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Opening remarks by SCIT at the 'Conference on "Made in PRD" Study/CEPA'


Following is an opening remarks by the Secretary for Commerce, Industry and Technology, Mr Henry Tang, at the 'Conference on "Made in PRD" Study/ CEPA' organized by the Federation of Hong Kong Industries today ( July 3): (English only)

Victor (Lo), Distinguished Guests, Ladies and Gentlemen,

It gives me great pleasure to be here today to address such a distinguished audience of industrialists, entrepreneurs and academics. First of all, I would like to extend my sincere congratulations to the Federation of Hong Kong Industries on the successful project of the "Made in PRD" Study. It gives much insight to the understanding of the intimate economic partnership between Hong Kong and the Pearl River Delta (PRD).

On that count, today's Conference also provides a timely opportunity to examine the Hong Kong/ PRD economic relationship, in the wake of the just-concluded agreement on the Mainland - Hong Kong Closer Economic Partnership Arrangement (CEPA).

During the past quarter century, Hong Kong and Guangdong, the PRD in particular, have made giant strides in economic development. The economy of the two places has thrived on a symbiotic relationship, with the gains of one party propelling the enhancement of the other. Through the diversion of labour and land-intensive production processes to the PRD, Hong Kong has moved up the value chain and emerged into an international financial and business services centre. At the same time, the PRD area has seen significant growth in economic strengths and advancement of living standards. From 1980 to 2001, the Gross Domestic Product of the PRD jumped more than 70 times from RMB 12 billion to RMB 836 billion.

The importance of Hong Kong and the PRD to each other as economic partner is beyond doubt. In 2002, total trade between Guangdong and Hong Kong amounted to US$47 billion. This puts Guangdong well above our third largest trading partner, Japan, in terms of the amount of trade. Hong Kong is the largest source of foreign direct investment (FDI) to the Guangdong Province. As at end 2001, the cumulative value of our realized direct investment in Guangdong was estimated at US$80 billion. This accounted for a staggering 70% of Guangdong's total FDI. According to the "Made in PRD" Study, Hong Kong investors operate 53,000 factories and employ 10 million workers in Guangdong. And the impact of this volume of manufacturing activities goes on to generate a great demand of producer services that are supplied across the border by Hong Kong's services companies. Altogether, a total of 1.5 million workers, approximately 43% of the workforce in Hong Kong today, are engaged in activities that support manufacturing activities in the Greater PRD and the rest of the Mainland.

The signing of CEPA last Sunday ushers in a new era in the economic relationship between the Mainland and Hong Kong. It is especially significant to Hong Kong's economic ties with the PRD. Building on the solid foundation of cooperation, CEPA will provide new impetus for the deepening and broadening of Hong Kong's partnership with the PRD. The agreement sets out major concessions by China in the areas of trade in goods, trade in services, as well as trade and investment facilitation. It opens a wide array of opportunities for Hong Kong's investors, manufacturers and services providers to explore. Naturally, Guangdong would be the first place to cast their eyes.

Take trade in goods for example. Under CEPA, exports from Hong Kong meeting the rules of origin requirement in some 270 Mainland product codes will enjoy zero tariff from 1 January 2004 onwards. The zero tariff regime will be extended to other product codes maintained on China's tariff system by 1 January 2006 upon applications by local manufacturers. The preferential treatment will increase the competitiveness of Hong Kong products in the PRD and in turn stimulating the demand of imports from Hong Kong, which was Guangdong's 5th largest source of import in 2002.

Besides, the zero tariff preference may attract to Hong Kong manufacturing of brand new products, or manufacturing process with high-value added content or substantial intellectual property input. Naturally, Hong Kong investors will look to their industry plants in the PRD to undertake the part of the production.

As regards services trade, CEPA provides for liberalization in market access in 17 sectors. These are areas where Hong Kong possesses sharp competitive edges. They include accounting services, distribution services, freight forwarding agency services, logistic services, and transport services, to name but a few. The liberalization permits earlier access to Hong Kong companies and services suppliers to the Mainland market, ahead of China's WTO timetable. In some sectors, like construction and related services, distribution services, logistic services, and transport services, the concessions have extended beyond China's WTO commitments.

In addition, in the area of retail trade services, CEPA has specifically made provisions for Hong Kong enterprises and individuals to start business ventures in the Province of Guangdong. Hong Kong enterprises are given permission to set up retailing enterprises in all cities at the county level in Guangdong. The entry thresholds for setting up such enterprises have been significantly lowered. Besides, Hong Kong permanent residents with Chinese citizenship are permitted to set up individually owned retail stores in Guangdong to provide retail services excluding franchising operation without the prior approval applicable to foreign investments. The sales area of such stores shall not exceed 300 square metres.

Ladies and Gentlemen, the Central People's Government and the Hong Kong SAR Government have taken 18 months of hard work to come up with the agreement on CEPA. Further consultation will be conducted between the two sides to finalise the detailed implementation arrangements in the coming six months. The liberalisation measures will formally come into force on 1 January 2004. We shall continue to stay in touch with the business sector to understand their needs as we go along to work out the details. It is now up to the private sector to prepare themselves to seize the tremendous business opportunities that are up for grabs. I have no doubt that our entrepreneurs will continue to demonstrate their good foresight and shrewd business sense in exploiting the opportunities. Thank you very much.

End/Thursday, July 3, 2003


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