China Hong Kong: a solid, liberal island

"Indeed, the city enjoys a privileged tax position: its companies are taxed only on their net profits, at 16.5 %, and are required to pay a strict minimum of social security contributions.

No vat

In this advantageous tax landscape, there is no VAT, except on a few products: cars, cigarettes and strong alcohol. "And above all, in 2008, the tax on wine was eliminated to make Hong Kong a key place for wine distribution in Asia", adds David O'Rear, adding that "in a city where logistics - Hong Kong is the world's leading container port - and the luxury goods market are pillars of the economy, this opening up of the wine market was a necessity".

But while liberal Hong Kong scored 90 points on a scale of 100, Singapore came a very close second with 87.1 points. The competition is real, especially as these two Asian dragons are also known for the free movement of goods. I've seen Chinese from the mainland arriving with suitcases of money," recalls an employee of a major Hong Kong bank. Nowadays, we tend to check a bit more and ask questions, but for the moment, there is no law requiring the source of funds to be declared."

On this point, David O'Rear does not entirely agree. "Singapore banks are much more concerned with confidentiality and we have seen, particularly in Switzerland, that this game has its limits. Hong Kong banks are less focused on large private portfolios than on commercial transactions with China. And that's our strength. Indeed, despite its position as the world's third-largest financial centre, Hong Kong has not been as hard hit by the global economic earthquake as New York and London. "The reason? It's because China has a demand for fairly basic banking products and not for the exotic and sophisticated products that have led to the disasters we all know about. This does not mean, of course, that we have been totally spared, but to a lesser extent," concludes David O'Rear.

Yet Hong Kongers remain cautious. A recent survey involving 7,200 senior executives shows that businessmen and women are in low spirits, especially since the weakening of the Chinese market. "Even if the crisis has not really shaken Hong Kong, preventive measures are pouring in from all sides," explains Eak Hong Loui of the French Chamber of Commerce in Hong Kong. It's true that HSBC's share price has halved in six months, but the system remains stable and the money is in the coffers. Blocked. Because Hong Kong banks are no longer lending and, as a precaution, are laying off staff. "However, if we forecast a wave of unemployment in the region of 6 %, we can also expect new recruitment, as staff turnover is fairly high", continues the French economist. The danger, it would seem, comes mainly from Macau, which has suffered enormously from the financial tsunami, even though the sums played in its casinos have recently exceeded those on the green carpets of Las Vegas.

"Despite this, Hong Kong remains very well protected economically thanks to its status as a Special Administrative Region", says Eak Hong Loui. In 2007, its GDP per capita grew by 6.3 %, a level similar to that of most Western European countries. Since the handover in 1997, and thanks to the 50-year concession due to expire in 2047, the city has enjoyed legally and economically independent status. This makes it a veritable gateway to China. And that's what attracts investors. Here, the concept of intellectual property is very well protected, whereas in China it is much more uncertain," explains the specialist. That's why it's easier, and even advisable, to register a trademark in Hong Kong and launch production in China." This is because in this Special Administrative Region (SAR), if there is a dispute, you can turn to the courts, which is more complicated on the Chinese mainland. This is why the city, with its growing number of law firms, has become a major centre for arbitration.

Administrative facilities

According to the World Bank, it is also the easiest place in the world to set up and close a company, and thus collects the world's top rankings. Indeed, in an article in the South China Morning Post on 15 January 2009, John Tsang, the Minister of Finance, reacting to the publication of the Heritage Foundation's rankings, stated that "the government plays the role of facilitator and wishes to offer a favourable environment for business. So that all companies can compete without injustice", adding that it was also necessary to "support the integrity and proper functioning of the market".

However, while some 20 years ago 20 % of its GDP came from manufactured goods, Hong Kong has produced almost nothing since the 1970s. Production now stands at just 3 % and is mainly limited to DVDs, CDs and jewellery. To stay ahead in services, which now account for 90 % of the city's revenue, the government is encouraging foreign investment, in particular by offering research centres focused on IT and electronics, such as the Science Park, the Technology Park and the Cyberport, think-tanks where, among other things, the profitability and viability of a commercial project are tested.

In addition, attractive tax exemptions are granted to Hong Kong-based companies whose production takes place in China. These exemptions, which apply to specific transactions, are a kind of tax ploy. The key is that the goods do not transit through Hong Kong, where only the transactions take place. Although these exemptions are not a right, as you have to apply to the government for them, they are still easy to obtain. "It amazes the French, who find it hard to believe," adds Eak Hong Loui, who is also responsible for helping French companies to set up in Hong Kong.

More and more French people

Hong Kong is home to Asia's largest French community, which grew by 18 % between December 2007 and December 2008, with almost 100 new arrivals every month. In ten years, the number of French people has increased by 67 %. Seven thousand French people were counted in 2008, and it is estimated that there are now at least 10,000. They come to Hong Kong looking for a gateway to Asia, a key location for logistics and trade, tax advantages, and also an extraordinary network of agents with in-depth knowledge of the Chinese market. Most of France's business is centred on trading - the markets where you buy cheaply and sell for more - construction, logistics and luxury goods. Hong Kong is certainly a gateway for major brands to the rest of Asia, but luxury tourism is also a major industry. Of the nearly 25 million annual visitors, 50 to 60 % are Chinese. And in the Chinese mind, luxury goods are inevitably bought in Hong Kong. Even though cities like Shanghai and Beijing now offer the same prestigious brands, the psychological factor remains important, as China continues to dump its stocks of imitations. Many Hong Kongers joke that they go to China for the fakes, while the Chinese come here for "the real thing"! This constant to-ing and fro-ing between Hong Kong and the Chinese mainland is a reminder that this city of 7 million inhabitants, despite its status and its economic freedom and freedom of expression, remains politically attached to Beijing. It has yet to win another freedom: universal suffrage.