Hong Kong
Hong Kong’s economy shrank 3.5 percent in 2022, largely due to the impact of Covid-19 restrictions and outbreaks in Hong Kong and mainland China, as well as a general rise in interest rates. These challenges were compounded by an exodus of two percent of the city’s working population in 2022, structural factors including an aging population, and short-term factors such as a limited inflow of foreign workers. Despite a global economic slowdown, Hong Kong recovered through the second quarter of 2023, with real GDP growth of 1.5 percent; an increase in tourism numbers and a surge in private consumption supported this growth. Overall, the Hong Kong financial system remains resilient, and the Hong Kong government has continued to promote the city’s role as an international financial center. Hong Kong, in many respects, is a separate legal jurisdiction from the PRC, maintaining a separate currency, as well as separate regulatory structures to supervise companies operating in the territory. However, as noted in the Department of State’s 2023 Hong Kong Policy Act Report, the PRC’s imposition of the National Security Law (NSL) on Hong Kong in June 2020 led to structural changes that significantly reduced Hong Kong’s autonomy. Under the Hong Kong Policy Act, the Secretary of State has certified Hong Kong does not warrant treatment under U.S. law in the same manner as U.S. laws were applied to Hong Kong before July 1, 1997. Business and rule of law risks that were formerly limited to mainland China are now increasingly a concern in Hong Kong. Nevertheless, Hong Kong remains a significant destination for U.S. trade and investment. Even with a population of less than eight million, Hong Kong was the United States’ eighteenth-largest export market in 2022. Hong Kong’s economy, with advanced institutions and regulatory systems, is bolstered by competitive sectors including financial and professional services, trading, logistics, and historically in tourism, though this is a sector only beginning to recover following the pandemic.
According to Hong Kong government statistics, in 2022 there were 1,258 subsidiaries of U.S. parent companies in Hong Kong, making the United States the third-largest source of international subsidiaries in Hong Kong. Among those U.S. firms, 670 are regional headquarters or regional offices.
Hong Kong’s key characteristics include its open trade and investment climate, its geographic proximity to Asian markets, and its attraction as a tourism destination.
- Population: 7,472,600 (end-year 2022)
- Visitors: 604,564 (2022)
- Total GDP: US$354.9 billion (2022)
- GDP Per Capita: US$48,306 (2022)
- Real GDP Growth: -3.5 percent (2022)
- Trade to GDP Ratio: 384 percent (2022)
- U.S. Exports: US$26.5 billion (2022)
Key Characteristics
Hong Kong is a Special Administrative Region (SAR) of the People’s Republic of China (PRC). There are numerous business opportunities given Hong Kong’s professional services talent base, sophisticated infrastructure, and access to mainland China’s manufacturing centers. The city is also known for its advanced infrastructure; lack of restrictions on inward or outward investment; lack of foreign exchange controls; absence of nationality restrictions on corporate or sectoral ownership; and a simple, and low-tax regime.
Mainland China is Hong Kong’s largest trading partner. A large number of Hong Kong manufacturers have production facilities in South China’s Guangdong-Hong Kong-Macau Greater Bay Area (GBA), with Hong Kong functioning as the region’s services and trade hub. The total population in the Greater Bay Area is over 86 million.
Hong Kong’s economy is increasingly tied to the mainland. The Closer Economic Partnership Arrangement (CEPA) offers Hong Kong’s products and firms preferential access to the mainland market. CEPA goes beyond China’s World Trade Organization (WTO) commitments, eliminating tariffs and allowing earlier or preferential access to some service sectors. Overseas companies can also benefit from CEPA. For trade in goods, foreign investors can set up production lines in Hong Kong to produce goods that meet the CEPA rules of origin requirements. For trade in services, companies incorporated in Hong Kong by foreign investors can make use of CEPA if they satisfy the eligibility criteria of a “Hong Kong Service Supplier.” For example, they must be engaged in business operations in Hong Kong for three to five years or partner with or acquire a CEPA-qualified company.
Macau
Macau’s economy experienced a rapid contraction during 2022, shrinking approximately 27 percent year-on-year from an already low base in 2021. The SAR’s economy is dominated by the gaming sector, which was severely hampered by the PRC’s zero-COVID policy and its related-movement restrictions, depriving the SAR of the Mainland visitors that the industry depends on. With the lifting of all Covid-19 restrictions in January 2023, and the subsequent return to normalized travel, the city is experiencing significant growth, with the IMF projecting Macau’s real GDP to grow 58.9 percent year-on-year in 2023.
Like Hong Kong, Macau is a free port with low taxation. Macau liberalized the gaming industry in 2002, and industry experts calculate that Macau has received an estimated USD 24 billion in U.S. foreign direct investment in the gaming industry over the past decade. In recent years, the Macau government has undertaken efforts to diversify the economy using its 1+4 model, under which efforts will be made to expand leisure and entertainment offerings (“1”) and promote expansion in four additional sectors: finance, traditional Chinese medicine, new and high tech, and the “Meetings, Incentives, Conferences, and Exhibitions” (MICE) industry. Though gaming and tourism are the engine of the Macau economy, its exports include textiles, garments, machines and apparatus, footwear, tobacco, food and beverages, and consumer goods. The main export markets are Hong Kong, mainland China, EU, the United States, and Japan, while imports originate primarily from mainland China, Hong Kong, EU, Japan, the United States, and Switzerland.
Macau’s gaming sector dominates the economy and is a primary source of government revenue. The Government of Macau (GOM) taxes casinos for 40 percent of gaming revenue, which includes a direct tax of 35 percent and a five percent contribution for social and welfare purposes. The receipts through the gaming taxes throughout 2022 accounted for 18.3 percent of overall current revenue, totaling around US$2.37 billion. The six operators, including local subsidiaries of three U.S. companies, that manage each of Macau’s 30 casinos were all given 10-year license extensions in 2022. As part of this process, the six concessionaires agreed to invest approximately US$15 billion over the next decade, with 90percent earmarked for non-gaming investments.
Key Characteristics
Macau is also an SAR of the PRC that shares many structural similarities with its close neighbor Hong Kong, yet it offers U.S. suppliers a market with distinct characteristics and opportunities. In this guide, Macau is treated under each chapter following Hong Kong, with emphasis placed on those areas where the business climate diverges.
Formerly a Portuguese colony, Macau reverted to China on December 20, 1999. Macau retains its own currency, laws, and border controls. Macau’s currency, the pataca, is pegged to the Hong Kong dollar at a rate of HK$1 – MOP$1.03. Macau does not use common law, but rather code law patterned on the Portuguese system.
Macau’s key characteristics are its attractiveness as a tourism and gaming destination.
- Population: 672,800 (2022)
- Visitors: 5.7 million (2022)
- Total GDP: US$21.98 billion (2022)
- GDP Per Capita: US$32,422 (2022)
- U.S. Exports: US$1.189 billion, 6.86 percent of Macau’s imports (2022)
Source: Macau Statistic and Census Service
Trading Partners: Mainland China, Hong Kong, Japan, EU, Switzerland, and United States.
Macau also enjoys a CEPA with mainland China. Macau’s 2003 agreement with mainland China – largely parallel to the arrangement Hong Kong enjoys with the mainland – has enhanced its economic integration with the PRC. In October 2017, Macau and Hong Kong signed a CEPA to strengthen economic and commercial relations between the two cities. On January 1, 2018, the CEPA between Macau and Hong Kong took effect.
Political Environment
For background information on the political and economic environment of the country, please click on the link to the U.S. Department of State Countries & Areas website.
Hong Kong