Protest in Hong Kong and US-China Trade War - Still OK to start a new business in Hong Kong?
Updated: Mar 19, 2020
Some Updates (Early 2020)
The political conflicts in Hong Kong remain unresolved, and such stress internalize becoming the hidden agenda of doing business in Hong Kong
Protests although less intense, small conflicts from time to time becoming the norm
It seems the Hong Kong local business environment highly affected in Hong Kong, the truth is shifting to more political selective - "Yellow Economy" and to online and upstairs shops, safe and cost cautious
Stock Market more volatile, yet, due to Alibaba proceeded the Hong Kong listing on Dec 2019, it released a strong signal that Hong Kong remains the investment hubs for Mainland China, rather than loss of the gateway status with an easy replacement
Results of Hong Kong's District Councilor and Taiwan President Election show the urge for democracy, where China might readopt a soft approach to avoid further resistance through economy-boosting policies, one is to fight against any trade war, also to protect China from a drastic cease of economic momentum and slow down of GPD growth, which means potential new business opportunities in 2020
Although local Hong Kong businesses are highly affected, company set up in Hong Kong still attractive, like the score originally at 9x, now lowered to 8x, still much better than many jurisdictions in comparison
Main Contnets of the Blog Post
This single blog is a summary of the useful resources, news links, and our latest reviews on the effects of the US-China Trade War and the prolonged Protest in Hong Kong affecting your decision on Doing Business in Hong Kong as a foreigner.
Also, this is an extended answer with an in-depth explanation of my quick Quora response in relation to “Would you be willing to open a new business in Hong Kong right now?”.
This blog mainly covering below three (3) topics:
Should I start my business in Hong Kong right now? Or should I wait?
How does the US-China Trade War affect Hong Kong?
How deep is the Hong Kong business affected by Protest? And Should I travel to Hong Kong right now?
Let's start with the first question, “Should I start my business in Hong Kong right now? Or should I wait?” and to answer that, below are the top six (6) questions that you should go through point by point for a fundamental idea about how much your potential business will be impacted during this period of time. Below the infographic, follow up with some in-depth insights on each question that you can further consider.
As you can tell, the quick answer is “It Depends”. Sorry that we cannot tell you whether or not this is the best timing, yet, in this article, you will have a better understanding on the impact of US-China Trade War and about the protest in Hong Kong, so that you can count these factors in to your business plan and evaluate the best arrangement for your start.
1) Does your business require Physical Presence in Hong Kong (Office, Shop, Warehouse … etc.)?
Office / Shop / Warehouse – be careful with the High Rental in Hong Kong that will eat you up the whole, especially for a business like Restaurant, CAFÉ, Retail Shop, Luxury Brand highly rely on tourists… etc.
Even you think it is okay to go ahead, always negotiate with your landlord to lower the rental burden
Hotel, Retail, Restaurant industries are getting hit severely, for the time being, we urge you to reanalyze the risk and even terminate the business plan to avoid potential loss
2) Is your business focusing on customers visit / in Hong Kong?
Tourist is highly affected, recent statistics show visitors approximate to 40% drop in August compare to last year (Source: https://partnernet.hktb.com/en/research_statistics/index.html)
The unrest environment without clear end ahead is impacting the overall local business atmosphere here in Hong Kong; even the situation has claimed, it requires a long period to resume with patience
Be prepared that customers will push you to take a side on political stands even you don’t want to involve
3) Is China Market and Connection important to your business?
China’s free-trade zones fail to shine as reported by South China Morning Post on 22 August 2019 article, which made Hong Kong remains its unique and critical position for foreigners to meet China’s partner at the midpoint, as soon as the infrastructures of Hong Kong still at top standard among the China regions
Legal System, Bilingual (Chinese and English) available in most of the statutory documents, East of Doing Business and Setting Up WFOE, Free and Unlimited RMB (CNY) exchange … etc. will not be affected by the Protest in Hong Kong making it remains the top choice for foreigners seeking China business opportunities
4) Is Singapore a valid alternative for you to start your business?
Most of the foreigners will compare Singapore with Hong Kong when considering the company set up options
Of course, the Local Director requirement for Singapore incorporation often an issue to the business owner making it not 100% foreign-owned in nature and respectively higher cost in maintenance, also taking longer time to proceed even just a simple resolution
If you prefer Hong Kong because you are doing E-commerce with trading operation with no VAT, GST, and other tax benefits, yet, you have high concerns with the Hong Kong situation, you may also consider commencing your business with Singapore company first, and when the business is mature, or Hong Kong has claimed down, shifting the business back to Hong Kong. Although the administration process is more complex, it is better than doing nothing and leaving the profitable business idle without any progress
5) Should I wait, suspend or postpone my business plan until a later time?
Yes, you can, especially if your business is an investment in nature, it would be better to wait as the volatility risk is too high to enter the market right now
And if you are thinking of retail or restaurant business, it is certainly better to engage when the situation has stabilized, and start to pick up, so that you can have a relatively low rental at the beginning stage
Remember, keep thinking of an alternative, and solution to allow you proceed with your business instead of keep waiting for the world to change for you unless creating your own business and pursuing your dream is not that important to you
6) So, any business that is NOT affected by the US-China Trade War or the Protest in Hong Kong at all?
Yes, International targeting online business, such as Digital Nomads, E-Commerce, Website Design, Copy Writing, Online Freelancer … etc. because you can have zero (0) presence in Hong Kong while the US-China Trade War is irrelevant to your business
Another type of business that has little impact compared to normal business is those businesses that would like to capture the “Greater-Bay Area” and/or “One-Belt-One-Road” opportunities, this is because the Hong Kong company mainly serving as a funding platform and resource center to obtain first-hand investment opportunities available in relation to any new policy announced or changed
To summarize with, the main focus is whether your business is/will be directly affected by the US-China Trade War and the Prolonged Protest in Hong Kong
If not at all, then, you can proceed to set up your company as usual
If only a little impact and you have some concerns, you can either wait/postpone your plan with a deadline for yourself, or you can proceed to have everything ready first (the Company, Bank Account, Website, Quotations from Suppliers … etc.) on hand first, so that you can commence the business once the situation claimed down
Another choice is that you consider to go through with business feasibility to see if there is an alternative location for you to start your business, or still stay in Hong Kong where you have all the risks in mind and how you to mitigate them
If your business is directly affected, it is strongly recommended that you to suspend your business proposal until the situation is definitely claiming down and under control, especially for those businesses that require a huge initial investment, for example setting up a travel agent in Hong Kong
For those with existing Hong Kong Company
If you already with an existing business in Hong Kong, and not sure whether you should close your business or hang in there for the time being, below in our executive insights that you can always be coming back as a quick guide helping you on the final decision
1) If your current Income sufficient to cover your Fixed Expenses (Income >> Expenses)?
If yes, then, minimize the expenses here in Hong Kong, for example, liaise with your landlord to lower the rental, making necessary staff reduction programs, and trying your best to expand your customer base elsewhere. Always remind yourself that it is not easy to get a fresh start-up and it might take a longer time than the situation to claim down. Besides, the tide will wipe out weaker competitors, ultimately, your business will become even stronger than before
2) If you already losing money, and you are thinking about “EXIT”
Try to see if there is anyone interested in buying your business? Even your competitor, so that you can get back a good lump sum for your next opportunity, whether it is another business in elsewhere, or simply an investment, for example, property that you can receive a passive income.
Another option, is it possible to move your business elsewhere, and downsizing your business here in Hong Kong at the same time? Such that if Hong Kong situation has steadied, you can have both businesses running as an expansion strategy, or else, upon your new business settled, you can end the business in Hong Kong, and move any customers that are valuable to your new business as well
Go for deregistration and simply end the business. This is a question about “Opportunity Cost”; you should only consider if you are experiencing a drastic drop in profit, and keeping the business will burn a huge amount of money every month
No matter how, it would be a tough decision, and there is no absolute right or wrong, simply give yourself a calculation and see which option would be the best fit for you and go for it without hesitation. Believe in your entrepreneur spirit, and you will have another success if you can survive this wave of tidy because no matter how you are stronger compared to yesterday.
We welcome your thoughts to share a good view or a good case here to allowing a constructive discussion for each other here.
How does the US-China Trade War affect Hong Kong?
If you need a clear timeline of all the detail about the US-China Trade War, here below with the two informative links that you can have a look:
And this BBC report about Trade war: US-China trade battle in charts is giving you a bigger picture of Trade War where your eyes should keep only onto that between US and China.
Yet, doe it means this is impossible to do Trading Business here in Hong Kong? Not at all, and let us explain to you point by point:
1) Weaker Yuan (CNY/RMB) in China
Yes, US Trade is difficult, yet, the world is big and you don’t need to limit yourself to USD only. Due to US-Chin Trade War, RMB devaluing for a quite a lot since early this year as you can see from the below graph (Source: https://www.macrotrends.net/2575/us-dollar-yuan-exchange-rate-historical-chart)
Very straight forward, a weaker yuan makes Chinese exports more competitive, or simply cheaper goods to purchase with foreign currencies
With Hong Kong Company and Hong Kong corporate bank account, because HKD is pegged with USD, so RMB devaluing is not affected with your HKD payment in Hong Kong, while you can always purchase RMB freely with unlimited amount anytime when you would like to hedge with your trade risk in dealing with China Supplier; besides, most of the corporate bank allow you with currency contract to further protect you in performing your trading business
2) Buy Insurance with your Hong Kong company to hedge your trade risk
Hong Kong government knowing that trading industry is important, and therefore, taking initiative in providing price worthy trading insurance for all small business in Hong Kong: https://www.ec-reach.com.hk/
The best of this insurance is the indemnity ratio at 90%, where even you are performing US-China trade and your customer default your payment due to sudden increase of tariff, you are still protected by this insurance. Imagine all your competitors with worries in taking US orders, and you are the one that with the capability to do business, for sure, you are having competitive advantages in this market and making you a stronger survivor.
3) Little loophole through Hong Kong or nearby Asia countries
This is from the extract of HKTDC website: https://hkmb.hktdc.com/en/ustrade
What interesting is the last arrangement, and we have extracted two (2) important articles on how you can get used by Hong Kong companies to lower the tariffs during the Trade War
v. Apply duty reduction programmes such as the “first sale rule” to lower the price on which tariffs are appraised
Trump’s Trade War Tariffs Send Firms to Hong Kong for a Little-Known Legal Loophole (SCMP)
Hong Kong's tariff loophole flourishes in US-China trade war (Nikkei Asian Review)
Frankly, the progress and outcome of the trade war and protest are hard to predict, the best we can do is to offer you the most up-to-date information and source so that you can get access to making relevant decisions. We will continue to update this blog for any breakthrough, if you are interested, please send us an email at catcherbiz@outlook.com with the title “Update Me the Progress of Trade War and Hong Kong Protest”, and we will notify you by email every time we have updates on this blog.
How does the US-China Trade War affect Hong Kong?
For other agents, they might not telling you all the truth, while I will tell you all the information plus the flow from beginning to the current situation, and share with you our expert comments on this. So that you can deduce the best strategic and catching the opportunities even in an adverse situation in other one’s eyes.
First thing first, if you would like to know the most updated information about Hong Kong Protest, you can check this Bloomberg article, it is a timeline with all the articles, photos and videos that you can have a full understanding about the development of the protest:
https://www.bloomberg.com/graphics/hong-kong-protests-timeline/ (with limited free access only), in our opinion, this is a comprehensive, clear, and fair information source for you to determine whether or not you think it is safe to visit Hong Kong at this moment.
Below are some hard facts that you should know about
We still need to go to work, back to school as usual;
Curfew or martial wasn’t announced for the time being;
You won’t see armed soldiers patrolling on the street;
You have all the freedoms to go anywhere you like;
You need security precautions, but not prohibited to travel;
MTR (main train transportation system in Hong Kong) with many stations shut down, which severely affects the traffic condition here;
Most of the tourist attractions, such as Causeway Bay, Tsim Sha Tsui, Sham Shui Po are the main protest areas that you should avoid going to these places
If you have already planned your trip to Hong Kong and not sure whether you should come or not, perhaps you can check out below Youtube tourist interview in Hong Kong posted on 30 Sep 2019: https://youtu.be/m-BmKEcBTD8
And if you must come, be reminded to check the latest update from Discover Hong Kong: http://www.discoverhongkong.com/eng/index.jsp
IMPORTANT, avoid wearing “black” while out and about to avoid being mistaken for protesters.
Hope this blog post suits you well, and please feel free to contact me at catcherbiz@outlook.com if you have specific concerns in starting a new business in Hong Kong at this moment, cheers.