The landmark free-trade deal between the mainland and Hong Kong will encourage more Taiwanese enterprises to invest in the mainland with Hong Kong as a spring board, according to economic researchers.

Cao Xiaoheng, director of the Institute of Taiwan Economic Studies at Tianjin-based Nankai University, forecast that Taiwan's service sector is set to benefit most from the Closer Economic Partnership Arrangement (CEPA).

The deal, effective from January 1 next year, is expected to give Hong Kong enterprises in 17 service industries such as banks and accountancy firms, greater access to the mainland's rapidly-growing market.

The asset requirement for Hong Kong banks to set up branches on the mainland will be lowered to US$6 billion from US$20 billion.

The mainland will also allow Hong Kong firms to set up wholly-owned companies to provide management consulting, advertising, logistics and other services.

Hong Kong firms can also take up to 15 per cent of capital in mainland insurance companies next year, up from the present 10 per cent.

Cao said easy access to the huge mainland market will make the Hong Kong Special Administrative Region a magnet to Taiwanese firms in the service sector.

"Given the sagging economy and a small market on the island, no Taiwanese firm can afford to miss the emerging opportunities to tap the vast mainland market via Hong Kong," the researcher told China Daily.

He expected an increasing number of Taiwanese firms to first set up their businesses in the HKSAR and then try to take advantage of the CEPA rules to pour investment into the mainland.

"In this sense, the mainland, Hong Kong and Taiwan will all benefit from the free-trade pact," Cao said.

Feng Bangyan, director of the Institute of Hong Kong, Macao and Taiwan Economic Studies at Guangzhou-based Jinan University, said that Taiwanese-invested firms on the mainland would also reap economic benefits from the CEPA.

They will enjoy more quality professional services such as accounting and logistics after Hong Kong service-sector firms are allowed in, Feng said.

Meanwhile, Taiwanese-invested firms on the mainland can also have wider access to financial services offered by Hong Kong banks because Hong Kong has more resources for financing small- and medium-sized enterprises.

By the end of April this year, the number of Taiwanese-funded projects on the mainland had topped 57,574, with a contracted investment of more than US$64 billion.

Cao with Nankai University predicted that the CEPA is also expected to create a platform for the mainland, Hong Kong and Taiwan to strengthen their co-operation while making best use of their unique advantages.

As an international financial centre which boasts the world's top professional talents, the HKSAR can serve as a capital and service base for Taiwanese firms.

At present, nearly 20 Taiwanese firms are listed in Hong Kong.

High-tech Taiwanese firms, especially in information technology and electronics, can play a key role in research and development and product design.

The mainland, with its low labour costs, rich labour resources and advanced production facilities, can be built into a production base and manufacturing centre.

"Closer economic co-operation resulting from the CEPA among the three sides is set to generate new business opportunities for each party," Cao said.

(HK Edition 07/08/2003 page7)