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17th Legco Report to HKSA Council By Hon. Eric K.C. Li

I. Highlights

This quarter starts with a narrowly focussed Policy Address delivered on the 6 October 1999. The response from the Public was luke warm but soon, news about the launch of the successful TraHK Fund, the Disneyland Theme Park, China's possible entry to the World Trade Organisation and the hard data providing evidence that Hong Kong's gradual economic recovery was indeed abound had actually begun to bring back the 'feel good' factor. There is also some life, breathe into the otherwise extremely conservative and modest beginning of the Growth Enterprise Market.

There were also much excitement on the political front. The District Board Election and the historical abolishment of the municipal Councils gave political analysts a field day in offering their various commentaries. The two lower tiers of our political structure have at last captured the media limelight for a short while.

As usual, Director of Audit Reports continued to drop bombshells onto Government quarters. The reports on the untimely departure of Messrs. Rafel Hui and K S Kwong had further fueled discussions on the difficulties faced by senior civil servants in the present political environment. There were also much concerns expressed from the angle of 'conflict of interests' for senior officials moving directly into highly-paid jobs created by the Administration in Semi-Governmental bodies.

The admission by the FS on the existing narrow tax base had also triggered off speculation on of what new tax he will bring to life in the forth-coming Budget. It has also been a busy quarter as far as bills scrutiny is concerned with HKSA working flat-out with your LegCo representative.

II. Committees and Panels
1. Public Accounts Committee (PAC):
@ On 13 October 1999 and 17 November 1999, the Director of Audit tabled two of his headline catching Reports No. 33A and No. 33 in the Council. The Committee, after holding public hearings to receive evidence from Controlling Officers, will meet several times a week throughout the holiday season, in the hope of finalizing our own independent report on time. I intend to present the main bilingual PAC Report No. 33 to LegCo on 26January 2000.

The shorter PAC Report No. 33A was tabled in LegCo on 8 December 1999. In this Report, the Committee has studied the Director of Audit's follow-up review of the year 2000 (Y2K) problem.

The Committee has also concluded the outstanding Report on Chapter 5 of the PAC Report No. 32, i.e. "The Government's Monitoring of Electricity Supply Companies". Despite of its highly controversial contents, all concerned parties seemed to have accepted its conclusions and recommendation initially.

2. Financial Affairs Panel:
@ I was re-elected Deputy Chairman of this Committee on 7 October 1999.

The Panel held 4 meetings since the last report and the relevant agenda are attached as Appendix I. On 6 December 1999, the Financial Secretary (FS) has provided the Panel with a report on the current economic situation in the third quarter of 1999 and updated forecasts for 1999. The meeting was widely reported and in particular, the admission by the FS that our tax base is unacceptably narrow and that he may have to consider widening it in order to redress the sustained Budget Deficit.

A proposed list of future agenda items is also attached as Appendix II for reference. The Chief Executive of HKMA will brief the Panel on his annual performance on 3 January 2000.

3. Welfare Services Panel:
@ The Panel held 6 meetings since the last report. The Panel studied the Year 2000 compliance in social welfare organisations, survey report on street sleepers and the social welfare subvention system as well as the issues arising from the review of CSSA.

A special meeting was held to discuss the review of the social welfare subvention system and the proposed amendments to the Mental Health Ordinance. Moreover, two Joint meetings with Panel on Manpower were held to study the Working Group on research study on Unemployment Benefit Systems.

4. Economic Services Panel:
@ The Panel held 7 special meetings since the last report. The Panel discussed the progress of Y2K compliance work in Government and non-government organisations under the purview of the Economic Services Bureau. It also studied the measures to boost competitiveness of Hong Kong International Airport as well as the study of interconnection and competition in the Hong Kong electricity supply sector.

Two Special meetings were held to receive academics deputations and to continue discussion with the Administration on the Disney Theme Park.

5. Information Technology and Broadcasting Panel:
@ The Panel held 5 special meetings since the last report. The Panel mainly focused on the progress of the Year 2000 compliance exercise and contingency planning in Government and Non-Government organisations founded or regulated by Government, the Entertainment Special Effects Bill as well as the development of broadband and Internet services in Hong Kong.

It also studied the news reporting, network access charges, and the Capital Works Reserve Fund Head 710 Computerisation.

6. Finance Committee and House Committee:
@ There were 5 meetings of Finance Committee and 10 meetings of House Committee (including 2 special House Committee meetings to receive a briefing on the Disney Theme Park by the Administration as well as one special Finance Committee meeting to discuss the financial arrangements regarding capital works projects of the two municipal councils after the Provision of Municipal Services (Reorganization) is passed.)

I wrote an article on "Behind Mickey's Mask" in the December 1999 issue of the Hong Kong Accountant to recap the difficulties in the scrutiny of this project and state the position I have taken on the matter.

TD of HKSA was kept informed of progress on all bills on a weekly basis. The hefty 1998/99 legislative programme dated 6 October is attached as Appendix III.

III. Bill Committees Joined
1. Protection of Wages on Insolvency (Amendment) Bill 1999
@ I was elected Chairman of this Bills Committee as a recognised 'neutral' lawmaker on labour issues. The Committee has held 3 meetings with the Administration to discuss the Bill.

In view of the Bills Committee's suggestion, the Administration has subsequently accepted member's views and agreed to use the highest wage level specified in any of the undertaking given by the employer during the preceding 12 months for calculation of ex-gratia severance payments from the Fund.

The Administration has also decided to move a Committee stage amendment to remove the requirement for employer's written undertaking, i.e. both verbal and written undertakings by employers will be recognised by the Fund Board.

The Bill was finally passed on 1 December 1999.

2. Telecommunication (Amendment) Bill 1999
@ There were 4 meetings held since the last report.

This Bill proves to be very controversial but represent a significant step of the Government in liberalising the telecommunications market. HKSA had made a submission which is being followed up. It looks like that the Bill will not get through LegCo unless there are significant amendments to provide better check and balance on the 'draconian' powers given to the Administration.

3. Electronic Transaction Bill
@ The Bills Committee held 10 meetings with the Administration.

This Bill seeks to provide a statutory framework for the conduct of electronic transactions to: (a) give legal recognition to electronic records and digital signatures used in electronic transactions; and (b) provide for the establishment of certification authorities ("CAs") to ensure trust and security in electronic transactions through the issue of digital certificates by Cas and the use of public/private key technology.

The Bill is an important measure to promote the development of electronic commerce in Hong Kong. It can also enable voting by electronic means and our launch of the high-profiled 'webtrust' project. HKSA had made a significant submission and after much hard work and close liaison and co-operation on all sides, the Bill is now heavily amended in our favor. Other legislators have remarked that the amended Bill is almost beyond recognition from its original. To me, this is a classic example of excellent collaboration of HKSA, your LegCo representative and the Administration which in the end produced the best desired results.

The Bill will receive its second and third Reading on 5 January 2000.

4. Arbitration (Amendment) Bill 1999
@ There were 3 meetings since the last report. The purposes of the Bill are to amend the Arbitration Ordinance (Cap. 341) (the Ordinance) - (a) to give effect to what Hong Kong has agreed in the "Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region" (the Arrangement); and (b) to adapt the Ordinance to bring it into conformity with the Basic Law and with the status of Hong Kong as a Special Administrative Region of the People's Republic of China.

Since the refusal of enforcement of Mainland arbitral awards in Hong Kong and vice versa after 1 July 1997, business and arbitration communities have expressed grave concerns. Given the great impact on the commercial world, this Bill warrants detailed scrutiny urgently.

5. Mass Transit Railway Bill
@ The Bills Committee held 5 meetings with the Administration since the last report.

The objective of the Bill provides for - (a) the grant of a franchise to the MTR Corporation Limited ("the Corporation") to operate the Mass Transit Railway; (b) the regulation of the operation of the railway under the franchise; and (c) the vesting in the Corporation of the whole of the property, rights and liabilities of the Mass Transit Railway Corporation ("MTRC").

Some Members expressed support for the privatisation while some expressed concern over various matters such as the duration of the franchise, the fare control mechanism, the granting MTRCL properly development rights as well as the granting of property rights for the purpose of calculating the ultimate value of the MTRC. (since the Bill will grant to the Corporation an exclusive franchise for a period of 50 years to operate the MTR and to construct any extension to the railway and grant to the Corporation to determine its own fares.)

The Committee will still take some time to reach conclusion.

6. Subcommittee on Resolution under Section 3 of the Dogs and Cats Ordinance (Cap. 167) and Dogs and Cats (Amendment) Ordinance 1997 (97 of 1997) Commencement) Notice 1999
@ There were another 2 meetings since the last report. The purpose of the Subcommittee is to seek the Legislative Council's approval of the Dangerous Dogs Regulation ("the Regulation") which provides for the control and regulation of fighting dogs, large dogs and known dangerous dogs. I received a number of representations from dog-owners within the Accountancy Functional Constituent. I think the Administration is ready to make some concession to ally their concerns. The deliberation of this Bill is at its final stages.
7. Subcommittee on Securities and Futures Bill
@ The Subcommittee is to study the major reform proposals under the Securities and Futures Bill.

It has suspended all works since the last report pending the follow-up action by the Administration to provide a summary of its response to representations received in respect of the proposals under the Bill. In the meantime, I understand dialogue between HKSA and the Administration has been very active.

8. Subcommittee on the Five Resolution made under Section 4 of the Mutual Legal Assistance in Criminal Matters Ordinance (Cap. 525) - Mutual Legal Assistance in Criminal Matters (United States of America) Order
@ There was only 1 meeting since the last report. In response to HKSA's representations, the Administration confirmed that the various provisions in the Mutual Legal Assistance in Criminal Matters Bill previously proposed by us are not modified by the Order and will apply to US requests. I have also passed the Administration's response to our points raised on double criminality and the vagueness and potential scope of the offences covering export control etc. to the TD. It seems to me that we should have no major objection to the Order after clarification is sought.

In the light of the clarifications provided by the Administration, the Subcommittee suggests that the US Order be supported. Finally, the US Order was passed at the Council meeting on 10 November 1999.

IV. Motion Debate

List attached as Appendix IV. Speeches on my Web Page and highlights will be published in my circulars to members.

V. Questions

I have asked 5 questions, since the last report which are attached as Appendix V. The relevant HKSA Committees may wish to be advised and to consider the replies further.

VI. General Political Background

At the dawn of the new Millennium, I wrote two articles in my LegCo column for the Hong Kong Accountant. The first, titled 'Hong Kong's Changing Faces', appeared in the just released November issue. This article mapped out my views on the strategic position of Hong Kong's economy in the coming decade. The second, provisionally titled 'The Millennium Shifts', highlighted some areas where I think a paradigm shift is taking place and that it will eventually affects our practice environment. This article will appear in the January 2000 issue.

In brief, I think investments in information technology and infrastructural projects will gradually replace property development as the main drive of our economy. Without bricks and mortar as collateral, bankers and investors are bound to take greater credit risks. New attitude must develop to consider investing in people and higher means of productivity rather than capital assets and companies with predictable trading track records. Regulators will shift emphasis of their works from enforcing compliance work to requiring greater disclosure of information. Government will then legislate in a predictable manner: more power, more discretion and absolutely no responsibility. The responsibilities will be shifted to professionals and market intermediaries, e.g. bankers and sponsors, with highly codified practices, legislation and all sorts of indemnities. There will also be a mis-match of our tax net with the newly emerging economic activities i.e. e-commerce etc. away from the dependency on property development. There will be much challenge ahead in finding the right social contact for regulators, company management, professional / intermediaries and the investors public.

I believe all eyes will be on the Budget right after the New Year. The clouds of Y2000 still hang over our heads until then. The legislative programme has guaranteed harder works ahead in the next quarter. The theme outlined in the foregoing paragraph will keep recurring and we must stay alert and vigilant as a profession thrusted right at the centre of these paradigm shifts.


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