Foreign Direct Investment in Hong Kong
1.1 The foreign business community plays an important role in the Hong Kong economy. Foreign companies bring in capital, new technologies and new business practices, and create employment opportunities. The Government believes in, and supports a free market economy and a liberal investment regime. 1.2 According to the United Nations Conference on Trade and Development (UNCTAD), Hong Kong was the second largest destination for foreign direct investment in Asia in 2003. On a global scale, Hong Kong ranked 11th in foreign direct investment inflow in the same year. UNCTAD also pointed out that despite challenges brought by the Severe Acute Respiratory Syndrome and difficult economic conditions during the first half of 2003, foreign direct investment flow to Hong Kong in 2003 reached US$13.6 billion (HK$106.1 billion), up by 40% from an adjusted US$9.7 billion (HK$75.7 billion) in 2002. Further, for the 10th consecutive year, the Heritage Foundation1 has rated Hong Kong as the freest economy in the world. 1.3 To foreign businesses, Hong Kong’s attractiveness as a place to do business is mainly reflected by two local indicators, namely inward direct investment2 and the number of foreign-owned regional headquarters 3 (RHQs) and regional offices4 (ROs) of companies incorporated outside Hong Kong.
The Heritage Foundation is a research and educational institute, whose mission is to formulate and promote public policies based on the principles of free enterprise, individual freedom, and limited government. It is one of the leading public policy organizations in the United States of America. Direct investment covers investment which allows investors in one economy, on a long term basis, to influence or have an effective voice in the management of an enterprise in another economy. For statistical purpose, an effective voice is taken as equivalent to a holding of 10% or more of the equity in an enterprise. Inward direct investment refers to direct investment in a Hong Kong enterprise by a non-Hong Kong resident. Typical examples of inward direct investment are multinational corporations’ branches and subsidiaries operating in Hong Kong. Regional headquarters are organizations which have control over the operation of one or more other offices or subsidiaries in the region without the need to make frequent referrals to, or consult with, the parent companies or headquarters. Regional offices are companies which are responsible for general business activities in one or more countries/territories in the region for the parent companies.
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Inward direct investment 1.4 Based on the findings of the study conducted by the Census and Statistics Department (C&SD), at end-2002, Hong Kong had 8 978 enterprise groups5 with inward direct investment, comprising 380 in the manufacturing sector and 8 598 in the non-manufacturing sector respectively. The stock of inward direct investment stood at HK$2,622.3 billion at market value6, amounting to 2.08 times of the gross domestic product (GDP) in 2002, and representing a decrease of 19.8% from the corresponding investment stock of HK$3,269.7 billion at end-2001. The decline in the stock of inward direct investment was mainly due to the drop in market value of the Hong Kong affiliates of foreign enterprises. 1.5 The British Virgin Islands was the largest investor country at end-2002, accounting for 29.7% of the total stock of inward direct investment in Hong Kong, followed by the Mainland of China (Mainland) (22.7%), Bermuda (10.4%), the Netherlands (7.8%) and the United States of America (US) (7.1%). Altogether, these five investor countries accounted for 77.7% of the total inward direct investment stock at end-2002 (see Table 1). According to C&SD, the prominence...