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Starting My Business in Hong Kong

GOVERNMENT'S POLICY
 
  • One Country, Two Systems
 It is a fundamental state policy formulated by Deng Xiaoping to accomplish the peaceful reunification of China by resolving the sovereignty questions of Hong Kong and Macao, that have arrisen from a complicated historical background. Deng Xiaoping suggested that there would be only one China, but distinct Chinese regions such as Hong Kong and Macau could retain their own capitalist economic and political systems, while the rest of China uses the socialist system. Under the principle, each of the three regions could continue to have its own political system, legal, economic and financial affairs, including external relations with foreign countries. 
 
  • Positive non-interventionism policy
Much of Hong Kong’s business success is due to the laissez faire economy. Business in Hong Kong is market-driven in line with the territory’s free-market philosophy. The government has provided a low tax rate, an efficient infrastructure and allowed trade and industry to flourish with a minimum of intervention. In the 1980s, the HK government admited, in the words of then Financial Secretary Philip Haddon-Cave (1984), that the government stance was one of ‘positive non-interventionism’ rather than laissez-faire, meaning that the government had to respond when industries with social obligations ran into trouble and when an institution needed regulation to prevent inequitable practice. The government sees its role as building a business-friendly environment and providing an essential support framework to enable the private sector to prosper.
 
  • CEPA
The Closer Economic Partnership Arrangement (“CEPA”) established between Hong Kong and Mainland China in 2003 opened up the Mainland's markets to Hong Kong's goods and services. Hong Kong and Mainland China thereafter broadened the scope of CEPA and signed ten supplements between 2004 and 2013, expanding market liberalization and further facilitating trade and investment for the economic cooperation between the two jurisdictions. All products of Hong Kong origin, except for a few prohibited articles, can be imported into the mainland tariff free under CEPA. Hong Kong service suppliers enjoy preferential treatment when entering the mainland market in various service areas. There are also agreements or arrangements on the mutual recognition of professional qualifications.
 
  • Linked exchange rate
The Linked Exchange Rate System was established in 1983 and stabilizes the exchange rate between the Hong Kong dollar (“HKD”) and the United States dollar (“USD”).
 
The adoption of a linked exchange rate system between the HKD and the USD forces Hong Kong to adjust its interest rate according to that of the USA. When the Federal Reserve of US increases the interest rate, sooner or later the local interest rates will follow regardless of the state of the local economy. In addition, the exchange rate of the Hong Kong dollar will fluctuate against other major currencies along with the US dollar. 
 
CURRENT ECONOMIC SITUATION
 
  • Pilot RMB Trade Settlement Scheme
Since the introduction of the Pilot Renminbi Trade Settlement Scheme by the Central Government in July 2009, Hong Kong has successfully expanded its Renminbi (“RMB”) business by offering a number of RMB-denominated financial products and services, including trade finance, stocks, bonds and funds. Since the scheme was introduced, the related cross-border remittances total over RMB15 trillion and RMB customer deposits in Hong Kong had surged to RMB1 trillion as at end-2014. In 2014, issuance of RMB bonds in Hong Kong (Dim Sum Bonds) reached RMB197 billion.
 
  • Active Stock Market
At the end of April 2015, Hong Kong’s stock market was ranked as the third largest in Asia and the sixth largest in the world in terms of market capitalization. There were 1,752 companies listed on HKEx, including 204 companies on the Growth Enterprise Market. The total market capitalization of Hong Kong’s stock market has reached US$3.2 trillion. Hong Kong is also the second largest private equity centre in Asia, managing about 19% of the total capital pool in the region at end of 2014.
 
LEGAL SYSTEM IN HONG KONG
 
The legal system in Hong Kong is based on the rule of law and the independence of the judiciary. The constitutional framework is provided by the Hong Kong Basic Law. The Basic Law ensures that the legal system in the HKSAR will continue to give effect to the rule of law, by providing that the laws previously in force in Hong Kong (that is, the common law, rules of equity, ordinances, subordinate legislation and customary law) shall be maintained, save for any that contravene the Basic Law, and subject to subsequent amendment by the HKSAR legislature.

November 2015

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