China: Further Opening Of The Mainland Market To Hong Kong Companies Under CEPA 5

Last Updated: 27 August 2008

A fifth supplement ("Supplement") to the Mainland and Hong Kong Closer Economic Partnership Arrangement ("CEPA") has been signed between Hong Kong and the Central Government of the People's Republic of China ("PRC") on 29 July 2008. CEPA is a free trade agreement signed between Hong Kong and mainland China, the main text of which was signed on 29 June 2003.

The latest Supplement introduces 29 liberalizing measures for services in 17 industries including two new ones – services incidental to mining and related scientific and technical consulting services. The two services were added because they had been included in a bilateral agreement signed earlier between Chile and PRC.

17 out of the 29 new measures focus on Guangdong province and Hong Kong co-operation. Hong Kong has also signed eight other measures with Guangdong province for strengthening economic and trade co-operation.

The major openings under the Supplement are set out as follows :-

  1. Convention and Exhibition
    Hong Kong Service Suppliers ("HKSS") can establish wholly owned foreign enterprises ("WFOE"), equity joint ventures ("EJV") or contractual joint ventures ("CJV") in Beijing, Tianjian, Chongqing and Zhejiang to organize overseas exhibitions.

  2. Banking
    Mainland incorporated banks established by Hong Kong banks are free to set up data centres in Hong Kong instead of PRC.

  3. Construction and the related engineering
    Restriction is lifted on the proportion of capital to be provided by the mainland partners for construction work and engineering design enterprises in PRC. Hong Kong professionals with appropriate mainland's qualifications (including urban planning and architects) are allowed to register and practise in Guangdong.

  4. Accounting
    The validity period of Temporary Audit Business Permit for Hong Kong accounting firms to conduct audit businesses in PRC will be extended from 2 to 5 years. Moreover, Hong Kong citizens are allowed to take the PRC Accountant Qualification Examination in examination centres located in Shenzhen and Dongguan. Hong Kong will also be allowed to set up examination centre for such qualification examination.

  5. Mining
    HKSS is allowed to provide oil and gas exploitation services (only in petroleum and liquefied petroleum gas) in PRC. Moreover, HKSS is also allowed to provide prospecting and surveying services in respect of iron, manganese and copper.

Closer co-operations with Guangdong Province

Several liberalization measures to HKSS are applicable to the Guangdong province only due to the close economic ties between Hong Kong and Guangdong province. The major areas are highlighted as follows :-

  1. Air Transportation
    HKSS is allowed to use the economic guarantee issued by PRC-incorporated banks or guarantee companies recommended by China Air Transport Association to apply for the qualification of Air Transport Sales Agents (in the form of WFOE, CJV or EJV).

  2. Job Intermediary / Job Referral Agency Services
    The minimum registered capital for HKSS to set up a wholly foreign owned job intermediary or job referral agency in Guangdong province will be the same as domestic enterprises in Guangdong province.

  3. Road Transportation
    The Guangdong government is authorized to approve Hong Kong invested manufacturing enterprises in Guangdong to operate the road transportation of goods business.

    The Guangdong government is also authorized to approve HKSS to provide car maintenance and repair services, drivers' training services and the operation of cargo and passenger's terminals in Guangdong.

  4. Advertising
    The Central Government has authorized the Guangdong government to be responsible for the approval of foreign investment application in the advertising industry from HKSS.

  5. Environmental Protection
    Guangdong government is also authorized to approve application of HKSS to set up enterprises for business in or providing equipment or facilities in the prevention environmental pollution.

    Moreover, HKSS is allowed to set up companies in the business to improve or prevent ozone and water pollution in the Zhuhai Delta Area, in particular, to improve the techniques in preventing pollution, to improve air quality in Hong Kong and Guangdong province, to refine the water quality monitoring system and to raise the quality of the vehicle fuel.

  6. Medical and Dental Industry
    Qualified Hong Kong permanent residents with Chinese citizenship are allowed to obtain mainland medical practitioner qualification certificates. HKSS is allowed to set up wholly owned outpatient clinics in Guangdong province with no requirement of minimum total investment.

    Under the current legislation, foreign investment in the medical or dental sectors are only allowed to operate in the form of EJV or CJV with a minimum amount of total investment of RMB 20 million.

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The Supplement will certainly offer new business opportunities in PRC for Hong Kong businesses and service suppliers, making Hong Kong an even more attractive spring board to mainland China to overseas investors.

If you wish to know more about the HKSS, the Supplement and CEPA or have any questions relating to foreign direct investments in China, experienced lawyers in our China Business Department will be happy to assist you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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