January 2021 / Hong Kong

January 29 2021

Design Industry in Hong Kong

Overview

  • Hong Kong is a regional design centre providing a rich source of innovative products and design talents.
  • Hong Kong is a window to the world of the trends and styles of Asia, making it an excellent location for a well-established design community.
  • Hong Kong is at the crossroads of Asia, and is a key gateway to mainland China. Hong Kong's design industry is increasingly export-oriented.
  • The Business of Design Week (BODW) held in Hong Kong is Asia’s annual flagship event on design, innovation and brands. Its latest edition was held as a hybrid event from 30 November to 5 December 2020, connecting global creative visionaries with international participants from around the world in over 50 simulcast live sessions. A concurrent event is the DesignInspire organised by HKTDC since 2018 with an aim to promote state-of-the-art innovation and designs from around the world.

Industry Data

Design Industry

2019

Number of establishments

6,870

Employment (excluding those in civil service)

18,580

Source: Quarterly Report of Employment and Vacancies Statistics, Census and Statistics Department

Range of Services

The design industry in Hong Kong encompasses a broad range of disciplines: product design, multimedia, visual and graphic design, interior and furniture design, fashion and accessories design, jewellery design and industrial design. In recent years, design management has been taking shape as a new discipline in Hong Kong. Design management deals with the management of projects with a high content of design. Design management can be widely applied to projects related to fashion, product, graphics and interior design, though more applications are found in interior and product design whereby designers oversee the entire process from conceptualisation to production. In addition to their core services, some Hong Kong design firms also provide other design services including shop front design, advertising and promotion design.

Service Providers

In terms of the number of establishments, interior and furniture design and multimedia, visual and graphic design were in 2019 the two largest sub-sectors of the industry, each with 36% of the total. They were followed by the industrial design sector (13%). The number of people employed in design services reached 18,580 in 2019, up 5.6% on the previous year. The design industry contributed a value added of more than HK$4.5 billion to the cultural and creative industry sector in 2018.

Hong Kong's design practitioners are organised into various professional associations, including the Chartered Society of Designers (CSD), the Hong Kong Designers Association (HKDA), the Hong Kong Federation of Design Associations (FHKDA), the Hong Kong Interior Design Association (IDA), the Hong Kong Fashion Designers Association (HKFDA) and the Industrial Designers Society of Hong Kong (IDSHK). In addition, Hong Kong Design Centre (HKDC), jointly established by HKDACSDFHKDAIDA and HKFDA, aims to promote design as a value-adding activity, and to raise Hong Kong's image as an innovation and creative hub. As a major contributor to the development of the InnoCentre, HKDC organises an annual event called Business of Design Week (BODW) in Hong Kong. The week-long event is a flagship design event in Asia and one of the world’s leading design events. In its first hybrid live edition, BODW 2020 saw more than 100 influential design and business leaders share their views on themes relevant to the post-pandemic era. A concurrent event is the DesignInspire organised by HKTDC since 2018 with an aim to promote state-of-the-art innovation and designs from around the world.

Exports

According to the Census and Statistics Department, the total exports of selected cultural and creative goods amounted to HK$618 billion in 2018, accounting for 15% of Hong Kong’s total exports of goods. The largest component was audiovisual and interactive media goods (HK$442 billion), followed by performing arts and celebration goods (HK$82 billion) and visual arts and design goods (HK$72 billion).

Many Hong Kong designers export their services. Export content varies among different design industries, and mainland China is one of the biggest export markets for Hong Kong's design services. Hong Kong designers have been paying increasing attention to the mainland market.

With many mainland enterprises expanding, some are looking to Hong Kong design firms to help them re-design their brands. The aim is to appeal more to the international market, while at the same time maintaining their competitiveness in the domestic market. With their deep knowledge of both Chinese culture and international market practices, Hong Kong design firms are able to bring in comprehensive branding strategies and product design services for mainland enterprises.

Industry Development and Market Outlook

The demand for Hong Kong's high-end design services is rising because of the flourishing China market. Many international companies, large and small, rely on Hong Kong designers to tailor their products for mainland China and Asian markets. Hong Kong designers are able to satisfy the demand for quality-assured creative services which match international standards and, at the same time, take into consideration Chinese tradition and design.

Many of Hong Kong's light industrial products, such as toys, electronics and garments, are highly favoured in the international market. Hong Kong designers have been part of these industries for a long time and they maintain close working relationship with overseas companies. They fully understand the demands of overseas markets and can capitalise on their international vision when designing products and helping Hong Kong companies move from being Original Equipment Manufacturers (OEM) to Original Design Manufacturers (ODM) or Original Brand Manufacturers (OBM).

With the affluent China market growing more sophisticated, increasing numbers of mainland enterprises are keen to stay ahead of the game in the local market while making inroads into the world market. Renowned as a stylish cosmopolitan and design hub in Asia, Hong Kong has always been a place which mainland enterprises look to for excellence in design, branding and marketing.

Supports for the industry

The Hong Kong government's Create Hong Kong Office (CreateHK) was set up in June 2009 to drive the development of Hong Kong's creative sector. CreateHK administers and manages two funding schemes, the CreateSmart Initiative (CSI) and the Film Development Fund. Launched in 2009, CSI offers funding for initiatives related to design and other creative sectors (except film). In order to promote the industry and help it to adapt to the “new normal” in the wake of the global Covid-19 pandemic, additional funding of HK$1 billion was earmarked for CSI, according to Policy Address 2020. There have been three earlier rounds of funding injection - in 2009, 2013 and 2018.

CreateHK supports the Design Incubation Programme (DIP), which is administered by HKDC and is designed to nurture start-up companies in various design disciplines, including fashion, jewellery, media and branding. Between its inception in 2005 and September 2020, the DIP nurtured 289 design start-ups. HKDC also administers the Fashion Incubation Programme (FIP), which aims to incubate five fashion brands each year and provide them with attractive programme offerings such as seed funding and mentorship. Since 2017, FIP participants have won eight local awards and eight international awards.

In recent years, the revitalisation of decommissioned buildings has become a popular means of providing spaces for the development of the design industry. For instance, a decommissioned factory estate in Shek Kip Mei has been turned into the Jockey Club Creative Arts Centre, which has art galleries and other communal facilities hosting themed exhibitions, as well as arts and craft fairs. The Creative Arts Centre provides more than 100 artists and art groups with workspaces where they can practise and showcase their works. The club house of the former Royal Yacht Club in North Point has been converted into a venue called ‘Oi!’. Opened in May 2013, ‘Oi!’ is a platform for art exhibitions, forums and other artistic and creative activities.

The former Hollywood Road Police Married Quarters in Central has been transformed into a landmark “PMQ”, which was officially launched in June 2014. The PMQ project is aimed at nurturing new designers, branding and business matching for the creative industries. Currently, PMQ is home to more than 100 entrepreneurs in a wide variety of creative and cultural sectors, ranging from design services, fashion, household products, accessories and food and beverage.

The most recent example is the revitalisation of Nan Fung Textiles. Completed in 2018, the spinning factory has been transformed into a destination for innovation, culture, creativity and community with three pillars. The first pillar, Fabrica, is a business incubator for technology and style (techstyle) startups and strategic partners. It currently houses 13 incubatees. The second pillar, Shopfloor, provides visitors with local artisanal F&B and experiential shopping. The third pillar, the Centre for Heritage, Arts and Textile (CHAT), enables visitors to learn about the history of the Hong Kong textile industry and the arts of textile through its multi-faceted programmes.

In addition to these revitalisation projects, there is the West Kowloon Cultural District (WKCD) Development Project. It aims to turn the 40-hectare waterfront site at the southern tip of West Kowloon into an integrated art, cultural and entertainment district, and enhance the development of art and culture in Hong Kong. WKCD is expected to become an arts hub which includes a visual arts museum M+, focusing on modern art, design and architecture and offering platforms for designers. Meanwhile, a design and fashion project is planned in Sham Shui Po, which would provide spaces for local up-and-coming designers to use as showrooms and house a design library and the workstations of the HKDC. Completion is expected in 2023-24.

Across the border, the Hong Kong-Shenzhen Design Innovation Hub (Zetta Bridge, Qianhai Shenzhen) is set to become an exchange platform for designers and entrepreneurs in the Guangdong-Hong Kong-Macao Greater Bay Area. Opened in November 2019, the creative hub is open to all types of creative industry bodies, whether they be freelance, original designer brands, design houses or international design groups. It provides a new window of opportunities for Hong Kong designers and related service providers.

CEPA Preferences for Hong Kong’s Designed Products and Design Services

Since January 2006, mainland China has implemented a zero tariff policy on all imported goods of Hong Kong origin under CEPA’s preferential arrangements. Complying with the CEPA origin rules (ROO), Hong Kong manufacturers can apply for zero-tariff treatment on goods they export to mainland China. This policy should boost demand for Hong Kong’s high value-added processes, such as product design.

Consistent with the general thrust of developing Hong Kong’s creative industries, CEPA’s Supplement VII contains many liberalisation measures concerning the creative industries. In particular, a new sector named “Specialty Design” has been added, with the corresponding CEPA provision stating that Hong Kong Service Supplier (HKSS) can set up wholly owned enterprises on the mainland to provide specialty design services. The service liberalisation came into effect in January 2011.

Under the United Nations Central Product Classification (CPC), specialty design services refer to interior design as well as the aesthetic design of products and complete design of products which do not require complex engineering (e.g. furniture). China made no specific commitments under its WTO accession protocol to include specialty design services, and the Supplement VII measure is therefore beyond China’s WTO commitments.

After 10 annual Supplements to keep widening and broadening the liberalisation measures in favour of HKSS, Hong Kong and the mainland entered into a subsidiary agreement under CEPA in 2014 to achieve basic liberalisation of trade in service trade in Guangdong (the Guangdong Agreement). This was followed in December 2015 by the Agreement on Trade in Services (ATIS) which extended the coverage of the 2014 agreement from Guangdong to the rest of the mainland. Unlike the Supplements which adopted a positive-list approach to introducing liberalisation measures, the two latest CEPA agreements adopt a hybrid approach to granting preferential access to Hong Kong using both positive and negative lists.

The ATIS, which covers and consolidates commitments relating to liberalisation of trade in services provided in CEPA and its Supplements and the Guangdong Agreement, was implemented in June 2016. National treatment is given to HKSS in the sector of specialty design, and the only reserved restriction for HKSS under the negative list concerns not engaging in seal engraving services on the mainland.

Details of the preferential access concerning the specialty design services sector can be found at this website.

January 29 2021

Hong Kong Considers Tax Concessions for Carried Interest

The government has proposed tax concessions for carried interest distributed by eligible private equity funds operating in Hong Kong, including exemption from profits tax and salaries tax.

In this regard, the government published the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021 in the Gazette of 29 January 2021.

Carried interest refers broadly to a return linked to the performance of an investment of a private equity fund, typically upon the disposal of the investment after it has been held for a period of time. The Bill exempts eligible carried interest from profits tax, while 100% of eligible carried interest will be excluded from employment income for the calculation of salaries tax. In addition, the Bill also proposes to expand the classes of assets that may be held and administered by a special purpose entity on behalf of a fund for the purpose of a profits tax exemption regime for funds, with a view to facilitating the operation of funds in Hong Kong.

The Bill will be introduced into the Legislative Council for first reading on 3 February 2021.