CEPA Benefits Hong Kong Economy and Business Enterprises

For more information, please contact:
Melissa Ng at 212-752-3320
Daniel McAtee at 202-238-6360
Wing Yan Tong at 415-835-9315

June 12, 2007 - The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) continues to bring benefits to both business enterprises and the Hong Kong economy as a whole, according to the Administration’s second study on the CEPA’s economic impact.

The report of the study, which covers trade in goods, trade in services and the Individual Visit Scheme (IVS), has been submitted to the Legislative Council’s Panel on Commerce and Industry.

The report sets out findings on the economic impact of CEPA liberalization measures implemented between 2004 and 2006, and also made forecast of the CEPA’s impact on the Hong Kong economy in 2007 and beyond.

For trade in goods, 89% of the responding companies considered CEPA beneficial to the Hong Kong economy, and 77% considered the preferential trade arrangement beneficial to the manufacturing sector.

It was found that CEPA induced additional capital investment in the manufacturing industry in Hong Kong, amounting to US$39.1 million (HK$305 million) in 2005 and 2006, and a planned investment of US$30.64 million (HK$239 million) in 2007 and beyond.

As at end-May, more than 23,000 certificates of origin were issued involving more than US$1.06 billion (HK$8.3 billion) worth of exports which were entitled tariff free treatment upon importation into the Mainland. Most commonly exported products include pharmaceutical products, plastics and plastics articles, and textiles and clothing.

For trade in services, 74% of the responding companies considered CEPA beneficial to the Hong Kong economy and 92% considered CEPA beneficial to their own business.

It was found that CEPA had induced additional capital investment in the services sectors in Hong Kong at a cumulative amount of US$615.38 million (HK$4.8 billion) by 2006, representing an increase of 380% over the amount in 2004. The planned investment is expected to be US$307.69 million (HK$2.4 billion) in 2007 and beyond.

As at end May, 2007, more than 1,070 Hong Kong Service Supplier (HKSS) applications were approved and almost 1,780 certificates issued. Services areas with most applications include transport and logistics services, distribution services, advertising, and construction services.

Under the IVS, Mainland residents made 17.2 million trips to Hong Kong as of end-2006 under the program, accounting for 39% of all the Mainland visitors. These IVS visitors have generated an additional US$1.19 billion (HK$9.3 billion) in tourist spending in 2006, which was almost 38% higher than that in 2004.

Regarding the impact of CEPA on the labor market, it was estimated that about 36,000 new jobs had been created for Hong Kong between 2004 and 2006, with 1,000 of them being created for Hong Kong residents on the Mainland. It was expected that more than 3,600 additional new jobs would be created in Hong Kong in 2007 and beyond.

Following the implementation of the new facilitation policy for Mainland enterprises to invest in Hong Kong and Macau in end August 2004, a total of 603 Mainland enterprises were granted approval for coming to invest in Hong Kong between September, 2004, and December, 2006. The amount of planned investment was US$3.9 billion.

The study also provides a qualitative assessment on the intangible CEPA benefits to Hong Kong economy which are not readily quantifiable. Among others, CEPA has provided a new economic platform for Hong Kong to further develop its business relation with the Mainland on a long-term basis. CEPA has also helped rebuild and reinforce confidence in the economy after the prolonged period of economic slowdown caused by the Asian financial crisis and aggravated by the SARS outbreak.

The first study on the economic impact of CEPA, which focused on the first phase of CEPA, was completed in April, 2005. In late 2006, the Government decided to conduct a second assessment to update the CEPA’s economic impact pursuant to further liberalization under CEPA.

The second study is also in line with a recommendation made by the Focus Group on Trade and Business established under the Economic Summit on “China’s 11th Five-year Plan and the Development of Hong Kong” conducted last September, proposing that the Government should carry out research on the economic benefits of CEPA to Hong Kong.

The study was conducted by the Commerce, Industry and Technology Bureau, in collaboration with the Trade and Industry Department, the Economic Analysis and Business Facilitation Unit, and the Census and Statistics Department in the fourth quarter of 2006 and the first quarter of 2007. The Hong Kong Tourism Board also provided useful input. Questionnaires were sent to more than 2,600 enterprises in the manufacturing and servicing industries for the study.