On New Year's Day, the Chinese mainland and Hong Kong will
celebrate the first anniversary of the Closer Economic Partnership
Arrangement (CEPA), the first bilateral free trade agreement for
either of them.
The pact allows Hong Kong entry to the mainland market ahead of
foreign competitors, which will be allowed access under China's
World Trade Organization (WTO) commitments.
Now Hong Kong businesses are preparing to make the best use of
the expanded CEPA that will be in place in 2005, before the
mainland throws its doors open to foreign investors in 2006.
The immediate effect of the CEPA was that Hong Kong exports to
the mainland increased. But more important, according to experts,
is the potential revival of Hong Kong's manufacturing power.
Under the agreement, 374 Hong Kong-made products are exempted
from import duties, accounting for more than 90 percent of goods
the metropolis of 7 million makes, according to Roger Chu, director
of the Hong Kong Trade Development Council's mainland division.
So far, 2,711 Hong Kong manufacturers have obtained certificates
of origin that allow them to take advantage of the zero-tariff
treatment.
As of December 13, a total of 2,811 items worth HK$1.7 billion
(US$205.4 million) had been approved by the Trade and Industry
Department of Hong Kong to enter the mainland duty-free.
Chu said traditional Chinese medicine, jewelry, chemicals and
information technology products dominated Hong Kong's exports.
"Hong Kong produces intermediate goods with competitive
technologies and exports them to the mainland for labor-intensive,
further manufacturing," he said. "It has become a trend."
Following the export boom is the rejuvenation of Hong Kong's
manufacturing sector, with an increasing number of companies moving
production bases back from the mainland to take advantage of
duty-free exports.
"There are signs that Hong Kong's manufacturing sector is
bouncing back with a revitalization in certain products such as
chemicals, medicine and food," said Chu.
That may have a profound effect on Hong Kong's economy in the
long run, helping to create jobs and rally industrial confidence
that was eroded by the Asian financial crisis in the late 1990s and
the subsequent economic downturn.
CEPA's core spirit is investment facilitation and market
opening, which led to a mushrooming of Hong Kong businesses on the
mainland in 2004.
A total of 18 service sectors were opened in whole or in part to
Hong Kong companies and individuals.
"Indeed, opening up of the service sectors is the most valuable
privilege that CEPA has offered to Hong Kong businesses," said Chu.
"It gives wider access to the 1.3-billion-person market."
Hong Kong service companies began making forays in the second
half of the year, after completing market surveys and qualifying to
operate on the mainland.
"Under CEPA, we are allowed to work on projects with state-owned
enterprises. Previously, we were confined to business with foreign
companies and joint ventures," said Ng Wing Fai, deputy director of
Hong Kong's Widnell Ltd.
The construction and property management company established
subsidiaries in Chengdu and Chongqing this year. Before that, it
had offices in Beijing, Shanghai and Shenzhen.
"Our Beijing office is expected to increase turnover by 30
percent to about 5 million yuan (US$602,000), and total turnover on
the mainland will reach 30 million yuan (US$3.6 million) this
year," he said.
In other sectors such as advertising and exhibitions, CEPA
allows Hong Kong companies to set up wholly owned firms on the
mainland. The lifting of stakeholder restrictions for Hong Kong
advertising agencies came about two years earlier than that for
foreign investors.
Star TV, the Hong Kong-based News Corp. broadcaster, launched
the mainland's first wholly foreign-owned advertising company in
July. In Shenzhen, Hong Kong's nearest mainland neighbor, more than
10 Hong Kong-based exhibition firms have set up or applied to set
up wholly owned subsidiaries.
An increased number of preferential measures will benefit Hong
Kong industries beginning in 2005, according to an expanded CEPA
pact, or CEPA II as it has been dubbed. Tariffs will be dropped on
another 713 items and eight new service sectors will be opened.
However, the time left for Hong Kong businesses to enjoy the
head start is short.
Similar treatment will be given to ASEAN countries under the
China-ASEAN FTA and to other foreign investors under WTO
commitments in the near future, making 2005 a critical year for
Hong Kong investors.
(China Daily December 28, 2004)