Overseas Business Risk – Hong Kong – GOV.UK

Updated 16 April 2018

Contents

  1. 1.Government
  2. 2.Human Rights
  3. 3.International Relations
  4. 4.Economic Overview
  5. 5.Bribery and Corruption
  6. 6.Terrorism Threat and Protective Security
  7. 7.Intellectual Property
  8. 8.Organised Crime

1. Government

The Hong Kong Special Administrative Region of China (SAR) covers an area of 1,098 square kilometres (424 square miles) on the southern coast of China. It comprises Hong Kong Island, Kowloon and the New Territories, and about 235 outlying islands.

Hong Kong falls under the sovereignty of the People’s Republic of China, which is responsible for its 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. 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. It prescribes, among other things, the relationship between the Chinese Government and the Hong Kong SAR Government, the fundamental rights and duties of the Hong Kong people and the SAR’s political structure.

The current Chief Executive of the Hong Kong SAR Government is Ms Carrie Lam, who was elected by a 1,194 member Election Committee on 26 March 2017, and will serve a five year term. The Legislative Council (LegCo) is Hong Kong’s parliament. Forty of its seventy seats are directly elected. The remaining thirty seats are filled by representatives of “functional constituencies”, selected mainly by the business sector and the professions. Members of LegCo serve for a term of four years, and the most recent LegCo elections, to select the 6th Legislative Council of Hong Kong, took place on 4 September 2016. By-elections were held for some seats in March 2018 as a result of HKSAR Government legal action against some elected legislators leading to their disqualification.

Hong Kong’s political discourse is dominated by questions surrounding the constitutional relationship between the SAR and mainland China, with pro-Beijing and pro-democracy camps highly polarised. It is likely that pro-democracy legislators’ sustained filibuster campaign will continue, though it remains to be seen whether recent changes to LegCo’s rules of procedure will affect their ability to hold up Government legislation.

2. Human Rights

Basic rights and freedoms are generally well respected in Hong Kong, though there are some concerns that the increased influence of the CPG in Hong Kong has led to increased pressure on many of them in recent years.

Civilian authorities maintain effective control over the Hong Kong Police Force, and there are mechanisms to investigate and punish any cases of abuse and/or corruption. The law provides for an independent judiciary, and the government generally respects judicial independence in practice.

The law, including related regulations and statutory instruments, protects the right of workers to form and join independent unions without previous authorisation or excessive requirements, and conduct legal strikes. However, the law does not provide for the right to collective bargaining. Trade unions must register with the government’s Registry of Trade Unions and must have a minimum membership of seven persons for registration. Unions can affiliate, and workers are not prevented from unionising.

The law provides for freedom of assembly and association. The government routinely issues the required “Letter of No Objection” for public meetings and demonstrations, and the overwhelming majority of protests occur without serious incident. Isolated instances of sporadic violence have occurred during both pro-democracy and anti-immigration protests in recent years.

There are no government restrictions on access to the Internet.

3. International Relations

The UK enjoys a positive, forward looking relationship with The Hong Kong SAR Government, and mutually beneficial cooperation in a wide range of areas.

A lot of our historic ties and affinities still endure. There are around 3.5 million British passport-holders in Hong Kong. The majority are British Nationals (Overseas) – BN(O)s. This form of British nationality accords visa-free access to the UK for visits, but not the right of abode in the UK. BN(O)s enjoy the same level of consular service in third countries as other British Nationals.

The Foreign Secretary reports to Parliament every six months on developments in Hong Kong, and gives our assessment of how well the ‘One Country, Two Systems’ model outlined in the Sino-British Joint Declaration on the Question of Hong Kong is working in practice.

Hong Kong continues to be a major business partner for the UK. It is important as a very significant market in its own right and also as the principal gateway into, and increasingly, out of mainland China, particularly the Pearl River Delta (PRD). It is:

  • the UK’s second largest market for goods in Asia-Pacific (after mainland China), and 12th largest worldwide in 2016
  • the origin of 2.3% of all FDI into the UK in 2015
  • the source of over 25% of the profits of two of the UK’s largest banks in 2016 (HSBC and Standard Chartered)
  • the test-bed for the internationalisation of China’s currency, the renminbi (RMB)

Cooperation through the London-Hong Kong Financial Services Forum has helped establish London’s status as an offshore hub for RMB trading.

The economies of Hong Kong and mainland China are increasingly integrated. The Hong Kong/Mainland China Closer Economic Partnership Agreement (CEPA) was signed in 2003. Under CEPA, Hong Kong companies (including UK companies with substantive business operations in Hong Kong for 3-5 years) get preferential access into the mainland market. On trade in goods, the arrangement allows tariff free imports of all goods of Hong Kong origin into China. A new agreement on trade in services was signed in November 2015, allowing Hong Kong service providers unrivalled access to the Chinese market. CEPA was further enhanced for cross-boundary investments in June 2017. We expect the development of the Greater Bay Area initiative (Guangdong cities, Hong Kong and Macao) to provide ever-deepening economic integration as the region becomes a leading free trade area.

The Shanghai-Hong Kong Stock Connect pilot scheme was launched on 17 November 2014 and allows international investors to invest in mainland China’s A-share market and Chinese investors to invest in Hong Kong. In August 2016, the aggregate quota of the Shanghai-Hong Kong Stock Connect was lifted to deepen financial linkages with the mainland. After repeated delays due to market volatility, the Shenzhen-Hong Kong Stock Connect was launched in December 2016. The operation of this scheme mirrors its Shanghai-Hong Kong counterpart – with its tech stocks offering investors a higher yield alternative to Shanghai’s blue chip stocks with typical annual returns potentially as high as 25%.

In addition to the Stock Connect, a ‘China-Hong Kong Bond Connect’ was launched northbound on 3 July 2017, allowing international investors to gain access to the mainland bond market via Hong Kong accounts.

As a customs territory, HKSAR is responsible for its own bilateral and multilateral economic and trade relations. Hong Kong is a strong advocate for free trade and open markets in fora such as the World Trade Organisation (WTO). In other multilateral fora, such as the G20, Hong Kong participates as part of the Chinese delegation.

4. Economic Overview

Hong Kong is a small, open economy and an international financial centre that acts as a conduit into and out of China for both goods and capital. The ‘pillar industries’ of finance, logistics and trade, tourism, and professional services combined provide 57% of Hong Kong’s GDP; services overall account for 92%. Gross trade flows amount to 375% of GDP, and annual tourist arrivals of over 58 million (including 44 million mainland Chinese) are equivalent to around eight times Hong Kong’s population of 7 million.

This outward focus means that Hong Kong’s economy is strongly influenced by conditions in the global economy, particularly – and increasingly – in mainland China, which now receives 54% of Hong Kong’s total exports. The United States at 9% is also a key export market.

Hong Kong’s 5-year real trend growth was adjusted slightly up to 3.5%, helped along by a brightening world economy and strengthening domestic demand. Growth was 3.6% in 2017. The government anticipates growth of around 3.2% in 2018.

The key driver of growth is domestic demand which remains strong, founded on a healthy labour market (the latest data shows nominal wages growing by 4.4%) and supportive fiscal policy, which has contributed an average of 1 percentage point to GDP since the 2008 financial crisis. The government expects demand to hold up well with strong fundamentals including the low unemployment rate (3.1% in October 2017) and steady consumer price inflation (1.7% in October 2017).

While Hong Kong is vulnerable to shocks from both advanced economies and mainland China, it benefits from a well-capitalised banking system and a strong fiscal position: Hong Kong’s banks have a capital adequacy of 18% and the Government currently holds fiscal reserves of HK$952bn, or £99bn (as at the end of 2016), equivalent to 24 months of government expenditure.

Hong Kong’s competitiveness faces some medium-term risks. The consensus across the business community is that air pollution, capacity to innovate and urban space hamper sustainability performances. The World Economic Forum’s 2017-18 competitiveness report highlighted challenges for the city to evolve from one of the world’s foremost financial hubs to an innovative powerhouse, which involves improvement in higher education standards and increased innovation and business sophistication.

Nevertheless Hong Kong is a highly competitive global business hub. As an international finance centre, the World Bank has consistently ranked Hong Kong behind only London and New York. The IMD World Competitiveness rankings 2017 place Hong Kong as the best place to do business worldwide, and in 2017 the Heritage Foundation has ranked Hong Kong as the world’s freest economy (as it has for 23 consecutive years). This competitiveness is based on a solid set of attributes: stable institutions; strong regulators; good infrastructure; large talent pool; and judicial independence and rule of law.

Note: You can access up to date statistics and information at the following websites –

The Census and Statistics Department in Hong Kong

The Hong Kong Monetary Authority

Invest Hong Kong

The Hong Kong Trade Development Council Research

The Hong Kong Economic Trade Office in London, UK

The Trade Industry Department (CEPA, Mainland & HK Closer Economic Partnership Agreement)

More information on political risk, including political demonstrations is available in FCO Foreign Travel Advice

5. Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or as Scottish partnership to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

In Hong Kong there is zero tolerance for bribery. The Prevention of Bribery Ordinance criminalises bribery and corrupt transactions in both the public and private sectors.

The Independent Commission Against Corruption (ICAC) is the government agency which investigates and prosecutes corruption in the public and private sectors in Hong Kong.

Hong Kong was ranked 13th (of 180) alongside Belgium in Transparency International’s Corruption Perceptions Index (CPI) for 2017, reflecting its robust structure of checks and balances (the UK was ranked 8th).

Read the information provided on our bribery and corruption page page.

6. Terrorism Threat and Protective Security

There is a low threat from terrorism, but you should be aware of the global risk of indiscriminate terrorist attacks, which could be in public areas, including those frequented by expatriates and foreign travellers.

The level of violent crime is very low, but pick pocketing and other street crime can occur. You should take extra care of passports, credit cards and money in crowded areas and when checking in and out of hotels. For emergencies, the Police can be contacted by calling 999.

Hong Kong is generally a stable society underpinned by the rule of law. While demonstrations are usually conducted in a peaceful and orderly manner, some have been more volatile in nature, resulting in confrontations between police and protesters. You should avoid areas where protests and unplanned public gatherings are taking place if possible, monitor and follow the instructions of the local authorities and take sensible precautions against petty crime if you are nearby.

Please ensure you check foreign travel advice for latest information on risks and precautions.

7. Intellectual Property

Intellectual Property (IP) rights are territorial, that is they only give protection in jurisdictions where they are granted or registered. If you are thinking about trading internationally, then you should consider registering your IP rights in your export markets. Specific advice should be sought from qualified professionals either in the UK or overseas.

Hong Kong has a separate IP system to mainland China. The Hong Kong IP legal framework is comprehensive and generally considered to be one of the most effective in Asia. Hong Kong is ranked 9th in the world for IP protection in the World Economic Forum’s Global Competitiveness Report 2017.

Hong Kong is a signatory to several international conventions on IP. Its legislative and administrative regime for IP rights is generally compliant with the World Trade Organization agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).

The Hong Kong Intellectual Property Department (IPD) is the government department responsible for registration of trade marks, patents and designs, and for overseeing copyright policy. IPD also provides policy advice to the Secretary for Commerce and Economic Development on policies and legislation to protect IP in Hong Kong, as well as public outreach activity. Hong Kong Customs and Excise are the primary agency responsible for criminal enforcement against IP infringement. The Hong Kong court system operates according to common law principles and both interim and permanent injunctions can be obtained in IP cases. Hong Kong has no specialist IP court.

UK companies based in or planning to export to Hong Kong are advised to register their IP in Hong Kong and any other jurisdictions where they may want to expand their products and services in future. Some companies also report that they have been the victim of ‘brand squatting’. This is when companies or individuals pre-emptively register a trade mark or company name, intending to negotiate a payment to transfer the rights, and/or to piggy-back on the reputation of international brands. This practice has been particularly prevalent with entities from mainland China, so companies active in Hong Kong should also consider trade mark registration on the mainland.

The European Union has published a guide to protecting IP in Hong Kong aimed at Small and Medium Enterprises (SMEs). Please see here.

For more information on IP in mainland China – including contact information for the UK’s IP Attaché in the British Embassy in Beijing – please see here.

8. Organised Crime

The Hong Kong SAR government takes a serious view of organised crime and has in place severe measures to counter it, including large fines and long sentences for drug and firearms trafficking, money laundering and human and goods trafficking. The Organised and Serious Crimes Ordinance empowers the Hong Kong’s law enforcement agencies (Hong Kong Police Force, Hong Kong Customs and Excise Department and the Independent Commission Against Corruption) to investigate serious and organised crimes. Uniquely, the Hong Kong Police has specific responsibility for investigating triad-related offences and has dedicated units to take proactive action against triads. While you should be vigilant against triad-related activity, there is no evidence to suggest this is a growing problem.

Hong Kong adopts a common law legal system akin to and almost mirroring UK law. The judicial processes in Hong Kong follow a similar criminal justice system to the UK with a three-tier court structure.

Hong Kong law enforcement agencies can apply to the court for heavier sentences and the confiscation of proceeds arising from certain crimes.

Drugs – use and trafficking

Hong Kong is not a source country for controlled drugs, though there is evidence of its use as a transit point for controlled drugs to other parts of Asia Pacific and elsewhere in the world. Varying methods of trafficking are employed, however the main modus operandi are the use of parcel postal systems and human couriers.

The predominant drugs encountered are ketamine, cocaine and methamphetamine. You should not become involved with illegal drugs of any kind. There is zero tolerance towards the possession and trafficking of controlled drugs as defined by Hong Kong Drugs Ordinance, which will lead to imprisonment. There have been an increasing number of people duped into becoming couriers for drugs parcels either through romance scams or other types of scam. Any approach to act as a courier should be reported to the police as a matter of priority.

Fraud and money laundering

Hong Kong is often seen as an attractive option for money laundering, due to the nature of its financial structure. The money laundering regulations are enforced by the financial investigation bureaus of both the Hong Kong Police Force and Hong Kong Customs and Excise Department. Frauds and scams are ever-evolving, but the emergence of so-called “CEO scams” and email scams has identified vulnerabilities for companies across the globe, including those in Hong Kong. Further information on these and other types of fraud can be obtained via the City of London Police and Action Fraud websites.

Throughout 2015/2016, Hong Kong residents (predominantly local Chinese) were the victims of large-scale telephone deception scams resulting in significant personal losses. Hong Kong police launched an awareness campaign and have taken enforcement action against suspects; however this fraud still remains a risk and the value of losses continues to grow.

For further information you can visit the Hong Kong Police Force website or the Security Bureau websites.

The Hong Kong SAR Government has restrictions in place on the quantity of powdered baby formula allowed for persons departing the territory. Penalties for non-compliance are severe. See: Hong Kong Customs and Excise Department website.

Read the information provided on our Organised crimepage.

For advice on serious organised crime visit the National Crime Agency website.

https://www.gov.uk/government/publications/overseas-business-risk-hong-kong/overseas-business-risk-hong-kong

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