Hong Kong: Gateway to China


In stand-alone terms, Hong Kong’s statistics are impressive. It was the world’s 12th largest trading economy in 2007, with a GDP in excess of US$200 billion. Home to some of the Asia-Pacific’s most important corporate headquarters, it is also the most popular city for Asian billionaires, with 21 members of that exclusive club living there.

On those terms alone, Hong Kong is a place to want to do business, but it is its location as the gateway to mainland China that adds immeasurably to its appeal.

Kevin Rudd has spoken repeatedly about the importance of China to Australia’s overall economy and long-term job security, and as Foreign Minister Stephen Smith has said, ‘Hong Kong plays a significant role in this’. With around 55,000 Australian expats and 1700 Australian businesses in Hong Kong, the personal links are significant.

Enjoying this article? Click here to subscribe for full access. Just $5 a month.

Despite being a Chinese Special Administrative Region, Hong Kong is a member of both the World Trade Organization (as a separate customs territory) and the Asia-Pacific Economic Cooperation (APEC) forum. Under the Basic Law that serves as Hong Kong’s ‘mini-constitution’, the region’s capitalist system is guaranteed until 2047 (50 years after British control was formally returned to China) in accordance with the ‘one country, two systems’ principle set down in the lead-up to the transfer of governance.

According to the Department of Foreign Affairs and Trade (DFAT), Hong Kong enjoys ‘independent executive, legislative and judicial powers’ and ‘is allowed to maintain and develop limited international relations, and to conclude and implement agreements with states, regions and international organisations. It does so in areas such as the economy, trade, shipping, fishing regulation, communications, tourism, culture and sport.’

Hong Kong’s form of government remains substantially the same as that inherited from the British colonial administration. It is headed by the Chief Executive (CE), currently Donald Tsang Yam-kuen, who under the Basic Law is ‘accountable to the Central People’s Government and the Hong Kong Special Administrative Region’.

The CE is elected by an 800-member Election Committee made up of members of professional, business and community bodies, Hong Kong deputies to China’s National People’s Congress, and Hong Kong members of the Chinese People’s Political Consultative Conference. Following election, the CE is officially appointed by Beijing.

Opportunities for Australian companies

Economic ties between Hong Kong and the mainland were further strengthened in 2004 with the signing of the Closer Economic Partnership Arrangement (CEPA). This free trade deal is significant for potential foreign investors as it is non-nationality specific, meaning any company can benefit, subject to meeting the CEPA criteria. This, says the Hong Kong government, has ‘made Hong Kong an attractive location for overseas companies interested in expanding into China in sectors that may otherwise have restrictions.’

CEPA provisions cover three broad areas: trade in goods; trade and investment facilitation; and trade in services. This means almost all goods that qualify as ‘Made in Hong Kong’ can be exported duty-free to mainland China. Non-Hong Kong companies can partner with or outsource production to manufacturers whose products satisfy the CEPA ‘Rules of Origin’ in order to benefit from this arrangement.

Under CEPA, the Hong Kong and China governments have agreed on a series of measures designed to make business between the two economies easier and more efficient. These measures cover customs clearance, inspections and quality standardisation, e-business, transparency in legal issues and improving intellectual property protection.

CEPA also covers a broad range of service sectors, and reduces – or removes – geographical, financial and ownership restraints. This provision applies to a company of any nationality that is incorporated in Hong Kong, has a three- to five-year operating history (depending on the sector), is liable to tax in Hong Kong, and employs at least half its staff in Hong Kong.

Sign up for our weekly newsletter
The Diplomat Brief