An increasing number of Hong Kong and Macao companies are expected to conduct export & import business on the Chinese mainland as the central government has given them the green light to operate here without investment from mainland companies.

The announcement came in the form of a supplement to the regulation on foreign-funded import-export companies published on the website of the Ministry of Commerce yesterday. It provides more favourable conditions for business established by Hong Kong and Macao service providers.

The changes, part of the Mainland-Hong Kong and Mainland-Macao Closer Economic Partnership Arrangement (CEPA), took effect on January 1.

Under the terms, Hong Kong and Macao service providers are allowed to set up wholly owned trading companies, which is currently not allowed for other overseas investors, according to the supplement.

These investors are only allowed to set up export-import activity on the Chinese mainland if they hold less than a 50 per cent stake.

The supplement also stipulates a lower capital requirement for Hong Kong and Macao service providers who wish to set up an import-export business.

Jin Bosheng, an expert from the Chinese Academy of International Trade and Economic Co-operation, said the new permission for wholly overseas-owned enterprises will boost the inflow of Hong Kong and Macao trading companies.

"They should be excited over the new rule as they can make decisions independently," Jin said.

According to Jin, foreign investors are reluctant to set up joint venture trading firms with Chinese partners as they often have disagreements in the decision-making process.

Jin expects more overseas-funded import-export businesses will give more direct market access to foreign manufacturers, who had to find a domestic counterpart to import their goods.

Many Hong Kong trading companies have responded enthusiastically to the decision by submitting applications.

A spokesman from Hong Kong's biggest trading company Li & Fung Ltd said its wholly owned unit Li & Fung Trading (Shanghai) Ltd has secured a licence to export goods directly from the Chinese mainland.

The company can now import raw materials and components for its exports. It will also be entitled to receive value-added tax rebates, the spokesman said.

"We are happy that this is the first time that such a licence has been granted to a fully foreign-owned trading company," he said.

Li & Fung has 16 offices on the Chinese mainland, where it sources more than US$2 billion worth of goods a year.

Besides trade, many other service sectors are also opened wider to Hong Kong and Macao investors under the CEPA.

Mainland and Hong Kong lawyers are allowed to co-operate in contract form, meaning that they are able to share the same offices, employees and other resources after signing a contract, but they have an independent legal and financial status and are responsible for their own actions.

Under the CEPA, Hong Kong residents can apply for annual judicial examinations organized by the Ministry of Justice of the People's Republic of China, and if they obtain certificates to practice law, they will be allowed to handle legal affairs on the mainland.

"We are optimistic that the co-operation between law offices on the mainland and in Hong Kong will see a new development beginning from 2004," said Edward W.Y. Cheung, senior partner of Hong Kong-based Woo, Kwan, Lee & Lo.

In addition, Hong Kong and Macao businesspeople are becoming optimistic as they see a lowered threshold for them to approach the mainland's accounting and logistics sectors thanks to the CEPA.

Hong Kong and Macao small- and medium-sized firms may take this opportunity to explore these two markets, according to industry analysts.

Other investors will also benefit from the CEPA.

"Although property management is not included in the 17 sectors being opened wider under the CEPA, Hong Kong property managers may also find more investment opportunities," said Suen Kwok Lam, president of The Hong Kong Association of Property Management Companies Ltd.

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