CEPA Supplement IX Hong Kong services to benefit

Transcription

1 October 2012 CEPA Supplement IX Hong Kong services to benefit Summary 37 liberalisation measures covering 22 service sectors 1 new business sector added, with 4 new service areas opened under the individually owned stores scheme 17 Guangdong pilot measures under CEPA, including 5 Qianhai measures Products with CEPA origin rules expanded by 7 to 1,739 In tandem with the Hong Kong visit of President Hu Jintao to commemorate the 15 th anniversary of the establishment of the Hong Kong Special Administrative Region (HKSAR), the Central and Hong Kong Governments agreed on a package of liberalisation measures under Supplement IX to the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) on 29 June This package came about only six months after the release of Supplement VIII in December 2011, by far the shortest time gap between two announced CEPA Supplements. 1 CEPA Supplement IX, which will be implemented from January 2013, adds 37 liberalised service measures to widen and deepen the liberalisation of 21 existing service sectors and one new sector. With the new package, the Central government expands the total number of liberalised service sectors under CEPA from 47 to 48, while raising the cumulative number of liberalised measures to 338. Supplement IX incorporates measures spanning all six new industries in which Hong Kong enjoys clear advantages, completing the scope of such liberalisation by adding education services as a new sector. 1 The 10 th phase of CEPA liberalisation measures by virtue of Supplement IX was signed on 29 June 2012, following nine yearly Supplements that were implemented between 2004 and 2012.

2 This has built on the key theme of Supplement VII, which first brought in measures related to the six new industries. In contrast, Supplement VIII 2 provided a new spin to CEPA by relaxing the substantive business operations criterion for Hong Kong service suppliers (HKSS). In the case of Supplement IX, the introduction of Qianhai pilot measures is eye-catching. The five Qianhai measures cover sectors such as accounting, education, database, printing and cultural services. The remaining Guangdong pilot measures cover medical services, product testing services, commercial factoring services, environmental services and distribution services. It is worth noting that the Guangdong measures under Supplement IX more than double the number provided under Supplement VIII. Further, Supplement IX underscores the strong emphasis on deepening cooperation between Guangdong and Hong Kong, as enshrined in the Framework Agreement on Hong Kong and Guangdong Co-operation released in April 2010, 3 and the dedicated chapter on Hong Kong in the 12 th Five-year Plan released by the Central government in March Aside from measures enhancing the inroads made by Hong Kong s financial industry into the mainland market, benefiting the banking and securities sectors, Supplement IX carries a number of initiatives designed to boost financial cooperation between Hong Kong and the Chinese mainland. On the heels of the permission granted under Supplement VIII to invest in the mainland securities market by way of the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme, Supplement IX points to an active pursuit to lower the RQFII eligibility requirement for Hong Kong s financial institutions. Since its debut in early 2012, RQFII has proved a useful mechanism through which to recycle Hong Kong s offshore RMB (which has soared to about RMB560 billion) into the mainland market as long-term financial investment. Another boost to Hong Kong as an international fundraising platform for mainland companies is the undertaking under Supplement IX that the mainland will amend and improve overseas listing requirements for mainland enterprises, including small-and-midsized enterprises (SMEs), to seek listing in Hong Kong. Supplement IX, like previous Supplements, offers wider business scope for individually owned stores (IOS) operated by Hong Kong permanent residents with Chinese citizenship, adding four new areas to the scheme. In addition, the restriction on the number of persons engaged in an IOS operation and on store space is altogether lifted, a considerable improvement from Supplement VIII, which only recently relaxed the requirements on operational personnel and store space. While Supplement IX will work to benefit Hong Kong s six new industries, traditional industries will be helped too. This, along with the spate of Guangdong and Qianhai pilot measures, and many trade and investment facilitation initiatives, will continue to help Hong Kong companies, professionals and people realise the business potential of the mainland market. In terms of economic cooperation between Guangdong and Hong Kong, regional integration will garner further momentum, with Guangdong indicating in mid-september 2012 that it will strive to achieve free trade in services between Guangdong and Hong Kong by the end of An analysis of the measures under Supplement VIII to CEPA can be found at en/1/1x000000/1x07to5v.htm 3 The Chinese versions of the Framework Agreement on Hong Kong and Guangdong Co-operation and related work plan for 2010 can be found respectively at and gov.hk/general/201004/07/p _0113_63623.pdf. 2

3 All kinds of Hong Kong-made products complying with CEPA origin rules have been able to be exported to the mainland tariff-free since January From the implementation of CEPA in 2004 until June 2012, the number of goods eligible for CEPA s tariff-free treatment expanded from 273 to 1,732. From July 2012, the zero-tariff list has been extended by seven to 1,739, covering olive oil, plastic tableware and kitchenware, and aluminium wire bonders. For these new items, the applicable tariff rates that would otherwise apply ranged from 4% to 10%. Trade in services The Central and Hong Kong Governments jointly announced on 29 June 2012 the latest service liberalisation measures under Supplement IX to CEPA, the 10 th phase of the CEPA package that will be implemented in January A total of 37 liberalisation measures spanning 22 service sectors (further divided into 21 existing sectors and one new sector) are provided under Supplement IX to CEPA. With Supplement IX, the total number of service sectors agreed under CEPA will increase from 47 currently in force to 48 when Supplement IX is implemented in January 2013, and the total number of service liberalisation measures will go up to 338. Regarding Supplement IX to CEPA, the Chinese mainland has specifically granted relaxed market access conditions in the 22 service sectors as follows: (i) legal services, (ii) accounting services, (iii) construction services, (iv) medical services, (v) computer and related services, (vi) technical testing, analysis and product testing, (vii) placement and supply services of personnel, (viii) printing, (ix) convention and exhibition, (x) other business services, (xi) telecommunications, (xii) audio-visual, (xiii) distribution, (xiv) environment, (xv) banking services, (xvi) securities services, (xvii) social services, (xviii) tourism, (xix) cultural services, (xx) rail transport, (xxi) individually owned stores, and (xxii) education services (a new service sector as per Supplement IX). Unlike last year, when Vice Premier Li Keqiang came to Hong Kong in August 2011 with his package of 36 measures in support of Hong Kong, followed by the revelation of CEPA Supplement VIII four months later, President Hu Jintao came in late June of 2012 to attend the HKSAR s 15 th anniversary festivities without introducing any special Hong Kong package alongside Supplement IX. In light of Vice Premier Li Keqiang s indication that the trade in services between the Chinese mainland and Hong Kong should be basically free by the end of the 12 th Five-year Plan ( 12FYP ) in 2015, it can be expected that, following the release of Supplement IX, upcoming CEPA Supplements in 2013 and 2014 will likely consist of measures edging more closely towards the promise of free service trade between the two places, with Hong Kong service suppliers and professionals to be accorded basically national treatment in In fact, Guangdong indicated in mid-september of 2012 that it will strive to achieve free trade in services between Guangdong and Hong Kong by the end of

4 Service sectors benefiting from CEPA (1 st to 10 th phases) Accounting*^ Advertising Inter-disciplinary research & experimental development service Placement and supply services of personnel* Rail transport* Road transport Air transport Legal* Research & development Audio-visual* Logistics Scientific and technical consulting services Banking* Management consulting Securities* Building cleaning Market research Services related to management consulting and project management Computer and related services*^ Medical and dental* ~ Social services for elderly and disabled* Construction and real Manufacturing services Recreational, cultural and estate* ~ sporting services (including library/museum services) Conventions and exhibitions* Maritime transport Storage and warehousing Cultural entertainment*^ Mining services Technical testing, analysis and product testing* ~ Distribution* ~ Other business services* ~ Telecommunications* ~ Education services #^ Patent agency Tourism* ~ Environmental* ~ Photographic Trade mark agency Freight forwarding agency Printing*^ Translation & interpretation Individually owned stores* Insurance Professional qualification examinations* Public utility * Existing services sectors with liberalisation under Supplement IX to CEPA ~ Guangdong pilot and implementation measures under Supplement IX to CEPA ^ Qianhai pilot measures under Supplement IX to CEPA # New services sectors under Supplement IX to CEPA 4

5 As at end-july 2012, the cumulative number of Hong Kong service suppliers (HKSS) certificate applications approved in the first to ninth phases of CEPA stood at 1,641. The Hong Kong Government noted in its 2010 estimate that about half of the Hong Kong companies that had been issued HKSS certificates had established business operations on the mainland. Thus far, the top three HKSS certificate applicants come from the sectors of transport and logistics, distribution services and air transportation services, which account for around 60% of the approved total, and the percentage of such HKSS having established business operations on the mainland should be higher than the overall average. Hong Kong service supplier certificate applications (1 st to 9 th phases) as of August 2012 Service Sector No. of applications received No. of applications approved Transport and logistics services Distribution services Air transport services Advertising services Printing services Placement and supply services of personnel Construction professional services and related engineering services Audio-visual services Value-added telecommunications services Management consulting and related services Total 1,692 1,641 Source: Trade and Industry Department, HKSAR Government 5

6 Guangdong and Qianhai pilot measures Apart from being the manufacturing hinterland of Hong Kong, Guangdong is an increasingly important market for Hong Kong products and services. Guangdong s early and pilot implementation measures, first introduced under Supplement V, have become a prominent element of CEPA Supplements over the past few years. A total of 17 liberalisation measures for pilot implementation in Guangdong under Supplement IX have been introduced, including five measures specifically for Qianhai and Hengqin. This will take the number of Guangdong pilot measures to more than 60 when the Supplement IX package is implemented in However, there were other measures in CEPA packages before Supplement V that were adopted in pilot areas including Shanghai and Guangdong that in a way are not strictly classified under Guangdong s early and pilot implementation measures. Numbers of CEPA, Guangdong and Qianhai pilot measures CEPA Supplement No. of measures No. of Guangdong pilot measures No. of Qianhai pilot measures IX VIII 32 7 VII 35 7 VI 29 9 V Sources: various CEPA documents, HKSAR Government In the 12FYP released by the Central government in March 2011, there was an unprecedented move to include a dedicated chapter on Hong Kong. The 12FYP placed a strong emphasis on deepening cooperation between Guangdong and Hong Kong, advocating the use of CEPA s Guangdong pilot measures in further liberalising the PRD and cooperating with Hong Kong, and the implementation of the Framework Agreement on Hong Kong and Guangdong Co-operation ( Framework Agreement ). The Framework Agreement was signed by the governments of the two places in April 2010 with a view to translating the macro policies set out in the Outline of the Plan for the Reform and Development of the Pearl River Delta ( ), which was released by the Central Government in December 2008 ( The Outline ). Importantly, The Outline specifically elevated Guangdong and Hong Kong cooperation to the national policy level. 4 4 China s National Development and Reform Commission announced in December 2008 the Outline of the Plan for the Reform and Development of the Pearl River Delta ( ) ( 6

7 Apart from the measures for specified Guangdong cities such as Qianhai, the 12 liberalisation measures for Guangdong Province under Supplement IX span 10 sectors, namely, construction, consumer finance, distribution, environmental, factoring, medical, rail transport, technical testing, telecommunication services and individually owned stores. Specifically, HKSS will be allowed to set up majority-owned enterprises to construct and operate inter-urban railway projects in Guangdong, and undertaking of entrusted environmental monitoring activities in Guangdong will be approved by provincial authorities (the Guangdong measures will be discussed in subsequent sections on related liberalisation measures). Strategic positioning of Qianhai and Hong Kong-Qianhai cooperation On the heels of the release of The Outline in 2008, Hong Kong and Shenzhen signed the Letter of Intent in Taking Forward Co-operation on Modern Service Industries between Hong Kong and Shenzhen in Qianhai ( Qianhai Letter ) in August The Qianhai Letter set its sights on promoting and enhancing Hong Kong s service industries, while fostering long-term economic growth of Hong Kong by participating in the development of Qianhai in Shenzhen. Like The Outline, the Central government also designated the development of Qianhai as a national strategic plan, approving The Overall Development Plan on Shenzhen-Hong Kong Cooperation on Modern Service Industries in Qianhai Area ( Qianhai Development Plan ) in August Under the Qianhai Development Plan, Qianhai is positioned as the exemplary zone for modern service industries innovative cooperation between Guangdong and Hong Kong, equipped with systems and a legal environment suitable to the modern service industry, with a view to playing an important role in the global modern services industries by It is stipulated that Qianhai should take advantage of CEPA s early pilot measures to look into new modes of cooperating with Hong Kong services industries. Following the approval of the Qianhai Development Plan in 2010, the Central government approved in June 2012 preferential policies to facilitate Qianhai s development and its cooperation with Hong Kong, as enshrined in the Official Reply on Policies Concerning the Development and Opening-up of Qianhai Shenzhen-Hong Kong Modern Services Cooperation Zone ( Qianhai Policies ). Pioneer preferential treatments, including relaxation of certain investment and business restrictions on financial, securities, professional services, education, medical, and telecom sectors, are granted under Qianhai Policies, which also provide financial and tax preferential incentives for qualified companies and overseas talents in Qianhai. Under Supplement IX to CEPA, five pilot liberalisation measures related to Qianhai are provided, covering sectors such as accounting, education, database, printing and cultural services. 7

8 Investment in Qianhai In light of the above, Qianhai s development will certainly create new opportunities for Hong Kong companies. In July 2012, Qianhai officials signed contracts with 37 companies worth US$35 billion in Hong Kong, 18 of which were in the financial area (contract sum of US$28 billion), and HSBC, Bank of East Asia and Hang Seng Bank were among the signatories. A total of 13 projects involved company headquarters, including a financial settlement centre and an operation control centre. It should be noted that the Qianhai Authority is empowered to examine and approve non-financial projects, a privilege enjoyed only by municipalities specifically designated with such status in the State Plan. Greater CEPA flexibility for HKSS in mainland business operations From April 2012, HKSS are given greater flexibility in choosing the business areas that they would like to operate on the Chinese mainland, as they are also allowed to apply to mainland authorities for CEPA benefits available in service sectors beyond sectors that are currently in force in Hong Kong. To enjoy the operational flexibility across 47 existing service sectors, HKSS need to prove that they have been engaging in substantive business operations in Hong Kong for at least three or five years, with relevant licence or permit required by the laws of Hong Kong. In addition, HKSS certificate application is extended to Hong Kong companies that may operate outside the 47 specified service sectors, for instance, in areas of administrative and support service, and personal, pet and household services. It remains to be seen the extent to which this breakthrough in HKSS treatment will lead to a considerable growth in cross-sector applications. Meanwhile, it appears that Hong Kong companies engaged in cross-sector HKSS applications can have their applications reflected in targeted service sectors that they would like to operate on the mainland, rather than the service sectors that correspond to what they currently do in Hong Kong. In this context, unless a separate line of statistics is to be provided, impact of the cross-sector HKSS application may be difficult to gauge or assess. The six new industries Supplement IX liberalisation measures In support of Hong Kong s development of six new industries in which Hong Kong enjoys competitive advantages, after the international financial crisis dealt a blow to Hong Kong s traditional industries, more liberalisation measures have been sequentially introduced related to these industries since 2010 under Supplements VII to IX. The Hong Kong Government considers it imperative to develop six new industries, aside from the four traditional pillar industries of finance, trade and logistics, tourism and professional services (which accounted for more than half of Hong Kong s GDP in 2010), with related initiatives introduced in Policy Addresses over the past few years. 8

9 The six new industries, consisting of medical services, testing and certification services, environmental industries, innovation and technology, educational services, and cultural and creative industries, started to be treated in 2009 as a new grouping in both GDP and employment terms. Statistically, they accounted for 8.4% of Hong Kong s GDP in 2010, up from 8% in The number of people employed in the six industries surpassed 400,000 in 2010, accounting for 11.6% of the total workforce in 2010 compared with 11.3% in Building upon previous Supplements to CEPA, Supplement IX completes the allowable business scope for all six new industries by adding education services as a new sector, which is a Qianhai pilot measure. This helps raise the total number of service sectors under CEPA from 47 to 48 (more detailed discussion on six new industries can be found in subsequent sections). Six new industries CEPA Supplement Education Medical Testing and certification Environmental Cultural and creative Innovation and technology IX # # # # # # VIII # # # # VII # # # VI # # # V # # IV # # # # Sources: various CEPA documents, HKSAR Government Medical services The high service standard and professionalism of Hong Kong s medical sector is not only well recognised in neighbouring Guangdong, where many people travel to Hong Kong to receive the city s premier medical services, but increasingly in other parts of the Chinese mainland. Thanks to progressive moves under various CEPA Supplements, HKSS have made substantial inroads into the mainland s medical sector. Currently, they are allowed to establish wholly owned medical institutions in Guangdong, including outpatient clinics, convalescent hospitals, and hospitals, and are subject to lower investment thresholds than non-cepa service providers. Since April 2012, HKSS can set up wholly owned or joint-venture hospitals in all provincial capitals and municipalities. 5 The Hong Kong Census and Statistics Department released in March 2012 The Situation of the Six Industries in Hong Kong in

10 With Supplement IX, it is fair to say that HKSS in the medical sector will be entitled to national treatment on the Chinese mainland from January 2013, as they can establish all kinds of medical institutions across the country, be they wholly owned by HKSS or joint ventures entered into with mainland partners, and subject to the standards and requirements applicable to medical institutions established by mainland entities and individuals. This measure will further widen the geographical choice for HKSS in establishing different kinds of Hong Kong-run medical institutions on the mainland in the provision of Hong Kong-style management and medical services. Supplement IX is special in that for joint-venture medical institutions, HKSS will be for the first time allowed to team up with mainland counterparts other than medical institutions. This may greatly widen the choice of HKSS in looking for mainland parties as joint-venture partners, covering especially parties which may bring capital, corporate management or a non-medical contribution to the joint ventures. Further, with the exception of wholly owned hospitals and convalescent hospitals, approval of joint-venture or wholly owned medical institutions will, from January 2013, be approved by the health administrative department at the provincial level. Along with the enhanced flexibility of HKSS under CEPA in establishing medical institutions on the mainland, even to the point of gaining national treatment, Hong Kong healthcare practitioners may find greater latitude in working in Hong Kong-run medical institutions in the future. With CEPA, all 12 types of statutory healthcare practitioners 6 of more than 76,000 are allowed to apply for the three-year, renewable licence under CEPA to provide services on the mainland. As at the end of July 2012, 19 HKSS certificates had been approved within the sector of medical and dental services. Meanwhile, some Hong Kong-run outpatient clinics have been established in Guangdong, especially in Shenzhen. From the table below, CEPA provides preferential access for HKSS by effectively lowering their entry threshold for accessing the mainland market, widening their choices of location to set up medical institutions, and the partners with whom they want to pair up in establishing joint ventures, compared much more favourably with other foreign-invested companies (whose access conditions are subject to the mainland regulations as depicted in the left-hand column of the table below, under Current scope of access. Therefore, CEPA is definitely WTO-plus). 6 Under Hong Kong legislation, 12 types of statutory healthcare professionals are required to be registered with respective councils or boards before practising locally. They include medical practitioners, Chinese medicine practitioners, dentists, pharmacists, nurses, midwives, medical laboratory technologists, occupational therapists, optometrists, radiographers, physiotherapists and chiropractors. 10

11 Current scope of access Joint-venture (JV) medical institutions 7 are allowed. Minimum total investment of JV hospitals is RMB20 million. Access for HKSS under CEPA HKSS are allowed to set up wholly owned hospitals in Guangdong, Shanghai, Chongqing, Fujian, Hainan, all provincial capitals and municipalities under the Central government and on the mainland, subject to the corresponding investment requirements. From January 2013, HKSS can set up on the mainland, wholly owned medical institutions or medical institutions in the form of equity JV or contractual JV with mainland medical institutions, companies, enterprises and other economic organisations, subject to the standards and requirements applicable to medical institutions established by mainland entities and individuals. From January 2013, medical institutions in the form of equity JV or contractual JV, or wholly owned medical institutions other than wholly owned hospitals and wholly owned convalescent hospitals, set up on the mainland by HKSS, will be approved by the provincial health administrative departments. From January 2013, Guangdong s health administrative department will be responsible for the project establishment and approval procedures for the setting up of wholly owned hospitals by HKSS in the province. ~ The minimum investment amount for HKSS in setting up hospitals on an equity JV or contractual JV basis is RMB10 million. HKSS setting up hospitals on an equity JV or contractual JV basis in Guangdong are not subject to total investment restriction. HKSS setting up hospitals on an equity or contractual JV basis in Guangdong, Shanghai, Chongqing, Fujian and Hainan, are not subject to the restriction imposed on the ratio of capital investment between HKSS and their mainland partners. HKSS are allowed to set up wholly owned, outpatient clinics in Guangdong with no restriction on the total investment. For setting up equity JV or contractual JV outpatient clinics by HKSS in Guangdong: No restriction on the ratio of capital investment between HKSS and mainland partners in the equity JV or contractual JVs No restriction on the total investment in the form of equity JV or contractual JVs 7 According to the Rules of Implementation for the Regulations on the Administration of Medical Institutions (Order No. 35 of the Ministry of Health, People s Republic of China), medical institutions are classified into the following: (1) integrated hospitals, Chinese medicine hospitals, integrated Chinese and Western medicine hospitals, nationality medicine hospitals, specialist hospitals, rehabilitation hospitals; (2) maternal and child healthcare centres; (3) community health service centres, community health service stations; (4) central health centres, township health centres, street health centres; (5) convalescent hospitals; (6) integrated outpatient clinics, specialist outpatient clinics, Chinese medicine outpatient clinics, integrated Chinese and Western medicine outpatient clinics, nationality medicine outpatient clinics; (7) clinics, Chinese medicine clinics, nationality medicine clinics, health centres, infirmaries, health care centres, health stations; (8) village health stations (centres); (9) first aid centres, first aid stations; (10) clinical test centres; (11) specialist disease prevention and treatment hospitals, specialist disease prevention and treatment institutes, specialist disease prevention and treatment stations; (12) nursing homes, nursing stations; (13) other medical institutions. 11

12 Current scope of access Access for HKSS under CEPA HKSS are allowed to set up convalescent hospitals in the form of wholly owned, equity JV or contractual JV to provide medical services in Guangdong. Guangdong s health administrative department is responsible for project establishment and approval procedures for setting up outpatient clinics in Guangdong by HKSS on a wholly owned, equity JV or contractual JV basis. Guangdong s health administrative department is responsible for the project establishment and approval procedures for setting up medical institutions in Guangdong by HKSS on an equity JV or contractual JV basis. The majority of medical personnel employed by JV hospitals or clinics must be of Chinese nationality. The majority of medical personnel employed by Hong Kongmainland JV hospitals or clinics can be Hong Kong permanent residents. Hong Kong permanent residents who are legally eligible to practise in Hong Kong and have practised for 5 full years are allowed to open clinics on the mainland after obtaining the mainland s practising qualifications. Qualified Hong Kong permanent residents with Chinese citizenship are allowed to apply for and obtain the mainland s medical practitioners qualification certificate through accreditation. Hong Kong permanent residents who are legally eligible to practise medical and dental services in Hong Kong are permitted to sit the mainland s qualification examination. Hong Kong permanent residents who are licensed pharmacists and fulfil the application criteria under the mainland s Provisional Regulations on Licensed Pharmacists Qualification System can sit the mainland s licensed pharmacist qualification examination; Those who pass the examination will be issued the mainland s licensed pharmacist s qualification certificate, and can register in accordance with the mainland s Provisional Mechanism for Licensed Pharmacists Registration Management and other relevant regulations. The maximum duration of the licence granted by China s Ministry of Health to foreign practitioners to provide short-term medical services on the mainland is 6 months. On expiry, the licence can be extended to 1 year. All statutory healthcare professionals registered to practise in Hong Kong can provide short-term services up to 3 years on the mainland, with the licence renewable upon expiry. The licence is renewable. ~ Guangdong pilot and implementation measures under Supplement IX to CEPA 12

13 Technical testing, analysis and product testing Aside from being the world s factory, China has increasingly been targeted by developed countries as a fertile market. With developed markets losing growth momentum, thus affecting Chinese exports, mainland authorities are bent on spurring economic growth with higher private consumption, as outlined in the 12FYP. For products to be sold on the mainland market, there is the safety requirement that they receive the China Compulsory Certificate mark, commonly known as the CCC mark. In support of Hong Kong s six new industries, the Chinese mainland agreed in 2010 to open up CCC product testing for HKSS as a new service sector, a WTO-plus prerogative not granted to other non-cepa testing service suppliers. HKSS need to co-operate with designated mainland certification bodies to undertake the required CCC product testing. 8 Among testing organisations in Hong Kong, about 160 can benefit from such a scheme after being accredited by the Hong Kong Accreditation Service, a unit of the Hong Kong Government. Currently, all existing products processed in Hong Kong that are relevant to CCC can be handled by accredited Hong Kong testing organisations. 9 For Hong Kong companies targeting the mainland market with CCC-related products processed in Hong Kong, their products can be tested and certified locally, and then expeditiously get into the mainland market. In contrast, overseas products targeting the mainland market will have to be tested by CCC-compliant testing organisations on the mainland, which may often take months to process. Supplement IX makes an extra contribution by including food within the scope of CCC products, which will be a boon to Hong Kong testing organisations. For products with approved Hong Kongorigin, thus entitling them to zero-tariff treatment when exported to the Chinese mainland, food and beverages just top the list in terms of the number of Certificate of Origin (CO). A marked improvement notwithstanding, the industry wishes that CCC product testing in Hong Kong could eventually be extended to products other than those processed in Hong Kong. 8 Hong Kong testing laboratories should apply for accreditation by the Hong Kong Accreditation Service (HKAS) under the Hong Kong Laboratory Accreditation Scheme in accordance with the Implementation Measures of the Certification and Accreditation Administration of the People s Republic of China (CNCA) under CEPA. Subsequently, they will have to enter into cooperation agreements with the mainland s CCC-designated certification bodies, and prior CNCA approval of the draft cooperation agreement is required. 9 Existing products requiring CCC include the following: (1) electric cables and wiring, (2) electrical switches, protective devices and connection devices; (3) low- voltage electrical equipment; (4) small power motors; (5) electric tools; (6) electric welding machines; (7) household and similar electrical appliances; (8) audio and video apparatus; (9) information technology equipment; (10) lighting apparatus; (11) motor vehicles and safety accessories; (12) motor vehicle tyres; (13) safety glass; (14) agricultural machinery; 15) latex products; (16) telecom equipment; (17) medical devices; (18) fire service equipment; (19) security system products; (20) wireless local area network products; (21) decoration products; and (22) toys. 13

14 Current scope of access Foreign testing organisations are not allowed to undertake testing of products under the China Compulsory Certification System. Access for HKSS under CEPA Hong Kong testing organisations are allowed to cooperate with designated mainland organisations to undertake product testing for the China Compulsory Certification (CCC) System on a pilot basis. Hong Kong-based organisations need to meet conditions as follows: 1. Accredited by Hong Kong Accreditation Service and capable of performing testing for relevant products under the CCC System 2. Testing of all existing non-food products processed in Hong Kong that require CCC certification service From January 2013, the scope of CCC certification services by Hong Kong testing organisations will be expanded to cover food on a pilot basis in Guangdong Province; ~ and 3. Complying with cooperation arrangements outlined in the Regulations of the People s Republic of China on Certification and Accreditation ~ Guangdong pilot and implementation measures under Supplement IX to CEPA Cultural services Various CEPA Supplements have enabled HKSS in the recreational and cultural services sector to make considerable inroads into the mainland market, allowing them to establish on the mainland the following: wholly owned performing venues, joint-venture performance agencies, wholly owned art shops and galleries, wholly owned entities to provide professional services for libraries and museums, and minority-owned internet culture business units and internet online service business premises. Thanks to Supplement IX, HKSS setting up internet online service business premises on the mainland can increase the equity holding to 100% from January Besides, HKSS can set up minorityowned performing arts groups, as well as wholly owned entertainment premises in Qianhai and Hengqin on a pilot basis. This is consistent with the accelerated development of Qianhai in creating a more comfortable living environment for residents, with the Qianhai Authorities recently speeding up environmental improvements and the construction of infrastructure facilities, hospitals and international schools (see Education services further below). In July 2012, Qianhai officials indicated that 23 companies had completed registration formalities. 14

15 Current scope of access Foreign-invested enterprises are not allowed to engage in internet culture business. Access for HKSS under CEPA HKSS can set up internet culture business units and internet online service business premises in the form of contractual JV on the mainland, with the mainland party holding dominant interests. From January 2013, HKSS can set up wholly owned internet online service business premises on the mainland. From January 2013, HKSS can set up wholly owned entertainment premises on a pilot basis in Qianhai and Hengqin.^ From January 2013, HKSS can set up performing arts groups on the mainland on an equity JV basis, with the mainland party holding majority shareholding. ^ Qianhai pilot measures under Supplement IX to CEPA Education services Supplement IX adds education services as a new service sector under CEPA, introducing a liberalisation measure to allow HKSS to run wholly owned international schools on a pilot basis in Qianhai and Hengqin, which complements the development of Qianhai and Hengqin. While this measure completes the allowable service scope for all six new industries, it can be seen as an extension of prior cooperation measures under CEPA regarding the education sector. Under Supplement VI, the Ministry of Education and Guangdong agreed to set up a joint approval mechanism for assessing and approving the education institutions and projects jointly operated by Guangdong and Hong Kong. Supplement VII also outlined many areas on bilateral cooperation on education, ranging from strengthening exchanges, communication, training and organising visits, to providing joint education programmes, setting up joint research facilities and nurturing talents at undergraduate or above level on the mainland. The Sino-foreign Cooperation in Running Schools Regulations ( Sino-foreign School Regulations ), promulgated by China s State Council in March 2003 and becoming effective from September of the same year, stated that Chinese and foreign institutions are allowed to form profit-making co-operative educational institutions on the mainland. While they can cooperate and establish many kinds of educational institutions, they are not allowed form institutions offering the compulsory education curriculum or specific education related to police, military and religious education. Further, foreign-invested enterprises are not allowed to set up wholly owned education institutions enrolling Chinese students. 15

16 In light of the Sino-foreign School Regulations, it can be seen that the new Supplement IX measure is WTO-plus, because wholly foreign-owned international schools will be allowed to be set up from January Besides, it specifically notes that those international schools will be able to admit Chinese students, including children of Chinese nationals residing abroad and of returned talents after studying abroad who are working in Qianhai and Hengqin. In 2005, China s State Council released its Decision on Vigorously Developing the Vocational Education, with a view to nurturing a skilled workforce and raising the employment rate. Foreign investment is encouraged to set up Sino-foreign joint ventures. In this context, Supplement IX has gone to the stage of allowing wholly owned training bodies, though it remains to be clarified in the implementing regulations regarding the allowable scope for business-related training. Current scope of access Foreign-invested enterprises are allowed to form co-operative educational institutions (including international schools) on the mainland. Access for HKSS under CEPA From January 2013, HKSS can set up international schools in Qianhai and Hengqin on a wholly owned basis, with target students to cover children of Chinese nationals residing abroad and of returned talents after studying abroad who are working in Qianhai and Hengqin.^ From January 2013, HKSS can set up business-based training bodies on the mainland on a wholly owned, equity JV or contractual JV basis. ^ Qianhai pilot measures under Supplement IX to CEPA Factoring services Commercial factoring is introduced under Supplement IX within the sector of Other business services. This will create opportunities for HKSS to establish entities to provide factoring services in Shenzhen and Guangzhou from January With factoring, trading enterprises, many of which are SMEs, could obtain a quick boost to their cash flows by utilising short-term assets like their account receivables, which would be valuable for enterprises short of working capital. Naturally, as the business grows, so will be the factoring facility. 16

17 On the Chinese mainland, the factoring business has always been dominated by the big financial institutions. To help SMEs and micro-enterprises find additional financing channels after the outbreak of the international financial crisis, mainland authorities began to allow commercial enterprises to provide factoring services in pilot areas such as Tianjin s Binhai New Area, which has since 2009 approved the registration of commercial factoring enterprises. The pilot move in Tianjin was then followed by Shanghai s Pudong, which now has about half of the commercial factoring companies on the mainland. Hong Kong s Goldin Financial Ltd was the first foreign-owned commercial factoring enterprise approved and set up in Pudong. In July 2012 the Ministry of Commerce released the Commercial Factoring Notice to encourage the development of pilot commercial factoring in Tianjin s Binhai and Shanghai s Pudong, requesting the two places to work closely with come up with a working mechanism with supervisory and regulatory rules, and explore the best approach in developing commercial factoring. 10 It is understood the scope of services allowed for commercial factoring enterprises will include trade financing (both international and domestic factoring), sales ledger management, investigation and evaluation of customer credit, accounts receivable management and collection, as well as credit risk insurance services. The Commercial Factoring Notice indicates that the applicants should have relevant experience in factoring business operations management, registered capital commensurate with the business scale, which should be self-funded. Besides, the commercial factoring enterprise should be an independent enterprise that is not engaged in deposit taking and lending business, thereby establishing a new channel by non-bank institutions in providing finance to SMEs and micro-enterprises. In short, it is not entirely clear about the precise capital and pre-existing operational requirements for HKSS in establishing commercial factoring enterprises in Shenzhen and Guangzhou, pending the release of enabling regulations by concerned authorities. Current scope of access Foreign-invested enterprises can apply for operating commercial factoring enterprises on a pilot basis in Tianjin s Binhai and Shanghai s Pudong, subject to approval from relevant authorities. Access for HKSS under CEPA From January 2013, HKSS can set up commercial factoring enterprises in Shenzhen and Guangzhou on a pilot basis. ~ ~ Guangdong pilot and implementation measures under Supplement IX to CEPA 10 The Chinese version of Commercial Factoring Notice issued by China s Ministry of Commerce can be found at 17

18 Four pillar industries Supplement IX measures Hong Kong s four pillar industries of finance, tourism, trade and logistics, and professional services employed 48.2% of the local workforce and accounted for 58% of GDP in 2010 in accordance with the latest official statistics. 11 The numbers improved considerably from 2009 and even surpassed levels evident prior to the onslaught of the financial tsunami. In the five years to 2010, the average growth of the four pillar industries was 5.5%, about one percentage point higher than the broader economy. The financial sector alone hired more than 219,500 people or 6.3% of Hong Kong s workforce in 2010, while accounting for 15.4% of Hong Kong s GDP. While GDP contribution of the financial sector in 2010 was below the 16% of 2008, employment was higher than the 206,100 or 5.9% of Hong Kong s workforce in The decline in banking and insurance employment in 2010 from 2008 was more than offset by the employment expansion in other financial services. The superb performance of Hong Kong s non-bank financial sector in 2010 was underscored by the strong IPO activities in Hong Kong. With benefit of hindsight, Hong Kong raised more IPO funds than both New York and London combined from 2009 to 2011 to be the world s top IPO centre. In 2011, Hong Kong raised US$34.8 billion of IPO funds, thereby helping the securities and investment banking sectors. CEPA has cumulatively provided more than 300 service liberalisation measures in 47 sectors since Supplement VIII came into effect in April 2012, facilitating the inroads of HKSS and concerned professionals and personnel in the four traditional pillar industries into the mainland market. In recent years, the financial sector has turned into a focal point of service liberalisation and bilateral cooperation. In the dedicated chapter on Hong Kong, China s 12FYP highlights the Central Government s support for Hong Kong in consolidating and enhancing its competitive advantages as an international financial centre, and in developing an offshore RMB centre. Within the 36-point package in support of Hong Kong unveiled by Vice Premier Li Keqiang in August 2011, 11 measures were related to the financial sector, including the subsequent implementation of the RMB foreign direct investment (RFDI) and RMB Qualified Foreign Institutional Investors (RQFII) schemes. Under Supplement IX, the mainland is committed to actively exploring the lowering of the eligibility requirements for Hong Kong s financial institutions to apply for QFII status in order to facilitate Hong Kong s long-term capital investment in the mainland s capital markets. Other areas of financial cooperation under Supplement IX include the undertaking by the mainland to amend and improve the relevant requirements for overseas listing so as to support mainland enterprises satisfying Hong Kong s listing requirements, creating favourable overseas listing conditions for mainland enterprises, especially SMEs, as well as an active exploration to deepen co-operation between the commodity futures markets on the mainland and in Hong Kong. 11 The Hong Kong Census and Statistics Department released in February 2012 The Situation of the Four Key Industries in the Hong Kong Economy in

19 Banking services CEPA has been a key mechanism that the Chinese mainland and Hong Kong have employed to spearhead mutual financial cooperation, while providing HKSS with WTO-plus, cost-effective access to the mainland market, in particular Guangdong Province since the adoption of many Guangdong pilot implementation measures. Supplement IX widens the scope of banking and financial operations for HKSS, by allowing eligible Hong Kong banks to provide custodian services regarding settlement funds of securities companies customers and margin deposits on futures transactions, and Hong Kong financial institutions to set up consumer finance companies in Guangdong on a pilot basis, effective from January Consistent with China s emphasis on spurring domestic demand in the wake of the international financial crisis, China Banking Regulatory Commission (CBRC) launched in July 2009 Measures for Administration of Pilot Consumer Financial Companies ( Consumer Finance Measures ). The CBRC will assess each applicant s eligibility in relation to its qualifications, business goals, corporate governance, risk management mechanism, business operation and professional team. 12 Under Consumer Finance Measures, the main contributor of a consumer financial company can either be a domestic or overseas financial institution or other contributor approved by the CBRC. In case of an overseas financial institution, its representative office on the Chinese mainland must have been in existence for at least two years or it must have established a branch and have a sufficient understanding of the mainland market, with total assets of no less than RMB60 billion in the year prior to application. To set up a consumer financial company, the registered capital shall be no less than RMB300 million (in a one-off payment) for a financial institution, and the rate of net assets shall be no less than 30% for a non-financial institution. This new measure will open a new area of business for Hong Kong financial institutions on the mainland, setting up consumer finance companies in the Guangdong cities of Shenzhen and Guangzhou. 12 Measures for Administration of Pilot Consumer Financial Companies, promulgated in July 2009 to become effective immediately afterward, can be found at 19

20 Current scope of access A foreign bank intending to set up a branch on the mainland needs to satisfy requirements as follows: 1. having total assets of not less than US$20 billion at the end of the year prior to the application; 2. having kept a representative office on the mainland for at least 2 years where the foreign bank applies to establish its first branch. Access for HKSS under CEPA A Hong Kong bank # needs to have total assets of no less than US$6 billion to establish a branch on the mainland. For a Hong Kong bank to set up a wholly foreignfunded bank or a foreign bank branch on the mainland, it should have maintained a representative office on the mainland for more than 1 year prior to the application. # Major qualifying criteria for Hong Kong bank : (1) Hong Kong registered bank; and (2) engaged in substantive operations as stated below: A bank will have satisfied the substantial business operation requirement if it has operated as a branch for 2 years and as an incorporated entity for 3 years or more in Hong Kong. The requirement for setting up a representative office before establishing a joint-venture bank is removed. For a Hong Kong bank to acquire shareholdings in a mainland bank, the total asset requirement at the end of the year preceding the application is lowered to not less than US$6 billion. An operational foreign-funded bank intending to apply for RMB business shall satisfy the following requirements: (i) having opened business on the mainland for at least 3 years prior to the application; and (ii) having been profitable for 2 consecutive years prior to the application Foreign banks can open subbranches in cities where they already have a branch operation. For a Hong Kong bank s operating institution on the mainland to apply to conduct RMB business, it should have been operating there for more than 2 years and profitable for 1 year prior to the application. Profitability assessment for a Hong Kong bank s branch to apply for RMB business on the mainland is made on the basis of overall position of all branches instead of an individual branch A branch of a Hong Kong bank set up in Guangdong is allowed to apply to set up cross-location sub-branches within the province, that is, setting up a sub-branch in another administrative area before having to first establish a branch in that administrative area. ## The Guangdong-based branch of a wholly foreign-funded bank set up on the mainland by a Hong Kong bank can apply to establish cross-location sub-branches in Guangdong, that is, setting up a sub-branch in another administrative area before having to first establish a branch in that administrative area. ## ## With reference to the relevant mainland rules for establishing sub-branches 20