Hong Kong’s economy grew 6.4 percent in 2021, marking its first annual rise after two years of recession amid the COVID-19 pandemic.  However, Hong Kong’s economy remains largely hobbled as ongoing COVID-19 restrictions continues to hit private consumption and business activities. In the first quarter of 2022, Hong Kong’s real GDP shrank 4 percent amid the fifth wave of Omicron outbreak.  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 2021 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.  In addition, in July 2021 the U.S. issued an advisory to U.S. businesses regarding potential risks to their operations and activities in Hong Kong.  Business and rule of law risks that were formerly limited to mainland China are now increasingly a concern in Hong Kong.  Nevertheless, and despite the imposition of the NSL by Beijing, Hong Kong remains a significant destination for U.S. investment and trade.  Even with a population of less than eight million, Hong Kong was the United States’ fifteen-largest export market in 2021.  Hong Kong’s economy, with advanced institutions and regulatory systems, is bolstered by competitive sectors including financial and professional services, trading, logistics, and in normal non-pandemic times, tourism.

According to Hong Kong government statistics, in 2021, there were 1,267 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, 664 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: 7,403,100 (provisional, end-year 2021)
• Visitors: 91,398 (2021)
• Total GDP: US$366.9 billion (2021)
• GDP Per Capita: US$49,613 (2021)
• Real GDP Growth: 6.4 percent (2021)
• Trade to GDP Ratio: 359 percent (2021)
• U.S. Exports: US$29.96 billion (2021)

Major trading partners:  Mainland China, United States, EU, Japan, South Korea, Taiwan, India, and ASEAN countries.

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 finance and marketing talent base, sophisticated infrastructure, and access to mainland China’s manufacturing centers.  A large number of Hong Kong manufacturers have production facilities in South China’s Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area), with Hong Kong functioning as the region’s services and trade hub.  The PRC central government is promoting development in the Greater Bay Area, which comprises the two Special Administrative Regions of Hong Kong and Macau and the nine municipalities in Guangdong Province.  The total population in the Greater Bay Area is over 86 million.

Mainland China is Hong Kong’s largest trading partner.  The city is also known for its advanced infrastructure; lack of restrictions on inward or outward investment; lack of foreign exchange controls; no nationality restrictions on corporate or sectoral ownership; a simple, and low-tax regime.

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 services 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 is also a 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 does not use common law, but rather code law patterned on the Portuguese system.

Macau’s gambling and tourism dependent economy has been hit extremely hard by Macau’s adherence to the PRC’s zero-Covid policy and Covid-19 border controls.  Economists forecast that Macau’s real GDP will fall by almost 30% year-on-year in 2022.  With no change to border controls on the horizon, the territory is likely to remain in recession until early 2023.

Like Hong Kong, Macau is a free port with low taxation.  Since liberalizing the gaming industry in 2002, industry experts calculate that Macau has received US$23.8 billion in U.S. foreign direct investment in the gaming industry (through 2016), spurring visitors and consumption.  Other growth areas have typically included finance, insurance, construction, real estate, retail, and meetings, incentives, conferences, and exhibitions (MICE) industry.  Macau’s 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, United States, and Japan, while imports originate primarily from mainland China, Hong Kong, EU, Japan, United States, and Switzerland.

Macau’s gaming sector dominates the economy.  The Government of Macau (GOM) taxes casinos for 39 percent of gaming revenue, which includes a direct tax of 35 percent and a four percent contribution for social and welfare purposes.  The receipts through the gaming taxes throughout 2020 accounted for 67.2 percent of overall current revenue, totaling around US$4.22 billion.  The six operators, including three U.S. companies, that manage each of Macau’s 41 casinos are bidding to be able to continue operating in Macau.  These operators have until December 31, 2022 to submit their bids.

Macau’s key characteristics are its attractiveness as a tourism and gaming destination.

• Population: 683,200(2021)
• Visitors:   7.71million (2021)
• Total GDP: US$29.73 billion (2021)
• GDP Per Capita: US$43,774 (2021)
• U.S. Exports: US$1.314 billion, 6.83 percent of Macau’s imports (2021)

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 became effective.