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5 September, 2003 CEPA: Opportunities for Hong Kong Services Industries |
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Overview
Closer Economic Partnership Arrangement
The Mainland/Hong Kong Closer Economic Partnership Arrangement (CEPA), to be implemented on 1st January 2004, will bring immense benefits to Hong Kong's service economy.
Under CEPA, Hong Kong companies in a wide-range of services industries can benefit from market access measures above and beyond the Mainland's WTO commitments.
| Market liberalisation measures associated with China's WTO accession are applicable to all WTO members, including Hong Kong. CEPA measures are above and beyond the WTO commitments, and apply only to those qualified as "Hong Kong companies". |
CEPA also provides opportunities for Hong Kong professionals and residents to establish business or work on the Mainland.
Measures on Mainland/Hong Kong cooperation are expected to further strengthen Hong Kong's role as an international commercial hub.
CEPA is not a one-off arrangement. The two sides agree to pursue further liberalisation of services trade through future consultation.
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The full text of CEPA is available from the Trade and Industry Department of the HKSAR Government at:
Market access conditions for services industries are detailed in Annex 4, while Annex 5 deals with the definition of Hong Kong service suppliers. |
Market Access for Hong Kong Services Companies
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Under CEPA, Hong Kong services companies can enjoy market access conditions above and beyond China's WTO commitments. In industries such as logistics, freight forwarding, transport services, management consulting, advertising, and exhibition and convention, Hong Kong companies can establish wholly-owned ventures in the Mainland ahead of other foreign companies.
In audiovisual services, Hong Kong produced Chinese language films will no longer be restricted by the global import quota of 20 foreign films per year for screening on a revenue-sharing basis.
In particular, smaller Hong Kong companies can benefit from many CEPA measures which lower the asset, capital, turnover or operational requirements for market entry. Examples include retailing, banking services and legal services. Under China's WTO commitments, the thresholds of entry to the Mainland's services sector are set high. CEPA lowers the thresholds for Hong Kong companies, allowing them to have an "effective" market access to the Mainland's services sector.
Qualifying Criteria
To be entitled to the treatment of CEPA, a services company, regardless of the nationality of its investors or shareholders, must meet the following criteria:
| 1. | The company must be registered and established pursuant to relevant ordinances of Hong Kong, and have operated substantively for at least a specified number of years. | |
| 2. | The company must have substantive business activity in Hong Kong: |
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| - | The business in the Mainland that the company intends to engage in must be of the same nature as that the company engages in Hong Kong | |
| - | The company must be liable to pay Hong Kong profits tax | |
| - | The company must own or rent business premises in Hong Kong to engage in substantive operations | |
| - | The company must employ in Hong Kong 50 % or more of its total staff. | |
Opportunities for Hong Kong Professionals and Residents
Not only Hong Kong companies but also Hong Kong professionals and residents will benefit from CEPA. Hong Kong professionals in the securities and insurance industries can apply to practise on the Mainland and Hong Kong permanent residents are permitted to sit the legal qualifying examination on the Mainland. Moreover, Hong Kong permanent residents are formally permitted to engage in retail activity in Guangdong. All this suggests that in future more Hong Kong people are likely to seek employment and business opportunities on the Mainland.
Authorities and professional bodies of both sides will continue to hold consultation meetings to consider specific methodologies for mutual recognition of professional qualifications.
Hong Kong as a Financial Centre and Tourist Destination
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On the tourism front, the Mainland will allow residents in Guangdong Province to visit Hong Kong individually. First implemented in Dongguan, Zhongshan and Jiangmen, this measure will be extended to the entire province not later than 1 July 2004.
| Foshan, Guangzhou, Shenzhen, Zhuhai and Huizhou have since been added to the list. Those from the rest of Guangdong Province can do so after 1 May 2004. Outside of Guangdong Province, Shanghai and Beijing residents can visit Hong Kong individually from 1 September 2003. |
Significance of CEPA for the Mainland
Through removing restrictions on market access and cooperation, CEPA ultimately aims to foster further economic partnership between the Mainland and the Hong Kong economies. Areas for partnership are plentiful. For example, many Mainland regions have successfully developed into manufacturing powerhouses, with undisputed international competitiveness in production and assembly. In comparison, the development of production supporting services such as transport and logistics, distribution, financial services and business services lags considerably behind.
By improving market access for Hong Kong services companies to the Mainland, Mainland enterprises can work hand in hand with Hong Kong companies to provide efficient and sophisticated production supporting services, hence further improving the global competitiveness of China's manufacturing industries.
In addition, with domestic success a sizable number of Mainland enterprises, including many energetic private enterprises, are determined to venture out and break into the overseas markets. There is no better place than Hong Kong to establish an operational base for global expansion. Both as a headquarters location, source of finance and a hub where East meets West, Hong Kong is second to none.
Hong Kong and the Pearl River Delta (PRD)
Given the proximity of Hong Kong to the PRD and the interdependence between the two economies, CEPA has a special meaning to the closer cooperation of the two places. With CEPA, the PRD will continue to grow from strength to strength as the world's manufacturing centre, fully supported by the business services provided by Hong Kong companies. Waiving Hong Kong lawyers residency requirements for operating in Guangzhou and Shenzhen, allowing Hong Kong retailers to set up operation in all cities at the county level in Guangdong Province, and letting Hong Kong residents to set up individually owned retail stores in the province are just some examples of the special convenience provided by CEPA to enhance partnership within the Greater PRD.
Equally of strategic importance are the proposed bridge linking Hong Kong and the less developed western PRD and the new era of policy cooperation between Hong Kong and the Guangdong Province.
Significance of CEPA for Overseas Companies
Hong Kong has always been an excellent location through which to enter the Mainland market. Such gateway role will be further boosted by the implementation of CEPA.
Overseas companies will find it even more advantageous to use Hong Kong as a regional headquarters location to support their China and other Asian business. Overseas companies with a history of substantive business in Hong Kong can also make use of CEPA provisions to enhance their market access to the Mainland. Alternatively, they can partner with or buy into Hong Kong-based companies which satisfy the CEPA qualifying criteria to achieve their China market ambitions.
This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: info.hktdc.com.
