Hong Kong's Census and Statistics Department has just released the results of its 2005 Annual Survey of Regional Offices Representing Overseas Companies in Hong Kong, showing that the number of local offices operated by overseas and mainland companies has reached an all-time high.
According to the Survey, there were 1,167 companies that were regional headquarters (RHQs) and 2,631 companies that were regional offices (ROs) in Hong Kong set up by their parent companies outside Hong Kong, as at June 1, 2005. The corresponding numbers as at June 1, 2004 were 1,098 and 2,511 respectively.
The United States topped the list of countries/territories with companies having RHQs in Hong Kong. A total of 262 American companies had RHQs in Hong Kong in 2005. This was followed by Japan, with 204 companies, and the United Kingdom, with 115 companies.
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.
As in the case of RHQs, the US also topped the list of countries/territories with companies having ROs in Hong Kong. A total of 606 American companies had ROs in Hong Kong in 2005. This was followed by Japan, with 537 companies, and the UK, with 215 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.
For the purpose of the survey, a regional headquarters (RHQ) is an office that has control over the operations of offices in the region (Hong Kong plus one or more other place/s), and manages the business without frequent referrals to its parent company outside Hong Kong.
A regional office (RO) is an office that coordinates offices/operations in the region (Hong Kong plus one or more other place/s), and manages the business, but with frequent referrals to its parent company outside Hong Kong or its regional headquarters.
The 2005 survey is the sixth of its kind conducted by C&SD. The previous surveys were conducted by the ex-Industry Department on an annual basis starting from the early 1990s.
As from 2001, the coverage of the survey has been extended to include companies that are local offices (LOs) in Hong Kong set up by their parent companies outside Hong Kong.
According to the survey, there were 2,474 LOs in Hong Kong set up by their parent companies outside Hong Kong as at June 1, 2005. The corresponding number as at June 1, 2004 was 2,334.
A local office is an office that solely takes charge of the business in Hong Kong on behalf of its parent company outside Hong Kong.
The mainland of China topped the list of countries/territories with companies having LOs in Hong Kong. A total of 443 Mainland companies had LOs in Hong Kong in 2005. This was followed by Japan, with 439 companies, and the United States of America, with 395 companies.
The major lines of business of the LOs in Hong Kong were wholesale, retail and import/export trades; business services; and finance and banking.
Among the factors affecting the choice of location for setting up RHQ/ROs, low and simple tax system was considered as the most important. Other important factors, in descending order of importance, included free flow of information; corruption free government; and absence of exchange controls. All these important factors were rated by over 60% of the companies to be favourable factors for Hong Kong as a location for setting up RHQ/ROs.
Among these factors, the low and simple tax system was regarded by the largest proportion of the companies (70%) as a favourable factor for Hong Kong. Other favourable factors, in descending order of Hong Kong's favourableness rating, included free flow of information (69%); absence of exchange controls (68%); communication, transport and other infrastructure (66%); corruption free government (65%); geographical location (64%); free port status (64%); and availability of business services and professional support services (61%).
On the other hand, availability and cost of residential accommodation; and availability and cost of business accommodation were regarded by relatively larger proportions of the companies (33% and 30% respectively) as unfavourable factors for Hong Kong, as against 12% and 17% respectively of the companies regarding them as favourable factors for Hong Kong.
About 44% of companies considered that, comparing June 2005 with June 2004, the overall business environment in Hong Kong as a location for setting up RHQ/ROs had remained more or less the same, and another 39% 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, and another 29% indicated the above views were affected to some extent.
About 77% of companies indicated that their investment activities were not affected by CEPA. On the other hand, about 10% of companies indicated that their investment activities were affected by CEPA, and the most common effect was the launch new business expansion plans (7%).
The Director-General of Investment Promotion at Invest Hong Kong, Mike Rowse, was pleased with the results of the survey. He said, "It is very encouraging to see that the number of regional headquarters, regional offices and local offices have all increased during the past year. Hong Kong now is host to over 6,200 overseas and Mainland companies -- strong evidence that international businesses continue to prefer managing their regional operations from our city."
"The report indicates that investors from traditional markets, including the US, Japan and the UK, continue to see Hong Kong as the key strategic location to manage regional businesses. At the same time, Mainland companies are playing an increasingly significant role in our business community as the largest source of local offices in Hong Kong."
"The results also point to Hong Kong's traditional advantages – including a low and simple tax system, free flow of information and absence of exchange controls – as the most important reasons that investors choose Hong Kong for their regional operations. The latest report on economic freedom by Fraser Institute of Canada, the Cato Institute of the US and 67 other research institutes around the world also confirmed Hong Kong retains its position as the world's freest economy, an important factor in an investors' decision."
"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. This report will serve as one of the useful tools for us to understand the determining factors and concerns of investors in selecting their business locations."
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