CEPA to strengthen Hong Kong's economic ties with Guangdong

The importance of Hong Kong and the Pearl River Delta (PRD) as economic partners is beyond doubt, the Secretary for Commerce, Industry and Technology, Mr Henry Tang, said today (July 3).

Speaking at a conference organised by the Federation of Hong Kong Industries, Mr Tang said that last year 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," he said.

"Hong Kong is the largest source of foreign direct investment (FDI) to Guangdong Province. At the end of 2001, the cumulative value of our realised direct investment was estimated at US$80 billion, which accounted for a staggering 70 per cent of Guangdong's total FDI."

Mr Tang said that according to a study called "Made in PRD", Hong Kong investors operated some 53,000 factories and employed 10 million workers in Guangdong.

The impact of this volume of manufacturing activities generated a great demand for producer services that were supplied across the boundary by Hong Kong's services companies.

Altogether, a total of 1.5 million workers, approximately 43 per cent of the workforce in Hong Kong today, were engaged in activities that supported manufacturing activities in the greater PRD and the rest of the Mainland, he said.

Mr Tang said the signing of the Closer Economic Partnership Arrangement (CEPA) ushered 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," he said.

CEPA will provide new impetus for the deepening and broadening of this partnership as it opens a wide array of opportunities for Hong Kong's investors, manufacturers and services providers to explore.

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 on application by local manufacturers.

The preferential treatment will increase the competitiveness of Hong Kong products in the PRD and in turn stimulate the demand for imports from Hong Kong, which was Guangdong's fifth largest source of imports in 2002.

In addition, the zero tariff preference could lead to new products being manufactured in Hong Kong, or manufacturing processes with high-value added content or substantial intellectual property input.

Mr Tang said that in relation to trade in services, CEPA provided for liberalisation in market access in 17 sectors. These were areas in which Kong possessed sharp competitive edges.

They included accounting services, distribution services, freight forwarding agency services, logistic services, and transport services.

"The liberalisation permits earlier access for Hong Kong companies and services suppliers to the Mainland market, ahead of China's WTO timetable," he said.

"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 the area of retail trade services, CEPA has specifically made provisions for Hong Kong enterprises and individuals to start business ventures in Guangdong.

Hong Kong enterprises are given permission to set up retailing enterprises in all cities at the county level. The entry thresholds for setting up such enterprises have been significantly lowered.

"Hong Kong permanent residents with Chinese citizenship are also permitted to set up individually owned retail stores in Guangdong to provide retail services excluding franchising operations without the prior approval applicable to foreign investments," said Mr Tang.

"The Central People's Government and the Hong Kong government have taken 18 months of hard work to come up with the agreement on CEPA. It is now up to the private sector to prepare itself to seize the tremendous business opportunities that are up for grabs," Mr Tang said.

End/Thursday, July 3, 2003