Last Updated 24 Jun 2020

Identify Major Features of the Latest Two Cepas and Comment on Their Possible Impacts

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Assignment7 - Identify major features of the latest two CEPAs and comment on their possible impacts. The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is the first free trade agreement ever concluded by the Mainland of China and Hong Kong since 2003. CEPA opens up huge markets for Hong Kong goods and services, greatly enhancing the already close economic cooperation and integration between the Mainland and Hong Kong. It is also a win-win agreement, bringing new business opportunities to the Mainland and Hong Kong.

For Hong Kong, It provides a window of opportunity for Hong Kong businesses to gain greater access to the Mainland market. It also benefits the Mainland as Hong Kong serves as a perfect "springboard" for Mainland enterprises to reach out to the global market and accelerating the Mainland's full integration with the world economy. As the supplements’ titles imply, we can generally conclude that the major features of 11’s and 12’s will be deepening the liberalization of trade in services and boosting access to Mainland market for Hong Kong service industries respectively. Supplement VIII to CEPA (deepens liberalization of trade in services)

Supplement VIII to CEPA provides for a total of 32 services liberalization and trade and investment facilitation measures, including 23 liberalization measures in 16 service sectors, and strengthens co-operation in areas such as finance, tourism, innovation and technology. Both sides also agreed to enhance origin criteria under trade in goods, and relax the definition and related requirements of Hong Kong service suppliers. Of interest to note is that a lot of liberalizations incorporated within Supplement VIII to CEPA were actually touched upon by Vice Premier Li Keqiang.

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Aside from unfolding a package of 36 measures, the vice premier indicated that the trade in services between the Chinese mainland and Hong Kong should be basically free by the end of the 12th Five-year plan in 2015. This is perhaps one of the clearest indications regarding how soon and how far the mainland market will eventually open up for Hong Kong service suppliers and professionals. To cope with the fallout of the international financial crisis, Hong Kong has advocated since 2009 the development of six new industries in which Hong Kong enjoys clear advantages.

It is good to know that CEPA, in both Supplements VIII and VII, has incorporated measures geared to assisting Hong Kong service suppliers to gain enhanced access to the mainland market progressively However, the liberalization rate of the Supplement VIII still seems to be not enough and thus it is not so possible to achieve Li’s indication mentioned above. For example: On banking, supplement allows any Mainland-incorporated banking institution established by a Hong Kong bank to engage in the sale and distribution of mutual funds.

Yet, it is only for the Mainland-Hong Kong-incorporated banks and they are allowed to sell and distribute the mutual funds only; On individually owned stores, the number of persons engaged in the operation is only relaxed from no more than eight persons to 10 persons and the business area is only relaxed from not exceeding 300 square meters to 500 square meters; On insurance, the Supplement allows Hong Kong insurance brokerage companies to set up wholly-owned insurance agency companies in Guangdong Province on a pilot basis, however, the applicant must fulfill 4 criteria, such as: the applicant should have been operating insurance brokerage businesses in Hong Kong for over 10 years.

As the over-all liberalization is relatively limited, so the impact of the Supplement VIII will be small to Hong Kong. Supplement IX to CEPA (boosts access to Mainland market for Hong Kong service industries) Supplement IX to CEPA provides for a total of 43 services liberalization and trade and investment facilitation measures, including 37 liberalization measures in 22 service sectors, strengthens co-operation in areas of finance, trade and investment facilitation, and further promotes the mutual recognition of professional qualifications in the two places. Compared with the previous 8 arrangements, the major features and differences of Supplement IX are opener and wider in the different aspects of cooperation, especially in services sector.

Not only having a more intensive collaboration in some aspects like business services, financial services and tourism services that are mentioned in those previous arrangements, but also getting a green light for HKSAR to operate benefit-driving social services like residential care services for the elderly and disables. Without doubt, Supplement IX contributes benefits to both China and HKSAR economies. To comment on its impact comprehensively, we will mainly focus on the policies in the services sector. To begin with, CEPA Supplement IX gives benefits to HKSAR, such as helping HKSAR to develop advantages of its services sector before expanding its services sector to other proveniences.

According to the arrangement, it states that central government would like to cancel all the barriers, such as the limitation of professionals’ number, identity’s verification as well as the area to run the services for the individual working unit from Hong Kong. Therefore it can give chance to HKSAR to improve its service qualities by enlarging the size of its human capital and operation whatever they want to build up HKSAR brand name via the platform of Guangdong towards the whole mainland market. On the other hand, Guangdong can also absorb the experience such as the division of labor and human capital management of developing services sector with reference to HKSAR’s model taking place there with a larger developing scale so as to improve the industry structure (tertiary industry) and the level of services in Guangdong.

Besides, CEPA Supplement IX further liberalized 22 service sectors, including 1 new sector - education services, ranging from professional services to social services. Reducing barriers for the entries to the mainland’s market, it can help HKSAR to develop and promote with more opportunities and also enhance the exchange of idea in between HKSAR and China. Taking an example regarding the education services, China permits HKSAR to operate professional training institutions with a choice in between a single proprietorship, joint venture or cooperation with China. This loosen restrictions can lead to both win-win situation of them as it can help the accumulation of local professionals in mainland and narrowed the differences of professional’s certification in between two regions.

All in all, we can see that CEPA does help to reinforce the cooperation between Hong Kong and Mainland China with the progressively loosing policies. And therefore, the impact of CEPA will be sharper and sharper in the future. Yet, in the current stage, there are still many limitations and barriers and thus we deem that the process goes a bit too slow regarding the wish of Li Keqiang that the trade in services between the Chinese mainland and Hong Kong should be basically free by the end of the 12th Five-year plan in 2015. Appendix1: CEPA Supplement VIII (cited) Sectors or sub-sectors| 7. Financial services| | B. Banking and other financial services (excluding insurance and securities)| | a. Acceptance of deposits and other repayable funds from the publicb.

Lending of all types, including consumer credit, mortgage credit, factoring and financing of commercial transactionsc. Financial leasingd. All payment and money transmission services, including credit, charge and debit cards, travellers cheques and bankers drafts (including import and export settlement)e. Guarantees and commitmentsf. Trading for own account or for account of customers: foreign exchange| Specific commitments| To allow any Mainland-incorporated banking institution established by a Hong Kong bank to engage in the sale and distribution of mutual funds. | Appendix2: CEPA Supplement VIII (cited) Sectors or sub-sectors| Service sectors (sectors not set out in GNS/W/120)| | Individually owned stores| Specific commitments| 1.

To allow Hong Kong permanent residents with Chinese citizenship to set up, in accordance with the relevant Mainland laws, regulations and administrative regulations, individually owned stores in all provinces, autonomous regions and municipalities directly under the Central Government in the Mainland without being subject to the approval procedures applicable to foreign investments, to provide the following services (excluding franchising operation):(1) The following items of Packaging Services under the Leasing and Commercial Service Industry: the provision of services of commodities classification, sub-packing and packaging, freshness preservation, labelling, mark-stamping etc. for shopping malls, supermarkets or other customers; the provision of goods assorting, sub-packing and packaging services specifically for chain stores or supermarkets; the services of delivery companies (centres) which provide mainly goods assorting, sub-packing and packaging services; the provision of sub-packing and packaging as well as re-packaging services for general products; gift wrapping services. 2) The following items of Office Services under the Leasing and Commercial Service Industry: the design and production services of signs and bronze plaques; the design and production services of trophies, plaques, medals and silk banners. (3) Craft activities which are mainly for the purpose of leisure and entertainment (pottery, sewing, painting etc. ) under Indoor Entertainments. 2. To relax the restrictions on the number of persons engaged in the operation and the business area of individually owned stores set up by Hong Kong permanent residents with Chinese citizenship in all provinces, autonomous regions and municipalities directly under the Central Government in the Mainland:(1) No more than 10 persons should be engaged in the operation of the individually owned stores. 2) The business area for retailing services; food and beverage services; hair dressing, beauty treatment and health care services, bathing services and repair services of home electrical appliances and other goods for daily uses under residents services and other services; import and export of goods and technologies; photography and photographic processing services; washing, cleaning and dyeing services; repair and maintenance of motor vehicles and motorcycles; and storage and warehousing should not exceed 500 square metres. | Appendix3: CEPA Supplement VIII (cited) Sectors or sub-sectors| 7. Financial services| | A. All insurance and insurance-related services| | a. Life, accident and health insurance services (CPC8121)b. Non-life insurance services (CPC8129)c. Reinsurance and retrocession (CPC81299)d. Services auxiliary to insurance (including broking and agency services) (CPC8140)| Specific commitments| To allow Hong Kong insurance brokerage companies to set up wholly-owned insurance agency companies in Guangdong Province (including Shenzhen) on a pilot basis. The place of operation should be in Guangdong Province (including Shenzhen), and the pplicant must fulfill the following criteria: (1) The applicant should have been operating insurance brokerage businesses in Hong Kong for over 10 years; (2) The applicant’s average annual business revenue for the past 3 years before application should not be less than HK$500,000 and the total assets as at the end of the year before application should not be less than HK$500,000; (3) Within 3 years before application, there has been no serious misconduct and record of disciplinary action; and (4) The applicant should have set up a representative office in the Mainland for over one year. | Appendix4: CEPA Supplement IX (cited) Sectors or sub-sectors| 8. Health related services and social services| | C. Social services| | Welfare services delivered through residential institutions to old persons and the handicapped (CPC93311)Day-care services for the handicapped (CPC93321)Welfare services not delivered through residential institutions (CPC93323)Rehabilitation services for handicapped| Specific commitments| 1. To allow Hong Kong service suppliers to operate elderly service agencies in the form of wholly-owned profit-making enterprises. 2.

To allow Hong Kong service suppliers to operate welfare services agencies for persons with disabilities in the form of wholly-owned profit-making enterprises. | Appendix6: CEPA Supplement IX (cited) Sectors or sub-sectors| 5. Education services| | A. Primary education services (CPC921)B. Secondary education services (CPC922)D. Adult education services (CPC924)E. Other education services (CPC929)| Specific commitments| 1. To allow Hong Kong service suppliers from Hong Kong to set up international schools on a wholly-owned basis in Qianhai and Hengqin. Their target students may be expanded to cover children of Chinese nationals residing abroad and of returned talents after studying abroad who are working in Qianhai and Hengqin. 2.

To allow Hong Kong service suppliers to set up business-based training bodies in the Mainland on a wholly-owned, equity joint venture or contractual joint venture basis. | -------------------------------------------- [ 2 ]. Refer to appendix 1 [ 3 ]. Refer to appendix 2 [ 4 ]. Refer to appendix 3 [ 5 ]. Refer to appendix 4 [ 6 ]. Compared with the previous arrangements ,including CEPA 8, regarding the treatment to Hong Kong permanent residents have services taking place in Mainland China, there are numerous limitation for their development’s scale ranging from limitation of professionals’ number to the size of their services’ environment. In CEPA 8, the number upper limitation of professionals and working area are 10 and 50 m3. [ 7 ]. Refer to appendix 6

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