At the time of writing, newspaper headlines focused on investments in IT.  Notably, these investments are being led by huge property developers which hare teaming up with leading US or European IT names with the know-how in cutting-edge technology.

Notwithstanding, China's agreement to open its doors to the likely avalanche of new technology investment will result in structural changes.  In fact, such has been the response to the initial WTO agreement that some newspapers have already boldly proclaimed: 'Property out - technology in'.  An exaggerated statement at this stage perhaps, but the shift is gathering pace.

This shift is also affecting the structure of our financial services sector.  Before our stock market really took off in the 1990s, business expansion was mainly financed by retained profits and bank loans.  Friendly bankers would gladly lend money while the going was good, but only if backed by valuable assets, such as property, for collateral.   

Furthermore, despite the fact that substantial equity capital was raised through the stock market in the past two decades or so, it still remains a fact that the success of many of Hong Kong's more prominent listed companies has been due to the value of the properties they held.  Thus, 'no brick, no funds' seems to be a true reflection, both then and now, for companies looking for finance.

Investment in IT, however, entails no bricks or mortar (Cyberport project apart).  This means that conservative bankers are at a loss as to how to lend their money - our banks are sitting on a ton of money, but cannot find suitable 'traditional' or 'safe' lending opportunities.  What we need in Hong Kong is a new attitude, where we invest in people, infrastructure, research and development and, ultimately, higher economic productivity.  But this means there are obvious difficult credit risks to be managed.  One alternative might be to fight for the scraps in the 'mortgage business' pool, but pricing is to competitive that it makes lending unprofitable.

When it comes to investors, main market players are accustomed to the comfort of accurate asset valuations and dependable profit forecasts based on a track record of many years of stable trading results (although major businesses, especially property developers, can raise cheap funds through the equity and debt markets.)

But, these are not the typical features that you will find in a start-up IT investment, although a properly structured GEM market will in theory provide a good solution.  Such IT investments will require investors to develop their professional skills, judgement and, most of all, an aptitude for risk-taking.  Regulators will have to shift their emphasis from enforcing traditional compliance to requiring greater disclosure of information.

In fact, the higher risks associated with these 'unsafe' IT investments and the growing political pressure asserted on the Government regulators in causing the Government to change its attitude.  I recently complained in public that the Government produces a great deal of 'predictable' legislation, namely legislation that calls for more power, more discretion and absolutely no responsibility.  The responsibility is shifted to professionals and intermediaries, such as bankers and sponsors.

A mass of indemnities, warranties and guarantees, on top of detailed legislation and codes of practice, have been pushed on professionals, making it easy to pin all the blame on us when something does go wrong.  And with professionals serving as convenient scapegoats, the real villains (bad and even fraudulent managers) and the Government regulators, who are harder to get at, will probably get off Scot-free.

I believe our business community and government regulators should work together when dealing with the impact caused by such shifts.  A better social contract in badly needed to share out the rewards, as well as the risks and responsibilities, amongst regulators, corporate executives, professional, intermediaries and the investing public.

Without proper corporate governance, professionals will see little reward from these new investment opportunities, but rather an unfair proportion of the responsibility.  And if in the long run the community loses faith in its established professions, such as its accountants, the destabilising impact will be felt right through the financial sector.  It takes a long time to build up confidence, but just a few days to lose it.

IT is also affecting the ways in which we conduct our daily transactions and the corresponding enforcement of tax collection.  The legislature is about to pass the Electronic Transaction Bill with far-reaching implications on how we legally bind transactions conducted electronically, in this regard, Hong Kong is venturing into almost uncharted waters.  Thankfully, the HKSA has had a tremendous input into the drafting of the Bill, having significantly improved the original Bill by proposing dozens of legislative amendments.  However, the present legislation will only provide a broad framework and there will no doubt be many test cases brought up in the courts to eventually define the legal boundaries.

In view of the fact that the economy is already undergoing a structural shift away from its dependency on property towards e-commerce, I believe our present narrowly based tax structure is rapidly becoming outdated.  I cautioned the Government in the recent debate on departure tax that fiscal revenue will not increase proportionately as the economy recovers because our tax net is mismatched with newly emerging economic activities.  I called for an immediate tax review including the introduction of a widely based tax net which seems unavoidable in the medium to long term.  The Financial Secretary has now recognised the problem and has decided to face the music. 

I am aware that some of my views may be controversial, but my aim is to stimulate thought and ensure accountants are alert as to what is going on around us.