The 5 Main Reasons To Consider Hong Kong When Investing In China

Author:Ms Keri Wong

As the top recipient of foreign direct investment (FDI) in 2014 (source: UNCTAD), China is unarguably an important destination for investment. Nevertheless, China's regulatory environment and implementation procedures continue to present a challenge for foreign investors.  

It is important not only to consider the different vehicles available when investing in China, e.g. a wholly foreign-owned enterprise, joint venture or representative office, but also the jurisdiction through which a Chinese investment is held.

Hong Kong has always been and continues to be the preferred jurisdiction for structuring both China inbound and outbound investments. Last year, close to 72% of investments into China were through Hong Kong, which far exceeded direct investments into China by any other country. Singapore, China's second largest investor, accounted for less than 5% of China's inbound FDI (source: Investment Promotion Agency of MOFCOM).

Below are five of the main reasons why Hong Kong is favoured over any alternative.

  1. Protection for the foreign parent company

    The most common and efficient structure for foreign investment into China is a Hong Kong holding company. This holding company can be used as parent to the Chinese foreign investment enterprise as well as to structure other investments into the region.

    The private limited company is the most common type of entity to be registered in Hong Kong. It is governed by the Hong Kong Companies Ordinance, has its own independent legal personality and liability is limited to a shareholder's subscribed capital.

    As a holding company of the Chinese investment, this structure may offer foreign investors more protection than a direct shareholding in a Chinese company and significantly more protection than creating a joint venture (JV) in China, where ownership is shared with a local Chinese partner. If a JV is used, structuring it at the Hong Kong level may offer greater flexibility and less risk for investors than setting up the JV in China.

  2.  Legal benefits

    Many investors in the region prefer their contracts and disputes to be governed by Hong Kong law and subject to the jurisdiction of the Hong Kong courts.

    This is because Hong Kong has a stable, mature and accessible legal system, based on the familiar concept of English Common law and supported by a fully independent judiciary. All laws are in English and proceedings can be held in English on request.

    Hong Kong is also a leading centre for...

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