China's mainland and Hong Kong will embrace even closer economic ties during the third anniversary of the Closer Economic Partnership Arrangement (CEPA) this July.

The two sides are expected to sign a further agreement launching a series of measures to boost economic cooperation, particularly in service trade, such as further opening up of renminbi services and allowing Hong Kong professionals to "go north."

China's central government might allow banks in Hong Kong to provide more renminbi services, as mentioned by Premier Wen Jiabao during his visit to Africa.

"It might make it possible for mainland traders to use renminbi settlement in Hong Kong," said a source close to the situation. So far, renminbi business in Hong Kong includes deposit, withdrawal, exchange and remittance services.

Meanwhile, the central government might agree to lower the threshold of Hong Kong doctors, lawyers and accountants entering mainland markets, sources said.

Details of the possible agreement are expected to be announced today in Hong Kong at a ceremony marking the anniversary.

China's Vice-Minister of Commerce Liao Xiaoqi said in an earlier interview the new round of opening up should focus on the mainland's service trade market.

"In the long run, co-operation in the service trade will play a larger role than cargo trade," he said.

He explained that Hong Kong enjoys a competitive advantage in the service sector, but mainland companies still have a lot to learn in the area. And opening up the mainland market to Hong Kong will help mainland companies to improve before the markets are completely open to all foreign investors.

So far the mainland has opened up 27 service sectors, such as logistics, distribution, tourism and banking, to investors from Hong Kong.

Some sectors have been opened up one to three years ahead of the World Trade Organization timetable the government committed to. Restrictions on wholly owned companies have been lifted in some areas, and qualification or registration of capital for investors has been lowered in some sectors for Hong Kong businesses.

The CEPA, the free trade pact within China, was officially launched at the beginning of 2004, covering trade in goods, services and investment facilitation. Two additions were made to the agreement later in 2004 and in 2005.

"The arrangement was largely designed to facilitate Hong Kong people's business on the mainland," Liao said. "Because the Hong Kong market has already been totally opened to all traders and investors from all over the world."

The goods trade sector has been the first to benefit from the free trade pact.

According to the General Administration of Customs, a total of US$600 million worth of Hong Kong goods was exported to the mainland by the end of May, saving 400 million yuan (US$50 million) in tariffs.

The categories benefiting from the agreement have been broadened to 1,370 items from 374 items in 2004, ranging from pharmaceutical products, plastic products and textiles to food and jewellery. The mainland has now eliminated import tariffs on all cargo originating from Hong Kong.

By the end of May, the Hong Kong Trade and Industry Department had received 13,627 applications for certificates of Hong Kong origin and had approved 13,037.

To most experts, however, compared with the flow of tangible goods, the other two aspects of the CEPA, service trade and trade and investment facilitation, are more important.

"Free trading goods are welcomed and easy to understand (by the public)," said Mike Rowse, director-general with Invest Hong Kong, an agency specializing in promoting foreign direct investment to the city.

"But (trade and investment facilitation) is taking a strategic perspective. Looking at 10 years or 20 years ahead, it is that aspect of the CEPA that's the most important one."

Rowse said this is because the CEPA facilitates the central government and the Hong Kong government talking to each other every year and agreeing to further measures that make business easier.

Annual discussion between the central government and Hong Kong in previous years has enabled mutual recognition of professional qualifications and facilitation of business visas and the individual tourism scheme.

(China Daily June 29, 2006)