(Disponible en Français) Meeting Dickson Ho, Principal Economist (Asian and Emerging Markets), at Hong Kong Trade Development Council (HKTDC)
Dickson Ho, Principal Economist (Asian and Emerging Markets), at Hong Kong Trade Development Council (HKTDC), explains the incentives of holding a CEPA certificate. Introduced in 2003, the Closer Economic Partnership Agreement is a free trade agreement concluded by the Mainland and Hong Kong, in order to accelerate the economic integration between both places. It confers many advantages (tariffs, various trade and investment facilitation) to the companies, especially to the Hong Kong service suppliers, entering into the Chinese markets.
What sectors are benefiting the most from the CEPA?
The Hong Kong companies, with a CEPA service supplier certificate in order to develop their activities in mainland China, come mostly from the transport, logistic and distribution services. Others also are specialized in the construction professional services, in the construction and related engineering services, in the placement and supply services of personnel or in the advertising and the printing services. All in all, since June 2003, 3,073 CEPA certificates have been granted (as at October 31st, 2016). These certificates are the pre-requisites for their setting-ups, on the Chinese mainland, of the subsidiaries of companies that have already settled their headquarters or operational entities in Hong Kong.
What has really changed since the first of June 2016?
The enhanced market access arrangement regarding the CEPA certificate applicants announced last June will encourage the companies based in Hong-Kong to expand their activities in the mainland China in order to conquer new market shares. Having said that, this trend has yet to be spectacular. The geographic coverage expansion facilitated by this recent initiative should especially impact the sectors which have already showed an interest in holding a CEPA certificate (namely those which have already identified a real potential of development).
Is Hong Kong competing with the Chinese Mainland Free Trade Zones (FTZs)?
Not really. The CEPA certificate advantages are covering all the Chinese mainland territory. On the other hand, as their title indicates it, the Free Trade Zones (FTZs) are limited to a certain area. Another Hong Kong asset, first global offshore Renminbi center, is the free capital circulation. Thus, there is no money repatriation restrictions. The cash transfer from Hong Kong to an abroad subsidiary is not a problem, a kind of operation that could be difficult to implement by being based in a FTZ. Besides, it is said that it is now easier for companies registered in a FTZ – multinationals or small and medium-sized enterprises – to proceed to Renminbi cross-border cash-pooling. To conclude, I think that the level of competition between Hong-Kong and the FTZs will depend both on the degree and on the rhythm of the opening of the diverse Chinese markets. At the moment, we keep observing a large number of mainland China company arrivals to Hong Kong, in order to benefit from its services and business facilities.
Could the FTZ openings cause speculative flows?
Often, the FTZ openings are generating a crazing effect, with the arrival of many observers who are testing the ground. As a result, the new FTZs are attracting a lot of short-term investment inflows. As a matter of fact, the challenge is to transform these volatile flows into long-term positions. However, we have to recognize that the FTZs have a beneficial effect for their periphery area. Like in Shanghai, where many companies have settled their headquarters, in order to be able to register one of their subsidiaries in the districts, forming parts of the FTZ (opened in August, 2013).
What do you think about the introduction of the “negative list” across China?
Previously, the “negative list” (markets in which the foreign companies are not allowed to invest) applied only inside the FTZs. It is undeniable that this first transparency effort on behalf of the Chinese authorities has incited many foreign companies to try their luck. The decision (September, 2016) to now experiment this approach nationwide is consistent with the expected reforms of economic opening. Having said that, it will be necessary to observe the practical realization of this decision, translated into practice.
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