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The 500,000 protesters who jammed the streets of Hong Kong Island on July 1 were obviously angry about the Article 23 legislation, but they had a few pocketbook issues as well. Unemployment is at a record high of 8.3% and the property market has lost two-thirds of its value since 1997. But those who'd been reading the papers carefully would have known that the new Chinese Premier, Wen Jiabao, was in town with good news for local business. Two days before the march, he and Hong Kong's Chief Executive, Tung Chee-hwa, presided over the signing of the Closer Economic Partnership Agreement, or CEPA, which allegedly heralds an era of buoyant economic integration between Hong Kong and the mainland. Hong Kong's government describes it as a kind of Chinese New Year present delivered in the summer. "This agreement has given us an opportunity other countries can only dream of," Financial Secretary Antony Leung said after the signing ceremony.

Leung's dreams must be awfully dull: just about everyone else agrees that CEPA is unlikely to siphon more than a few drops into Hong Kong's bucket. Under the pact, tariffs will be eliminated on certain manufactured goods traded between the two places. But Hong Kong is already a free port, and its own manufacturing sector has moved to the mainland over the past 20 years to exploit low-cost labor. Early estimates say the reduced tariffs could save Hong Kong $96 million (or 0.06% of the city's GDP) and produce 5,000 new jobs (out of 300,000 unemployed). "It's hardly a panacea for Hong Kong's economic troubles," says Eden Woon, head of the Hong Kong General Chamber of Commerce. Justin Yip, chief executive of the Hong Kong Small and Medium Business Association, is more blunt: "The common feeling is that it's good for nothing."

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It's difficult not to wonder at the timing of the CEPA announcement, especially considering that major details in the pact have yet to be worked out. CEPA calls for mainland imports of 273 categories of goods produced by Hong Kong to be tariff-free starting Jan. 1, 2004. (All Hong Kong goods are set to become tariff-free on Jan. 1, 2006, anyway, in accordance with WTO rules.) But the new rules will only apply to "goods of Hong Kong origin"—a category negotiators say won't be fully explained until October. Because Hong Kong is primarily in the business of re-exporting goods, not making them, if the definition of "Hong Kong goods" isn't fairly lenient, CEPA could be all window dressing and no glass.

What benefit CEPA does bring is likely to accrue to 17 service industries, such as banking and advertising, that will supposedly gain easier access to lucrative mainland markets. Hong Kong banks will need only $6 billion in assets to set up in China, down from $20 billion, and several smaller banks are poised to take advantage of the new rules. But for most of the selected industries, red tape will limit CEPA's impact, and even so, Hong Kong companies have proven adept at infiltrating the mainland on their own. "I think there's zero impact," says Miles Young, Hong Kong-based chairman of Ogilvy & Mather Asia Pacific. "We're all in China already."

At best, CEPA will give Hong Kong companies a psychological boost and a slight head start in the China market before WTO rules are fully implemented in the next few years. What the pact really feels like is a relic from the days when "one country, two systems" referred as much to Hong Kong's economy as its politics. Integration of the two economies is already the rule. "This might have been news 10 years ago, but it's not news now," says Young. In economic issues as much as politics, time is running out for Hong Kong's government to get with the times.

• Bryan Walsh/Hong Kong
• Hong Kong's new trade arrangement with the Mainland won't get the city out of the doldrums