An annual survey from the Census & Statistics Department shows the number of regional headquarters and regional offices in Hong Kong reached all-time highs this year, a clear sign that international companies still see Hong Kong as the ideal base to oversee their regional operations. The number of local offices also recorded an increase.

Invest HK's Director-General of Investment Promotion Mike Rowse welcomed the survey results.

"It is encouraging that Hong Kong remains international businesses' preferred location to manage their regional operations. The figures reflect that our city continues to attract investors from traditional markets, including the US and Japan," he said.

Asia's world city: A chart shows the number of regional headquarters in Hong Kong has reached an all-time high - and that makes Invest HK's Director-General of Investment Promotion Mike Rowse smile.

According to the 2004 Annual Survey of Regional Offices Representing Overseas Companies in Hong Kong, as at June 1, there were 1,098 regional headquarters (RHQs) and 2,511 regional offices (ROs) in Hong Kong of companies incorporated outside Hong Kong. The corresponding numbers as at June 2, 2003 were 966 and 2,241.

The United States topped the list of places with companies having RHQs in Hong Kong, with 256 American RHQs in Hong Kong in 2004. Next was Japan, with 198, and the Mainland, with 106.

Mr Rowse noted that there was "a substantial increase in what is probably the most desirable category from our point of view - regional headquarters - up by 132, or 13.7%. This shows that Hong Kong is retaining its attractiveness as a business location and we bounced back strongly from the economic problems we've had."

Regional offices, he added, increased by 270, up 12%. "From our point of view, it is  gratifying that this figure is at an all-time high. We recovered all the ground we lost after 2001."

HK's key advantages keep companies coming

"The results also tell us that Hong Kong's traditional advantages - including a simple and low tax regime, absence of exchange controls and free flow of information - keep Hong Kong competitive among neighbouring markets in Asia," Mr Rowse said.

The survey collected views from the companies on Hong Kong as a location for setting up RHQ/ROs. Among the factors affecting the choice of location for setting up here, a free flow of information was considered most important.

Other key factors - in descending order of importance - included a low and simple tax system, corruption-free government and absence of exchange controls. More than 60% of respondents rated these as important for setting up offices here.

The low and simple tax system was regarded by the largest proportion (75%) of companies as a favourable factor. Others included:

* free flow of information (73%);

* absence of exchange controls (72%);

* communication, transport and other infrastructure (71%);

* free port status (69%);

* geographical location (66%);

* corruption-free government (64%);

* availability of business and professional support services (64%);

* business opportunity in the mainland of China (63%); and

* availability of financial services (63%).

About 33% of companies thought the cost and availability of residential accommodation was unfavourable, while 26% thought the cost and availability of  business accommodation was unfavourable. About 16% and 22% of companies regarded them as favourable factors, though.

About 50% of the companies considered that, compared with a year ago, the overall business environment in Hong Kong as a location for setting up RHQ/ROs had remained more or less the same, and another 29% considered that the overall business environment had improved.

More Mainland companies set up in HK

"From our investment promotion work, we notice a trend of Mainland enterprises setting up operations in Hong Kong as a springboard to expand overseas. The new investment facilitation policy announced by the Ministry of Commerce will encourage more Mainland enterprises to invest in Hong Kong," Mr Rowse said.

To tap this trend, Invest HK has stepped up services for Mainland enterprises including a toll-free hotline in the Mainland. It has set up a centre dedicated to entreprises in Pacific Place, where they can learn more about the economic environment in Hong Kong when they visit here. It has also produced brochures and information kits for Mainland investors.

The unit also cooperates with the Ministry to produce guides that help potential investors know what steps they have to take to set up in Hong Kong.

Foreign companies also make use of Hong Kong as the gateway to access the growing Mainland market, he added.

"The importance of Hong Kong as a two-way platform will continue to grow. We also expect to see the initial effect brought along by the Mainland-Hong Kong Closer Economic Partnership Arrangement in the next 12 months, with foreign investors forming or expanding their Hong Kong operations to enjoy the preferential treatment."

Foreign Direct Investment index also points to further growth

"As suggested in the recently announced World Investment Report, the outlook for inward investment in the region is positive, and Hong Kong is one of the strongest magnets for foreign direct investments in the region. We are working with many foreign and Mainland companies to establish and expand their operations in Hong Kong, and are expecting a 40% year-on-year increase in our investment projects this year," Mr Rowse added.

Survey details, background

The 2004 survey is the fifth of its kind from the Census & Statistics Department. The former Industry Department had done similar annual surveys from 1990. In 2001, the survey coverage was extended to include local offices (LOs) in Hong Kong of companies incorporated outside Hong Kong.

The survey defines a regional headquarters (RHQ) as an office that has control over the operations of offices in the region such as Hong Kong plus one or more other places, and manages the business without frequent referrals to its parent company.

A regional office (RO) is an office that coordinates offices/operations in the region such as Hong Kong plus one or more other places, and manages the business with frequent referrals to its parent company or its regional headquarters.

The major line of business of the RHQs in Hong Kong was wholesale, retail and import/export trades. Other major lines of business included business services, transport and related services, finance and banking and manufacturing.

The United States also topped the list of countries/territories with companies having ROs in Hong Kong. A total of 557 American companies had ROs in Hong Kong in 2004. Japan followed, with 515 companies, and then came the United Kingdom, with 211 companies.

The major lines of business of the ROs in Hong Kong were wholesale, retail and import/export trades and business services.

According to the survey, there were 2,334 LOs as at June 1. The corresponding number as at  June 2, 2003 was 2,207. A local office (LO) is an office that solely takes charge of the business in Hong Kong on behalf of its parent company outside Hong Kong.

Japan topped the list of places with companies having LOs in Hong Kong. A total of 402 Japanese companies had LOs in Hong Kong in 2004. The United States was next, with 401 companies, followed by the mainland of China, with 373 companies.

The major lines of business of the LOs in Hong Kong were also wholesale, retail and import/export trades and business services.

Background to the survey

The survey was conducted to study RHQs, ROs and LOs in Hong Kong of companies incorporated outside Hong Kong. While the survey reference date was June 1, the fieldwork was mainly conducted within the two to three months thereafter.

The number of RHQs, ROs and LOs enumerated in each survey round represents only the best snapshot that could be taken at the time of the survey. Coupled with the voluntary nature of the survey, changes between years in the number of RHQs, ROs, and LOs may be affected by the continuous improvement in survey frame and response rate, and should be interpreted with care. With a response rate of 98% attained since the 2003 survey, the effect of improvement in response rate has been under control.

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

The total number of RHQs, ROs and LOs in Hong Kong, therefore, does not represent all companies with investment from outside Hong Kong.

How to purchase survey results

More detailed results are set out in the "Report on 2004 Annual Survey of Regional Offices Representing Overseas Companies in Hong Kong".

This publication is now available for sale, in both print ($30) and download versions (in PDF format, $22.50). It can be purchased online at the "Statistical Bookstore, Hong Kong", where purchasers can enjoy a special 25% discount until October 31.

Print versions can be purchased through mail order by returning a completed form which can be downloaded from the department's website.

It is also available at the department's Publications Unit on the 19/F, Wanchai Tower, 12 Harbour Road in Wan Chai. Questions? Call 2582 3025.

Enquiries about the survey results may be directed to thedepartment's Business Expectation Statistics Section on 2805 6112.