TAKING an Active Role
(Interview Article to Hong Kong Accountant June 2002)

Dr Eric Li, LegCo Accountancy Functional Constituency Representative, talks about the issues facing the accounting profession.  

There is never a dull moment in LegCo! Recently, the community's focus has been on macro economic issues rather than financial matters of a more technical nature. Even so, I have been able to use this public arena to make the accountant's presence felt.

Talk of the serious structural Budget deficit is still very much alive – long after the Financial Secretary delivered his Budget speech in early March. This issue has far reaching impact not only on the political mood of the day but would also skew policy decisions that are to be taken in the short and medium term. I was the first to warn of the impending structural deficit and as such have lost no time in trying to come up with possible solutions. I have already begun a critical examination of several major public finance expenditures. My persistent efforts as part of the Public Accounts Committee to reduce the cost of the civil service including its operational procedures and the salaries and conditions of service of civil servants is beginning to bear fruit. The government is at last treating the issue seriously and embarking on the long road of reform.

I have also taken a prominent position on the issue of public housing policies, in particular on the Home Ownership Scheme. This is an area involving huge financial subsidies and one that has a serious impact on the housing market as a whole – a fact little known outside the property sector until I blew the whistle about a year ago in “A Letter to Hong Kong”, which was aired by the RTHK. The government is now undertaking fundamental reforms in this area, which has helped curtail the property market’s downward trend.

Another major area I tackled was the excessive cost of Hong Kong’s transport infrastructure. Following critical remarks and analyses that I have made public, the government has now temporarily shelved the wasteful $22 billion Route10 – a move that has potentially saved us from a tax increase. Furthermore, the costs associated with building railways will now be more tightly controlled.

On a quite separate note, I am in the process of initiating a dialogue between the government and the accounting sector on how we may best take on the challenges presented by China's accession to the World Trade Organisation. I believe that with our well-established international ties and expert financial and managerial skills we have much to offer. In this area, I shall continue to report to members through the LegCo column in The Hong Kong Accountant.

Not withstanding the fact that most of the topics mentioned above are ongoing issues at which the government is looking very carefully to determine how the problems can best be redressed. Chief Executive Tung Chee-hwa recently announced plans to bring in the “Ministerial System”, which will mean that many of the current policies will be given a fresh look from 1 July onwards. I believe that the real dialogues will begin at this time.

Nonetheless, it does not mean we will stop working. As far as I am concerned, I will endeavour to improve and strengthen the position of accountants via public representations. For example, I will put more effort into how best to argue the case that accountants must expand their international network and improve their public image. I will also work on getting out the message that support centres need to be set up in China’s key cities. I am doing this with the help of other experienced and able accountants and by arranging more meetings with senior officials, e.g. the Secretary of Industry and Commerce, Trade Development Council and Invest Hong Kong, etc.

Enron and Its Aftermath

Actually, I am pleased to say that the government and politicians have all taken a very calm and sensible view. There has been no knee-jerk reaction by either the government or our prudential regulators. Politicians have surveyed the issues surrounding the Enron saga and have come away satisfied by the well-prepared and well-argued case presented by our able President of the HKSA, Mr Alvin Wong. The media for its part has skimmed the surface issues but has not sensationalised their implications. This is, in my view, the best we could have hope for in what is a very difficult situation for the profession. I can say that accountants in other parts of the world have had to content with a great deal more negative publicity then we have had.

In any event, Hong Kong and the accounting profession is already set on a steady course aimed to improve our professional standards and corporate governance. This evolutionary process will have to be pragmatic and sustainable in the local context, as well as in step with the rest of world. The worst move Hong Kong could make right now would be to opt for a quick fix to an imported problem like that of Enron. This would undoubtedly cause us to fall out of step with other significant financial centres. In this scenario, being too original could cost us dearly in terms of international competitiveness. Fortunately, the government and our politicians are all very well briefed and understood fully the implications.

Despite relatively subdued publicity in Hong Kong, the fallout from the Enron saga will be far-reaching. While it is still perhaps too early to foretell the final outcome, personally I think it will act as an important catalyst leading to a further unification of world accounting standards. The governments and regulators who have to deal with an increasing number of cross border transactions will support the push for more standardised accounting regulatory tools and practices. Of course, the result may be more prescriptive and detailed standards, which are not necessarily “better”. We live in a fast changing and heterogeneous world and, in my view, professionals are most effective when they are given the room they need to make proper judgements.

16th World Congress of Accountants

The World Congress is an ideal occasion for the local profession to demonstrate its organisational skills and to show off its knowledge of and close ties with China. Ideally, by hosting the World Congress Hong Kong will be able to impress a sufficiently large group of financial allies to explore China’s vast business potential. Naturally, we would also hope that these allies would use local accountancy professionals as a guide and conduit to the Mainland.

It is most definitely a milestone event for Hong Kong. The HKSA was formed just over thirty years ago. At that time, we were a small group of local professionals who were working hard to keep the newly founded organisation afloat. When I was elected President of the HKSA in 1994, I took the bold step of pushing the Society beyond Hong Kong boundaries by proclaiming the annual theme “Regional Development” and launching a new QP programme aimed at internationalising our professional qualification. Less than ten years later, we are now solidly part of the world accountancy scene. This is indeed a fantastic achievement for a small territory the size of Hong Kong.

The World Congress is another golden opportunity for Hong Kong to bring the world to China's doorstep. The occasion will no doubt further inspire our Mainland counterparts to quicken the pace of internationalisation and to look to Hong Kong for support. I hope the World Congress will lead to the formation of many mutually beneficial affiliations between professionals in Hong Kong and the Mainland.

A Helping Hand

Although Hong Kong accountants are progressing well as a profession, some unfortunate individuals have fallen victim to the long drawn out recession. This contrasts sharply with past slow downs when accountants were always in great demand. Many of us, despite our high level of savings and versatile skills, are not prepared to cope with the cruel reality of unemployment, and its undesirable economic, social and psychological effects. Faced with a welfare system that is not designed to help middle class professionals, there are few places to which accountants in distress can turn. It certainly is a new and pressing issue for the profession and I am only just beginning to fathom the depth of this difficult problem. If I can be of any help to our accountant friends out there, please do let me know.

Credit: Eric Li is the LegCo Accountancy Functional Constituency Representative. For more information, refer to his website at http://www.ericli.org.

An Exchange of Views

As the Legislative Council Representative of the Accountancy Functional Constituency, I recently met with the heads of thirteen active Hong Kong accounting bodies to exchange views on matters of common interest. In recognition of the many valuable and creative suggestions raised during these meetings, I would like to take this opportunity to bring some of the more worthy points to the attention of the Hong Kong government. I hope that their personal appearance and oral articulation in the joint meeting with your good self on 3 April 2002 will further help to supplement and clarify these useful ideas.

The broad objectives of my submission on 3 April 2002 to Mr Stephen Ip, Secretary for Financial Services, is summarised below:

(1)               To identify the competitive edge and growing opportunities for Hong Kong as an international financial centre in the wake of China's accession to the WTO;

(2)               To explore ways in which accountants can contribute given our high level of professional expertise and extensive international networks;

(3)               To recommend policy initiatives that will complement our business drive and help Hong Kong gain a head-start in the race towards global competitiveness.

I have organised the submission below into three main parts: measures to improve Hong Kong's overall standing as an international financial centre; suggestions to help attract greater investment into Hong Kong; and, initiatives to support the export of our financial services to China.

Hong Kong's Status as an International Financial Centre

Mobility: We believe freedom of movement, whether it is of people, capital or services, is crucial to Hong Kong's survival. In fact, it is inconceivable that an international city, e.g. London and New York, would impose restrictions on movement into and out of the main catch areas it was trying to serve.

Therefore, we propose that existing artificial barriers be identified and removed as soon as practicable. In particular, Hong Kong should consider granting multiple entry visas and/or residence rights to individuals from the Mainland and Taiwan who have substantial business ties to Hong Kong.

Networking: More often than not, accountants have substantial links with the international business community. Therefore, we are in a prime position to use our existing networks to promote and disseminate information about Hong Kong and China to the rest of the world. In this respect, government encouragement and support in terms of exploring ways of tapping into this resource would certainly be of immense value.

Mutual recognition and value-added services: We should speed up the accreditation process of the various academic and professional qualifications in China and urge our Chines counterparts to do the same. Otherwise, we will have little evidence which can be used to prove our expertise as it relates to both the international and Chinese markets. If investors find no difference between staying in Hong Kong and going directly into China our competitive edge will disappear and with it will go valuable job opportunities.

Another way we can increase our competitiveness is by promoting a much broader range of financial services, e.g. information technology, consultancy services, insolvency services, etc, in which Hong Kong has an advantage over Mainland professionals.

Attracting Investment into Hong Kong

Our goal should be to attract China's top 100 enterprises to set up international offices in Hong Kong in which to provide one-stop services to conclude negotiations with international investors. We can emphasis our superior legal system, extensive and skilled financial services as well as our neutral position, i.e. free from China's internal regional competitions and the resulting unreliable sales pitches.

Moreover, we should review our tax regime to ensure that its competitiveness is maintained. Hong Kong also needs to more aggressively promote its simple and low tax policy as a more tangible package through responsible government agency such as Invest Hong Kong. We should also publicise our tax policy to specific groups such as fund managers. With regards to high net worth individuals, it is essential we abolish our antiquated estate duty tax. Estate duty has now become a voluntary tax for the rich locally and a burdensome tax for the SME and middle classes. While the revenue base is small, i.e. about $150 million, it can be a nasty stumbling block when it comes to attracting major investments from high net worth individuals outside the territory. Its abolition could potentially be a very important marketing tool for Hong Kong, particularly at a time when the competitiveness of our tax policy is already widely perceived to be losing ground in the region.

Exporting Financial Services to China

In this area, the government is in a position to act as an authoritative source of information. This is particularly important since China's policies and practices change quite frequently and are often rather confusing. One reason for this confusion is the dissemination of conflicting information coming from a variety of sources such as different ministries and local governments. However, the penalty for breaking rules and regulations can be extremely severe. This risk would be greatly reduced if the government provided an authoritative avenue to clarify matters relating to the Central Government.

It would be helpful if the government set up a small number of one-stop service centres in China's major cities. The benefit would be a better flow of information and services to Mainland enterprises as well as lower overheads for SME professional firms who are unable to afford permanent offices in various parts of China.

In the long term, the successful promotion of Hong Kong as a springboard for investments in China will require greater effort in training and the kind of financial assistance scheme recently announced is definitely a step in the right direction.

It would benefit the profession if accountants were promoted not only as financial experts with auditing skills but also as guardians and skilled managers of financial resources. This is particularly important to our non-practicing accountants who are skilled in financial management. Their presence can help enhance the efficiency and effectiveness of international and Mainland corporations that operate in Hong Kong as well as in China.

Accountants in Hong Kong have always been self-reliant and our rapid expansion into such a wide range of services over the last few decades was mainly market driven and achieved with little governmental support. However, the business environment is changing rapidly due to increased globalisation and a partially-opened China market which has its own unique set of challenges. We will, no doubt, continue to play our part with utmost diligence. But as can be seen from this submission, we will need the government on our side as a supportive partner.

(Submission to Mr Stephen Ip, Secretary for Financial Services, on 3 April 2002.)

Credit: Eric Li is the LegCo Accountancy Functional Constituency Representative. For more information, refer to his website at http://www.ericli.org.