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Hong Kong continues to be the preferred base for international companies to oversee their regional operations. The number of regional operations and local offices in Hong Kong operated by overseas and Mainland companies reached its highest-ever level this year.
The Census and Statistics Department (C&SD) today (September 26) released the results of the 2006 Annual Survey of Companies in Hong Kong Representing Parent Companies Located outside Hong Kong.
Regional headquarters, regional offices and local offices in Hong Kong
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According to the Annual Survey of Companies in Hong Kong Representing Parent Companies Located outside Hong Kong (the Survey) conducted by C&SD for 2006, there were 1,228 regional headquarters (RHQs), 2,617 regional offices (ROs) and 2,509 local offices (LOs) in Hong Kong representing their parent companies located outside Hong Kong as at June 1.
The US topped the list of countries/territories with companies having RHQs in Hong Kong. In 2006, a total of 295 RHQs in Hong Kong represented their American parent companies. This was followed by Japan, with 212 companies, and the United Kingdom, with 114 companies.
The major lines of business of the RHQs in Hong Kong were wholesale, retail and import/export trades; business services; and transport and related services.
As in the case of RHQs, the United States of America also topped the list of countries/territories with companies having ROs in Hong Kong. In 2006, a total of 594 ROs in Hong Kong represented their American parent companies. This was followed by Japan, with 519 companies, and the United Kingdom, with 223 companies.
The major lines of business of the ROs in Hong Kong were wholesale, retail and import/export trades; business services; and finance and banking.
The Mainland topped the list of countries/territories with companies having LOs in Hong Kong. In 2006, a total of 449 LOs in Hong Kong represented their parent companies in the Mainland. This was followed by Japan, with 437 companies, and the United States of America, with 391 companies.
The major lines of business of the LOs in Hong Kong were wholesale, retail and import/export trades; business services; and finance and banking.
For the purpose of the Survey, a regional headquarters (RHQ) is an office that has managerial control over offices in the region (i.e. Hong Kong plus one or more other places) on behalf of its parent company located outside Hong Kong.
A regional office (RO) is an office that coordinates offices and/or operations in the region (i.e., Hong Kong plus one or more other places) on behalf of its parent company located outside Hong Kong.
A local office (LO) is an office that only takes charge of the business in Hong Kong (but nowhere else) on behalf of its parent company located outside Hong Kong.
The 2006 Survey is the seventh of its kind conducted by C&SD. The previous surveys were conducted by the ex-Industry Department on an annual basis starting from the early 1990s.
Views of regional headquarters and regional offices
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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, 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 RHQ/ROs.
Among these factors, low and simple tax system was regarded by the majority of the companies (71%) as a favourable factor for Hong Kong. Other favourable factors, in descending order of Hong Kong¡¦s favourableness rating, included free flow of information (69%); absence of exchange controls (69%); communication, transport and other infrastructure (67%); free port status (66%); corruption free government (66%); geographical location (64%); availability of business services and professional support services (63%); rule of law and independent judiciary (61%); political stability and security (61%); and availability of financial services (60%).
On the other hand, availability and cost of residential accommodation; and availability and cost of business accommodation were regarded by relatively larger proportions of the companies (33% and 32% respectively) as unfavourable factors for Hong Kong, while 14% and 16% respectively of the companies regarded them as favourable factors for Hong Kong.
About 50% of the companies considered that, comparing June 2006 with June 2005, the overall business environment in Hong Kong as a location for setting up RHQ/ROs remained more or less the same, and another 30% considered that the overall business environment had improved. About 55% of the companies indicated that the above views were not affected or were just slightly affected by the "Mainland and Hong Kong Closer Economic Partnership Arrangement" implemented since January 2004 (CEPA), and another 28% indicated that the above views were affected to some extent.
About 76% of the companies indicated that their investment activities were not affected by CEPA. On the other hand, about 10% of the companies indicated that their investment activities were affected by CEPA, and the most common effect was the setting up of new business expansion plans (8%).
Views of local offices
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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 corruption free government, free flow of information, 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, low and simple tax system was regarded by the majority of the companies (70%) as a favourable factor for Hong Kong. Other favourable factors, in descending order of Hong Kong's favourableness rating, included free flow of information (67%); absence of exchange controls (67%); corruption free government (65%); free port status (63%); communication, transport and other infrastructure (63%); and availability of business services and professional support services (60%).
On the other hand, availability and cost of business accommodation; and availability and cost of residential accommodation were regarded by relatively larger proportions of the companies (31% and 31% respectively) as unfavourable factors for Hong Kong, while 18% and 14% respectively of the companies regarded them as favourable factors for Hong Kong.
About 47% of the companies considered that, comparing June 2006 with June 2005, the overall business environment in Hong Kong as a location for setting up LOs remained more or less the same, and another 34% considered that the overall business environment had improved. About 53% of the companies indicated that the above views were not affected or were just slightly affected by CEPA, and another 28% indicated that the above views were affected to some extent.
About 78% of the companies indicated that their investment activities were not affected by CEPA. On the other hand, about 8% of the companies indicated that their investment activities were affected by CEPA, and the most common effect was the setting up of new business expansion plans (6%).
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Commentary
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The Director-General of Investment Promotion at Invest Hong Kong, Mike Rowse, commented on the results of the survey. "With the increased number of regional operations during the past year, Hong Kong now is host to over 6 300 overseas and Mainland companies. We are pleased with the overall results, which show that international businesses continue to prefer managing their regional operations from Hong Kong.
"In line with the trend observed in recent years, the report indicates that investors from traditional markets, including the US, Japan and the UK, continue to see Hong Kong as the key strategic location to manage regional businesses. At the same time, Mainland companies continue to be the largest source of local offices in Hong Kong.
"The results demonstrate that Hong Kong's traditional advantages ¡V including a low and simple tax system, free flow of information, corruption free government and absence of exchange controls ¡V are the most important reasons for investors choosing Hong Kong for the location of their regional operations. However, we cannot be complacent. We are well aware of the keen competition for investment in the region, and the need to continue to improve the business environment in Hong Kong to retain our leading position.
"The report provides us with valuable information to help understand the determining factors for investors in selecting their business locations, as well as regarding their main issues of concern. We are committed to address these issues at different levels within the Government, and will continue to work closely with the international business community to facilitate their business operations in Hong Kong," Mr Rowse added.
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Further information
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The Survey was conducted to enumerate RHQs, ROs and LOs in Hong Kong representing their parent companies located outside Hong Kong. While the survey reference date was June 1, 2006, fieldwork of the Survey was mainly conducted in the three months thereafter.
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% or above attained since the 2003 Survey, the effect of response rate has been under control.
The definitions of RHQ, RO and LO have been revised as from the 2006 Survey to enhance the clarity of description. It should therefore be noted that figures for RHQ, RO and LO for 2006 may not be strictly comparable with those before 2006.
The survey only covers companies that manage the business in Hong Kong or in the region on behalf of their parent companies located outside Hong Kong. It does not cover, for example, companies which are funded by investment from outside Hong Kong and manage the business in Hong Kong or in the region independently but 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 2006 Annual Survey of Companies in Hong Kong Representing Parent Companies Located outside Hong Kong". Users can download this publication free of charge at the "Statistical Bookstore, Hong Kong" (www.statisticalbookstore.gov.hk) of C&SD. Print version of this publication is available for sale at $32. It can be purchased in person at the Publications Unit of the C&SD (Address: 19/F Wanchai Tower, 12 Harbour Road, Wan Chai; Tel: 2582 3025), or through mail order by completing and returning an order form which can be downloaded from the C&SD's website (http://www.censtatd.gov.hk/products_and_services/other_services/provision_of_stat/mail_ordering_of_publications/index.jsp), or online at the Statistical Bookstore and the Government Bookstore of the Information Services Department (www.isd.gov.hk/eng/bookorder.htm). Print versions if purchased online are offered at 85% of their original prices.
Enquiries about the survey results may be directed to the Business Expectation Statistics Section of the C&SD (Tel: 2805 6112).
Ends/Tuesday, September 26, 2006
Issued at HKT 11:25
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