Supplement IX to the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) came into effect on 29 June 2012. The latest supplement expands, amongst others, the scope of business sectors covering telecommunications, computer and audiovisual services in Mainland China under which Hong Kong service suppliers will be given preferential access.
CEPA and Supplement IX
CEPA was first signed in 2003 between Hong Kong and Mainland China to offer preferential treatments for Hong Kong businesses to enter certain business sectors in China, most of which at the time were not yet open to other foreign investors under China's WTO commitments.
Various supplemental texts to CEPA were signed on an annual basis to expand the list and scope of the specific commitments under CEPA.
Supplement IX represents the latest round of expansion to the specific commitments under CEPA which cover various business sectors in the Mainland. We highlight the new commitments covering the ICT sector below:
- Database services– Hong Kong service suppliers are allowed to provide cross-boundary database services in Qianhai (of Shenzhen) and Hengqin (of Zhuhai) on a pilot basis; and to set up joint ventures (in which the Hong Kong service supplier's equity interest may go up to 50%) in the Mainland to provide database services. The database services cover: (i) internet data centre services; (ii) store and forward services; and (iii) content services.
- Offshore call centre services – Hong Kong service suppliers are allowed to set up wholly-owned enterprises or equity joint ventures (without any restriction on the equity interest which a Hong Kong service supplier may hold) in Dongguan and Zhuhai of Guangdong province on a pilot basis to provide offshore call centre services. This commitment is to be implemented in accordance with a notice issued by the Ministry of Industry and Information Technology of China (MIIT) in November 2010, which was discussed in our previous e-bulletin article.
- Technical services of cable television– Hong Kong companies engaging in the operation of cable television networks are allowed to provide professional technical services for cable television networks in the Mainland after obtaining the approval of the relevant Mainland authorities. Prior to Supplement IX, the geographical scope was limited to the Guangdong Province.
- Internet online service business premises – Hong Kong service suppliers are allowed to set up wholly-owned Internet online service business premises in the Mainland. Prior to Supplement IX, only joint ventures with the Mainland party holding majority interests are allowed.
Hong Kong service suppliers
Hong Kong service suppliers (which can be an individual, a company or a sole proprietorship) which have obtained a qualification certificate from the Trade and Industry Department of Hong Kong are entitled to enjoy the preferential treatments under CEPA. One of the key qualification requirements is that the service supplier must have engaged in substantive business operations in Hong Kong for at least three years. A Hong Kong company which has been acquired by or merged with a third party will be regarded as a Hong Kong service supplier one year after such an acquisition or merger.
Notwithstanding the various WTO commitments given by the PRC government, foreign investors have been finding it difficult to obtain the necessary foreign investment approvals in order to participate in the ICT sector in China. The CEPA route perhaps provides an alternative that foreign investors could take advantage of.