Hong Kong continues to be the preferred base for international companies to oversee their regional operations, a Census & Statistics Department survey suggests. The number of regional operations and local offices in Hong Kong operated by overseas and Mainland companies reached its highest-ever level this year, topping 6,350.

The department yestoday released the results of the 2006 Annual Survey of Companies in Hong Kong Representing Parent Companies Located Outside Hong Kong.

There were 1,228 regional headquarters (up 61 from a year ago), 2,617 regional offices (down 14) and 2,509 local offices (up 35) in Hong Kong representing their parent companies located outside Hong Kong as at June 1.

Speaking at a press conference this morning, Invest HK's Director-General of Investment Promotion Mike Rowse noted that was a 5% increase in regional headquarters, despite the .5% dip in regional offices.

It's not spectacular, but 'solid' is a way of describing the numbers, he said. Looking at the last two years together, there was an increase of 6.5% in 2006 compared with 2004, he added.

It's nothing to break out the champagne about, but it is steady progress.

US leads in regional HQ

The US had the most regional headquarters in Hong Kong, with 295, followed by Japan's 212 and the UK's 114 companies.

The regional headquarters' major lines of business were wholesale, retail and import/export trades; business services; and transport and related services.

The US also topped the list of places with companies having regional offices in Hong Kong, with 594. Japan followed, with 519 companies, and the UK was third, with 223 companies.

The regional offices' major lines of business were wholesale, retail and import/export trades; business services; and finance and banking.

The Mainland had the highest number of local offices in Hong Kong, with 449, followed by Japan's 437 and the US's 391 companies.

The local offices major lines of business mirrored those of the regional offices.

Why businesses choose Hong Kong

The survey, the seventh of its kind, collected views on Hong Kong as a location for setting up an office.

Among the factors affecting the choice of location for setting up regional headquarters or offices, 71% of companies considered a low and simple tax system most important.

Other favourable factors, in descending order of Hong Kong's favourableness rating, included: free flow of information, absence of exchange controls communication, transport and other infrastructure, free port status, corruption-free government, geographical location, availability of business services and professional support services, rule of law and independent judiciary, political stability and security, and availability of financial services,

More than 30% of companies regarded availability and cost of residential and business accommodations as unfavourable factors for Hong Kong. Still, about 15% of companies regarded them as favourable factors.

When asked to compare June 2005 and June 2006, about half the companies considered the overall business environment in Hong Kong as a location for setting up regional headquarters or offices remained more or less the same. Another 30% felt the overall business environment had improved.

CEPA triggers expansion plans

About 55% of the companies indicated the above views were not affected or were just slightly affected by the Mainland-Hong Kong Closer Economic Partnership Arrangement, or CEPA, implemented in January 2004, and another 28% indicated that the above views were affected to some extent.

About 76% of the companies indicated CEPA had not affected their investment activities, while about 10% said CEPA had affected their investment activities and the most common effect was to set up new business expansion plans (8%).

Local offices reflected similar views.

With the increased number of regional operations during the past year, Hong Kong now is host to over 6,300 overseas and Mainland companies. We are pleased with the overall results, which show that international businesses continue to prefer managing their regional operations from Hong Kong, Invest Hong Kong's Director-General of Investment Promotion Mike Rowse said.

Traditional advantages keep HK on top

In line with the trend observed in recent years, the report indicates that investors from traditional markets, including the US, Japan and the UK, continue to see Hong Kong as the key strategic location to manage regional businesses. At the same time, Mainland companies continue to be the largest source of local offices in Hong Kong.

The results demonstrate that Hong Kong's traditional advantages - including a low and simple tax system, free flow of information, corruption-free government and absence of exchange controls - are the most important reasons for investors choosing Hong Kong for the location of their regional operations. However, we cannot be complacent. We are well aware of the keen competition for investment in the region, and the need to continue to improve the business environment in Hong Kong to retain our leading position.

The report provides us with valuable information to help understand the determining factors for investors in selecting their business locations, as well as regarding their main issues of concern. We are committed to address these issues at different levels within the Government, and will continue to work closely with the international business community to facilitate their business operations in Hong Kong, Mr Rowse added.

GST, environment draw attention

In response to reporters' queries, Mr Rowse said the introduction of a goods and services tax would likely have little impact on a business's decision to set up shop in Hong Kong.

If at the moment we are bragging about our superior tax system because of its simplicity and low rates, to the extent that another tax might be brought in, it does reduce some of the impact of that plus point. How significant that would be in attracting investment, I would say marginal, he said.

Replying to questions about the issue of pollution, he noted that businesses with activities that are time-zone specific as opposed to location specific may choose to set up in competing cities such as Sydney or Singapore.

Businesses that need to be in Greater China will choose Hong Kong as Beijing or Shanghai are no better.

He indicated there were likely to be many government initiatives announced regarding the fight against pollution in the months ahead.

We should be improving the environment because seven million of us live here and we deserve a better environment, he said.

Survey details, availability

The survey was conducted to enumerate regional headquarters, regional offices and local offices in Hong Kong representing their parent companies located outside Hong Kong. The survey reference date was June 1, but the fieldwork was mainly conducted in the three months after.

It covers only companies that manage business in Hong Kong or in the region on behalf of their parent companies located outside Hong Kong. It does not cover, for example, companies which are funded by investment from outside Hong Kong and manage the business in Hong Kong or in the region independently but not on behalf of the investors.