Legislative Council Meeting Motion of Thanks – First Debate Session (Diversified Economy)

MR CHAN CHUN-YING (in Cantonese):

President, Chief Executive Carrie LAM’s decision to advance the delivery of the Policy Address of the new-term Government by three months to October has fully demonstrated the Government’s dedication to implementing the governance philosophy of “new style, new thinking, new philosophy”. The Government seeks to solve thorny socio-economic problems with a new way of thinking and opens up new horizons for economic development by taking new paths and new methods, with a view to bringing Hong Kong’s development to another new stage. The Policy Address covers land, housing, economic development, tax reform, innovation and technology (“IT”), health care, environmental hygiene as well as the improvement of people’s livelihood and youth affairs. If all the initiatives can be implemented, I believe we will be able to build an even better Hong Kong.

Comparing the policies and initiatives set out in the Policy Address with the content of my speech delivered in January about the previous policy address, I am very delighted to see that most of the proposals have received positive responses from the Government, which include allocating resources to the Financial Services Development Council (“FSDC”) to work on the future of Hong Kong’s financial industry; capturing the development opportunities arising from the offshore Renminbi (“RMB”) business and the mutual access mechanisms between Hong Kong and the Mainland for the trading of financial products under the Belt and Road Initiative; vigorously promoting the application of financial technologies; timely improving tax laws to encourage scientific research as well as implementing measures to support small and medium enterprises. All these fully reflected that the SAR Government has attached great importance to industry’s views.

As an important international financial centre, Hong Kong needs to pay continuous attention to our investments in various fields so as to enable Hong Kong to continue to develop and maintain its current international status. At present, the major competitiveness of Hong Kong is not too bad. For example, according to the “Doing Business 2018” published by the World Bank at the end of last month, Hong Kong ranked fifth among the world’s 190 economies, but South Korea has overtaken Hong Kong to reach the fourth place. I wish to add that in 2008, South Korea only ranked 30th. The SAR Government promptly stated in the press release issued the following day that, “[i]n the past ten years, Hong Kong has maintained its position among the world’s top ranking economies in the Doing Business Report …”. However, as the saying goes “if we do not keep forging ahead, we will be driven back”. Furthermore, the Report also fairly highlighted that there was room for improvement regarding certain local initiatives on start-ups.

The day before the publication of World Bank’s report, another report entitled “Global Urban Competitiveness Report 2017-2018: the House prices, Reshaping World Cities” was released. This report, jointly released by the United Nations Human Settlements Programme and the Chinese Academy of Social Sciences, mainly focuses on two indicators, namely urban economic competitiveness and sustainable competitiveness. While the majority of the most competitive cities in the world were financial centres in the past, they must be both financial centres and technology innovation centres nowadays. The report measured the sustainable competitiveness index of 1 035 cities in the world, and of the top 10 cities, only three are Asian cities: Tokyo, Singapore and Seoul. Hong Kong, the so-called an international metropolis, has failed to reach the top 10. As for the general competitiveness, Shenzhen ranked sixth and Hong Kong only ranked 12th, whereas Shanghai, Guangzhou and Beijing have all reached the top 20. Finally, in the ranking announced by the International Institute for Management Development in Lausanne, Switzerland, Hong Kong ranked seventh in digital competitiveness. While we have climbed four places compared to last year, Singapore has topped the list for five consecutive years.

President, although different organizations measure urban competitiveness from different perspectives and thus direct comparison can hardly be drawn, I strongly agree with the response made by Financial Secretary Paul CHAN on 3 November to the report released by the World Bank. He said although the ranking of Hong Kong was still very high, we should examine the views expressed by other people to see if there was any need for improvement. In view of this, maintaining the competitiveness of Hong Kong is a correct policy direction for the Policy Address, except that additions and refinements are still required in many respects. Let me try to elaborate in the following six areas.

First of all, actively seize the opportunities brought by our country’s development to lift the economy of Hong Kong to a new level. At present, the global economy has yet to break the low-growth cycle, coupled with a wide range of pretty complex and varied factors, it is difficult for Hong Kong, being a small and externally-oriented economy, to remain unaffected. On the contrary, in the past few years, the Mainland has been maintaining a medium-high pace of economic growth with gradual improvements in its economic structure, and the economic outlook is the best among major economies in the world. What is more, it has introduced the Belt and Road Initiative and the development plan for a city cluster in the Guangdong-Hong Kong-Macao Bay Area (“the Bay Area”), bringing enormous opportunities for Hong Kong’s economic development.

To capitalize on the opportunities brought by the Belt and Road Initiative, the Policy Address has proposed to reinforce the manpower for the Belt and Road Office and expressed the wish to enter into an agreement of Hong Kong’s full participation in the Belt and Road Initiative with the National Development and Reform Commission (“NDRC”) by the end of this year. The agreement will cover various areas such as finance, infrastructure and dispute resolution, and explore the establishment of an information sharing platform for the Belt and Road projects so that enterprises will have a better grasp of relevant information to facilitate more effective project interfacing and enterprise collaboration. In the SAR Government also advised that it would establish a joint working mechanism with NDRC for direct and regular dialogues, to strengthen communication and cooperation and to oversee the implementation of the agreement.

With regard to the Bay Area, the Policy Address mentions that the SAR Government has basically completed the drafting of the development plan for a city cluster in the Bay Area. The plan, which will be promulgated by the State Council at a later date, will help build a world-class city cluster through complementary cooperation among Guangdong, Hong Kong and Macao. The Government will seek further facilitation measures for Hong Kong people to study, work, and start up and operate business, live and retire in the Bay Area and thereby facilitating the flow of people, goods, capital and information between Hong Kong and other cities in the Bay Area and making a quality living circle for Hong Kong people. I think no one will object to these proposals. The Steering Committee on Taking Forward Bay Area Development and Mainland Co-operation, chaired by the Chief Secretary for Administration, will formulate concrete work plans. The Constitutional and Mainland Affairs Bureau will also set up a relevant development office to steer and coordinate the implementation of the relevant work.

Notwithstanding that, I wish to point out that the Policy Address has been criticized by some people as a report loaded with studies, so I hope that the Government will quicken its pace to take forward the Belt and Road Initiative and the development of the Bay Area, with a view to actively achieving results. I believe so long as the Government can effectively implement the above mentioned measures and make all-out efforts to strengthen cooperation with the Mainland, Hong Kong will hopefully speed up economic growth, break the low-growth cycle that began with the global financial crisis and take the economic development of Hong Kong to a higher level.

Secondly, improve the financial infrastructure and continue to consolidate Hong Kong’s position as an international financial centre. In the face of increasingly intense global competition, Hong Kong must go to great lengths and make all-out efforts to reinforce and enhance its status as a global financial centre. Furthermore, Hong Kong should aim at becoming an offshore RMB business hub and an international asset management centre to promote diversified development of the financial market. According to the Government, through continuous development of various existing financing channels in Hong Kong and timely updating of the regulatory regime, it will develop Hong Kong into a premier financing platform for new business enterprises in the region so as to cater for the new economic environment.

The Government’s specific measures include: First, the Financial Leaders Forum, chaired by the Financial Secretary, will put forward strategic and forward-looking proposals to promote diversified development of the financial markets. These proposals, however, will be followed up by designated departments according to the Government. Second, more resources will be allocated to FSDC to enhance its role in conducting strategic research and formulating recommendations. Third, the Government will take the lead in arranging the issuance of a green bond and promote the establishment of green bond certification schemes that meet with international standards by local entities, a point mentioned by Mr Kenneth LEUNG earlier on, with a view to encouraging investors in the Mainland and along the Belt and Road as well as international investors to arrange financing of their green projects through Hong Kong’s capital markets. Fourth, the Government will continue to explore with the industry and the Mainland authorities expansion of the channels for two-way flow of cross-border RMB funds, and the possibility of including in the two-way mutual access mechanism a wider range of investment products, such as the exchange-traded funds (“ETFs”) and extending the Mainland-Hong Kong Bond Connect to cover Southbound Trading. Fifth, the Supervisory Sandbox has been extended to the Securities and Futures Commission and the Insurance Authority to facilitate the launch of new financial technology (“Fintech”) products in the market. Sixth, while the Faster Payment System will be launched next year to facilitate transfer on a single payment platform, the Government will also promote the use of new payment channels for various fees and charges.

While I endorse these measures, I would like to make four additional recommendations. First, according to my preliminary understanding, the additional resources allocated by the Government to FSDC is very limited and I am worried that FSDC may not be able to strengthen its role in conducting strategic research and formulating recommendations in terms of manpower and resources. Furthermore, FSDC is also responsible for promoting market development and nurturing talent, I therefore hope that the Government will provide adequate input and avoid making a fine start but a poor finish.

Second, in order to develop into a premier financing platform for new business enterprises in the region, Hong Kong should not only enhance its attractiveness as a direct financing platform so as to become the first-choice market for initial public offerings, but also consolidate Hong Kong’s position as an indirect financing platform, that is, a platform for obtaining credit. I would like to make a declaration. As a representative of the banking sector, I am currently a bank adviser and the bank I work for has also opened branches in the Association of Southeast Asian Nations (“ASEAN”). While Hong Kong is very competitive in infrastructure financing, it is imperative to expeditiously bring forward arrangements for the avoidance of double taxation, which include the signing of relevant agreements with countries along the Belt and Road as soon as possible, and facilitating the communication and liaison of our financial institutions with the local governments through various Economic and Trade Offices.

Third, I think the policy and initiatives to develop offshore RMB business are not down-to-earth, nor is there any new initiative. As the RMB exchange rate has become more stable, we should seize the opportunity to introduce more positive measures to strengthen the position of Hong Kong as an offshore RMB business hub.

Last but not least, in order to enhance the efficiency of banks in conducting customer due diligence―vital for business facilitation―the banking industry is exploring the establishment of a Know-your-customer Utility (“KYCU”) for corporate customers, whereas the Government has also indicated its intention to actively consider introducing an electronic identity for Hong Kong residents. It is thus natural to establish a personalized KYCU at the same time. However, since KYCU is an important financial infrastructure, the SAR Government should make reference to the current practices adopted by the Singaporean Government and take up a more proactive leading role with a view to expeditiously catering for the needs of the community, rather than allowing the industry to promote on its own.

The third area I would like to talk about is to conduct a review of the competitiveness of the tax regime, so as to promote a more diversified economic growth. The Policy Address proposes a new fiscal philosophy to better utilize the currently abundant fiscal surpluses of the SAR Government to benefit the community, in particular, as Hong Kong is a major international financial centre in the region, it should, as I said earlier on, maintain the competitiveness of the tax regime. In view of the increasing calls from the community to reduce the profits tax rate of enterprises in recent years, the Government has proposed to introduce a two-tier profits tax system, whereby the profits tax rate for the first $2 million of profits will be lowered to 8.25%. This will not only help retain the advantages of a simple tax system to a large extent, but also encourage research and development (“R&D”) investment by enterprises, thereby directly stimulating enterprises to increase investment or manpower, promoting the development of the scientific research industry and bringing benefits to the economy of Hong Kong.

President, there is no doubt that views in the community are divergent, thinking that the financial burden of the SAR Government will become very heavy in the future as expenditures arising from an ageing population, health care and civil service retirement continues to increase significantly. Coupled with fact that the types of taxes in Hong Kong are very limited and the tax base is pretty narrow, thus a reduction in tax should take into consideration the long-term fiscal capacity and sustainability. Nonetheless, if the introduction of the two-tier profits tax system can enhance the competitiveness of Hong Kong’s enterprises and facilitate the development of IT or other emerging industries, tax reduction will do more good than harm to the overall economy. With faster economic growth and better earnings performance of enterprises, government revenue will naturally increase as well.

The SAR Government established the Tax Policy Unit early this year, the Chief Executive attended the Summit on the New Directions for Taxation in October to gauge the views from all sectors, with a view to formulating forward-looking tax policies and measures. In the face of new dynamics in the world economy and the long-term fiscal challenges of Hong Kong, we have nonetheless not reviewed our tax policy in the past decade or so. Therefore, it is indeed an opportune time for Hong Kong to reconsider the tax regime as well as to coordinate and enhance its international competitiveness while ensuring its fiscal sustainability. On the other hand, it is also very important to balance the views of people from different sectors on tax equity and affordability. It is hoped that the Government will introduce new initiatives as early as possible.

As for the fourth area, the Government should vigorously encourage investment in innovation and promote the upgrading and transformation of Hong Kong’s economic structure. The development of IT is the major direction for promoting the upgrading and transformation of Hong Kong’s economic structure and enhancing its competitiveness. Proximity to the huge Mainland market, a robust intellectual property protection regime as well as an advanced IT infrastructure and financial system are favourable conditions for Hong Kong to foster IT development. However, Hong Kong’s gross expenditure on R&D as a percentage to Gross Domestic Product (“GDP”) has been lower than that of the Mainland, Germany, the United States and Japan. In response to the relevant questions raised by us, the Government has explained time and again in the past that unlike other countries, Hong Kong does not have defence-related expenditure on R&D, thus no direct comparison could be drawn. Nonetheless, in any case, the Government has finally proposed to double local R&D expenditure to 1.5% of GDP in the next five years, and this percentage is not large at all. Also, the Government advised that the private sector would be encouraged to increase their investment, otherwise even the above target could not be reached. The Government will strengthen IT development in eight major areas to ensure that Hong Kong can maintain its global competitiveness and enhance our alignment with the development of our country, with a view to catching up in the IT race.

There is no doubt that the above measures for IT development are definitely worthy of our support. The economic structure of Hong Kong is excessively uniform and has always been relying on financial, commercial and professional services. Owing to the high costs of entrepreneurship and business operation, it is difficult for many young people to actualize their potentials. IT has precisely provided an alternative for these young people to work together with like-minded youths to open up new horizons through creativity, innovation and technology. This will not only be conducive to addressing youth problems of employment and upward social mobility, but will also support the diversified development of Hong Kong’s economy and provide new impetus for economic growth. I hope that the 1.5% promised by the Government will not come to nothing.

On the fifth area, it is hoped that the Government will break away from their conventional mindset and make up for the shortage of land supply. Given that Hong Kong is a free and open economy which allows people from all over the world to come here for investment or home acquisition, residential properties of Hong Kong should not only cater for the housing and investment needs of some 7.3 million local residents, but also those of investors and home buyers from the Mainland and the rest of the world. Exorbitant property prices in Hong Kong in recent years is not only attributable to an exceptionally easing global monetary policy, but also the tight supply situation, which has adversely affected people’s livelihood as well as the costs of doing business and entrepreneurship. As the supply of private housing units in Hong Kong is only less than 20 000 per annum, it can hardly meet actual demand. The implementation of various “curb” measures has only produced short-term dampening effect, the crux of the problem is still the lack of supply, which is closely linked with land supply.

Over the years, increase in the area of land has been very slow. The land area of Hong Kong was 1 061 sq km in 1980, but it was still only 1 106 sq km 35 years later in 2015, an increase of less than 45 sq km or 4.2% and an average increase of 129 hectares per annum. According to the Government, it planned to increase land supply by 4 800 hectares in the next 30 years, but still this only represents an average increase of 160 hectares per year. Although Singapore has many similarities with Hong Kong, the growth of land supply is apparently much faster. The land area of Singapore had increased from 618 sq km in 1980 to 719 sq km in 2016, an increase of 101 sq km or 16% in 36 years, or an average increase of 281 hectares per annum. This shows that although land is an important factor of production in an economy, the expansion effort of Hong Kong has been lagging behind Singapore over the past few decades.

President, after developing for more than half a century, Hong Kong has now become an important international metropolis that is favoured by investors from around the world. There is a genuine need for the Government to continuously increase the supply of land to cater for different needs. However, I must point out that while the Government increases land supply, it should also take into consideration land uses other than those for residential purposes, such as office buildings, hotels and shops, otherwise the problems of insufficient land supply and persistently high prices currently faced by other commercial properties will not be ameliorated and conversely bring negative effects to the integrated competitiveness of Hong Kong.

As a result of the grave concern of the community about issues such as land rezoning, reclamation, urban renewal and increasing the density of development, the Government has encountered many obstacles in land development in the past. The establishment of the Land Supply Task Force to follow up on the matter is therefore a good start. And yet, the recommendations made by the Task Force, including the near-shore reclamation announced yesterday, have received different opposition views. Therefore, the real challenge is how to forge social consensus and expeditiously fill the gap in land supply. The Government must rise to the challenges and expeditiously resolve the problems.

Regarding the sixth area, which is the last point, President, Hong Kong should conduct a forward-looking review of the global competition trend and identify a new direction of economic development. I strongly agree with Chief Executive Carrie LAM’s suggestion that the Government should be more proactive, play the role of a “facilitator” and a “promoter”, seize the opportunities brought by the national Belt and Road Initiative and the Bay Area development as well as make timely investments in order to create new impetus for the economy of Hong Kong. And yet, opportunities are too good to be missed, so we must act without delay. Whether or not Hong Kong can seize the above mentioned opportunities lies in the Government’s boldness to do solid work and assume responsibilities, and “opportunities are for people who are prepared”. I hope the Government will earnestly organize, arrange and coordinate to get Hong Kong prepared in various perspectives, not only to continuously consolidate and enhance our competitive edges, but also to drive and create new development momentum and open up new development horizons, so as not to miss the historic opportunities again.

At present, artificial intelligence (“AI”) is experiencing a speedy development in an unpredictable direction. It is believed the age of AI is around the corner and has surpassed human beings at an admirable speed in different areas, including transportation, health care and mechanical manufacturing. Such high-speed development will profoundly change our life and the world, and emerge as the new focus of international competition, the new engine of economic development and the new opportunity of community building, whereas its uncertainty will bring us new challenges. To be fair, the overall development of AI in Hong Kong is still far behind when compared to the standard of the Mainland and developed countries. At the dawn of this new era, I hope the Government will swiftly analyse the situation, formulate proactive plans, bring policy research to a higher level and formulate forward-looking plans for the development of AI to meet new challenges.

For example, to examine the implication of AI on labour demand, and how we can capitalize on this significant historic opportunity of AI development to improve the level and ability of governance, with a view to fostering an overall enhancement and evolutionary development in Hong Kong’s competitiveness, which are very important.

With these remarks, I support the Motion of Thanks. Thank you, President.