Gordon Lam : GBA the way to resolve HK entrepreneurs’ difficulties

ZHANG Jian: Taiwan Solution of “One Country, Two Systems”: Lessons from Hong Kong
May 8, 2020
Henry K C HO: The Neglected Group: Hong Kong Students Graduated in the Mainland
May 8, 2020

Hong Kong has witnessed flourishing entrepreneurial activities. According to the research by the ARETE in 2015, nearly 60% young people in HK would like to build their own start-ups. However, as a result of the high rent and lack of available offices, only about 25% of them put their ideas into practice.

 

With the continuous development of the transportation system and increasing regional exchanges in the area, commuting between two cities by subway will become the new normal. Under such circumstances, it’s a great opportunity for young people in Hong Kong to pursue their dreams in the Greater Bay Area, where the cost is lower, and market larger. For all that, HK entrepreneurs are confronted by series of difficulties in mainland, some of which are listed below, together with workable suggestions in three levels, respectively to government, chamber of commerce and non-governmental organizations (NGO), as well as professionals.

 

Dissimilar Regulations and Tax Policies Bringing Necessary Anxiety

 

Most HK people know less about the government structure of the mainland, so that it’s hard for them to get access to the corresponding departments in the beginning. For example, to figure out which department is responsible for business registration and license issuing, as well as tax ID number registration, the first step to build a start-up, has already confused quite a few entrepreneurs. Besides, the labor laws in mainland differentiate from that of HK, in terms of minimum wage, overtime compensation, 8 standard working hour’s system and notice period.

 

There are also regulations by government on certain industries. Meanwhile, enterprises are not allowed to conduct business not included in the registered business scope. Without work experience in mainland or professional guidance, entrepreneurs may get into legal trouble unintentionally. Moreover, the mainland is governed by civil law system, instead of common law system adopted in Hong Kong. The differences in laws and regulations would bring necessary anxiety to the entrepreneurs, once they encounter legal issues or business disputes.

 

In addition, taxation also bothers lots of start-ups. Similar to HK’s MPF(Mandatory Provident Fund) system, there is also social insurance system in mainland, where monthly payment by enterprises and employees are required, to five social insurance(endowment insurance, medical insurance, unemployment insurance, employment injury insurance and maternity insurance) and housing provident fund. However, the proportion of such payment by enterprises differs among cities. For instance, the enterprises in Guangzhou are supposed to pay 14%-20% the amount of each employee’s monthly salary to endowment insurance every month, while in Shenzhen, it’s 13%-14%. Without the assistance of professionals, young entrepreneurs will feel at a loss, any carelessness of whom might lead to violation of laws.

 

What’s more, since the conclusion of CEPA in 2003, HK enterprises or corporations owned by them in mainland could enjoy certain tax benefits. But according to my observation, most young entrepreneurs have no idea of the preferential policies, just throwing away the advantages.

 

Infringement of Trademarks and Patents——How to Find the Responsible Department?

 

The trademark registration system is quite different between mainland and HK. In HK, where there is trademark squatting, the original trademark owner could oppose the registration or apply for cancellation; while in mainland, the general principle of Trademark Law is that the first registrant is protected. Quite a few large companies make an effort to register “defensive trademarks”, to prevent other traders from using them. If young entrepreneurs do not have adequate relevant knowledge, trademark squatting may also occur after the brand being established. At that time, they have to spend a pretty penny on litigation, or otherwise lose the brand.

 

Besides, for high-tech start-ups, patent registration is of great importance, which is an effective shield for their business. “But is it an infringement of patents if the competitors launch products using similar technologies as us, and could we make infringement complaints? If so, who should we come to?” This is also a problem frequently bothering the high-tech start-ups.

 

Knowing Less about the Mainland Market——Major Reason for Business Failure

 

Lots of young entrepreneurs will encounter shortage of funds, under which circumstances, the high lending rate in mainland might be the reason for their failure. Moreover, there are huge differences between HK and the mainland in terms of culture, talents management and pipeline, languages, lifestyles, as well as eating habits. Talent recruitment is another problem confronting HK entrepreneurs in mainland. Most young people are ignorant of the pipelines there and directly copy HK models, which leads to higher risk of failure and employee turnover. In addition, each city in the Greater Bay Area sets various plans to attract and support talents, investments and start-ups, but there are also chances for enterprises to face the challenges of local protectionism during business expansion to other cites once settle down.

 

Most problems above result from lack of information about the market, so that the government, chamber of commerce, NGOs, and professionals should cooperate with each other to improve the situation.

 

The main function of the government is to introduce more preferential policies to enhance the survival rate of the start-ups. Although the launching cost is relatively lower in mainland, cash flow problems may still occur at the beginning of the business, for a shortage of funds. Therefore, the SAR government could negotiate with the central government to give more preferential treatment to young entrepreneurs, to relieve their stresses, such as exemption of first-year income tax, reduction of business registration fees and tax deduction by input to scientific research.

 

Science and technology innovation is greatly encouraged in the Greater Bay Area. The local governments could take Hong Kong Science Park as an example, offering preferential rents and facilities to high-tech start-ups, and enable HK start-ups the same treatment as the mainland enterprises, to attract more HK entrepreneurs.

 

Moreover, an authoritative and credible institution is needed in the Greater Bay Area, to interpret relevant policies and provide consultation for HK entrepreneurs in trouble here.

 

Besides, as for individual interests of young people(individual income tax), based on the progressive tax system in mainland, persons with relatively high salary compared to HK need to pay as much as 40% individual income tax.

 

The Guangdong-Hong Kong-Macao Greater Bay Area involves three tax jurisdictions. Taxation based on place of origin would encourage more young people from HK to pursue their careers in the mainland. Meanwhile, corresponding services including commuting subsidy and health care should be provided to facilitate their living and traveling. (For detailed suggestions, please refer to my earlier article of this column, Migration to the GBA, Light for HK Housing Swamp, published on Jul. 24th, 2017) Attracting talents is the key to making the best of the resources to promote innovation and entrepreneurship, which could also motivate young people to start their own business in the Greater Bay Area.

 

Government Introducing Preferential Policies; Chamber of Commerce Providing Consultations

 

Chamber of Commerce and NGOs can provide consulting services for start-ups. Entrepreneurs always feel at a loss, when it comes to legal and tax issues. If the relevant parties could provide consulting services, it will enable them skip the study of laws and regulations to find the best solutions, and reduce unnecessary losses. Furthermore, to find the targeted consumer with shared preference, as mentioned before, is also one of the key elements for success. Therefore, it would help a lot if chamber of commerce and NGOs could organize lectures and courses, inviting entrepreneurs with rich experience in mainland to share their stories with young people. They can also offer entrepreneurial support and mentoring programs, to help young people, following the guidance of experienced professionals, learn how to do business, handle problems, and find the right direction. What HK young entrepreneurs need most is a guide, who can help them build the right business model and get their first order.

 

Currently, there are quantities of professionals in market ready to provide accounting, legal or tax services for increasing HK entrepreneurs and foreigners doing business in the Greater Bay Area. For early stage start-ups, there are lots of things to take into consideration. These professionals could help them to solve problems effectively, such as figuring out the ideal tax solution. For enterprises looking for employees, talent agencies could help them find the fit person, who can also provide guidance as mentors on labor regulations.

 

The Greater Bay Area provides new opportunities for young entrepreneurs from HK, but most of them are confronted by a great many difficulties for lack of information about the mainland market. The government, chamber of commerce, NGOs and professionals are supposed to offer proper assistance to these dream chasers, to help them put into practice their innovative ideas, with the aim of building world-class international brands. Young entrepreneurs from HK should also be prepared for a new journey of learning different business culture in the Greater Bay Area. Cooperation with an experienced partner from the mainland is a good start for success.

 

From Henry Ho & Gordon Lam (ed.) A Debate of Two Systems, p.95

Original from: Opinion Editorial, Hong Kong Economic Times.