82859 Economy Profile: Hong Kong SAR, China Doing Business 2014 Hong Kong SAR, China 2 © 2013 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 All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Cover design: The Word Express Doing Business 2014 Hong Kong SAR, China 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 22 Getting electricity ....................................................................................................................... 31 Registering property .................................................................................................................. 40 Getting credit .............................................................................................................................. 49 Protecting investors ................................................................................................................... 56 Paying taxes ................................................................................................................................ 65 Trading across borders .............................................................................................................. 72 Enforcing contracts .................................................................................................................... 80 Resolving insolvency .................................................................................................................. 89 Employing workers .................................................................................................................... 94 Data notes ................................................................................................................................. 101 Resources on the Doing Business website ............................................................................ 107 Doing Business 2014 Hong Kong SAR, China 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (except for the paying taxes indicators, which cover the for a local entrepreneur to open and run a small to period January–December 2012). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 189 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 47 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 25 in East Asia and the Pacific, 25 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 20 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2014 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Hong Kong SAR, China. To allow useful business regulatory reforms. The data, along with comparison, it also provides data for other selected information on ordering Doing Business 2014, are economies (comparator economies) for each indicator. available on the Doing Business website at The data in this report are current as of June 1, 2013 http://www.doingbusiness.org. Doing Business 2014 Hong Kong SAR, China 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: East Asia & Pacific business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: High income medium-size businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of Population: 7,154,600 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 36,560 percentile rankings on each of the 10 topics included in the index in Doing Business 2014: starting a business, DB2014 rank: 2 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2013 rank: 2* investors, paying taxes, trading across borders, Change in rank: 0 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the DB 2014 DTF: 89.13 percentile rankings on its component indicators (see the data notes for more details). The employing workers DB 2013 DTF: 89.69 indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented Change in DTF: -0.57 in this year’s economy profile. The aggregate ranking on the ease of doing business * DB2013 ranking shown is not last year’s published benchmarks each economy’s performance on the ranking but a comparable ranking for DB2013 that indicators against that of all other economies in the captures the effects of such factors as data Doing Business sample (figure 1.1). While this ranking corrections and the addition of 4 economies (Libya, tells much about the business environment in an Myanmar, San Marino and South Sudan) to the economy, it does not tell the whole story. The ranking on sample this year. See the data notes for sources and the ease of doing business, and the underlying definitions. indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2014 Hong Kong SAR, China 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Hong Kong SAR, China and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Hong Kong SAR, China ranks on Doing Business topics Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far on average an Yearly movements in rankings can provide some indication economy is from the best performance achieved by any of changes in an economy’s regulatory environment for economy on each Doing Business indicator since 2005, firms, but they are always relative. except for the getting electricity indicators, which were introduced in 2009. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an Comparing the measure for an economy at 2 points in economy has changed over time—or how it has changed time allows users to assess how much the economy’s in different areas. To aid in assessing such changes, regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.4). Figure 1.4 How far has Hong Kong SAR, China come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist — numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Hong Kong SAR, China United Kingdom DB2014 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Korea, Rep. DB2014 Singapore DB2014 Malaysia DB2014 Indicator Japan DB2014 China DB2014 DB2014 DB2013 DB2014 Starting a Business 5 6 158 120 34 16 3 28 New Zealand (1) (rank) Procedures (number) 3 3 13 8 5 3 3 6 New Zealand (1)* Time (days) 2.5 2.5 33.0 22.0 5.5 6.0 2.5 12.0 New Zealand (0.5) Cost (% of income per 0.8 1.9 2.0 7.5 14.6 7.6 0.6 0.3 Slovenia (0.0) capita) Paid-in Min. Capital (% 0.0 0.0 78.2 0.0 0.0 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 1 1 185 91 18 43 3 27 China (1) (rank) Hong Kong SAR, Procedures (number) 6 6 25 14 11 15 11 12 China (6) Time (days) 71.0 73.0 270.0 193.0 29.0 130.0 26.0 88.0 Singapore (26.0) Doing Business 2014 Hong Kong SAR, China 11 United Kingdom DB2014 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Korea, Rep. DB2014 Singapore DB2014 Malaysia DB2014 Indicator Japan DB2014 China DB2014 DB2014 DB2013 DB2014 Cost (% of income per 15.4 16.3 344.7 28.1 123.9 14.7 15.7 66.0 Qatar (1.1) capita) Getting Electricity 5 4 119 26 2 21 6 74 Iceland (1) (rank) Procedures (number) 4 4 5 3 4 5 4 5 10 Economies (3)* Time (days) 38 41 145 105 18 32 36 126 Germany (17) Cost (% of income per 1.5 1.6 499.2 0.0 17.7 49.1 27.5 91.9 Japan (0.0) capita) Registering Property 89 60 48 66 75 35 28 68 Georgia (1) (rank) Procedures (number) 5 5 4 6 7 5 5 6 4 Economies (1)* Time (days) 35.5 35.5 29.0 13.0 9.0 14.0 5.5 21.5 New Zealand (1.0)* Cost (% of property 7.7 4.0 3.6 5.8 5.1 3.3 2.9 4.7 5 Economies (0.0)* value) Getting Credit (rank) 3 3 73 28 13 1 3 1 Malaysia (1)* Strength of legal rights 10 10 5 7 8 10 10 10 10 Economies (10)* index (0-10) Depth of credit 5 5 5 6 6 6 5 6 31 Economies (6)* information index (0-6) Public registry coverage 0.0 0.0 30.2 0.0 100.0 52.9 0.0 0.0 Portugal (100.0)* (% of adults) Private bureau 93.6 89.4 0.0 100.0 100.0 77.2 60.3 100.0 22 Economies (100.0)* coverage (% of adults) Protecting Investors 3 3 98 16 52 4 2 10 New Zealand (1) (rank) Extent of disclosure 9 9 10 7 7 10 10 10 10 Economies (10)* Doing Business 2014 Hong Kong SAR, China 12 United Kingdom DB2014 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Korea, Rep. DB2014 Singapore DB2014 Malaysia DB2014 Indicator Japan DB2014 China DB2014 DB2014 DB2013 DB2014 index (0-10) Extent of director 8 8 1 6 4 9 9 7 Cambodia (10) liability index (0-10) Ease of shareholder 10 10 4 8 7 7 9 7 3 Economies (10)* suits index (0-10) Strength of investor 9.0 9.0 5.0 7.0 6.0 8.7 9.3 8.0 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 4 4 120 140 25 36 5 14 (1) Payments (number per Hong Kong SAR, 3 3 7 14 10 13 5 8 year) China (3)* United Arab Emirates Time (hours per year) 78 78 318 330 187 133 82 110 (12) Trading Across Borders 2 2 74 23 3 5 1 16 Singapore (1) (rank) Documents to export 3 3 8 3 3 4 3 4 Ireland (2)* (number) Time to export (days) 6 6 21 11 8 11 6 8 5 Economies (6)* Cost to export (US$ per 590 575 620 890 670 450 460 1,005 Malaysia (450) container) Documents to import 3 3 5 5 3 4 3 4 Ireland (2)* (number) Time to import (days) 5 5 24 11 7 8 4 6 Singapore (4) Cost to import (US$ per 565 565 615 970 695 485 440 1,050 Singapore (440) container) Enforcing Contracts 9 9 19 36 2 30 12 56 Luxembourg (1) (rank) Doing Business 2014 Hong Kong SAR, China 13 United Kingdom DB2014 Best performer globally Hong Kong SAR, China Hong Kong SAR, China Korea, Rep. DB2014 Singapore DB2014 Malaysia DB2014 Indicator Japan DB2014 China DB2014 DB2014 DB2013 DB2014 Time (days) 360 360 406 360 230 425 150 437 Singapore (150) Cost (% of claim) 21.2 21.2 11.1 32.2 10.3 27.5 25.8 39.9 Bhutan (0.1) Procedures (number) 27 27 37 31 33 29 21 28 Singapore (21)* Resolving Insolvency 19 17 78 1 15 42 4 7 Japan (1) (rank) Time (years) 1.1 1.1 1.7 0.6 1.5 1.5 0.8 1.0 Ireland (0.4) Cost (% of estate) 9 9 22 4 4 10 3 6 Norway (1) Outcome (0 as piecemeal sale and 1 as 1 1 0 1 1 0 1 1 going concern) Recovery rate (cents on 81.2 81.2 36.0 92.8 82.3 48.9 89.4 88.6 Japan (92.8) the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day (2 business in an economy by recording all procedures cannot start on the same day). procedures officially required or commonly done in Procedures that can be fully completed practice by an entrepreneur to start up and online are an exception to this rule. formally operate an industrial or commercial Procedure completed once final document is business—as well as the time and cost required to received complete these procedures. It also records the paid-in minimum capital that companies must No prior contact with officials deposit before registration (or within 3 months). Cost required to complete each procedure The ranking on the ease of starting a business is (% of income per capita) the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost Official costs only, no bribes and paid-in minimum capital requirement. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per  Is a limited liability company, located in the capita. largest business city and is 100% domestically  Has a turnover of at least 100 times income per owned. capita.  Has between 10 and 50 employees.  Does not qualify for any special benefits.  Conducts general commercial or industrial  Does not own real estate. activities. Doing Business 2014 Hong Kong SAR, China 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Hong Kong procedures, takes 2.5 days, costs 0.8% of income per SAR, China? According to data collected by Doing capita and requires paid-in minimum capital of 0.0% of Business, starting a business there requires 3 income per capita (figure 2.1). Figure 2.1 What it takes to start a business in Hong Kong SAR, China Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 16 STARTING A BUSINESS Globally, Hong Kong SAR, China stands at 5 in the other useful information for assessing how easy it is for ranking of 189 economies on the ease of starting a an entrepreneur in Hong Kong SAR, China to start a business (figure 2.2). The rankings for comparator business. economies and the regional average ranking provide Figure 2.2 How Hong Kong SAR, China and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 17 STARTING A BUSINESS What are the changes over time? The benchmarks provided by the economies that over 2.3) can help show what is possible in making it easier time have had the best performance regionally or to start a business. And changes in regional averages globally on the procedures, time, cost or paid-in can show where Hong Kong SAR, China is keeping minimum capital required to start a business (figure up—and where it is falling behind. Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2014 Hong Kong SAR, China 18 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety economies globally have no paid-in minimum capital requirement. DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 19 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Hong Kong SAR, China (table 2.1)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.1 How has Hong Kong SAR, China made starting a business easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Hong Kong has eased the business start up process through DB2010 the simplification of registration formalities and merger of procedures. DB2011 No reform as measured by Doing Business. Hong Kong SAR (China) made starting a business easier by DB2012 introducing online electronic services for company and business registration. DB2013 No reform as measured by Doing Business. Hong Kong SAR, China, made starting a business less costly by DB2014 abolishing the capital duty levied on local companies. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Hong Kong SAR, China is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and City: Hong Kong register a new firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Limited Liability Company professionals and the study of laws, regulations and Paid in Minimum Capital Requirement: None publicly available information on business entry in that economy. Following is a detailed summary of Start-up Capital: 10 times GNI per capita those procedures, along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Hong Kong SAR, China—and the time and cost Time to No. Procedure Cost to complete complete Choose a company name and obtain a certificate of incorporation A company name (which may be in English, traditional Chinese or both) can be searched online free of charge at the Companies Registry (www.icris.cr.gov.hk/csci/login_i.do?loginType=iguest&username=igues t ), however the acceptability of a company name can only be confirmed after an application has been processed. A certificate of incorporation will be issued upon the filing of an incorporation form signed by the founder member(s) (for companies limited by shares this is a Form NC1), a copy of the memorandum of association (signed by the founder member(s)) and articles of association (if any) and a Notice to Business Registration Office (IRBR1). HKD 1,720 The incorporation form contains comprehensive information on the application fee + Less than one day 1 address of the registered office and particulars of the first secretary and HKD 450 for (online procedure) first directors of a company. Paper submissions for incorporation business normally require approximately four working days for the certificate to registration levy. be issued. With the implementation of the "e-Registry" in 2011, applicants can now complete the incorporation and business registration process by submitting electronic applications online to the Companies Registry (www.eregistry.gov.hk). In straightforward cases, this enables registered users to complete the relevant procedures and download the electronic Certificate of Incorporation and Business Registration Certificate within one day. Procedure can be done online Doing Business 2014 Hong Kong SAR, China 21 Time to No. Procedure Cost to complete complete Sign up Employee's Compensation Insurance and Mandatory Provident Fund (MPF) Schemes with a private company or a bank 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 18–65 and employed for 60 days or more under an employment contract (regardless of the number of work 1 day no charge 2 hours) must enroll in an Mandatory Provident Fund ("MPF") scheme (except for persons exempted from the scheme) administered by any MPF approved trustee in Hong Kong and such enrollment can be arranged through MPF registered intermediaries, which includes banks and insurance companies. The employer is also required to display the participation certificate issued by the Mandatory Provident Fund Authority at the work premises. Make a corporate seal and company rubber stamp 3 1 day HKD 215 * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 22 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a land telephone line cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a completion (if required for use as collateral or warehouse in the economy’s largest business city, for transfer of the warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day. percentile rankings on its component indicators: Procedures that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final Doing Business uses several assumptions about the document is received business and the warehouse, including the utility connections. No prior contact with officials The business: Cost required to complete each procedure (% of income per capita)  Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city.  Will be connected to water, sewerage (sewage system, septic tank or their  Is domestically owned and operated. equivalent) and a fixed telephone line. The  Has 60 builders and other employees. connection to each utility network will be 10 The warehouse: meters (32 feet, 10 inches) long.  Is a new construction (there was no  Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions).  Has complete architectural and technical plans prepared by a licensed architect or  Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 Hong Kong SAR, China 23 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to with construction permits there requires 6 procedures, build a warehouse in Hong Kong SAR, China? takes 71.0 days and costs 15.4% of income per capita According to data collected by Doing Business, dealing (figure 3.1). Figure 3.1 What it takes to comply with formalities to build a warehouse in Hong Kong SAR, China Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 24 DEALING WITH CONSTRUCTION PERMITS Globally, Hong Kong SAR, China stands at 1 in the ranking provide other useful information for assessing ranking of 189 economies on the ease of dealing with how easy it is for an entrepreneur in Hong Kong SAR, construction permits (figure 3.2). The rankings for China to legally build a warehouse. comparator economies and the regional average Figure 3.2 How Hong Kong SAR, China and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 25 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to deal with time have had the best performance regionally or construction permits. And changes in regional globally on the procedures, time or cost required to averages can show where Hong Kong SAR, China is deal with construction permits (figure 3.3) help show keeping up—and where it is falling behind. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2014 Hong Kong SAR, China 26 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 27 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Hong Kong SAR, China (table Construction is one of them. In an effort to ensure 3.1)? Table 3.1 How has Hong Kong SAR, China made dealing with construction permits easier—or not? By Doing Business report year DB year Reform Hong Kong , China, made obtaining construction permits easier by introducing the “Be the Smart Regulator Program”, a large-scale improvement program for business licenses DB2009 covering multiple business sectors, which reduced the time to deal with building permits by 36 days and eliminated 8 procedures related to inspections and pre-approvals Hong Kong, China established a one-stop center allowing six local departments and two private utility companies to DB2010 function under the same roof to expedite the process to obtain a construction permit. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 28 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Hong Kong SAR, BUILDING A WAREHOUSE China are based on a set of specific procedures— the steps that a company must complete to legally build a warehouse—identified by Doing Business City : Hong Kong through information collected from experts in construction licensing, including architects, civil Estimated engineers, construction lawyers, construction firms, HKD 9,754,500 Warehouse Value : utility service providers and public officials who deal with building regulations. These procedures The procedures, along with the associated time and are those that apply to a company and structure cost, are summarized below. matching the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Hong Kong SAR, China —and the time and cost Time to No. Procedure Cost to complete complete Obtain approval by submitting applications to One Stop Centre BuildCo should submit the following documents for approval: • Building plans (Forms BA5, BD24) • General building plans • Spread footing plans • Hoarding plans • Site formation plans • Fire service installation plan (Form FSI/314) • Drainage plan In December 2008 a One Stop Centre was established for Warehouse Construction Permits under the administration of the Efficiency Unit (EU) for receiving all relevant building license applications to 6 government departments and 2 private utilities (i.e. telephone line and 45 days HKD 36,634 1 electricity supply) and coordinating their joint inspections for two- storey warehouse projects. Property developers can use Form OSC-1 to submit to the One Stop Centre in one-go all applications relating to building plans approval and consent for commencement of building works from Buildings Department, technical audit of water supply connection works by Water Supplies Department, and road excavation permit from both the Police and Highways Department. This new arrangement can simplify the submission process by combining the following 6 procedures: • Obtain building plans approval HKD 30,240.00 • Apply and pay for technical audit of water supply connection works HKD 4,470.00 • Apply, pay and receive road excavation work permission from Highways Department HKD 1,924.00 Doing Business 2014 Hong Kong SAR, China 29 Time to No. Procedure Cost to complete complete • Notify and obtain approval from traffic police • Obtain building consent from Buildings Department Total cost: HKD36,634 Request and receive inspection of foundation strata At the approval stage for building foundation plans, the Buildings 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 2 the foundation, Form BA 14 and as-built foundation records must be 7 days no charge submitted to notify the Buildings Department that the foundation work has been completed. The form must be approved by the Buildings Department before the next stage of construction can begin. The construction site is inspected within 7 days of the notification. Submit notification of project completion and obtain certificate of completion through One Stop Centre After completion of construction, the following applications/notifications can be submitted in one go to the One Stop Centre for referral: (a) Application to the Drainage Services Department for technical audit for drainage connection works; Cost: HKD4,340.00 (b) Application to the Fire Services Department for issue of Fire Services Certificate (F.S. 172); Cost: HKD3,440.00 (c) Application to the Buildings Department for Occupation Permit; (d) Application to the Lands Department for issue of Certificate of Compliance; and receive certificate through OSC (e) Application for electricity, telephone line and notification to Water Supplies Department for completion of plumbing works via the Composite Form Cost: HKD475.00 (cost included in procedure 6) (f) Application for a joint inspection, if preferred. 19 days HKD 7,780 3 (G)Notify Drainage Services Department of construction completion and receive transfer inspection and issuance of water supply certificate (H) Notify Water Services Department of construction completion and receive transfer inspection In March 2012, the Hong Kong SAR Government and some utility service providers collaborated to launch a Composite Form. An applicant can submit applications for electricity and telecommunication services and notification to Water Supplies Department for completion of plumbing works in one go via the Composite Form to the One Stop Centre administered by the Efficiency Unit. | Doing Business 2014 Hong Kong SAR, China 30 Time to No. Procedure Cost to complete complete * Receive joint and final inspection of relevant licensing authorities coordinated by One Stop Centre The process to receive relevant final inspections can be also coordinated at this stage. Applicants should complete Part 2 of checklist OSC-2. The One Stop Centre will contact the relevant 1 day no charge 4 departments and the applicants for the arrangement of joint inspections (in this case, the Hong Kong Water Supplies Department (water company) and PCCW Limited (telephone company). * Request and obtain water connection 5 1 day no charge * Request and obtain telephone line 6 1 day HKD 475 * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 31 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is to either the low-voltage or the medium-  Is a new construction being connected to voltage distribution network and either overhead electricity for the first time. or underground, whichever is more common in the economy and area where the warehouse is  Has 2 stories, both above ground, with a located. The length of any connection in the total surface of about 1,300.6 square customer’s private domain is negligible. meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square  Requires crossing of a 10-meter road but all the feet). works are carried out in a public land, so there is no crossing into other people's private property. The electricity connection:  Involves installing one electricity meter. The  Is 150 meters long and is a 3-phase, 4-wire Y, monthly electricity consumption will be 0.07 140-kilovolt-ampere (kVA) (subscribed gigawatt-hour (GWh). The internal electrical capacity) connection. wiring has been completed. Doing Business 2014 Hong Kong SAR, China 32 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity there requires 4 procedures, takes 38 days and costs connection in Hong Kong SAR, China? According to 1.5% of income per capita (figure 4.1). data collected by Doing Business, getting electricity Figure 4.1 What it takes to obtain an electricity connection in Hong Kong SAR, China Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 33 GETTING ELECTRICITY Globally, Hong Kong SAR, China stands at 5 in the another perspective in assessing how easy it is for an ranking of 189 economies on the ease of getting entrepreneur in Hong Kong SAR, China to connect a electricity (figure 4.2). The rankings for comparator warehouse to electricity. economies and the regional average ranking provide Figure 4.2 How Hong Kong SAR, China and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 34 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Hong Kong SAR, China Best performer in Hong Kong SAR, Hong Kong SAR, Best performer Indicator East Asia & Pacific China DB2014 China DB2013 globally DB2014 DB2014 Rank Hong Kong SAR, 5 4 Iceland (1) China (5) Procedures (number) 4 4 Timor-Leste* (3) 10 Economies* (3) Time (days) 38 41 Taiwan, China (24) Germany (17) Cost (% of income per Hong Kong SAR, capita) 1.5 1.6 Japan (0.0) China (1.5) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 35 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in Hong technical standards, procurement practices and Kong SAR, China (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Hong Kong SAR, China made getting electricity easier—or not? By Doing Business report year DB year Reform Hong Kong SAR (China) made getting electricity easier by DB2012 increasing the efficiency of public agencies and streamlining the utility’s procedures with other government agencies. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 36 GETTING ELECTRICITY What are the details? The indicators reported here for Hong Kong SAR, OBTAINING AN ELECTRICITY CONNECTION China are based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local City: Hong Kong distribution utility—identified by Doing Business. Data are collected from the distribution utility, then Name of Utility: CLP Power Hong Kong completed and verified by electricity regulatory Ltd. agencies and independent professionals such as The procedures are those that apply to a warehouse electrical engineers, electrical contractors and and electricity connection matching the standard construction companies. The electricity distribution assumptions used by Doing Business in collecting the utility surveyed is the one serving the area (or areas) in data (see the section in this chapter on what the which warehouses are located. If there is a choice of indicators cover). The procedures, along with the distribution utilities, the one serving the largest associated time and cost, are summarized below. number of customers is selected. Summary of procedures for getting electricity in Hong Kong SAR, China—and the time and cost Time to No. Procedure Cost to complete complete The client submits application for electricity connection and awaits technical conditions from CLP Power Ltd. Internal wiring works before connection of supply should be carried out by a Registered Electrical Worker (REW) or a team of electricians led by a REW . When it comes to the stage that supply is connected (e.g. for testing or alteration after supply connection), the internal wiring works should be carried out by the REW.] The Registered Electrical Contractor (REC) and the REW should be registered with the Electrical and Mechanical Services Department (EMSD) of the Hong Kong SAR Government (www.emsd.gov.hk). The clients requesting electricity supply need to complete a supply application form and provide a document for identity verification (Copy 8 calendar days no charge 1 of identity or Business Registration Certificate). The application form can serve the purpose of a supply contract. If the client signs on the application form, it implies that they accept our supply conditions. The supply conditions are detailed in the "Supply Rule", which can be obtained in our Company website. The client can submit the application for electricity connection with CLP Power Ltd. online, in person, by mail, email, fax, or on the phone. https://www.clponline.com.hk/myHome/CustomerService/OpenAccount/ Pages/Default.aspx CLP Power usually keep in close contact with prospective new customers so that a lot of supply provision preparation work would have been commenced/completed prior to receiving the actual new supply application from the new customers, thereby supply is always available Doing Business 2014 Hong Kong SAR, China 37 Time to No. Procedure Cost to complete complete before the occupant moves in. The utility conducts an inspection of the site after receiving the application to study the specifics of the connection (possibility to connect directly to existing network or need for an expansion). After that, it formulates a supply project including network design and cable route selection after inspection. This is the Project Planning phase. The client does not have to await an estimate of connection fees. The client obtains external inspection from CLP Power Ltd. Site inspection is required for preparing the supply scheme. It is part of 2 CLP Power's work in procedure 1, and interface with the client is not 1 calendar day no charge necessary for the inspection. The client receives external works from CLP Power Ltd. (a) Application for excavation permit An excavation permit is required for the excavation of cable trench in the public areas. The utility is required to apply to the relevant government departments for the permit. The time required depends on the responsiveness of government departments. The excavation permit will be applied for after the project planning stage. Since the permit will specify a limited work period, before applying for the permit, the utility will confirm with the client the target supply date and the target completion date of the work required by the client e.g. duct and draw pit. The excavation permit application cost is paid by the company and is not charged to clients as part of their cost for connection. 29 calendar days no charge 3 Efforts were made to reduce the time to obtain an excavation permit. The efforts consisted of setting up a liaison group with representatives of four relevant government departments, viz. Highways Department, Hong Kong Police Force, Transport Department and Economic Analysis & Business Facilitation Unit, and CLP Power Hong Kong Limited to examine and rationalize the procedures related to applications for excavation permits in connection with supply of electricity for 2-storey warehouses or similar industrial buildings. As a result, the following performance pledges are publicized (http://www.gov.hk/en/theme/bf/smart/efficiency/excavation.htm) : • Highways Department to complete initial assessment of an excavation proposal and approve an application for excavation permit within 1 working day respectively; • Transport Department to process a proposed temporary traffic arrangement within 21 days; and Doing Business 2014 Hong Kong SAR, China 38 Time to No. Procedure Cost to complete complete • Highways Department and Hong Kong Police Force to accept advance notification of electricity companies 2 working days before the commencement of excavation works. These efforts were followed by another set of efforts to further reduce the time needed to obtain the permit: the government conducted a liaison group meeting with the CLP Power Hong Kong Limited to review the application process for excavation permits in connection with electricity supply for 2-storey warehouses in non-residential areas. As a result, the Transport Department has further streamlined its procedures and reduced the time for processing temporary traffic arrangement proposals from 21 days to 14 days. The relevant Guidance Note for the Highways Department, Hong Kong Police Force and Transport Department has been revised accordingly: http://www.hyd.gov.hk/eng/public/publications/xppm/rd/doc/GN_Applic ation%20for%20XP%20for%20Supply%20of%20electricity.pdf For continual improvement, the liaison group reviewed the application process in December 2011. The Hong Kong Police Force reduced the time for processing the lighting, signing and guarding proposal from 14 days to 12 days. The Transport Department further reduced the time for processing temporary traffic arrangement proposals from 14 days to 12 days. (b) Installation Work Processing time includes LV cable laying and jointing work on a trench (150m) with road crossing. (Construction phase) It excludes the advance notification for commencement of the works submitted to government departments after obtaining the excavation permit. This is also a time taken for manpower mobilization and material preparation. This is the Resource programming phase. The client obtains meter installation and final connection from CLP Power Ltd. The utility then inspects the internal wiring and installs the meter. The Registered Electrical Worker representing the client must be present. In fact, “according to the Electricity (Wiring) Regulations, Cap. 406E, any fixed electrical installation shall, after completion and before it is energized for use, be inspected, tested and certified with Work 1 calendar day HKD 4,313.8 4 Completion Certificate (Form WR1) by a registered electrical worker and contractor. In case of any repair, alteration or addition to a fixed electrical installation, only the affected parts of the installation need to be inspected, tested and certified with Work Completion Certificate (Form WR1) by a registered electrical worker and contractor. A copy of the Work Completion Certificate (Form WR1) together with copies of Certificate of Registration of Electrical Contractor and Certificate of Registration of Electrical Worker should be forwarded to the Licensing Doing Business 2014 Hong Kong SAR, China 39 Time to No. Procedure Cost to complete complete Office as proof of compliance with the electricity safety requirements.” The Registered Electrical Worker in charge of the internal installation and final inspection signs the WR1 form, and submits it to the utility at the appointment for electricity turn-on. The client requests a final inspection for meter installation from CLP Power through the installation inspection appointment system of the utility. The final inspection does not cover the entire internal wiring, but only the interface with the external circuit. The WR1 form is enough to guarantee the wiring has been done in accordance with the electricity regulations. The meter will be installed and supply connected after satisfactory inspection of the internal wiring (not entire inspection; only for the interface with external network). The service pledge is to install the meter within the same day of the satisfactory inspection of the internal wiring. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 40 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day. time and cost. Procedures that can be fully completed online are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure (% of property value)  Are limited liability companies, 100% domestically and privately owned. Official costs only, no bribes  Are located in the economy’s largest No value added or capital gains taxes included business city. and no rezoning is required.  Have 50 employees each, all of whom are  Has no mortgages attached and has been nationals. under the same ownership for the past 10  Perform general commercial activities. years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story  Has a value of 50 times income per capita. warehouse of 929 square meters (10,000 The sale price equals the value. square feet). The warehouse is in good  Is registered in the land registry or cada- condition and complies with all safety stre, or both, and is free of title disputes. standards, building codes and legal requirements. There is no heating system. The  Is located in a periurban commercial zone, property will be transferred in its entirety. Doing Business 2014 Hong Kong SAR, China 41 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in 5 procedures, takes 35.5 days and costs 7.7% of the Hong Kong SAR, China? According to data collected property value (figure 5.1). by Doing Business, registering property there requires Figure 5.1 What it takes to register property in Hong Kong SAR, China Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 42 REGISTERING PROPERTY Globally, Hong Kong SAR, China stands at 89 in the other useful information for assessing how easy it is for ranking of 189 economies on the ease of registering an entrepreneur in Hong Kong SAR, China to transfer property (figure 5.2). The rankings for comparator property. economies and the regional average ranking provide Figure 5.2 How Hong Kong SAR, China and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 43 REGISTERING PROPERTY What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to register time have had the best performance regionally or property. And changes in regional averages can show globally on the procedures, time or cost required to where Hong Kong SAR, China is keeping up—and complete a property transfer (figure 5.3) help show where it is falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2014 Hong Kong SAR, China 44 REGISTERING PROPERTY Cost (% of property value) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 45 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Hong Kong SAR, China (table 5.1)? Table 5.1 How has Hong Kong SAR, China made registering property easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. In Hong Kong property registration is easier because the DB2010 stamp duty for the sale act (Property Assignment) can now be submitted online. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Hong Kong SAR, China, made transferring property more DB2014 costly by increasing the stamp duty. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 46 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property City: Hong Kong lawyers, notaries and property registries. These procedures are those that apply to a transaction Property Value: HKD 14,572,556 matching the standard assumptions used by Doing Business in collecting the data (see the section in The procedures, along with the associated time and this chapter on what the indicators cover). cost, are summarized below. Summary of procedures for registering property in Hong Kong SAR, China—and the time and cost Time to No. Procedure Cost to complete complete Purchaser’s solicitor does a land search at the Land Registry It is a common procedure that the Buyer's solicitor will conduct a land search before execution of the Agreement for Sale and Purchase (ASP) to ensure that the previous registration title of the property is complete and that no unusual encumbrance is registered against the property. All land records are available for search by the public by doing an online search. The service hours of an online search services have been extended from 16 to 20 hours daily since August 2010. In 2010/11, searches conducted online constituted about 90% of the total search Less than a day volume. It is a common procedure that the Purchaser’s solicitor (online HKD 25 1 conducts a land search online on the day of execution of the agreement procedure) for sale and purchase as a due diligence check. The prescribed fee is HK$25 for a full land search (which provides all historical and current data affecting the property) and HK$10 for an up- date land search (which provides the current data). This will take about one (1) day and in fact, immediately if it is done through the online internet service provided by the Land Registry, which many law firms in Hong Kong would have subscribed to such service. Preparation of (i) Sale and Purchase Agreement and (ii) Assignment HKD 30,000 + 0.25% of value Depending on encumbrances that might be still associated with the exceeding HKD 2 property this process might take a longer time. 5 days 5,000,000 Note: The Property Assignment will give the purchaser legal title and (solicitor’s fee possession of the property. according to Solicitors - Doing Business 2014 Hong Kong SAR, China 47 Time to No. Procedure Cost to complete complete Scale of costs: Consideration not Exceeding (HKD) Charge (HKD) % of General- Costs Consideration Rules (Cap. 159G) HKD 18,125 + 0.125% of value exceeding HKD 5,000,000 which is HKD 74,375 + 0.075% of value exceeding HKD 50,000,000 negotiable). With reference to the above scale of costs, the solicitor fee for the subject warehouse property of the business case (valued at HKD 12,117,428) is around HKD 47,800 (i.e. HKD 30,000 for the first HKD5,000,000 plus HKD 17,800 for the remaining HKD 7,117,428 (at a rate of HKD25 per HKD 10,000)) or 0.4% of the property value. * Execution of Sale and Purchase Agreement and filing at the Land Registry The Purchaser’s solicitor registers the executed agreement for sale and purchase with the Land Registry. At this time, the Purchaser usually gives a 10% down payment on the property and has time to arrange financing for the remainder owed. During the 30-day period, the Purchaser’s solicitor prepares an Assignment deed. In addition, during this period of 30 days HKD 210 3 time, the Buyer's solicitor will complete perusal of title deeds and clarify any title issues with the Seller's solicitors and confirm good title to the Buyer (through a final land search on the property to ensure there has not been any competing deed lodged with the Land Registry after the executed agreement for sale and purchase has been registered with the Land Registry). * The Purchaser's solicitor settles the stamp duty payable with the Stamp Office via e-stamping All necessary forms and documents for stamping can be submitted online (www.gov.hk/estamping.) or in paper. The process of submission and payment is straight forward, details of the transaction are submitted over the internet, a stamp invoice is issued immediately which can be printed. After the online payment of stamp duty, solicitors can print the stamp certificates and attach them to the instruments as evidence of stamping. Payment of the stamp duty can be done using different methods, (PPS, MasterCard, and Visa). The current payment limits for Less than a day 7.5% stamp duty 4 credit cards are HK$5,000. If the duty amount exceeds the payment (online for non-residential limits, payment can be made offline by printing a payment notice for procedure) property settlement by telephone, bank ATM, internet or in person at the Stamp Office or Post Offices. After payment of stamp duty, a stamp certificate will be issued instantly and available for printing. Each stamp certificate will have its own "Stamp Certificate Number". For online payments and e-stamping, it is not required to present the original instruments to the Stamp Office. Details of the e-Stamping service in Hong Kong are available at www.ird.gov.hk/eng/tax/e_stamp.htm. Both methods fulfill the stamping requirement equally. Under the Doing Business 2014 Hong Kong SAR, China 48 Time to No. Procedure Cost to complete complete conventional method no stamp certificate is issued, instead, the relevant document (e.g. the assignment) would be stamped by the Stamp Office with the value of stamp duty paid. * Purchaser’s solicitor registers the Property Assignment at the Land Registry 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 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 30 days depending 1 day HKD 450 5 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. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 49 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s Strength of legal rights index (0–10) financial history (positive or negative)—valuable Rights of borrowers and lenders through information to consider when assessing risk. And collateral laws they permit borrowers to establish a good credit Protection of secured creditors’ rights through history that will allow easier access to credit. Sound bankruptcy laws collateral laws enable businesses to use their assets, especially movable property, as security to generate Depth of credit information index (0–6) capital—while strong creditors’ rights have been Scope and accessibility of credit information associated with higher ratios of private sector credit distributed by public credit registries and to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has up to 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, incorporated, limited liability the strength of legal rights index. company.  Has its headquarters and only base of operations in the largest business city. Doing Business 2014 Hong Kong SAR, China 50 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Hong Kong SAR, China stands at 3 in the collateral and bankruptcy laws in Hong Kong SAR, ranking of 189 economies on the ease of getting credit China facilitate access to credit? The economy has a (figure 6.1). The rankings for comparator economies score of 5 on the depth of credit information index and the regional average ranking provide other useful and a score of 10 on the strength of legal rights index information for assessing how well regulations and (see the summary of scoring at the end of this chapter institutions in Hong Kong SAR, China support lending for details). Higher scores indicate more credit and borrowing. information and stronger legal rights for borrowers and lenders. Figure 6.1 How Hong Kong SAR, China and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 51 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how show where institutions and regulations have been well the credit information system and collateral and strengthened—and where they have not (table 6.1). bankruptcy laws in Hong Kong SAR, China support That can help identify where the potential for lending and borrowing today, data over time can help improvement is greatest. Table 6.1 The ease of getting credit in Hong Kong SAR, China over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. .. 3 3 Strength of legal rights 10 10 10 10 10 10 10 10 10 10 index (0-10) Depth of credit 5 5 5 5 5 5 5 5 5 5 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 61.5 64.5 64.5 64.7 69.9 71.9 72.0 86.3 89.4 93.6 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 52 GETTING CREDIT One way to put an economy’s score on the getting China in 2013 and shows the number of economies credit indicators into context is to see where the with this score in 2013 as well as the regional average economy stands in the distribution of scores across score. Figure 6.3 shows the same thing for the depth of economies. Figure 6.2 highlights the score on the credit information index. strength of legal rights index for Hong Kong SAR, Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2013 information index (0–6), 2013 Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 53 GETTING CREDIT When economies strengthen the legal rights of lenders access to credit. What credit reforms has Doing and borrowers under collateral and bankruptcy laws, Business recorded in Hong Kong SAR, China (table and increase the scope, coverage and accessibility of 6.2)? credit information, they can increase entrepreneurs’ Table 6.2 How has Hong Kong SAR, China made getting credit easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 54 GETTING CREDIT What are the details? The getting credit indicators reported here for Hong The data on the legal rights of borrowers and lenders Kong SAR, China are based on detailed information are gathered through a survey of financial lawyers and collected in that economy. The data on credit verified through analysis of laws and regulations as information sharing are collected through a survey of a well as public sources of information on collateral and credit registry and/or credit bureau (if one exists). To bankruptcy laws. For the strength of legal rights index, construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in credit registry or credit bureau (see summary of bankruptcy law. scoring below). Summary of scoring for the getting credit indicators in Hong Kong SAR, China Hong Kong SAR, East Asia & Pacific OECD high income Indicator China average average Strength of legal rights index (0-10) 10 7 7 Depth of credit information index (0-6) 5 4 5 Public registry coverage (% of adults) 0.0 35.6 42.9 Private bureau coverage (% of adults) 93.6 44.8 73.9 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Regional averages for the credit registry coverage exclude economies with no credit registry. Regional averages for the credit bureau coverage exclude economies with no credit bureau. Strength of legal rights index (0–10) Index score: 10 Can any business use movable assets as collateral while keeping possession of the assets; and Yes any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically Yes to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2014 Hong Kong SAR, China 55 Strength of legal rights index (0–10) Index score: 10 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is Yes liquidated? Are secured creditors either not subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure, or does the law provide secured Yes creditors with grounds for relief from an automatic stay or/and sets a time limit to it? Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Depth of credit information index (0–6) Credit bureau Credit registry Index score: 5 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 utility companies as well as No No 0 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 150,239 0 Number of individuals 4,848,836 0 Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 56 PROTECTING INVESTORS Protecting investors matters for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not protect minority shareholders, investors may be reluctant to provide funding to companies through Extent of disclosure index (0–10) the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor protections: transparency of related-party Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission transactions (extent of disclosure index), liability for of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during trial (ease of shareholder suits index). The Access to internal corporate documents ranking on the strength of investor protection index is (directly or through a government inspector) the simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of  Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). the company purchase used trucks from another company he owns.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of  The price is higher than the going price for used Buyer where permitted, even if this is not trucks, but the transaction goes forward. specifically required by law.  All required approvals are obtained, and all The transaction involves the following details: required disclosures made, though the transaction is prejudicial to Buyer.  Mr. James, a director and the majority shareholder of the company, proposes that  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2014 Hong Kong SAR, China 57 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections against self- protection index (figure 7.1). While the indicator does dealing in Hong Kong SAR, China? The economy has a not measure all aspects related to the protection of score of 9.0 on the strength of investor protection minority investors, a higher ranking does indicate that index, with a higher score indicating stronger an economy’s regulations offer stronger investor protections (see the summary of scoring at the end of protections against self-dealing in the areas measured. this chapter for details). Globally, Hong Kong SAR, China stands at 3 in the ranking of 189 economies on the strength of investor Figure 7.1 How Hong Kong SAR, China and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 58 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how And the global ranking on the strength of investor well regulations in Hong Kong SAR, China protect protection index over time shows whether the minority investors today, data over time show whether economy is slipping behind other economies in the protections have been strengthened (table 7.1). investor protections—or surpassing them. Table 7.1 The strength of investor protections in Hong Kong SAR, China over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. 3 3 Extent of disclosure 9 9 9 9 9 9 9 9 9 index (0-10) Extent of director 8 8 8 8 8 8 8 8 8 liability index (0-10) Ease of shareholder 10 10 9 10 10 10 10 10 10 suits index (0-10) Strength of investor protection index (0- 9.0 9.0 8.7 9.0 9.0 9.0 9.0 9.0 9.0 10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 59 PROTECTING INVESTORS One way to put an economy’s scores on the protecting 2013 and shows the number of economies with this investors indicators into context is to see where the score in 2013 as well as the regional average score. economy stands in the distribution of scores across Figure 7.3 applies to the extent of director liability economies. Figure 7.2 highlights the score on the index, and figure 7.4 to the ease of shareholder suits extent of disclosure index for Hong Kong SAR, China in index. Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on the extent of Number of economies with each score on the extent of director liability index (0–10), 2013 disclosure index (0–10), 2013 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 60 PROTECTING INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Number of economies with each score on the ease of shareholder suits index (0–10), 2013 Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 61 PROTECTING INVESTORS The scores recorded over time for Hong Kong SAR, be the changes over time in the regional average score China on the strength of investor protection index may on this index. also be revealing (figure 7.5). Equally interesting may Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the protections. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 62 PROTECTING INVESTORS Economies with the strongest protections of minority reasonable time. As a result, reforms to strengthen investors from self-dealing require detailed disclosure investor protections may move ahead on different and define clear duties for directors. They also have fronts—such as through new or amended company well-functioning courts and up-to-date procedural laws, securities regulations or civil procedure rules. rules that give minority shareholders the means to What investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in Hong Kong SAR, China (table 7.2)? Table 7.2 How has Hong Kong SAR, China strengthened investor protections—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 63 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for indices, scores are assigned to each based on a range Hong Kong SAR, China are based on detailed of conditions relating to disclosure, director liability information collected through a survey of corporate and shareholder suits in a standard case study and securities lawyers about securities regulations, transaction (see the data notes at the end of this company laws and court rules of evidence and chapter). The summary below shows the details procedure. To construct the extent of disclosure, underlying the scores for Hong Kong SAR, China. extent of director liability and ease of shareholder suits Summary of scoring for the protecting investors indicators in Hong Kong SAR, China Hong Kong SAR, East Asia & OECD high income Indicator China Pacific average average Extent of disclosure index (0-10) 9 5 7 Extent of director liability index (0-10) 8 5 5 Ease of shareholder suits index (0-10) 10 6 7 Strength of investor protection index (0-10) 9.0 5.3 6.2 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 9 Both board of directors and What corporate body provides legally sufficient 3 shareholders meeting and Mr. James approval for the transaction? is not allowed to vote Whether disclosure of the conflict of interest by Mr. Existence of a conflict without any 1 James to the board of directors is required? specifics Whether immediate disclosure of the transaction to Disclosure on the transaction and Mr. 2 the public and/or shareholders is required? James' conflict of interest Whether disclosure of the transaction in published Disclosure on the transaction and Mr. 2 periodic filings (annual reports) is required? James' conflict of interest Whether an external body must review the terms of 1 Yes the transaction before it takes place? Extent of director liability index (0-10) 8 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Whether shareholders can hold Mr. James liable for Liable for unfair/oppressive the damage that the Buyer-Seller transaction causes 2 transaction or prejudicial to minority to the company? shareholders Doing Business 2014 Hong Kong SAR, China 64 Score Score description Whether shareholders can hold members of the Liable for unfair/oppressive approving body liable for the damage that the Buyer- 2 transaction or prejudicial to minority Seller transaction causes to the company? shareholders Possible when the transaction is Whether a court can void the transaction upon a 1 oppressive or prejudicial to minority successful claim by a shareholder plaintiff? shareholders Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 Yes shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 10 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 1 Yes filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 1 Yes transaction? Whether the plaintiff can obtain any documents from Any information that may lead to the 4 the defendant and witnesses during trial? discovery of relevant information Whether the plaintiff can request categories of documents from the defendant without identifying 1 Yes specific ones? Whether the plaintiff can directly question the 2 Yes, without approval from the judge defendant and witnesses during trial? Whether the level of proof required for civil suits is 1 Yes lower than that of criminal cases? Strength of investor protection index (0-10) 9.0 Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 65 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic and joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2011. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.5%. Doing Business 2014 Hong Kong SAR, China 66 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Hong Kong SAR, China stands at 4 in the taxes in Hong Kong SAR, China—and how much do ranking of 189 economies on the ease of paying taxes firms pay in taxes? On average, firms make 3 tax (figure 8.1). The rankings for comparator economies payments a year, spend 78 hours a year filing, and the regional average ranking provide other useful preparing and paying taxes and pay total taxes information for assessing the tax compliance burden amounting to 22.9% of profit (see the summary at the for businesses in Hong Kong SAR, China. end of this chapter for details). Figure 8.1 How Hong Kong SAR, China and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 67 PAYING TAXES What are the changes over time? The benchmarks provided by the economies that over show what is possible in easing the administrative time have had the best performance regionally or burden of tax compliance. And changes in regional globally on the number of payments or the time averages can show where Hong Kong SAR, China is required to prepare and file taxes (figure 8.2) help keeping up—and where it is falling behind. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2014 Hong Kong SAR, China 68 PAYING TAXES Total tax rate (% of profit) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 69 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Hong Kong SAR, China (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Hong Kong SAR, China made paying taxes easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 Hong Kong SAR (China) abolished the fuel tax on diesel. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 70 PAYING TAXES What are the details? The indicators reported here for Hong Kong SAR, LOCATION OF STANDARDIZED COMPANY China are based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the City: Hong Kong data (see the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company The taxes and contributions paid are listed in the completed during the year. Respondents are asked summary below, along with the associated number of how much in taxes and mandatory contributions payments, time and tax rate. the business must pay and what the process is for doing so. Summary of tax rates and administrative burden in Hong Kong SAR, China Hong Kong SAR, East Asia & Pacific OECD high income Indicator China average average Payments (number per year) 3 25 12 Time (hours per year) 78 208 175 Profit tax (%) 17.5 16.4 16.1 Labor tax and contributions (%) 5.3 10.7 23.1 Other taxes (%) 0.1 7.4 2.0 Total tax rate (% profit) 22.9 34.5 41.3 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 50 16.5% 17.5 profits Employer paid - Mandatory gross provident fund (MPF) 1 online filing 28 5% 5.3 salaries contributions annual Property tax 1 0 5% rental 0.1 value Doing Business 2014 Hong Kong SAR, China 71 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Totals 3 78 22.9 Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 72 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: military items.  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include Doing Business 2014 Hong Kong SAR, China 73 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Hong Kong Globally, Hong Kong SAR, China stands at 2 in the SAR, China? According to data collected by Doing ranking of 189 economies on the ease of trading Business, exporting a standard container of goods across borders (figure 9.1). The rankings for requires 3 documents, takes 6 days and costs $590. comparator economies and the regional average Importing the same container of goods requires 3 ranking provide other useful information for assessing documents, takes 5 days and costs $565 (see the how easy it is for a business in Hong Kong SAR, China summary of procedures and documents at the end of to export and import goods. this chapter for details). Figure 9.1 How Hong Kong SAR, China and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 74 TRADING ACROSS BORDERS What are the changes over time? The benchmarks provided by the economies that over possible in making it easier to trade across borders. time have had the best performance regionally or And changes in regional averages can show where globally on the documents, time or cost required to Hong Kong SAR, China is keeping up—and where it is export or import (figure 9.2) help show what is falling behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2014 Hong Kong SAR, China 75 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2014 Hong Kong SAR, China 76 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 77 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Hong Kong SAR, China (table risk-based inspections and electronic data interchange 9.1)? Table 9.1 How has Hong Kong SAR, China made trading across borders easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 78 TRADING ACROSS BORDERS What are the details? The indicators reported here for Hong Kong SAR, LOCATION OF STANDARDIZED COMPANY China are based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this City: Hong Kong chapter on what the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each The procedural requirements, and the associated time procedure is collected from local freight forwarders, and cost, for exporting and importing a standard shipping lines, customs brokers, port officials and shipment of goods are listed in the summary below, banks. along with the required documents. Summary of procedures and documents for trading across borders in Hong Kong SAR, China Hong Kong SAR, East Asia & Pacific OECD high income Indicator China average average Documents to export (number) 3 6 4 Time to export (days) 6 21 11 Cost to export (US$ per container) 590 856 1,070 Documents to import (number) 3 7 4 Time to import (days) 5 22 10 Cost to import (US$ per container) 565 884 1,090 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 2 105 Customs clearance and technical control 1 0 Ports and terminal handling 2 265 Inland transportation and handling 1 220 Totals 6 590 Procedures to import Time (days) Cost (US$) Documents preparation 2 100 Doing Business 2014 Hong Kong SAR, China 79 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 1 0 Ports and terminal handling 1 265 Inland transportation and handling 1 200 Totals 5 565 Documents to export Documents to import Bill of Lading Bill of lading Commercial invoice Commercial invoice Customs export declaration Customs import declaration Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 80 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment Time required to complete procedures What do the indicators cover? (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city.  The dispute on the quality of the goods requires an expert opinion.  The buyer orders custom-made goods, then fails to pay.  The judge decides in favor of the seller; there is no appeal.  The seller sues the buyer before a competent court.  The seller enforces the judgment through a public sale of the buyer’s movable assets.  The value of the claim is 200% of income per capita.  The seller requests a pretrial attachment to secure the claim. Doing Business 2014 Hong Kong SAR, China 81 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Hong Kong SAR, China stands at 9 in the dispute through the courts in Hong Kong SAR, China? ranking of 189 economies on the ease of enforcing According to data collected by Doing Business, contracts (figure 10.1). The rankings for comparator contract enforcement takes 360 days, costs 21.2% of economies and the regional average ranking provide the value of the claim and requires 27 procedures (see other useful benchmarks for assessing the efficiency of the summary at the end of this chapter for details). contract enforcement in Hong Kong SAR, China. Figure 10.1 How Hong Kong SAR, China and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 82 ENFORCING CONTRACTS What are the changes over time? The benchmarks provided by the economies that over help show what is possible in improving the efficiency time have had the best performance regionally or of contract enforcement. And changes in regional globally on the number of steps, time or cost required averages can show where Hong Kong SAR, China is to enforce a contract through the courts (figure 10.2) keeping up—and where it is falling behind. Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2014 Hong Kong SAR, China 83 ENFORCING CONTRACTS Procedures (number) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 84 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Hong Kong SAR, China introducing new technology. Lower-income economies (table 10.1)? often work on reducing backlogs by introducing Table 10.1 How has Hong Kong SAR, China made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. Reforms implemented in the civil justice system of Hong Kong DB2011 SAR (China) will help increase the efficiency and cost- effectiveness of commercial dispute resolution. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 85 ENFORCING CONTRACTS What are the details? The indicators reported here for Hong Kong SAR, COURT NAME China are based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the City: Hong Kong section in this chapter on what the indicators cover). These procedures, and the time and cost of Claim Value LCU: 552425 completing them, are identified through study of the codes of civil procedure and other court Court Name: Hong Kong District Court regulations, as well as through surveys completed by local litigation lawyers (and, in a quarter of the The procedures for resolving a commercial lawsuit, and economies covered by Doing Business, by judges the associated time and cost, are listed in the summary as well). below. Summary of procedures for enforcing a contract in Hong Kong SAR, China—and the time and cost Hong Kong SAR, East Asia & Pacific OECD high income Indicator China average average Time (days) 360 551 529 Filing and service 5 Trial and judgment 310 Enforcement of judgment 45 Cost (% of claim) 21.2 48.7 21.0 Attorney cost (% of claim) 19.5 Court cost (% of claim) 0.7 Enforcement Cost (% of claim) 1.0 Procedures (number) 27 37 31 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Doing Business 2014 Hong Kong SAR, China 86 ENFORCING CONTRACTS No. Procedure Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally * or in writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee. Registration of court case: The court administration registers the lawsuit or court case. This includes 3 assigning a reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random * procedure, automated system, ruling of an administrative judge, court officer, etc. Arrangements for physical delivery of summons and complaint: Plaintiff takes whatever steps are * necessary to arrange for physical service of process on Defendant, such as instructing a court officer or a (private) bailiff. Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. * Proof of service: Plaintiff submits proof of service to court. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Guarantees securing attached property: Plaintiff typically submits guarantees or bonds to secure 4 Defendant against possible damages to attached property. (see assumption 5) Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either 5 physical or achieved by registering, marking, debiting or separating assets. (see assumption 5) Trial and judgment: Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his defense or answer on the merits of the case. Defendant's written answer may or may not 6 include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Deadline for Plaintiff to answer Defendant's defense or answer: Judge sets the deadline by which Plaintiff 7 will be allowed to answer Defendant's defense or answer. Plaintiff’s written response to Defendant's defense or answer: Plaintiff responds to Defendant’s d efense or 8 answer with a written pleading. Plaintiff's answer may or may not include a witness statements or expert (witness) statements. Doing Business 2014 Hong Kong SAR, China 87 No. Procedure Filing of pleadings: Plaintiff and Defendant file written pleadings and submissions with the court and 9 transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Adjournments: Court procedure is delayed because one or both parties request and obtain an 10 adjournment to submit written pleadings. Court’s mailing of allocation questionnaire to parties: The court mails a questionnaire to the parties asking * each to allocate the case among different case-tracks (for example, multi track, fast track) and asking each to frame the issues for trial. Discovery requests: Plaintiff and Defendant make requests for the disclosure of documents, attempting to * force the other party to reveal potentially detrimental documents. * Setting of date(s) for oral hearing or trial: The judge sets the date(s) for the oral hearing or trial. Pre-trial conference aimed at preparing for trial: The judge meets with parties to make practical 11 arrangements for the trial (for example, the number of witnesses parties intend to call on during trial, how much time each party is given to present oral arguments etc.). * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court. (see assumption 6-a) Trial (prevalent in common law): The parties argue the merits of the case at (an) oral session(s) before the 12 court. Witnesses and expert witnesses are questioned and cross-examined during trial. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 13 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 14 Writing of judgment: The judge produces a written copy of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in 15 the law. Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse 16 Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 17 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. Publication of judgment: The judgment must be published in an official journal, gazette or local 18 newspaper. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 19 (private) bailiff requests Defendant to voluntarily comply with the judgment, giving Defendant a last chance to comply voluntarily with the judgment. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court 20 enforcement officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Doing Business 2014 Hong Kong SAR, China 88 No. Procedure Notification of intent to attach: A court enforcement officer or (private) bailiff notifies other creditors of 21 the intent to attach Defendant's goods. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 22 assets). Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 23 newspapers. 24 Sale through public auction: The Defendant’s movable property is sold at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to various creditors (including 25 Plaintiff), according to the rules of priority. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 26 Plaintiff had advanced previously. 27 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 89 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through Recovery rate for creditors (cents on the reorganization, liquidation or debt enforcement dollar) (foreclosure) proceedings. The recovery rate is a Measures the cents on the dollar recovered function of time, cost and other factors, such as by creditors lending rate and the likelihood of the company continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account  Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered  Operates in the economy’s largest business city.  Has 201 employees, 1 main secured  Has a higher value as a going concern—and creditor and 50 unsecured creditors. the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 Hong Kong SAR, China 90 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses sold as going concern. The average recovery rate is characterize the top-performing economies. How 81.2 cents on the dollar. efficient are insolvency proceedings in Hong Kong Globally, Hong Kong SAR, China stands at 19 in the SAR, China? According to data collected by Doing ranking of 189 economies on the ease of resolving Business, resolving insolvency takes 1.1 years on insolvency (figure 11.1). The rankings for comparator average and costs 9% of the debtor’s estate, with the economies and the regional average ranking provide most likely outcome being that the company will be other useful benchmarks for assessing the efficiency of insolvency proceedings in Hong Kong SAR, China. Figure 11.1 How Hong Kong SAR, China and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 91 RESOLVING INSOLVENCY What are the changes over time? The benchmarks provided by the economies that over possible in improving the efficiency of insolvency time have had the best performance regionally or proceedings. And changes in regional averages can globally on the time or cost of insolvency proceedings show where Hong Kong SAR, China is keeping up— or on the recovery rate (figure 11.2) help show what is and where it is falling behind. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2014 Hong Kong SAR, China 92 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. “No practice” indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for “no practice” economies is 0. Regional averages on time and cost exclude economies with a “no practice” mark. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 93 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Hong Kong SAR, China (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Hong Kong SAR, China made resolving insolvency easier—or not? By Doing Business report year DB year Reform Hong Kong (China) amended the respective powers and duties DB2009 of trustees granting them more power. This is expected to make the liquidation procedure more efficient. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 94 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of employing workers methodology proposed by the employment, specifically as it affects the hiring and consultative group are available on the Doing Business redundancy of workers and the rigidity of working website (http://www.doingbusiness.org). The data on hours. Over the period from 2007 to 2011 employing workers are based on a detailed survey of improvements were made to align the methodology employment regulations that is completed by local for the employing workers indicators with the letter lawyers and public officials. Employment laws and and spirit of the International Labour Organization regulations as well as secondary sources are reviewed (ILO) conventions. Only 4 of the 188 ILO conventions to ensure accuracy. cover areas measured by Doing Business: employee To make the data comparable across economies, termination, weekend work, holiday with pay and night several assumptions about the worker and the work. The Doing Business methodology is fully business are used. consistent with these 4 conventions. The ILO conventions covering areas related to the Employing The worker: Workers indicators do not include the ILO core labor  Earns a salary plus benefits equal to the standards—8 conventions covering the right to economy’s average wage during the entire collective bargaining, the elimination of forced labor, period of his employment. the abolition of child labor and equitable treatment in  Has a pay period that is the most common for workers in the economy. employment practices.  Is a lawful citizen who belongs to the same race and religion as the majority of the Between 2009 and 2011 the World Bank Group worked economy’s population. with a consultative group—including labor lawyers,  Resides in the economy’s largest business city. employer and employee representatives, and experts  Is not a member of a labor union, unless from the ILO, OECD, civil society and the private membership is mandatory. sector—to review the employing workers methodology and explore future areas of research. A i The business:  Is a limited liability company. full report with the conclusions of the consultative  Operates in the economy’s largest business group is available at city. http://www.doingbusiness.org/methodology/employin  Is 100% domestically owned. g-workers.  Operates in the manufacturing sector.  Has 60 employees. This year Doing Business continued research collecting  Is subject to collective bargaining agreements additional data on regulations covering the in economies where such agreements cover probationary period for new employees. more than half the manufacturing sector and apply even to firms not party to them. Doing Business 2014 presents the data on the  Abides by every law and regulation but does not grant workers more benefits than employing workers indicators in an annex. The report mandated by law, regulation or (if applicable) does not present rankings of economies on the collective bargaining agreement. employing workers indicators nor include the topic in the aggregate ranking on the ease of doing business. Detailed data collected on labor regulations and the Doing Business 2014 Hong Kong SAR, China 95 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Hong Kong other things, the minimum wage for a 19-year-old SAR, China (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 96 EMPLOYING WORKERS Employment laws are needed to protect workers from past 5 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Hong Kong SAR, China contracting between employers and workers. Many adopt that affected the Doing Business indicators on economies that changed their labor regulations in the employing workers (table 12.1)? Table 12.1 What changes did Hong Kong SAR, China make in employing workers in 2013? DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 Hong Kong, China introduced a Minimum Wage. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 97 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and Hong Kong SAR, China are based on a detailed survey regulations as well as secondary sources are reviewed of employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage for a 19-year old worker or an apprentice (US$/month) 0.0 Ratio of minimum wage to value added per worker 0.00 Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 98 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data Standard workday in manufacturing (hours) 8 hours 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 0% operations Premium for work on weekly rest day (% of hourly pay) in case of 0% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 7.0 Paid annual leave for a worker with 5 years of tenure (in working days) 10.0 Paid annual leave for a worker with 10 years of tenure (in working days) 14.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 10.3 working days) Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 99 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? No Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 100 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 4.3 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 4.3 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 4.3 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 0.0 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 1.4 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 2.9 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 1.4 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2014 Hong Kong SAR, China 101 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information about what laws and regulations say and allowing 2 The data for paying taxes refer to January – December 2012. multiple interactions with local respondents to clarify Doing Business 2014 Hong Kong SAR, China 102 potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation —as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified Changes in what is measured size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully reasons the time delays reported in Doing Business completed online in just a few hours. This change 2014 would differ from the recollection of affects the time indicator for starting a business, Doing Business 2014 Hong Kong SAR, China 103 dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business and the distance to frontier measure. The business. ease of doing business ranking compares economies More complex aggregation methods—such as 3 For getting electricity the rule that each procedure must take a principal components and unobserved components— minimum of 1 day still applies because in practice there are no yield a ranking nearly identical to the simple average cases in which procedures can be fully completed online in less than a day. For example, even though in some cases it is possible to apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 Hong Kong SAR, China 104 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly since 2003 or the first year the indicator was collected. 5 identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 Hong Kong SAR, China 105 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. Doing Business 2014 Hong Kong SAR, China 107 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2014 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/ iphone Doing Business 2014 Hong Kong SAR, China 108