Hong Kong: The Country and its Culture

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On this Page:

- Hong Kong: Territory Overview
- Hong Kong: Business Culture, 'Guangxi'
- Hong Kong: Employing People
- Hong Kong: Entry and Residence

Hong Kong: Territory Overview

Hong Kong is not an offshore centre in the traditional sense of the word but rather a territory which offers a non-discriminatory low tax regime governed by the "territorial principle" under which only income arising in or derived from Hong Kong is taxable in the jurisdiction, making it the ideal location for a holding company. As such its attraction lies not in the tight secrecy and minimal corporate disclosure and administrative requirements which characterize a number of offshore common-law island jurisdictions but rather in low tax rates, generous tax deductible allowances, a policy of only taxing income sourced from within the jurisdiction and the complete absence of capital gains taxes, withholding taxes, interest taxes, sales tax & VAT.

The establishment of an office in Hong Kong does not of itself render a company liable to profits tax where that office is not generating profits from within the territory. Indeed Hong Kong has been a favourite choice for regional headquarters, for this reason.

The number of overseas and Mainland Chinese companies running business operations in Hong Kong has increased 2.6% over the past year, to a total of 6,561 companies, according to an annual survey released in October, 2010, by Invest Hong Kong and the Census and Statistics Department.

Invest Hong Kong is the department of the Hong Kong government established to take responsibility for foreign direct investment and support overseas, Mainland and Taiwanese businesses to set up or expand in Hong Kong. The “Annual Survey of Companies in Hong Kong Representing Parent Companies Located outside Hong Kong" aims to understand the profile of those businesses and their views on the business environment in Hong Kong.

Director-General of Investment Promotion, Simon Galpin, said: "The results are very encouraging and reflect the rebound of Hong Kong's economy in the wake of the global financial crisis. Hong Kong continues to be an attractive city for these companies to base their operations in this part of Asia."

Of the total number of companies surveyed, 1,285 are regional headquarters (RHQs), 2,353 are regional offices (ROs) and 2,923 are local offices (LOs). This represents a year-on-year growth of 2.6%, 1.1% and 3.8%, respectively. Galpin disclosed that the survey had shown “the highest increase in the number of LOs. We work with these companies to help them set up and expand their business and to, hopefully, fulfil their potential as the RHQs and ROs of tomorrow."

Of the companies surveyed, 20% indicated that they may expand their businesses in Hong Kong in the next three years, either by increasing staff, expanding the scope of business functions or increasing office size.

In terms of sectors, finance and banking demonstrated the most robust growth and, it was said, reinforced Hong Kong's status as a world-leading international financial centre. Finance and banking regional headquarters increased by 5% to 135, while local offices increased by 3% to 622.

With regards to country of origin, roughly half the parent companies came from four countries. The US tops the list with a total of 1,263 companies, followed by Japan with 1,085, Mainland China with 789 and the UK with 505.

Galpin added that "we are seeing greater numbers of overseas companies setting up in Hong Kong as a base from which to expand into the Mainland and beyond. The same is also true of Mainland companies that use Hong Kong as a springboard from which to go global. This phenomenon highlights the strategic importance of Hong Kong to access business opportunities in the Mainland as well as offer geographical proximity to north and south-east Asian markets."

When choosing to set up RHQs, ROs or LOs, the top five factors in Hong Kong rated as most important were its simple tax system and low tax rate, free flow of information, corruption-free government, absence of exchange controls, and political stability and security.

"We are delighted to see a more optimistic outlook from the companies surveyed this year,” Galpin concluded. “Compared to 12 months ago, 77% of them now consider Hong Kong's outlook as a business location has improved or not changed."

Evidently, the rapid opening up of mainland China, and Hong Kong's special relationship with the mainland, have inceased the attractions of Hong Kong as a regional base from which to operate.

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Hong Kong: Business Culture, 'Guangxi'

Hong Kong is such a mixture of Anglo-Saxon and Chinese (Confucian) influences that it is dangerous to generalize. While the rule of law, which forms the bedrock of Western, and particularly Anglo-Saxon business relationships, is well-established in a formal sense in Hong Kong, it is less than well-rooted in China, and one does well to remember that an extremely high proportion of the population of Hong Kong is Chinese. In addition to that, the reclamation by the PRC of Hong Kong after Britain's lease expired has tended to strengthen rather than weaken the Chinese cultural thread in Hong Kong's complex fabric.

One consequence of the recent history of the Chinese people as a whole is the dominance of 'the collective' in business situations. Collectives still exist as such, particularly in rural areas, but the mind-set imbued by the Chinese educational system runs deep, even when an apparently 'modern', hi-technology business is being run. Of course, if you are dealing with a western-educated Chinese, things may, but only may, be different.

In Hong Kong, as in Mainland China itself, a successful negotiation, and a successful business relationship, is therefore dependent on recognizing that a contract, while necessary and important, is only one aspect of the cultural nexus in which a foreign investor is operating. It may be difficult, also, to locate responsibility and decision-making power among the group of Chinese with whom you are negotiating or dealing.

Central to Chinese inter-personal culture is the concept of 'face'. In the collective, position is dependent on reputation, and nothing is more deadly to the self-esteem of a member than loss of face. A foreigner who is seen as the agent of such loss of face has committed a serious and possibly fatal error of negotiation.

While it may be difficult at first to understand the relative positions of individuals in the group with which you are negotiating or dealing, there are some pointers. It is highly probable that the members of a team will enter a room in the order of their relative importance, especially in the presence of a foreigner; and junior members of the team will constantly defer to their seniors in conversation and in bodily behaviour.

Due to the importance attached to 'face', business cards have much greater importance in China than in the West, where they have rather taken a back seat, and relative position among a group of Chinese will be reflected in the order in which they present their business cards, as well as on the cards themselves, if you can understand them! When presenting your business card, you should offer it with both hands; likewise, you should take a business card with both hands, study it carefully, and place it respectfully in a pocket or on the table in front of you.

Chinese names consist of a family name followed by 'first' or personal names. Thus Hu Jintao is Mr Hu. First names are only used by family members or close friends. In business, when a person has a title or position, it is customary to adress them with it, thus Chairman Hu. Married women normally retain their maiden names except in very formal situations.

It is normal to shake hands when meeting someone, but a nod or slight bow is also often appropriate, particularly for someone you already know. A handshake should not be very forceful; and it may last quite a number of seconds. It is rude to look straight into the eyes of a Chinese person; more proper would be a quick glance, and then lower the eyes as a sign of respect.

Of course, much business in Hong Kong is conducted among Westerners, and in that case normal international business rules will apply. It is only when coming into contact with Chinese companies and people that the suggestions in this section will apply.

Guangxi

Apart from being a scenic region of southern China, the word means 'relationship', but it has deep resonance when it comes to getting things done. In China, more than most places, it's not what you know, but who you know. And how you know them. In order to succeed, a foreign investor or business partner will need to have close and appropriate relationships, not just with the government body and officials involved in the company formation and licensing process, but also with Chinese staff, suppliers, the tax office and other municipal authorities. Whereas in the West, business relationships can be conducted (if necessary) on a purely contractual basis ('you do your job and I'll do mine'), this will quite possibly be a counter-productive strategy in China. Mutual respect based on familiarity established over a long period is going to be the most successful basis for a harmonious business relationship.

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Hong Kong: Employing People

Hong Kong has the very antithesis of an over-regulated inflexible labor market. Nonetheless in the last 10 years a considerable amount of labor legislation aimed at improving the working conditions and welfare of the workers has been passed. The main labor ordinance is the Employment Ordinance which sets out the conditions of service in general employment and which includes provisions for paid holiday leave, sickness allowances and severance pay. Wages can be calculated by the hour, day or month, or by piece rate.

There is no legal minimum wage in Hong Kong (although there is the Minimum Allowable Wage (MAW) for foreign domestic helpers (FDHs), which is currently set at HKD3,580 per month). However, in July 2010, the Minimum Wage Ordinance was passed by the Legislative Council. The Ordinance aims to establish an optimal statutory minimum wage SMW regime which provides an hourly wage floor to forestall excessively low wages without unduly affecting labour market flexibility, economic growth and competitiveness or causing significant loss in low-paid jobs.

The Provisional Minimum Wage Commission has been established to advise the government on the appropriate level of the initial SMW rate, and in November 2010, the Chief Executive-in-Council adopted the Commission's recommendation to set the initial statutory minimum wage rate at HKD28 an hour. It will come into force on May 1, 2011.

Chief Executive Donald Tsang said that legislating for a minimum wage is a major labour policy of the current-term government and is also a milestone in the protection of low-income workers' rights.

"I hope the Legislative Council will pass the subsidiary legislation so it can come into force on May 1 as scheduled," he said. "The minimum wage rate has been discussed in society for years. It is a subject of much controversy. I would like to extend my thanks to the chairperson and members of the Provisional Minimum Wage Commission for their hard work. Despite the tremendous difficulties, the commission reached a consensus on the initial statutory minimum wage rate, having adopted an evidence-based approach and conducted extensive consultation. This is a hard-won achievement."

The Minimum Wage Ordinance (Amendment of Schedule 3) Notice 2010 was due to be tabled in the Legislative Council on November 17, 2010.

The Employment Ordinance sets minimum entitlements for employees, such as statutory holidays, sick and maternity leave, severance and long-service payments.

It is up to employers whether to provide additional benefits, such as a Lunar New Year bonus (normally equivalent to one month's extra pay), medical allowances, subsidised meals, good-attendance bonus, paid holidays over and above statutory public holidays, subsidised transport to and from work, free or subsidised accommodation.

The Factories & Industrial Undertakings Ordinance aims to strictly regulate the employment practices of the "sweat shop economy" with which the territory has long been associated. Under the provisions of the Employees Compensation Ordinance injured workers can claim compensation for work related injuries. Most employment disputes come before the labor tribunal whose proceedings are conducted in Cantonese and are generally very informal.

Management of a Chinese work-force needs to take account of conflicts that may exist between the ethos and culture of Western companies and the collective, communist-inspired mind-set of staff members. This is not to say that Western managers must adopt communist principles, but just to show that a long, careful process of education and training will be required during which staff can come to learn the principles of free markets and the rule of law, while some acceptance of collective principles and some dilution of the highly individualistic attitudes of Western managers may be advisable if staff morale is not to be damaged.

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Hong Kong: Entry and Residence

All nationals require visas to enter Hong Kong (with the exception of British nationals who are allowed visa free entry for a period of 6 months). The rules governing residence and employment visas in Hong Kong are extremely complex, and have become even more so since 1997.

As a general rule, any person other than those having the right of abode or right to land in Hong Kong, must obtain a visa before coming to Hong Kong for the purpose of education, taking up employment, training, investment or residence.

It is also possible to travel to Hong Kong as a visitor, and to obtain employment while there. However, it has become increasingly difficult for the employer concerned to obtain a work permit in such cases, and this method is not advised.

Transfers of specialised or managerial staff within companies for a limited period of time are usually uncontentious; but recruitment of specialised staff to enter Hong Kong is quite difficult.

The government's policy on importation of labour is:

• Local workers must be given priority in filling job vacancies available in the job market, however employers who are genuinely unable to recruit local workers to fill their job vacancies should be allowed to bring in imported workers;
• Employers are required to register relevant job vacancies at the Labour Department for a specified period;
• Imported workers are to be paid at least the median monthly wages of comparable local workers;
• Imported workers are permitted to remain only under direct employment by the same employer under the standard Employment Contract throughout their period of stay in Hong Kong and the contract is governed by all labour laws in Hong Kong;
• Upon the completion of their Employment Contracts, they are required to return to their places of origin; and
• The government operates a 'Supplementary Labour Scheme' under which it is possible to import labour. All applications have to be submitted to the Job Matching Centre of the Labour Department for initial screening to establish whether the wages and job requirements for the vacancies for imported workers are no less than those given to comparable local workers.

Each application then has to pass three tests:

• make genuine efforts to recruit locally through newspaper advertisements for two weeks;
• concurrently with the newspaper advertisements above, participate in the Labour Department's Job Matching Programme for four weeks; and
• where appropriate, go through the Employees Retraining Board to see whether special courses can be organised to train up local workers in accordance with the requirements of the employers.

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