Guidance

Overseas Business Risk: Hong Kong

Updated 16 February 2021

1. Government

The Hong Kong Special Administrative Region of China (SAR) covers an area of 1,098 square kilometres (424 square miles) on the southern coast of China. It comprises Hong Kong Island, Kowloon and the New Territories, and about 235 outlying islands.

Hong Kong falls under the sovereignty of the People’s Republic of China, which is responsible for its foreign affairs and defence. However, Hong Kong operates under the “One Country, Two Systems” model. The Sino-British Joint Declaration, (the agreement that returned sovereignty of Hong Kong from the UK to China), provides for Hong Kong to enjoy a high degree of autonomy in the other areas of its governance, including economic and trade affairs. Hong Kong’s Basic Law encompasses the key features of the Joint Declaration, such as Hong Kong’s special status, high degree of autonomy, the continuation of its capitalist system, common law legal system, and rights and freedoms. It prescribes, among other things, the relationship between the Chinese Government and the Hong Kong SAR Government, the fundamental rights and duties of the Hong Kong people and the SAR’s political structure.

The Foreign Secretary reports to Parliament every six months on developments in Hong Kong, with a particular focus on the Hong Kong’s social and economic systems, lifestyle, and rights and freedoms, as guaranteed under the Joint Declaration. The last reporting period (1 January to 30 June 2020) saw the imposition by Beijing on Hong Kong of a new National Security Law, which the Foreign Secretary stated on 1 July 2020 to Parliament was a clear and serious breach of the Sino-British Joint Declaration.

The period was also marked by the simultaneous challenges of civil unrest and the onset of Covid-19, with the pandemic and the political situation interacting. Although social distancing measures were widely accepted by the public, some activists and legislators claimed the Government misused them on occasion to prevent protests. There was no substantive dialogue between the Hong Kong authorities, opposition or public about how to address concerns raised through the protests about Hong Kong’s autonomy, rights and freedoms. Specific issues raised by protestors included:

• the right to freedom of speech when “disrespect” for China’s national anthem was criminalised
• the role of mainland authorities in Hong Kong’s governance, because the Central Government Liaison Office (CGLO) asserted that it was not bound by Article 22 of the Basic Law
• the role of Hong Kong’s Legislative Council to introduce and scrutinise legislation, because it was gridlocked by procedural delays

The current Chief Executive of the Hong Kong SAR Government is Ms Carrie Lam, who was elected by a 1,194 member Election Committee on 26 March 2017, and will serve a five-year term. The Legislative Council (LegCo) is Hong Kong’s parliament. Thirty-five of its seventy seats are directly elected. The remaining thirty-five seats are filled by representatives of “functional constituencies”, selected mainly by the business sector and the professions. Members of LegCo serve for a term of four years, and the most recent LegCo elections, to select the 6th Legislative Council of Hong Kong, took place on 4 September 2016. By-elections were held for some seats in March 2018 as a result of HKSAR Government legal action against some elected legislators leading to their disqualification. Elections were due to take place in September 2020, however the authorities postponed these, citing the Coronavirus crisis. The date of the rescheduled election has not yet been confirmed.

Hong Kong’s political discourse is dominated by questions surrounding the constitutional relationship between the SAR and mainland China, with pro-Beijing and pan-democratic camps highly polarised. In February 2019, the Hong Kong government proposed a controversial extradition Bill which would have allowed for case-by-case extraditions to mainland China. The Bill was ultimately suspended following strong public opposition, but sparked months of protests calling for greater democracy and police accountability.

On 30 June 2020, a meeting of the National People’s Congress Standing Committee in Beijing announced a new National Security Law (NSL) for Hong Kong, which came into force in the SAR on the same day. It introduced offences on secession, subversion, organisation and perpetration of terrorist activities, and collusion with a foreign country. The law carries a maximum penalty of life imprisonment. These offences can be applied to activities conducted outside Hong Kong. China’s mainland authorities could under certain circumstances detain and try individuals under the terms of this law (i.e. they could be detained and removed to mainland China). See English translation of the law.

The Foreign Secretarymade a statement to the House of Commons on 1 July 2020, in which he set out that the legislation constitutes a clear and serious breach of the Sino-British Joint Declaration. See full statement.

In response to the NSL, the UK launched a new, bespoke immigration route for British National (Overseas) (BN(O)) status holders and their immediate family members on 31 January 2021. Those with BN(O) status and their eligible family members will be able to come to the UK to live, study and work in virtually any capacity, on a pathway to citizenship. After five years in the UK, BN(O) status holders and their family members will be able to apply for settlement, followed by citizenship after a further twelve months.

Also in response to the NSL, the UK suspended our extradition treaty with Hong Kong and extended the China arms embargo to include Hong Kong.

On 11 November 2020, four legislators from the pan-democratic camp were disqualified from the Legislative Council. In response, the remaining 15pan-democratic legislators resigned in protest. In a statement on 12 November, the Foreign Secretary declared that Beijing’s imposition of new rules to disqualify elected legislators in Hong Kong constituted a clear breach of the legally binding Sino-British Joint Declaration. This is the third time that China has breached the Joint Declaration, the first incident occurring in 2016.

2. Human Rights

The crimes in the NSL are broadly defined, but it is already reducing the extent to which the people of Hong Kong are able to exercise their fundamental rights and freedoms. It has damaged freedom of expression in academia, schools and libraries, including through the removal of textbooks and other books containing certain political content. It has been used as the basis for a raid on a leading Hong Kong newspaper and the arrest of its owner. Hong Kong police regularly threaten arrests under its provisions in response to the chanting or display of political slogans during demonstrations. Incorporated or unincorporated bodies can be fined and their operation suspended or licence/permit revoked. Uncertainties about how the provisions in the law might be used in future is reportedly having a wider chilling effect on the exercise of freedoms through encouraging self-censorship.

Civilian authorities maintain effective control over most parts of the Hong Kong Police Force. There are mechanisms to investigate and punish cases of abuse and/or corruption though there are concerns about the need for reform following alleged police abuses in handling protests in 2019. Hong Kong law provides for an independent judiciary, and the government generally respects judicial independence in practice. Courts can, and do, find against the government. However, the NSL granted the police increased powers to search premises, freeze assets and to access information in cases related to national security. It also allows jury and non-public trials, and permits for mainland criminal code to be applied in certain circumstances, including removing a suspect to face trial in the mainland. Significantly, it grants sole power of interpretation of the law to the Standing Committee of the National People’s Congress (NPCSC) in Beijing.

Hong Kong law, including related regulations and statutory instruments, protects the right of workers to form and join independent unions without previous authorisation or excessive requirements, and conduct legal strikes. However, the law does not provide for the right to collective bargaining. Trade unions must register with the government’s Registry of Trade Unions and must have a minimum membership of seven persons for registration. Unions can affiliate, and workers are not prevented from unionising.

There are increasing concerns about freedom of speech. There is anecdotal evidence of companies being put under pressure by the Chinese authorities for the political beliefs of their employees, including those who have taken part in pro-democracy protests. Individuals have been prosecuted for using certain words and slogans, most relating to Hong Kong independence. Companies perceived to be pro-China have also been targeted, with a number of businesses suffering vandalism during the protests over extradition.

Hong Kong law provides for freedom of assembly and association, but protests are subject to police authorisation.

Freedom of religion is broadly respected, and a number of religions are able to coexist without difficultly in Hong Kong.

There are no government restrictions on access to the Internet. However, on 16 January, Hong Kong Internet Service Providers took down a pro-democracy website. This followed an order from the Hong Kong authorities, citing national security grounds, and was the first occurrence of its kind.

3. International Relations

Many historic ties and affinities with Hong Kong endure. There are approximately 2.9 million people in Hong Kong with British Nationals (Overseas) (BN(O)) status. In response to the NSL, the UK launched a new, bespoke immigration route for BN(O) status holders and their immediate family members on 31 January 2021. See more details here. BN(O)s also enjoy the same level of consular service in third countries (not China, Hong Kong or Macao) as other British Nationals.

Hong Kong continues to be a major business partner for the UK. It is important as a very significant market in its own right and also as the principal gateway into, and increasingly, out of mainland China. It is:

• the UK’s third largest market for goods in Asia-Pacific (after mainland China and Japan), and 11th largest worldwide in 2019
• £13.6 billion of goods and services were exported to Hong Kong in 2019, and £9.99 billion imported
• the destination for 4.7% of the UK’s outward FDI stock in 2019, or £70.5 billion
• the test-bed for the internationalisation of China’s currency, the renminbi (RMB)

Cooperation through the London-Hong Kong Financial Services Forum has helped establish London’s status as an offshore hub for RMB trading.

The economies of Hong Kong and mainland China are increasingly integrated. The Hong Kong/Mainland China Closer Economic Partnership Agreement (CEPA) was signed in 2003. Under CEPA, Hong Kong companies (including UK companies with substantive business operations in Hong Kong for 3-5 years) get preferential access into the mainland market. On trade in goods, the arrangement allows tariff free imports of all goods of Hong Kong origin into China. A new agreement on trade in services was signed in November 2015, allowing Hong Kong service providers unrivalled access to the Chinese market. CEPA was further enhanced for cross-boundary investments in June 2017. We expect the development of the Greater Bay Area initiative, launched in February 2019 (covering nine cities in Guangdong province plus Hong Kong and Macao) to provide ever-deepening economic integration as the region becomes a leading free trade area.

The Shanghai-Hong Kong Stock Connect pilot scheme was launched on 17 November 2014 and allows international investors to invest in mainland China’s A-share market and Chinese investors to invest in Hong Kong. In August 2016, the aggregate quota of the Shanghai-Hong Kong Stock Connect was lifted to deepen financial linkages with the mainland. The Shenzhen-Hong Kong Stock Connect was launched in December 2016. The operation of this scheme mirrors its Shanghai-Hong Kong counterpart.

In addition to the Stock Connect, a ‘China-Hong Kong Bond Connect’ was launched northbound on 3 July 2017, allowing international investors to gain access to the mainland bond market via Hong Kong accounts. As part of the plans for the financial integration of the Greater Bay Area, the China Banking and Insurance Regulatory Commission and the Hong Kong Insurance Authority have been working on an “Insurance Connect” scheme. The aim of Insurance Connect is to facilitate cross-border insurance business and eventually to allow the cross-border sale of insurance products within the Greater Bay Area.

As a customs territory, HKSAR is responsible for its own bilateral and multilateral economic and trade relations. Hong Kong is a strong advocate for free trade and open markets in fora such as the World Trade Organisation (WTO), where it takes part separately from China. In other multilateral fora, such as the G20, Hong Kong participates as part of the Chinese delegation.

4. Economic Overview

Hong Kong is a small open economy highly dependent upon four key industries – financial services, tourism, trading and logistics, and professional services. Its economy contracted -6.1% in 2020 due to the impact of Covid-19, and unemployment is at a 16-year high. As a regional hub, Hong Kong has historically attracted global visitors for both tourism and business purposes. Pre-pandemic, tourist visitors reached 56 million (2019). Despite headwinds, Hong Kong’s economy is expected to exit a two-year recession this year; the city’s General Chamber of Commerce forecasts growth of 3.5%. Hong Kong’s economy is strongly influenced by global conditions, particularly – and increasingly – in mainland China. Hong Kong’s exports to mainland China increased 5.1% in 2020.

The key driver of growth is domestic demand which remains firm, founded on a healthy labour market (the latest data shows nominal wages growing by 2.8%) and supportive fiscal policy, which has contributed an average of 1 percentage point to GDP since the 2008 financial crisis. The government expects demand to hold up well with strong fundamentals including the low unemployment rate (2.8% in March 2019) and steady consumer price inflation (3.3% in June 2019).

While Hong Kong is vulnerable to shocks, it benefits from a well-capitalised banking system: Hong Kong’s banks have a capital adequacy of 20% and low non-performing loan ratios, Though the government has utilised its fiscal reserves to support the economy through the pandemic, spending in excess of HK$300 billion, it retains approximately HK$800 billion.

Hong Kong’s competitiveness faces some medium-term risks. Some members of the business community consider air pollution, capacity to innovate and limited urban space to be amongst the main challenges facing Hong Kong’s business environment. There are also concerns about the impact of the wider political environment, with some businesses facing pressure to take public positions on a number of developments. Protests in 2019 and 2020 saw boycotts and disruption to a number of businesses. While some businesses have argued that the NSL has brought a welcome degree of stability to Hong Kong, others have flagged concerns about the impact of the law.

On 14 July 2020, the US Congress enacted The Hong Kong Autonomy Act (HKAA). The bill imposes sanctions on foreign individuals and entities that materially contribute to China’s failure to preserve Hong Kong’s autonomy. On the same day, the US President issued Executive Order 13936 on “Hong Kong Normalization”. The Executive Order determined that the Hong Kong SAR was no longer sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China under US law and provided for the imposition of sanctions. The US has since imposed sanctions on a number of individuals in Hong Kong and mainland China linked with undermining Hong Kong’s autonomy, rights and freedoms. Under the HKAA, the US State Department and Treasury monitor whether any foreign financial institutions have knowingly conducted significant financial transactions with the designated individuals.

The World Economic Forum has paused its Global Competitiveness Index rankings though, as of 2019, Hong Kong was ranked 3rd globally. Hong Kong is a highly competitive global business hub. It is ranked fifth globally and third in Asia in the Global Financial Centres Index. The IMD World Competitiveness rankings 2020 also place Hong Kong as the fifth best place to do business worldwide, though down from 1st in 2017. Since the handover in 1997, Hong Kong’s competitiveness has been based on a number of factors including a strong regulatory environment, stable institutions, good infrastructure, access to large talent pools, judicial independence and rule of law.

Note: You can access up to date statistics and information at the following websites

The Census and Statistics Department in Hong Kong

The Hong Kong Monetary Authority

Invest Hong Kong

The Hong Kong Trade Development Council Research

The Hong Kong Economic Trade Office in London, UK

The Trade Industry Department (CEPA, Mainland & HK Closer Economic Partnership Agreement)

More information on political risk, including political demonstrations is available in FCDO Foreign Travel Advice

5. Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or as Scottish partnership to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

In Hong Kong there is zero tolerance for bribery. The Prevention of Bribery Ordinance criminalises bribery and corrupt transactions in both the public and private sectors.

The Independent Commission Against Corruption (ICAC) is the government agency which investigates and prosecutes corruption in the public and private sectors in Hong Kong.

Hong Kong was ranked 16th (of 180) alongside Australia and Belgium in Transparency International’s Corruption Perceptions Index (CPI) for 2019, reflecting its robust structure of checks and balances (the UK was ranked 12th).

Read the information provided on our bribery and corruption page page.

6. Terrorism Threat and Protective Security

There is a low threat from terrorism, but you should be aware of the global risk of indiscriminate terrorist attacks, which could be in public areas, including those frequented by expatriates and foreign travellers.

The level of violent crime is very low, but pick pocketing and other street crime can occur. You should take extra care of passports, credit cards and money in crowded areas and when checking in and out of hotels. For emergencies, the Police can be contacted by calling 999.

Hong Kong is generally a stable society underpinned by the rule of law. While demonstrations are usually conducted in a peaceful and orderly manner, some have been more volatile in nature. Several large-scale political demonstrations took place across Hong Kong in 2019, and some clashes between police and protesters involved significant violence. You should avoid areas where protests and unplanned public gatherings are taking place if possible, monitor and follow the instructions of the local authorities and take sensible precautions against petty crime if you are nearby.

Please ensure you check foreign travel advice for latest information on risks and precautions.

7. Intellectual Property

Intellectual Property (IP) rights are territorial, that is they only give protection in jurisdictions where they are granted or registered. If you are thinking about trading internationally, then you should consider registering your IP rights in your export markets. Specific advice should be sought from qualified professionals either in the UK or overseas.

Hong Kong has a separate IP system to mainland China. The Hong Kong IP legal framework is comprehensive and generally considered to be one of the most effective in Asia. Hong Kong is ranked 5th in the world for IP protection in the World Economic Forum’s Global Competitiveness Report 2019.

Hong Kong is a signatory to several international conventions on IP. Its legislative and administrative regime for IP rights is generally compliant with the World Trade Organization agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).

The Hong Kong Intellectual Property Department (IPD) is the government department responsible for registration of trade marks, patents and designs, and for overseeing copyright policy. IPD also provides policy advice to the Secretary for Commerce and Economic Development on policies and legislation to protect IP in Hong Kong, as well as public outreach activity. Hong Kong Customs and Excise are the primary agency responsible for criminal enforcement against IP infringement. The Hong Kong court system operates according to common law principles and both interim and permanent injunctions can be obtained in IP cases. Hong Kong has no specialist IP court.

UK companies based in or planning to export to Hong Kong are advised to register their IP in Hong Kong and any other jurisdictions where they may want to expand their products and services in future. Some companies also report that they have been the victim of ‘brand squatting’. This is when companies or individuals pre-emptively register a trade mark or company name, intending to negotiate a payment to transfer the rights, and/or to piggy-back on the reputation of international brands. This practice has been particularly prevalent with entities from mainland China, so companies active in Hong Kong should also consider trade mark registration on the mainland.

The European Union has published a guide to protecting IP in Hong Kong aimed at Small and Medium Enterprises (SMEs).

See more information on IP in mainland China – including contact information for the UK’s IP Attaché in the British Embassy in Beijing.

8. Organised Crime

The Hong Kong SAR government takes a serious view of organised crime and has in place severe measures to counter it, including large fines and long sentences for drug and firearms trafficking, money laundering and human and goods trafficking. The Organised and Serious Crimes Ordinance empowers the Hong Kong’s law enforcement agencies (Hong Kong Police Force, Hong Kong Customs and Excise Department and the Independent Commission Against Corruption) to investigate serious and organised crimes. Uniquely, the Hong Kong Police has specific responsibility for investigating triad-related offences and has dedicated units to take proactive action against triads. While you should be vigilant against triad-related activity, there is no evidence to suggest this is a growing problem.

Hong Kong adopts a common law legal system akin to and almost mirroring UK law. The judicial processes in Hong Kong follow a similar criminal justice system to the UK with a three-tier court structure.

Hong Kong law enforcement agencies can apply to the court for heavier sentences and the confiscation of proceeds arising from certain crimes.

Drugs – use and trafficking

Hong Kong is not a source country for controlled drugs, though there is evidence of its use as a transit point for controlled drugs to other parts of Asia Pacific and elsewhere in the world. Varying methods of trafficking are employed, however the main modus operandi are the use of parcel postal systems and human couriers.

The predominant drugs encountered are cannabis, ketamine, cocaine and methamphetamine. You should not become involved with illegal drugs of any kind. There is zero tolerance towards the possession and trafficking of controlled drugs as defined by Hong Kong Drugs Ordinance, which will lead to imprisonment. There have been an increasing number of people duped into becoming couriers for drugs parcels either through romance scams or other types of scam. Any approach to act as a courier should be reported to the police as a matter of priority.

Fraud and money laundering

Hong Kong is often seen as an attractive option for money laundering, due to the nature of its financial structure. The money laundering regulations are enforced by the financial investigation bureaus of both the Hong Kong Police Force and Hong Kong Customs and Excise Department. Frauds and scams are ever-evolving, but the emergence of so-called “CEO scams” and email scams has identified vulnerabilities for companies across the globe, including those in Hong Kong. Further information on these and other types of fraud can be obtained via the City of London Police and Action Fraud websites.

Throughout 2015/2016, Hong Kong residents (predominantly local Chinese) were the victims of large-scale telephone deception scams resulting in significant personal losses. Hong Kong police launched an awareness campaign and have taken enforcement action against suspects; however this fraud still remains a risk and the value of losses continues to grow.

2020 has seen a large rise in COVID-19 linked frauds ranging from masks, gowns and hand sanitisers to “Covid cures”. These have targeted Hong Kong residents and businesses. It has also seen local crime groups targeting other countries and jurisdictions. As a global financial centre, Hong Kong remains a target for illicit and licit finance.

For further information you can visit the Hong Kong Police Force website or the Security Bureau websites.

The Hong Kong SAR Government has restrictions in place on the quantity of powdered baby formula allowed for persons departing the territory. Penalties for non-compliance are severe. See: Hong Kong Customs and Excise Department website.

Read the information provided on our Organised crime page.

For advice on serious organised crime visit the National Crime Agency website.