Since its the Mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA) was signed on 29 June 2003, it has allowed Hong Kong companies to enjoy numerous provisions for trade liberalisation, especially in the service and manufacturing industries.

Benefit of zero tariffs

Under CEPA, the Mainland China government has granted manufacturers the benefit of zero tariffs when importing products of Hong Kong origin. With the implementation of CEPA I & II on 1 January 2004 and 1 January 2005 respectively, a total of 1,087 products of Hong Kong origin now enjoy a zero-tariff advantage once the Certificate of Hong Kong Origin has been applied for. Examples of the types of products that enjoy zero tariffs under CEPA II are textiles and clothing, food and beverages, pharmaceutical products, plastic and metal products, and mechanical and electronic products. The zero-tariff measure substantially lowers the tax expenses incurred when importing these products, thereby benefiting manufacturers to a significant extent.

CEPA has substantially lowered the requirements for entry into the Mainland market in specific service sectors. These include allowing Hong Kong service suppliers to set up wholly-owned enterprises to provide services in specific sectors where wholly-owned foreign investments were formerly prohibited. Hong Kong service suppliers are also allowed to have a controlling interest in their joint ventures with mainland parties. These measures have greatly increased flexibility in business operations and corporate management for Hong Kong investors. In addition, the minimum asset value, registered capital and sales volume required for the establishment of wholly-owned enterprises have also been significantly lowered for certain sectors.

Under CEPA II, 11 of the 18 service sectors already addressed in CEPA I enjoyed further trade liberalisation. In addition, 8 more service sectors were opened up for preferential access to Hong Kong service suppliers, making a total of 26 service sectors that benefit from the arrangement. These new areas include airport services, cultural entertainment, information technology, job referral agencies, job intermediaries, patent agencies, trademark agencies and professional qualification examinations. Among the 11 areas enjoying further liberalisation, Hong Kong service suppliers in the distribution services sector were allowed to set up wholly-owned enterprises for the distribution and retail of books, newspapers, magazines, medicine and pesticides. Mainland China’s market entry threshold for automobile retail has also been relaxed, the requirements for sales volume and asset value removed, and the amount of registered capital needed significantly lowered. Some Hong Kong service suppliers in the transportation and logistics sectors are now permitted to set up wholly-owned or joint venture enterprises to provide passenger public transport and hire car services in Mainland China’s Western region, although only franchised bus companies are allowed to provide bus services. Freight-forwarding companies that have obtained the Hong Kong service supplier qualification and have set up wholly-owned enterprises can now enjoy greater flexibility in setting up branches on the mainland and establish operations after the registered capital has been fully paid.

Certifying for CEPA

There have been more than 800 applications for the Hong Kong Service Supplier Certificate since the implementation of CEPA, of which 768 have been approved as of 30 April 2005. Both transportation and logistics services sector and the distribution services sector had the most applications, with over 300 and 200 respectively.

A company applying for the Hong Kong Service Supplier Certificate has to provide a brief introduction to its business, and corresponding general and specific documentary evidence to support the application. All supporting documents have to be certified by a certified public accountant or a Chinese-appointed attesting officer. General supporting documents include corporate registration, business registration, financial reports and statements, and tax documents - for the past three or five years. One point to note is that registration documents from the public records should be obtained 90 days before the date of the application. The specific supporting documents needed will depend on the individual service sectors, but must cover three or five years before the date of the application.

The HKSAR government has been in continuous negotiations with mainland authorities on further trade liberalisation to be implemented under CEPA III, which is expected to come into force in January 2006. It is believed that further trade liberalisation will bring greater benefits and convenience, and more business opportunities to Hong Kong service providers and manufacturers in the Mainland China market.