Hong Kong and New Zealand appear to take a similar approach to investment. Though that is consistent with Hong Kong's longstanding laissez-faire, free market approach to its general economic policies, the investment policies it has in place look more in keeping with the current New Zealand government's policies than with the previous National government. In some ways the Hong Kong Government is even more active in its own economy than the current New Zealand Government: huge projects like the new airport and major development of its rail system have been used to stimulate the economy at times of recession, as well as for their own sakes. It has well developed schemes to encourage business development in specific sectors. Paradoxically then, its domestic policies often look more like those of the Alliance than those of Labour or the previous government.
A Hong Kong Government website entitled “Doing Business in Hong Kong” (http://www.business.gov.hk) lists support it gives to industry:
w Funding Support Schemes and Programmes
These include
w a venture capital fund to support technology ventures undertaken by local companies;
w financial support on a matching basis to small firms to help them develop research ideas through successful commercialization;
w support for local companies to hire graduate students from local universities to assist in proprietary research and development work;
w funding for private companies to collaborate with universities in proprietary research and development;
w an Industrial Research Chair Scheme which assists universities and industry to develop research efforts in technology fields having good development potential in Hong Kong in the longer term;
w funding support for training staff in new technologies;
w a patent application grant scheme which assists local companies or permanent residents of Hong Kong to apply for patents for their inventions.
w Infrastructure Support to Industries
w The government provides loans “to ensure an adequate supply of industrial land and premises to industries”. Three fully-serviced industrial estates (with a fourth one scheduled for 2004) are managed by the Hong Kong Industrial Estates Corporation, a non-profit statutory organization funded by government loans. The lots are leased to qualified applicants at development cost.
w A technology-based business incubation programme of the Hong Kong Industrial Technology Centre Corporation, a statutory body established by Government, provides low-cost accommodation, management, marketing, financial and technological assistance to start-up companies for three years. The Corporation also “facilitates the promotion of technological innovation and application of new technologies in Hong Kong industry” and “focuses initially its efforts on technology in four areas, namely multimedia and networking; telecommunications; software and systems; and microelectronics and components”.
w A Hong Kong Science Park is under development, which would make available suitable land or buildings for lease to technology based enterprises to carry out research and development work. Its primary focus is in the sectors of electronics, information technology, biotechnology and precision engineering.
w Other Science and Technology support includes the Clothing Technology Demonstration Centre Company Ltd, which demonstrates advanced production technologies and systems for a flexible and quick response mode of production for the textiles and garment industries. It assists the textiles and clothing industries to source and apply technologies and methods to reduce delivery times and increase responsiveness to customer requirements.
w The Hong Kong Export Credit Insurance Corporation provides insurance protection for Hong Kong exporters against normal payment risks arising from commercial and political risks not normally covered by commercial insurers. It also promotes Hong Kong's trade with the world, including “two ways trade in services as well as goods”.
The technology funding schemes have a number of conditions including that to be eligible, companies
(ref http://www.info.gov.hk/id/ewww/aboutus/function/technology/fund/privatefunds.htm)
This appears to be creeping as close as possible to requiring local ownership without openly breaking “national treatment” provisions in, for example, the GATS or APEC, which require overseas companies to be treated as least as well as local companies, including with respect to the provision of subsidies.
Hong Kong has an almost complete absence of controls on foreign investment in the territory. A government web site boasts:
As Hong Kong is a free trade city, there are no regulations concerning the minimum capital requirement of a company except for full service banks, insurance companies and trust companies, nor any regulations concerning the relative degree of local/overseas participation in the ownership or capital structure of the company. Joint ventures with local businesses are welcome, but a company may be kept entirely in the hands of overseas owners or shareholders. There are no regulations concerning the relative proportion of local to overseas staff.
In addition, funds, either from profits or capital account, may be transferred at will. There are no foreign exchange restrictions.
Hong Kong has one of the world's most open and transparent investment regimes. The Government is committed to maintaining a level playing field for foreign and local investors – both in law and business practice. There are no special approval procedures for establishing foreign investments, nor any specific regulations governing the management of investment in Hong Kong. Unlike many regions, the Hong Kong SAR Government does not make local ownership/control a condition for establishing, maintaining or expanding foreign local staff. To sustain the favourable business environment, the Government's approach remains one of minimum interference and maximum support.
(http://www.business.gov.hk/english/f0103.htm)
As might be expected, this does not give the full picture. Exceptions include statutory insurances (including third party liability for vehicles and vessels, and employers' liability insurance in respect of employees), which must be purchased from insurance authorized in Hong Kong. The chief executive of authorized insurers and other authorized financial institutions must normally reside in Hong Kong. Financial institutions must have not less than one alternative chief executive who must normally reside in Hong Kong. Banks incorporated overseas must obtain a licence in order to operate as a branch in Hong Kong, with conditions including a restriction that offices to which customers have access for banking purposes (including ATMs) cannot be in more than one building, and that they cannot maintain more than two other offices to which customers have access. There are exceptions for banks licensed in Hong Kong before certain dates. An overseas bank can get a licence to run a local subsidiary as a bank as long as the institution “has been an authorized institution for at least ten years and [must] be closely associated and identified with” Hong Kong.
Only corporations incorporated in Hong Kong or people resident in Hong Kong for five of the preceding seven years or partnerships composed of such people may become members of the Stock Exchange of Hong Kong. There is also a residence requirement for dealing in securities or commodity futures. There are restrictions on the movement of managers and specialist employees of foreign companies: to be allowed entry to Hong Kong, they must already be employees of the company they are working for in Hong Kong, and may not change employment in Hong Kong without government approval.
Hong Kong maintains “cabotage” - the right to retain local ownership of coastal shipping. The Hong Kong Post Office retains rights to certain services, and Chubb Electronics (HK) Ltd has had the exclusive right to providing a fire alarm transmission system for relaying fire alarm signals between the government Fire Services Department and public buildings. In international telecommunications, public external telephone services are not allowed; companies using external satellite circuits or virtual private networks may find that connection to the public telephone network at the Hong Kong end is restricted; and those using a mobile satellite service will find that a gateway station is not allowed.
Private monopoly providers of services including electricity, gas, waste disposal and transport operate under government-mandated “schemes of control”.
These exceptions (other than the schemes of control) are all documented in Hong Kong's GATS commitments. Surprisingly, Hong Kong's GATS commitments are not as wide-ranging as New Zealand's. Those that have been made are frequently qualified rather than complete, and national treatment commitments relate only to one “mode of supply” – “commercial presence” of service corporations – but not the other three modes: cross-border supply of services, consumption of services abroad, or presence of foreign personnel in Hong Kong to provide services.
For example, New Zealand has committed to allowing overseas companies or individuals to provide professional services in New Zealand in law, accounting, taxation services, architecture, engineering, and veterinary services, in all the first three “modes of supply”. But Hong Kong has committed only to opening to overseas-owned accounting and taxation services, and these only with restrictions as to their nature, and requiring commercial presence in Hong Kong. Hong Kong has recently opened up domestic telecommunications, but has restricted its commitment to opening its international telecommunications to “resale only”, accompanied by a number of restrictions on connection to Hong Kong's public telephone network (noted above). In contrast, New Zealand has been opened up virtually completely in all areas, the only exceptions being immigration restrictions and the limit on shareholding in Telecom by any single overseas entity to 49.9% and a requirement that at least half its Board must be New Zealand citizens.
Even in the area of construction and related engineering services, in which Hong Kong has strengths, its commitments are limited to interior design services (and there only for specialized consulting services related to the post-construction design and fitting out of interior living and working spaces) and project management services (only for the supervision and coordination of construction projects but not engineering or architectural services). Yet New Zealand has committed to liberalization over a wide range of construction services without any limitations, including general construction work for buildings and civil engineering, installation and assembly work, building completion and finishing work, site preparation (new construction other than pipelines), and maintenance and repair of fixed structures. In addition, as noted above, it has committed to architecture and engineering services.
No commitments are made at all by Hong Kong in socially sensitive areas such as education and health. In the culturally sensitive sector of audio visual services, the commitments exclude the crucial one of broadcasting and are limited to the production, sale or rental of films and video tapes, services relating to the provision of sound-track, and the translation of the sound track of motion pictures and video tapes from one language to another. In contrast, New Zealand has made commitments in private education, which is having increasing effects on public education, and almost unrestricted access to “Production, distribution, exhibition and broadcasting of audiovisual works”.
Services on which NZ has made commitments either under GATS or the SNZCEP and on which Hong Kong has made no such commitment are:
w education
w research and development
w ambulance services
w residential health facilities services other than hospital services
w dental services
w archive services (except Public Archives as defined in the Archives Act)
w environmental services (as yet undefined but may include waste management, water services and sewage disposal)
w technical testing and analysis
w management consulting, market research and public opinion polling
w services incidental to manufacturing; personnel placement and supply;
w investigation and security services;
w scientific and technical consulting;
w maintenance and repair of equipment;
w packaging;
w printing;
w convention;
w interior design, exhibition management;
w courier services;
w some port services;
w distribution services extended to include franchising.
Nevertheless, Hong Kong's investment regime is indeed extremely open. As a result, the same web site says that,
The 1999 Regional Representation Survey of Overseas Companies in Hong Kong conducted by the Industry Department has identified 2,490 regional operations of foreign origin. These comprise 840 regional headquarters and 1,650 regional offices.
It says that
Hong Kong advocates and practises free trade. Its economy is nurtured by a government policy of maximum support and minimum intervention. Its taxes are very low and simple. There are no hidden “extras” like Medicare and sales taxes and certainly no “province” or “city” taxes.
though it omits to note the recent introduction of a compulsory pension fund.
It understandably describes the taxation system as “business-friendly”:
Taxes are levied on three types of income only - on profits, salaries and property. There is no value-added or sales tax or capital gains tax. Only income sourced in Hong Kong is taxable.
Profits are taxed if they arise in or are derived from Hong Kong as a result of a trade, profession or business. The tax rate is 16% for corporations and 15% for other businesses.
Everyone with a Hong Kong income arising from any office, employment or pension is liable to salaries tax. The rate of tax after deductions and allowances is applied on a graduated scale, but the total salaries tax charged will not exceed 15% of a person's total assessable income.
Owners of land and/or buildings in Hong Kong are charged property tax, which is based on the property's rental income. The rate of tax is 15% on the annual rent receivable less a statutory deduction of 20% for repairs and out goings.
That only income sourced in Hong Kong is taxable makes the use of tax havens particularly attractive compared to other tax regimes. It also makes it attractive as an investment base in general, as there is no risk of tax avoided elsewhere being visited upon the Hong Kong company, and high returns (like New Zealand's interest rates in recent years) are untaxed in Hong Kong.
Unions are not a problem to business either:
There is no legal minimum wage in Hong Kong. The wage level prevailing is essentially the result of interplay of supply and demand … In 1999, the number of working days lost due to industrial conflict per 1000 wage earners and salaried employee was only 0.1. During 1999, the Labour Department dealt with 32,180 labour disputes and claims, most of which were grievances involving claims of wages in arrears, wages in lieu of notice, holiday pay, etc. There were three work stoppages, and the number of working days lost was 299. Total membership of employees' union stood at 674,433.
This is from a labour force of approximately 3.3 million.
Hong Kong is also one of only 26 members of the WTO's Agreement on Government Procurement. As then US Trade Representative Charlene Barshefsky commented:
Hong Kong's accession to the Agreement will ensure U.S. exporters of goods and services access to Hong Kong's valuable procurement market, including contracts awarded by Hong Kong's Airport Authority, Mass Transit Railway Corporation, the Kowloon-Canton Railway Corporation and Hong Kong's Civil Aviation Department. Hong Kong's accession is a significant achievement in the United States' efforts to open government procurement markets around the world by increasing participation in the Government Procurement Agreement.” (“Hong Kong Accedes to the WTO Government Procurement Agreement”, US Department of State, International Information Program, 19 June 1997.)
The picture is therefore of a very open international trade and investment regime, but with considerable support given to industry, focusing on sectors the Hong Kong Government considers to be important.