Revised CEPA expands the scope of Hong Kong enterprises

Hong Kong and Mainland China have been developing their Closer Economic Partnership Arrangement (CEPA) since 2003. CEPA is an open-ended framework that covers trade, services, investment and economic and technical cooperation. The arrangement grants Hong Kong individuals and enterprises preferential treatment in Mainland China. In 2015, the Agreement on Trade in Services was signed within the CEPA framework in order to develop the trade in services between both jurisdictions.

 

The Hong Kong SAR Government and the PRC Ministry of Commerce plan to further expand cross border service industry links in 2019 by amending the 2015 Agreement on Trade in Services. The 2019 revised Agreement simplifies the local licensing and registration process for Hong Kong based professionals in Mainland China. In addition to recognizing professional qualifications, the amended agreement allows for more wholly owned operations, relaxes geographical restrictions, expands the scope of business and eases equity share restrictions. The industries in Hong Kong that stand to benefit mainly include the legal profession, construction and engineering, banking, securities and insurance. However, the range of opportunity extends to most Hong Kong enterprises.

 

In the legal sector, there is no longer a minimum capital requirement (investment percentage) to be put up by Hong Kong entities entering into partnerships with PRC firms. Lawyers from Hong Kong can now obtain a license to practice in the Pearl River Delta Greater Bay Area by passing an examination. Hong Kong lawyers can also now be employed as consultants by up to three firms in the Mainland.

 

Licensed construction industry professionals can now have their qualifications recognized across the PRC. Qualifications and examinations from the Mainland and Hong Kong will be valid in both jurisdictions. Structural engineers, surveyors and architects will continue to be mutually recognized in both jurisdictions through the renewal of expired agreements.

 

In the banking sector, restrictions on the scope of banking enterprises have been eased, and there are no longer any requirements for assets or restrictions on shareholder equity. Meanwhile, the Mainland-Hong Kong stock connect will allow for a more diverse range of securities to be traded across the border. Exchange traded funds may gain eligibility under the access program.

 

Insurance providers from China are now permitted to issue catastrophe bonds in Hong Kong. Catastrophe bonds are financial instruments that raise funds for insurers by passing on natural disaster risks to third party investors. The market is set to grow with the proliferation of coastal urban development on the Mainland, with Hong Kong serving to connect insurers, reinsurers and investors.

 

Aside from the finance and services sector, the revised CEPA trade services agreement creates new business opportunities for convention and exhibition organizers, printing enterprises, testing and certification organizations, the film and television industries, tourism and fisheries.

 

Hong Kong companies no longer need to set up a PRC subsidiary to organize conventions and exhibitions in China, while printing enterprises can now hold up to 70% of joint venture shares in printing facilities in the Mainland.

 

There are no longer geographical restrictions for product testing under Mainland China’s certification regime, the China Compulsory Certification system. Hong Kong testing organizations can now work with their PRC counterparts to certify products (including overseas imports) for the China market, while certification organizations from both jurisdictions can work together to issue China Compulsory Certifications for factory inspections.

 

Restrictions on the number of Hong Kong personnel working on PRC film productions have now been removed, as have restrictions on key project roles. Hong Kong individuals and enterprises no longer have to pay fees to set up co production projects. Television programs have also had restrictions on Hong Kong personnel and productions relaxed.  Quotas on Hong Kong personnel working on Mainland China television projects have been eased while restrictions on the number of Hong Kong productions allowed to be carried by Mainland channels have been removed. Restrictions on co-production investments will also be relaxed, along with an expedited screenplay approval process.

 

Tourist groups that enjoy visa exempt transit for periods of up to 144 hours will be able to enter the Pearl River Delta from Hong Kong more efficiently after additional inbound immigration checkpoints are established. Setting up more checkpoints allows visitors to easily add cross border travel to their itinerary while speeding up the overall customs and immigration process.

 

Hong Kong’s fisheries industry will now be permitted to invest in ocean fisheries on the Mainland. This provides vital support to a sector that has struggled from low yields, environmental challenges and difficulties meeting local license requirements.

 

As the Pearl River Delta and Greater Bay Area develop, Hong Kong and Mainland China’s Close Economic Partnership Arrangement will continue to bring new opportunities to local businesses and enterprises. In the short term, this amendment brings much needed relief to recession hit Hong Kong enterprises by broadening the scope of business without having to relocate to China. Hong Kong is still the world’s freest economy, and the services sector brings in 90% of local GDP. Expanding the market to the Pearl River Delta sets the stage for a new era of growth. If you are interested in setting up a business in Hong Kong or China or have any enquiries about cross border structuring, please don’t hesitate to contact our business advisory team.

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