Manufacturers and traders in Hong Kong and Macao are making big inroads into Chinese mainland markets thanks to the Closer Economic Partnership Arrangement (CEPA).

And mainland consumers and some industries are expected to benefit from the free-trade pact, industry insiders said.

Under the arrangement, which took effect on January 1, 311 Hong Kong and Macao products are exempt from tariffs when exported to the mainland.

"These products account for around 90 percent of the exports from Hong Kong to the mainland," said Cliff Sun, vice-chairman of the Federation of Hong Kong Industries.

Cheered by the zero tariffs, more made-in-Hong Kong and Macao products will appear in stores and shopping centers in major cities on the mainland.

"We are planning to establish an office and stores in Beijing this year, then we may enter Shanghai and Guangzhou," said K.S. Yeung, senior product designer with Hong Kong-based Teamwise International Ltd, an exporter and manufacturer of watches, leather goods and fashion accessories.

"Previously we mainly focus on Hong Kong and European markets. Now CEPA offers us a gold opportunity to penetrate the mainland market, as the zero tariff pact will make our products more price competitive here," said Yeung while showing his products at the CEPA Promotion Expo held in Beijing by China Council for the Promotion of International Trade.

"For example," he pointed to a leather belt: "This will be sold at about US$8-10 if we export it to the mainland last year. Now we plan to price it at US$5 thanks to non-tariff."

Frankie Choi, an official from Trade and Investment Promotion Institute of Macao told China Daily that traders in Macao are also set to export more to the mainland.

Along with exporters and manufacturers, other Hong Kong and Macao businessmen welcomed CEPA.

"The arrangement not only facilitates trade, but also promotes economic interaction," Ng Wing Fai, deputy director of Widnell Ltd, a Hong Kong-based provider of services for building developments, civil and infrastructure projects, process and petrochemical installations, interior fittings and maintenance work.

"Under CEPA, a mutual acceptance system of different certificates on the mainland, and in Hong Kong and Macao is implemented. It brings convenience for us Hong Kong investors," Ng said.

Meanwhile, mainland consumers are happy at the coming inflow of low-price Hong Kong and Macao products.

Four large shopping centers have arranged to set up exclusive sales counters to showcase and sell made-in-Hong Kong products. These counters at SCITECH Plaza, Blue Island Plaza, Full Link Plaza Shopping Arcade and Zhongfu are expected to open this month.

"I will visit these counters as soon as they open," said 27-year-old Zhang Lei, an enthusiastic collector of bracelets in Beijing.

Mainland manufacturers will also take advantage of CEPA's zero tariff by investing and producing in Hong Kong and Macao, suggested Cliff Sun.

This helps them to slash costs by importing raw materials without paying tariffs.

"(Then) they may export their products with Hong Kong-origin labels back to the mainland under the zero tariff," Sun said.

But mainland manufacturers should cautiously use this strategy as other production costs may be higher than that on the mainland, Sun cautioned.

What is CEPA

The Mainland/Hong Kong Closer Economic Partnership Arrangement (CEPA), which went into effect on January 1, covers trade in goods services and investment facilitation.

Under CEPA, 273 goods of Hong Kong origin will enjoy zero-tariff treatment on the mainland. Zero tariffs will apply to all Hong Kong goods no later than January 1, 2006.

(China Daily January 8, 2004)