Thanks to CEPA
After the mainland resumed sovereignty over Hong Kong, economic
and trade cooperation between the two entered a new era. The
implementation of CEPA binds Hong Kong and the mainland closer and
has become an important platform for their economic
cooperation.
CEPA reflects the Central Government's strong support for the
Hong Kong economy. In the first few years after Hong Kong returned
to China (1997-2001), Hong Kong encountered huge development
problems rising from Asian financial crisis and the slump in the
world economy. During that time, Hong Kong suffered from declining
real estate and stock markets, serious deflation and a high
unemployment rate. In order to relieve the city from depression,
the Central Government supported Hong Kong's proposal to establish
a free trade zone between the two regions.
The Chinese mainland and Hong Kong launched CEPA negotiation in
January 2002. After many high-level negotiations, the two sides
officially signed CEPA on June 29, 2003, and it was implemented
from January 1, 2004. The open nature of the agreement allows for
constant renewal and supplement when necessary. From 2004 to 2006,
the Chinese mainland and Hong Kong signed three supplementary
agreements each year, encouraging the mainland to be more open to
Hong Kong markets.
CEPA mainly involves three aspects: trade in goods, trade in
services, and the convenience of trade investment. The CEPA was
designed to promote balanced trade, exploit particular advantages,
and achieve common prosperity. As the first trade agreement between
the two sides, CEPA shows the Central Government's determination
and sincerity to support the long-term stability and development of
Hong Kong.
The further implementation accelerates the free trade access of
the two partners and has stimulated the rapid development of the
service industry in Hong Kong.
The zero tariff policy of trade in goods promotes the
competitiveness of products made in Hong Kong. Among all free trade
agreements signed by the Chinese mainland, CEPA has the fastest and
broadest tariff reduction. According to supplemental agreements to
CEPA, from January 1, 2004, "made-in-Hong Kong" products have
gained zero tariff treatment step by step. On January 1, 2006, free
trade in goods between the two sides entered a new era, and all
products originally made in Hong Kong now enjoy zero tariff
treatment.
By the end of 2006, the mainland had imported goods worth of
$870 million----subject to zero tariff----from Hong Kong, and a
total of 620 million yuan was exempt from tariffs. The zero tariff
policy greatly reduced the exporting cost on Hong Kong products,
promoting its exporting competitiveness and stimulating the
production of high added-value products and hi-tech products.
CEPA lowered the entry standard and Hong Kong businesses can
access the mainland market under a much favorable condition,
enhancing Hong Kong's confidence in the city's long term and stable
economic development. The rapid economic development on the Chinese
mainland has also provided golden trade opportunities between the
two sides.
According to statistics from General Administration of Customs,
from 1997 to 2002, the annual trade volume between the two regions
grew 4.5 percent. After CEPA was implemented, the annual trade
growth rate soared to 25.5 percent from 2003 to 2006. The Hong Kong
statistics show that from 1997 to 2002, Hong Kong exports to the
mainland grew 3.8 percent year on year, while the rate increased to
9.3 percent from 2003 to 2006. Hong Kong's status as an
international trade hub continues to be strengthened.
The expanding service market on the mainland encourages
investment from Hong Kong and further deepens the cooperation
between the partners in this sector. According to CEPA agreement,
the mainland will gradually open its service sector. In sectors
such as law, accounting, audio/visual, architecture, distribution,
banking, securities, tourism, and transportation where Hong Kong
has competitive edge, the mainland will grant favorable treatment
and those services provided by Hong Kong can enter the mainland
market ahead of other world trade organization members.
The immature but potentially huge service market in the mainland
provides Hong Kong investors with advantages and allows them to
enter the market earlier. By the end of 2006, Hong Kong approved
1,697 applications to set up companies in the mainland including
legal services, architecture, health care, real estate,
advertising, transportation and logistics. About 60 percent of all
the applications were relevant to transportation and logistics,
which indicated that the international shipping and logistics hub
has extended its services to the mainland. The Hong Kong service
sector providers entered the mainland market ahead of other
competitors, greatly promoting their competitiveness. According to
statistics from Hong Kong, the service industry increased 8.6
percent from the year before.
The implementation of CEPA has strengthened financial
cooperation between the two sides and boosted Hong Kong's financial
industry. According to CEPA agreement, the mainland expanded the
financial sector and reduced the market access restrictions for
Hong Kong investors. By the end of June 2006, Hong Kong banks had
opened 50 branches and 28 sub-branches on the mainland, accounting
for 27 percent and 54 percent of all foreign banks.
The mainland allows Hong Kong banks to operate renminbi
services. By the end of 2006, nearly all Hong Kong banks operating
renminbi retail businesses in Hong Kong had opened renminbi
deposit, exchange, remittance, and bankcard businesses on the
mainland. Also by the end of last year, total deposits from Hong
Kong banks operating on the mainland reached 22.6 billion yuan.
The huge business volume brought Hong Kong banks great
development opportunities and have helped boost the Hong Kong
banking industry, which grew 20.7 percent in 2006. The booming
banking industry has become a highlight of Hong Kong's economic
success. Additionally, more mainland companies are listed in Hong
Kong. Last year, the initial public offering in Hong Kong collected
325.9 billion Hong Kong dollars, thus making Hong Kong the second
largest financial center in the world after London, in terms of
collecting money. Meanwhile, the total value of the Hong Kong stock
market has surmounted 13 trillion Hong Kong dollars, outpacing the
Frankfurt Stock Exchange as the seventh largest stock market in the
world.
Individual mainland visitors have boosted the rapid development
of the tourism industry in Hong Kong. As an international tourism
hub, tourism is one of the major pillar industries of Hong Kong and
the mainland visitors are the biggest source of customers.
According to CEPA, the mainland has gradually allowed mainland
individual visitors to Hong Kong. By the end of 2006, up to 200
million residents from six provinces and municipalities including
Beijing, Shanghai and Tianjin have visited Hong Kong. The huge
number of mainland visitors greatly promotes the hospitality,
retailing and wholesaling, transportation and warehouse industries,
growing 9 percent, 4.9 percent, 8.4 percent respectively last year
compared with that of 2005. The development of those industries has
increased the employment rate and income of the people of Hong Kong
and has stimulated growth in local consumption and investment.
Currently, Hong Kong has entered a steady growth period. With
the further implementation of CEPA, economic and trade relations
between the two sides will become closer and Hong Kong will have
more development opportunities.
Brighter future
From 2006 to 2010, the Chinese mainland is expected to grow at a
rate of over 8 percent each year, providing huge momentum for Hong
Kong economic development. The large scale development of western
China, the new plan to develop central China, as well as other
projects, have all provided Hong Kong investors golden
opportunities.
The service industry is very strong in Hong Kong and has a
relatively strong edge. Backed by high quality professionals, an
integrated and efficient service chain, the Hong Kong service
industry can grab a bigger market share in the mainland service
sector. Hong Kong has a large number of financial elites and
professionals who can help mainland residents manage their
money.
In conclusion, economic and trade cooperation between the
mainland and Hong Kong will promote the economic integration of the
two sides. Hong Kong's status as an international trade, finance,
tourism, and logistics hub will be further enhanced and upgraded.
Hong Kong's future is bright.