VZCZCXRO3809
PP RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHVC
DE RUEHHK #0880 1340122
ZNR UUUUU ZZH
P 140122Z MAY 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 7606
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS HONG KONG 000880 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: HONG KONG AND MAINLAND EXPAND ECONOMIC PARTNERSHIP 
ARRANGEMENT 
 
¶1. Summary and Comment: Government officials from Hong Kong 
and the PRC agreed on May 9 to accelerate the implementation 
of the sixth annual supplement to the Closer Economic 
Partnership Arrangement (CEPA).  The latest supplementary 
agreement will take effect sooner than expected (on October 
1) to help offset the effects of the global economic 
downturn.  The PRC will liberalize investment and trade 
practices in 20 service sectors, with significant impact 
expected in the financial services and professional trades 
(e.g. law, medicine, accounting).  Supplement VI will likely 
boost the flow of direct service sector investments by Hong 
Kong companies and individuals into the PRC.  Such 
investments will provide an attractive growth opportunity for 
Hong Kong-based investors, while enhancing the skill sets and 
performance capabilities of the PRC's legal, medical and 
other service sector professionals. End summary and comment. 
 
Expanding CEPA 
-------------- 
 
¶2. The Hong Kong government (HKG) and the PRC on May 9 signed 
the sixth supplement to their CEPA.  Since its initial 
implementation on January 1, 2004, the CEPA has liberalized 
trade, investment and the provision of services between Hong 
Kong and Mainland China (especially Guangdong Province).  The 
CEPA has played a major role in building and accelerating the 
already significant economic ties between Hong Kong and the 
Mainland.  According to the HKG's Trade and Industry 
Department, Hong Kong was the PRC's largest source of foreign 
direct investment (FDI) as of August 2008, accounting for 
almost 40 percent of the total.  Meanwhile, the PRC remains 
Hong Kong's largest trading partner and source of FDI. 
 
¶3. Under the sixth annual supplement to the CEPA, the PRC 
will introduce 29 liberalization measures covering 20 service 
sectors, including two new sectors (research and development, 
and rail transport).  Supplement VI will take effect on 
October 1, 2009, three months ahead of the usual January 1 
implementation date for the previous five CEPA supplements. 
The HKG cited the desire to accelerate the benefits of the 
new measures during the current economic downturn. 
 
Financial Services and Professional Trades to Benefit 
--------------------------------------------- -------- 
 
¶4. Supplement VI will enable Hong Kong-based banks to expand 
their operations in Guangdong Province.  The banks' branches 
in Guangdong will be allowed to open "sub-branch" service 
locations anywhere in the province.  Hong Kong securities 
companies will also be allowed to own up to one-third of 
joint venture securities investment advisory companies 
located in Guangdong.  Mainland securities companies approved 
by China's Securities Regulatory Commission will be allowed 
to establish subsidiaries in Hong Kong.  In addition, the PRC 
will lay the groundwork to allow Chinese residents to 
purchase index-tracking exchange-traded funds of Hong 
Kong-listed stocks.  This could significantly boost 
Mainlanders' financial investments in shares traded on the 
Hong Kong stock exchange. 
 
¶5. The PRC agreed to liberalize the provision of legal 
services by allowing Hong Kong lawyers to practice law in the 
PRC.  They must have at least five years' professional 
experience, pass the PRC State Judicial Exam, and undergo one 
month of additional training and a subsequent assessment by 
one of the Mainland's lawyer associations.  Supplement VI 
also includes several measures to encourage technical 
exchanges and mutual recognition of other professional 
qualifications in sectors such as medicine, accounting, 
construction and real estate.  Government officials and 
industry observers in Hong Kong believe these steps will 
raise the level of cross-border investments, especially into 
Guangdong Province, while boosting the technical competence 
and professional standards of Mainland professionals. 
DONOVAN