This latest supplement to CEPA strengthens trade cooperation between Mainland China and Hong Kong in the transport and logistic industries, further expanding access for Hong Kong's service industries into the Mainland. This is in line with CEPA's goal of increasing financial cooperation, developing trade and investment, promoting mutual professional recognition and better cross-border practices.

Service industry becomes more important

The Vice Minister of Commerce, Yi Xiao Zhun said that, "The Supplement IV to CEPA will further liberalize the service sector. The increased revenue for the service industry in Mainland China is expected to increase to US$400 billion in 2010."

Yi also pointed out that this close cooperation between Mainland China and Hong Kong effectivley combines Hong Kong's management expertise with the Mainland's lower labour costs, enabling a better utilization of the different strengths and resources of both parties to the mutual benefit of all.

Tang Bing Quan, the Executive Vice-Governor of Guangdong Provincial People's Governemnt noted, "The signing of Supplement IV to CEPA combined with the coordinated development of the Pan-PRD region will further enhance the cooperation between Guangdong and Hong Kong."

At the end of 2006, a total of 760 Guangdong companies have invested directly in Hong Kong, demonstrating that Hong Kong is being regarded as an important trade and investment partner for Guangdong.

Liberalization of the logistics industry

The liberalization measures of Supplement IV will become effective on 1 January 2008, and the service sectors covered will be increased from 27 to 38, including air transport services, highway passenger transport services and printing services.

Hong Kong Service Suppliers (HKSS) in the air transport sector who apply for the establishment of air transport sales agencies in Mainland China - whether they are wholly-owned enterprises, equity joint ventures, or co-operative joint ventures will be allowed to apply for economic guarantees provided by China-capital banks in the Mainland, or guarantee companies recommended by the China Air Transport Association (CATA).

To be eligible to apply for HKSS certificates and operate third party international shipping agency services in the Mainland, Hong Kong companies must demonstrate that they have been engaged in similar business operations in Hong Kong for the past five consecutive years. In equity joint ventures, the shareholding of a HKSS can't exceed 51%.

Hong Kong's road passenger transportation service suppliers, including franchised bus companies, non-franchised bus operators and public light bus operators, will be allowed to set up joint venture enterprises in China to provide facilities for inter-city scheduled passenger services.

Gradual market liberalization of CEPA

Dr. Chan Wai Kwan, JP, Senior Director (Business Policy) of the Hong Kong General Chamber of Commerce, believes that in the future the Hong Kong logistics industry will focus on third party logistics, providing shipping, storage, dedicated product delivery, finances and the like. Dr. Chan said, "Supplement IV to CEPA has liberalized the shipping agency service industry, but at this time still has not completely opened the entrance to all logistic sectors."

The Chamber has put forward more than 40 recommendations for CEPA and so far 24 of them have been acted on.

Anthony Wong, the President of Hong Kong Logistics Association, pointed out that an over-production problem is common in Mainland China and it is not only wasting resources, but also increasing cost. CEPA will allow the Mainland to develop its service industries by importing Hong Kong logistic management to solve the over-production problem.

HKSS joint-venture enterprises in the Mainland which plan to engage in printing will not be allowed to hold more than a 49% shareholding of the business, however they can set up wholly-owned enterprises to provide printing and binding services for packaging materials.

Fred Lam, Executive Director of the Hong Kong Trade Development Council, said, "The Mainland China economy is developing rapidly. Various international events that are going to take place soon, including the Beijing 2008 Olympic Games and World Expo 2010 Shanghai, have increased the demand on service industries. After the signing of Supplement IV to CEPA more than 40 measures will be effective in 2008, allowing Hong Kong companies to provide assistance to meet these demands and provide high level services".

The new measures in Supplement IV to CEPA will help Hong Kong industries and service suppliers to develop business opportunities in Mainland China, and it will help attract more foreign investments in Hong Kong.

The latest details of CEPA, including further trade liberalization measures in 2007, is provided on the Trade and Industry Department website http://www.tid.gov.hk/tc_chi/cepa/index.html, and further information is available by calling 2398 5667.