Economic Integration of Greater PRD and CEPA Opportunities

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Economic Integration of Greater PRD andCEPA
Opportunities

• Research Department
• 19 April 2004

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I. Hong Kongs Role in the Region
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Hong Kong as a Regional Services Hub

• 87 of economic activities in HK are services
• Financial services
• 2nd largest stock market in Asia, 10th in the
  world
• 2nd largest venture capital centre in Asia
• 3rd largest forex market in Asia, 7th in the
  world
• Logistics and telecom
• The world's busiest container port and airport
  for international cargoes
• A leading telecommunications hub for the
  Asia-Pacific region
• Professional and business services
• Business events
• Popular venue for hosting international
  conferences and trade fairs

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Hong Kong as a Regional Trading Centre
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Hong Kong as a Regional Business Centre
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Top 10 Reasons for MNCsSetting up Business in
Hong Kong
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Hong Kong as the Gateway to China

• The most important entrepôt for the Chinese
  mainland
• Hong Kong as Chinas 3rd largest trading partner
  after Japan and the US, accounting for 10.3 of
  its total trade in 2003
• The largest foreign investment source of the
  Chinese mainland
• The stock of utilized capital inflow from Hong
  Kong was US204.9 billion in 2002, or 45.9 of
  the national total.
• The key offshore capital-raising centre for
  Chinese enterprises
• As of June 2003, among the 81 Mainland
  enterprises that had listed in overseas stock
  markets, 80 of them (commonly known as H-shares)
  were listed in Hong Kong, raising an accumulated
  total of US 20 billion.

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II. Closer Economic Partnership with the Chinese
Mainland
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One Country, Two Systems and CEPA

• One Country, Two Systems
• To preserve distinct advantages of the HKSAR
• Unintended side effects
• Impeding free movements of goods and services
• Hong Kong firms on the mainland are regarded as
  foreign companies
• Hong Kong a metropolitan economy
• market access to free interactions with the
  hinterland are vital for development

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CEPA A Special Arrangement Abiding by
International Practices

• The first bilateral Free Trade Agreement (FTA)
  for both the Chinese Mainland and Hong Kong
• Abides fully by the WTOs requirements on FTAs
• Eliminates substantial trade and investment
  barriers between Hong Kong and the Chinese
  Mainland
• No obstacles for other economies access to the
  two markets
• Companies in Hong Kong with substantive activity
  are qualified as Hong Kong companies

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What are the Main Provisions of CEPA?
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Who Qualifies?

• Manufacturers
• Products fulfill CEPA rules of origin are
  classified as made in HK
• CEPA rules of origin
• Specific manufacturing process criterion
• Change in tariff heading approach
• 30 value-added requirement

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What are the Benefits of CEPA?

• Attracts high value-added manufacturing
  activities
• Helps develop brand products targeting Chinas
  middle class consumer market

536 applications for CEPA Certificate of Origin
were approved (as of end-Mar 04) These include
Pharmaceuticals, Clothings, Electrical and
Electronic Products, Watches, Jewellery, Toys
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What are the Benefits of CEPA?

• Hong Kongs Advantages under CEPA
• Intellectual property rights protection
• Free trade and investment environment
• Reputation in cosmopolitan design

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CEPA Open up 18 Services Sectors for Hong Kong
Companies
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CEPA Benefits to Hong Kong Services Industries

• Lower market access requirements
• Broader business scope
• More corporate autonomy
• Earlier market entry

177 applications for Certificate of HK Service
Supplier were approved (as of end-Mar 04) These
include service suppliers in the Transport
Logistics, Distribution, Telecommunications,
Banking and Advertising sectors
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Who Qualifies as a Hong Kong Service Company?

• Company must be incorporated in HK
• Doing business in HK for the past 3-5 years
• Liable for HK profits tax
• Employing 50 of staff locally

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CEPA Provides Even BetterCondition for the
Development of Hong Kong and the PRD

• A number of CEPA provisions are specifically
  related to the PRD, paving the way for further
  development of Greater PRD. They include
• Allowing Hong Kong companies to establish retail
  enterprises in Guangdong Province at the county
  level
• Hong Kong residents of China nationality can set
  up individually owned retail stores in Guangdong
  Province
• Waive the residency requirement for
  representatives of Hong Kong law firms in
  Guangzhou and Shanghai
• With the help of other policies and
  infrastructure development, the overall
  competition of Greater PRD will be enhanced
  significantly.

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How can Foreign Companies Take Advantage of CEPA?

• For foreign service providers
• Partner with, invest in, or buy into a
  CEPA-qualified firm in HK
• For foreign manufacturers or traders of goods
• Manufacture in Hong Kong
• Partner with, or outsource to a HK manufacturers
• Make use of HKs distribution services that are
  permitted under CEPA

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Thank You.