11 Mainland and Hong Kong Closer Economic Partnership Arrangement （ CEPA ）

2 Trade  The Mainland is HK's largest trading partner, accounting for 48.7% of HK's total trade value in  HK is the Mainland's 3rd largest trading partner, accounting for about 8% of the Mainland's total external trade in Investment  HK is the Mainland's largest source of realised direct foreign investment, accounting for about 42.5% of the national total as at June  The Mainland is HK's most important external investor. At end-2008, the stock of inward direct investment from the Mainland accounted for about 36.5% of HK' s total. Close Economic Ties between Mainland and Hong Kong

3 Enormous Business Opportunities in the Mainland  Market potential for quality goods - Demand for quality goods will rise over time.  HK can play a key role in the development of the Mainland’s services industry  HK can act as the Mainland’s service centre - With the Mainland’s rapid and sustained economic growth, greater market openness, and continued expansion of external trade, Mainland enterprises have bigger need for different kinds of services.  HK can act as two-way platform - HK is the preferred choice for many enterprises eyeing the Mainland market. It is also a springboard for Mainland enterprises to “venture out” to the world market.

44 Signing of CEPA  CEPA, the first free trade agreement concluded by the Mainland and Hong Kong, was signed on 29 June 2003  Seven Supplements have been concluded since 2004; the latest Supplement VII signed on 27 May 2010

55 Coverage of CEPA CEPA Trade in Services Trade and Investment Facilitation Trade in Goods

6 CEPA Preferences  WTO-plus preferences  Trade in goods: zero tariff  Trade in services: WTO-plus liberalisation commitments in various service sectors  CEPA remains the mostpreferentialamong the FTAs signed by the Mainland  CEPA remains the most preferential among the FTAs signed by the Mainland

77 Trade in Goods  The Mainland applies zero tariff to goods imported from Hong Kong that meet CEPA rules of origin (ROO)  The two sides have reached agreement on the CEPA ROO for 1,592 products

88 In terms of FOB value, the five major product categories covered by CO(CEPA) (as at October 2010)- In terms of FOB value, the five major product categories covered by CO(CEPA) (as at October 2010) - Trade in Goods Product CategoriesFOB Value Cumulative No. of CO(CEPA) Approved 1. Pharmaceutical ProductsHK$9.24 billion7, Plastics and Plastic Articles HK$6.96 billion10, Textiles and Clothing HK$3.15 billion15, Food and Beverages HK$2.45 billion15, Base Metal ProductsHK$1.88 billion2,889 ::: ::: Total HK$27.1 billion 61,431

99 Trade in Services  Preferential market access to service industries in the Mainland – reduced registered capital requirement; less restrictions in equity shareholding, geographical coverage of operation and business scope etc.  Strengthen cooperation in financial services  Strengthen cooperation in tourism  Facilitate mutual recognition of professional qualifications

1010 Trade in Services  Inclusive of Supplement VII to CEPA, nearly 280 liberalisation measures covering 44 service sectors have been introduced AccountingEnvironmentalPatent agencyServices incidental to mining AdvertisingExaminations for professional and technical qualification PhotographicServices related to management consulting Air transportFreight forwarding agencyPlacement and supply services of personnel Social services AudiovisualIndividually owned storesPrintingSpecialty design BankingInsurancePublic utilitySporting Building-cleaningLegalRail transportStorage and warehousing Computer and related services LogisticsReal estateTechnical testing, analysis and product testing Construction and related engineering Management consultingRelated scientific and technical consulting services Telecommunications Convention and exhibition Maritime transportResearch and development Tourism CulturalMarket researchRoad transportTrade mark agency DistributionMedicalSecurities and futuresTranslation and interpretation

1111 Trade in Services “Early and Pilot Implementation”  41 measures for “early and pilot implementation” in Guangdong Province  Sectors covered: accounting, construction, medical services, banking, securities, convention and exhibition, tourism, placement and supply services of personnel, telecommunications, public utility, environmental, social services, maritime transport, road transport, rail transport

1212 Trade in Services Beneficiaries: Hong Kong Service Suppliers (HKSS) Juridical persons Juridical persons (e.g. companies, partnerships, sole proprietorships) (e.g. companies, partnerships, sole proprietorships) Require an HKSS Certificate before applying directly to Mainland authorities for provision of services in the Mainland Require an HKSS Certificate before applying directly to Mainland authorities for provision of services in the Mainland Incorporated / established in HK Incorporated / established in HK Substantive business operation in HK for 3 or 5 years Substantive business operation in HK for 3 or 5 years Paid profit tax in HK Paid profit tax in HK Own or rent business premises in HKOwn or rent business premises in HK Majority staff are HK residents Majority staff are HK residents Applicable to all businesses operating in HK regardless of source of investment Applicable to all businesses operating in HK regardless of source of investment

1313 Hong Kong Service Supplier Certificates (As at October 2010) Service sectors No. of HKSS Certificates Issued 1. Transport and Logistics1, Distribution Air Transport Job Referral Agency/Job Intermediary Advertising105 :: Total2,296

1414 Trade and Investment Facilitation  Trade and investment promotion  Customs clearance facilitation  Commodity inspection and quarantine, food safety and quality and standardization  Electronic business  Transparency in laws and regulations  Cooperation of small and medium enterprises  Cooperation in industries  Protection of intellectual property  Cooperation on branding  Cooperation on education

15 Examples of CEPA Advantages Medical services ForeigninvestorsHKSS under CEPA Wholly-owned hospitals Permitted in Guangdong, Shanghai, Chongqing, Fujian and Hainan JV hospitals Foreign investment ratio ≤ 70% No restriction on foreign investment ratio Wholly-owned convalescent hospitals Permitted in Guangdong Wholly-owned out-patient clinics Permitted in Guangdong JV out-patient clinics Investment requirement : 20 million RMB Investment requirement : 10 million RMB (non-Guangdong) No requirement (Guangdong) Foreign investment ratio ≤ 70% No restriction in Guangdong

16 Examples of CEPA Advantages Examples of CEPA Advantages Legal services ForeigninvestorsHKSS under CEPA under CEPA Operate in association with Mainland law firm (can only set up representative offices)

17 Accounting Foreign investors HKSS under CEPA “Provisional Licence to Perform Audit-Related Services” 6-month validity 5-year validity Examples of CEPA Advantages Examples of CEPA Advantages

18 Construction and related engineering services Foreign investors HKSS under CEPA JV construction engineering design enterprises Foreign investment ratio ≤ 75% No restriction on foreign investment ratio Examples of CEPA Advantages Examples of CEPA Advantages

19 Examples of CEPA Advantages Air transport services ForeigninvestorsHKSS under CEPA under CEPA Wholly-owned air transport sales agencies JV air transport sales agencies Operation of civil air passenger sales agency services in domestic routes not allowed

20 Opportunities to Foreign Investors Trade in Goods  To enjoy zero tariff benefits on importation into the Mainland by setting up manufacturing operations in HK to produce goods that meet CEPA origin rules Trade in Services  To enjoy preferential access to Mainland’s service industries by  establishing business in HK  acquiring or joining forces with enterprises in HK

2121  Based on a rough estimate, about 45% of HKSS certificate holders are believed to have received foreign investments  The most popular CEPA service sectors among foreign companies are :  transport and logistics  distribution  air transport  advertising  job referral agency / job intermediary Utilization of CEPA by Foreign Investors

2222 Economic Impact of CEPA  During , business receipts obtained by companies in HK due to CEPA from Mainland-related business reached HK$61.6 billion  During , CEPA-induced business receipts obtained by operations established by HK service suppliers on the Mainland amounted to HK$198.5 billion  During , companies in HK obtained additional business receipts totalling about HK$55.1 billion due to CEPA

2323 Economic Impact of CEPA  From Sept 2004 to end 2009, 2,602 Mainland enterprises were granted approval to invest in HK, involving over US$24.4 billion of investment  In 2009, InvestHK assisted 265 foreign companies to invest or expand in HK, 26% of them cited CEPA as one of the key considerations for investing in HK

2424 TID’s Support Services Website ：  Disseminate information on CEPA and provide enquiry services  Promote CEPA  Render appropriate assistance to manufacturers or service suppliers to make use of CEPA benefits