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The small centre of Kunshan is ready to take advantage of the new trade pact

Kunshan Vice-Mayor Wang Guozhen makes no secret of what the new free-trade agreement between the mainland and Hong Kong means to his small city: money.

The launch of the Closer Economic Partnership Arrangement (Cepa) tomorrow has sparked a rush among mainland cities to attract more Hong Kong investment.

In eastern China, cities up and down the Yangtze river dream of catching up with the Pearl River Delta, the centre of Hong Kong investment for more than two decades.

Kunshan, located just outside Shanghai in Jiangsu province, is already a magnet for Taiwanese investment, and the city wants to narrow the gap with the south by drawing more Hong Kong companies.

'We want to use Cepa to attract more projects,' Mr Wang said. Other cities, such as Nanjing, Wuxi and Suzhou, are making the same pitch.

Amid the frenzy to lobby for deals, some local officials say they have not had enough time to plan for the arrival of Cepa after the agreement was signed in June. The two sides signed six accompanying accords containing implementation details in September.

Local governments have given little thought to preparing their companies for tax-free imports of 374 types of products made in Hong Kong, a key part of the agreement, in the belief that the impact will be slight.

The deputy party secretary of Suzhou Industrial Park, Pan Yunguan, said: 'Cepa will not have any negative impact.'

Jiangsu has already attracted  Hong Kong investments worth US$18 billion. To win more, the province is dangling the prospect of good infrastructure and the vast market.

Jiangsu is adding berths to Yangtze river ports, expanding the highway between Nanjing and Shanghai, and preparing to build its section of the Beijing to Shanghai rail link.

Wuxi and Suzhou are lobbying to build an airport, even though the two cities are just a few hours from both the Nanjing and Shanghai airports. Officials dismiss worries over white elephant projects, saying better infrastructure is needed to link the region.

While Cepa offers better market access to Hong Kong companies in 18 different service industries, local officials appear interested in just a handful, such as logistics, finance and exhibitions.

Hong Kong companies have been slow to respond to the advances. Officials in several eastern cities say talks are continuing, but few deals have been unveiled.

One exception was the announcement last month that Modern Terminals, an arm of Wharf (Holdings), would take a 70 per cent stake in a Suzhou port facility.

Eastern cities tout better regulations and less bureaucracy than their counterparts in Guangdong.

Ye Yunshi, general manager of the Nanjing plant of Hong Kong's printed circuit board maker  Elec & Eltek International Holdings, said: 'I don't have to bow and beg the officials. Here, officials invite us out for a banquet instead of the other way around.'

But companies doing business in Jiangsu warn of rising land costs, electricity shortages and higher wages for workers than in Guangdong. Jiangsu requires a basic salary of just over 600 yuan.

Still, the lure of the potential market is enough for some, especially companies that already have operations in Guangdong.

Wang Jiajun, vice-president of Hong Kong printed circuit board maker Kingboard Laminates (Kunshan),  said: 'The Shanghai area provides an excellent opportunity. Our market is large.'

In a warning to investors, not all companies are making money. The town of Zhangpu, near Suzhou, has set up a special zone to cater to Hong Kong firms. It has attracted 38 companies from Hong Kong and Macau, with only about two-thirds of them being profitable.



Cities rush for a slice of lucrative Cepa pie