Legislative Council meeting Bill-2nd Reading(Debate to resume)-Appropriation Bill 2019

Appropriation Bill 2019

MR CHAN CHUN-YING (in Cantonese):

Deputy President, two major economic figures were announced before the publishing of this year’s budget. The first was that the International Monetary Fund (“IMF”) had downward adjusted the projected global economic growth for 2019 to 3.5%, which was the lowest over the past three years. Last week, IMF further downward adjusted the figure to 3.3%, which was the new low since the 2009 financial tsunami. They show that global economy is overshadowed by such economic haze. The second figure was that according to Mainland’s official data, Shenzhen maintained a high-speed GDP growth of 7.6% in 2018, amounting to RMB2.42 trillion, which was equivalent to HK$2.87 trillion and had officially surpassed Hong Kong’s HK$2.85 trillion.

Another thing was the Asian Competitiveness Annual Report 2019 issued by the Boao Forum for Asia on 26 March. The rank of Hong Kong in overall competitiveness has dropped from second in 2017 to fourth in 2018, which is the lowest of the four small dragons in Asia. The above circumstances warn us that global uncertainties have built up and the risk of economic downturn has increased. Just like rowing a boat upstream, you will fall back if you stop moving forward. Hong Kong should do its best to develop a pluralistic economy. We need to enhance the existing industries which enjoy clear advantages, and we also need to proactively look for new growth drivers and develop emerging industries.

This year’s Budget is issued under the backdrop of the general situation mentioned above and the drastic cut in surplus. The main theme is “supporting enterprises, safeguarding jobs, stabilizing the economy, strengthening livelihoods”, and the major bright spots are positioning finance and innovation and technology as double spearheads for Hong Kong’s future economic development. They will be the driving force for the economic transformation heading towards the direction of high value-added economy. As to the people’s livelihood, new measures have been put in place to timely address needs of society. They include improving public health care services, earmarking $10 billion to set up a public health care stabilization fund, allocating funding for the acquisition of medical equipment, improving the pay and fringe benefits health care workers, making an effort to address the manpower shortage problem of the public health care sector, and providing more resources for elderly care purposes such as allocating resources to welfare organizations for procurement of premises as welfare facilities. On the whole, the Budget has been adhering to the principle of “spending when necessary” by introducing relief measures and proactively investing for the future which aims at upgrading Hong Kong’s industries as well as Hong Kong itself. As such, I support the Budget.

As a matter of fact, it is never an easy task to work out the Budget. Over the past few years, the public have been criticizing that the final accounts have significantly deviated from the original estimates. Last year, the estimation of the 2018-2019 fiscal year was a surplus of $46.6 billion, but actually the closing balance was $58.7 billion, which should be considered a rather close estimation. Unfortunately, very few people praise the Financial Secretary for doing a good job this time. I hope the estimation of future Budgets will be as accurate as practicable, so that our public finance may achieve the goal of keeping expenditures within the limits of income and matching spending with revenue.

Planning the future is the most important initiative of all, and the financial service industry is described at great length in this year’s Budget. Hong Kong is the third largest financial centre in the world. Our financial service industry is the one enjoying clear advantages and constantly stays at the A grade rating as a tradition. Hong Kong is a world class leader in terms of the stock market, asset management and banking services. If we can strengthen the advantage of the financial service industry by pushing its rating from Grade A to A+, we will be able to consolidate Hong Kong’s position as an international financial centre and expand the gross value added to our GDP. On the other hand, we can enhance Hong Kong’s advantageous role in the Greater Bay Area as a leader to make the Greater Bay Area an international financial hub. For that reason, I agree with the Budget’s viewpoints, but I also consider that the Government should do the following planning work in a proactive manner.

The first is to enhance Hong Kong’s bridging role. Over the past 40 years of the Mainland’s opening up and reform, Hong Kong has all along been acting as the major gateway connecting the Mainland and the rest of the world, as well as a major channel for Chinese and foreign businesses in terms of investing, financing and trading. Hong Kong has always been the major portal and bridge whenever the Mainland wants to attract foreign or overseas investors to make investment on the Mainland.

At present, the Mainland is launching a new round of opening up its financial market. The relevant opening up policies in financial market should enhance Hong Kong’s strength in playing the role as the interchange hub or terminal of capital investment. With the eastward shift of the global economy, China’s high-speed economic development will switch to the direction of high-quality development, and the Mainland will still be the ideal market for international capitals. For some time in the future, Hong Kong will still be able to attract all sorts of investors and play the role as the super connector.

In future, Hong Kong can still give impetus to drive the high-quality economic development of China in terms of capital influx, technologies and talents. Coupled with the Mainland’s edges such as a broader market spectrum, a more comprehensive industrial structure and greater technological strength, Hong Kong may make use of its wide international connectivity and its highly developed professional services to create a two-way bridgehead for the opening up of the Mainland.

The second is to fortify the offshore RMB business. Because of its inalienable relationship with the development of the offshore RMB business, Hong Kong can maintain its position as a financial centre. The Budget advocates strongly that the business should be vigorously developed, and the Government will keep on studying with the trade and its Mainland counterpart in expanding the channel for the two-way flow of cross-boundary RMB capitals and further enhancing the unique advantage of Hong Kong. I full agree with this.

At present, besides having the largest offshore RMB pool in the world, Hong Kong accounts for 75% of the clearing volume of global offshore RMB via Hong Kong’s RMB Real Time Gross Settlement (“RTGS”) system.

Hong Kong’s financial industry may grasp the opportunity of the opening up of Mainland’s financial market by actively developing all sorts of distinctive offshore RMB products and a variety of products, providing and developing a wide range of RMB-denominated investment assets, debts, exchange rate and interest rate derivatives, so as to complement RMB’s ecological circle and upgrade Hong Kong’s functions as the RMB assets management centre, risk management centre and assets pricing centre.

Deputy President, it is proposed in the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area that the scale and scope of cross-boundary use of RMB in the areas should be gradually expanded, which would be helpful to break away from the existing bottleneck of development. Among the three major global financial centres, New York and London are using currencies such as US dollars, Euros and British Sterling for settlement. If Hong Kong can consolidate its leading position as the offshore RMB centre, I believe it will definitely help Hong Kong keep on a par with New York and London to form the three largest global financial centres.

The third is to fortify the scope and depth of the capital market. The budget advocates that we should “deepen and widen our financial markets”. Over the recent two years, we can see that the SAR Government has introduced new financial policies such as making HKEx the market leader for global shares in the Asian time zone with a view to attracting emerging industries to list and raise funds in Hong Kong.

At present, listed companies in HKEx are mostly Mainland and Hong Kong businesses. More overseas businesses will be attracted to list in Hong Kong if the regime is streamlined to boost the diversification and globalization of listing bodies. The latest strategic plan issued in recent days shows that it is formulated on the foundation of three core elements, namely capital, product and function. It demonstrates the theme of linking up the Mainland market with the world, investment on innovation and technology and establishing new economy.

At the same time, the Government has been actively developing the bond market in recent years by introducing a host of measures in an attempt to solve the imbalance between “strong stocks and weak bonds”. Those initiatives include the Pilot Bond Grant Scheme, which encourages businesses to issue bonds in Hong Kong. The Government also provides tax concessions in order to attract more investors to participate in Hong Kong’s bond market. In the first six months of 2018, the growth of the year-on-year issuance volume of Hong Kong dollar bonds was 11.2%, amounting to HK$1.8 trillion. As at end January this year, bonds listed in HKEx have increased to 1 206. If the bond market keeps on enjoying a favourable development trend, the overall competitiveness of Hong Kong’s capital market can be further enhanced.

The fourth is the orderly promotion of mutual market connectivity. Since 2014, the Government has been actively pushing mutual market connectivity with the Mainland. Such efforts include the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, the Bond Connect and the Mutual Recognition of Funds and so on. All these are significant milestones of mutual market connectivity. At present, mutual market connectivity between Hong Kong and the Mainland mainly adopts a channel-type connectivity. If we want to achieve further integration, the channel-type connectivity will face certain constraints. Hence it is necessary for the Government to make an effort and try to seek new breakthrough.

Deputy President, the Hong Kong Monetary Authority (“HKMA”) is exploring the possibility with the Mainland authorities to launch the “insurance connect”, which is a scheme for mutual access to financial products between Hong Kong and Mainland. It is a scheme that allows both sides to buy and sell each other’s financial and investment products. It is initially estimated that a result will be achieved by 2022. Actually, the industry anticipates that we can achieve new results in Primary Equity Connect, Commodities Connect, Exchange Traded Fund (ETF) Connect, as well as mutual market access and connect with Mainland in share index and futures.

The fifth is the development of financial technology (“Fintech”) to facilitate the upgrade and transformation of the financial service industry. The budget states clearly: “The current-term Government spares no effort in promoting I&T development, focusing on four areas, namely biotechnology, artificial intelligence, smart city and Fintech”. The Government has all along been endeavouring to attract more local and overseas Fintech companies to come to Hong Kong, and we can see obvious progress in the application of Fintech over the past year.

Last year, HKMA launched the Faster Payment System (“FPS”) and the Common QR Code Standard for Retail Payments, and the market reacted favourably. HKMA granted a total of four virtual banking licences one after another by the end of March. The banking sector will enter a new smart banking era with the introduction of Fintech to assist its operation. The Securities and Futures Commission (“SFC”) announced in November last year the new regulatory framework for virtual asset, with a view to exploring ways to encourage innovation in the market and at the same time enhance investors’ protection. As the three major driving forces, namely technology, clienteles and regulatory authorities, are pooled together, we hope that Hong Kong’s Fintech can scale new heights and speed up the transformation of a new service model for the financial service industry.

Deputy President, after I have finished talking about financial matters, I wish to talk about the train of thought of the management of public finances concerning the Budget. In the past when I spoke in the Budget debate, I used to explain that the cause of the European sovereign debt crisis and the massive government debts of the USA and Japan were due to a lack of financial discipline in their spending. Whenever the SAR Government formulates the Budget, it has all along adhered strictly to the financial discipline, and that has generated massive surplus envied by many other economic systems. In my budget speech last year, I also mentioned that the Government should set up a dedicated reserve fund to make long-term investment by using the surplus financial resources accumulated over the years, and we should make reference to other regions such as the model of operation of the Norwegian sovereign fund.

I am happy that the Government has eventually taken practical action as the Financial Secretary has announced to invite veteran people from the financial circle to study the diversification in making the investment and put forward recommendations on the investment strategies and portfolio of the Future Fund. I hope the Future Fund will serve as a pilot scheme and then the scope can be expanded later on. I truly believe that an ever-growing fiscal reserve will be the major pillar for Hong Kong to tackle future challenges.

Undoubtedly, the biggest challenge to public finance is the ageing population. In 2018, Hong Kong has a population of 7.48 million, and it is projected that the population will grow to 8.22 million by 2043. However, according to figures of the Census and Statistics Department, the elderly population will grow from 1.16 million in 2016 to 2.37 million in 2036. The two-fold increase in the elderly population within two decades is really daunting.

In view of the current situation, the majority of employees only have MPF and private savings as a means for their health care and retirement protection. Even though we may not be able to live until we are 100 years old, our average lifespan is rising continuously. However, due to the low contribution level of MPF and the long-unresolved offsetting dispute, retirement protection for them is really inadequate. The cost of living in Hong Kong is already the highest in the world. One can envisage that in the future decade or two, the ageing population will pose colossal expenditure pressure on health care, elderly services and retirement protection. I hope the Government will allocate additional resources and make necessary commitment with greater determination, with a view to responding to the counter offers recommended by the business sector regarding the MPF offsetting mechanism, resolving the deadlock on the issue and ensuring the retirement protection for grass-roots workers.

Deputy President, in each influenza outbreak of recent years or in last month’s highly contagious measles outbreak, the public health care system became overburdened and broke down. For that reason, what the Government should do is to set down the ratio of health care workers to the population for it to formulate long-term health care policies. In addition, the Government should endeavour to provide adequate health care manpower to fulfil the actual needs according to the target figures. To achieve that goal, the Government should allocate necessary resources to fill up the manpower gap as soon as possible. At the same time, we hope that the Government can provide greater incentives to the public, including launching a voluntary health care insurance with more attractive tax concession rates to encourage the public to make good preparation for their future medical expenses.

The last point I wish to talk about is what the public concern most at present, that is, the high housing prices. Property prices in Hong Kong, for purchasing and renting alike, are the highest among global property markets. To resolve the predicament, the Government should make good use of our ample fiscal reserves in infrastructure construction works to provide new lands for the construction of housing in a sustainable way. Reclamation has all along been our proficient approach to make new lands as it involves less controversy. The Government should be determined to forge ahead with the Lantau Tomorrow Vision project as soon as practicable. Land reclamation can alleviate the high housing pressure to the public who are suffering from high property prices and high rentals. At the end, it can help Hong Kong people live in peace and work happily.

Deputy President, I so submit.