OVERVIEW

The Hong Kong Special Administrative Region of the People's Republic of China (HKSAR) is firmly committed to an open market policy. This policy applies to all trade, as well as to all investments in the HKSAR.

Hong Kong has become a Special Administrative Region of the People's Republic of China since 1 July 1997. The "One Country, Two Systems" principle provides the HKSAR with a high degree of autonomy in economic, trade, financial and monetary matters. This is guaranteed by the Basic Law, the mini-constitution of the HKSAR, which ensures that the important elements making Hong Kong a regional business and financial centre will extend well beyond 1997, including continuation of capitalist economic and trade systems, free movement of goods and capital, and status as a free port and separate customs territory. Export quotas, tariff preferences and other similar arrangements obtained by the HKSAR will be enjoyed exclusively by the HKSAR. The Basic Law also provides that the HKSAR may participate in relevant international organizations and international trade agreements under the name "Hong Kong, China".

In 1986, Hong Kong became a separate contracting party to the General Agreement on Tariffs and Trade (GATT). Upon the establishment of the World Trade Organization (WTO) on 1 January 1995, Hong Kong became one of its founding members. Hong Kong also became a member of the Customs Cooperation Council (subsequently renamed as the World Customs Organization) in 1987 and the Asia Pacific Economic Cooperation (APEC) in 1991. The status of the HKSAR in these and other international organizations remains unchanged except that our participation is now under the name "Hong Kong, China".

HONG KONG'S ECONOMY IN 2002

The Hong Kong economy is highly externally oriented and dependent on trade with the rest of the world. In 2002, the value of Hong Kong's global merchandise trade amounted to HK$3,179.9 billion (US$407.7 billion), or around 250% of the Gross Domestic Product (GDP) in that year. Within this total, the value of imports amounted to HK$1,619.4 billion (US$207.6 billion) or around 127% of GDP. The value of exports reached HK$1,560.5 billion (US$200.1 billion) or around 123% of GDP. Hong Kong was the world's 10th largest trading entity in goods in 2002 - 10th largest importer and 11th largest exporter.

The services sector continues to be very important to the Hong Kong economy, contributing 87% to GDP in 2001 and accounting for 84% of the total employment in 2002. Hong Kong's trade in services, though still lagging behind merchandise trade in level terms, registered robust growth in the past decade. Hong Kong ranked 13th in the world league of commercial services trading entities in 2002 - the 17th largest services importer and the 10th largest services exporter according to the latest report published by the WTO. Total trade in services amounted to HK$529.6 billion (US$67.9 billion), or around 42% of GDP in 2002.

FACT 1

HONG KONG AND ASEAN COUNTRIES ARE IMPORTANT TRADING PARTNERS

• Hong Kong is an important partner of ASEAN countries (Note1). With respect to individual ASEAN members, Hong Kong was the 5th largest trading partner of Singapore in 2002, the 6th largest trading partner of Cambodia (2001), the Philippines (2002) and Malaysia (2002), the 8th largest trading partner of Thailand (2001), the 10th largest trading partner of Brunei Darussalam (2001), the 11th largest trading partner of Vietnam (2001), the 12th largest trading partner of Laos (2001) and the 13th largest trading partner of Myanmar (2001) and Indonesia (2002).
  
  
• Reciprocally, 5 of the ASEAN countries (i.e. Singapore, Malaysia, Thailand, the Philippines and Indonesia) were amongst the top 20 trading partners of Hong Kong in 2002. Taken as a group, ASEAN was the 3rd largest trading partner of Hong Kong during the period, after the Mainland of China and the United States.

FACT 2

HONG KONG IS AN IMPORTANT MARKET FOR GOODS FROM ASEAN COUNTRIES

• In 2002, Hong Kong imported HK$180.1 billion (US$23.1 billion) worth of goods from ASEAN countries, accounting for 11.1% of Hong Kong's total imports.
  
  
• The value of Hong Kong's imports from ASEAN countries in 2002 doubled the 1993 level.
  
  
• ASEAN countries supply a variety of very important raw materials and basic consumer goods to Hong Kong: 

FACT 3

ASEAN COUNTRIES AS A MARKET FOR HONG KONG GOODS

• Taken as a group, ASEAN was Hong Kong's 3rd largest market in 2002. Hong Kong's domestic exports to ASEAN countries were valued at HK$9.2 billion (US$1.2 billion) in 2002, accounting for 7.0% of Hong Kong's total domestic exports to the world. As a major market for Hong Kong's domestic exports, ASEAN countries are fast growing in importance and display considerable potential.
  
  
• Hong Kong supplied various intermediate goods and consumer products to ASEAN countries. The major domestic export items in 2002 were:

FACT 4

HONG KONG IS AN IMPORTANT ENTREPÔT SERVING ASEAN COUNTRIES

• Hong Kong is an important regional entrepÔt, and in particular a gateway between the Mainland of China and ASEAN countries. In 2002, re-exports through Hong Kong to ASEAN countries amounted to HK$88.9 billion (US$11.4 billion), of which 71.4% or HK$63.5 billion (US$8.1 billion) were originated in the Mainland. At the same time, Hong Kong re-exported HK$81.6 billion (US$10.5 billion) worth of ASEAN products, of which 72.2% or HK$58.9 billion (US$7.6 billion) were destined to the Mainland.

FACT 5

ASEAN COUNTRIES FORM AN IMPORTANT LOCATION FOR HONG KONG INVESTMENT

• Cross investments are increasing rapidly in ASEAN countries as a result of the improving investment climate and supportive government policies. Hong Kong is one of the major foreign investors in ASEAN countries and is particularly active in the labour-intensive and export-oriented industries such as electronics, textiles and clothing, toys and plastics.
  

• Malaysia - As at end 2001, the total stock of outward direct investment from Hong Kong was HK$28.7 billion (US$3.7 billion).
  

Singapore - As at end 2001, the total stock of outward direct investment from Hong Kong was HK$24.5 billion (US$3.1 billion).

Thailand - As at end 2001, the total stock of outward direct investment from Hong Kong was HK$20.6 billion (US$2.6 billion).

Philippines - As at end 2001, the total stock of outward direct investment from Hong Kong was HK$7.5 billion (US$1.0 billion).

Vietnam - As at end 2001, the total stock of outward direct investment from Hong Kong was HK$1.8 billion (US$228.8 million).

Indonesia - As at end 2001, the total stock of outward direct investment from Hong Kong was HK$1.4 billion (US$182.4 million).

FACT 6

HONG KONG IS AN IMPORTANT LOCATION FOR THE INVESTMENT OF ASEAN COUNTRIES

• Hong Kong welcomes external investment, and allows free capital inflow and outflow.
  

• The total stock of inward direct investment from ASEAN countries in Hong Kong reached HK$108.2 billion or US$13.9 billion at market value at the end of 2001 (Note 2). Singapore was the largest investor among ASEAN countries, accounting for 82.0% (HK$88.8 billion or US$11.4 billion) of the total. Malaysia was in the 2nd place, accounting for 8.4% (HK$9.1 billion or US$1.2 billion), followed by Indonesia which accounted for 3.6% (HK$3.9 billion or US$497.6 million).
  

• A total of 37 companies from ASEAN countries were using Hong Kong as their regional headquarters as at 1 June 2002. Another 111 companies have established regional offices in Hong Kong to oversee general business activities in the region. They were mainly engaged in wholesale, retail and import/export trades, and business services.
  

• As at end March 2003, there were 11 licensed banks, 9 restricted licence banks and 3 local representative offices in Hong Kong of ASEAN ownership. ASEAN banks in Hong Kong include the Malayan Banking Berhad, The Development Bank of Singapore Ltd., P.T. Bank Negara Indonesia (Persero) TBK, Philippine National Bank and Bangkok Bank Public Company Limited. At the same time, banks incorporated in Hong Kong, e.g. the HSBC, Hang Seng Bank Ltd. and Bank of East Asia Ltd. also operate branches or representative offices in the ASEAN countries.
  

• Hong Kong is one of the most liberal insurance centres in the world. Of the 191 authorized insurance companies as at end April 2003, 8 were from the ASEAN countries or were known to be controlled by ASEAN interests.

FACT 7

IMPORTANT ECONOMIC LINKS BETWEEN ASEAN COUNTRIES AND HONG KONG

• In 2002, Hong Kong received 1.6 million visitors from ASEAN countries, accounting for 9.6% of Hong Kong's total visitor arrival. Reciprocally, over 1.4 million Hong Kong residents visited the ASEAN region in the same year.
  
  

• As at May 2003, all ASEAN countries except Laos and Myanmar have airlines providing scheduled air services to and from Hong Kong. They derive considerable benefits from their air traffic rights. In exchange, Hong Kong-based airlines also operate regular services to ASEAN countries (except Laos and Myanmar).

FACT 8

HONG KONG PRACTISES FREE TRADE

• Hong Kong is a staunch supporter of the multilateral trading system and adheres to the WTO/GATT principles of non-discrimination and most-favoured-nation treatment. Hong Kong takes seriously its rights and obligations as a Member of the WTO. Our free trade policy applies to both merchandise trade as well as trade in services.
  
  
• Hong Kong was ranked the world's freest economy both in the Heritage Foundation's "2003 Index of Economic Freedom" and the Cato Institute of US/Fraser Institute of Canada's "Economic Freedom of the World: 2002 Annual Report".
  
  
• Hong Kong does not subsidize its exports or any particular sector of the economy.
  
  
• Hong Kong does not levy any tariff but excise duties are levied on four groups of commodities, viz. hydrocarbon oils, liquor, methyl alcohol and tobacco, irrespective of whether they are imported or manufactured locally. In 2002, only 1% of all imports were subject to excise duties.
  
  
• Hong Kong maintains a level playing field for foreign and local companies.
  
  
• Hong Kong maintains no barriers to trade.
  
  

• Imports from the ASEAN countries can compete freely with locally made products and imports from other countries. In fact, growth in imports from the ASEAN countries averaged at 8.1% per annum between 1993 and 2002.

FACT 9

HONG KONG HAS A SIMPLE AND LOW TAX REGIME

• Hong Kong's tax system is the most business-friendly in the world - simple and low. The profits tax rate is 17.5% for corporations and 15.5% (and will be increased to 16% in assessment year 2004/05) for unincorporated businesses. There is no value-added tax or sales tax. Hong Kong also levies no tax on capital gains, dividends or interest.
  

• The salaries tax in Hong Kong is capped at 15.5% (and will be increased to 16% in assessment year 2004/05). This is only imposed on the salary income derived in or from Hong Kong, rather than on total income from all sources as in many other places.

FACT 10

HONG KONG'S SUCCESS

• The Rule of Law - Hong Kong's laws are based on the common law system, and enforced by an independent judiciary.
  
  

• A Level Playing Field - Hong Kong offers a level playing field for all businesses irrespective of source, background and nature.
  
  

• Clean Government - Hong Kong has a clean, politically neutral civil service with a total commitment to integrity, backed up by the world-renowned Independent Commission Against Corruption.
  
  

• Free Flow of Information - Information is the lifeblood of modern business for sound decisions to be made; it is also the best protection against corruption and abuse of power, by Government or in the business world.

Trade and Industry Department
The Government of the Hong Kong Special Administrative Region
August 2003