Hong Kong Plans To Join RCEP, Jointly Invest In Belt & Road Initiative Economic and Trade Co-operation Zones

September 5, 2021 Posted by China Briefing Written by Chris Devonshire-Ellis Reading Time: 4 minutes

Moves to reposition Hong Kong as a key East Asian hub as well as use it as a base to reach out to the global Belt & Road Initiative via establishing low tax overseas trading zones

By Chris Devonshire-Ellis

China’s Minister of Commerce Wang Wentao, and Liu Guangyuan, the commissioner of China’s Foreign Ministry’s Hong Kong office, have pledged to support Hong Kong in joining “as soon as possible” the Regional Comprehensive Economic Partnership (RCEP), the world’s biggest free-trade agreement. The remarks were made at the sixth Belt and Road Forum held in Hong Kong over the weekend. The RCEP agreement includes China, all ten ASEAN nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) in addition to Australia, New Zealand, Japan, and South Korea. It is still awaiting full ratification although China has said it would like to see it come into effect from next January – just five months away.

The RCEP agreement creates a free trade arrangement between ASEAN and Asia-Pacific nations, providing new trading opportunities through tariff reduction, new rules of origin, and trade-facilitation measures. We can examine the geography and some of the tariff implications as follows:

China’s Minister of Commerce Wang said that “Hong Kong enjoys huge co-operation potential and fresh development opportunities. Beijing will support Hong Kong’s wider participation in regional economic co-operation and expansion into new areas for international co-operation. We will also back Hong Kong in carrying out free trade agreement negotiations with foreign countries, play a role in APEC and other mechanisms, and further enhance its status as an international financial, trade and shipping center.” he said.

The potential for Hong Kong’s development was also emphasized by Hao Peng, head of the state-owned China Assets Supervision and Administration Commission (SASAC). “We’re standing at a new historical starting point,’ he said. “The SASAC will continue to implement the principle of ‘one country, two systems’ to support the Hong Kong government, and promote the central government to invest and start businesses in Hong Kong.”

According to Hao, as of last year, 80 central enterprises have 2,915 operating units in Hong Kong with total assets of HK$3.8 trillion (US$658 billion), making the city a key player in the Belt and Road Initiative.

Ning Jizhe, the vice-chairman of the National Development and Reform Commission, also said Hong Kong could strengthen its competitiveness in being an international finance, shipping, and trading hub, by becoming more involved with the Belt and Road Initiative. “China supports Hong Kong to be the international aviation shipping and logistics center, and also supports Hong Kong to become a global technology and innovation center.” he said.

Hong Kong operates under the “One Country Two Systems” model in acknowledgement and practical consideration of the different tax and customs regime it has had since the days of British administration, which were typically lower than mainland China and remain so. Having Hong Kong as a free trade member of RCEP would give the agreement even more clout. Although the territory has its own Free Trade Agreements with ASEAN, Australia, and New Zealand it does not with Japan or South Korea. Bringing Hong Kong into RCEP would close this free trade gap and allow both Hong Kong, Japan, and South Korea mutual market access.

New Hong Kong – RCEP Economic Trade & Cooperation Zones

To co-incide with this, the Hong Kong Government and China’s Ministry of Commerce also signed a Memorandum of Understanding (MOU) on enhancing exchanges and co-operation in promoting high-quality development of overseas Economic and Trade Co-operation Zones (ETCZs).

ETCZ typically offer tax and related trade incentives for businesses.

According to the MOU, Hong Kong and China will leverage their respective strengths to promote the high-quality development of the ETCZs, encourage enterprises of both to invest and set up businesses at the ETCZs, develop the ETCZs jointly by different means, and explore international markets. These are likely to include RCEP markets.

At the same time, both sides will strengthen interfacing and collaboration between Hong Kong enterprises, the professional services sectors and the ETCZs. On the operation and management of the co-operation zones, the two sides will support Hong Kong enterprises’ participation through the provision of professional services. They will also support Hong Kong professional services sectors in providing services in different areas for the ETCZs. The two sides will also encourage Mainland and Hong Kong financial institutions to provide suitable financial services as well as diversified financing channels for enterprises of both places in the ETCZs and those taking part in the zone development. The ETCZs will be encouraged to provide Hong Kong enterprises and professional services sectors set up therein with suitable facilitation measures.

Furthermore, the MOU states that the two sides will encourage enterprises, business associations, trade and industry organizations and intermediaries of both to jointly organize business missions to Belt and Road-related countries and seminars, and to establish exchange platforms and more. The two sides will also support exchanges and collaboration amongst the ETCZs and Hong Kong on talent development, including encouraging Hong Kong consulting services agencies to provide professional training for the ETCZs. For the development of the ETCZs, creating a favorable environment conducive to business operation is also a direction of co-operation in the MOU.

The ETCZ are expected to assist Hong Kong businesses in expanding to Belt and Road markets. In June this year, the Belt and Road Office and the Commercial Office of the Economic Affairs Department of the Liaison Office of the Central People’s Government in the HKSAR jointly held webinars to introduce five ETCZs in Cambodia, Indonesia, Malaysia, and Thailand to the business community in Hong Kong. We will bring details of the proposed China and Hong Kong ETCZ to readers when they have completed their final drafts. To keep up to date with these developments, please take a complementary subscription to China Briefing here.