Look out, Singapore.
Hong Kong's incoming top official is looking at reducing taxes and offering more incentives to catch up with its Asian rival in the contest for foreign investments.
Chief Executive-elect Carrie Lam, whose every move has been closely scrutinised since she won the election for the city's top job on Sunday, said Hong Kong has a lot of catching up to do after it has "lost a few regional headquarters and regional offices to another place".
"You know where it is," she told local and foreign investors at the 20th Credit Suisse Asian Investment Conference on Tuesday.
She said one area to look at would be to strike more bilateral agreements, such as the "avoidance of double taxation agreements", with other economies. Singapore has nearly 90 of such treaties and Britain has more than 130, but Hong Kong has just 37, she noted.
When asked how she would convince firms to move their regional HQs from Singapore to Hong Kong, Mrs Lam said liveability, freedom, the "spiritual side of life" of the city and increasing transport connectivity with the mainland would be appealing to foreign investors.
Incoming chief's growth plan
• To roll out a two-tier profits tax system to reduce the burden of small and medium-sized enterprises. While the tax rate for the first HK$2 million (S$360,000) in profits will be reduced from 16.5 to 10 per cent, the rate for profits above this sum will remain the same.
• To offer more tax cuts to encourage research and development. Businesses will enjoy tax deductions, which can be 200 per cent higher than the amount spent on R&D, for example.
• Additional tax deductions may be offered for money spent on initiatives on environmental protection, culture, arts and design.
• To secure more "avoidance of double taxation agreements" with other economies .
• To increase the supply of land for enterprises to have adequate space for business operations and development. Measures include encouraging the owners of revitalised industrial buildings to rent out parts of their buildings as "co-working space" at concessionary rates.
• To look into further relaxing restrictions to allow the lower floors of industrial buildings to be used for non-industrial purposes, subject to fire safety requirements.
• To work with employers' groups and trade unions to import foreign labour for certain industries.
When asked how she would convince firms to move their regional HQs from Singapore to Hong Kong, she said liveability, freedom, the "spiritual side of life" of the city and increasing transport connectivity with the mainland would be appealing to foreign investors.
She also plans to hold a summit on taxation in Hong Kong to find ways to spur economic growth.
"There is no room for complacency and we need to work harder," said Mrs Lam, who pledged to solve the city's housing and labour issues to increase its competitiveness.
There are close to 8,000 foreign and mainland offices in Hong Kong, latest statistics show.
Last October, local media reported that social media giant Twitter was planning to transfer its key operations for China from Hong Kong to Singapore.
The "Fragrant Harbour" was the world's busiest container port from 1992 to 2004, but was overtaken by Singapore in 2005. In 2015, Hong Kong was fifth, while Singapore was second, behind Shanghai.
"Singapore has always been Hong Kong's strongest rival. Hong Kong loses out in its labour policies. It is more expensive to hire foreign labour in Hong Kong compared with Singapore," said Assistant Professor Raymond Yeung Wai Man of Hong Kong Shue Yan University.
"Companies also face higher start-up costs in Hong Kong due to its high cost of living and housing, and sky-high office rental fees."
Hong Kong offices are the most expensive in the world, according to the latest survey on global prime office rents by real estate consultancy CBRE Group.
Mrs Ayesha Macpherson Lau, KPMG China's head of tax for Hong Kong, said it is time for Hong Kong to make better use of its tax system to attract foreign investors.
One way is to offer tax incentives to regional HQs, which Singapore has been doing, she said.
In her election manifesto, Mrs Lam had said she aims to develop Hong Kong into an arbitration centre for disputes arising from maritime businesses. She added that the completion of Hong Kong International Airport's runway expansion, the Hong Kong-Zhuhai- Macau Bridge and the Guangzhou- Shenzhen-Hong Kong Express Rail Link will put Hong Kong in a good position to increase opportunities in shipping and logistics.
Yesterday, three days after her win on Sunday, she visited Beijing's liaison office in Hong Kong - the main communication link between Hong Kong and the mainland. Her predecessor Leung Chun Ying was criticised for visiting the office a day after his election victory in 2012, as Hong Kongers are deeply uneasy about Beijing's influence on the city.