Category Corporate Services

The West need to re-industrialize? – China: world’s factory?

New industrial revolution?

Betting on the West to re-industrialize is absurd, China will continue to be the world’s factory. Did the US import taxes on Chinese goods repatriate jobs? Not at all, despite the consumers prices increase and despite the so call Covid’s effects on shipments costs and raw materials costs, adding to this the extraordinary sense of opportunity of Chinese factories increasing their prices as numerous electricity cuts are in fact paid by Western consumers, this based on an easy principle: less production – higher prices.

Consumers prices are going ballistic, the western world isn’t realizing this fully as the most recent products with prices increased are still under shipment. As example 200,000 containers are right now waiting off Los Angeles port.

Re-industrialize – How?

Few weeks to wait and the results all of these prices increase with directly harm the Middle-class purchasing power, in France the yellow-jackets will be back in the streets and many governments will once again talk about self-sufficiency and strategies to re-industrialize.

China isn’t anymore a country with low labor costs and this fact is very displeasing to Western governments, BEFORE the excuse was the low labor costs, “unbeatable” from a Western perspective.

NOW, the Chinese labor costs could be higher than Europe, the working hours quite similar and the expectations of the labor force identical.

The West destroyed production capacities, they discouraged the only ones having the capacities to maintain and develop inter European industries: the entrepreneurs.

Without entrepreneurs there is no production, the governments don’t have the power to create jobs, they used their power to increase regulations, laws, taxes and administrative burden.

The only exception is when patriots are maintaining and developing industries, having for clients the defense industry, so making profits directly on tax payers.

That’s surely one of the reasons behind the Anti-Chinese campaigns, by exaggerating fears you could justify an increase of the government budget on defense, so to maintain and develop the defense industry and the attached labor force. But then you should raise taxes and once again a wave of potential entrepreneurs will leave your country or simply abandon any idea to create industrial jobs.

Will the West be feed by Chinese products purchased with their salaries obtained by working for the defense industry or generated by civil servants’ jobs?

The West should focus on seducing entrepreneurs, liberating energies by decreasing obstacles and taxes. Although entrepreneurs don’t want to fully admit it; the reasoning behind the decision for an entrepreneur to start a venture and to take risk is to obtain higher rewards.

If you can’t achieve freedom and financial success with at minima 3 times the income of a salary-man doing the same job, it’s better to seek for the security of a civil servant’s job.

Being an entrepreneur is painful, of course a government composed of individuals whom seldom worked in the private sector or even less as entrepreneur has no understanding of the difficulties.

The western world will re-industrialize only if the governments have a knee on the floor, begging the new generation to help, giving credit facilities, erasing stupid regulations and decreasing drastically taxes.

So, the West will not re-industrialize, the prices will go down a little bit, then everybody will calm down, Chinese factories will increase salaries and create jobs, China will continue to conquer by really improving the well-being of its population.

Solution

Under such circumstances, and despite the political attacks, incorporating a Hong Kong company is a short to long term solution to access Mainland China suppliers, ease the payments, and jump the queue of the competition. Credibility and low tax environment in the most pro-business city.

Combined with an efficient Fintech solution to manage currencies, a Hong Kong company setup cost will be reimbursed with the first order in China.

Are e-Commerce increasing margins just by incorporating a Hong Kong company?

e-Commerce: Hong Kong company?

China is the world factory; Hong Kong is a Chinese city with unlimited access to thousands of suppliers and millions of products. Although the access to product’s information with Alibaba and the likes is easy, purchasing in China could be a little bit difficult, in the past Hong Kong traders were the only beneficiaries of such difficulties and this was a source a wealth which is still displayed in the city.

Major advantages of incorporating a Hong Kong company

By incorporating a company in Hong Kong e-businesses will benefit from many advantages, the first being credibility with mainland China suppliers.

  1. Send a quotation request from France to a Chinese supplier and do the same from your Hong Kong company; for the second the response time with be twice faster and the price 10-15 % lower.
  2. The possibility to pay in RMB or Hong Kong dollars to mitigate currency variations, the possibility to keep and invest in RMB, the multi-currency accounts and faster payments are also protecting the margins of the ones whom decided incorporating a company in Hong Kong.
  3. The low tax environment is only one additional advantage, the ease of operations in a pro-business environment is a crucial element.
  4. By incorporating a company in Hong Kong, you are not only gaining credibility with Chinese suppliers, you are allowing the company an easy access to China market place and favorably positioning the company to welcome investors.

Digital economy / China market

Investors in the digital economy are paying great attention to:

  • Capital gain
  • Share transfers costs
  • Sustainable and stable tax environment

Many investors in the digital economy are from mainland China, they know and respect the Hong Kong advantages.

e-Commerce: Hong Kong company?

Most importantly for a e-business acquiring an investor from Mainland China represents a lot more than its financial contribution, the strategic partnership could drastically change the company future.

A Chinese or Asian investors will show great concern about the company tax exposure, but to be fair US investors might have a totally different approach and consider that by incorporating a company in Hong Kong the founders took a tax risk and so they would prefer to get a US entity where to invest.

Conclusion

As always, the rule is to incorporate only after a due review of the project and all its impacts: on the business & on the personal situation of each shareholder and directors.

Hong Kong shares transfer is an easy process which allow flexibility to the founders to transfer their share into a foreign holding company at very low costs, so should the company situation change… it would be very easy to adapt.

The cost of incorporating a company in Hong Kong will be compensated by the savings on the first order in mainland China!

99,405 new companies were incorporated in Hong Kong in 2020, Hong Kong is home for more than 1,380,000 companies this for a population of 7.5 million only! These simple facts are showing that Hong Kong is a resilient place of business, the perfect location for e-commerce and e-businesses.

Hong Kong economic freedom attracting actors of the digital economy

digital economy

The Economic Freedom of Hong Kong is attracting several actors from the Digital Economy. Digital entrepreneurs are crossing borders, they can leave anywhere and run their companies from various tax friendly countries, but the tax environment isn’t by far their main interest.

In most countries operating a SME is complicated, digital entrepreneurs will have to dedicate a lot of time filling paperwork for many government agencies.

Everything is time-consuming but this is considered normal in absence of comparison, so instead of focusing energy on sales and marketing a bright individual will end up spending hours on laws and regulation for its activities.

Hiring a new team member, understanding a complicated tax system, reporting VAT, managing accounting and audit, filling payroll…. each topic is a waste of energy, so the impact of bureaucracy is crucial for a company development and ease of operation.

Digital Economy

The Frasier Institute publish every year an index of economic freedom and basically ranks the countries for their ease of operation for a business in digital economy to operate in a simple and efficient environment. Hong Kong is number one since 1970, out of 165 ranked countries.

Let’s compare the 2020 ranking of few countries attracting digital entrepreneurs:

  • 1st Hong Kong
  • 2nd Singapore,
  • 4th Switzerland
  • 11th Mauritius
  • 25th Spain
  • 33rd Portugal
  • 40th Costa Rica
  • 47th Italy
  • 53rd France
  • 55th Malaysia
  • 58th Philippines
  • 68th UAE
  • 70th Indonesia
  • 89th Thailand
  • 126th Vietnam
digital economy

Operating a Hong Kong company in the digital economy is allowing digital entrepreneurs to focus on their company development without distraction, surviving a heavy competition and benefiting from a low tax environment, with pro-business attitude from multi-lingual team, purchasing at better costs to the world factory next door.

Living in Hong Kong remains attractive, despite the high costs of living, as the proximity with Mainland China offers access to better sourcing and cooperation with business partners. The current quarantine requirement makes it impossible to start the immigration process but this would change soon or later.

Covid situation

China economic dominance is a fact, this is creating political tensions and adverse medias but as a matter of fact this has no bad influence on a SME operation. The only issue faced by Hong Kong is the 21 days or 14 days strict quarantine at hotel requirement which is impacting negatively the businesses.

This quarantine requirement is similar to the ones in:

  • Australia,
  • New-Zealand,
  • Japan,
  • Singapore,
  • Indonesia,
  • Philippines,
  • Vietnam,
  • Thailand,
  • Laos, etc…

so we are all facing a divided world with totally different approaches on health management.

As you don’t need to be present to setup a Hong Kong company the digital entrepreneurs are benefiting from the world freest economy and could decide to leave in a low costs’ country (under the sun) such as Thailand and others.

Reference: Interactive map - See how countries position goes up or down from 1970 till 2020