From liberal immigration to common sense laws, Hong Kong has long been a beacon for good governance, free markets, and the rule of law.

But it’s been under siege from Xi Jingping’s regime since he came to power in 2012, and especially since 2020. That’s when its social order was undermined and attacked by the National Security Law, which was foisted upon Hong Kong by bureaucrats in Beijing. 

This law, along with Beijing’s heavy-handed interest in local Hong Kong elections, should concern not just Hong Kongers, but also the wider world. They are direct threats to the One country, two systems principle and indeed to the city’s long classical liberal tradition.

Especially when compared to its neighbors in Singapore and and elsewhere in the Asia Pacific region, Hong Kong provides a model that not only promotes freedom of capital, but freedom of people as well. But how has Hong Kong done so?

Liberal immigration policies

During the Sino-Japanese War, refugees found safety in Hong Kong from neighboring Mainland China. As Japan fought for the heartland, Hong Kong provided safety for the mainlanders who were under assault from imperialist Japan. Following World War II, the Japanese occupation, and the Chinese Cultural Revolution, Hong Kong became a safe haven for free thinkers. In 1945, only 600,000 people lived in Hong Kong. After the Cultural Revolution, its population swelled to 2.2 million. Hong Kong offered a second chance — especially to businessmen and the broader class of people seeking a better life for themselves and their families.

Those refugees and immigrants provided the labor, capital, know-how, and entrepreneurship that raised Hong Kong’s profile as a hub for business in the Asia Pacific region. However, immigration was not limited to those coming from nearby; people also came to Hong Kong from the UK and its colonies. 

This fact, along with having a well-situated harbor and other advantages (which we’ll get to), made Hong Kong the powerhouse it is today. Because Hong Kong accepted refugees from most of Asia and from throughout the British Empire, new ideas were exchanged and fused together there — and along with that exchange and fusion of ideas came the exchange and fusion of goods.

A Common Law legal system

Hong Kong’s legal system, like other children of the Anglosphere, is the result of hundreds of years of legal experience  enshrined in the history of the English Common Law system. The advantage of that system, as implemented in Hong Kong, is the fact that the law is based on constant principles, not on political whims. They have also been refined — in a baptism-by-fire-kind of way — over hundreds of years, and the common law system tends to be pro-property as compared to its civil law competitors. 

Due to the strong track record of common law jurisdictions, this is a solid advantage for Hong Kong over other jurisdictions in the region. The problem, of course, is that this advantage is not ironclad; it has been systematically eroded by factors such as the National Security Law. Furthermore, it doesn’t take into account the corruption of the law by ignorance and entropy, which is an issue in both civil law and common law jurisdictions.

A pro-corporate culture

It’s relatively easy to start a business in Hong Kong; the process is streamlined, and the common law system is a boon to that process. It only takes about 3 to 5 business days to form a company. The city also offers several dispute resolution channels, including one for financial disputes.

The legal system is not the only thing that encourages businesses to call Hong Kong home. The depth of talent in the local market from both Hong Kong’s British and Chinese heritage makes it easy to staff a company. The other important benefit of a headquarters in Hong Kong is that its capital markets are quite modernized. Hong Kong, along with London, has leapfrogged ahead of countries like the US in part because it does not have onerous regulations like the US’s Sarbanes–Oxley Act.

Hong Kong’s taxation system

Taxation in Hong Kong is relatively light. The maximum tax rate a person could be subject to is 17 percent. For businesses, the corporate income tax is a simple flat tax of 16.5 percent. 

To sweeten things, Hong Kong does not tax capital gains. This might explain in part why capital markets developed relatively easily there. Moreover, Hong Kong’s income tax rate is strictly territorial, unlike the US’s, which taxes its citizens on worldwide income.

Kowloon Walled City: the spirit of a city

Any assessment of Hong Kong’s pro-business, pro-liberty credentials would not be complete without mentioning the ancient heart of Hong Kong; its pro-liberty legacy. 

In Kowloon Walled City, there were no mayors, congress people, or presidents trying to control others. It essentially had no income tax, licenses, or law. Entrepreneurs would make noodles for restaurants, barbers would shave hair, and locals would treat themselves to a game of cards — and, perhaps most importantly, would become defensive if police tried to interrupt this pastime. 

In essence, it was applied anarcho-capitalism. It was a reflection of the spirit of a free people. When it was demolished in the 1990’s, this was a signal that those in power would not accept “informal” power structures and they would only accept the power of the state. Still, it was proof that a stateless city could operate successfully and established a tradition of skepticism of and aversion to power.

Even with that tradition ensconced, Hong Kong still shines as an example of what a well-built city-state can do. Let’s use it as an example and a guide toward realizing what is possible.

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