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Eric's Bits & Bites Issue 27 December 2002

Dear friends,

The Christmas bell has rung and the New Year is just round the corner. I wish you a merry Christmas and a happy New Year.

New Year's Eve is a time for good wishes. First, I wish you all prosperity and continued and greater success; second, I wish prosperity and creativity for all sectors in Hong Kong; and finally, I wish the whole of China good fortune and a bright future and that Hong Kong people can have the opportunity to give expression to their talents and expertise on the mainland.

The people of Hong Kong should free themselves from the mentality of "Hongkongism" focusing only on Hong Kong as the center of all issues. Only through such freedom can we develop an international perspective and the political open-mindedness to accommodate different views and ideas.

However, Hong Kong must go for the leading role in the region rather than play a minor one and must not lose confidence in itself. We should work for a leadership role that is not self-ordained but one that has an objective reality and is generally acknowledged.

In fact, Hong Kong is undergoing a restructuring not only in its economy but also in sectors such as politics, education, medical service and social welfare so that it can adapt to the current development of the environment and increase its competitiveness, thus laying a firm foundation for its assumption of the leading role. Therefore, while the coming year will see a grave budget deficit and various difficulties, it will also be full of possibilities and opportunities!

As this Chinese couplet says,

"Hard by a sunken vessel a thousand sails glide;
Beyond a withered bough a myriad spring trees thrive."

let's do our best and strive for a better future.

Eric Li Ka-cheung



At the Hong Kong accounting sector's banquet to celebrate the 53rd National Day.
Conducting a research programme co-organized with the Guangdong Institute of Certified Public Accountants.
Officiating speech at the celebration of the final of the "Help People to Help Themselves" anti-crime drama competition.
As officiating guest at the award presentation ceremony of the AIA Foundation Scholarship and the Young Leaders Development Programme.
Analyzing the budget deficit of Hong Kong in the electronic media.
As guest speaker at the high table dinner of the Prospective Students Society (PSS) of HKSA.
As special guest at the 2002 annual dinner of the Certified General Accountants Association of Canada (Hong Kong).
Meeting with Mr. Sam DiPiazza, PricewaterhouseCoopers Global CEO.
At the tea party at Hong Kong Club on 3 December 2002 marking the satisfactory conclusion of the task of the Exchange Fund Investment Limited.



Outsourcing of winding-up cases helped to reduce costs and save public funds

In a passage on the "outsourcing of management services of personal insolvency" in the last issue, the Hon. Eric Li pointed out that "because of lack of manpower to deal with the "never-ending" bankruptcy petitions, it would be very costly and unreasonable for the Government to handle all the cases by itself. That was why he strongly advised the government to outsource the cases so that government funds could be saved and the accounting sector would have a source of business, which would be a win-win situation." (Wen Wei Po, 15 August 2002)

Hon. Eric Li: What is the average cost per liquidation case?
Acting Assistant Official Receiver (Financial Services): There were substantial savings in outsourcing some of the liquidation cases. According to the latest tendering exercise on 25 February 2002, the average cost per case was $13,384, while the average cost per case was $16,606 for the previous exercise on 27 April 2001. If the Official Receiver's Office (ORO) were to handle the liquidation cases, the average cost would be some $36,000 per case.

Hon. Eric Li: There are a number of recommendations on the changes to ORO made in the Consultancy Study, some of which are complex and require legislative amendments. I consider that the most pressing changes are those related to simplifying the liquidation process. I ask the Administration what the timetable is in this regard.

Acting Assistant Official Receiver (Financial Services): The actual timetable for implementing the changes will be developed following the outcome of the public consultation. (Minutes of the special meeting of the LegCo's Panel on Financial Affairs on 24 July 2002)

Advice heeded and reflected in the nine-measure housing policy

"Even though the Government wants to implement some public policies in a free market economy, it should adhere to the principle that it should be selective in its actions." (Extract from the Hon. Eric Li's response to the Motion of Thanks to CE's 1997 Policy Address)

"The current gloomy housing market is more or less a result of the Government's over-participation." (The Hon. Eric Li's "Letter to Hong Kong" on 17 June 2001)

Secretary Suen Ming-yeung: (The Government) should withdraw from the property market as a developer, stop the construction and sale of subsidized public housing flats, and greatly reduce its share in the whole market of property supply. (Extract from his announcement at the LegCo meeting on 13 November 2002)

"The objective that 70% home ownership rate be achieved in ten years sounds like a target in a planned economy, this is a matter of grave concern." (Extract from the Hon. Eric Li's response to the Motion of Thanks to CE's 1997 Policy Address)

Secretary Suen Ming-yeung: The Government's target of achieving a home ownership rate of 70 per cent by 2007 need not be maintained under the present circumstances. (Extract from his announcement at the LegCo meeting on 13 November 2002)

"The above-mentioned organizations can often put their residential properties on the market at their own paces without considering the actual economic values of the units being sold. This kind of activity is aimed at gathering capital only and must be restrained, otherwise it will seriously harm the economy." (The Hon. Eric Li's "Letter to Hong Kong" on 17 June 2001)

Secretary Suen Ming-yeung: The Government has reached a consensus with the two railway corporations that there will not be any railway property development projects put out for tender until the end of 2003.

"Study the possibility of slowing down or even halting the sale of Home Ownership Scheme flats." (An open letter of 9 July 2001 jointly signed by seven legislators to lead by Eric Li the Secretary for Housing)

Secretary Suen Ming-yeung: The sale and construction of flats under the Home Ownership Scheme should cease indefinitely from 2003. (Extract from his announcement at the LegCo meeting on 13 November 2002)

"The number of subsidized public housing flats supplied by the Government, excluding the statistics relating to the KCRC and the MTRCL, has exceeded 50,000, which is more or less the same as that in the private sector. Does the Government want the property market to be dominated by public housing? If not, will the Government take measures in the next few years to enable the private sector to take the lead again in the market?" (Oral question raised by the Hon. Eric Li at the LegCo meeting on 11 July 2001)

Secretary Suen Ming-yeung: The Tenants Purchase Scheme should be halted. (Extract from his announcement at the LegCo meeting on 13 November 2002)


 Questions raised and Debates

AFCD's efforts in controlling termites and mosquito
(Written question raised at the LegCo meeting on 16 October 2002)

A&E charge at public hospitals
(Supplementary question raised at the LegCo meeting on 30 October 2002)

LegCo should not intervene in commercial activities
(Speech concerning the motion of "Reducing transport fares" at the LegCo meeting on 23 October 2002)

Observing the spirit of agreement
(Speech concerning the motion of "Reducing electricity and gas tariffs" at the LegCo meeting on 13 November 2002)

Adopt simple or lenient methods of granting a waiver of A&E charge

(Supplementary question raised at the LegCo meeting on 30 October 2002)

Hon. Eric Li: The A&E charge is relatively low, and could be only $100 or so. If patients have to go to the MSWs at the hospitals to go through a lot of administrative procedures before being granted a waiver, is it really worth the effort? I wonder whether the Secretary would consider adopting some simple or more lenient methods to enable people such as recipients of Comprehensive Social Security Assistance to get the waiver in a simpler manner?

Secretary for Health, Welfare and Food: I also agree with Mr Eric LI that A&E charge is a specific charge, so it is unnecessary to design an additional waiver system. However, as we shall focus on subsidizing the lower income group in future, we have to tighten the waiver system and design a simpler method of enforcement. We are now studying the issue.

Don't be so shortsighted as to gain political interests at the expense of investment confidence

(Speech extract from the motion debate on "Reducing transport fares" at the LegCo meeting on 23 October 2002)

Hon. Eric Li: The LegCo should not be so shortsighted as to gain political interests at the expense of the overall business environment, which is part of Hong Kong's intangible assets, because this will harm the general public, including investors and staff in the public transport sector, and even affect the confidence of major international funds in investing in Hong Kong. For reasons of prudence and long-term interests, the LegCo should not pursue this policy.

Commercial interest and individual interest can be complementary

(Speech concerning "positive credit data" at the Panel on Financial Affairs on 24 September 2002)

Hon. Eric Li: Basically, the proposal for sharing positive credit data was a finance policy issue and was targeted to address the problems of rising bad debts and personal bankruptcies. The proposal, however, gave rise to privacy concerns and consumer interest concerns. Initially, one should ask what the scenario will be if the status quo is to be maintained. Government has a role to play to ensure that banks should be allowed to run their business in fair competition and based on prudent lending principles. In the absence of positive credit data, banks will find it difficult to improve their risk management ability and are therefore unable to deliver their services responsibly in the public interest. The short-term impact of the sharing of positive credit data might lead to bad debts surfacing or credit lending subsiding. But one should look farther ahead to see the longer term impact. Commercial interest and individual consumers' interest are not necessarily mutually exclusive; they can be complementary. The impact of the proposal in question on the financial sector is significant and far-reaching and must not therefore be dealt with lightly.

Research on the linked exchange rate system be shelved

(Speech at the special meeting of the Panel on Financial Affairs on 20 September 2002)

Hon. Eric Li: Pursuant to a decision of the Panel made at the meeting on 19 July 2002 that the Research and Library Services Division of the LegCo Secretariat should conduct a research study on the Link, the Secretariat circulated a draft research outline titled "Views of experts and academics on the linked exchange rate system" on 19 September 2002 for consideration at the Panel meeting on 24 September 2002. The paper has attracted wide press coverage and there has been speculations in the market about the implications of the proposed research. With appreciation of the sensitivity of the issue and its potential adverse impact on the stability of Hong Kong's monetary system, I move the motion that the proposed research should be shelved. (Members expressed unanimous support for Mr Li's motion.)

Advice for Action

Making use of resources in society to invest in the future

In an article titled "Where will the six hundred billion dollars for infrastructural developments come from?" published in Hong Kong Economic Times on 31 December 2001, the Hon. Eric Li pointed out that "If the Government is really sincere in implementing the six-hundred-billion-dollar infrastructural investment plan, it must join forces with the business sector and make use of financial resources of private corporations. And most of the capital invested or loaned must be redeemed in the future by adopting the "User Pays" principle. There are two advantages in this approach: (1) it can ensure the financial viability of the investment and spread the big investment risk to the private market; and (2) it will not overturn the priority enjoyed by normal public services in Hong Kong."

Li added that the deployable capital of private corporations and the savings of the public now amounted to four trillion dollars. He suggested that the Government adopt the mode of private investment in collaborating with private corporations in implementing large-scale infrastructural developments. In this way, it could make use of existing resources in society to invest in the future and let the future users share the costs. (Sing Tao Daily, 1 November 2002)

Editorial: "SAR Government should not shoulder the whole cross-border bridge project"

"What the Government most urgently needs to do is to reduce the budget deficit by cutting expenditure. According to this guiding principle, it is perfectly sensible to let private corporations invest their capital into the bridge linking Hong Kong, Macau and Zhuhai." (Oriental Daily News, 24 November 2002)

Editorial: "Private capital is better than public money in funding the cross-border bridge project"

"To build the bridge linking Hong Kong, Macau and Zhuhai, it would be wiser to introduce private investment rather than draw on the fiscal reserves. Be it selling old infrastructural facilities to provide capital for the new bridge or letting private corporations participate directly in the project, this strategy can steer private capital into the Government's attempt to revitalize the economy." (Hong Kong Economic Times, 25 November 2002)

Does this speck of land need so many railways?

In an article published in Hong Kong Economic Times on 27 June 2001, the Hon. Eric Li pointed out that "the two railway corporations have indirectly received enormous subsidies from the Government in their property development projects…. This not only conceals part of the actual operation costs but also puts on the shoulders of the tax payers a burden which becomes heavier and heavier."

He published another article in the same newspaper on 31 December 2001, asking "Where will the six hundred billion dollars for infrastructural developments come from?" and pointing out that "Hong Kong is now faced with economic downturn and deflation, which are detrimental to long-term investment."

Editorial of The Sun on 18 August 2002 was titled "Does this speck of land need so many railways?"

In favour of a foreign domestic helper levy

Early in an article published in the newspaper on 10 November 2000, the Hon. Eric Li suggested that the Government impose a levy of $100 to $1000 per month, depending on the wages, on those who enter Hong Kong with a work permit to work here, including Filipino domestic helpers.

On 10 December 2001, after meeting with Financial Secretary Antony Leung Kam-chung, they agreed that Leung could consider introducing some new taxes such as a foreign domestic helper levy…

Editorial of Oriental Daily News: "Imposing a foreign domestic helper levy will help to reduce the deficit" (23 August 2002)

Editorial of Ming Pao: "In favour of a foreign domestic helper levy" (21 October 2002)

Eric Li urges for enhancement of English teaching

Yesterday legislator Eric Li urged the authorities to formulate a new language policy and abolish Cantonese as the medium of instruction. He pointed out that there were limited local jobs for university graduates to apply for. So they had to look to the world outside. That was why a good command of English, and also Putonghua, was the only way out for Hong Kong people. (Ming Pao, 26 August 2002)

Editorial of Oriental Daily News, 26 August 2002: "Mr. Eric Li hit the nail on the head by his comment on the medium of instruction in Hong Kong schools…. Legislator Eric Li emphasized in a radio programme that the policy of using Cantonese as the medium of instruction had come to a dead end."

Hong Kong Economic Times, 4 September 2002 ("Market value of university students" series): "Irene Cheng, Personnel Director of Ernst & Young, said that although today's university students were fast learners and were good at computers, they were not as good as their predecessors in terms of their command of both the Chinese and the English languages and they lacked awareness of what was happening in society."


Hang Seng Hong Kong Cup table-tennis tournament raises $450,000 for the Hong Kong Association for the Mentally Handicapped

Hang Seng Hong Kong Cup table-tennis tournament raised $450,000 for the Hong Kong Association for the Mentally Handicapped, and Mr. Eric Li, President of the association, received the cheque on behalf of the Association. (Ta Kung Pao, 6 November 2002)

Mission Accomplished: Dissolution of the Association of Celebration of Reunification of Hong Kong with China

Legislator Eric Li, Honorary Treasurer of the Association of Celebration of Reunification of Hong Kong with China, remarked that after a meeting of all the directors, the association announced the termination of its operation as a company, but he emphasized that this was a glorious end of it because it had completed its task. He said, "We set up the association as a company according to the company law. It is just normal that we now go through a liquidation to settle all the company businesses through proper legal procedures. The funds of the foundation have been handed over to the trustees."(The Sun, 16 October 2002)

Serving as adviser for the Society of Registered Financial Planners

President of the Society of Registered Financial Planners sent a letter to the Hon. Eric Li appointing him an honorary member and an adviser on the society's advisory board.

Invited to sit on panel of judges for the Millennium Entrepreneurship Programme

The Hon. Eric Li was invited to sit on the panel of judges for the Millennium Entrepreneurship Programme organized by the Hong Kong Youth Institute and co-sponsored by many other organizations.

Serving as mentor for the St. Paul's Co-educational College Mentor Programme

The Hon. Eric Li was invited to be a mentor for the 2001-2002 Mentor Programme of his alma mater St. Paul's Co-educational College.

Note of thanks from HKU for supporting research on sports for the physically handicapped

Institute of Human Performance of the University of Hong Kong sent a letter to the Hon. Eric Li expressing their gratitude for his support for the 7th International Symposium on Sports for the Physically Handicapped in 2002.

Note of thanks from the Hong Kong Federation of Youth Groups for serving as Chairperson at the Youth in LegCo

Mr. James Mok Hon-fai, Supervisor (Research and Leadership) of the Hong Kong Federation of Youth Groups, sent a letter to the Hon. Eric Li expressing his gratitude to Mr. Li for serving as Chairperson at the Youth in LegCo for the "Youth in LegCo: Basic Certificate Course for Youth Community Leaders".

News Digest

How can we deal with the budget deficit?

Eric Li is for slight increases in tax rates

Eric Li, convenor of the Breakfast Group in the LegCo, remarked that although Singapore, one of Hong Kong's biggest competitors, offered a bunch of tax concessions to foreign investors, there was still a gap between Hong Kong's tax rates and those in Singapore. Therefore, slight increases in certain taxes would not drive foreign investors away. He added that as long as the Government did not change the profits tax and the salaries tax into complicated taxes such as level-by-level progressive taxes, Hong Kong's edge of simple taxation would not be jeopardized. (Wen Wei Po, 1 November 2002)

Hoping for a turn for the better is nothing more than depending on sheer luck

Eric Li, legislator for the accounting sector, also said that there would be no land premiums in the latter half of the year and revenues from investments were unstable, so hoping for a turn for the better was nothing more than hoping for sheer luck. He estimated that with this year's profits tax and salaries tax would only pay for the expenditures in the latter half of the year, the overall budget deficit would hit 60-80 billion dollars. "It would be safe to say that the deficit will reach a record high!" Standard & Poor's and Fitch Ratings expressed their concern over the worsening deficit of the SAR Government. The latter extended its concern to the recurring deflation and was worried that Hong Kong's internal demands would become even worse. (The Sun, 1 November 2002)

Hong Kong dollar may be attacked if budget deficit continues

Legislator Eric Li, convenor of the Breakfast Group and representative of the accounting sector in the LegCo, warned that the linked exchange rate would be under pressure in the next five years. Moreover, the recent rise in the long-dated forwards was a signal of banks hedging their risks on Hong Kong assets. If the budget deficit continued and the fiscal reserves kept decreasing, the long-term pressure on the Hong Kong dollar would become short term. In this scenario, not only would Hong Kong's credit rating drop, which would increase interest rates and investment costs, but the Hong Kong dollar would also become a target of attack.

Budget deficit may hit $80 billion

Quite a few finance organizations estimated that this year's budget deficit might reach a record high. Eric Li even gauged that the deficit might hit $80 billion. However, all the new taxes, i.e. the boundary facilities improvement tax and the football betting tax, would contribute less than 10 billion dollars in total. With the Government expenditures remaining at the same level, even if the economy revived in the future and there would again be land premiums, there would still be a recurring budget deficit of 30-40 billion dollars. The Government therefore had to greatly reduce public expenditures to meet the deficit. (Hong Kong Economic Times, 31 October 2002)

Urging for a cut of $50 billion in public expenditures

Financial Secretary Antony Leung Kam-chung expected economic growth to help relieve the budget deficit, but legislator Eric Li, convenor of the Breakfast Group and representative of the accounting sector in the LegCo, considered Leung's assumption "unbelievable". Li pointed out that the deficit stemmed from uncontrollable Government expenditures rather than the sluggish economy. Instead of waiting for the economy to recover or raising taxes to cover the deficit, the Government should at least cut its expenses by 20% by, for example, greatly reducing its expenditures on civil servant salaries, so as to result in a saving of $50 billion plus.

No additional burden for the middle class

"They (the civil servants) have been the biggest beneficiaries of the circumstances, and that for a long time!" Eric Li admitted that "what I said is unpleasant", but now that many private corporations had cut 40% of their expenses on salaries and that rental expenses had decreased by 50%, the Government should not "protect the interests of a privileged minority of people at the expense of the majority".

Li approved of the idea that the Government should increase various charges and introduce some new taxes, on the condition that no more burden should be placed on the middle class.

However, he pointed out that all the new revenues would amount to only about $1 billion, which would fall far short of the $70 billion deficit. In his opinion, the Government should get to the root of the problem by adopting expense reduction measures such as cutting unnecessary services so as to achieve a reduction of 20% in Government expenditures, which would mean a saving of $50 billion plus. (Ming Pao, 30 October 2002)

Sighing over the budget deficit

Today Antony Leung Kam-chung will go to the LegCo to talk about the budget deficit. In fact, all those who know something about public finances can't help sighing when they see the Government "caught in dilemmas of its own making, fearing to lose something whichever way it moved". Two days ago I met Eric Li. He groaned that he had no idea what the Government wanted to do!

Eric Li said the Government wanted to ease unemployment and cut expenses at the same time. But you can't have your cake and eat it. The people within the Government don't know which way to go. For example, Antony's intention to cut infrastructural development was immediately met with reluctance of some ministers. So what is to be done? (Apple Daily, 25 October 2002)

Eric Li: bond issuance is not a long-term solution for Hong Kong

Eric Li, convenor of the Breakfast Group, believed that with its huge fiscal reserves and the support of the mainland, Hong Kong would see good days after the current hardship was over. That was why we should not lose confidence in our prospect. He added that bond issuance would help Hong Kong to develop its bond market, which would be a good thing, but that this measure was not a long-term solution to Hong Kong's deficit problem. (Wen Wei Po, 21 November 2002)

Cannot rely on economic recovery to meet 60% of budget deficit

Eric Li, legislator for the accounting sector, considered the Government's assumption that economic recovery could meet 60% of the budget deficit lacking in credibility.

He pointed out that in the $70 billion plus deficit this year, the structural portion amounted to about $50 billion. So two-thirds of the deficit should be dealt with by controlling expenditures and raising revenues. He believed that the new taxes could contribute $10 billion and the remaining $40 billion should be covered by expense reduction.

The ministers had received an instruction that a total expense reduction rate of 4.8% was to be achieved in the next four financial years. But now that the Government has announced a halt in land sales and that the public are dissatisfied with the Government's efforts to cut expenses, the administration is considering increasing the reduction rate to 10%, which means a total saving of about $20 billion. (Ming Pao, 26 November 2002)

Combating illegal football betting to increase revenue from betting tax

Eric Li, convenor of the Breakfast Group, believed that the amount of revenue generated from the football betting tax depended on how much effort the Government put into the combat against illegal betting. He approved of the idea that the Jockey Club should run the business and that the Government's share of the revenue should go to the Treasury to help reduce the budget deficit. (Ming Pao, 27 November 2002)

Meeting with Chief Executive and urging him to redress mismatches of resources

Yesterday Tung Chee-hwa met with the Breakfast Group too to consult them on the Policy Address. Eric Li, convenor of the group, stated that he wanted the Government to continue with downsizing its bureaucratic structure and allow private corporations to participate in infrastructural development. The reason was that there were mismatches of resources and that the private sector did not have proper channels in which to direct their capital. He agreed that the Government could increase short-term revenues by selling public facilities such as the KCR, toll tunnels or the Cyberport. (Hong Kong Economic Times, 30 November 2002)

Amendment of Company Bill may scare away shadow directors

Legislator Eric Li said that many companies in Hong Kong, especially those foreign firms, were controlling their operations through a trust. They might be scared away if the business rules here suddenly changed. (The Standard, 7 November 2002)

16th Party Congress has a positive influence on Hong Kong

Eric Li, legislator for the accounting industry, believed that the peaceful and steady collective handover of power in the Central Government had a positive influence on both the mainland and Hong Kong. The younger leadership would also help to ensure long-term stability and further systematization in policy. He said that normally Hong Kong people would hope for a leader familiar with Hong Kong and Macau to oversee the two SARs, and it would be even better if he was at home in finance and economics too. (Wen Wei Po, 16 November 2002)

Inclusion of private entrepreneurs into the Party and protection for private property ownership

Eric Li, legislator for the accounting profession, pointed out that to Hong Kong people, the incorporation of the captioned policies into the Communist Party Constitution in the 16th Party Congress would mean an even higher level guarantee than the Basic Law. It also showed a further integration of mainland systems with those of Hong Kong. That was a very positive message which could inspire confidence. (Wen Wei Po, 16 November 2002)

Premier Zhu's speech inspires confidence in market

Legislator Eric Li said that Premier Zhu Rongji's warning that the worst was yet to come for the Hong Kong economy should not be considered pessimistic.

Since Hong Kong was a small economy which could not shield itself from fluctuations in outside markets, Mr. Zhu's comment was just a description of the macro circumstances.

As to the premier's suggestion that Hong Kong issue bonds, however, Li said that because of the considerable difference between the mainland economy and that of Hong Kong, bond issuance could benefit the former but not necessarily the latter. Since Hong Kong had much cash on hand, it did not need to issue any bonds at all. Besides, the proposed measure would only conceal the root of Hong Kong's budget deficit, namely that the proportion of public expenditures in the GDP was too high. Thus issuing bonds could not help to relieve the deficit.

He added that what Zhu had said was just to show Hong Kong people the Central Government's willingness to support the SAR Government. At the same time, the premier had left the handling of the deficit to the discretion of the SAR Government, which would decide for itself whether to issue bonds. (Hong Kong Commercial Daily, 21 November 2002)

Hong Kong will not follow US practices of regulating accountants

Eric Li said that the accounting industry did not need the Government to tell it how to reform itself and that the Hong Kong Society of Accountants would be aware of trends in international accounting sectors and respond accordingly. We would learn from the reform experience of other markets and make suggestions to the Government as to ways of improving the industry. Hong Kong, however, would not follow the US practices by setting up a governmental regulatory organization to oversee the accountants. In the US the need for a sweeping reform resulted from a string of accounting scandals; in Hong Kong there had been no such problems in the accounting profession, so we would not follow in the footsteps of the US.

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