About CEPA for Mainland China and Hong Kong
When we were discussing the history of Hong Kong stock market in one of my finance classes yesterday, that term CEPA appeared as a positive factor to the market in history. Seeing that term again reminds me of one piece of news that I wanted to look into in August.
The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) was first signed in June 2003. And annual supplements have been signed between the two sides ever since. The objectives of the agreement are to “strengthen trade and investment cooperation between the Chinese mainland and Hong Kong and promote joint development of the two sides“.
In order to realize the objectives, the Agreement thus includes measures to facilitate trade in goods, trade in services, and cross-border investment. The latest supplement to CEPA will mainly focus on the last two areas. One of its major features is to support Hong Kong as an offshore yuan business center, which means that Hong Kong can manage the capital sent from the mainland. Another important feature will give Hong Kong’s service industry greater access to the mainland.
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I came to this term during the time when Chinese Vice-Premier Li Keqiang was visiting Hong Kong earlier last month. From 16 August, 2011, the Vice Premier had a three-day trip in Hong Kong and brought 36 new policies covering six major area from the central government to support the economical development in Hong Kong. The news was on the headline for most newspapers during that period and the policies was described as “36 gifts“.
The six covered area includes Trading, Finance, Social Affairs, Tourism, and Guangdong-Hong Kong cooperation.
A lot of the policies had to do with the Central Government’s 12th five-year plan (2011-2015) and the serious implement of the CEPA.
Below are some comments from China Daily which I found worthy thinking about:
Gifts to those who are in need BY SONG SIO-CHONG
About how Hong Kong can make good use of the new policies:
- About HK Service Industry: the service industry, contributing 93% of the city’s GDP, is becoming more and more saturated and causing great imbalance to the economy (many business would have to close). Under the new policies, these business can be expanded in Mainland China, serving for the great demand from rapid urbanization.
- About Joining WTO and Service Sector: When it joined the World Trade Organization (WTO) in 2001, China had promised to open 100 service sectors based on WTO classification. Meanwhile the CEPA as opened another 45 service sectors in HK and Macau alone. This means both SARs will be at an advantageous position to get accesses to these sectors.
- About free trading, “it has been a rare exception that Hong Kong has obtained reciprocal treatment”. “Seeing that the city is being marginalized in this respect, the Hong Kong government does not know how to play the current free trade game due to its lack of experience, expertise and initiative. Fortunately, Vice-Premier Li asserted during his visit his support for “Hong Kong to engage in multilateral and regional economic cooperation for greater development space”.
- About HK as Int’l Fin Center: Hong Kong is at a less rapid growth than its competitors and is already surpassed by Shanghai in ranking. The Central Government’s policies help to consolidate and upgrade HK’s standing -> the exchange-traded fund (ETF) constituted of Hong Kong-listed stocks will be launched
HK must make the most out of its ’36’ opportunities BY VIOLETTA YAU
The significance of these measures is obviously to fortify Hong Kong’s status as a global financial hub and to turn the city into an offshore yuan center.
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Among the most eye-catching measures are no doubt the long-awaited plans to allow Hong Kong holders of yuan to buy mainland-listed securities through the qualified foreign institutional investor (QFII) scheme. It will also allow mainlanders to invest directly in the local stock market via the so-called through-train scheme, as well as allow non-financial mainland companies to issue yuan-denominated debt in Hong Kong on a case-by-case basis capped at 25 billion yuan, and to use yuan in cross-border trade settlement.
Apart from serving as drivers to boost the city’s economy, these measures also have a two-fold meaning in that they can pave the way for the mainland to open up its capital account as well as advance the internationalization of the yuan through the city’s well-protected trading platform. For the mainland, the wider use of the yuan in foreign trade and settlement can certainly reduce reliance on the US dollar and exchange rate risks.
(About the hackers’ attack at HKEx )
To develop Hong Kong into a successful offshore yuan center, the SAR government needs to strengthen the city’s financial hardware capable of handling increasing yuan settlement volume, and its financial software as a safe and reliable trading platform.
About China turning Yuan into international currency:
One of those steps is to increase the number and amount of yuan-denominated financial instruments, especially bonds, issued outside the mainland.…Therefore, CEPA’s new supplement can create a win-win situation for both Hong Kong and the mainland. On the one hand, Hong Kong will have a golden opportunity to manage the yuan with a view to its eventual internationalization, which is the dream of many international financial centers. Furthermore, the yuan can raise Hong Kong’s profile and prestige in international financial markets.
Chloe Sha 