CEPA Supplement X and Hong Kong’s professional services sector

As an international service platform in Asia, Hong Kong provides a whole range of sophisticated professional services, spanning legal, accounting, auditing, architecture, engineering and management consultancy. In keeping with the development of Hong Kong as an international service platform, CEPA and related Supplements have added a large number of liberalisation measures related to the professional services sector over the past decade, helping Hong Kong professional service companies and practitioners better tap into business opportunities on the mainland.

Many overseas professional service companies eyeing booming business opportunities in Asia have set up regional headquarters and offices in Hong Kong. Of the 1,379 overseas companies that established regional headquarters in Hong Kong in 2013, 236 or 17% of them were engaged in the sector of professional, business and education services.[i] Based on Hong Kong’s latest official estimates,[ii] professional services combined with other producer services[iii] contributed 12.4% of Hong Kong’s GDP in 2011, while employing about 469,400 people, or 13.1% of Hong Kong’s employment, making the sector the third largest economic pillar of Hong Kong following trade/logistics and financial services.

Hong Kong’s professional services sector and CEPA liberalisation measures

Professional services alone contributed nearly 4.6% of Hong Kong’s GDP in 2011, while employing 185,000 people, or about 5.2% of Hong Kong’s total employment. In the five years to 2011, the value added by professional services grew at an average annual rate of 11.3%, which is more than double the average growth rates of 5.5% and 5.2% for, respectively, the four pillar industries and the overall economy. This clearly underlines the growing GDP contribution of professional services to the overall economy.

Service sectors benefitting from CEPA (Phase 1 to 11)

* Existing services sectors with liberalisation under Supplement X to CEPA
Boxes in green – existing professional service sectors with liberalisation under Supplement X
Box in blue – existing professional service sector with no liberalisation under Supplement X
~ Guangdong pilot and implementation measures under Supplement X to CEPA
^# New service sectors under Supplement X to CEPA

Legal services

For the legal services market on the Chinese mainland, foreign law firms and practitioners are barred from engaging in business related to mainland law; and foreign law firms on the mainland are not allowed to enter into any association arrangements with their mainland counterparts. Having said that, CEPA helps create more advantageous business conditions for Hong Kong law firms to tap into the mainland market.

As a groundbreaking measure, Supplement X allows mainland lawyers to be seconded as consultants to work in mainland representative offices of Hong Kong law firms set up in Guangdong Province, advising on mainland law. Currently, there are more than 20 Hong Kong law firms that have established representative offices in Guangdong, and they will be able to provide a more broad-based service as a result of the new Supplement X measure, thereby advising on both mainland and international law.

Another distinctive feature of CEPA allows Hong Kong law firms to operate in association with mainland law firms. The geographical restriction on association arrangements, the number of mainland law firms allowed to operate in association, along with pre-association requirements, have been relaxed over time. Currently, a Hong Kong law firm’s representative office on the mainland can enter into association arrangements with up to three mainland law firms, and cross-province association arrangements are allowed. There is an added flexibility in operating associations with Guangdong-based law firms that have been set up for no less than one year, and at least one person who established a mainland firm has been in legal practice for no less than five years.

While Hong Kong lawyers participating in such an association may not handle matters of mainland law, the new Supplement X measure strikes a good deal in expanding the service of Hong Kong law firms’ mainland representative offices in Guangdong, with the capacity to advise on mainland law. While this newly added provision confines the secondment of mainland lawyers to Guangdong for the time being, Hong Kong’s legal sector would like to see the measure extended to both Beijing and Shanghai over time.

CEPA coupled with its Supplement measures show that the mainland is committed to opening its legal market to Hong Kong law firms and lawyers above and beyond what is allowed for their counterparts from other places. For example, foreign lawyers on the mainland are not allowed to practise mainland law, and CEPA makes it possible for Hong Kong residents to sit the mainland’s National Judicial Examination and acquire the mainland’s legal professional qualifications, either through internship in a Hong Kong-based mainland law firm or intensive training of no less than a month offered by mainland lawyer associations.[iv]

For those who have acquired mainland lawyer qualifications or legal professional qualifications and hold a mainland lawyer's practice certificate to engage in legal activities, they are currently allowed to act as agents on the mainland in matrimonial and succession cases relating to Hong Kong, in the capacity of mainland lawyers. In addition, Hong Kong barristers can act as agents in civil litigation cases on the mainland in the capacity of citizens.[v]

As the mainland has progressively opened up the legal market for Hong Kong, it has also promised, as provided by Supplement VIII to CEPA, to consider widening the business scope for Hong Kong residents who have acquired mainland legal qualifications and hold a mainland lawyer’s practice certificate, with a view to allowing them to act as agents in civil litigation cases on the mainland relating to Hong Kong residents and juridical persons.

Currently, Hong Kong law firms have set up more than 100 representative offices on the mainland, while there were 20 approved HKSS applications for the legal services sector as of the end of November 2013. Thus far, six Hong Kong law firms have entered into association arrangements with their mainland counterparts.

~ Guangdong pilot measures under Supplement X to CEPA

Construction professional services

In terms of market access, the mainland’s construction and engineering market is often considered a challenging one given the various requirements for qualification assessment, staffing and establishment of joint ventures, and residency requirements for engineers and technical staff. Against this background, HKSS and Hong Kong professionals clearly enjoy much more preferential access to the mainland market compared with other foreign-owned architectural and engineering enterprises and professionals. While HKSS and other foreign-owned enterprises are allowed to establish wholly owned or joint-venture enterprises on the mainland, HKSS are given national treatment in many areas.

For one, establishing a commercial presence is of paramount importance in serving the mainland market for HKSS in the construction and engineering design sector. Therefore, relaxation of the residency requirement for the staff concerned of HKSS surely helps smooth their operations on the mainland. Supplement X contributes to this cause by exempting from the residency requirement for serving key technical personnel holding Hong Kong identity document employed by Hong Kong construction and engineering design enterprises, which are otherwise required to reside for no less than six months in a year on the mainland.

This newly added Supplement X measure is considered a further relaxation from previous CEPA provisions, which have waived the residency requirement only for Hong Kong permanent residents employed as engineering technical staff and economic managerial staff in HKSS’ construction enterprises on the mainland (Supplement I). They have also relaxed the residency requirement for those Hong Kong professional and technical staff of concerned HKSS operating on the mainland by counting their period of residence in Hong Kong as their period of residence on the mainland (Supplement II).

In the same vein, Supplement X enhances the operational flexibility of HKSS providing architectural, engineering, integrated engineering, construction and related engineering services on the mainland by allowing their contractual service providers to provide such services in the mode of movement of natural persons. The third Supplement X provision concerns the continuing education of the mainland’s registered architects that have to be observed by HKSS, allowing the latter’s architects to complete in Hong Kong those elective courses that are recognised by the mainland authorities, or be taught by mainland teachers in Hong Kong.

These Supplement X measures will strengthen the operational efficiency of HKSS in serving the mainland market, especially in Guangdong Province, given the various pilot implementation measures under previous Supplements that have markedly improved the flexibility of HKSS in the architectural and engineering sectors to seek enterprise licensing in Guangdong through mutual recognition and/or examination of concerned personnel. Lots of Hong Kong professionals benefit from such preferential arrangements, as the covered range is notably wide, spanning from architects and supervision engineers, to structural, civil, public facility, chemical and electrical engineers. In addition, national treatment is also given in Guangdong for the registration and practice of Hong Kong professionals with the mainland’s Class-1 registered structural engineer or architect qualification by mutual recognition, irrespective of whether they are registered practitioners in Hong Kong.

As of the end of November 2013, there were 76 approved HKSS applications for the sector of construction professional services and construction-related services.

Real estate services

Real estate services cover three major sectors, namely property agency, property management and surveying (valuation, building surveying and land surveying). Real estate services are a relatively new industry on the mainland. Foreign companies, particularly those from Hong Kong, have been active players with well recognised service standards, while local companies are gradually emerging.

By expanding the business scope to include real estate project services, and forming wholly-owned operations to provide such services, HKSS can now enter the mainland market more effectively with a more clearly defined work scope, while helping contribute to the modernisation of real estate services on the mainland.

Supplement X provides additional flexibility to HKSS by allowing them to employ contractual service providers in the provision of real estate services in the mode of movement of natural persons.

* Services under this sector or sub-sector

Building cleaning services

Aside from liberalisation measures in the construction, real estate and related engineering sectors, CEPA allows HKSS to set up wholly owned enterprises on the mainland to provide building cleaning services, as per a provision under Supplement V implemented in 2008. Under Supplement X, Hong Kong companies are given greater flexibility in the building cleaning services market on the mainland, as the contractual service providers employed by HKSS are allowed to supply building cleaning services in the mode of movement of natural persons. It should be noted, however, there had been no application for HKSS certification for the sector of building cleaning services as of the end of November 2013.

Accounting services

Compared with other professional services, CEPA is considered not to have provided any significant market liberalisation measure for Hong Kong’s accounting firms and professionals. Supplement X does not include any new liberalisation measure for the accounting sector either. In retrospect, the latest accounting liberalisation measures were contained in Supplement IX, and prior to that, Supplement V. The number of approved HKSS certification applications for accounting services stood at three as of the end of November 2013, rising from two as of August 2012.

In comparison with many international accounting firms that have used Hong Kong as a springboard to extend their service coverage to the mainland, the main option for smaller Hong Kong accounting firms to serve the mainland market is via the Provisional Licence to Perform Audit-Related Services (i.e. Temporary Audit Permit). Under CEPA, the validity period of the Temporary Audit Permit has been extended to five years since 2009. The mainland is committed, under Supplement IX, to suitably simplify the documentation requirements for applications to conduct business on a temporary basis on the mainland by Hong Kong accounting firms. Progressive improvement in Temporary Audit Permit arrangements under different Supplements to CEPA have helped reduce the administrative burden for Hong Kong accounting firms compared with the requirements that otherwise apply to non-CEPA beneficiaries.

CEPA has also extended the mutual exemption of examination subjects between members of the Chinese Institute of Certified Public Accountants (CICPA) and the Hong Kong Institute of Certified Public Accountants (HKICPA) Qualification Programme graduates. The benefit has also been extended to all HKICPA members who were not qualified solely through the Qualification Programme. These measures, plus new arrangements to set up examination centres in Shenzhen, Dongguan and Hong Kong, have made it easier for Hong Kong professionals to strive for mainland accounting qualifications. Hong Kong professionals who have obtained the CICPA qualification are allowed, on a pilot basis, to become partners of partnership firms in Qianhai, as stipulated under Supplement IX to CEPA and in keeping with Qianhai’s development into an exemplary zone for modern services.

Mutual recognition of professional qualification and professional examinations

CEPA broadens not only the mainland’s services sectors for Hong Kong companies, but also enhances the latitude of Hong Kong professionals and residents participating in the mainland’s services market, by way of encouraging mutual recognition of professional qualifications and allowing them to sit the mainland’s professional qualification examinations.

The latest provision under CEPA came in Supplement VIII, with the mainland and Hong Kong agreeing to let eligible Hong Kong permanent residents take the mainland’s qualification examination for land surveyor, with those passing the examination to be issued a certificate. On top of this, other CEPA provisions allow Hong Kong permanent residents to sit a wide range of qualification examinations for professionals and technicians on the mainland (e.g. medical, pharmacist, legal, insurance, engineering, real estate valuation, accounting sectors).[viii]

[i] Report on 2013 Annual Survey of Companies in Hong Kong Representing Parent Companies Located Outside Hong Kong, released by The Hong Kong Census and Statistics Department in October 2013.

[ii] The Hong Kong Census and Statistics Department released in April 2013 The Four Key Industries and Other Selected Industries in the Hong Kong Economy.

[iii] Other producer services refer to producer services other than financial services, trading and logistics, tourism and professional services.

[iv] The Measures for the Management of Residents of the Hong Kong Special Administrative Region and the Macau Special Administrative Region Having Acquired the Mainland Legal Professional Qualification to Work as Lawyers on the Mainland stipulate that practitioners must have been accredited for having passed the assessment before they may apply to practise as a mainland lawyer. These provisions should ensure that they have attained the required standard to practise as mainland lawyers.

[v] The Civil Procedure Law, under Section 2 of Chapter V, provides that a lawyer, a near relative of the party, a person recommended by a relevant social organisation or a unit to which the party belongs, or any other citizen approved by the People’s Court, may be appointed as the party’s “agent ad litem.” The person appointing the agent must submit a written appointment to the People’s Court specifying the matter entrusted and the powers conferred. The Civil Procedure Law further provides that “agent ad litem” shall have the right to investigate and collect evidence and may have access to materials pertaining to the case. The Lawyers Law, however, provides that if a person has not obtained a lawyer’s practice certificate but engages in the business of acting as agent in litigation or defending clients for the purpose of seeking economic benefit, he shall be ordered to cease the illegal practice of law.

[vi] Hong Kong legal practitioners include both solicitors and barristers. Their years of practice are calculated in accordance with the actual number of years for which the solicitor or barrister has practised in Hong Kong, as shown on the relevant certificate respectively issued by the Law Society of Hong Kong or the Hong Kong Bar Association.

[vii] High-standard real estate projects refer to those real estate projects with construction cost per unit exceeding two times that of the average construction cost per unit in the same city.

[viii] These qualification examinations include, but are not limited to, examinations for registered architect, registered structural engineer, registered civil engineer (geotechnical), construction supervising engineer, cost engineer, registered town planner, land surveyor, estate agent, registered safety engineer, registered nuclear safety engineer, builder, registered facility engineer, registered chemical engineer, registered civil engineer (harbour and waterway), registered facility supervising engineer, environmental impact assessment engineer, real estate appraiser, real estate valuer, registered electrical engineer, accounting technician, assistant accountant, accountant professional qualification (professional title), certified tax accountant, certified asset appraiser, prosthetist and orthotist, mining rights assessor, registered consulting engineer, international business personnel, land registration agent, gemstone quality examiner, translator and computing technology and software.