Hong Kong Brief
Hong Kong, officially known as the Hong Kong Special Administrative Region of the People’s Republic of China, is a former British territory that reverted to Chinese sovereignty on 1 July 1997. Under the principle of ‘one country, two systems’, the city enjoys a high degree of autonomy in all areas except defence and foreign affairs, for which China is responsible. The city occupies an area smaller than the Australian Capital Territory and has a population of about one-third of Australia’s. In GDP (PPP terms) it stands as the 36th-largest economy in the world.
Hong Kong is governed by the Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China (the Basic Law), passed by China's National People's Congress (NPC) in 1990. Drafted by representatives from both China and Hong Kong, and incorporating the undertakings made in the 1984 Sino-British Joint Declaration on the Question of Hong Kong, the Basic Law serves as Hong Kong's 'mini-constitution'.
The Basic Law establishes unique arrangements for the government and political development of Hong Kong. It promises to preserve Hong Kong's way of life and capitalist system for 50 years from 1997, to give the territory a 'high degree of autonomy' consistent with the 'one country, two systems' principle and provides for independent executive, legislative and judicial powers.
Although the Basic Law ascribes formal responsibility for foreign and defence policy to Beijing, Hong Kong is allowed to maintain and develop limited international relations and to conclude and implement agreements with states, regions and international organisations. It does so in areas such as the economy, trade, shipping, fishing regulation, communications, tourism, culture and sport. Hong Kong is a member of the World Trade Organization (as a separate customs territory) and the Asia-Pacific Economic Cooperation (APEC) forum.
Hong Kong’s economic growth and prosperity have been underpinned by an open trade and investment regime complemented by a highly educated and flexible workforce and a transparent legal and regulatory environment. The city has evolved into an efficient global and regional transport and trade hub. Its location gives Australian companies an important two-way portal for commercial engagement with China and neighbouring countries in Southeast Asia.
The free movement of capital in and out of Hong Kong has accelerated the city’s development as an international commercial and financial centre. A strong institutional framework including the rule of law has attracted a number of important corporate headquarters to Hong Kong. Around 550 Australian companies, including the four major banks, have a major presence in Hong Kong.
Hong Kong’s services sector has grown remarkably since the 1980s and now dominates its economy. The sector’s GDP share increased from 87 per cent in 2000 to 93 per cent in 2010. Australian service providers are actively engaged in banking, transport and logistics, employment consultancies, engineering, construction, aviation, architecture, accountancy, legal services, insurance, tourism and retailing.
The financial services sector is expected to grow further, boosted by China’s efforts to broaden the international use of the Renminbi (China’s currency). China has designated Hong Kong as its offshore Renminbi centre. In addition, China is implementing part of its strategy for developing and liberalising its services sector under the auspices of the Closer Economic Partnership Arrangement, a free trade agreement signed with Hong Kong in 2003.
Under Hong Kong's 'executive-led' system, a form of government substantially inherited from the British colonial administration, the Chief Executive (CE) heads the government and is responsible for implementing the Basic Law and other laws of Hong Kong. The CE makes policy decisions and has the power to initiate legislation. According to the Basic Law, the CE is 'accountable to the Central People's Government and the Hong Kong Special Administrative Region'.
The CE is appointed by Beijing after election by an Election Committee, whose 1,200 members are themselves elected through a limited franchise from a number of professional, business and community bodies, Hong Kong deputies to the NPC, and Hong Kong members of the Chinese People's Political Consultative Conference. Chief Executives are appointed for a period of five years.
Mr Leung Chun-ying (C Y Leung) was sworn in as Hong Kong's third CE on 1 July 2012, having won the election on 25 March 2012. Leung's predecessor, Mr Donald Tsang, became Hong Kong's second CE on 21 June 2005, elected unopposed when Hong Kong's inaugural CE, Tung Chee-hwa, resigned mid-way through his second term citing health reasons. Mr Tsang was re-elected on 25 March 2007 in the first contested CE election since the handover. Already having served two terms, Mr Tsang was ineligible to stand for re-election in 2012.
The major function of the Legislative Council (LegCo) is to enact laws; examine and approve budgetary matters; monitor the government's performance; and debate issues of public interest. The LegCo also endorses the appointment and removal of judges of the Court of Final Appeal. It cannot initiate bills involving government expenditure and so has a limited role in policy development. Its meetings are open to the public.
Legislative Council elections were held on 9 September 2012, with all 70 LegCo members elected for a term of four years. Five geographic constituencies returned 35 members by universal suffrage using a proportional representation party-list system. Functional constituencies, representing occupational and functional groups, returned 30 members. The franchise of the functional constituencies is limited to the membership of these groups, an electoral base of less than 230,000 compared with a total voting population of around 3.4 million. The remaining five members were elected on a proportional basis in a single Hong Kong-wide constituency by all the voters who did not have a vote in the functional constituencies. The electors of these five “super seats” constituted about 90 per cent of the total voting population.
Hong Kong's legal system is based on English Common Law. Under the Basic Law, the judiciary is independent of the executive and legislative branches of government. The Court of Final Appeal replaced the British Privy Council as the highest appellate court in Hong Kong on 1 July 1997.
The power of final interpretation of the Basic Law rests with China's National People's Congress Standing Committee (NPCSC). The NPCSC has exercised this power on five occasions: concerning the right of abode (1999), universal suffrage (2004 and 2007), the term of the Chief Executive (2005) and law of sovereign immunity (2011).
As Hong Kong is Australia’s leading regional business base, we have a substantial stake in the integrity of Hong Kong’s legal system. Distinguished Australian jurists have been appointed to the Court of Final Appeal as non-permanent judges, including former Chief Justice of the NSW Supreme Court, James Spigelman, and former justices of the High Court, William Gummow, Sir Anthony Mason, Sir Gerald Brennan and Murray Gleeson.
Currently no institutions of government in Hong Kong are elected through universal suffrage, although universal suffrage in Chief Executive and LegCo elections is the "ultimate aim" of constitutional development under the Basic Law. The Basic Law set out steps for introducing more democratic governance between 1997 and 2007 but is silent on what happens after that date.
In December 2007, the NPCSC ruled out fully democratic elections for the CE and LegCo in 2012 but left open the possibility of universal suffrage-based elections for the CE in 2017 and the LegCo thereafter (2020 at the earliest).
In February 2008, the Hong Kong government established a Task Group on Constitutional Development to study options for the election of the CE and the formation of the LegCo in the 2012 elections, within the framework laid down by the NPCSC's declaration. Following public consultation, on 24 June 2010 the LegCo passed an electoral reform package for the 2012 elections of the CE and the LegCo. The NPSC approved the reforms in August 2010. Under the new arrangements, the Election Committee for CE elections increased from 800 to 1200 persons and the number of LegCo seats to be contested increased from 60 to 70. Of the ten new LegCo seats, five represent functional constituencies and five represent geographic constituencies. This maintains the 50:50 split between functional and geographic constituency seats required by the December 2007 NPCSC Decision.
Parties in the LegCo are traditionally divided between the Pro-establishment (i.e. pro-Beijing) and Pan-democrat (favoring greater autonomy from Beijing and greater democratic rights) camps. In the 2012 LegCo election the Pro-establishment camp won 43 seats including 17 geographic constituencies, 2 “super seats” and 24 functional constituencies. The Pan-democrat camp won 27 seats including 18 geographic constituencies, 3 “super seats” and 6 functional constituencies. As the Pan-democrat camp holds more than a third of LegCo seats, it has the power to veto constitutional changes.
Hong Kong is a major international financial centre and a leading world trading entity. Hong Kong is amongst the freest economies in the world and is home to some of the region's most important corporate headquarters. In 2012, Hong Kong topped the World Economic Forum's Financial Development Index. In GDP (PPP terms) it stands as the world’s 36th-largest economy. The city occupies an area smaller than the Australian Capital Territory and has a population of about one third of Australia’s. Hong Kong is a major provider of services to China and is the mainland's designated centre for the internationalisation of the Renminbi. Its economic prospects now depend largely on its links with China.
Hong Kong’s economic integration with mainland China developed through the 1980s with the establishment of China’s first Special Economic Zone in Shenzhen, just across the border, transforming a fishing village into a gleaming metropolis of over 10 million people. Investment by Hong Kong industrialists across the Pearl River Delta (PRD), arching from Hong Kong in the East through Shenzhen, Dongguan, Guangzhou, Foshan, Zhongshan and Zhuhai to Macau in the West, has been one of the main drivers of China’s rapid economic modernisation.
Since 2004, the China-Hong Kong Closer Economic Partnership Arrangement (CEPA) has accelerated integration between Hong Kong and the PRD, giving favourable treatment to Hong Kong manufactures and services that meet rules of origin criteria. The non-discrimination against foreign-owned companies under these criteria has allowed some Australian companies to benefit from CEPA and gain greater access to mainland China. Infrastructure projects such as a bridge linking Hong Kong, Macau and Zhuhai (commenced in November 2011, due to be completed in 2016) and a high-speed rail link to Guangzhou via Shenzhen (commenced in January 2010, due to be completed in 2015) are expected to improve transport links with the region.
Hong Kong’s manufacturing sector has moved almost completely to the mainland since the 1980s, and services now dominate its economy, accounting for 93 per cent of GDP. Over the past ten years, Hong Kong’s growth has been supported by the tourism industry, notably from the opening to mainland-Chinese tourists, boosting retail sales as well as hospitality and construction. The financial services sector is expected to grow further, boosted by China’s efforts to broaden the international use of the Renminbi. Australian service providers are actively engaged in banking, transport and logistics, employment consultancies, engineering, construction, aviation, architecture, accountancy, legal services, insurance, tourism and retailing.
Following the global financial crisis, export-dependent Hong Kong was particularly affected by the slowdown in China and the decrease in demand from key re-exports markets in the United States and Europe, resulting in negative 2.5 per cent growth in 2009. 2010 saw a quick recovery to 6.9 per cent growth before the Euro crisis dampened growth in 2011 (4.9 per cent) and 2012 (1.4 per cent). The fourth quarter of 2012 showed the strongest growth of the year, 2.5 per cent, and growth picked up slightly to record 2.8 per cent in the first quarter of 2013. Exports to the US and Europe were weak, with domestic demand and inbound tourism supporting growth. Hong Kong’s budget for 2013-14, the first under new Chief Executive C Y Leung, showed the economy in a strong fiscal position, with higher than expected revenue from land taxes revising the forecast for 2012-13 to a HK$65 billion (A$8.2 billion) surplus, after earlier estimates predicted a HK$3.4 billion deficit.
Internationalisation of the Renminbi
Mainland authorities have undertaken a series of regulatory reforms to broaden the international use of the Renminbi (RMB – China's currency), particularly in regional trade settlement and financial products. Hong Kong has played a unique role in this strategy, first as a testing ground and now as a centre for off-shore RMB business.
Commencing in 2004, Hong Kong banks were allowed to introduce limited RMB retail banking services, including deposit taking, currency exchange, remittances, credit and debit cards and cheques. In June 2007, mainland financial institutions began issuing RMB-denominated bonds in Hong Kong. Since May 2009, eligible overseas banks with subsidiaries in the mainland have also been permitted to issue RMB bonds in Hong Kong. In August 2010, the People's Bank of China announced a pilot scheme to permit foreign central banks (which would include the Reserve Bank of Australia), RMB clearing banks in Hong Kong and Macau, and other authorised banks (called 'participating banks') to invest in the mainland's interbank bond market.
A pilot program for cross-border trade settlement in RMB was launched in July 2009. This scheme allowed mainland designated enterprises in Shanghai, Guangzhou, Shenzhen, Dongguan and Zhuhai to use RMB as the transaction currency when trading with designated non-mainland enterprises in Hong Kong, Macau and ASEAN member countries. This gave mainland exporters the ability to price their goods in RMB, as well as being able to recycle their export proceeds on- and off-shore. In June 2010 the program was expanded to allow designated enterprises in 20 mainland cities and provinces to use RMB as the transaction currency, for all trade transactions, and with anywhere in the world. Since that date RMB trade settlement has been extended to cover the entire country, RMB can be used for direct investment in the mainland and mainland enterprises are able to issue RMB-denominated bonds.
Hong Kong is designated as the mainland's official offshore RMB centre and has infrastructure in place to directly link its offshore operations with onshore RMB trade on the mainland, which is frequently used by other financial centres. Combined with its links to the mainland, institutional framework and regulatory environment, this provides Hong Kong with a strong competitive advantage compared with other financial centres. As a result, Hong Kong is the world's largest offshore RMB centre – processing just under 80 per cent of all offshore RMB payments.
During a visit to Hong Kong in July 2012, Deputy Prime Minister and Treasurer, Mr Swan, co-hosted a Renminbi Cross-border Trade and Investment Forum with Hong Kong Finance Secretary, Mr John Tsang. At the Forum, Mr Swan announced a new high-level dialogue between senior business leaders from Australia and Hong Kong on RMB trade and investment. The dialogue aims to increase collaboration between the two economies and broaden RMB trade settlement, particularly in Australia's key commodity exports. It also seeks to facilitate the development of new RMB-denominated financing and investment products and closer RMB banking and financial links. In April 2013, the Treasury hosted the Australia-Hong Kong RMB Trade and Investment Dialogue, providing a forum to discuss how to best capture the new business opportunities arising from the wider use of the RMB in trade and investment in our region, and to facilitate the participation of Australian businesses in this growing market.
Australia and Hong Kong enjoy a strong relationship built on mutual cooperation and people to people links. Recent high level visits from Australia include: Deputy Prime Minister and Treasurer, Mr Swan, in January 2013; Parliamentary Secretary for Trade, Mr. Thomson, in April 2013; and Minister for Foreign Affairs, Senator Carr, in July 2013. Senator Carr met Chief Executive, C Y Leung, Chief Secretary for Administration, Carrie Lam, President of the Legislative Council, Jasper Tsang, and Chief Justice Geoffrey Ma. His visit reinforced the value Australia places on Hong Kong as an economic partner and a leading regional base for Australian business. Senator Carr also reaffirmed Australia’s support for Hong Kong’s civil and political freedoms and the rule of law.
Then Hong Kong Chief Executive, Donald Tsang, visited Australia in June 2011. His program in State capitals included meetings with the Premier of Victoria, the Premier of Western Australia and the Western Australian Minister for Mines and Petroleum. In Canberra he held discussions with the Prime Minister, the Minister for Foreign Affairs and the Leader of the Opposition.
The Australian Consulate-General represents the Australian Government in Hong Kong. In Australia, the Hong Kong Government is represented through the Hong Kong Economic and Trade Office based in Sydney. Over 80,000 Australians reside in Hong Kong and around 75,000 people born in Hong Kong now live in Australia.
Bilateral Economic and Trade relationship
Hong Kong is an important source of foreign investment for Australia, our sixth-largest, with a stock of $42.1 billion at the end of 2012. Investment sectors include electricity supply, natural gas, mining, transport, vineyards, food processing, port infrastructure, light industry, insurance, engineering, telecommunications and biotechnology. Hong Kong is also an attractive investment destination for Australia, our eleventh-largest, with a stock of $25.5 billion at the end of 2012. Sectors of interest include banking and finance; construction and engineering; health and medical services; telecommunications; insurance; legal services; education; information technology; consulting; logistics; and transport.
Australia and Hong Kong have an established trade relationship. Hong Kong was Australia’s 15th most important destination for merchandise exports ($2.6 billion) in 2012 and ninth-largest services market ($1.7 billion). Two-way trade in goods and services amounted to $7.5 billion in 2012. Australia’s major merchandise exports were crustaceans, gold and telecommunications equipment and parts. Australia's major imports from Hong Kong were telecommunications equipment and parts, clothing and optical goods. Bilateral services trade is centred on travel (including education exports) and transport.
Trade and Investment Strategies and Opportunities
Hong Kong enjoys a well-earned reputation as a free and open market that allows unhindered movement of capital, goods and services. Exports to Hong Kong face zero tariffs and minimal non-tariff barriers. Hong Kong’s reputation as an international financial centre is underpinned by a highly-regarded and transparent legal and financial system. These attributes provide fertile ground on which to promote Australian exports to Hong Kong.
Australia is an important source of high quality food and beverages including wine for Hong Kong's hotel and restaurant sector, particularly fresh and chilled seafood, premium fruit, nuts, vegetables and dairy products. Hong Kong's strategy to become a wine trading and distribution centre for the Asian region presents opportunities for Australian wine producers and for providers of wine-related services, such as storage and auctioning.
Hong Kong’s high standards of affluence and education have cultivated a sophisticated consumer culture and a thriving market for high-end luxury goods. This has also made Hong Kong a popular shopping destination for Chinese visitors, who are able to travel to Hong Kong in ever-increasing numbers. There are valuable opportunities for Australian businesses to leverage Hong Kong’s position to showcase Australia’s products to Chinese shoppers as well as Hong Kong locals. These opportunities relate to foods, beverages, wine, fashion, jewelry, art and collectables, skincare and cosmetics, and organic and natural health products. Thus, beyond its own status as an important trading partner, Hong Kong can serve as a two-way interface between China and Australia.
Infrastructure development is a priority for the Hong Kong government, with some HK$70 billion earmarked for infrastructure projects in 2013-14. Expansion of the public transport network in Hong Kong and the development of road and rail links to China are driving demand for building and construction services. Development of the West Kowloon Cultural Precinct (a 15-year multi-billion dollar project) is proceeding on schedule, generating opportunities for Australian companies and suppliers. Notably, some Australian companies have won contracts in that project.
A number of Australian software companies have established market niches for specific corporate and government solutions. Opportunities also exist for developers of multimedia content for wireless and mobile applications and for Australian health and medical technology.
The government has earmarked HK$20 billion for the construction of several public hospitals and clinics. It is planning to build various sports facilities, including swimming pools and a velodrome. There are opportunities for Australian companies to either act individually or partner with local and Chinese companies to tender for contracts in these projects. Hong Kong is experiencing an increasing demand for aged care facilities, which presents opportunities for a broad range of Australian companies offering products and services relevant to that sector.
Given this environment, the Australian Government's strategy focuses on market development and ensuring that our business sector is aware of developing opportunities. The Consulate-General is active in helping Australian exporters and investors resolve specific problems as they arise, for instance with quarantine or customs processes.
Austrade’s Hong Kong-Macau Market Plan for 2013-14 focusses on three specific business development programs: food, beverage and consumer sectors; services and infrastructure; and inwards investment. Austrade has four posts covering the Pearl River Delta: Hong Kong and Guangzhou and sub-offices in Macau and Shenzhen. This network allows Australian business people to take full advantage of the increasingly integrated Hong Kong and Guangdong economies.
Austrade's Hong Kong country page has more information on specific export opportunities and export assistance.
Updated September 2013