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19 May 2022

This month newsletter focuses on one of our most attractive jurisdiction. Understanding Hong Kong and its special status becomes more and more crucial as China is slowly emerging from lockdown.

China’s largest cities: Beijing (the capital), Guangzhou, and Shanghai, all have special government measures to attract foreign investors. The same is true of Hong Kong and Macau although this function slightly differently from those major cities as “Special Administrative Regions (SAR) .” Hong Kong especially has a number of special policies and many of these are due to its unique status as an SAR. The policies create an open environment for business and offer tax incentives, but there is more to HKSAR than this – they stand unique from the rest of China.

China’s Curious Dual Systems

Within the People’s Republic of China, Hong Kong, along with Macau, are designated Special Administrative Regions. This means Hong Kong has its own system of government across the board: including the executive, the legislative, and the judicial. Its economic and financial system is separate and distinct from mainland China, the best example of this is when the US and China had a trade war; the sanctions applied to China did not apply to Hong Kong.

Hong Kong’s Government has a High Transparency Rating

Hong Kong is one of the “cleanest” areas in the world for conducting business. It is rated fourth in the Asia-Pacific rankings, and fourteenth globally (according to the Corruption Perceptions Index 2018 figures). It also has an Independent Commission Against Corruption in the city. Established in 1974, its aim is to fight corruption and create a free, open, and fair business operating environment for all corporations operating there.

Hong Kong has a Stable, Separate Currency

Hong Kong’s currency is the Hong Kong Dollar and not the Yuan as used elsewhere in China. Also, the main priority for the government’s fiscal policies is to stabilise the currency against the US Dollar, and not the Yuan. Stability of its currency is vital for both maintaining the economy as it is and boosting future development. Hong Kong is, and wishes to remain, a global centre for finance, and a great place to facilitate financial trade with the rest of China. These are Hong Kong’s main three government commitments.

Hong Kong’s Judicial and Legal System

ong Kong’s legal system is based on so-called Basic Law while Hong Kong’s Constitution is based on Common Law. This means Hong Kong’s current legal and regulatory framework will continue much as before. Most businesses and business owners/executives in Hong Kong are familiar with Common Law, making it more favourable as a place to continue to operate and to set up new operations.

ASEAN and Hong Kong Trade Agreements

In 2019, the ASEAN Hong Kong Free Trade Agreement (AHKFTA) came into force. This is a trade agreement between the Hong Kong Special Administrative Region, and the five other members of the ASEAN (Association of Southeast Asian Nations):

  • Vietnam
  • Thailand
  • Singapore
  • Laos
  • Myanmar
The trade agreement either reduces or eliminates tariffs (with zero duties) for goods entering one country that originated in another member state who is also a part of the same agreement.

ASEAN and Hong Kong Investment Agreement

Also coming into effect in 2019, the ASEAN Hong Kong Investment Agreement applies to all five countries and Hong Kong. (AHKIA). The agreement sets out that any Hong Kong based enterprise opting to invest in any of those ASEAN Member States will be treated fairly and equally, on a par with domestic enterprises. This covers physical protection, financial investment security, and protection of free transfer of their investments and any returns.

Finally, the other five members are legally required to compensate Hong Kong enterprises for any investment or assets lost due to armed conflict (wars and coups, for example).

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