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Both the number of regional headquarters and regional offices in Hong Kong reached all-time highs this year, demonstrating that international companies still see Hong Kong as the ideal base to oversee their regional operations. The number of local offices also recorded an increase.

Regional headquarters, regional offices and local offices in Hong Kong _________________________________________________________

As at June 1, 2004, there were 1 098 companies that were regional headquarters (RHQs) and 2 511 companies that were regional offices (ROs) in Hong Kong of companies incorporated outside Hong Kong, according to results of the 2004 Annual Survey of Regional Offices Representing Overseas Companies in Hong Kong conducted by the Census and Statistics Department. The 2004 survey results were released today (14 October). The corresponding numbers as at June 2, 2003 were 966 and 2 241 respectively.

The United States topped the list of countries/territories with companies having RHQs in Hong Kong. A total of 256 American companies had RHQs in Hong Kong in 2004. Next was Japan, with 198 companies, and the mainland of China, with 106 companies.

The major line of business of the RHQs in Hong Kong was wholesale, retail and import/export trades. Other major lines of business included business services, transport and related services, finance and banking and manufacturing.

As in the case of RHQs, the United States also topped the list of countries/territories with companies having ROs in Hong Kong. A total of 557 American companies had ROs in Hong Kong in 2004. Japan followed, with 515 companies, and then came the United Kingdom, with 211 companies.

The major lines of business of the ROs in Hong Kong were wholesale, retail and import/export trades and business services.

For the purpose of the Survey, a regional headquarters (RHQ) is an office that has control over the operations of offices in the region (i.e. Hong Kong plus one or more other places), and manages the business without frequent referrals to its parent company outside Hong Kong.

A regional office (RO) is an office that coordinates offices/operations in the region (i.e. Hong Kong plus one or more other places), and manages the business but with frequent referrals to its parent company outside Hong Kong or its regional headquarters.

The 2004 Survey is the fifth one of its kind conducted by the Census and Statistics Department. The previous surveys were conducted by the ex-Industry Department on an annual basis beginning in 1990.

As from 2001, the coverage of the Survey has been extended to include local offices (LOs) in Hong Kong of companies incorporated outside Hong Kong.

According to the Survey, there were 2 334 LOs in Hong Kong of companies incorporated outside Hong Kong as at 1 June 2004. The corresponding number as at 2 June 2003 was 2 207.

A local office (LO) is an office that solely takes charge of the business in Hong Kong on behalf of its parent company outside Hong Kong.

Japan topped the list of countries/territories with companies having LOs in Hong Kong. A total of 402 Japanese companies had LOs in Hong Kong in 2004. The United States was next, with 401 companies, followed by the mainland of China, with 373 companies.

The major lines of business of the LOs in Hong Kong were also wholesale, retail and import/export trades; and business services.

Views of regional headquarters and regional offices ___________________________________________________

The Survey collected views on Hong Kong as a location for setting up RHQ/ROs from the RHQs and ROs in Hong Kong.

Among the factors affecting the choice of location for setting up RHQ/ROs, free flow of information was considered as the most important factor. Other important factors, in descending order of importance, included low and simple tax system; corruption free government; and absence of exchange controls. All these important factors were rated by over 60% of the companies to be favourable factors for Hong Kong as a location for setting up RHQ/ROs.

Among these factors, the low and simple tax system was regarded by the largest proportion (75%) of companies as a favourable factor for Hong Kong. Other favourable factors, in descending order of Hong Kong's favourableness rating, included free flow of information (73%); absence of exchange controls (72%); communication, transport and other infrastructure (71%); free port status (69%); geographical location (66%); corruption free government (64%); availability of business and professional support services (64%); business opportunity in the mainland of China (63%); and availability of financial services (63%).

On the other hand, cost and availability of residential accommodation and cost and availability of business accommodation were regarded by the largest proportions (33% and 26% respectively) of companies as unfavourable factors for Hong Kong, as against 16% and 22% respectively of companies regarding them as favourable factors for Hong Kong.

About 50% of the companies considered that, compared with a year ago, the overall business environment in Hong Kong as a location for setting up RHQ/ROs had remained more or less the same, and another 29% considered that the overall business environment had improved.

Views of local offices

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As from 2004, the Survey also collected views on Hong Kong as a location for setting up LOs from the LOs in Hong Kong.

Among the factors affecting the choice of location for setting up LOs, low and simple tax system was considered as the most important factor. Other important factors, in descending order of importance, included free flow of information; corruption free government; and absence of exchange controls. All these important factors were rated by over 60% of the companies to be favourable factors for Hong Kong as a location for setting up LOs.

Among these factors, the low and simple tax system was regarded by the largest proportion (70%) of companies as a favourable factor for Hong Kong. Other favourable factors, in descending order of Hong Kong's favourableness rating, included absence of exchange controls (66%); free flow of information (66%); free port status (63%); communication, transport and other infrastructure (63%); and corruption free government (60%).

On the other hand, cost and availability of residential accommodation; and cost and availability of business accommodation were regarded by the largest proportions (27% and 23% respectively) of companies as unfavourable factors for Hong Kong, as against 16% and 22% respectively of companies regarding them as favourable factors for Hong Kong.

About 47% of the companies considered that, compared with a year ago, the overall business environment in Hong Kong as a location for setting up LOs had remained more or less the same, and another 31% considered that the overall business environment had improved.

Commentary

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The Director-General of Investment Promotion at Invest Hong Kong, Mike Rowse, was glad to see the results of the survey. He said, "It is encouraging that Hong Kong remains international businesses' preferred location to manage their regional operations. The figures reflect that our city continues to attract investors from traditional markets, including the US and Japan. The results also tell us that Hong Kong's traditional advantages -- including a simple and low tax regime, absence of exchange controls and free flow of information -- keep Hong Kong competitive among neighbouring markets in Asia."

"From our investment promotion work, we notice a trend of Mainland enterprises setting up operations in Hong Kong as a springboard to expand overseas. The new investment facilitation policy announced by the Ministry of Commerce will encourage more Mainland enterprises to invest in Hong Kong. On the other hand, foreign companies also make use of Hong Kong as the gateway to access the growing Mainland market. The importance of Hong Kong as a two-way platform will continue to grow. We also expect to see the initial effect brought along by CEPA in the next 12 months, with foreign investors forming or expanding their Hong Kong operations to enjoy the preferential treatment."

"As suggested in the recently announced World Investment Report, the outlook for inward investment in the region is positive, and Hong Kong is one of the strongest magnets for foreign direct investments in the region. We are working with many foreign and Mainland companies to establish and expand their operations in Hong Kong, and are expecting a 40% year-on-year increase in our investment projects this year," Mr Rowse added.

Further information

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The Survey was conducted to study RHQs, ROs and LOs in Hong Kong of companies incorporated outside Hong Kong. While the survey reference date was June 1, 2004, fieldwork of the Survey was mainly conducted within the two to three months thereafter.

As from 2001, the coverage of the Survey has been extended to include companies in Hong Kong that are LOs of companies incorporated outside Hong Kong.

Owing to the lack of a complete survey frame, the number of RHQs, ROs and LOs enumerated in each survey round represents only the best snapshot that could be taken at the time of the Survey. Coupled with the voluntary nature of the Survey, changes between years in the number of RHQs, ROs, and LOs may be affected by the continuous improvement in survey frame and response rate, and hence should be interpreted with care. Fortunately, with a response rate of 98% attained since the 2003 Survey, the effect of improvement in response rate has been under control.

The Survey only covers companies that manage the business in Hong Kong or in the region on behalf of their parent companies incorporated outside Hong Kong. It does not cover, for example, companies which are funded by investment from outside Hong Kong but manage the business in Hong Kong or in the region independently and not on behalf of the investors. Hence, the total number of RHQs, ROs and LOs in Hong Kong does not represent all companies with investment from outside Hong Kong.

More detailed results of the Survey are set out in the "Report on 2004 Annual Survey of Regional Offices Representing Overseas Companies in Hong Kong". This publication is now available, in both print version and download version (in PDF format), for sale at HK$30 and HK$22.5 respectively. It can be purchased online at the "Statistical Bookstore, Hong Kong" (http://www.statisticalbookstore.gov.hk), where purchasers can enjoy a special 25% discount from now until 31 October 2004. For purchase of print version, this can be done through mail order by returning a completed order form which can be downloaded from the C&SD's website (http://www.info.gov.hk/censtatd/eng/prod_serv/forms_index.html). Purchase can also be made in person at the Publications Unit of the C&SD (Address: 19/F, Wanchai Tower, 12 Harbour Road, Wan Chai; Tel.: 2582 3025).

Enquiries about the survey results may be directed to the Business Expectation Statistics Section of the Census and Statistics Department (Tel: 2805 6112).

Ends/Thursday, October 14, 2004

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