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After the Closer Economic Partnership Arrangement (CEPA) was signed between Hong Kong and the mainland last June, various related preferential measures have been implemented. Results are slowly coming in, and an official interim assessment is expected to be published next spring.

Despite all the hoopla and high expectation, the results in certain areas can only be described as meagre so far. Until the end of September, only 1,088 Hong Kong and Macao entrepreneurs had set up shop in Guangdong, with the majority in Guangzhou, Dongguan and Shenzhen. The average investment ranges from 20,000 yuan (US$2,415) to 43,000 yuan (US$5,200), and the accumulated total reached a mere 46.7 million yuan (US$5.6 million).

In the first three quarters, HK$185 million worth, or 36 per cent, of the products made in Hong Kong entered the mainland market duty free through Shenzhen. Meanwhile, HK$514 million worth of Hong Kong exports to the mainland have benefited from the CEPA arrangement in the first nine months of this year.

But on the other hand, as we all know, there is some hanky-panky in this area. Some items are actually made on the mainland, shipped to Hong Kong, relabelled, and shipped back as Hong Kong products.

While it is too early to issue a report card on CEPA, we all know that it is only a stop gap arrangement, giving us a head start. We do not have too much time left when similar preferential treatment is given to ASEAN countries and others reaching some free-trade agreements with the mainland, and ultimately the WTO agreement will be in full force. We have to be on a constant look-out to find the ways and means to quickly make the best out of this interim privileged measure.

First of all, it is now apparent that Macao residents are making better use of CEPA to integrate into the mainland market than their Hong Kong counterparts. Out of the above mentioned 1,000 odd small operators, 9 per cent came from Macao, but its population is only about 5 per cent of Hong Kong's. Should Hong Kong residents be as enthusiastic as Macao people, the number of small investors from Hong Kong should at least double.

What can we do to improve the situation?

Authorities both in Hong Kong and the mainland should take stern measures against fake products, for if we connive at such illegal flow of goods, it is going to be counter-productive, destroying not only the spirit of CEPA, but in the long run, the integrity of the most treasured brand name: Made in Hong Kong.

As the interest of Hong Kong is now mostly at stake, it is therefore up to the SAR government to do most of the policing job. More public education, more factory inspections, and heavier penalties should plug the trickle before it becomes a torrent.

The good news - some honest, hard-working people are serious in setting up or expanding their manufacturing facilities in Hong Kong, just as CEPA intended. The buying and selling of factory premises has hit a new high in September, which shows that some people are catching on with CEPA. More and more factories, which were moved to the mainland one or two decades ago, are poised to transfer some manufacturing processes back to Hong Kong. Now that mainland private enterprises are soon to be allowed to invest in the SAR, the long-awaited industrial revival is about to unfold.

This trend needs encouragement. The government should, through the Trade Development Council, offer free advisory services to mainland industrial investors. Once they are here, the Productivity Council should take over with services, like a business centre, and an incubator. As part of the package, we can provide it free for the first three months, hoping that by then they do not need the service any more, and will move out of the system to be on their own.

Unlike the locals, these mainland industrialists want to use Hong Kong as a gateway not only to their original home market, but also the international ones. After all, this is what Hong Kong is supposed to be good at. We are still rather strong in international marketing, but not as strong as before. Again, our Trade Development Council should be busy to assist them in making an inroad into the overseas markets.

One way the SAR government can add value in this process is to enter into some kind of CEPA type agreements with other tariff areas which are our major markets. This might at first sound strange as Hong Kong is already duty-free. But remember, CEPA deals with both trade and investment. By entering into a CEPA arrangement with Hong Kong, enterprises in that country (or region) can invest freely here and use Hong Kong to export to the mainland duty free. As reciprocal treatment, Hong Kong products can also enter that country duty free. In the end, there will be more and more industrial set-ups in Hong Kong, more domestic exports, and more industrial employment. We have something like a three year time-line to achieve this, and there is no time to waste.

Editor: Olivia