Mr Cheng Yan-chee, JPDeputy Secretary (Financial Services)Financial Services and the Treasury Bureau18/F, Tower I, Admiralty Centre18 Harcourt RoadHong KongDear Mr Cheng,Further to your explanation to the Chamber on the current thoughts of the Government on the subject of the Government Bond Programme (GBP), the Hong Kong General Chamber of Commerce is pleased to submit the following comments. In drawing these conclusions, the Chamber has solicited views from members of its Financial and Treasury Services Committee who are potential stakeholders under the GBP and experts in the banking and financial sectors.The HKGCC welcomes the Government's initiative in expanding Hong Kong's financial offering by the introduction of GBP, especially at a time when the interest rate is close to zero with ample liquidity. Our concerns, however, are that the application of Bond Fund and the role of HKMA should be well defined and that services provided by the HKMA should be both most effective and least disruptive to practitioners in the private sector.We wish to express our concern that the application of fund is still unclear. Although the aim of the Programme is to develop the local bond market, rather than a way of supporting government expenditure, the application of Bond Fund remained unclear. Besides, we note that the HKMA will be tasked to co-ordinate bonds offerings and mange the bond fund. However, the government should clarify whether the HKMA is going to play the role of a financial institution, and whether this arrangement will be in competition with similar offerings in the private sector.We understand that developing a bond market here will not be easy because buyers usually hold bonds to maturity. There is also the question of how to ensure that the government bond fund would generate a sufficiently high rate of return to repay both the principal and the interest payments, given that the start up and administration costs are likely to be high. The high administration costs might also make the Government Bond unattractive as an investment.In addition, we note the need to address other technical issues, such as who will be responsible for the administration of the fund and whether there is any potential role for insurance companies.We suggest that the community and stakeholders be consulted when developing a product suitable for Hong Kong, and at the same time providing an investment alternative to the market.Yours sincerely,Alex FongCEOc.c. Ms Julia Leung, Under Secretary for Financial Services and the Treasury
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