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1st July, 2022 marked the 25th anniversary of the handover of Hong Kong to China. As an existing or a potential investor from overseas, you may be interested to know how has been the development of Hong Kong and if Hong Kong remains a favorable city to do business under “One Country, Two Systems”. This article will provide you with information that may concern your business operation.

One Country Two Systems

"One Country, Two Systems" is a constitutional principle initiated by Mr. Deng Xiaoping, former chairman of the Central Advisory Commission of China, to promote the orderly unification and governance of Hong Kong as a Special Administrative Region of China. The principle was stated in the Sino-British Joint Declaration signed in 1984 between China and the United Kingdom.

According to Mr. Deng, "One Country, Two Systems" means there is only but one China. China adheres to the socialist system while Hong Kong retains its capitalist system over a long time to come. Hong Kong will be self-governing with a high degree of autonomy and will maintain its existing governing and economic systems.

Development of Hong Kong over 25 years

Speaking at the ceremony celebrating the 25th anniversary of Hong Kong’s return to China, Chinese President Mr. Xi Jinping stressed the importance of upholding “One Country, Two Systems” framework.

“Over the past 25 years, Hong Kong's economy has been thriving, its status as an international financial, shipping, and trading center has been maintained, and its innovative science and technology industries have been booming. Hong Kong has remained one of the most liberal and open economies in the world, it has also maintained a world-class business environment, its previous laws including the practice of the common law have been maintained and developed, various social programs have made all-around progress, and overall social stability has been ensured. As a cosmopolis, Hong Kong's vitality has impressed the world.”

Hong Kong remains a stable and ideal place for doing business

After 25 years of handover, Hong Kong has positively developed and matured its international image. The city remains as a stable and ideal place for doing business from the economic and legal perspectives.

As per the statistics released by the Companies Registry in Hong Kong for the first half of 2022, the total number of local companies registered has reached 1,386,592 and as of today, 2,237 local companies among them are listed in the Hong Kong Stock Exchange.

Freest economy

Hong Kong once again ranked as the world's freest economy in the Economic Freedom of the World 2022 as per the Fraser Institute Annual Report. Fraser Institute assessed the degree of economic freedom of the places in five areas: the size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation. Among the five areas of assessment, Hong Kong continued to rank top in terms of its freedom to trade internationally and its regulation.

No foreign exchange control

Stability of a local currency and its accessibility to convert into other foreign currencies without much fluctuation is important for an economic system. Acting as an international financial hub, Hong Kong currency remains its policy of no foreign exchange control. In particular, the linked exchanged rate system between the Hong Kong dollar and the dollar of the United States is the keystone of Hong Kong’s monetary and financial stability.

Since 1983, the Hong Kong dollar has been linked to the dollar of the United States at a fixed exchange rate of HK$7.80 to US$1.00. It has been providing a stability of Hong Kong dollar in the market. Since 1998, the Hong Kong Monetary Authority has even strengthened the Hong Kong dollar through introducing a strong-side convertibility undertaking that the linked exchange rate was set to be HK$7.75 to US$1.00.

Despite of various regional and global financial crises over the years, the linked exchange rate system has benefited many economic cycles and has proved to be highly resilient.

Simple tax regime and low tax rate

Hong Kong has been renowned for its simple tax regime and such regime stays applicable. In Hong Kong, there is no sales tax or VAT, no investment withholding tax, capital gain tax, no estate tax, and no tax on dividend etc. but only three types of taxes apply: Profit Tax, Property Tax and Individual Tax.

In terms of profit tax, the government of Hong Kong also introduced a two-tier profits tax regime in 2018 which is favorable to all businesses. The first HK$2 million of assessable profits for corporation is 8.25% while the amount above the threshold is charged at the standard rate of 16.5%.

Consistent and independent legal system

Hong Kong has been enjoying a high degree of autonomy under the principle of “One Country, Two Systems”. The common law system continues to be practiced as constitutionally guaranteed, making the city the only common law jurisdiction within China. The commitment of Hong Kong to the rule of law and judicial independence is crucial to the city’s prosperity and stability as an international financial center.

Integration with the significant project development of China

The economy of China has been undoubtedly growing rapidly in the last decade. The Greater Bay Area and One Belt One Road are two of the most significant economic initiatives proposed by China.

The Greater Bay Area

Hong Kong plays an important role in the Greater Bay Area Development. The Greater Bay Area comprises the two Special Administrative Regions of Hong Kong and Macao, and nine municipalities of Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing in Guangdong Province. The total area is around 56 000 km. Hong Kong's status as international connector should naturally enable the city to promote the Greater Bay Area initiative to overseas and to attract more capital and talents therein. On the other hand, Hong Kong can take the advantage of its financial leadership and of the opportunities offered by nine Mainland Chinese cities in terms of market reach, industrial system, and technological developments

One Belt One Road

One Belt One Road is an idea proposed by China to revive the land and maritime Silk Roads back to the days of Marco Polo. It is viewed as China’s Marshall Plan to aid developments in Central Asian countries and to build relations with its neighbors. It also aims at improving connectivity and cooperation among multiple countries spread across the continents of Asia, Africa and Europe.

As a key link and the prime platform for the One Belt One Road, and with the Central Government’s support, Hong Kong can capitalize on its unique advantages to connect with China and with other regions, in areas such as the international project financing, offshore Renminbi (RMB) business, professional services, as well as economic and trade co-operation.

Future prospect of business environment in Hong Kong with the maintenance of its strength and continuing support of China

Hong Kong has been in a smooth transition from a colony to the motherland for 25 years. With the mixture of Chinese and western cultures, the foundation of a free economic system and a favorable tax regime, Hong Kong stands out as a city under international spot lights. On the other hand, with an on-going support of China, the future prospect of Hong Kong for doing business shall stay positive.

Prepared by Ms. Niki Shum, Senior Associate

of the Department of Corporate Governance of

La Nao Group Limited (TCSP Licence Number: TC007709)

and Fellow Member of The Hong Kong Chartered

Governance Institute (Member Number: 4057504)

Contact email:

Contact number: +852 2528 4999




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