tax rate is a result of prudent fiscal policy. Hong Kong has stringent anti-tax avoidance legislation and we do not have laws protecting bank secrecy.
Hong Kong is where the global advantage and the China advantage converge.
The city is seen by a growing number of international companies, including many American companies, as a platform to reach mainland China and Asia-Pacific markets. This is evident in the amount of foreign investment in the city. In 2010, foreign direct investment into Hong Kong rose by more than 30 percent year-on-year, to $69 billion.
Hong Kong has one of the most vibrant securities markets in the world. At the end of February, the market capitalization of our stock exchange was more than $2.6 trillion. The bourse is the sixth largest in the world and second in Asia by market capitalization.
Hong Kong recently topped the World Economic Forum’s “2011 Financial Development Report,” overtaking the United States and the United Kingdom. It marks the first time an Asian city has topped the ranking.
In terms of funds raised through initial public offerings, Hong Kong has led the world for the last three years. American companies listed in Hong Kong include AIG’s Asian insurer, AIA; Samsonite; and Las Vegas Sands.
Illustrating our business-friendly environment, the World Bank ranks Hong Kong second out of 183 economies for its ease of doing business. In addition, Hong Kong has been ranked the freest economy in the world for 18 consecutive years by The Heritage Foundation.
Such accolades illustrate our commitment to free trade, fiscal discipline, clean government, a level playing field and the free flow of information, goods and capital.
The United States is our second largest trading partner, after mainland China. U.S. exports to Hong Kong have increased by 190 percent over the past 10 years.
Supporting U.S. jobs, Hong Kong imported more than $36 billion worth of goods from the United States in 2011, up 37 percent from 2010. According to U.S. data, Hong Kong is the tenth largest export destination for American exports.
The United States tops the list of non-local companies in Hong Kong, with some 1,330 companies. This has been a growing trend, with an increase of 65 percent over the past decade.
A noteworthy U.S. export that has shown impressive gains is wine. After our exemption of duty on wine in 2008, Hong Kong has emerged as a regional wine trading and distribution hub.
U.S. wine exports to Hong Kong increased seven-fold over the last five years to about $75 million in 2011. We are now the third-largest export destination for U.S. wine.
With the rapid modernization of the mainland, there is growing demand for our professional services. Building upon this dynamic is the Closer Economic Partnership Arrangement (CEPA), Hong Kong’s free trade pact with the mainland.
Under CEPA, 47 services sectors enjoy preferential market access to the mainland. In addition, goods of Hong Kong origin may be exported to the mainland tariff-free.
An important element of CEPA is that it is nationality-neutral; American companies incorporated in Hong Kong enjoy its full benefits.
As China gradually fosters the internationalization of its currency, the renminbi (RMB), Hong Kong has emerged as an offshore center for RMB business and services.
A popular way for American companies to raise capital is through the issuance of RMB bonds in Hong Kong. Hong Kong is the primary jurisdiction to offer offshore RMB bonds.
Multinational companies such as McDonald’s, Yum! Brands and Caterpillar have issued RMB bonds in Hong Kong. This allows them to lower the cost of borrowing to finance projects in the mainland.
In addition, the city’s clearing platform is an ideal vehicle for American firms to settle cross-boundary trade transactions with business partners in the mainland using RMB.
As Hong Kong capitalizes on the burgeoning mainland economy, opportunities abound for American companies. With our business community’s unrivaled experience, Hong Kong is an ideal middleman and adviser for American investors.
We welcome American companies to further explore Hong Kong as they establish or expand their footprint in the Asia-Pacific region.
Donald Tong is Hong Kong commissioner for economic and trade affairs.