GUANGZHOU: Hong Kong manufacturers will not move their operations from the Pearl River Delta back to Hong Kong, but the SAR definitely has a crucial role to play in upgrading the mainland's service sector.

This is the common theme threading through a seminar held in Guangzhou yesterday. "New Opportunities and New Measures" was co-sponsored by the Guangdong Council for the Promotion of International Trade and the Hong Kong General Chamber of Commerce.

Eden Woon, CEO of the chamber, predicted that Guangdong will benefit the most from the Closer Economic Partnership Agreement (CEPA) signed a month ago. "Since most of Hong Kong's manufacturing is based in the Pearl River Delta, it does not matter whether the requirement for local content to qualify for zero tariff treatment is 25 or 30 per cent. Much of the value added will take place in Guangdong," said Woon.

Zhang Hanlin, president of China WTO Research Institute, went one step further, suggesting a cumulative rate, say, 80 or 85 per cent, that combines the value added both in Hong Kong and the mainland.

"CEPA is not as perfect as NAFTA (the North American Free Trade Agreement)," said Professor Zhang, "but the important thing is, it's mutually beneficial."

Wang Jun, economist and assistant president of Sun Yat-sen University, acknowledged that some Guangdong industries will feel the impact of CEPA, but it would mostly be positive. It will increase the competitiveness of mainland producers, and lower the cost of market entry for Hong Kong businesses. More importantly, it will change the current pattern of "selling in the front and producing in the backyard", which refer to Hong Kong and the mainland respectively. The trend is to have both operations in the mainland, said Professor Wang.

The opening up of 17 of the mainland's service industries to Hong Kong firms is heralded as a major breakthrough. Woon pointed out that most of these service industries exist to facilitate manufacturing; and as the factory floor of the world, Guangdong needs to raise its professional services up to the level comparable to Western counties.

Wang cited an example of expatriate executives making frequent trips back to their home cities instead of settling down in the Delta. "The kind of services they need, such as financing, banking and insurance, they cannot find them here, or the ones we offer are hardly up to par."

He added that it is wrong to assume that the arrival of Hong Kong professionals will displace homegrown talent. "It will only make local service industry people better. Just take a look at the home electronics industry and you'll know that outside competition is good for us."

All the speakers agreed that the key to successful implementation of CEPA is to give full play to the unique advantages that Hong Kong enjoys in the service sector. Free trade is not a zero-sum game, they said, because the benefits one gets will not necessarily come at the expense of someone else. The continuing high growth of China's economy will gain from a future inflow of Hong Kong professionals, especially in the backwaters of the western region where manufacturing does not sit well with the environment and the remote locality.

Editor: Liao Ming