What’s behind the double benefits for Hong Kong under China’s new foreign investment law?
- City is lucky to enjoy the best of both worlds but those advantages also mean growing international scrutiny
- One concern is Beijing’s right to conduct a ‘national security review’ of foreign firms
With Premier Li Keqiang’s press conference, broadcast live nationwide last Friday, the curtain came down on China’s most important annual political event, known as the “two sessions”.
To the relief of the local business community watching the yearly gathering of the national legislature and the country’s top political advisory body in Beijing, Li had a reassuring message: China’s new foreign investment law would apply to Hong Kong, Macau and Taiwan.
While the premier’s reassurance means a lot to entrepreneurs and investors in these three jurisdictions looking for future investment incentives, isn’t it awkward or even problematic that confidence in the law hinges on a top leader’s personal promise rather than the legislation itself?
Like it or not, this reflects the Chinese-style approach of “Just go ahead and do it when a leader says it’s OK”, rather than waiting for specific rules and regulations, which take time.
Beijing’s top man in charge of Hong Kong and Macau affairs, Zhang Xiaoming, also gave a similar assurance earlier to investors in the country’s two special administrative regions that their interests would be protected by the new law.
The legislation is to replace the three existing laws on joint ventures and foreign enterprises which covered businesses in Hong Kong, Macau and Taiwan.
Understandably, Beijing can no longer consider the three jurisdictions “foreign” regions, but neither can they be seen as “domestic” entities. That is why they have been referred to as “overseas” or “across the border” in official terminology.
The passage of the new law was widely seen as China’s response to criticism and long-running complaints from foreign investors, particularly from the United States
After all, Hong Kong and Macau are two separate and independent customs territories under the “one country, two systems” policy. Taiwan is an even more complicated case.
The passage of the new law was widely seen as China’s response to criticism and long-running complaints from foreign investors, particularly from the United States.
With the US-China trade war dragging on, it was a necessary move, especially for better intellectual property rights protection and to ban forced technology transfers. But it cannot be a quick fix for all problems any time soon, and one significant concern is the government’s right to conduct a “national security review” of foreign firms.
However, the “non-foreign” and “non-domestic” nature of Hong Kong, Macau and Taiwan raises issues. That explains why Li reiterated that “institutional arrangements and actual practices that have long been in place and proven effective will go on”, referring to the decades-old policy of treating investors from the three jurisdictions the same as their “foreign” counterparts.
On the other hand, there has never been a lack of regulations specifically designed only for Hong Kong, Macau or Taiwan – from the free-trade agreement known as the Closer Economic Partnership Arrangement (Cepa) signed in 2003 between Hong Kong and the mainland, to the latest special taxation arrangements in the “Greater Bay Area” for residents of the three jurisdictions.
All this could be the envy of foreign investors, too.
Premier Li Keqiang reassures Hong Kong over mainland China’s foreign investment law
A similar case can be traced to 2003 during the Cepa talks, when locally based foreign companies raised questions as to how a “Hong Kong company” should be defined. Beijing, in the end, agreed that any company registered in the city, whether foreign or Chinese, would be eligible to enjoy Cepa benefits.
That is perhaps the irony of Hong Kong – even in a “non-foreign” capacity, it can still take advantage of benefits for foreign investors, plus specially designed ones that neither foreign nor mainland investors are entitled to.
But that also puts Hong Kong under growing international scrutiny, especially from the US in the current political environment and in the context of where Hong Kong-mainland relations are heading. Fair market play can be easier said than done.
