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01 Nov 2006 |
FROM THE ECONOMIST INTELLIGENCE UNIT
Hong Kong was among the first places in Asia to embrace electronic commerce. All but the smallest shipping and freight-forwarding companies have been using electronic data interchange (EDI) since the early 1980s. More recently, these companies have adopted Internet-based networks to transmit information and documents among themselves and with traders.
In trading, Hong Kong was an early user of computerised import and export documentation in electronic media. The government has used Tradelink, an electronic platform for transactions, for receiving textile export licences, certificates of origin and trade-declaration applications. Tradelink also provides a range of value-added, transaction-management facilities including message checking, matching and validation, message authentication and security, electronic billing and payments, message archiving and audit-trail services.
Traders also use advanced applications to track the flow of their goods online and for warehousing, transport and container management, particularly at the Kwai Chung container port, one of the world’s busiest. EZ Trade, offered by a private group (the Hong Kong Article Numbering Association) offers EDI solutions that conform to international standards and automate the flow of papers between trading partners.
The installation of bar-coding and point-of-sale (POS) systems for inventory control and sales analysis is widespread and is not just the domain of major retailers. The linking of POS systems with vendors to exchange purchase orders and invoices that ensure just-in-time delivery systems are well established. Some of the larger supermarket chains have developed innovative technology in an effort to streamline operations in an intensely competitive environment. Data-mining technology is widely applied by the wholesale and retailing sector, and Internet-ordering for home delivery is advanced.
In manufacturing, automation of ordering, production management, sale and distribution systems is more advanced than in other countries, mainly because of Hong Kong’s particular service role for manufacturing that occurs across the boundary in China. Computer-aided design and manufacturing (CAD and CAM) systems are widely used, and there is a growing trend to use Internet technology to solicit innovative third-party supplies and components.
Hong Kong also has the best design and multimedia capabilities in the region, and it has one of the fastest take-up times for new media developments. Computer-generated imaging is a particular strength.
But financial institutions are the most prominent users of e-commerce. A growing number of banks provide online banking. HSBC (UK), the largest bank in Hong Kong, conducts about half its foreign-exchange trade online. HSBC is one of the largest foreign-exchange market-makers in the world, and it connects to about 50 institutional clients through dedicated Internet lines. The bank is also involved with FXall.com, an Internet portal that allows spot trade as well as forwards and swaps.
Hong Kong took a major step in securing online banking in June 2005, when the Hong Kong Monetary Authority required the use of a two-factor authentication system for “high risk” transactions online: a reusable password chosen by the user, plus another password delivered at each log-on via short-message service (SMS) by e-Cert (a digital certificate issued by Hong Kong Post and stored in the Smart identity card held by every Hong Kong resident) or by a portable authentication device. Twelve banks launched their two-factor authentication services using e-Cert in late June 2005. HSBC went a step further by giving its online customers a keychain-sized “security device”. Users must enter the device’s serial number and a unique security code issued at the touch of a button.
Online share trading is widespread. Hong Kong Exchanges and Clearing completed the implementation of the third generation of the Automatic Order Matching and Execution System (AMS/3) in August 2001, allowing investors and brokers to trade securities electronically through the Internet, mobile phones and other electronic channels. The stockmarket also uses an electronic off-platform trading system, whereas banks employ an interbank real-time gross-settlement system. An online foreign-exchange service, called eFXtrade, is available to retail investors.
The government took the lead in promoting e-commerce by establishing the Electronic Service Delivery (ESD) scheme in October 2000. ESD strives for a paperless government by offering services online. It involves converting common government forms to electronic format so that the public can complete them electronically, sign them digitally and submit them to the government via the Internet. The legislature passed another government initiative to promote e-commerce in January 2000, with the Electronic Transactions Ordinance; it gave digital signatures used in electronic transactions the same legal status as their paper-based counterparts.
Through the ESDlife website, residents of Hong Kong can now go online to handle much of their government-related business—from paying taxes to booking appointments at Immigration House or the local tennis court. An amendment to the Immigration Ordinance approved by the Legislative Council in June 2005 allows even non-permanent residents, in addition to permanent Hong Kong residents, to breeze through immigration clearance by swiping their Smart identity cars at Automated Passenger Clearance Channels at Hong Kong ports.
E-commerce: Growth of e-commerce
Hong Kong has seen a steady increase in electronic commerce since 2000. According to surveys of households and establishments conducted by the Census and Statistics Department (CSD) in April–August 2005, 52.3% of establishments had received goods, services or information through electronic means in the preceding 12 months. (However, goods received were restricted to those that can be transmitted through electronic media, such as software packages and music.) The percentage of establishments having sold goods, services or information through electronic means increased to 1.8% in 2004–05, from 1.3% in 2003–04. About 15.7% of the establishments had delivered their goods, services or information through electronic means in 2004–05, up from 15.3% in 2003–04.
Of establishments surveyed by the CSD, about 15.5% had websites in 2004–05, up from 14.8% in 2003–04. However, only 10.1% of these companies used their websites as channel for online ordering of their products and services. In the 12 months prior to the surveys, 15.4% of the establishments had ordered or purchased goods, services or information through electronic means.
The CSD estimated that the total amount of business receipts received from selling goods, services or information through electronic means reached HK$27.6bn in 2004, up by 30.2% on the HK$21.2bn receipts in 2003 and HK$15.6bn in 2002. (An estimate for 2005 was not yet available in October 2006.)
About 70% of households in Hong Kong had personal computers (PCs) in 2005, according to the CSD. About 92.2% of those with PCs were connected to the Internet, representing 64.6% of all domestic households in Hong Kong. About 97.3% of all persons aged 15 and older had used electronic-business services of one form or another for personal matters in the 12 months before the survey, compared with 96.5% in 2004.
Hong Kong has one of the most sophisticated telecommunications infrastructures in Asia. It is the first major city in the world to have a fully digitised telephone network, and it has the highest rate of fixed-telephone-line penetration in the region (92.1% of households). According to the Office of Telecommunications Authority (Ofta), the number of registered customers with Internet dial-up access reached 969,037 in May 2006, and another 1.68m people had broadband access. Ofta reports that the rate of household broadband penetration stood at 66.6% in May 2006.
Hong Kong had five mobile-network operators, 37 fixed-telecom-network services operators (wireline-, wireless-, satellite- and cable-based), 240 external-telecommunication-service operators and 186 Internet service providers in July 2006.
There were some 8.8m subscribers to mobile-phone services in May 2006, up from 8.3m a year earlier, according to Ofta. The penetration rate of about 126.5% is among the world’s highest. Of the mobile subscribers, 1.9m have third-generation and 2.5G services, which have been provided by four operators since September 2001.
Hong Kong’s telecommunications industry is moving steadily towards convergence of telecoms and broadcasting, thanks to new technologies such as the WiMax, a more advanced version of the Wi-Fi platform used to offer wireless Internet access in public places, such as coffee shops and airports. PCCW, Hong Kong’s largest fixed-line operator offers fixed telephony, pay-television, broadband Internet and mobile service.
Another group, Hutchison Global Communications and SuperSun (a pay-television operator) in July 2005 began offering pay-TV channels and broadband Internet service for a single price.
Hong Kong aims to establish its version of Silicon Valley with its Cyberport project, a 22,300-sq-metre (240,000-sq-foot) high-tech hub for information-services companies. The HK$13bn Cyberport, with 2,136 sq metres (23,000 sq feet) of office space, was opened for occupancy in April 2002 (see Regional incentives).
E-commerce: Foreign investment
Hong Kong imposes no limits on foreign investment in telecommunications, whether Internet service providers or content providers. The telecoms market is liberalised, and regulation by the Office of Telecommunications Authority is meant to curb anti-competitive practices.
The government issued four licences for third-generation (3G) mobile-telecom services in September 2001. Applications for public non-exclusive telecom-service licences for operating mobile virtual-network operator service were available in November 2002. China’s accession to the World Trade Organisation in December 2001 and the expected opening of the mainland’s vast telecoms market present many joint-venture and business-partnership opportunities. Hong Kong’s government has aggressively pushed to provide an environment conducive to foreign investment in telecoms, information technology and e-commerce. For example, it has established the Science Park and Cyberport and the Innovation and Technology Support Fund for this purpose, besides liberalising telecoms (see Incentives).
In broadcasting, the ownership of commercial- and subscription-television companies by “unqualified persons” (essentially, those not ordinarily resident in Hong Kong) is not restricted, but the voting control such persons may exercise on a poll at a general meeting of the television company is limited. For sound-broadcasting companies, “unqualified persons” are allowed to control no more than 49% of the total number of voting shares under the existing system.
E-commerce: Intellectual property
Hong Kong’s intellectual-property laws apply to e-commerce. Hence, copyright and trademark protection afforded to traditional products and services apply whenever these are traded or used on the Internet. The absence of legal precedents, however, makes it difficult to predict how future disputes arising from infringement of intellectual property on the Internet will be resolved.
E-commerce: Consumer protection
The Control of Obscene and Indecent Articles Ordinance regulates the publication and public display of obscene and indecent articles, including printed matters, sound recordings, films, videotapes, discs and electronic publications. Under the ordinance, an article may be classified as (1) neither obscene nor indecent (Class I); (2) Indecent (Class II); and (3) Obscene (Class III). Class I articles may be published without restriction. Class II articles may not be published to persons younger than aged 18 and must comply with certain statutory requirements. Class III articles are prohibited from publication.
The Obscene Articles Tribunal has exclusive jurisdiction to classify each article, and the ordinance is imposed by the Television and Entertainment Licensing Authority, the Customs and Excise Department, and the police. It is unclear, however, how the ordinance applies to the content of Internet sites.
The Personal Data (Privacy) Ordinance, which came into force in 1996, protects the privacy interests of living individuals (called “data subjects”) by giving them certain rights regarding the use of their personal data. Under the ordinance, data subjects have the right to confirm with data users whether their personal data are held, to obtain a copy of such data and to have personal data corrected. Any charge for providing a copy of personal data to a data subject may not be excessive. Data subjects may complain to the Office of the Privacy Commissioner for Personal Data about a suspected breach of the law’s requirements, and they may claim compensation through civil proceedings for damage (including to personal feelings) caused to them as a result of contravening the ordinance.
There are a variety of offences under the ordinance. For example, non-compliance with an enforcement notice served by the Privacy Commissioner carries a penalty of a HK$25,000–50,000 fine and two years imprisonment.
The Independent Commission Against Corruption (ICAC) also may investigate breaches of personal privacy. In March 2006 the ICAC charged nine former employees of seven banks and financial companies with illegally leaking customers’ data to a debt-collecting syndicate. The commission said the nine allegedly conspired to gain access to a computer belonging to their employers and obtain confidential information about account holders to help the syndicate’s debt-collecting business.
In an effort to protect bank depositors, the Hong Kong Monetary Authority has issued electronic-banking guidelines that prohibit overseas-incorporated institutions (such as virtual banks) from soliciting deposits in Hong Kong through Internet advertisements unless they comply with certain disclosure requirements stipulated in the Fifth Schedule of the Banking Ordinance. The restriction applies even if the advertisement is made outside Hong Kong and the deposits are to be placed overseas.
Proposed anti-spam legislation, the Unsolicited Electronic Messages Bill, was introduced to the Legislative Council in July 2006. If approved, the bill would regulate the sending of electronic messages of a commercial nature, requiring senders of such messages to give recipients the option to request to stop receiving further electronic messages. It would empower the Telecommunications Authority to adopt an enforcement notice regime. The bill also proposes to prohibit the supply, acquisition or use of electronic address-harvesting software or harvested lists of electronic addresses for sending commercial electronic messages without the consent of users of these addresses. Because the bill is not controversial, it is likely that it will be passed into law by 2007.
E-commerce: Contract law and dispute resolution
The Legislative Council enacted the Electronic Transactions Ordinance (Cap 553) in January 2000 to encourage e-commerce in Hong Kong. The law gives e-commerce and digital signatures used in electronic transactions the same legal status as their paper-based counterparts. Through the use of recognised certificates, individuals and businesses can legally establish the identity of other parties in electronic transactions, ensure the integrity of the electronic messages received and prevent electronic transactions from being repudiated. Section 34 of the law appointed the Postmaster-General as a certification authority (CA). The law also outlines the procedures for government recognition of other CAs and the certificates they would issue.
The Legislative Council passed an amendment to the Electronic Transaction Ordinance in June 2004 that adopted a technology-neutral approach for Hong Kong electronic signatures. The amendment states that all types of electronic signatures are acceptable (although transactions with the government still require a digital signature). An electronic signature is defined in the ordinance as letters, characters, numbers or other symbols in digital form attached to or logically associated with an electronic record, and executed or adopted for the purpose of authenticating or approving the electronic record. The 2004 amendment also provides that certain documents required by law to be served by post or in person may be served electronically.
Disputes may be brought to existing courts and take the route of regular judicial processes. There is little to guide jurisprudence, however, since there have been few e-commerce disputes so far.
E-commerce: Basis of taxation
Hong Kong has no specific legislation dealing with tax issues specific to e-commerce. According to the Inland Revenue Department (IRD), however, the Inland Revenue Ordinance (the basic tax law) is “neutral” in its application to e-commerce vis-à-vis traditional commerce. If all other factors remain constant, the tax treatment and tax consequences of a business transaction are identical to those of a traditional transaction. The amount of profits arising in or derived from Hong Kong will be the same, according to the IRD.
E-commerce: Classification of e-commerce transactions
The kind of service an Internet site provides does not determine how it will be taxed. According to the Inland Revenue Department (IRD), the subject matter of the transaction and the terms of the contract, as entered between the parties, determine the nature of the transaction.
According to the IRD, it is impossible to generalise whether a data transfer over the Internet should be regarded as a service, a sale of goods or a granting of a licence for use. The issue of “characterisation of income” and other related issues on e-commerce are now being considered at international forums. The IRD has said it would consider the views expressed by other tax authorities.
E-commerce: Compliance and enforcement issues
Under the Electronic Transactions Ordinance passed in January 2000, parties to an e-commerce transaction may be identified through the use of recognised certificates.
The Inland Revenue Department acknowledged, however, that better technology solutions or measures are needed for better regulation of business websites or identification of parties in e-commerce transactions.
E-commerce: Key contacts
Other key sources of information include the following:
SOURCE: COUNTRY COMMERCE
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