China's pledge to open its markets under its WTO commitments has already created a number of opportunities that Hong Kong business should be exploring, Chinese leaders told delegates of the Chamber's annual high-level mission to Beijing from June 6-7.

Even though Hong Kong businesses are hoping they will gain a slight advantage if the ongoing Mainland/Hong Kong Closer Economic Partnership Arrangement (CEPA) consultations go as well as they hope, China's Vice Premier Li Lanqing told the Chamber's 42-member delegation to the capital that Hong Kong should not pin all of its hopes on the outcome of the consultations. Hong Kong possesses much of the expertise that China urgently needs, and any concession that results from CEPA should be regarded as icing on the cake.

Members of the delegation, led by HKGCC Chairman Christopher Cheng, were informed that logistics is one example of how Hong Kong businesses can benefit from its advantages. Vice Premier Li said much needs to be done to beef up China's logistics and distribution services to serve the flood of retail and wholesale businesses that are expected to set up shop in China as restrictions are eased.

He suggested Hong Kong companies should be looking to provide logistics and distribution services to these market players. Moreover, HKSAR firms' expertise in cutting-edge logistics services can also play a key role in modernising China's logistics sector.

Hong Kong's financial expertise could also be used to help China's high-technology industries attract venture capital. The establishment of China's second trading board -- dubbed China NASDAQ -- is expected to help ease this shortage of capital, but a number of problems need to be overcome before that becomes a reality. In the meantime, venture capital will play an important role in bringing to fruition new technologies in China, and Hong Kong firms can be instrumental in that development.

The third area which Vice Premier Li suggested Hong Kong businesses could look at is infrastructure development and related industries abroad. China is involved in a lot of government aid infrastructure development projects in developing countries. With the Central Government's "Going Out" strategy now underway, opportunities exist for Hong Kong businesses to cooperate with Mainland enterprises to invest, from a business angle, in infrastructure projects in these developing countries using BOT or BOOT models.

Vice Premier Li said the requests to the Central Government to allow "Qualified Domestic Institutional Investors" (QDII) to invest in Hong Kong's financial market and to allow banks in Hong Kong to take RMB deposits are being considered. Both suggestions stood to benefit the Mainland as well as Hong Kong, but he believes a step-by-step approach by China to open its financial sector is the best route. He also pointed out that foreign banks in China can already take RMB deposits.

In their meeting with MOFTEC Vice Minister An Min, delegates learned that although no concrete timetable for the CEPA consultations has been set, both sides are working hard to push forward the process.

Regarding the issue of zero tariffs for Hong Kong's exports into China proposed under CEPA, Vice Minister An said that discussions on the matter were still ongoing and that the Mainland Government is considering carefully the tariff reductions. Both the Central and the HKSAR governments will liaise closely on the matter.

Although CEPA consultations on services liberalisation have yet to start, the HKSAR Government has provided MOFTEC with some detailed suggestions and he expects talks on this will start at the next round of CEPA consultations.

Vice Minister An told delegates that there are two major issues related to services liberalisation -- how to classify a Hong Kong company, and the scale of opening and entry requirements.

Most of the conditions and schedules for service liberalisation have already been listed in China's WTO documents. Mr An said he personally feels that even if indigenous Hong Kong service providers do get early entry into the Mainland, the short lead time of one or two years would not substantially benefit Hong Kong's SMES.

On the issue of using Guangdong as a pilot testing ground for CEPA, Mr An said that would not be a solution since CEPA should be an arrangement that covers the whole country. He pointed out that China used the special trade zone concept 20 years ago in Guangdong and Shenzhen. However, it is not an appropriate incentive to use in this new era of economic development. And even if a geographical focus were to be favoured, the Central Government would most likely want to focus on the central and western regions of the country.

Six months after China officially joined the WTO, Mr An said all ministries have been working hard on WTO issues. Some difficulties have cropped up, which he said is to be expected for a country the size of China, but on the whole ministries are readying themselves to comply with China's WTO commitments. A cause of concern, however, is countries' blinkered vision on China. Mr An said he believes there is too much focus on China, and now that it is in the WTO, it has the most anti-dumping cases among all its members lodged against it in addition to a number provisional safeguard measures that have been built up against China.

During their meeting with Hong Kong and Macau Affairs Office, Deputy Director Chen Zuoer told delegates that he foresees economic integration between Hong Kong and the Mainland, especially in the Pearl River Delta region, growing closer. Nevertheless, maintaining a legitimately managed border between Hong Kong and Shenzhen -- despite it impacting the free flow of people, goods, capital and information -- remained vital, he said.

Efforts to facilitate the flow of goods and people across the border are ongoing, in addition to reducing the cost of managing the border. Mr Chen said governments within the PRD and Hong Kong should work together to avoid wasting resources, creating cut-throat competition and duplicating investment.

The Mainland government is committed to strengthening economic integration in the PRD, which has the backing of President Jiang Zemin who recently stated: "Make full use of the strengths, work hard on mutual co-ordination, promote and encourage cooperation, achieve development on both sides."

Fulfilling President Jiang's target will not be easy and will require a deeper understanding of the "One Country, Two Systems" concept; a clearer positioning of the Mainland and Hong Kong's economy; and the balancing of China's national interests and the interests of the PRD and Hong Kong.

Mr Chen said that China stood by Hong Kong to help it develop its economy. However, because Hong Kong is not just a Chinese city, but a world city, it should not just look to China to develop its economy, but to the whole world.

Delegates raised the matter of granting Hong Kong SAR passports to ethnic minorities who were born in Hong Kong and who are Hong Kong permanent residents. Mr Chen explained that according to the Basic Law, Hong Kong SAR passport holders who are permanent Hong Kong residents must be Chinese citizens. Any Chinese national born in Hong Kong wishing to qualify for a Hong Kong SAR passport, but who are holding a foreign passport, may do so if they declare they are a Chinese citizen.

Mr Chen reiterated that China does not discriminate against foreigners, and any misunderstanding that may have arisen recently was most likely due to immigration offices being overly cautious following the 911 incident.

Delegates lauded the HKMAO for its work in getting approved three-year multiple visas for foreign nationals who are permanent Hong Kong residents, and asked if it would be possible for these people to have a special permit so that they could use the Hong Kong Home Return Permit counter at the checkpoints. Alternatively, the number of passport counters should be increased, or separate passport counters for foreign and PRC passports should be set up.

Relaxation of the quota on Mainland tourists has created heavy congestion at passport counters, which can be very frustrating for foreign Hong Kong residents using passports who have to travel frequently across the border for their business.