Investment opportunities in Asia Pacific via the
Hong Kong platform
Siegfried Verstappen,
Invest Hong Kong
Brussels office
Thessaloniki and Athens seminars
March 17-18 2015
Hong Kong’s advantages when doing business in Asia
Where Business
Goes to Grow
Discover the Best Place to Do Business in Asia
Are you an SME? (MKB in the Netherlands)
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BECAUSE, IF YOU ARE, YOU ARE:
- short of cash
- short of management time
- short of affordable qualified personnel
Are you an SME? (MKB in the Netherlands)
HONG KONG WILL HELP YOU
OVERCOME THOSE SHORTCOMINGS
This speech will show you how a Hong Kong
presence will optimize your operations
with a minimum of commitment in terms
of risk, cost and personnel
4hours
Most of Asia’s
key markets
within four hours’
flight time
5hours
From half
the world’s
population
Connectivity to the World
One Country Two Systems
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Rule of law and independent judiciary
Level playing field and no foreign ownership restrictions
Political stability and pro-business governance
The World’s Freest Economy for 20 consecutive years
Hong Kong negotiates and signs its own economic and trade agreements and is a
full and separate member of the WTO and APEC
• Free flow of information
Low and Simple Tax System
Percentage
* There is no standard rate across the Mainland China. Shanghai is used as an example
NO
• VAT/GST/Sales tax
• Capital Gains Tax
• Withholding tax on investments
• Estate duty
• Global taxation
• Wine and beer duty
World Class ICT – Connecting
8th in the Global
Innovation Index Report
2nd in Asia
Cloud Readiness Index
(INSEAD 2012)
(Asia Cloud Computing Association,
Sept 2011)
Highest mobile
internet usage
rate in Asia Pacifc
(96% users online
daily)
(Google)
Fastest broadband
globally 65.4 Mbps
The safest place in Asia
for setting up data
centres
(Data Centre Risk Index, Cushman
$ Wakefield, 2013)
Mobile phone
penetration
rate >238.6%
(Feb 14, OFCA)
Low and simple tax system
Forbes Tax Misery
Index 2009
Hong Kong - 3rd lowest tax misery score = 41.5
Singapore - eight positions higher, score = 78.5
Bulgaria – 7th lowes, score = 73.5
Belgium – nr 3, score = 156
China – nr 2, score = 159
France – nr 1, score = 167
Hong Kong: best place to launch a new venture
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In Hong Kong you have freedom to move:
- capital
- people
- ideas
• Unmatched anywhere else except Silicon Valley
• Source: Dr. Jong Lee, CEO RGL Holdings Ltd
• (Korean venture capitalist, moved his global
head office to Hong Kong)
Hong Kong is China’s Risk Manager
“””No other city in the world can help overseas
investors manage the risks inherent in entering
Mainland markets as well as Hong Kong. This is an
important part of the reason why overseas firms
prefer Hong Kong for the highest-value activities that
they perform in the Asia-Pacific region.”
Michael Enright, Sun Hung Kai Properties Professor,
School of Business, University of Hong Kong
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Hong Kong’s Elements
of Strategic Confidence
Intellectual property rights and brands issue
Legal recourse
Access to the Chinese market (CEPA)
Credit risk insurance
Chinese wall between suppliers/customers
Lower financing cost
Low threshold for starting up HK office
Market research
Support for SME loans and marketing
RMB currency developments
Taxes
Access Chinese markets: brand problem
• Because quality guarantees are insufficient in mainland
China, Chinese consumers have a positive bias towards
foreign brands.
• But if those brands aren’t present in Hong Kong, they lose
credibility in China, because the Chinese consumers trust
Hong Kong’s IPR and brand protection regulatory
framework and its enforcement
• Source: Prod. Dr. Justina Yung, Polytechnic University
Hong Kong, speech on long term PRD development
December 2013
IP rights in China: latest update
• Intellectual Property Rights Protection in China are improving
• 2010: 42.000 IPR related lawsuits filled in PRC
• Highest number in the world
• MNC’s success rate as plaintiffs:60-90% vs below 60% in USA/EU
• BUT damages awarded are very small: Microsoft receives on
average 50000 RMB
• Strong,determined,aggressive policy on building PRC’s own IPR
governance regime
• 2010: 750.000 patens applications filed – world largest patent-filing
country
• 2011-2015: 2.000.000 domestic applications ANNUALLY
• The annual patent transaction annual target is to reach 100 billion
yuan (USD 15 billion) by 2015
• Major sectors: technology and clean energies
Source: SCMP, “China’s reputation in IP rights is still dismal” Denise Tsang
Legal recourse: problem
• Mainland China has no tradition of Western style law and
jurisprudence
• Many lower courts are not yet fully conversant with new
laws regulating commercial, investment or IPR issues
• Non-Chinese firms (and most Chinese firms) find it very
difficult and time-consuming to obtain their rights through
the Chinese courts
Solution A: HK International
Arbitration Centre
• Insert clause in contract with the mainland Chinese partner
that any disputes regarding the execution of the contract
will be submitted to the Hong Kong International Arbitration
Centre.
• Both Hong Kong and mainland China have signed the
Convention of New York : any arbitration award from HK is
immediately executable in China*
• HK based law cabinets confirm that the system is working
speedily, smoothly and satisfactorily
• Website: www.hkiac.org
*(enforceable between HK and mainland China since February 2000)
Sol. B: Sue in HK, enforce in China
• A new agreement on July 16, 2006, between HK and
mainland China : if parties provide for this in their contract,
verdicts from the Hong Kong courts are immediately
executable in mainland China*
• It covers money judgments and commercial cases
• The contract has to stipulate expressly in writing that the
HK court has exclusive jurisdiction
• Applicable whenever the judgment debtor keeps his assets
in mainland China
*(enforceable between HK and mainland China since August 2008)
Access Chinese markets: problem
• Many foreign investors find that, although China has joined
the WTO, its markets remain closed or protected against
foreign competition
• This applies both to trade in goods and trade in services
Solution: Closer Economic
Partnership Arrangement (CEPA)
• Since July 2003, Hong Kong and mainland China have
signed a type of free trade agreement, providing
preferential access into mainland China for HK based
goods and service providers (CEPA)
• Overseas companies can take advantage of CEPA by
outsourcing to, partnering with a CEPA qualified
manufacturer or service provider, or having their goods
qualified as HK origin.
• CEPA being rolled out in phases : current scope and benefits of
CEPA likely to expand – CEPA VII now applicable. Listing of
applicable CCN can be found at:
http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_201
0.pdf
Solution: Closer Economic
Partnership Arrangement (CEPA)
• Latest development: free trade by 2015
China’s Vice Premier of the State Council Li Keqiang
announced in Hong Kong in August 2011 that the latest
supplement of the Hong Kong-mainland Closer Economic
Partnership Arrangement, expected to be signed in
October, will broaden Hong Kong’s access to mainland
services industries.
• “The target is to realise free services trade with Hong Kong
by the end of the 12th five-year period,” Mr Li said at a Hong
Kong forum on China’s 12th Five-Year Programme.
Hong Kong: Chinese wall between
supplier and customer
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merchandise can be shipped directly from mainland
factories to end customers overseas without showing the
factories’ details if you follow these steps
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HK office is the shipper and books the shipping line with
forwarding company. A shipping order (S/O) will be
prepared by the forwarding company and sent to the HK
office. Since HK office is the shipper, there is no need to
show the Chinese manufacturer's details.
When the HK office receives the shipping order, they send it
to the Chinese manufacturer who take this to send the
merchandise to the forwarding company
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Hong Kong: Chinese wall between
supplier and customer
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After shipment, a set of bill of lading (B/L) will be sent by the
forwarding company to the HK office. The B/L information is
prepared according to the info on S/O, and there is no info
of manufacturers.
Then HK office could send the B/L to their customer for
collecting goods at forwarder. As such, from shipping order
to bill of lading, no manufacturer’s info will be shown.
HK office can also hide the consignee info on the shipping
order so that the Chinese factories cannot access the
customer info when they take the S/O to send the goods to
the freight forwarder.
Hong Kong: Chinese wall between
supplier and customer
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Please note:
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this works when the importing country requires no
country of origin (C/O) for the importing goods. If C/O
is required, then it might not be possible to hide the
manufacturer's details in some other documents
is only applicable to the documents of shipping order,
bill of lading, invoice and packing list
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Hong Kong’s credit risk insurance
advantage
• Hong Kong based firms exporting goods to other markets can
obtain both country risk and buyer risk insurance from a
HKSAR agency called:
• Hong Kong Export Credit Insurance Corporation (ECIC)
• Website: http://www.hkecic.com/eclink/infoCenter.jsp
• Insurance premium can be as low as 0.39%
Hong Kong’s lower financing cost
advantage
• Hong Kong based firms trading goods
with other markets can obtain a lower
financing cost as the base rate HIBOR
is consistently lower than EURIBOR,
since Hong Kong in effect follows U.S.
monetary policy
HIBOR VS EURIBOR - 6 MONTHS (Jan 2009 - Feb 2011)
2.00
hibor 6m
euribor 6m
1.50
1.00
AV. RATE
0.50
2009
MONTHS, YEAR
2010
Feb
Jan
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
0.00
2011
Hong Kong’s lower financing cost
advantage
• CAUTION !!!!!
• Eurozone firms wishing to use this benefit have to accept a
currency risk exposure, as the financing will be handled in the
HK $ zone
Hong Kong: China’s offshore
renminbi centre
• Hong Kong was, is and will remain a global financial center attracting
high volumes of capital to support growth
• Hong Kong usually is the best option for your route into China
• As a financial center it brings innovation by offering RMB financial
products
• Hong Kong is currently the main player in the globalization of the RMB
and will have the highest volumes and liquidity going forward
• Renminbi liquidity is supported and controlled by the PBoC by means
of currency swaps with HKMA resulting in sharper pricing for your
foreign exchange in HK and support for your capital investments, trade
flows, and repatriations of profits.
Low threshold for starting up HK
office
• New arrivals worry about 2 major cost
aspects in Hong Kong:
– labour cost
– real estate expense
Low threshold for starting up HK office
Typical gross salary cost to the employer will vary
between 25K and 35K annually
Most positions will also have variable bonus of 10% to 30% of the
salary
A typical contract is for 12 months, the average notice
period is 1 month
Corporate Income
16.5
Employer Social Security
45
25
17
Personal Income
20
14.5
15 5 5 0
49
20
7
Employee Social Security
23
17
VAT
China
Singapore
Hong Kong
Low threshold for starting up HK
office
• Real estate expense: HK is ranked among the 3 most
expensive cities in the world
• But there are low entry solutions in the private sector, with
prices as low as:
– 1000 HK$ per month per workplace (Cocoon)
to
– 4500 HKS$ per month per workplace (Hive)
• Some venture capitalists will finetune your concept: e.g. Nest
will invest 500,000 HK$ in 3 months time if they accept your
proposal
Coworking space: COCOON
CoCoon is a coworking place where entrepreneurs, creative talent, successful leaders and
investors meet, collaborate and deliver results together
Theodore Ma, Co-founder - T: 852 3158 2999 - theodore@hkcocoon.org
www.hkcocoon.org - 3/F, Citicorp Centre - 18 Whitfield Road -Causeway Bay, Hong Kong
Coworking space for creative industries:The Hive
The Hive is Hong Kong’s first purpose designed members’ co worker space for those in creative
industries.
Constant Tedder, Founder – 852 9356 7883 – constant@thehive.com.hk
www.thehive.com.hk – 21/F The Phoenix, 23 Luard Road, Wan Chai
Investment Platform: NEST
NEST is an investment platform focused on investing in scalable consumer businesses
in the lifestyle space.
Simon Squibb, CEO - T 852 2721 2787 – simon@nestideas.com
www.nestideas.com – 3d floor Chao’s Building – 143-145 Bonham Street – Sheung Wan
Creative Space for Digital Start-ups
• Cocoon
– US$128/mth
• Fill in the Blanks
– US$102/mth
• Good Lab
– US$230/mth
• The Hive
– US$359/mth
• Hong Kong Commons
– US$205/mth
Support for SME’s
Hong Kong’s market research
advantage
• Hong Kong based firms can access the database managed by
the Hong Kong Trade Development Council
• The TDC manages an online sourcing platform that connects
over 120,000 credible suppliers
• over 800,000 worldwide buyers use the platform to source
products and services provided by China, Hong Kong, and
Asian suppliers for free at www.hktdc.com/sourcing
• Website: www.tdctrade.org
Chinese taxes: problem
• China is nr 2 worldwide on the Forbes Tax Misery Index
Corporate Income
16.5
Employer Social Security
45
25
17
Personal Income
20
15
14.5
5 5 0
49
20
7
Employee Social Security
23
17
VAT
China
Singapore
Hong Kong
Chinese taxes: solutions
• Objective: reduce your taxable income in mainland China
• The Double-taxation avoidance treaty between HK and
mainland China allows, to a certain degree, the imputation
of expenses by HK parent companies to mainland affiliates
• Examples that could qualify under certain conditions:
market research, personnel support or recruitment, quality
control inspectors, logistics coordination, etc….
• Hong Kong corporate tax rate is 16.5% and even 0% for
offshore incomes
• Hong Kong companies can deduct 50% of their income
from joint ventures with mainland Chinese firms from
taxable revenue
Chinese taxes: solutions
• The Double-taxation avoidance treaty (DTAT) between HK
and mainland China brings in new and highly favourable
rates for transfer of dividends, interest, and royalty
payments from mainland China firms to their HK parent
companies
• In practice, withholding taxes are now greatly reduced on
these forms of transactions:
• 5% for dividend payments
• 7% for interest payments
• 7% for royalty payments
Double Taxation Agreements
Confirmed Double Taxation Relief Agreements with 23 trading partners:
• New Zealand
• Japan
• Austria
• Belgium
• Jersey
• Portugal
• Brunei
• Kuwait
• Spain
• Czech Republic
• Liechtenstein
• Switzerland
• France
• Luxembourg
• Thailand
• Hungary
• Mainland of China
• Italy
• Indonesia
• Malta
• UK
• Ireland
• Netherlands
• Vietnam
In negotiations: • Bangladesh
• Canada
As of February 2013
* - Pending entry into force
• Korea
• Malaysia
• Macau
• Mexico
• Finland
• Saudi Arabia
• India
• the United Arab
Emirates
How InvestHK helps investors
Networking events,
introduction to service
providers
PR and marketing support for
launch/expansion
Facilitation of visa
applications, schooling
Information to aid
planning
and evaluation
Invest Hong Kong Brussels office
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Rue d’Arlon/Aarlenstraat 118, B-1040 Brussels, Belgium
Telephone +32/2/775 00 76
E-mail: siegfried_verstappen@hongkong-eu.org
Websites: www.investhk.gov.hk and: www.hongkong-eu.org
Hong Kong background information:
http://www.brandhk.gov.hk/en/#/en/facts/factsheets/index.html