MR. MIKE ROWSE, DIRECTOR-GENERAL OF INVESTMENT
PROMOTION, INVESTHK, GOVERNMENT OF HONG KONG
Question 1: As I understand it, InvestHK is the official investment promotion organization of the Hong Kong government. Also as I understand it, you play a role similar to the Board of Investment in Thailand, the Ministry of Planning and Investment in Vietnam plus similar organizations in Singapore, Malaysia and elsewhere. Could you tell us a little about InvestHK, the role of your organization in attracting investment to Hong Kong and whether you have overseas offices in addition to your office in Hong Kong?
Answer: InvestHK was established in July 2000 as a Government Department to spearhead Hong Kong's efforts to attract inward investment. It provides information and assistance to corporations and individuals looking for direct investment opportunities in Hong Kong.
InvestHK’s sector specific experts guide potential investors thorough all stages of the investment process. We help all companies who approach us on their own initiative. When in proactive mode we focus on the following sectors :- Financial ServicesInvestHK offers extensive information and assistance concerning investments related to Mainland China. We maintain three dedicated teams to promote direct investment from Beijing, Shanghai and Guangdong. We also maintain representatives in London, New York, San Francisco, Paris, Milan, Brussels, Toronto, Sydney, Osaka, Seoul and Tokyo.
- Business and Professional Services
- Information Technology
- Technology (especially Electronics and Biotechnology)
- Tourism and Entertainment
- Trade Related Services
Question 2: Recently Hong Kong and China signed a free trade agreement. Can you tell us a little about this agreement and how it will improve Hong Kong’s trade advantages for companies that are located there?
Answer: The Closer Economic Cooperation Arrangement (CEPA) is consistent with China's obligations as a member of the World Trade Organization. As regards trade in goods, it will eliminate all tariffs on Hong Kong-made goods exported to the Mainland in two phases (273 categories from 1 January 2004, all other goods no later than 1 January 2006). It will also provide Hong Kong companies and professionals in several services sectors with early access to the Mainland and simplify cross-border trade. Industries which will particularly benefit include management consultant services, exhibitions and conventions, advertising, legal services, accounting services, medical and dental services, real estate and construction services, transport services, distribution, logistics, forwarding services, storage services, tourism, audiovisual, banking, securities and insurance.
CEPA should also stimulate the local economy, especially the high value added manufacturing and the services sectors. It will add to Hong Kong’s advantages as an investment destination and strengthen the city’s historical role as gateway to China.
Question 3: Hong Kong was one of the first commercial hubs in Asia to see substantial investment and resulting economic development. After thirty plus years of rapid economic growth, obviously today Hong Kong is a modern city with a higher cost of living, wages and other costs than that found in much of the rest of Asia. Considering this, does Hong Kong still make sense as a location for manufacture and/or other business operation for Western companies? Also, what industries would location in Hong Kong offer the most advantages?
Answer: Hong Kong is Asia’s most international city: a vibrant, cosmopolitan community where East meets West. This produces a creative and dynamic business culture and an ideal environment for international investors interested in expanding into Asia. It is the preferred location for Asia-Pacific regional operations and a major centre for China headquarters for MNCs.
Hong Kong is one of the most open, externally-orientated economies in the world. The city is a duty-free port, where no quotas or tariffs apply. Money, goods and services flow without restriction. A strong financial system and solid economic fundamentals underpin the economy. Life in Hong Kong is based on the rule of law, providing a level playing field for individuals and enterprises. This guarantees a safe and predictable investment environment. Intellectual property rights are also protected through a sophisticated legal framework and effective enforcement of regulations.
While the manufacturing industries used to play a major role during Hong Kong’s economic development in the past, most of these operations have moved to Mainland China, taking advantage of lower labour costs. Hong Kong still retains a small manufacturing base, especially in high value-added industries, but we are now essentially a services-based economy. However, with the elimination of tariffs in some high tech sectors, Hong Kong will become more attractive for manufacturers in certain industries such as electronics, IT, pharmaceuticals etc.
Moreover, Hong Kong is home to more than 380 banking institutions, over 200 insurers, around 2100 securities dealers and about 1600 unit trusts and mutual funds. 80 of the world’s top 100 banks operate in Hong Kong.
Question 4: In the 70’s, 80’s and 90’s, Hong Kong was the centre of much of the toy manufacture, plastic molding and many other industries located there. As I understand it, most of Hong Kong’s manufacturing base has now moved across the border to Shenzhen, South China and other locations. Does Hong Kong still make sense for certain manufacturing operations and if so can you give a few examples and discuss incentives that the Hong Kong government is offering to attract investment in these industries?
Answer: As I mentioned before, the manufacturing industry only plays a relatively minor role in Hong Kong, which is now primarily a services and knowledge based economy. However, the recently signed free trade agreement between Hong Kong and the Central Government is expected to stimulate growth in certain high value-added manufacturing sectors in Hong Kong.
Unlike other economies in the region, the Hong Kong Government does not use incentives such as tax breaks or subsidies to attract international investment. We believe that Hong Kong’s advantages speak for themselves. We offer a level playing field for all companies who would like to do business here.
Question 5: Hong Kong competes directly with Singapore and Shanghai to attract companies to site their Regional Headquarters in Hong Kong. Historically Hong Kong was the first choice but has over the last several years been second choice to Singapore or Shanghai by many large multi-nationals. Has Hong Kong’s advantage as the best site to locate a regional office changed and if not, what advantages does Hong Kong possess vis-à-vis Singapore, Shanghai or other locations to site an East Asia Regional Office for a company?
Answer: The question is factually incorrect. Hong Kong is the number one location for regional operations. It is the chosen base for some 3,000 regional headquarters and regional offices representing companies from around the world. In 2002, the number of regional headquarters increased to 948, an all-time high.
We are currently seeing the weight of regional economic activity shifting to North Asia. This is mainly caused but the continuous growth and market potential of the Chinese economy, but also because countries such as Korea and Thailand emerged more rapidly from the effects of the Asian financial crisis than economies in the South. Hong Kong is a beneficiary of this trend and we are therefore in an excellent position to attract additional regional headquarters.
With China’s economy constantly expanding, Hong Kong and Shanghai will continue to play important roles in the country’s future. Shanghai is the undisputed powerhouse of China’s domestic economy, while Hong Kong is the country’s international business centre. As a result, both cities bring their distinctive characteristics and expertise to the country’s overall economic development. They are not rivals but generally complementary in an economy that will see the emergence of not one or two, but several business centres to drive its trade and investment to new levels.
Question 6: Hong Kong is known as a lower tax area and as a duty-free port. Is this information in fact true and what are the tax withholdings for a foreign corporation located in Hong Kong? Can you also list the costs of establishing a company, acquiring necessary business licenses and other procedures necessary to start business?
Answer: Hong Kong taxes are among the lowest in the world, and Hong Kong’s tax regime is simple and predictable. The corporate profits tax rate is 17.5% but the actual tax bill is often less after deductions and depreciation allowances. The personal tax rate is capped at 16%. No tax is paid by firms or individuals on foreign-sourced income of any kind, and there is no estate duty tax on non-Hong Kong assets. Basically, only company profits, salaries and property rental income are taxable. Hong Kong does not tax dividends or bank interest. There is no capital gains tax, no VAT or sales tax. This limited tax base, combined with exceptionally low tax rates, makes Hong Kong’s tax burden much lower than in virtually all other developed economies.
Registering a business in Hong Kong is a simple, straightforward procedure. All businesses need to register with the Business Registration Office and pay a fee for the issue of a business registration certificate. The current fee for a one-year certificate is HK$2,600 (US$333) and a three-year certificate is HK$7,000 (US$897).
Question 7: According to various reports including a recent article by the New York Times News Service, unemployment in Hong Kong is currently the highest ever at 8.6 percent for the period from April through June and underemployment – people who settle for part-time jobs because full-time jobs are not available – recently jumped again up to 4.3 percent of the workforce. Obviously these statistics must be of concern to the Hong Kong government. What steps are being taken to increase employment and are foreign companies who hire the unemployed given further incentives to assist their establishment in Hong Kong?
Answer: Hong Kong is closely interconnected with the global economy. As a result, we cannot escape from the effects of the current global economic downturn.
The Hong Kong government put several measures in place to assist job seekers with upgrading their skills to become more employable. It also provides short-term employment opportunities.
For example, in May, the Government put forward a package costing HK$$432 million to provide 21,500 short-term employment and training opportunities. In June, the Government proposed an additional allocation of HK$715 million to create a further 32,000 short-term jobs and training vacancies. Altogether, 53,500 employment and training opportunities have been provided in less than two months.
We were badly hit in the second quarter of 2003 by the SARS outbreak, but now this has been broughgt under control we are confident the unemployment situation has peaked and will gradually recover. We are beginning to see an upturn in Hong Kong’s economy, which, combined with the positive impact of the Mainland’s continued strong growth, should provide significantly increased job opportunities.
Question 8: The property industry in Hong Kong was long the engine of growth and of wealth accumulation. Over the last several years property values have continued to spiral downward and many individuals in Hong Kong now own properties where the mortgage amount is currently greater than the value that the property because of persistent deflation in the property sector. What is the Hong Kong government doing to revive the property sector and to stop deflation?
Answer: There is no doubt that Hong Kong economy is struggling with the effects of deflation and the ”negative wealth effect,” caused by declining asset prices. However, four years of deflation has also made Hong Kong much more competitive, which is particularly important for foreign investors. But the double-edge of the deflation sword has also affected sentiment in the general community and, with high unemployment and downward pressure on wages, it is only natural that people will feel less confident than they might otherwise feel.
Question 9: Henry C.K. Liu, Chairman of the New-York based Liu Investment Group in an article published by the Asia Times recently wrote “There is a tendency to substitute problem-solving economic measures with public relations fluff, such as “Brand Hong Kong” and “Invest Hong Kong”; as if an economy can be marketed like toothpaste. Billions are wasted to bring a Disneyland to Hong Kong on false hopes while it is well documented by now that the opening of a Disneyland theme park contributes little economically to the host community. Hong Kong cannot expect to depend on foreign investment and foreign-company regional headquarters to make it competitive. Hong Kong must first become competitive in order to attract them.” This seems very critical of Hong Kong. How would you respond to this criticism?
Answer: There is no doubt that Hong Kong Disneyland will be a tremendous asset to Hong Kong, and our investment in it a good and sound one. The millions of additional tourist arrivals that it will attract, and the tens of thousands of jobs that it will create here and in the rest of the community are but some tangible indicators of the benefits that Hong Kong will stand to enjoy.
In today’s global economy, countries and cities compete for investment. Public relations and branding are important tools to communicate the advantages Hong Kong offers to new investors. It is key to get these messages out in a coordinated and effective way.
Question 10: Hong Kong is viewed in many international travelers’ minds with SARS as ground zero even though SARS actually started across the border in China and only spread to Hong Kong later. Given the great difficulty experienced by Hong’s medical sector of doctors, nurses and hospitals in dealing with SARS many potential investors and/or tourists are wondering if Hong Kong will be struck again by SARS when the hot weather passes. What steps is and has Hong Kong taken to ensure that there is no reoccurrence of SARS and that Hospitals and the medical sector are strengthened to better deal with a potential future threat?
Answer: Thanks to the hard work and dedication of Hong Kong’s outstanding medical staff and health workers, combined with community-wide cooperation and advice from WHO and other outside experts, the SARS outbreak has been contained in Hong Kong. However, Hong Kong is not relaxing its vigilance or the strong measures that have been put in place to protect the health of residents and visitors.
As an immediate step, the Government will improve and develop the existing isolation facilities in our acute hospitals. These include improving ventilation, more individual rooms to isolate patients where necessary, allowing our frontline health care workers more room for changing and resting. The Government has reserved HK$435 million for this purpose. We are also considering the construction of additional buildings for isolation and treatment of patients with infectious diseases in selected acute hospitals.
Question 11: Hong Kong tourist arrival numbers were greatly reduced due to the fear of SARS and the reduction in international air travel. How badly was Hong Kong’s hotels and tourist industry hurt? How are current tourist numbers running and what do you think the final effect will be on annual tourist arrivals and the overall health of the Hong Kong Exhibition and meeting sector, Hong Kong hotels and the large number of service industries – restaurants, shops, etc. dependent on tourist and business travel?
Answer: There is no doubt that the outbreak of SARS was particularly damaging to the tourism industry, including hotels, restaurants and entertainment. However, in the last few weeks we are already saw a strong rebound, especially in terms of passenger arrivals and departures. Business travelers are coming back, and hotel occupancies are steadily improving. Tourists from the mainland area also visiting us again, and while we expect international tourist arrivals to take a bit longer to recover, Hong Kong is definitively back on track and open for business. In fact, tourist arrivals in June were up 71% compared to May 2003. Hotel occupancy is now over 80% and climbing.
Question 12: Your organization works directly with companies to encourage them to locate in Hong Kong. If a company was interested in further exploring locating in Hong Kong, can you give suggestions of where best they could research information on Hong Kong and also how best to contact with your organization?
Answer: InvestHK supports prospective investors with finding up-to-date market information, and we assist with identifying the right business partners. InvestHK also guides companies through the networks of government departments and facilitates ancillary services such as work visas, trade mark registration, business incorporation and countless other administrative, legal and financial logistics.
We can be contacted at:Invest HK
Suites 1501-6, Level 15
One Pacific Place
88 Queensway, Hong Kong
Tel: (852) 3107 1000
Fax: (852) 3107 9007
About the Interviewer:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.
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