Hong Kong is still the ideal gateway to China, while a good market in its own right, especially for upmarket goods and services. Scott Brown, Asian Insiders partner for Hong Kong and China, explores some of the benefits of dealing with Hong Kong and China going forwards in 2023 and beyond.
Since the imperial court in Peking granted Hong Kong to Britain in 1841, there has always been a close economic relationship and since 1997 when Hong Kong returned to Chinese control under the “one country, two systems” framework, this relationship has evolved as China’s place in the world has grown to what it is today. But what is that, exactly? Given growing tensions between the US and China, how should western companies position themselves for future prosperity?
Today, China is Hong Kong’s largest trade partner, accounting for over 50% of total trade. Hong Kong is also a major source of investment and is home to many of the world’s leading financial institutions. The relationship is symbiotic with China benefitting from Hong Kong’s access to global markets while Hong Kong enjoys open access to 1.5 billion consumers.
Since the return to Chinese control, there has been some political tension as Beijing sought to bring Hong Kong’s democratic institutions into line with the CCP, however the two economies continue to integrate more closely. Hong Kong is a SAR (Special Administrative Region) and retains a well-developed financial system, a sophisticated British-based legal system with an independent judiciary and a skilled workforce – factors that ensures Hong Kong remains attractive for western companies.
Hong Kong serves as a useful interface for the rest of the world in dealing with China, acting as a bridge between systems of business, bureaucracy and risk management. Hong Kong offers a bilingual workforce with considerable experience in working between China and the west, especially in finance and law. While an expensive city, its proximity to China and vast experience in navigating Chinese regulations and licensing requirements allows for the ideal base in dealing with the Chinese market.
Hong Kong also offers lower taxes at a maximum corporate rate of 15% and personal taxes ranging from 2 to 17.5%. The territory also has double tax agreements in place with most western countries and in fact, a Hong Kong office allows for significant regional tax optimisation. Further Hong Kong retains its status as a free port, allowing goods to be imported and exported without tariffs or other trade barriers.
Hong Kong is still best dealt with through local partners. While the days of using Chinese ‘factors’ have long passed, the difference in business practices and the central importance of long-established relationships remains central to success in Hong Kong and China. Probably most importantly however, dealing with China whether through Hong Kong or directly must be a part of a long term and consistently applied strategy. Given how large and complex the Chinese market is, the best approach is staged, allowing lessons learned to inform following steps. Each province is almost a country of its own, with its own regulatory and logistical challenges to manage. Hong Kong offers a convenient and logical base for managing this, and ideally with selected partners, suppliers and local consultants to hand.
It is worth also mentioning that Hong Kong and China have gone a long way down the path of digitising their economy and their consumer channels, transforming most aspects of their supply systems, including inventory management, just-in-time supply, logistics and related financing. Working with this will be a critical component of any venture into the HK and China markets, requiring associated vendors and partnerships.
Lastly, while this article is not intended to be political, it is our view that the present tension will slowly dissipate as all parties come to realise that there is more to gain from de-escalation than from further conflict. There is simply too much to lose, for absolutely everyone, to allow the region to burst into flames. We believe human self-interest will prevail. China is not only on the cusp of becoming the largest economy in the world, China is also a critical supplier of many of the world’s required commodities and increasingly a driver of new technologies that will have global, future impact. While it certainly pays to be prudent under present circumstances, a continuing engagement with Hong Kong and China will continue to lead to long term security and growth.
Asian Insiders offers you an experienced hand in dealing with Hong Kong and China, with many successfully completed projects. For a no-obligation call, please contact Managing Partner Jari Hietala: jari.hitala(at)asianinsiders.com or Scott Brown, HK and China Partner: scott.brown(at)asianinsiders.com