Transcript Hong Kong

Investment opportunities in Asia Pacific via the
Hong Kong platform
Siegfried Verstappen,
Invest Hong Kong
Brussels office
SEV seminar Thessaloniki
January 10th 2014
Advantages of Hong Kong when doing business in Asia
Are you an SME? (KMO in Belgium)
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BECAUSE, IF YOU ARE, YOU ARE:
- short of cash
- short of management time
- short of affordable qualified personnel
Are you an SME? (MKB in the Netherlands)
HONG KONG WILL HELP YOU
OVERCOME THOSE SHORTCOMINGS
This speech will show you how a Hong Kong
presence will optimize your operations
with a minimum of commitment in terms
of risk, cost and personnel
RIGHT PLACE,
RIGHT TIME
Hong Kong’s
Enduring Advantages
Where Business Goes to Grow
Heart of Asia
• The world's 4th busiest
international passenger
airport
• Around 90 scheduled
airlines operating some
750 flights per day to
about150 destinations
• One of the world’s busiest
container ports
• 23 minutes from central
business districts to
Airport by high-speed
train
Low and simple tax system
Forbes Tax Misery
Index 2009
Hong Kong - 3rd lowest tax misery score = 41.5
Singapore - eight positions higher, score = 78.5
Belgium – nr 3, score = 156
China – nr 2, score = 159
France – nr 1, score = 167
Low and Simple Tax System
Corporate Income
16.5
Employer Social Security
45
25
17
Personal Income
20
15
14.5
49
20
Employee Social Security
23
7
17
VAT
China
Singapore
5 5 0
Hong Kong
Only 3 direct taxes in HK: profits, salaries, property
• NO VAT/GST or sales tax
•NO Estate duty
• NO Capital gains tax
•NO Global taxation (offshore
income allowed/only HK-sourced
income is taxable)
• NO Withholding tax on
dividends and interest
•NO Wine duty
Source: Forbes Tax Misery Index 2009, Inland Revenue
Why Hong Kong instead of mainland China?
Source: Fiducia Management -Doing Business 2011, World Bank Report
Why Hong Kong instead of mainland China?
• Direct sales and direct invoicing from Hong Kong to overseas‘
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subsidiaries and to customers
FOB shipment to the customer, No direct contact between
customer and manufacturer
Profits are “locked“ in Hong Kong and not in China:
taxed in Hong Kong and not in China!
Goods do not touch the intermediary’s warehouse
No VAT refund complications
Reduced cost and risks:
• Transport and shipment cost
• Finance cost
• Credit risk
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Customer benefits from lower price
• Reliable legislation, easy taxation, low corruption
The ideal combination:
The Hong Kong Limited Company executes the trade transactions and
the Representative Office / WFOE in China manages quality control and/or manufacturing.
Hong Kong is China’s Risk Manager
“””No other city in the world can help overseas
investors manage the risks inherent in entering
Mainland markets as well as Hong Kong. This is an
important part of the reason why overseas firms
prefer Hong Kong for the highest-value activities that
they perform in the Asia-Pacific region.”
Michael Enright, Sun Hung Kai Properties Professor,
School of Business, University of Hong Kong
Hong Kong: best place to launch a new venture
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In Hong Kong you have freedom to move:
- capital
- people
- ideas
• Unmatched anywhere else except Silicon Valley
• Source: Dr. Jong Lee, CEO RGL Holdings Ltd
• (Korean venture capitalist, moved his global
head office to Hong Kong)
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Hong Kong’s Elements
of Strategic Confidence
Intellectual property rights
Legal recourse
Access to the Chinese market (CEPA)
Credit risk insurance
Chinese wall between suppliers/customers
Lower financing cost
Low threshold for starting up HK office
Market research
Support for SME loans and marketing
RMB currency developments
Taxes
IP rights in China: problem
• China has signed the WTO treaty and is committed to
protecting IPR. In practice, this will take many years before
it is fully implemented. Meanwhile, only a few thousands of
well-known international foreign brand names enjoy
automatic protection
• EVERYONE ELSE needs to register his brand name,
trademark, patents, etc if you want to be able to have legal
recourse inside mainland China against copyright
infringement
• Example: many firms find out that their brand name or trade
mark has already been registered in mainland China by
local entrepreneurs and are forced to buy back their rights
IP rights in China: latest update
• Intellectual Property Rights Protection in China are improving
• 2010: 42.000 IPR related lawsuits filled in PRC
• Highest number in the world
• MNC’s success rate as plaintiffs:60-90% vs below 60% in USA/EU
• BUT damages awarded are very small: Microsoft receives on
average 50000 RMB
• Strong,determined,aggressive policy on building PRC’s own IPR
governance regime
• 2010: 750.000 patens applications filed – world largest patent-filing
country
• 2011-2015: 2.000.000 domestic applications ANNUALLY
• The annual patent transaction annual target is to reach 100 billion
yuan (USD 15 billion) by 2015
• Major sectors: technology and clean energies
Source: SCMP, “China’s reputation in IP rights is still dismal” Denise Tsang
IP rights in China: solution A
• Foreign high tech, engineering and design firms can
become a part of the Hong Kong Science & Technology
Parks network
• HKSTP has pre-arranged networks with both the Shenzhen
Science Park and a network of universities around Xian,
ensuring that sensitive design can be done with full
protection in HK, while test runs, pilot plants and qualified
labour are provided through the partners in mainland China
• Website: www.hkstp.org
Hong Kong Science & Technology Parks
Hong Kong Science & Technology Parks
Hong Kong Science & Technology Parks
IP rights in China: solution B
For companies in the digital world:
• A melting pot campus where companies from all over the globe come
together to create Digital Content and develop applications.
• A cost effective “entry point” for overseas companies seeking to
develop their Asian or China strategies.
• A Metro-LAN (NGN) with specialist Shared Facilities available to
tenants.
• Website: www.cyberport.hk
CYBERPORT Differentiator 1: Total IT&T Integration
Unified
Messaging
Network
Management
System
SMATV & VSAT
Free Seamless Wireless LAN
Cyberport IPN – 10Gbs
Network
Operation Center
Cyberport
tenants
Security
System
Cyberport
Help Center
Video/ Data
on Demand
Central Data Centre
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CYBERPORT Differentiator 2: Strategic Cluster (1)
• 75 Tenants + 30 Incubatees + 55 Smart Space (85+% occupancy
rate)
• Tenants include companies of diverse origins, sizes and at different
stages of development:
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MNC: 58% (from North America, Europe, Hong Kong, etc)
Overseas & Local Mix: 40% and 60%
Large firms & SMEs: about 50-50
Start-ups: 18%, e.g. game, digital entertainment, specialized
software
– Diversified Industries: ICT, media, entertainment, content, new eBiz
– 5,000+ employees at Cyberport
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CYBERPORT Differentiator 2: Offices
• Option 2: Offices
• Start at 70sqm
• One year or one-plus-one available if required
• Hi-Tech, Grade A
• Rent ~ USD2.00-2.25 psf per month (USD20.00-25.00 per sqm per
month)
• Management Fee ~ USD0.8 psf per month (USD9 per sqm per
month), includes air-con and internet etc.
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CYBERPORT Differentiator 3: Entrepreneurship Centre
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Incubation programme: 180+
companies incubated to-date, 30 per
year going forward. 67% Survival Rate
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Incubate companies in digital media
and digital entertainment industries, ICT
and Web3.0
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Cyberport Creative Micro Fund – seedmoney.
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Provide technology, entrepreneurial
and business development training.
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Legal recourse: problem
• Mainland China has no tradition of Western style law and
jurisprudence
• Many lower courts are not yet fully conversant with new
laws regulating commercial, investment or IPR issues
• Non-Chinese firms (and most Chinese firms) find it very
difficult and time-consuming to obtain their rights through
the Chinese courts
Solution A: HK International
Arbitration Centre
• Insert clause in contract with the mainland Chinese partner
that any disputes regarding the execution of the contract
will be submitted to the Hong Kong International Arbitration
Centre.
• Both Hong Kong and mainland China have signed the
Convention of New York : any arbitration award from HK is
immediately executable in China*
• HK based law cabinets confirm that the system is working
speedily, smoothly and satisfactorily
• Website: www.hkiac.org
*(enforceable between HK and mainland China since February 2000)
Sol. B: Sue in HK, enforce in China
• A new agreement on July 16, 2006, between HK and
mainland China : if parties provide for this in their contract,
verdicts from the Hong Kong courts are immediately
executable in mainland China*
• It covers money judgments and commercial cases
• The contract has to stipulate expressly in writing that the
HK court has exclusive jurisdiction
• Applicable whenever the judgment debtor keeps his assets
in mainland China
*(enforceable between HK and mainland China since August 2008)
Access Chinese markets: problem
• Many foreign investors find that, although China has joined
the WTO, its markets remain closed or protected against
foreign competition
• This applies both to trade in goods and trade in services
Solution: Closer Economic
Partnership Arrangement (CEPA)
• Since July 2003, Hong Kong and mainland China have
signed a type of free trade agreement, providing
preferential access into mainland China for HK based
goods and service providers (CEPA)
• Overseas companies can take advantage of CEPA by
outsourcing to, partnering with a CEPA qualified
manufacturer or service provider, or having their goods
qualified as HK origin.
• CEPA being rolled out in phases : current scope and benefits of
CEPA likely to expand – CEPA VII now applicable. Listing of
applicable CCN can be found at:
http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_201
0.pdf
Solution: Closer Economic
Partnership Arrangement (CEPA)
• Latest development: free trade by 2015
China’s Vice Premier of the State Council Li Keqiang
announced in Hong Kong in August 2011 that the latest
supplement of the Hong Kong-mainland Closer Economic
Partnership Arrangement, expected to be signed in
October, will broaden Hong Kong’s access to mainland
services industries.
• “The target is to realise free services trade with Hong Kong
by the end of the 12th five-year period,” Mr Li said at a Hong
Kong forum on China’s 12th Five-Year Programme.
Access Chinese markets: brand problem
• Because quality guarantees are insufficient in mainland
China, Chinese consumers have a positive bias towards
foreign brands.
• But if those brands aren’t present in Hong Kong, they lose
credibility in China, because the Chinese consumers trust
Hong Kong’s IPR and brand protection regulatory
framework and its enforcement
• Source: Prod. Dr. Justina Yung, Polytechnic University
Hong Kong, speech on long term PRD development
December 2013
Hong Kong: Chinese wall between
supplier and customer
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merchandise can be shipped directly from mainland
factories to end customers overseas without showing the
factories’ details if you follow these steps
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HK office is the shipper and books the shipping line with
forwarding company. A shipping order (S/O) will be
prepared by the forwarding company and sent to the HK
office. Since HK office is the shipper, there is no need to
show the Chinese manufacturer's details.
When the HK office receives the shipping order, they send it
to the Chinese manufacturer who take this to send the
merchandise to the forwarding company
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Hong Kong: Chinese wall between
supplier and customer
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After shipment, a set of bill of lading (B/L) will be sent by the
forwarding company to the HK office. The B/L information is
prepared according to the info on S/O, and there is no info
of manufacturers.
Then HK office could send the B/L to their customer for
collecting goods at forwarder. As such, from shipping order
to bill of lading, no manufacturer’s info will be shown.
HK office can also hide the consignee info on the shipping
order so that the Chinese factories cannot access the
customer info when they take the S/O to send the goods to
the freight forwarder.
Hong Kong: Chinese wall between
supplier and customer
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Please note:
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this works when the importing country requires no
country of origin (C/O) for the importing goods. If C/O
is required, then it might not be possible to hide the
manufacturer's details in some other documents
is only applicable to the documents of shipping order,
bill of lading, invoice and packing list
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Hong Kong’s credit risk insurance
advantage
• Hong Kong based firms exporting goods to other markets can
obtain both country risk and buyer risk insurance from a
HKSAR agency called:
• Hong Kong Export Credit Insurance Corporation (ECIC)
• Website: http://www.hkecic.com/eclink/infoCenter.jsp
• Insurance premium can be as low as 0.39%
Hong Kong’s lower financing cost
advantage
• Hong Kong based firms trading goods
with other markets can obtain a lower
financing cost as the base rate HIBOR
is consistently lower than EURIBOR,
since Hong Kong in effect follows U.S.
monetary policy
Rate: EURIBOR VS HIBOR 3 MONTHS (Jan 2009-Feb 2011)
AVERAGE RATE
1.5
1.3
euribor 3
1.1
hibor 3 m
0.9
0.7
0.5
0.3
-0.1
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
0.1
2009
2010
MONTHS, YEAR
2011
HIBOR VS EURIBOR - 6 MONTHS (Jan 2009 - Feb 2011)
2.00
hibor 6m
euribor 6m
1.50
1.00
AV. RATE
0.50
2009
MONTHS, YEAR
2010
Feb
Jan
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
0.00
2011
Hong Kong’s lower financing cost
advantage
• CAUTION !!!!!
• Eurozone firms wishing to use this benefit have to accept a
currency risk exposure, as the financing will be handled in the
HK $ zone
Hong Kong’s market research
advantage
• Hong Kong based firms can access the database managed by
the Hong Kong Trade Development Council
• The TDC manages an online sourcing platform that connects
over 120,000 credible suppliers
• over 800,000 worldwide buyers use the platform to source
products and services provided by China, Hong Kong, and
Asian suppliers for free at www.hktdc.com/sourcing
• Website: www.tdctrade.org
Low threshold for starting up HK
office
• New arrivals worry about 2 major cost
aspects in Hong Kong:
– labour cost
– real estate expense
Low threshold for starting up HK office
Typical gross salary cost to the employer will vary
between 25K and 35K annually
Most positions will also have variable bonus of 10% to 30% of the
salary
A typical contract is for 12 months, the average notice
period is 1 month
Corporate Income
16.5
Employer Social Security
45
25
17
Personal Income
20
14.5
15 5 5 0
49
20
7
Employee Social Security
23
17
VAT
China
Singapore
Hong Kong
Low threshold for starting up HK
office
• Real estate expense: HK is ranked among the 3 most
expensive cities in the world
• But there are low entry solutions in the private sector, with
prices as low as:
– 1000 HK$ per month per workplace (Cocoon)
to
– 4500 HKS$ per month per workplace (Hive)
• Some venture capitalists will finetune your concept: e.g. Nest
will invest 500,000 HK$ in 3 months time if they accept your
proposal
Coworking space: COCOON
CoCoon is a coworking place where entrepreneurs, creative talent, successful leaders and
investors meet, collaborate and deliver results together
Theodore Ma, Co-founder - T: 852 3158 2999 - [email protected]
www.hkcocoon.org - 3/F, Citicorp Centre - 18 Whitfield Road -Causeway Bay, Hong Kong
Coworking space for creative industries:The Hive
The Hive is Hong Kong’s first purpose designed members’ co worker space for those in creative
industries.
Constant Tedder, Founder – 852 9356 7883 – [email protected]
www.thehive.com.hk – 21/F The Phoenix, 23 Luard Road, Wan Chai
Investment Platform: NEST
NEST is an investment platform focused on investing in scalable consumer businesses
in the lifestyle space.
Simon Squibb, CEO - T 852 2721 2787 – [email protected]
www.nestideas.com – 3d floor Chao’s Building – 143-145 Bonham Street – Sheung Wan
Creative Space for Digital Start-ups
• Cocoon
– US$128/mth
• Fill in the Blanks
– US$102/mth
• Good Lab
– US$230/mth
• The Hive
– US$359/mth
• Hong Kong Commons
– US$205/mth
Support for SME’s
BUD Fund
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Launched in June 2012
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$1 billion “Dedicated Fund on Branding, Upgrading and Domestic Sales”
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Aims to provide funding support to assist Hong Kong enterprises in
exploring and developing the Mainland market through developing
brands, upgrading and restructuring operations, and promoting
domestic sales in the Mainland.
 the BUD fund comprises two programmes
1) Enterprise Support Programme
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provides funding support for individual enterprises
2) Organisation Support Programme
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Provides funding support for non-profit-distributing organisations.
http://www.tid.gov.hk/english/smes_industry/bud/bud.html
SME Loan Guarantee Fund
• aim to help SMEs to secure loan from participating lending institutions
(PLIs) for acquiring equipments and meeting working needs with
Government as the guarantor
• companies must be registered in HK with substantive business operation
in HK.
• no requirement of the year of business operation but subject's to the
requirement of PLIs
• the guarantee of the loan must be in a non-revolving loan
• the amount of guarantee is 50% of approved loan, subject to a max.
amount of HK$6m
http://www.smefund.tid.gov.hk/eng/eng_main.html?content=/eng/sgs.htm
SME Financing Guarantee Scheme(SFG
• aim to help SMEs to obtain loans
• Hong Kong Mortgage Corporation Ltd (HKMC) provides guarantee
coverage on 50%, 60% or 70% of the loans
• companies must be registered in HK with business operation for at
least 1 year on the date of application
• the scheme guarantees both term loan and revolving credit facility
• maximum loan amount is not more than $12m and max loan tenor is
5%
• guarantee fee ranges from 0.5% - 3.2% of the loan amount/credit limit
http://www.hkmc.com.hk/eng/ops/ourbusiness/sme.html
SME Export Marketing Fund
•The SME Export Marketing Fund (EMF) aims at helping small and medium
enterprises (SMEs) expand their businesses through participation in export promotion
activities.
• Companies must be registered in HK with substantive business operation in HK.
• Provides grant to SMEs for their participation in trade fairs/exhibitions and business
missions outside Hong Kong, as well as local trade fairs/exhibitions which are “exportoriented” .
• Provides grant to SMEs for their advertisements on printed trade publications
targeting export markets; as well as advertisements placed on eligible trade websites.
• Applicants must participate in the export promotion activities as Hong Kong SMEs
• The maximum amount of grant for each successful application will be 50% of the
total approved expenditures incurred by the applicant or $50,000, whichever is the
less.
• The maximum cumulative amount of grant that an SME may obtain from the EMF is
$150,000.
http://www.smefund.tid.gov.hk/eng/emf.html#objective
Hong Kong: China’s offshore
renminbi centre
• Hong Kong was, is and will remain a global financial center attracting
high volumes of capital to support growth
• Hong Kong usually is the best option for your route into China
• As a financial center it brings innovation by offering RMB financial
products
• Hong Kong is currently the main player in the globalization of the RMB
and will have the highest volumes and liquidity going forward
• Renminbi liquidity is supported and controlled by the PBoC by means
of currency swaps with HKMA resulting in sharper pricing for your
foreign exchange in HK and support for your capital investments, trade
flows, and repatriations of profits.
RMB Trade Settlement Scheme:
implications for sourcing from China
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Old system of paying in hard currency has following consequences for
the Chinese supplier:
A) he has a currency risk exposure of about 6 weeks before SAFE informs
him at what rate the conversion will take place
B) he has to finance his foreign customer for 2 months before he receives the
payment in his Chinese account
C) therefore his export prices are up to 10% more expensive than his
domestic prices to compensate these risks
New system allowing renminbi payment has following consequences for
the Chinese supplier:
A) no longer currency risk exposure
B) no intervention by SAFE = payment occurs 4 weeks faster
CONCLUSION: You can negotiate lower prices from your supplier:
his 10% cushion is no longer required
SINCE HE IS ALLOWED TO TRADE IN RENMINBI !!!
Chinese taxes: problem
• China is nr 2 worldwide on the Forbes Tax Misery Index
Corporate Income
16.5
Employer Social Security
45
25
17
Personal Income
20
15
14.5
5 5 0
49
20
7
Employee Social Security
23
17
VAT
China
Singapore
Hong Kong
Chinese taxes: solutions
• Objective: reduce your taxable income in mainland China
• The Double-taxation avoidance treaty between HK and
mainland China allows, to a certain degree, the imputation
of expenses by HK parent companies to mainland affiliates
• Examples that could qualify under certain conditions:
market research, personnel support or recruitment, quality
control inspectors, logistics coordination, etc….
• Hong Kong corporate tax rate is 16.5% and even 0% for
offshore incomes
• Hong Kong companies can deduct 50% of their income
from joint ventures with mainland Chinese firms from
taxable revenue
Chinese taxes: solutions
• The Double-taxation avoidance treaty (DTAT) between HK
and mainland China brings in new and highly favourable
rates for transfer of dividends, interest, and royalty
payments from mainland China firms to their HK parent
companies
• In practice, withholding taxes are now greatly reduced on
these forms of transactions:
• 5% for dividend payments
• 7% for interest payments
• 7% for royalty payments
Double Taxation Agreements
Confirmed Double Taxation Relief Agreements with 23 trading partners:
• New Zealand
• Japan
• Austria
• Belgium
• Jersey
• Portugal
• Brunei
• Kuwait
• Spain
• Czech Republic
• Liechtenstein
• Switzerland
• France
• Luxembourg
• Thailand
• Hungary
• Mainland of China
• Italy
• Indonesia
• Malta
• UK
• Ireland
• Netherlands
• Vietnam
In negotiations: • Bangladesh
• Canada
As of February 2013
* - Pending entry into force
• Korea
• Malaysia
• Macau
• Mexico
• Finland
• Saudi Arabia
• India
• the United Arab
Emirates
Invest Hong Kong: how we can help
Enjoy our free of charge services
• Latest information on business environment and opportunities
• Contacts for all aspects of business establishment
• Arranging tailored visit programmes
• Support and assistance with visa applications, trade
regulations etc.
• Public relations services during your launch/expansion
• Advice on settling in Hong Kong – housing, schooling,
healthcare
Invest Hong Kong Brussels office
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Rue d’Arlon/Aarlenstraat 118, B-1040 Brussels, Belgium
Telephone +32/2/775 00 76
E-mail: [email protected]
Websites: www.investhk.gov.hk and: www.hongkong-eu.org
Hong Kong background information:
http://www.brandhk.gov.hk/en/#/en/facts/factsheets/index.html