China, or more officially the People’s Republic of China, is a state spanning nearly 10 million square kilometers and inhabited by 1.4 billion people.
In business, when people talk about China, they usually practically mean Mainland China—that is, China excluding Hong Kong, Macau, and Taiwan. Mainland China is an area spanning nearly 10 million square kilometers and inhabited by 1.4 billion people, meaning the three aforementioned places are small parts of the whole.
Why, then, is it necessary to understand what Mainland China is and why it does not include Hong Kong, Macau, and Taiwan? In many respects, Hong Kong and Macau have autonomy relative to Mainland China, which nevertheless remains responsible for foreign relations and defense. China considers Taiwan a rebel province, which is a politically sensitive issue.
From a business perspective, the three aforementioned exceptions differ in ways such as the following:
- Own legal system
- Own authorities
- Own courts
- Own currency
- Own flag
- entry into them takes place through a border crossing checkpoint
- own product-related approvals / certifications
- own country calling codes
- use traditional Chinese characters
- scale in terms of surface area, population, economy, and everything else
- no internet censorship
- computer software and mobile apps are international (not so-called China versions)
Is a Hong Kong company a Chinese company?
Technically speaking, a Hong Kong company is a Chinese company because Hong Kong is part of China. However, since Hong Kong is a Special Administrative Region, a Hong Kong company is practically considered foreign in Mainland China.
If you want to operate locally in the large Chinese market, you need to establish a company in Mainland China. Many first set up a holding company in Hong Kong, under which the Mainland Chinese company is founded.
I’m buying goods from a Hong Kong company that has a factory in Mainland China. What do you say to that?
A subsidiary of a Hong Kong company may have an entity in Mainland China that owns a factory there. Or, the owner of the Mainland Chinese factory might own companies in both Mainland China and Hong Kong. Or, someone might simply claim to own a factory in Mainland China or operate on its behalf, when in reality they are just running a small trading firm in Hong Kong.
When buying goods from China, if websites, quotes, contracts, banking details, or other documents mix up Mainland China and Hong Kong interchangeably, there is a risk of a scam. The situation should be clarified, as these matters must be unambiguous.
A Hong Kong company cannot export goods from Mainland China either, because it is not located there.
Remember also that if you buy goods from Mainland China but pay into a Hong Kong company’s bank account, the Mainland Chinese company may claim it never received payment. Authorities are reluctant to sort out this kind of situation after the fact in both Mainland China and Hong Kong. Speaking from experience.
Is Hong Kong a gateway to China?
People who talk about Hong Kong as a gateway to China often also talk about Deng Xiaoping, and if you don’t know who he is, that’s fine.
Several decades ago, Hong Kong was a significantly easier route to enter the Chinese market compared to, for instance, a European company jumping straight into the middle of China.
Today, you can establish your company directly wherever you want, and it is no more difficult (or easier) than if you had first established a company in Hong Kong.
Hong Kong still has advantages over Mainland China in certain matters, which is why it can be worthwhile to first establish a company there, carry out operations, and then establish a company in Mainland China. However, this is by no means a general rule, as it might have been once upon a time. Of course, Hong Kong on its own can also be a good market and a convenient location for an Asian office if you are considering one.
So, once again, it is best to determine the most sensible approach based on your own starting points, rather than building a market entry strategy on an 80s slogan. Besides, Hong Kongers surprisingly know Mainland China quite poorly.
