Guidance

Overseas business risk: Hong Kong

Updated 22 March 2024

1. Context

The Hong Kong Special Administrative Region (SAR) of China covers an area of 1,114 square kilometres (430 square miles) on the southern coast of China. It comprises Hong Kong Island, Kowloon and the New Territories, and over 250 outlying islands.

Hong Kong’s political landscape has changed significantly since the protests in 2019 and the imposition of the National Security Law on 30 June 2020. Political rights and freedoms in Hong Kong have been significantly eroded, especially freedom of expression and the right to assembly. However, most businesses report that they are able to operate normally amidst the current political environment. The Safeguarding National Security Ordinance (known locally as Article 23) came into force on 23 March 2024. For further information on national security laws see section 4: Business and human rights.

British businesses operating in Hong Kong, or thinking of establishing there, should familiarise themselves with the changes to the political, social and business environments and seek appropriate professional advice as needed.

2. Economics and trade

Hong Kong continues to be a major trade and investment partner for the UK. Hundreds of British companies have operated in Hong Kong for many decades, reflecting the historical ties. British companies continue to choose Hong Kong for a variety of reasons. These include:

• the absence of capital controls
• a currency pegged to the US dollar
• a Common Law legal system based on English law which provides effective dispute resolution systems in commercial cases to international standards
• the ease of setting up a business
• a free port with no tariffs for goods on entry
• a low-tax regime
• access to finance as a global financial centre
• strong connectivity to mainland China and to the rest of the Asia Pacific region
• access to investment opportunities in the Greater Bay Area

2.1 Trade and investment overview

Hong Kong is:

• the UK’s second largest market for goods in Asia-Pacific (after mainland China), and 13th largest trading partner
• a large export and import market for the UK - £18.2 billion of goods and services were exported to Hong Kong and £10.2 billion imported from Hong Kong in the four quarters to the end of Q4 in 2022
• the destination for 4.4% of the UK’s outward FDI stock in 2021, or £77.6 billion
• the primary destination for the emerging internationalisation of mainland China’s currency, the Renminbi (RMB).

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

As a customs territory, Hong Kong is responsible for its own bilateral and multilateral economic and trade relations. Hong Kong has historically been a strong advocate for free trade and open markets in fora such as the World Trade Organisation (WTO), where it has taken part separately from mainland China. In other multilateral fora, such as the G20, Hong Kong participates as part of the Chinese delegation. Hong Kong is currently seeking accession to the Regional Comprehensive Economic Partnership, which would further boost economic integration in the region.

2.2 Economic overview

Hong Kong continues to maintain a free market economic system as set out in the Sino-British Joint Declaration. Hong Kong is an open economy and an international centre for finance. The Chief Executive’s Policy Address in October 2022 set out his ambition to focus on the development of emerging industries in innovation, technology, arts and culture. Hong Kong also aspires to become a regional centre for intellectual property trading, as well as legal and business dispute resolution. Hong Kong is focusing on attracting talent and business back to the region.

In Q1 2023, Hong Kong’s GDP rebounded by 2.7% year-on-year in real terms, after falling for four consecutive quarters. The recovery was mainly driven by strong growth in domestic demand and inbound tourism after post-pandemic reopening, yet trade of goods remained sluggish amid softer external demand.

Alongside the economic recovery, Hong Kong’s labour market continued to improve. The seasonally adjusted unemployment rate declined from 3.5% in Q4 2022 to 3.1% in Q1 2023, and further to 3.0% in the three months ending May 2023. The tightness of labour market conditions partially stemmed from a shrunken labour force compared to pre-pandemic levels. The size of the labour force, and 3.8 million in the three months ending May 2023, remained 5% below that of the same period in 2019.Looking ahead, the IMF forecasts 2023 GDP to grow by 3.5%, equivalent to the lower bound of Hong Kong SAR Government’s forecasted range of 3.5% to 5.5%. The business community generally expects economic recovery to gather momentum in the coming months amid various government support measures, faster recovery in the mainland economy, and increased inflow of visitors. Nonetheless, economic slowdown in advanced economies will continue to weigh on external demand.

The latest Global Financial Centres Index (GFCI33) issued in March 2023 saw Hong Kong maintain its position at 4th place. The Hong Kong SAR Government stated that it will continue to work to strengthen Hong Kong’s capital market and its role as an international finance centre. The IMD World Competitiveness 2023 rankings placed Hong Kong 7th in the best places to do business worldwide, down from 5th in 2022. The World Economic Forum has paused its Global Competitiveness Index rankings. As of 2019, Hong Kong was ranked 3rd globally.

Note: You can access up to date statistics and information on these 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)

2.3 Economic integration with the Mainland

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 mainland China. An 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. The development of the Greater Bay Area initiative, launched in February 2019 (covering nine cities in Guangdong province, Hong Kong and Macao) could provide deeper economic integration and business opportunities as it develops. The Chief Executive’s policy address placed emphasis on attracting business and talent, easing the housing shortage and promoting innovation & technology.

The Connect schemes, a series of mutual market access programmes, were introduced to facilitate cross border financial flows. These schemes operate under a closed loop system, where home market rules apply. The Shanghai-Hong Kong Stock Connect, the first Connect scheme, was launched in 2014 and the Shenzhen-Hong Kong Stock Connect was launched in 2016. The schemes allow eligible investors from the mainland and Hong Kong to trade eligible stocks listed on the Hong Kong, Shanghai and Shenzhen stock exchanges. This was followed by the launch of the Bond Connect for Northbound trading in 2017, and Southbound trading in 2021. The scheme was further expanded to retail investors with the launch of Wealth Management Connect in 2021, which allows eligible Hong Kong, Macao and mainland investors to invest in wealth management products under each other’s jurisdictions. The northbound trading of the Swap Connect was recently launched in 2023 as a risk hedging tool for investors tapping into China’s bond market.

The Stock Connect is the most popular platform for global investors – over 70% of all international investments into China’s A-share equities market are held through the Stock Connect programme. The Connect scheme has become an important investment mechanism and this will continue to expand with ‘Insurance Connect’ in the pipeline and dual-currency counter trading to be included in the southbound Stock Connect in the near future.

3. Government

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 1984 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 enacts the key features of the Joint Declaration, such as Hong Kong’s special status, a high degree of autonomy, the continuation of its capitalist system, a common law legal system, and rights and freedoms. It sets out, 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.

3.1 Political structure

The Hong Kong SAR Government is led by the Chief Executive. The principal officials are the Chief Secretary for Administration, the Financial Secretary and the Secretary for Justice. Cabinet positions are not elected, but are political appointees made by the Chief Executive. This is also the case for the Executive Council, the Government’s advisory body.

The Chief Executive is chosen by a 1,461 member Election Committee. In May 2022, John Lee, previously Chief Secretary, was elected uncontested for a 5-year term as the next Chief Executive, securing 99% of the votes.

The Legislative Council (LegCo) is Hong Kong’s legislature. Legislative elections took place on 19 December 2021 and were subject to the overhaul of Hong Kong’s electoral system imposed by

China’s National People’s Congress Standing Committee (NPCSC) in March 2021.

The Legislative Council was expanded from 70 to 90 seats, with only 20 directly elected by popular vote (Geographical Constituencies). Under the changes, all prospective candidates must now pass National Security vetting and secure nomination from the 1,461-member Election Committee, which itself then elects 40 members (Election Committee Constituency) to sit in the Legislative Council. The 2021 Legislative Council election resulted in a record low voter turnout of 30.2% to elect the 20 directly elected seats. The remaining 30 seats remain trade-based Functional Constituencies, selected by members of specified associations or professions.

4. Business and human rights

There are concerns about the impact of the wider political environment on businesses operating in Hong Kong. Hong Kong’s political environment remains divided between those that support democracy and those that support closer ties with mainland China. From June 2019, Hong Kong experienced roughly six-months of protests and civil unrest from those calling for greater democracy.

Some businesses have faced pressure to take public positions on political developments - to either support or renounce the Chinese Government’s stance towards Hong Kong. Protests in 2019 saw boycotts and disruption to a number of businesses, including vandalism of property.

On 30 June 2020, the Chinese authorities imposed a National Security Law (NSL) on Hong Kong, with the stated aim of restoring stability to the region.

The UK declared the imposition of the NSL a breach of the Sino-British Joint Declaration (see section 4.1 for further detail). On 23 March 2024, Hong Kong enacted the Safeguarding National Security Ordinance under Article 23 of the Basic Law. Whilst some businesses argue that the NSL has brought a degree of stability, and the most recent legislation greater clarity, the UK government and civil society groups have expressed concern about the impact of the laws on Hong Kong’s rights and freedoms (see section 4.2 for further detail). As the legislation under Article 23 is new and untested, business communities in Hong Kong are requesting early guidance from the Hong Kong government to facilitate their compliance.

4.1 Sino-British Joint Declaration

The Foreign Secretary reports to Parliament every six months on developments in Hong Kong, with a particular focus on Hong Kong’s social and economic systems, lifestyle, and rights and freedoms, as promised under the Sino-British Joint Declaration.

The UK has declared 4 breaches of the Joint Declaration since handover, the first in response to the forced removal of five booksellers to mainland China in 2016. Following three successive breaches of the Joint Declaration between June 2020 and March 2021, the UK now considers the Chinese Government to be in a state of ongoing non-compliance with the Joint Declaration.

Those breaches were:

• the imposition of the National Security Law on Hong Kong on 30 June 2020
• the creation of new rules to disqualify Hong Kong’s elected legislators on 11 November 2020, which resulted in the disqualification of four democratic lawmakers, and the mass resignation of most of the remaining pan-democratic legislators from the Legislative Council
• the overhaul of Hong Kong’s election system by China’s National People’s Congress Standing Committee (NPCSC) on 11 March 2021

4.2 Rights and freedoms

The NSL has affected 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. Uncertainties about how the provisions in the law might continue to be used, interpreted and expanded are having a wider chilling effect on the exercise of freedoms and encouraging self-censorship. Pressure on pro-democracy legislators and activists has increased, with a large number arrested under the NSL and other laws. There have been increasing concerns about freedom of speech.

The restrictions on free speech have in turn limited media freedom, with increasing censorship of what media outlets can publish on sensitive political topics. The NSL has resulted in increased self-censorship including voluntary closure of media outlets.

Under the NSL, incorporated or unincorporated bodies can be fined and their operations suspended or licence/permit revoked. Issuing or supporting political statements critical of the Hong Kong and Chinese authorities, including online and on social media, could be viewed as a crime under the NSL and may lead to prosecution. Those who support individuals who themselves are deemed to be conducting activities in contravention of the NSL could also face prosecution under the same law. Under the NSL, businesses face the risk of electronic devices being searched, confiscated, or placed under covert surveillance. National security clauses are also included in all land sale and short-term lease tender documents.

The NSL applies to activities conducted both inside and outside Hong Kong, which includes activities conducted in the UK. The NSL applies to all individuals irrespective of nationality or residency. Hong Kong’s National Security Police have issued arrest warrants and financial rewards against individuals living outside Hong Kong, including the UK.

The UK Government responded to the introduction of the NSL with a series of measures including the immediate and indefinite suspension of the UK’s Extradition Treaty with Hong Kong, extending the UK arms embargo on mainland China to cover Hong Kong, and creating a new, bespoke immigration route for British Nationals (Overseas) and their dependents.

Hong Kong law provides for an independent judiciary operating on a Common law basis. Courts can, and do, find against the government. However, the NSL grants the police increased powers to search premises, freeze assets and to access information in cases related to national security without limit. It also allows for trials without jury and behind closed doors, and permits the mainland criminal code to be applied in certain circumstances, including removing a suspect to face trial in the mainland. There continue to be arrests and trials of pro-democracy politicians and activists.

Since 1997 UK serving judges have sat on Hong Kong’s Court of Appeal. On 30 March 2022, the President of the UK’s Supreme Court, Lord Reed, alongside the serving UK Supreme Court Judge, Lord Hodge, resigned from Hong Kong’s Court of Final Appeal. Lord Reed noted that, “Hong Kong’s courts continue to be internationally respected for their commitment to the rule of law” but that he could not continue to sit “without appearing to endorse an administration which has departed from values of political freedom, and freedom of expression.”

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. However, the Hong Kong Government has recently stressed the need for all trade unions to remain apolitical. In August 2021, the Professional Teachers Union, the largest teachers’ union in Hong Kong, disbanded following the Hong Kong Government’s decision to officially cut ties with the union on the basis that it was politically active. Hong Kong’s second largest trade union, the ‘Confederation of Trade Unions’ also disbanded on 3 October 2021.

Hong Kong law provides for freedom of assembly and association, but protests are subject to police authorisation. Since 2020, many protest applications have been turned down. This has continued following the removal of COVID-19 restrictions. Freedom of religion is broadly respected, and a number of religions are able to coexist without difficultly in Hong Kong. More information on political risks, including political demonstrations, is available in FCDO foreign travel advice.

There are no government restrictions on access to the internet. However, on 16 January 2021, 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. The Personal Data (Privacy) (Amendment) Ordinance 2021 came into effect in October 2021. The amendment criminalises doxxing and introduces a cessation notice regime to doxxing with extra-territorial reach.

4.3 Sanctions

On 14 July 2020, the US Congress enacted The Hong Kong Autonomy Act (HKAA). The bill imposed 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 Normalisation”. 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.

On 26 March 2021, China sanctioned a number of UK individuals and entities in response to the sanctions imposed by the EU and UK in relation to Xinjiang, prohibiting them from entering the Mainland, Hong Kong and Macao, freezing their property in China, and prohibiting Chinese citizens and institutions from doing business with them.

In June 2021, the NPCSC promulgated the “Counter Foreign Sanctions Law of the People’s Republic of China” (CFSL). This law provides the legal basis for China’s further action and counter measures against sanctions imposed by other countries. The NPCSC session in August 2021 concluded without announcing whether or not it had decided to annex further national laws to Hong Kong’s Basic

Law as its pre-published agenda had stated. There had been speculation that this could include the CFSL.

To date the UK has not imposed sanctions on individuals in relation to Hong Kong. If you have queries relating to sanctions compliance, you should consult relevant national guidance and legislation. You may also wish to take legal advice as appropriate.

5. Intellectual property

Intellectual Property (IP) rights are territorial, that is they only give protection in jurisdictions where they are granted or registered. 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 to.

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 16th globally in the 2022 International Property Rights Index (the UK is ranked 17th).

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 Organisation 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. Any copyright and trademark right owners who find their rights being infringed are advised by IPD to contact the Customs and Excise Department. 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.

Some companies 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.

6. 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 a 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.

For more information, read the information provided on our bribery and corruption page.

6.1 The UK Bribery Act

The Bribery Act applies to non-UK companies operating in the United Kingdom and to UK companies working overseas. It created four prime offences:

• two general offences covering the offering, promising or giving of an advantage, and requesting, agreeing to receive or accepting of an advantage
• an offence of bribing a foreign public official
• a new offence of failure by a commercial organisation to prevent a bribe being paid to obtain or retain business or a business advantage (should an offence be committed, it will be a defence that the organisation has adequate procedures in place to prevent bribery)

The Act recognises that no bribery prevention regime will be capable of preventing bribery at all times. A company will have a full defence if it can show that despite a particular case of bribery it nevertheless had adequate procedures in place to prevent persons associated with it from bribing. Companies must therefore make sure that they have strong, up-to-date and effective anti-bribery policies and systems in place to prevent bribery by persons associated with them.

6.2 Bribery and corruption in Hong Kong

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 12th (of 180) in Transparency International’s Corruption Perceptions Index (CPI) for 2022, reflecting its robust structure of checks and balances (the UK was ranked 18th).

7. Terrorism threat and protective security

Hong Kong is regularly ranked as one of the safest cities in the world. But do ensure that you check foreign travel advice for latest information on risks and precautions.

You should be aware of the global risk of indiscriminate terrorist attacks, which could be in public areas, including those visited by foreigners. UK Counter Terrorism Policing has information and advice on staying safe abroad and what to do in the event of a terrorist attack. Find out more about the global threat from terrorism.

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 ICAC) to investigate serious and organised crimes. Uniquely, the Hong Kong Police Force 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.

8.1 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.

During 2021 there was a noticeable increase in crime groups utilising Phishing SMS scams where Hong Kong based customers received, on the face of it, SMS messages from large, reputable financial institutions. The instructions and links within the SMS’s subsequently resulted in customers providing enough details to allow the crime groups to compromise the bank accounts and steal funds. These funds were then quickly transferred overseas.

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.

9. Contact

Contact the Department for Business and Trade (DBT) team in Hong Kong for further information.