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CEPA:
Finger in Hong Kong's cracking
dam?
By Sam Ng
HONG KONG -
After one-and-a-half years' negotiation, mainland China
and Hong Kong finally signed the Closer Economic
Partnership Arrangement (CEPA) on the eve of the sixth
anniversary of the former colony's return to China. CEPA
is also China's first regional trade pact after its
entry into the World Trade Organization (WTO). How much
Hong Kong will benefit from it is up for debate.
The agreement covers three broad areas: trade in
goods, trade in services and trade/investment
facilitation. From January 1 of next year, about 4,000
items of goods originating in Hong Kong - representing
67 percent of the territory's total exports to the
mainland - will enjoy zero tariffs. The mainland has
also agreed to apply zero import tariffs for some 2,000
other items by January 1, 2006. As a result, Hong Kong
is expected to save some HK$4.3 billion (US$551 million)
in tariffs annually.
Apart from the zero-tariff
provision on goods, the mainland will also liberalize
and lower entry thresholds for 17 service sectors. For
example, asset requirements for Hong Kong banks
establishing branches on the mainland have been reduced
from the existing US$20 billion to $6 billion. At the
same time, Hong Kong professionals are permitted to take
mainland qualification examinations and practice in the
mainland upon passing the examination.
Many
experts and scholars in the mainland welcome the
conclusion of CEPA, considering it a boost to Hong
Kong's economic recovery and employment situation. Zhu
Zhaomin, dean of the Law Academy of Shanghai Foreign
Economic and Trade Institute, said Hong Kong's service
sectors would benefit the most from the pact.
Capitalizing on preferential measures on trade in
service, a number of sectors including banking,
insurance and logistics in Hong Kong will provide
additional market access to the mainland, Zhu said. For
instance, asset requirements for Hong Kong banks and
insurance companies to enter the mainland market are
currently at US$20 billion and $5 billion, respectively.
However, under CEPA those entry barriers will be
dramatically lowered, enhancing the development of those
sectors. CEPA will also push the mainland and Hong Kong
to coordinate economic and trade activities in
neighboring countries and regions.
An expert on
international business and trade in Beijing said the
coordination mechanism efforts between Hong Kong and the
mainland should focus on three aspects: coordination of
trade in goods, coordination of trade in services and
operation mechanism coordination. The definitions of
"Hong Kong products" with regard to goods and "Hong Kong
companies" with regard to services have always been a
key issue of CEPA discussion. Therefore the
establishment of coordination organizations will be
helpful to the joint regulation, administration and
approval between Hong Kong and the mainland. The
coordination of operation mechanism will accelerate
integration of administrative frameworks of the two and
improve the mainland's administration efficiency.
But Hong Kong's list of woes is a long one,
which would presumably require several different
solutions. According to official statistics, economic
growth and unemployment in Hong Kong last year (before
severe acute respiratory syndrome) were 2.3 percent and
7.3 percent, respectively. Compared with 2001 - 0.6
percent and 5.1 percent - the economy has shown signs of
improvement. However, the unemployment problem still
looms. Another worry is the huge budget deficit.
According to the 2003-04 budget released in March, the
Hong Kong government's huge fiscal deficit, if not
resolved early, will dampen investors' confidence and
stifle economic recovery.
CEPA is unlikely to
prove a cure-all for Hong Kong's economic ills. As a
tiny area with scarce natural and tourist resources, the
major reason for Hong Kong to have risen to global
prominence is historical issues such as its previous
colonial status and the mainland's isolation from the
outside world combined with Western economic embargoes
on China. During that period, as a window between the
mainland and the world, Hong Kong achieved rapid
economic development through its compradore role. But
with Deng Xiaoping's gaige kaifang - China's
reforming and opening up to the outside world - the more
accessible China becomes to the rest of the world, the
narrower the window of opportunity for Hong Kong, which
is watching the dizzying economic boom in neighboring
Shenzhen with equal parts of jealousy and concern.
Moreover, with China's entry into the WTO, Hong
Kong's unique low-tariff advantage is also being
challenged by the mainland's gradual lowering of
tariffs. Therefore, the crucial issue now for Hong
Kong's economy is figuring out how the anachronistic
former entrepot can reposition itself vis-a-vis a
rapidly developing mainland. This will certainly require
more than the CEPA.
(Copyright 2003 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com
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