Economic Dimension –

What is Economics?
• Economics is the study of the production and
distribution of goods and services, it is the
study of human efforts to satisfy unlimited
wants with limited resources
• It studies how agents allocate scarce resources
amongst alternatives to meet unlimited human
wants

The Hong Kong Polytechnic University

 Allocation of resources
• Process occurs at many levels
– Consumers
– Firms
– Government
– Market System

• Allocation decisions impact natural environment

– Want decisions to be based upon incentives that reflect
“true” value to society
– Unfortunately decision makers do not consider “true” value
i choices
in h i
– Need for policy intervention to overcome such market
failure
The Hong Kong Polytechnic University
Scarce resources and production
Resources are the basic categories
g of inputs
p organised
g by
y entrepreneurship
p p
(a special type of labour) to produce goods and services. Economists divide
resources into the three categories of land, labour and capital.

Land Labour Capital

Entrepreneurship
organises resources
to produce goods
and services

Reference: A. Layton, R. Robinson and I.B. Tucker, ‘Economics for today’, Thomson 2002
The Hong Kong Polytechnic University
 Contemporary Economics

• Macroeconomics – Aggregated analysis

– John Maynard Keynes in 1936 and 1940
– Choices of government
• Monetary Policy - Federal Reserve
• Fiscal Policy – Taxes and Spending
– Macroeconomic targets
• Income Levels
• Inflation
• Employment

The Hong Kong Polytechnic University

 Contemporary Economics

• Mi
Microeconomicsi – Disaggregated
Di t d analysis
l i
– Adam Smith’s Wealth of Nations in 1776
– Choices of consumers (households) and producers (firms)
– Two types of Markets
• Factor Markets – Consumers sell inputs used in
production
d i to firmsfi
• Product Markets – Firms sell final output to consumers
– Three types of analysis
• Partial Equilibrium – Focus on single factor or good
• Multi-Market – Interrelationships
p amongstg key y
fundamental markets
• General Equilibrium – Economy as a whole

The Hong Kong Polytechnic University

 Macro vs micro
micro-economics
economics
Microeconomics
• Examining individual trees rather
than the wood
• Studies decision making by single
individual, household, firm or
industry
• Focus on behaviour of small
economic units
• E.g. egg industry, will suppliers
decide to supply more less or the
same amount of eggs to the
market
k ini response to price
i the
changes? Will individual
consumers decide to buy more,
less or the same amount of eggsgg
at new price?
The Hong Kong Polytechnic University
Macroeconomics
• Surveys the wood
• Studies decision-making for the
economy as a whole
• Examines economy-wide
variables, e.g. inflation,
unemployment, money supply,
flows of experts/imports and
international financial capital
• Macroeconomic decision makings
considers ‘big picture’ policies as
h effect
ff off balancing
b l i the h ffederal
d l
budget on unemployment, the
effect of changing the money
supply
pp y on p
prices and the effect of
strong economic growth on the
value of the currency.
 PPRD
HK can bridge PPRD, Asean
• Chief Executive Donald Tsang says Hong Kong possesses
unparalleled strengths and unique features in bridging the
Pan-Pearl River Delta and the Association of Southeast
Asian Nations.
• Speaking with Asean business officials in Changsha,
Hunan on June10, 2007, Mr Tsang said Hong Kong's
extensive trade connections with the Mainland provinces
and Asean countries have facilitated import and export
trade between the two regions.
• As an international financial centre,, Hong
g Kong
g provides
p
Asean and PPRD enterprises with a diversified and
effective market for raising funds, he added.

The Hong Kong Polytechnic University

 PPRD
• Noting the city has extensive global connections
and can facilitate trade between Asean and
PPRD Mr Tsang said PPRD and Asean
PPRD,
enterprises can effectively network with
overseas enterprises by setting up offices in
Hong Kong.

The Hong Kong Polytechnic University

 CEPA
• The Mainland and Hong Kong Closer Economic
Partnership Arrangement (CEPA) is the first free trade
agreement ever concluded by the Mainland of China and
Hong Kong. The main text of CEPA was signed on 29
June 2003.
• CEPA opens up huge markets for Hong Kong goods and
services, greatly enhancing the already close economic
cooperation and integration between the Mainland and
Hong Kong.

The Hong Kong Polytechnic University

 CEPA
• For Hong Kong, CEPA provides a window of opportunity
for Hong Kong businesses to gain greater access to the
Mainland market
market. CEPA also benefits the Mainland as
Hong Kong serves as a perfect "springboard" for
Mainland enterprises
p to reach out to the g
global market
and accelerating the Mainland's full integration with the
world economy. Foreign investors are also welcome to
establish
bli h b
businesses
i iin H
Hong K
Kong to leverage
l on the
h
CEPA benefits and join hands in tapping the vast
opportunities of the Mainland market
market.

The Hong Kong Polytechnic University

 CEPA Implementation
CEPA covers 3 broad areas:
• Trade in goods - All goods of Hong Kong origin importing into
the Mainland enjoy tariff free treatment, upon applications by
local manufacturers and upon the CEPA rules of origin
(ROOs) being agreed and met.
• Trade in services - Hong Kong service suppliers enjoy
preferential treatment in entering into the Mainland market in
various service areas. Professional bodies of Hong Kong and
the regulatory authorities in the Mainland have also signed a
number of agreements or arrangements on mutual recognition
of professional qualification.
• Trade and investment facilitation - Both sides agreed to
enhance co-operation in various trade and investment
facilitation areas to improve the overall business environment
environment.
The Hong Kong Polytechnic University
 CEPA Update
• O
On the
th whole,
h l th
the new measures can h help
l enhance
h
HKSS' competitiveness in the Mainland.
– Such measures will not only help enterprises overcome the
current financial crisis,
– but will also promote the long-term economic development of
both sides.
• Details on CEPA including the newly agreed
liberalisation and co
co-operation
operation measures will be
uploaded to the Trade and Industry Department's CEPA
website: www.tid.gov.hk/english/cepa/index.html

The Hong Kong Polytechnic University

CEPA - EASIER ACCESS TO CHINA THROUGH HONG KONG

Cepa' is China's free trade agreement with Hong Kong. It grants easier access to China
markets for Hong Kong-made products, and Hong Kong-based service companies.

1. Duty-free export to China for Hong Kong-made products

1087 categories of 'Made in Hong Kong' products will be exempt from tariffs when
exported to the Chinese mainland. More information.

2. Easier market entry for Hong Kong-based service providers

Cepa covers 26 service sectors and reduces, or removes geographical, financial and
ownership restraints. Any nationality company can apply if it:

• Is incorporated in Hong Kong

• Has operated for 3 to 5 years (depending on the sector)
• Is liable to pay Hong Kong profits tax
• Employs 50% of its staff locally
• More information.

Cepa Update Summary by Susan Lavender, Associate, Dibb Lupton

Alsop (European-based law firm in Hong Kong)

BENEFITS FOR NON-HONG KONG COMPANIES

Overseas companies, not based in Hong Kong, can take advantage of Cepa by
outsourcing to, or partnering with a Cepa-qualified manufacturer or service provider in
Hong Kong.

Overseas manufacturers, you do not need an office in Hong Kong to benefit from Cepa.
For your goods to qualify as 'Made in Hong Kong', you need only satisfy simple Rules of
Origin. In essence, your products must be "substantially transformed" in Hong
Kong. More information.

If you are a service-provider, you can partner with, or invest in, a Cepa-qualified
company to benefit from easier access to the Chinese mainland. More information.

SECTOR-SPECIFIC REPORTS

Manufacturing
Services

CEPA FEATURES
- Italian firm qualifies as Hong Kong service supplier
- More business opportunities for overseas firms under Cepa II
 - Global logistics provider taps Cepa opportunities
- 'Big four' gear up for post-Cepa rush
- World banks localise for first-mover advantage in China
- HK & EU business leaders hail Cepa opportunities
- Luxury goods group sees Cepa as business generator

CEPA and Opportunities for Hong Kong

Introduction

Following the signing of the main parts of the Closer Economic Partnership
Arrangement (CEPA) on 29th June 2003, Hong Kong and the Mainland signed the six
Annexes to the main text of the Arrangement on 29th September 2003, setting out the
implementation details. To be implemented from 1st January 2004, the Arrangement is to
ensure Hong Kong will be "economically interlocked" with the Mainland and that
smaller Hong Kong companies will benefit from the opening-up and liberalisation on the
Mainland beyond China's commitments in its WTO accession. With CEPA, 90% of Hong
Kong domestic exports to the Mainland can enjoy zero tariffs. Also, CEPA opens up 18
service industries to Hong Kong companies. More important, CEPA provides long-term
opportunities for Hong Kong people to establish business or work on the Mainland.

CEPA - A Special Arrangement Abiding by International Practices

CEPA is the first bilateral Free Trade Agreement (FTA) for both the Chinese Mainland
and Hong Kong. It abides fully by the WTO's requirements on FTAs. While the
Agreement eliminates substantial trade and investment barriers between Hong Kong and
the Chinese Mainland, it does not raise any obstacles for other economies' access to the
two markets. Consistent with the provision of the General Agreement of Trade in
Services (GATS), companies in Hong Kong with substantive activity are qualified as
Hong Kong companies for the entitlement of the benefits under CEPA.

Opportunities in Trade in Goods

Starting from 1st January 2004, 273 types of products made in Hong Kong can be
exported to the Mainland free of tariff. This, together with China's commitments upon
accession to the WTO, will allow about 90% of Hong Kong domestic exports to the
Mainland to enjoy zero tariffs. The annual savings in tariffs are estimated to be HK$750
million. Moreover, zero tariffs will also be applied latest by January 2006 upon
applications by manufacturers in Hong Kong to other products made in Hong Kong for
accessing the Mainland market.

A product is qualified as "made in Hong Kong" if it fulfills the rules of origin under
CEPA. For 70% of the 273 types of products covered in the initial phase for tariff-free
importation, Hong Kong's existing origin rules using the "specific manufacturing
process" criterion will be adopted as the CEPA origin rules. For the rest, either the
"change in tariff heading" approach or the "30% value-added" requirement will be used.
The 30% value-added rule compares favourably with other free trade areas' thresholds,
which range from 40% to 60%.

Apart from zero tariffs enjoyed by products made in Hong Kong, products made by Hong
Kong and/or traded by Hong Kong will also benefit from CEPA in other ways. Upon
China's WTO accession, many Hong Kong manufacturers with production on the
Mainland would like to develop China as their domestic market. However, their market
penetration efforts have been somewhat hindered by the underdeveloped distribution
system on the Mainland. Many hazards in developing the China market such as payment
problems and intellectual property rights protection now facing Hong Kong
manufacturers can hopefully be alleviated as more Hong Kong players will be allowed to
engage in distribution business on the Mainland under CEPA.

The immediate benefit of the trade in goods is the saving in tariffs, thus increasing the
price competitiveness of Hong Kong's domestic exports of consumer products into the
Mainland. Industries that are more likely to be benefited include fashion, jewellery and
high-end watches.

A longer-term effect of the zero-tariff agreement is the potential for attracting more high
value-added manufacturing activities to be located in Hong Kong, and promoting
development of brand products made in Hong Kong to emerging middle-class consumers
on the Mainland.

Capitalising on the advantage of Hong Kong in intellectual property rights protection,

free trade and investment environment, and reputation in cosmopolitan design, Hong
Kong is in a good position to develop high intellectual property (IP) value industries that
target the Mainland market.

For high-end products such as designers' clothing and fashion accessories, and industries
that involve proprietary technology (since the IP input accounts for a much larger share
than labour and other inputs in the total cost structure), production in Hong Kong may
still be justifiable. However, since the high IP value industries are knowledge-based and
would not be massive in scale, the effect of job creation in Hong Kong, especially for
unskilled workers, would only be moderate.

Opportunities in Trade in Services

CEPA provisions on market access cover a total of 18 service industries. These include:
management consulting, convention and exhibition, advertising, accounting, construction
and real estate, medical and dental, distribution, logistics, freight forwarding, storage and
warehousing, transport, tourism, audio-visual, legal, banking, securities, insurance, and
value-added telecommunications services.
To be entitled to the benefits of CEPA, a service company, regardless of the nationality
of its investors or shareholders, must have substantive business activity in Hong Kong by
fulfilling the following criteria:

(1) the company must be incorporated under the laws of Hong Kong;
(2) the company must be liable to pay profits tax in Hong Kong;
(3) the company must employ in Hong Kong 50% or more of its total staff.

In addition, companies in different service industries have to meet different extra criteria
to ensure that they have been engaging in substantive business operations in such an
industry for a minimum period (usually three to five years) in Hong Kong. Although the
exact requirements for a company to be qualified vary by industries, the assessment will
be on a non-discriminatory and objective basis. Foreign companies can be regarded as a
"Hong Kong company" one year after acquiring majority shares in a Hong Kong
company through merger or acquisition.

Although the liberalisation measures vary from industry to industry, China has taken into
account the special niche of Hong Kong as CEPA commitments go beyond the country's
WTO accession protocol, for example, the opening-up of exhibition business to Hong
Kong companies.

Besides the exhibition industry, Hong Kong's niche in the audio-visual industry is well
recognised. With the quota free access to the Mainland of Chinese language films
produced in Hong Kong and the relaxation on the co-production requirements, CEPA
paves the way for the recovery of Hong Kong's film industry by creating great potential
in the Mainland market. More important, it provides a very good avenue for Hong Kong
to post itself as a modern and dynamic metropolis before Mainland's consumers.

The framework of CEPA is intentionally designed to help smaller companies, whether

they be indigenous or foreign-owned, in Hong Kong. Under China's WTO protocol, the
thresholds of entry to the Mainland's service sector are too high for Hong Kong
companies in most service industries. CEPA lowers the thresholds for Hong Kong
companies, allowing them an "effective" market access to the Mainland's service sector.
Lowering the thresholds for Hong Kong banks to expand on the Mainland and allowing
Hong Kong law firms to share offices with their Mainland counterparts are significant
measures to increase the feasibility of Hong Kong service providers to do business on the
Mainland.

Not only Hong Kong products or Hong Kong companies but also Hong Kong
professionals and residents will benefit from CEPA. Hong Kong professionals in the
securities and insurance industries can apply to practise on the Mainland and Hong Kong
permanent residents with Chinese citizenship are permitted to sit the legal qualifying
examination on the Mainland. Moreover, Hong Kong permanent residents with Chinese
citizenship are formally permitted to engage in retail activity in Guangdong. All this
suggests that in future more Hong Kong people are likely to seek employment and
business opportunities on the Mainland.
Hong Kong as a Financial Centre and Its Special Relations with the Pearl River
Delta

CEPA will strengthen Hong Kong's role as an international financial centre for China and
the region. Under CEPA, the Mainland supports Chinese banks in re-locating their
international treasury and foreign exchange trading centres to Hong Kong. They are also
encouraged to expand their banking business in Hong Kong through acquisition. In the
process of financial reform on the Mainland, the financial intermediaries in Hong Kong
will be fully utilised.

Given the proximity of Hong Kong to the Pearl River Delta (PRD), CEPA has a special
meaning to the closer co-operation of the two places. With CEPA, the PRD will continue
to grow from strength to strength as the world's manufacturing centre, fully supported by
the business services provided by Hong Kong companies. Waiving Hong Kong lawyers'
residency requirements for operating in the PRD is just an example of the special
convenience provided by CEPA to enhance the partnership of the Greater PRD.

Overall Impact on Hong Kong

CEPA will leverage on the institutional strengths of Hong Kong and the huge market
potential on the Mainland under the "one country, two systems" principle for revitalising
the Hong Kong economy and modernisation of the Chinese Mainland. Given the eased
market access to the Mainland and the stringent protection of intellectual property rights
in Hong Kong, the city will be the first choice to supply products and services with "high
content of intellectual property" for the Mainland market. Creativity will be the key
determinant for Hong Kong people and companies to succeed on the Mainland while
developing into a "knowledge-intensive" service hub is the future of this territory.

CEPA indeed creates the "environment" for Hong Kong products, Hong Kong companies
(particularly medium-sized companies), Hong Kong professionals and residents to have
an "effective" access to the Mainland. It does not provide them with "privileges" to enjoy
exclusive rights in the Mainland market. They have to face intensifying competition in
this large market from both local suppliers as well as multinational players. As China will
continue to open up on schedule in accordance with its WTO commitments, the window
of first mover advantage for Hong Kong players is brief.

The impact of CEPA on the service sector is likely to be greater than that on the
manufacturing sector. This is particularly true when services, accounting for only 34% of
China's GDP, have become a constraint on the country's economic development.
Contributing 87% to the domestic economy, services are well developed in Hong Kong
and will be able to contribute more to the modernisation of the Mainland under CEPA.
Although the immediate benefit of CEPA for industrial employment in Hong Kong may
only be moderate, much more future employment opportunities in the service sector will
be created across the boundary. The overall effect on total employment could be
significant.

Immediate trade and employment creation is, of course, important to Hong Kong, but the
long term effect of CEPA is much more substantial. Indeed, the pace of Hong Kong's
economic restructuring will accelerate under CEPA. While the impact will evolve over
time, it is likely to be reflected more in Hong Kong's GNP than in its GDP. The
opportunities arising from CEPA are not limited to activities within the HKSAR but go
much farther into the Mainland
 THE MAINLAND AND HONG KONG
CLOSER ECONOMIC PARTNERSHIP ARRANGEMENT:
INVESTMENT AGREEMENT AND
AGREEMENT ON
ECONOMIC AND TECHNICAL COOPERATION

INTRODUCTION

The Investment Agreement and Agreement on Economic and

Technical Cooperation (Ecotech Agreement) were signed on 28 June 2017
under the framework of the Mainland and Hong Kong Closer Economic
Partnership Arrangement (CEPA) between Hong Kong Special Administrative
Region Government (HKSARG) and the Ministry of Commerce. Details are set
out below.

BACKGROUND

2. The Mainland and Hong Kong signed the CEPA in 2003. Thereafter,
pursuant to Article 3 of CEPA, the two sides broadened and enriched the
content of CEPA and have since signed ten Supplements and two agreements1,
expanding market liberalisation and further facilitating trade and investment.
The latest Agreement on Trade in Services consolidates and expands services
liberalisation commitments introduced under CEPA since 2003. It was
implemented on 1 June 2016 to basically achieve liberalisation of trade in
services between the Mainland and Hong Kong.

3. The National 13th Five-Year Plan states that the Central Government
will step up efforts to further open up its markets to Hong Kong and advocate
the enhancement of CEPA. The Mainland and Hong Kong signed the
Investment Agreement and Ecotech Agreement to enhance CEPA in line with a
modern and comprehensive free trade agreement, providing for promotion and
protection of increasing investments between the two places as well as fostering
economic and technical cooperation and exploring new areas of cooperation.

1 The two agreements are, namely, the Agreement between the Mainland and Hong Kong on Achieving Basic
Liberalisation of Trade in Services in Guangdong signed in December 2014, and the Agreement on Trade in
Services signed in November 2015.
 -2-

The legal texts of the Agreements are available at the Trade and Industry
Department’s (TID) website at –

http://www.tid.gov.hk/english/cepa/legaltext/cepa_legaltext.html

DETAILS

Investment Agreement

4. The Investment Agreement covers investments, in the forms of

establishment of enterprises or acquisition of assets on one side by an investor
from the other side. Similar to international investment agreements, including
our Investment Promotion and Protection Agreements (IPPAs) with foreign
partners, the Investment Agreement provides for commitments of both sides
relating to promotion and protection of investments. In addition, the
Investment Agreement includes commitments of both sides with respect to
admission of investments from the other side (i.e. the “market access” element).
Since the commitments for admission of investments in services sectors have
been covered under the Agreement on Trade in Services already implemented,
the Investment Agreement will cover admission of investments outside the
scope of the Agreement on Trade in Services (including manufacturing sectors,
mining sectors and investment in assets, hereinafter referred to as “non-services
sectors”). The provisions on investment protection under the Investment
Agreement apply to investments in both services and non-services sectors. The
key provisions of the Investment Agreement are highlighted in the following
paragraphs.

Market Access

5. The substantive obligations relating to non-discriminatory treatment

of investments and investors and “market access” for investments include –

(a) Article 5 (National Treatment);

(b) Article 6 (Most Favoured Treatment);

(c) Article 7 (Performance Requirements); and

(d) Article 8 (Senior Management, Boards of Directors and Entry of

Personnel).
 -3-

6. Pursuant to these obligations, both sides commit to according to

investments and investors of the other side treatment no less favourable than
that accorded to investments and investors of one side or any other party,
imposing no performance requirements (such as requirement to export a given
level or percentage of goods or services) on investments of the other side, and
imposing no nationality requirements on senior management of enterprises
which are investments of the other side, etc. Measures not conforming to the
above obligations are scheduled under Annex 2 to the Agreement, using the
negative listing approach. Under the Investment Agreement, Hong Kong
investors enjoy more preferential investment access to the Mainland than
investors from other countries and regions in specific non-services sectors2.

Investment Protection

7. The substantive obligations pertaining to investment protection are

similar to those in our IPPAs with foreign partners, including –

(a) Article 11 (Expropriation);

(b) Article 12 (Compensation for Losses);

(c) Article 13 (Subrogation); and

(d) Article 14 (Transfers).

Under these provisions, the two sides commit to providing for investment
protection including non-discriminatory treatment in compensation for losses
owing to war, a state of emergency, riot, natural disaster or other similar events;
compensation for expropriation of investments; recognition of transfer of rights
under the Investment Agreement upon payment made by one side or its agency
to an investor under a guarantee or a contract of insurance with respect to its
investment; transfer abroad of investments and returns; etc.

2 Including mining of special and scarce coals; smelting of tungsten; manufacture of common ships (including
subsection); manufacture of civil aircrafts (for trunk and branch lines) and civil helicopters (of three tons or
more); and manufacture of general purpose aircrafts. The Mainland also commits that when the franchise is
completely liberalised to Mainland investors, Hong Kong investors will be allowed to perform, in the form of
equity joint venture or cooperation, exploitation of land-based petroleum oil, natural gas and coal seam gas.
 -4-

Investment Facilitation and Settlement of Investment Disputes

8. The Investment Agreement puts in place measures on investment

facilitation. For example, for examining and approving applications for
establishment of investments by Hong Kong investors in the Mainland, the
Mainland will endeavour to establish uniform standards and procedures in
examining and approving investment applications, stipulate a reasonable
timeframe for examining investment applications and making decisions, keep
the costs of the investors in the application process to the lowest on a best
endeavour basis, etc.

9. The Investment Agreement provides a mechanism for settlement of

an investment dispute arising from an alleged breach of the substantive
obligations of the Agreement by one side causing loss to an investor of the
other side. The mechanism lists available means for dispute settlement by the
respective sides –

(a) amicable consultation between the disputing parties;

(b) complaint handling procedures;

(c) coordination within the government or between the two sides to

oversee dispute resolution of the respective sides;

(d) mediation; and

(e) legal proceedings as provided for under the domestic laws on the
respective sides.

Mainland’s Liberalisation Measures

10. The Investment Agreement will be the first investment agreement of

the Mainland with pre-establishment national treatment commitments in the
form of negative list for investments in non-services sectors. In short, the
Mainland commits to providing national treatment to investments and investors
of Hong Kong in all non-services sectors, except the 26 measures 3 listed in
Annex 2.
3 Covering sectors such as exploitation of petroleum oil and natural gas; exploitation and smelting of mineral
products; manufacture of vehicles; manufacture of ground effect or water effect aeroplanes and the
manufacture of drones and aerostats; production of tobacco products; investment in financial products;
traditional arts and crafts and production of Chinese medicinal products, etc.
 -5-

11. Hong Kong enterprises seeking to establish commercial presence4 on

the Mainland in non-services sectors with preferential access provided for under
the Investment Agreement are required to meet the definition of “investors”
under the Investment Agreement. The specific requirements include the Hong
Kong enterprises must be incorporated or established in Hong Kong, and must
fulfil the requirements of minimum period of operation, payment of profit tax,
owning or renting business premises, and employment of staff for its
substantive business operations. The Hong Kong enterprises must apply for
Hong Kong Investor Certificates from Trade and Industry Department. Annex
1 to the Agreement sets out the requirements pertinent to the definition of
“investor”. Such requirements are similar to those pertinent to Hong Kong
Service Suppliers under the Agreement on Trade in Services at present.
Investors other than those making investments in the form of establishment of
commercial presence, such as by acquiring assets, are not required to meet the
specific requirements on substantive business operations in Hong Kong and are
not required to apply for the Hong Kong Investor Certificate.

12. The “Most-Favoured Treatment” provision of the Agreement

specifies that any preferential treatment the Mainland accords to investments
and investors from other countries or regions, if more preferential than that
under CEPA, will be extended to Hong Kong investments and investors.

Hong Kong’s Liberalisation Measures

13. Following past practice, Hong Kong will not impose new
discriminatory measures on Mainland investments and investors in non-services
sectors covered by the Agreement.

14. The Agreement shall be implemented as from 1 January 2018.

Ecotech Agreement

15. The Ecotech Agreement updates and strengthens previous CEPA

commitments on cooperation across various sectors and a range of trade and
investment facilitation areas, as well as adds new cooperation areas in relation to
“Belt and Road” Initiative and Sub-regional Cooperation.

16. Substantive elements of the Ecotech Agreement include –

4 Constituting, acquiring or maintaining an enterprise.

 -6-

(a) Chapter 3 on Cooperation in Economic and Trade Areas of the “Belt

and Road” Initiative lays the foundation for the two sides to take
forward cooperation at different levels and across a wide range of
areas, including those where Hong Kong has expertise and
advantages, and highlights participation by the Hong Kong business
community in the “Belt and Road” Initiative. Under the framework
of the Ecotech Agreement, relevant agencies and industry participants
on the two sides can map out detailed activities of interest to them;

(b) Chapters 4 and 6 on Cooperation in Key Areas and Trade and

Investment Facilitation respectively charts the course of and updates
the activities in major sectors such as Financial Cooperation
(Article 5), Cooperation in Tourism (Article 6), Cooperation in Legal
and Dispute Resolution Services (Article 7), Cooperation in
Accounting (Article 8), Cooperation in Innovation and Technology
(Article 12), Cooperation in Electronic Commerce (Article 14),
Cooperation in Intellectual Property (Article 16), and Quality
Supervision, Inspection and Quarantine (Article 23).

(c) Chapter 5 on Sub-regional Economic and Trade Cooperation brings

the ongoing cooperation between Hong Kong and different regions in
the Mainland, including the Pan-Pearl River Delta Region (Article 19),
Pilot Free Trade Zones (Article 20), as well as Qianhai, Nansha and
Hengqin (Article 21), under a systematic framework. Responsible
agencies on the two sides will continue to enhance cooperation under
their respective purview in different regions.

A summary of major cooperation activities in the Ecotech Agreement is at

Annex. The Agreement came into force on the date of signing.

Conclusion

17. The Investment Agreement brings enhancement to the overall CEPA

framework through expansion of market access commitments to non-services
sectors and introduction of obligations on investment protection. The
Investment Agreement ensures stability in the investment regimes of both sides,
thereby upholding investors’ confidence and promoting investment
liberalisation and facilitation.
 -7-

18. The Ecotech Agreement consolidates and updates the economic and
technical cooperation activities set out in CEPA and its Supplements to cater for
the trend and needs for the development of Hong Kong and the Mainland. It
also builds the basis and sets the direction for closer cooperation between the
two places in future. The Ecotech Agreement includes the cooperation in the
economic and trade areas of the “Belt and Road” Initiative and Sub-regional
Cooperation under the systemic framework of CEPA, thereby providing Hong
Kong industries with conducive opportunities for participation in the national
development strategies.

19. With the two new Agreements, CEPA becomes a comprehensive

modern free trade agreement covering four important pillars of trade in goods,
trade in services, investment, and economic and technical cooperation. CEPA
ensures that Hong Kong traders continue to enjoy the most preferential
treatment in accessing the Mainland market.

ENQUIRIES

20. For enquiries on issues related to CEPA, please contact the relevant
sections in the TID with details listed below:

Subject Contacts
General Enquiries Tel. : 2398 5667
Fax. : 3525 0988
E-mail : cepa@tid.gov.hk
Rules of Origin, Certificate of Tel. : 3403 6432
Origin and Factory Registration Fax. : 2787 6048
(FR) E-mail : cepaco@tid.gov.hk
General Enquiries on Trade in Tel. : 2398 5676
Goods under CEPA Fax. : 2398 9973
E-mail : ma_registry@tid.gov.hk
Certificate of Hong Kong Service Tel. : 3403 6428
Supplier Fax. : 3547 1348
E-mail : hkss@tid.gov.hk

Trade and Industry Department

HKSAR Government
28 June 2017
 -8-

Annex

Agreement on Economic and Technical Cooperation

Major New Cooperation Activities

Areas Cooperation Activities

Cooperation in
Support professional institutions in promoting the

Legal and Dispute legal and dispute resolution services of the two
Resolution Services places, and building cooperation and exchange
platforms to enhance business exchange and
collaboration.

Support Hong Kong in establishing itself as a

centre for international legal and dispute resolution
services in the Asia-Pacific region.

Financial
Enhance the two-way cross-border Renminbi

Cooperation (RMB) fund flow mechanism and closer financial
cooperation between the two places, including
actively promoting the development of cross-
border investment activities, and increasing the
investment quota of RMB Qualified Foreign
Institutional Investors (RQFII) for Hong Kong.

On the basis of prudent risk management, study

further expansion of the scope of eligible securities
under the mutual capital market access scheme
between the two places in an orderly manner, set a
timetable for the establishment of an investor
identification mechanism under the mutual market
access scheme, and when the relevant conditions are
fulfilled, to realise the inclusion of exchange-traded
funds (ETFs) as eligible securities under the mutual
market access scheme. Actively support the
promotion of cooperation and connection between
financial infrastructures in the two places, including
the bond market.
 -9-

Areas Cooperation Activities

Review and assess the progress of the mutual

recognition of funds between the Mainland and
Hong Kong, and continuously adjust and enhance
the rules and regulatory policies on mutual
recognition in view of new situations and new
issues that arise in the course of the mutual
recognition process.

Continue to encourage Mainland enterprises to

issue bonds in RMB and in foreign currencies in
Hong Kong, promote the realisation of Mainland
enterprises issuing RMB-denominated stocks in
Hong Kong and making use of Hong Kong
platform to raise capital, and promote the full
circulation of H-shares.

Actively promote mutual access between bond

markets in the two places, including the active
promotion of mutual access between exchange-
listed bond markets in the two places. Support
Hong Kong’s development of offshore risk
management business for the Mainland financial
markets, and study the models of mutual access
between bonds, over-the-counter financial
derivatives and commodity derivatives markets in
the two places.

Cooperation in
Improve the operational mechanism of ongoing

Accounting convergence of accounting and auditing standards
between the two places, jointly contribute in the
international accounting and auditing standards
setting organisations, and facilitate the setting of
relevant high-quality international standards.

Support Hong Kong accounting professionals who

have qualified as Chinese Certified Public
Accountants to become partners of accounting
firms in the Mainland, and support Mainland
accounting professionals who have qualified as
 - 10 -

Areas Cooperation Activities

Hong Kong Certified Public Accountants to

become partners of accounting firms in Hong
Kong.

Support the accounting sector of the two places to

play a role in developing accounting and auditing
standards, as well as establishing the management
system of the accounting industry, and the
appointment of Hong Kong accounting
professionals as accounting advisory consultants.

Support Mainland accounting firms in setting up

representative offices, branches, and developing
member firms in Hong Kong.

Encourage accounting firms of the two places to

strengthen cooperation and exchanges in business
activities, such as deepening the development of the
“Belt and Road” Initiative, and the provision of
auditing services for listing of Mainland enterprises
outside the Mainland.

Cooperation in
Strengthen exchanges and cooperation between the

Innovation and two places in the area of innovation and technology,
Technology and through complementary advantages and
synergy effect, bring in outstanding international
research institutes and talent, and promote
technological research and development, and the
transfer of research and development results among
institutes and enterprises in the Mainland, Hong
Kong and overseas. In addition, the Mainland will
support Hong Kong in developing innovation and
technology industry in areas including robotics, bio-
medicine, smart city and financial technology, and
nurturing emerging industries.

Support the cooperation and exchanges of the

high-tech zones and co-working space between the
two places, encourage young people in Hong Kong
to innovate and develop start-up businesses, and
 - 11 -

Areas Cooperation Activities

promote the commercialisation of innovation and

technology. Enhance the communication and
exchanges of young entrepreneurial talents between
the two places, and provide them with room for
development.

Cooperation in
Strengthen exchanges between the two places

Electronic regarding cross-boundary data flow, and form a
Commerce joint working group to study feasible policy
measures and arrangements.

Cooperation in
Continue to enhance cooperation between the

Intellectual Property Mainland and Hong Kong in the areas of nurturing
talents and personnel training.

Promote cooperation between the Mainland and

Hong Kong in the implementation and exploitation
of intellectual property, intellectual property
intermediary services, intellectual property trading,
and handling of intellectual property disputes
through alternative dispute resolution (including
arbitration or mediation).

Continue to support the enhancement of Hong

Kong patent system, provide technical support and
assistance for the implementation of the patent
system in Hong Kong in various areas covering
substantive examination, review, post-grant patent
disputes, and automation services.

Support the cooperation in intellectual property

creation, exploitation, protection and the
development of intellectual property trading
between Guangdong and Hong Kong, promote the
publicity and education of intellectual property
between the two places, and assist the development
of high-end intellectual property service industry.
 - 12 -

Areas Cooperation Activities

Cooperation in
Strengthen exchanges and cooperation between the

Trademark and Mainland and Hong Kong in matters relating to the
Branding “Protocol Relating to the Madrid Agreement
Concerning the International Registration of
Marks”.

Quality Supervision,
Actively consider recommending an eligible

Inspection and certification body located in Hong Kong to join the
Quarantine (related International Electrotechnical Commission System
to Testing and of Conformity Assessment Schemes for
Certification) Electrotechnical Equipment and Components
(IECEE) as a National Certification Body (NCB)
of China.

Consider applications of eligible certification bodies

set up by Hong Kong enterprises in the Mainland
to become designated certification bodies under the
China Compulsory Certification (CCC) System.

Deepening
Establish an operational liaison mechanism, and

cooperation in strengthen information exchanges and
economic and trade communication on the “Belt and Road” Initiative
areas of the “Belt between the two places.
and Road” Initiative

Encourage the establishment of multi-level
communication channels by government
departments, industry organisations and investment
promotion agencies of the two sides for
information sharing.

Provide an exchange platform to support semi-

official organisations, non-official organisations and
the trade in the two places to play a part in
facilitating the implementation of the “Belt and
Road” Initiative.

Give full play to Hong Kong’s strengths in financial

services, professional services, logistics, trading, etc.,
and support the trade of Hong Kong in
participating in the development of various
 - 13 -

Areas Cooperation Activities

industrial parks and economic zones.

Support the trade of the two places to strengthen

cooperation, jointly participate in the major projects
of the “Belt and Road” Initiative, and jointly
explore the markets along the “Belt and Road”.
Support Hong Kong in providing professional
services for the “Belt and Road” Initiative, including
the provision of professional services such as legal,
dispute resolution, accounting and taxation services
in a market-oriented approach for Mainland
enterprises’ expansion into overseas markets and
investment projects. Support the cooperation
between the two places in the integration of large-
scale infrastructure projects in respect of
construction and operation.

Enhance publicity campaigns related to the “Belt

and Road” Initiative. Support Hong Kong in
organising high-level “Belt and Road” thematic
forums. Encourage Hong Kong investment
promotion agencies, industry associations and trade
organisations to launch activities, such as seminars
and training, relating to the “Belt and Road”
Initiative.

Deepening
Give full play to existing cooperation platforms and

Economic and liaison mechanisms to continue deepening
Trade Cooperation economic and trade cooperation in Pan-Pearl River
in Pan-Pearl River Delta Region.
Delta Region

Capitalise on the advantage of Hong Kong as an
international financial, trading and shipping centre,
strengthen cooperation of industries such as
finance, commerce and trade, technology, tourism,
etc., in the Pan-Pearl River Delta Region, promote
the expansion of mutual investment, and jointly
explore the international markets.

Encourage enterprises in the Pan-Pearl River Delta

 - 14 -

Areas Cooperation Activities

Region to utilise Hong Kong as a platform to

explore cooperation in investment with the
countries and regions along the “Belt and Road”.

Support the nine provinces/regions in the Pan-Pearl

River Delta Region to leverage their own advantages
to build various types of cooperation zones with
Hong Kong.

Actively promote the development of Guangdong-

Hong Kong-Macao Bay Area building on the
existing basis of economic and trade cooperation.

Supporting the
Make use of the economic and trade cooperation

Participation of mechanisms between the two places to enhance the
Hong Kong in the notification of policies and information exchanges
Development of between the two sides on the development of the
Pilot Free Trade Mainland Pilot Free Trade Zones.
Zones

Study the further liberalisation for Hong Kong
service industries in the Pilot Free Trade Zones
under the framework of CEPA. encourage Hong
Kong to participate actively in the national strategies
on major development through the Pilot Free Trade
Zones; capitalise on the strategy of “leveraging on
Hong Kong and Macao, serving the Mainland and
reaching out globally” of the China (Guangdong)
Pilot Free Trade Zone; and further promote the
liberalisation of trade in services between
Guangdong and Hong Kong.

Encourage Hong Kong micro, small and medium

enterprises and youth to start their businesses in the
Pilot Free Trade Zones.

Give full play to Hong Kong’s strength in the

aspects of investment management, trade regulation
and financial innovation, etc. to integrate with the
reform and liberalisation in the Mainland Pilot Free
Trade Zones, devise new modes of development
 - 15 -

Areas Cooperation Activities

and explore the potential for cooperation.

Deepening the
Give full play to existing cooperation platforms and

Cooperation liaison mechanisms to promote the deepening of
between Hong Kong cooperation between Hong Kong and Qianhai,
and Qianhai, Nansha and Hengqin.
Nansha and
Hengqin
Support Qianhai, Nansha and Hengqin in taking
forward further liberalisation to Hong Kong in key
areas such as finance, transportation and shipping,
commerce and trade, professional services and
technology on an early and pilot basis, and explore
new modes to deepen economic cooperation with
Hong Kong.

Promote the setting up of cooperation

demonstration zones for Guangdong and Hong
Kong talents, and support Hong Kong youth to
develop and start their businesses in Nansha,
Qianhai and Hengqin, for example, at Guangdong
Hong Kong and Macao Youth Entrepreneur Hub,
and Youth Innovation and Entrepreneur Hub, etc.