Beijing will maintain sweeteners in Cepa pact with Hong Kong, say analysts

Analysts say Beijing has no choice but to extend favourable measures under the Cepa pact

PUBLISHED : Friday, 05 July, 2013, 12:00am
UPDATED : Friday, 05 July, 2013, 4:30am

While questions are raised about the diminishing effectiveness of the Closer Economic Partnership Arrangement, analysts do not expect the economic goodies from the mainland to dry up any time soon.

After all, Beijing has few alternatives when it comes to supporting Hong Kong and the city's embattled government.

"For years, the central government has spared no effort to win the hearts of the majority and, hence, maintain social stability in Hong Kong," said Professor Zheng Tianxiang , from Sun Yat-sen University's Centre for Studies of Hong Kong, Macau and the Pearl River Delta.

"When Beijing has no card to play in generating consensus [among Hongkongers] over sensitive but controversial political issues such as universal suffrage, it has virtually no alternative other than extend existing favourable measures through Cepa."

Li Shunde , vice-chairman of the WTO Law Research Society of China, said the mainland had room to open its services industry further to Hong Kong. However, he said there was no rush to open up the market quickly.

"The mainland's development of its services has been imbalanced and remains limited in many poor regions. Therefore, it needs to be prudent in opening its market."

Perceptions on the mainland that access to the service sector has been a one-way street could also hinder the expansion of Cepa.

"They see that mainland professionals are still barred from working in Hong Kong while some of their Hong Kong counterparts are operating in one way or the other under their jurisdiction," said Dr Thomas Chan Man-hung, who is head of the China Business Centre with the Hong Kong Polytechnic University.

Chan says many sectors that are suitable for Hong Kong businesses to be involved with have already been included in Cepa, or at least to a certain extent.

But Hong Kong businesses which took advantage of Cepa in its early years are facing more challenges as more countries sign free-trade agreements with Beijing, says Liu Yuanchun , an economics professor at Renmin University.

"China has been widening the scope and type of free-trade agreements, creating more channels for promoting free-trade deals at low cost," Liu said. "As a result, the impact of Cepa has been fast shrinking."

He says the mainland and Hong Kong must focus on expanding the services trade, such as in the financial sector where a renminbi qualified foreign institutional investor (RQFII) scheme allows licensed foreign investors to use offshore yuan to buy A shares.

He also sees potential for the two sides to develop trade in technological and patent services.

But at the end of the day, analysts say that Beijing will have to consider how economic sweeteners can effectively serve the wider interests of Hong Kong society, rather than the business elite.

Chan said: "The point is, what businessmen care about most are their business interests, rather than the prosperity of the local economy."