Foreign Investment Opportunities and Restrictions in Hong Kong
Introduction
Hong Kong is considered as the Special Administrative Region of the People’s Republic of China. The economy of Hong Kong is characterised by large scale capitalism with urbanisation. The civil system of Hong Kong was established under British Rule. Hong Kong developed wide contacts and investment ties with China. This investment policy is in line with its the self governing position. The country offers many investment opportunities and maintains a non-restrictive trade and investment policy.
The economy of Hong Kong is largely dependent on global trade. Hong Kong was incorporated into China in the year 1977. After that Hong Kong developed into a most important contributor to the mainland. In 2000 with service sector accounting for 92.4%of GDP and manufacturing sector only 5.5% the country follows two decade –long change from the manufacturing based economy towards a high value and service based economy. Obviously the whole economy is dependant on service sector. Hong Kong’s investment policy rests with the government. But in the country there are so many obstacles for entry of foreign based service firms because of licensing limitations. The modern developments in the investment policy have been positive.
The important investment avenues in Hong Kong are Bank investment, Government and infrastructure bonds, real estate plots, gold and precious stones and insurance products. In Hong Kong, restrictions exist on acquiring of asset, by way of lowest amount requirements for investment. In case of government and quasi government bonds, the investment starts at a minimum of HKD 100000 (or USD 12,903 using today’s FX of 7.75). Thus this investment option is not an easy one for lower level investors. In case of hedge funds also there are restrictions as to the minimum amount of investment which is equal to amount of $ US 50000. Thus hedge fund investment is also away from the means of many investors in the country. Hong Kong government Bonds are not guaranteed by the government and start at a minimum of HKD 100000/ USD 12,903 using today’s FX of 7.75 thus putting this option also out of reach for some investors.
Restrictions on investment in other countries
There are many restrictions on investment in other countries. One of the important domestic assets is real estate. The main restriction is that investors of properties cannot buy foreign real estate, which are not proposed for their own use if the investors are corporate entities. “Foreign investors must now form an onshore foreign investment enterprise “real estate FIE” to invest in and purchase non self-use properties. Although not specifically stated in the Opinions, it is understood that real estate FIEs may take the form of wholly foreign-owned enterprises as well as joint ventures.” (China: foreign investment restrictions in real estate market 2009).
The Foreign Investment Enterprise is restricted to be not below 50% of the full amount investment and standard rate is 40% if the amount surpasses US$10 million. It is considered as the registered capital of real estate. The registered capital of real estate is fully paid up. It has to be funded through minimum 35% of the total project development cost. It should get the relevant land use rights certificate. Moreover foreign companies and persons residing in China can buy office premises or residential properties only after one year’s residence.
Foreign individuals have to give evidence that they will study or work in China for more than one year. But it is not applicable for the people from Hong Kong, Macau and Taiwan.
In Hong Kong the foreign exchange investment in real estate market is subjected to the regulatory control of State Administration of Foreign Exchange and the Ministry of Construction mutually. The Notice issued in 1 September 2006 deals with their mutual regulations on foreign exchange in the real estate market of the economy. “This Notice sets out the administrative measures, procedures and documentation requirements relating to foreign exchange for the implementation of the principal measures set out in the Opinions. It is expected that the city and provincial governments will issue more detailed implementation rules for the Opinions.”(China: foreign investment restrictions in real estate market 2009).
Arguments for and against free flow of Capital
The globalization facilitates the free flow of capital between different economies and such flow has tremendously increased over the past few years. There are arguments for and against the free flow of capital among different national economies.
The arguments supporting the free flow of capital are described below
The free movement of capital in between the economies of different nations facilitates to improve the allocation effectiveness and macroeconomic policy discipline in the economies of nations. “The free movement of capital across national boundaries can ensure a more efficient allocation of savings, channelling resources to countries where they can be used productively to increase growth and welfare.” (Capital flows? balance of payments management 2001).
Investors get better facilities for investment diversification through allowing the free flow of capital. They can get higher risk adjusted return on portfolio investment in different economies. The capital account transactions shall support the multilateral trading system in different economies.
The Arguments against the free flow of capital
“The presence of large amounts of foreign capital also makes economically weak countries vulnerable to political pressure by the countries to which the owners of foreign capital belong.” (Srinivasa- Raghavan 2007).
Conclusion
In Hong Kong there are restrictions existing with foreign investment. The investment of citizens in foreign countries is also restricted to certain extent through regulations. The free flow of capital among national boundaries has so many advantages. Macro economic performance can be improved though the market discipline attained through fining unsound financial and fiscal policies. In order to avoid the limitations of free flow of capital, it has to be regulated through applying certain restrictions; other wise it will affect the financial stability of the nations with weak economy.
References
- Capital flows? balance of payments management 2001, id21 insights: Communicating Development Research.
- China : foreign investment restrictions in real estate market: restrictions 2009, HG.org: Worldwide Legal Directories.
- China : foreign investment restrictions in real estate market: further regulation 2009, HG.org: Worldwide Legal Directories.
- Srinivasa- Raghavan, T C A 2007, How free should the flow of capital be?, Rediff news. Web.