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WEB EXCLUSIVE

Hong Kong Still Preferred Base for Global Companies

Hong Kong continues to be the preferred base for international companies to oversee their regional operations, according to the Census and Statistics Department’s 2006 Annual Survey of Companies in Hong Kong Representing Parent Companies Located outside Hong Kong. The survey showed that the number of regional operations and local offices in Hong Kong operated by overseas and Mainland companies reached its highest-ever level this year, topping 6,350.

As of June 1, there were 1,228 regional headquarters (RHQs), 2,617 regional offices (ROs) and 2,509 local offices (LOs) in Hong Kong representing their parent companies located outside Hong Kong. The corresponding numbers for 2005 were 1,167 RHQs, 2,631 ROs and 2,474 LOs.

Speaking at a press conference, Director-General of Investment Promotion at Invest Hong Kong Mike Rowse noted that there was a 5% increase in regional headquarters, despite the 0.5% dip in regional offices.

The United States topped the list of countries/territories with companies having RHQs in Hong Kong with 295, followed by Japan with 212 and the United Kingdom, with 114.

The major lines of business of the RHQs in Hong Kong were wholesale, retail and import/export trades; business services; and transport and related services.

The United States also topped the list of countries/territories with companies having ROs in Hong Kong, with 594 companies. This was followed by Japan, with 519 companies and the United Kingdom, with 223 companies.

The major lines of business of the ROs in Hong Kong were wholesale, retail and import/export trades; business services; and finance and banking.

Mainland China topped the list of countries/territories with companies having LOs in Hong Kong, with 449 companies, followed by Japan with 437 and the United States with 391. The major lines of business of the LOs in Hong Kong were wholesale, retail and import/export trades; business services; and finance and banking.

In line with the trend observed in recent years, the report indicates that investors from traditional markets, including the United States, Japan and the United Kingdom, continue to see Hong Kong as the key strategic location to manage regional businesses. At the same time, Mainland companies continue to be the largest source of local offices in Hong Kong.

“The results demonstrate that Hong Kong’s traditional advantages – including a low and simple tax system, free flow of information, corruption free government and absence of exchange controls – are the most important reasons for investors choosing Hong Kong for the location of their regional operations,” said Rowse. “However, we cannot be complacent. We are well aware of the keen competition for investment in the region, and the need to continue to improve the business environment in Hong Kong to retain our leading position.”

Of the companies surveyed, many cited Hong Kong’s low and simple tax system, free flow of information, corruption-free government and absence of exchange controls as key considerations in establishing offices in the territory. Other factors include: communication, transport and other infrastructure, free port status, geographical location, availability of business services and professional support services, rule of law and independent judiciary, political stability and security, and availability of financial services.

More than 30% of the companies surveyed regarded availability and cost of residential accommodation and availability and cost of business accommodation as unfavorable factors for Hong Kong. However, 14% and 16%, respectively, of the companies regarded them as favorable factors.

When asked to compare June 2006 and June 2005, about 50% of the companies considered overall business environment in Hong Kong as a location for setting up RHQ/ROs remained more or less the same. Another 30% considered that the overall business environment had improved.

About 55% of the companies indicated that the above views were not affected or were just slightly affected by the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) implemented in January 2004. Another 28% indicated that the above views were affected to some extent.

About 76% of the companies indicated that their investment activities were not affected by CEPA. On the other hand, about 10% of the companies indicated that their investment activities were affected by CEPA, and the most common effect was the setting up of new business expansion plans (8%).

For the purpose of the Survey, a regional headquarters is an office that has managerial control over offices in the region (i.e. Hong Kong plus one or more other places) on behalf of its parent company located outside Hong Kong. A regional office is an office that coordinates offices and/or operations in the region (i.e., Hong Kong plus one or more other places) on behalf of its parent company located outside Hong Kong. A local office is an office that only takes charge of the business in Hong Kong (but nowhere else) on behalf of its parent company located outside Hong Kong.

More information on the survey can be found on the following Web site: http://www.info.gov.hk/gia/general/200609/26/P200609260073.htm