Good morning, President, Members and Government officials. The Financial Secretary pointed out in the Budget that Hong Kong’s economy as a whole would slide into recession amid the financial tsunami and the Budget was to propose a series of measures to tackle the problems. However, the Budget has unexpectedly caused much controversy in the community after its announcement.
The insurance sector, being an important segment of the financial industry, has employed more than 60 000 people, including agents, brokers and other employees of insurance companies. It is disappointing that the Government failed to address our requests in this Budget. In the wake of the financial tsunami, the performance of the insurance sector is comparatively stable. Apart from the effective supervision of the authorities concerned, the efforts made by the industry over the years should be given a credit. Nevertheless, it does not mean that the insurance industry is free from hidden problems in the face of the financial tsunami. The Government should assist the sector in improving its business environment and enhance its ability to cope with catastrophe so as to provide policyholders with better protection.
In order to improve the business environment, the industry has put forward a number of proposals, including the establishment of a policyholders’ protection fund (PPF), which is a proposal that the Chief Executive has promised to consider. As the economy is still in the doldrums, the insurance sector hopes that the Government can expeditiously establish PPF with an aim to stabilize the insurance market at this time of economic turbulence. Given that the situation is similar to that of establishing the Deposit Protection Scheme Fund for the banking sector, we propose an expeditious establishment of PPF and Government injection into the Fund. However, in its reply to my question, the Government simply said that it would submit progress report to the Legislative Council Panel on Financial Affairs in the current Legislative Session and did not earmark any funding for the proposed PPF. It implies that the Government will not be able to complete its report in the short term, let alone the establishment of PPF.
The Government may not see the urgency in establishing PPF as it considers the performance of the insurance sector stable. Yet, this exactly demonstrates that the Government is not proactive enough and fails to prepare for the rainy days. This will just end up in having to make double efforts when problems do arise.
The insurance sector has also proposed providing insurance premium allowance in the form of tax deduction for citizens who have taken out insurance policies in order to encourage the public to transfer their risks to insurance companies and prepare for the medical or retirement expenses in the future. This will in turn reduce their reliance on the Government. I think it is like “the citizens will give the chicken while the Government is only required to contribute soya sauce”. However, this proposal has not been accepted by the Government.
I have also noticed that the Budget proposes to foster the co-operation between Guangdong and Hong Kong to promote economic growth. This is a good piece of news to the insurance industry. The Financial Secretary clearly stated that the Government would strive to introduce more liberalization measures for early and pilot implementation in the Guangdong Province under CEPA for service industries to support the service sectors where we had a competitive edge. According to the existing CEPA agreement, if a Hong Kong insurance company wishes to enter into the mainland market, it must have assets of over US$5 billion, more than 30 years of establishment experience and a representative office which has been established in the Mainland for over two years. With such a high threshold, it is difficult for the local insurance companies in Hong Kong to enter into the mainland market.
I therefore support the proposal of the Financial Secretary and hope that the Government can soon negotiate with the mainland authorities on the lowering of entry threshold for the insurance industry so as to assist Hong Kong insurance companies in developing their business in the Guangdong Province.
Moreover, it was stated in the Budget that a government bond programme would be launched to reinforce Hong Kong’s position as an international financial centre. This proposal has gained general support and it is time for Hong Kong to strengthen its foundations in preparation for future challenges. The State Council has announced that Shanghai will be developed into an international financial centre by 2020. If Hong Kong does not enhance its strengths at this time, it will be difficult for us to compete with Shanghai in the future. The most urgent task is thus to reinforce Hong Kong’s position as an international financial centre and develop alternative financial markets. Bond market is indeed a very good choice.
The advantage of bond investment is that it is less risky but offers a better return than bank deposits. The demand for bonds is therefore huge in the market. As the risk level of government bonds is even lower, the market response to them will be overwhelming. The insurance sector is keen to invest in government bonds because insurance companies need a safe option for the long term investment of the large amount of life insurance premium that they constantly receive and government bonds will be an excellent choice.
However, the market is concerned about the purpose of issuing government bonds as the use of the sums raised was not mentioned in the Budget. We should be well aware that there will be some market implications when the Government drains a sum of money from the market. In addition, interest has to be paid for the funds raised. If the Government issues bonds simply for the sake of bond issuance and the funds are not properly used to achieve optimal benefits, it is tantamount to wasting resources. Not until recently has the Government advised that the funds will be placed with HKMA for investment and management. Nevertheless, whether this is an appropriate arrangement warrants further discussion.
In the Budget, the Government proposed enhancing primary care and promoting public-private partnership. In his response to a Member’s question, the Secretary for Food and Health said that the Government had earmarked $509 million for implementing a number of pilot initiatives to enhance primary health care services and support chronic patients, some of which would involve public-private partnership and some would strengthen family medicine training. I welcome the introduction of these new initiatives.
In fact, I proposed a motion last month, requesting the Government to promote medical check-up for the whole community. Despite its reservation on the motion, the Government’s current proposals, including the enhancement of primary health care services and the strengthening of family medicine training, show that it will take a more proactive approach in caring for public health. The intention behind is indeed similar to that of the motion. Recently, some critics say that the provision of medical check-up for the whole community is neither viable nor practicable as the demand will seriously overload the public health care system of Hong Kong. These critics, however, do not have an in-depth understanding of my proposal and the amendments put up by other Members. Instead of providing extensive and unnecessary check-up, our proposals only recommended offering citizens with the most basic medical check-up to arouse their awareness to their own health. The implementation of this recommendation can be handed over to private health care providers and carried out in phases. As such, the availability of resources should not be a problem. As the demand for primary health care services is huge, the Government’s willingness to enhance the services is basically on the right track.
The reason for the Budget to be highly controversial is that amid the financial tsunami, the community expects the Government to open its coffers to relieve people’s hardship but the Financial Secretary is not going to spend the public money as lavishly as expected. Instead, he simply addressed the financial crisis by preserving jobs. I fully understand the principle of financial prudence pursued by the Financial Secretary but I am more concerned about the financial policy of the Government. From this Budget, we can see that the Financial Secretary still sticks to a relatively passive financial policy in response to the blow of the financial tsunami. Since the outbreak of the financial crisis, many western countries have given up their old belief in laissez-faire and implemented new economic policies which allow active intervention to the market when facing economic predicament. This change is considerably effective and has become the latest trend in the political stage.
Although Hong Kong is a small and open economy, its local economy bears largely the impact of the international economic climate. Nonetheless, it does not mean that we cannot get prepared for the turbulence to help different industries and tide them over. The current approach taken by Hong Kong seems to suggest that the Government is going to wait and see if another wave of the financial tsunami will come before deciding its responses. Whether this approach is appropriate deserves our serious consideration.
I so submit.