How to expand your business into Hong Kong

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A view of the Hong Kong skyline from Victoria Peak

With its Anglophile population, low tax regime and place atop the world competitiveness rankings, Hong Kong – the special administrative region of China – offers rich opportunity for UK businesses. Experts share the pros and cons of grappling with the roaring tiger

In 1841, the then British foreign secretary Lord Palmerston described it as “a barren island with hardly a house upon it”. Today, with around 1,300 buildings thrusting skywards further than 150m, its brutal geometry draws comparisons to Gotham City. A group of sleepy fishing villages when Palmerston made his remark, it is now a crossroads of international trade and a flourishing commercial hub whose 7.2 million-strong population is one of the hardest working in the world, clocking in an average of 50 hours per week according to UBS’s Prices and Earnings 2015 report.

So how, in such a short space of time, did a remote spot on the Pearl River Delta and South China Sea become the global powerhouse that is modern Hong Kong? Events leading up to more than a century-and-a-half of British rule were far from proud episodes in imperial history. Over two mid-19th century wars, Royal Navy warships inflicted military devastation in order to assert the British East India Company’s right to continue its monopoly of the opium trade in China, before forcing the Qing emperor to accept humiliating peace terms including the ceding of Hong Kong Island to the British on a 99-year lease (Kowloon, the New Territories and 235 outlying islands were also ceded over the next 60 years).

What happened in the decades following the Treaty of Nanking in 1842, though, is a marvel of multicultural co-operation and vigour. Over time, as word spread of the fortunes being made by British merchants trading in silk, tea and spices, a markedly deregulated economy drew refugees south from the realms of mainland China, gradually turning Hong Kong into a major manufacturing hub with an energetic, industrious culture. Banking, manufacturing and merchant companies all began to thrive, and a vibrant shipping scene – helped by Victoria Harbour’s depth and sheltered calm – inevitably emerged too.

A gradual diversification into services and retail proved a hefty gust in the city-state’s sails, and Hong Kong steadily became the unofficial financial capital of Asia (its GDP per capita rose 10-fold from £2,300 in 1960 to £23,000 in 1997, then to £27,760 by 2015).

Today, the tiger is roaring as fiercely as ever, but to a slightly different tune: one which is music to the ears of smaller business owners and entrepreneurs.

In 2015, the total number of start-ups in Hong Kong rose from 1,065 to 1,558. Elon Musk, the Tesla Motors founder, visited the city in January as part of the Hong Kong government’s StartmeupHK programme, shortly after the government launched a HK$2bn (£199m) Innovation and Technology Venture Fund. It has 10 incubator/accelerator schemes, including the Entrepreneurship Centre, Cyberport, Blueprint and FinTech Innovation Lab.

Cars and high rises in Kowloon, Hong Kong

Downtown Kowloon

Since December 2015, foreign direct investment organisation InvestHK has assisted over 3,820 companies in their first year of operation or expansion, creating more than 41,200 new jobs. “In recent years, we’ve seen a surge in a number of up-and-coming industry verticals such as IoT [Internet of Things], data analytics, health tech, robotics and fintech,” says InvestHK’s acting director general Charles Ng. The fintech sector, in particular, is thriving here, as Janos Barberis, founder of accelerator programme SuperCharger, points out: “Hong Kong has the natural advantage of being Asia’s largest financial centre,” he says, “which provides the sufficient density of banks, capital and talent.”

There are two key factors behind Hong Kong’s newfound start-up friendly culture, according to Andrew Seaton – executive director at the British Chamber of Commerce in Hong Kong. “The first is the recognition that – despite the relative slowdown in China – the Asian region is still growing faster than major developed markets, and is seen as dynamic, tech-savvy and [replete with] good growth opportunities. The second is that Hong Kong presents a highly efficient, business-friendly, open and non-protectionist business environment, with outstanding connectivity to mainland China and with the region more widely.”

There is another major factor which ramps up Hong Kong’s business-friendly credentials: the city topped the IMD’s 2016 world competitiveness rankings, released in May, and has been crowned the world’s freest economy in the Index of Economic Freedom for 22 years running. “It has a simple and low-tax regime,” explains Ng. “Profits tax is capped at 16.5 per cent, salary tax is a maximum of 15 per cent and property tax is
15 per cent. Hong Kong doesn’t have sales tax or VAT, withholding tax, capital gains tax, a tax on dividends or estate tax.”

Mark Blackwell, partner at landscape design company Morphis – which last year won an international competition for a vast regeneration project at the city’s former airport Kai Tak – agrees that the laissez-faire economic environment is hugely conducive to success. “The reporting and tax rules are not complicated, so we can maximise our time growing Morphis,” he says. “Our accelerated growth in Hong Kong as a result of the Asian economy, since establishing the business two years ago, would have typically taken three times as long in other global cities.”

Blackwell also cites a can-do, collaborative spirit as “a compelling reason for Morphis to run its global business from Hong Kong”, while another major factor, say experts, is the region’s education system. “The total budgeted government expenditure on education in 2016/17 financial year is about HK$80bn, representing 17 per cent of the total government expenditure,” explains Ng. “Hong Kong has 51 international schools offering about 41,100 primary and secondary school places.”

Seaton – who lists architecture, engineering, construction and technology among sectors that speculative eyes should be trained on – also points out the massive advantages afforded by the ‘one country, two systems’ arrangement put in place with the 1997 handover from the UK to China. “Hong Kong has its own legal system, distinct from that in mainland China, with its own independent judiciary,” he says. “This makes for a familiar and safe legal environment for companies. Its special status means it enjoys freedom of speech and information – including the internet – and there’s a strong anti-corruption regime here and good intellectual property protection. English being one of the official languages also helps UK companies.”

Aerial view of apartment blocks and highway

The financial district

Healthy business climate

So what are the challenges? Given the pre-eminence of superstition in Chinese culture, many locals may feel their corner of the world is a little blighted. Afflictions to have hit Hong Kong over the last century include a 1937 typhoon which killed 11,000 people, brutal Japanese occupation during the Second World War, the 1967 pro-communist, anti-British riots and the Sars epidemic of 2002-2004. More recently, in 2014, the Chinese Communist Party’s decision to start vetting election candidates prompted the ‘umbrella movement’, whose sit-in protests brought the city to a halt. Meanwhile the case of Lam Wing-kee – a staff member at a publisher which sold political books banned in China, who was detained at a border crossing and remained missing for nearly eight months – is still fresh in the minds of civil rights protesters.

That said, westerners doing business here are more likely to fall foul of coffer-draining office space (Hong Kong recently ranked highest for rents in a survey of 31 cities around the world) than accusations of sedition from Beijing. In fact, British people operating here can expect no hostility towards their country of origin: “The UK is regarded by many Chinese as having been a more benign colonial power than Beijing has become,” says Mark Goldspink, CEO of architectural firm Purcell (see below).

“And there are concerns among local people about what will happen when the 50-year rule [a guarantee that Hong Kong’s economic and political systems will not be changed for 50 years after the British handover in 1997], embedded in the Basic Law, activates in 2047.” Those involved with the import/export scene will certainly be glad of the three-decade buffer before that year arrives: Britain accounts for 1.5 per cent of Hong Kong’s total exports, while its exports in goods and services to Hong Kong amount to £8bn every year.

As for cultural matters, Goldspink points out that the issue of ‘face’ – which he describes as “a strict protocol to be followed according to rank, which applies throughout the private and public sectors among the Chinese” – is something foreign operators must become clued up on as well as being deferential. But generally speaking, the recent surge in exports of British tea to Hong Kong (much of it, ironically, grown in various corners of China), something many are putting down to a ‘Downton Abbey effect’, speaks volumes: “Hong Kong people love British culture,” says Ng. “British people should not have any issue when entering Hong Kong’s commercial and cultural sphere.”

Yet, despite years spent under the rule of a distant, culturally alien nation, Hong Kong never acquired the ‘Asia-lite’ tag that a fellow British outpost 1,600 miles to the south, Singapore, has to this day. The visitor is constantly reminded where they are in the world – by visions of neon-lit Chinese writing suspended above streets, by the pigs’ stomachs and chickens’ feet on every Kowloon restaurant menu, by the bustling flea markets sandwiched by the skyscrapers and by the wafts of stinky tofu being fried on the streets, doggedly subverting the fact that Hong Kong’s name is an imprecise phonetic rendering of ‘Fragrant Harbour’ in Cantonese.

True, Hong Kong’s odour changes abruptly as you move from place to place, but the overpowering smell – that of commercial opportunity – is one that will pervade the zephyrs in this fascinating little corner of the globe for the foreseeable future.

Hong Kong case study: Purcell

Tai Kwun in Hong KongFouunded in 1947 in Cambridge, architectural firm Purcell was first drawn to Asia in 2010 when it won a heritage commission from the Hong Kong Jockey Club to work on the Central Police Station compound now called Tai Kwun (pictured).

For its CEO Mark Goldspink, the vigorous spirit of international co-operation that saw Hong Kong evolve from a rocky outpost to a mega-metropolis is a major draw. “Hong Kong has an ambitious attitude, and every meeting is viewed as an opportunity,” he says. “Networking events have no frills, no pretext – you just get on with it. The city feels very much alive with a buzzing cultural scene and it’s an excellent hub for serving the wider south-east Asia region.”

There is a small downside to such relentless energy, Goldspink says: “It can sometimes result in a long working hours culture, which needs to be managed carefully.” He also highlights bureaucracy as a minor irritant: “Working with the government presents challenges,” he says. “A good deal of time has to be spent acting as go-between in order to reach a consensus when there is a conflict between different pieces of legislation. There’s arguably a bit of a blame culture in Hong Kong, so the presumption is always to push responsibility onto others. Many people do not like conflict – this is related to the concept of ‘face’ – so tend to avoid confrontation.”

But for Goldspink, Hong Kong’s many strengths more than compensate for its drawbacks. “All of the region’s key markets and half of the world’s population are within a four-to-five-hour flight,” he says. “As well as our Hong Kong base, Purcell now has a studio in Delhi and two in Australia. We also work in mainland China, Myanmar, Singapore and India. Having the business positioned in such a strategic foothold in the world economy is a huge advantage to overseas business development.”

Purcell’s Hong Kong studio has grown from employing two staff to 15 in the past five years, and achieved a turnover of £1.5m in 2015/2016 – almost double its 2011 figure.

purcelluk.com

Our report on doing business in Hong Kong continues:

Cathay Pacific flight review: Gatwick to Hong Kong

Hong Kong city guide – what every business traveller needs to know

Useful links

@InvestHK

fintechsupercharger.com

@SuperChargerFT

@Britchamhk

Watch Elon Musk address the StartmeupHK Venture Forum in January 2016

About author

Nick Scott

Nick Scott

A former editor-in-chief of The Rake and deputy editor of the Australian edition of GQ, Nick has had features published in titles including Esquire, The Guardian, Observer Sport Monthly and Rolling Stone Australia and is a contributing editor to Director magazine. He has interviewed celebrities including Hugh Jackman, Daniel Craig and Elle Macpherson, as well as business people including Sir Richard Branson, Charles Middleton and Nick Giles and Michael Hayman MBE.

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