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The gates to Hong
Kong opened wide last month for our friends from Southern
China. We welcome this flood of new visitors and the much
anticipated purchasing power that they would undoubtedly
unleash.
On this occasion, the
Government has quickly risen to the challenges ahead.
Potential problems were identified early and solutions
proposed. The expected demands on the
transportation systems; the overcrowded immigration
counters; the likely increase in crime rates and then the
tricky question of guests¡¦ accommodation all suddenly
needed solving.
Whilst I am in full support of this bold and creative
move, my serious and immediate concern on converting
vacant Home Ownership Scheme (HOS) flats into guesthouses
is the substandard quality they would unavoidably provide.
Hong Kong people are frequent travellers for both business
and pleasure purposes. We should know what it takes to
welcome our valued visitors in way of accommodation. It is
perhaps much more than a room with a bed and a toilet.
There are stringent standards on safety and health to meet
for which there are plenty of uncompromising regulations.
The location of this accommodation should also be
accessible to popular tourist destinations and well served
by a reasonable choice of public transport. There must
also be adequate amenities nearby like restaurants and
retail outlets, sports and meeting facilities. Otherwise,
for an advanced tourist destination like Hong Kong,
anything short of these basic requirements will spell
serious disappointment for a visitor and a loss of
goodwill from our important guests across the border.
From the supply point of view, the heavy knock-on effects
this scheme may have on the hotel industry cannot be
easily dismissed either. It should be remembered that
hotel investors have to put considerable capital at risk
in a highly uncertain business environment. Only recently,
they have just weathered the serious losses caused by Sars
and are therefore entitled to earn a little superprofit
when the tide begins to turn their way. There is hardly a
valid excuse for government¡¦s intervention when the free
market mechanism is working well and there is a strong
will to respond to the increased demands by further
investments in developing proper hotel facilities. The
clear role of a small government must be to facilitate the
timely supply from the market place rather than to takes
things over itself. When the Government bends the rules to
suit itself, and there is no telling how many of its
26,000 surplus HOS flats that it will put on stream to
flood the hotel market, and for how long the market
overhang will be serious enough to put off any potential
investors. The damages this will inflict on the hotel and
tourism industry in the medium and long term could be far
greater than the benefits of a quick fix to deal with the
sudden shortages created in the near term.
Personally speaking, I am not against some form of
temporary solution, provided that the number of units to
be made available and the time of their franchise are
limited by specific legislation. As an alternative to
converting guesthouses from vacant HOS flats the
Government could consider converting its many surplus
staff quarters instead.
Need for clarity
In
any event, I suggest that the Government should make clear
rules on how this type of accommodation can be described
so as to avoid potential misrepresentation that they are
fully-fledged hotels. In addition, it must legislate
clearly the basic requirements on all aspects of health
and safety as a minimum protection to our unsuspecting
visitors. There should also be a specified limited period
of franchise, say three years, and a definitive plan for
the winding up of any unsuitable or surplus facilities
later. A board of inspection, consisting of
representatives from the travel business, hotel owners and
the Consumer Council, should also be set up to ensure that
the experimental projects run according to plan. The
long-term interests of our visitors and the good name of
the travel industry must be seen to be well served in
order for the scheme not to be taken as a mere scam for
solving the problem of a surplus supply of HOS flats for
the Housing Authority.
On
the related topic of how the government manages the huge
property portfolios of the two government-owned railway
companies, the market is still unclear on the fate of the
70,000 new units still on the supply map. From a
financial perspective, the MTRC and the KCRC are also two
of the most significant investments that the Government
has ever made. However, the way the bureaucrats have been
handling these huge investments as an investor is far from
professional.
Indirect, incoherent, directionless and
irresponsible
In fact, as the major stakeholder of
the railway companies, the government¡¦s recent attitude
towards these important corporations has been incoherent,
directionless and even at times irresponsible. For
example, I find it incomprehensible that the Government
wishes to list the MTRC but still tries to hold onto the
KCRC. Worse still, it then placed the two corporations in
an arbitrarily orchestrated competition which is neither
fair nor productive. As the majority shareholder that also
controls the Board of Directors of the MTRC, how can it
try to coax the company into reducing its fares against
the interests of its minority shareholders? How can it
threaten to take away MTRC¡¦s future property development
rights as pledged by the Government in its listing
prospectuses without a fair offer of compensation? What
about the proper corporate governance matters that the
Government preaches? What has happened to the promise that
the Government will run these corporations on commercial
principles? Where is the Securities and Future Commission
when the Government as the majority shareholder is seen to
be acting against the interests of the Company¡¦s minority
shareholders?
Despite my consistent criticisms of the
Government¡¦s handling of the railway companies, I firmly
believe that the decision to list the MTRC and to vest in
it an element of property interests is the correct way to
go. In fact, the Government should also plan to list the
KCRC if it is serious in listing the Airport Authority.
This is the only way that the Government can show the
investment community its consistency in intentions. To
shift into reverse gear in by privatising the MTRC after
its share price has significantly dropped will lead to
many questions from the investment community when the
Airport Authority goes ahead for listing. In the long term
this is also the best way of hiving off these costly
subsidised services on a users pay principle. However, I
do believe that the timing of property sales by the
railway companies would need to be coordinated. Following
commercial principles in conducting businesses on an arm¡¦s
length basis, if the government should take a share in the
profits of the railway companies¡¦ property developments,
it should also provide them with the bridging capital e.g.
interest free loans, if it chooses to delay the sales of
their property development projects for whatever reasons
by imposing its political will and through administrative
means.
I
strongly urged the Government to properly set aside these
important investments into an independent investment
corporation. This corporation should then engage qualified
professionals like investment bankers, lawyers and
accountants with commercial experience to oversee its
conduct and good corporate behaviour. The arrangement will
help the Government to clearly distinguish its separate
and conflicting roles as an investor and as the industry
regulators. This would also save policy officials the
embarrassment of sitting on the boards of transport
companies as directors and then acting against the
companies¡¦ interests by, for example, e.g. reducing their
fares. How it votes in general meetings, how they appoint
their directors and react to Government policy should
follow clearly spelt out guidelines consistent with that
of large multi-national fund managers that do not seek to
control the management of the investee companies. The
Exchange Fund Investment Limited has done this with great
success when it spun off the local shares owned by the
Government into the Trackers Fund. It is time that our
Government learn from positive experiences.
Dr Eric Li is the LegCo
Accountancy Functional Constituency Representative.
For more information, refer to his website at
http://www.ericli.org
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