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Eric’s Bits and Bytes Issue 31

Dear friends,

The success of the non-affiliated legislators’ Beijing visit was an epoch-making event in several aspects.

This was the first LegCo delegation to Beijing. As far as I can recall, after the return of sovereignty, only the Chairman of LegCo and chairpersons of its three standing committees (I was also invited as chairman of the Public Accounts Committee) have been invited to attend the 50th Anniversary celebrations of the establishment of the People’s Republic of China in Beijing in 1999. However, we were then invited in our capacity as members of the HKSAR delegation.

After the July 1 mass rally, Hong Kong delegations to Beijing were all in the name of an organization or a political party.  This was the first time that a delegation of Hong Kong LegCo members visited Beijing as legislative councillors. It indirectly paved the way for more room for political reform in Hong Kong.

Wu Bangguo’s (chairman of the National People’s Congress) reception of the delegation was top flight and was arranged according to the status of the delegation. Wu, as the second-highest ranking official in the Standing Committee of the Political Bureau, received the representatives of LegCo in the position of a member of the Party’s highest organ. His position corresponds to the position of President of the Congress in western nations. This top flight treatment extended to the Hong Kong LegCo members was another “first time” accomplishment.

The delegation made some concrete suggestions to the top-level officials which were recognized by the respective bureaus. This proved that the visit was not conducted on a “routine” basis but was rather one of substance with a number of suggestions which were put forward for the first time.

As the representative of the accounting profession, I met with Chen Yugui, Secretary-General of the Chinese Institute of Certified Public Accountants, to discuss possible co-operation among the accounting sectors across the border after the signing of CEPA. After a nearly one-hour long meeting, both sides have a better understanding of some of the issues and I will continue to follow up on the progress. In this regard, I hope you would share with me your valuable suggestions so as to enhance the development of the accounting profession both here and across the border, and to seize more business opportunities for mutual benefit.

Here, I wish you all a Merry Christmas and a Productive New Year!

Eric Li


 

Wu Bangguo, chairman of the National People’s Congress, receiving a delegation of nine non-affiliated Hong Kong legislators in Beijing.

Picture taken with Wu Bangguo after the meeting.

The delegation visiting an exhibition on the successful return of China’s first manned spacecraft to Earth.
Picture taken after meeting with Chen Yugui, Secretary-General of the Chinese Institute of Certified Public Accountants.
Being interviewed by the Hong Kong media in Beijing.

Picture taken with members of the Hong Kong Sports Association for the Mentally Handicapped.

As officiating guest of the 2003 inauguration ceremony of the Accountancy Students’ Society of the Hong Kong Polytechnic University.

Being awarded the Gold Bauhinia Star.

 


Foresight

Beijing visit of non-affiliated legislators

Wu Bangguo meets non-affiliated legislators

In a meeting with a Hong Kong delegation of nine non-affiliated legislators yesterday, Wu Bangguo, chairman of the National People’s Congress, said the Central Government was in support of the HKSAR Government’s work and urged the legislators to act in the interests of Hong Kong by supporting the Chief Executive’s administration.

Chen Zuoer: Understand the discontent of the middle class

After a meeting with Chen Zuoer, deputy-director of the State Council’s Hong Kong and Macau Affairs Office, yesterday morning, delegation leader Eric Li said they reflected the growing dissatisfaction of the middle class towards the policies of the HKSAR Government after the July 1 mass rally and their urging of a more open and fair Government to safeguard their interests. Chen Zuoer responded that the Central Government understood the sentiments of the middle class, adding that any improvement measures could be looked into. (Hong Kong Daily News, 28 October 2003)

Eric Li Ka-cheung, the accounting representative in the legislature, yesterday (26th October) said on a radio programme “Letter to Hong Kong” that the interests of the grassroots level were represented by various political parties and that of major businesses were also represented by the administration and legislators elected from the functional constituencies. Only the professionals and the middle class were being neglected.

He also pointed out that groups of professionals took to the streets on July 1 because their interests had not been taken care of. Li, however, didn’t think that direct elections would be a panacea as the grassroot votes might end up sweeping the elections and the interests of the middle class might be even less well represented. According to Eric Li, what Hong Kong needs is an authoritative Government that respects knowledge and is willing to listen to public views instead of one that relies solely on vote counts. He stressed that as long as the Government is fair and balanced, then it matters not whether the middle class is represented in the administration or not. (Hong Kong Economic Times, 27 October 2003)

Unpatriotic Hong Kong youth worry Head of the United Front Work

Several Breakfast Group and non-affiliated legislators ended their Beijing visit yesterday. Before their departure, they met and had lunch with Liu Yandong, Head of the United Front Work Department of the CPC Central Committee. Ming Pao learned that shortly after the meeting began, Liu touched upon an issue related to his sphere of work. He referred to the findings of a youth survey in Hong Kong which showed that the majority of Hong Kong youth considered themselves as Hongkongers instead of national Chinese. Concerned, Liu urged that more educational efforts should be put on this area.

Liu suggested to the legislators that more exchange programmes should be organized for both teachers and students on the mainland and in the HKSAR. He called upon the legislators, as professionals, to come up with suggestions on how to enhance the patriotic education of Hong Kong youngsters.

Among those present at the meeting, Eric Li, convener of the Breakfast Group, was the one most familiar with youth issues. He replied that exchange programmes of this nature have been and still are in progress. (Ming Pao, 29 October 2003)


Capping the amount payable by trust account in corporate rescue arrangement

According to the Government, the issue of insolvent trading in sections 273 and 275 of the Companies Ordinance is currently being reviewed together with the insolvent trading provisions in the Companies (Corporate Rescue) Bill. The processing of the Bill has been put on hold since December 2001 to allow time for the government to conduct consultation on the trust account arrangement of the Bill.

The Companies (Corporate Rescue) Bill stipulates that, before initiating the corporate rescue procedure, the company must pay its employees the outstanding wages and salaries and other entitlements or set aside sufficient amounts for this purpose in the trust account. Although this proposal offers comprehensive protection to employees, concerns have been raised that no ceiling is being set on the amount of employees’ entitlements, as it is highly unlikely that companies in financial difficulties will have sufficient money to fulfill this requirement.

The Government submitted a new proposal (as suggested by me) in a Bills Committee meeting. According to this new proposal, the sum payable under the trust account to each employee in respect of his entitlements will be capped at what would have been payable to that employee by the Protection of Wages on Insolvency Fund (PWIF) had the company been wound up. (“Consultation Paper on Proposals relating to the Trust Account Arrangement under the Companies (Corporate Rescue) Bill” by the Bills Committee on Companies (Corporate Rescue) Bill, 17 September 2003)


COMMITMENTS AT THE LEGISLATIVE COUNCIL

Serve as member of the following Committees

Public Accounts Committee, Chairman

House Committee

Finance Committee

------ The Public Works Subcommittee

------The Establishment Subcommittee

Panel on Economic Services

Panel on Financial Affairs

Panel on Information Technology and Broadcasting


Questions and Debates

Impact of China’s accession to the Treaty of Amity and Co-operation in Southeast Asia and the setting up of the China-ASEAN Free Trade Area on Hong Kong

(Written question raised at the LegCo meeting on 5 November 2003)

Government Flying Service’s A & E service

(Supplementary question raised at the LegCo meeting on 8 October 2003)

Elucidation on rail merger

The Hon Eric Li Ka-cheung: The whole of paragraph 38 talks about finding alternative sources of funding (and the issue of rail merger is brought out here). The Financial Secretary knows very well that among the two rail companies, one is listed while the other is not. The 400,000-plus shareholders of MTRC, a listed company, are very interested in knowing the prospects of the company and this, in fact, is a very sensitive topic in the market. If the issue of rail merger is considered to be a possible way of finding alternative sources of funding, it would imply that there would be no plans for the acquisition of the MTRC. This implication coincides with the rumour in the market that capital of the KCRC would be injected into a listed shell company. It seems to me that the text here does imply such an implicit meaning. Could the Financial Secretary explain in greater detail whether the text suggests that this would be the only choice or there would be other feasible solutions?

The Financial Secretary: The Hon Eric Li is truly an auditor. The text is deliberately made ambiguous. (Attendants burst into laughter.) We use the words “the desirability of” in the text to imply that we still haven’t yet decided whether we will carry out the proposed merger. Nevertheless, the Government will have a decision on this shortly.

(Question raised to seek elucidation on the statement “Hong Kong’s Economy and the Management of Public Finances” made by Financial Secretary at the LegCo meeting on 22 October 2003)

Media Report

Eric Li exposed a ruse

Eric Li, representing the accounting profession, asked whether the rail merger that was considered to be one of the possible sources of funding implied that the KCRC would inject capital into the MTRC. When Henry Tang’s ruse was exposed, he highly praised Li for his professionalism as an auditor while emphasizing that as the government had yet to make a decision on this issue, the wording was deliberately made ambiguous. (Sing Tao Daily, 23 October 2003)


Advice for Action

Home Ownership Scheme blocks to be converted into guesthouses

Less than 1,000 flats involved only

Secretary for Housing, Planning and Lands Michael Suen yesterday emphasized that the number of Home Ownership Scheme (HOS) flats to be converted into guest-houses would be less than 1,000, thus relieving industry fears. He remarked that the market should not misinterpret such an arrangement as the tip of an iceberg or that more and more HOS flats would be converted into guesthouses in the future, overthrowing the original intent of the Housing Authority. (Sing Tao Daily, 30 August, 2003)

The Hon Eric Li remarked in his “Letter to Hong Kong” on 24 August 2003 that he was “not against some form of temporary solution of the government to convert vacant HOS flats into guesthouses in order to relieve the accommodation demand of our visitors from across the border. It must, however, legislate clearly to safeguard the basic requirements on health and safety, and take into account the implications of this scheme on the hotel investors.” (Apple Daily, 25 August 2003)


A comprehensive review of mother-tongue education

The results of this year’s Hong Kong Certificate of Education Examination were released yesterday. An informant at the Education and Manpower Bureau particularly pointed out that of the 200 Anglo-Chinese secondary schools, which were forced to switch to Chinese-language teaching five years ago, the English results of 150 schools have dropped drastically. Some of them even recorded a 20% to 30% drop in the pass rates for English. Secretary for Education and Manpower Arthur Li Kwok-cheung said the government would analyze the data objectively and conduct a comprehensive review on the mechanism of mother-tongue education. (Ming Pao, 7 August 2003)

As early as 25 August 2002, the Hon Eric Li Ka-cheung pointed out in the programme “Letter to Hong Kong” that the mother-tongue education policy had reached a dead-end. Students on the mainland are now taught in Putonghua and their English standard is also gradually catching up with their counterparts in Hong Kong. Contrarily, the English standard of Hong Kong students has, in the meantime, been dropping. It is worrying that Hong Kong will become more isolated in the future instead of becoming more internationalized. The decline of Hong Kong students’ language standards will adversely affect their own competitiveness as well as that of Hong Kong. It is, therefore, of great and immediate urgency for the HKSAR Government to conduct a serious and thorough review on the policy of language teaching to improve the language standard of our students. (Oriental Daily, 26 August 2002)


Airport to be sold next year to relieve financial deficit

Financial Secretary Henry Tang, who recently assumed his present post, announced yesterday that the government intended to proceed with the partial privatization of the Hong Kong Airport Authority (HKAA). Tang said the government has decided to commence work immediately in preparation for the privatization project, and will shortly appoint a financial consultant to assist in the process. He said the government also planned to introduce the required legislation to the Legislative Council in the first half of 2004. (Hong Kong Commercial Daily, 7 August 2003)

In the Budget debate on 11th March 1998, Eric Li pointed out that potential income can be derived from the Government Property Agency’s development and sale of Government properties, from the Government’s huge investments in the airport, railways and mortgage companies, and also from the trading funds of various Government departments. I have therefore always concerned myself with how the Government manages these investments with an aim to increasing its income. On May 29 of the same year, Eric Li called for the Government’s consideration of selling some of the shares of the Kowloon-Canton Railway Corporation, the Mass Transit Railway Corporation, as well as the Airport. Organizations such as the Water Supplies Department and the Hongkong Post could also be listed in order to raise funds.

Eric Li Ka-cheung, representing the accounting profession, said the sooner the listing of the Airport Authority started, the greater the benefits because Hong Kong’s leading air freight status was incomparable in the region. Despite the current economic situation, the Airport Authority was still a guaranteed investment with an estimated market value of over $20 billion. He estimated that if the Government would sell 15% of the shares in the first round, billions of dollars could be raised. (Ming Pao, 7 August 2003)


Probing the troublesome handling of Harbour Fest

The Harbour Fest had turned into a harbour farce. When grilled by legislators at yesterday’s LegCo meeting, Financial Secretary Henry Tang initiated a counter-attack by announcing that the Chief Executive would set up a commission of inquiry comprising of independent members to investigate the issue. The commission would investigate the whole decision-making process and any wrongdoing or sub-standard performance of civil servants as well as the responsibility of the key figures concerned during the implementation of the event. The investigation targets include Tang himself as an accountable minister and the event organizer James Thompson, chairman of the American Chamber of Commerce. (Oriental Daily, 6 November 2003)

The Hon Eric Li Ka-cheung, representing the accounting profession, maintained that the government should immediately set up a commission of inquiry to investigate the matter. (Apple Daily, 23 October 2003)

Eric Li Ka-cheung, convener of the Breakfast Group, said the handling of Harbour Fest was chaotic and unacceptable, reflecting the event organizer’s inadequacies in communication, publicity and preparation. He also criticized that there were far too many singers appearing in Hong Kong at the same time. These deficiencies would not only damage Hong Kong’s international reputation, but also waste a large amount of public money. He believed that the Financial Secretary would conduct an internal review and the LegCo would decide on whether a no-confidence motion would be tabled after the detailed information was ready. (Ta Kung Pao, 23 October 2003)

Eric Li Ka-cheung, convener of the Breakfast Group, said the event had already damaged Hong Kong’s international reputation and thrown taxpayers’ money down the drain. Officials concerned should not shirk their responsibility on this issue. The financial records should be audited by an internationally renowned accountant instead of having legislators table a no-confidence motion as this would make the situation even more confusing, suggesting a lack of professionalism and political consciousness of the LegCo. (Hong Kong Economic Journal, 23 October 2003)


Expanding the power of the Securities and Futures Commission without any checks and balances unacceptable

Eric Li was concerned about the checks and balances to the power of the Securities and Futures Commission (SFC) if it took up the listing function from the Hong Kong Exchanges and Clearing Limited. Noting that the recommendations of the Expert Group were modeled on the UK regulatory structure, Li pointed out that there was strong parliamentary oversight of the regulatory body in the UK, which was very different from the circumstances in Hong Kong where the Legislature had no power to monitor the work of the SFC. He opined that the Expert Group’s recommendation of transferring the listing function to the SFC would lead to concentration of power in SFC and was unacceptable unless proper checks and balances to the power similar to those in the UK were in place.

(Speech at a special meeting of the Panel on Financial Affairs of the LegCo on 13 June 2003)


Activities

    Invited to address the regional conference of CPA Australia

Ms Deborah Leung, Director of CPA Australia – Hongkong China Division, wrote to invite the Hon Eric Li to serve as a keynote speaker at the association’s regional conference on “Opportunities in the changing Asia-Pacific economy”. Over 400 representatives would attend the conference. (Letter from Ms Deborah Leung, Director of CPA Australia – Hongkong China Division, dated 12 November 2003)


News Digest

  Discuss the Budget with the Financial Secretary

Right time to conduct public consultation on sales tax

Eric Li opined that the government should now conduct public consultation on the introduction of a sales tax as it would take several years to introduce such a tax. He said the introduction of a sales tax is an integral part of the government’s income reform and suggested that the Government discuss this together with the reduction of the salaries tax.

Li said after the meeting that the Government should stop imposing estate duty on non-domiciled persons in Hong Kong in order to attract overseas investors to settle and invest here. (Hong Kong Economic Times, 11 November 2003)

Sales tax – a frequent item on the to-do list but never implemented

Eric Li, convener of the Breakfast Group, said that it was obvious that Financial Secretary Henry Tang was optimistic about economic prospects as he has left a certain degree of flexibility in his plans to eliminate the deficit. Li, however, doubted whether the government would eventually introduce a sales tax. “The sales tax is regarded as the last resort to restore the fiscal balance. Every time it was the Government which stressed that the sales tax must be introduced but in the end nothing was done,” he said. (Hong Kong Economic Journal, 23 October 2003)

Eric Li urges severe penalty for wastage of taxpayers’ money

Financial Secretary Henry Tang has started his consultation with LegCo members on the financial budget to be released in March 2004. Speaking after meeting with Tang, Eric Li Ka-cheung said that he was in support of the Government tackling the deficit problem seriously. If the Government was to be convincing to the legislators and the general public, there should be a clear internal mechanism for reward and punishment. Disciplinary action should be taken against officials found to be responsible for wastage of taxpayers’ money. Besides, departments that were reported in the “Director of Audit’s Report” to have drained away money should also have their expenditure slashed in the following year. Li was of the view that it was now the golden opportunity to study the possibility of introducing a sales tax and this chance should not be missed. Preliminary studies should be included in next year’s budget and the government could compensate for this by alleviating the tax burden of the middle-class. He expressed support for public fees and charges to be raised in an orderly manner and in accordance with the public’s affordability, and for fees that affect people’s livelihoods to be considered later. He also suggested scrapping estate duty. According to Li, there was no magic number for the fiscal reserves. What was most important was to ensure sufficient cash flow. The Government could consider issuing bonds to maintain the reserves at a safe level. (Hong Kong Economic Journal, 11 November 2003)

Postponing the elimination of the deficit and cutting expenditure should be complementary

The Hon Eric Li Ka-cheung, the accounting representative in the legislature, said, “Civil servants should know that when the commercial sectors experienced a pay cut, you did not. So when the economy improves and the commercial sectors get a pay rise, you should continue to have your pay and expenditure frozen.” He said if the time frame for balancing the deficit was postponed, expenditure cuts should be strengthened to keep the level of expenditure for the year 08/09 below $200 billion. Revenue-raising efforts could be reduced, and the target to increase taxes by $6 billion in this year’s budget, in particular, should be abandoned. (Hong Kong Economic Times, 20 October 2003)

Target for a flexible time frame for eliminating the deficit

May consider issuing bonds

Eric Li said the target to balance the books in two years was “unrealistic” as the pace of economic recovery after the SARS outbreak was slower than expected. He opined that the government should not set a deadline for balancing the books especially when its revenue-raising plans, which rely on the economic recovery and the introduction of new taxes, were not within its control.

He said the only thing the Government could do at this stage was to cut expenditure. Therefore, the time frame for eliminating the deficit should remain flexible and the government could consider raising revenue by developing infrastructure, issuing bonds and selling shares when necessary. (Wen Wei Pao, 21 October 2003)

No lay-offs of civil servants unacceptable

Legislator Eric Li said he considered it unacceptable that there would be no lay-offs of civil servants. He maintained that the government should stay flexible in the handling of civil service matters. The inflation/deflation factor should be taken into account in the adjustment of civil service pay in future and reviews on issues such as the entry point and salary scale should continue.

He said no deadline should be applied to the timetable for eliminating the deficit. Rather, there should be some flexibility. He emphasized that economic activities are different from political campaigns. To show its determination, the Government should implement measures such as cutting expenditure rather than “steel making” as in previous cases when a time frame for the economy to recover and for a certain kind of tax to be collected was set solely based on its own political will. He pointed out that the Government had set too many deadlines to restrict itself in the past and hoped that the Government would have learned its lesson. (Sing Tao Daily, 22 October 2003)


    Clear guidelines on Government appointees and officials sitting on boards

Legislator Eric Li Ka-cheung pointed out after a LegCo financial affairs panel meeting yesterday that to enhance corporate governance, the government needed to set clear guidelines on the role of government appointees and officials sitting on boards. (SCMP.com, 7 November 2003)


    The responsibility for the West Kowloon Project does not lie with the LegCo The Democratic Party criticized this as taking advantage of the LegCo. Legislator Eric Li, convener of the Breakfast Group, emphasized that although the LegCo had advised the government on the contract signing of the Cyberport and the bidding process details of 3G, the responsibility should not lie with LegCo. “It is not a bad idea to consult the LegCo on public issues, but the responsibility does not lie with LegCo.” (Hong Kong Economic Times, 18 October 2003)


    Insist on setting up a select committee to investigate the SARS outbreak

The Government recently communicated with the Breakfast Group, the DAB and the Hong Kong Progressive Alliance to inquire if they would vote against the setting up of a select committee should the Government agree to appoint an independent commission of inquiry. Breakfast Group convener Eric Li flatly refused the offer and insisted that a select committee should be appointed to report to the public on the handling of the SARS crisis. The Breakfast Group will discuss the issue today and he believed that the majority of the members would support the LegCo’s decision to set up a select committee. (Hong Kong Economic Journal, 10 October 2003)

Eric Li: Two committees could conduct their investigation simultaneously

Eric Li, convener of the Breakfast Group, was one of the legislators who had been sounded out. He said that he had flatly denied any possibility of changing their decision to vote for the setting up of a select committee on the following day even if the Chief Executive would appoint an independent commission of inquiry. He reiterated that the seven votes of the Breakfast Group were all in support of the setting up of a select committee and that even if the Government set up a commission, the two bodies could investigate simultaneously, as was the case in the chaotic opening of Chek Lap Kok airport and the short-piling scandals. He stressed that “the sooner the investigation starts, the better.” (Ming Pao, 9 October 2003)

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