British entrepreneurs move east to tap into China

With Hong Kong's financial powerhouse status under threat, the region is welcoming foreign entrepreneurs as a gateway to mainland China.

by Elizabeth Anderson, Wan Chai
Last Updated: 17 Jun 2015

On the 21st floor of an office block in the affluent and lively district of Wan Chai on Hong Kong Island, freelance art directors rub shoulders with music producers and ecommerce entrepreneurs.   

The Hive is one of a growing number of shared working spaces which have recently sprung up in Hong Kong. As more American and British start-ups head east to target China’s burgeoning middle class, these shared working spaces are a popular choice for expats reluctant to pay for expensive offices.

‘Real estate is in very tight demand here. People want something more exciting in which they can belong to a community,’ says Elaine Tsung, who manages The Hive. ‘The start-up culture has really picked up in the past couple of years. Hong Kong is a place where people can access the Chinese market quite easily, and it’s very friendly and an easy place for people to get started. As an ex-British colony, English is widely spoken here.’

The Hive was set up two years ago by Constant Tedder, a Briton who moved to Hong Kong in 2012 to start a business after selling his stake in computer games company Jagex. It occupies five floors and offers a roof terrace – a rare luxury in a city crammed with skyscrapers and tower blocks. Full-time membership starts from HK$4,500 a month (£352) and freelancers, entrepreneurs and startups get access to a workstation and wifi 24 hours a day, seven days a week.

Some 90% of its members are expats, and many are from the UK. The concept has been so successful that Tedder is currently in South Africa, where he is considering opening another hub.

Image credit: The Hive

‘For people coming to Hong Kong, renting an office costs a lot of money,’ says Tsung. ‘The process can be quite a pain and that’s why we aim to make it easy. We’re not in Central, the finance district, but we’re only 2 stops away on the MTR [Hong Kong’s equivalent of the underground]. Wan Chai is more lively.’

There are now 18 similar clusters in Hong Kong, up from just 3 in 2010. It follows a wider trend in the region where foreign start-ups are being encouraged to move to Hong Kong to take advantage of its generous tax laws.

More than 300 companies were created in 2012, according to the latest data. The largest number of entrepreneurs came from mainland China, followed by the US and the UK.

Wan Chai at night. Picture credit: The Hive

American Joshua Steimle, who runs an online marketing firm and writes about start-ups, moved here six months ago because of the opportunities from China. But he says Hong Kong isn’t a natural draw for entrepreneurs and that the territory doesn’t get much publicity in the US.

‘There are plenty of expat entrepreneurs here, but most seem to have come not with a purposeful intention to target the Chinese market, but because a spouse got a job here, or they got a job here but then it didn't work out so they started a business, or because they have some sort of personal or family tie to the area. It seems to me that in most cases circumstances and serendipity drive entrepreneurs to come to Hong Kong.’

It’s a problem which Hong Kong officials are currently trying to tackle. Having long been the gateway for major financial firms to access China, Hong Kong is feeling the pressure as the world’s second-largest economy relaxes its tight rules on foreign investment. With China’s financial system becoming more open, many fear that Hong Kong could become redundant as rival financial centres such as London and New York deal directly with China.

As a result, Hong Kong is trying to target more SMEs, who still find it difficult to set up in the mainland.  

More than 90% of Hong Kong based companies are small and medium businesses, although Steimle thinks officials could entice more people over by introducing radical changes.

‘Some jaw-dropping entrepreneur friendly policies, like no taxes (corporate, personal, or otherwise) for startups, their owners, and their employees for three years would create a huge incentive for startups to base themselves here when getting up and running, and of course many of them would stay even after they start paying taxes,’ Steimle says.

Yet many are already seeing the benefit of Hong Kong’s pro-business attitude, which includes a cap on profits tax at 16.5%, and no capital gains or dividends tax or VAT. According to InvestHK, the government body which promotes foreign investment to the city, applications for investment visas jumped 59% between 2010 and 2013, from 276 to 439.

‘Hong Kong has seen a growing number of overseas entrepreneurs setting up their business in our city,’ said Simon Galpin, Director-General of Investment Promotion at InvestHK. ‘Business advantages include the city's simple and quick business incorporation, low profits tax, availability of talent, and the rule of law.’

One downside is the smog, which mainly drifts across the border from neighbouring Chinese city Shenzhen, home to factories of companies including Foxconn. Air pollution hit near-record levels last year, triggering a government health warning.

Hong Kong also faces competition from Singapore, its southern rival which is opening its arms to foreign workers by relaxing visa rules, and is repeatedly voted among Asia’s best places to start or run a business.

Smog is a big problem in Hong Kong. Image credit: Elizabeth Anderson

Back at The Hive, one freelance web and graphic designer says she found Hong Kong welcoming when she moved here almost two years ago after having lived in both London and, more recently, Shanghai. ‘I wanted to stay east because lots of luxury firms are moving in this direction. There are a lot of new businesses in Hong Kong so it’s a good market to be a graphic designer,’ she says.

Emma Blackmore, who works from The Hive three times a week for a London-based NGO, says Hong Kong could make it easier for workers to move there, but that the bureaucracy isn’t enough to put people off and she has noticed a rise in the number of expats starting businesses since moving here more than two years ago.

‘It’s got a lot busier in the year that I’ve been coming to The Hive,’ she says. ‘The majority of people have come from overseas to start their own business or to work for Hong Kong companies. There is more of a start-up friendly culture now.’

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