Background

  1. China has made a fundamental move to liberalise its telecommunications market. Hong Kong Government and Chinese Government have signed Supplement X ("Supplement X") to the Mainland and Hong Kong Closer Economic Partnership Agreement ("CEPA").
  2. Supplement X provides for a total of 73 services liberalisation and trade facilitation measures to enhance trade cooperation between the mainland and Hong Kong.
  3. With effect from 1 January 2014, 

  • Hong Kong service suppliers ("HKSS") can set up and own up to 55% in joint venture ("JV") enterprises in Guangdong Province to provide online data processing and transaction processing services

  • Contractual services providers ("CSP") can provide value-added services ("VAS"), including internet access services, call centre, offshore call centre and online data processing and transaction processing services (which are confined to e-commerce business websites), in the mode of movement of natural persons (以自然人流动的方式) in mainland.

  1. Any Hong Kong permanent resident or any legal entity constituted in Hong Kong qualifies as a HKSS, if it (i) has been engaged for 3 years in relevant business operations, (ii) occupies operating premises in Hong Kong, (iii) has paid profits tax in Hong Kong and; (iv) more than 50% of which staff are Hong Kong residents.
  2. CSP refers to a natural person who holds a Hong Kong identity document, possesses relevant qualification and is employed by a HKSS which does not have a commercial presence in the mainland. During his/her stay in the mainland, CSP shall be remunerated by the HKSS and can only be involved in the VAS concerned.

Significance of new measures

  1. Foreign investors, through an HKSS, will be able to own a majority interest (up to 55%) in a Guangdong-Province JV which provides online data processing and transaction processing services.

  • Before Supplement X comes into effect, foreign-investors can own no more than 50% in a JV which provides any value-added telecommunications service in China.

  • HKSS will be able to provide online data processing and transaction processing services (which are confined to e-commerce business websites only) in Guangdong Province.

  • "Online data processing and transaction processing businesses" (在线数据处理与事务处理业务) are defined to include transaction processing business, electronic data interchange (EDI) and network/electronic device data processing. "Transaction processing business" (交易处理业务) covers processing services for various banking operations, share transactions, payment, etc.

  1. A new mode of supply of VAS, namely by movement of natural persons, will be allowed for CSP employed by HKSS which do not have a commercial presence in the mainland.

  • "Presence of natural persons" is one of the four modes of supplying services under the General Agreement on Trade in Services of the World Trade Organisation.