Policy Statement & Submission

The Honourable Donald Tsang
Chief Executive
Hong Kong Special Administrative Region
Government House
Central
Hong Kong


Dear Donald,

HONG KONG GENERAL CHAMBER OF COMMERCE
2009/10 POLICY ADDRESS SUBMISSION

In anticipation of your next Policy Address, my Chamber colleagues and I have discussed with our members priorities for the coming year. We have compiled our recommendations for key policy positions we believe should be the cornerstone of planning for the future. We trust they may help you to shape your own thinking.

Surviving the Shockwave

The world economy has over the past year experienced the worst contraction on record. Although equity and property markets have been buoyant in recent months, due mainly to liquidity supplied by various national stimulus packages, this buoyancy is not visible in the real economy. Business and profits are sharply down. Costs are being drastically cut. Jobs are being cut, and payroll liabilities are being sharply trimmed, with reduced bonuses and unpaid leave arrangements. No companies have escaped, and Hong Kong's many SMEs have been hit worst of all.

Fiscal stimulus

Employers and employees alike are looking to your Policy Address for specific and targeted relief initiatives that will ameliorate the worst effects of this broad and deep contraction. Although the SAR Government was among the first to respond to the crisis, through last year's modest stimulus package, it has become abundantly clear that the external economic environment was far worse than anyone could have anticipated. As a result, we make no apology for persisting in our call for urgent and effective action to ensure that as many of Hong Kong's SMEs as possible manage to weather this storm. Loan guarantees have provided limited relief, but do not address employers' main priority - to reduce costs.

We maintain our call on the Government to suspend all possible fees and charges until the economic recovery is fully in place. The HK$10-12 billion collected annually in recent years is a small price to pay by the government, which currently holds over $500 billion in reserves. We do not make any specific recommendations, but would call on the Government to review all fees and charges, with a view to eliminating all possible for 2009, 2010 and 2011.

We believe you can exemplify strong leadership in going for profits and salaries tax cuts to 15% or below in 2010. This tax concession would fulfil your election campaign pledge to provide relief to the business community and would also restore fiscal competitiveness. This should be undertaken as a precursor to strategically driven structural tax reforms, which we have been advocating for a number of years, including revising fiscal compliance procedures for SMEs, moving forward on group loss relief and loss carryback, rationalizing healthcare financing, and broadening the tax base. The challenge we face is how to ensure that public finance creates a more favourable operating environment for business in Hong Kong.

Hong Kong is still a good place to do business, but we can no longer claim to be distinctively better than other competitor economies in the region. In this regard, Government vigilance on minimizing the compliance cost of regulation can be pivotal. We call for an audit of compliance costs linked with existing regulation, and in particular as a compulsory requirement for all new legislation. As the Government goes forward on drafting minimum wage proposals, and on the likely structure of Hong Kong's Competition Law, we call on Government to bear in mind that new regulations are never cost-free, and should be subject to cost-benefit scrutiny as part of the policy formulation process. Equally important in currently adverse economic circumstances, we call on the Government to review the activity of Government agencies and statutory bodies that compete with private sector service providers. At the very least, such Government-supported commercial services should be subject to scrutiny and oversight.

Strengthening the Business Environment for Hong Kong

We welcome the policy proposals of the Task Force on Economic Challenges' aimed at further developing Hong Kong's knowledge-based economy, though at the same time, we counsel extreme caution in any form of "picking winners". The Chamber is in the process of assessing in detail the potential of each of these new "pillars" from a business sector point of view, and looks forward sharing these assessments with the Administration.

Talent retention, the development of Mainland markets and Hong Kong's overall competitiveness will hopefully be enhanced through these measures. Expanding our high value-added services sector is the right direction to take. Over the longer term, we will need to pay greater attention to the quality of manpower available in our society, and make long overdue investments in ensuring that our schools turn out graduates who are attractive to employers in Hong Kong.

As a highly specialised services economy, it is not realistic for Hong Kong to aspire to rely exclusively on local graduates, so our policies should strongly endorse, and adopt policies appropriate for attracting talent from around the world. We understand that these talented people have the option of working wherever they wish, and so we have to make them want to be here. This means we must provide better air quality, and a greener and more sustainable urban environment. It is equally important to maintain our open immigration policies so that Hong Kong will become a place where high quality manpower can easily gather. In addition to the direct benefits, such far-reaching steps would also help in accumulating human capital in Hong Kong.

It also means taking concrete actions to create a culturally exciting and vibrant city, with outstanding cultural environment and world class services in education and health. We need to take concrete actions to protect our cultural heritage, to facilitate non-commercial but civically beneficial initiatives. Past administrations have left an embarrassing legacy of tearing down heritage buildings and cluttering our shoreline with unnecessary construction and storage facilities that bar access to our unique waterfront. The decision to set aside land for worthy projects, including culture and the arts, education and medical services, that benefit most if not all of society, is welcomed. Removing the specific obstacles to the development of such services is a focused way of ensuring our community receives the services we need. We look forward to hearing more details on the implementation plan in your coming policy address, especially in plans to go forward on providing land for two new, privately funded universities. If we are able to offer a world class living environment, then it should be feasible to attract top quality educators and sufficient investment funds to make maximum use of our scarce land resources.

We call on the Government to move firmly and with vision to improve our environment. Damage to our environment remains a social, medical and competitive threat to Hong Kong. We today have broad public support for moving forward at a greatly accelerated pace, but our administration appears reluctant to lead. The perception has begun to emerge that the people of Hong Kong appear to care more about the environment than does its government. We have strong indicators that people are willing to make real sacrifices for the sake of their health and that of their children, but see a paucity of meaningful initiatives to restrict internally generated pollution.

The Chamber forwarded 43 recommendations to Hong Kong Government last year and we are pleased to see that some of these have been accepted for implementation. We note with deep interest the reaction to proposed low-emission zones in Central, Causeway Bay and Mongkok. In conjunction with other measures related to fuels for electric power generation, introducing electric vehicles and retiring old ones, and rationalizing public transport networks, we believe significant progress toward cleaning up our air can be realized. The Chamber has been a strong and reliable partner to government in the environmental protection policy area, and will continue to play a positive and supportive role in the future. It is our firm hope that the Government is able to leverage the momentum that hopefully will arise from the Copenhagen summit in December to make significant local headway on environmental issues.

More policy attention must be given building in Hong Kong a "circular economy" in which recycling is systematically maximised, and pollution and waste arising from the community is minimised. It is regrettable that at present recycling remains voluntary and theoretical, rather than a daily habit. The Chamber notes major initiatives being undertaken in this area by the Central Government as part of its national stimulus initiative - both to encourage and assist families to upgrade to new and more energy efficient domestic appliances, and to ensure that disposed items are comprehensively recycled - and believes Hong Kong can and should play a significant role in shaping and driving those initiatives being considered in our hinterland region. While businesses would need to take direct responsibility for development of the circular economy, we believe the Government can play an important facilitation role.

Strengthening connectivity with the Mainland and the World

We understand the difficulties in negotiating environmental standards and practices and other cross-boundary policy initiatives across jurisdictional lines, but there is a strong perception in Hong Kong that more must be done to overcome these challenges. Managing cross-border land use and infrastructure development will command additional time and resources over the coming decade if obstacles to business development are to be minimised. As key infrastructure projects move forward, it will be critically important that these are accompanied by fully-fledged Economic Impact Assessments, ideally overseen by a specifically-designated watch-dog. Continually reaffirming our strong working relationships across the boundary will facilitate management of all multi-jurisdiction issues, not just those affecting travel and trade.

In this regard, we believe significant new investment needs to be made in Hong Kong's "policy" presence on the Mainland (in particular in Beijing and Guangzhou), not only in order to facilitate closer links, but to tackle practical policy issues of joint concern, and to ensure that Hong Kong views and concerns are clearly heard and effectively presented. At a national level, this has particular relevance as preparations begin to be made for drafting the 12th Five Year Plan. Regionally, it would enable more substantial input in the nature of development in the Greater PRD area. In order to facilitate these roles, it may be important to review the size and functions of the Economic and Trade Offices based in the Mainland.

As in the Mainland, so too globally; the danger is considerable that Hong Kong "falls off the map" as economies around the world focus ever more keenly on developments in the domestic Chinese economy. Hong Kong's intermediating role between Mainland businesses and companies around the world remains critical in facilitating China's "going out" policies, but without forceful messaging from both Government and business to remind international business of this critical role, false perceptions may develop that will help neither Hong Kong nor China as a whole. A review of the size and function of ETOs around the world may have considerable value in ensuring a strong Government role in strengthening this messaging.

As a matter of immediate priority, we believe Hong Kong should capitalise on the historically important role it has played in facilitating multilateral trade discussions by playing a proactive role in driving the Doha Round to a successful conclusion. On the foundations of the highly successful MC6 Ministerial meeting held in Hong Kong in December 2005, our Government is well placed to use such an opportunity to demonstrate Hong Kong's continuing importance, and its distinctiveness. The HKGCC plans to make its own contribution here, sending a substantial delegation to the upcoming World Coalition of Services Industry Summit in Washington.

Governance

We understand that the Government will be seeking proposals on political reforms towards the end of the year. We look forward to meeting with your Administration to develop reforms appropriate, pertinent and relevant to the current state of Hong Kong's development which will gradually dovetail with the systems and structures envisaged in the Basic Law. We have forwarded our recommendations on post-retirement work for civil servants and we hope these recommendations will be taken into account as you follow up on the recommendations of the Committee on Review of Post-Service Outside Work for Directorate Civil Servants.

Another important element in ensuring good governance of Hong Kong is the politicization of the bureaucracy and its interface with Exco, Legco and the civil service. The Chamber also acknowledges the Government's concern over a deepening polarisation of the Hong Kong community between "business" and ordinary people. We commit ourselves to examine and tackle the root causes of this polarisation, including encouragement to members to review and enhance their programmes of community engagement, and look forward to discussing possible remedies with the Administration in due course.

Finally, and in spite of our call for significant investment on Mainland-based Hong Kong officials, we continue to express concern here in Hong Kong over the size and cost of the Civil Service. We call for this issue to be addressed once our economy begins to emerge from the current global recession. We have not seen Civil Service reform on the agenda for many years, and we believe it should not be ignored longer than absolutely necessary.

Chief Executive, business remains deeply worried about the global economy. This has triggered initiatives inside the Chamber which are still at this stage "work in progress", but which we hope to be able to raise with you in the months ahead. These include an examination of the challenges facing Hong Kong's logistics economy (and in particular how our logistics expertise can be developed on the Mainland as domestic consumer markets develop critical mass); initiatives being undertaken with the Science Park and Cyberport to strengthen the innovation supply chain and improve the success rate of start-up entrepreneurs; recommendations on the development of Hong Kong's "creative economy"; and an examination of the potential to develop Hong Kong as a wealth management centre, in view of the natural advantages we have in the management of funds flowing into and out of the Mainland.

We are willing to do our part to help alleviate the worst effects here at home, but ask for firm and confident leadership from our Government.