Mainland China and Hong Kong Closer Economic Partnership Arrangement (CEPA)
As an Asia business hub, a tax efficient city, and one of
the freest economies in the world, Hong Kong is internationally renowned for
being an ideal business city. Like all economies, Hong Kong would have been
hard hit by the global economic crisis.
However, lessons learnt from the previous financial crisis and closer
collaboration with Mainland China have helped to lessen the impact of the
recession. Since the 1st of January 2004, when Mainland China and
Hong Kong’s first free trade agreement was signed, close economic cooperation
between the two regions has drastically improved. Not only did the Mainland and
Hong Kong Closer Economic Partnership Agreement (CEPA) help save Hong Kong from
economic crisis, but it has also helped open up large, and lucrative, markets
for Hong Kong goods and services. On a business level, this agreement has
therefore opened up many opportunities for local and international
entrepreneurs, especially those who would like to expand their business
operations from Hong Kong to Mainland China, or vice versa. Thus, the CEPA has
certainly granted greater business freedom for entrepreneurs undertaking China or Hong Kong company formation.
A Hong Kong based business wanting to expand to Mainland China, may now do so, without having to face too many bureaucratic, tax or ownership restraints it once had to before CEPA. For example, Hong Kong businesses that trade in 90% of ‘Made in Hong Kong’ goods are exempt from paying tariffs when they import to Mainland China. Businesses in the Food and Beverages industry are greatly attracted by this incentive, as over 14,000 Food and Beverage businesses are qualified with the CEPA. There are also over 14,000 Textile and Clothing CEPA-qualified firms.
Service based business conducted by foreigners in Hong Kong wishing to expand to China is also made easier by the CEPA. This is due to the 18 industry sectors the CEPA has opened up to Hong Kong based service providers. The 18 sectors include advertising, accountancy, banking real estate and tourism. A business in one of the approved sectors from any nationality can apply, but only if it is incorporated in Hong Kong, has been run for three to five years, has 50% of its local staff, and pays Hong Kong corporate tax. Foreigners registered under the CEPA also benefit from CEPA’s allowance for the creation of wholly owned companies.
More factors that contribute to the ease of accessing the China market include CEPA’s earlier market entry, whereby Hong Kong based companies registered under the CEPA can benefit from getting a one to five year head start into the China market. Small businesses get an even greater head start as they now benefit from lower capital requirements. Once set up in China, employees can profit from higher recognition of Hong Kong professional qualifications, and have the opportunity to sit for a broader range of China professional exams.
As well as benefits in trading goods and services the CEPA provides for Hong Kong based businesses, China also benefits from the CEPA. The agreement has helped to liberalize the China market. More foreign business in China means more business opportunities for the Mainland and more collaboration with international companies, which helps Chinese organisations access global markets and accelerate China’s full integration with the world economy. Furthermore, more business activity in China from Hong Kong allows manufacturers in China to use Hong Kong’s reputable services.
Thus, the CEPA is a win-win situation where Hong Kong and China benefit from greater business opportunities. Both the Mainland and Hong Kong enjoy enhanced cooperation in various trade and investment facilitation areas. For example, the CEPA has helped integrate the economies of Hong Kong and the Pearl River Delta region of southern China. Hong Kong’s highly respected services industry, coupled with the Pearl River Delta’s advantage in manufacturing offers a more competitive way to do business.
Closer cooperation between Mainland China and Hong Kong through the Mainland and Hong Kong Closer Economic Partnership Agreement has therefore garnered plenty of business opportunities and economic advantages. Since the signing of the CEPA, both regional and international business activities have been easier, and have given international entrepreneurs the opportunity to choose Hong Kong as a gateway to opportunities in China.