Foreign direct investment (FDI) in Hong Kong SAR, China

FDI in Figures

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown. In developing Asia, despite successive waves of COVID-19, FDI rose to an all-time high for the third consecutive year, reaching $619 billion. Asia is the largest recipient region, accounting for 40 per cent of global FDI. However, inflows remain highly concentrated; six economies account for more than 80 per cent of FDI to the region (UNCTAD, October 2022).

According to the 2022 World Investment Report released by UNCTAD, Hong Kong received USD 134.71 billion of FDI in 2020, over 82.7% more than in 2019 (USD 73.71 billion), driven mainly by an increase in intracompany loans and reinvested earnings. This amount topped USD 140.69 billion in 2021. While representing a small share of FDI, the rebound in cross-border M&A sales to USD 11 billion (from USD 1 billion in 2019) also contributed to this increase, thanks to many cases of Chinese MNEs consolidating affiliates in Hong Kong. Given the economy's sizeable intra-company flows and its close ties with China, which contributes 28% of its FDI stock, the rise in FDI in Hong Kong reflects corporate restructuring, particularly by Chinese multinationals, rather than new investment. It ranks 6th in terms of FDI inflows in 2021. It was also the seventh largest countryin the world in terms of FDI outflows, registering USD 87.45 billion in 2021. The stock of FDI reached USD 1 851 billion in 2020 and over 2 022 billion in 2021. Hong Kong is a hub for foreign MNEs' regional headquarters, inflows were mostly invested in services sector operations (including regional headquarters and finance functions that facilitate indirect FDI flows). The main investing countries are China, the British Virgin Islands, the United Kingdom, Bermuda and Japan. The vast majority (around three-quarters) of investments are intended for financial activities: holding, real estate, finance, insurance, banking, etc.

Hong Kong is attractive due to several strong factors: its strategic position (it is a gateway to the Chinese market), its status as a free port; its simple tax system that provides many incentives, good infrastructure and judicial security. Hong Kong has one of the world’s best regulatory systems for paying taxes.

The latest United NationAsia-Pacific Trade and Investment Trends Report provides additional information on FDI in Hong Kong and Asia-Pacific in 2022 and 2023.

What to consider if you invest in Hong Kong SAR, China

Strong Points

Hong Kong is an international leader in terms of international trade, a services centre with high added value and the bridgehead to one of the largest production bases in the world, China. Hong Kong has a sound economy and a stable and efficient financial and banking system. Key strong points for FDI in Hong Kong include:

• Favourable tax measures
• The transparency of local institutions 
• Freedom of information 
• Availability of qualified human resources  
• Its advantageous geographical location in Asia

Weak Points

Disadvantages for FDI in Hong-Kong include:

• High cost of property and work space (offices, shops, etc.)
• High cost of salaries, compared to other Asian countries such as Mainland China and India
• The excessive importance of the financial sector in national economy

Government Measures to Motivate or Restrict FDI

Hong Kong is a free territory for investments, which are in fact encouraged by the government with a favourable taxation policy and light legislation. Foreign companies can be set up freely, register their brands and the director of the company doesn't have to be a citizen nor a resident of Hong Kong. The government has also put in place numerous initiatives to support business innovation.

Bilateral investment conventions signed by Hong Kong SAR, China

To see the list of investment treaties signed by Hong Kong, consult UNCTAD's International Investment Agreements Navigator.