Remarks on the motion on
“Deepening the Mainland and Hong Kong Closer Economic Partnership Arrangement”
at the Legislative Council
on 15 June 2005

Madam President,

According to a government report submitted recently to the Panel on Commerce and Industry, the Closer Economic Partnership Arrangement (CEPA) has brought considerable benefits to both business enterprises and the Hong Kong economy as a whole.

For trade in goods, more than 3,000 certificates of origin were issued in 2004 under the first phase of CEPA (CEPA I), involving products with a total value of $1.15 billion which enjoyed tariff free treatment on importation into the Mainland. For trade in services, more than 660 companies have obtained the Hong Kong Service Supplier certificates in 2004. Services receipts generated in 2004 as a result of CEPA I totaled $1.6 billion. On the labour market, 29,000 new jobs have been and are forecast to be created for Hong Kong in the first two years of implementing CEPA I.

Despite the positive notes of the above-mentioned report and the subsequent implementation of the second phase of CEPA since 1 January of this year, some of the sectors, particularly the professional ones including engineering services, which I am most familiar with, are yet to derive the full benefits from CEPA.

It is widely known that the mutual recognition for engineering professionals between the Mainland and Hong Kong remains very restrictive in scope. It is true that 90 structural engineers from Hong Kong have just obtained the qualification certificates of the Mainland. But for all the other 16 disciplines and construction supervising engineers, there is still a long way to go. At present, efforts are being focused in construction supervising engineers. Even with the Mainland qualifications, this does not mean that the Hong Kong engineers concerned can start practice in the Mainland. There are still many other hurdles for them to clear. In this respect, the HKSAR Government must discuss with Mainland authorities for coming up with better arrangements.

The high requirement thresholds have also deterred the entry of the engineering contractors and engineering consultancy firms into the Mainland. For Hong Kong construction firms to set up a class-1 construction enterprise in the Mainland, the required registered capital is RMB60 million and the minimum number of professional staff is 300. Though the company's turnover and number of professional staff including those of its Hong Kong parent company are taken into account for entry assessment, it is unclear if the same condition holds for getting the annual approval as no details are provided in relevant documents. In addition, the Hong Kong company needs to obtain from the HKSAR Government a certificate of Hong Kong Service Supplier.

It is therefore not surprising that so far only 4 Hong Kong companies have successfully set up class-1 construction enterprises in the Mainland. As a matter of fact, the set-up of these newly established enterprises in the Mainland incurs very high overhead costs amidst the difficulties encountered by them in getting business in the Mainland.

Indeed, the Hong Kong engineering consultancy firms have been encountering similar problems. For Hong Kong firms to set up an engineering consultancy in the Mainland, the required registered capital is RMB6 million and the minimum number of engineering staff is about 80 plus a prescribed number of architects. Besides, there must be track records in specific project areas such as bridges, railways and tunnels etc for meeting the required qualification assessment. It is difficult for Hong Kong consultancy firms to meet these requirements. If they have to team up with the Mainland firms in the form of joint ventures, they may be subject to arbitrary practices of their partners such as unreasonably high charges for particular tasks. Their future growth may be adversely affected.

From the experiences of the engineering sector, there is still much room for refining and improving the detailed requirements of CEPA. It is therefore important for the government to consult the views of different sectors with a view to deepening CEPA for mutual benefits of both Hong Kong and the Mainland.