U.S. and Hong Kong (1998)

U.S. CONSULATE GENERAL HONG KONG'S PRELIMINARY
1998 HONG KONG INVESTMENT CLIMATE REPORT

A.1. Openness to Foreign Investment

The Hong Kong Special Administrative Region, China, hereafter referred to as Hong Kong, pursues a free market philosophy, and there is minimum government interference with corporate initiative. It welcomes foreign investment. It offers no special incentives nor does it impose disincentives for foreign investors. Hong Kong's well-established rule of law is applied consistently and without discrimination. There is no distinction in law or practice between investments by foreign-controlled companies and those controlled by local interests.

There are no direct subsidies to domestic industries and, as a duty free port, no tariff barriers. There is no discrimination against foreign investors either at the time of initial investment or afterwards. There is no capital gains tax nor are there withholding taxes on dividends and royalties. Profits can be freely converted and remitted. Foreign-owned and domestically owned firms are taxed at the same rate, 16% of profits. There are no preferential or discriminatory export and import policies which affect foreign investors.

There are no disincentives to foreign investment such as limitations on the use or transfer of foreign currency, or any system of quotas, performance requirements, bonds, deposits, or other similar regulations. There is no anti-trust law. Certain sectors of the economy are dominated by monopolies or cartels, not all of which are regulated by the Hong Kong Government. These entities do not necessarily discriminate against U.S. goods or services, but they can use their market position to block effective competition. The Hong Kong Code on Takeovers and Mergers (1981) sets out general principles for acceptable standards of commercial behavior.

With few exceptions, the Hong Kong Government does not attempt to limit the activities of foreign investors either in specified projects or sectors. Foreign investment in Hong Kong flows freely into the industrial sector as well as into services, franchises, restaurants, the entertainment industry, and the ownership of property, both residential and commercial. There are certain exceptions:

I) Telecommunications -- The Hong Kong Government has reached an agreement with the Hong Kong Telecom International (HKTI) for the early termination of its monopoly over the exclusive international basic voice telecommunications. Competition will begin to be introduced on January 1, 1999, though it is still not clear how fully the sector will be opened.

ii) Broadcasting -- The Hong Kong Government limits foreign ownership of television stations to 49%. In January, 1998, the government lifted foreign ownership restrictions on satellite uplink licensees. It is currently conducting a policy review of the television market.

iii) Legal Services -- Until recently, foreign lawyers were not allowed to practice law in Hong Kong. However, as of spring 1996, foreign lawyers could apply to take the Hong Kong Bar Examination and, if successful, practice Hong Kong law. Foreign law firms may not hire local lawyers to advise on Hong Kong law, but may themselves become "local" firms (after satisfying certain residency and other requirements) and thereafter hire local attorneys. However, foreign law firms still face impediments and disadvantages in trying to compete in the Hong Kong market.

iv) Financial Services -- In September, 1994, a one-branch restriction on overseas banks licensed after 1978 was relaxed. Overseas banks are now permitted to set up one regional office and one back office, in separate buildings, to conduct such activities as strategic planning, general liaison with correspondent banks and corporate entities, and processing and settlement of transactions already entered into by the branch office. Moreover, foreign banks may acquire a controlling interest in a local bank that has unlimited branching rights.

v) Aviation services -- Hong Kong's new airport at Chek Lap Kok (opening July, 1998) will have multiple providers of ground services, maintenance, cargo handling, and catering. U.S. companies are members of some of the consortia which will provide these services.

vi) Government Contracts -- Hong Kong's record for open and fair government procurement is generally without blemish. The Hong Kong Government agreed in December, 1996, to join the new WTO plurilateral agreement on government procurement. As of May, 1998, the Hong Kong Government was in the process of establishing a Bid Challenge System consistent with the WTO's Government Procurement guidelines.

Foreign firms and individuals are allowed freely to incorporate their operations in Hong Kong, to register branches of foreign operations, and to set up representative offices without discrimination or undue regulation. There is no restriction on the ownership of such operations. Company directors are not required to be citizens of, or resident in Hong Kong. Reporting requirements are straightforward and not onerous.

Hong Kong's extensive body of commercial and company law generally follows that of the United Kingdom, including the common law and rules of equity. Most statutory law is made locally. The local court system provides for effective enforcement of contracts, dispute settlement and protection of rights. Hong Kong remains a member of the World Trade Organization in its own right and a separate customs territory.

Formalities are minimal for company incorporation and business registration. Foreign and domestic companies register under the same rules and are subject to the same set of business regulations.

The Hong Kong Government's Industry Bureau encourages inward investment as a means to introduce new or improved products, processes, designs and management techniques. U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis.

According to the Hong Kong Government's survey of regional representation by overseas companies in Hong Kong, 2,530 regional operations by overseas companies were identified in Hong Kong in 1997. Among these companies, 924 were regional headquarters and 1,600 were regional offices. The United States of America has the largest number of regional headquarters in Hong Kong (219 companies), followed by Japan (121 companies) and China (117 companies). The major lines of business of the regional headquarters included wholesale/retail, import/export, finance and banking, manufacturing, and transport and related services. In terms of attractiveness of investment climate in Hong Kong and China for the next five years, the survey showed that more than 87 percent (among 419 respondents) of these overseas companies were of the opinion that the investment climate was favorable in both areas.

A.2. Conversion and Transfer Policies

There are no restrictions on conversion and inward or outward transfer of funds for any purpose. The HK dollar is a freely convertible currency that, since late 1983, has been linked to the U.S. dollar at an exchange rate of HK$7.8 = US$1. Authorities are committed to exchange rate stability through maintenance of the linked rate. There is no allocation of foreign exchange.

A.3. Expropriation and Compensation

The US Consulate General is not aware of any expropriation actions in the recent past. However, expropriations of private property may occur if it is clearly in the public interest, but only for well-defined purposes such as implementation of public works projects. If this is the case, then expropriations are conducted through negotiations, in a non-discriminatory manner in accordance with established principles of international law. Due process and transparency of purposes are observed. Investors in and lenders to expropriated entities receive prompt, adequate, and effective compensation. Property may be acquired under the State Land Resumption Ordinance, the Land Acquisition Ordinance, the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance or the Roads Ordinance. These ordinances provide for payment of compensation. If agreement cannot be reached on the amount payable, either party can refer the claim to the Land Tribunal for jurisdiction.

A.4. Dispute Settlement

The U.S. Consulate General is not aware of any investor-state disputes in recent years involving U.S. or other foreign investors or contractors and the Hong Kong Government. Private investment disputes are normally handled in the courts or via private negotiation. Alternatively, disputes may be referred to the Hong Kong International Arbitration Center.

The Hong Kong Government accepts international arbitration of investment disputes between itself and investors. Following reversion to Chinese sovereignty on July 1, 1997, and with the exception of disputes between Hong Kong and China (for which a solution is under discussion), Hong Kong continued to apply provisions of the International Center for the Settlement of Investment Disputes (ICSID, known as the Washington Convention) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Hong Kong has also adopted the United Nations Commission on International Trade Law (UNCITRAL) model law for international commercial arbitration. The local court system provides effective enforcement of contracts, dispute settlements and protection of rights, including intellectual property. Secured interests in property are recognized and enforced.

Hong Kong's legal system is firmly based on the rule of law and the independence of the judiciary. Courts of justice in Hong Kong include the Court of Final Appeal; the High Court (composed of the Court of Appeal and the Court of First Instance); the District Court; the Magistrate's Courts; the Coroner's Court; and the Juvenile Court. There is also a Lands Tribunal, Labor Tribunal, and other statutory tribunals. On July 1, 1997, the Court of Final Appeal replaced Britain's Privy Council as Hong Kong's highest court when Hong Kong reverted to Chinese sovereignty.

The Hong Kong Government owns all land, granting long-term leases without transferring the title. Local and foreign leaseholders are given equal treatment.

A.5. Performance Requirements/Incentives

Consistent with its generally non-interventionist economic philosophy, Hong Kong imposes no export performance or local content requirements as a condition for establishing, maintaining or expanding a foreign investment. Hong Kong offers no special privileges to attract foreign investment. There are no requirements that Hong Kong residents own shares, that foreign equity be reduced over time, or that technology be transferred on certain terms. Such matters are left to the market. While pledging to steer clear of market intervention, in 1996 the Hong Kong Government pledged to establish a technology-centered industrial park and to spend greater efforts promoting service exports.

All of Hong Kong is a duty-free zone, as it is a free port. Subject to non-discriminatory application of excise taxes and restricted entry in some sectors, as noted above (e.g. broadcasting, electric power, etc.), local and foreign firms are free to take advantage of investment opportunities as they arise.

A.6. Right to Private Ownership and Establishment

Hong Kong law and regulations provide for the right of foreign and domestic private entities to establish, own and to dispose of interests of business enterprises. Foreign investors are generally allowed to engage in all lawful forms of remunerative activity. Restrictions on the latter involve regulated entry of practice in the mass transit, electric power generation, medical services, legal, telecommunications and broadcasting sectors. The Hong Kong Government does not generally engage directly in business activity via public enterprises, preferring to leave this to the private sector. In general, business privileges, franchises and land development rights are granted on the basis of competitive equality.

A.7. Protection of Property Rights

Hong Kong's commercial and company laws provide for effective enforcement of contracts and protection of corporate rights. The Intellectual Property Department, which includes the Trademarks and Patents Registries, is the focal point for the development of Hong Kong's intellectual property regime. The Customs and Excise Department is the principal enforcement agency for intellectual property rights (IPR). While the Hong Kong Government has taken significant steps to improve its intellectual property rights regime and enhance enforcement efforts, production and retail sale of pirated software, recordings, and films remain serious problems. As a result, the United States Trade Representative again placed Hong Kong on the Special 301 Watchlist in 1998.

1997 saw a dramatic increase in factories producing compact discs, including pirated compact discs, in Hong Kong. Industry estimates the number of production lines at well over 100 and possibly as many as 250. The Hong Kong government responded by instituting a licensing regime for the import and export of production equipment and by passing a new law that requires factories to register and use source identifier codes. This new legislation should enable enforcement authorities to gain control over illicit production by the end of the year. Meanwhile, authorities have stepped up seizures of production equipment and pirated compact discs. In a dramatic late April 1998 raid, officials seized 41 production lines and some 8 million pirated compact discs.

The Customs and Excise Department, which has a special IPR unit with over 200 investigators, has also stepped up raids against retail shops selling pirated goods. Using new enforcement tools from the June 1997 Copyright Law, Customs officers have been able to substantially increase seizures of pirated goods. Although aggressive raids have curtailed activity at the three most notorious retail centers, pirated goods remain widely available in a number of other retail arcades.

Hong Kong successfully localized its intellectual property laws to ensure the maintenance of a strong legal regime after the July 1997 reversion to China. Protection continues under both local laws and international conventions, which continue to apply to Hong Kong. Hong Kong has acceded to the Paris Convention for the Protection of Industrial Property, the Bern Convention for the Protection of Literary and Artistic Works, and the Geneva and Paris Universal Copyright Conventions. Hong Kong also continues to participate in the World Intellectual Property Organization, as part of China's delegation.

The new copyright law protects any original copyright work created or published by any person anywhere in the world. It provides for rental rights for sound recordings and computer programs but not films. It provides for enhanced penalty provisions against copyright piracy and additional legal tools to facilitate enforcement. It decriminalizes parallel imports of copyrighted products one year after their release anywhere in the world, but maintains civil penalties. Registration is voluntary.

The patent ordinance, approved in June 1997, allows for granting of an independent patent in Hong Kong based on the patents granted by the UK and the Chinese Patent Offices. The patent granted in Hong Kong would be independent, and would be capable of being tested for validity, rectified, amended, revoked and enforced in the Hong Kong courts in accordance with Hong Kong law. Based on the law, Hong Kong has established an independent patents registry. Continuity is preserved so that pre-existing patents eligible for protection continue to enjoy protection in Hong Kong.

The new registered designs ordinance is modeled on the proposed EU design registration system, with certain modifications. To be registered, a design must be new. The system requires no substantive examination. Protection will be for an initial period of five years, and may be extended for four periods of five years each, up to a maximum of 25 years.

Hong Kong's existing trademark law is not dependent on that of the UK, and so does not need to be "localized." The law is already TRIPS-compatible, and is in the process of being modernized. All trademark registrations originally filed in Hong Kong are valid for seven years and renewable for 14-year periods. Proprietors of trademarks registered elsewhere must apply anew and satisfy all requirements of Hong Kong law. When evidence of use is required, such use must have been in Hong Kong. Trademarks are registered under the Trademarks Ordinance, with provisions similar to trademarks legislation in the United Kingdom. The Trademarks (Amendment) Ordinance, which came into effect in 1992, extends the trademarks law to allow for registration of trademarks relating to services.

Hong Kong has no specific ordinance to cover trade secrets. Under the Trade Description Ordinance, however, the government has the duty to protect the information being disclosed to other parties. The Trade Description Ordinance prohibits false trade descriptions, forged trade marks and misstatements in respect of goods supplied in the course of trade.

The Legislative Council passed an Intellectual Property (World Trade Organization Amendment) bill in May 1996 to fulfill Hong Kong's international obligation as a WTO member. The bill expanded the definition of what can be trademarked, provided new anti-piracy tools to the Hong Kong Government and provided for civil detention orders at the border to stop import of infringing product. The Hong Kong Government has claimed a developing country status exemption to the Trade-Related Intellectual Property requirements of the World Trade Organization. In theory, this gives Hong Kong five years to phase in the requirements. The Government has committed, however, to meeting the requirements well within that period.

A.8. Transparency of the Regulatory System

Hong Kong's body of law and regulation implicitly and explicitly promotes competition in all forms of economic endeavor. The only exceptions are those previously mentioned, where entry is restricted. Tax, labor, health and safety and other laws and policies avoid distortions or impediments to the efficient mobilization and allocation of investment. Bureaucratic procedures and "red tape" are held to the minimum and are equally transparent to local and foreign investors. In November 1996, the Consumer Council published a study report to recommend the setting up of competition law and an independent Competition Authority to investigate any anti-competitive practices. The Hong Kong Government is examining these recommendations.

A.9. Efficient Capital Markets and Portfolio Investment

There are no impediments to the free flow of financial resources. Non-interventionist economic policies, complete freedom of capital movement and a well-understood regulatory and legal environment have greatly facilitated Hong Kong's growing role as a regional and international financial center. Hong Kong has continued to enjoy substantial economic autonomy following its reversion to Chinese sovereignty on July 1, 1997. Chinese leaders have repeatedly underscored China's intention to abide by the provisions of the Sino-British Joint Declaration and China's Basic Law for Hong Kong, which amplify the meaning of "one country, two systems" to include separate monetary systems, separate financial and regulatory systems, and separate budgetary regimes.

Hong Kong's foreign exchange markets handled an average daily turnover of US$91 billion in 1996, making it the fifth largest in the world. By the end of 1997, Hong Kong had 180 licensed banks (149 were incorporated overseas), 66 restricted licensed banks (27 were incorporated overseas), 115 deposit-taking institutions (2 were incorporated overseas), and 159 representative offices (all were set up by foreign banks). Thirty-two American "authorized financial institutions" operate in Hong Kong, including 7 of the top 10 U.S. banks. U.S. banks licensed in Hong Kong are listed in Appendix E(f) below. Most banks in Hong Kong maintain U.S. correspondent relationships.

Hong Kong's five largest banks, in terms of total assets (1997), are as follows:

Rank	Institution	Total Assets (US$ billion)
1	Hong Kong & Shanghai Banking Corporation (HSBC)	189.2
2	Hang Seng Bank Ltd.	50.9
3	Bank of East Asia, Ltd.	17.1
4	Dao Heng Bank	16.1
5	Nan Yang Commercial Bank	10.2

Sources: Companies' annual reports

Hong Kong has a three-tier system of deposit-taking institutions: licensed banks, restricted license banks, and deposit-taking companies. Only licensed banks can offer current (checking) or savings accounts. The Hong Kong & Shanghai Banking Corporation (HSBC) is Hong Kong's largest banking group. With its majority-owned subsidiary Hang Seng Bank, and 372 branches, the group controls more than 40% of Hong Kong dollar deposits. The 12 banks of the Bank of China Group compose the second-largest banking group (370 branches), and control 24% of Hong Kong dollar deposits. (Note: The Bank of China does not publish its total assets and thus is not listed in the previous table.)

Credit is allocated strictly on market terms and is available to foreign investors on a non-discriminatory basis. The private sector has access to the full spectrum of credit instruments as provided by Hong Kong's banking and financial system. Legal, regulatory, and accounting systems are transparent and consistent with international norms. The Hong Kong Monetary Authority (HKMA) functions as its de facto central bank. The HKMA is responsible for maintaining the stability of the banking system and managing the Exchange Fund backing Hong Kong's currency -- linked to the U.S. dollar at HK$7.8 = US$1. HKMA, with the assistance of the banking sector, has upgraded Hong Kong's financial market infrastructure. For example, the interbank payment system based on Real Time Gross Settlement principles was installed in December 1996. The new system helps minimize risks in the payment system and brings Hong Kong in line with international standards. In March 1997, the Hong Kong Mortgage Corporation (HKMC) was set up to promote the development the development of the secondary mortgage market in Hong Kong. The HKMC is 100% owned by the Government through the Exchange Fund. The HKMC purchases residential mortgage loans for its own retained portfolio, and then repackages mortgages into mortgage-backed securities for sale. By end-April 1998, the HKMC has issued US$128.2 million worth if unsecured debt securities in the local debt market.

Insurance: Under the Insurance Companies Ordinance, insurance companies are authorized by the Insurance Authority to transact business in Hong Kong. Hong Kong has the highest number of authorized insurance companies in Asia. At the end of 1997, there were 215 authorized companies: of these, 114 were foreign companies from 27 countries. In terms of assets, of the world's top 10 insurance companies, six have branch offices or subsidiaries in Hong Kong. In addition, premium income from insurance services in Hong Kong is the fifth highest in Asia (after Japan, South Korea, Taiwan and China) and the 24th highest in the world.

Stock and Futures Markets: With a total market capitalization of US$411 billion and 658 listed firms at year-end 1997, the Stock Exchange of Hong Kong (SEHK) was ranked second in Asia after Tokyo, and seventh in the world in terms of capitalization. The SEHK launched regional derivative warrants and convertible bonds in 1997.

At the end of April 1998, the SEHK had grown to 664 firms, but total market capitalization dropped to US$ 375 billion following the region's downturn.

There are no discriminatory legal constraints to foreign securities firms establishing in Hong Kong via branching, acquisition, or establishing subsidiaries. In practice, foreign firms typically establish in Hong Kong as subsidiaries. Rules governing operations are the same, irrespective of ownership. There are no restrictions on cross-border capital flows.

The SEHK plays a significant role in raising capital for Chinese state-owned enterprises. A memorandum of understanding on regulatory cooperation between Chinese and Hong Kong stock and regulatory authorities signed in June 1993 provides a framework for Chinese state enterprises to raise equity (through the issuance of so-called "H" shares) in Hong Kong provided they meet Hong Kong regulatory and accounting requirements. These "H" shares are denominated in renminbi, but must be purchased in Hong Kong dollars. At the end of 1997, a total of 39 Chinese enterprises had "H" share listings on the SEHK (41 "H" share companies were listed in Hong Kong by the end of May 1998), raising more than US$7.6 billion and making Hong Kong an important center for raising capital for China.

The Hong Kong Futures Exchange Ltd. provides a market for Hang Seng Index futures and options. At the end of 1997, futures contracts for sixteen local stocks traded at the Exchange, including CITIC Pacific, Cheung Kong Holdings, China Light & Power, HSBC Holdings, Hang Seng Bank, Henderson Land, Hong Kong Telecom, Hopewell Holdings, Hutchison Whampoa, New World Development, Sun Hung Kai Properties, Swire Pacific 'A', Wharf (Holdings, China Resource Enterprise, Hong Kong Electric Holdings and Shanghai Industrial Holdings.

Since 1990, the Hong Kong has made a concerted effort to develop a local debt market with the launching of the Exchange Fund bills and notes program. Maturities now extend to ten years. Hong Kong dollar debt (public and private) has increased gradually, from US$3.46 billion at the end of 1989 to US$44.3 billion by the end of 1997. Regional infrastructure financing requirements, continued high regional GDP growth rates, and increasing investor demand are projected to stimulate further development of the local debt market. The Securities and Futures Commission, an independent statutory body outside the civil service, has licensing and supervisory powers to ensure the integrity of markets and to protect investors, while the exchanges' own Association serves as the first line of regulatory defense.

The Hong Kong Government has begun work on a Mandatory Provident Fund to encourage workers and employers to contribute to retirement funds. Contributions are expected to channel U.S. $3 to 4 billion per year into various investment opportunities. Schemes are expected to begin operations in 1999 or 2000.

Portfolio investment decisions are left to the private sector. There are no laws or regulations that specifically authorize private firms to adopt articles of incorporation/association which limit or prohibit foreign investment, participation or control.

A.10. Political Violence

Hong Kong is politically stable and secure. The U.S. Consulate General is not aware of any incidents over the past few years involving politically motivated damage to projects or installations. There has been no major unrest in Hong Kong since China's Cultural Revolution spilled across the border in 1967.

A.11. Corruption

Hong Kong has a good track record in combating corruption. U.S. firms have not, for the past three decades, identified corruption as an obstacle to foreign direct investment. The Independent Commission Against Corruption (ICAC) is responsible for combating corruption. The ICAC was established in 1974, three years after enactment of the Prevention of Briberies Ordinance. The ICAC is independent of the public service and the ICAC Commissioner has been responsible directly to the Governor. A bribe to a foreign official is a criminal act as is the giving or accepting of bribes, for both private individuals and Government employees. Of the 3,057 corruption reports filed in 1997 (more than one-third were ultimately investigated), 51 percent involved the private sector, 17 percent the police, 25 percent other government bodies, and 6 percent public bodies such as the Legislative Council, Urban Councils, and universities. Penalties are stiff. For example, a civil servant who solicits or accepts any advantage without special permission of the Government can receive one year's imprisonment and a HK$100,000 fine if convicted. Individuals in both the private and public sector can receive up to 7 years imprisonment and a HK$500,000 fine for offering, soliciting or accepting a benefit for performance or non-performance of an official duty.

B. Bilateral Investment Agreements

Hong Kong is negotiating a series of bilateral investment agreements -- the Hong Kong Government calls them "Investment Promotion and Protection Agreements" -- with major foreign investors. To date, Hong Kong has signed agreements with Australia, Austria, Belgium, Denmark, France, Germany, Italy, Japan, the Netherlands, New Zealand, Sweden and Switzerland. The Hong Kong Government has initialled agreements with Canada and Vietnam. It is negotiating agreements with Korea, Singapore, Thailand, and the United States. All such agreements have been based on a model text approved by China through the Sino-British Joint Liaison Group. During discussion since 1996, the United States and Hong Kong made progress on a bilateral investment agreement.

C. OPIC and Other Investment Insurance Programs

Overseas Private Investment Corporation (OPIC) coverage is not available in Hong Kong. Hong Kong is a member of the World Bank Group's Multilateral Investment Guarantee Agency (MIGA).

D. Labor

For most of the last decade, Hong Kong's unemployment rate hovered around 2% as the economy continued a rapid structural transformation from manufacturing to a financial and services center. The burgeoning services sector easily absorbed displaced manufacturing workers.

The unemployment rate in 1997 was 2.2%, after reaching 2.6% in the fourth quarter of 1996. In the first half of 1998, unemployment has risen to 3.5%, reflecting the impact of regional economic turmoil. As part of a package of measures adopted in February 1996 to combat rising unemployment, the Hong Kong Government began curtailing its labor importation schemes. The measures, seen as a response to union and pro-labor legislative pressure, 1) replaced the General Importation of Labor Scheme for skilled and semi-skilled workers (with its 25,000-worker quota) with the Supplementary Labor Scheme (with a 2,000-worker preliminary limit and a ban on foreign workers in 26 professions), 2) provided for expanded recruitment of local construction workers for the now completed Chek Lap Kok airport and related infrastructure projects, and, 3) imposed stricter local recruitment criteria before local firms can hire foreign workers. Qualified foreign professionals, technical staff, administrators and managerial personnel are not affected, nor are foreign domestic helpers. An employee retraining board, established in 1992, provides skills retraining for local employees to cope with ongoing structural change in the economy.

Labor-management relations are generally smooth. The average number of days lost due to industrial conflicts is one of the lowest in the world (0.99 worker days lost per 1000 workers in 1996). In early 1996 labor groups achieved their goals of scaling back labor importation and boosting severance pay. In 1996, membership in Hong Kong's 535 registered unions totaled 624,327, a participation rate of about 22.3%. Hong Kong has implemented 31 conventions of the International Labor Organization in full and 18 others with modifications. Hong Kong continued to adhere to these conventions after reversion to Chinese sovereignty on July 1, 1997.

E. Foreign Trade Zones/Free Ports

Hong Kong is a free port without foreign trade zones.

F. Foreign Direct Investment Statistics

Table 1: Hong Kong Total Value of Net Assets at Historical Costs Attributed to Inward Foreign Direct Investment in U.S.$ Billions

Country	1993	1994	1995	1996
Japan	18.9	21.2	24.5	36.2
UK	19.3	20.7	21.2	24.2
China	15.4	17.2	19.1	22.3
USA	10.4	11.2	12.0	16.1
Italy	2.2	2.2	2.3	2.6
France	1.5	1.8	1.7	2.3
Germany	0.8	1.2	1.6	1.8
Netherlands	1.3	1.3	1.6	2.1
Others	9.1	9.8	12.3	19.3
Total	81.8	89.7	99.7	126.9

Source: Industry Department and Census and Statistics Department

Table 2: Overseas Investment in Hong Kong Manufacturing Number, Cumulative Values, and Employment in 1996 (Major Source Countries)

Country	Number of Investments	Investment (US$ Million)	Number of Employees
Japan	142	2,323	17,047
U.S.A.	77	1,648	13,060
China	31	337	9,019
U.K.	39	309	11,040
Netherlands	11	281	4,463
Switzerland	17	157	3,210
Singapore	23	131	3,006
Others	143	806	638
TOTAL	483	6,150	61,483

Note 1: Sources for Tables 1-6 include: 1997 Survey of Overseas Investment in Hong Kong's Manufacturing Industries, Hong Kong Government Industry Department

Note 2: No. of employees of a particular country refers to the total no. of employees of manufacturing companies with the corresponding country's investment (e.g. wholly owned or joint venture). Therefore, the figures do not add up to the total due to overlapping. These figures were not published in the survey but given by the Industry Department on request.

Note 3: Investment refers to total investment at original cost which includes stock of fixed assets at original cost plus working capital. US$1 = HK$7.8

Note 4: Data totals may reflect rounding.

Table 3: Overseas Investment in Hong Kong Manufacturing By Industry, 1993, 1994, 1995 and 1996 US$ Millions (%)

Industry	1993	1994	1995	1996
Electronics	1,582 (30.2)	1,705 (30.2)	1,939 (31.3)	2,109 (34.3)
Electrical Products	480 (9.2)	543 (9.6)	570 (9.2)	654 (10.6)
Chemical Products	447 (8.5)	399 (7.1)	525 (8.5)	480 (7.8)
Food & Beverages	361 (6.9)	462 (8.2)	341 (5.5)	384 (6.2)
Printing & Publishing	252 ( 4.8)	228 (4.1)	317 (5.1)	293 (4.8)
Transport Equipment	185 (3.5)	243 (4.3)	267 (4.3)	278 (4.5)
Others	1,430 (27.3)	1,572 (28.0)	1,658 (28.8)	1,397 (22.7)
Total	5,242	5,637	6,191	6,150

Note: Figures in parentheses denote percentage share of annual stock of investment.

Table 4: U.S. Investment in Hong Kong Manufacturing By Industry, at historical cost in US$ Millions (%)

Industry	1993	1994	1995	1996
Electronics	848 (57.5)	788 (51.7)	85 (50)	759 (46.1)
Electrical Products	123 (8.4)	147 (9.6)	156 (9.1)	143 (8.7)
Chemical Products	121 (8.2)	120 (7.9)	132 (7.7)	122 (7.4)
Metal Product	71 (4.8)	97 (6.3)	123 (7.2)	139 (8.4)
Paper Products	29 (1.9)	83 (5.5)	161 (9.4)	194 (11.8)
Textiles & Clothing	115 (7.8)	81 (5.3)	52 (3)	46 (2.8)
Plastic Products	24 (1.6)	24 (1.6)	28 (1.6)	29 (1.7)
Food & Beverages	19 (1.3)	21 (1.4)	33 (1.9)	33 (2.0)
Printing & Publishing	N/A (1.1)	17 (0.6)	10 (0.8)	13
Others	127 (8.8)	146 (9.6)	164 (9.6)	171 (10.4)
Total	1,476	1,524	1,707	1,648

Note: Figures in parentheses denote percentage share of annual stock of investment.

Table 5: Japanese Investment in Hong Kong Manufacturing by Industry, at historical cost in US$ Millions (%)

Industry	1993	1994	1995	1996
Electronics	462 (25.8)	500 (26.3)	748 (31.2)	892 (38.4)
Electrical products	292 (16.3)	339 (17.8)	398 (16.6)	420 (18.1)
Textiles & Clothing	155 (8.7)	210 (11.0)	207 (8.6)	85 (3.7)
Watches & Clocks	150 (8.4)	157 (8.2)	179 (7.5)	160 (6.9)
Photographic & Optical Goods	95 (5.3)	126 (6.6)	144 (6)	111 (4.8)
Printing & Publishing	100 (5.6)	95 (5.0)	187 (7.8)	150 (6.4)
Food & Beverages	114 (6.4)	96 (5.0)	129 (5.4)	146 (6.3)
Basic Metal	46 (2.6)	24 (1.2)	32 (1.3)	N/A
Others	375 (20.9)	359 (18.9)	374 (15.6)	360 (15.5)
Total	1,789	1,906	2,397	2,323

Note: Figures in parentheses denote percentage share of annual stock of investment.

Table 6: Chinese Investment in Hong Kong Manufacturing by Industry, at historical cost in US$ Millions (%)

Industry	1993	1994	1995	1996
Tobacco	N/A	350 (64.0)	119 (27.3)	86 (25.5)
Transport Equipment	373 (65.9)	N/A	291 (66.8)	139 (41.2)
Electronics	34 (6.1)	73 (13.4)	N/A	N/A
Textiles & Clothing	N/A	N/A	N/A	N/A
Metal Products	N/A	N/A	48 (11.1)	N/A
Electrical Products	17 (3.0)	23 (4.2)	N/A	N/A
Plastic Products	62 (11.1)	N/A	4 (1)	N/A
Chemical Products	39 (6.8)	N/A	N/A	81 (24)
Others	40 (7.1)	101 (18.4)	-27 (-6.2)	31 (9.2)
Total	565	547	435	337

Note: Figures in parentheses denote percentage share of annual stock of investment.

Table 7: Overall Overseas Investment in Hong Kong at 12/31/1996 at historical cost in US$ Billions

Country	Manufacturing	Non-manufacturing	Total
Japan	2.3	33.9	36.2
U.K.	0.3	23.9	24.2
China	0.3	22.0	22.3
U.S.A.	1.6	14.4	16.0
Italy	0.0	2.6	2.6
France	0.1	2.3	2.4
Germany	0.1	1.7	1.8
Netherlands	0.3	1.8	2.1
Others	1.1	18.3	19.3
Total	6.1	120.8	126.9

Sources: Industry Department and Census and Statistics Department, Hong Kong

TABLE 8: Amount and Growth of U.S. Investment in Hong Kong for 1994/95/96 in US$ Millions

Category	1994	1995	1996	1996/95% Change
Petroleum	553	598	599	0.2
Manufacturing	1,982	2,349	2,601	10.7
Wholesale	4,005	4,602	5,022	9.1
Banking	1,106	1,386	1,506	8.7
Financial/Insurance	4,145	3,949	4,656	17.9
Services	688	710	815	14.8
Others	538	612	823	34.5
Total	13,018	14,206	16,022	12.8

Note: U.S. Department of Commerce estimates the total U.S. direct investment position in Hong Kong at historical cost (the book value of U.S. direct investors' equity in, and net outstanding loans to, their foreign affiliates).

Source: Survey of Current Business July 1997, Direct Investment Positions on a Historical Costs Basis, 1996.Country and Industry Detail.

Table 9: Japanese Investment in Hong Kong in Yearly Flows for 1990-1997 in US$ Millions

Year	Amount
1990	1,785
1991	925
1992	735
1993	1,238
1994	1,133
1995	1,125
1996	1,540
1997	705

Note: ** Japanese statistics differ from HKG statistics.

Source: Japan Ministry of Finance. Figures are direct investment flows per Japanese Fiscal Year (April 1 to March 31).

TABLE 10: Japanese Investment in Hong Kong Sectoral Breakdown for 1990, 1994-1997 in US$ Millions

Sectors	1990	1994	1995	1996	1997
Manufacturing	113.5	215.0	276.0	409.0	218.0
Finance	398.0	429.0	424.0	302.0	154.0
Trade	752.0	180.0	188.0	229.0	173.0
Services	102.0	68.0	62.0	60.0	61.0
Real Estate	348.0	53.0	164.0	117.0	63.0
Transport	31.0	37.0	9.0	30.0	16.0
Others	36.0	147.0	2.0	392.0	21.0
Total	1,780.5	1,129.0	1,125.0	1,540.0	705.0

Source: Japanese Ministry of Finance.

TABLE 11: Hong Kong Overseas Direct Investment in Selected Economies As of May 1997 in US$ Billion

Country	value *	Cumulative period	Reference Ranking **
China	266.9	End-1996	1st
Indonesia	15.6	End-Mar 1997	3rd
Thailand	2.7	End-Sep 1996	2nd
Taiwan	2.0	End-1996	3rd
Vietnam	3.1	End-1996	3rd
Philippines	0.72	End-1996	3rd
Singapore	2.7	End-1992	4th
South Korea	0.65	End-1996	5th
Malaysia	1.1	End-1995	N/A
United States	1.3	End-1995	28th
Australia	0.6	End-June 1996	12th
Japan	0.72	End-Mar 1995	7th

Note: * Except those for Singapore, Thailand, the United States and Australia, all investment figures are compiled on approval basis. Direct comparison of the figures is not recommended, though, due to different definitions and coverages adopted by the governments of the countries concerned.

** Hong Kong's ranking in the country concerned

According to the United Nations World Investment Report 1996, Hong Kong was the fourth-largest outward investor in the world in 1995. Hong Kong, at US$25 billion, was outranked only by the United States (US$95.5 billion), the U.K. (US$37.8 billion) and Germany (US$35.3 billion). The report also noted that Hong Kong was the sixth-largest recipient of capital inflows in Asia, with the amount reaching US$2.1 billion.

Source: Hong Kong Government

TABLE 12: Hong Kong's Pledged and Actual Direct Investment in China in US$ Billions and Percent Share of Total Investment in China

Amount Year	Actually Pledged	Share of Invested	Total Investment
1990	3.8	1.9	58
1991	7.2	2.4	60
1992	40	2.5	69
19931	74	17.2	66
1994	49	20.0	60
1979-95	233	76.8	59

Source: PRC Ministry of Foreign Trade and Economic Cooperation (MOFTEC), Hong Kong Government estimates, Hong Kong Commercial Daily, April 12, 1996 citing MOFTEC.

Table 13: Major Foreign Investor Firms

United States: Motorola, Chase Manhattan, Sea-land, Exxon, Citibank, Mobil, Caltex, AT&T, IBM, Kodak, Bank of America, American International Group, Coca-Cola, Pepsi-Co, Pacific Waste Management.

Japan: Kumagai Gumi, Yaohan, Jusco, Daimaru, Mitsubishi, Uny, Nishimatsu, Daido Concrete, C. Itoh.

United Kingdom: Inchcape Pacific, Cable and Wireless, Hong Kong and Shanghai Banking Corporation, Standard Chartered Bank, Jardine Matheson, Swire Pacific Group, P & O Shipping.

West Europe: Carlsberg (Denmark), Hong Kong Petrochemicals (Italian/Korean/Chinese joint venture), Siemens, Heraeus (Germany), Philips (Netherlands); Bouygues/Dragages, Bachy-Soletanches, Banque National de Paris, Banque Indosuez, Chanel, Cartier, Christian Dior, Remy (France), Erikson, Asea Brown Boveri, Tetrapak, Electrolux (Sweden).

China : China Investment and Trust Corporation (CITIC), China Resources, China Merchants, Bank of China, China Travel Services, China Overseas Construction, Guangdong Enterprises, Yue Xiu Enterprises, China Everbright, Shanghai Industrial.

Asia: San Miguel Brewery (Philippines), News Corp., Pioneer (Australia), Sime Darby, Shangri-la/Kerry Trading (Malaysia), Park View Properties (Taiwan), Lippo Group (Indonesia), C.P. Pokphand (Thailand).

¹NOTE: This list is not in rank order nor is it comprehensive.

Prepared by the Economic/Political Section in consultation with the Foreign Commercial Section.