Eric’s Bits & Bites   Issue 29    June 2003

Dear Friends,

Now that the severe acute respiratory syndrome (SARS) outbreak has subsided, the worst may be over for the people of Hong Kong. Evidently, Hong Kong has emerged from this crisis a more cohesive society. ‘A fall into the pit, a gain in your wit,’ as the Chinese saying goes. We have survived the financial turmoil before, and now we are regaining our strength. A new hope is growing.

We must learn a lesson from the SARS outbreak, in order to address immediate issues and anticipate future problems. This involves a review of our healthcare system, but other areas must also be examined. When we walk, we must not only watch our step, but also know which way we should be going. So it is with reviewing the SARS outbreak. We should concern ourselves not only with facts, but also with individuals. This is because facts always involve individuals.

Eric Li Ka-cheung

	Receiving an Honorary Fellowship conferred by the Chinese University of Hong Kong
At a function organised by the CPA Australia Hong Kong China Division
	At the annual dinner of the Association of International Accountants (Hong Kong Branch)
Showing guests from CPA Australia around the Legislative Council chamber
	At a meeting of the Television Broadcasts Limited (TVB) advisory committee on children’s programmes
Speaking at a press conference of the Society of Registered Financial Planners

FORESIGHT

BUILDING ON A SOLID BASE, BOOSTING INVESTORS’ CONFIDENCE

Eric Li moves a private member’s bill to amend laws on the accounting profession

At a special meeting of the Legislative Council panel on financial affairs on 13 June, Eric Li Ka-cheung, on behalf of the Hong Kong Society of Accountants (HKSA), proposed to move, in accordance with Article 74 of the Basic Law, a private member’s bill on amendments to the Professional Accountants Ordinance and the Professional Accountants By-laws, in order to expedite the process of reform as regards the internal governance of HKSA and the regulatory regime of the accounting profession.

Permanent Secretary for Financial Services and the Treasury (Financial Services) Tony Miller said, ‘We support the Society’s proposals, which would enhance the Society’s independence, transparency and accountability. We are encouraged by the Society’s effort to take the initiative to pursue the proposals in the form of a private member’s bill.’ (14 June 2003, Ta Kung Pao and papers from the Financial Services and the Treasury Bureau)

HKSA to put forward proposals for self-regulation in three months

Legislator Eric Li Ka-cheung, representing the accounting industry, said the HKSA would put forward, in two to three months, concrete proposals to improve the monitoring of the accounting industry. Mr Li said the proposals would cover provisions and technical details about expanding the HKSA’s council membership and increasing the number of non-accountant members on the HKSA’s investigation board and disciplinary committee. As for the government’s proposal for setting up a super regulator modelled on that of the US to monitor the auditing of listed companies, Mr Li said since it could cost as much as $100m a year, the market at large should shoulder the cost and not the accounting industry alone. (29 April 2003, Ming Pao)

‘New ideas’ needed to address fund managers’ concerns about corporate governance

At an open forum on ‘Listed companies need to improve corporate governance and risk management’, organised by the CIMA, legislator Eric Li Ka-cheung said the accounting industry should come up with ‘new ideas’ to help companies attract more investment from fund managers, who are concerned about businesses’ corporate governance and internal regulatory mechanisms. (7 May 2003, Hong Kong Commercial Daily)

Independent risk assessment will have a positive impact

Legislator Eric Li Ka-cheung, representing the accounting industry, said the proposed independent risk assessment would have a positive impact on Hong Kong’s listed companies, which face many challenges, for example, competition from mainland private businesses. But Mr Li said the proposal should be carefully considered as regards the questions of costs, operating models, transparency, who is to carry out the independent assessment, and whether or not listed companies should be required by law to disclose information. (7 May 2003, Hong Kong Daily News)

‘We don’t need to follow other countries in every way’

‘We don’t need to follow every aspect of the accounting reform in other countries,’ legislator for the accounting industry Eric Li said. ‘HKSA has put forward a practical and effective proposal for reform which is unlikely to bring up the cost for the industry.’ (23 April 2003, The Standard)

David Webb full of praise for Eric Li

[At the Hang Seng Bank’s annual general meeting, minority shareholder rights advocate David Webb raised questions about the independence of the non-executive directors, and even criticised the bank’s co-founder Ho Tim. But Mr Webb was full of praise for Eric Li Ka-cheung, saying, ‘Among the directors are people who have either deposited money at the bank or borrowed money from the bank, in other words people who have commercial relationships with the bank. Only Eric Li alone is truly independent and has professional expertise in accounting, and is therefore suitable for the job. I can’t say this much for the other directors.’ (23 April 2003, Hong Kong Economic Times)

SEVEN YEARS’ RESIDENCY REQUIRED FOR SOCIAL WELFARE BENEFITS

Eric Li Ka-cheung supported the residency requirement, saying, ‘It is accepted all over the world that immigrants who have not yet fulfilled their residency requirement should not be entitled to social welfare benefits such as healthcare, education and comprehensive social security assistance (CSSA). It is inappropriate [for immigrants] to receive CSSA before they have resided in Hong Kong for at least seven years…[Such immigrants] should not be eligible for healthcare and education benefits. A person carrying a green card is not eligible for social welfare benefits in the US.’ Mr Li said the Director of Social Welfare would exercise discretion in case of emergencies. Given the wealth gap between Hong Kong and mainland China, Mr Li said, new immigrants who could not support themselves should move back to the mainland. (27 January 2003, Ming Pao)

The Executive Council yesterday approved that the CSSA residency requirement, which used to be one year, should now be changed to seven years. The new eligibility rule, which does not apply to those aged under 18, will take effect in January 2004. (4 June 2003, Sing Tao Daily)

COMMITMENTS AT THE LEGISLATIVE COUNCIL

Serve as member of two Bills Committees (May 2003):

＊        Bills Committee on Revenue (No. 2) Bill 2003, Chairman

＊        Bills Committee on Betting Duty (Amendment) Bill 2003

Questions raised and Debates

Important Speeches (For full text, please go to: http://www.ericli.org)

＊        Speech on Appropriation Bill 2003 at the Budget Debate (2 April 2003)

＊        Motion on ‘Vote of no confidence in the Financial Secretary’ (7 May 2003)

＊    Motion on “Calling for the resignation of the Chief Executive, Mr Tung Chee-hwa” (14 May 2003)

3 written questions raised at the Legislative Council:

＊    “Passenger clearance at boundary crossings” (Written question raised at the Legco meeting on 9 April 2003)

＊    “Expenditure relating to Waste Separation and Recovery Programme” (Written question raised at the Legco meeting on 9 April 2003)

＊    “Road excavation works carried out on the pavements along Nathan Road and King’s Road” (Written question raised at the Legco meeting on 30 April 2003)

ADVICE FOR ACTION

OVERCOME SARS, REVIVE THE ECONOMY

The government should join hands with the people of Hong Kong to revive the economy
With a budget deficit, the government is under pressure to increase income and cut spending. To make matters worse, the SARS outbreak has dashed the hope of a 3 per cent GDP growth this year. Legislator Eric Li Ka-cheung urged that the government should not only provide emergency relief, but also stimulate the economy by boosting local consumption and restoring international investors’ confidence.

The government should rebate tax in the form of local consumption vouchers
Mr Li said the government, working within its traditional financial framework, lacks a powerful fiscal tool that can manipulate the market. He suggested the government should consider issuing local consumption vouchers, which could function like banknotes but would not affect the exchange rate. He said these vouchers, which must be used in Hong Kong within a specified period, would stimulate local consumption almost immediately. ‘It is entirely possible for the government to rebate more than $2b to taxpayers in the form of local consumption vouchers, which must be used within three months,’ he said. ‘This will have a positive impact on local consumption.’

The government should step up efforts to balance budget deficit
Mr Li said the government should step up efforts to reduce spending, streamline structure and cut wages. ‘The structure of the civil service is dated and out of sync with the rapidly changing structure of society,’ he said. ‘The government is going to cut wages, but only in stages. The outcome of such a half-measure is doubtful.’ He said the government should downsize if wage cuts could not reduce public spending. A 20 per cent cut in jobs would not be unreasonable, he said. (5 May 2003, Wen Wei Po)

$1b lucky draw to attract tourists
Independent legislator Eric Li Ka-cheung proposed setting up a global lucky draw to attract tourists to Hong Kong, with cash prizes sponsored partly by the government, and flats, cars and air tickets donated by the private sector.

Mr Li said the government’s slogan ‘Business as usual’ was unattractive. Likewise the publicity campaign to highlight the heroic deeds of local people in the anti-SARS war was unlikely to lure tourists to Hong Kong. He said only real incentives would attract tourists and businesspeople. ‘Once we decide to do it, we have to do it properly, even if it means spending $1b. People will be lured by the promise of reward, as the Chinese saying goes,’ he said. (14 May 2003, Hong Kong Economic Journal)

Government campaign should target fund managers
Eric Li Ka-cheung said the government campaign to highlight its anti-SARS efforts had focussed on foreign governments and businesses and neglected fund managers. Mr Li said the government should do more to attract investment from fund managers, who are in charge of billions of dollars. (14 May 2003, Wen Wei Po)

Eric Li opposes any inquiry that aims to see heads roll
Legislator Eric Li Ka-cheung, representing the accounting industry, said anti-SARS efforts should take priority at the present stage. Mr Li opposed the proposal put forward by pro-democracy parties that two separate inquiries should be set up - one by the government, the other by the Legislative Council. He said this would create chaos and waste resources. At this stage, he would oppose any inquiry aimed at seeing heads roll rather than identifying areas for improvement. (15 May 2003, Ta Kung Pao)

Legislative Council should consider the inquiry’s report before deciding whether or not it should follow up on the matter
Independent legislative Eric Li Ka-cheung rejected the argument that we should ‘walk on two legs’. Mr Li said it would create chaos, waste resources and turn into scapegoat-hunts if the government and the Legislative Council were to set up two separate inquiries into the SARS outbreak. He said the Legislative Council should consider the government inquiry’s report before deciding whether or not it should follow up on the matter. (15 May 2003, The Sun)

The aim of inquiry is not to hunt for scapegoats
Independent legislator Eric Li Ka-cheung said the government should take the initiative and set up a select committee to review the structure of the healthcare system. Mr Li said the Legislative Council should follow up on the select committee’s report, and not set out to hunt for scapegoats. (15 May 2003, Ming Pao)

Judges, doctors and academics should sit on the review committee
Independent legislator Eric Li Ka-cheung said the government should set up a select committee made up of judges, healthcare professionals and academics. Mr Li said the Legislative Council should follow up on the report of the committee. (15 May 2003, Hong Kong Economic Times)

Activities

Conferment of Honorary Fellowship by the Chinese University of Hong Kong
An honorary fellowship was conferred on legislator Eric Li Ka-cheung by the Chinese University of Hong Kong at a ceremony presided over by vice-chancellor Prof Ambrose Y C King on 30 May 2003.

Invited to serve as adviser on curriculum
Eric Li Ka-cheung has been invited to serve as an adviser on the curriculum of the Hong Kong College of Technology for another two years.

NEWS DIGEST

REGULATING THE TELECOM INDUSTRY STIFLES THE MARKET

Eric Li criticises the Telecommunications (Amendment) Bill 2002 for going against market trend
The Telecommunications (Amendment) Bill 2002 gives the Office of the Telecommunications Authority (OFTA) the power to veto any merger or acquisition in order to ensure industry competition. The government’s intention of introducing this bill is to boost the telecom industry by regulating mergers and acquisitions. But legislator Eric Li Ka-cheung criticised the bill for putting obstacles in the way of investors and going against the trend of the telecom market.

Mr Li yesterday said many telecom operators were concerned about the powers vested in the director-general of OFTA. The creation of an appeal board to introduce checks on the director-general’s powers did little to allay the fears of the industry, he said. The government’s refusal to include guidelines on mergers and acquisitions in the bylaws would allow the administration to deal with disputes over industry competition without the check of the judiciary, he said. (13 May 2003, Ming Pao)

The Telecommunications (Amendment) Bill 2002, which has provoked strong protest from the telecom industry, will be tabled for second reading in the Legislative Council on 2 July. But legislator Sin Chung-kai, together with eight local telecom operators, have vowed to throw a spanner in the works. Mr Sin is expected to table a number of amendments to the bill. (11 June 2003, Sing Tao Daily)

Eric Li is the only legislator familiar with the telecom industry
An industry source says legislator Sin Chung-kai, who represents the telecom industry, has failed to follow up on the questions he raised at the Legislative Council, while another legislator Emily Lau only raised questions from the point of view of the consumers. The source says Eric Li Ka-cheung is the only legislator with an intimate knowledge of the telecom industry. This being the case, the source says, the government should be able to dodge the questions and ignore the objections from the industry. (9 June 2003, Apple Daily)

Telecommunications (Amendment) Bill 2002 drives the telecom industry to the wall
The Telecommunications (Amendment) Bill 2002 boggles the mind, said legislator Eric Li Ka-cheung, who is a non-executive director of SmarTone Telecommunications Holdings Ltd (315). The government knows very well that the telecom industry needs to attract more investment, and yet the proposed bill discourages potential investors, Mr Li said. Even if disputes over ‘the powers vested in the director-general of OFTA’ and the wisdom of ‘the decision to introduce Hong Kong’s first industry-specific antitrust law in the telecom industry’ are set aside, he said, the bill discredits Hong Kong’s good reputation as a free business environment because investors are required to report to the authority ‘every step of the way’.

Telecom operators take a global perspective, he said, they enter a market when business is good, and leave when business is bad. Foreign investors get discouraged if their decision to pull out is constrained, he said. Everybody can see that the local telecom industry is operating in a difficult business environment, he said. Hong Kong’s telecom market, which has too many operators, needs consolidation, he said. But some small operators have failed to secure a buyer, and those having cash flow problems have resorted to unhealthy market practices such as slashing prices, he said. He believed that the bill had put on hold some talks in the past year on merger and acquisition.

Mr Li said the bill would localize rather than internationalize Hong Kong’s telecom industry. He also said that since the bill would leave the OFTA’s powers unchecked and the laws are complex, this may lead to micro-management of the telecom industry and cast shadows of uncertainty over its future. If arguments rage again in 2005 when the 3G technology comes of age, he said, Hong Kong’s telecom industry will really lag behind other countries. (9 June 2003, Apple Daily)

Loan Guarantee Scheme must be accompanied by a corporate rescue plan
The government’s proposal to set up a loan guarantee scheme for businesses has been strongly criticised by legislator Eric Li Ka-cheung, who represents the accounting industry. ‘Without an overall corporate rescue plan, this will turn good money into bad money,’ Mr Li said. ‘I will definitely oppose it.’ He said the proposed scheme would only harm these businesses and pour taxpayers’ money down the drain. Mr Li said the proposed loan guarantee scheme would put pressure on the Protection of Wages on Insolvency Fund, which would need loans from the government or go bankrupt.

Mr Li said the proposed scheme must be accompanied by a corporate rescue plan. He therefore urged the Legislative Council to further review the Companies (Corporate Rescue) Bill 2001, in order to provide an overall plan to help businesses survive. He said he had put forward such a proposal to Secretary for Financial Services Frederick Ma. (16 April 2003, Apple Daily)

Anti-SARS war chest should not be used to put on a show of prosperity
Legislator Eric Li Ka-cheung, representing the accounting industry, said the government’s plan to earmark the lion’s share of the resources to concerts and sports events would do little to stimulate spending. (30 May 2003, Ming Pao)

Eric Li urges the government to help airlines expand access
Legislator Eric Li Ka-cheung urged the Economic Development and Labour Bureau to discuss with the Civil Aviation Authority of China to help Hong Kong airlines expand their access to the mainland.

Mr Li said Dragonair was exercising its right when it mounted a legal challenge to Cathay Pacific’s mainland access. But he wondered if litigation would benefit Hong Kong’s airline industry. He said in a competitive market Hong Kong airlines would lose out if their hands were tied by legal disputes.

Mr Li expected the legal dispute between Dragonair and Cathay Pacific to take some time to settle. Should the case go to the Court of Final Appeal, he said, it would have to wait until next year. The development of Hong Kong’s airline industry should be a long-term objective, and should not be affected by the present legal dispute, he said. (29 May 2003, Sing Tao Daily)

Can the government handle a super jail?
At the Legislative Council panel meeting on financial affairs yesterday, many legislators queried if it was economical for the government to spend $16b on a super jail, and pour $46.7m into a feasibility study. Independent legislator Eric Li Ka-cheung fumed, ‘Is there no one in the government who can do this job? If just the feasibility study alone calls for a consultancy, how can the government manage this $16b project?’ (17 May 2003, Sing Tao Daily)