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Integration - Key to a Win-win Situation
(A summary of my views in the debate on "General Government Policies", 24th October, 2001)

In today's concluding debate, I will focus on how to offer support to the middle class, the professionals and the employees working on the mainland. I hope that this debate will end on a more constructive note.

Mobilize Market Forces to Help Negative-equity Owners

First of all, the government must understand that the economic downturn facing Hong Kong this time is different in nature from previous experiences. In the past, Hong Kong people generally believed that with knowledge and professional skills, one would eventually make it in the world, and generate more and more savings which, invested in property and other ways, would ensure financial independence after retirement. However, nowadays, even professionals with high qualifications and experience may still suffer from the plight of negative equity and unemployment. This hits hard at the sense of values not only of these people but of our entire community.

The middle class has made valuable contributions to society. They have not called on any kind of government subsidies and the long established social safety net has never taken their needs into account. It has not offered them the slightest help. As a result, in the face of the adversities brought about by negative equity and the prospect of long-term unemployment, they are caught in a difficult situation with no way out and no one to help them.

Hong Kong is a place where investment does involve a risk. We learn from our present experience that even normal investment may still entail financial loss and that even the conservative and hard-working middle class people may find themselves in a desperate situation. It is time for the government to re-assess the situation. There should be a comprehensive and more effective social safety net to assist this group of people who have been neglected but who are truly in need.

I agree however, that a social safety net does not necessarily mean providing cash handouts. For this group of people who are resilient and have high self-esteem, it is more appropriate to offer them loan packages. I agree with the Financial Secretary that we should first make use of market forces, especially when banks have abundant capital resources and there is intense competition in the industry.

Delaying the Collection of Salaries Tax as a Supplementary Policy

Putting aside the issue of negative equity, I think that this year's Policy Address has not done enough for this group of people who are productive, who have made substantial contribution to the economy and are capable of self-help. The Policy Address did consider providing them with medium to long-term assistance but short-term relief measures are neither comprehensive nor effective. What I want to stress is that the seven proposals formulated by the political parties together can serve as "supplementary" policies.

The proposal to delay the collection of salaries tax would help to address the above mentioned shortcoming. The biggest advantage of the proposal is that the middle class in our community will get "instant" and "effective" relief. If the idea is implemented, the effect would be immediate. Moreover, the administrative procedure involved is simple and the operation cost is low. The proposal is similar in nature to short-term interest free loans which can be repaid by instalments. I very much hope that the Financial Secretary could give the proposal his serious consideration.

Civil Servants to Share the Hardship with the Rest of Society

Civil servants belong to the middle class too. Whilst they are fortunate enough to escape being hard hit financially, they cannot turn a deaf ear to the pressure from the community. One legislative councillor from the commercial sector proposed a 10 per cent cut in the civil servants' salaries. Compared to the private sectors, the percentage is not steep but it carries great significance. I am not strongly in favour of a mandatory pay cut for the civil service. I do not wish to encourage the outbreak of green envy in the community. And I do not believe that the cut is meant to reduce government expenditure, I do see that the suggestion sends a clear message: although a large number of civil servants do not have to be accountable to LegCo or to public demands, they can no longer take an aloof attitude towards things. If the government is inefficient and is incapable of taking the lead in responding effectively to social demands, complaints will be directed not only at Tung Chee-hwa, the Chief Executive, or other principal officials, but at the whole civil service as well. Civil servants, whatever their rank, can not enjoy a high salary without being held accountable. The message is very clear.

Job-related Training The Right Remedy

I am concerned about the prospects of professionals working on the mainland and the ever-increasing unemployment in Hong Kong. I would like to say something about how we can provide support to these professionals.

  1. The accountancy profession, especially international and large accountancy firms, strive to position Hong Kong as a springboard for foreign investment into the mainland. Apart from verifying the capital of an enterprise and performing auditing activities, there are still many accounting services to be introduced to the mainland by the accountancy profession, and much to be done to assist enterprises in the mainland to become value-added. Such services include taxation, merger, acquisition, assisting unlisted companies to get listed on the Stock Exchange, financing, bank loan negotiation, internal management administration, promoting economic efficiency, enterprise restructuring etc. Many of these value-added services for enterprise, yet to be common practice in the mainland, are what we in Hong Kong can provide for the mainland and they are worth promoting.
  2. As for small to medium sized accountancy firms, it is hoped that the government will establish a service centre in Hong Kong to help them save start-up costs such as rent, etc., so that they could provide "one stop" service to foreign clients.
  3. To help open the mainland market, it is essential that proper training programmes concerning business operation in the mainland are conducted. Mainlanders have made tremendous progress in their understanding of foreign investors but we have not had enough updates about the mainland. Take, for example, the educational and professional qualifications acquired in the mainland. At present, the Hong Kong government still does not recognize any qualifications acquired in the mainland. This is why Hong Kong people lack the incentive to further their studies with the aim of obtaining mainland qualifications. In my opinion, Hong Kong should offer professional training in this direction and the 100 million fund proposed by the Chief Executive should be used to launch such training programmes. This would help Hong Kong people enhance the skills they need to make a living on the mainland.
  4. Hong Kong people, in deciding whether or not to work on the mainland or overseas, consider not only their salary level, but also issues relating to the entire family. As their family members have to uproot themselves, housing, medical care, and education are all factors for consideration. Examples from overseas show that through the good efforts of chambers of commerce and professional bodies, Hong Kong people living in the place can be encouraged to set up community networks to help integrate new arrivals. These organizations can also help new arrivals by solving their housing problems, establishing international schools and medical centers, and providing insurance programmes etc.
  5. Quite a number of accountants are already equipped with the basic knowledge to assist SMEs develop their businesses. In this regard, the Hong Kong Productivity Centre has set up a team to train consultants. Should more efforts be put into "training the trainer" as a mean to providing assistance to SMEs, I think accountants are in a good position to take up the job. SMEs seeking to open the mainland market would then be supported by a team of professionals over 20,000 strong. This is a mission for accountants. What needs to be done is to strengthen the related training.

The above are just some of the very constructive suggestions I have gathered within a short period of time. They are measures that can encourage professionals to help themselves as well as others without causing the government a huge increase in expenditure. Most of you in the LegCo are prominent leaders in various industries. I feel that the concluding debate of LegCo should be constructive so that we can achieve the objective of creating a win-win relation with the mainland and of integrating the two economic systems to take both higher up the value added ladder.

Government has the Responsibility to Develop Mainland Market
(A summary of my views in the debate of session 1 on "Policy Areas of Commerce and Industry, Economic Services, Financial Affairs", 17th October, 2001)

In the last Policy Address of his term, the Chief Executive portrayed a rather grim picture for the recent economic situation in Hong Kong. What he said is true and I will not go over the causes again.

Scale New Heights by Embracing New Challenges

Hong Kong people never shrink back or become pessimistic when confronted with the new challenges posed by economic restructuring. Instead, they get down to work and courageously meet the new challenges ahead. This has been the case for the past 100 years or so. They have encountered a number of economic restructuring and every time they came out better and stronger. Our present foundation has been established through years of continuous hard work by our people, and achieved through their wisdom and adaptability. With our motherland behind us, the geographical advantages that we enjoy also make up one of the indispensable factors of our success.

China in the 20 century was still a sleeping giant on the world economic stage. With the simple "shop cum factory" mode of production and the services thus provided, industry and commerce in Hong Kong have performed amazingly well. Now that the "giant" has woken up and is set to display her talents to the full, Hong Kong has to face new and different challenges and opportunities yet once again. We must make all the necessary preparations in advance. We must handle the situation efficiently by employing appropriate strategies for maximum benefit.

Government has a Role to Play in Logistics Movement of Resources and Manpower

Government officials have more than once asserted that Hong Kong people should go north for more opportunities. They are sincere and they mean well. But our SMEs sector has yet to get properly equipped, and members of the low-tech segment of its workforce have yet to prepare themselves psychologically for such a move. Even the government herself cannot provide them with any concrete data or supporting measures. No wonder the SMEs and their workforce feel they don't know where to start on this impossible mission.

SMEs Facing a Dilemma

Whether the role played by the government is appropriate and whether the supporting measures are effective depend on how we understand and interpret the opportunities we have in the mainland. We do not have reliable information on the business environment in the mainland - information such as actual operation cost and the potential of the sales market. Besides, rules and regulations in the mainland are always changing. Local businessmen more accustomed to a stable environment are finding it hard to adapt and therefore dare not venture into the mainland recklessly.

But looked at another perspective, the commercial sectors of the mainland are already competing with those of Hong Kong in various ways. The competition is now reaching critical proportions. It poses a threat to the competitiveness of Hong Kong not only in terms of low-end industrial production, but also in the consumer market, in logistics support, financial services and even high-tech production and high-end cosmopolitan activities such as opera houses, exhibition centres, hotels and tourism. This is the double bind faced by local SMEs. It is unlikely they can escape from this predicament in the near future. Guidance and short-term support from the government are therefore essential, even though, in the long run, they have to rely on their own wisdom and efforts.

As China's economy takes off, a number of economic analysts have pointed out that China, like Japan in the post-war period, will undergo a thorough and comprehensive reconstruction. If this is the case, low cost mainland will draw in a lot of foreign capital and personnel, creating an environment that facilitates "skills transfer and job openings". What makes the situation different from that of Japan is that the mainland has a vast economy and she has to accomplish the difficult task of providing employment opportunities for her workforce, which is close to one billion, and of improving their living standards. The scale and force of absorption - comparable to what in phyisics is known as the "black hole" - will have a impact significant not only on Hong Kong, but also the whole of South-east Asia.

The current economic situation in Hong Kong is that capital, employment opportunities and consumers are shifting continuously to the Pearl River Delta Region with its relatively low standard of living. It is a natural economic phenomenon. Though Hong Kong and the mainland enjoy geographic proximity, minimal cultural barrier, and are politically associated, there are obvious differences in their economic situation. We have a highly externally-oriented and free economy, and a strong Hong Kong currency that is pegged to the U.S. dollar. Given these factors, the huge force of absorption coming from the mainland has an instant effect on Hong Kong. Besides, the force of absorption of the mainland economy is much stronger than that of Hong Kong. It would be difficult to attract to Hong Kong the money that is invested in the mainland. Without long-term capital, it is understandable that the hardship confronting local SMEs would be structural and long-term.

Economic Integration and Unencumbered Economic Interflow

As we can see, the support local SMEs need is not just the provision of some general information and short-term funds for capital turnover. Instead they need a concrete policy which endeavors to provide them with a stable investment environment for long-term strategic investment. Establishing a brand or conducting large-scale marketing in the mainland, for example, requires constant investment before doors in the mainland could be opened. A "bi-directional flow" that is more beneficial to the economy of Hong Kong could then be achieved.

I believe that what the local SMEs hope for is not a special preferential policy from the mainland. What they look forward to is to be treated no worse than any other WTO member countries so that they can compete on a level playing field with mainland enterprises and other powerful international players.

Despite the economic setback, both the government and the people of Hong Kong have abundant funds not yet committed to profitable long-term investment. Besides, there is a surplus of skilled local workforce and management personnel. The situation is in sharp contrast with the mainland where there is a thirst for capital and talents. It will be a challenge for both governments to try to remove unfair obstacles of a man made nature, to strengthen logistics and manpower flow on both sides and to strive for a win-win situation that can boost confidence among investors.

Play the Role of a Springboard for International Investment and Provide One-stop Financial Services

Take the accountancy profession as an example. It is now a fast growing profession in the mainland and the prospects are good. However, only about three large local international accountancy firms have the opportunity to develop their business in the mainland. Over a thousand small to medium sized local accountancy firms are kept outside and can only watch their domestic business shrink as their scope for development gets more and more restricted. Fortunately, the government is highly concerned about the situation. After establishing mutual understanding, I hope that the government will come up with policies that provide us more concrete support.

In developing new markets, professionals always play the role of the vanguard. The Hong Kong Society of Accountants (HKSA) has set up an ad hoc committee in September last year to conduct research on issues related to China's accession to the WTO. The discussion paper released in April this year focused on the problems certified public accountants faced in the mainland and put forward a list of suggestions. The accountancy profession expects to conduct in-depth discussions on the matter with the government to explore possibilities for future collaboration. With the legal profession attempting to establish Hong Kong as an international arbitration centre, the accountancy profession, in my opinion, can seek to establish itself as a springboard for international investors doing business in the mainland. Making use of Hong Kong's legal and financial system, the profession can collaborate with the mainland to provide in Hong Kong all-encompassing, one-stop services to international investors.

In his Policy Address, the Chief Executive promised to set aside $100 million to establish a fund to support projects that can enhance the standard of professional services in Hong Kong. I welcome the proposal. It is an indication of good will by the government. But it should be noted that it is the substantial support offered them in specific policy areas, and not financial subsidies, that professionals most desire. However, if the fund is directly managed by the government in a fair manner and is allocated to support useful projects run by professional bodies and individual professionals and not channelled to activities organized just for publicity purposes, it would render some effective assistance to professionals. By "useful", I mean projects providing in-depth knowledge of the mainland business environment, or those that offer training programmes in various skills and professional qualifications.

Public Demand for Clearly Defined Roles, Powers and Responsibilities
(A summary of my views in the debate of session 6 on "Policy areas of Administration of Justice and Legal Services, Constitutional Affairs, Public Service", 19th October, 2001)

A Political Team with only the Best Remaining in Post
For an ideal political team to come into existence, its members will, first and foremost, have to have shared political convictions. Even then, it takes a long period of conflict, confrontation and cooperation before the team could work together in unity and as an integrated whole with only the best remaining in post. The evolution process may in fact take decades, or even a century. The political development of Hong Kong moves at a slow pace and political parties have only just got started. In the course of our constitutional development, every step forward must be taken with the will "to explore, to experiment and to make a breakthrough". Too much empty talk on an ideal system without any actual improvement would only lead to stagnation.

Seek a Breakthrough and Progress with Time

In terms of constitutional arrangements, the present Chief Executive, though elected, is a commander with no soldiers. In the executive branch of the government, he has to count on the support of a civil service which has been, as it were, foisted on him through a pre-arranged marriage. In the Legislative Council, he is "all alone" and has "neither vote nor power". This being the case, discussions about how to administer effectively and bring about an executive-led government with the Chief Executive calling the shots are likely to become empty talk.

As we all know, politics is the art of compromise. The politically neutral civil service used to be a compromise solution to a political problem. But the politicizing of the Legislative Council and the election of the Chief Executive have prompted the operation of the civil service to take on characteristics of those political party organizations which "stand by the government against external pressures". This is inevitable, as the civil service has to be politically loyal to the Chief Executive, implement his policies and achieve his objectives. It should be noted, however, that this practice of requiring the civil service to show political loyalty is not new. In fact, it is a tradition that started nearly 10 years ago and is to be traced back to the times when ex-Governor Chris Patten was in office. The demand for the politically biased civil service to increase its accountability is an inevitable constitutional process.

Perfect the System for Better Governance

I have noticed that recently political commentators tended to focus their discussion on personnel issues related to the proposed ministerial system and on the short-term political forecasts based on the assumption that Mr Tung would be given a second term as Chief Executive. However, as LegCo councillors, shouldn't we widen a little our horizons, and take the proposed system as a crucial step in perfecting Hong Kong's political system?

Widely adopted by constitutionally developed countries such as the United Kingdom and Japan, the dual ministerial system is deployed to distinguish the roles, powers and responsibilities of top officials in various policy areas, and to monitor management problems in the implementation of policy. This system, if adopted, will not pose any serious long term political risks to Hong Kong. In the proposed system, the Chief Executive is allowed greater freedom in choosing the members of his political team and they share with him the credit and the blame. Such a system has the added advantage of not shaking the foundation of the civil service. Civil servants who are ambitious and work closely with the Chief Executive will of course still have an opportunity for promotion. And I believe that the Chief Executive would give them first priority. The only people who will suffer a disadvantage will be those top officials who want to have power but are not willing to be politically accountable. But it is time to do away with this kind of political "privilege".

Public Demand for Clearly Defined Roles, Powers and Responsibilities

The Chief Executive is the top man in the government, but for smooth and effective administration it is essential to have a team with the Chief Executive as the core. I believe that such a scenario will prevail even if the Chief Executive is chosen by direct election. With the proposed ministerial system in place, if the administration of the government should be found unsatisfactory and unworthy of the people's trust and expectations, Hong Kong people can then demand full accountability of the Chief Executive and his political team and they can have no excuses. Would that not be a move closer to a democratic political system with clearly defined roles, powers and responsibilities?

For full text, please refer to the website, www.ericli.org, or obtain a copy from my office.


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