Mainland China inks new services trade agreement and issues negative list for Hong Kong investors

China further liberalises restrictions on market entry and the provision of cross-border services

On 27 November 2015, the authorities of Mainland China and the Hong Kong Special Administrative Region concluded an Agreement on Trade in Services (the “China-HK Agreement”) to mutually liberalise the service trade between both sides with effect from 1 June 2016. A similar agreement was signed between the authorities of Mainland China and the Macao Special Administrative Region on 28 November 2015.

The China-HK Agreement establishes a new framework which combines and supplements the
approaches taken in the Closer Economic Partnership Arrangement (“CEPA”) and the agreement between Guangdong Province and Hong Kong (the “Guangdong-HK Agreement”, on which we reported in January).

Salient features of the China-HK Agreement are:

  • regional benefits extended nationwide: the China-HK Agreement largely extends the benefits available to qualified Hong Kong service providers under the Guangdong-HK Agreement (see our earlier alert) on a nationwide basis throughout the PRC, though a number of benefits (such as certain benefits in the financial services sectors) still apply only to Guangdong;
  • domestic and foreign-invested service providers treated equally: national treatment between domestic service providers in the PRC and commercial presences (such as entities, branches and representative offices) established by qualified Hong Kong service providers in the PRC is extended to a total of 134 services sectors, removing all measures that would discriminate against those commercial presences in the sectors covered, but:
    • with the exception of the negative list of restrictive measures in specific sectors of China’s economy in the form of Appendix 1 to the China-HK Agreement, which comprises 120 restrictive measures (the "Negative List"); and
    • the national treatment principle does not apply to either side in the areas of telecommunications, cultural services, prudential financial measures, public policy, security, tax equalisation, government procurement and subsidies;
  • simplified investment procedures: all requirements for regulatory approval of the establishment of foreign invested enterprises and other commercial presences (including any requirements for regulatory approval of joint venture contracts and articles of association) by qualified Hong Kong service providers in the PRC service sectors are to be replaced by filing requirements, with the exception of:
          • the regulatory approval requirements set out in the Negative List;
          • the telecommunications, culture and financial sectors; and
          • the establishment of all non-company forms of commercial presence, such as representative offices and partnerships;
  • restrictions further relaxed: the China-HK Agreement contains certain benefits for qualified Hong Kong service providers not otherwise available under CEPA, the Guangdong-HK Agreement (in relation to Guangdong) or the national foreign investment regime. For example, they are able to use wholly foreign-owned enterprises to: (i) provide a wider range of ground support services for air travel; and (ii) supply road transportation and ancillary services; and
  • cross-border service provision: for Hong Kong service providers supplying services to PRC customers on a cross-border basis (i.e. not operating through a commercial presence in the PRC) the "national treatment" principle is not applicable. Instead, Hong Kong service providers can avail themselves of the specifically defined benefits listed in Table 2 of Appendix 1 to the China-HK Agreement (which covers certain sub-categories of professional, IT, property, project management, technical testing /analysis, staffing, cleaning, photography, conference, copying, translation, distribution, education, environmental, financial, social, leisure, sports and transportation services) when servicing PRC customers.

Agreement on Trade in Services in relation to Closer Economic Partnership Arrangement between Mainland China and Hong Kong, 27 November 2015