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Hong Kong, China sign landmark free trade deal

Alison Leung and Vicki Kwong in Hong Kong | June 30, 2003 12:48 IST

Hong Kong and China signed a landmark free trade deal on Sunday, but critics say it offers only marginal economic benefits to the Asian financial centre and could further erode its political autonomy.

"The agreement has given us an opportunity that our neighbouring countries can only dream of," Financial Secretary Antony Leung told a news conference after the signing.

The Closer Economic Partnership Arrangement, which many see as a precursor to more aid from Beijing, will eliminate mainland import tariffs on many goods made in the territory, saving exporters billions of Hong Kong dollars in the long term.

"This agreement has not only given Hong Kong new impetus and advantages. It will also boost Hong Kong people's confidence in overcoming difficulties and reaching out for victory," Chinese Premier Wen Jiabao told officials and tycoons at the signing.

But some commentators have questioned the timing of the deal, the first ever wide-ranging free trade agreement signed by China, and see Hong Kong's rush to enact anti-sedition laws as a sop to Beijing in return for economic favours.

"Hong Kong has been asking for help from Beijing and therefore, Beijing feels bound to be more involved in Hong Kong affairs. This is certainly unhealthy for the maintenance of the 'one country, two systems' framework," said Joseph Cheng, a politics professor at the City University of Hong Kong.

Under the framework, agreed before Britain returned Hong Kong to China in 1997, the territory was guaranteed a high degree of autonomy for 50 years. But critics say political freedoms are being eroded as Hong Kong becomes more integrated with China.

From January 1, China will eliminate tariffs on 273 types of Hong Kong-made goods, accounting for about 67 percent of its exports to the mainland and covering electrical and electronics products, textiles, clothing and jewellery among others.

The government said Hong Kong exporters would save HK$750 million (US$96 million) a year in reduced tariffs under the deal, much lower than the HK$2-4 billion economists had expected.

But the two sides are still negotiating over the definition of "Made in Hong Kong" under the deal. Officials said they hoped to reach agreement on those terms in coming months.

China has also agreed to waive tariffs on all other Hong Kong-made goods by January 1, 2006.

Services the key

The agreement also opens up 17 sectors in China, including banking and financial services, giving Hong Kong firms greater access to the mainland's vast and rapidly growing markets.

Analysts say expansion of the services sector is key to Hong Kong's competitive survival as it cannot beat China and many of its Asian neighbours on land and labour costs.

The asset requirement for Hong Kong banks to set up branches in China will be slashed to US$6 billion from US$20 billion.

Hong Kong firms will also be allowed to set up wholly owned companies to provide management consulting, advertising, distribution and logistics, and will be able to take up to 15 percent of capital in mainland insurance companies next year, up from the present 10 percent.

Such moves are a big concession by China, which has been loath to give up control of its firms to foreign interests.

Last year, Hong Kong exports to China amounted to HK$41.4 billion (US$5.3 billion), just below HK$41.9 billion to the United States, Hong Kong's largest export market.

Extent of benefit in doubt

The agreement is widely seen as a gift from China to Hong Kong, aimed at restoring the city's battered business confidence. But some officials and economists say it offers relatively marginal economic benefits in the short term.

Other moves by Beijing, such as a potential revaluation of the Chinese yuan currency and allowing Chinese investors to buy shares listed in Hong Kong, would likely have far greater benefits for Hong Kong, analysts say.

The trade deal was signed just days before a mass rally on July 1 to protest against the Beijing-backed government's planned anti-subversion law. Critics say the law poses the biggest potential threat to the former British colony's freedoms since it was handed back to China nearly six years ago.

Additional reporting by Rico Ngai, Carrie Lee, Daisy Ku, Wendy Lim and Joy Leung.

 


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