Hong Kong Superconnector
Hong Kong as “Super-connector” for the Commonwealth to China
Hong Kong’s traditional role since the later part of the nineteenth century has been as a trading and market entrepot linking China and the rest of the world. Following World War II, Hong Kong from the 1950s to the 1970s grew to be a manufacturing hub and it was largely Hong Kong factory owners who drove the initial investment in factories in Southern China in the wake of China’s opening up from 1978. Following Deng XiaoPing’s historic visit to Shenzhen in 1992, the Hong Kong Stock Exchange and the Hong Kong capital market went on to play a pivotal role in listing H shares of Chinese companies starting in 1993, which paved the way for enormous investment in China’s economy and the growth of China’s own capital markets. Hong Kong now has one the world’s most thriving stock exchanges and is one of the most active markets in the world for IPO capital raising. Since Hong Kong became a Special Administrative Region (SAR) of China in 1997, the economic integration of Hong Kong and the Mainland has been an ongoing process.
In recent years, Hong Kong’s role as a “super connector” – an extension of its entrepot function – has developed as China’s economy and need for capital continues to grow. The pivotal role Hong Kong continues to play as an international city which is part of China makes it the important super connector and launchpad for Commonwealth businesses to access mainland China markets and opportunities.
Advantages of Hong Kong as a “super connector” to China for Commonwealth business
- Hong Kong has an attractive business environment
The government has sought to maintain a “big market, small government” approach, allowing businesses to thrive. The government imposes a low and straightforward tax regime – there are only 3 kinds of direct taxes in Hong Kong, namely profits tax, salaries tax and property tax. The tax rate is amongst the lowest in the world. The city at the same time adheres to high standards of anti-money laundering.
- The city has a strong financial services sector
The financial services sector is the most important economic pillar of Hong Kong, and perhaps one of the best globally. The Hong Kong financial markets provide a range of well-regulated financial products to investors. It has one of the most active stock markets in the world and has particular strength in IPOs. Even during COVID, the Hong Kong IPO market achieved a historic high in terms of total funds raised of USD 13.9 billion in the first quarter of this year, ranking 3rd globally.
- Hong Kong has an ideal geographical location
Its location in the South Asian Pacific region makes it wellplaced as a transport and trade hub. A sheltered natural harbour gives further advantages for shipping activities. It has long served as an important entrepot for Mainland China and a transshipment port of the South Asian Pacific Region. Trade activities in Hong Kong are also supported by its no tariff regime. The Hong Kong airport also makes important contributions to trade, and in 2019, was ranked the world’s busiest cargo airport for the 10th consecutive year. The total cargo handled accounted for about 43% of the total value of Hong Kong’s external trade.
- The proximity with China gives Hong Kong notable advantages
As an SAR of China, the world’s most populous country and the second largest economy, Hong Kong is still used as a launch pad for some businesses to enter the Chinese market. Hong Kong was one of the first offshore markets to start renminbi business in 2004 and it currently has the largest pool of renminbi liquidity outside China.
- Hong Kong has a well-established legal system
The reputable system based on rule of law makes Hong Kong a desirable location for operating businesses and international dispute resolution. In the 2021 International Arbitration Survey, the Hong Kong International Arbitration Centre is the third most preferred and used arbitral institution worldwide. The rich common law traditions make Hong Kong a popular location for international corporations to set up their businesses, which will be further elaborated below.
- Hong Kong has a well-educated and hardworking population. The city has good tertiary institutions, with 5 universities ranked within the top 100 in the QS ranking. The government had invested over HKD $100 billion to promote innovation and technology, in particular, the establishment of HKSTP. It provides a good platform in nurturing next generation talents.