VZCZCXYZ0000
RR RUEHWEB

DE RUEHHK #0080/01 0140942
ZNR UUUUU ZZH
R 140942Z JAN 10
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 9388
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS HONG KONG 000080 
 
SIPDIS 
 
STATE FOR EAP/CM AND EB/IFD/OIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD KTDB OPIC USTR HK CH
SUBJECT: 2010 INVESTMENT CLIMATE STATEMENT FOR HONG KONG 
 
REF: 09 STATE 124006 
 
Openness to Foreign Investment 
------------------------------ 
 
¶1. The Hong Kong Government welcomes foreign investment, 
neither offering special incentives nor imposing 
disincentives for foreign investors. Hong Kong's 
well-established rule of law is applied consistently and 
without discrimination. There is no distinction in law or 
practice between investments by foreign-controlled companies 
and those controlled by local interests. Hong Kong is a 
member of the World Trade Organization in its own right and a 
separate customs territory. Hong Kong is a duty free port, 
except for a small number of tariffs on products such as 
cigarettes and distilled alcohol. There are no quotas or 
dumping laws. 
 
¶2. Foreign firms and individuals are allowed freely to 
incorporate their operations in Hong Kong, register branches 
of foreign operations, and set up representative offices 
without encountering discrimination or undue regulation. 
There is no restriction on the ownership of such operations. 
Company directors are not required to be citizens of, or 
resident in, Hong Kong. Reporting requirements are 
straightforward and not onerous. 
 
¶3. Hong Kong's extensive body of commercial and company law 
generally follows that of the United Kingdom, including the 
common law and rules of equity. Most statutory law is made 
locally. The local court system provides for effective 
enforcement of contracts, dispute settlement, and protection 
of rights. Formalities are minimal in company incorporation 
and business registration. Foreign and domestic companies 
register under the same rules and are subject to the same set 
of business regulations. 
 
¶4. The Hong Kong Government's InvestHK encourages inward 
investment as a means of introducing new or improved 
products, processes, designs and management techniques. U.S. 
and other foreign firms can participate in government 
financed and subsidized research and development programs on 
a national treatment basis. 
 
¶5. Capital gains are not taxed, nor are there withholding 
taxes on dividends and royalties. Profits can be freely 
converted and remitted. Foreign-owned and Hong Kong-owned 
firms are taxed at the same rate of 16.5 percent of profits. 
No preferential or discriminatory export and import policies 
affect foreign investors. Domestic industries receive no 
direct subsidies. 
 
¶6. Foreign investments face no disincentives, such as quotas, 
bonds, deposits, or other similar regulations. The Hong Kong 
Code on Takeovers and Mergers (1981) sets out general 
principles for acceptable standards of commercial behavior. 
 
¶7. According to Hong Kong Government statistics, 3,580 
regional operations of overseas companies were registered in 
Hong Kong in 2009. The U.S. has the largest number of 
regional headquarters and offices in Hong Kong (815 
companies), followed by Japan (671 companies), the United 
Kingdom (328 companies) and China (223 companies). The major 
lines of business of the regional headquarters include 
wholesale/retail, import/export, finance and banking, 
manufacturing, and transport and related services. 
 
¶8. The Hong Kong Government owns all land, granting long-term 
leases without transferring title. Local and foreign 
leaseholders are treated equally. The Government plays a 
significant role in the housing market: about 50 percent of 
homes in Hong Kong are rented from the Government or 
purchased with government assistance at below-market rates. 
 
¶9. With few exceptions, the Hong Kong Government does not 
attempt to limit the activities of foreign investors either 
in specified projects or sectors. Foreign investment in Hong 
Kong flows freely into the industrial sector as well as into 
services, franchises, restaurants, the entertainment 
industry, and the ownership of property, both residential and 
commercial. The telecommunications services market has been 
fully liberalized since January 1, 2003. 
 
¶10. The exceptions to the Hong Kong Government's open foreign 
investment policy are: 
 
Broadcasting - Voting control of free-to-air television 
stations by non-residents is limited to 49 percent. There are 
also residency requirements for the directors of broadcasting 
companies. 
 
Legal Services - Foreign lawyers are able to practice foreign 
and international law in Hong Kong. Foreign lawyers can apply 
to take the Hong Kong Bar Examination and, if successful, 
practice Hong Kong law. Foreign law firms may not hire local 
lawyers to advise on Hong Kong law, but may themselves become 
"local" firms after satisfying certain residency and other 
requirements. They may thereafter hire local attorneys, but 
must do so on a 1:1 basis with the foreign lawyers. They also 
can form associations with local law firms. 
 
¶11. Hong Kong has a free trade agreement with mainland China, 
referred to as CEPA, or the Closer Economic Partnership 
Arrangement. CEPA provides tariff-free export to mainland 
China of Hong Kong-origin goods and preferential access for 
specific services sectors. The agreement was originally 
implemented at the beginning of 2004 and has been expanded 
five times. When the third phase was implemented at the 
beginning of 2006, all Hong Kong-origin products became 
eligible for tariff-free access to mainland China. The sixth 
phase, announced in May 2009, introduced 29 liberalization 
measures covering 20 service sectors. Service providers in 42 
sectors (e.g., logistics, distribution) now enjoy 
preferential treatment on the Mainland. U.S. and other 
foreign firms with a significant presence in Hong Kong are 
eligible to take advantage of CEPA concessions to enter the 
mainland market. 
 
Conversion and Transfer Policies 
-------------------------------- 
 
¶12. Conversion and inward or outward transfers of funds for 
any purpose are not restricted. The Hong Kong dollar is a 
freely convertible currency that, since late 1983, has been 
linked via a de facto currency board to the U.S. Dollar at an 
exchange rate that is allowed to fluctuate in a narrow band 
between HKD7.75 - HKD7.85 = US$ 1. There is no allocation of 
foreign exchange. 
 
Expropriation and Compensation 
------------------------------ 
 
¶13. The U.S. Consulate General is not aware of any 
expropriation actions in the recent past. Expropriation of 
private property may occur if it is clearly in the public 
interest, but only for well-defined purposes such as 
implementation of public works projects. If this is the case, 
expropriations are to be conducted through negotiations, in a 
non-discriminatory manner in accordance with established 
principles of international law. Due process and transparency 
are to be observed. Investors in and lenders to expropriated 
entities are to receive prompt, adequate, and effective 
compensation. Property may be acquired under the State Land 
Resumption Ordinance, the Land Acquisition Ordinance, the 
Mass Transit Railway (Land Resumption and Related Provisions) 
Ordinance or the Roads Ordinance. These ordinances provide 
for payment of compensation. If agreement cannot be reached 
on the amount payable, either party can refer the claim to 
the Land Tribunal. 
 
Dispute Settlement 
------------------ 
 
¶14. The U.S. Consulate General is not aware of any 
investor-state disputes in recent years involving U.S. or 
other foreign investors or contractors and the Hong Kong 
Government. The Hong Kong Department of Justice is also not 
aware of any such disputes. Private investment disputes are 
normally handled in the courts or via private negotiation. 
Alternatively, disputes may be referred to the Hong Kong 
International Arbitration Center. 
 
¶15. The Hong Kong Government accepts international 
arbitration of investment disputes between itself and 
investors. Following reversion to Chinese sovereignty on July 
1, 1997, Hong Kong applies provisions of the International 
Center for the Settlement of Investment Disputes (ICSID), 
known as the Washington Convention, and the New York 
Convention of 1958 on the Recognition and Enforcement of 
Foreign Arbitral Awards. Hong Kong has also adopted the 
United Nations Commission on International Trade Law 
(UNCITRAL) model law for international commercial 
arbitration. 
 
¶16. In June 2009, the Hong Kong Government introduced a bill 
to the Legislative Council to reform its arbitration law. The 
current Arbitration Ordinance provides separate regimes for 
domestic and international arbitrations. If the bill is 
passed by the Legislative Council, the Arbitration Ordinance 
will be replaced by the new law that will unify the domestic 
and international arbitration regimes. The Hong Kong 
Government intends to use the new arbitration law to help 
promote Hong Kong as a regional center for dispute resolution. 
 
¶17. Hong Kong and mainland China signed a Memorandum of 
Understanding in June 1999 on an arrangement parallel to the 
New York Convention for the reciprocal enforcement of 
arbitral awards, since the New York Convention, being an 
international agreement, is no longer applicable to the 
enforcement of arbitral awards between Hong Kong and mainland 
China. 
 
¶18. Hong Kong's legal system is firmly based on the rule of 
law and the independence of the judiciary. Courts of justice 
in Hong Kong include the Court of Final Appeal, the High 
Court (composed of the Court of Appeal and the Court of First 
Instance), the District Court, the Magistrate's Courts, the 
Coroner's Court, and the Juvenile Court. There are also a 
Lands Tribunal, Labor Tribunal, and other statutory tribunals. 
 
Performance Requirements and Incentives 
--------------------------------------- 
 
¶19. Hong Kong imposes no export performance or local content 
requirements as a condition for establishing, maintaining or 
expanding a foreign investment. Hong Kong offers no special 
privileges to attract foreign investment. There are no 
requirements that Hong Kong residents own shares, that 
foreign equity be reduced over time, or that technology be 
transferred on certain terms. 
 
¶20. All of Hong Kong is a duty-free zone. Subject to 
non-discriminatory application of excise taxes and restricted 
entry in some sectors, as noted above, local and foreign 
firms are free to take advantage of investment opportunities 
as they arise. 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
¶21. Hong Kong law and regulations provide for the right of 
foreign and domestic private entities to establish, own and 
dispose of interests of business enterprises. Foreign 
investors are allowed, except for the sectors noted above, to 
engage in all lawful forms of remunerative activity. The Hong 
Kong Government does not generally engage directly in 
business activity via public enterprises. Business 
privileges, franchises and land development rights are 
granted on the basis of competitive equality. 
 
Protection of Property Rights 
----------------------------- 
 
¶22. Hong Kong's commercial and company laws provide for 
effective enforcement of contracts and protection of 
corporate rights. Hong Kong has filed its notice of 
compliance with the trade-related intellectual property 
(TRIPs) requirements of the World Trade Organization. The 
Intellectual Property Department, which includes the 
Trademarks and Patents Registries, is the focal point for the 
development of Hong Kong's intellectual property regime. The 
Customs and Excise Department is the principal enforcement 
agency for intellectual property rights (IPR). Hong Kong has 
acceded to the Paris Convention for the Protection of 
Industrial Property, the Bern Convention for the Protection 
of Literary and Artistic Works, and the Geneva and Paris 
Universal Copyright Conventions. Hong Kong also continues to 
participate in the World Intellectual Property Organization, 
as part of mainland China's delegation. 
 
¶23. The Hong Kong Government devotes significant attention 
and resources to IPR enforcement. Implementation of laws 
oE~ 
ions of Hong Kong's copyright ordinance. The Hong 
Kong Government has conducted public education efforts to 
encourage respect for intellectual property rights. 
Nevertheless, pirated and counterfeit products remain 
available on a small scale at the retail level throughout 
Hong Kong. 
 
¶24. In addition, end-use piracy of software and textbooks, 
the rapid growth of peer-to-peer downloading via the 
Internet, and the illicit importation and transshipment of 
pirated and counterfeit goods, including optical discs, 
pharmaceutical products and name-brand handbags and apparel 
from mainland China and elsewhere in the region, are 
continuing problems. Hong Kong authorities have taken steps 
to address these problems by: continued monitoring of suspect 
shipments at points of entry; establishing a task force to 
monitor and crack down on peer-to-peer (P2P) piracy over the 
Internet in December 2004; prosecuting software end-use 
piracy, and reviewing ways to strengthen copyright protection 
in the digital environment. 
 
¶25. An additional vulnerability is that health authorities 
continue to permit the registration of generic drugs for 
marketing without regard to whether these products infringe 
on valid patents. Despite extensive consultations with 
industry, no progress has been made on closing this loophole. 
 
¶26. The Copyright Ordinance protects any original copyright 
work created or published by any person anywhere in the 
world. The government enacted amendments to the Copyright 
Ordinance in July 2007. In particular, two new provisions 
create a criminal offence against the copying and 
distribution of infringing copies of printed works in 
business and a separate civil liability against the act of 
circumventing technological protection measures. These 
provisions became effective in July 2008. 
 
¶27. The Copyright Ordinance amendments provide for rental 
rights for sound recordings, computer programs, films and 
comic books. The amended ordinance provides for enhanced 
penalty provisions against copyright piracy and additional 
legal tools to facilitate enforcement. It decriminalizes 
parallel imports of copyrighted products 15 months after 
their release anywhere in the world, but maintains civil 
penalties. It retains the existing scope of the law defining 
an offence as possession of an infringing copy of computer 
programs, movies, TV dramas, musical recordings (including 
visual and sound recordings) for use in business. This 
criminal liability applies equally to individuals and 
business organizations. The possession of an infringing copy 
of other categories of works for use in one's business will 
not attract criminal liability but may incur civil liability. 
 
¶28. In April 2008, the Hong Kong Government proposed several 
additional amendments to the Copyright Ordinance designed to 
address the protection of IP in the digital environment. 
Content providers submitted written comments in 2008 on the 
government's proposals, and collaborated with Internet 
Service Providers (ISPs) and content user representatives in 
a government-led Tripartite Forum that sought to establish a 
voluntary compliance framework governing IPR protection in 
the digital realm. Tripartite Forum participants failed to 
reach agreement on a voluntary framework, and the Hong Kong 
Government restarted its efforts to draft digital IPR 
protection amendments to the Copyright Ordinance. Industry 
observers expect the Legislative Council to consider the 
amendments during the latter half of 2010. 
 
¶29. The Patent Ordinance allows for granting of an 
independent patent in Hong Kong based on the patents granted 
by the UK and the Chinese Patent Offices. The patent granted 
in Hong Kong is independent and capable of being tested for 
validity, rectified, amended, revoked and enforced in Hong 
Kong courts. 
 
¶30. The Registered Design Ordinance is modeled on the EU 
design registration system, with certain modifications. To be 
registered, a design must be new. The system requires no 
substantive examination. Protection is for an initial period 
of five years, and may be extended for four periods of five 
years each, up to a maximum of 25 years. 
 
¶31. Hong Kong's trademark law is TRIPS-compatible and allows 
for registration of trademarks relating to services. All 
trademark registrations originally filed in Hong Kong are 
valid for seven years and renewable for 14-year periods. 
Proprietors of trademarks registered elsewhere must apply 
anew and satisfy all requirements of Hong Kong law. When 
evidence of use is required, such use must have been in Hong 
Kong. 
 
¶32. Hong Kong has no specific ordinance to cover trade 
secrets. Under the Trade Description Ordinance, however, the 
Government has the duty to protect information being 
disclosed to other parties. The Trade Description Ordinance 
prohibits false trade descriptions, forged trademarks and 
misstatements in respect of goods supplied in the course of 
trade. 
 
Transparency of Regulatory System 
--------------------------------- 
 
¶33. Hong Kong's body of law and regulation recognizes the 
value of competition in economic endeavor. Tax, labor, health 
and safety and other laws and policies avoid distortions or 
impediments to the efficient mobilization and allocation of 
investment. Bureaucratic procedures and "red tape" are held 
to a minimum and are equally transparent to local and foreign 
investors. Hong Kong does not have an anti-trust law. Hong 
Kong has, however, set up a Competition Policy Review 
Committee that issued recommendations in June 2006. These 
recommendations included a call for legislation to regulate 
price-fixing, bid-rigging, market allocation, sales and 
production quotas, joint boycotts, unfair or discriminatory 
standards and the abuse of dominant market position. The 
government in 2009 announced its intention to submit a draft 
Competition Law to the Legislative Assembly during 2010. The 
government intends to establish a Competition Commission, 
along with a Competition Tribunal within the Judiciary to 
hear cases involving allegations of anti-competitive 
corporate behavior. 
 
¶34. Currently, only the telecommunications and, to a lesser 
degree, the broadcasting sectors have competition regulations 
in place. The government stated that those two sectors will 
also come under the purview of the new Competition Law. 
Certain sectors of the economy are dominated by monopolies or 
cartels, not all of which are regulated by the Hong Kong 
Government. These entities do not discriminate against U.S. 
goods or services, but they can use their market position to 
block effective competition. 
 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
 
¶35. There are no impediments to the free flow of financial 
resources. Non-interventionist economic policies, complete 
freedom of capital movement and a well-understood regulatory 
and legal environment have greatly facilitated Hong Kong's 
role as a regional and international financial center. Hong 
Kong has one of the most active foreign exchange markets in 
Asia. 
 
¶36. Hong Kong has a three-tier system of deposit-taking 
institutions: licensed banks, restricted license banks, and 
deposit-taking companies. Only licensed banks can offer 
current (checking) or savings accounts. At the end of 2009, 
Hong Kong had 145 licensed banks, 26 restricted licensed 
banks, 28 deposit-taking institutions, and 71 representative 
offices. The Hong Kong & Shanghai Banking Corporation (HSBC) 
is Hong Kong's largest banking group. With its majority-owned 
subsidiary Hang Seng Bank, and 208 branches, the group 
controls more than 29.8 percent of Hong Kong dollar deposits. 
The Bank of China (Hong Kong) is the second-largest banking 
group (205 branches), and controls 13.3 percent of Hong Kong 
dollar deposits. Thirty-five American "authorized financial 
institutions" operate in Hong Kong. U.S. banks licensed in 
Hong Kong are listed in Chapter 7 - U.S. Banks and Local 
Correspondent Banks. Most banks in Hong Kong maintain U.S. 
correspondent relationships. 
 
¶37. Hong Kong's five largest banks, in terms of total assets 
(2008), are as follows: 
 
Rank  Institution                  Total Assets (US$ Billion) 
1     Hong Kong & Shanghai Banking Corp (HSBC)  546.2 
 
2     Bank of China (Hong Kong)                 143.3 
 
3     Hang Seng Bank Ltd.                        97.7 
 
4     Standard Charter Bank, Hong Kong Branch    76.8 
 
5     Bank of East Asia, Ltd.                    53.2 
Sources: Companies' annual reports 
 
¶38. Credit in Hong Kong is allocated strictly on market terms 
and is available to foreign investors on a non-discriminatory 
basis. The private sector has access to the full spectrum of 
credit instruments as provided by Hong Kong's banking and 
financial system. Legal, regulatory, and accounting systems 
are transparent and consistent with international norms. The 
Hong Kong Monetary Authority (HKMA) functions as a de facto 
central bank. It is responsible for maintaining the stability 
of the banking system and managing the Exchange Fund backing 
Hong Kong's currency. The HKMA, with the assistance of the 
banking sector, has upgraded Hong Kong's financial market 
infrastructure. Real Time Gross Settlement helps minimize 
risks in the payment system and brings Hong Kong in line with 
international standards. 
 
¶39. The Hong Kong Mortgage Corporation (HKMC) promotes the 
development of the secondary mortgage market in Hong Kong. 
The HKMC is 100 percent owned by the Government through the 
Exchange Fund. The HKMC purchases residential mortgage loans 
for its own retained portfolio and also repackages mortgages 
into mortgage-backed securities for sale. In October 2009 
(the latest figures available), the HKMC's outstanding amount 
of debt totaled US$ 6.3 billion. 
 
¶40. On September 26, 2006, a Deposit Protection Scheme (DPS) 
began operations. Depositors are now protected up to a 
maximum of HK$100,000 (US$12,820) per bank. As a result of 
the global financial crisis in late 2008, the Hong Kong 
Government announced the use of the Exchange Fund to 
guarantee the repayment of all customer deposits in Hong 
Kong-dollars and foreign-currency held with licensed banks, 
restricted license banks, and deposit-taking companies, 
including Hong Kong branches of overseas institutions. The 
measure will remain in force until the end of 2010. The DPS 
Fund (funded by contributions paid by member banks) amounted 
to US$43.6 million at the end of March 2009, and is expected 
to reach the target amount of US$ 166.7 million by 2010. 
While Hong Kong requires locally licensed banks to 
participate, overseas-incorporated banks may apply for an 
exemption if a comparable scheme in their home jurisdiction 
covers deposits taken in by its Hong Kong branches. 
 
¶41. In 2004, the Hong Kong Monetary Authority (HKMA) and Dun 
& Bradstreet (HK) Ltd. (D&B) jointly launched a Commercial 
Credit Reference Agency (CCRA) to collate information about 
the indebtedness and credit history of small and medium-sized 
enterprises (SMEs) and make such information available to 
members of the Hong Kong Association of Banks (HKAB) and the 
Hong Kong Association of Deposit Taking Companies. 
 
¶42. Under the Insurance Companies Ordinance, insurance 
companies are authorized by the Insurance Authority to 
transact business in Hong Kong. Hong Kong has the highest 
number of authorized insurance companies in Asia. As of 
December 2009, there were 173 authorized companies. Of these, 
81 were foreign companies from 21 countries, and 2 were 
mainland Chinese enterprises. A number of the world's top 
insurance companies in terms of assets have branch offices or 
subsidiaries in Hong Kong. 
 
¶43. Hong Kong's total market capitalization rose by 72.6 
percent during 2009 to US$2.3 trillion, with 1,140 listed 
firms as of year-end 2009. Hong Kong's stock exchange ranked 
third in Asia after Tokyo and Shanghai, and seventh in the 
world in terms of capitalization. Hong Kong Exchanges and 
Clearing Limited (HKEx), a listed company, operates the stock 
and futures exchanges. The Securities and Futures Commission, 
an independent statutory body outside the civil service, has 
licensing and supervisory powers to ensure the integrity of 
markets and protection of investors. 
 
¶44. No discriminatory legal constraints exist for foreign 
securities firms establishing operations in Hong Kong via 
branching, acquisition, or subsidiaries. In practice, foreign 
firms typically establish operations in Hong Kong in the form 
of subsidiaries. Rules governing operations are the same, 
irrespective of ownership. Portfolio investment decisions are 
left to the private sector. No laws or regulations 
specifically authorize private firms to adopt articles of 
incorporation/association that limit or prohibit foreign 
investment, participation, or control. 
 
¶45. The stock exchange plays a significant role in raising 
capital for Chinese state-owned enterprises. Chinese state 
enterprises may raise equity (through the issuance of 
so-called "H" shares) in Hong Kong provided they meet Hong 
Kong regulatory and accounting requirements. These "H" shares 
are denominated in Renminbi, but must be purchased in Hong 
Kong Dollars. In 2009, a total of 155 Chinese enterprises had 
"H" share listings on the stock exchange, with market 
capitalization of US$ 605.6 billion. 
 
¶46. Hong Kong has made a concerted effort to develop a local 
debt market with the Exchange Fund bills and notes program. 
Maturities now extend to ten years. Hong Kong Dollar debt 
(public and private) has increased gradually, from US$ 3.46 
billion at the end of 1989 to US$ 98 billion by the end of 
2007, and rose to US$127.2 billion by September 2009. 
Regional infrastructure financing requirements and increasing 
investor demand are projected to stimulate further 
development of the local debt market. 
¶47. The Hong Kong Government requires workers and employers 
to contribute to retirement funds under the Mandatory 
Provident Fund (MPF) scheme. Contributions are expected to 
channel US$ 3-4 billion per year into various investment 
vehicles. By the end of September 2009, the net asset values 
of MPF funds amounted to US$37.4 billion. 
 
¶48. The Exchange Fund Investment Limited (EFIL), established 
by the Government to dispose of the stock portfolio it 
purchased during the Asian Financial Crisis, completed its 
operations in January 2003. EFIL disposed of the stocks in 
the form of a mutual fund, the Tracker Fund of Hong Kong 
(TraHK), which is traded on the Hong Kong Exchange. The 
Government decided to retain a portion of the stocks (worth 
about US$ 410 million) as a long-term investment. The HKMA 
assigns management of these stocks to private fund managers 
through a competitive bidding process. 
 
Competition from State Owned Enterprises 
---------------------------------------- 
 
¶49. Although Hong Kong has a free-market economy, the 
government is directly active in several economic sectors. 
It provides more than half the population with subsidized 
housing, the vast majority of hospital services and most 
education services from childhood through the university 
level. The government also owns major business enterprises 
such as the stock exchange, the railway company and the 
airport. 
 
¶50. Conflicts occasionally arise between the government's 
respective roles as both owner and policy-maker. Industry 
observers have recommended that the Hong Kong government 
establish a separate entity to coordinate its ownership of 
government-held enterprises, and initiate a transparent 
process of nomination to the boards of government-affiliated 
entities. Other recommendations from the private sector 
include establishment of a clear separation between 
industrial policy and the government's ownership function, 
and minimization of exemptions of government-owned 
enterprises from general laws. The Exchange Fund, for 
example, is exempt from the securities disclosure laws in its 
purchases of shares (making its disclosures only on a 
 
voluntary basis). 
 
¶51. The Hong Kong government's new Competition Law is 
expected to be sent to the Legislative Council for its 
consideration in 2010.  Although it will address 
anti-competitive corporate behavior such as price fixing and 
bid rigging, the government has signaled that certain 
(unnamed as of 2009 year-end) government-affiliated 
enterprises will be exempted from the new law's purview. 
While the Hong Kong government's private sector ownership 
interests do not materially impede competition in Hong Kong's 
most important economic sectors (e.g., banking, external 
trade, tourism), private sector industry representatives have 
encouraged the Hong Kong government to adhere more closely to 
the OECD's Guidelines on Corporate Governance of State-owned 
Enterprises. 
 
Corporate Social Responsibility 
------------------------------- 
 
¶52. In November 2007, the Committee on the Promotion of Civic 
Education released its survey results on corporate social 
responsibility (CSR). The survey was conducted between 
November 2006 and April 2007 with 10,094 business 
establishments of various sizes. It focused specifically on 
four dimensions of CSR, namely: 1) improvement of the 
well-being of employees and their families; 2) minimization 
of negative economic, social and environmental impacts on 
society; 3) ethical business operations; and 4) contributions 
to society. The survey revealed that only 23 percent of the 
firms were aware of the term "CSR," and only nine percent had 
institutional mechanisms to implement, monitor and evaluate 
CSR programs. Such programs remain relatively underdeveloped 
within Hong Kong's business community. 
 
Political Violence 
------------------ 
 
¶53. Hong Kong is politically stable. Demonstrations are 
almost always peaceful. The U.S. Consulate General is not 
aware of any recent incidents involving politically motivated 
damage to projects or installations. 
 
Corruption 
---------- 
¶54. Hong Kong has an excellent track record in combating 
corruption. U.S. firms have not identified corruption as an 
obstacle to foreign direct investment. The Independent 
Commission Against Corruption (ICAC) is responsible for 
combating corruption. The ICAC is independent of the public 
service and the ICAC Commissioner is responsible directly to 
the Chief Executive. A bribe to a foreign official is a 
criminal act, as is the giving or accepting of bribes, for 
both private individuals and government employees. Penalties 
are stiff. For example, a civil servant who solicits or 
accepts any advantage without special permission of the 
Government can receive one year's imprisonment and a 
HK$100,000 fine if convicted. Individuals in both the private 
and public sector can receive up to seven years imprisonment 
and a HK$500,000 fine for offering, soliciting or accepting a 
benefit for performance or non-performance of an official 
duty. 
 
Bilateral Investment Agreements 
------------------------------- 
 
¶55. Hong Kong is negotiating a series of bilateral investment 
agreements -- the Hong Kong Government calls them "Investment 
Promotion and Protection Agreements" -- with major foreign 
investors. To date, Hong Kong has signed agreements with 
Australia, Austria, Belgo-Luxembourg Economic Union, Denmark, 
France, Germany, Italy, Japan, Korea, the Netherlands, New 
Zealand, Sweden, Switzerland, Thailand and the United 
Kingdom. The Hong Kong Government has initialed agreements 
with Canada and Vietnam. It is negotiating an agreement with 
Singapore. All such agreements are based on a model text 
approved by mainland China through the Sino-British Joint 
Liaison Group. The United States and Hong Kong held talks on 
a bilateral investment agreement in the late 1990s, but 
certain differences could not be resolved and negotiations 
were suspended. U.S. firms, however, are generally not at a 
competitive or legal disadvantage, since Hong Kong's market 
is open and its legal system impartial. 
 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
 
¶56. Overseas Private Investment Corporation (OPIC) coverage 
is not available in Hong Kong. Hong Kong is a member of the 
World Bank Group's Multilateral Investment Guarantee Agency 
(MIGA). 
 
Labor 
----- 
 
¶57. In the 1980s and much of the 1990s, Hong Kong's 
unemployment rate hovered around two percent. Reflecting 
structural changes in the local economy and weak global 
economic conditions, Hong Kong's unemployment rate rose to 
5.1 percent by the end of November 2009. The Employees 
Retraining Board provides skills retraining for local 
employees to cope with ongoing structural change in the 
economy. 
 
¶58. To address a shortage of highly skilled technical and 
financial professionals, the Hong Kong Government has made 
efforts to attract qualified foreign and mainland Chinese 
workers. As of July 2003, conditions for admitting mainland 
Chinese for employment were eased and aligned with those 
applicable to foreign nationals. 
 
¶59. In 2008, membership in Hong Kong's 752 registered unions 
totaled 708,953, a participation rate of about 21.5 percent. 
Hong Kong has implemented 41 conventions of the International 
Labor Organization in full and 18 others with modifications. 
 
¶60. Local law provides for the right of association and the 
right of workers to establish and join organizations of their 
own choosing. The government does not discourage or impede 
the formation of unions. Workers who allege discrimination 
against unions have the right to have their cases heard by 
the Labor Relations Tribunal. Although legislation does not 
prohibit strikes, in practice most workers must sign 
employment contracts that state that walking off the job is a 
breach of contract and can lead to summary dismissal. 
Collective bargaining is legal in Hong Kong, but there is no 
obligation on employers to engage in it. In practice, 
collective bargaining is not widely used. For more 
information on labor regulations in Hong Kong, please check 
the following website: 
http://www.labour.gov.hk/eng/legislat/content A.htm (click on 
Chapter 57 "Employment Ordinance"). 
 
Foreign-Trade Zones/Free Ports 
------------------------------ 
 
¶61. Hong Kong is a free port without foreign trade zones. 
Hong Kong's modern and efficient infrastructure supports Hong 
Kong's role as a trade entrepot and regional financial and 
services center. Rapid growth in the region has placed severe 
demands onthat infrastructure, giving rise to plans for 
maor new investments, particularly in transportation and 
shipping facilities, over the next few years.Significant 
elements include a planned expansionof container terminal 
facilities, additional roadway and railway networks,major 
residential/commercial developments, commuity faciities, 
environmental protection project, and redevelopment of the 
old Kai Tak Airport. he Hong Kong Government is planning to 
spend overUSD 13 billion in the next decade on redeveloping 
the old Kai-Tak Airport into a modern green zone that 
contains government offices, public housing, commercial 
centers and cruise terminals. Construction at the site began 
in July 2009. 
 
¶62. Airport: During the twelve months ending November 2009, 
Hong Kong's international airport at Chek Lap Kok handled 
daily an average of 767 flights, 126,019 passengers, and more 
than 8,937 tons of cargo. Eighty-four international airlines 
operated some 5,800 scheduled flights per week between Hong 
Kong and 154 cities around the world. Hong Kong is a major 
gateway to mainland China. There are direct flights from Hong 
Kong to nearly forty Mainland cities. The demand for services 
to mainland China is growing. The Hong Kong airport is in the 
world's top ranks in terms of passenger and cargo throughput. 
 
¶63. With 24-hour operations, two all-weather runways, an 
ability to cater to all types of commercial aircraft, and 
high-speed transport links from the terminal to the city, the 
airport is well positioned to meet Hong Kong's aviation needs 
in the coming decades. 
 
¶64. The airport has a multi-modal marine cargo terminal that 
provides vessel services between various ports in the Pearl 
River Delta and the airport. To strengthen Hong Kong's 
position as the economic gateway of mainland China and Asia 
and to boost revenues, the Airport Authority (AA) has built 
"SkyCity", which includes a world-class exhibition center, 
Asia World-Expo; SkyPlaza, an office and retail complex; 
SkyPier, a cross-boundary ferry terminal; and a nine-hole 
golf course. In September 2008, Cathay Pacific Airways 
started to build the airport's third cargo terminal under a 
20-year franchise agreement with the AA. Cathay Pacific will 
invest USD 615 million into the facility, which will occupy 
10 hectares in the airport's cargo area. The new terminal was 
initially expected to be completed by the second half of 
2011, but in January 2009, Cathay announced it would delay 
completion for up to two years in response to falling cargo 
traffic resulting from the global economic slowdown. When 
complete, the facility will have a handling capacity of 2.6 
million tons. 
 
¶65. The organization responsible for safety oversight, the 
Civil Aviation Department, has commenced study, trials and 
evaluations of the satellite-based Communications, 
Navigation, Surveillance/Air Traffic Management (CNS/ATM) 
System. The new equipment will enhance flight safety and 
efficiency as well as maintain Hong Kong's status as a center 
of international and regional aviation. The project will take 
15 years. CNS/ATM services including Digital-Automatic 
Terminal Information Service, Digital-Meteorological 
Information for Aircraft in Flight, delivery of Pre-Departure 
Clearance over data links, Aeronautical Telecommunication 
Network operations with Bangkok, and Air Traffic Services 
Inter-facility Data Communication with Sanya Area Control 
Center have been implemented at the airport. 
 
¶66. Shipping and Port Activities: Hong Kong enjoys one of the 
best natural deep-water ports on the Chinese coast. With 
continued high economic growth and industrialization in 
mainland China, the development of deep-water ports at 
Yantian and Gaolan in southern China should complement Hong 
Kong's facilities over the medium term. Over the longer term, 
the Hong Kong port will face increased competition from those 
ports and from Shanghai, which are improving their service 
efficiency. 
 
¶67. Hong Kong's container port is one of the world's busiest. 
In the first eleven months of 2009, Hong Kong's nine 
privately-operated container terminals and mid-stream 
operators handled 19.0 million twenty-foot equivalent units 
(TEUs) of cargo. Some 80 international shipping lines are 
providing over 450 container liner services per week 
connecting to over 500 destinations worldwide. 
 
¶68. Hong Kong's container terminals handling capacity is 18 
million twenty-foot equivalent units (TEUs) a year. The 
container terminals handle about 73 percent of the port's 
total throughput. The river trade terminal, mid-stream 
operators and other facilities handle the remaining 27 
percent. 
 
¶69. Roads and Railroads: Hong Kong's roads have one of the 
highest vehicle densities in the world. In October 2009, 
579,722 licensed vehicles navigated about 2,049 kilometers of 
roads, or 283 vehicles per kilometer of road. This high 
density, combined with difficult terrain and high density 
building development, poses a constant challenge to transport 
planning, road construction and maintenance. To cope with 
worsening traffic congestion, largely due to the rapid growth 
in the number of private cars, the Highways Department has 
launched an extensive road construction program. The Highways 
Department has budgeted US$ 5.4 billion for road projects 
between 2005/2006 and 2010/2011. In December 2009, Hong Kong 
started to build a bridge from the Western tip of Lantau 
Island to Macau and Zhuhai, paving the way for accelerated 
development of the Western Pearl River Delta region. 
 
¶70. The Mass Transit Railway Corporation (MTRC) manages Hong 
Kong's metro rail system that includes nine lines of railway 
network with a total length of over 200 kilometers. Hong Kong 
is working on a massive expansion of its rail system. 
Investment in Hong Kong's domestic and cross-boundary rail 
networks in the next decade is expected to exceed in scale 
the US$ 20 billion spent on the transportation facilities 
associated with the airport. Most of the projects involve 
linking existing lines or creating extensions to new points 
of interest. Hong Kong will push ahead with ten large-scale 
infrastructure projects, of which three are rail networks 
including the South Island Line (an extension of 
seven-kilometer rail to the South Island), the Sha Tin to 
Central Link (connecting Northeast New Territories and Hong 
Kong Island via East Kowloon), and the 
Guangzhou-Shenzhen-Hong Kong Express Rail Link (a high-speed 
national rail network of 12,000 kilometers linking up major 
cities, with maximum train speeds of 200 to 300 kilometers 
per hour). 
 
Foreign Direct Investment Statistics 
------------------------------------ 
 
¶71. Table 1: Stock of Inward Foreign Direct Investment by 
Major Investor Country/ Territory, as at end of 2008. 
 
Country          US$ Billion        % Share of Total 
China                 296.3                51.1 
Netherlands            53.1                 9.1 
Bermuda                41.9                 7.2 
British Virgin Islands 38.7                 6.7 
United States          31.7                 5.5 
Japan                  21.1                 3.6 
United Kingdom         14.9                 2.6 
Singapore              13.9                 2.4 
Cayman Islands         11.0                 1.9 
Cook Islands            7.1                 1.2 
Others                 50.6                 8.7 
TOTAL                 580.3               100.0 
Source: Hong Kong Census and Statistics Department 
Note 1: Excluding inward direct investment from offshore 
financial centers, which were originally from Hong Kong. 
Note 2: US$1 = HK$7.8 
 
¶72. Table 2: Stock of Inward Foreign Direct Investment by 
Major Economic Activity, as of end of 2008. 
 
Activity                                 US$ Billion  % of 
Total 
Investment holdings, real estate 
and various business services              336.3         58.0 
Wholesale, retail, import/export trades     82.3         14.2 
Banks and deposit-tasking companies         71.0         12.2 
Financial institutions (non-banks)          23.1          4.0 
Transport and related services              18.9          3.3 
Insurance                                   13.0          2.2 
Manufacturing                               10.1          1.7 
Construction                                 8.5          1.5 
Communications                               3.5          0.6 
Restaurants and hotels                       2.2          0.4 
Other activities                            11.3          2.0 
TOTAL                                      580.2        100.0 
Source: Hong Kong Census and Statistics Department 
Note 1: Excluding inward direct investment from offshore 
financial centers, which were originally from Hong Kong. 
Note 2: Total does not sum due to rounding. 
 
¶73. Table 3: Stock of Outward Foreign Direct Investment by 
Major Resident Country/ Territory, as at end of 2008. 
 
Country                 US$ Billion    % Share of Total 
China                       336.5           63.9 
British Virgin Islands      108.4           20.6 
Bermuda                      10.1            1.9 
United Kingdom                9.5            1.8 
Singapore                     6.7            1.3 
United States                 5.5            1.0 
Liberia                       5.3            1.0 
Thailand                      4.9            0.9 
Malaysia                      4.6            0.9 
India                         3.2            0.6 
Others                       31.8            6.0 
TOTAL                       526.5          100.0 
Source: Hong Kong Census and Statistics Department 
Note 1: Excluding outward direct investment of offshore 
financial centers which were channeled back to Hong Kong. 
Note 2: Total does not sum due to rounding. 
 
¶74. Table 4: Stock of Outward Foreign Direct Investment by 
Major Economic Activity, as of end of 2008. 
 
Activity                                US$ Billion  % of 
Total 
Investment holdings, real estate 
and various business services               346.2     65.8 
Wholesale, retail, import/export trades      61.2     11.6 
Banks and deposit-taking companies           26.8      5.1 
Manufacturing                                22.8      4.3 
Transport and related services               20.9      4.0 
Insurance                                     6.9      1.3 
Restaurants and hotels                        6.4      1.2 
Financial institutions (non-banks)            4.4      0.8 
Construction                                  3.5      0.7 
Communications                                2.7      0.5 
Other activities                             24.7      4.7 
TOTAL                                       526.5    100.0 
Source: Hong Kong Census and Statistics Department 
Note 1: Excluding outward direct investment of offshore 
financial centers that were channeled back to Hong Kong. 
 
¶75. Table 5: Amount and Growth of U.S. Investment in Hong 
Kong in 2004-2008, in US$ Billions. 
 
Year  Amount  Percent Change 
2004  32.7      -10.2 
2005  36.4       11.3 
2006  39.6        8.8 
2007  50.2       26.8 
2008  51.5        2.6 
Source: U.S. Department of Commerce, Bureau of Economic 
analysis, U.S. Direct Investment Position Abroad on a 
Historical Cost Basis. 
Note 1: The U.S. Department of Commerce estimates the total 
U.S. direct investment position in Hong Kong at historical 
cost (the book value of U.S. direct investors' equity in, and 
net outstanding loans to, their foreign affiliates). 
Note 2: U.S. Department of Commerce statistics differ from 
HKG statistics. Per Table 1 above, the latter indicates total 
U.S. investments of US$ 31.7 billion at year-end 2008. 
Note 3: Preliminary figures for 2008. 
 
¶76. Table 6: Hong Kong's Pledged and Actual Direct Investment 
in mainland China in US$ Billions and Percent Share of Total 
Investment in mainland China. 
 
Year  Amount Pledged    Invested    % Share of Total 
2001       20.7           16.7            35.7 
2002       25.2           17.9            33.9 
2003       40.7           17.7            33.1 
2004       50.1           19.0            31.3 
2005       N.A.           18.0            29.8 
2006       N.A.           20.2            32.1 
2007       N.A.           27.7            37.1 
2008       N.A.           41.0            44.4 
1978-2008  N.A.          348.5            40.9 
Source: PRC Ministry of Commerce. 
Note: PRC Ministry of Commerce stopped reporting the pledged 
foreign investment figures in December 2005. 
 
¶77. Major Foreign Investor Firms: 
 
United States: American International Group, AT&T, Bank of 
America, Caltex, Citigroup, Coca-Cola, Compaq Computer, Dell, 
Disney, ExxonMobil, Federal Express, Goldman Sachs, IBM, 
 
 
Isagenix Worldwide LLC, JP Morgan Chase, Kodak, Merrill 
Lynch, Morgan Stanley, Motorola, Pacific Waste Management, 
Pepsi. 
Japan: C. Itoh, Citizen Watches, Daido Concrete, Hitachi, 
Jusco, Kadokawa Intercontinental Publishing (Asia), 
Mitsubishi, NEC, Nishimatsu, Nomura, Olympus, Uny. 
United Kingdom: HSBC, Inchcape Pacific, Jardine Matheson, 
Lloyds, P & O Shipping, Standard Chartered Bank, Swire 
Pacific Group. 
Continental Europe: Asea Brown Boveri, Bachy-Soletanches, 
Banque Indosuez, Banque National de Paris, Bouygues/Dragages, 
Carlsberg, Cartier, Chanel, Christian Dior, Electrolux, 
Ericsson, Heraeus, Hong Kong Petrochemicals 
(Italian/Korean/Chinese joint venture), Lotto Sport Italia, 
Philips, Refratechnik, Remy, Siemens, Tetrapak. 
Mainland China: Bank of China (Hong Kong), Beijing 
Enterprises, China Construction Bank Corporation, China 
Everbright, China Investment and Trust Corporation (CITIC), 
China Life Insurance, China Merchants, China Mobile, China 
National Offshore Oil Corporation (CNOOC), China National 
Petroleum Corporation, China Ocean Shipping Co (COSCO), China 
Overseas Construction, China Resources, China Travel 
Services, China Unicom, Guangdong Enterprises, Lenovo Group, 
Petro China, Shanghai Industrial, Yue Xiu Enterprises, 
Industrial and Commercial Bank of China (Asia). 
Asia: Allahabad Bank, C.P. Pokphand, First Pacific Group, LG, 
Lippo Group, News Corp., Park View Properties, Pioneer, San 
Miguel Brewery, Shangri-la/Kerry Trading, Sime Darby, UTI 
Bank, Fubon Bank. 
 
Web Resources 
------------- 
 
¶78. Hong Kong Census and Statistics Department: 
http://www.censtatd.gov.hk 
Hong Kong Monetary Authority: http://www.info.gov.hk/hkma/ 
Independent Commission Against Corruption: 
http://www.icac.org.hk/ 
MARUT