A guide to Hong Kong and the mainland's fourth extension of CEPA

----By Alberto Vettoretti and Rosario Di Maggio

On June 29, Hong Kong and Beijing agreed to further liberalise services and economic cooperation under the mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA) by signing Supplement IV to CEPA.

CEPA, signed between Hong Kong and Beijing on June 29, 2003, and subsequently by Macau and Beijing on October 18, 2003, was designed to promote closer integration and development of the greater Pearl River Delta through trade in goods and services, investment facilitation and tourism. The basic objectives of CEPA were to phase out tariffs and non-tariff barriers on trade in commodities, phase in the liberalisation of trade in services and reduce and eliminate all discriminatory measures in an effort to boost trade and investment facilitation.

To that end, the mainland will introduce 40 liberalisation measures covering 28 services areas, of which 11 are new. As a result, the total number of service areas covered by CEPA will expand from 27 to 38. Both sides have also agreed to enhance cooperation in financial services, conventions and exhibitions and mutual recognition of professional qualifications.

Affected areas

The measures, set to take effect January 1, 2008, include liberalisation in the following existing service areas: Securities. Mainland fund management companies approved by the China Securities Regulatory Commission will be allowed to establish subsidiaries in Hong Kong to operate relevant business. 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.

Tourism. The minimum annual business turnover required for Hong Kong travel enterprises to establish joint venture travel agents will be lowered from US$12 million to US$8 million (from €8.7 million to €5.8 million), while that required for setting up wholly-owned travel agents will be reduced from US$25 million to US$15 million; and Hong Kong travel agents in Guangxi, Hunan, Hainan, Fujian, Jiangxi, Yunnan, Guizhou and Sichuan will be allowed to apply for the operation of group tours to Hong Kong and Macau on a pilot basis for the permanent residents in these provinces.

Culture. Hong Kong service suppliers will be allowed to set up wholly-owned performing arts agencies in the mainland, and, subject to prior approval of the relevant mainland authorities, they will be allowed to organise commercial performances in Guangdong and Shanghai on a pilot basis through cross-border supply.

Medical and dental services. The minimum investment amount for Hong Kong service providers to set up medical institutions on equity or contractual joint venture basis will be reduced from no less than RMB20 million (€1.9 million) to no less than RMB10 million; those with a medical practitioner's qualification certificate are allowed to follow the same conditions that apply to mainland practitioners when setting up solo practice clinics.

New service areas

Public utilities. Hong Kong service suppliers will be allowed to set up wholly-owned operations to construct and operate networks of gas, heating, water supply and water drainage for medium-sized cities in the mainland.

Social services for the elderly. Hong Kong service 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 Province on a pilot basis.

ASEAN-China FTA. Hong Kong service suppliers will be allowed preferential market access in 11 service areas (nine of which are new) offered by the mainland to the Association of Southeast Asian Nations (ASEAN) under the ASEAN-China Free Trade Agreement (ACFTA) but previously not covered by CEPA. They include computer and related services, market research, services related to management consulting, building-cleaning services, photographic services, printing services, translation and interpretation services, environmental services and sporting services; and existing services areas of air transport services and road transport services. Hong Kong service suppliers for services related to management consulting and photographic services, will be allowed to establish wholly-owned operations, while under ACFTA, ASEAN service suppliers are allowed to form joint ventures.