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First established in 2003, CEPA is Hong Kong’s very first FTA (Free Trade Agreement) since its handover to Mainland China. It is designed to enhance economic cooperation and integration between Hong Kong and the Mainland market. Although part of China, Hong Kong has always maintained a hard customs boundary – as such, different regulations and tariffs apply. CEPA smoothens out these variations.
Author: Yami Ng, Trainee Solicitor
Hong Kong has been often recognized as the world’s freest business market, enjoying numerous competitive advantages over among others, the Mainland. Freedom of capital movement and low taxation, make it an attractive destination for investment and trade. The CEPA framework comprehensively covers the trade and economic relationship between Hong Kong and the Mainland, focusing on four key areas: trade in goods, economic and technical cooperation, trade in services and investment. It fosters a more favorable business environment and facilitates smoother access to the markets and resources of both jurisdictions.
A standout feature of CEPA is its nationality-neutral approach, which imposes no restrictions on the source of capital, thereby allowing capital to be sourced from various origins. For instance, products made in Hong Kong that meet CEPA’s rules of origin can benefit from zero-tariff preferences upon importation into the Mainland, which enhances the competitiveness of Hong Kong goods in the Mainland market, compared with goods imported from other regions. Moreover, CEPA provides preferential access to enterprises and individuals recognised as Hong Kong Services Suppliers (HKSS) in most services sectors in the Mainland market. Such advantages position Hong Kong as a strategic gateway for international investors seeking a springboard to enter one of the world’s largest economies.
Expanding Horizons
As markets develop and business needs evolve, FTA’s like CEPA need to follow suit in the form of updates and amendments. The Amendment Agreement II was signed in October 2024 by the Ministry of Commerce and the Hong Kong Government and is expected to be implemented in March 2025. This expansion focuses on trade in services, offering Hong Kong enterprises and professional sectors a more preferential treatment to tap into the Mainland market effectively.
The Amendment introduces new liberalisation measures across several sectors, providing multiple competitive advantages for Hong Kong, such as removal of equity shareholding restrictions, relaxation of business scope and qualification requirements for professionals. As a result, setting up and developing business in the Mainland will become easier for HKSS.
The new liberalisation measures cover sectors such as tourism, financial, construction and related engineering services, film services, television services, telecommunication services and more. Among these, tourism and financial services stand out:
Tourism
CEPA optimises the current 144-hour visa exemption policy for foreign travellers entering Guangdong from Hong Kong by adding 21 new inbound control points and expanding the area allowed for stays throughout Guangdong Province. Eligible foreign travellers transiting through China will be permitted to stay up to 240 hours, which is a significant extension of time.
Financial services
CEPA removes the current asset requirements of not less than USD 2 billion as at the end of the most recent year of Hong Kong financial institutions aiming to invest in shares of insurance companies. Moreover, it removes restrictions prohibiting foreign bank branches established by HKSS from conducting bank card services. As a result, investors will find it easier to access the Mainland insurance market, and funds can attract more inbound capital.
Institutional Innovation and Collaboration Enhancement
In addition to the new liberalisation measures, the Amendment Agreement II introduces institutional innovation and collaboration enhancements, including:
“Allowing Hong Kong-invested enterprises to adopt Hong Kong law” and “choice of arbitration to be seated in Hong Kong” as facilitation measures for Hong Kong investors. This enables Hong Kong companies operating in the Mainland to enjoy the flexibility and freedom to select the applicable law they are most familiar with and Hong Kong as the seat of the arbitration for their contracts.
Removal of the period requirements on HKSS to engage in substantial business operations in Hong Kong for 3 years in most services sectors, i.e. financial services, tourism, trading and logistics, and professional services. This allows Hong Kong start-ups to not only enjoy preferential treatment under CEPA more swiftly but also attracts more global talents and companies to establish a presence in Hong Kong and explore the Mainland market.
CEPA supported Hong Kong: a gateway for EU investors
Hong Kong continues to serve as an important connection between China and the European Union (EU), offering high-value opportunities for EU companies looking for a springboard to enter the Mainland market. For instance, EU companies can establish new manufacturing operations in Hong Kong, allowing their products to be qualified for the CEPA’s rules of origin and benefit from zero tariffs in the Mainland market. Further, by taking advantage of intellectual property right protection in Hong Kong, EU investors can manufacture products with considerable intellectual property content and export them tariff-free to the Mainland market.
Since CEPA enables and regulates these opportunities profoundly, it fosters a conducive environment for mutual growth and enhances EU companies’ ability to navigate the complexities of the Mainland market. With the ongoing development of CEPA, Hong Kong’s role as a gateway for EU business is likely to expand, further strengthening the economic ties between Hong Kong and the EU.
Strengthening Economic Ties Through CEPA
CEPA not only solidifies the economic relationship between Hong Kong and Mainland, it also acts as a vigorous platform for foreign investors. The ongoing developments of CEPA are essential for shaping the future of trade and investment between Hong Kong and Mainland. The Amendment Agreement II reflects a commitment to enhancing economic ties and ensures both sides remain competitive on the global stage. With its ambitious framework, CEPA stands as the most liberal Free Trade Agreement of the Mainland, opening up exciting new opportunities for business and professionals alike.
Disclaimer: Whilst every effort has been made to ensure the accuracy of this article it is general in nature and does not constitute legal advice of any kind. You should seek your own personal legal advice before taking legal action. We accept no liability whatsoever for loss arising out of the use or misuse of this article.
For specific advice about your situation, please contact:
Yami Ng
Trainee Solicitor
+852 2388 3899
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