China and Hong Kong sign two trade agreements giving local firms preferential investment access

Deals take immediate effect and build closer economic partnership

PUBLISHED : Wednesday, 28 June, 2017, 9:56pm
UPDATED : Wednesday, 28 June, 2017, 10:52pm

China is further opening its doors to Hong Kong investors after two bilateral trade agreements were signed on Wednesday, a day before President Xi Jinping’s arrival to mark the 20th anniversary of the city’s return to Chinese rule.

With immediate effect, the agreements grant local businesses most preferential investment access to the world’s second largest economy – in both service and non-services sectors – and pave the way for the city to further participate in China’s go global strategy.

The deals were the third and fourth agreements to be signed between the central government and Hong Kong under the framework of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), an economic scheme that allows qualifying products, companies, and residents of Hong Kong preferential access to the mainland market.

Since 2003, 10 supplements and four agreements have been added to CEPA.

Financial Secretary Paul Chan Mo-po called the upgraded arrangement “a modern and comprehensive free trade agreement” that was “more attuned to the need of trade development between two sides and the new trend of international investments”.

Under the investment agreement, the most-favoured treatment enjoyed by Hong Kong investors on the mainland will cover non-services sectors such as manufacturing, mining and assets investment. The current provisions only include services sectors.

This means local investors are now treated as Chinese nationals when investing in non-services industries over the border, except for 26 categories such as petroleum and natural gas exploitation.

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Hongkongers can also expect better investment protections on the mainland. Beijing vowed to establish uniform procedures to approve investment applications within a “reasonable” time frame, as well as provide a dispute settlement mechanism.

“[The new agreement] will make it easier for us to invest on the mainland,” said Eddy Li Sau-hung, president of the Chinese Manufacturers’ Association of Hong Kong.

Li said local manufacturers often had to form a joint venture with mainland partners to conduct businesses over the border per Chinese law. Under the upgraded agreement, most firms are allowed to exert full control of their mainland companies.

He expected five to 10 per cent of Hong Kong manufacturers with business on the mainland to take advantage of the new agreement to establish their own companies.

However, not all were as optimistic.

Caesar Wong, managing director of consulting firm RSM’s China business services, said the agreement’s actual benefits for Hong Kong businesses might not be extensive. He said Chinese authorities were relaxing investment restrictions for all foreign investors in order to revive the country’s struggling manufacturing sector.

But Wong believed the new deal might encourage foreign investors in non-services sectors to set up subsidiaries in Hong Kong first, and enter the mainland market as a qualified entity under CEPA.

Meanwhile, the economic and technical cooperation agreement sets forth a closer economic and trade tie between Hong Kong and the mainland in Xi’s flagship global trade plan called the belt and road initiative, which links more than 60 countries. It encourages the city to leverage its strengths in financial and professional services and capitalise on new opportunities.