There are no restrictions of general application on FDI, although certain sectors do require licenses to be obtained. The only sector subject to FDI regime restrictions is inward investment in the broadcasting industry.

There are:

• Tiered restrictions on acquiring voting control of TV Licensees based on the percentage of voting control acquired.
• A 49 percent cap on ownership of sound broadcasting licensees by (in each case) non-resident corporations or non-permanent resident individuals (unqualified persons).

On attaining each of the stipulated percentage thresholds above, an unqualified person must obtain approval from the Office of the Communications Authority (OFCA).

OFCA

No time limit.

Mandatory notification if an unqualified person holds, acquires or exercises voting control of:

• Five percent or more but less than 10 percent.
• 10 percent or more but not more than 15 percent.
• More than 15 percent, in aggregate of the total voting rights of a TV Licensee.

The transfer of voting rights in the TV Licensee reaches certain stipulated percentage thresholds.

The FDI regime captures both indirect and direct acquisitions of voting control in the TV Licensee.

OFCA does not set a fixed timeline. Reviews are conducted on a rolling basis.

For TV broadcasting-related violations: fine of HK$1 million and imprisonment for two years.

For sound broadcasting-related violations: fine of HK$100,000.

TV Licensee may appeal by petition to Chief Executive in Council 30 days within the date of the decision.

No special measures.

Generally, the Hong Kong Special Administrative Region of the People’s Republic of China (Hong Kong) is characterized by its free-market principles and, apart from the broadcasting sector, does not restrict foreign investment or ownership in local businesses.

Hong Kong is a special administrative region of the People’s Republic of China (PRC), and notwithstanding the fact that Hong Kong and the mainland of the PRC (Mainland China) operate under different legal systems and traditions (Hong Kong is common law-based while Mainland China is civil law-based), the relationship between the two jurisdictions has grown progressively closer since the return of Hong Kong to Chinese sovereignty in 1997. The central government of the PRC and Hong Kong have entered into various iterations of the Hong Kong Closer Economic Partnership Arrangement (CEPA), a landmark free trade agreement. Under CEPA, Hong Kong-origin goods and services from selected industries are, subject to a certification process, granted preferential access to the Mainland China market. 

Hong Kong individuals and legal entities can enjoy preferential treatment when setting up a business in most service sectors in Mainland China subject to obtaining a Hong Kong Service Supplier Certificate (HKSS Certificate) from the Hong Kong government under CEPA. CEPA is also potentially relevant to foreign investors in Hong Kong because a foreign service supplier (i.e. one that is not from Hong Kong or Mainland China) that owns more than 50 percent of the equity interests in a Hong Kong service supplier and that has owned such interests for at least one year after the relevant merger or acquisition may be able to apply via the Hong Kong service supplier for a HKSS Certificate. As such, foreign investors in Hong Kong could potentially benefit under the CEPA arrangement provided that all requisite requirements including the minimum holding period requirement are fulfilled.

On a regional level, Hong Kong is part of the Greater Bay Area (GBA), which comprises Hong Kong, Macau and nine municipalities within Guangdong Province (being Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing). As detailed in the Outline Development Plan for the GBA, a focus of the GBA initiative is to build an open community for coordinated innovation within the region, and to encourage domestic and foreign investors to set up R&D institutions and innovation platforms in Guangdong, Hong Kong and Macao. Hong Kong foreign direct investment may, therefore, also serve as a stepping stone to investment in, or cooperation with other entities in, the GBA.

The only industry sector in Hong Kong subject to FDI restrictions is the broadcasting industry, with there being a restriction on foreign ownership of a TV Licensee (as defined below) or Broadcasting Licensee (as defined below). The transfer of five percent or more of the ownership of a TV Licensee to a foreign entity or foreign person is subject to written approval by the OFCA (as defined below).

TV Licensees

Pursuant to the Broadcasting Ordinance (Cap. 562) (BO), domestic free-to-air television program service licenses or domestic pay television program service licenses may only be granted to:

• Corporations which are ordinarily resident in Hong Kong.  
• Individuals who are permanent residents and are ordinarily resident in Hong Kong.

Individuals who are not permanent residents that are ordinarily resident in Hong Kong and corporations that are not ordinarily resident in Hong Kong (unqualified persons) must obtain the written approval of the Office of the Communications Authority (OFCA) before holding, acquiring or exercising voting control of:

• Five percent or more but less than 10 percent.
• 10 percent or more but not more than 15 percent.
• More than 15 percent, in aggregate of the total voting control of a domestic free-to-air television program service licensee (TV Licensee).

Furthermore, if the total voting rights exercised by unqualified persons exceed 49 percent of the total voting control of the TV Licensee, the votes cast by the unqualified persons will reduce based on the formula detailed in the BO.

On the other hand, there are no such voting control restrictions pertaining to domestic pay television program service licensees.

Broadcasting Licensees

In addition, under the Telecommunications Ordinance (Cap. 106) (TO), the aggregate of the voting shares that can be held by unqualified persons must not exceed 49 percent of the total number of voting shares of a sound broadcasting licensee (Broadcasting Licensee).

The OFCA is the statutory body responsible for both the enforcement of the BO and the TO in Hong Kong, and its functions include the FDI review for transactions requiring written approval.

Other than the OFCA, there are no other authorities in charge of FDI in Hong Kong.

TV Licensees; Broadcasting Licensees

The OFCA is empowered to serve written notice on:

• Any unqualified persons who have failed to obtain the requisite permission from the OFCA to hold, acquire or exercise voting control of five percent or more of a TV Licensee.
• Broadcasting Licensees that have contravened the abovementioned 49 percent voting share threshold.

There is no statutory lookback period that limits the powers of the OFCA to investigate closed deals in the past.

TV Licensees

With regard to television broadcasting, an unqualified person must submit a letter application to the OFCA to obtain the requisite permission before it proceeds to hold, acquire or exercise voting control of five percent or more of the voting control of a TV Licensee.

TV Licensees

For the restrictions on voting control of a TV Licensee, the law is drafted widely to encapsulate both direct and indirect voting control in the TV Licensee that can be effected through nominee, trust, agreement or other arrangements. As such, it is not possible to bypass the requirement to obtain prior approval from the OFCA.

TV Licensees

In relation to the requirements in the television broadcasting sector, unqualified persons must submit a letter to the OFCA requesting permission to hold, acquire or exercise voting control of five percent or more of a TV Licensee. There are no designated forms provided by the OFCA, instead, the applicant should set out the details of the application in the form of a letter. The OFCA also does not set a fixed timeline for approving such applications, reviews are conducted on a rolling basis and it is difficult to give a time estimate.

TV Licensees

In terms of television broadcasting, the OFCA is empowered to serve a notice to effect a cessation of any contravention by unqualified persons, which will specify the period within which the directions must be complied with. An unqualified person who fails to comply with such a notice served within the period specified in the notice would have committed an offence, and is liable on conviction to a fine of HK$1 million and to imprisonment for two years.

Broadcasting Licensees

With regard to sound broadcasting requirements, where any transaction, settlement, agreement or understanding has been entered into which constitutes a contravention of the abovementioned statutory requirements, the OFCA is empowered to serve notice on both the Broadcasting Licensee and the unqualified persons to effect a cessation of the exercise of voting rights, or to compel a transfer or disposal of rights of the unqualified persons. Both the Broadcasting Licensee and any unqualified person who fail to comply with such notice requirements are liable to a fine of HK$100,000.

TV Licensees

It is necessary to wait for the approval from the OFCA before closing an OFCA-controlled transaction. As noted above, it is required for applicants to obtain OFCA’s approval prior to holding, acquiring or exercising five percent or more of the voting rights of a TV Licensee. Failure to do so would constitute a contravention of the law and remedial action would be imposed.

TV Licensees

A TV Licensee may appeal by way of petition to the Chief Executive in Council no later than 30 days within the date of the decision made. However, the TV Licensee must comply with the order being appealed against pending ultimate determination of the appeal.

A closing condition should be included to ensure that all necessary approvals from the OFCA are obtained prior to the closing of the transaction.

Also, as the timeline for approvals is not entirely transparent and the OFCA has discretionary power to process applications on its own timeline, it is important for the parties to maintain lines of communication with the authorities before the transaction takes place, and to plan ahead for any contingencies.

The Hong Kong government has not implemented any special measures to secure the protection of national assets in the context of the COVID-19 pandemic.

FDI enforcement actions or investigations are not public domain in Hong Kong, but from our understanding, are not common.

There have not been any recent legislative changes to the FDI regime in Hong Kong. However, one might consider the possible effect that the passing of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (National Security Law) might have on potential investors looking to invest in the jurisdiction, as it applies not only to individuals, but to corporate entities and organizations as well.

Under the National Security Law, acts of secession, subversion, terrorism and collusion with a foreign country that endanger national security are outlawed. In the event of a conflict between the laws of Hong Kong and the National Security Law, the latter will prevail. The Standing Committee of the National People’s Congress has the authority to exercise its powers under the National Security Law and make interpretations of the legislation.

It is also important to note that there is potential for investigations and prosecutions under the National Security Law to be diverted to a Mainland China process, in which case law enforcement and regulatory authorities in Mainland China would take carriage of investigations.

The above changes may be additional considerations for foreign businesses looking to invest in the city.

The Hong Kong government has not announced any plans to legislate on or restrict foreign direct investment coming into the jurisdiction.

For more information contact Andrew McGinty, Partner, Hong Kong