Last week, I began to explore Hong Kong’s environment for those of you interested in creating a start-up or expanding your business operations to the city. There are many who are concerned with its current status, especially in light of recent events that happened in Hong Kong as well as the trade situation in China. I focus today on discussing rumours and perceptions about the business environment here, contrasting Hong Kong and mainland briefly in three point: business environment, laws and regulations, and political risk. I am definitely not saying “don’t open up in Chinese cities”, but rather to show what Hong Kong has to offer that may be sunk beneath all the political news.

Let’s first consider creating a company in China – this step requires negotiations and maneuvering with a number of different sectors: from the local business partners, to banks for opening business account, and then with various levels of government and the party. This is to ensure you have all the necessary clearance and permission to operate. Owing to the vast number of work required, the overall time for each step may go into weeks since you may not be able do them all at the same time. For example, opening a bank account may require you to first have a business registration. This delay in time is a factor you need to consider, especially if you have concerns on local competition appearing and beating you on first landing.

Then one must also consider the institutional framework, the laws and the environment in which to operate in. As before, Hong Kong’s legal and economic structure still follows that of the west and is more compatible and familiar for firms overseas. You may be concerned about the security laws enacted in recent times but these do not intend to interfere with the open market economy. No doubt the Chinese economy and policies are more open and encouraging to incoming businesses, but they operate using the Chinese code of law with variations between provinces and sectors. Regulations may alter in short order owing to changing political circumstances, meaning business have to prepare for the unexpected with higher adverse risk exposure.

This political risk comes in the form of trade disputes to simple remarks from foreign countries about China, and will affect you if your business’s country of origin or industry is involved owing to the rise of national sentiment going against you.  While many of these result in short-term shocks to the business environment and will recover in time, the indirect tarnishing of your reputation will linger , affecting the recovery of your sale figures and diverting attention to damage control. Several recent events have adversely affected activities and sentiment within the Chinese market – such Sino-US trade negotiations and the Xinjian cotton situation – and created complications for cooperation between brands and consumers.

Let’s then take a look at Hong Kong, and it’s unique advantages. In relation to the above three aspects, Hong Kong is a lot more compatible and convenient for foreign businesses setting up shop here, thanks to the solid economic infrastructure established since British rule and carried forward as a Special Administrative Region. Creating a new company is very convenient, simply by registering your company at the Business Registry and, if you need, a coporate secretarial firm to help you deal with all the documentation. Hong Kong’s identity as a Special Administrative Region is enhanced by being part of Greater Bay Area, which then gives you an access point into the Chinese market to test your brand. Last but not least, owing to it’s open economy and long time connection with foriegn markets, you won’t get the level of adversity should any political issue occur, which in turn mean you will be better protected from political risk.

So to wrap up, with the changing geo-political situation, Hong Kong is in fierce competition with other regional hubs to maintain it’s status as an economic and finance centre. However, this also give rise to the city being an increasingly valuable portal for the Chinese market owing to 1) preferential policies for business going in via Hong Kong, and 2) the foundation of the city’s economy and law – a legacy of the British system – that is more compatible with foreign businesses, 3) businesses will be less exposed to direct political risk.

My fellow collaborators on this blog have solid experience operation in Hong Kong and also in China, so if you have any questions, feel free to contact us. They may also be able to elaborate more on the above points at a later time.