An increasing number of mainland enterprises are hoping, through investments in foreign countries, to utilise the good system environments of the host countries, avoid the saturated mainland market, obtain advanced technology and management expertise, and expand their international influence. When selecting a destination, the enterprises mainly consider the local natural conditions, economic environment, political factors and socio-cultural environment.
In 2011, PRC domestic investors directly invested in a total of 132 countries and regions around the world, with Asia, Europe and North America being the areas where the investment was most concentrated. Among these, Hong Kong has been favoured by mainland investors due to its open investment attraction policies.
Springboard to go global
Many multinationals need to consider the issue of site selection for their holding companies or regional holding companies, and the main factors in such a choice are the reduction of tax costs and risks.
Hong Kong’s tax system is favourable to the business operations of multinational corporations. Corporate profits tax is a mere 16.5%; the maximum personal income tax rate is 15%; there is unlimited carry-over of losses; there is no value-added tax, sales tax or capital gains tax; and there is no withholding tax on dividends or interest.
There is also “territorial concept” in the Hong Kong tax system; only income sourced in Hong Kong is taxed, global income is not taxed and there are no restrictions on the inward or outward flow of capital.
Furthermore, as an international financial centre, Hong Kong’s financial framework is sound and its money payment system is advanced, the free flow of capital and information is permitted and it has established an internationally recognised financial regulatory system.
Innovative business laws
Hong Kong has outstanding technical personnel, a mature high-tech product consumer market, a sound intellectual property protection system and a close relationship with mainland China. Accordingly, numerous technology enterprises have positioned Hong Kong as the base from which to develop their China and Asia-Pacific markets.
The government of the Hong Kong Special Administrative Region vigorously supports the development of high-tech, with relevant measures including: the allocation of HK$5 billion (US$640 million) to establish an Innovation and Technology Fund; the establishment of advanced infrastructure such as Hong Kong Science & Technology Parks and Cyberport; and the establishment of the Hong Kong Applied Science and Technology Research Institute and five research centres.
A good number of enterprises engaged in industrial production are using Hong Kong as a strategic centre to manage their regional production networks. Hong Kong is a duty-free free-trade port, making it extremely convenient for the import and export of industrial raw materials, production equipment, natural resources and other materials from and to mainland China.
Construction industry. It is forecast that the level of urbanisation in mainland China will reach 53.2% by 2020, and 72.9% by 2050. In the RMB4 trillion (US$630 million) economic stimulus plan unveiled in November 2008 by the central government, a large quantity of resources are allocated for infrastructure development. As governments and private organisations in Asian and Middle Eastern countries are investing vast amounts in the real estate industry, tourism industry and marine projects, opportunities will be available to the construction industry in the region.
Minerals and natural resources. Mineral and natural resource enterprises have been one of the fastest growing listing segments on the Stock Exchange of Hong Kong in recent years, accounting for about 15% of total market value. Numerous world leading resource enterprises have chosen Hong Kong as their sole market for listing and raising capital in Asia.
The new Listing Rules that came into effect on 3 June 2010 will affect listing applicants whose main business is the exploration for, and extraction of, natural resources. Existing listed issuers that participate in the acquisition of mineral or oil assets (i.e. acquisition that accounts for at least 25% of their existing business) will also be affected by the Listing Rules. All mining companies and listed issuers that publish information disclosing their mineral or oil reserves and available resources are now required to update the relevant information in their annual reports each year.
Mark Dickens, head of listings at Hong Kong Exchanges and Clearing has stated that the provisions of the new Listing Rules that apply to mining companies “provide clear guidelines for mining companies and listed issuers involved in the natural resource industry, informing them as to what data they are required to provide to investors and shareholders. We have adopted the widely recognised reporting rules and in future may adopt other rules, depending on circumstances. Whether it is an initial public offering or a material transaction by a company that is already listed, the mineral and oil asset data must be prepared by an independent expert.
“Furthermore, if such companies wish to satisfy listing qualifications, they must, in addition to having already discovered major resources, give an overview of the plan that they propose to implement for production. Once the market has gradually matured, we will reconsider whether to permit riskier early exploration enterprises to list.”
In 2010, Hong Kong’s Stock Exchange reformed its listing and capital raising rules, making it more convenient for resource-type shares to list and raise capital. There are more than 150 such companies listed in Hong Kong, with a total market value of close to US$380 billion. In the past 10 years, large and small resource companies from mainland China have fully utilised the convenient channel that Hong Kong presents, raising capital exceeding US$177 billion through IPOs. These companies include CNOOC, CNPC, Sinopec, China Coal, Jiangxi Copper, CHALCO, Zijin Mining, etc. A fair number of foreign companies have followed suit, using the same means to raise capital, including companies from Russia, Canada, Mongolia and Brazil.
Matt Hu is the head of North China investment promotion at InvestHK, a department of the Government of Hong Kong
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