By Andrew Tan, Partner, Corporate, King & Wood–Hong Kong

The Hong Kong Environmental Protection Department (EPD) announced on 1 December 2009 that the Supplementary Notes on the Implementation of Projects under the Clean Development Mechanism (CDM) by Hong Kong enterprises on the Mainland have been released by both the Central and the HKSAR Governments. These notes open up new opportunities for Hong Kong companies (as well as others through companies in Hong Kong) to participate in CDM projects in mainland China.

Instead of restricting participating Hong Kong companies to minority interests in CDM projects in China, according to the Supplementary Notes it is now possible for qualified Hong Kong companies to own all or a majority stake in CDM projects in China without the need for a local joint venture partner. This is because Hong Kong companies which are successful in obtaining approval from the EPD would be recognized as a Chinese enterprise when applying to China’s National Development and Reform Commission (NDRC) for CDM projects.

To be eligible under the Supplementary Notes, a Hong Kong company that meets the following criteria may apply for a letter of certification from the EPD:-

1. being a company registered and set up in Hong Kong, with its principal location of business operation or its headquarters situated in Hong Kong;

2. the executive director of the company should be a PRC national or a holder of a Hong Kong Permanent Identity Card; and that more than half of the board members should be PRC nationals or holders of Hong Kong Permanent Identity Cards; and

3. the ratio of non-tradable shares should be over 50% if the Hong Kong company is listed.

Under the Supplementary Notes, a Hong Kong company does not need to have a minimum number of years of business operation in Hong Kong. In addition, the Supplementary Notes do not contain any restriction on the shareholding structure of the Hong Kong company if it is not listed. In other words, as long as a Hong Kong non-listed company meets the first two conditions set out above, even newly incorporated Hong Kong companies wholly owned by a foreign party is eligible to apply for the letter of certification.

Companies meeting the above requirement will need to engage qualified China Appointed Attesting Officers when making the necessary declaration and for submission of the required documentary proof.

Further, a Hong Kong company when applying for the letter of certification must submit a business license of the CDM project company to the EDP. In other words, a CDM project company must have been established in China before its Hong Kong shareholder can enjoy the benefits under the Supplementary Notes.

In summary, the Supplementary Notes provides new and substantial opportunities for foreign investors to fully own and operate, through qualified Hong Kong companies, CDM projects in China, without the need for a local joint venture partner.

If you have any question on the above, you may contact Andrew Tan, Partner at or +852 2848 4848