China expanded its free trade pact with Hong Kong, further liberalizing trade in goods and services between the mainland and the autonomous region.
The new agreement builds on the first three stages of the trade agreement established in 2003 when Hong Kong was suffering a sharp economic slowdown due in part to the devastating outbreak of SARS that year.
The fourth phase of the Closer Economic Partnership Arrangement (CEPA), aimed at giving Hong Kong greater access to mainland markets, was signed by Hong Kong Financial Secretary Henry Tang and Vice-Minister of Commerce Liao Xiaoqi.
"CEPA has proved to serve as a platform and powerful engine for strengthening economic and trade ties between the mainland, Hong Kong and (the former Portuguese enclave of) Macau," said Jia Qinglin, the chairman of the Chinese People's Political Consultative Conference, in a trade and economic forum in Hong Kong.
The new provisions, effective from January 2007, will see a further relaxation of market access conditions in 10 areas including legal services, construction, tourism and air transport.
Hong Kong chief executive Donald Tsang said the central government are also studying a further expansion of yuan business and transactions allowed in Hong Kong.
This would include allowing Hong Kong importers to settle their mainland bills directly with yuan while mainland financial institutions could issue bonds denominated in yuan on a pilot basis.
Joseph Yam, chief executive of Hong Kong Monetary Authority (HKMA), the city's de facto central bank, said while the issuance of yuan-denominated bonds will help enhance the territory's ability to do yuan business, the process can be developed only over time.
"There are a host of issues that HKMA needs to thrash out with our counterpart on the mainland. These include such as who can buy the bonds, how monies paid for those bonds are to be sent to the mainland and how the yuan bonds can be rolled over," he told reporters.
Yam said that with mainland having the world's largest foreign exchange reserves and its economy being the world's fourth largest, it is inevitable for the yuan to become significant over time in the world economic arena.
He added Hong Kong is playing the role of a testing ground for the gradual process of the yuan's convertibility into other currencies, as well for as other reforms in the mainland's financial system.
