CEPA Renders Tax-Free Zone Unecessary Says HK Government

by Mary Swire, Tax-News.com, Hong Kong

02 October 2003

A proposal by Hong Kong business tycoon Li Ka-shing to create a tax-free enterprise zone in the border region between the SAR and the Chinese city of Shenzhen has been dismissed by the government's Commerce Secretary John Tsang as unnecessary, in light of the CEPA (Closer Economic Partnership Agreement) deal with China.

Li brought attention to the idea during a meeting between Chinese state leaders and a delegation of Hong Kong business persons last weekend, and suggested that the proposal would help alleviate unemployment levels in Hong Kong, which reached a rate of 8.6% in August.

However, Tsang believes that the benefits brought by the CEPA arrangement (due to take effect in January 2004) and the sheer cost of the proposed undertaking combine to make Li's proposal unviable.

"Under Cepa, Hong Kong-made goods enjoy zero tariffs, so there is no need to set up factories in such a zone," Tsang commented, adding: "Development costs of the zone will be heavy because there are no utilities in place. The land has to be formed. There is no electricity."

The main feature of the CEPA deal is the elimination of tariffs on 273 classes of goods imported from Hong Kong in the initial stage of the deal, with further tariffs to be removed by 2006. It was also revealed this week that Hong Kong firms will be allowed greater access to the Chinese telecommunications and internet market through the use of joint ventures. In addition, it has been disclosed by officials that the maximum stake Hong Kong investors can hold in Chinese insurance firms will be raised from 15% to 24.9%.

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