VZCZCXRO4524
OO RUEHCN RUEHGH
DE RUEHHK #2693/01 1801051
ZNY CCCCC ZZH
O 291051Z JUN 06
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7541
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 HONG KONG 002693 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/CM AND EB 
TREASURY FOR OASIA GKOEPKE 
STATE PASS USTR 
USDOC FOR 4420 
NSC FOR WILDER 
 
E.O. 12958: DECL: 06/29/2031 
TAGS: ECON PGOV PREL EFIN HK CH
SUBJECT: CPPCC CHAIRMAN'S VISIT FOCUSES ON ECONOMIC TIES 
WITH THE MAINLAND 
 
REF: HONG KONG 2587 
 
Classified By: EP Section Chief Simon Schuchat; Reasons: 1.4 (b/d) 
 
 
SUMMARY/COMMENT 
--------------- 
 
¶1. (C) Chinese People's Political Consultative Conference 
(CPPCC) Chairman Jia Qinglin visited Hong Kong June 27-29 and 
made a point on several occasions of commenting positively on 
Chief Executive Donald Tsang's leadership.  With the 
exception of the Civic Party, most pan-democratic legislators 
stayed away from Jia's welcoming banquet.  The chairman of 
PCCW, who has according to several accounts caused concern on 
the mainland by pondering foreign bids for his firm's assets, 
was noticeably absent from a meeting of Jia with Hong Kong's 
CPPCC members.  Jia celebrated the third anniversary of 
China's free trade agreement with Hong Kong, and the Chief 
Executive announced a small-scale expansion of that 
agreement, including the possibility of allowing for new 
(though not necessarily significant) areas of renminbi 
business in Hong Kong.  Jia credited the mainland with 
boosting Hong Kong's improving economic fortunes, and 
suggested that further economic development is key to healing 
local divisions.  He did not address calls for political 
reform or universal suffrage. 
 
¶2. (C) Jia built upon several years of China offering Hong 
Kong economic carrots, but brought nothing with him that is 
likely to have a measurable economic impact on the SAR. 
China has already played this card through several measures 
to date: expanded tourist flows, enlarged tariff-free trade, 
and stock listings.  There are few policy measures it can now 
offer Hong Kong that would be of sufficient economic 
significance to smooth out a future downturn caused by a 
slowing in the economies of China or the U.S., a development 
anticipated by many here.  END SUMMARY/COMMENT 
 
NUMBER FOUR IN TOWN 
------------------- 
 
¶3. (C) CPPCC Chairman Jia Qinglin led a 700-member delegation 
to Hong Kong June 27-29 principally to attend the "Mainland, 
Hong Kong and Macau Trade and Economic Cooperation Forum," 
which marked the third anniversary of the signing of the Hong 
Kong-PRC free-trade agreement, known as the Closer Economic 
Partnership Arrangement (CEPA).  Jia unveiled a package of 
measures that either expand -- or signal consideration of 
expanding -- a wide range of services preferences and aspects 
of renminbi business; these are detailed and commented upon 
at the end of this message. 
 
¶4. (C) This was the first official travel to Hong Kong by 
Jia, who ranks fourth in the PRC Politburo Standing 
Committee, since he was appointed CPPCC Chairman in 2003.  It 
was also the first visit to Hong Kong by a high-level central 
government official since the December 2005 defeat of Chief 
Executive Donald Tsang's proposals for constitutional reform, 
which were supported by Beijing.  The last senior leader to 
visit Hong Kong was Vice President Zeng Qinghong, who 
participated in the opening of the Hong Kong Disneyland theme 
park in September 2005. 
 
GUESS WHO'S NOT COMING TO DINNER 
-------------------------------- 
 
¶5. (C) During his visit, Jia also met with local political 
and business leaders and hosted a banquet to which all 
members of the Legislative Council (Legco) and Executive 
Council (Exco) were invited.  Although most of the Civic 
Party's Legco membership attended, 15 of the 23 
pan-democratic legislators did not show up.  Former Chief 
Secretary Anson Chan was also absent; she has been in the 
 
SIPDIS 
headlines over recent days for announcing her intention to 
join a pro-democracy march on July 1, the anniversary of the 
handover, and for encouraging others to join her.  PCCW 
Chairman Richard Li did not attend the dinner; he also 
skipped a previous meeting of Jia with CPPCC members, of 
which Li is one.  PCCW is Hong Kong's local fixed-line phone 
company and a major player in local internet and pay 
television.  Li's contemplated sale of the firm's telecom 
assets (he would retain real estate and other peripheral 
 
HONG KONG 00002693  002 OF 003 
 
 
businesses) to foreign bidders has, according to widely 
believed accounts, aroused opposition in Beijing. 
 
OVERALL THEME: FOCUS ON ECONOMIC DEVELOPMENT, SEEK HARMONY 
--------------------------------------------- --------- 
 
¶6. (C) Jia made no mention of local demands for political 
reform and universal suffrage, instead focusing on economic 
development.  He used his welcoming banquet address to extol 
the virtues of One Country, Two Systems, describing "Hong 
Kong's prosperity and stability as inseparable from that of 
the motherland."  He said that economic growth and 
improvement of people's lives offer the fundamental solution 
to Hong Kong's problems and challenges, suggesting that the 
city can retain its edge and remain an international 
financial, trade, and shipping center only if it focuses on 
economic development; in this way, the city will not be 
"marginalized."  (Comment: There is much debate and 
sensitivity here lately over the question of Hong Kong 
becoming marginalized as the mainland grows and further 
develops competitive logistics and services sectors.  The 
apparent corollary of Jia's statements is that 
marginalization could come with a failure to focus 
exclusively on economic development, i.e., to focus instead 
on divisive political issues.  End Comment.)  Jia went on to 
acknowledge -- without being specific -- that there are 
differing views in Hong Kong, emphasizing the importance of 
ensuring harmony and stability by putting "fundamental 
interests" above all else. 
 
SUPPORT FOR THE CHIEF EXECUTIVE 
------------------------------- 
 
¶7. (C) Media noted that Jia repeatedly heaped praise on the 
Chief Executive, saying that Donald Tsang and his government 
had helped to raise local confidence to the highest level 
since the handover.  Jia also made positive reference to 
Tsang's leadership during the CEPA celebration. 
 
SIPDIS 
 
EXPANSION OF CEPA 
----------------- 
 
¶8. (C) CE Tsang used the June 29 "Mainland, Hong Kong and 
Macau Trade and Economic Cooperation Forum" to announce new 
CEPA measures.  Key points: 
 
o Liberalization (or further liberalization) of preferential 
mainland access for Hong Kong companies operating in 10 
sectors starting next year, namely: legal, construction, 
information technology, convention and exhibition, 
audiovisual, distribution, tourism, air transport, road 
transport, and individually owned stores.  Examples of 
applicable measures include a reduction in barriers and 
hiring quotas affecting Hong Kong law firm offices that wish 
to have Hong Kong-hired staff do business on the mainland; 
establishment of wholly-owned construction consulting 
enterprises on the mainland; establishment of wholly-owned or 
joint venture travel agencies in Guangdong Province to 
operate group tours to Hong Kong or Macau. 
 
o There has been progress on establishing rules of origin for 
Hong Kong exports to China.  (All such products are 
potentially eligible for tariff free treatment under existing 
CEPA provisions.) 
 
o The State Council will consider the expansion of renminbi 
business in Hong Kong.  Such activities are presently limited 
to specific transactions and banking services, none of which 
involve the issuance of loans or securities.  Hong Kong 
importers may soon be permitted to settle direct import trade 
from the mainland in renminbi.  Financial institutions on the 
mainland may be able to issue renminbi denominated bonds in 
Hong Kong on a pilot basis. 
 
LIMITED IMPACT OF RENMINBI MEASURES 
----------------------------------- 
 
¶9. (C) Hong Kong Monetary Authority Deputy Chief Executive 
William Ryback told us he expected the contemplated renminbi 
reforms to be implemented very gradually and have only a 
modest impact.  The more visible outcome might be more dual 
pricing of goods in renminbi and HKD and a wider use of 
renminbi in transactions in Hong Kong.  In the long term this 
 
HONG KONG 00002693  003 OF 003 
 
 
could lead to marginalization of the Hong Kong dollar.  Other 
observers have pointed out to us that any issuance of 
renminbi bonds here will be done very carefully: offshore 
instruments priced in renminbi potentially open up the 
prospect of investors essentially making an independent 
assessment of the renminbi's "real" value by bidding up the 
bond prices to reflect an imputed value for the currency. 
This could be seen as a competing assessment to the exchange 
rate now so carefully managed by the central government in 
Beijing. 
 
NICHE IMPACT FOR CEPA EXPANSION 
------------------------------- 
 
¶10. (C) The new CEPA provisions are minor extensions to 
services provisions that to date have had a minor impact on 
Hong Kong's economy.  CEPA has so far been most visible as a 
booster of tourism from the mainland, a result of commitments 
by China to allow individual visits by some of its citizens 
to Hong Kong.  The ensuing expansion of the individual 
visitors program throughout cities in Guangdong and beyond 
has been a key element of Hong Kong's above-trend economic 
growth since the end of the SARS outbreak in the summer of 
2003; the new CEPA provisions do not have the potential to 
significantly boost these tourist inflows.  CEPA has also 
been credited with boosting Hong Kong's image in the eyes of 
foreign investors, with expanding opportunities in service 
sectors like banking and logistics, and with niche gains in 
manufacturing.  Taken together, CEPA is estimated to have 
created 30,000 jobs since it went into effect on January 1, 
¶2004. 
Cunningham