Hong Kong and China Sign Trade in Services Agreement

December 2, 2015 Posted by China Briefing Reading Time: 4 minutes

By Dezan Shira & Associates
Editor: Jake Liddle

On November 27, an agreement on trade in services under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) was signed and will take effect from June 1, 2016. The aim of the agreement is to ease the trade of services between the two regions, removing existing restricting measures which hinder market access.

The CEPA was established in 2003, with clauses on the trade of services stating that Hong Kong service providers (which in most cases possess competitive advantages) are to enjoy preferential treatment when setting up enterprises in the Mainland’s fast expanding services sector. Such incentives include allowing the establishment of wholly owned enterprises, reducing registered capital requirements and relaxing restrictions on equity shareholding and geographical location or business scope. Ultimately, this agreement facilitates preferential market access to Hong Kong service providers.

This latest supplement – a standalone subsidiary agreement made under the trade of services section in the CEPA framework – adds a further 28 liberalization measures to the Arrangement, opening 153 Mainland sectors up to Hong Kong and giving the SAR “most favored treatment” status.

Previous pilot liberalization measures implemented in Guangdong province have been extended and now apply nationally, and there has been a reduction of the restrictive measures included in the negative list. In addition, if the Mainland accords to other economies the same liberalization measures, Hong Kong service providers will automatically enjoy further preferential treatment not included in the CEPA.

Hong Kong’s Services Sector

Hong Kong’s services sector has seen rapid expansion during the last decade. It has now become one of the most advanced in East Asia, generating nearly 93 percent of Hong Kong’s GDP in 2013.

The four main pillar industries of trading and logistics, financial services, professional and producer services, and tourism are the primary driving forces of the services sector. The Hong Kong government has also identified and promoted six industries, namely the cultural and creative industries, medical services, education services, environmental industries, innovation and technology and testing and certification services, in which to diversify the local industry structure previously dominated by the ‘four pillars’.

China’s Services Sector

China’s services sector is not as developed when compared to Hong Kong. However, along with rising incomes, China’s services sector has grown steadily over recent years. In 2013, growth outpaced that of the manufacturing sector and is set to make further developments in the coming years. Efforts have been made to transition from ‘made in China’ to ‘created in China’, with the central government encouraging service enterprises with an array of incentives while simultaneously retracting similar incentives from the manufacturing sector.

This latest services agreement will enable greater interaction between the two regions, consolidating the existing CEPA pact. The introduction of Hong Kong enterprises into the Mainland will undoubtedly bring about greater specialization in the services sector, thus making the sector increasingly competitive.

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