New Guandong-Hong Kong agreement: More opportunities in the telecom and technology sector in China?

16 January 2015

Michelle Chan, Sven-Michael Werner

On 18 December 2014, the Agreement between the Mainland and Hong Kong on Achieving Basic Liberalization of Trade in Services in Guangdong (the Guangdong-Hong Kong Agreement) was signed between Hong Kong and the Guangdong Province. The Guangdong-Hong Kong Agreement will be implemented from 1 March 2015. It was signed pursuant to the framework of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), an agreement signed between the Mainland and Hong Kong in 2003, which provides preferential treatments for Hong Kong business to enter into various service sectors in China.

The Guangdong-Hong Kong Agreement marks the latest expansion of the liberalisation measures under the CEPA framework and has granted Hong Kong service suppliers (HKSS) a number of preferential treatments in, amongst others, the telecommunications and technology service sector. Importantly, the Guangdong-Hong Kong Agreement introduces for the first time under the CEPA framework the use of negative and positive list of measures. The negative list sets out the restrictive measures that are inapplicable to Mainland's obligation to apply national treatment to HKSS (i.e. to ensure that HKSS receives no less favourable treatment than PRC service suppliers in the same sector). Accordingly, unless specified under the negative list, the Mainland will not impose any particular restrictions on HKSS established in the Guangdong Province in terms of market access requirement for the specified service sectors. It should, however, be noted that any liberalisation measures for cross-border services, cultural and telecommunications services under the CEPA framework will remain positively listed.

Key commitments for telecom and technology services

A summary of the key commitments in the telecommunications and technology sector provided under the Guangdong-Hong Kong Agreement is set out below:

Sectors/sub-sectors

 

Measures under the pre-existing regulatory framework

Measures under the Guangdong Agreement

Telecommunication services

 

Multi-party communications services (within the Mainland)

 

HKSS may set up joint ventures (with its equity interest not exceeding 50%) in the Mainland to provide domestic multi-party communications services.

 

1.      HKSS may set up joint ventures or wholly-owned enterprises in the Guangdong Province to provide all relevant services.

 

2.     No restriction will apply to the shareholding proportion of HKSS.

Store and forward services

 

  • HKSS may set up joint ventures (with its equity interest not exceeding 50%) in the Mainland to provide database services (including store and forward and content services). 
     
  • HKSS may provide cross-boundary database services in Qianhai and Hengqin on a pilot basis.

Content services (application stores)

 

Internet access services

 

HKSS may set up joint ventures (with its equity interest not exceeding 50%) in the Mainland to provide internet access services.

 

Call Centre services

On-shore call centre

  • HKSS may set up
    joint ventures (with its equity interest not exceeding 50%) in the Mainland to provide on-shore call centre services. 

Off-shore call centre

  • HKSS may set up wholly-owned enterprises or equity joint ventures (without restriction on the shareholding of HKSS) in Dongguan and Zhuhai cities of Guangdong Province on a pilot basis to provide offshore call centre services.

Computer and related services

Software implementation services

  • HKSS may set up wholly-owned enterprises in the Mainland to provide software implementation services.
     
  • HKSS may provide software implementation services in the Mainland through contractual service providers employed by such HKSS (by way of movement of natural persons).

HKSS establishing commercial presence in Guangdong to provide the relevant services will be entitled to treatment no less favourable than that accorded to the same PRC service suppliers in terms of market access requirement.

Data processing services

HKSS may set up wholly-owned enterprises in the Mainland to provide data processing services.

 

 
Observations

For years, the CEPA route has been an attractive option for foreign investors that wish to invest in the telecom sector in the PRC. The additional commitments set out in the Guangdong-Hong Kong Agreement will further enhance the attractiveness of using their existing Hong Kong subsidiaries to expand into the Mainland.

Two further points are worth noting:

1. Whilst the preferential treatments under the Guangdong-Hong Kong Agreement appear to be only restricted to the Guangdong Province, i.e. the joint venture company or the wholly foreign owned enterprise must be established in the Guangdong Province, , the HKSS will be able to provide telecommunications services on a nationwide basis, subject only to the exception of internet access services which HKSS may only provide to users in the area of Guangdong Province; and

2. The existing commitments under CEPA and its Supplements involving cross-border services and telecommunication and cultural and related services will remain valid and will continue to be implemented pursuant to the Guangdong-Hong Kong Agreement. It is not the intention of the Guangdong-Hong Kong Agreement to displace any of the existing commitments. For instance, the existing commitment under CEPA Supplement IX to allow HKSS to set up joint venture enterprises (with its shareholding not exceeding 50%) in the Mainland to provide internet data centre services and to provide cross-boundary internet data centre services in Qianhai and Hengqin on a pilot basis will remain effective. Where a more favourable commitment has been offered under the Guangdong-Hong Kong Agreement, the more favourable commitment will be applicable.

Authors

Michelle Chan

Michelle Chan

Partner
China and Hong Kong

Call me on: +852 2248 6000
Image of Sven-Michael Werner

Sven-Michael Werner

Partner
China and Hong Kong

Call me on: +86 21 2312 1288