|As Hong Kong's economy prepares itself for the new millennium,
several of the paradigm shifts taking place are worthy
of comment - shifts that might well affect the ways which
we practise accountancy in the next decade.
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
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
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
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.