SUMMARY

• Number of products with CEPA origin rules expanded by 17 to 1,465
• 40 liberalisation measures spanning 28 services sectors
• Six new business areas opened to Hong Kong residents' individually-owned stores
• Cooperation in the areas of finance, conventions and exhibitions

Shortly before the Hong Kong Special Administrative Region (HKSAR) marked its 10th anniversary of establishment, the Central and Hong Kong governments agreed on 29 June of 2007 on the latest round of liberalisation measures under CEPA (thereafter, CEPA V) which are to be effective from January 2008.

On the heels of the implementation of CEPA IV measures from January 2007,¹ the agreed CEPA V liberalisation measures cover trade in goods, trade in services, trade and investment facilitation, financial cooperation as well as in mutual recognition of professional qualifications. Under CEPA III, all Hong Kong-made products are eligible for zero-duty access to the Chinese mainland if they comply with the agreed CEPA rules of origin from January 2006. Through the implementation of CEPA from January 2004 to June 2007, the number of goods eligible for tariff-free treatment rose from 273 to 1,448. CEPA V has added 17 new products to the list, to bring the number to 1,465. For these items, the applicable tariff rates which would otherwise apply range from 4% to 30%.

Compared with CEPA IV, which added 15 liberalisation measures in 10 services sectors, the scope of service liberalisation under CEPA V is even wider. A total of 40 liberalisation measures spanning 28 services sectors are added, with 11 new services sectors. Apart from WTO-plus access, Hong Kong services suppliers can also expect to enjoy CAFTA-plus access to the mainland market, as CEPA V provides them with even better market access to the Chinese mainland than their counterparts in ASEAN.²

Hong Kong permanent residents with Chinese citizenship are allowed under CEPA to set up individually owned stores throughout the country. CEPA V broadens their services scope to provide six more kinds of services, namely: computer services, software services, road transport goods handling services, other transport services except international freight forwarding and courier services, storage and warehousing services, and translation and interpretation services to business activities. These new measures will further stimulate the entrepreneurship of Hong Kong residents.

Consistent with the mainland's commitment in its 11^th Five-Year Plan to supporting the development of financial services in Hong Kong and maintaining Hong Kong's status as an international financial centre, the two sides have agreed to strengthen cooperation in the areas of finance. For example, measures will be undertaken to actively support mainland banks to set up subsidiaries for business operations in Hong Kong and to establish a fast track for applications by Hong Kong banks to set up branches in Guangdong. Apart from this, the mainland has also agreed to offer support and cooperation to Hong Kong for organising large-scale international conventions and exhibitions.

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Trade in Goods

Recent Developments

The Chinese mainland has granted all products of Hong Kong origin tariff-free treatment under CEPA III, which took effect from 1 January 2006, except for prohibited items such as used electrical machinery and medical products, chemical residual, municipal waste, tiger bone and rhinoceros horn. However, eligible products must fulfill the CEPA rules of origin to enjoy tariff-free treatment. For products which have no agreed CEPA rules of origin, Hong Kong will initiate discussions with the mainland twice a year upon request by local manufacturers.

From the implementation of CEPA in 2004 until the first half of 2007, the mainland and Hong Kong had reached agreement on the rules of origin for a total of 1,448 products. Effective from 1 July 2007, 17 new products have been included in the list of goods eligible for tariff-free treatment under CEPA. As a result, the number of products with agreed CEPA rules of origin, and hence which are eligible for zero-duty access to the mainland market, increased from 1,448 to 1,465.

These newly-added products cover cut flowers; branches, foliage and grasses; chewing gum; medicaments containing sulfa dugs; black printing ink; tools for milling; knives and cutting blades; piston engines; cranes; video recording or reproducing apparatus; colour projectors; and mechanical wrist-watches. In 2006, Hong Kong's domestic exports of these 17 products to the mainland only amounted to HK$8 million. But now with zero-duty access, Hong Kong's domestic exports of these products to the Chinese mainland are expected to go from strength to strength in the way ahead. Without tariff-free treatment, the applicable tariff rates for these 17 products range from 4% to 30%.

Particulars of 17 Newly-added Tariff-free Hong Kong-origin Products

Mainland 2007 Tariff Code	Product Description	Current Applied Tariff Rates (%)	2006 Hong Kong's Domestic Exports to Mainland (HK$mn)
06039000	Dried or dyed cut flowers and flower buds of plants in imminent dangers, other dried or dyed cut flowers and flower buds	23	0
06049900	Branches, foliage, and grasses of plants in imminent dangers, dyed or otherwise prepared, other branches, foliage, and grasses, dyed or otherwise prepared	10	0
17041000	Chewing gum, whether or not sugarcoated	12	0
30049010	Medicaments, containing sulfa dugs	6	0
32151100	Black printing ink	6.5	7.705
82077000	Tools for milling	8	0.011
82081000	Knives and cutting blades, for metal work appliances	8	0.350
84073300	Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 250cc but not exceeding 1,000cc	10	0
84073410	Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 1,000cc but not exceeding 3,000cc	10	0
84073420	Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 3,000cc	10	0
84082010	Compression-ignition internal combustion piston engines of a kind used for the propulsion of vehicles of Chapter 87, of an output of 132.39kw (180h.p.) or more	4-9	0
84264910	Crawler cranes, self-propelled	8	0
84264990	Other cranes, self-propelled, not on tyres	13	0
85219090	Other video recording or reproducing apparatus	20	0
85286910	Other colour projectors	30	0
91022100	Other automatic winding mechanical wrist-watches	11	0
91022900	Other non-automatic winding mechanical wrist-watches	15	0
Total	N.A.	N.A.	8.066

Cost Savings for Hong Kong Products

The immediate benefit of tariff-free access is cost savings for Hong Kong's domestic export items being sold to the Chinese mainland. From January 2004 to June 2007, a total of 24,174 Certificates of Hong Kong-origin (CEPA) were approved under different phases of CEPA, incurring a total value of HK$8,660 million. Textiles and clothing products were the largest beneficiary, followed by food and beverages, pharmaceutical products, plastics and plastic articles, chemical products, paper and printed articles, and colouring matters.

Distribution of Products Approved with Hong Kong Origin
(as of 30 June 2007)

Product Types	No. of COs Approved
Textiles and Clothing	7,189
Food and Beverages	5,215
Pharmaceutical Products	3,386
Plastics and Plastic Articles	3,316
Chemical Products	1,326
Paper and Printed Articles	1,045
Colouring Matters	1,004
Base Metal Products	982
Electrical and Electronic Products	386
Jewellery and Precious Metals	231
Clocks and Watches and Parts Thereof	143
Optical, Photographic and Cinematographic Instruments & Parts	83
Cosmetics	40
Food Residues and Animal Fodder	20
Leather and Furskin Articles	17
Machinery and Mechanical Appliances	12
Furniture	1
Toys and Games or Sports Requisites	1
Miscellaneous	3
Total	24,174

Note: The total figure is smaller than the sum of all product types as one Certificate of Origin can cover products of more than one type.

Indeed, spurred by the growing number of products eligible for tariff-free treatment, which have surged from 374 in 2004 to 1,465 at present, the share of Hong Kong exports benefiting from CEPA in Hong Kong's domestic exports to the mainland has increased from 3% to around 10% accordingly.

Export Value of Goods Benefiting from CEPA
and Their Shares in Hong Kong's Domestic Exports

Year	Value (HK$mn)	% Share in Domestic Exports to China	% Share in Total Domestic Exports
2004	1,150	3.0	0.9
2005	2,366	5.3	1.9
2006	3,254	8.1	2.4
2007 (Jan-May)	1,578	9.8	3.8

With the origin rules of an increasing number of items to be worked out over time, it is expected that zero-tariff access to the mainland market will stimulate some manufacturing activities in Hong Kong, and provide an impetus for Hong Kong's domestic exports to the mainland. While the CEPA rules of origin have now been agreed for 1,465 products only, all other products will subsequently be eligible for tariff-free access, amid applications by Hong Kong manufacturers and the rules of origin being agreed and met. Existing production can also be expanded to take advantage of the zero-tariff benefits.

Apparently, most manufacturers in Hong Kong will continue to use the mainland as their main production base. Yet, some may consider revitalising their existing facilities or setting up new production lines in Hong Kong to take advantage of CEPA. Meanwhile, given the zero-tariff advantage of Hong Kong's domestic exports to the mainland, it is hoped that some foreign manufacturers that plan to set up production lines in the region will be attracted instead to Hong Kong.

Given that the ultimate or target market of these companies is the Chinese mainland, tariff savings in Hong Kong must be substantial enough to offset the higher Hong Kong production costs. Alternatively, for products with high value-added content (in terms of brand, design, quality, technology, etc.) or intellectual property (IP) input being the major component in their total cost structure, production in Hong Kong would be more feasible if Hong Kong could generate a higher IP value, or provide better IP protection.

In these circumstances, it is expected that some high value-added or IP input industries that do not require a mass scale of production would probably be set up in Hong Kong. These industries are likely to be high-end lifestyle products that have a strong design element. A case in point is clothing, of which Hong Kong still maintains quite substantial production locally. Prior to 2005, existence of a clothing quota encouraged Hong Kong companies to retain domestic manufacturing in light of the quota availability in Hong Kong. Currently, local production continues to bypass the quota re-imposed by the US and EU on mainland-origin clothing products.

Given widespread food safety concerns on the mainland, food processed in Hong Kong may also instil better confidence in product quality among mainland consumers. A "Made in Hong Kong" label for these products is expected to be a sought-after item by mainland consumers, and their production in Hong Kong seems feasible. In the meantime, production that requires strong protection of the investor's proprietary technology or R&D results, such as medicines, may further find Hong Kong a better investment location, although sales across the border are subject to a set of rules governing drug importation into the mainland.

Effect on Manufacturing Investment

While increased opportunities in exporting Hong Kong-originated products to the mainland market may encourage existing local industries to expand their output and production capacity, it is also expected that some Hong Kong and foreign companies may be attracted by CEPA into setting up new production lines in Hong Kong. Under CEPA, the rules of origin have now been agreed for 1,465 products only. But all Hong Kong-origin products will subsequently be eligible for tariff-free access amid applications by Hong Kong manufacturers, with the rules of origin being agreed and met, including those without existing production in Hong Kong. This demonstrates the positive effect of CEPA in attracting new industrial investment and new manufacturing activities to be located in Hong Kong.

According to a recent HKSARG study for the first three phrases of CEPA³, CEPA had led to HK$305 million worth of extra capital investment in Hong Kong's manufacturing industry in 2005 and 2006, and a planned investment of HK$239 million in 2007 and beyond was envisaged. As regards employment, the study estimated that 3,319 jobs were created in Hong Kong due to CEPA in trade/manufacturing between 2004 and 2006. It was expected that 1,562 new jobs would be further created in Hong Kong in 2007 and beyond.

At present, most Hong Kong factories on the mainland are producing under original equipment manufacturing (OEM) arrangements for overseas markets. Even though some companies have developed their own brands and started selling to the mainland domestic market, most are positioned at the middle- or upper-middle end of the market. In light of the zero-tariff arrangement, Hong Kong companies might be interested in starting a new product line of premium products or new brands in Hong Kong to target the higher end of the mainland market.

It is agreed that although a "Made in Hong Kong" label can be of a higher price for certain lifestyle and fashion products in the mainland market, it must be complemented by a strong or premium brand image. This is because, for most mass-market products on the mainland, price is an important factor of consideration in purchases. Even for branded products, once the brand is accepted, its place of origin is of less importance. Hence, setting up a mass-market product line in Hong Kong might not be feasible or profitable.

Industries that are likely to benefit from CEPA's zero-tariff arrangement and justify production in Hong Kong for selling to the mainland market would need to fulfil one or more of the following criteria.

Likely Criteria for Industries to Benefit from Zero Tariff

High savings in tariffs

Depending on imported raw materials or intermediate goods from overseas rather than sourcing from the mainland

Production for which Hong Kong commands a good image or reputation, hence able to charge a higher price for the "Made in Hong Kong" label

High-price products with value-added in terms of brand, design, quality, technology, etc. rather than the labour input

Predominant share of IP input in the overall cost structure, hence requiring strong IP protection

Limited quantity rather than mass production

Availability of sufficient skilled workers in Hong Kong, or more realistically, ability to adopt advanced technology in production

Admittedly, only niche and high-end products of traditional industries will benefit from CEPA. Lifestyle products, such as high fashion and accessories, stylish watches and spectacles, are likely to be able to capitalise on the strength and reputation of Hong Kong in design and quality control, and to develop upmarket brands or products for the mainland's emerging middle class. Lifestyle products aside, a "Made in Hong Kong" label may be crucial for certain processed food products, which have the upper hand over mainland brands in terms of quality and safety of consumption.

Apart from traditional industries, Hong Kong may also be able to attract some new local and foreign investment in industries that require strong protection of their proprietary technologies, formulae or inventions. This is particularly true for some industries that are still restricted from forming wholly-owned foreign companies on the mainland. For example, foreign investors must form joint ventures if they invest in the "restricted industries"⁴, such as production of certain medicinal materials, small crawler dozers and small truck cranes, on the mainland. Since the IP value of the proprietary technologies or inventions of these industries is high, foreign investors may prefer investing in a wholly-owned venture in Hong Kong to forming a joint venture on the mainland.

Even for some industries that do not have any restrictions in shareholding by foreign investors in manufacturing projects on the mainland, foreign investors may still be attracted to set up R&D facilities or production of proprietary products in Hong Kong if they are targeting the mainland market, or making use of the advantage derived from the economic synergy of Hong Kong and the mainland. This is particularly true for medium-sized foreign companies which are not familiar with the mainland's business environment, and cannot afford to invest in their own independent R&D facilities on the mainland. Hong Kong's high standards of IPR protection, its status as a free port and the added advantage of CEPA that allows tariff-free and more efficient trade with the mainland, would be an edge in attracting foreign companies to invest in Hong Kong.

Trade in Services

Recent Developments

A total of 40 liberalisation measures covering 28 CEPA services sectors, including 17 existing services sectors and 11 new sectors, are provided in the latest CEPA V liberalisation package. Consequently, the total number of services sectors covered by CEPA has expanded from 27 to 38, with the new CEPA provisions to become effective from 1 January 2008.

Specifically, the Chinese mainland has agreed to relax market access conditions in the following 28 areas, namely: legal, medical, computer and related services, real estate, market research, services related to management consulting, public utility, job intermediary, building-cleaning, photographic, printing, translation and interpretation, convention and exhibition, telecommunications, audiovisual, distribution, environmental, insurance, banking, securities, social services for the elderly, tourism, cultural, sporting, transport (including air, road and maritime) and individually owned stores as a result of the liberalisation measures in trade in services committed under CEPA V.

Services Benefiting from CEPA

Accounting	Freight forwarding	Printing services*
Advertising	Information technology services	Professional qualification examinations
Airport services	Individually owned stores	Public utility services*
Audio-visual	Insurance	Securities
Banking	Job referral agency	Services related to management consulting and project management*
Building cleaning services*	Job intermediary	Sporting services*
Computer and related services*	Legal	Storage and warehousing
Construction, real estate and related professional services	Logistics	Value-added telecommunications services
Convention and exhibition	Management consulting	Tourism
Cultural entertainment	Market research *	Trade mark agency
Distribution	Medical and dental	Transport
Elderly services *	Patent agency	Translation & interpretation services*
Environmental services*	Photographic services*	-

* New service sectors under CEPA V

Legal Services

CEPA provides WTO-plus access to Hong Kong service suppliers, effectively lowering their entry threshold for accessing the mainland market compared with other foreign companies (whose access conditions are subject to the mainland regulations as depicted in the left hand column of respective table below, under Current Scope of Access).

Currently, foreign law firms on the mainland are not allowed to practise Chinese law or operate in association with mainland law firms. In comparison, a Hong Kong law firm which has a representative office on the mainland is allowed to operate in association with one mainland law firm situated in the province, autonomous region or municipality where its representative office is situated. CEPA V offers greater flexibility for Hong Kong law firms contemplating association arrangements with mainland law firms, stipulating that there will be no geographic restriction on the mainland law firm in association.

With this newly added flexibility accorded under CEPA V, Hong Kong law firms can have greater freedom in choosing their mainland partners, including those outside the province, autonomous region or municipality where its office is situated. This will help them make effective use of their resources, maximising their business opportunities while developing their legal services market on the mainland.

Current Scope of Access	Access for Hong Kong under CEPA
Foreign law firms: cannot operate in association with mainland law firms	In order to operate in association with mainland law firms, Hong Kong law firms must meet the following four conditions: have its own name, premises and its articles of association; have assets of RMB100,000 or more; have three or more partners (to be eligible as a partner of a law firm on the mainland, a person must possess a lawyer qualification and have been in practice for three years); and have a partnership agreement in writing. For mainland law firms to operate in association with Hong Kong law firms, CEPA requires that they have been set up for three years. There is no required number of full-time lawyers employed by mainland law firms to operate in association with Hong Kong law firms. Currently, a Hong Kong law firm which has a representative office on the mainland is allowed to operate in association with one mainland law firm situated in the province, autonomous region or municipality where its representative office is situated. From January 2008, a Hong Kong law firm that has set up a representative office on the Chinese mainland will be allowed to operate in association with one mainland law firm, and there will be no geographic restriction on the mainland law firm in association.
Foreign law firm's representative office: residency period of six months each year	Hong Kong law firm's representatives in its mainland representative offices are exempt from residency requirements.
Foreign lawyers cannot practise Chinese law.	Hong Kong residents who have acquired mainland lawyer qualifications or legal professional qualifications are allowed to intern and engage in non-litigation legal work on the mainland, as well as acting in the capacity of mainland lawyers to engage in matrimonial and succession cases that are connected to Hong Kong.
	Hong Kong barristers can act as agents in civil litigation cases on the mainland in the capacity of citizens, with the mainland authorities still working out the necessary implementation rules and regulations.
	Hong Kong residents with Chinese citizenship can sit the legal qualifying examination on the mainland. Hong Kong residents who have acquired mainland legal professional qualifications to undergo one-year internship in a mainland law firm may apply to practice as lawyers. Internship can be carried out in the branch office of a mainland law firm set up in Hong Kong.

Medical Services

CEPA opens the mainland door for Hong Kong's medical practitioners. The relaxation of capital and regulatory requirements for Hong Kong doctors and health operators under CEPA V opens up business opportunities for Hong Kong's medical sector. Specifically, the minimum investment amount for establishing medical institutions (including clinics) on the mainland on equity or contractual joint venture basis will be substantially reduced by 50% from RMB 20 million to RMB 10 million. In addition, Hong Kong services suppliers having obtained the mainland's medical practitioner qualification certificate are allowed to set up solo practice clinics on the same conditions applicable to their mainland counterparts.

In light of the unfulfilled demand for quality medical services on the mainland, provision of Hong Kong's quality medical services via Hong Kong-run hospitals and clinics and Hong Kong-trained doctors would help improve services by inducing competition in the mainland's medical services market.

Current Scope of Access	Access for Hong Kong under CEPA
Foreign majority-owned JV hospitals or clinics allowed. Minimum total investment of JV hospitals is RMB20 million, with foreign ownership up to 70% and JV duration not exceeding 20 years.	From January 2008, the minimum investment amount for setting up medical institutions on equity or contractual joint venture basis on the mainland will be reduced from no less than RMB 20 million to no less than RMB 10 million, as per CEPA V provisions.
The majority of medical personnel employed by JV hospitals or clinics must be of Chinese nationality.	The majority of medical personnel employed by Hong Kong-mainland JV hospitals or clinics can be Hong Kong permanent residents.
-	Hong Kong permanent residents who are legally eligible to practise in Hong Kong and have practised for five completed years are allowed to open clinics on the mainland after obtaining the mainland's practising qualifications. CEPA V provides that Hong Kong services suppliers who have obtained a medical practitioner's qualification certificate are allowed to follow the same conditions applicable to mainland practitioners when setting up solo practice clinics.
The maximum duration of the licence granted by the Ministry of Health to foreign practitioners to provide short-term medical service in the mainland is six months. On expiry, the licence can be extended to one year.	The maximum duration of the licence to provide short-term medical service on the mainland is three years for practitioners who are legally eligible to practise in Hong Kong. On expiry, the licence is renewable.
-	Hong Kong permanent residents who are legally eligible to practise medical and dental services in Hong Kong are permitted to sit the mainland's qualification examination.

Convention and Exhibition Services

Although China made no commitment under its WTO accession protocol in relation to convention and exhibition services, it granted foreign companies access to the sector in March 2004. As yet, foreign-invested companies on the mainland are not allowed to organise exhibitions in the overseas market.

In comparison, Hong Kong-invested exhibition companies set up on the mainland on a wholly-owned or contractual joint venture basis are allowed under CEPA to organise exhibitions in Hong Kong and Macau from January 2007 onward. Moreover, those Hong Kong-invested exhibition companies set up on a wholly-owned or contractual joint venture basis in Guangdong Province and Shanghai Municipality will be allowed from January 2008 to organise overseas exhibitions on a pilot basis as per CEPA V provisions.

CEPA V also allows Hong Kong service suppliers to organise exhibitions in the form of cross-border supply in Guangdong Province and Shanghai Municipality on a pilot basis. The latter measure is especially helpful for SME exhibition enterprises in Hong Kong without an office in Guangdong or Shanghai, giving them the flexibility to organise exhibitions there without being tied down by the investment associated with a commercial presence.

In addition, both the Chinese mainland and Hong Kong will enhance cooperation in convention and exhibition services, with the mainland offering support to Hong Kong for organising large-scale international conventions and exhibitions.

The new CEPA arrangements for the exhibition and convention sector would not only help those enterprises in Guangdong and Shanghai with their eye on "venturing out" and the international market pertaining to attending overseas exhibitions organised by Hong Kong services suppliers, but also enhance Hong Kong's position as a leading trade fair and convention centre in the region.

Current Scope of Access	Access for Hong Kong under CEPA
Foreign convention and exhibition companies can set up wholly-owned enterprises or joint ventures on the mainland to provide services for organising: exhibitions and conferences on the mainland conferences in overseas markets	Hong Kong convention and exhibition companies can set up wholly-owned enterprises or joint ventures on the mainland. In addition, they are allowed to provide services for organising exhibitions in Hong Kong and Macau; From January 2008, enterprises set up by Hong Kong service suppliers on a wholly-owned, equity joint venture or contractual joint venture basis in Guangdong Province and Shanghai Municipality to organise overseas exhibitions on a pilot basis.# Participating enterprises should be registered enterprises in that province or municipality.
-	From January 2008, Hong Kong service suppliers will be allowed to organise exhibitions in the form of cross-border supply, in the Guangdong Province and Shanghai Municipality on a pilot basis.##

Note:	#	Subject to the approval of the China Council for the Promotion of International Trade (CCPIT) according to relevant mainland laws and regulations;
	##	subject to the approval of the Ministry of Commerce (MOFCOM) according to relevant mainland laws and regulations.

Banking Services

Hong Kong's banking sector has benefited significantly under CEPA. Among other things, the thresholds of market entry have come down considerably so that the mainland market is now more widely open for smaller Hong Kong banks. For example, the requirement for total assets is set at US$6 billion, significantly lower than the requirement under WTO commitments of US$20 billion. Under CEPA V, the "Substantial business operation" requirement will also be lowered from five years or more of local incorporation. A Hong Kong bank can qualify as a Hong Kong service supplier if it has operated as a branch for two years and as a locally incorporated entity for three years or more in Hong Kong.

Smaller banks in Hong Kong are given the additional flexibility of entering the mainland market, as CEPA V provides that for a Hong Kong bank to acquire shareholdings in a mainland bank, the total asset requirement at the end of the year preceding the application is lowered from not less than US$10 billion to not less than US$6 billion. In order words, Hong Kong banks entering the mainland's banking sector, whether in the form of setting up a branch or body corporate (including wholly-owned subsidiaries and joint-venture banks) or acquiring a shareholding in a mainland bank, will be subject to a uniform asset requirement of not less than US$6 billion. Hong Kong banks like Chong Hing Bank and Fubon Bank would thus benefit from the new CEPA V provisions.

In the Chinese mainland's11^th Five-year plan, it is stated that the Chinese mainland will support "the development of financial services in Hong Kong" and "maintaining the status of Hong Kong as an international financial centre". Against this background, both the mainland and Hong Kong have agreed in the CEPA V package to enhance financial cooperation.

On the side of the Chinese mainland, it will support mainland banks in setting up subsidiary operations in Hong Kong. This builds on the mainland's prior CEPA commitments in financial cooperation, which encourage mainland financial institutions taking active participation in Hong Kong to acquire international best practices, to relocate their international treasury and foreign exchange trading centres to Hong Kong, and to develop networks in Hong Kong to acquire international best practices. Further, mainland financial institutions are also encouraged to seek stock listings in Hong Kong, which became highly visible in 2006 as some mega-sized listings of top mainland banks took place in Hong Kong.

Under CEPA V, the Chinese mainland is committed to setting up green lanes for processing applications of Hong Kong banks to open branches in Guangdong as well as the central western, north-eastern areas of the mainland. Hong Kong banks will also be encouraged to set up rural banks in the mainland's rural areas. This would help accelerate the access of Hong Kong banks on the mainland and thereby facilitate banking and financial development in the concerned mainland areas.

Current Scope of Access	Access for Hong Kong under CEPA
To establish a branch in China, a foreign bank needs to have total assets of over US$20 billion.	A Hong Kong bank* needs to have total assets of over US$6 billion to establish a branch on the Mainland. Note: * Major qualifying criteria for "Hong Kong bank": (1) Hong Kong registered bank; (2) engaged in substantive operations for five years or more in Hong Kong. From January 2008, a bank will have satisfied the "substantial business operation" requirement if it has operated as a branch for two years and as an incorporated entity for three years or more in Hong Kong.
-	From January 2008, for a Hong Kong bank to acquire shareholdings in a mainland bank, the total asset requirement at the end of the year preceding the application is lowered from not less than US$10 billion to not less than US$6 billion.
Foreign banks can open sub-branches in cities where they already have a branch operation.	Removes requirement for setting up representative office before establishing a joint-venture bank.

Securities, Futures and Fund Management

CEPA gives Hong Kong's securities and futures companies and professionals easier access to practise on the mainland on the one hand, while allowing qualified mainland securities companies and future companies to set up subsidiaries in Hong Kong on the other.

Under CEPA V, mainland fund management companies approved by the China Securities Regulatory Commission (CSRC) will be allowed to establish subsidiaries in Hong Kong to operate relevant business. Moreover, the timeline for mainland securities companies to complete their registration procedures in setting up subsidiaries in Hong Kong will be extended from six months to one year, so that these mainland companies would have more time to obtain, for example, a licence from Hong Kong's Securities and Futures Commission (SFC).

These two CEPA V measures, coupled with other measures announced in prior phases of CEPA, will keep on contributing to the broadening of the base of financial intermediaries in Hong Kong, therefore strengthening Hong Kong's role as a financial centre in the region.

Renminbi Business

As an aside, the Central government indicated in 2006 that, as part of mainland-Hong Kong cooperation, it would study the scope for further expansion of Renminbi (RMB) business in Hong Kong, including allowing Hong Kong importers to settle direct import trade from the mainland in RMB, and allowing mainland financial institutions to issue RMB financial bonds in Hong Kong on a pilot basis.

In July 2007, China Development Bank (CDB) became the first mainland financial institution to issue RMB bonds in Hong Kong. Its RMB bond issuance of RMB 5 billion to both retail and institutional investors was about three times over-subscribed. Evidently, the success of the first issue of RMB lays a good foundation for the subsequent development of the RMB bond market in Hong Kong, also opening up a new channel for financial intermediation between Hong Kong and the Chinese mainland.

Insurance Services

CEPA provides easier access to the mainland market for Hong Kong's insurance practitioners including actuaries. Under CEPA V, Hong Kong insurance agency companies can set up wholly-owned enterprises on the mainland to provide insurance agency services to mainland insurance companies. As such, they will not be allowed to sell insurance products on the mainland on behalf of Hong Kong insurers.

Hong Kong's Office of Commissioner of Insurance (OCI) and China Insurance Regulatory Commission (CIRC) signed a cooperative agreement in February 2004 to allow Hong Kong residents to sit the qualifying examinations for insurance intermediaries in Shenzhen, with a view to setting up an examination centre in Hong Kong. CEPA V provides that an examination centre will be established in Hong Kong some time in 2008.

Current Scope of Access	Access for Hong Kong under CEPA
Market access conditions for foreign insurance companies: 1.   Total assets of over US$5 billion; 2.   In operation for over 30 years; 3.   Has established a representative office in the mainland for over two years.	Hong Kong insurance companies are allowed to form groups through re-grouping and strategic mergers to enter the mainland market subject to the following market access conditions: 1.   Total assets of over US$5 billion; 2.   One of the Hong Kong insurance companies in the group has been in operation for over 30 years; 3.   One of the Hong Kong insurance companies in the group has established a representative office in the mainland for over two years.
-	From January 2008, Hong Kong insurance agency companies will be allowed to set up wholly-owned enterprises on the mainland to provide insurance agency services to mainland insurance companies.
After obtaining the mainland's professional qualifications in actuarial science, foreign actuary needs to obtain CIRC approval to practise.	Hong Kong residents with Chinese citizenship who have obtained the mainland's professional qualifications in actuarial science are allowed to practise on the mainland without prior approval. Hong Kong residents who have obtained the mainland's insurance qualifications and are employed by a mainland insurance institution are allowed to engage in the relevant insurance business. CEPA V notes that an examination centre will be set up in Hong Kong for the mainland qualifying examinations for insurance intermediaries.

Tourism and Travel-Related Services

The Individual Visitor Scheme (IVS) under CEPA has helped Hong Kong's economy, in particular its tourism, hotel sectors, retail, catering and entertainment sectors. On a cumulative basis, more than 20 million mainland tourists have come to Hong Kong under IVS. In May 2007 alone, more than 678,000 mainland tourists arrived in Hong Kong under IVS, rising year-on-year by 43% and accounting for 56% of the total mainland visitors.

Apart from IVS, CEPA allows Hong Kong's travel agencies to set up wholly-owned operations on the mainland ahead of competitors from other nations, also with lower turnover requirements. CEPA V further lowers the turnover requirements for Hong Kong travel agencies to set up wholly-owned or joint-venture units on the mainland, effective January 2008.

Currently, Hong Kong travel agencies set up on a wholly-owned or joint venture basis in Guangdong are allowed to apply to run group tours to Hong Kong/Macau for Guangdong's permanent residents on a pilot basis, which is a significant endeavour of the Chinese mainland in opening up its outbound tourism market. CEPA V broadens the geographic coverage of this pilot scheme of outbound group-tours to include places like Guangxi, Hunan, Hainan, Fujian, Jiangxi, Yunnan, Guizhou and Sichuan Provinces or Autonomous Region.

Accordingly, this CEPA measure is expected to generate more business opportunities for Hong Kong's travel industry and lead to higher mainland tourist arrivals to Hong Kong.

Current Scope of Access	Access for Hong Kong under CEPA
Foreign joint-venture travel agencies are allowed. - Foreign partner in a joint-venture travel agency should have annual (global) turnover of over US$40 million. Wholly-owned foreign travel agencies will be allowed by end 2007.	CEPA lowers the annual turnover requirements for Hong Kong travel agencies on the mainland to: - Not less than US$25 million for a wholly-owned travel agency; and not less than US$12 million for a joint-venture. - From January 2008, the annual business turnover for a wholly-owned travel agent will be lowered to not less than US$15 million; and not less than US$8 million for a joint venture.
-	Hong Kong travel agencies set up on a wholly-owned or joint venture basis in Guangdong can apply for operating groups to Hong Kong and Macau for Guangdong's permanent residents on a pilot basis. From January 2008, Hong Kong travel agents established on a wholly-owned or joint venture basis in Guangxi, Hunan, Hainan, Fujian, Jiangxi, Yunnan, Guizhou and Sichuan Provinces or Autonomous Region will be allowed to apply for the operation on a pilot basis of group tours to Hong Kong and Macau for residents registered with permanent residence in these provinces or autonomous region.

Audiovisual Services

The existing CEPA provisions include significant market liberalisation measures for Hong Kong's audio-visual services industry, including the production of television drama programmes. In considering the proposed mainland-Hong Kong television drama co-production, the State Administration of Radio, Film and Television (SARFT) requires the mainland partner of the co-production submit a proposal which consists of the topic of the television drama, synopsis of each episode, as well as a list of major production personnel and a production plan.

Under CEPA V, for any proposal of mainland-Hong Kong television drama co-production, the minimum number of words in Chinese contained in the synopsis of each episode is revised down from 5,000 to 1,500. This measure will save the administrative cost and time of the involved production companies, giving them enhanced flexibility while streamlining the production process.

Current Scope of Access	Access for Hong Kong under CEPA
SARFT to approve the finished tapes of mainland television programmes produced by Sino-foreign cooperation.	Provincial radio and television administrative departments to approve the finished tapes of mainland television programmes with participation from Hong Kong artistes or production crew.
Few approved imported television productions and co-productions can be broadcast by mainland television stations during prime time (19:00-22:00).	Television programmes co-produced by Hong Kong and mainland are permitted to be broadcast and distributed in the same way as mainland produced television programmes. Co-produced television programmes: -  At least one-third of the principal creative personnel* should come from mainland.  -  Mainland enterprise should own at least 51% of the production company.
The number of episodes of a television drama co-production is capped at 30.	The maximum number of episodes of television dramas co-produced by Hong Kong and the mainland will be no different from that for mainland-produced television dramas.
Synopsis for each episode of co-production should have no less than 5,000 words in Chinese.	From January 2008, for any proposal of television drama to be co-produced by the mainland and Hong Kong programme production organisations, the minimum number of words in Chinese contained in the synopsis of each episode will be revised to 1,500.

Note: * Principal creative personnel refer to directors, screenwriters, cinematographers and leading artistes (leading actors/actresses and leading supporting actors/actresses).

Cultural Services

Against the background of the Chinese mainland embarking on the development of its cultural and creative sectors, CEPA V consists of measures to promote cultural activities by Hong Kong services providers engaged in performing arts on the Chinese mainland. There was no commitment under China's WTO accession protocol to open its cultural sector to foreign enterprises. In comparison, CEPA currently allows Hong Kong companies to set up performing venues on a wholly-owned or joint venture basis, and they are further allowed to establish performing agencies on the mainland on a joint venture or cooperative venture basis.

Under CEPA V, the equity restriction for Hong Kong service suppliers to set up performing arts agencies on the mainland is further relaxed to whole ownership. In addition, performing arts agencies or performing arts groups can organise commercial performances in the form of cross-border supply in Guangdong and Shanghai on a pilot basis upon approval of the relevant authorities. Commercial performances refer to live performing activities organised for the public with a view to profit-taking. Hong Kong artistes and performing arts groups, many of which are small-to-medium sized enterprises (SMEs) with limited resources, will benefit from the CEPA V provisions, which provide them with greater flexibility in organising commercial performances in Guangdong or Shanghai without being tied down by the investment associated with a commercial presence in these two places.

It should be noted that performing arts agencies and performing arts groups intending to organise performances in Guangdong and Shanghai will have to seek prior approval from the Ministry of Culture and submit information on the performing agency and person-in-charge, before obtaining additional approval by the relevant authorities in Guangdong or Shanghai.

Current Scope of Access	Access for Hong Kong under CEPA
Not open to foreign companies.	Hong Kong companies can set up performing venues, art galleries/art shops and art exhibition centres on the mainland on wholly-owned, joint venture/cooperative venture basis. Hong Kong companies can set up performing agencies on the mainland on joint venture or cooperative venture basis. From January 2008, Hong Kong services suppliers can set up wholly-owned performing arts agencies on the mainland.
-	Hong Kong performing agencies can set up branches on the mainland. From January 2008, Hong Kong performing arts agencies or performing arts groups to organise commercial performances in the form of cross-border supply in Guangdong Province and Shanghai Municipality on a pilot basis upon approval of the relevant authorities of that Province or Municipality.  - Performing arts agencies and performing arts groups organising performances on the mainland should seek prior approval from the Ministry of Culture.

Job Intermediary Services

CEPA greatly raises the flexibility of Hong Kong job placement services companies in tapping the huge mainland market. The entry requirement in terms of the required minimum registered capital is sharply lower than would otherwise be the case. As opposed to the minority joint ventures that are accorded to other foreign enterprises, Hong Kong service suppliers in the job intermediaries sector can hold up to 70% of a joint venture company currently and will be allowed to set up wholly-owned intermediary agencies in January 2008.

Current Scope of Access	Access for Hong Kong under CEPA
Foreign companies are allowed to set up minority stake JV job intermediary agencies in the mainland. Foreign investor holding should be no less than 25% and no more than 49%. The required minimum registered capital is US$300,000.	Hong Kong services suppliers can set up majority-stake joint venture in job intermediary agencies on the mainland. -  They can hold up to 70% of the joint venture company. -  From January 2008, they will be allowed to set up wholly-owned intermediary agencies on the mainland. The required minimum registered capital is US$125,000.

Transport services

Air Transport Sales Agency Services

CEPA provides enhanced access to Hong Kong services suppliers in the provision of air transport sales agency services. Currently, Hong Kong companies can set up wholly-owned, equity joint ventures or contractual joint venture units to provide air transport sales agency services on the mainland to cover both domestic routes as well as international routes (including Hong Kong, Macau and Taiwan), that is, Type I and Type II air passenger and freight sales agency services. The registered capital requirement is the same as that for mainland enterprises.

As stipulated in Qualification Procedures for China Civil Aviation Transportation Agency Services issued by the China Air Transport Association (CATA), however, the applications for Type I and Type II air transport sales agencies on the mainland, whether in the form of wholly-owned enterprises, equity joint ventures or contractual joint ventures, are required to go through substantive initial vetting by CATA's local representative offices. CEPA V relaxes this condition by allowing the application materials to be submitted directly to CATA for examination.

In addition, CEPA V provides specifically that in applying for setting up air transport sales agencies on the mainland, the required economic guarantee submitted by Hong Kong services suppliers can be provided either by China-capital banks on the mainland or guarantee companies recommended by CATA (provided that the China-capita enterprises is not lower than that of the Hong Kong enterprise being guaranteed). Streamlining the application procedures and providing a clear scope of parties eligible for providing economic guarantee would help Hong Kong services suppliers in their applications for operating air transport sales agencies on the mainland.

CEPA V further provides that Hong Kong services suppliers will be allowed to set up minority-share joint venture enterprises with Mainland Computer Reservation System (MCRS) services suppliers on the mainland. Moreover, the licences for the setting up of joint-venture enterprises are subject to an economic needs test.

Current Scope of Access	Access for Hong Kong under CEPA
Air Services Joint ventures with minority foreign ownership are allowed in the provision of air transport-related support services.	Air Services Hong Kong services suppliers are allowed to set up wholly-owned units to provide air transport sales agency services. - The registered capital requirement is the same as that for mainland enterprises. From January 2008, Hong Kong services suppliers can submit the economic guarantee provided by China-capital banks on the mainland or guarantee companies recommended by CATA in their applications for the setting up of air transport sales agencies in the form of wholly-owned enterprises, equity joint ventures or contractual joint ventures on the mainland. Further, in applying for the setting up of air transport sales agencies in the form of wholly-owned enterprises, equity joint ventures or contractual joint ventures on the mainland, Hong Kong services suppliers are not required to go through the substantive initial vetting by CATA's local representative offices. They can submit the application materials directly to CATA.
-	From January 2008, Hong Kong services suppliers will be allowed to set up joint venture enterprises with Mainland Computer Reservation System (MCRS) suppliers on the mainland. The mainland side will have the majority shareholding in the enterprise. - Licences for the setting up of joint venture enterprises are subject to economic needs test.

Road Transport Services

CEPA currently allows Hong Kong services suppliers to provide direct non-stop road freight transport services between Hong Kong and each mainland province, and road transport-related services like road freight transportation station and motor vehicle repair services.

In addition, Hong Kong's franchised bus service companies can establish wholly-owned units to provide public transport services in the mainland's municipal cities, and both franchised and non-franchised bus services companies⁵ may set up joint-venture units to provide inter-city bus services in nine mainland provinces. Under CEPA V, Hong Kong's franchised and non-franchised bus services companies, as well as public light bus operators, can set up joint venture enterprises on the mainland to provide inter-city scheduled passenger transportation services.

Maritime Transport Services

According to China's WTO commitment and the Regulations on the Administration of Foreign Investment in International Marine Transportation, only minority-owned foreign joint ventures are allowed, including international shipping agency, international ship management, international shipping, maritime cargo-handling services, customs clearance services for maritime transport, container station and depot services, international marine shipping freight loading and unloading international marine shipping container terminal and yard business.

In comparison, CEPA allows Hong Kong services providers to form wholly-owned units in providing certain types of maritime services, such as international ship management services, containers station and depot services, non-vessel operating common carrying services, port cargo loading and unloading services, tug services between Hong Kong and mainland ports, ship maintenance and repair services, international ocean container leasing, buying and selling as well as trading of container parts, and ship survey services for ships registered in Hong Kong.

Under CEPA V, Hong Kong services providers can hold up to no more than 51% of the joint venture enterprises on the mainland to provide third-party international shipping agency services.

Current Scope of Access	Access for Hong Kong under CEPA
Joint ventures with minority foreign ownership not exceeding 49% are allowed.	Hong Kong services suppliers are allowed to set up wholly-owned units to provide international ship management services, containers station and depot services, non-vessel operating common carrying services, port cargo loading and unloading services, ship maintenance and repair services; and for tugs that they operate between Hong Kong and mainland ports, regular business services such as shipping undertaking, issuance of bills of lading, settlement of freight rates and signing of services contracts.*   (* The requirement that "50%, or more of the ships owned by it, calculated in terms of tonnage, should be registered in Hong Kong" as set out in Annex 5 of CEPA, is not applicable to Hong Kong services suppliers which provide towing services.)
	Hong Kong services suppliers are allowed to set up wholly-owned companies to provide services of international ocean container leasing, buying and selling as well as trading of container parts. Hong Kong services suppliers are allowed to set up wholly-owned units to provide ship survey services for ships registered in Hong Kong.
	From January 2008, Hong Kong services suppliers can set up joint venture enterprises on the mainland to provide third-party international shipping agency services, of which the Hong Kong services suppliers' shareholding should not exceed 51%.

Distribution Services

CEPA is instrumental in removing the remaining hurdles for Hong Kong companies to participate in the mainland's distribution business, which is already very open. In compliance with WTO commitments, China removed all restrictions on foreign participation in distribution services in December 2006 except one. For a single foreign enterprise that opens more than 30 stores in China, and if the commodities for sale include pharmaceutical products, pesticides, mulching films, chemical fertilisers, vegetable oil, edible sugar and cotton, the proportion of capital contribution by its foreign shareholders cannot exceed 49%.

By virtue of the further liberalisation measures under CEPA unveiled in June 2007, the above restriction will be removed from January 2008, allowing Hong Kong services suppliers (including suppliers that open more than 50 stores accumulatively on the mainland) to become the controlling shareholder, with the proportion of capital contribution not exceeding 65%. This is expected to provide greater flexibility and incentives for Hong Kong's larger retailers to embark on more aggressive expansion in the mainland market.

Individually Owned Stores

The individually owned stores provision under CEPA is a significant measure for promoting relocation and entrepreneurship for Hong Kong people. Given the widened scope of business that individually-owned stores can participate in, the opportunities and choices opened to Hong Kong individuals are immense.

Current Scope of Access

Access for Hong Kong under CEPA

There is no WTO commitment to allow people from overseas to operate individually owned stores on the Chinese mainland.

Under CEPA, the mainland government allows Hong Kong permanent residents with Chinese citizenship exclusively to set up individually owned stores* in any mainland province or city, without being subject to the approval procedures applicable to foreign investments, to provide the following services, namely: (1) retailing; (2) food and catering; (3) hair dressing; (4) beauty treatment and health-care services: (5) bathing services; (6) repair services or home electrical appliances and other goods of daily use; (7) import and export of goods and technologies; (8) photo processing service; (9) laundry and dyeing service; (10) car repair and maintenance service; (11) crop cultivation; (12) animal husbandry; (13) aquaculture; (14) computer repair services; and (15) technology exchange and promotion services. From January 2008, the scope of business covered by Hong Kong permanent residents' individually-owned stores will, additionally, cover the following services: computer services software services road transport goods handling services other transport services except international freight forwarding and courier services storage and warehousing services translation and interpretation services to business activities

Note: * No more than eight persons should be engaged in the operation of the individually-owned stores.

Telecommunication Services

CEPA allows Hong Kong services suppliers to provide the following value-added telecommunication services on the Chinese mainland, namely: internet data centre services; store and forward services; call centre services; Internet access services; and content services. CEPA V additionally provides that Hong Kong services suppliers can set up joint venture enterprises on the Chinese mainland to provide Mainland IP based Virtual Private Network (MIVPN) services as defined in the Telecommunications business classification, with no geographic restriction imposed. Hong Kong services suppliers' shareholding should not exceed 50%.

To qualify as Hong Kong services suppliers, the concerned Hong Kong companies must have no less than three consecutive years of substantive experience of operating MIVPN services in Hong Kong, with the relevant telecommunication licences issued by the Telecommunications Authority. Apart from establishing new joint ventures, Hong Kong services suppliers may choose to merge or acquire the share of mainland services suppliers in the corresponding sector, and the shareholding of the Hong Kong company is up to 50%.

Current Scope of Access	Access for Hong Kong under CEPA
Joint ventures with minority foreign ownership up to 49% are allowed. Establishment of Sino-foreign joint venture enterprises are allowed in Shanghai, Guangzhou, Beijing, Chengdu, Chongqing, Dalian, Fuzhou, Hangzhou, Nanjing, Ningbo, Qingdao, Shenyang, Shenzhen, Xiamen, Xian, Taiyuan and Wuhan.	Hong Kong services suppliers can hold up to 50% shareholding in joint venture enterprises to provide the following services: (1) internet data centre; (2) store and forward; (3) call centre; (4) Internet access; and (5) content. No geographic restrictions.
-	From January 2008, Hong Kong services suppliers can provide Mainland IP-based Virtual Private Network Services as defined in the Telecommunications business classification, with shareholding not exceeding 50%. No geographic restriction will be imposed.

Mutual Recognition of Professional Qualification and Professional Examinations

CEPA broadens not only the mainland's services sectors for Hong Kong companies, but also enhances the latitude of Hong Kong professionals and residents participating in the mainland's services markets, by way of encouraging mutual recognition of professional qualifications and allowing them to sit the mainland's professional qualification examinations.

Prior phases of CEPA have reached agreements or arrangements for professionals, for example, estate surveyors, qualified personnel of the securities and futures industry, architects, insurance practitioners, patent agents, and engineers. As such, eligible Hong Kong residents are allowed to sit a wide range of qualification examinations for professionals and technicians on the mainland (e.g. medical, legal, insurance, engineering and accounting sectors).⁶

Under CEPA V, the Chinese mainland and Hong Kong have agreed that their competent authorities or professional bodies will commence discussions on the mutual recognition of registered electrical exploration and design engineers as well as registered public facility exploration and design engineers. Both sides will also start technical exchanges for registered geotechnical exploration and design engineers as well as land surveying work, in addition to setting up a working group to take forward the work on registration and practice of construction sector professionals who have acquired professional qualifications through mutual recognition.

New Services Sectors under CEPA V

As aforementioned, CEPA V provides a total of 40 liberalisation measures covering 28 service sectors, of which 11 are new services sectors.

Elderly and public utility services are two of the 11 new services sectors covered under CEPA V, with the remaining nine being sectors offered by the Chinese mainland to ASEAN under the China-ASEAN Free Trade Area Trade in Services (CAFTA-TIS) agreement, but not yet covered by prior phases of CEPA (marked by asterisks in the above below). Air transport services and road transport services are two of the existing CEPA sectors that are covered in both of the CAFTA-TIS agreement and CEPA V liberalisation package.

New Services Sectors Added in CEPA Package

Building cleaning services*	Market research*	Services related to management consulting*
Computer and related services*	Photographic services*	Sporting services*
Elderly services	Printing services*	Translation & interpretation services*
Environmental services*	Public utility services	-

* Sectors covered in China-ASEAN free trade agreement

According to the CAFTA-TIS agreement, China has made a commitment to opening up new markets to ASEAN countries in a range of service areas on the basis of original WTO commitments, including construction, environmental protection, transportation, sports and commerce. The TIS agreement came into effect in July 2007.

Social Service for the Elderly

Under CEPA V, Hong Kong services suppliers will be allowed to operate elderly service agencies in the form of wholly-owned private non-government enterprises to provide elderly services in Guangdong on a pilot basis. This will be an enhancement from the existing practice, where Hong Kong services suppliers can only register as private enterprises, if they want to set up wholly-owned social services enterprises for the elderly in Guangdong or other provinces.

Private non-government enterprises, as defined under the Provisional Regulation Concerning the Registration and Administration of Private Non-enterprise Units promulgated by China's State Council, are those community units set up by enterprises, public services units, social organisations and other community parties and individual citizens with non-governmental assets that are engaged in the provision of non-profit services.

The liberalisation measure under CEPA V for establishing non-government private enterprises will help the following Hong Kong entities that have provided elderly services substantively in Hong Kong for no less than three years:

• Holders of valid Licences of Residential Home for the Elderly issued by Hong Kong's Social Services Department; and
• Subvented non-governmental organisations engaged in elderly service provision.

Public Utility Services

The Chinese mainland is experiencing a rapid phase of urbanisation with both infrastructure spending and household income rising. Thanks to CEPA V, Hong Kong services suppliers will reap more business opportunities in the mainland's public utility sector, as they will be able to establish wholly-owned units on the mainland to construct and operate networks of gas, heating, water supply and water drainage for medium-sized mainland cities.

Environmental Services

With rapid urbanisation and industralisation on the Chinese mainland, there is also growing attention to the side-effects on the environment. Under China's WTO accession protocol, foreign services suppliers engaged in environmental services are permitted to provide services only in the form of joint ventures, even though foreign majority ownership is permitted. Under CEPA V, Hong Kong services suppliers are given WTO-plus treatment to set up wholly-owned enterprises on the mainland to provide environmental protection services.

Hong Kong has long maintained a good business relationship with the region and global businesses. Hong Kong's linguistic advantage and excellent communication infrastructure enable Hong Kong companies to readily access global environmental information. Therefore, the industry is in a favourable position to be a leader and middleman in transferring the latest technologies, especially from overseas to the mainland.

The allowable scope of services for Hong Kong services suppliers under CEPA is similar to that under WTO, including sewage services, refuse disposal services, cleaning services of exhaust gases, noise abatement services, sanitation services, nature and landscape protection services, and other environmental protection services, but excluding environmental quality monitoring and pollution source investigation.

Real Estate Services

Under its WTO accession protocol, China is committed to letting foreign services suppliers operate majority-owned joint ventures in the provision of real estate services on a fee or contract basis. Since May 2005, it has introduced a Property Management Company Accreditation Management Scheme, under which property management companies are classified into three accreditation classes, and the allowable property management areas would be matched in accordance with the accreditation classes.

Under CEPA V, in the assessment of Hong Kong services suppliers' applications for property management company qualification on the Chinese mainland, the combined property management portfolios (expressed in gross floor area) in both Hong Kong and the mainland will be considered. As most property management companies in Hong Kong are SMEs, the new CEPA measure will effectively lower the entry conditions, thus giving them better access to the mainland market.

Current Scope of Access	Access for Hong Kong under CEPA
For property services on a fee/contract basis, joint ventures with foreign majority ownership are allowed.	For property services on a fee/contract basis, wholly-owned operations are allowed. From January 2008, the property management portfolios (expressed in gross floor area) of the Hong Kong service suppliers in both Hong Kong and the mainland will be taken into account in assessing their application for property management company qualification on the mainland.
Wholly foreign-owned property services firms are permitted to offer real estate services involving self-owned or leased property, except for high standard real estate projects.	Wholly-owned property services firms are permitted to provide services for high-standard real estate projects.7

Building Cleaning Services

China has progressively introduced a spate of liberalisation measures under CEPA for Hong Kong services suppliers engaged in construction, real estate and related engineering services. Under CEPA V, they can set up wholly-owned enterprises on the mainland to provide building-cleaning services.

Computer and related services

Under China's WTO commitments, majority-owned joint ventures are permitted to supply software implementation services, as well as data processing services. With CEPA V, Hong Kong services suppliers are given WTO-plus access to the mainland market and allowed to set up wholly-owned enterprises in the provision of software implementation as well as data processing services.

Software implementation services refer to all consultancy services in relation to the development and implementation of software, including both packaged and customised software. The scope of services would broadly include the following: system and software consulting; system analysis; systems design; programming; and systems maintenance.

Regarding data processing services, they would include the following, namely: input preparation; data processing and tabulation; time-sharing; and other data processing services.

Current Scope of Access	Access for Hong Kong under CEPA
Foreign majority-owned joint ventures in software implementation are allowed. Foreign majority-owned joint ventures in data processing services.	From January 2008, Hong Kong services suppliers will be allowed to set up wholly-owned enterprises on the mainland to provide software implementation services. Hong Kong services suppliers will be allowed to set up wholly-owned enterprises on the mainland to provide data processing services.

Other Services

Under CEPA V, wholly-owned operations for Hong Kong services suppliers will be allowed to provide the following services:

• Sports event promotion services, sports event organisation services and sports facility operation services (excluding the construction of golf courses)
• Photographic services
• Translation and interpretation services
• Printing and binding services for packaging materials
• Project management services other than for construction in services related to management consulting

In addition, they will be allowed to engage in the following services:

• Formation of minority joint ventures in the printing of publications and other printed matters
• Establishing joint ventures to provide market research services
• Allowing the cross-border supply of project management services other than for construction in services related to management consulting

Implications and Prospects

CEPA is an open and developing platform, allowing Hong Kong to continue to engage the mainland authorities on further liberalisation of trade in goods and services with the mainland, and other areas of cooperation in the future.

By offering 40 liberalisation measures spanning 28 services sectors, while introducing 11 new services sectors to raise the total to 38, CEPA V is significant in that it considerably broadens the business scope for Hong Kong services suppliers to explore the mainland's services market. As always, CEPA provides Hong Kong services suppliers, especially SMEs, with WTO-plus access to tap the mainland market compared to competitors from other economies. What is new under CEPA V is that, the Chinese mainland has taken into account the free trade agreement concluded with other trading partners, incorporating similar commitments in the CEPA V liberalisation package. For example, for services related to management consulting and photographic services, CEPA V provides Hong Kong services suppliers with CAFTA-plus preferences, allowing them to establish wholly-owned operations on the mainland compared with ASEAN services suppliers, which are allowed to form joint ventures under the CAFTA-TIS agreement.

In addition, further liberalisation measures connected with individually-owned stores expand the scope and flexibility for Hong Kong residents to do business on the mainland, thereby helping to further stimulate the entrepreneurship of Hong Kong residents. While not subject to the approval procedures applicable to foreign investments, establishment of such individually owned stores will still be required to comply with the relevant mainland laws, regulations and administrative regulations.

Other significant CEPA liberalisation measures announced in June 2007 include the pilot scheme to allow Hong Kong services suppliers to set up wholly-owned enterprises in Guangdong and Shanghai to organise overseas exhibitions, and to organise exhibitions in the form of cross-border supply in these two places. On the other hand, the existing pilot scheme to allow Hong Kong services suppliers to organise outbound group tours to Hong Kong/Macau for Guangdong's permanent residents is expanded under CEPA V to include places like Guangxi, Hunan, Hainan, Fujian, Jiangxi, Yunnan, Guizhou and Sichuan Provinces or Autonomous Region. In recognition that SMEs form the bulk of Hong Kong services suppliers, CEPA includes services provisions via cross-border supply (for example, project management services), which will enhance their market access to the mainland market and thus increase their business opportunities.

On trade in goods, the zero import tariff preference has the potential to attract to Hong Kong more investment and production targeting goods with higher-value added content, in terms of brand, design, quality, technology, etc., or substantial intellectual property input. The bi-yearly discussions between Hong Kong and the mainland on origin rules will provide further flexibility to potential investors planning to manufacture products that are not currently produced in Hong Kong.

1	CEPA IV measures can be looked up at http://www.tdctrade.com/econforum/tdc/tdc060701.htm.
2	China and ASEAN have agreed to establish a China-ASEAN Free Trade Area (CAFTA) by 2010, having reached agreements on both Trade in Goods (TIG) and Trade in Services (TIS). The CAFTA-TIS agreement, which went into effect on 1 July 2007, provides preferential market access to the services suppliers of ASEAN countries to the Chinese mainland. http://english.mofcom.gov.cn/aarticle/newsrelease/significantnews/200701/20070104272435.html
3	The study is available at http://www.tid.gov.hk/english/cepa/statistics/statistics_research.html
4	In line with the direction of its industrial development, the Chinese government has published a set of Interim Provisions on Guidance for Foreign Investment and a Catalogue for the Guidance of Foreign Investment Industries. The Provisions divide foreign investment projects into four categories, namely encouraged, permitted, restricted and prohibited. For projects falling under the restricted category, there are more stringent restrictions on foreign investors in terms of application procedures and equity shareholding of the joint venture. In the latest Catalogue, there are 13 major manufacturing sectors in the restricted list.
5	Guangdong-Hong Kong cross-boundary coach services.
6	These include the qualification examinations for registered architect, registered structural engineer, registered civil engineer (geotechnical), construction supervising engineer, cost engineer, registered town planner, estate agent, registered safety engineer, registered nuclear safety engineer, builder, registered facility engineer, registered chemical engineer, registered civil engineer (harbour and waterway), registered facility supervising engineer, environmental impact assessment engineer, real estate appraiser, registered electrical engineer, accounting technician, assistant accountant, accountant professional qualification (professional title), certified tax accountant, certified asset appraiser, prosthetist and orthotist, mining rights assessor, registered consulting engineer, international business personnel, land registration agent, gemstone quality examiner, translator and computing technology and software.
7	High standard real estate projects refer to those real estate projects with construction cost per unit exceeding two times that of the average construction cost per unit in the same city.

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