Hong Kong and the United Kingdom have a long history together, which has led to a lot of commonality in the business environment that operates in both markets. We are like-minded on global free trade, and it is no surprise we both feature in the top 10 places in the world to do business.
With 40 years of reform and opening up of Mainland China, and through the recent development of the China-U.K. “golden era,” trade between the two countries has more than doubled.
The ease of doing business in the Mainland saw a rapid improvement in the last year, with the World Bank ranking China in 46th place, up from 78th last year. But even with this improving picture in Mainland China, Hong Kong continues to be more important than ever to U.K. businesses.
One-third of U.K. exports to the whole of China are to Hong Kong – but only 5% of total U.K. exports are to China, so there is clearly potential for growth. U.K. investment into China is almost wholly – 98% – to Hong Kong, and Hong Kong is one of the biggest investors in the U.K. The number of British companies opening an office in Hong Kong has also grown – up 15% in the last five years.
All of this bodes well for the Hong Kong-U.K. trade relationship going forward.
Room for growth
Both the British government and HKSAR have recognised that we can do better in the future.
As more British exporters look beyond Europe, Hong Kong is positioned well to facilitate even greater trade flows with Mainland China and the wider region. In a joint statement in March 2018, political commitments were made by both administrations to focus future trade on three areas: innovation, creativity and design, and the Belt and Road Initiative – including the Greater Bay Area.
In all of these areas we want to increase bilateral trade by continuing to promote the U.K. as the top European destination for Hong Kong and Mainland Chinese investment, the leading European partner for knowledge transfer, and through building research and development partnerships.
Working with partners InvestHK, Cyberport and the Hong Kong Science and Technology Park, we are seeking 40 established U.K. innovative businesses to expand into the region, using Hong Kong as a base. We are the partner country for the 2019 Business of Design Week and will be bringing a large U.K. design delegation to this global event, with around 100 British businesses expected to visit Hong Kong and the Greater Bay Area.
On the Belt and Road, we are looking to launch in Hong Kong in early 2019 the U.K.’s “Leading with Finance” offer. Put simply, the U.K. will provide up to £25 billion (HK$250 billion) in finance in Belt and Road countries to facilitate projects where there is at least 20% U.K. content. This finance can come in the form of loan guarantees, insurance policies, working capital and direct lending. A total of £4 billion of this finance is available in Hong Kong alone.
Investing in the U.K.
The U.K. is the third largest economy in Europe and fifth largest in the world, and the number one destination in Europe for foreign direct investment. Our financial centre is outward facing and innovative, facilitating regulatory frameworks which enable the growth of new technologies. It is also the first offshore RMB clearing centre after Hong Kong, and the leading Western centre for Islamic finance.
Investors score the U.K. highly for ease of doing business, transparent rules and independent regulators, access to talent with the largest labour force in the E.U., and excellent education with four of the top six universities. The U.K. has a favourable tax environment with corporation tax at 19%, with plans to further reduce to 17% by 2020.
There are generous tax reliefs for investors in start-ups, growth companies and social enterprises. These include Patent Box, which offers 10% corporation tax on profits from inventions patented in the U.K., and R&D tax reliefs, which reduce the cost by nearly half for SMEs and nearly a third for larger companies.
For any companies considering setting up or investing in the U.K., the DIT team in Hong Kong can support with information about doing business in the country.
Accessing U.K. Funds
U.K. Export Finance (UKEF), the United Kingdom’s export credit agency, can help companies and investors access financing when buying from the U.K.
UKEF has a capacity of up to £4 billion (HK$40 billion) to support private and public sector buyers in Hong Kong doing business with U.K. suppliers, available in the form of guarantees on bank loans – including in Hong Kong dollars and RMB – as well as loans directly from the U.K. government. UKEF has flexible content requirements, long repayment terms and the ability to support tailored structures including project finance