Motion of Thanks for the Policy Address (on Economy & Finance)

Regarding Finance and Economy

MR CHAN KIN-POR (in Cantonese): President, in proposing the general direction of “Economic Development, Our Priority” in the policy address this year, the Chief Executive indicated clearly that we have to consolidate the four pillar industries and develop the six industries with clear advantages, so as to maintain Hong Kong’s competitiveness and create new opportunities for the Hong Kong economy. The ultimate goal is to help Hong Kong evolve into a knowledge-based economy and create more quality jobs. I agree with the direction proposed by the Chief Executive and think that some of the proposals, such as developing Hong Kong into an offshore RMB business centre, are very far-sighted. In the following, I will give an analysis of some of the proposals.

The Chief Executive proposes in the policy address that we have to develop Hong Kong into a global financial centre, asset management centre and offshore RMB business centre attracting capital and talent from within and outside the country. In the process, special emphasis will be placed on strengthening our role as the testing ground for the liberalization of our country’s capital account and the regionalization and internationalization of RMB and building a market offering a broad range of RMB products and services. I think this is a very far-sighted decision.

Since the onset of the financial tsunami, Hong Kong people have once again realized that the boom or bust of the financial industry in Hong Kong has a direct bearing on the stability and prosperity of society as a whole. In fact, the financial industry in Hong Kong is facing many uncertainties. The Central Authorities have decided to develop Shanghai into “an international financial centre by 2020 that is commensurate with the economic strength of the Mainland and the international status of RMB”. Therefore, Shanghai will surely become an international financial centre. In face of the new challenge, Hong Kong must upgrade its competitiveness.

The proposal to develop RMB business in Hong Kong has in fact been raised for quite some time. Now, it has come to the critical moment. After grappling with the financial tsunami, the Central Authorities are determined to speed up the internationalization of RMB to escape from the bind of being constrained by US dollar in the international financial market. Many economists have predicted that once RMB becomes an international currency, together with the full integration of China into the international community, the role of Hong Kong as an intermediary will be reduced significantly. In view of this, whether or not Hong Kong can seize this opportunity to develop RMB business successfully is crucial to the future of the financial industry in Hong Kong.

The financial industry has all along held that Hong Kong is the most suitable place to help RMB go global step by step because for the time being, RMB still cannot be exchanged freely, so Hong Kong possesses great advantages in carrying out off-shore clearance for RMB. The policy address proposes that Hong Kong has to assume the role of a “testing ground” and this means that hopefully, Hong Kong can actively help RMB enter the arena of international finance. I believe that if we can leverage on the established advantages of Hong Kong, coupled with the development of Hong Kong into an offshore RMB business centre, Hong Kong would still be highly competitive.

In fact, the insurance industry also wishes to develop RMB business because at present, many people in Hong Kong envisage a rise in the value of RMB, so there is a huge demand for RMB products. However, due to the many technical difficulties involved, such as the inability of insurance companies to open RMB accounts with banks and a serious shortage of long-term RMB investment instruments, such as RMB bonds to match the risks involved in doing RMB insurance policy business, it is impossible for insurance companies to enable Hong Kong people to take out RMB insurance policies. Although I agree with and support the development of diversified RMB business in Hong Kong, we cannot underestimate the actual difficulties we would face. The Government should try to help the financial industry break down barriers and streamline procedures and do its utmost to help the industry overcome the difficulties that it will encounter in developing RMB business.

Originally, the focus of the policy address is on the promotion of the six industries, with a view to charting a new course for the Hong Kong economy. In fact, the Chief Executive has proposed many specific measures, for example, to reserve land for the education services and medical services industry, to launch an “R&D Cash Rebate Scheme” and to encourage the redevelopment or conversion of industrial buildings by owners in terms of policy. He also stressed that barriers will be lifted and procedures streamlined to facilitate the development of these industries.

However, in order to adhere to the principle of “big market, small government”, there is a lack of specific planning and work plans in the policy address, nor has any tax incentive been proposed. It seems the Government only wants to lend a helping hand from the sideline or provide an environment conducive to development instead of intervening actively in the development and planning of these industries, so as to avoid as far as possible intervention in the market. This is the conventional wisdom adopted by the Government all along. However, I believe that if the Government can step up its efforts and propose more development plans or even tax concessions, more investments from investors will be attracted and the six industries will also stand a greater chance of success.

I also wish to talk about the financial policy relating to the insurance industry. The Government has pointed out in the policy agenda that it would be looking into the establishment of an independent Insurance Authority in view of the international trend for financial regulators to be independent and in order to give the Insurance Authority with more flexibility in operations and staff recruitment to meet regulatory challenges. I would like to point out that insurance products and the operation of these products have unique characteristics and professional attributes that are different from other financial products. Therefore, when reviewing the relationships between and the powers and responsibilities of our financial regulators, including the Hong Kong Monetary Authority, the Securities and Futures Commission, the Office of the Commissioner of Insurance and the Mandatory Provident Fund Schemes Authority, the Government should take into account the unique characteristics of the insurance industry in various areas, including the unique characteristics of its products, sales process and clientele before making decisions.

Lastly, the policy agenda also mentioned the commencement of an actuarial consultancy study on the establishment of a Policyholders’ Protection Fund (PPF) early next year to examine the scope of coverage, levy rates, target fund size, and other detailed arrangements for the proposed PPF. It is estimated that the detailed proposals can be prepared within this Legislative Session. However, I hope that the Government can speed up its work, for example, as it formulates the specific proposals, it can also prepare the draft legislation. Since this kind of legislation or similar legislation has been enacted in various parts of the world and similar legislation can also be found in Hong Kong, the Government can proceed with the drafting of the legislation at an earlier date, so as to establish the PPF and provide protection to the public as soon as possible.

President, I so submit.

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