42574 Hong Kong, China Doing Business 2008 Hong Kong, China A Project Benchmarking the Regulatory Cost of Doing Business in 178 Economies Doing Business Project World Bank Group © 2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved. 1 2 3 4 5 09 08 07 06 A copublication of the World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. 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Contents Introduction......................1 Economy rankings.............2 Reforms...........................3 Summary of indicators........6 Starting a business.............8 Dealing with licenses.........13 Employing workers............18 Registering property...........22 Getting credit....................27 Protecting investors............31 Paying taxes.....................35 Trading across borders.......39 Enforcing contracts............43 Closing a business.............47 Topic details......................51 Introduction Doing Business 2008 is the fifth in a series of annual reports investigating the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 178 economies-from Afghanistan to Zimbabwe-and over time. Regulations affecting 10 stages of a business's life are measured: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2008 are current as of June 1, 2007. The indicators are used to analyze economic outcomes and identify what reforms have worked, where, and why. The Doing Business methodology has limitations. Other areas important to business -- such as a country's proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions, and the underlying strength of institutions -- are not studied directly by Doing Business. To make the data comparable across countries, the indicators refer to a specific type of business -- generally a limited liability company operating in the largest business city. Because standard assumptions are used in the data collection, comparisons and benchmarks are valid across economies. The data not only highlight the extent of obstacles to doing business; they also help identify the source of those obstacles, supporting policymakers in designing reform. The data set covers 178 economies: 46 in Sub-Saharan Africa, 31 in Latin America and the Caribbean, 28 in Eastern Europe and Central Asia, 24 in East Asia and Pacific, 17 in the Middle East and North Africa and 8 in South Asia-as well as 24 OECD high-income economies as benchmarks. Some of the regions have been divided into subregions to generate a total of 13 regional profiles. The following pages present the summary Doing Business indicators for Hong Kong, China along with the comparator economies selected. The data used for this country profile come from the Doing Business database and are summarized in graphs and tables. This report allows a comparison of the economies not only with one another but also with the "best practice" economy for each indicator. The best-practice economies are identified by their position in each indicator as well as their overall ranking and by their capacity to provide good examples of business regulation to other economies. These best-practice economies do not necessarily rank number 1 in the topic or indicator, but they are in the top 5. More information is available in the full report. Doing Business 2008 presents the indicators, analyzes their relationship with economic outcomes and recommends reforms. The data, along with information on ordering the report, are available on the Doing Business website . http://www.doingbusiness.org 1 Economy Rankings - Ease of Doing Business Hong Kong, China is ranked 4 out of 178 economies. Singapore is the top ranked economy in the Ease of Doing Business. Hong Kong, China - Compared to Global Best / Selected Economies: Hong Kong, China's ranking in Doing Business 2008 Rank Doing Business 2008 Ease of Doing Business 4 Starting a Business 13 Dealing with Licenses 60 Employing Workers 23 Registering Property 58 Getting Credit 2 Protecting Investors 3 Paying Taxes 3 Trading Across Borders 3 Enforcing Contracts 1 Closing a Business 15 2 Reforms - Who is reforming? This year Egypt tops the list of reformers that are making it easier to do business. Egypt's reforms went deep with reforms in 5 of the 10 areas studied by Doing Business, and it greatly improved its position in the global rankings as a result. Besides Egypt, the other top 10 reformers are, in order, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria. 1. Egypt, the top reformer in the region and worldwide, greatly improved its position in the global rankings on the ease of doing business. Its reforms went deep. Egypt cut the minimum capital required to start a business, from 50,000 Egyptian pounds to just 1,000 and halved the time and cost of start-up. It reduced fees for registering property from 3 percent of the property value to a low, fixed amount. It eased the bureaucracy that builders face in getting construction permits. It launched new one-stop shops for traders at Egyptian ports, cutting the time to import by seven days and the time to export by five. And it established a new private credit bureau that will soon be making it easier for borrowers to get credit. 2. Croatia reformed in four of the 10 areas studied by Doing Business. Two years ago, registering property in Croatia took 956 days. Now it takes 174. Company start-up also became faster, with procedures consolidated at a "one-stop shop" and pension and health services registration now online. Credit became easier to access: a new credit bureau was launched, and a unified registry now records charges against movable property in one place. In its first two months, 1.4 billion in credit was registered. In addition, amendments to the country's insolvency law introduced professional requirements for bankruptcy trustees and shorter timelines. 3. Ghana, a top 10 reformer for the second year running, continues to increase the efficiency of its public services. It cut bottlenecks in property registration, reducing delays from six months to one. Greater efficiency at the company registry and the environment agency cut the time for business start-up to 42 days. Changes in the port authority's operations sped up imports. New civil procedure rules and mandatory arbitration and mediation reduced the time it takes to enforce contracts. 4. FYR Macedonia eliminated the minimum capital requirement for business start-up, sped up the process for getting construction permits, lowered the corporate income tax rate to 12 percent (with another cut to 10 percent planned for 2008), and simplified tax payment procedures. Its ranking on the ease of doing business rose from 96 to 75. 5. Georgia reformed in six areas. It strengthened investor protections, including through amendments to its securities law that eliminate loopholes that had allowed corporate insiders to expropriate minority investors. It adopted a new insolvency law that shortens timelines for reorganization of a distressed company or disposition of a debtor's assets. Georgia sped up approvals for construction permits and simplified procedures for registering property. It made starting a business easier by eliminating the paid-in capital requirement. In addition, the country's private credit bureau added payment information from retailers, utilities, and trade creditors to the data it collects and distributes. 6. Colombia, the region's top reformer, has made great strides in easing trade. By extending port operating hours and adopting more selective customs inspections, it reduced the time for port and terminal handling activities by three days. The country strengthened investor protections by increasing disclosure requirements for related-party transactions. It introduced an electronic tax filing system, cutting the average time businesses must spend on tax compliance each year by 188 hours, or 41 percent. And it is progressively reducing the corporate income tax rate, from 35 to 34 percent in 2007 and 33 percent in 2008. 7. Saudi Arabia, the runner-up reformer in the region, eliminated the minimum capital requirement of 1,057 percent of income per capita and reduced the days needed for company start-up from 39 to 15. It launched a commercial credit bureau whose reports include the credit exposure of companies. It also sped up trade, reducing the number of documents required for importing and cutting the time needed for handling at ports and terminals by two days for both imports and exports. 8. Kenya, the region's other top 10 reformer, launched an ambitious licensing reform program. So far the program has eliminated 110 business licenses and simplified eight others. The changes have streamlined business start-up and cut both the time and cost of getting building permits. The program will eventually eliminate or simplify at least 900 more of the country's 1,300 licenses. Property registration is also faster now, thanks to the introduction of competition among land valuers. And the country's private credit bureau now collects a wider range of data. 3 9. In China, a new property law put private property rights on equal footing with state property rights. The law also expanded the range of assets that can be used as collateral to include inventory and accounts receivable. The new bankruptcy law gives secured creditors priority to the proceeds from their collateral. Construction also became easier, with electronic processing of building permits reducing delays by two weeks. 10. Bulgaria eased the tax burden on businesses and made it easier to pay taxes online. Bulgaria also introduced private bailiffs to improve efficiency in enforcing judgments. And it made building inspections less burdensome. Number of reforms in Doing Business 2008 Positive Reform Borders Licenses Workers Property Investors Total Negative Reform Business Contracts Business a with Credit Taxes Across a number of reforms Economy Starting Dealing Employing Registering Getting Protecting Paying Rank Trading Enforcing Closing 1 Egypt 5 2 Croatia 4 3 Ghana 5 4 Macedonia, FYR 3 5 Colombia 3 6 Georgia 6 7 Saudi Arabia 3 8 Kenya 4 9 China 3 10 Bulgaria 3 Hong Kong, China 0 Japan 0 Korea 0 Malaysia 2 Taiwan, China 0 Note: Economies are ranked on the number and impact of reforms, Doing Business selects the economies that reformed in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank in Ease of Doing Business from the previous year. The larger the imporvement, the higher the ranking as a reformer. 5 Summary of Indicators - Hong Kong, China Starting a Business Procedures (number) 5 Duration (days) 11 Cost (% GNI per capita) 3.1 Paid in Min. Capital (% of GNI per capita) 0.0 Dealing with Licenses Procedures (number) 23 Duration (days) 155 Cost (% of income per capita) 21.3 Employing Workers Difficulty of Hiring Index 0 Rigidity of Hours Index 0 Difficulty of Firing Index 0 Rigidity of Employment Index 0 Nonwage labor cost (% of salary) 5 Firing costs (weeks of wages) 62 Registering Property Procedures (number) 5 Duration (days) 54 Cost (% of property value) 5.0 Getting Credit Legal Rights Index 10 Credit Information Index 5 Public registry coverage (% adults) 0.0 Private bureau coverage (% adults) 64.7 Protecting Investors Disclosure Index 10 Director Liability Index 8 Shareholder Suits Index 9 Investor Protection Index 9.0 Paying Taxes Payments (number) 4 Time (hours) 80 Profit tax (%) 18.6 Labor tax and contributions (%) 5.3 Other taxes (%) 0.6 Total tax rate (% profit) 24.4 6 Trading Across Borders Documents for export (number) 4 Time for export (days) 6 Cost to export (US$ per container) 525 Documents for import (number) 4 Time for import (days) 5 Cost to import (US$ per container) 525 Enforcing Contracts Procedures (number) 24 Duration (days) 211 Cost (% of claim) 14.5 Closing a Business Time (years) 1.1 Cost (% of estate) 9 Recovery rate (cents on the dollar) 79.0 Starting a Business in Hong Kong, China: Entry Regulation When entrepreneurs draw up a business plan and try to get under way, the first hurdles they face are the procedures required to incorporate and register the new firm before they can legally operate. Economies differ greatly in how they regulate the entry of new businesses. In some the process is straightforward and affordable. In others the procedures are so burdensome that entrepreneurs may have to bribe officials to speed the process--or may decide to run their business informally. The data on starting a business are based on a survey and research investigating the procedures that a standard small to medium-size company needs to complete to start operations legally. These include obtaining all necessary permits and licenses and completing all required inscriptions, verifications and notifications with authorities to enable the company to formally operate. The time and cost required to complete each procedure under normal circumstances are calculated, as well as the minimum capital that must be paid in. It is assumed that all information is readily available to the entrepreneur, that there has been no prior contact with officials and that all government and nongovernment entities involved in the process function without corruption. To make the data comparable across economies, detailed assumptions about the type of business are used. Among these assumptions are the following: the business is a limited liability company conducting general commercial activities in the largest business city; it is 100% domestically owned, with start-up capital of 10 times income per capita, turnover of at least 100 times income per capita and between 10 and 50 employees; and it does not qualify for any special benefits, nor does it own real estate. Procedures are recorded only where interaction is required with an external party. It is assumed that the founders complete all procedures themselves unless professional services (such as by a notary or lawyer) are required by law. Voluntary procedures are not counted, nor are industry-specific requirements and utility hook-ups. Lawful shortcuts are counted. Cumbersome entry procedures are associated with more corruption, particularly in developing countries. Each procedure is a point of contact--an opportunity to extract a bribe. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices; and fuel corruption. 8 1. Historical data: Starting a Business in Hong Kong, China Starting a Business data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 6 13 Procedures (number) 5 5 5 Duration (days) 11 11 11 Cost (% GNI per capita) 3.4 3.3 3.1 Paid in Min. Capital (% of GNI per capita) 0.0 0.0 0.0 2. The following graph illustrates the Starting a Business indicators in Hong Kong, China over the past 3 years: 11 11 11 5 5 5 4.3 3.3 1.3 0 0 0 edures (number) s) ita) GNI (day r cap of ation pe (% .Capitalpita ) Dur GNI (% ca Proc Cost Min in per 2005 2006 2007 Paid 9 3. Steps to Starting a Business in Hong Kong, China It requires 5 procedures, takes 11 days, and costs 3.05% GNI per capita to start a business in Hong Kong, China. List of Procedures: 1. Apply to the registry 2. Obtain a Business Registration Certificate at the IRS 3. File notifications regarding company details 4. Sign up for Employee Compensation Insurance 5. Make a company seal More details are available in the appendix. 10 4. Benchmarking Starting a Business Regulations: Hong Kong, China is ranked 13 overall for Starting a Business. Australia is the top ranked economy followed by Canada, New Zealand and United States. Ranking of Hong Kong, China in Starting a Business - Compared to best practice and selected economies: 11 The following table shows Starting a Business data for Hong Kong, China compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% GNI Paid in Min. (number) (days) per capita) Capital (% of GNI per Australia* 2 2 0.0 Denmark 0.0 Selected Economy Hong Kong, China 5 11 3.1 0.0 Comparator Economies China 13 35 8.4 190.2 Japan 8 23 7.5 0.0 Korea 10 17 16.9 296.0 Malaysia 9 24 18.1 0.0 Taiwan, China 8 48 4.1 178.4 * The following economies are also best practice economies for : Procedures (number): Canada, New Zealand Paid in Min. Capital (% of GNI per capita): Canada, Ireland, Israel, Mauritius, New Zealand, Puerto Rico, Thailand, Trinidad and Tobago, United Kingdom, United States 12 Dealing with Licenses in Hong Kong, China: Building a Warehouse Once entrepreneurs have registered a business, what regulations do they face in operating it? To measure such regulation, Doing Business focuses on the construction sector. Construction companies are under constant pressure--from government to comply with inspections and with licensing and safety regulations and from customers to be quick and cost-effective. These conflicting pressures point to the tradeoff in building regulation--the tradeoff between protecting people (construction workers, tenants, passersby) and keeping the cost of building affordable. In many countries, especially poor ones, complying with building regulations is so costly in time and money that many builders opt out. Builders may pay bribes to pass inspections or simply build illegally--leading to hazardous construction. In other countries compliance is simple, straightforward and inexpensive--yielding better results. The indicators on dealing with licenses record all procedures officially required for an entrepreneur in the construction industry to build a warehouse. These include submitting project documents (building plans, site maps) to the authorities, obtaining all necessary licenses and permits, completing all required notifications and receiving all necessary inspections. They also include procedures for obtaining utility connections, such as electricity, telephone, water and sewerage. The time and cost to complete each procedure under normal circumstances are calculated. All official fees associated with legally completing the procedures are included. Time is recorded in calendar days. The survey assumes that the entrepreneur is aware of all existing regulations and does not use an intermediary to complete the procedures unless required to do so by law. To make the data comparable across economies, several assumptions about the business and its operations are used. The business is a small to medium-size limited liability company, located in the most populous city, domestically owned and operated, in the construction business, with 20 qualified employees. The warehouse to be built: · Is a new construction (there was no previous construction on the land). · Has complete architectural and technical plans prepared by a licensed architect. · Will be connected to electricity, water, sewerage (sewage system, septic tank or their equivalent) and one land phone line. The connection to each utility network will be 32 feet, 10 inches (10 meters) long. · Will be used for general storage, such as of books or stationery. The warehouse will not be used for any goods requiring special conditions, such as food, chemicals or pharmaceuticals. · Will take 30 weeks to construct (excluding all delays due to administrative and regulatory requirements). Where the regulatory burden is large, entrepreneurs move their activity into the informal economy. There they operate with less concern for safety, leaving everyone worse off. 13 1. Historical data: Dealing with Licenses in Hong Kong, China Dealing with Licenses data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 61 60 Procedures (number) 23 23 23 Duration (days) 155 155 155 Cost (% of income per capita) 24.6 23.6 21.3 2. The following graph illustrates the Dealing with Licenses indicators in Hong Kong, China over the past 3 years: 155 155 155 6. 6. 3. 23 23 23 24 23 21 edures (number) s) per (day ation income ) of Dur (% capita Proc Cost 2005 2006 2007 14 3. Steps to Building a Warehouse in Hong Kong, China It requires 23 procedures, takes 155 days, and costs 21.27% GNI per capita to build a warehouse in Hong Kong, China. List of Procedures: 1. Obtain approval of building plans 2. Apply and pay for technical audit of water connection works (Form HBP1) 3. Receive preliminary inspection for water connection 4. Apply and pay for technical audit by the Drainage Service Department 5. Receive a preliminary inspection for drainage connection 6. Apply for and receive a road excavation work permit from the Highway Department 7. Make payment and return the payment receipt 8. Notify and obtain approval from the traffic police 9. Obtain building consent approval from the Building Department (Form BA8) 10. Request and receive an inspection of foundation strata 11. Submit completion notification to the Building Department (Form BA14) 12. Receive an on-site inspection by Building Department 15 13. Notify the Drainage Service Department of construction completion and receive transfer inspection 14. Notify the Water Supply Department of construction completion and receive transfer inspection 15. Notify the Highway Department of construction completion and receive transfer inspection 16. Receive on-site visit of completed construction by Building Department 17. Obtain certificate of completion of construction (Form BA 13) 18. Obtain certificate of compliance from the Land Department 19. Obtain fire certificate and water certificate for fire service installation (Form FSI/501) 20. Obtain water supply certificate 21. Request and receive an inspection by the local electricity provider 22. Obtain electricity connection 23. Obtain a telephone line More details are available in the appendix. 16 4. Benchmarking Dealing with Licenses Regulations: Hong Kong, China is ranked 60 overall for Dealing with Licenses. St. Vincent and the Grenadines is the top ranked economy followed by New Zealand, Belize and Marshall Islands. Ranking of Hong Kong, China in Dealing with Licenses - Compared to best practice and selected economies: * The following economies are also best practice economies for Building a Warehouse: St. Vincent and the Grenadines 17 The following table shows Dealing with Licenses data for Hong Kong, China compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) income per capita) Denmark 6 Korea 34 United Arab Emirates 1.5 Selected Economy Hong Kong, China 23 155 21.3 Comparator Economies China 37 336 840.2 Japan 15 177 17.8 Korea 13 34 170.2 Malaysia 25 285 10.0 Taiwan, China 30 198 206.9 18 Employing Workers in Hong Kong, China: Labor Regulations Every economy has established a complex system of laws and institutions intended to protect workers and guarantee a minimum standard of living for its population. This system encompasses four bodies of law: employment, industrial relations, social security and occupational health and safety laws. Doing Business examines government regulation in the area of employment and social security laws. Three measures are presented: a rigidity of employment index, a nonwage labor cost measure and a firing cost measure. The rigidity of employment index is the average of three subindices: difficulty of hiring, rigidity of hours and difficulty of firing. Each index takes values between 0 and 100, with higher values indicating more rigid regulation. The difficulty of hiring index measures the flexibility of contracts and the ratio of the minimum wage to the value added per worker. The rigidity of hours index covers restrictions on weekend and night work, requirements relating to working time and the workweek, and mandated days of annual leave with pay. The difficulty of firing index covers workers' legal protections against dismissal, including the grounds permitted for dismissal and procedures for dismissal (individual and collective). The nonwage labor cost covers all social security payments and payroll taxes associated with hiring an employee, expressed as a percentage of the worker's salary. The firing cost indicator measures the cost of advance notice requirements, severance payments and penalties due when terminating a redundant worker, expressed in weeks of salary. The indicators on employment regulations are based on a detailed study of employment laws. Data are also gathered on the specific constitutional provisions governing the two areas studied. To ensure accuracy, both the actual laws and the applicable collective bargaining agreements are used. Finally, all data are verified and completed by local law firms through a detailed survey of employment regulations. To make the data comparable across economies, a range of assumptions about the worker and the company are used. Assumptions about the worker include that he is a nonexecutive, full-time male employee who has worked in the same company for 20 years and is not a member of the labor union (unless membership is mandatory). The company is assumed to be a limited liability manufacturing corporation that operates in the country's most populous city, is 100% domestically owned and has 201 employees. The company is also assumed to be subject to collective bargaining agreements in countries where such agreements cover more than half the manufacturing sector and apply even to firms not party to them. Most employment regulations are enacted in response to market failures. But that does not mean that today's regulations are optimal. Analysis across countries shows that while employment regulation generally increases the tenure and wages of incumbent workers, rigid regulations have many undesirable side effects. These include less job creation, smaller company size, less investment in research and development, and longer spells of unemployment and thus the obsolescence of skills--all of which may reduce productivity growth. Many countries err on the side of excessive rigidity, to the detriment of businesses and workers alike. 19 1. Historical data: Employing Workers in Hong Kong, China Employing Workers data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 21 23 Rigidity of Employment Index 0 0 0 Nonwage labor cost (% of salary) 5 5 5 Firing costs (weeks of wages) 62 62 62 2. The following graph illustrates the Employing Workers indicators in Hong Kong, China over the past 3 years: 62 62 62 5 5 5 0 0 0 of oyment (% ks of cost of Emplx costs(wee) wages idity Inde wage labor salary) Firing Rig 2005 Non 2006 2007 20 3. Benchmarking Employing Workers Regulations: Hong Kong, China is ranked 23 overall for Employing Workers. Marshall Islands is the top ranked economy followed by Brunei, Georgia and Tonga. Ranking of Hong Kong, China in Employing Workers - Compared to best practice and selected economies: * The following economies are also best practice economies for Employing Workers: Marshall Islands, Singapore 21 The following table shows Employing Workers data for Hong Kong, China compared to best practice and comparator economies: Best Practice Economies Rigidity of Nonwage Firing costs Employment labor cost (% (weeks of Index of salary) wages) Bangladesh* 0 Denmark* 0 Hong Kong, China* 0 Selected Economy Hong Kong, China 0 5 62 Comparator Economies China 24 44 91 Japan 17 13 4 Korea 37 13 91 Malaysia 10 15 75 Taiwan, China 49 13 91 * The following economies are also best practice economies for : Rigidity of Employment Index: Singapore, United States Nonwage labor cost (% of salary): Botswana, Ethiopia, Maldives Firing costs (weeks of wages): New Zealand, United States 22 Registering Property in Hong Kong, China: Regulation of Property Transfer Property registries were first developed to help raise tax revenue. Defining and publicizing property rights through registries has also proved to be good for entrepreneurs. Land and buildings account for between half and three-quarters of the wealth in most economies. Securing rights to this property strengthens incentives to invest and facilitates commerce. And with formal property titles, entrepreneurs can obtain mortgages on their home or land and start businesses. Doing Business measures the ease of registering property based on a standard case of an entrepreneur who wants to purchase land and a building in the largest business city. It is assumed that the property is already registered and free of title dispute. The data cover the full sequence of procedures necessary to transfer the property title from the seller to the buyer. Every required procedure is included, whether it is the responsibility of the seller or the buyer or must be completed by a third party on their behalf. Local property lawyers and officials in property registries provide information on required procedures as well as the time and cost to complete each one. For most countries the data are based on responses from both. Based on the responses, three indicators are constructed: · Number of procedures to register property. · Time to register property (in calendar days). · Official costs to register property (as a percentage of the property value). A large share of the property in developing countries is not formally registered, limiting financing opportunities for businesses. Recognizing this constraint, some developing country governments have embarked on extensive property titling programs. Yet bringing assets into the formal sector is of little value unless they stay there. Many titling programs in Africa were futile because people bought and sold property informally--neglecting to update the title records in the property registry. Why? Doing Business shows that completing a simple formal property transfer in the largest business city of an African country costs 12% of the value of the property and takes more than 100 days on average. Worse, the property registries are so poorly organized that they provide little security of ownership. For both reasons, formalized titles quickly go informal again. Efficient property registration reduces transaction costs and helps keep formal titles from slipping into informal status. Simple procedures to register property are also associated with greater perceived security of property rights and less corruption. That benefits all entrepreneurs, especially women, the young and the poor. The rich have few problems protecting their property rights. They can afford to invest in security systems and other measures to defend their property. But small entrepreneurs cannot. Reform can change this. 23 1. Historical data: Registering Property in Hong Kong, China Registering Property data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 59 58 Procedures (number) 5 5 5 Duration (days) 54 54 54 Cost (% of property value) 5.0 5.0 5.0 2. The following graph illustrates the Registering Property indicators in Hong Kong, China over the past 3 years: 54 54 54 5 5 5 5 5 5 edures (number) s) y (day propert ation of ) (% Dur value Cost Proc 2005 2006 2007 24 3. Steps to Registering Property in Hong Kong, China It requires 5 procedures, takes 54 days, and costs 5.01% GNI per capita to register the property in Hong Kong, China. List of Procedures: 1. Purchaser's solicitor does a land search at the Land Registry 2. Purchaser's solicitor registers the executed Agreement of Sale and Purchase (ASP) at his office 3. Property Assignment is prepared by the Purchaser's solicitor, signed by both parties, and filed at the Stamp Duty Office 4. Stamp office returns original stamped Assignment to the Purchaser's solicitor 5. Purchaser's solicitor registers the Property Assignment at the Land Registry More details are available in the appendix. 25 4. Benchmarking Registering Property Regulations: Hong Kong, China is ranked 58 overall for Registering Property. New Zealand is the top ranked economy followed by Armenia, Saudi Arabia and Lithuania. Ranking of Hong Kong, China in Registering Property - Compared to best practice and selected economies: 26 The following table shows Registering Property data for Hong Kong, China compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) property value) New Zealand* 2 Norway* 1 Saudi Arabia* 0.0 Selected Economy Hong Kong, China 5 54 5.0 Comparator Economies China 4 29 3.6 Japan 6 14 5.0 Korea 7 11 6.3 Malaysia 5 144 2.4 Taiwan, China 3 5 6.2 * The following economies are also best practice economies for : Procedures (number): Sweden Duration (days): Sweden, Thailand Cost (% of property value): Bhutan 27 Getting Credit in Hong Kong, China: Legal Rights and Credit Information Firms consistently rate access to credit as among the greatest barriers to their operation and growth. Doing Business constructs two sets of indicators of how well credit markets function--one on credit registries and the other on legal rights of borrowers and lenders. Credit registries--institutions that collect and distribute credit information on borrowers--can greatly expand access to credit. By sharing credit information, they help lenders assess risk and allocate credit more efficiently. And they free entrepreneurs from having to rely on personal connections alone when trying to obtain credit. Three indicators are constructed to measure the sharing of credit information: · Public registry coverage, which reports the number of individuals and firms covered by a public credit registry as a percentage of the adult population. · Private bureau coverage, which reports the number of individuals and firms covered by a private credit bureau as a percentage of the adult population. · Depth of credit information index, which measures the extent to which the rules of a credit information system facilitate lending based on the scope of information distributed, the ease of access to information and the quality of information. The data are from surveys of public registries and the largest private credit bureau in the country. Effective regulation of secured lending--through collateral and bankruptcy laws--can also ease credit constraints. By giving a lender the right to seize and sell a borrower's secured assets upon default, collateral limits the lender's potential losses and acts as a screening device for borrowers. The strength of legal rights index measures 10 aspects of the rights of borrowers and creditors in collateral and bankruptcy laws, including whether: · General rather than specific description of assets and debt is permitted in collateral agreements (expanding the scope of assets and debt covered). · Any legal or natural person may grant or take security in assets. · A unified registry operates that includes charges over movable property. · Secured creditors have priority both within bankruptcy and outside it. · Parties may agree on out-of-court enforcement of collateral by contract. · Creditors may both seize and sell collateral out of court, no automatic stay or "asset freeze" applies upon bankruptcy, and the bankrupt debtor does not retain control of the firm. The index ranges from 0 (weak legal rights) to 10 (strong legal rights). The data were obtained by examining collateral and bankruptcy laws and legal summaries and verified through a survey of financial lawyers. Where good-quality credit information is available and legal rights are stronger, more credit is extended. Benefits flow beyond those gaining access to credit. With better-functioning credit markets, unemployment is lower, and women and low-income people benefit the most. 28 1. Historical data: Getting Credit in Hong Kong, China Getting Credit data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 2 2 Legal Rights Index 10 10 10 Public registry coverage (% adults) 0.0 0.0 0.0 Private bureau coverage (% adults) 64.5 64.5 64.7 2. The following graph illustrates the Getting Credit indicators in Hong Kong, China over the past 3 years: 5. 5. 7. 64 64 64 10 10 10 0 0 0 Index erage(% age (% Rights y covs) bureauadu cover) lt lts Legal registradu blic ate Pu Priv 2005 2006 2007 29 3. Benchmarking Getting Credit Regulations: Hong Kong, China is ranked 2 overall for Getting Credit. United Kingdom is the top ranked economy followed by Hong Kong, China, Germany and Australia. Ranking of Hong Kong, China in Getting Credit - Compared to best practice and selected economies: 30 The following table shows Getting Credit data for Hong Kong, China compared to best practice and comparator economies: Best Practice Economies Legal Rights Public Private Index registry bureau coverage (% coverage (% Argentina* 100.0 Hong Kong, China* 10 Portugal 67.1 Selected Economy Hong Kong, China 10 0.0 64.7 Comparator Economies China 3 49.2 0.0 Japan 6 0.0 68.3 Korea 5 0.0 74.2 Malaysia 8 44.5 not available Taiwan, China 4 0.0 67.1 * The following economies are also best practice economies for : Legal Rights Index: United Kingdom Private bureau coverage (% adults): Australia, Canada, Iceland, Ireland, New Zealand, Nicaragua, Norway, Sweden, United States 31 Protecting Investors in Hong Kong, China Officials at Elf Aquitaine, France's largest oil company, awarded business deals in return for large side payments. Along with the extra cash, they got seven years in jail and a 2 million fine for abuse of power. Russian oil firm Gazprom purchased materials for new pipelines through intermediaries owned by company officers. The high cost raised eyebrows, but not court battles. Big cases make headlines. But looting by corporate insiders occurs every day on a smaller scale, and often goes unnoticed. To document the protections investors have, Doing Business measures how countries regulate a standard case of self-dealing--use of corporate assets for personal gain. The case facts are simple. Mr. James, a director and the majority shareholder of a public company, proposes that the company purchase used trucks from another company he owns. The price is higher than the going price for used trucks. The transaction goes forward. All required approvals are obtained, and all required disclosures made, though the transaction is unfair to the purchasing company. Shareholders sue the interested parties and the members of the board of directors. Several questions arise. Who approves the transaction? What information must be disclosed? What company documents can investors access? What do minority shareholders have to prove to get the transaction stopped or to receive compensation from Mr. James? Three indices of investor protection are constructed based on the answers to these and other questions. All indices range from 0 to 10, with higher values indicating more protections or greater disclosure. The extent of disclosure index covers approval procedures, requirements for immediate disclosure to the public and shareholders of proposed transactions, requirements for disclosure in periodic filings and reports and the availability of external review of transactions before they take place. The extent of director liability index covers the ability of investors to hold Mr. James and the board of directors liable for damages, the ability to rescind the transaction, the availability of fines and jail time associated with self-dealing, the availability of direct or derivative suits and the ability to require Mr. James to pay back his personal profits from the transaction. The ease of shareholder suits index covers the availability of documents that can be used during trial, the ability of the investor to examine the defendant and other witnesses, shareholders' access to internal documents of the company, the appointment of an inspector to investigate the transaction and the standard of proof applicable to a civil suit against the directors. These three indices are averaged to create the strength of investor protection index. This index ranges from 0 to 10, with higher values indicating better investor protection. If the rights of investors are not protected, majority ownership in a business is the only way to eliminate expropriation. But then investors must devote more oversight attention to fewer investments. The result: entrepreneurship is suppressed, and fewer profitable investment projects are undertaken. Where self-dealing is curbed, equity investment is higher, ownership concentration lower and trust in the business sector deeper. Investors gain portfolio diversification, and entrepreneurs gain access to cash. 32 1. Historical data: Protecting Investors in Hong Kong, China Protecting Investors data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 3 3 Investor Protection Index 8.7 9.0 9.0 2. The following graph illustrates the Protecting Investors index in Hong Kong, China compared to best practice and selected Economies: 7.9 7.8 0.9 0.7 0.5 3.5 3.5 na ea ina ina Chi Kor wan, Ch Japan ysia Mala g, Ch Zealand Tai Kon g New Hon Note: The higher the score, the greater the investor protection. 33 3. Benchmarking Protecting Investors Regulations: Hong Kong, China is ranked 3 overall for Protecting Investors. New Zealand is the top ranked economy followed by Singapore, Hong Kong, China and Malaysia. Ranking of Hong Kong, China in Protecting Investors - Compared to best practice and selected economies: 34 The following table shows Protecting Investors data for Hong Kong, China compared to best practice and comparator economies: Best Practice Economies Investor Protection Index New Zealand 9.7 Selected Economy Hong Kong, China 9.0 Comparator Economies China 5.0 Japan 7.0 Korea 5.3 Malaysia 8.7 Taiwan, China 5.3 35 Paying Taxes: Tax Payable and Compliance in Hong Kong, China Taxes are essential. Without them there would be no money to fund schools, hospitals, courts, roads, water, waste collection and other public services that help businesses to be more productive. Still, there are good ways and bad ways to collect taxes. The Doing Business tax survey records the effective tax that a company must pay and the administrative costs of doing so. Imagine a medium-size business, TaxpayerCo, that started operations last year. Doing Business asked accountants in 178 economies to review TaxpayerCo's financial statements and a standard list of transactions the company completed during the year. Respondents were asked how much tax the business must pay and what the process is for doing so. The business starts from the same financial position in each country. All the taxes and contributions paid during the second year of operation are recorded. Taxes and contributions are measured at all levels of government and include corporate income tax, turnover tax, all labor contributions paid by the company (including mandatory contributions paid to private pension or insurance funds), property tax, property transfer tax, dividend tax, capital gains tax, financial transactions tax, vehicle tax and other small taxes (such as fuel tax, stamp duty and local taxes). A range of standard deductions and exemptions are also recorded. Three indicators are constructed: · Number of tax payments, which takes into account the method of payment or withholding, the frequency of payment or withholding and the number of agencies involved for the standard case. · Time, which measures the hours per year necessary to prepare, file and pay the corporate income tax, value added or sales tax and labor taxes. · Total tax rate, which measures the amount of taxes payable by the company during the second year of operation. This amount, expressed as a percentage of commercial profit, is the sum of all the different taxes payable after accounting for various deductions and exemptions. Businesses care about what they get for their taxes and contributions, such as the quality of infrastructure and social services. Poor countries tend to use businesses as a collection point for taxes. Rich countries tend to have lower tax rates and less complex tax systems. And rich countries get more from their taxes. Simple, moderate taxes and fast, cheap administration mean less hassle for businesses--and also more revenue collected and better public services. More burdensome tax regimes create an incentive to evade taxes. 36 1. Historical data: Paying Taxes in Hong Kong, China Paying Taxes data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 3 3 Time (hours) 80 80 80 Total tax rate (% profit) 24.4 24.4 24.4 Payments (number) 4 4 4 2. The following graph illustrates the Paying Taxes indicators in Hong Kong, China over the past 3 years: 80 80 80 4. 4. 4. 24 24 24 4 4 4 (number) Time (hours) it) prof (% yments Pa Totaltax rate 2005 2006 2007 37 3. Benchmarking Paying Taxes Regulations: Hong Kong, China is ranked 3 overall for Paying Taxes. Maldives is the top ranked economy followed by Singapore, Hong Kong, China and United Arab Emirates. Ranking of Hong Kong, China in Paying Taxes - Compared to best practice and selected economies: * The following economies are also best practice economies for Paying Taxes: Maldives 38 The following table shows Paying Taxes data for Hong Kong, China compared to best practice and comparator economies: Best Practice Economies Payments Time (hours) Total tax (number) rate (% profit) Sweden* 2 United Arab Emirates* 12 Vanuatu 8.4 Selected Economy Hong Kong, China 4 80 24.4 Comparator Economies China 35 872 73.9 Japan 13 350 52.0 Korea 48 290 34.9 Malaysia 35 166 36.0 Taiwan, China 23 340 40.6 * The following economies are also best practice economies for : Payments (number): Maldives Time (hours): Maldives 39 Trading Across Borders: Importing and Exporting from Hong Kong, China The benefits of trade are well documented--as are the obstacles to trade. Tariffs, quotas and distance from large markets greatly increase the cost of goods or prevent trading altogether. But with faster ships and bigger planes, the world is shrinking. Global and regional agreements have brought down trade barriers. Yet Africa's share of global trade is smaller today than it was 25 years ago. So is the Middle East's, excluding oil exports. The reason is simple: many entrepreneurs face numerous hurdles to exporting or importing goods. They often give up. Others never try. Doing Business compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every official procedure--and the associated documents, time and cost--for importing and exporting the goods is recorded, starting with the contractual agreement between the two parties and ending with delivery of the goods. For importing the goods, the procedures measured range from the vessel's arrival at the port of entry to the shipment's delivery at the factory warehouse. For exporting the goods, the procedures measured range from the packing of the goods at the factory to their departure from the port of exit. To make the data comparable across countries, several assumptions about the business and the traded goods are used. The business is of medium size, with 100 or more employees, and is located in the periurban area of the country's most populous city. It is a private, limited liability company, domestically owned, formally registered and operating under commercial laws and regulations of the country. The traded goods are ordinary, legally manufactured products, and they travel in a dry-cargo, 20-foot FCL (full container load) container. Documents recorded include port filing documents, customs declaration and clearance documents, and official documents exchanged between the concerned parties. Time is recorded in calendar days, from start to finish of each procedure. Cost measures the fees levied on a 20-foot container in U.S. dollars. All the fees associated with completing the procedures to export or import the goods are included, such as costs for documents, administrative fees for customs clearance and technical control, terminal handling charges and inland transport. The cost measure does not include tariffs or trade taxes. Countries that have efficient customs, good transport networks and fewer document requirements--making compliance with export and import procedures faster and cheaper--are more competitive globally. That leads to more exports--and exports are associated with faster growth and more jobs. Conversely, a need to file many documents is associated with more corruption in customs. Faced with long delays and frequent demands for bribes, many traders avoid customs altogether. Instead, they smuggle goods across the border. That defeats the very purpose in having border control of trade--to levy taxes and ensure high quality of goods. 40 1. Historical data: Trading Across Borders in Hong Kong, China Trading Across Borders data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 3 3 Documents for export (number) 6 4 4 Time for export (days) 13 6 6 Cost to export (US$ per container) 425 525 525 Documents for import (number) 8 4 4 Time for import (days) 16 5 5 Cost to import (US$ per container) 425 525 525 2. The following graph illustrates the Trading Across Borders indicators in Hong Kong, China over the past 3 years: 525 525 525 525 425 425 6 4 4 13 6 6 8 4 4 16 5 5 r export s) ort s) r (US imp (day $ pe entsumber) for ort (day $ pe ort (US exp ner) ents forber) ner) (n import Docum Time for exp to contai (num Cost Docum Time for import to contai Cost 2005 2006 2007 41 3. Benchmarking Trading Across Borders Regulations: Hong Kong, China is ranked 3 overall for Trading Across Borders. Singapore is the top ranked economy followed by Denmark, Hong Kong, China and Norway. Ranking of Hong Kong, China in Trading Across Borders - Compared to best practice and selected economies: 42 The following table shows Trading Across Borders data for Hong Kong, China compared to best practice and comparator economies: Best Practice Economies Documents Time for Cost to Documents Time for Cost to for export export (days) export (US$ for import import (days) import (US$ (number) per (number) per Canada* 3 China 390 Denmark* 5 3 Singapore 3 367 Selected Economy Hong Kong, China 4 6 525 4 5 525 Comparator Economies China 7 21 390 6 24 430 Japan 4 10 989 5 11 1047 Korea 4 11 745 6 10 745 Malaysia 7 18 432 7 14 385 Taiwan, China 7 13 747 7 12 747 * The following economies are also best practice economies for : Documents for export (number): Estonia, Micronesia, Panama Time for export (days): Estonia, Singapore Documents for import (number): Sweden 43 Enforcing Contracts: Court Efficiency in Hong Kong, China Where contract enforcement is efficient, businesses are more likely to engage with new borrowers or customers. Doing Business tracks the efficiency of the judicial system in resolving a commercial dispute, following the step-by-step evolution of a commercial sale dispute before local courts. The data are collected through study of the codes of civil procedure and other court regulations as well as surveys completed by local litigation lawyers (and, in a quarter of the countries, by judges as well). The dispute, between two businesses (the Seller and the Buyer) located in the country's most populous city, concerns a contract for the sale of goods. The Seller agrees to deliver the goods, worth 200% of the country's income per capita, to the Buyer. After receiving and inspecting the goods, the Buyer concludes that their quality is inadequate. The Buyer sends the goods back without paying for them. The Seller disagrees and argues that their quality is adequate. The Seller seeks full payment from the Buyer, arguing that the goods cannot be sold to a third party because they were custom-made for the Buyer. The Seller sues the Buyer before the court in the most populous city to recover the amount due under the sales agreement (200% of the country's income per capita). Three indicators of the efficiency of commercial contract enforcement are developed: · Number of procedures, which includes all those that demand interaction between the parties or between them and the judge or court officer. · Time, which counts the number of days from the moment the plaintiff files the lawsuit in court until the moment of payment. This measure includes both the days on which actions take place and the waiting periods between actions. · Cost, which measures the official cost of going through court procedures, expressed as a percentage of the claim (assumed to be equivalent to 200% of income per capita). The cost includes court costs, enforcement costs and attorney fees where the use of attorneys is mandatory or common. Businesses that have little or no access to efficient courts must rely on other mechanisms, both formal and informal--such as trade associations, social networks, credit bureaus or private information channels--to decide whom to do business with and under what conditions. Or they might adopt a conservative approach to business, dealing only with a small group of people linked through kinship, ethnic origin or previous dealings and structuring transactions to forestall disputes. In either case economic and social value may be lost. The main reason to regulate procedures in commercial dispute resolution is that informal justice is vulnerable to subversion by the rich and powerful. But heavy regulation of dispute resolution backfires. Across countries, the more procedures it takes to enforce a contract, the longer the delays and the higher the cost. The result: less wealth is created. 44 1. Historical data: Enforcing Contracts in Hong Kong, China Enforcing Contracts data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 1 1 Procedures (number) 24 24 24 Duration (days) 211 211 211 Cost (% of claim) 14.5 14.5 14.5 2. The following graph illustrates the Enforcing Contracts indicators in Hong Kong, China over the past 3 years: 211 211 211 24 24 24 5. 5. 5. 14 14 14 edures (number) s) (day claim) of ation (% Dur Cost Proc 2005 2006 2007 45 3. Benchmarking Enforcing Contracts Regulations: Hong Kong, China is ranked 1 overall for Enforcing Contracts. Hong Kong, China is the top ranked economy followed by Luxembourg, Latvia and Singapore. Ranking of Hong Kong, China in Enforcing Contracts - Compared to best practice and selected economies: 46 The following table shows Enforcing Contracts data for Hong Kong, China compared to best practice and comparator economies: Best Practice Economies Procedures Duration Cost (% of (number) (days) claim) Bhutan 0.1 Ireland 20 Singapore 120 Selected Economy Hong Kong, China 24 211 14.5 Comparator Economies China 35 406 8.8 Japan 30 316 22.7 Korea 35 230 10.3 Malaysia 30 600 27.5 Taiwan, China 47 510 17.4 47 Closing Business in Hong Kong, China: Bankruptcy The economic crises of the 1990s in emerging markets--from East Asia to Latin America, from Russia to Mexico--raised concerns about the design of bankruptcy systems and the ability of such systems to help reorganize viable companies and close down unviable ones. In countries where bankruptcy is inefficient, unviable businesses linger for years, keeping assets and human capital from being reallocated to more productive uses. The Doing Business indicators identify weaknesses in the bankruptcy law as well as the main procedural and administrative bottlenecks in the bankruptcy process. In many developing countries bankruptcy is so inefficient that creditors hardly ever use it. In countries such as these, reform would best focus on improving contract enforcement outside bankruptcy. The data on closing a business are developed using a standard set of case assumptions to track a company going through the step-by-step procedures of the bankruptcy process. It is assumed that the company is a domestically owned, limited liability corporation operating a hotel in the country's most populous city. The company has 201 employees, 1 main secured creditor and 50 unsecured creditors. Assumptions are also made about the debt structure and future cash flows. The case is designed so that the company has a higher value as a going concern--that is, the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. The data are derived from questionnaires answered by attorneys at private law firms. Three measures are constructed from the survey responses: the time to go through the insolvency process, the cost to go through the process and the recovery rate--how much of the insolvency estate is recovered by stakeholders, taking into account the time, cost, depreciation of assets and the outcome of the insolvency proceeding. Bottlenecks in bankruptcy cut into the amount claimants can recover. In countries where bankruptcy is used, this is a strong deterrent to investment. Access to credit shrinks, and nonperforming loans and financial risk grow because creditors cannot recover overdue loans. Conversely, efficient bankruptcy laws can encourage entrepreneurs. The freedom to fail, and to do so through an efficient process, puts people and capital to their most effective use. The result is more productive businesses and more jobs. 48 1. Historical data: Closing Business in Hong Kong, China Closing a Business data Doing Business Doing Business Doing Business 2006 2007 2008 Rank 14 15 Time (years) 1.1 1.1 1.1 Cost (% of estate) 9 9 9 Recovery rate (cents on the dollar) 81 79 79.0 2. The following graph illustrates the Closing Business indicators in Hong Kong, China over the past 3 years: 81 79 79 1.1 1.1 1.1 9 9 9 the (cent) s on Time (years) e) estat of (% ry ratedollar Cost Recove 2005 2006 2007 49 3. Benchmarking Closing Business Regulations: Hong Kong, China is ranked 15 overall for Closing a Business. Japan is the top ranked economy followed by Singapore, Norway and Canada. Ranking of Hong Kong, China in Closing Business - Compared to best practice and selected economies: 50 The following table shows Closing Business data for Hong Kong, China compared to best practice and comparator economies: Best Practice Economies Recovery Time (years) Cost (% of rate (cents estate) on the Colombia 1 Ireland* 0.4 Japan 92.6 Selected Economy Hong Kong, China 79.0 1.1 9 Comparator Economies China 35.9 1.7 22 Japan 92.6 0.6 4 Korea 81.2 1.5 4 Malaysia 38.3 2.3 15 Taiwan, China 80.2 1.9 4 * The following economies are also best practice economies for : Time (years): Cape Verde 51 APPENDICES Starting a Business in Hong Kong, China This table summarizes the procedures and costs associated with setting up a business in Hong Kong, China. STANDARDIZED COMPANY Legal Form: Limited Liability Company Minimum Capital Requirement: HKD 1 City: Hong Kong Registration Requirements: No: Procedure Time to complete Cost to complete 1 Choose a company name; apply for a certificate of incorporation 7 days HKD 1,720 application at the Companies Registry fee + 0.1% of authorized share capital, capped at 30,000 2 Obtain a business registration certificate (Inland Revenue 1 day HKD 2,600 (for a Department) one-year certificate) 3 File notifications regarding company details with the Companies 1 day no charge Registry 4 Sign up Employee Compensation Insurance and Mandatory 1 day no charge Provident Fund (MPF) Schemes with a private company or a bank 5 Make a corporate seal and company rubber stamp 1 day HKD 215 52 Procedure 1 Choose a company name; apply for a certificate of incorporation at the Companies Registry Time to complete: 7 days Cost to complete: HKD 1,720 application fee + 0.1% of authorized share capital, capped at 30,000 Comment: A company name can be searched online free of charge at the Companies Registry. Applying for a certificate of incorporation requires that the memorandum and articles of association (unnotarized is acceptable) and a statement of compliance be filed with the Companies Registry. Companies are refunded HKD 1,425 for unsuccessful applications. According to the Companies (Amendment) Ordinance 2003, Hong Kong companies are no longer required to have at least two subscribers, directors, and shareholders. They can now have one each. Moreover, companies are no longer required to file a statutory declaration of compliance with the Companies Registry. Instead, a standard government form (a statement of compliance) must be completed and filed with the Companies Registry. Procedure 2 Obtain a business registration certificate (Inland Revenue Department) Time to complete: 1 day Cost to complete: HKD 2,600 (for a one-year certificate) Comment: A business registration certificate must be obtained within a month of starting operations, by filing an application form (Form 1[b]) and a copy of the certificate of incorporation. Procedure 3 File notifications regarding company details with the Companies Registry Time to complete: 1 day Cost to complete: no charge Comment: Within 14 days of the effective date of incorporation, the company is required to file with the Companies Registry notifications on the secretary and director(s), the location of the registered office, and the consent(s) to act as a director. Standard notification forms are available. Procedure 4 Sign up Employee Compensation Insurance and Mandatory Provident Fund (MPF) Schemes with a private company or a bank Time to complete: 1 day Cost to complete: no charge Comment: Under the Employees' Compensation Ordinance, an employer must possess a valid insurance policy to cover its employees (both full- and part-time) who are fatally injured or disabled due to accidents arising out of and during employment. In addition, all employees ages 18­65 and employed for 60 days or more under an employment contract (regardless of the number of work hours) must be covered by the Mandatory Provident Fund (MPF) Schemes Ordinance (except for persons exempted from the scheme) and be enrolled in an MPF scheme. The employer is also required to display the participation certificate issued by the Mandatory Provident Fund Authority at the work premises. The employer can arrange this insurance and the MPF scheme with any insurance company or bank in Hong Kong. Procedure 5 Make a corporate seal and company rubber stamp Time to complete: 1 day 53 Cost to complete: HKD 215 Comment: 54 Dealing with Licenses in Hong Kong, China The table below summarizes the procedures, time, and costs to build a warehouse in Hong Kong, China. BUILDING A WAREHOUSE Date as of: January 2,007 Estimated Warehouse Value: City: Hong Kong Registration Requirements: No: Procedure Time to complete Cost to complete 1 Obtain approval of building plans 60 days HKD 32,240 2 Apply and pay for technical audit of water connection works (Form 28 days HKD 4,470 HBP1) 3 * Receive preliminary inspection for water connection 1 day no charge 4 * Apply and pay for technical audit by the Drainage Service 21 days HKD 4,186 Department 5 Receive a preliminary inspection for drainage connection 1 day no charge 6 * Apply for and receive a road excavation work permit from the Highway 21 days HKD 1,860 Department 7 * Make payment and return the payment receipt 1 day no charge 8 * Notify and obtain approval from the traffic police 1 day no charge 9 Obtain building consent approval from the Building Department (Form 21 days no charge BA8) 10 Request and receive an inspection of foundation strata 1 day no charge 11 Submit completion notification to the Building Department (Form 1 day no charge BA14) 12 Receive an on-site inspection by Building Department 1 day no charge 13 * Notify the Drainage Service Department of construction completion 1 day no charge and receive transfer inspection 14 * Notify the Water Supply Department of construction completion and 1 day no charge receive transfer inspection 15 * Notify the Highway Department of construction completion and 1 day no charge receive transfer inspection 55 16 Receive on-site visit of completed construction by Building 1 day no charge Department 17 Obtain certificate of completion of construction (Form BA 13) 9 days HKD 45 18 Obtain certificate of compliance from the Land Department 30 days no charge 19 * Obtain fire certificate and water certificate for fire service installation 21 days HKD 3,440 (Form FSI/501) 20 * Obtain water supply certificate 7 days no charge 21 * Request and receive an inspection by the local electricity provider 1 day HKD 300 22 * Obtain electricity connection 14 days no charge 23 * Obtain a telephone line 5 days HKD 475 * Takes place simultaneously with another procedure. 56 Procedure 1 Obtain approval of building plans Time to complete: 60 days Cost to complete: HKD 32,240 Comment: BuildCo should submit the following documents for approval: - Building plans (Forms BA5, BD24). - Master layout plan. - General building plans. - Piling plans. - Hoarding plans. - Site formation plans. - Fire service installation plan (Form FSI/341A). - Environmental impact assessment (EPD Form 3). - Drainage plans. These documents should be submitted to the following entities: the Building Department, Planning Department, Land Department, Fire Services Department, Highway Department, Drainage Service Department, Water Supply Department, and Environmental Protection Department. A centralized processing system for building plans has been adopted so that all the government departments concerned are consulted and their comments on the proposals are collated within the specified time frame. BuildCo simply contacts the Building Department to apply for the building permit. Under the current approval procedure, the Building Department must complete the approval process within 60 days. More complicated commercial projects and residential projects take longer because the first submission is usually rejected because of minor issues, and the applicant must then resubmit the application. Procedure 2 Apply and pay for technical audit of water connection works (Form HBP1) Time to complete: 28 days Cost to complete: HKD 4,470 Comment: The application for water connection should be submitted at least 3 months in advance of actual connection by the Water Supply Department. Procedure 3 Receive preliminary inspection for water connection Time to complete: 1 day Cost to complete: no charge Comment: The preliminary inspection for water connection is conducted within 2 weeks after the application is filed. Procedure 4 Apply and pay for technical audit by the Drainage Service Department Time to complete: 21 days Cost to complete: HKD 4,186 Comment: The company should contact the Drainage Service Department and the Water Supply Department to obtain the technical audit document. 57 BuildCo must fill out and submit a form, the application for technical audit of drainage/water supply connection works, and must attach a check to the form. Procedure 5 Receive a preliminary inspection for drainage connection Time to complete: 1 day Cost to complete: no charge Comment: Procedure 6 Apply for and receive a road excavation work permit from the Highway Department Time to complete: 21 days Cost to complete: HKD 1,860 Comment: BuildCo must file the work plan and certification of no objection from the public institutions. It takes 14 days for the Highway Department to issue the payment notice and 4 days to issue the approval upon receipt of proof of payment. Procedure 7 Make payment and return the payment receipt Time to complete: 1 day Cost to complete: no charge Comment: Procedure 8 Notify and obtain approval from the traffic police Time to complete: 1 day Cost to complete: no charge Comment: Once BuildCo receives an excavation permit from the Highway Department, it must notify the regional traffic police and obtain their approval. Procedure 9 Obtain building consent approval from the Building Department (Form BA8) Time to complete: 21 days Cost to complete: no charge Comment: Procedure 10 Request and receive an inspection of foundation strata Time to complete: 1 day Cost to complete: no charge 58 Comment: At the approval stage for building foundation plans, the Building Department normally imposes some requirements and conditions for the construction of the foundation to ensure that the approved plans and the required standards are complied with. Upon the completion of the foundation, Form BA 14 and as-built foundation records must be submitted to notify the Building Department that the foundation work has been completed. The form must be approved by the Building Department before the next stage of construction can begin. The construction site is inspected within 7 days of the notification. Procedure 11 Submit completion notification to the Building Department (Form BA14) Time to complete: 1 day Cost to complete: no charge Comment: After completion of construction work, the company notifies the Building Department, which, in conjunction with other departments, inspects the building. Procedure 12 Receive an on-site inspection by Building Department Time to complete: 1 day Cost to complete: no charge Comment: An on-site inspection is part of construction process for buildings that have a piled foundation or other special foundation. Procedure 13 Notify the Drainage Service Department of construction completion and receive transfer inspection Time to complete: 1 day Cost to complete: no charge Comment: Procedure 14 Notify the Water Supply Department of construction completion and receive transfer inspection Time to complete: 1 day Cost to complete: no charge Comment: Procedure 15 Notify the Highway Department of construction completion and receive transfer inspection Time to complete: 1 day Cost to complete: no charge Comment: Procedure 16 Receive on-site visit of completed construction by Building Department 59 Time to complete: 1 day Cost to complete: no charge Comment: Procedure 17 Obtain certificate of completion of construction (Form BA 13) Time to complete: 9 days Cost to complete: HKD 45 Comment: BuildCo should request from the building authority a certificate of completion of construction of a new building and apply for an occupancy permit. The Building Department must reply to the applicant within 14 days of receiving the application. Building department staff have no more than 14 days to carry out the site visit. Once the visit is completed, it takes only a couple of days to issue the permit. In certain cases, the time can be reduced by 3 or 4 days. Procedure 18 Obtain certificate of compliance from the Land Department Time to complete: 30 days Cost to complete: no charge Comment: This certification procedure checks for compliance with land lease conditions and satisfaction of the requirements of all other relevant departments. Procedure 19 Obtain fire certificate and water certificate for fire service installation (Form FSI/501) Time to complete: 21 days Cost to complete: HKD 3,440 Comment: The initial inspection should begin no more than 14 working days after the receipt of the request for inspection. The inspection should be satisfactorily completed and all documentation processes completed in no more than 7 days. Procedure 20 Obtain water supply certificate Time to complete: 7 days Cost to complete: no charge Comment: Procedure 21 Request and receive an inspection by the local electricity provider Time to complete: 1 day Cost to complete: HKD 300 Comment: 60 Procedure 22 Obtain electricity connection Time to complete: 14 days Cost to complete: no charge Comment: Procedure 23 Obtain a telephone line Time to complete: 5 days Cost to complete: HKD 475 Comment: 61 Employing Workers in Hong Kong, China Employing workers indices are based on responses to survey questions. The table below shows these responses in Hong Kong, China. Employing Workers Indicators (2007) Answer Score Rigidity of Employment Index 0.0 Difficulty of Hiring Index 0.0 Are fixed-term contracts prohibited for permanent tasks? No 0 What is the maximum duration of fixed-term contracts (including renewals)? (in months) No limit 0.0 What is the ratio of mandated minimum wage to the average value added per worker? 0.00 0.00 Rigidity of Hours Index 0.0 Can the workweek extend to 50 hours (including overtime) for 2 months per year to respond to a Yes 0 seasonal increase in production? What is the maximum number of working days per week? 6 0 Are there restrictions on night work? No 0 Are there restrictions on "weekly holiday" work? No 0 What is the paid annual vacation (in working days) for an employee with 20 years of service? 14 0 Difficulty of Firing Index 0.0 Is the termination of workers due to redundancy legally authorized? Yes 0 Must the employer notify a third party before terminating one redundant worker? No 0 Does the employer need the approval of a third party to terminate one redundant worker? No 0 Must the employer notify a third party before terminating a group of 25 redundant workers? No 0 Does the employer need the approval of a third party to terminate a group of 25 redundant No 0 workers? Can an employer make redundant a worker only if the worker could not have been reassigned or No 0 retrained? Are there priority rules applying to redundancies? No 0 Are there priority rules applying to re-employment? No 0 Firing costs (weeks of wages) 62.1 What is the notice period for redundancy dismissal after 20 years of continuous employment? 4.3 (weeks of salary) 62 What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of 57.8 salary) What is the legally mandated penalty for redundancy dismissal? (weeks of salary) 0.0 Nonwage labor cost (% of salary) 5.0 Note: The first three indices measure how difficult it is to hire a new worker, how rigid the regulations are on working hours, and how difficult it is to dismiss a redundant worker. Each index assigns values between 0 and 100, with higher values representing more rigid regulations. The overall Rigidity of Employment Index is an average of the three indices. 63 Registering Property in Hong Kong, China This topic examines the steps, time, and cost involved in registering property in Hong Kong, China. STANDARDIZED PROPERTY Property Value: 1,423,000.00 City: Hong Kong Registration Requirements: No: Procedure Time to complete Cost to complete 1 Purchaser's solicitor does a land search at the Land 1 day HK$ 25 Registry 2 Purchaser's solicitor registers the executed (signed 30 days HK$ 210 and stamped) Agreement of Sale and Purchase (ASP) at his office 3 Property Assignment is prepared by the Purchaser's 12 days HK$ 100 +3.75% stamp solicitor, signed by both parties, and filed at the Stamp duty for non-residential Duty Office property 4 Stamp office returns original stamped Assignment to 10 days HK$ 450 (registration of the Purchaser's solicitor Assignment) + between 0.5% and 2% of property value (solicitor's fee, which is not mandatory and it is negotiable). 5 Purchaser's solicitor registers the Property Assignment 1 day included in previous at the Land Registry after the document has been procedure stamped and solicitor is paid for the service 64 Procedure 1 Purchaser's solicitor does a land search at the Land Registry Time to complete: 1 day Cost to complete: HK$ 25 Comment: It is a common procedure that the purchaser's solicitor conducts a land search of the property before execution of the Agreement of Sale and Purchase (ASP) to ensure that previous registration was complete and no other claims are still linked to the property. All land records are available for search by any interested parties upon payment of the prescribed fee of HK$ 25 for the current and historical search (this will take about 1 day). Procedure 2 Purchaser's solicitor registers the executed (signed and stamped) Agreement of Sale and Purchase (ASP) at his office Time to complete: 30 days Cost to complete: HK$ 210 Comment: The purchaser's solicitor registers the executed (signed and stamped) ASP at the private practitioner's office. During this period the purchaser gives a 10% down payment on the property and has time to arrange financing for the remainder owed. In addition, this time allows the purchaser's solicitor to peruse the title deeds and to raise requisitions on title and the vendor's solicitor to answer the title requisitions and to rectify any title problems. NOTE: The ASP gives the purchaser beneficial title, not legal possession of the property. Procedure 3 Property Assignment is prepared by the Purchaser's solicitor, signed by both parties, and filed at the Stamp Duty Office Time to complete: 12 days Cost to complete: HK$ 100 +3.75% stamp duty for non-residential property Comment: Depending on encumbrances that might be still associated with the property this process might take a longer time. NOTE: The Property Assignment will give the purchaser legal title and possession of the property. Procedure 4 Stamp office returns original stamped Assignment to the Purchaser's solicitor Time to complete: 10 days Cost to complete: HK$ 450 (registration of Assignment) + between 0.5% and 2% of property value (solicitor's fee, which is not mandatory and it is negotiable). Comment: This happens after the Stamp Office receives the original Assignment and payment of Stamp Duty. Procedure 5 Purchaser's solicitor registers the Property Assignment at the Land Registry after the document has been stamped and solicitor is paid for the service Time to complete: 1 day Cost to complete: included in previous procedure Comment: The duly stamped Assignment will then be presented by the solicitors to the Land Registry. The purchaser's solicitor shall register the Assignment at the Land 65 Registry within 30 days from the date of Assignment so as to preserve its priority under the law. After receipt of the original Assignment by the Land Registry, it will take another 28 days to three months (or usually two months) depending on the workload of the Land Registry at that time to complete the registration and return the Assignment to the solicitor's office. However, the title is legally property of the purchaser once the Property Assignment is submitted to the Land Registry on the first day. The remaining days (or months) account for the Registry to document the transfer in microfilm and other media. 66 Getting Credit in Hong Kong, China The following table summarize legal rights of borrowers and lenders, and the availability and legal framework of credit registries in Hong Kong, China. Getting Credit Indicators (2007) Indicator Private credit Public credit Private bureau coverage (% adults) 5 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or No No 0 utility companies as well as financial institutions? Are more than 2 years of historical credit information distributed? Yes No 1 Is data on all loans below 1% of income per capita distributed? Yes No 1 Is it guaranteed by law that borrowers can inspect their data in the largest Yes No 1 credit registry? Coverage 64.7 0.0 Number of individuals 3,800,000 0 Number of firms 100,000 0 Legal Rights Index 10 Does the law allow all natural and legal persons to be party to collateral agreements? Yes Does the law allow for general descriptions of assets, so that all types of assets can be used as collateral? Yes Does the law allow for general descriptions of debt, so that all types of obligations can be secured? Yes Does a unified registry exist for all security rights in movable property? Yes Do secured creditors have absolute priority to their collateral outside bankruptcy procedures? Yes Do secured creditors have absolute priority to their collateral in bankruptcy procedures? Yes During reorganization, are secured creditors' claims exempt from an automatic stay on enforcement? Yes During reorganization, is management's control of the company's assets suspended? Yes Does the law authorize parties to agree on out of court enforcement? Yes May parties have recourse to out of court enforcement without restrictions? Yes 67 Protecting Investors in Hong Kong, China The table below provides a full breakdown of how the disclosure, director liability, and shareholder suits indexes are calculated in Hong Kong, China. Protecting Investors Data (2007) Indicator Disclosure Index 10 What corporate body provides legally sufficient approval for the transaction? (0-3; see notes) 3 Immediate disclosure to the public and/or shareholders (0-2; see notes) 2 Disclosures in published periodic filings (0-2; see notes) 2 Disclosures by Mr. James to board of directors (0-2; see notes) 2 Requirement that an external body review the transaction before it takes place (0=no, 1=yes) 1 Director Liability Index 8 Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to 2 the company. (0-2; see notes) Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for 2 damage to the company. (0-2; see notes) Whether a court can void the transaction upon a successful claim by a shareholder plaintiff (0-2; see 1 notes) Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the 1 shareholder plaintiff (0=no, 1=yes) Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 shareholder plaintiff (0=no, 1=yes) Whether fines and imprisonment can be applied against Mr. James (0=no, 1=yes) 0 Shareholder plaintiff's ability to sue directly or derivatively for damage the transaction causes to the 1 company (0-1; see notes) Shareholder Suits Index 9 Documents available to the plaintiff from the defendant and witnesses during trial (0-4; see notes) 4 Ability of plaintiffs to directly question the defendant and witnesses during trial (0-2; see notes) 2 Plaintiff can request categories of documents from the defendant without identifying specific ones (0=no, 0 1=yes) Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the transaction 1 (0=no, 1=yes) Level of proof required for civil suits is lower than that for criminal cases (0=no, 1=yes) 1 Shareholders owning 10% or less of Buyer's shares can inspect transaction documents before filing suit 1 (0=no, 1=yes) 68 Investor Protection Index 9.0 Notes: Extent of Disclosure Index What corporate body provides legally sufficient approval for the transaction? 0=CEO or managing director alone; 1=shareholders or board of directors vote and Mr. James can vote; 2=board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote Immediate disclosure to the public and/or shareholders 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures in published periodic filings 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures by Mr. James to board of directors 0=none; 1=existence of a conflict without any specifics; 2= full disclosure of all material facts Director Liability Index Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company 0= Mr. James is not liable or liable only if he acted fraudulently or in bad faith; 1= Mr. James is liable if he influenced the approval or was negligent; 2= Mr. James is liable if the transaction was unfair, oppressive or prejudicial to minority shareholders Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for damage to the company 0=members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1=liable for negligence in the approval of the transaction; 2=liable if the transaction is unfair, oppressive, or prejudicial to minority shareholders Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0=rescission is unavailable or available only in case of Seller's fraud or bad faith; 1=available when the transaction is oppressive or prejudicial to minority shareholders; 2=available when the transaction is unfair or entails a conflict of interest Shareholder plaintiffs' ability to sue directly or derivatively for damage the transaction causes to the company 0=not available; 1=direct or derivative suit available for shareholders holding 10% of share capital or less Shareholder Suits Index Documents available to the plaintiff from the defendant and witnesses during trail Score 1 each for (1) information that the defendant has indicated he intends to rely on for his defense; (2) information that directly proves specific facts in the plaintiff's claim; (3) any information that is relevant to the subject matter of the claim; and (4) any information that may lead to the discovery of relevant information. Ability of plaintiffs to directly question the defendant and witnesses during trial 0=no; 1=yes, with prior approval by the court of the questions posed; 2=yes, without prior approval 69 Paying Taxes in Hong Kong, China The table below addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year in Hong Kong, China, as well as measures of administrative burden in paying taxes. Tax or mandatory Payments Notes on Time Statutory tax Tax Totaltax rate Notes on contribution (number) Payments (hours) rate base (% profit) TTR Property tax 1 online filing 5.0% rental value 0.16 Fuel tax 1 HKD 1.11 value of fuel 0.43 per liter consumption Social security 1 online filing 30 5.0% gross 5.26 contributions salaries Corporate income tax 1 50 17.5% taxable 18.59 profits Totals 4 80 24.4 Notes: a) data not collected b) VAT is not included in the total tax rate because it is a tax levied on consumers c) very small amount d) included in other taxes e) Withheld tax f) electronic filling available g) paid jointly with another tax Name of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. When there is more than one statutory tax rate, the one applicable to TaxpayerCo is reported. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. 70 Trading Across Borders in Hong Kong, China These tables list the procedures necessary to import and exports a standardized cargo of goods in Hong Kong, China. The documents required to export and import the goods are also shown. Nature of Export Procedures (2007) Duration (days) US$ Cost Documents preparation 2 20 Customs clearance and technical control 1 40 Ports and terminal handling 2 265 Inland transportation and handling 1 200 Totals 6 525 Nature of Import Procedures (2007) Duration (days) US$ Cost Documents preparation 2 20 Customs clearance and technical control 1 40 Ports and terminal handling 1 265 Inland transportation and handling 1 200 Totals 5 525 Export Bill of lading Cargo release order Commercial invoice Packing list Import Bill of lading Cargo release order Commercial invoice Packing list 71 Enforcing Contracts in Hong Kong, China This topic looks at the efficiency of contract enforcement in Hong Kong, China. Nature of Procedure (2007) Indicator Procedures (number) 24.00 Duration (days) 211.00 Filing and service 5.0 Trial and judgment 176.0 Enforcement of judgment 30.0 Cost (% of claim)* 14.50 Attorney cost (% of claim) 12.7 Court cost (% of claim) 1.5 Enforcement Cost (% of claim) 0.3 Court information: Hong Kong District Court www.judiciary.gov.hk * Claim assumed to be equivalent to 200% of income per capita. 72