Advantages of Conducting Business Activities Involving Mainland China
As has been mentioned, China has the largest population in the world. Therefore, there is a massive consumer market of which many a company owner could take full advantage. The economy of China is also growing rapidly. It is today the world’s second-largest economy. Some predict that it will soon surpass the United States as the world’s largest.
Many of Hong Kong’s business owners consider mainland China to be a primary growth market. Due to the large profits which might be gained through successful business operations in Hong Kong, many companies are inclined to expand there. Furthermore, there are close cultural and linguistic ties between Hong Kong and mainland China. This is especially true of the region of China known as the Pan-Pearl River Delta region.
Hong Kong is also a part of this region. The government of Hong Kong has formulated specific policies which facilitate business activities and collaboration involving both Hong Kong companies and mainland China companies in that region. Thus, through these policies, business and economic ties between mainland China and Hong Kong may be strengthened.
Mainland China and Hong Kong Closer Economic Partnership Agreement
The governments of mainland China and Hong Kong have signed the Mainland and Hong Kong Close Economic Partnership Agreement (CEPA). The CEPA was first signed in June 2003. This economic agreement has facilitated business exchanges between Hong Kong and mainland China in several different ways.
Among these methods are the following:
- Tariff reductions on certain goods exported by Hong Kong companies to mainland China
- Measures intended to facilitate bilateral exchanges of goods as well as people and capital
- Definitions of fields for co-operation between mainland China and Hong Kong as well as registration procedures and verification of certificates of origin
- Preferential opening of mainland China’s market to all Hong Kong-based service providers in 18 different sectors
The CEPA is similar to other trade agreements around the world with regard to its structure and features. Both governments involved intend to continue using this agreement to benefit companies based in both Hong Kong and mainland China. As Hong Kong and China are separate members of the World Trade Organization (WTO), the CEPA thus conforms to the regulations set by the WTO.
The four areas prioritized by the CEPA are trade of goods, trade of services, investment, and economic & technical cooperation. The CEPA has made it so that all goods that leave Hong Kong for mainland China are not subject to the effects of any tariffs as long as the rules of origin are fulfilled. This has been the case since 2006. In 2018, the governments of China and Hong Kong signed the Agreement on Trade in Goods which served to reinforce the provisions stated in the CEPA.
The CEPA also facilitates the trade of services between Hong Kong and mainland China. This is because it provides preferential treatment to all suppliers of services in Hong Kong which expand their business operations to mainland China. Among the examples of the preferential treatment include the following:
- Relaxed requirements on equity shareholding
- Relaxed restrictions linked to geographical location and business scope
- Permission for operations in China to be fully Hong Kong-owned
- Reduced registered capital requirements
In 2017, the Agreement on Economic and Technical Cooperation was formed in order to update and reinforce the related activities which were specified in the CEPA. This agreement was also more able to cater to the needs of business owners in Hong Kong and mainland China alike. It also incorporated economic elements from China’s Belt and Road Initiative into the CEPA’s framework. In this way, businesses in Hong Kong would become more able to actively participate in business activities in China.
The CEPA has also been enhanced through the Investment Agreement. The Investment Agreement was signed by mainland China and Hong Kong in 2017. It served to expand market access commitments to non-services sectors in both locations. It also introduced specific obligations related to investment protection. Thus, investors have become more likely to invest in Hong Kong companies operating in mainland China. This has in turn made more Hong Kong companies expand their business operations to China; they are now more likely to receive income through external investments.
On that note, we at Paul Hype Page & Co are able to serve anyone who would like to establish a company of their own in Hong Kong. Our incorporation team will guide you through each step of the process so that your company will be incorporated according to the details of the Companies Ordinance. Through our services, you can be certain that your Hong Kong company incorporation will be completed in an accurate and timely manner.