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Hong Kong Beats Netherlands and U.S. as Best Place for Business

Photographer: Jerome Favre/Bloomberg

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Photographer: Jerome Favre/Bloomberg

Hong Kong (HSI), a bastion of free-market policies and low corporate taxes as well as the gateway to the world’s most populous nation, is the best place to do business, according to data compiled by Bloomberg.

The city of about 7 million people secured top position in a new index based on six criteria including the degree of economic integration and labor costs. The Netherlands, the U.S., the U.K. and Australia occupied the next four leading slots.

The ranking marks a victory for Hong Kong 15 years after the city’s return to Chinese sovereignty stoked concern that its role as an international financial hub would slide. General Electric Co. has established operations there, Gap Inc. is among the retailers drawn by the 28 million Chinese tourists who pass through it and HSBC Holdings Plc is one of the financial titans listed on its stock exchange.

Hong Kong is a gateway to China, it has competitive tax rates and that makes it one of the natural choices for companies to set up their Asian headquarters,” said Tomo Kinoshita, deputy head of Asia economics research at Nomura Holdings Inc. who has worked in the city for five years. “It makes sense for companies that want to be close to China as well as the rest of Asia to use Hong Kong as their base.”

Bloomberg Rankings measured 160 markets on a scale of zero to 100 percent based on six factors. These are the costs of setting up business, hiring and moving goods; the degree of economic integration; less tangible costs such as inflation and corruption; and the readiness of the local consumer base, a category that includes the size of the middle class, household consumption and gross domestic product per person.

Last-Placed Brazil

Hong Kong scored 49 percent, eclipsing the Netherlands’ 48.3 percent and the U.S.’s 46.9 percent. Of the top 50, Germany was the leader on the basis of cost of doing business, moving goods and less tangible costs, while the readiness of the local consumers was deemed best in the United Arab Emirates. The price of labor and materials was lowest in Montenegro and the Netherlands was deemed best for setting up a business.

Brazil came bottom of the top 50 with 35.5 percent, undershooting India at 35.9 percent and Russia at 36.1 percent.

Hong Kong’s reputation for rule of law and corruption-free administration has helped distinguish the city from mainland China. Its links to the world’s fastest-growing major economy have plus points by allowing it to serve as center for the international use of the yuan, and last August China further relaxed limits on investment flows.

Hong Kong charges a corporate tax rate of 16.5 percent compared with the U.S.’s 35 percent. The prospect of tougher regulations on the financial industry elsewhere has increased pressure on banks from investors to weigh a move there.

GE Decision

When General Electric was looking to open headquarters for its global growth and operations team outside the U.S., it chose Hong Kong for its proximity to important emerging markets, quality of life and infrastructure, according to Michael A. Jones, executive vice president of business development, global growth and operations.

“Hong Kong is one of the best places in terms of transportation and logistics,” Jones said in a telephone interview. “The ability to be in a vibrant international city was pretty important.”

The city still faces challenges. It is home to Asia’s largest wage gap, and less than 25 percent of the land is developed, forcing up property prices and discontent among lower-paid locals.

Dutch Appeal

The Netherlands ran second, reflecting the appeal of an economy with five major ports and easy access to mainland Europe. Companies based there include Royal Philips Electronics NV, the largest light-bulb maker, and ASML NV (ASML), which has an 80 percent market share in the semiconductor equipment market.

The U.S., the world’s largest economy, came third. President Barack Obama released a business-tax overhaul proposal on Feb. 22 that would reduce the corporate rate to 28 percent and eliminate tax breaks.

Regionally, Chile was ranked the best place to do business in Latin America, while the U.A.E. was top in the Middle East and Africa. Poland had the highest score in emerging Europe.

The World Bank ranks Singapore and Hong Kong top in its gauge focused on the ease of doing business. The Washington- based Heritage Foundation has named Hong Kong the world’s freest economy for 18 successive years.

For Related News and Information:

To contact the reporters on this story: Simon Kennedy in London at skennedy4@bloomberg.net; Eleni Himaras in Hong Kong at ehimaras@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net Nick Gentle at ngentle2@bloomberg.net

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