The Closer Economic Partnership Arrangement (CEPA) allowing Hong Kong companies easier access to the China Mainland market was born in the desperate days of SARS when the territory was struggling to stay alive, and Beijing had to step in to support an economy apparently on the verge of heart failure.
But now in the implementation phase, it looks like it is having a major booster effect on the economy of southern China as well as Hong Kong and Macao, while Taiwan and foreign firms also stand to benefit.
Under the terms of CEPA, which came into effect on January 1, China tariffs on many goods from Hong Kong have dropped to zero and Hong Kong firms are given WTO-style market access ahead of foreign firms. Local officials in Guangdong province next door are vying for the extra Hong Kong investment dollars that will flow in as a result.
A key issue is how to define a Hong Kong company under CEPA, and the answer appears to be that the rules do not address the issue of direct or indirect ownership. As a result, many foreign firms who own Hong Kong-registered firms should be able to benefit from CEPA.
The Hong Kong authorities are moving to take advantage of the new CEPA status, and held CEPA promotional seminars in Guangzhou in mid-February in conjunction with Macao, which enjoys the same privileged access as Hong Kong. The aim was to teach businessmen how to make best use of the provisions.
"Economic ties between the three have never been so strong and this is because of the two closer economic partnership arrangements," Tang Hao, deputy chief secretary of the Guangdong provincial government, was quoted as saying.
One shopping mall in Guangzhou is now calling itself "Hong Kong Zero-tariff Products City" to take advantage of the opportunity.
he CEPA development has had one other side effect which has benefited Hong Kong in an unexpected way – Taiwan investments in Hong Kong last year were up a startling 280% as companies rushed to take advantage of the easier market access provisions provided to Hong Kong-based companies. Most of the added investment came in the last two months of the year, after the full CEPA provisions were unveiled.