Members of the 9th Annual Hong Kong Business Summit General Committee Discussion Panel shared their views during the summit Q&A session on a wide variety of issues affecting Hong Kong's economy. The panel consisted of (pictured from left to right): moderator Dr Eden Woon, CEO, HKGCC; Alex Ye, chairman, Shangri-La Asia Ltd; Anthony Wu, chairman Far East, Ernst & Young; Stephen Ng, deputy chairman & managing director, The Wharf (Holdings) Ltd; James Tien, HKGCC legislative representative and executive councillor; Christopher Cheng, chairman, HKGCC; Andrew Brandler, group managing director, CLP Holdings Ltd; Joop Litmaath, managing director, Scarfell Enterprises Ltd; Ian Perkin, outgoing chief economist, HKGCC; David O'Rear, incoming chief economist, HKGCC.

Following are excerpts from that question and answer session, which have been edited for length and clarity.

QUESTION: I was interested in the economists' point of view, regarding the increase in income tax, that during a deflationary period an increase in income tax is not a good idea. I just wondered if either of the economists had a view on wage cuts -- the rounds of 5 per cent in civil service pay cuts and so forth? Do you feel pay cuts have a similar deflationary impact during deflationary times?

DAVID O'REAR: A 5 per cent pay cut in the civil service would be good start. The problem with civil servants is that they look at the cuts in their budgets and say: "let's take it out of hardware, or services that we don't need to purchase." Rather than saying: "we really don't need some of these people, so let's get rid of them and take the saving of a 100 per cent of their salary." I don't think that when you have a reduction in the wages of the highest to mid-level management that you are going to have that much impact on deflation. But if you were to reduce the levels of the lowest paid workers of society, then yes, you are going to get some impact.

IAN PERKIN: Two economists, three opinions right? Of course this wage situation has been deflationary over the last five years. Most people in Hong Kong have not had much of a wage rise over that five-year period, and on top of this now, after the civil service did get a wage rise last year, they get it cut by a lot less than 5 per cent this year. That is deflationary because it has an effect on consumption, or people's attitude towards consumption. We have seen a tremendous change around since 1997 with regard to people's attitude toward consumption. People are spending less and saving more, which is having an effect on the general economy. But businesses have been in a very difficult situation themselves, so they have had to clamp down on wages. The interesting thing about Hong Kong -- and I have been dealing with the Wage Review Committee for a long time -- is that businesses are really quite generous in a way. It is easy to get them to agree to a wage freeze, but when you try to take the next step -- where you talk about cutting wages -- there is a certain resistance in Hong Kong today. So we tended to get to this zero situation over a five-year period, but we haven't gone beyond it, except for a few individual businesses where they have had really tough times.

QUESTION: Everybody is talking about faster integration with the PRD. How sentiments have changed. Hong Kong used to look at the border to the north as protection. Now people are looking towards it as a barrier. My question is, does the panel have any ideas on how we can keep it as a barrier, yet minimise the negative effect as a barrier of this much-needed integration?

STEPHEN NG: First of all, I think economic integration is inevitable, and it is going to accelerate. Integration can be done in many ways. I think some people are worried it has been affecting the one country two systems concept, but it does not have to go that way. Personally I am in favour of a barrier that is as open as practical.

JAMES TIEN: Hong Kong used to worry that people and goods would be able to cross the border too freely after 1997. I think today that is not the case and what the government wants to achieve now is to maintain the border and our customs, but in a more convenient and time saving manner. This means we will not relax controls, but simply make it more convenient by reducing the time involved for people and goods to cross.

QUESTION: What are your views on the scheme of control of electricity prices and will it be abolished in the future? And do you think electricity prices are too high in Hong Kong compared with prices in neighbouring economies?

ANDREW BRANDLER: If you look at the scheme of control, which is just a regulatory mechanism designed to balance the interests of the consumers of Hong Kong and the shareholders of investors in the electricity company, it has actually served Hong Kong very well over the last 40 years. Hong Kong should also recognise and not take for granted that we do have a world-class electricity system. If you compare our tariffs with other major cities around the world, our tariffs are comparable and often cheaper. If you compare with Shanghai and Manila, then we are more expensive, but it is like comparing apples and oranges, so you would expect that.

QUESTION: Have you seen an erosion in the role of expatriates in Hong Kong following the 1997 handover?

JOOP LITMAATH: If Hong Kong wants to maintain its status as a cosmopolitan city, and wants to become a world class city, it is obvious that you cannot do this alone; you need an international flavour. I know that expatriates have always played an important role in Hong Kong, a role which I think has not diminished at all. In fact, I believe that since 1997, there are more expatriates in Hong Kong than there ever were before -- and I don't mean just domestic helpers. Another thing is that competition between expatriates and local people has intensified. In the old days, an expatriate was always a bit of a privileged person, with high pay, housing allowance and lots of other perks. But in the last few years, the situation in Hong Kong has completely changed. If there is a vacancy, there is no question of whether he is an expatriate or a local person. Companies simply look at the man or the woman and decide who is the most qualified person to do the job.

QUESTION: Do you think the Hong Kong dollar will be unpegged from the greenback?

IAN PERKIN: It will happen, but it won't be soon. Depegging the dollar now would be the wrong thing to do. It has been in place for 19 years, and has become an anchor not just for business people and not just for the elite, but also for the man on the street. One of the things that Hong Kong people have suffered from over the last five years -- partly because of the peg -- is the destruction in asset values. That is -- hopefully -- behind us now. I personally subscribe to the view that it will be depegged, but not for another 15 to 20 years. And when that happens, it will be a result of other factors, such as the full convertibility of the renminbi, which will offer Hong Kong an opportunity to depeg and perhaps go into a RMB basket. So it will happen, but it is a long way off.

Is Shanghai and its young talent catching up on Hong Kong?

ANTHONY WU: As far as the hard infrastructure is concerned, Shanghai is doing very well. But with regard to the software, it will be 10 to 15 years before they can catch up to Hong Kong. Admittedly, there are a lot of very bright, talented professionals in Shanghai, but they have not been exposed to the West or international business practices, and that will take some time to change.

ALEX YE: Two years ago I was asked the same question. I am from Shanghai, and what I said is then is let's stop this discussion about competition and who is ahead and when will they be overtaken. I am sure Hong Kong hears Shanghai's footsteps behind it, but why don't we just say, okay go ahead and try to catch me up. If you catch me up then that means I have to do better. I run hotels in Hong Kong and Shanghai, and in Hong Kong we are always coming up with innovative concepts to improve business and service. Hong Kong staff can do these things and implement them very quickly. But for Shanghai, it takes a lot of time for staff to come up with ideas and even longer to get things done. So Hong Kong's expertise here is not something that can be learned overnight.

QUESTION: What do you think about the government's new policy on the property market?

STEPHEN NG: One of the speakers earlier this morning said stabilisation of property prices is important to the Hong Kong economy. I think stabilisation of property prices will help arrest the deflationary trend, it will get consumers spending again and it will help get the economy on a growth path. The price that Hong Kong will have to pay for this is no more falling property prices, which will become a component in businesses' cost structure. But then there are also other components in companies' cost concerns, and it is a matter of finding the right balance. But I think we should not only focus on controlling costs. We will never be able to get our costs down to the levels of other cities in the region, like Shenzhen. What we should focus on is enhancing value and services for people who come to Hong Kong for business or vacation. We have cut our costs in the last five years, but in the process we also need to remember to find ways to enhance our value to businesses or individuals who use Hong Kong.

QUESTION: People are talking about education as the way forward but the government keeps cutting the education budget. What are your opinions on this?

CHRISTOPHER CHENG: The cutting back of the budget was the government basically asking the universities to see what kind of things they can take out of their overheads themselves. It was never meant to cut back the education programme. If you look at the research grant council and other funding, a lot of those funds are channelled to help the universities improve in their research and development.

JAMES TIEN: The government's position is that they will give the universities a budget and it is up to them to control it themselves. I think one of the concerns of the government is that 60 to 70 per cent of universities' costs are the salaries of their professors. In the past, Hong Kong used to have difficulty recruiting professors, so Hong Kong had to offer pay which was about double the amount that professors could earn in their home country, plus housing benefits. But the situation is not the same today.

STEPHEN NG: I think consciously or subconsciously, the question seems to imply that input is directly related to output. I think that is one of the fundamental issues that Hong Kong as a whole has to address. There is no reason why one dollar input for funding has to bring one dollar in output, and vice versa. I think it is important that this sort of sentiment changes.

QUESTION: Hong Kong businesses are talking about integration with the PRD, but does the PRD really want our help? Are we nothing more than an uninvited visitor? And do PRD businesses think they can make it just as well without Hong Kong?

CHRISTOPHER CHENG: I was on a recent business mission with the Hong Kong Trade Development Council visiting different cities in the PRD. I believe, judging from their reaction, that each of the cities in the PRD believe that they are handicapped from being a part of the PRD compared to the regions in the Yangtze River Delta. There, they are much more coherent and have done a much better job in packaging and marketing themselves collectively. Everybody knows about Shanghai and the Yangzte River Delta, but the case is not the same for the Pearl River Delta. Most of the city leaders in the PRD know that they are disadvantaged because they are not as coherent as their counterparts in the YRD. But they all look to Hong Kong to work with them and help them open up to the world. On the last day of the trip I attended a conference hosted by Hong Kong legal firms. That conference attracted 1,200 Mainland businessmen. Imagine, twelve-hundred business people for a conference. That was a real eye opener for Hong Kong firms, and showed that the potential for closer cooperation is there.