By Audrey Luo / Yolanda Tu / Ariana Tao
Chinese Vice-Minister of Commerce, Ms. Gao Yan, and the Financial Secretary of the Hong Kong Special Administrative Region (“Hong Kong”), Mr. Paul Chan, executed the Investment Agreement (the “Investment Agreement”) and the Economic and Technical Cooperation Agreement (the “Ecotech Agreement”) under the framework of Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”) on 28 June, 2017. The Investment Agreement and the Ecotech Agreement came into effect on their execution dates, while the Investment Agreement will be formally implemented since 1 January, 2018.
In addition to covering those recent hot topics such as the Belt and Road Initiative, the New Boards of the Hong Kong Stock Exchange, Bond Connect between the Mainland and Hong Kong and development of the Guangdong-Hong Kong-Macao Bay Area, the Investment Agreement and the Ecotech Agreement also set out further substantial commitments of market opening between the Mainland and Hong Kong. The Investment Agreement and the Ecotech Agreement are considered important milestones in the development of CEPA, which marks a new stage of economic and trading exchanges and cooperation between the Mainland and Hong Kong.
The Investment Agreement is the latest sub-agreement under CEPA framework covering market threshold, investment treatment, dispute resolution and investment promotion etc.
To further include non-service sector investment into CEPA framework
The Investment Agreement further include non-service sector investment into CEPA framework. Both the Mainland and Hong Kong commit to providing national treatment and most-favoured treatment in the non-service sector investment to the investors from the other side. Neither side may impose or enforce the performance requirements, or enforce a commitment or undertaking, on the investors from the other side. Both sides shall release the entry restrictions of members of senior management and boards of directors and other personnel, while neither side may impose nationality requirements on members of senior management of an enterprise into which the other side makes investment. However, the Investment Agreement stipulates that the aforesaid national treatment, most-favoured treatment, performance requirements and entry of members of senior management and boards of directors and other personnel shall not apply to any service sectors investments covered by the Agreement on Trade in Services to CEPA.
To further provide investment protection at a high level conforming to international standard
With respect to investment expropriation, compensation and transfer, the Mainland and Hong Kong will provide the investors from each other investment protection at a high level conforming to international standard. The Investment Agreement stipulates that covered investments or returns of investors of one side shall not be subject to any expropriation or any other measures having an effect equivalent to expropriation within the territory of the other side, save for a public purpose, in accordance with due process of law or in a non-discriminatory manner and on payment of compensation. The investors from one side who suffer losses due to war, state of emergency, insurrection, riot, natural disaster or other similar events shall be entitled to treatments in respect of restitution, indemnification, compensation or other settlement by the other side which are not less favourable than those most favourable treatments the other side grants in like circumstances to its own investors or to investors of any other parties.
Furthermore, the Mainland and Hong Kong both explicitly permit all transfers relating to a covered investment including capital contributions, profits, dividends, payments made under contracts and earnings and remunerations of a natural person of one side who works in a covered investment in the area of the other side to be freely made inbound and outbound without any delay and in a freely usable currency at market exchange rate at the time of transfer.
To establish comprehensive and effective systematic arrangements for investment dispute resolution
In accordance with the Investment Agreement, the Mainland and Hong Kong will set up a Committee on Investment under the mechanism of the CEPA Joint Steering Committee to deal with investment consultation, notification and coordination of investment disputes, disputes resolution, interpretation of the Investment Agreement and any other matters relation to the Investment Agreement. When an investment dispute arises between the Mainland and Hong Kong, it can be resolved through the function of notification and coordination of investment disputes. In addition, the Mainland and Hong Kong jointly designed a set of dispute resolution mechanism that are in line with the principle of One Country Two Systems as well as the needs of both sides, including amicable consultation, complaint handling, notification and coordination, mediation and judicial proceedings etc. in order to provide better protection for interests and rights of investors from both sides.
The Ecotech Agreement provides improvements and updates on economic and technical cooperation related contents in CEPA and its ten supplementary agreements
To incorporate cooperation in the economic and trade areas for the Belt and Road Initiative into the framework of CEPA
The Ecotech Agreement stipulates that the Mainland and Hong Kong will establish an operational liaison mechanism, and strengthen information exchanges and communication on the Belt and Road Initiative between the Mainland and Hong Kong, and encourage the establishment of multi-level communication channels among government departments, industry organizations and investment promotion agencies for information sharing purpose. The Ecotech Agreement also stipulates that the Mainland and Hong Kong will build an exchange platform to support semi-official organizations, non-official organizations and the industry in both sides to play a part in facilitating the implementation of the Belt and Road Initiative.
The Ecotech Agreement stipulates that the Mainland and Hong Kong will jointly explore the markets along the Belt and Road and cooperate in construction and operation of large-scale infrastructure projects . The Mainland will support Hong Kong in providing professional services for the Belt and Road Initiative, including the provision of professional services such as legal, dispute resolution, accounting and taxation services, etc., in a market-oriented approach for Mainland enterprises’ expansion into overseas markets and investment projects. Given Hong Kong’s strengths in financial services, professional services, logistics, trading, etc., the Mainland will also support Hong Kong in participating in the development of various industrial parks and economic zones.
To further enhance the cooperation in key areas
The Ecotech Agreement stipulates that the Mainland and Hong Kong will further enhence cooperation in 14 key areas such as finance, culture, small and medium enterprises, education, tourism, environmental protection, innovation and technology, electronic commerce, trademark brand, intellectual property and Chinese medicine, to promote the development of both sides. Two new sections entitled Cooperation in Legal and Dispute Resolution Services and Cooperation in Accounting Services are added to the key areas related chapters, pursuant to which the Mainland will support Hong Kong in becoming an international legal and dispute resolution service center in the Asia-Pacific region. Such new sections provide new opportunities for Hong Kong’s legal and accounting industries.
As to the financial industry, the Ecotech Agreement stipulates that the Mainland and Hong Kong will further enhance cooperation in banking, securities and insurance businesses. The Mainland will further streamline the relevant requirements for overseas listing of Mainland enterprises, so as to support qualified Mainland enterprises to get listed in Hong Kong and simplify the approval procedures for Mainland enterprises, in particular small and medium enterprises, to raise capital through direct listing in overseas markets. The aforesaid content is considered to echo the New Board Concept Paper released by the Hong Kong Stock Exchange earlier which aims to create a more lenient regulatory environment for new industry companies and start-ups from the Mainland to get listed in Hong Kong.
The Ecotech Agreement stipulates that the Mainland will actively promote mutual access between bond markets (including exchange-listed bond markets) in both sides. The Mainland will support Hong Kong in its development of offshore risk management business with respect to the Mainland financial markets, study the models of mutual access between bonds, over-the-counter financial derivatives and commodity derivatives markets in both sides, and continue to encourage Mainland enterprises to issue bonds in both RMB and foreign currencies in Hong Kong. Back to this May, the People’s Bank of China and the Hong Kong Monetary Authority jointly announced their collaboration in establishing mutual bond market access between Hong Kong and the Mainland (the “Bond Connect”). On 3 July, 2017, the trail operation of the initial phase of the Bond Connect, i.e. the Northbound Trading, which allows overseas investors from Hong Kong and other countries and regions to invest into Chinese interbank bond market had formally commenced. The market also expects the study and operation of the Southbound Trading in future.
To deepen sub-regional economic and trading cooperation between the Mainland and Hong Kong
The Ecotech Agreement stipulates that the Mainland and Hong Kong will promote and deepen the cooperation in sub-regions such as the Pan-Pearl River Delta Region and Pilot Free Trade Zones. Through the existing cooperation platforms and liaison mechanisms and taking the advantage of Hong Kong’s position as an international financial, trading and shipping center, the Mainland and Hong Kong will deepen the cooperation in the Pan-Pearl River Delta Region to utilise Hong Kong as a platform to explore cooperation in investment with the countries and regions along the Belt and Road, and to support the nine provinces/regions in the Pan-Pearl River Delta Region to leverage their respective advantages to build various types of cooperation zones jointly with Hong Kong. Besides, on the basis of existing economic and trading cooperation, the Mainland and Hong Kong will actively promote the development of Guangdong-Hong Kong-Macao Bay Area.
The Ecotech Agreement stipulates that the Mainland and Hong Kong will study the further opening to Hong Kong service industries in the Pilot Free Trade Zones under the framework of CEPA. Hong Kong is encouraged to actively participate in the national strategies on major development through the Pilot Free Trade Zones. Through the existing cooperation platforms and liaison mechanisms, the Mainland and Hong Kong will promote and enhance the cooperation between Hong Kong and Qianhai, Nansha and Hengqin. In order to explore new models to deepen economic cooperation with Hong Kong, the Mailand will support Qianhai, Nansha and Hengqin in taking forward further opening to Hong Kong in key areas such as finance, transportation and shipping, commerce and trade, professional services and technology on an early and pilot basis. Meanwhile, the Mainland will promote the establishment of cooperation demonstration zones for Guangdong and Hong Kong talents and support Hong Kong youth to start their businesses in Nansha, Qianhai and Hengqin.
