Hong Kong attracts a large quantity and variety of foreign companies, from sizeable multinational corporations to small and medium companies seeking to develop marketing and sales opportunities, not to mention financial investors of all kinds. This success in attracting investment, talent, and entrepreneurship is, to a large degree, due to Hong Kong’s excellent institutions, whereby it maintains a very business friendly environment and a high level of political and regulatory stability. The World Bank ranked Hong Kong the world’s 5th easiest place to do business in 2016.
Hong Kong is an important location for businesses seeking to expand into nearby markets such as Mainland China and the emerging and frontier markets of Southeast Asia. In the past several decades, Hong Kong played an important role in financing regional economic growth and fostering the growth of global value chains. Hong Kong enjoys a very developed financial industry, as well as full capital account convertibility. Businesses are able to find financial services providers that are able to process nearly every kind of financial transaction.
Hong Kong’s remarkably laissez-faire regulatory regime leaves most business matters to be decided by individuals and ultimately settled in the market place. The Economist Intelligence Unit ranks Hong Kong as the third best business environment in the world. The Institute for Management Development ranks Hong Kong the most competitive economy in the world. In financial development, the World Economic Forum ranks Hong Kong number one.
Hong Kong maintains very low taxation and does not levee taxes on a number of categories common in other advanced economies, making it an attractive target for mobile capital from abroad. With no taxation on profits earned oversees, Hong Kong attracts a great deal of foreign capital from investors seeking to park their capital offshore and reduce their tax burden. Hong Kong levees no consumption tax, capital gains tax, withholding tax on dividends and interest, no tax on the collection of social security benefits, and no value-added tax.
The Hong Kong Monetary Authority has demonstrated its intention to promote the internationalization of the RMB. Hong Kong’s Renminbi liquidity pool, which exceeded RMB 580 billion as of 2016 is the largest outside of the Mainland. According to the Bank of International Settlements, RMB transactions (including derivatives trades) totaled $77 billion daily as of April 2016, dwarfing the quantity of RMB transactions in the next two largest offshore RMB financial centers, Singapore and London. Use of the RMB provides companies with an opportunity to reach the large Chinese customer and supplier base that prefers to settle transactions in the Chinese Renminbi.
Hong Kong played an important role during the early stages of reforms and the opening up of the Chinese economy. Much of the foreign investment into the Mainland Chinese market passed through Hong Kong. Nowadays, Mainland China is relatively open to foreign capital, diminishing the incentive to go through Hong Kong. The advantage of starting in Hong Kong will be further reduced given the recent introduction of 11 Free Trade Zones throughout the Mainland.
Nevertheless, Hong Kong is simultaneously one of the freest and most competitive markets in the world while being located at the mouth of the Pearl River Delta, one of the most economically vibrant, diverse, and powerful regions in China. Additionally, as the world’s only global offshore Renminbi business hub, Hong Kong is likely to maintain a strong role as the provider of a financial highway between the vast Chinese market and the rest of the world.
Hong Kong is an important investment and financial hub when it comes to linking global capital with much of East Asia and financing regional growth. Hong Kong is short plane ride to all of East and Southeast Asia. The region enjoys a variety of investment opportunities, from real estate investments with rental income to high-technology startups.