Hong Kong: the beating heart of Asia

Our local Managing Director discusses the growing importance of Hong Kong in connecting Asia with the rest of the world.

Hong Kong has long served the role of trade facilitator between the East and the West. The city is practically located right in the heart of Asia, encircled by the region’s major cities such as Beijing, Shanghai, Ho Chi Minh City, Taipei, Manila, Seoul, Tokyo, Bangkok, Kuala Lumpur, Singapore and Jakarta. In fact, 50% of the world's population lives within five hours’ flight from Hong Kong.

The strengths of Hong Kong as Asia’s World City and international business centre lie in its institutions that ensure the ease of doing business, low and simple tax regime, free trade and the rule of law. The city was ranked third in the World Bank’s Ease of Doing Business Report in 2015. Hong Kong has one of the lowest tax rates in the world (capped at 15% for personal and 16.5% for corporate) with no capital gains tax, value-added tax or withholding tax on interest and dividends.

Besides that, this year marks the 21st consecutive year which Hong Kong is being rated as the freest economy in the world by the Index of Economic Freedom. Since the city imposes no control on foreign exchange, it serves as the ideal location for multinational corporations to setup their Asian headquarters. The independence and transparency of Hong Kong’s legislature, executive and judiciary systems also offer global companies a stable operating environment before they expand into other parts of Asia.

Hong Kong economy is deeply integrated into regional economies. In 2014, more than 93% of the city’s total trade involved neighboring Asian countries, which accounted for eight of the city’s top ten trading partners. China topped the list in terms of total trade, import, domestic exports and re-exports. Hong Kong has been providing the most secured, stable and efficient ways to enter the Mainland for three decades since the beginning of China’s economic reformation. Now, with China growing into a US$10tn economy (the second largest in the world), Hong Kong’s position as the gateway to the Mainland is ever important.

In 2003, Hong Kong and China signed the Closer Economic Partnership Arrangement (CEPA) as the earliest formal business links after the 1997 reunification. The agreement is a testament of the Chinese government’s commitment in strengthening the city’s status as an international financial, trade and shipping centre. Under the CEPA, all products originated from Hong Kong (except some prohibited items) will enjoy a tariff-free access into the Mainland market. The free-trade agreement also offers preferential treatment to the city’s professional service providers when they venture into China.

Hong Kong is the global hub for renminbi trade settlement, financing and asset management. Last year, 70% of the world’s renminbi payments (amounted to US$1.02 trillion) were done in the city. Hong Kong’s renminbi clearing and settlement platform helps more than 220 banks worldwide to process renminbi payments worth US$141.8 billion on a daily basis.

Last November, Shanghai-Hong Kong Stock Connect was launched in a bid to allow direct cross-border equity trading by investors operating through both exchanges for the first time. It is a significant step in liberalising Mainland’s capital markets. The development also marked the importance of Hong Kong in China’s ongoing financial and economic reforms. The linkage has contributed significantly to the recent rally in both bourses as key indexes reached new high with record-breaking market turnover. Next in the pipeline is the linkage with Shenzhen Stock Exchange (in the second half of the year) to create the biggest stock market in the world outside of the US.

China is mooting the new development strategies - One Belt, One Road (the Silk Road Economic Belt and the 21st Century Maritime Silk Road). The “going out” initiatives aim to forge a deeper integration with the world’s economy through joint-investments and co-operations in infrastructure, resources and industrial development projects. Again, Hong Kong is set to act as an important intermediary in facilitating cross-border partnerships and providing world-class professional services to foreign investors who want to participate in the initiatives. 

Also, the city is in the midst of negotiating with a free-trade agreement with ASEAN. Once it is finalised next year, Hong Kong is expected to play a major role in forging investments and trades between China and ASEAN.

With the growing importance of China and ASEAN to the global economy, Hong Kong is poised to benefit from the “super-connector” role it plays. Thus, when foreign investors plan to expand their business in the region, Hong Kong seems to be the best bet.

Read more about doing business in Hong Kong

Mark_O'Sullivan
Mark   O'Sullivan
Opinion

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