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Happy economic returns after 10 years of CEPA (with photos)

     With the swish of a pen on June 29, 2003, an important new chapter in the trading relationship between Hong Kong and Mainland China was born.

     Former Premier Wen Jiabao and the first Chief Executive of the Hong Kong Special Administrative Region (HKSAR), Mr Tung Chee Hwa, witnessed the signing of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) at a high-profile ceremony at Government House.

     From the outset this was no ordinary initiative - apart from opening up the Mainland market beyond its World Trade Organization commitments it was the first case anywhere of a city signing a free-trade pact with its own nation. It still is.

     A decade after CEPA's implementation, the ultimate goal of liberalisation of trade in goods and services between Hong Kong and the Mainland is fast becoming a reality. Mainland leaders have announced that liberalisation of trade in services between the Mainland and Hong Kong should be basically achieved through CEPA by the end of 2015.

     One further step along the liberalisation road is the signing of Supplement X to CEPA on August 29, which provides for a total of 73 services liberalisation and trade and investment facilitation measures. The latest measures will take effect from January 1, 2014. Inclusive of the measures in Supplement X, there are 403 liberalisation measures for trade in services under CEPA.

     As such, CEPA has become a cornerstone of two-way trade between the world's second largest economy China and the world's freest economy Hong Kong.

     "CEPA serves as a useful test bed for the Mainland's avowed pursuit of greater reforms with and liberalisation of its market while allowing the country to better manage and control the opening up process," said the Hong Kong General Chamber of Commerce Chief Executive Officer, Ms Shirley Yuen.

     "CEPA has also proven its worth to Hong Kong time and again during times of economic crisis."

     Perhaps the most notable crisis took place the year that CEPA was signed in 2003 - the devastating after-effects of the SARS outbreak that claimed almost 300 lives and sapped the energy out of Hong Kong's economy.

     CEPA's implementation offered a timely economic boost by providing preferential access to Mainland markets in 18 services areas and eliminating tariffs on 374 Mainland product codes.

     The most immediate and visible impact of CEPA came in the form of relaxed restrictions on cross-boundary travel.

     On July 28, 2003, less than a month after the signing ceremony at Government House, the first batch of Mainland tourists arrived under a new Individual Visit Scheme (IVS), which allowed tourists to come to Hong Kong without joining a tour group or obtaining a business visa.

     Initially, residents from four cities in adjoining Guangdong Province were allowed to visit Hong Kong under the IVS. It wasn't long before the shop tills began ringing again, hotel occupancy rates returned to pre-SARS levels and the outside world saw that Hong Kong was back in business.

     The coverage of the IVS has expanded since implementation. Today, the IVS covers 49 cities with a combined population of some 270 million people. Of the nearly 34.9 million Mainland visitors to Hong Kong in 2012, 23.1 million arrived under the IVS.

     "These visitors have helped local retailers, restaurants and small business generate profits and opportunities that were unthinkable just 10 years ago," Ms Yuen said.

     The greatest opportunities for CEPA come in the services sector.

     In the financial services industry, for example, six Hong Kong banks have opened branches since 2009 in Guangdong where "cross-location" of sub-branches has been allowed under CEPA.

     The film industry has made excellent use of CEPA to reach audiences in China by collaborating on over 30 Hong Kong-Mainland co-productions annually, including several of the top 10 annual box office hits in China.

     Companies from a wide variety of sectors including bakeries and law firms, logistics companies and pharmaceutical manufacturers, have all benefited from CEPA to grow their businesses in China.

     Significantly, CEPA has been an ongoing process that has broadened and deepened economic links over the past decade.

     Each year since its implementation on January 1, 2004, new supplements to CEPA have been signed.

     Supplement X signed on August 29, 2013, and effective from January 1, 2014, has expanded CEPA to cover a total of 403 liberalisation measures. And now all Hong Kong products that comply with CEPA "Rules of Origin" enjoy tariff-free access to the Mainland.

     By end-July 2013, CEPA had provided Hong Kong companies with tariff savings of over RMB3.6 billion, or US$595 million.

     And because CEPA is nationality neutral, overseas-based companies incorporated in Hong Kong can enjoy the full benefits of CEPA.

     According to the HKSAR Government's inward investment agency, Invest Hong Kong, roughly a quarter of foreign invested companies say that CEPA was an important factor in their decision to set up or expand their operations in Hong Kong. Latest figures from Invest Hong Kong show that an all-time high of around 7 250 overseas and Mainland companies operate in the city.

     All this activity has had a knock-on effect. More international companies and high-profile global brands have established a presence in Hong Kong, taking advantage of the city's prime location and tourism appeal to showcase their goods and services to a large and diverse consumer base.

     CEPA has also become a symbol of Hong Kong's successful return to with the Mainland in 1997 under the principle of "One Country, Two Systems".

     The unprecedented arrangement of a city having a free trade pact with its country is only possible because Hong Kong is a separate customs territory under "One Country, Two Systems" and both Hong Kong and China remain individual members of the World Trade Organization.

     And because the scope of CEPA is constantly expanding and evolving, it continues to offer the most preferential treatment of any free trade agreement signed by the Central People's Government.

     CEPA is a two-way street and a valuable attribute to Hong Kong as a platform for Mainland China companies to reach regional and international markets under the country's "go global" strategy.

     "Under the CEPA framework, Mainland enterprises have also been incentivised to invest more in Hong Kong," Ms Yuen said.

     In 2012 alone, a total of 1 938 Mainland firms were approved to invest in Hong Kong, involving over US$46.5 billion of investments.

     Over the past 10 years, CEPA has achieved many objectives. Its launch gave Hong Kong's ailing economy a much needed boost in 2003 and during the recent global financial crisis. CEPA has proven to be an effective enabler for cross-boundary trade and investment, and it has helped to strengthen trade relations between Hong Kong and the Mainland in a way that few people could have imagined a decade ago.

     But there should be ongoing efforts to ensure effective implementation of CEPA, according to Hong Kong's current Chief Executive, Mr C Y Leung.

     "The implementation of CEPA and the supplements signed in the ensuing years has helped our major economic sectors including finance, trade, manufacturing industry, professional services and tourism explore new horizons. The benefits are obvious and very significant," said Mr Leung.

     "Making full and better use of CEPA is indeed essential to Hong Kong's economic development.

     "It is also important for Hong Kong to contribute further to the development of the country."

     Mr Leung announced the launch of a new Joint Working Group established by the HKSAR Government and the Central People's Government to provide targeted assistance in sectors which have encountered relatively more entry barriers and to help them resolve CEPA implementation problems encountered in individual provinces and municipalities.

     Businesses in Hong Kong and Mainland China can now look forward to new liberalisation measures under Supplement X which come into effect on January 1, 2014. It will be another stepping stone towards fuller and better liberalisation in trade in services by end of 2015 and strengthening economic co-operation in line with the National 12th Five-Year Plan.

     Under CEPA's win-win formula, companies from Hong Kong and the Mainland will continue to enjoy many more economic returns in the years ahead.

CEPA - 10 years on ...
(figures at July 31, 2013 unless otherwise stated)

* CEPA expanded to include 403 liberalisation measures for trade in services
* Over 2 700 Hong Kong Service Supplier certificates issued under CEPA
* Almost 100 000 (99 843) Certificates of Hong Kong Origin under CEPA approved
* Over 4 400 Hong Kong residents had set up individually owned stores in the Mainland under CEPA as at June 2012
* Zero tariffs on all Hong Kong products meeting agreed CEPA "Rules of Origin" imported by Mainland China
* Export value of goods enjoying zero tariff treatment under CEPA exceeds HK$52.4 billion (US$6.7 billion)
* Tariff savings under CEPA amounted to over RMB3.6 billion (US$595 million)
* IVS covers 49 cities in Mainland China with a combined population of 270 million
* Over 114 million Mainland residents have visited Hong Kong under the IVS as at end-June 2013

Ends/Monday, September 2, 2013
Issued at HKT 19:26


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