Thu, Jul 17, 2003 - Page 10 News List

Trade pact between HK, China downplayed

By Jessie Ho  /  STAFF REPORTER

The free-trade pact recently signed between Hong Kong and China may encourage foreign investors moving out of Taiwan to take advantage of the former British colony's closer trade and commercial ties with China, a new government report has warned.

The Bureau of Foreign Trade report, released Tuesday, said the signing of the Closer Economic Partnership Arrangement (CEPA) between China and Hong Kong on June 29 would not hurt the nation's manufacturing sector but may have an unfavorable influence on its service sector.

The pact takes effect next year.

Under the pact, 17 of Hong Kong's service industries -- including legal, medical and dental, exhibitions and conventions, construction and real estate, securities and insurance, transport and banking -- will be able to open businesses in China without having to form joint ventures with Chinese partners, the report said.

Analysts, however, said the government's concern is unwarranted.

"The arrangement is set to strengthen economic relations between China and Hong Kong, not to attract more foreign capital," said Chou Tien-chen (周添城), an economic professor at the National Taiwan University.

Chou said companies that exploit the Chinese market have either been in the market for a while or have cooperated with Hong Kong since 1997.

"Furthermore, trying to avoid having to set up joint ventures with Chinese companies is not the only consideration for foreign companies looking for business partners," Chou said.

The pact aims to give Hong Kong an advantage over Taiwan or Singapore in trade with China, so foreign firms may work with those in Hong Kong to tap the Chinese market in the short term, said Frank Fu (傅豐誠), a research fellow in Chung-hua Institution for Economic Research (中經院).

But Hong Kong's advantages may be short-lived because China has to comply with WTO rules and open up its markets to all WTO members in 2005, which means it can't treat domestic and foreign companies differently, Fu said.

As the new pact will offer lower tariffs and other benefits in both goods and services between the two places, some multinationals may work with Hong Kong to pave a way to the lucrative Chinese market, said Guy Wittich, chief executive officer of the European Chamber of Commerce in Taipei.

"But what effect it will have is hard to say at the moment, as a considerable number of foreign companies have developed their business in China via joint ventures with local firms for quite a period of time," Wittich said.

The pact stipulates that 273 products exported from Hong Kong to China will be tax free, with the number of items given tax-free status gradually increasing to 4,000, or 90 percent of the territory's exports to China.

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