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Hong Kong: Still the Best Place to Do Business in Asia?

If you wanted to focus on the positive things in 2020, you could say it gave you some time to rethink your Asia strategy in a number of areas. One of those considerations is what happened in Hong Kong and if is that still the place for your company to be. There is nothing as predictable as change and it certainly was another black swan event regarding the new China/Hong Kong relationship.

If you are one of the over 9,000 foreign firms, including nearly 1,400 from the United States, with offices in Hong Kong, what is the effect on your business and should you be looking at different venues to be operating from?

The first big question you have to ask yourself is: Why are you in Hong Kong?

Are you there for the Hong Kong market? Are you there because it has historically been the entry gate into China? Are you there because of its proximity to other ASEAN markets? In this brief article, we look at three areas that are critical to any decision-making process.

What has stayed the same?

Legal system: It has been independent of China and is still highly regarded as equitable and consistent. Hong Kong arbitration clauses have been the norm for years with many of our clients.

World Class Logistics: In terms of shipping, travel and ease of doing business, historically Hong Kong is one of the top places to be.

Global Financial Center: Over the last decade, 80 percent of the IPOs of mainland Chinese companies have been issued in Hong Kong. HK has handled 40% of Chinese firms US dollar bond issuance. Latest rankings still place it as the number three financial center globally behind New York City and London.

What has changed?

Foreign security law: Drafted in closed-door meetings in Beijing, the new law has massive ramifications for the city’s political freedoms. Right to a jury trial can be suspended, cases can be heard in secret, and life imprisonment is the maximum punishment for any of the major four crimes (secession, subversion, terrorism and collusion for foreign forces).

Brain drain: The UK, Canada and US are adjusting their immigration rules to allow for HK residents to become citizens. Firms relying on local HK talent could be seeing a loss of the best and brightest to other countries.

Special Status: Hong Kong appears to have lost its special economic status, and those firms that were in HK will now have the same tariff and other issues as if in China. The special economic and trading relationship status with the US is officially going away.

What could be changing?

Expatriates: The new political reality will make it more difficult, and certainly more expensive, to get quality expats to move to HK.

Visa requirements: China has cumbersome visa requirements and with a tightening of HK, which is likely, it may very well be much more problematical to do business.

Banking requirements: It is yet to be seen whether the stringent banking laws of mainland China will be put in place. This would have broad ramifications for both personal banking and the free flow of currency to Hong Kong’s role as conduit from mainland China to the rest of the world for corporate and private company profits and dividends.

Internet and freedom of the press: There has been, and will likely continue to be, a “boiling of the frog” in terms of media and internet issues. Our guess is that within a short number of years Hong Kong rules will coincide with those of the mainland and we will see less freedom and more of a government-controlled narrative in terms of business and political news.

Regulation of foreign corporations: Hong Kong has historically been ranked one of the top cities in the world to set up entities utilizing a pro-business tax code with ease of establishment and corporate rules.

Hong Kong’s Role in the Global Economy

One does need to remember that China is still very dependent on Hong Kong for trade, foreign direct investment (FDI), equity and debt capital, foreign exchange and more. China is not going to shut all of that down immediately. While they would like to see Shenzhen and/or Shanghai take Hong Kong’s place as a world leading finance center, it is too important an avenue right now to shut off the spigot. Please note that according to the National Bureau of Statistics of China, approximately two-thirds of all FDI into China came in via HK. Of equal importance is that the service sector accounts for 93% of Hong Kong’s GDP. If your firm is focused on the HK market, any movement up or down in GDP has a direct effect on your revenue. In 2019, FDI in Hong Kong decreased by -47% and GDP by -1.2% - falling from the number three business destination globally to number five. It is hard to imagine the current specifics helping GDP and FDI.

Hong Kong’s global and regional standing in finance facilitates the coordination of capital requirements for the region. With the new order, Hong Kong’s standing in the financial markets could shrink significantly. Singapore could become an attractive alternative for many regional headquarters. Though expensive, far removed from Japan and Korea, and not as efficient a conduit into the Chinese market, many aspects of its financial market, from company listings to foreign currency exchange, already rival or surpass Hong Kong. Its political security, efficient infrastructure, quality schools, and other favorable considerations add to its attractiveness as a base for regional headquarters. US technology firms in fact have already twice as many regional headquarters in Singapore as in Hong Kong.

Bottom Line

As to Hong Kong’s future, it appears that to Beijing the imperative of tightening political authority over Hong Kong trumps the risk of the territory’s longer-term economic atrophy.

Needless to say, different venues in Asia offer alternatives but the specifics of your product, service, and/or market must be addressed. It is critical that you review all of these scenarios and create options as to your Hong Kong presence. In the words of General Eisenhower: “Plans often prove worthless but planning is indispensable.” We have worked with numerous firm’s Asian strategies. We would be delighted to talk further about yours.

AsiaPlus is a strategic financial and M&A advisory boutique based in Shanghai, China. Our firm’s services include M&A, strategic advisory and capital raising with a focus on North America and Asia. Learn more at:

PRI is a premier management and consulting company with over 30 years of experience

doing business in China. The PRI team leverages this vast experience in dozens of industries to provide world-class operations solutions that simplify the complexity of doing business in China and empower businesses to succeed. To schedule your free consultation with PRI’s experienced team of consultants and managers, write to Jonathan Kendrick at


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