Identifier
Created
Classification
Origin
09HONGKONG124
2009-01-20 06:51:00
UNCLASSIFIED
Consulate Hong Kong
Cable title:  

2009 INVESTMENT CLIMATE STATEMENT, HONG KONG

Tags:  EINV ECON OPIC KTTB USTR HK 
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DE RUEHHK #0124/01 0200651
ZNR UUUUU ZZH
R 200651Z JAN 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 6687
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPCIM/CIM NTDB WASHINGTON DC
UNCLAS SECTION 01 OF 11 HONG KONG 000124 


SIPDIS

STATE FOR EAP/CM AND EEB/IFD/OIA, STATE PASS USTR

E.O. 12958: N/A
TAGS: EINV ECON OPIC KTTB USTR HK
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT, HONG KONG

REF: 08 STATE 123907

Openness to Foreign Investment
------------------------------

UNCLAS SECTION 01 OF 11 HONG KONG 000124


SIPDIS

STATE FOR EAP/CM AND EEB/IFD/OIA, STATE PASS USTR

E.O. 12958: N/A
TAGS: EINV ECON OPIC KTTB USTR HK
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT, HONG KONG

REF: 08 STATE 123907

Openness to Foreign Investment
--------------


1. Hong Kong pursues a free market philosophy, and the government
interferes minimally in the economy. The Hong Kong Government
welcomes foreign investment, neither offering special incentives nor
imposing dis-incentives for foreign investors. Hong Kong's
well-established rule of law is applied consistently and without
discrimination. There is no distinction in law or practice between
investments by foreign-controlled companies and those controlled by
local interests. Hong Kong is a member of the World Trade
Organization in its own right and a separate customs territory.
Hong Kong is a duty free port, except for a small number of tariffs
on products such as cigarettes and alcohol. There are no quotas or
dumping laws.


2. Foreign firms and individuals are allowed freely to incorporate
their operations in Hong Kong, register branches of foreign
operations, and set up representative offices without encountering
discrimination or undue regulation. There is no restriction on the
ownership of such operations. Company directors are not required to
be citizens of, or resident in, Hong Kong. Reporting requirements
are straightforward and not onerous.


3. Hong Kong's extensive body of commercial and company law
generally follows that of the United Kingdom, including the common
law and rules of equity. Most statutory law is made locally. The
local court system provides for effective enforcement of contracts,
dispute settlement, and protection of rights. Formalities are
minimal in company incorporation and business registration. Foreign
and domestic companies register under the same rules and are subject
to the same set of business regulations.


4. The Hong Kong Government's InvestHK encourages inward investment
as a means of introducing new or improved products, processes,
designs and management techniques. U.S. and other foreign firms can
participate in government financed and subsidized research and
development programs on a national treatment basis.


5. Capital gains are not taxed, nor are there withholding taxes on
dividends and royalties. Profits can be freely converted and

remitted. Foreign-owned and Hong Kong-owned firms are taxed at the
same rate, 16.5 percent of profits in 2008-2009. No preferential or
discriminatory export and import policies affect foreign investors.
Domestic industries receive no direct subsidies.


6. Foreign investments face no disincentives, such as quotas,
bonds, deposits, or other similar regulations. The Hong Kong Code
on Takeovers and Mergers (1981) sets out general principles for
acceptable standards of commercial behavior.


7. According to Hong Kong Government statistics, 3,882 regional
operations of overseas companies were registered in Hong Kong in

2008. The U.S. has the largest number of regional headquarters and
offices in Hong Kong (923 companies),followed by Japan (732
companies) and the United Kingdom (353 companies). The major lines
of business of the regional headquarters include wholesale/retail,
import/export, finance and banking, manufacturing, and transport and
related services.


8. The Hong Kong Government owns all land, granting long-term
leases without transferring title. Local and foreign leaseholders
are treated equally. The Government plays a significant role in the
housing market: about 50 percent of homes in Hong Kong are rented
from the Government or purchased with government assistance at
below-market rates.


9. With few exceptions, the Hong Kong Government does not attempt
to limit the activities of foreign investors either in specified
projects or sectors. Foreign investment in Hong Kong flows freely
into the industrial sector as well as into services, franchises,
restaurants, the entertainment industry, and the ownership of
property, both residential and commercial. The telecommunications
services market has been fully liberalized since January 1, 2003.


10. The exceptions to the Hong Kong Government's open foreign
investment policy are:

--Broadcasting - Voting control of free-to-air television stations
by non-residents is limited to 49 percent. There are also residency
requirements for the directors of broadcasting companies.

--Legal Services - Foreign lawyers are able to practice foreign and
international law in Hong Kong. Foreign lawyers can apply to take
the Hong Kong Bar Examination and, if successful, practice Hong Kong

HONG KONG 00000124 002 OF 011


law. Foreign law firms may not hire local lawyers to advise on Hong
Kong law, but may themselves become "local" firms after satisfying
certain residency and other requirements. They may thereafter hire
local attorneys, but must do so on a 1:1 basis with the foreign
lawyers. They also can form associations with local law firms.


11. Hong Kong has a free trade agreement with mainland China,
referred to as CEPA, or the Closer Economic Partnership Arrangement.
CEPA provides tariff-free export to mainland China of Hong
Kong-origin goods and preferential access for specific services
sectors. The agreement was originally implemented at the beginning
of 2004 and has been expanded four times. When the third phase was
implemented at the beginning of 2006, all Hong Kong-origin products
became eligible for tariff-free access to mainland China. The
fourth and fifth phases, announced in July 2007 and July 2008
respectively, expanded access for service providers. Service
providers in 40 sectors (e.g., logistics, distribution) now enjoy
preferential treatment on the Mainland. U.S. and other foreign
firms with a significant presence in Hong Kong are eligible to take
advantage of CEPA concessions to enter the mainland market.

Conversion and Transfer Policies
--------------


12. Conversion and inward or outward transfer of funds for any
purpose are not restricted. The Hong Kong dollar is a freely
convertible currency that, since late 1983, has been linked via a de
facto currency board to the U.S. Dollar at an exchange rate that is
allowed to fluctuate in a narrow band between HKD7.75 - HKD7.85 =
US$ 1. There is no allocation of foreign exchange.

Expropriation and Compensation
--------------


13. The U.S. Consulate General is not aware of any expropriation
actions in the recent past. Expropriation of private property may
occur if it is clearly in the public interest, but only for
well-defined purposes such as implementation of public works
projects. If this is the case, expropriations are to be conducted
through negotiations, in a non-discriminatory manner in accordance
with established principles of international law. Due process and
transparency are to be observed. Investors in and lenders to
expropriated entities are to receive prompt, adequate, and effective
compensation. Property may be acquired under the State Land
Resumption Ordinance, the Land Acquisition Ordinance, the Mass
Transit Railway (Land Resumption and Related Provisions) Ordinance
or the Roads Ordinance. These ordinances provide for payment of
compensation. If agreement cannot be reached on the amount payable,
either party can refer the claim to the Land Tribunal.

Dispute Settlement
--------------


14. The U.S. Consulate General is not aware of any investor-state
disputes in recent years involving U.S. or other foreign investors
or contractors and the Hong Kong Government. The Hong Kong
Department of Justice is also not aware of any such disputes.
Private investment disputes are normally handled in the courts or
via private negotiation. Alternatively, disputes may be referred to
the Hong Kong International Arbitration Center.


15. The Hong Kong Government accepts international arbitration of
investment disputes between itself and investors. Following
reversion to Chinese sovereignty on July 1, 1997, Hong Kong applies
provisions of the International Center for the Settlement of
Investment Disputes (ICSID),known as the Washington Convention, and
the New York Convention of 1958 on the Recognition and Enforcement
of Foreign Arbitral Awards. Hong Kong has also adopted the United
Nations Commission on International Trade Law (UNCITRAL) model law
for international commercial arbitration.


16. Hong Kong and mainland China signed a Memorandum of
Understanding in June 1999 on an arrangement parallel to the New
York Convention for the reciprocal enforcement of arbitral awards,
since the New York Convention, being an international agreement, is
no longer applicable to the enforcement of arbitral awards between
Hong Kong and mainland China.


17. Hong Kong's legal system is firmly based on the rule of law and
the independence of the judiciary. Courts of justice in Hong Kong
include the Court of Final Appeal, the High Court (composed of the
Court of Appeal and the Court of First Instance),the District
Court, the Magistrate's Courts, the Coroner's Court, and the
Juvenile Court. There are also a Lands Tribunal, Labor Tribunal,
and other statutory tribunals.

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Performance Requirements and Incentives
--------------


18. Consistent with its non-interventionist economic philosophy,
Hong Kong imposes no export performance or local content
requirements as a condition for establishing, maintaining or
expanding a foreign investment. Hong Kong offers no special
privileges to attract foreign investment. There are no requirements
that Hong Kong residents own shares, that foreign equity be reduced
over time, or that technology be transferred on certain terms.


19. All of Hong Kong is a duty-free zone. Subject to
non-discriminatory application of excise taxes and restricted entry
in some sectors, as noted above, local and foreign firms are free to
take advantage of investment opportunities as they arise.

Right to Private Ownership and Establishment
--------------

20. Hong Kong law and regulations provide for the right of foreign
and domestic private entities to establish, own and dispose of
interests of business enterprises. Foreign investors are allowed,
except for the sectors noted above, to engage in all lawful forms of
remunerative activity. The Hong Kong Government does not generally
engage directly in business activity via public enterprises.
Business privileges, franchises and land development rights are
granted on the basis of competitive equality.

Protection of Property Rights
--------------


21. Hong Kong's commercial and company laws provide for effective
enforcement of contracts and protection of corporate rights. Hong
Kong has filed its notice of compliance with the trade-related
intellectual property (TRIPs)requirements of the World Trade
Organization. The Intellectual Property Department, which includes
the Trademarks and Patents Registries, is the focal point for the
development of Hong Kong's intellectual property regime. The
Customs and Excise Department is the principal enforcement agency
for intellectual property rights (IPR). Hong Kong has acceded to
the Paris Convention for the Protection of Industrial Property, the
Bern Convention for the Protection of Literary and Artistic Works,
and the Geneva and Paris Universal Copyright Conventions. Hong Kong
also continues to participate in the World Intellectual Property
Organization, as part of mainland China's delegation.


22. The Hong Kong Government devotes significant attention and
resources to IPR enforcement. Implementation of laws passed in
recent years, including aggressive raids at the retail level, has
significantly reduced illegal production and retail sales of
copyright and trademark protected products. The Hong Kong courts
have imposed longer jail terms for violations of Hong Kong's
copyright ordinance. The Hong Kong Government has conducted public
education efforts to encourage respect for intellectual property
rights. Nevertheless, pirated and counterfeit products remain
available at the retail level throughout Hong Kong.


23. In addition, end-use piracy of software and textbooks, the
rapid growth of peer-to-peer downloading via the Internet, and the
illicit importation and transshipment of pirated and counterfeit
goods, including optical discs, pharmaceutical products and
name-brand handbags and apparel from mainland China and elsewhere in
the region, are continuing problems. Hong Kong authorities have
taken steps to address these problems by: continued monitoring of
suspect shipments at points of entry; establishing a task force to
monitor and crack down on peer-to-peer (P2P) piracy over the
Internet in December 2004; prosecuting software end-use piracy, and
reviewing ways to strengthen copyright protection in the digital
environment. An additional vulnerability is that health authorities
continue to permit the registration of generic drugs for marketing
without regard to whether these products infringe on valid patents.
Despite extensive consultations with industry, no progress has been
made on closing this loophole.


24. The Copyright Ordinance protects any original copyright work
created or published by any person anywhere in the world. The
government enacted amendments to the Copyright Ordinance in July

2007. In particular, two new provisions create a criminal offence
against the copying and distribution of infringing copies of printed
works in business and a separate civil liability against the act of
circumventing technological protection measures. These provisions
became effective in July 2008.


25. The Copyright Ordinance amendments provide for rental rights
for sound recordings, computer programs, films and comic books. The

HONG KONG 00000124 004 OF 011


amended ordinance provides for enhanced penalty provisions against
copyright piracy and additional legal tools to facilitate
enforcement. It decriminalizes parallel imports of copyrighted
products 15 months after their release anywhere in the world, but
maintains civil penalties. It retains the existing scope of the law
defining an offence as possession of an infringing copy of computer
programs, movies, TV dramas, musical recordings (including visual
and sound recordings) for use in business. This criminal liability
applies equally to individuals and business organizations. The
possession of an infringing copy of other categories of works for
use in one's business will not attract criminal liability but may
incur civil liability. In addition, in 2008 the Hong Kong
Government established a tripartite forum -- composed of copyright
owners, online service providers and content users -- to create a
voluntary framework governing IPR protection in the digital realm.



26. The Patent Ordinance allows for granting of an independent
patent in Hong Kong based on the patents granted by the UK and the
Chinese Patent Offices. The patent granted in Hong Kong is
independent and capable of being tested for validity, rectified,
amended, revoked and enforced in Hong Kong courts.

The Registered Design Ordinance is modeled on the EU design
registration system, with certain modifications. To be registered,
a design must be new. The system requires no substantive
examination. Protection is for an initial period of five years, and
may be extended for four periods of five years each, up to a maximum
of 25 years.


27. Hong Kong's trademark law is TRIPS-compatible and allows for
registration of trademarks relating to services. All trademark
registrations originally filed in Hong Kong are valid for seven
years and renewable for 14-year periods. Proprietors of trademarks
registered elsewhere must apply anew and satisfy all requirements of
Hong Kong law. When evidence of use is required, such use must have
been in Hong Kong.


28. Hong Kong has no specific ordinance to cover trade secrets.
Under the Trade Description Ordinance, however, the Government has
the duty to protect information being disclosed to other parties.
The Trade Description Ordinance prohibits false trade descriptions,
forged trademarks and misstatements in respect of goods supplied in
the course of trade.

Transparency of Regulatory System
--------------


29. Hong Kong's body of law and regulation recognizes the value of
competition in economic endeavor. Tax, labor, health and safety and
other laws and policies avoid distortions or impediments to the
efficient mobilization and allocation of investment. Bureaucratic
procedures and "red tape" are held to a minimum and are equally
transparent to local and foreign investors. Hong Kong does not have
an anti-trust law. Hong Kong has, however, set up a Competition
Policy Review Committee that issued recommendations in June 2006.
These recommendations included a call for legislation to regulate
price-fixing, bid-rigging, market allocation, sales and production
quotas, joint boycotts, unfair or discriminatory standards and the
abuse of dominant market position. The government held a public
consultation period, which ended on February 5, 2007.


30. The government plans to provide the details of its proposed
competition policy legislation for public discussion and scrutiny,
before introducing the bill in the 2008-09 legislative session.
Currently, only the telecommunications and, to a lesser degree, the
broadcasting sectors have competition regulations in place. Certain
sectors of the economy are dominated by monopolies or cartels, not
all of which are regulated by the Hong Kong Government. These
entities do not discriminate against U.S. goods or services, but
they can use their market position to block effective competition.

Efficient Capital Markets and Portfolio Investment
-------------- --------------


31. There are no impediments to the free flow of financial
resources. Non-interventionist economic policies, complete freedom
of capital movement and a well-understood regulatory and legal
environment have greatly facilitated Hong Kong's role as a regional
and international financial center. Hong Kong has one of the most
active foreign exchange markets in Asia.


32. Hong Kong has a three-tier system of deposit-taking
institutions: licensed banks, restricted license banks, and
deposit-taking companies. Only licensed banks can offer current

HONG KONG 00000124 005 OF 011


(checking) or savings accounts. At the end of 2008, Hong Kong had
145 licensed banks, 27 restricted licensed banks, 28 deposit-taking
institutions, and 71 representative offices. The Hong Kong &
Shanghai Banking Corporation (HSBC) is Hong Kong's largest banking
group. With its majority-owned subsidiary Hang Seng Bank, and 188
branches, the group controls more than 29.1 percent of Hong Kong
dollar deposits. The Bank of China (Hong Kong) is the
second-largest banking group (217 branches),and controls 13.5
percent of Hong Kong dollar deposits. Thirty-five American
"authorized financial institutions" operate in Hong Kong. U.S.
banks licensed in Hong Kong are listed in Chapter 7 - U.S. Banks and
Local Correspondent Banks. Most banks in Hong Kong maintain U.S.
correspondent relationships.


33. Hong Kong's five largest banks, in terms of total assets
(2007),are as follows:

Rank Institution Total Assets (US$ Billion)

1 Hong Kong & Shanghai Banking Corp (HSBC) 506.7

2 Bank of China (Hong Kong) 136.9

3 Hang Seng Bank Ltd. 95.6

4 Standard Charter Bank, Hong Kong Branch 61.8

5 Bank of East Asia, Ltd. 50.5

Sources: Companies' annual reports


34. Credit in Hong Kong is allocated strictly on market terms and
is available to foreign investors on a non-discriminatory basis.
The private sector has access to the full spectrum of credit
instruments as provided by Hong Kong's banking and financial system.
Legal, regulatory, and accounting systems are transparent and
consistent with international norms. The Hong Kong Monetary
Authority (HKMA) functions as a de facto central bank. It is
responsible for maintaining the stability of the banking system and
managing the Exchange Fund backing Hong Kong's currency. The HKMA,
with the assistance of the banking sector, has upgraded Hong Kong's
financial market infrastructure. Real Time Gross Settlement helps
minimize risks in the payment system and brings Hong Kong in line
with international standards.


35. The Hong Kong Mortgage Corporation (HKMC) promotes the
development of the secondary mortgage market in Hong Kong. The HKMC
is 100 percent owned by the Government through the Exchange Fund.
The HKMC purchases residential mortgage loans for its own retained
portfolio and also repackages mortgages into mortgage-backed
securities for sale. In August 2008 (the latest figures available),
the HKMC's outstanding amount of debt totaled US$ 5.1 billion.


36. On September 26, 2006, a Deposit Protection Scheme (DPS) began
operations. Depositors are now protected up to a maximum of
HK$100,000 (US$12,820) per bank. As a result of the global
financial crisis in late 2008, the Hong Kong Government announced
the use of the Exchange Fund to guarantee the repayment of all
customer deposits in Hong Kong-dollars and foreign-currency held
with licensed banks, restricted license banks, and deposit-taking
companies, including Hong Kong branches of overseas institutions.
The measure will remain in force until the end of 2010. The DPS Fund
(funded by contributions paid by member banks) amounted to US$42.1
million at the end of March 2008, and is expected to reach the
target amount of US$ 166.7 million by 2010. While Hong Kong
requires locally licensed banks to participate,
overseas-incorporated banks may apply for an exemption if a
comparable scheme in their home jurisdiction covers deposits taken
in by its Hong Kong branches.


37. In 2004, the Hong Kong Monetary Authority (HKMA) and Dun &
Bradstreet (HK) Ltd. (D&B) jointly launched a Commercial Credit
Reference Agency (CCRA) to collate information about the
indebtedness and credit history of small and medium-sized
enterprises (SMEs) and make such information available to members of
the Hong Kong Association of Banks (HKAB) and the Hong Kong
Association of Deposit Taking Companies.


38. Under the Insurance Companies Ordinance, insurance companies
are authorized by the Insurance Authority to transact business in
Hong Kong. Hong Kong has the highest number of authorized insurance
companies in Asia. As of December 2008, there were 175 authorized
companies. Of these, 83 were foreign companies from 21 countries,
and 2 were mainland Chinese enterprises. A number of the world's
top insurance companies in terms of assets have branch offices or

HONG KONG 00000124 006 OF 011


subsidiaries in Hong Kong.


39. Hong Kong's total market capitalization fell by 50 percent
during 2008 to US$1.3 trillion, with 1,087 listed firms as of
year-end 2008. Despite the sharp drop, Hong Kong's stock exchange
still ranked third in Asia after Tokyo and Shanghai, and seventh in
the world in terms of capitalization. Hong Kong Exchanges and
Clearing Limited (HKEx),a listed company, operates the stock and
futures exchanges. The Securities and Futures Commission, an
independent statutory body outside the civil service, has licensing
and supervisory powers to ensure the integrity of markets and
protection of investors.


40. In April 2003, the Government implemented a major modernization
of the legal framework for Hong Kong's securities market designed to
upgrade transparency and corporate governance, boost regulators'
enforcement powers, and improve investor protections. To enhance
market competitiveness, HKEx in the same month removed the rule on
minimum brokerage commission rates for stock and futures
transactions.


41. No discriminatory legal constraints exist for foreign
securities firms establishing in Hong Kong via branching,
acquisition, or subsidiaries. In practice, foreign firms typically
establish in Hong Kong as subsidiaries. Rules governing operations
are the same, irrespective of ownership. Portfolio investment
decisions are left to the private sector. No laws or regulations
specifically authorize private firms to adopt articles of
incorporation/association that limit or prohibit foreign investment,
participation, or control.


42. The stock exchange plays a significant role in raising capital
for Chinese state-owned enterprises. Chinese state enterprises
raise equity (through the issuance of so-called "H" shares) in Hong
Kong provided they meet Hong Kong regulatory and accounting
requirements. These "H" shares are denominated in Renminbi, but
must be purchased in Hong Kong Dollars. In 2008, a total of 150
Chinese enterprises had "H" share listings on the stock exchange,
with market capitalization of US$ 350.2 billion.


43. Hong Kong has made a concerted effort to develop a local debt
market with the Exchange Fund bills and notes program. Maturities
now extend to ten years. Hong Kong Dollar debt (public and private)
has increased gradually, from US$ 3.46 billion at the end of 1989 to
US$ 98 billion by the end of 2007, and declined to US$92.0 billion
by September 2008. Regional infrastructure financing requirements
and increasing investor demand are projected to stimulate further
development of the local debt market. In May 2004, for the first
time, Hong Kong issued bonds securitizing the revenues from
Government tunnels and bridges. In June 2004, the governmental Hong
Kong Mortgage Corporation established a US$ 2.6 billion retail bond
program. In July 2004, the Hong Kong Government issued its first
sovereign bonds totaling US$ 2.6 billion to raise cash for its
public works program.


44. The Hong Kong Government requires workers nd employers to
contribute to retirement funds uder the Mandatory Provident Fund
(MPF) scheme. Contributions are expected to channel US$ 3-4 billion
per year into various investment vehicles. By the end of September
2008, the net asset values of MPF funds amounted to US$28.7 billion.
Like other investments, the performance of MPF funds has also been
affected by recent global economic turmoil.


45. The Exchange Fund Investment Limited (EFIL),established by the
Government to dispose of the stock portfolio it purchased during the
Asian Financial Crisis, completed its operations in January 2003.
EFIL disposed of the stocks in the form of a mutual fund, the
Tracker Fund of Hong Kong (TraHK). The Government decided to retain
a portion of the stocks (worth about US$ 410 million) as a long-term
investment. The HKMA is responsible for the management of these
stocks. TraHK is traded on the stock exchange.

Political Violence
--------------


46. Hong Kong is politically stable. Demonstrations are almost
always peaceful. The U.S. Consulate General is not aware of any
recent incidents involving politically motivated damage to projects
or installations.

Corruption
--------------


47. Hong Kong has an excellent track record in combating
corruption. U.S. firms have not identified corruption as an

HONG KONG 00000124 007 OF 011


obstacle to foreign direct investment. The Independent Commission
Against Corruption (ICAC) is responsible for combating corruption.
The ICAC is independent of the public service and the ICAC
Commissioner is responsible directly to the Chief Executive. A
bribe to a foreign official is a criminal act, as is the giving or
accepting of bribes, for both private individuals and government
employees. Penalties are stiff. For example, a civil servant who
solicits or accepts any advantage without special permission of the
Government can receive one year's imprisonment and a HK$100,000 fine
if convicted. Individuals in both the private and public sector can
receive up to seven years imprisonment and a HK$500,000 fine for
offering, soliciting or accepting a benefit for performance or
non-performance of an official duty.

Bilateral Investment Agreements
--------------


48. Hong Kong is negotiating a series of bilateral investment
agreements -- the Hong Kong Government calls them "Investment
Promotion and Protection Agreements" -- with major foreign
investors. To date, Hong Kong has signed agreements with Australia,
Austria, Belgo-Luxembourg Economic Union, Denmark, France, Germany,
Italy, Japan, Korea, the Netherlands, New Zealand, Sweden,
Switzerland, Thailand and the United Kingdom. The Hong Kong
Government has initialed agreements with Canada and Vietnam. It is
negotiating an agreement with Singapore. All such agreements are
based on a model text approved by mainland China through the
Sino-British Joint Liaison Group. The United States and Hong Kong
held talks on a bilateral investment agreement in the late 1990s,
but certain differences could not be resolved and negotiations were
suspended. U.S. firms, however, are generally not at a competitive
or legal disadvantage, since Hong Kong's market is open and its
legal system impartial.

OPIC and Other Investment Insurance Programs
--------------


49. Overseas Private Investment Corporation (OPIC) coverage is not
available in Hong Kong. Hong Kong is a member of the World Bank
Group's Multilateral Investment Guarantee Agency (MIGA).

Labor
--------------


50. In the 1980s and much of the 1990s, Hong Kong's unemployment
rate hovered around two percent. Reflecting structural changes in
the local economy and weak global economic conditions, the
unemployment rate rose to a record level of 8.3 percent in May 2003.
The job market has improved gradually since then, with the
unemployment rate standing at 3.4 percent by the end of 2007. With
the adverse effect of the financial turmoil of late 2008 and early
2009, Hong Kong's unemployment rate rose to 4.1 percent by the end
of December 2008. The Employees Retraining Board provides skills
retraining for local employees to cope with ongoing structural
change in the economy.


51. To address a shortage of highly skilled technical and financial
professionals, the Hong Kong Government has made efforts to attract
qualified foreign and mainland Chinese workers. As of July 2003,
conditions for admitting mainland Chinese for employment were eased
and aligned with those applicable to foreign nationals.


52. In 2007, membership in Hong Kong's 731 registered unions
totaled 686,371, a participation rate of about 21.1 percent. Hong
Kong has implemented 41 conventions of the International Labor
Organization in full and 18 others with modifications.


53. Local law provides for the right of association and the right
of workers to establish and join organizations of their own
choosing. The government does not discourage or impede the
formation of unions. Workers who allege discrimination against
unions have the right to have their cases heard by the Labor
Relations Tribunal. Although legislation does not prohibit strikes,
in practice most workers must sign employment contracts that state
that walking off the job is a breach of contract and can lead to
summary dismissal. Collective bargaining is legal in Hong Kong, but
there is no obligation on employers to engage in it. In practice,
collective bargaining is not widely used. For more information on
labor regulations in Hong Kong, please check the following website:
http://www.labour.gov.hk/eng/legislat/content A.htm (click on
Chapter 57 "Employment Ordinance").

Foreign-Trade Zones/Free Ports
--------------


HONG KONG 00000124 008 OF 011



54. Hong Kong is a free port without foreign trade zones. Hong
Kong's modern and efficient infrastructure supports Hong Kong's role
as a trade entrepot and regional financial and services center.
Rapid growth has placed severe demands on that infrastructure,
giving rise to plans for major new investments, particularly in
transportation and shipping facilities, over the next few years.
Significant elements include a planned expansion of container
terminal facilities, additional roadway and railway networks, major
residential/commercial developments, community facilities,
environmental protection projects, and redevelopment of the old
KaiTak Airport The Hong Kong Government is planning to spend over
USD 13 billion in the next decade on redeveloping the old Kai-Tak
Airport into a modern green zone that contains government offices,
public housing, commercial centers and cruise terminals.


55. Airport: During the twelve months ending November 2008, Hong
Kong's international airport at Chek Lap Kok handled daily an
average of 828 flights, 133,726 passengers, and more than 10,197
tons of cargo. Seventy-nine international airlines operated some
5,500 scheduled flights per week between Hong Kong and 150 cities
around the world. Hong Kong is a major gateway to mainland China.
There are direct flights from Hong Kong to nearly forty Mainland
cities. The demand for services to mainland China is growing. The
Hong Kong airport is in the world's top ranks in terms of passenger
and cargo throughput.


56. With 24-hour operations, two all-weather runways, an ability to
cater to all types of commercial aircraft, and high-speed transport
links from the terminal to the city, the airport is well positioned
to meet Hong Kong's aviation needs in the coming decades.


57. The airport has a multi-modal marine cargo terminal that
provides vessel services between various ports in the Pearl River
Delta and the airport. To strengthen Hong Kong's position as the
economic gateway of mainland China and Asia and to boost revenues,
the Airport Authority (AA) has built "SkyCity", which includes a
world-class exhibition center, Asia World-Expo; SkyPlaza, an office
and retail complex; SkyPier, a cross-boundary ferry terminal; and a
nine-hole golf course. In September 2008, Cathay Pacific Airways
started to build the airport's third cargo terminal under a 20-year
franchise agreement with the AA. Cathay Pacific will invest USD 615
million into the facility, which will occupy 10 hectares in the
airport's cargo area. The new terminal was initially expected to be
completed by the second half of 2011, but in January 2009, Cathay
announced it would delay completion for up to two years in response
to falling cargo traffic resulting from the global economic
slowdown. When complete, the facility will have a handling capacity
of 2.6 million tons.


58. The organization responsible for safety oversight, the Civil
Aviation Department, plans to introduce satellite-based
Communications, Navigation, Surveillance/Air Traffic Management
(CNS/ATM) Systems. The new equipment will enhance flight safety and
efficiency as well as maintain Hong Kong's status as a center of
international and regional aviation. The project will take 15
years.


59. Shipping and Port Activities: Hong Kong enjoys one of the best
natural deep-water ports on the Chinese coast. With continued high
economic growth and industrialization in mainland China, the
development of deep-water ports at Yantian and Gaolan in southern
China should complement Hong Kong's facilities over the medium term.
Over the longer term, the Hong Kong port will face increased
competition from those ports and from Shanghai, which are improving
their service efficiency.


60. Hong Kong's container port is one of the world's busiest. In
the first eleven months of 2008, Hong Kong's nine privately-operated
container terminals and mid-stream operators handled 22.51 million
twenty-foot equivalent units (TEUs) of cargo. Some 80 international
shipping lines are providing over 460 container liner services per
week connecting to over 500 destinations worldwide.


61. Hong Kong's container terminals handling capacity is 18 million
twenty-foot equivalent units (TEUs) a year, which will be able to
cope with the forecast growth in demand to the end of this decade.
The container terminals handle about 73 percent of the port's total
throughput. The river trade terminal, mid-stream operators and
other facilities handle the remaining 27 percent. The Hong Kong
Government commissioned a study on "Hong Kong Port - Master Plan
2020" to formulate a competitive, sustainable strategy and master
plan for Hong Kong's port development, including the location of a
new container terminal and related infrastructure, for the coming
twenty years. The study has been presented to industry and the
Legislative Council for consultation. Taking into account the

HONG KONG 00000124 009 OF 011


comments received, the Government is working out an action plan to
implement the recommendations of the study. In particular, the
Government commissioned consultants to work out the optimal timing
for the construction of Container Terminal 10 and to conduct an
ecology study on Northwest Lantau Island to decide whether it is
environmentally suitable for development of a container terminal.


62. In 2008, the Government concluded that an extensive reclamation
is required for the site at Northwest Lantau Island, which may
affect the ecological environment. The government has identified an
alternative site at Southwest Tsing Yi Island and will undertake a
feasibility study. Although this site will require the relocation
of the existing oil depot, it can achieve synergy with the container
terminals in Kwai Chung and Tsing Yi.


63. Roads and Railroads: Hong Kong's roads have one of the highest
vehicle densities in the world. In September 2008, 575,000 licensed
vehicles navigated about 2,034 kilometers of roads, or 282 vehicles
per kilometer of road. This high density, combined with difficult
terrain and high density building development, poses a constant
challenge to transport planning, road construction and maintenance.
To cope with worsening traffic congestion, largely due to the rapid
growth in the number of private cars, the Highways Department has
launched an extensive road construction program. The Highways
Department has budgeted US$ 5.4 billion for road projects between
2005/2006 and 2010/2011. Hong Kong will also build a bridge from
the Western tip of Lantau Island to Macau and Zhuhai, paving the way
for accelerated development of the Western Pearl River Delta region.



64. Historically, two railway corporations managed Hong Kong's
metro and rail systems: the Mass Transit Railway Corporation (MTRC)
and the Kowloon-Canton Railway Corporation (KCRC). The two railway
companies merged on December 2, 2007. The integrated system is
operated and managed by MTRC, including nine lines of railway
network with a total length of over 200 kilometers.


65. Hong Kong is working on a massive expansion of its rail system.
Investment in Hong Kong's domestic and cross-boundary rail networks
in the next decade is expected to exceed in scale the US$ 20 billion
spent on the transportation facilities associated with the airport.
Most of the projects involve linking existing lines or creating
extensions to new points of interest. In his 2007-08 Policy
Address, Chief Executive Donald Tsang announced that Hong Kong will
push ahead with ten large-scale infrastructure projects, of which
three are rail networks including the South Island Line (an
extension of seven-kilometer rail to the South Island),the Sha Tin
to Central Link (connecting Northeast New Territories and Hong Kong
Island via East Kowloon),and the Guangzhou-Shenzhen-Hong Kong
Express Rail Link (a high-speed national rail network of 12,000
kilometers linking up major cities, with maximum train speeds of 200
to 300 kilometers per hour).

Foreign Direct Investment Statistics
--------------

Stock of Inward Foreign Direct Investment by Major Investor Country/
Territory, as at end of 2007.

Country US$ Billion % Share of Total
China 479.2 60.8
Netherlands 68.0 8.6
British Virgin Islands 50.7 6.4
Bermuda 43.0 5.5
United States 35.7 4.5
Japan 21.1 2.7
United Kingdom 17.2 2.2
Singapore 13.5 1.7
Cayman Islands 11.6 1.5
Taiwan 5.1 0.6
Others 42.9 5.4
TOTAL 788.1 100.0

Source: Hong Kong Census and Statistics Department
Note 1: Excluding inward direct investment from offshore financial
centers, which were originally from Hong Kong.
Note 2: US$1 = HK$7.8
Note 3: Total does not sum due to rounding.


Table 2: Stock of Inward Foreign Direct Investment by Major Economic
Activity, as of end of 2007.

Activity US$ Billion % of Total
Investment holdings, real estate

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and various business services 513.6 65.2
Banks and deposit-tasking companies 84.0 10.7
Wholesale, retail, import/export trades 80.8 10.3
Transport and related services 31.6 4.0
Financial institutions (non-banks) 24.8 3.1
Construction 13.7 1.7
Insurance 11.4 1.4
Manufacturing 8.9 1.1
Communications 5.0 0.6
Restaurants and hotels 2.4 0.3
Other activities 11.8 1.6
TOTAL 788.0 100.0

Source: Hong Kong Census and Statistics Department
Note 1: Excluding inward direct investment from offshore financial
centers, which were originally from Hong Kong.

Table 3: Stock of Outward Foreign Direct Investment by Major
Resident Country/ Territory, as at end of 2007.

Country US$ Billion % Share of Total
China 438.9 70.6
British Virgin Islands 104.0 16.7
Bermuda 10.9 1.8
United Kingdom 9.4 1.5
Singapore 7.3 1.2
Liberia 5.3 0.8
Thailand 4.9 0.8
Malaysia 4.4 0.7
United States 3.9 0.6
Cayman Islands 3.7 0.6
Others 29.0 4.7
TOTAL 621.7 100.0

Source: Hong Kong Census and Statistics Department

Note 1: Excluding outward direct investment of offshore financial
centers which were channeled back to Hong Kong.
Note 2: Total does not sum due to rounding.

Table 4: Stock of Outward Foreign Direct Investment by Major
Economic Activity, as of end of 2007.

Activity US$ Billion % of Total
Investment holdings, real estate
and various business services 448.4 72.1
Wholesale, retail, import/export trades 60.5 9.7
Banks and deposit-taking companies 30.0 4.8
Manufacturing 22.4 3.6
Transport and related services 15.5 2.5
Financial institutions (non-banks) 7.0 1.1
Restaurants and hotels 6.5 1.0
Insurance 6.3 1.0
Communications 2.7 0.4
Construction 2.5 0.4
Other activities 19.9 3.2
TOTAL 621.7 100.0

Source: Hong Kong Census and Statistics Department
Note 1: Excluding outward direct investment of offshore financial
centers that were channeled back to Hong Kong.
Note 2: Total does not sum due to rounding.

Table 5: Amount and Growth of U.S. Investment in Hong Kong in
2003-2007, in US$ Billions.

Year Amount Percent Change
2003 36.4 -9.7
2004 32.7 -10.2
2005 36.4 11.3
2006 41.0 12.6
2007 47.4 15.6

Source: U.S. Department of Commerce, Bureau of Economic analysis,
U.S. Direct Investment Position Abroad on a Historical Cost Basis.

Note 1: The U.S. Department of Commerce estimates the total U.S.
direct investment position in Hong Kong at historical cost (the book
value of U.S. direct investors' equity in, and net outstanding loans
to, their foreign affiliates).
Note 2: U.S. Department of Commerce statistics differ from HKG
statistics. Per Table 1 above, the latter indicates total U.S.
investments of US$ 35.7 billion at year-end 2007.
Note 3: Preliminary figures for 2007.


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Table 6: Hong Kong's Pledged and Actual Direct Investment in
mainland China in US$ Billions and Percent Share of Total Investment
in mainland China.

Year Amount Pledged Invested % Share of Total
2001 20.7 16.7 35.7
2002 25.2 17.9 33.9
2003 40.7 17.7 33.1
2004 50.1 19.0 31.3
2005 N.A. 18.0 29.8
2006 N.A. 20.2 32.1
2007 N.A. 27.7 37.1
1978-2007 N.A. 307.5 40.4

Source: PRC Ministry of Commerce.
Note: PRC Ministry of Commerce stopped reporting the pledged foreign
investment figures in December 2005.

Major Foreign Investor Firms:

United States: American International Group, AT&T, Bank of America,
Caltex, Citigroup, Coca-Cola, Compaq Computer, Dell, Disney,
ExxonMobil, Federal Express, Goldman Sachs, IBM, Isagenix Worldwide
LLC, JP Morgan Chase, Kodak, Merrill Lynch, Morgan Stanley,
Motorola, Pacific Waste Management, Pepsi.

Japan: C. Itoh, Citizen Watches, Daido Concrete, Hitachi, Jusco,
Kadokawa Intercontinental Publishing (Asia),Mitsubishi, NEC,
Nishimatsu, Nomura, Olympus, Uny.

United Kingdom: HSBC, Inchcape Pacific, Jardine Matheson, Lloyds, P
& O Shipping, Standard Chartered Bank, Swire Pacific Group.

Continental Europe: Asea Brown Boveri, Bachy-Soletanches, Banque
Indosuez, Banque National de Paris, Bouygues/Dragages, Carlsberg,
Cartier, Chanel, Christian Dior, Electrolux, Ericsson, Heraeus, Hong
Kong Petrochemicals (Italian/Korean/Chinese joint venture),Lotto
Sport Italia, Philips, Refratechnik, Remy, Siemens, Tetrapak.

Mainland China: Bank of China (Hong Kong),Beijing Enterprises,
China Construction Bank Corporation, China Everbright, China
Investment and Trust Corporation (CITIC),China Life Insurance,
China Merchants, China Mobile, China National Offshore Oil
Corporation (CNOOC),China National Petroleum Corporation, China
Ocean Shipping Co (COSCO),China Overseas Construction, China
Resources, China Travel Services, China Unicom, Guangdong
Enterprises, Lenovo Group, Petro China, Shanghai Industrial, Yue Xiu
Enterprises, Industrial and Commercial Bank of China (Asia).

Asia: Allahabad Bank, C.P. Pokphand, First Pacific Group, LG, Lippo
Group, News Corp., Park View Properties, Pioneer, San Miguel
Brewery, Shangri-la/Kerry Trading, Sime Darby, UTI Bank.

Web Resources
--------------

Hong Kong Census and Statistics Department:
http://www.censtatd.gov.hk
Hong Kong Monetary Authority: http://www.info.gov.hk/hkma/
Independent Commission Against Corruption: http://www.icac.org.hk/