The Regional Comprehensive Economic Partnership Agreement (RCEP), signed a year ago, is the world’s largest trade bloc and stretches from the fringes of the Arctic in Hokkaido, Japan (main picture) to the periphery of the Antarctic in southern New Zealand.
Hong Kong is the ideal platform for Mainland Chinese businesses in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) looking to use the RCEP to go global, a joint report released by the Hong Kong Trade Development Council (HKTDC) and the Association of Chartered Certified Accountants (ACCA) indicates.
Supply chains integrated
HKTDC Director of Research Nicholas Kwan said RCEP provisions, which are expected to take effect as early as next year, are set to further develop and integrate regional supply chains, and encourage production specialisation in Asia. “This will provide a fresh impetus not only to trade between the signatory countries, but also to the global economy which has been hard hit by the COVID-19 pandemic,” he explained.
The report covers a survey* which found Hong Kong is the first port of call for mainland GBA companies seeking assistance as they “go out” and build their business internationally. The most attractive overseas destinations for these enterprises are Southeast Asian countries.
The RCEP, signed in November 2020, is a free trade agreement between Australia, Brunei, Cambodia, Indonesia, Japan, Korea, Laos, the mainland, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam. All 10 Association of Southeast Asian Nations (ASEAN) members are also in the RCEP.
Almost all mainland GBA companies that were interested in “going out” needed professional services, the survey found, including product development and design (31%), banking, financing and project valuation (30%), brand design and marketing strategies (30%) and related legal and accounting services (30%). Half of these respondents preferred Hong Kong as their professional services source outside the mainland, followed by the United States (23%), Singapore (21%) and Japan (14%).
The mainland became the world’s largest foreign direct investment (FDI) source for the first time in 2020 as outbound FDI rose 12.3% to US$153.7 billion, of which 58% was channelled through Hong Kong, according to China’s Ministry of Commerce.
“Most mainland investments were made through the Hong Kong business platform, which served as a springboard to the rest of Asia and other regions,” Mr Kwan said.
Hong Kong has yet to become an RCEP member, but the city can play a key role in the latest round of mainland outbound investment into other RCEP markets, Mr Kwan added. “Given the city’s strengths in financial, legal, accounting, and other professional services, Hong Kong can help mainland companies in the GBA minimise risks during overseas expansion.”
Enterprises considering relocating production or sales networks to the RCEP region need a thorough understanding of the local political environment, culture, legal and regulatory regimes, he said. Otherwise, they may find it difficult to assess the situation, such as whether they are able to benefit from RCEP tariff concessions as implementation schedules vary between member countries. “Therefore, companies need professional advice and due diligence to be able to fully capitalise on RCEP opportunities,” Mr Kwan advised.
Mr Kwan also called on Hong Kong companies to leverage RCEP opportunities as intra-regional supply chain ties strengthen as most raw materials and intermediate products can be traded freely within the bloc.
“The division of labour between different industries will be more precise and clear-cut, while exchanges between upstream and downstream enterprises in different production bases are expected to become more frequent. As such, Hong Kong can expect to play a larger role in trade between RCEP members, especially in electronic products and other industrial items,” Mr Kwan added.
When raising funds for investment in RCEP countries, mainland enterprises can use Hong Kong’s professional project evaluation and sustainability assessment services, according to Jane Cheng, Head of ACCA Hong Kong. “They can also set up regional offices in the city to enhance overall operational efficiency. In addition, Hong Kong offers matching services to help mainland companies identify and screen potential business partners in the RCEP region,” she said.
“Having a thriving global community of accounting professionals, ACCA has long been committed to connecting the world and promoting international and intra-regional trade growth. We hope the report will give local industries a better understanding of RCEP opportunities and support them in achieving sustainable recovery and development both during and after the pandemic,” she added.
The world’s largest free-trade bloc, making up almost a third of the global economy, RCEP has measures to facilitate trade, eliminate tariffs, minimise non-tariff barriers, promote e-commerce and increase market access, all of which are expected to enhance members’ economic integration.
Noting there had already been close intraregional cooperation along supply chains over the past two decades, Ms Cheng said enterprises in the Asia-Pacific could now benefit from the RCEP, where most import tariffs between member countries will be abolished, customs clearance will be simplified, the principle of accumulation will apply to product-origin rules, and declaration regulations for indirect materials and origins will be relaxed.
For services trade and investment, 65% of the bloc’s services sectors are set to open to overseas investors. “In general, RCEP countries use the ‘negative list’ and ‘national treatment’ models, greatly reducing the risk for overseas investors while allowing them greater access to promising markets such as financial and professional services sectors,” Ms Cheng added.
* The survey was conducted by the HKTDC in cooperation with the Department of Commerce of Guangdong Province in the second half of 2019, interviewing 277 GBA companies mainly in manufacturing, import/export trade, financial/legal/accounting services, as well as logistics, information technology and technology R&D, and the wholesale/retail trade sectors.