C1 Ch.1 Hong Kong’s Business Environment Flashcards
What are the roles and importances of business in the Hong Kong economy?
- Providing employment opportunities. Firms hire staff for business operations.
- Producing income. By engaging in high value-added services, Hong Kong people can earn higher income. Business thus help raise raise the living standard of the people.
- Promoting economic growth. Growth of the industry will create opportunities for related and supportive business.
- Earning foreign exchange to pay for imports. By way of exports and re-exports, Hong Kong earns foreign exchange to pay for imports for consumption and production.
- Raising government revenue.
What are the major tax revenues?
- Profit tax on businesses.
- Stamp duties on property and stock transactions.
- Salaries tax on employees.
What are the characteristics of the Hong Kong economy?
- Lack of primary industries and concentration of tertiary industries.
- Dependence on external trade.
- Free trade.
- Simple taxation.
What is the definition and examples of primary sector?
Economic activities that extract natural resources, like agriculture, fisheries, mining.
What is the definition and the examples of the secondary sector ?
Economic activities that turn raw materials into semi-finished to finished goods like manufacturing, construction, electricity.
What is the definition and examples of the tertiary sector?
Economic activities that provide service to customers like financing and insurance.
How is the importance of the 3 sectors of an economy measured?
- Contribution to GDP.
- Employment distribution.
Explain on dependence on external trade.
- Hong Kong lacks arable land and natural resources, so needs to import food stuffs, fuel, raw materials, consumer durables from foreign countries.
- Hong Kong’s external trade is much higher than GDP.
Explain on free trade.
- Hong Kong is a free market economy with little government intervention.
- There are no trade barriers. Only a few commodities are subject to duties.
- There is no foreign exchange control. The free flow of capital allows businesses to move capital in and out of Hong Kong to tap into investment opportunities.
What are the main roles of the Hong Kong Government?
- Maintaining law and order.
- Maintaining open and fair competition in the market.
- Promoting free trade.
- Providing infrastructure.
- Providing education and training to Hong Kong people.
Explain on simple taxation.
- 3 direct taxes.
- No capital gains tax and sales taxes or value-added tax.
- Tax rates are low.
- Simple taxation and low tax rates make Hong Kong an attractive place to do business.
What are the objectives of the Closer Economic Partnership Agreement (CEPA)?
- To reduce or eliminate barriers on substantially all the trade in goods between Hong Kong and Mainland.
- To achieve liberalisation of trade in service through reduction or elimination of substantially all discriminatory measures.
- To promote trade and investment facilitation.
Explain on the details on trade in goods.
All goods originating in Hong Kong meet the CEPA rules of origin can enjoy zero tariff preference when being imported into the Mainland.
Explain on the details on trade in services.
- Hong Kong service suppliers can enjoy preferential treatment when setting up businesses in various service sectors in the Mainland.
- There is mutual recognition of professional qualifications and exemptions of examination papers.
Explain on the details on investment.
- Hong Kong investors can enjoy national treatment when investing in non-service sectors in Mainland.
- Investment protection and facilitation measures are provided for Hong Kong investors. A mechanism for settlement of investment disputes is provided.
What is economic and technical cooperation?
- Cooperation in 22 areas is enhanced.
- Cooperation in economic and trade areas of the Belt and Road Initiatives is deepened.
- Economic and trade cooperation in Pan-pearl River Delta Region is deepened.
What are the benefits of CEPA?
- Hong Kong Businesses have greater access to the Mainland market. Foreign investors establish businesses in HK to tap opportunities in the Mainland market.
- It is easier and safer for HK investors to invest in Mainland.
- Through the Ecotech Agreement, HK businesses can take part in some national development strategies.
- Mainland enterprises take HK as a springboard to the global market, facilitating the Mainland’s full integration with the world economy.
Explain on the relationship of China and Hong Kong as trading partners.
- Hong Kong’s largest trading partner is the Mainland. HK serves as an entrepot for trade between the Mainland and the rest of the world.
What is FDI?
FDI is foreign direct investment. Meaning investment in an enterprise in another economy with the objective of gaining control or exerting significant influence over management of the firm. In the most extreme case, investors may build new facilities from scratch, maintaining full control over operations.
What are the impacts of globalisation on HK businesses?
- Keen competition.
- International flow of capital and competition.
- Global sourcing and outsourcing.
- Technology transfer.
- Business expansion to overseas market.
Explain on keen competition.
HK Businesses compete with foreign firms for market, capital and talents.
To deal with the intense competition globally, HK businesses:
1. Develop their brand names to differentiate their products from competitors.
2. Cooperate or merge with large companies to increase their competitiveness.
3. Provide specialised goods and services in which they have a competitive advantage.
4. Diversify markets.
Explain on international flows of capital and information.
International flow of capital enables HK businesses.
1. To diversify their investment around the world to reduce risk like setting up production bases or branches overseas.
2. To have wider sources of capital like borrowing overseas at a lower interest rate.
International flow of information enable HK businesses.
1. To explore new market to spread market risks by selling products in different countries and regions through online shops.
2. To make better business decisions by gaining access to worldwide information.
Explain on global sourcing.
Brought by improvements and thus a lower cost, in ICT and transport technology.
It can increase global sourcing by:
Businesses purchase goods and services from different countries or regions.
Benefits: Access to not locally available goods and services or high-quality or low-cost materials, equipment and manpower.
Explain on global outsourcing.
Businesses contract out a production process or a business function to another firm within or outside the country or region.
Benefits: lower cost like product development cost, labour cost, rent, customer service.
