Analysis on the Advantages and Risks of HK Companies Investing in Domestic Affiliated Enterprises

In recent years, with the continuous deepening of economic cooperation between the mainland and Hong Kong, an increasing number of Hong Kong companies have established affiliated enterprises in the mainland. This cross-border investment model not only brings new development opportunities for Hong Kong enterprises but also comes with a series of advantages and risks. This article will combine recent relevant news information to discuss the pros and cons of Hong Kong companies investing in domestic affiliated enterprises.

Firstly, one of the major advantages of Hong Kong companies investing in domestic affiliated enterprises lies in tax preferential policies. According to the latest development outline of the Guangdong-Hong Kong-Macao Greater Bay Area, multiple cities within the region have implemented more flexible corporate income tax policies. For instance, the Qianhai Free Trade Zone in Shenzhen offers a preferential corporate income tax rate of 15% to qualified Hong Kong-funded enterprises, far lower than the national standard rate of 25%. This policy has attracted a large number of Hong Kong enterprises to set up subsidiaries or branches. According to Xinhua News Agency reports, by the first quarter of 2025, more than 20,000 Hong Kong-funded enterprises had registered in Qianhai, many of which enjoyed tax benefits by investing in domestic affiliated enterprises.

Secondly, Hong Kong enterprises can better integrate into the domestic market through investment in affiliated domestic enterprises. The mainland boasts a vast consumer base and extensive market space, while Hong Kong enterprises have rich experience in brand operation and marketing. The combination of these strengths can create complementary advantages. For example, a well-known Hong Kong catering chain brand successfully launched several new dishes tailored to local tastes after setting up affiliated enterprises in the mainland. It also achieved rapid growth in sales through domestic e-commerce platforms. This case demonstrates that Hong Kong enterprises have significantly enhanced their localization operational capabilities in the domestic market.

However, investing in affiliated domestic enterprises also poses numerous risks for Hong Kong companies. The primary risk stems from changes in the policy environment. Although the mainland currently holds an open attitude toward Hong Kong-funded enterprises, there is still a possibility of future policy adjustments. Once relevant policies tighten, they may adversely affect business operations. The mainland market is highly competitive, with numerous local competitors emerging in many industries. For Hong Kong enterprises entering the mainland market, how to quickly adapt and capture market share presents a significant challenge.

Another risk that cannot be overlooked is the management challenges brought about by legal and cultural differences. There are certain differences between the mainland and Hong Kong in terms of commercial regulations, contract enforcement, and labor employment. When setting up affiliated enterprises in the mainland, Hong Kong enterprises need to fully understand and comply with local laws and regulations to avoid potential legal disputes. At the same time, cultural differences may lead to communication barriers, affecting team collaboration efficiency. For instance, some media reports indicate that due to failure to timely adjust management models, some Hong Kong enterprises experienced high employee turnover rates, which impacted business development.

To address these risks, Hong Kong enterprises should adopt a cautious approach when investing in affiliated domestic enterprises. On one hand, enterprises need to strengthen their understanding of mainland policies and regulations to ensure compliance. On the other hand, they can introduce professionals familiar with the mainland market to help resolve cultural differences issues. Establishing sound internal management systems to enhance the enterprise's ability to withstand risks is also essential.

In conclusion, investing in affiliated domestic enterprises by Hong Kong companies presents both opportunities and challenges. While making full use of tax incentives and market potential advantages, enterprises must face potential risks such as policy changes, market competition, and cultural differences. Only by leveraging strengths and mitigating weaknesses can enterprises stabilize their footing in the mainland market and achieve sustainable development. In the future, with further deepening of economic and trade cooperation between the mainland and Hong Kong, it is believed that more Hong Kong enterprises will benefit from this, jointly promoting the prosperity and development of the economies of both regions.