Hong Kong and China signed a landmark free trade agreement yesterday, aimed at boosting the Asian financial center's ailing economy but which some say could further erode its political and economic autonomy.
"The agreement has given fresh momentum to Hong Kong's economic restructuring, new competitive advantages, and has also enhanced the relationship between Hong Kong and the mainland," Hong Kong's Chief Executive Tung Chee-hwa (董建華) told the audience of government officials and tycoons at the signing.
Chinese Premier Wen Jiabao (溫家寶) said 273 kinds of Hong-Kong origin goods would enjoy zero tariffs in the Chinese market from January and that thousands of others would enjoy zero tariffs in 2006.
Wen said the main problem for Hong Kong's economy was its unhealthy structure, as reflected by the high jobless rate and fiscal deficit in the territory.
"The high unemployment rate and the rising fiscal deficit, for example, are all symptoms of an unhealthy economic structure," Wen said.
The Closer Economic Partnership Arrangement (CEPA), which many see as a precursor to more aid from Beijing, will eliminate import tariffs on many goods made in the territory and is expected to save its exporters billions of Hong Kong dollars. Further details were to be released later yesterday.
The agreement is also expected to give Hong Kong firms, especially service industries such as banks and accountancy firms, greater access to China's rapidly growing market.
Analysts say expansion of the service sector is key to Hong Kong's competitive survival as it cannot beat China and many of its Asian neighbors on land and labor costs.
CEPA is China's first free trade deal and covers a range of items and industries. Business groups say it could provide a blueprint for talks between Beijing and Southeast Asian nations on forging the largest free trade zone in the world.
Last year, Hong Kong's domestic exports to China amounted to HK$41.4 billion (US$5.3 billion), just below HK$41.9 billion to the US, Hong Kong's largest domestic export market.
Signed by Chinese Vice-Minister of Commerce An Min (
However, some officials and economists say it offers relatively marginal economic benefits in the short term.
"We should not be too optimistic about the benefits," Hong Kong Commerce Secretary Henry Tang said recently.
Other measures, such as a revaluation of the Chinese yuan and allowing qualified domestic institutional investors to buy shares listed in Hong Kong, would likely eclipse the potential benefits of CEPA to Hong Kong, analysts say.
The Hong Kong General Chamber of Commerce estimated that CEPA could save Hong Kong manufacturers up to HK$4 billion on tariffs a year and create 4,500 to 9,000 jobs. But that is relatively small compared with the 300,000 people currently out of work in the territory.
"CEPA will be of little help to ease grievances in society. The entire community is dissatisfied with Tung's administrative approach," said Andy Ho, a political commentator.
The trade deal was signed just days before a mass rally tomorrow to protest against the Beijing-backed government's planned anti-subversion law. Critics say the law poses the biggest potential threat to the former British colony's freedoms since it was handed back to China nearly six years ago.
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