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AT MIDNIGHT on June 30, Hong Kong will be the site of an historic event: British sovereignty over the British Crown Colony of Hong Kong and the New Territories will transfer to the People's Republic of China.

After a dignified and solemn ceremony, the last colonial governor, Christopher Patten, will depart on Queen Elizabeth's royal yacht. And as Governor Patten is piped aboard the Brittania, Mr. Tung Chee-Hwa will assume the duties, responsibilities and authorities of chief executive of the Special Administrative Region of Hong Kong, People's Republic of China.

Recognizing the unique political and economic challenges of a change of sovereignty, Britain and China agreed in 1984-in the Joint Declaration they registered with the United Nations-that China would adopt a policy of "one country, two systems." For the next 50 years, Hong Kong will enjoy substantial autonomy as a special administrative region, or SAR, within China. Hong Kong's stability and prosperity is to be preserved by Hong Kong people ruling Hong Kong in all matters except national security and foreign affairs. Every expectation is that the capitalist system pursued so successfully by Hong Kong will be preserved-perhaps even nurtured as a model for reforms and modernizations of China's socialist-market economy. Nevertheless, despite the structures and frameworks devised by Britain and China to preserve Hong Kong's unique attributes, certain changes will occur.

Under the Joint Declaration, Hong Kong retains its own legal system based on English Common Law and its mechanisms for appeal and judicial review. This differs from Chinese law, which is based on a Confucian tradition and has its own mechanisms for application, appeal and review. Instead of judicial appeal to the Privy Council in the United Kingdom, a practice the Crown Colony of Hong Kong had in common with most Commonwealth nations, Hong Kong will have a new Court of Final Appeals. Virtually all commercial and civil matters will be adjudicated on the precedents of common law. The Court of Final Appeals will have the existing body of Hong Kong law and precedence to guide it.

That Hong Kong common law will evolve and change is inevitable. It will grow in new directions and take on characteristics unique to Hong Kong, just as U.S., Canadian, and Australian common law evolved in directions quite different than the parent English Common Law. Although skeptics say it's not practical for one sovereign nation to have two legal systems, there are precedents: Louisiana law continues to be governed in significant respects by the Napoleonic Code, as does the provincial law of Quebec in Canada.

Reliance on common law, with its transparency of application and relative predictability of issues, should be expected to continue to provide a framework for commercial affairs.

Under the Joint Declaration, Hong Kong SAR will remain a separate commercial entity; all agreements and memberships in global organizations and commercial associations will continue. The accounting principles that regulate commercial practice are expected to continue and be governed by professional practitioners, particularly with respect to tax accounting.

The Joint Declaration provides for Hong Kong SAR taxation to remain separate and distinct from the tax authorities of China. A separate budget will be determined solely by the SAR government. The authority to raise revenue by taxation also is specified at the sole discretion of the SAR government.

The relative practices of Hong Kong accounting also are expected to endure. Generally accepted accounting principles for Hong Kong historically have been based on the United Kingdom's rules of chartered accountancy.

Alternatively, accounting rules in China have developed in recent years as the private sector has developed and privatization has emerged as a driving force of the market-oriented economy. Accounting practices are not so clear as in Hong Kong; professional regulation of accounting practices is in the early stages of development.

In general, Hong Kong's commerce, including the insurance sector, should work well under "one country, two systems." The differences between Chinese regulation of insurance and the Hong Kong SAR's relative lack of insurance regulation undoubtedly will remain.

Hong Kong insurance regulators are considering ordinances and regulations that will be even more hospitable to captive insurance companies than current regulations. And many think the most likely source of new interest in captives will be from China.

China currently has granted licenses to 11 insurers; Hong Kong has 276 insurers. China's insurance company capitalization requirements are about $100 million; in Hong Kong, an insurer can be capitalized with about $2 million.

China has currency exchange controls, and the renminbi is a non-exportable currency; Hong Kong is a top-five currency trading center, and the Hong Kong dollar is a freely convertible currency. China has one licensed reinsurance company, PICC Re; Hong Kong has more than 30 such companies or branches of multinational reinsurers.

Overriding all these points and counterpoints is the fact that the Joint Declaration will preserve the commercial affairs of the Hong Kong SAR with provisions for separate insurance regulation, distinct commercial practices, and separate laws, taxation, dispute resolution mechanisms and contractual interpretation precedents.

Over the centuries, China has been one of the more volatile areas of the world, but the last 20 years have proved relatively stable and remarkably prosperous. Though no one can know for sure what lies ahead, it appears at least in the near future, the "new" Hong Kong will continue to offer significant opportunities as one of the world's great commercial centers.