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Focus on Services

Hong Kong will be allowed to invest in the mainland securities market through the Renminbi Qualified  

Hong Kong will be allowed to
invest in the mainland securities market through the Renminbi Qualified Foreign Institutional Investor programme
(photo: iStockPhoto.com)

 

The visit by China’s Vice Premier Li Keqiang to Hong Kong last summer signalled a breakthrough for Hong Kong services operating on the Chinese mainland under CEPA. Revealing a package of 36 measures, the Vice Premier indicated that trade in services between the mainland and Hong Kong would essentially be liberalised by the end of the current 12th Five-Year Programme in 2015. 

It’s perhaps one of the clearest indications yet of how soon and how far the mainland market will eventually open for Hong Kong services suppliers and professionals. They can expect progressive liberalisation in a number of sectors over the next few years, until they’re accorded national treatment.

Culture Among New Services

The latest service liberalisation measures under Supplement VIII, the ninth phase in the CEPA arrangements, took effect in April. The new package expands the liberalisation of 16 services sectors through 23 measures already granted, with five measures under three new sectors: inter-disciplinary research and experimental development services, manufacturing services, and library, museum and other cultural services. 

  The latest CEPA supplement, which took effect last month, makes it easier for Hong Kong services sup
 

The latest CEPA supplement, which took effect last month, makes it easier for Hong Kong services suppliers to do business on the mainland (photo: iStockPhoto.com)

CEPA Supplement VIII expands the number of liberalised sectors under CEPA from 44 to 47, while bringing the total number of liberalised measures to more than 300. 

An important breakthrough is the relaxation of the “substantive business operations” criterion for Hong Kong services suppliers. The business scope now allowed on the mainland won’t be restricted to their business in Hong Kong: services suppliers will, for the first time, be allowed to apply for CEPA benefits on the mainland in areas not confined to the 47 sectors. 

The 16 services sectors covered under the latest supplement include legal services, construction services, research and development services, technical testing, analysis and product testing, manufacturing services, job intermediary services, distribution, as well as key insurance, banking and securities services. Medical services, tourism, recreational, cultural and sporting services, road transport services, professional qualification examinations and individually owned stores make up the remainder of the categories. 

To cope with the fallout of the international financial crisis that began three years ago, Hong Kong is nurturing the growth of six new industries in which it enjoys clear advantages: education services, medical services, testing and certification services, environmental industries, innovation and technology, and cultural and creative industries. CEPA has incorporated measures geared to benefit those industries. The new measures also reflect the symbiotic relation between Guangdong and Hong Kong as a result of their geographic proximity and strong business ties – and the fact that cooperation between the two economies has been elevated to national-policy level. 

Asia’s Financial Centre 

Hong Kong is known for quality medical services on the mainland  

Hong Kong is known for quality medical services on the mainland (photo: iStockPhoto.com)

 

Last December, Hong Kong moved to the top of the World Economic Forum’s Financial Development Index, overtaking the United States and the United Kingdom for the first time since the index was launched in 2008. 

The index measures the efficiency and size of banking and other financial services, the business environment, financial stability, and the extent of financial disclosure and market liberalisation. Last September, the Global Financial Centre Index, compiled by the City of London, ranked Hong Kong Asia’s leading financial centre, and only marginally trailing London and New York. 

CEPA has been a key mechanism employed to spearhead financial cooperation between the mainland and Hong Kong. Supplement VIII to CEPA supports mainland banks making use of Hong Kong’s international financial services to develop their international business on the basis of prudent operation. To gain preferential access to the mainland market, for instance, it was established in previous CEPA provisions that the minimum asset requirement for establishing a branch or body corporate there would be set at US$6 billion, considerably lower than the requirements that would otherwise apply to non-CEPA foreign banks. 

For a Hong Kong bank to set up a wholly foreign-funded bank or a foreign bank branch on the mainland, the minimum time required for maintaining a representative office on the mainland was set at one year prior to the application, compared to the two-year minimum for other foreign-funded banks. 

Renminbi Investors Programme

  Under CEPA VIII, Hong Kong will be allowed greater involvement in the mainland financial market
 

Under CEPA VIII, Hong Kong will
be allowed greater involvement in the mainland financial market
(photo: EyePress)

Crucially, under Supplement VIII, Hong Kong will now be allowed to invest in the mainland securities market by means of the Renminbi Qualified Foreign Institutional Investors (RQFII) programme. While the RQFII programme will be the primary route for Hong Kong subsidiaries of mainland financial institutions to invest in the mainland financial market, the China Securities Regulatory Commission has also indicated that it is studying the feasibility of allowing more overseas institutional investors to participate in the pilot RQFII programme. It’s also looking at expanding the investment ratio and products in the future. 

The RQFII programme will enhance the mechanism of recycling offshore renminbi into the mainland and reinforce the role of Hong Kong as an offshore renminbi centre. 

Hong Kong bank branches or wholly foreign-funded banks established in Guangdong are allowed under CEPA to set up “cross-location” sub-branches in Guangdong, without a branch being first established in the same administrative area. More than a dozen Hong Kong banks now operate in Guangdong, many of which have invoked the cross-location sub-branching measure to speed up establishment of their networks in Guangdong. 

Supplement VIII to CEPA also stipulates that any mainland-incorporated banking institution established by a Hong Kong bank will be allowed to engage in the sale and distribution of mutual funds from April. This measure will expand the allowable business scope for Hong Kong banks operating on the mainland, taking advantage of mainlander needs for investment diversification as they become increasingly affluent.

     
 

Service Sectors Benefiting from CEPA (1st to 9th Phase)

 
 
Accounting Medical and dental*
Advertising Manufacturing services#
Air transport Mining services
Audio-visual Patent agency
Banking* Photographic
Building cleaning Printing
Computer and related services Professional qualification examinations*
Construction and real estate*˜                 Public utility
Convention and exhibitions Rail Transport
Cultural entertainment Research and development*
Distribution*˜ Scientific and technical consulting
Environmental Securities*
Freight forwarding agency Services related to management consulting and project management
Individually owned stores* Social services for elderly and disabled
Insurance*˜ Specialty design
Inter-disciplinary research and experimental development service# Recreational, cultural and sporting services (including library/museum services#)
Job intermediary* Telecommunications
Job referral agency* Tourism*˜
Legal* Trade mark agency
Logistics Translation and interpretation
Management consulting Transport (road and maritime)
Market research  
 
 
     
 

* Existing services sectors with liberalisation under Supplement VIII to CEPA
˜ Guangdong pilot and implementation measures under Supplement VIII to CEPA
# New services sectors under Supplement VIII to CEPA

 
     

Medical and General

Hong Kong’s medical sector is recognised on the mainland for its professionalism and service quality, especially in Guangdong, where many people travel to Hong Kong to take advantage of the city’s premier medical services. 

As a hub for medical tourism, Hong Kong is better known for cutting-edge procedures and quality, with top hospitals and doctors offering medical care that rivals the best practices in the world. 

Supplement VIII allows the establishment of wholly owned hospitals beyond the five pilot places of Guangdong, Shanghai, Chonqing, Fujian and Hainan, to cover all mainland municipalities and provincial capitals. 

This measure will broaden the location for establishing Hong Kong-run hospitals on the mainland. This new liberalisation measure is expected to supplement existing ones by providing greater job opportunities for Hong Kong healthcare practitioners to work in Hong Kong-run hospitals on the mainland.

China Compulsory Certificate

As for Hong Kong laboratory and testing services, mainland authorities are intent on fuelling economic growth with private consumption. To be sold on the mainland, many products must receive the official safety requirement, the China Compulsory Certificate, or CCC mark.  

In keeping with Supplement VII, which opened the new sector of CCC product testing for the first time to the Hong Kong services sector, Supplement VIII will expand the scope of CCC product testing from some Hong Kong-processed items to all existing products processed in Hong Kong that require the CCC mark. 

The mainland has never opened CCC-related product testing to foreign testing entities before, so this CEPA provision is certainly a “WTO-plus.” Among testing organisations in Hong Kong, about 160 are eligible to benefit from such a scheme. Hong Kong bodies wanting to perform testing for the relevant products under the CCC system will have to be accredited by the Hong Kong Accreditation Service, a unit of the Hong Kong Government.

Though falling short of market expectations, this measure is a marked improvement over the previous supplement, in that it covers all relevant Hong Kong-processed products. It should eventually be expanded to include items other than those processed in Hong Kong. 

For more details, please see the HKTDC Research report: CEPA Supplement VIII measures: opportunities for Hong Kong,” which can be ordered at http://bookshop.hktdc.com/.

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