Trading Places: CEPA and the New Procedures on Foreign-invested Commercial Enterprises

Last month we looked at the details of the new regulations governing foreign-invested commercial enterprises. Here two of our contributors contextualize the opportunities under these regulations in light of the provisions of the Mainland and Hong Kong Closer Economic Partnership Arrangement.

By Claudio de Bedin, Partner; and Susan Lavender, Associate
Dibb Lupton Alsop,
Hong Kong

On April 16 2004, little more than four months after the concessions of the Closer Economic Partnership Arrangement (CEPA) became effective, the PRC Ministry of Commerce (MOC) promulgated the Administration of Foreign Investment in the Commercial Sector Procedures (商务部外商投资商业领域管理办法)(the Procedures). The Procedures came into force on June 1 2004. Subject to the conditions contained therein, foreign investors are permitted to establish foreign-invested commercial enterprises (FCEs) conducting wholesale, retail, commission agent and franchising operations with, in theory at least, levels of minimum registered capital equivalent to the PRC national standard. CEPA was hailed as a vehicle for providing privileged access to China's services market for such companies, but they faced among other things, significantly stricter financial thresholds than those contained in the Procedures. Where then does the environment created by the Procedures leave CEPA-certified Hong Kong service suppliers (香港服务提供者) (HKSSs)?¹