Hong Kong, a bastion of free-market policies and low corporatetaxes as well as the gateway to the world's most populous nation,is the best place to do business, according to data compiled byBloomberg.

The city of about 7 million people secured top position in a newindex based on six criteria including the degree of economicintegration and labor costs. The Netherlands, the U.S., the U.K.and Australia occupied the next four leading slots.

The ranking marks a victory for Hong Kong 15 years after thecity's return to Chinese sovereignty stoked concern that its roleas an international financial hub would slide. General Electric Co.has established operations there, Gap Inc. is among the retailersdrawn by the 28 million Chinese tourists who pass through it andHSBC Holdings Plc is one of the financial titans listed on itsstock exchange.

“Hong Kong is a gateway to China, it has competitive tax ratesand that makes it one of the natural choices for companies to setup their Asian headquarters,” said Tomo Kinoshita, deputy head ofAsia economics research at Nomura Holdings Inc. who has worked inthe city for five years. “It makes sense for companies that want tobe close to China as well as the rest of Asia to use Hong Kong astheir base.”

Bloomberg Rankings measured 160 markets on a scale of zero to100 percent based on six factors. These are the costs of setting upbusiness, hiring and moving goods; the degree of economicintegration; less tangible costs such as inflation and corruption;and the readiness of the local consumer base, a category thatincludes the size of the middle class, household consumption andgross domestic product per person.

Hong Kong scored 49 percent, eclipsing the Netherlands' 48.3percent and the U.S.'s 46.9 percent. Of the top 50, Germany was theleader on the basis of cost of doing business, moving goods andless tangible costs, while the readiness of the local consumers wasdeemed best in the United Arab Emirates. The price of labor andmaterials was lowest in Montenegro and the Netherlands was deemedbest for setting up a business.

Brazil came bottom of the top 50 with 35.5 percent,undershooting India at 35.9 percent and Russia at 36.1 percent.

Hong Kong's reputation for rule of law and corruption-freeadministration has helped distinguish the city from mainland China.Its links to the world's fastest-growing major economy have pluspoints by allowing it to serve as center for the international useof the yuan, and last August China further relaxed limits oninvestment flows.

Hong Kong charges a corporate tax rate of 16.5 percent comparedwith the U.S.'s 35 percent. The prospect of tougher regulations onthe financial industry elsewhere has increased pressure on banksfrom investors to weigh a move there.

GE Decision

When General Electric was looking to open headquarters for itsglobal growth and operations team outside the U.S., it chose HongKong for its proximity to important emerging markets, quality oflife and infrastructure, according to Michael A. Jones, executivevice president of business development, global growth andoperations.

“Hong Kong is one of the best places in terms of transportationand logistics,” Jones said in a telephone interview. “The abilityto be in a vibrant international city was pretty important.”

The city still faces challenges. It is home to Asia's largestwage gap, and less than 25 percent of the land is developed,forcing up property prices and discontent among lower-paidlocals.

The Netherlands ran second, reflecting the appeal of an economywith five major ports and easy access to mainland Europe. Companiesbased there include Royal Philips Electronics NV, the largestlight-bulb maker, and ASML NV, which has an 80 percent market sharein the semiconductor equipment market.

The U.S., the world's largest economy, came third. PresidentBarack Obama released a business-tax overhaul proposal on Feb. 22that would reduce the corporate rate to 28 percent and eliminatetax breaks.

Regionally, Chile was ranked the best place to do business inLatin America, while the U.A.E. was top in the Middle East andAfrica. Poland had the highest score in emerging Europe.

The World Bank ranks Singapore and Hong Kong top in its gaugefocused on the ease of doing business. The Washington-basedHeritage Foundation has named Hong Kong the world's freest economyfor 18 successive years.

Bloomberg News

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