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Cablegate: 2010 Investment Climate Statement for Hong Kong

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RR RUEHWEB

DE RUEHHK #0080/01 0140942
ZNR UUUUU ZZH
R 140942Z JAN 10
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 9388
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS HONG KONG 000080

SIPDIS

STATE FOR EAP/CM AND EB/IFD/OIA

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD KTDB OPIC USTR HK CH
SUBJECT: 2010 INVESTMENT CLIMATE STATEMENT FOR HONG KONG

REF: 09 STATE 124006

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

1. The Hong Kong Government welcomes foreign investment,
neither offering special incentives nor imposing
disincentives 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 distilled 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 of 16.5 percent of profits.
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, 3,580
regional operations of overseas companies were registered in
Hong Kong in 2009. The U.S. has the largest number of
regional headquarters and offices in Hong Kong (815
companies), followed by Japan (671 companies), the United
Kingdom (328 companies) and China (223 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 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
five 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 sixth
phase, announced in May 2009, introduced 29 liberalization
measures covering 20 service sectors. Service providers in 42
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 transfers 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. In June 2009, the Hong Kong Government introduced a bill
to the Legislative Council to reform its arbitration law. The
current Arbitration Ordinance provides separate regimes for
domestic and international arbitrations. If the bill is
passed by the Legislative Council, the Arbitration Ordinance
will be replaced by the new law that will unify the domestic
and international arbitration regimes. The Hong Kong
Government intends to use the new arbitration law to help
promote Hong Kong as a regional center for dispute resolution.

17. 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.

18. 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.

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

19. 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.

20. 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
--------------------------------------------

21. 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
-----------------------------

22. 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.

23. The Hong Kong Government devotes significant attention
and resources to IPR enforcement. Implementation of laws
oE~
ions 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 on a small scale at the retail level throughout
Hong Kong.

24. 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.

25. 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.

26. 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.

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

28. In April 2008, the Hong Kong Government proposed several
additional amendments to the Copyright Ordinance designed to
address the protection of IP in the digital environment.
Content providers submitted written comments in 2008 on the
government's proposals, and collaborated with Internet
Service Providers (ISPs) and content user representatives in
a government-led Tripartite Forum that sought to establish a
voluntary compliance framework governing IPR protection in
the digital realm. Tripartite Forum participants failed to
reach agreement on a voluntary framework, and the Hong Kong
Government restarted its efforts to draft digital IPR
protection amendments to the Copyright Ordinance. Industry
observers expect the Legislative Council to consider the
amendments during the latter half of 2010.

29. 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.

30. 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.

31. 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.

32. 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
---------------------------------

33. 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 in 2009 announced its intention to submit a draft
Competition Law to the Legislative Assembly during 2010. The
government intends to establish a Competition Commission,
along with a Competition Tribunal within the Judiciary to
hear cases involving allegations of anti-competitive
corporate behavior.

34. Currently, only the telecommunications and, to a lesser
degree, the broadcasting sectors have competition regulations
in place. The government stated that those two sectors will
also come under the purview of the new Competition Law.
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
--------------------------------------------- -----

35. 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.

36. 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 (checking) or savings accounts. At the end of 2009,
Hong Kong had 145 licensed banks, 26 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 208 branches, the group
controls more than 29.8 percent of Hong Kong dollar deposits.
The Bank of China (Hong Kong) is the second-largest banking
group (205 branches), and controls 13.3 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.

37. Hong Kong's five largest banks, in terms of total assets
(2008), are as follows:

Rank Institution Total Assets (US$ Billion)
1 Hong Kong & Shanghai Banking Corp (HSBC) 546.2

2 Bank of China (Hong Kong) 143.3

3 Hang Seng Bank Ltd. 97.7

4 Standard Charter Bank, Hong Kong Branch 76.8

5 Bank of East Asia, Ltd. 53.2
Sources: Companies' annual reports

38. 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.

39. 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 October 2009
(the latest figures available), the HKMC's outstanding amount
of debt totaled US$ 6.3 billion.

40. 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$43.6 million at the end of March 2009, and is expected
to reach the target amount of US$ 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.

41. 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.

42. 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 2009, there were 173 authorized companies. Of these,
81 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
subsidiaries in Hong Kong.

43. Hong Kong's total market capitalization rose by 72.6
percent during 2009 to US$2.3 trillion, with 1,140 listed
firms as of year-end 2009. Hong Kong's stock exchange 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.

44. No discriminatory legal constraints exist for foreign
securities firms establishing operations in Hong Kong via
branching, acquisition, or subsidiaries. In practice, foreign
firms typically establish operations in Hong Kong in the form
of 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.

45. The stock exchange plays a significant role in raising
capital for Chinese state-owned enterprises. Chinese state
enterprises may 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 2009, a total of 155 Chinese enterprises had
"H" share listings on the stock exchange, with market
capitalization of US$ 605.6 billion.

46. 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 rose to US$127.2 billion by September 2009.
Regional infrastructure financing requirements and increasing
investor demand are projected to stimulate further
development of the local debt market.
47. The Hong Kong Government requires workers and employers
to contribute to retirement funds under the Mandatory
Provident Fund (MPF) scheme. Contributions are expected to
channel US$ 3-4 billion per year into various investment
vehicles. By the end of September 2009, the net asset values
of MPF funds amounted to US$37.4 billion.

48. 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), which is traded on the Hong Kong Exchange. The
Government decided to retain a portion of the stocks (worth
about US$ 410 million) as a long-term investment. The HKMA
assigns management of these stocks to private fund managers
through a competitive bidding process.

Competition from State Owned Enterprises
----------------------------------------

49. Although Hong Kong has a free-market economy, the
government is directly active in several economic sectors.
It provides more than half the population with subsidized
housing, the vast majority of hospital services and most
education services from childhood through the university
level. The government also owns major business enterprises
such as the stock exchange, the railway company and the
airport.

50. Conflicts occasionally arise between the government's
respective roles as both owner and policy-maker. Industry
observers have recommended that the Hong Kong government
establish a separate entity to coordinate its ownership of
government-held enterprises, and initiate a transparent
process of nomination to the boards of government-affiliated
entities. Other recommendations from the private sector
include establishment of a clear separation between
industrial policy and the government's ownership function,
and minimization of exemptions of government-owned
enterprises from general laws. The Exchange Fund, for
example, is exempt from the securities disclosure laws in its
purchases of shares (making its disclosures only on a

voluntary basis).

51. The Hong Kong government's new Competition Law is
expected to be sent to the Legislative Council for its
consideration in 2010. Although it will address
anti-competitive corporate behavior such as price fixing and
bid rigging, the government has signaled that certain
(unnamed as of 2009 year-end) government-affiliated
enterprises will be exempted from the new law's purview.
While the Hong Kong government's private sector ownership
interests do not materially impede competition in Hong Kong's
most important economic sectors (e.g., banking, external
trade, tourism), private sector industry representatives have
encouraged the Hong Kong government to adhere more closely to
the OECD's Guidelines on Corporate Governance of State-owned
Enterprises.

Corporate Social Responsibility
-------------------------------

52. In November 2007, the Committee on the Promotion of Civic
Education released its survey results on corporate social
responsibility (CSR). The survey was conducted between
November 2006 and April 2007 with 10,094 business
establishments of various sizes. It focused specifically on
four dimensions of CSR, namely: 1) improvement of the
well-being of employees and their families; 2) minimization
of negative economic, social and environmental impacts on
society; 3) ethical business operations; and 4) contributions
to society. The survey revealed that only 23 percent of the
firms were aware of the term "CSR," and only nine percent had
institutional mechanisms to implement, monitor and evaluate
CSR programs. Such programs remain relatively underdeveloped
within Hong Kong's business community.

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

53. 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
----------
54. Hong Kong has an excellent track record in combating
corruption. U.S. firms have not identified corruption as an
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
-------------------------------

55. 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
--------------------------------------------

56. 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
-----

57. 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, Hong Kong's unemployment rate rose to
5.1 percent by the end of November 2009. The Employees
Retraining Board provides skills retraining for local
employees to cope with ongoing structural change in the
economy.

58. 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.

59. In 2008, membership in Hong Kong's 752 registered unions
totaled 708,953, a participation rate of about 21.5 percent.
Hong Kong has implemented 41 conventions of the International
Labor Organization in full and 18 others with modifications.

60. 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
------------------------------

61. 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 in the region has placed severe
demands onthat infrastructure, giving rise to plans for
maor new investments, particularly in transportation and
shipping facilities, over the next few years.Significant
elements include a planned expansionof container terminal
facilities, additional roadway and railway networks,major
residential/commercial developments, commuity faciities,
environmental protection project, and redevelopment of the
old Kai Tak Airport. he Hong Kong Government is planning to
spend overUSD 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. Construction at the site began
in July 2009.

62. Airport: During the twelve months ending November 2009,
Hong Kong's international airport at Chek Lap Kok handled
daily an average of 767 flights, 126,019 passengers, and more
than 8,937 tons of cargo. Eighty-four international airlines
operated some 5,800 scheduled flights per week between Hong
Kong and 154 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.

63. 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.

64. 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.

65. The organization responsible for safety oversight, the
Civil Aviation Department, has commenced study, trials and
evaluations of the satellite-based Communications,
Navigation, Surveillance/Air Traffic Management (CNS/ATM)
System. 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. CNS/ATM services including Digital-Automatic
Terminal Information Service, Digital-Meteorological
Information for Aircraft in Flight, delivery of Pre-Departure
Clearance over data links, Aeronautical Telecommunication
Network operations with Bangkok, and Air Traffic Services
Inter-facility Data Communication with Sanya Area Control
Center have been implemented at the airport.

66. 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.

67. Hong Kong's container port is one of the world's busiest.
In the first eleven months of 2009, Hong Kong's nine
privately-operated container terminals and mid-stream
operators handled 19.0 million twenty-foot equivalent units
(TEUs) of cargo. Some 80 international shipping lines are
providing over 450 container liner services per week
connecting to over 500 destinations worldwide.

68. Hong Kong's container terminals handling capacity is 18
million twenty-foot equivalent units (TEUs) a year. 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.

69. Roads and Railroads: Hong Kong's roads have one of the
highest vehicle densities in the world. In October 2009,
579,722 licensed vehicles navigated about 2,049 kilometers of
roads, or 283 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. In December 2009, Hong Kong
started to 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.

70. The Mass Transit Railway Corporation (MTRC) manages Hong
Kong's metro rail system that includes nine lines of railway
network with a total length of over 200 kilometers. 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. 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
------------------------------------

71. Table 1: Stock of Inward Foreign Direct Investment by
Major Investor Country/ Territory, as at end of 2008.

Country US$ Billion % Share of Total
China 296.3 51.1
Netherlands 53.1 9.1
Bermuda 41.9 7.2
British Virgin Islands 38.7 6.7
United States 31.7 5.5
Japan 21.1 3.6
United Kingdom 14.9 2.6
Singapore 13.9 2.4
Cayman Islands 11.0 1.9
Cook Islands 7.1 1.2
Others 50.6 8.7
TOTAL 580.3 100.0
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

72. Table 2: Stock of Inward Foreign Direct Investment by
Major Economic Activity, as of end of 2008.

Activity US$ Billion % of
Total
Investment holdings, real estate
and various business services 336.3 58.0
Wholesale, retail, import/export trades 82.3 14.2
Banks and deposit-tasking companies 71.0 12.2
Financial institutions (non-banks) 23.1 4.0
Transport and related services 18.9 3.3
Insurance 13.0 2.2
Manufacturing 10.1 1.7
Construction 8.5 1.5
Communications 3.5 0.6
Restaurants and hotels 2.2 0.4
Other activities 11.3 2.0
TOTAL 580.2 100.0
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: Total does not sum due to rounding.

73. Table 3: Stock of Outward Foreign Direct Investment by
Major Resident Country/ Territory, as at end of 2008.

Country US$ Billion % Share of Total
China 336.5 63.9
British Virgin Islands 108.4 20.6
Bermuda 10.1 1.9
United Kingdom 9.5 1.8
Singapore 6.7 1.3
United States 5.5 1.0
Liberia 5.3 1.0
Thailand 4.9 0.9
Malaysia 4.6 0.9
India 3.2 0.6
Others 31.8 6.0
TOTAL 526.5 100.0
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.

74. Table 4: Stock of Outward Foreign Direct Investment by
Major Economic Activity, as of end of 2008.

Activity US$ Billion % of
Total
Investment holdings, real estate
and various business services 346.2 65.8
Wholesale, retail, import/export trades 61.2 11.6
Banks and deposit-taking companies 26.8 5.1
Manufacturing 22.8 4.3
Transport and related services 20.9 4.0
Insurance 6.9 1.3
Restaurants and hotels 6.4 1.2
Financial institutions (non-banks) 4.4 0.8
Construction 3.5 0.7
Communications 2.7 0.5
Other activities 24.7 4.7
TOTAL 526.5 100.0
Source: Hong Kong Census and Statistics Department
Note 1: Excluding outward direct investment of offshore
financial centers that were channeled back to Hong Kong.

75. Table 5: Amount and Growth of U.S. Investment in Hong
Kong in 2004-2008, in US$ Billions.

Year Amount Percent Change
2004 32.7 -10.2
2005 36.4 11.3
2006 39.6 8.8
2007 50.2 26.8
2008 51.5 2.6
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$ 31.7 billion at year-end 2008.
Note 3: Preliminary figures for 2008.

76. 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
2008 N.A. 41.0 44.4
1978-2008 N.A. 348.5 40.9
Source: PRC Ministry of Commerce.
Note: PRC Ministry of Commerce stopped reporting the pledged
foreign investment figures in December 2005.

77. 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, Fubon Bank.

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

78. 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/
MARUT

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