Thursday, April 26, 2012

Why CEPA Implementation is the Future of Hong Kong

CEPA (Closer Economic Partnership Arrangement), by definition, stands for an arrangement that promotes closer trade and economic cooperation between Hong Kong and the mainland China. CEPA was firstly signed and implemented in 2003, and the latest version is the CEPA Supplement 8 (VIII) which was signed in HK since last December.

Beautiful Victoria Harbour at Night, Hong Kong

Here is the summary of the CEPA Supplement 8 for promoting Hong Kong goods and services in the mainland China [Source: HK SAR (Special Administrative Region)]:

Hong Kong Goods

Under the implementation of CEPA (Closer Economic Partnership Arrangement) scheme, Hong Kong goods need to meet the "value-added content" criteria for CoF (country of origin) requirement so as to enjoy the "zero tariff preferential treatment". In the past, the "value-added content" criteria required that the total value of component parts, raw materials, product development costs and labour costs incurred in HK should not be less than 30% the FOB (Free On Board) value of the concerned exporting goods. Now the CEPA Supplement 8 now permits Hong Kong goods to include the value of component parts and raw materials originated from the mainland China for "value-added content" calculation but can still enjoy the "zero tariff preferential treatment". The maximum value that can be included into such calculation should not be greater than 50% of the total "value-added content". This special arrangement definitely makes more Hong Kong goods can enjoy the "zero tariff preferential treatment".

Hong Kong Services

(A) CEPA Liberalization Improvements
CEPA (Closer Economic Partnership Arrangement) Supplement 8 enhances liberalization and relaxes market access conditions of the following HK service sectors:

(1) Banking Sector: To permit mainland-incorporated banking institutions which are set up by HK bankers to participate in the distributions and sales of the mainland mutual funds.

(2) Construction Sector: To extend the business opportunities for Hong Kong construction professionals, who have also hold the mainland construction qualifications via mutual recognition, by allowing them to register and practice within Guangdong region and granting them the same status as the mainland professionals. To grant HK construction professionals, who are also the holders of the mainland class 1 registered structural engineer qualification or the holders of the mainland class 1 registered architect qualification via mutual recognition, the status as registered practitioners in Guangdong region for constructional engineering design businesses.

(3) Distribution Sector: To permit Hong Kong distribution companies, which distribute a variety brands and types of commodities (consisting of staple food) and operate at least 30 stores in the mainland China, to run as wholly-owned distributors within Guangdong region on a pilot run basis.

(4) Hospital Sector: To permit Hong Kong hospital service providers to establish their wholly-owned hospitals in any provincial capital and in any municipality directly administrated by the Chinese central government (previously only allow them to establish in Hainan Province, Guangdong Province, Fujian Province, Chongqing Municipality or Shanghai Municipality).

(5) Individually-owned Stores: To extend the scope of services allowed for individually-owned stores established by HK permanent residents who also possess Chinese citizenship in the mainland China. Related restrictions are also relaxed under CEPA for Hong Kong "small-and-medium enterprises" (SMEs):

(i) Relax the number of people participated in the service to ten people (from less than eight people);
(ii) Relax the maximum operating area of certain business services to 500 square meters (from less than 300 square meters).

(6) Insurance Sector: To permit qualified HK insurance brokerage enterprises to establish their wholly-owned insurance brokerage agencies within Guangdong Province (including Shenzhen region) on a pilot run basis. Under this pilot scheme via CEPA, qualification requirements for entering the mainland insurance market are:

(i) the enterprise should have been running insurance brokerage businesses for at least 10 years in HK;
(ii) the annual average business revenue of the enterprise should be at least HKD $500K in the past 3 years;
(iii) the total assets of the enterprise should be at least HKD $500K;
(iv) the enterprise should not have serious record of disciplinary action or misconduct in the past 3 years;
(v) the enterprise should have already established its representative office for at least 1 year in the mainland China.

(7) Legal Sector: To enhance the association mode of Hong Kong and the mainland China law firms, as well as to consider extending the business opportunities for HK legal professionals who have also obtained the mainland legal qualifications by allowing them to act as agents in the mainland China for civil litigation legal cases relating to HK residents or juridical individuals.

(8) Product Testing Sector: To extend the scope of CCC (China Compulsory Certification) product testing undertaken by Hong Kong testing bodies to cover all local products requiring CCC marking. To qualify, these testing bodies need to be accredited by the HKAS (HK Accreditation Service) Ltd. Read related article: New Policies Helping HK.

(9) Securities Sector: To promote qualified financial institutions in the mainland China to establish its securities subsidiaries in HK, as well as to permit Hong Kong investors to engage in the securities markets of the mainland China through the RQFII, or called the RMB QFII (Renminbi Qualified Foreign Institutional Investor) program. Read related article: New Measures For RMB Internationalization.
(10) Tourism Sector: To relax the existing "144-hour facilitation visa" policy criteria to pre-register the outbound control point within Guangdong Province. To support HK as a key homeport for Asia cruise tourism, as well as to further support joint tourism development for "multi-destination" tour itineraries in both Hong Kong and the mainland China.

(B) Re-define What is "Hong Kong Service Supplier" under CEPA

To relax the requirement of "substantive business operations" with the original definition of "HK Service Supplier" effective April 1, 2012. The scope or nature of the services that HK service suppliers can apply through CEPA preferential scheme is no longer restricted by the scope or nature of their original businesses in HK, unless there is any limitation relating to the current regulations, administrative regulations or specific laws of the mainland China for foreign investment bodies.

So Why CEPA Implementation is the Future of HK?

It is very clear that the latest CEPA (Closer Economic Partnership Arrangement) Supplement offers many preferential measures for promoting Hong Kong goods and services in the mainland China. The CEPA scheme further promotes bilateral cooperation in finance, tourism, investment and trade facilitation. In particular, preferential measures such as relaxing "value-added content" requirement (for enjoying "zero tariff preferential treatment"), relaxing "substantive business operations" definition (for entitling as "Hong Kong Service Suppliers") and relaxing "individually-owned Stores" restriction (for developing "small-and-medium enterprises"), truly increases competitiveness of Hong Kong goods and services to enter various markets in the mainland China.

That is all about proper implementation. Since the CEPA launched in 2003, there has still been a lot of deviations during implementation across different provinces and municipalities in the mainland China, although the CEPA program has been fully supported by the central government. There still has misunderstanding or even certain degree of trade protection in some provinces and municipalities that decelerates the opening-up process of the service industry in the mainland China.

Therefore it is the responsibility of the Hong Kong SAR (Special Administrative Region) government to establish proper communication channels across different provinces and municipalities, and thus to promote proper CEPA (Closer Economic Partnership Arrangement) implementation. Do not just reply on the policy enforcement from the top (Chinese central government). Establishing good relationship and mutual respect is always the key to any business success in the mainland China. To ensure CEPA implementation a big success, it is still not too late for the HKSAR to build up closer relationship with all major provinces and municipalities respectively through extensive and effective communication.


Post a Comment

Popular Articles in this Week (Top 10)

Not What You Want?

Try More Search in Our Website Here...