Hong Kong and mainland to further liberalize CEPA

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On June 29, Hong Kong and Beijing agreed on further liberalize services and economic co-operation under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) by signing Supplement IV to CEPA.

The mainland will introduce a total of 40 liberalization measures covering 28 services areas, including 17 existing CEPA services areas and 11 new services areas. As a result, the total number of services areas covered by CEPA will expand from 27 to 38. Both sides have also agreed to enhance cooperation in financial services, convention and exhibition, and in mutual recognition of professional qualifications.

The measures, set to take effect January 1, 2008, include liberalization in the following existing service areas:

Securities – Mainland fund management companies approved by the China Securities Regulatory Commission will be allowed to establish subsidiaries in Hong Kong to operate relevant business; and the timeline for mainland securities companies to complete their registration procedures in setting up subsidiaries in Hong Kong will be extended from 6 months to 1 year.

Tourism – the minimum annual business turnover required for Hong Kong travel enterprises to establish joint venture travel agents will be lowered from US$12 million to US$8 million, while that required for setting up wholly-owned travel agents will be reduced from US$25 million to US$15 million; and Hong Kong travel agents established in Guangxi, Hunan, Hainan, Fujian, Jiangxi, Yunnan, Guizhou and Sichuan will be allowed to apply for the operation of group tours to Hong Kong and Macau on a pilot basis for the permanent residents in these provinces.

Cultural – Hong Kong service suppliers will be allowed to set up wholly-owned performing arts agencies in the mainland; and subject to prior approval of the relevant mainland authorities, Hong Kong performing arts agencies and performing arts groups will be allowed to organize commercial performances in Guangdong Province and Shanghai Municipality on a pilot basis through cross-border supply.

Medical and dental – the minimum investment amount for Hong Kong service suppliers to set up medical institutions on equity or contractual joint venture basis in the mainland will be reduced from no less than RMB20 million to no less than RMB10 million; and those who have obtained a medical practitioner’s qualification certificate are allowed to follow the same conditions that are applicable to mainland practitioners when setting up solo practice clinics.

And the following new service areas:

Public utility – Hong Kong service suppliers will be allowed to set up wholly-owned operations to construct and operate networks of gas, heating, water supply and water drainage for medium-sized cities in the mainland.

Social service for the elderly – Hong Kong service suppliers will be allowed to operate elderly service agencies in the form of wholly-owned private non-government enterprises to provide elderly services in Guangdong Province on a pilot basis.

ASEAN-China FTA – Hong Kong service suppliers will be allowed preferential market access in eleven services areas (nine of which are new areas) offered by the mainland to the ASEAN countries under the ACFTA but yet to be covered by CEPA. They include new services areas of computer and related services, market research, services related to management consulting, building-cleaning services, photographic services, printing services, translation and interpretation services, environmental services and sporting services; and existing services areas of air transport services and road transport services. For services related to management consulting and photographic services, Hong Kong service suppliers will be allowed to establish wholly-owned operations, while under ACFTA, ASEAN service suppliers are allowed to form joint ventures.

As stated earlier, all the measure will take effect on January 1, 2008. The mainland will work out and promulgate the necessary implementation rules and regulations as appropriate. For more information, see the Trade and Industry Department of Hong Kong.

Dezan Shira & Associates maintain offices in Hong Kong, Shenzhen and Guangzhou, advising foreign investors on legal administration, corporate establishment, due diligence and tax policy in the city. Please contact Eve Ng in Hong Kong, Alberto Vettoretti in Shenzhen, or Rosario Di Maggio in Guangzhou for more information.

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