OFFICIAL RECORD OF PROCEEDINGS
Wednesday, 8 November 1995
The Council met at half-past Two o'clock

MEMBERS PRESENT

THE PRESIDENT
THE HONOURABLE ANDREW WONG WANG-FAT, O.B.E., J.P.

THE HONOURABLE ALLEN LEE PENG-FEI, C.B.E., J.P.

THE HONOURABLE MRS SELINA CHOW LIANG SHUK-YEE, O.B.E., J.P.

THE HONOURABLE MARTIN LEE CHU-MING, Q.C., J.P.

THE HONOURABLE SZETO WAH

THE HONOURABLE EDWARD HO SING-TIN, O.B.E., J.P.

THE HONOURABLE RONALD JOSEPH ARCULLI, O.B.E., J.P.

THE HONOURABLE MRS MIRIAM LAU KIN-YEE, O.B.E., J.P.

DR THE HONOURABLE EDWARD LEONG CHE-HUNG, O.B.E., J.P.

THE HONOURABLE ALBERT CHAN WAI-YIP

THE HONOURABLE CHEUNG MAN-KWONG

THE HONOURABLE CHIM PUI-CHUNG

THE HONOURABLE FREDERICK FUNG KIN-KEE

THE HONOURABLE MICHAEL HO MUN-KA

DR THE HONOURABLE HUANG CHEN-YA, M.B.E.

THE HONOURABLE EMILY LAU WAI-HING

THE HONOURABLE LEE WING-TAT

THE HONOURABLE ERIC LI KA-CHEUNG, J.P.

THE HONOURABLE FRED LI WAH-MING

THE HONOURABLE HENRY TANG YING-YEN, J.P.

THE HONOURABLE JAMES TO KUN-SUN

DR THE HONOURABLE SAMUEL WONG PING-WAI, M.B.E., FEng., J.P.

DR THE HONOURABLE PHILIP WONG YU-HONG

DR THE HONOURABLE YEUNG SUM

THE HONOURABLE HOWARD YOUNG, J.P.

THE HONOURABLE ZACHARY WONG WAI-YIN

THE HONOURABLE JAMES TIEN PEI-CHUN, O.B.E., J.P.

THE HONOURABLE LEE CHEUK-YAN

THE HONOURABLE CHAN KAM-LAM

THE HONOURABLE CHAN WING-CHAN

THE HONOURABLE CHAN YUEN-HAN

THE HONOURABLE ANDREW CHENG KAR-FOO

THE HONOURABLE PAUL CHENG MING-FUN

THE HONOURABLE CHENG YIU-TONG

THE HONOURABLE ANTHONY CHEUNG BING-LEUNG

THE HONOURABLE CHEUNG HON-CHUNG

THE HONOURABLE CHOY KAN-PUI, J.P.

THE HONOURABLE ALBERT HO CHUN-YAN

THE HONOURABLE IP KWOK-HIM

THE HONOURABLE LAU CHIN-SHEK

DR THE HONOURABLE LAW CHEUNG-KWOK

THE HONOURABLE LAW CHI-KWONG

THE HONOURABLE LEE KAI-MING

THE HONOURABLE LEUNG YIU-CHUNG

THE HONOURABLE BRUCE LIU SING-LEE

THE HONOURABLE MOK YING-FAN

THE HONOURABLE SIN CHUNG-KAI

THE HONOURABLE TSANG KIN-SHING

DR THE HONOURABLE JOHN TSE WING-LING

THE HONOURABLE MRS ELIZABETH WONG CHIEN CHI-LIEN, C.B.E., I.S.O., J.P.

THE HONOURABLE LAWRENCE YUM SIN-LING

MEMBERS ABSENT

DR THE HONOURABLE DAVID LI KWOK-PO, O.B.E., LL.D. (CANTAB), J.P.

THE HONOURABLE NGAI SHIU-KIT, O.B.E., J.P.

THE HONOURABLE LAU WONG-FAT, O.B.E., J.P.

THE HONOURABLE CHRISTINE LOH KUNG-WAI

THE HONOURABLE DAVID CHU YU-LIN

THE HONOURABLE AMBROSE LAU HON-CHUEN, J.P.

THE HONOURABLE LO SUK-CHING

THE HONOURABLE MARGARET NG

THE HONOURABLE NGAN KAM-CHUEN

PUBLIC OFFICERS ATTENDING

THE HONOURABLE MRS ANSON CHAN, C.B.E., J.P.
CHIEF SECRETARY

THE HONOURABLE DONALD TSANG YAM-KUEN, O.B.E., J.P.
FINANCIAL SECRETARY

THE HONOURABLE JEREMY FELL MATHEWS, C.M.G., J.P.
ATTORNEY GENERAL

MR CHAU TAK-HAY, C.B.E., J.P.
SECRETARY FOR TRADE AND INDUSTRY

MR HAIDER HATIM TYEBJEE BARMA, I.S.O., J.P.
SECRETARY FOR TRANSPORT

MR DOMINIC WONG SHING-WAH, O.B.E., J.P.
SECRETARY FOR HOUSING

MRS KATHERINE FOK LO SHIU-CHING, O.B.E., J.P.
SECRETARY FOR HEALTH AND WELFARE

MR JOSEPH WONG WING-PING, J.P.
SECRETARY FOR EDUCATION AND MANPOWER

MR PETER LAI HING-LING, J.P.
SECRETARY FOR SECURITY

MR KWONG KI-CHI, J.P.
SECRETARY FOR THE TREASURY

CLERKS IN ATTENDANCE

MR RICKY FUNG CHOI-CHEUNG, SECRETARY GENERAL

MR LAW KAM-SANG, DEPUTY SECRETARY GENERAL

MISS PAULINE NG MAN-WAH, ASSISTANT SECRETARY GENERAL

PAPERS

The following papers were laid on the table pursuant to Standing Order 14(2):

Subject

Subsidiary Legislation	L.N. No.
Merchant Shipping (Safety) (Signals of Distress and Prevention of Collisions) (Amendment) Regulation 1995	486/95
Official Languages (Alteration of Text) (Oaths and Declarations Ordinance) Order 1995 490/95
Official Languages (Alteration of Text)(Road Traffic Ordinance) Order 1995	491/95
Accountant's Report (Amendment) Rules 1995	492/95
Food Business (Regional Council) (Amendment) (No. 3) Bylaw 1995	493/95
Wills (Amendment) Ordinance 1995 (56 of 1995)(Commencement) Notice 1995	494/95
Intestates' Estates (Amendment) Ordinance 1995(57 of 1995) (Commencement) Notice 1995	495/95
Inheritance (Provision for Family and Dependants) Ordinance (58 of 1995) (Commencement) Notice 1995	496/95
Births and Deaths Registration Ordinance(Amendment of Second Schedule) Order 1995	497/95
Birth Certificate (Shortened Form) Regulations(Amendment) Order 1995	498/95
Births Registration (Special Registers) Ordinance (Replacement of Schedules) Order 1995	499/95
Deaths Registration (Special Registers) Ordinance (Replacement of Schedules) Order 1995	500/95
Marriage Reform (Forms) (Amendment) Regulation 1995	501/95
Marriage Ordinance (Amendment of First Schedule)Order 1995	502/95
Official Languages (Authentic Chinese Text)(Chit-Fund Businesses (Prohibition) Ordinance) Order	(C) 91/95
Official Languages (Authentic Chinese Text)(Demolished Buildings (Re-Development of Sites) Ordinance) Order	(C) 92/95
Official Languages (Authentic Chinese Text)(Oaths and Declarations Ordinance) Order	(C) 93/95
Official Languages (Authentic Chinese Text)(University of Hong Kong Ordinance) Order	(C) 94/95
Official Languages (Authentic Chinese Text)(Road Traffic Ordinance) Order	(C) 95/95

Sessional Papers 1995-96

No. 17─	Land Development Corporation Annual Report 1994-1995
No. 18─	Hong Kong Productivity Council Annual Report 1994-95
No. 19─	Hong Kong Industrial Technology Centre Corporation Annual Report 1994-95
No. 20─	The Hong Kong Industrial Estates Corporation Annual Report 1994-1995
No. 21─	Annual Report of the Director of Accounting Services and the Accounts of Hong Kong for the year ended 31 March 1995
No. 22─	Report of the Director of Audit on the Accounts of the Hong Kong Government for the year ended 31 March 1995
No. 23─	Report of the Director of Audit on the Results of Value for Money Audits

ORAL ANSWERS TO QUESTIONS

Drug addicts

1.MR WONG WAI-YIN asked (in Cantonese): Mr President, will the Government inform this Council:

1. of the number of drug addicts, together with a breakdown of the number of those who are female and those who are under the age of 21 (to be further broken down by male and female), in each of the districts in the territory over the past three years;

2. whether there is an upward trend in the number of female and young drug addicts; if so, what the reasons are;

3. of the services available to help drug addicts to kick the habit; and

4. what measures are put in place to curb the increase in the number of people taking drugs, particularly among women and young people?

SECRETARY FOR SECURITY (in Cantonese): Mr President,

1. The statistics required in part (a) of the question are presented in tables 1 to 3, which are tabled before this Council.

2. There is an upward trend in the number of young drug abusers between 1992 and 1994. However, the number of young drug abusers reported in the first six months of 1995 dropped by over 8% from 2 651 in the corresponding period in 1994 to 2 436. Members may also wish to note that there is a more significant drop, by 44%, in the number of newly reported young drug abusers, from 1 600 in the first six months of 1994 to 1 108 in the corresponding period in 1995. I believe that it is too early to regard this as a reversing trend since this has to be sustained over a longer period of time. The Government will continue to combat the drug problem vigorously and I hope our re-doubled efforts will bear fruit and alleviate the problem.

   A Survey of Young Drug Abusers conducted by the Narcotics Division last year revealed that curiosity and to identify with peers were the main reasons for initial drug use among youngsters. In terms of the satisfaction they derived from drug taking, "to forget about trouble" was ranked the highest, followed by "to get high" and "to relax".

   An upward trend is also noted in the number of female drug abusers since 1992. However, the number of newly reported female abusers in the first six months of 1995 dropped by 13% from 521 in the corresponding period in 1994 to 453. The Action Committee Against Narcotics has commissioned the Chinese University of Hong Kong to undertake a research study on female drug abusers, with a view to delineating the unique characteristics of female drug abusers and the factors leading to their drug abuse. This study will also look into prevention and treatment strategies to deal with female drug abusers. The findings of the study will be available towards the end of next year.

3. We have launched a range of treatment programmes, using a number of treatment methods, to cater for the needs of different drug abusers. In the treatment of dependence on opiate drugs such as heroin, there are mainly three types of government-funded treatment programmes: (1) a compulsory placement programme in drug addiction treatment centres run by the Correctional Services Department; (2) a voluntary out-patient methadone programme provided by the Department of Health and (3) a voluntary in-patient programme run by the Society for the Aid and Rehabilitation of Drug Abusers (SARDA). On top of these, there are nine voluntary agencies providing religious therapeutic services for opiate abusers.

   Counselling services for psychotropic substance abusers are provided by PS33 of the Hong Kong Christian Service and the "Direction" of SARDA. The Hospital Authority has established six substance abuse clinics to provide medical services for psychotropic substance abusers.

4. Our overall strategy to combat the problem of drug addiction takes a multi-disciplinary approach, covering legislation and enforcement, treatment and rehabilitation, preventive education and publicity, and research.

Our law enforcement agencies, including the police, Customs and Excise Department and the Department of Health, are taking vigorous actions to detect and prosecute offenders, and to clamp down on the illegal supply of drugs. We have strengthened the manpower in the Police Narcotics Bureau, and updated legislation against the laundering of drug proceeds with a view to taking more effective enforcement actions against drug traffickers.

The Medical Council and the Pharmacy and Poisons Board are discussing possible new measures to further tighten control on malpractice and the illegal sale of drugs. The Department of Health has increased the number of pharmacy inspections per month from 560 to 700, and set up a special task force to facilitate the prosecution of offending drug retailers.

Maximum penalties for the illegal or improper sale of drugs by pharmacies have been raised recently. We are also examining ways to impose heavier sentences on adult drug offenders who involve youngsters in the illegal drug trade. One possible way is to have the exploitation of minors included as an aggravating factor in the guidelines set by the Court of Appeal for reference by lower courts when sentencing convicted drug traffickers.

As regards measures to curb the increase in the number of drug abusers, particularly among females and youngsters, additional treatment facilities are in the pipeline. SARDA's Women's Treatment Centre is being reprovisioned to accommodate more female clients, and the new centre in North District is expected to open early next year. The Chimawan Detention Centre (Lower) is to be converted into an additional drug addiction treatment centre under the Correctional Services Department for both adult and young female abusers.

For male young abusers, SARDA is undertaking a pilot project to set up a treatment centre for young opiate abusers. A suitable site has been identified in Yuen Long. We will be consulting the district board and relevant local bodies shortly. I hope that they will understand that there is indeed the urgent need for the facility. As the centre will provide in-patient treatment in a closed setting, it should not cause any law and order problem or nuisance to the neighbourhood.

Besides, we are also committed to setting up two additional residential treatment centres for young opiate abusers and a new counselling centre in the New Territories for psychotropic substance abusers. An amount of $17 million has been reserved for the centres, and the operators for these centres have already started the necessary planning work.

Preventive education has also been stepped up to inculcate in our young people a positive and healthy attitude to life, and to encourage them to resist temptation and stay away from drugs. The Education Department has taken a series of measures to beef up preventive education, targetting not only youngsters but also parents. It also provides assistance and training to schools and teachers to enable them to perform their essential task of educating their students to stay away from drugs more effectively. The Social Welfare Department has also set up a team of specially trained social workers to help young drug abusers.

The Government is very concerned about the seriousness of the drug abuse problem. In order to highlight the need for a concerted effort from the community as a whole to fight against drugs, and to tap the ideas of all concerned, the Governor chaired a Summit Meeting on Drugs in March. We are now pursuing vigorously the action plans as proposed in the summit meeting. The second quarterly progress report on these initiatives will be released later today. To add further impetus to the Beat Drugs campaign, we will set up a Beat Drugs Fund of $350 million to finance worthwhile projects and work to counter the drug problem.

The drug problem will be tackled only by the concerted effort of the community as a whole. Together we can beat drugs.

Table 1 Analysis of Drug Abusers (Reported to the Central Registry of Drug Abuse) by District of Residence For comparison

District of residence	1992	1993	1994	1995	1994
				(Jan-Jun)	(Jan-Jun)
Hong Kong Island	2 278	2 650	3 140	1 859	1 905
Central and Western	378	381	510	257	280
Wan Chai	381	436	513	293	310
Eastern	902	1 069	1 129	698	700
Southern	617	764	988	611	615
Kowloon and New Kowloon	6 633	7 421	8 144	5 107	5 024
Yau Tsim Mong	1295	1341	1398	817	827
Sham Shui Po	1478	1 539	1 703	1 139	1 018
Kowloon City	672	775	867	547	559
Wong Tai Sin	1 405	1 640	1 829	1 047	1 180
Kwun Tong	1 783	2 126	2 347	1 557	1 440
New Territories and Islands	5 070	6 402	7 762	4 621	4 663
Kwai Tsing	1 047	1 214	1 397	553	848
Tsuen Wan	538	669	754	637	469
Tsuen Mun	1 110	1 400	1 678	993	1 049
Yuen Long	640	866	1 141	717	639
North	448	548	704	442	427
Tai Po	378	461	621	445	324
Sha Tin	629	817	998	613	615
Sai Kung	171	247	292	118	172
Islands	109	180	177	103	120
District unknown	1 235	1 219	1280	392	762
Total	15 216	17 692	20 326	11 979	12 354

Table 2 Analysis of Female Drug Abusers (Reported to the Central Registry of Drug Abuse) by District of Residence

				For comparison
District of residence	1992	1993	1995 (Jan-Jun)1994	1994(Jan-Jun)
Hong Kong Island	177	247	339	188	182
Central and Western	31	37	59	24	27
Wan Chai	44	45	67	34	31
Eastern	59	98	103	60	57
Southern	43	67	110	70	67
Kowloon and New Kowloon	591	703	793	536	434
Yau Tsim Mong	138	164	162	109	74
Sham Shui Po	125	130	159	114	88
Kowloon City	54	85	89	65	52
Wong Tai Sin	116	122	138	78	83
Kwun Tong	158	202	245	170	137
New Territories and Islands	436	643	936	543	515
Kwai Tsing	68	113	127	53	65
Tsuen Wan	55	60	91	61	51
Tuen Mun	120	167	258	131	146
Yuen Long	55	78	127	97	64
North	32	49	90	49	50
Tai Po	22	37	50	45	25
Sha Tin	57	86	135	83	79
Sai Kung	20	36	35	15	21
Isalnds	7	17	23	9	14
District unknown	61	63	111	42	60
Total	1 265	1 656	2 179	1 309	1 191

Table 3: Analysis of Young Drug Abusers (Reported to the Central Registry of Drug Abuse) Aged under 21 by Sex and District of Residence

For Comparison
	1992			1993			1994			1995 (Jan-Jun)			1994 (Jan-Jun)
District of residence	M	F	T	M	F	T	M	F	T	M	F	T	M	F	T
Hong Kong Island	328	65	393	472	100	572	653	163	816	355	90	445	434	91	525
Central and Western	74	19	93	59	16	75	103	24	127	34	11	45	64	9	73
Wanchai	19	9	28	26	7	33	29	15	44	15	9	24	21	9	30
Eastern	88	18	106	176	43	219	185	43	228	109	28	137	123	21	144
Southern	147	19	166	211	34	245	336	81	417	197	42	239	226	52	278
Kowloon and New Territories	453	142	595	764	210	974	910	241	1 151	513	163	676	592	141	733
Yau Tsim Mong	38	15	53	66	29	95	95	31	126	43	28	71	51	9	60
Sham Shui Po	79	28	107	96	28	124	125	26	151	73	21	94	72	14	86
Kowloon City	42	11	53	86	21	107	87	20	107	64	20	84	58	12	70
Wong Tai Sin	98	32	130	178	40	218	231	61	292	94	20	114	164	43	207
Kwun Tong	196	56	252	338	92	430	372	103	475	239	74	313	247	63	310
New Territories and Islands	760	168	928	1 227	284	1 511	1 719	481	2 200	1 006	242	1 248	1 057	268	1 325
Kwai Tsing	133	11	144	193	37	230	231	53	284	77	16	93	145	25	170
Tsuen Wan	81	19	100	136	18	154	134	44	178	70	22	92	90	28	118
Tuen Mun	204	70	274	336	97	433	492	165	657	305	68	373	326	98	424
Yuen Long	88	20	108	173	34	207	255	64	319	165	47	212	145	30	175
North	63	8	71	93	21	114	147	55	202	101	24	125	84	32	116
Tai Po	51	6	57	68	17	85	149	20	169	102	21	123	82	11	93
Sha Tin	89	23	112	142	34	176	209	58	267	149	38	187	118	32	150
Sai Kung	26	8	34	39	16	55	64	13	77	2	3	26	37	6	43
Island	25	3	28	47	10	57	38	9	47	14	3	17	30	6	36
District unknown	29	12	41	65	8	73	83	38	121	57	10	67	50	18	68
Total	1 570	387	1 957	2 528	602	3 130	3 365	923	4 288	1 931	505	2 436	2 133	518	2 651

Note : M - Male F - Female T - Total

MR WONG WAI-YIN (in Cantonese): In his reply just now the Secretary for Security said that there was a downward trend in the first six months of 1995 when compared to the first half of 1994. However, statistics show that when compared to the whole year of 1994, the number for the first half of 1995 has already exceeded half of the total number in 1994. This is, therefore, very worrying.

Mr President, in the first paragraph under (c) in the reply the Secretary mentioned that several kinds of drug addiction treatment services are provided at present. They include the original compulsory placement programme, voluntary in-patient treatment services and religious therapeutic services. In fact, these services have been provided for years. Can the Secretary provide data showing us how many drug addicts who have previously received such treatments have returned to these treatment agencies more than once or repeatedly in the past three years in order to show how effective these services are? And, has the Government ever attempted to conduct a comprehensive review of the effectiveness of these kinds of institutional drug addiction treatment services?

SECRETARY FOR SECURITY (in Cantonese): Mr President, I do not have the record on hand as regards relapses into drug addiction by drug abusers who have previously received treatment in each of the different treatment centres. However, I believe that there is such a case. A detailed study over a long period of time is required in order to identify which one of the different kinds of drug addiction treatment methods is effective and which one is not and which one of them can attain the desired result and which one cannot. The Action Committee Against Narcotics have started the work to launch a three-year study in detail to look into the effectiveness and effects of different kinds of treatment methods and see whether they can attain their objectives.

PRESIDENT: Can the figures be provided in writing, Secretary?

SECRETARY FOR SECURITY: Mr President, I shall see what figures may be provided. (Annex I)

DR JOHN TSE (in Cantonese): Mr President, what happens in Hong Kong now is that people with money take drugs whereas people without money take methadone. The Hong Kong Government is using the money of taxpayers to treat drug addicts to a cheap drug, namely methadone. This is so because, as far as I know, it is more difficult to quit methadone than to quit drugs in general. I would like to enquire about the effectiveness of methadone. Can the Government inform this Council how many people have given up drugs completely and switched to methadone? Besides, how many people are able to rid themselves totally of the dependence on drugs subsequent to their taking methadone?

SECRETARY FOR SECURITY (in Cantonese): Mr President, the methadone treatment programme is not mainly aimed at enabling drug addicts who take methadone to get rid of their dependence on drugs for good. In most cases it is conducted as a "maintenance programme" which means that drug addicts may take methadone as a substitute when withdrawal symptoms emerge. This programme, in fact, plays a very significant role and we should realize that if those drug addicts are not provided with the channel to take methadone, when they are in financial difficulties or when prices of drugs soar and when they succumb to temptation, they may resort to crime to procure money for drug consumption. In this connection, methadone serves as an alternative channel to combat the evils of drugs. The methadone programme plays a very significant role in society.

MR CHIM PUI-CHUNG (in Cantonese): Mr President, opium is certainly a kind of drugs. However, rumour has it that some people in our society are granted special licences by the Government which allow them to take opium. Can the Secretary confirm if this is the case or is it solely a rumour circulating around town?

SECRETARY FOR SECURITY (in Cantonese): I have not heard of this before. Hong Kong is a society where the rule of law prevails. Everyone is equal before the law.

MR SIN CHUNG-KAI (in Cantonese): Mr President, the statistics provided by the Secretary for Security dismayed me because, from the figures presented to us by districts, one of the districts ─ a district to which the Honourable Albert HO belongs ─ has more than 300 young drug abusers, which is the highest number among all the districts in the territory. I believe that this district also has the highest ratio of drug abusers to population.

May I ask the Secretary if any additional work has been carried out to deal with that district in particular?

SECRETARY FOR SECURITY (in Cantonese): As regards our effort to beat drugs, it is, of course, the police and other law enforcement agencies which are responsible for enforcing the law and preventing the circulation of drugs in society. I am very confident that they will step up law enforcement actions in districts where more drug trafficking activities are found.

As for the strengthening of publicity, we have called on the social organizations concerned both in the community and at the district level to make a concerted effort to carry out more publicity work in the district with a view to providing guidance to youngsters, thus sparing them from the evils of drugs.

DR LEONG CHE-HUNG: I would like to ask the question posed by my honourable colleague in another manner. Perhaps we can get more answers from the Secretary. In paragraph (c) of the Secretary's reply, it is mentioned that a few treatment programmes are being used for people who are dependent on opiates. I wonder if the Secretary can inform this Council how many of these programmes are actually detoxification programmes and not substitute or maintenance programmes like methadone? And how effective are these programmes?

SECRETARY FOR SECURITY: Mr President, on the whole, we are talking about detoxification programmes, for example, the drug addiction treatment programme run by the Correctional Services Department. Methadone is primarily a maintenance programme, although there are a small number of patients at methadone clinics who enroll in the detoxification part of the methadone programme.

PRESIDENT: I have two more names on my list, I propose to draw a line there.

MR MICHAEL HO (in Cantonese): Mr President, under paragraph (d) in the reply it is mentioned that the Medical Council and the Pharmacy and Poisons Board are discussing possible new measures to control and curb unlawful activities and the illegal sale of drugs. The English version of the reply also made a reference to "malpractice", which, perhaps, refers to medical misdemeanour or misconduct.

May I ask the Government this: When will the Medical Council and the Pharmacy and Poisons Board make clear progress in the discussion and when will the Medical Council, in particular, have made progress in their work and tell us that medical misdemeanour or misconduct, which may mean doctors engaging in the illegal sale of drugs, is brought under control?

SECRETARY FOR SECURITY: Mr President, I will be happy to provide an answer to that question provided you rule that this does not stray into the third question of today's session, which is to be asked by the Honourable Eric LI.

PRESIDENT: You are quite right, Secretary. I think that is straying away from the scope of the original question.

MR JAMES TO (in Cantonese): The main cause of a drastic surge in the number of drug addicts lies in young drug abusers. As the Governor considered it necessary to convene a summit meeting in this regard, the gravity of the problem has been amply manifested.

In view of the number of young drug addicts, has the Administration assessed how many additional in-patient treatment centres for opiate drug addiction are required? As we can learn from the reply that there are only two additional treatment centres of this sort, is this too inadequate to bring about improvement? Given the seriousness of the problem, will the Government be more determined to provide financial support to these treatment programmes, which are regarded even by the community as costly, so that improvements in this respect can be made?

SECRETARY FOR SECURITY (in Cantonese): Mr President, the drug addiction treatment centres that I mentioned in the main reply are not just one or two in number and there are in fact many such centres. At this stage, our in-patient drug addiction treatment centres are mainly targeted on opiate drug addicts, providing 1 400 places exclusively for males, 235 places exclusively for females, 266 places for youngsters and 32 places for female youngsters particularly.

In citing these figures, all I want to prove is that we are not providing just a small number of places. Meanwhile, under our plan for the future, we are not going to build just one or two drug addiction treatment centres. As I mentioned in my main reply, we have started the planning work for the building of a new drug addiction treatment centre in Yuen Long and converting the Chimawan Detention Centre (Lower) into a drug addiction treatment centre for female abusers. In addition, we also plan to set up two additional treatment centres for youngsters who are subject to the evils of opiate drugs.

Parking spaces for hearse fleet

2.MRS ELIZABETH WONG: Will the Government inform this Council of the following:

1. what is the policy on the provision of parking spaces for the fleet of hearses for funeral parlours;

2. does the Government intend to designate parking spaces outside funeral parlours specifically for the parking of hearses; if not, why not; and

3. what is the position regarding the designation of car parking spaces for funeral parlours; and with specific reference to the funeral parlours at Hung Hom, what measures has the Government adopted to resolve the parking problem there and when were such measures taken?

SECRETARY FOR TRANSPORT: Mr President, hearses are registered as light goods vehicles under the Road Traffic Ordinance*(Cap.*374). There are about 100 such vehicles owned by the operators of funeral parlours, and other business concerns connected with this trade or individuals.

Funeral parlours either have on-site parking spaces for their fleet of hearses or have made other alternative arrangements for parking them at night, for example, in nearby carparks. As for the other hearses, they can be parked on street in parking spaces designated "P" under Schedule One of the Road Traffic (Parking) Regulations, that is, spaces earmarked for private cars and light goods vehicles.

It is not practical to designate specific parking spaces for hearses even outside funeral parlours. To do so would result in an uneconomical use of road space. However, where space is available, lay-bys are provided immediately outside or in the vicinity of funeral parlours and these can be used by hearses.

My understanding is that the present problem has resulted from the carpark above Kowloon䒷tation's no longer being available for the parking of hearses. This is because the access ramps are not designed for vehicles weighing more than 2.5慯onnes. Some 30䰄wners or drivers of hearses have been affected but half of them have already made their own arrangements for parking on a STT site in Tai謭oksui. To try to alleviate the overnight parking problem, the Transport Department has designated a few additional parking spaces along On蟖hing袠oad which is very close to the funeral parlours in Hung贌om and, in addition, are pursuing the provision of more parking spaces in To Kwa Wan. Separately, the operators of carparks on new short-term tenancy sites will also be required to provide access to all types of vehicles.

MRS ELIZABETH WONG: Mr President, I am grateful for the Secretary's reply.

In paragraph (4) of the Secretary's reply, he is dead right in explaining that the fault does not lie with the vehicle or the hearses, but with the access ramp. Now in normal circumstances when it comes to living human beings, if a structure of a building is unsound and cannot hold the weight of the living people in it, then the structure is declared as a dangerous building and is demolished. First of all, may I ask whether there is discrimination between the living and the dead? If so, why?

And secondly, will the Secretary also inform us whether he intends to instruct KCRC to tear the ramp down, rebuild it, so that it can accommodate heavy load vehicles, including hearses and Rolls Royces?

SECRETARY FOR TRANSPORT: Mr President, with due respect, I think the question regarding the difference between treatment for the living and the dead is totally irrelevant.

Insofar as parking is concerned, our policy is to provide parking on a broad classification basis. Perhaps I can elaborate on this. Under Regulation 5(2) of the Road Traffic (Parking) Regulations, the Commissioner for Transport, of course, has the authority to designate parking spaces for specific vehicles. But given the lack of space in urban districts, one has to be realistic. Therefore, in fact, parking is provided under six broad categories; the first, as I have said, is for cars, minibuses and light goods vehicles, second for motorcycles, third for cycles, fourth for goods vehicles, fifth for buses and coaches and finally, the sixth category is for emergency vehicles such as refuse collection vehicles and police cars.

Insofar as the carpark above the Kowloon Railway Station is concerned, the KCRC is attempting, and indeed is in the process of upgrading that station, and as a result they have applied for permission to renovate and extend the works. As part of this exercise, when their Authorized Person submitted the plans, he was advised by the Building Authority that the access ramps in the carpark were designed for vehicles weighing less than 2.5 tones and this is in accordance with the Building Construction Regulations for carpark structures. I do not think it is fair to require the KCRC to reconstruct the ramps simply to cater for a specific class of vehicles. As I have said, hearses are designated as light goods vehicles, there are only about 100 in total numbers in Hong Kong and in fact the trade has managed to find alternative parking spaces quite readily.

MR JAMES TO (in Cantonese): Mr President, I do not quite agree with the Secretary's reply. Although the number of such kind of vehicles is small, the problem will arise again if the Government does not renew the short-term tenancy of the carpark at Tai Kok Tsui where the hearses are now parking. I think people will feel even more disgusted if the hearses park at places which are far away from Hung Hom where the funeral parlours are located. Therefore, will the Secretary inform this Council whether the Administration will try to work out some practical measures which can allow the hearses to have a permanent parking area in the vicinity of the funeral parlours? I agree with what the Honourable Mrs Elizabeth WONG has said. The access ramps should be strengthened. In fact, the hearses have been parking there. I believe that the public will consider this arrangement acceptable. If the hearses are parked everywhere, there may be a lot of social repercussions. Will the Secretary inform us whether long-term solutions will be considered?

SECRETARY FOR TRANSPORT: Mr President, it has to be recognized that the larger funeral parlours in Hung Hom and indeed in North Point on Hong Kong Island have been established for over 20 years and at that time the conditions of grant did not require specifically the operators to provide sufficient on-site parking spaces for their fleet of hearses. The current policy is that commercial concerns must do this. So, in the future, this problem should not arise.

Having said that and reverting to the problem in Hung Hom, I can, of course, understand the request from some of the drivers and owners of these hearses. I shall be happy to ask the KCRC to consider this, but I think it is beyond my remit to instruct them to strengthen the ramps for this purpose. (Annex II)

Another factor that has to be borne in mind, as advised by the district offices, is that in fact some of the drivers of these hearses prefer in fact to park these vehicles nearer to places where they live and it is not simply a question of providing spaces in the vicinity of the funeral parlours themselves.

Control of psychotropic drugs

3.MR ERIC LI asked (in Cantonese): Some medical practitioners abuse their authority by storing large quantities of psychotropic drugs and selling them to young persons illegally to make profits. The penalty imposed on such offenders is often merely a brief suspension of their registration, after which they can continue with their practice and sell psychotropic drugs illegally as before. In view of this, will the Government inform this Council whether:

1. restriction will be imposed on the quantities of various types of psychotropic drugs which medical practitioners are allowed to store;

2. it will require suppliers of these drugs to provide to the Government, on a periodic basis, information on the quantities of psychotropic drugs purchased by medical practitioners, so as to facilitate investigation in doubtful cases; and

3. consideration will be given to raising the level of penalty as a deterrent?

SECRETARY FOR SECURITY (in Cantonese): Mr President,

1. Restricting the quantities of various types of psychotropic drugs which medical practitioners are allowed to store is one of the proposals being considered by a Working Group under the Hong Kong Medical Council. The Working Group was convened to consider amendments to the Professional Code and Conduct to tighten the control on the use of psychotropic drugs by medical practitioners. It is expected to put forward its recommendations to the Medical Council by early 1996.

2. At present, drug suppliers are already bound to provide information on controlled drugs to the Department of Health. The information required includes the quantities of psychotropic drugs purchased by medical practitioners. Those medical practitioners with high utilization are asked to submit statistics and information on their use of psychotropic drugs. Based on such information, the Department of Health can initiate investigation into cases suspected of inappropriate use.

3. We have increased, with effect from 1 September 1995, the maximum penalty levels stipulated in the Pharmacy and Poisons Ordinance for offences including the illegal sale of drugs, from a fine of $30,000 and imprisonment of one year to a fine of $100,000 and imprisonment of two years. We are now considering proposing an increase, possibly of a larger magnitude, in the level of penalty for contravention of the requirements to keep proper records on the acquisition and supply of dangerous drugs, as stipulated in the Dangerous Drugs Regulations. This will increase the deterrent effect and combat possible abuses in the supply and prescription of psychotropic drugs by medical practitioners.

MR ERIC LI (in Cantonese): In paragraph (b) of the Government's reply, the Secretary said that the Department of Health can, based on information on the supply of drugs, initiate investigation into cases suspected of inappropriate use. I would like to ask the Government: how many investigations of this nature have ever been initiated and how many full-time staff are now employed by the Department of Health to undertake the specific duty of conducting that sort of self-initiated investigations? Furthermore, is the manpower level adequate in view of our grave concern over the drug problem?

SECRETARY FOR SECURITY (in Cantonese): Regarding the staffing level in the Department of Health, I believe that the Director of Health will continue to review whether the existing staffing level is adequate to carry out the required investigation work. Based on this information, the Department of Health has conducted various types of investigations, including inspections and test purchases at doctors' clinics. Take 1994 for instance, 6 000 test purchases were conducted at doctors' clinics, based on information about cases suspected of inappropriate sale of drugs.

MR FRED LI (in Cantonese): Mr President, I still feel quite dissatisfied with the reply because we learn from news reports that, throughout the past few years, a famous "doctor of the pills" in our Kwun Tong District had been arrested a number of times, but was released soon after every arrest. The most severe punishment ever imposed upon him was suspension of registration for a mere three-month or six-month period. After release, he can then collaborate with others to engage in drug peddling once again. Will the punishment of mere suspension of registration continue? Is it a legislative loophole or is it an instance of neglect in the course of law enforcement? Or is it because the judges do not regard the problem as serious and therefore tend to give only lenient punishment?

SECRETARY FOR SECURITY (in Cantonese): Mr President, I believe that the Honourable Fred LI may have confused the suspension of registration with the punishment imposed by the court. Suspension of registration is a decision made by the Hong Kong Medical Council after taking disciplinary proceedings against registered doctors in certain cases. Of course, there were one or two cases in which the convicted doctors appealed to the court and the court ruled that the period of suspension be reduced. However, in case a medical practitioner commits an offence under the relevant legislation on drugs, the maximum penalty thus imposed will be the same as the maximum penalty that an ordinary man may have to be subject to, in terms both of fines and imprisonment.

DR HUANG CHEN-YA (in Cantonese): Mr President, one of the major problems is the difficulty of bringing the unethical doctors to book because the so-called soft drugs are in fact tranquilizers and sleeping pills. If a medical practitioner thinks it necessary to prescribe these drugs for the patients, he has the absolute right to do so. However, there is at present no regulatory control over the prescription of these drugs for patients by medical practitioners on a long-term basis and in large quantity. It is thus very difficult to substantiate the allegation that a medical practitioner is actually engaging in drug peddling. Will the Government, through the enactment of regulations by the Medical Council or by the Government, exercise control over the doctors so that, if they have to supply these drugs to a particular patient for a prolonged period and in large quantities, the doctors would have to obtain advice or approval from a specialist on the need for so doing? That can stop those unscrupulous doctors from peddling soft drugs. Will the Government consider this suggestion?

SECRETARY FOR SECURITY (in Cantonese): Mr President, in my main reply, I have already said that a Working Group under the Hong Kong Medical Council was convened to study, inter alia, the means by which malpractice in the medical profession, as described by the Honourable Michael HO, can be more effectively stopped. They would look into the possibility of initiating disciplinary action against the medical practitioners who prescribe for their patients psychotropic drugs or other controlled drugs without going through bona fide medical consultation. I am not a medical practitioner and I have no idea which is the ideal way to go about it. I believe that if the Dr the Honourable HUANG Chen-ya has opinions on this issue, he may relay his opinions to the Working Group under the Medical Council.

MR CHOY KAN-PUI (in Cantonese): Mr President, can the Government inform this Council whether the sale of psychotropic drugs to youth by pharmacies is more serious or the sale of psychotropic drugs to youth by medical practitioners constitutes a more serious case? And, which category records a higher prosecution figure?

PRESIDENT: Secretary for Security, if you are prepared to stray into pharmacies.

SECRETARY FOR SECURITY (in Cantonese): Based on the prosecution figures, it is quite obvious that prosecutions against pharmacies outnumber those against medical practitioners because there are a large number of pharmacies in operation. Of course, there are instances where medical practitioners abuse their rights but I believe that medical malpractice involves only a minority of medical practitioners. Most medical practitioners stick to the Professional Code and Conduct.

MR ALBERT HO (in Cantonese): Mr President, the Secretary said in paragraph (a) of his reply that the review to be conducted by the Working Group under the Hong Kong Medical Council would only touch upon the amendments to be made to the Professional Code and Conduct. I believe that some of our colleagues are very concerned with the question of whether it would propose to amend legislation to the effect that the medical practitioners may keep in stock only a limited amount of controlled drugs and in such a way that the medical practitioners must go through certain formalities if he has to provide to the patients this category of drugs. The formalities may include recording information, giving grounds for so doing and substantiating the need by obtaining special advice from psychiatrists or specialists. My main question is: will the Government review or amend the relevant legislation?

SECRETARY FOR SECURITY (in Cantonese): Mr President, as to whether it is necessary to review or amend the legislation if that problem is to be adequately addressed, I believe that we should wait for the proposals to be put forward by the Medical Council regarding this problem. It is because we will have to take a look at whether the Council's proposal is feasible and whether the proposal can have an adequate deterrent effect in plugging the loophole. We would consider the need to review or amend the legislation after that.

PRESIDENT: I have three more names on my list and I will draw a line there.

MR MOK YING-FAN (in Cantonese): Mr President, I would like to ask the Secretary whether the 6 000 test purchases conducted last year were only targeted at doctors' clinics or whether pharmacies were also included?

SECRETARY FOR SECURITY (in Cantonese): The 6 000 test purchases that I have just mentioned only included purchases at doctors' clinics, excluding pharmacies.

DR LEONG CHE-HUNG: Thank you, Mr President. I am grateful to the Secretary for his confidence in the medical profession.

In any case, I wonder if the Secretary can inform this Council, in the last five years, how many black sheep of the medical profession have actually been convicted of drug peddling or drug trafficking by abusing the rights given to them to prescribe drugs for bona fide medical treatment? If there are actually convictions on that basis, as we all know, that doctors can prescribe drugs, what Ordinance was cited? If there were no convictions, whether the Government is going to do anything to make an ordinance or amend ordinances so that doctors can actually be convicted on those charges?

SECRETARY FOR SECURITY: Mr President, I regret to say that I only have figures of cases of conviction involving the years 1992-1995, and in the case of 1995 up to October only. Between 1992 and up to October 1995, we had 12 cases of convictions.

DR LEONG CHE-HUNG: I do not think my question has been answered. Are these convictions for drug peddling or drug trafficking or are they for something else like keeping improper records?

SECRETARY FOR SECURITY: Mr President, they were primarily convictions related to the question of safekeeping of controlled drugs and record keeping.

DR LEONG CHE-HUNG: Mr President, a point of clarification. I do not think my question has been answered.

PRESIDENT: Could you state your question again, Dr LEONG?

DR LEONG CHE-HUNG: The question is, how many doctors or black sheep of the medical profession were actually convicted on drug peddling or drug trafficking in the last five years, through abuse, using their rights?

SECRETARY FOR SECURITY: Under the relevant ordinance, doctors have a right to possess and prescribe dangerous drugs. The question of abuse is not primarily addressed by legal access to the courts, rather it is primarily addressed by the disciplinary actions of the Medical Council.

MR ERIC LI (in Cantonese): Mr Fred LI has just mentioned the so-called "doctor of the pills". I have heard that in some cases a doctor can sell up to 100 000 pills. If each pill is priced at $20, the annual turnover will be to the tune of tens of millions of dollars. That certainly far exceeds the normal income that may be derived from medical consultation. Will the Government look into the territory-wide situation to see whether pills imported through normal channels are increasing unreasonably? If so and if the Government is monitoring the situation, will it consider exercising stricter control over the licensing of the sale of these drugs, or even enlisting assistance from the medical sector for the identification of alternative drugs that may substitute those drugs which may be easily used as psychedelic drugs?

SECRETARY FOR SECURITY (in Cantonese): The Department of Health has been, in addition to undertaking their normal work, keeping an eye on the quantities of drugs imported into the territory in order to investigate whether there are pharmacies which are purchasing extraordinarily large quantities of drugs or whether there are doctors who are purchasing large quantities of drugs from pharmacies. If such cases are detected, the Department of Health will pay special attention to these cases and will then proceed to investigate. As to whether there are other psychotropic drugs which may substitute a certain category of psychotropic drugs, I do not think that I am in a position to answer since I am not a medical practitioner.

Demonstrations

4.MR TSANG KIN-SHING asked (in Cantonese): Mr President, on 28 September this year, a small group of demonstrators held a demonstration at Kai Lok Temporary Housing Area to protest against the Government delay in clearing some Temporary Housing Areas. Another group staged a peaceful demonstration at the Convention and Exhibition Centre on 29䒷eptember protesting against the attendance of guests at the People Republic of China National Day reception. During both demonstrations, the demonstrators were held back unreasonably by the police, resulting in conflicts between the demonstrators and the police. In this connection, will the Government inform this Council:

1. how many members of the police force were mobilized to maintain order on these two occasions; and what were the criteria adopted by the police to deploy its manpower;

2. what legal basis the police have in stopping demonstrators from staging peaceful demonstrations, and whether the police have taken into account the right granted to the public under the Bill of Rights Ordinance when taking such action;

3. whether appropriate internal disciplinary actions will be taken by the authority concerned against the police for using force on the scene against demonstrators staging peaceful demonstrations; and

4. whether the Police Force and the Security Branch will conduct internal reviews on how to avoid using force against demonstrators in the light of the experience gained from these two incidents?

SECRETARY FOR SECURITY (in Cantonese): Mr President, there are four parts in this question and I shall answer them in turn.

1. 59 police officers were deployed on traffic and crowd control duties at Kai Lok Temporary Housing Area on 28 September, with 41 officers stood by in the vicinity on reserve. 63 police officers were deployed to maintain order outside the Hong Kong Convention and Exhibition Centre on 29䒷eptember, and 164 officers stood by in the vicinity on reserve. The number of police officers deployed in crowd control and the maintenance of public order vary according to the nature and location of the event, the size and the mood of the crowds, and the circumstances of each case. The objective is to prevent any possible breach of the peace, to protect property, to ensure the safety of demonstrators, police officers, and other members of the public, while at the same time allow the public to express their views peacefully and freely.

2. The police have a general power under section 6(b) of the Public Order Ordinance to control and direct the conduct of all public gatherings and specify the route by which any public procession may pass. Under section 45 of the Ordinance, any police officer may use such force as may be reasonably necessary to overcome any resistence to the exercise of this and other powers conferred by the Ordinance. The police also have a duty under section 10 of the Police Force Ordinance to take lawful measures for preserving public peace, for regulating processions and assemblies in public places, and for controlling traffic on and removing obstructions from public thoroughfares. These provisions are consistent with Article 17 of the Bill of Rights which recognizes the right of peaceful assembly, while permitting restrictions on the exercise of that right which are in conformity with the law and which are necessary in the interests of, among other things, public safety or public order.

3. The police have so far received two complaints of assault by police officers during the two incidents. Since these two complaints are under investigation, it would be inappropriate for me to comment on them, as to do so could prejudice investigation of the complaints. I should add, in this context, that 10 police officers sustained injuries during these two incidents.

4. It is the normal practice for the police to conduct an internal review after each major operation. The experience of these two incidents will be taken into account in planning future operations.

MR TSANG KIN-SHING (in Cantonese): Mr President, the Secretary has just said that the two cases that I mentioned are under investigation at the moment. Now I want to cite another example. On 25 October this year, we, a group short of 30 people, marched from Mong Kok to the New China News Agency. About five or six policemen accompanied us in the busy districts until our procession reached the Sogo Department Store. However, the police set up iron railings outside the entrance of the New China News Agency. Why did the police not set up iron railings outside the Sogo Department Store? What would we destroy? Is it that no one would be disturbed outside Sogo? I wonder to what extent the power of the police is.

SECRETARY FOR SECURITY(in Cantonese): I do not want to comment directly on the particular incident referred to by the Honourable TSANG Kin-shing because he has not described what happened then when he raises this question. However, I want to point out a normal practice which is that the police have to maintain public order and protect public safety. Their purpose is not to prohibit or make it hard for the public to hold a peaceful assembly and to express their views. The goal of the police is to maintain our people's right to hold peaceful assemblies and enjoy the freedom of speech while at the same time protect others from being disturbed as well as ensure public and traffic safety. Our actions vary every time. In every incident, the police are authorized or they can use their discretion to decide under what circumstance they are to set up road blocks.

MR CHEUNG MAN-KWONG (in Cantonese): Mr President, I want to follow up on Mr TSANG's question about the iron railings. According to past experiences, conflicts are usually set off by the iron railings erected to block the demonstrators when the police are dealing with peaceful demonstrations. And yet, the police have different arrangements when dealing with demonstrations outside Government House and the New China News Agency. Iron railings are seldom set up at the back door of Government House while railing after railing is set up in front of the entrance of the New China News Agency to ward off demonstrators and many a time conflicts are hence triggered. Why do the police adopt a double standard when dealing with the question of iron railings and on what legal ground is this double standard based? Has the New China News Agency requested the police to set up iron railings itself or do the police offer their services and set up iron railings to tarnish the New China News Agency's image of being close to the people of Hong Kong?

PRESIDENT: Mr CHEUNG, you are straying away from the original question.

MR CHEUNG MAN-KWONG (in Cantonese): Mr President, I do not agree with your ruling as I was following up on Mr TSANG Kin-shing's question. You allowed him to ask about the arrangements concerning the iron railings outside the New China News Agency and let the Secretary for Security answer him. So this question of mine is valid. If you did not allow Mr TSANG Kin-shing to raise that question, then this follow-up question of mine could be ruled out.

PRESIDENT: It does not come under any one of the four limbs of the question, except perhaps part (d) which would be the subject of the internal review, if one is conducted by the Police Force.

SECRETARY FOR SECURITY: I will give a general answer to that question, Mr President. Obviously, the measure taken by the police to protect public order and to ensure public safety in each and every demonstration would depend on the situation at the time, the number of people involved, the mood of the crowd and the geographical conditions of the area of assembly. It is ridiculous to suggest that because different arrangements are made for different places of public assembly or protest, therefore there are different measures of protection. It really depends on the circumstances of the case. There are over 1 000 ─ in fact I believe there were 1 700 － public assemblies and processions last year. I would say over 99% of them took place without any problem whatsoever. It is only in very rare cases, when maybe emotions ran high, maybe for other reasons, some of the demonstrators decided to stray beyond what was needed, in the view of the Police Force, to keep public order and public safety.

MR LEUNG YIU-CHUNG (in Cantonese): Mr President, in part (a) of his main reply, the Secretary has said that 164 policemen were deployed on the evening of 29 September. Would the Secretary tell us the pre-estimated turnout of demonstrators on that evening and the number of people who did participate in the demonstration? Moreover, it has been said at the end of part (a) that the objective of the police is to prevent any possible breach of the peace and protect property. In fact, in many of the past processions, it was the police who were paranoid and caused the confusion. They were not just paranoid about the demonstrators but also about reporters as well. Could I ask the Secretary whether there are ways to mitigate such paranoia of the police in future? Also, what is the Secretary's opinion with regard to the real disrupters of public order in the past incidents being neither the demonstrators nor the reporters but the police themselves?

SECRETARY FOR SECURITY (in Cantonese): Mr President, what the Honourable LEUNG Yiu-chung has said sounds like a speech. I cannot quite make out whether he has raised a question or delivered a speech. Nevertheless, I will do my best to answer him.

It is true that there were only 10 to 20 demonstrators outside the Convention and Exhibition Centre that evening but we should not forget that other than the demonstrators, there were tens of reporters, many pedestrians as well as the guests who attended the People's Republic of China National Day reception. They were between 1 000 and 2 000 in number. Moreover, Harbour Road is a two-way street with four lanes in either direction. In such a busy place with people and traffic, such a small number of policemen to maintain the order of the assembly already indicated a considerable measure of restraint. Mr LEUNG has said that there were over 100 policemen but I have already mentioned that the number of policemen deployed to maintain order outside the Centre was in fact smaller than that as some of them were only standing-by in the vicinity and would only enter the scene when the situation got out of hand.

Finally, I absolutely disagree that the police's attitude was to ask for trouble in the past. They have always held the attitude that arrangements should be made to allow Hong Kong people to take full advantage of their rights of peaceful demonstration and expression. Nevertheless, this must be subject to the principle that the police have a statutory duty to protect public safety in the territory and to ensure the safety of lives, property and traffic. I reiterate that, out of the 1 000-odd public processions and demonstrations every year, over 99% of them have taken place without incident. Why is it that at some particular time and under some particular circumstances and when some particular people are involved, conflicts would occur between the police and the people?

MR CHEUNG HON-CHUNG (in Cantonese): Mr President, one of the wonderful things about Hong Kong which should not be destroyed is that her citizens not only have the right to attend the National Day reception but also the right to participate in peaceful demonstrations staged against it. Mr TSANG Kin-shing has said that the clash was caused by the police's unreasonable disruption of the demonstrators' activities, giving us the feeling that the whole incident was provoked by the police. First, I want to ask the Secretary if this is true. Second, against similar processions and demonstrations, what criteria do the police adopt with regard to deployment and what is the size of the detachment involved?

SECRETARY FOR SECURITY (in Cantonese): I have already mentioned in the main reply that the police will conduct an internal review after each major operation and after reviewing this operation they have concluded that on the whole their deployment was appropriate.

MR ANTHONY CHEUNG (in Cantonese): Mr President, in part (a) of his main answer, the Secretary has said that the number of police officers deployed varies according to the nature and location of the event, and the size and mood of the crowds. In the demonstration this year, the police deployed a total of 227 officers. In fact, since 1989, demonstrations have been staged against the National Day celebration every year. What is the number of police officers deployed in the maintenance of public order as against the number of demonstrators each year? When summing up the past demonstrations, have the police learned anything which has proved helpful to their handling of this year's demonstration?

SECRETARY FOR SECURITY (in Cantonese): I have already indicated earlier that the police always conduct a review after each operation to see whether their actions have been appropriate in the hope that future operations will be carried out more properly. Everyone knows that demonstrations have been staged against the National Day reception almost every year in the past with incidents happening in several of them. Of course, we do not wish to see incidents happen. In the vicinity of the location of the reception there are many people. For the protection of the lives and property of these people and ensuring traffic safety, we must deploy sufficient police officers there to prevent any mishaps. Lastly, please allow me to say it once again that only 63 police officers were deployed to maintain order outside the Convention and Exhibition Centre and the other 164 only stood by in the vicinity on reserve. As far as the situation on that day was concerned, there was no need to mobilize these 164 officers.

MR BRUCE LIU (in Cantonese): In part (d) of his main reply, the Secretary has said that the police will conduct an internal review after each major operation. Can the Secretary table the results of the internal reviews of the two operations in question to this Council in due course for discussion by this Council or the Security Panel of this Council? Secondly, can the Secretary table the reports of the internal reviews on the demonstrations staged against the National Day reception every year after the June 4 incident to this Council?

SECRETARY FOR SECURITY (in Cantonese): Mr President, the report of the police's internal reviews are not made public. But if Members of this Council would like to discuss these incidents in detail with the police or the Security Branch, they can of course bring up these topics in the meetings of the Security Panel.

MR FREDERICK FUNG (in Cantonese): Mr President, I want to ask about the incident at Kai Lok Temporary Housing Area on 28 September in which the Secretary has said that 59 police officers were deployed. As compared with the National Day reception, I believe that in terms of the size of the crowds or any other aspects, the Kai Lok incident was on a smaller scale, but the difference in the number of police officers deployed was only four. At the scene that day, there were many people to maintain order, including the security guards of the Housing Department itself and the police officers deployed there. Why should the Governor's inspection tour of a temporary housing area need such a big parade of policemen and security guards? On the other hand, the Governor used to receive petition letters and items handed in by the demonstrators and normally nothing happened afterwards. Did the police advise the Governor not to receive petition items which subsequently led to the clash? After this incident, have the police advised the Governor not to receive the petition items handed in by demonstrators in future?

SECRETARY FOR SECURITY (in Cantonese): Mr President, Mr FUNG's suggestion of what happened at Kai Lok Temporary Housing Area that day is completely incorrect. Outside the Convention and Exhibition Centre, other than the onlookers and the photographers and reporters, there were about 10 to 20 protesters. But at Kai Lok Temporary Housing Area that day, the number of protesters at times reached 400 to 500. Secondly, the police have neither requested nor advised the Governor not to receive any petition letters in future. And the Governor would not do this either.

MR LEE CHEUK-YAN (in Cantonese): Mr President, the Secretary has stressed in his reply that the police are to maintain order. He has also stressed that of all demonstrations in the past, 99% took place without confusion and order was well preserved while clashes only appeared in 1% of them. From past experience, does the Secretary agree that in the 99% well ordered demonstrations fewer policemen were deployed and fewer road blocks were set up while the confusion which arose out of the remaining 1% was simply the result of the setting up of road blocks and the paranoia of the police as described by Mr LEUNG Yiu-chung as too many of them were involved in crowd control? Will the Government conduct a review in this respect and agree that the 99% well ordered demonstrations were the result of the absence of road blocks and the presence of fewer policemen?

PRESIDENT: I am afraid that subject matter will have to be asked separately as a separate question, or set down for debate perhaps.

MR JAMES TO (in Cantonese): Perhaps I should stop talking about the number of policemen. Part (b) of the main question asks whether the police have taken into account the right vested in the public under the Bill of Rights Ordinance when taking actions but the Government's answer mainly refers to Article 17 of the Bill of Rights concerning the right of peaceful assembly. I hope to bring to the attention of the Secretary the judgment made by the United Nations Human Rights Committee in March 1994 regarding a Finn woman's law suit against the Government of Finland. It was ruled that a government must, other than taking note of the right of peaceful assembly as provided in Article 17, take note of the right to freedom of expression as stated in Article 16. The right of expression referred to in the judgment relates to matters such as the number of policemen or the measures they take to block the slogans of the demonstrators from reaching the ears of their target audience or the signs lifted by the demonstrators being so heavily surrounded by the police that others cannot see them, particularly at the very moment of the target audience's entry into the location of the reception. In that case, it is considered that the right of peaceful expression of opinion, that is Article 16 instead of Article 17, is breached. I want to ask whether the Security Branch and the police have referred to these latest international human rights cases, especially cases in the last two years, and taken appropriate measures with regard to respecting the right of peaceful expression of opinion?

SECRETARY FOR SECURITY (in Cantonese): Mr President, as to whether foreign cases are applicable to Hong Kong, as I am not an expert of law, I do not intend to answer. But I just want to point out that the police always hold on to the principle of using the least force with the utmost tolerance in their operation.

MR JAMES TO (in Cantonese): Mr President, I just want to clarify that the judgment was not made by the Government of Finland internally but rather it was made basing on the International Covenant on Human Rights.

SECRETARY FOR SECURITY: Mr President, I do not think that was a question, it was a clarification by the Honourable James TO.

MR JAMES TO (in Cantonese): Mr President, my last question is: will the Government refer to such precedent cases on international human rights rather than other countries' internal precedent cases when considering how the demonstrators' right of expression is to be respected, that is, basing on Article 16 instead of Article 17, because part (b) of the main answer only refers to Article 17.

PRESIDENT: Mr TO, if you insist on that point, I am afraid it will also have to be set down as a separate question. And in fact, it might even be asking for a legal opinion as to whether or not such action conforms with Article 16 of the Bill of Rights, which would be against the Standing Orders.

MR JAMES TO (in Cantonese): Mr President, I was asking whether these precedent cases would be referred to, instead of asking the Secretary whether he considered those cases were correctly decided.

PRESIDENT: It will have to be taken as a separate question.

MR CHENG YIU-TONG (in Cantonese): Mr President, I am one of the guests who have been regularly invited to the National Day receptions. Once, when I was on my way to the reception, I was chased by demonstrators over a few streets and was holed up in Windsor House for half an hour before I finally resorted to calling the police to set me free. I want to ask the Secretary how the Government can ensure the safety of the guests who attend the reception.

SECRETARY FOR SECURITY (in Cantonese): I believe I can only answer that the police will do their best to protect the safety of all citizens, including the guests who attend the National Day reception as well as the onlookers, reporters and even the demonstrators who are present. Everyone can see that although there were some slightly unpleasant incidents and there were demonstrations, yet to my knowledge, none of the guests who attended the reception that evening was chased over a few streets by the demonstrators.

MR LEUNG YIU-CHUNG (in Cantonese): Mr President, when I asked about the number of demonstrators there would be on 29 September as estimated by the police, I was not delivering a speech, but rather I was raising a question which the Secretary for Security failed to answer.

SECRETARY FOR SECURITY (in Cantonese): We did not receive any information about how many people would participate in the demonstration on 29 September. But we could see about 10 to 20 demonstrators when they were marching from O'Brien Road to the Convention and Exhibition Centre at Harbour Road.

MR TSANG KIN-SHING (in Cantonese): Mr President, I want to ask the Secretary when the iron railings in front of the entrance of the New China News Agency will be removed. Will they be there until 1997? Those iron railings are usually the cause of clashes there.

PRESIDENT: That is outside the scope of the question.

Clearance of squatter areas

5.MR CHAN KAM-LAM asked (in Cantonese): Will the Government inform this Council:

1. of the number of squatters in the territory which have yet to be cleared and their location;

2. of the breakdown, by number and location, of public and temporary housing units which the Government has set aside for rehousing squatters who are affected by clearance; and

3. whether, in the event of the number of public and temporary housing units set aside being insufficient to rehouse all affected squatters, the Government will consider deferring the clearance of some squatter areas which do not pose immediate danger, and postponing the target date of clearing all squatter areas before March 1996 as pledged by the Governor in his recent policy address?

SECRETARY FOR HOUSING (in Cantonese): Mr President, in 1992, there were about 33 500 urban squatters living on Government land covered by the Government's undertaking to offer rehousing by March 1996. Of these, 28 000 have already been rehoused. The majority of the remaining 5 500 occupy about 2 000 structures in 13 squatter areas: 11 located on Hong Kong Island and two in Kowloon. Please refer to the information I have just tabled (Annex A). These squatter areas are being cleared, and residents are being offered or will be offered rehousing shortly.

In 1995-96, the Housing Department has set aside a quota of 1 200 public rental housing units and 2 400 temporary housing accommodation places for all urban squatter clearees. For a breakdown of this provision, please refer to the information tabled (Annex B). The accommodation set aside will be sufficient to meet the rehousing needs of the remaining 5 500 urban squatters on Government land.

Annex A
Clearances of Urban Squatters on Government Land

LocationDistrictSquatter PopulationTelegraph Bay (#)Southern District633Tai Tam Tuk VillageSouthern District156Tai TamSouthern District82Tung Ah Pui VillageSouthern District111Lan Lai WanSouthern District46To Tei WanSouthern District84Ngan Hang WanSouthern District116Tai Wan Sun ChuenSouthern District649Upper Kai Lung WanSouthern District283Wong Chuk Hang Old VillageSouthern District97St Stephen's Beach VillageSouthern District39Ma Pui VillageKwun Tong620Che Tang Village (#)Kwun Tong834 Total3 750(*)(#) Date of clearance will be announced shortly.

(*) The balance of 1 750 people out of the 5 500 referred to in the main answer are living in squatter areas on urban Government land throughout the territory.

Annex B
Urban Public Rental Housing and Temporary Housing Accommodation
available for Residents Affected by Urban Squatter Clearances
for the period 1 April 1995 to 31 March 1996

(a)Public Rental Houisng

District	New flats	Refurbished flats	Estates
Hong Kong Island Eastern	480	also available	Yiu Tung, Chai Wan, Fung Wah, Hing Man, Hing Wah, North Point, Siu Sai Wan, Tsui Wan, Wan Tsui, Yue Wan
Central & Western	0	ditto	Sai Wan
Southern	40	ditto	Ap Lei Chau, Lei Tung, Ma Hang, Shek Pei Wan , Wah Fu 1, Wah Fu 2, Wong Chuk Hang, Wah Kwai
Kowloon Kowloon City	0	ditto	Hung Hom, Homantin, Ma Tau Wai, Oi Man, Valley Road
Kwun Tong	20	ditto	Ko Yee, Choi Ha, Hing Tin, Kwong Tin, Kai Yip, Lam Tin, Lok Wah North, Lok Wah South, Ngau Tau Kok 1, Ngau Tau Kok 2, Ping Shek, Shun Lee, Sau Mau Ping 1, Sau Mau Ping 2, Sau Mau Ping 3, Shun On, Shun Tin, Tsui Ping North, Tsui Ping South, Tak Tin, Upper, Ngau Tau Kok, Wo Lok
Sham Shui Po	0	ditto	Chak On, Cheung Sha Wan, Lai On, Lei Cheng Uk, Lai Kok, Nam Cheong, Nam Shan, Pak Tin, Shek Kip Mei, So Uk, Tai Hang Tung, Un Chau Street
Wong Tai Sin	260	ditto	Choi Fai, Lok Fu, Tung Tau 1, Choi Hung, Choi Wan 1, Choi Wan 2, Chuk Yuen South, Chuk Yuen North, Fu Shan, Fung Tak, Mei Tung, Shatin Pass, Tsz Ching, Tsz Lok, Tsz Man, Tung Tau 2, Upper Wong Tai Sin, Wang Tau Hom, Wong Tai Sin 1, Wong Tai Sin 2
Total	800	400(*)

(*)These flats are in various estates and are reserved for residents affected by urban squatter clearances.

(b) Temporary Housing Accomodation

District	Number of spaces (persons)	Temporary Housing Area)
Sham Shui Po	1 850	Fat Tseung Street Lung Ping Road Yen Chow Street
Kwun Tong	500	Kai Lok Kai Wo Kai Yiu
Wong Tai Sin	50	Yuen Tung
Total	2 400(#)

(#) The actual location of THA places for urban squatter clearees will be adjusted regularly in the light of operational requirements.

MR CHAN KAM-LAM (in Cantonese): Mr President, as far as I know, according to the government policy, there will be local rehousing for the squatters during the clearance of squatter areas. At present, it is calculated that there should be 300 to 400 squatters in Kwun Tong District. However, the Housing Department has only set aside 20 newly-built housing units for them. Should the Government increase the number of newly-built housing units for the squatters? Would it be a better arrangement?

SECRETARY FOR HOUSING (in Cantonese): Mr President, during the clearance of squatter areas by the Government, there is no undertaking that the squatters will definitely be rehoused locally. As a matter of fact, we will try our best to make things convenient for all the clearees. But this does not mean that the Government has formally undertaken to rehouse the squatters locally. The information provided in the Annex is actually about the urban housing units. We reckon that in terms of transport facilities or living conditions, these locations are rather convenient for those squatters.

MISS CHAN YUEN-HAN (in Cantonese): Mr President, the Government has now given an undertaking to finalize the entire package of clearance arrangements for the squatter areas concerned by March 1996. However, it is less than five months from October to March next year. I hope that Mr President can relay my enquiry to the government officials concerned. Faced with the clearance of the 13 squatter areas, what arrangements will the Government make during these five months?

SECRETARY FOR HOUSING (in Cantonese): In respect to the remaining 13 squatter areas on Government land, we, in fact, sent the clearance notice to the residents of 11 squatter areas very long time ago. The Government will try all means to persuade these squatters and explain to them the rehousing arrangement, that is, the public housing units and the temporary housing accommodation places arranged for them. We hope that we can, as far as possible, persuade these squatters to move out in the coming five months. Generally speaking, we have already cleared many squatter areas in the past and we have not encountered any substantial difficulties during the clearance. We hope that this time we can still make the best use of the same approach in persuading these squatter clearees to accept the government arrangement of moving to public housing units as soon as possible.

MR IP KWOK-HIM (in Cantonese): Mr President, in the course of clearing the squatter areas, has the Government encountered any opposition from the squatter clearees, and have they asked to postpone the clearance? If so, can the Government inform us how it would consider whether to accept the request of the clearees?

SECRETARY FOR HOUSING (in Cantonese): Mr President, it is a matter of course that during the clearance process in the past, we encountered initial opposition from the squatter clearees. But as I said earlier, the staff of the Housing Department will try their best to carry out door-to-door canvassing. According to past experience, generally there will not be any substantial difficulty. Sometimes, this will surely delay our action. But after a certain period of time, the squatter clearees will accept our arrangement. In the next five months, we will still adopt the same approach of persuasion. We will explain to the clearees that we have already set aside some public housing units for them and hope that they will accept. It is our hope that, during this period of time, we can do our best to deal with the clearance matters according to the spirit of the undertaking that the Government has given.

MR YUM SIN-LING (in Cantonese): Mr President, only the information on urban squatter areas is provided in the Annex. Does the Secretary for Housing have any information on the squatter areas in the New Territories? Besides, will there be even more complicated problems in the New Territories due to the closeness of some squatter structures to the small houses of the indigenous residents?

SECRETARY FOR HOUSING (in Cantonese): Mr President, in regard to the squatter structures in the New Territories, according to the data that we can obtain, there are about 220 000 squatters. The relevant government policy does not specify any clearance operation to be carried out against the structures of these 220 000 squatters. But that does not necessarily mean that the Government will leave them alone if these people have not applied to be included in the General Waiting List. Here I would encourage them to submit their formal applications as soon as possible. I believe that in a few years time, they can be formally allocated public housing units. In regard to whether the living condition of the indigenous residents in the vicinity will be affected, I think that this situation does not exist. It is because so far we do not have any specific policy to clear these squatter areas.

MR CHEUNG HON-CHUNG (in Cantonese): Mr President, it is usual that the squatters will ask for local rehousing. The Secretary for Housing also answered part of the question a moment ago. Can the Secretary reconsider the squatters' request for local rehousing? We can see that in Southern District, more than 2 000 squatters have to be rehoused while there are only 40 housing units. Can the Secretary consider setting aside more housing units in that district so that all the squatters can be rehoused?

SECRETARY FOR HOUSING (in Cantonese): Mr President, as I mentioned earlier, local rehousing is not a policy. However, when we formally rehouse these squatters, we will definitely set aside some housing units for them in different districts in the course of housing allocation. There is a batch of squatters in Southern District at present for whom we will reserve some housing units in Hong Kong Island, for example, Eastern District as well as Central and Western District. Generally speaking, we find that these units are not really inappropriate nor is transport too inconvenient. We, therefore, cannot always provide local rehousing for the squatters. But we will try our best to find some convenient locations for the squatters. The figures in the Annex only refer to the number of housing units set aside at the present moment. When it comes to housing allocation, there will surely be some changes later on. Nevertheless, if circumstances allow, we will consider the situation on a case-by-case basis. Yet this cannot be regarded as a rule of thumb.

MR CHOY KAN-PUI (in Cantonese): Mr President, can the Government inform this Council whether, in the event of all the urban squatter areas being cleared and all the urban squatters being rehoused by March 1996, those on the General Waiting List will be affected? If so, what kind of and how many people will be affected?

SECRETARY FOR HOUSING (in Cantonese): Mr President, in view of the Government's undertaking in this respect, we have already conducted an assessment on the allocation of housing units and set aside some units for the squatters. Therefore, the units set aside at the present moment will not affect those people on the General Waiting List. Their applications will still be processed according to the general procedures and they will still have to wait for the allocation of housing units in the normal course of time.

MR FREDERICK FUNG (in Cantonese): I would like to ask about the temporary housing accommodation referred to in item (b) of Annex B attached to the main reply. According to the information announced by the Government and the Housing Authority, 13 Temporary Housing Areas (THAs) will be left uncleared. But by 1997, there will be a review of the possibility of scrapping the Temporary Housing Policy. According to the existing Temporary Housing Policy, when temporary housing is being cleared, the residents of the old units will be rehoused in public housing locally while the residents of the new units will be rehoused in the extended urban areas. At present, the Secretary for Housing is allocating accommodation in three urban THAs to 2 400 people. Does it mean that the Government foresees that in two years time, there will be enough public housing units in these three areas to be allocated to them, or the Government expects that these THAs will still exist after two years?

PRESIDENT: I do not quite catch your question, Mr FUNG.

MR FREDERICK FUNG (in Cantonese): Mr President, my question is that, according to the information contained in item (b) of Annex B, 2 400 people will be allocated accommodation in three urban THAs. And the existing Temporary Housing Policy is that when temporary housing is being cleared, the residents of the old units can be allocated public housing units locally. Recently, the Government proposed that it would review whether to continue to adopt the Temporary Housing Policy. Can I ask the Secretary for Housing, firstly, whether he has already set aside sufficient public housing units for 2 400 people in these three areas? If so, can he state specifically the housing estates concerned? If not, does the Secretary expect that the Temporary Housing Policy will still in place after 1997?

PRESIDENT: It is a bit complicated because you are talking about 2 400 temporary housing units to take care of the squatters, and then subsequently you have to rehouse them into rental flats. You can attempt to answer the question, Secretary for Housing.

SECRETARY FOR HOUSING (in Cantonese): Mr President, the 2 400 temporary housing units that I mentioned in the main reply are in fact set aside for some urban squatters. We can rehouse them in these units when necessary. Earlier on, I also mentioned that after 1997 we would indeed need to reserve a small number of THAs, namely, the 13 THAs, for future use when we could provide some accommodation places for people in need where necessary. In regard to these units which can accommodate 2 400 people, it is of course understandable that they will be there after 1997. But before the squatters move in, we will renovate these units so that they will be more comfortable for people to live in. Besides, if we decide that these three THAs have to be cleared in the future, we will naturally arrange rehousing for those in need after 1997 according to the distribution of urban public housing units then.

MR FRED LI (in Cantonese): Among the 13 squatter areas which have to be cleared by March 1996, two of them are located in Lei Yue Mun Village of Kwun Tong. And one of those which have been declared for clearance is Ma Pui Village. The living environment of Ma Pui Village is quite good. It nestles at the foot of hills and faces the sea. And there are a lot of stone houses in the area. With the environment even better than that of the public housing estates, it is not surprising that most of the villagers are against the clearance. Worse still, the Government does not have any development plan for Ma Pui Village. May the Government consider shelving the clearance plan in respect of this kind of "super de lusxe" squatter areas?

SECRETARY FOR HOUSING (in Cantonese): As I mentioned earlier when responding to Members' enquiries, in the course of clearing the squatter areas, the approach of the Government is to be as mild and low-key as possible, that is, to persuade the squatter clearees and hope that they can accept the public housing units set aside for them by the Government. We will continue to use this approach of persuasion and hope that the residents of Ma Pui Village will accept the rehousing arrangement eventually. Of course, it is our hope that they will move out according to our plan in the near future.

Supplementary Labour Scheme

6.MR JAMES TIEN asked: Under the Supplementary Labour Scheme, employers must advertise their vacancies in newspapers for a specific period of time and participate in a job-matching scheme to prove that local workers are not available before they can apply for a quota to import workers. In this connection, will the Government inform this Council:

1. whether the application procedures will be simplified and the processing time shortened, so that factory operators may be granted quotas for importing foreign workers as soon as possible to avoid business losses in cases where the contracts of their existing foreign workers have expired and recruitment of replacement staff has been unsuccessful; and

2. whether the Government, in deciding to terminate the General Importation of Labour Scheme and formulating the Supplementary Labour Scheme, has considered or assessed what adverse effects such a change will have on the industrial and commercial developments in the territory?

SECRETARY FOR EDUCATION AND MANPOWER (in Cantonese): Mr President,

1. The objective of the proposed Supplementary Labour Scheme (SLS) is to allow for the entry of a limited number of imported workers to fill vacancies that cannot be filled locally. The proposed procedures under the Scheme are designed to safeguard the employment opportunities of local workers and to ensure that employers who have a genuine need to import workers are able to do so.

   In the proposals set out in the report on the Review of the General Labour Importation Scheme, employers wishing to import workers are required first to advertise their vacancies in local newspapers for two weeks and undergo a four-week recruitment exercise. After that, they will be required to participate in the Job Matching Programme (JMP) of the Labour Department for two months before their applications are processed further. The Employees Retraining Board will be involved, where appropriate, to organize tailor-made courses or to arrange on-the-job training for local workers.

   Since the issue of the report on the Review of the General Scheme, we have consulted the Labour Advisory Board (LAB) and are continuing our discussions with Members of this Council. We are also listening to public views. At its meeting on 2 November 1995, the LAB agreed in principle to monitor the SLS. It also recommended some changes to streamline the application procedures and shorten the duration of the recruitment period from three months to two months. This is achieved by allowing the employer to conduct the recruitment exercise concurrently with the Labour Department's JMP. The LAB also recommended that special cases which have already gone through the advertisement and JMP process may be given special consideration for early approval if so recommended by LAB. These are reasonable recommendations which Government will consider positively.

2. Our proposal to terminate the General Labour Importation Scheme and to introduce the SLS followed a comprehensive review of the General Scheme. The review took into account the results of the enhanced surveys which had been undertaken to provide more information on the profile of those who were unemployed and on the job vacancies. It also took into account the community's concern on the matter and the views expressed by Members of this Council, the trade unions and the employers' associations.

   We do not believe that the termination of the General Scheme coupled with the introduction of the proposed SLS would have any adverse effect on industrial and commercial developments. The General Scheme was introduced in 1989 against the background of a very tight labour market and acute labour shortage. However, the labour market has undergone substantial changes in recent months. We now have a surplus of local workers in those broad occupations which cover jobs of a similar nature to many of the posts now occupied by the imported workers under the General Scheme. But we recognize that there may be areas of labour shortage or surplus of vacancies at the individual job level which cannot be ascertained through any statistical surveys. Also, there may be vacancies that our more sophisticated workforce no longer want to fill. The proposed Supplementary Labour Scheme seeks to retain the policy option of employing a limited number of foreign workers to take up jobs which cannot be filled by local workers, so as to maintain the competitiveness of Hong Kong as an open and flexible economy. As such, it should have a positive impact on the business development of Hong Kong, while ensuring that local workers will not be deprived of any job opportunities.

MR JAMES TIEN (in Cantonese): Mr President, in recent months, a lot of applications by companies for imported labour were frozen. Naturally, in the circumstances, we would do our best to encourage those companies to recruit local workers in the first place. After a month or so, some managed to recruit workers, some did not. We told those companies unable to recruit the workers they needed that they could wait till January next year to resubmit applications under the new SLS. In the process, it would take two weeks to advertise the vacancies, one month to complete recruitment work, and then two months to completed participation in the JMP of the Labour Department. Now, my query is about the part of the main reply which says that employers need to completed the above process before their applications are processed further."

Would the Government inform us whether it has reached any agreement with Members from the labour sector; or, in other words, has there been any Government-labour collusion in which some under-the-table deals have been completed to the effect that labour refrains from submitting the proposal for a "once-and-for-all" termination of labour importation? What I want to follow up on is just the phrase "before their applications are processed further."

Would the Government inform us whether it could provide information to us as to the timetable of the entire application process? Would it take one week to one to two months or even one to two years to complete such an application?

SECRETARY FOR EDUCATION AND MANPOWER (in Cantonese): Mr President, perhaps I should first of all advise the Honourable James TIEN that I hope employers who are unable to recruit workers consequent upon the termination of the General Labour Importation Scheme will continue to advertise their vacancies in local newspapers. I hope these employers will participate in the JMP of the Labour Department. We would be extremely pleased to recommend suitable candidates we know of to such employers.

There is one point I want to explain. The main reason for implementing the up-coming SLS is the fundamental spirit in furtherance of which the Government considers the importation of labour only when it is certain that a vacancy cannot be filled by a local worker.

Let us now turn to the practicalities mentioned by Mr TIEN. Quoting from my answer, he pointed out that "..... before their applications are processed further" employers need to participate in the JMP of the Labour Department for two months. The point is the length of time needed in further processing these applications.

First of all, let me explain the meaning of "processed further". The phrase is there because we do not want at that stage to guarantee approval for applications for labour importation. We need to know, in the two-month recruitment process, what has taken place, how many applicants have there been, what the job application results are, what the interview results are, and why applicants have not been offered jobs with the company.

So, we must be extremely careful in processing each application. Nevertheless, we expect to be able to tell employers within a month whether their applications are accepted. I therefore want to repeat here that the time needed should be within a month.

MR HOWARD YOUNG (in Cantonese): Mr President, other than the time needed to process applications, what bothers most employers who have to fill job vacancies with imported labour is the problem with quotas, for quotas are "unpredictable" or "unstable". When they make their applications, employers cannot tell whether their applications would be approved. If they knew their applications would not be granted, they would not bother to apply.

Will the Government inform us how quotas are allocated? Would it put in some efforts to enable employers to predict their chances of success in their applications so that they may save time? Are standards against which quotas are set the same as those in the previous scheme? Or are new standards for quotas being used under the new scheme? I hope the Government can make public this information as soon as possible.

SECRETARY FOR EDUCATION AND MANPOWER (in Cantonese): Mr President, I think perhaps the Honourable Howard YOUNG can read again carefully our Review Report. In fact, the SLS proposed this time is markedly different from the existing General Labour Importation Scheme. The major difference lies in the arrangement that in the present "SLS" every application will be dealt with individually. And I must emphasize that each and every application will be so dealt with. As such, it would be rather impossible for the Government to tell applicants before they make their applications what chances of success they have. Indeed, we very much hope the proposed scheme can enable local employers to recruit locally the staff they need and at the same time participate in the JMP of the Labour Department. Their participation would enable us to choose matching candidates for employers to interview and hence to recruit someone suitable.

After the above two stages and if the need should arise, and after we have consulted the Employees Retraining Board, no suitable retraining scheme or on-the-job training can be arranged, we would consider further the application for imported labour.

However, where application time is concerned, I do not think the proposed SLS is any more complicated or drawn-out than the General Labour Importation Scheme. Employers who have applied for imported labour under the General Labour Importation Scheme would know that as a first step in their application they had to go to the Labour Department to register for three months rather than two months. Before that, there was a period of six weeks for open application, at the expiry of which applications would be centralized for processing according to the nature of the trades or professions concerned. Past experience tells us that it took at least six months to go through the process, starting from the submission of application and ending at quota approval (but excluding the time required for imported labour to reach Hong Kong). So, in fact, as regards time, the SLS actually takes a shorter time than the General Labour Importation Scheme; but we are stricter in processing application under the SLS.

PRESIDENT: This is the last question for the day. I have five names on my list and I shall draw a line there as we have to move on.

MR CHAN WING-CHAN (in Cantonese): Mr President, would the Government inform us whether it would disclose, for the purposes of enhancing our understanding about labour importation, of monitoring the same and of curbing black-market labour, the names of companies applying for labour importation on contract; if not, why not?

SECRETARY FOR EDUCATION AND MANPOWER (in Cantonese): Mr President, at this stage, we are discussing with the labour sector, the business community, and Legislature Council Members details of the entire SLS. The question of whether the list of applicants or employers should be disclosed was in fact mentioned in my main reply; that is, the question was discussed at the LAB meeting on 2 November. The LAB consented to the idea that the list of employers or their names, addresses and so on should not be disclosed at the time of application. However, it indicated at the same time that it would request the Labour Department to furnish relevant information as and when it is of the view that problems have arisen in a certain case. Maybe, we can consider letting LAB Members have, in confidence, I stress, in confidence, more detailed information of the employer in question.

However, I must emphasize that these are only the ideas of the LAB. The Administration will make a decision only when it has taken all ideas into consideration.

MR LEE CHEUK-YAN (in Cantonese): Mr President, in his reply, the Secretary for Education and Manpower indicated that employers need to participate in the JMP of the Labour Department for two months for staff recruitment before their applications for labour importation are processed further. I think the procedures are apparently extremely rigorously, but in practice, Mr James TIEN can use this to suit his purpose by "advancing along an unknown path". According to past experience, there were almost 500 000 applications submitted by employers. So we would ask this question: With 100 000 employers registering in the JMP, how could Labour Department staff possibly handle the vast number of employers? How could the staff possibly examine each and every interview under each application to find out whether employers have made things difficult for local workers, or intentionally refuse local workers to pave the way for labour importation? How could manpower of the Labour Department cope with the 100 000 applications? We think it is an impossible job. Do you agree, Secretary?

PRESIDENT: I am afraid, Mr LEE, you are not supposed to ask the Secretary for an opinion. So perhaps you may wish to rephrase your question, for example, to say: How is the Government proposing to implement such a policy?

MR LEE CHEUK-YAN (in Cantonese): How is the Labour Department going to redeploy its existing manpower in order to handle the 100 000 applications to ensure that no employers can use the scheme to make things difficult for local workers with the aim of importing labour?

SECRETARY FOR EDUCATION AND MANPOWER (in Cantonese): Mr President, the Honourable LEE Cheuk-yan mentioned the figure of 100 000 three times but this does not mean that that is a truth. We would have to wait and see how many applications there would be in future. In addition, I think the scheme is indeed extremely rigorous. If employers do not have the real need, I do not think they would spend the time to go through the process of documentation, recruitment and registration.

I would like to explain the procedure a bit. During the time an employer participates in our recruitment work, that is, prior to the two-month long registration with the JMP, we would request the employer to submit a preliminary application, upon which the employer would have to furnish information such as job type, amount of wages, limitations on age and sex, and any extraordinary requirements and so on. In the two-week long preliminary application period, we very much hope to eliminate those applications which are unrealistic, fail to meet our requirements or lack good faith. Afterwards, we would then buckle down to processing applications by employers with a real need and the willingness to undergo what we call a three-step scrutiny.

I very much thank Mr LEE for showing concern over our manpower situation. We may have the need for more manpower in future, but basically, we will carefully consider every application. I wish to stress once more that I am reluctant to guess how many applications we would be receiving.

MR LEE CHEUK-YAN (in Cantonese): I mentioned the figure of 100 000 because there were 100 000 applications in the past. I was not just making guesses, as there were indeed 100 000 applications.

Thank you, Mr President.

MR HENRY TANG (in Cantonese): Mr President, in his reply, the Secretary for Education and Manpower indicated that the SLS would have a positive impact on the business development of Hong Kong, and in the Governor's policy address, it was said that the SLS would start on 1 January 1996. However, recent reports from the newspapers intimated that the Secretary was considering delaying the starting date for six months. Could the Secretary inform me whether he would start the Scheme on 1 January 1996 as set out in the policy address? Or would he delay the Scheme?

SECRETARY FOR EDUCATION AND MANPOWER (in Cantonese): Mr President, I do not know whether I should respond directly to conjectures from the relevant newspapers. But since the Honourable Henry TANG mentioned that there had been newspaper reports that the Government intended to delay the Scheme for six months, perhaps I should talk about the matter here. With regard to reports in the relevant newspapers, I have issued a clarification notice pointing out that the Government has never considered delaying the SLS for six months.

I want to stress that up to now the SLS remains a proposal. The Government's stance is of course positive and flexible. We aim at putting into effect the proposal on 1 January. With this aim in mind, we will conduct discussions with various sectors in the community.

MISS CHAN YUEN-HAN (in Cantonese): Mr President, the Government in its reply to this Council a moment ago mentioned that in principle it consented to the LAB supervising and monitoring the implementation of the SLS. Will the Government inform this Council whether in addition to supervising the SLS it intends to include existing imported labour for the new airport and other imported labour within the scope of supervision by the LAB; if not, why not?

PRESIDENT: It strays away from the original question, but you may, if you are prepared, to answer it, Secretary for Education and Manpower.

SECRETARY FOR EDUCATION AND MANPOWER (in Cantonese): Mr President, I must explain that the Importation of Labour Scheme for Airport Core Projects (ILS for ACP) is a special scheme designed to ensure the airport can be completed as scheduled. There is a set of sound procedures for the ILS for ACP, including supervision by officers from the Labour Department and the establishment of a Special Placement Team for Airport Core Projects. So, we do not think the present SLS should be looked at side by side with the ILS for ACP.

MR JAMES TIEN (in Cantonese): Mr President, there is a quota of 25 000 for the existing labour importation scheme, and there are 100 000 applications. The Government has enough officers to scrutinize these applications. I think there would not be as many applicants when the quota shrinks to 5 000. Now, under the SLS, applications are checked against very rigorous standards. These standards include requirements for employers to pay median wages, provide accommodation and, say, arrange for transport from China. Employers also need to advertise vacancies for two weeks, go through a four-week recruitment exercise and participate in the JMP of the Labour Department, which lasts for two months. With such rigorous requirements, is it still necessary to retain the 5 000 quota? What I mean is: a business needs to spend a lot of time and money in applying. The application process, if started now, will last till April or May next year. As a result, the 4 999th applicant may be given part of the quota applied for while the 5 001st applicant may not? Would the Government just say "sorry" to the 5 001st applicant? Or would it act otherwise, for example, would it provide compensation, in monetary terms?

SECRETARY FOR EDUCATION AND MANPOWER (in Cantonese): Mr President, in setting the upper limit of 5 000, we have in fact taken a lot of factors into consideration. In the past year, the labour market was considerably less tight in practical terms compared with the previous year (for example, end of 1994). We have a similar comparison against 1989, the year in which the General Importation of Labour Scheme was launched. In an in-depth survey we conducted, it was actually shown, and I also categorically pointed out in my main reply, that workers in some job categories are in fact found to be suitable candidates for some jobs taken up by workers imported under the labour importation scheme. The upper limit of 5 000 is one we have set after taking a lot of factors into consideration. Let me stress this is just an upper limit. We will consider applications on the merits of each case. At present, from the public opinions we have received, from opinions we read in newspapers and from results of independent surveys, we have a feeling that the Scheme, including the upper limit of 5 000, is generally acceptable. Hence, up to now, the Government has not considered altering the upper limit of 5 000.

MR JAMES TIEN (in Cantonese): If every applicant meets the requirements, the 4 999th one can of course be given part of the quota applied for. But would the Government be prepared to compensate the 5 000th applicant or those later applicants not given any of the quota applied for?

SECRETARY FOR EDUCATION AND MANPOWER (in Cantonese): I believe in future when the SLS is implemented and there are more than 5 000 qualified applicants, the Government will surely consider opinions, if any, put forward by the LAB. The question is that we very much hope to implement the SLS. We must set down details for it. I need to stress that it would not be helpful to make predictions before the Scheme is launched, including predictions that we would be receiving 100 000 applications, and there would be 5 001 qualified applicants against an upper limit of 5 000, and so on.

WRITTEN ANSWERS TO QUESTIONS
Financial Assistance for Flood Victims

7.MR CHEUNG HON-CHUNG asked (in Chinese): Residents of northern and north-western New Territories are constantly plagued by the problem of flooding, which always occurs at times of torrential downpour. Such flooding causes destruction to residential homes and crops, resulting in financial losses to residents and farmers. In this connection, will the Government inform this Council:

1. whether the Government provides any financial assistance to affected farmer households after each flooding; if so, through what channels can they obtain assistance and what is the amount of financial assistance given to each household; and

2. whether there are any special arrangements and measures to assist residents affected by flooding in resolving their housing problem?

SECRETARY FOR HEALTH AND WELFARE: Mr President,

1. For full-time subsistence farmers adversely affected by natural disasters such as floods, grants are made available from the Emergency Relief Fund to alleviate any consequential financial hardship. These grants are given to assist farmers to repair the damage and resume production. They are made in accordance with a payment schedule which is revised from time to time to reflect increases in prices and wages. Currently, an eligible farmer can be provided with a grant of up to $4,680 for the rehabilitation of a farm and a grant of up to $9,110 for rebuilding a stock house or farm building destroyed or severely damaged by flooding. In addition, a farmer may apply for a low-interest agricultural loan of up to $50,000 as working or development capital for resuming farm production.

   In the event of a natural disaster, the district offices of the Home Affairs Department co-ordinate the emergency relief work of various government departments at district level and publicize emergency relief arrangements including the availability of grants from the Emergency Relief Fund. Victims are fully briefed by district office staff on site and at temporary shelters on the various forms of emergency assistance available and advised on where and how to apply. Applications received by the district offices are promptly referred to the relevant government departments for processing.

2. The Government also provides temporary shelter for residents affected by flooding. For immediate relief, registered victims of flooding in need of assistance will be provided with accommodation in temporary shelters or transit centres. People normally return to their own accommodation after flooding subsides. Where squatter structures have been rendered permanently uninhabitable, the Housing Department will arrange for the occupants to be rehoused in permanent rental housing or in temporary housing accommodation according to their eligibility.

Basic Law-Related Legislation

8.MR TSANG KIN-SHING asked (in Chinese): The Preliminary Working Committee Legal Sub-group recently proposed that the Standing Committee of the National People Congress should repeal six amendment ordinances which have been enacted so as to bring the principal ordinances in line with the Bill of Rights or the Basic Law. In this connection, will the Government inform this Council:

1. whether the Government, in formulating the relevant amending legislation, has taken into account Article 8 of the Basic Law and the principle of the Sino-British Joint Declaration which states that the existing laws will remain basically unchanged;

2. how it will ensure that the laws safeguarding human rights and the freedom of the Hong Kong people can straddle 1997; and

3. what measures will be put in place to safeguard human rights and the freedom of the people of Hong Kong in the light of the Chinese and British Governments having different interpretation of the status of the Bill of Rights?

SECRETARY FOR HOME AFFAIRS: Mr President,

1. The amendments in question were made to ensure that the laws were consistent with the Bill of Rights Ordinance (BORO) and hence were consistent with the provisions of the International Covenant on Civil and Political Rights (ICCPR) as applied to Hong Kong. Both the Joint Declaration and the Basic Law stipulate that the provisions of the ICCPR as applied to Hong謭ong shall remain in force and Article 39 of the Basic Law provides that restrictions on the rights and freedoms enjoyed by Hong謭ong residents shall not contravene the ICCPR as applied to Hong謭ong. Amendments to laws to ensure consistency with the ICCPR are therefore consistent with both the Joint Declaration and the Basic Law.

   Another equally important purpose was to modernize the relevant laws by updating obsolete provisions and removing anomalies. As in the case of other societies, we update our laws to take into account changing circumstances and developing jurisprudence. This is not in conflict with the Joint Declaration which provides that the laws currently in force in Hong Kong will remain basically unchanged.

2. The Joint Declaration specifically provides that the provisions of the ICCPR as applied to Hong Kong shall remain in force. Article 39 of the Basic Law also provides that provisions of the ICCPR as applied to Hong Kong shall be implemented through the laws of Hong Kong. Accordingly, those laws safeguarding the human rights and freedom of Hong Kong people, which are compatible with the provisions of the ICCPR, shall remain in霡orce.

3. The continued application of the ICCPR and the International Covenant on Economic, Social and Cultural Rights are provided for in the Joint Declaration and the Basic Law. Our position on the BORO is clear. The matter was taken up at the meeting of the Joint Liaison Group last week and we will continue to pursue this with the Chinese side through formal channels.

Electricity Demand and Generating Capacity

9.MISS CHRISTINE LOH asked: Under the scheme of control agreements, the profit levels of the territory electric utilities are directly linked to building more power stations and electricity generating hardware. The utilities have pointed out that building new power stations and generating hardware is justified as the trends in present demand levels point to future shortfalls in generating capacity. In this connection, will the Administration provide this Council with a graphic breakdown of the 1994 electricity consumption patterns, both in total and by economic sector (industrial, commercial and domestic) in one-hour intervals, so that the public can see how electricity demand correlates with generating capacity?

SECRETARY FOR ECONOMIC SERVICES: The Hongkong Electric Company Limited and the China Light and Power Company Limited have provided the attached graphical breakdowns of the electricity consumption patterns in their respective supply areas in 1994. The information is presented by each company in the form of 12 graphs indicating the pattern of electricity consumption on one day in each month of the year.

The companies are unable to provide electricity consumption patterns by economic sector in one-hour intervals as they have not recorded data in that manner. I have asked the companies to consider how hourly power consumption patterns can be classified by economic sectors, to collect the data and to provide me with the results of their studies for presentation to Members in due course.

Control of Asbestos

10. DR JOHN TSE asked (in Chinese): Regarding the use and removal of asbestos, will the Government inform this Council whether:

1. the Government will conduct a comprehensive inspection of the asbestos used in all existing buildings in the territory to ensure that the health of the public will not be threatened by structures containing asbestos materials; if so, whether the findings of the inspection will be made known to the public; and

2. the Government will introduce asbestos substitution technique to the industrial sector, so as to restrict the use of asbestos gradually or ban its use completely?

SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS: Mr President,

1. As asbestos materials only become an environmental concern when they are improperly handled by people without the requisite knowledge and experience, it is not necessary to conduct a comprehensive inspection on asbestos used in existing buildings. The Administration's plan is to introduce a comprehensive scheme in 1996 to control environmental asbestos and require by law personnel involved in handling asbestos to be properly trained and registered. The scheme will also require certain classes of buildings such as hospitals and schools to inspect their buildings, to label any asbestos materials identified and to submit proper plans for the handling of such materials to the Environmental Protection Department.

2. With regard to the use of asbestos in the industrial sector, under the Factory and Industrial Undertakings (Asbestos) Special Regulations, the use of blue and brown asbestos and the spraying of white asbestos by all industrial undertakings have been banned since 1986. Amendments to these regulations to ban the use of any asbestos as an insulation material are under preparation. In early 1996, we propose to ban the import and sale of blue and brown asbestos, which are now rarely used, and to impose further controls on the use of less harmful white asbestos through regulations and a code of practice. Asbestos substitutes are readily available and are already being used widely to replace asbestos materials.

Pregnant Illegal Immigrants

11.MR WONG WAI-YIN asked (in Chinese): Will the Government inform this Council:

1. of the breakdown by sex of the number of illegal immigrants arrested over the past three years; among the arrested female illegals, how many were pregnant women;

2. whether there are signs that the number of pregnant women arrested is on the rise; if so, what the reasons are; and

3. what measures can be taken to stop illegal immigrants, particularly pregnant women, from sneaking into the territory?

SECRETARY FOR SECURITY: Mr President,

1. The number of illegal immigrants arrested over the past three years was:

   	Total	Male	Female
   1993	37 517	28 138	9 379
   1994	31 521	22 065	9 456
   1995	19 804	12 873	6 931
   (Jan-Sept)

   
   
   We do not have separate statistics on pregnant illegal immigrants who were arrested and repatriated immediately, but the number of pregnant illegal immigrants who surrendered to the Immigration Department or resurfaced at hospitals for confinement was:

   1993	2 014
   1994	2 019
   1995 (Jan to Sept)	1 939

2. The above statistics show that the number of pregnant illegal immigrants in the past two years has remained steady at around 2 000 yearly. In the first nine months of 1995, there was an increase of 45%, compared with the corresponding period in 1994. The possibility of acquiring residence earlier in Hong Kong for their babies, or the availability of better medical facilities in Hong Kong could be some of the considerations which promote illegal immigrant mothers to give birth in Hong Kong. The stricter control now exercised by the Chinese authorities in granting Two-Way Permits to pregnant women may also have contributed to the increase in pregnant women who seek to enter Hong Kong illegally.

3. To prevent illegal immigrants, particularly pregnant women, from sneaking into Hong Kong, we have stepped up checks and patrols at the border areas. But the most effective solution is to tackle the problem at source. We have coveyed our concerned about this problem to the Chinese authorites through various channels. We have also requested the Chinese side to tighten the issue of permits to the border area to pregnant women, and urged them to step up enforcement along the coasted areas near Hogn Kong. We understand that the Chinese authorities have indeed stepped up their enforcement efforts, and have successfully intercepted 400 pregnant women from coming to Hong Kong illegally in the first eight months of this year. They have also stopped issuing border permits to pregnant women.

Diesel-to-petrol Scheme

12. MISS CHRISTINE LOH asked: Recently the Government has proposed a diesel-to-petrol scheme to encourage taxi and public light bus operators to switch from diesel to petrol as soon as possible. The cost figures used for designing the conversion scheme for the taxis and public light buses, which were derived from data collected by the Government and information provided by operators, were not based on real-life figures as there are no petrol public light buses and probably only a few, if any, petrol taxis, operating in the territory. In view of this, will the Government inform this Council whether it has any contingency plan in the event that the Government estimated cost figures turn out to be inaccurate, resulting in the livelihood of taxi and public light bus operators being adversely affected during the five-year conversion period of the scheme?

SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS: Mr President, the cost figures used for designing the conversion scheme for taxis and public light buses are based largely on figures for existing vehicles and these costs are well-known to the Transport Department and the trade, that is, costs for purchase, registration and licensing, and for fuel, maintenance and drivers' wages. Only a small proportion of the costs (maintenance costs for petrol taxis and public light buses) are currently unknown, but we have estimated these using overseas information and local data for the hundreds of thousands of petrol private cars already used in Hong Kong. We therefore believe that we have arrived at realistic estimates of these costs. However, if experience shows that our estimates are materially inaccurate, we will be prepared to reconsider our estimates and, if necessary, consider whether any additional changes to the scheme may be necessary to meet the object that the operators are not worse off economically as a result of the switch.

Student Health Service 13.MR DAVID CHU asked: In regard to the Student Health Service, will the Administration inform this Council of :

1. the measures taken to ensure that the 200 newly recruited physicians can provide thorough medical check-up for the entire student population;

2. the measure taken to enable out-patient clinics in the territory to cope with the increase in caseload as a result of the cancellation of the old student health scheme; and

3. the assistance provided to those families who are unable to meet the increase in medical fees under the new Service?

SECRETARY FOR HEALTH AND WELFARE: Mr President,

1. A total of 138 staff, comprising 13 doctors, 55 nurses and 70 other supporting staff has been assigned to the Student Health Service, which commenced in September this year for 451 000 primary school students. Another 104 staff will be assigned to the second phase of the Student Health Service for secondary school students in September 1996. Each participating student will be given an annual appointment for a comprehensive health programme designed according to the health needs of the student at various stages of his development. This includes health assessment, individual counselling and health education. Those found to have problems will be referred to the Special Assessment Centre for further assessment and follow-up or to the appropriate specialties for further management. The appointments can also be changed if necessary. The Service will be closely monitored. After three months* operation, the Department of Health will carry out an interim review to see what improvements, if any, are needed.

2. Based on the General Household Survey conducted by the Census and Statistics Department, we estimated that the General Out-patient (GOP) Clinics caseload would be increased by about 3% only. As such, it should not pose any problem for the GOP Clinics. In any event, administrative arrangements are already in place to ensure smooth operation, such as additional discs might be distributed to the students and so on. The Department of Health will closely monitor the utilisation of general out-patient service and make appropriate adjustment whenever necessary in the light of actual experience.

3. The General Out-patient Service provided by the Department of Health is heavily subsidized. The consultation fee, which includes medication, is $34. In addition, families on the Comprehensive Social Security Assistance Scheme will have the consultation fee waived.

Passive Smoking Legislation

14.DR HUANG CHEN-YA asked (in Chinese): In view of the harmful effect on health caused by passive smoking, will the Government inform this Council whether:

1. it knows of the number of restaurants which have not set aside no-smoking areas; and

2. it will introduce legislation requiring restaurants to set aside no-smoking areas in order to safeguard the health of non-smokers?

SECRETARY FOR HEALTH AND WELFARE: Mr President,

1. According to a survey in January-February 1995, 384 (6%) of the 6 558 licensed restaurants in the territory had set aside a no-smoking area and 6 174 (94%) had not.

2. There is concern among restaurant operators that a requirement to set aside no-smoking areas would result in a loss of business. Given that enforcement would rest with restaurant operators and would be ineffective without their support, we consider that the decision on whether to set aside no-smoking areas should best be left to them to determine. We therefore have no immediate plans to introduce legislation to require restaurants to set aside no-smoking areas, although we will continue to monitor the situation to determine whether it might be appropriate to do so in future.

Gross Domestic Product Growth Forecast

15.MR ANDREW CHENG asked (in Chinese): In the Medium Range Forecast (MRF) of the 1995-1996 Budget, the assumption on the annual Gross Domestic Product (GDP) growth for 1994-95 to 1998-99 has been set at 5% in real terms. However, the Governor stated recently in his policy address that Hong Kong economic mood was less buoyant than the fundamentals justified. In this regard, will the Government inform this Council whether it will revise downwards the estimated GDP figures in the MRF of the Budget; if so, why revisions are needed and what the extent of such revisions will be; if not, what the Government will do to ensure that our GDP can continue to grow annually by 5% in 1995-96 and 1996-97?

SECRETARY FOR FINANCIAL SERVICES: Mr President, the Government's current Medium Range Forecast regarding the trend growth rate in real terms of the GDP over the four financial years up to the year 1998-99 remains at 5% per annum.

Although the recent performance of the Hong Kong economy was not as good as in the past few years, in overall terms the economy still recorded a growth rate in excess of 5% in the first half of this year. The slack consumer spending has retarded overall economic performance. On the other hand, it is noteworthy that exports of both goods and services have continued to show robust growth. The current investment sentiment is also firm. We forecast the GDP to grow by 5% this year.

Looking ahead into the medium term, the external environment supporting Hong Kong export performance can be expected to be sustained, along with continuing trade liberalization globally, dynamic growth in the Asia-Pacific region, as well as strong economic development in China. As exports have all along been providing the key impetus to Hong Kong overall economic growth and income increase, this favourable external setting should be able to underpin a trend GDP growth rate of 5%, which is also within the productive capacity of the economy to cope.

In the short term, it is not unusual for the economy to be faced with certain fluctuations. The medium-term GDP forecast abstracts from these fluctuations and focuses on the trend, in view of its usage primarily for budgetary planning purposes. However, being in itself a forecast rather than an economic growth target, and bearing in mind that the Hong Kong economy is driven predominantly by the private sector rather than by government directives or actions, it is beyond the Government powers to guarantee or ensure that this particular growth rate will be achieved in all circumstances. Nor is it appropriate to expect that the Government should even attempt to do so. An assessment of the medium-term economic outlook nevertheless suggests that this forecast is a reasonable and prudent one.

Expenditure on Medical and Dental Services for Civil Servants

16.DR LEONG CHE-HUNG asked: In regard to the provision of medical and dental services for civil servants and their dependants, will the Administration provide this Council with the annual breakdown in respect of the following areas in the past five years:

1. all overall expenditure on medical services, and the average cost per case;

2. the overall expenditure on dental services, and the average cost per case; and

3. the percentage of civil servants, and the actual number, using publicly funded medical and dental services respectively?

SECRETARY FOR THE CIVIL SERVICE: Mr President, like most good employers in Hong Kong, the Government has contracted to provide medical and dental benefits to its employees. This is also available for pensioners and dependants. The Government has chosen to do so through the Department of Health, in respect of general out-patient and dental facilities, and through the Hospital Authority in respect of hospitalization and specialist out-patient facilities. The government dental facilities deal primarily with civil servants, as do the families clinics: there is a limited priority system for Department of Health general out-patient clinics. In respect of hospitalization and specialist clinics, civil servants receive no different medical treatment from any other members of the public ─ who are all entitled to the same medical assistance ─ but civil servants get this service at a reduced or nil fee.

We do not have expenditure statistics in respect of civil servants and their dependants alone because pensioners are also covered. The following reply to parts (a) and (b) of the question is thus in respect of civil servants, pensioners, and their eligible dependants. Further, apart from the dental service, it is not possible to give statistics on the actual number of civil servants using medical services, since one individual may seek treatment several times in one year. So the reply to part (c) is necessarily limited.

Expenditure under Head 37 on out-patient medical services for civil servants, pensioners, and their eligible dependants in the past five years is:

	91-92	92-93	93-94	94-95	95-96
total expenditure ($M)	80.4	87.9	99.8	119.7	136.2
average expenditure ($)	79	85	95	112	126

Expenditure under Head 37 on dental services for civil servants, pensioners, and their eligible dependants in the past five years is:

	91-92	92-93	93-94	94-95	95-96
total expenditure($M)	146.1	167.3	192.6	221.7	236.1
average expenditure($)	309	355	408	450	469

The figures in respect of the financial year 95-96 are those approved in the Annual Estimates. Salary revision effective from 1 April 1995 has not been taken into account.

The cost of in-patient service and specialist service provided by the Hospital Authority for civil servants, pensioners, and their eligible dependants is the same as that for members of the public. This amounts to an average of $4,808 per private ward bed-day, $2,770 per public ward bed-day, and $372 per attendance at specialist out-patient department in the financial year 94-95. According to figures provided by the Hospital Authority, the overall expenditure on civil servants, pensioners and eligible dependants in 94-95 was some $1 billion. We do not have readily available information on the amount expended in the years preceding 94-95.

In 1993 and 1994 some 150 060 and 150 052 civil servants and pensioners respectively used publicly funded dental services. These represented respectively 67% and 66% of the total number who were eligible. A breakdown of numbers using the service before 1993 is not available.

Trading Fund Operation

17. MR LEE KAI-MING asked (in Chinese): Regarding the establishment of trading funds to finance the operation of some government departments, will the Government inform this Council:

1. which departments have already been operating on a trading fund basis;

2. whether there are any changes in the staffing structure and number of posts in such departments; if so, what are the changes; and

3. which departments will likely change to a trading fund mode of operation?

SECRETARY FOR THE TREASURY: Mr President,

1. At present, there are five trading fund departments, namely:

   Companies Registry;

   Land Registry;

   Sewage Services;

   Office of the Telecommunications Authority; and

   Post Office.

2. There have been no major changes in the management structure of the trading funds. A small number of directorate posts have been created to strengthen the business and financial management capability of these departments.

   The total number of posts in each trading fund on the date of its establishment, and on 30䒷eptember*1995, are as follows:

   Trading Fund	Date of Establishment	No. of Posts on Establishment*	No. of Posts as at 30.9.95	% Increase
   Companies Registry	1.8.93	335(3)	384 (2)	14.6
   Land Registry	1.8.93	614 (2)	780 (5)	27.0
   Sewage Services	1.4.95	783	819	4.6
   Office of the Telecommunications Authority	1.6.95	243	256	5.3
   Post Office	1.8.95	5 584	5 602	0.3

   
   
   * Figures in brackets refer to supernumerary posts.

   The relatively large increase in the establishment for the Land Registry Trading Fund is mainly to provide staff to cope with the introduction of a new service, namely, computeriazation of New Territories Land Registers.

3. We are currently considering whether to convert part of the Electrical and Mechanical Services Department into a trading fund operation.

HKSAR Passport

18. MISS EMILY LAU asked (in Chinese): As recent reports about the Hong Kong Special Administrative Region passport have aroused public concern over the future freedom to enter or leave the territory, will the Government inform this Council:

1. of the number of people who have submitted applications for naturalization as British Dependent Territories Citizens in the past three years;

2. whether there has been a noticeable increase in the number of such applications recently; if so, what the reasons are; and;

3. whether any channel for appeal will be provided for applicants who miss the deadline for application in March next year?

SECRETARY FOR SECURITY: Mr President,

1. The number of applications for naturalization/registration as British Dependent Territories citizens in the past three years are as follows:

   Year	No. of applications
   1992	5 207
   1993	17 391
   1994	17 803
   1995	19 834
   (Jan-Sept)

2. The number of applications for naturalization/registration as BDTCs in the first three quarters of 1995 are as follows:

   		Increase/decrease
   Month In 1995	No.of applications	over same period in 1994
   1st Quarter	4 150	-52%
   2nd Quarter	6 050	+77%
   3rd Quarter	9 634	+31%
   		---------
   		19 834
   		======

   The figure of 19 834 represents a 29% increase over the corresponding period (January - September) in 1994.

   We do not maintain statistics on the reasons for application, as applications for naturalization and registration as Hong Kong BDTCs are entirely voluntary. It is possible that the increase might be related to the deadline of 31 March 1996 for naturalization/registration.

3. Section 42 of the British Nationality Act 1981 as amended by the Hong Kong (British Nationality) (Amendment) Order 1993 stipulates:

   "A person who applies for registration or naturalisation as a British Dependent Territories citizen under any provision of this Act by virtue (wholly or partly) of his having a connection with Hong Kong, may not be naturalised or registered, as the case may be, unless he makes his application on or before 31 March 1996."

   There is no provision under the Act to accept applications after 31 March 1996. Nor is there any provision under the Act for appeals by late applicants.

Industrial Estate Occupancy

19. DR HUANG CHEN-YA asked (in Chinese): Will the Government inform this Council:

1. of the nature of business of the companies which have moved out of the industrial estates in the past three years, together with their reasons for moving out; and

2. how many companies have made enquiries about moving into the industrial estates in the past three years; what are the differences in the nature of business between those which eventually moved in and those which did not, and what are the reasons for the latter group not moving in?

SECRETARY FOR TRADE AND INDUSTRY: Mr President, the five companies which have vacated their premises in the industrial estates in the past three years were involved in the production of metal products, chemicals and gases, electronics parts and video tapes. They ceased operation because their business was no longer profitable due to changing market conditions.

During the same period, 32 companies seriously inquired or applied for tenancies in the industrial estates. Of these, 24 companies succeeded in their applications and were granted land in the industrial estates. They were involved in a wide variety of products, including building materials, printing and publishing, plastics, pharmaceutical products, food and beverages, and paper products. On the other hand, of the remaining eight companies, two decided not to proceed with application for undisclosed reasons; two applications were rejected for failing selection criteria; and four were approved but did not subsequently materialise for failing to secure financing for their projects. They were involved in building materials, chemicals, paper products, clothing, electroplating, and office consumer products.

Convention on the Elimination of All Forms of Discrimination Against Women

20.MISS EMILY LAU asked (in Chinese): At the hearing of the United Nations (UN) Human Rights Committee held in Geneva this October, members of the Committee queried why the Convention on the Elimination of All forms of Discrimination Against Women had not been extended to Hong Kong. In response, the leader of the British delegation indicated that the British Government was contemplating the withdrawal of certain reservations in the Convention, but tht the Hong Kong Government preferred the cinclusion of those reservations in the Convention upon its extension to the territory. In this regard, will the Government inform this Council:

1. how long has it started discussions with the British Government on the matter;

2. whether any problems have occured in the course of the discussions, if so, what those problems are;

3. when the two sides will reach a conclusion on the matter; and

4. whether it will accept the UN Human Rights Committee's recommendationt ht the Convention should be extended to the territory without any reservations?

SECRETARY FOR HOME AFFAIRS: Mr President,

1. In June 1994, the Hong Kong Government announced its decision to seek extension of the Convention on the Elimination of Discrimination Against Women (CEDAW) to Hong Kong, subject to consultation with the Chinese side. In January 1995, a list of draft reservations that should be extended to Hong Kong were drawn up and passed on to the United Kingdom Government for discussion.

2. Discussions with the United Kingdom Government had to be held in abeyance since the United Kingdom Government has started a review on their own list of reservations under CEDAW.

3. In September this year, the United Kingdom Government informed us of its intention to withdraw some, but not all, of its current reservations in respect of CEDAW. We are considering the impact of the withdrawal of such reservations on Hong Kong to see if it is necessary to revise the list of reservations that should be extended to Hong Kong. Thereafter, we will seek to agree with the United Kingdom Government on the list of reservations. Our target is to complete the discussions with the United Kingdom Government as soon as possible, preferably before the end of this year. Once an agreement has been reached, we shall consult the Chinese Government through the Joint Liaison Group.

4. The United Nations Human Rights Committee published a report on 3 November 1995 following its examination in October of the United Kingdom Government's report on Hong Kong under the International Covenant on Civil and Political Rights. No recommendation was made by the Committee on CEDAW.

BILLS
First Reading of Bills
MEDICAL REGISTRATION (AMENDMENT) (NO. 2) BILL 1995
NON-LOCAL HIGHER AND PROFESSIONAL EDUCATION (REGULATION) BILL

Bills read the First time and ordered to be set down for Second Reading pursuant to Standing Order 41(3).

Second Reading of Bills
MEDICAL REGISTRATION (AMENDMENT) (NO. 2) BILL 1995

THE SECRETARY FOR HEALTH AND WELFARE to move the Second Reading of: "A Bill to amend the Medical Registration Ordinance."

She said (in Cantonese): Mr President, I move that the Medical Registration (Amendment) (No. 2) Bill 1995 be read the Second time.

On 7 June earlier this year, I introduced the Medical Registration (Amendment) Bill into this Council. However, in view of the large amount of legislative business to be conducted at the end of the 1994-95 Legislative Session, the Bills Committee decided that it would restrict its scrutiny of the Bill to those provisions relating to the introduction of a universal licensing examination and to practitioners-in-charge of exempted clinics. The remaining provisions have now been included in this Bill. This Bill proposes four major areas of changes necessary because of changes in circumstances over time.

The first proposed change concerns the composition of the Medical Council, which at present comprises 14 members appointed by the Governor. Since 1978 the number of registered medical practitioners has grown from some 3 000 to over 8 000, the number of complaints has increased from 27 to 170 and the number of formal disciplinary hearings has increased from four to 29. The Council needs to be expanded to broaden its representation and to meet this increasing workload. The Bill proposes a new Council of 24 members, with expanded representation from, inter alia, the University of Hong Kong, the Chinese University of Hong Kong, Hong Kong Medical Association and the lay sectors. These 24 members shall include 12 elected members ─ six to be elected from all registered medical practitioners on the General Register and the rest to be elected by all members of the Hong Kong Medical Association. The introduction of directly elected members in the Medical Council is in line with the Government's policy of encouraging greater involvement of the profession in its own affairs.

The introduction of a Specialist Register is our second proposed change. We have at present a register of medical practitioners. However, the community has no means of knowing which of those practitioners may be qualified to practise in a certain medical specialty. A Specialist Register is proposed to be established to allow for the formal registration and control of medical specialists. A General Register will take the place of the existing register.

The existing Ordinance provides for the establishment of a Licentiate Committee and a Preliminary Investigation Committee. We propose to enshrine in the law various other important aspects of the Council's work through the establishment of three other statutory committees. They are the Health Committee, the Education and Accreditation Committee and the Ethics Committee.

Our last proposed change concerns disciplinary proceedings. We propose that the Medical Council and its Health Committee should be empowered to prohibit the disclosure of information relating to an inquiry by the Council or a hearing by the Health Committee, if it is in the interests of the complainant, defendant or witness. In addition, we propose that, for the protection of the public, the Medical Council should also be empowered to order its disciplinary order to take effect on publication in the Gazette.

Question on the motion on the Second Reading of the Bill proposed.

Debate on the motion adjourned and Bill referred to the House Committee pursuant to Standing Order 42(3A).

NON-LOCAL HIGHER AND PROFESSIONAL EDUCATION (REGULATION) BILL

THE SECRETARY FOR EDUCATION AND MANPOWER to move the Second Reading of: "A Bill to provide for the regulation of courses of higher and professional education leading to the award of non-local qualifications conducted in Hong Kong and matters connected therewith."

He said (in Cantonese): Mr President, I move that the Non-local Higher and Professional Education (Regulation) Bill be read a Second time.

Over the past 10 years, an increasing number of non-local institutions of higher education and professional bodies have delivered their courses in Hong Kong. They have done so either in collaboration with local tertiary institutions or through their local agents or representative offices. At present, it is estimated that there are some 120 non-local institutions advertising and conducting about 74 collaborative courses and close to 300 independent ones in Hong Kong.

The non-local courses conducted locally offer students opportunities to acquire diverse non-local higher academic or professional qualifications without having to leave the territory. However, we recognize the need to protect local consumers against potential substandard courses. We must also uphold the international reputation of Hong Kong as a community that attaches great importance to the standards of the higher academic and professional qualifications of its workforce.

We do not seek to impose Hong Kong's standards of education upon non-local courses leading to non-local awards. But we do seek to ensure that the academic standards which non-local institutions purport to achieve and have been recognized in their home countries, are actually achieved, maintained and recognized when delivered in Hong Kong.

The Bill will establish a legislative framework within which the Registrar, who shall be the Director of Education, will operate a system of registration to regulate the quality, operation and marketing of non-local higher and professional courses conducted in Hong Kong. The conditions of registration will ensure that only those non-local institutions of higher education and professional bodies which are recognized by the accreditation authorities and the academic communities in their home countries are allowed to conduct courses in Hong Kong. Moreover, the standards of their home courses are to be maintained at levels comparable to those achieved in their home countries. This comparability in standard must be recognized by the institutions and professional bodies themselves as well as the accreditation authorities and the academic communities in their home countries. Where necessary, the Registrar will seek the professional advice of the Hong Kong Council for Academic Accreditation.

The Registrar will exempt a course from registration if the executive head of a local tertiary institution or approved post-secondary college will certify that it is conducted in collaboration with that institution and that it meets the conditions required of a registered course.

Our objective is to regulate non-local courses actually being conducted within the territory of Hong Kong. However, certain distance learning courses are delivered to local students solely through mail, telecommunications or sale of materials in commercial outlets without any operator being physically present in Hong Kong. In the wider public interests of protecting people's freedom of access to information and self-expression, we will not require such purely distance learning courses to be registered. We will, however, welcome any voluntary application for registration from the operators of these courses. As voluntarily registered courses, their non-local operators would be required to meet the same criteria we set for the regulated courses.

The reliable dissemination of information will ensure that members of the public can make informed choices in the selection of non-local courses they wish to follow in Hong Kong. Operators of registered or exempt non-local courses will be required to make regular report on the course offered in Hong Kong. These reports will be made available to the public, as indeed, will be a copy of the annually updated Register.

We will not permit any person to advertise any regulated course, for the purpose of recruiting students, that has not been registered or exempted. It will be an offence for any person to issue a false or misleading advertisement about any regulated course. In order to achieve wider consumer protection, the control over false or misleading advertisements will also apply to purely distance learning courses.

The Bill, once enacted, will put in place an effective quality assurance mechanism for courses conducted in Hong Kong which lead to the award of non-local higher academic or professional qualifications.

Thank you, Mr President

Question on the motion on the Second Reading of the Bill proposed.

Debate on the motion adjourned and Bill referred to the House Committee pursuant to Standing Order 42(3A).

MEMBER'S MOTIONS
INTERPRETATION AND GENERAL CLAUSES ORDINANCE

DR HUANG CHEN-YA to move the following motion:

"That in relation to the Leveraged Foreign Exchange Trading (Calls) Rules, published as Legal Notice No. 370 of 1995 and laid on the table of the Legislative Council on 11 October 1995, the period referred to in section 34(2) of the Interpretation and General Clauses Ordinance for amending subsidiary legislation be extended under section 34(4) of that Ordinance until 15 November 1995."

DR HUANG CHEN-YA: Mr President, I move the motion standing in my name on the Order Paper. The Leveraged Foreign Exchange Trading (Calls) Rules are made by the Securities and Futures Commission to allow banks and other financial institutions authorized under the Banking Ordinance (Cap. 155) to make unsolicited calls on potential clients for the purpose of soliciting leveraged foreign exchange trading business, provided that such calls comply with the Guidelines issued by the Hong Kong Monetary Authority.

Members of the Subcommittee formed to study the Rules have identified some issues which will require further considerations. To allow time for the Subcommittee to consider these points in depth and to seek further clarification from the Administration, it is necessary to extend the time allowed for making an amendment to the subsidiary legislation until 15 November 1995.

Mr President, I beg to move.

Question on the motion proposed, put and agreed to.

PRESIDENT: I have accepted the recommendations of the House Committee as to the time limits on speeches for the motion debates and Members were informed by circular on 6 November. The movers of the motions will have 15 minutes for their speeches including their replies and another five minutes to speak on the proposed amendments. Other Members, including movers of the amendments, will have seven minutes for their speeches. Under Standing Order 27A, I am required to direct any Member speaking in excess of the specified time to discontinue his speech.

REDUCTION OF TAXES

MR JAMES TIEN to move the following motion:

"That, in view of the current unfavourable economic and business conditions which Hong Kong is facing and the large reserve the Hong Kong Government has, this Council urges the Government to seriously consider lowering the corporate profits tax and salaries tax immediately in order to stimulate the economy and create more employment."

MR JAMES TIEN: Mr President, the Honourable Allen LEE's succeeding motion will diagnose our economic ills. I in mine will try to prescribe the right medicine. Our twin moves are prompted by the Liberal Party's deep concern that our Government is not taking the maladies seriously enough and is doing nothing about them.

I have noticed how senior officials have been avoiding one word ─"stagnation" ─ to describe our ailing economy. I know why. If the Government were to face the reality that the economy is not well, then it has to provide treatment. The treatment can only come out of the Government's medicine cabinet marked: "the reserves".

Two days ago, Government Economists revised, downward of course, their forecast for our annual Gross Domestic Product growth to 4.8%. They then immediately consoled us that western countries envied our GDP performances because theirs were flat. Even the 4.8% average growth is very misleading. The detailed breakdown shows that re-export growth, which affects our livelihood very little, is 15%, but domestic export growth, which affects us greatly, is only 3.3%, while retail sector growth is only 1.4%.

I was frankly awestruck by the Government's easy going attitude. Why suddenly do we no longer compare ourselves with other Asian communities ─Singapore, Taiwan, Korea, Thailand and Malaysia? Why have we dropped our expectations so much that we contrast ourselves with Britain, Spain, France and Canada? I would like to remind our Government that we are in a competition with our regional rivals, the annual GDP growths of which are 7% to 10%, and not with the European Union.

We have to have high growth because our population is used to steady improvements to its quality of life. I am afraid that if we start to think like the western societies, with their abundance of social welfare programs and high taxes, we would become like them and so fall further behind our neighbours. No one then will be keen to work and invest. Make no mistake about it: Ours is a modern Asian economy. We would like to keep it that way.

Mr President, the Administration collects the taxes and saves the surplus for a troubled time ─ a time such as this. The popular saying is "save for a rainy day". Even if there is no downpour yet today, it is drizzling and the storm clouds are approaching. For a decade our budget has been consistently in the black and we have amassed $408 billion in foreign exchange funds and another $150 billion in reserves, making this tiny place the fifth richest in the world. We are all very proud of that and I compliment the Financial Secretary, although he is not here, and all his predecessors for getting us there.

However, other governments far less well endowed than ours do not hesitate to stimulate their economies with short-term tax breaks and rebates. And I emphasize the word "short-term". They do this because any treasury can benefit from a resurgent GDP. How? When the economy is bad, company profits shrink. Some firms go out of business and dismiss workers. People spend less and many earn less. Land auctions bring back poor returns. In such a scenario, the so-called downward spiral, government revenue would fall. Just to give everyone here some facts about our economy, let me point out that in the first six months of this year all our listed companies are reporting an average annual return of 8% in profit. For the previous five years, by comparison, these companies enjoyed 18% profit per annum.

Mr President, I think the present condition justifies prompt government action. The Liberal Party now formally asks that the Financial Secretary to cut corporate and personal tax rates by 1.5 % to stimulate the economy. There is sure to be a cost to the Treasury, but the impact of a revitalized private sector will definitely be positive.

The Exchange Fund earns about $18 billion a year from the government reserves of $150 billion it manages. In the 1994-1995 fiscal year, some 40% of total government revenue was derived from those two forms of taxes which I am today asking to be reduced. The amount brought in for that year was around $70 billion. A corresponding cut of 1.5% across the board would cost the treasury around $7 billion.

What the Government is basically requested to do is not to drain the reserve but to slow down its expansion. We are fully in support of our Government having a healthy, robust reserve. But do we need an excessive reserve at the expense of a slowdown of the private sector? Even after the Administration has adopted our suggestion, it should have money left over from the earnings' bonanza to offset "losses" from the fee and charges freeze which this Council is also seeking.

Far from being a gift to the rich, the tax break is beneficial to everyone. The cutting of the salaries tax rate to 13.5% is sure to help those who pay out couple of thousands of dollars to Inland Revenue and exempt more of those earning around the $79,000 taxable income threshold.

The Government has been resisting any meaningful tax adjustments partly on the excuse that it has to pass bountiful reserves to the Special Administrative Region. The claim that the Administration's hands are tied on this is much exaggerated. The British had earlier told the Chinese that the Hong Kong Government could bequeath no more than $5 billion to the SAR. After better than two years of wrangling, both sides agreed in 1991 that the reserves for the SAR should be no less than $25 billion ─ which, Mr President, is a sixth of the $150 billion that we have amassed so far. If $150 billion is not enough as a hedge, why then did this Government impress on the Chinese that first $5 billion, then $25 billion, would suffice?

Mr President, recently Hong Kong has suffered from a serious image problem. The Fortune Magazine, which four months ago predicted our doom, has pushed our ranking down from the top spot to sixth place as the city best suited for business. The impression of a Hong Kong unnerved by the change of sovereignty in 20 months, even without our economic woes today, is daunting enough. Our Government is obliged to change this negative perception of Hong Kong not just with one more promotion tour but with direct, effective, simple fiscal measures. A significant tax cut will show foreign investors that our Government is confident, that our Government is in control, and can feel the economic pulse as well as act with speed.

With lower taxes, companies here will be more inclined to hire extra staff, expand their business, thus driving up profit and reducing joblessness. With lower taxes, consumers will feel more assured and spend more.

The Government objects, saying tax slashing may be inflationary. But so is growth, so is salary increase, so is spending and so is investment. Inflation has been with Hong Kong as long as I can recall and the Government has not done anything about it.

The Government has also on recent occasions dismissed calls for tax cuts and fee freezes as cries for "free lunch". I find that kind of reaction most illogical. How? Our Government itself last year trimmed corporate tax by 1%. Until recently our Government has not applied the "full users pay" principle to levies. Many subsidies went on. If that is the case, has this Government been for "free lunch" for all these years? Certainly not.

The Administration must admit that our economy is sliding and the brakes must be applied. Our Government does not always shy away from fiscal measures to deal with the economy. In spring of last year, the Administration intervened in the property market. The consequence has been a 30% drop in property prices. If something could be done effectively for home buyers, could something not be done now to stimulate the economy and create more job opportunities? Give us the tax cuts to spur on business and assist our people. An excellent ─ and accountable ─ government is one that accepts the facts, and acts accordingly.

Mr President, I beg to move.

Question on the motion proposed.

PRESIDENT: Mr CHAN Kam-lam and Dr LAW Cheung-kwok have given notice to move amendments to this motion. As Members were informed by circular on 6 November, under Standing Order 25(4), I shall ask Mr CHAN Kam-lam to speak first, to be followed by Dr LAW Cheung-kwok; but no amendments are to be moved at this stage. Members may then debate the main motion as well as the two amendments listed on the Order Paper.

MR CHAN KAM-LAM (in Cantonese): Mr President, at present the economy of Hong Kong features low economic growth, high inflation, high unemployment rate and a widening gap between the rich and the poor. One of the reasons is the restructuring of the economy. Other than this reason, today's adversities are also attributed to the fact that the Hong Kong Government has been resolutely holding on to the fiscal philosophy of "positive non-intervention", that it has neglected to invest in the training of skilled personnel and that it has failed to upgrade production technology. Now the Hong Kong Government should indeed face the problem squarely to find the solution in earnest.

Changing the fiscal philosophy

The Hong Kong Government has adopted the fiscal philosophy of "positive non-intervention" since the 1970s with the vigorous encouragement of the then Financial Secretary, Sir Charles Philip HADDON-CAVE. The philosophy holds that demand and supply in the market will adjust the economy naturally. The end of 1980s and the early 1990s saw a series of stock and financial crises as well as low economic growths, high inflation and high unemployment. These manifestly pointed to the need for the Government to change its fiscal philosophy. Yet, the former Financial Secretary, Sir Hamish MACLEOD, and the incumbent, Mr Donald TSANG, have clung to an ossified attitude, seeking to maintain the status quo by declining to introduce changes and refusing to abandon the sacred law of "positive non-intervention". Consequently, a huge fiscal surplus has been built up but the Government appears at a loss as to how to deal with the economic slowdown and the high unemployment rate.

The economic growth of Hong Kong has dropped from 6.5% in 1992 to a mere 4.8% this quarter whereas the unemployment rate has gone up drastically from 2% to 3.2%. In the final analysis, this is, on the one hand, due to the serious mistakes that the Hong Kong Government has made in respect of training. Not only has the employment of workers been thus affected, the momentum of economic growth in Hong Kong has also been impaired. As a result, the production technology in the territory gradually lags behind the other "little dragons" in Asia and the competitive edge of Hong Kong in the international market is undermined. On the other hand, the Government put undue reliance on the service sector when the economic restructuring took shape, hoping that the unemployed workers released from the manufacturing industry could switch to the service sector simply through the introduction of retraining programmes. The Government, however, lost sight of the fact that in times of economic slowdown, the service sector would also be subject to a downturn and would, therefore, be incapable of absorbing the unemployed workers from the manufacturing industry.

Making good use of the fiscal surplus

Now the Hong Kong Government has amassed a huge fiscal surplus of close to $150 billion. While we, legislative councillors, are not jealous of the Government, my view is that under the circumstance the Government definitely has the capability and the responsibility to siphon off, in an appropriate manner, part of the fiscal reserve into the tax system and welfare provision in an effort to attain equality in society and alleviate the financial burden borne by the low income earners so that the standard of living of the people will not be lowered following a slowdown in the economy. This is the fiscal philosophy that a responsible government should adopt.

All along, the Government has not defined the so-called "healthy fiscal reserve" in clear terms. Yet, the Financial Secretary, Mr Donald TSANG, said last year when he assumed office that Hong Kong should, at least, maintain a fiscal reserve capable of sustaining the recurrent expenditure for one year. Now if we use this as the premise and base our calculation on the $124 billion recurrent expenditure for the fiscal year 1995-96, the accumulated reserve of the Government at present, not to mention the money in and flowing to the Land Fund, is clearly in excess of what is needed.

I believe that colleagues in this Council would agree that the existing huge fiscal reserve of the Government, which is generated from society, should be spent on society. Yet, the most important element for us to take into consideration is how we can properly use it to alleviate the financial burden of the general public in a real sense without giving rise to social chaos.

Reduction in profits tax means gilding the lily

I consider the Honourable James TIEN's original motion, which calls on the Government to reduce profits tax and salaries tax, impractical. First of all, profits tax is a major source of government revenue. Under the projection of the Government, the revenue from profits tax for the year 1995-96 amounts to $49.5 billion, accounting for more than 25% of the Government's revenue for the whole year. In order to maintain the low tax rate in an unfavourable economic climate, it is necessary for the Government to have a stable income. In this connection, the Democratic Alliance for the Betterment of Hong Kong (DAB) opposes the proposal of cutting the profits tax at this stage for the profits tax rate in Hong Kong is almost the lowest among neighbouring countries. Financial consortiums or businessmen have never complained strongly about the profits tax being too high thus compelling them to give up investing in Hong Kong. On the contrary, the business sector is concerned about the high land prices, high inflation and high wages, which have affected the operating cost.

In order to stimulate the economy and boost investment, I think we must give the right prescription. The Liberal Party claimed that the reductions would actually lead to an increase in revenue. This is, in fact, wishful thinking of their very own and they have failed to produce proof to support their claims. To businessmen who are making big money, it would be nothing short of gilding the lily.

In fact, it is inappropriate to make constant changes to the profits tax rate or else uncertainties faced by investors will mount because investors generally hope to know not only the tax rate for the coming year. They are even more eager to know about the tax they are to pay for the next few years so that they can make long-term investments and provide employment opportunities.

Raising the personal allowance to store wealth among the people

Regarding the Liberal Party's proposal to reduce salaries tax, I think it is purely the idea of a group of people who have vested interests. In the end, it will only enable the rich people to become richer because the proposal is beneficial only to the high income earners, who are in a small number. Neither the low income workers, recipients of the Comprehensive Social Security Assistance, the unemployed nor the elderly will be benefited as a whole. Therefore, we are of the view that the Hong Kong Government should raise the personal allowance further to $94,000 so that more people in the low income group will be freed from the tax net. Only in so doing can wealth be genuinely stored among the people by fair means.

The "Dishing out money" proposal: Simple but impractical

Dr the Honourable LAW Cheung-kwok of the Association for Democracy and People's Livelihood (ADPL) called on the Government to distribute $20 billion of the fiscal surplus to the 4 million permanent residents of Hong Kong who are above 18 years of age. In my opinion, this proposal which seems to be simple and equitable is in fact most stupid and unfair. To the affluent businessmen, $5,000 a month may just be enough to pay for a meal and to the unemployed, for how long can $5,000 last if they are not encouraged to rejoin the workforce? The proposal of "dishing out money", so to speak, can only help some people tide over financial hardships temporarily. It is not an effective measure to redress unemployment and the economic slowdown in the long term. Besides, DAB envisages that the social problems and chaos that this proposal may trigger will not be as simple as expected. For these reasons, DAB certainly does not support the proposal of ADPL.

Mr President, with these remarks, I move the amendment.

DR LAW CHEUNG-KWOK (in Cantonese): Mr President, I have just circulated an article entitled Returning Wealth to the People for reference by Members again. I will clarify again the stand of the Hong Kong Association for Democracy and People's Livelihood (ADPL) on the concept of "returning wealth to the people".

The wording of our official amendment today is to call upon the Government to consider "distributing immediately part of the accumulated fiscal surplus to the residents of Hong Kong on an equitable basis" and our proposal is that every permanent resident who lives in Hong Kong and is over 18 is to be distributed a consumption coupon worth $5,000. It is a consumption coupon, not cash.

Our amendment is based on two concepts. First, our fiscal surplus is huge. Two Members have made reference to the same figures in this respect just now, that is, the Government has a surplus of over $140 billion in which the Land Fund has obviously not been included. The Land Fund is said to be about $85 billion, so the total surplus should be $230 billion. But the Government's total recurrent expenditure in the last two years was more than $120 billion. And in the past five years, each year's fiscal surplus as estimated by the Government inclined to be low. I estimate that in the past five years, about $50 billion of the surplus was outside the Government's estimates. In fact, if we refer back to the Financial Secretary's Budget in 1992, at that time he estimated that the surplus in 1995 would be only $78 billion but we have $150 billion now.

Some Members have mentioned just now that both the Chinese and British governments have agreed that a surplus of $25 billion will be enough for the Government in 1997. In the 1980s, a government document on the Budget pointed out that the target for the fiscal surplus should be about 50% of each year's expenditure. Now the fiscal surplus has far exceeded this target. Should Members be interested to learn more about what an adequate fiscal surplus is, please refer to Chapter five of the book Hong Kong's Public Finance in the Latter Part of the Transitional Period by Dr TANG Shu-hung.

The other concept is: to stimulate the economy, the most effective and immediate way must be to directly stimulate consumption. Many criticize that the ADPL's "handing out proposal" may result in the people saving up money instead of spending it which makes its effect of stimulating the economy very limited. In answer to that, we have now changed that into handing out consumption coupons. The restaurants or cinemas can cash these coupons at the Treasury after receiving them and this can thus guarantee that most of the money will be really spent here. As regards this proposal of consumption coupons, it is not the case that the ADPL has not considered this at the very beginning but that we want to put forward our concepts in a clear, simple and direct manner. Therefore, we did not put forward this proposal at first.

Actually, to consider the ADPL's amendment fairly, one should compare it with the Honourable James TIEN's original motion directly. Our proposal is to spend $20 billion once and for all but, according to Mr James TIEN's motion, $6 billion of taxes will be deducted in the first year and the total taxes deducted in three years will be over $20 billion; if the taxes deducted in 10 years are added together, the total cost will be more than $70 billion. If one criticizes the ADPL's proposal as handing out free lunch, then the Liberal Party's proposal must be to hand out free dinner which is much heavier than ours.

The second point is that Mr James TIEN's proposal will have a long-term impact on our stable tax system with low tax rates but our one-off proposal will not have any impact on our tax system.

Thirdly, the Apple Daily criticizes my proposal again today. It reports that if even Mr LI Ka-shing and Mrs Anson CHAN can also be given $5,000, this would be very unfair. If someone finds the ADPL's proposal very absurd for it gives Mr LI $5,000, then Mr James TIEN's proposal of cutting the profits tax rate by 1.5% is even more absurd. I have estimated that a 1.5% cut in the profits tax rate will save Cheung Kong (Holdings) Limited with Mr LI Ka-shing as a major shareholder $0.2 billion in tax and Hutchison Whampoa Limited where Mr LI Ka-shing is also a major shareholder $0.16 billion in tax. Mrs Anson CHAN will save less but she will also save more than $40,000 in tax. If anyone opposes the ADPL's proposal of reducing tax, I will be at a loss. Actually, Mr James TIEN's proposal is basically gilding the lily and making the rich richer. Take salaries tax as an example. Among our three million working population, only about 1 million people have to pay tax and there are two million people who do not have to pay tax, and the taxes paid by 0.2 million people who have the highest income account for 75% of the total salaries tax. Obviously, if we only reduce the salaries tax, two million people who work but do not need to pay tax, tens of thousands of CSSA recipients and more than 100 000 unemployed or underemployed workers will not be benefited at all.

We estimate that the ADPL's proposal will stimulate local consumption and be beneficial to our economic growth. Our economy will grow by 1.5% in the first year and 1% in the second year. I want to ask Mr James TIEN: If the taxes are reduced immediately as proposed by him, how will our economy be benefited in real terms in 1996? What are the concrete figures? For all Members who aspire to bring direct improvements to our economy and people's livelihood, although they have different views on the so-called fairness and the appropriate amounts to be returned, I request them to give our general orientation their support, and I call on them to oppose Mr James TIEN's original motion. We also support Mr CHAN Kam-lam's amendment.

Thank you.

MR ERIC LI (in Cantonese): Mr President, every year after the announcement of the Budget, Members would hold an exhaustive debate on our taxes. The focus of such debates in the past, as it should be, was centred around the principle governing the management of our finances as a whole, and was thus markedly different from the approach adopted by the current Legislative Council. Soon after the "kick-off" of the current session, even before warming up, Members already hastened to tackle the subject of taxation by "cutting it up and dealing with it piece by piece". First came the freezing of government charges, which was endorsed following an enthusiastic debate. This was followed by various proposals on cutting direct taxes. And, the timing was such that all came just before the Financial Secretary's solicitation of views from Members. It seems that this Council has completely ignored the Financial Secretary's Budget consultation exercise. On the one hand, this Council has been asking the Government for a share in the policy-making process, and during the last term, even Members themselves commended the then Financial Secretary for his excellent Budget consultation work. However, on the other hand, this Council has regarded the Financial Secretary as non-existent (and it seems that he is now really absent). Members appeal only to the public and slam the Government. They brush major principles aside, but instead choose to share policy-making with the Government in such a manner. This approach seems to suggest duplicity. This Council should reflect on this.

Disregarding whether government policies will be affected, Members have cut the whole fiscal management strategy of the Government into pieces for the purpose of debating. This is obviously not a sensible approach to discussions and reasoning. If we analyse the motion more directly and take away its thin veil, we will see that this Council is actually:

1. wrongly treating tax revenue as the "common wealth" of the people which should be handed out among them, and even as a vehicle of political struggle; and

2. compelling the Government to adopt a deficit budget and to disgorge the huge fiscal reserves that have been accumulated.

First of all, the people of Hong Kong have time and again confirmed that the main purpose of taxation is to keep expenditure within the limits of revenue as a means of ensuring a balanced budget. It is also most important that sources of revenue should remain stable if our public expenditure is to be prevented from going up or down drastically as a result of economic fluctuations. If Members focus their arguments only on "who the beneficiaries are", this Council will eventually lead the public away from our prudent and sensible approach to public financial management. At the end of the day, there will neither be any compromise nor consensus. For an accountable Legislative Council vested with so many powers, this approach is far too short-sighted.

In the policy address, the Governor expressed the hope that Members can tell the public that they accept the principle under which the public expenditure of Hong Kong shall not exceed 20% of the Gross Domestic Product (GDP). His appeal seems to have achieved some success. At least, this Council has not expressed any disapproval of the idea that the Government should exercise tight control over its overall expenditure, or, it can be said that very few Members have spoken against the idea. For a Council as vocal as ours, such a silence may well be assumed to be tacit approval. If this assumption holds, then there will always be a "spell" that can tightly control our expenditure all the time, thus basically eliminating the possibility that public spending may rise drastically over a short period of time. What then remains is the worry that when this Council requests the Government to cut taxes without rocking the balance between expenditure and revenue, only three basic choices are left:

1. curtailment of services;

2. tax increases elsewhere as compensation for lost revenue; and

3. deficit budgets that necessitate the use of our fiscal reserves.

I will now analyse these three choices one by one:

Curtailment of services

This is indeed a very good approach to financial management. Quite a number of Financial Secretaries in the past resorted to "slim" Budgets in times of economic adversities. We should be prepared to vary public expenditure flexibly as required by circumstances. Only by doing so can we ensure that public spending can attain a high degree of cost-efficiency and get value for money. But, this is also the biggest test of Members' courage. I hope that when they are advocating tax reduction, Members will also take a serious look at this approach to "house-keeping". Regrettably, with the exception of me, no other Members of this Council seem to share this view. I can therefore assume that Members do not want to see any cuts in expenditure.

Tax increase elsewhere as compensation for lost revenue.

Major tax revenue can be classified into three main types: first, the various types of government fees and charges; second, direct taxes such as profits tax and salaries tax; and lastly, proceeds from land sale and stamp duty. Members are now demanding the Government to freeze its fees and charges. But, they also want to cut direct taxes. As for land sale and stamp duty in this time of market adversity, the relevant accounting figures for last year which have just been released have indicated a drop in proceeds from land sale. Given all this, if this Council demands that direct taxes be cut, it will simply be impossible to make up for the lost revenue by increasing taxes elsewhere. Therefore, there is only one way out: a deficit budget.

Deficit Budgets that necessitate the use of our fiscal Reserves

In the 1995-96 Budget, there is already a deficit of $2.6 billion. What is more, proceeds from land sale and stamp duty have dropped, and profits tax and salaries tax are unlikely to increase substantially due to the economic situation this year. Unless expenditure items are delayed on a large scale, the deficit indicated in the Medium Range Forecast for 1995-96 soon to be published is bound to be even bigger. In the latter half of this year, the deficit may become still bigger with our freeze of fees and charges.

In the Budget for 1996-97, there should be a surplus of about $6 billion. Deducting $2 billion worth of estimated revenue to be lost through the freezing of charges, the surplus will only be about $4 billion. In spite of this, there is still some room for us to make some sort of appropriate adjustments, in particular because the peak period of expenditure on infrastructure projects will have passed after 1996 and the proceeds from airport-related land sale and awards of franchise will start to generate tens of billions of dollars for the territory's budget. In the medium and long term, we do in fact have the means and ability to cut taxes. The only question is what the best timing should be. We should not strive to put in a strong showing in such a hasty manner. Instead, we must first ensure that the public can enjoy tax reduction with a sense of security.

With such a broad analysis of the entire picture, it will not be difficult to choose between the amendment and the original motion. First, let us look at the amendment moved by the Honourable CHAN Kam-lam, the wording of which is neutral. Since the Government will in fact raise the personal allowance for salaries tax as "a matter of routine" every year, the passage of the amendment or otherwise will not matter that much at all. I therefore guess that Mr CHAN's amendment has been moved solely to counteract the motion moved by the Honourable James TIEN on a cut in profits tax. Since I support profits tax reduction as well as raising the personal allowance for salaries tax, I consider that the only choice that will entail no contradiction and inconsistency on my part is to support the original motion only. I therefore cannot support Mr CHAN's amendment.

The "cake-sharing" proposal made by Dr the Honourable LAW Cheung-kwok to "put money back into the people's own pockets" will involve immense administrative costs if actually put into practice. And, for the purpose of preventing possible abuses and unnecessary lawsuits, we may even have to enact legislation to clearly define who should have the right to receiving money. The true spirit of the entire proposal in fact does not involve "returning" over-collected tax money. Rather, it is simply an act of "robbing the rich to relieve the poor", because the money may not necessarily be returned to "bona fide taxpayers", but may instead go to some other people who have actually never paid any tax at all. When the money is put into these people's hands at such a time of low consumption desire, it cannot possibly change the consumption behaviour. The most probable scenario will be that these people would simply save up the money in the banking system, which is already "flooded with funds". That being the case, it is doubtful whether we can still boost the economy, not to mention create more employment opportunities.

There are lots of ways to "give out money". Asking the Hongkong and Shanghai Banking Corporation to print an additional 4 million banknotes each of a face-value of $500 may well be a more expedient method. However, in the case of Singapore, the only thing they do is to inject money into the central provident fund. I have mentioned time and again that the $10 billion intended for setting up an old age pension fund should be injected into the protection fund for the Comprehensive Social Security Assistance Scheme (CSSA) and a proposed provident fund. An additional $8 billion may as well be injected into the pension fund for the Civil Service. I believe that it will be a more reasonable way to make use of the $18 billion.

I have just said that Hong Kong has the means to cut taxes. One international accountancy firm has recently referred to a survey report which shows that many international organizations do regard tax cuts as a major investment consideration. A report to be published by the Hong Kong Society of Accountants tomorrow will also tell of the same. I believe that tax cuts should be selective and we should target at those areas which are most suitable for tax reduction, such as the finance industry.

Mr President, that is the end of my remarks. (Laughter)

MR LEUNG YIU-CHUNG (in Cantonese): Mr President, first of all, I would like to respond to the Honourable James TIEN's proposal in regard to reduction of corporate profits tax. At the present moment, the economy of Hong Kong is entering a period of slow economic growth. We are faced with the relocation of a large number of factories from Hong Kong, closing down of small to medium scale enterprises and high unemployment rate. The situation can be regarded as extremely serious. On the surface, enterprises laying off their staff and factories closing down are closely related to the increasing operation costs. It would appear that reduction of corporate profits tax can help lower the operation costs of factories and thus stimulate investment from the entrepreneurs and create more employment opportunities.

However, I would like to point out that in regard to the lack of investment initiative, apart from the three "high" factors, namely high land value, high rental and high inflation, it is to a great extent due to the uncertain political factors, which is the so-called "political market". Earlier, a foreign magazine reported that Hong Kong has already fallen from its first place as the most business-friendly city to the sixth place, which is mainly due to uncertain political prospects. We can thus see that the main reason for the lack of investment initiative is not related to taxation.

Therefore, we think that the Liberal Party's proposal of reducing the corporate profits tax contains the following few points of doubt:

Firstly, can the measure of reducing the corporate profits tax really stimulate investment? Who can guarantee that the money saved from the tax reduction will be invested in Hong Kong? Who can guarantee that the entrepreneurs will use the money saved from tax reduction to create new employment opportunities? Or will it be only be opportunity taken by the investors to reap more profits? What if they will not re-invest when the tax is reduced? As regards the investors' present proposal to reduce the corporate profits tax, I think that they are indeed insatiably greedy!

As a matter of fact, not a few investors in the past closed their businesses due to uncertain political prospects. With 20 months to go before the arrival of 1997, reduction of corporate profits tax can indeed help those businessmen or investors to reap more profits and then leave for good. And by that time, we, the grassroots people, will have suffered double losses because we will be unable to obtain the entitled social services due to reduced government revenue on one hand, and yet still unable to find a job on the other.

Secondly, when we ask the Government to collect less revenue or to increase public expenditure, we are actually asking the Government to take more money out of the treasury. How can we guarantee that the money will be properly used? How can we ascertain that the money can really work towards economic growth?

The proposal of reducing the corporate profits tax will not only affect government revenue, but will also provided an excuse for the Government to expand the incidence of indirect tax. The victims, at the end of the day, will be the employees and the grassroots people who form the majority of the community. Therefore, the argument that corporate profits tax is unrelated to the interests of employees is totally ungrounded!

Besides, I would also like to respond to the amendment moved by Dr the Honourable LAW Cheung-kwok.

"Restoration of wealth to the people" is originally a financial management principle which every government need to follow. The question is how to go about "restoring wealth". As at 1995, the fiscal surplus of the Hong Kong Government is $150 billion. It would in fact not be very much to withdraw $20 billion from that surplus. However, we have to take note of one point: Faced as they are with the existing socio-economic situation ─ uncertain political prospects and unclear economic environment ─ how strong will the consumption incentive of the Hong Kong people be? Even if everyone spends money, would this bring more employment opportunities to society? And how many jobs would this create? To those who do not have financial or livelihood problems, the lump sum of $5,000 granted would in fact be unnecessary; to those who have financial or livelihood problems, the lump sum would not provide any timely help ─ then what meaning would this have? Especially when it cannot narrow the gap between the rich and the poor, how would it be beneficial to society?

Even if the consumption incentive of the public is stronger than we expected, the whole proposal fails to address the most fundamental and important worry that bedevils the Hong Kong economy. It fails to touch upon the core of the problem at all.

The Hong Kong economy is facing slow economic growth for the moment and it is possible that there will be negative growth in the future. One of the main reasons is that the Hong Kong Government has long failed to devise and have in place a long-term economic policy. It has never adopted any remedial measures to deal with the problems arising from industries' large-scale relocation out of Hong Kong, and the closing down of many small to medium-size enterprises. On the other hand, during the industrial restructuring of Hong Kong, the Hong Kong Government never buckled down to developing the local labour market in order to cope with the needs of industrial restructuring.

Therefore, in the long run, the Hong Kong Government must make good use of the existing abundant fiscal reserve to improve the human resources of Hong Kong, that is to say, to improve basic education, to strengthen research in science and technology and labour training, to improve the existing employees' retraining programme and to help redevelop the small to medium-size enterprises, in order that the Hong Kong workers will be able to adjust themselves to economic restructuring and that more employment opportunities can also be created. Furthermore, a portion of the existing fiscal reserve can also be allocated to finance the setting up of an unemployment assistance fund with a view to alleviating the pressure of the unemployed.

On the other hand, the raising of personal allowances for salaries tax can, in the short run, alleviate the pressure of the grassroots people due to economic downturn.

Thus, I hope that Members of this Council can support the Honourable CHAN Kam-lam's amendment which urges the Government to make good use of its fiscal reserve and to raise the personal allowances for salaries tax with a view to promoting economic development and creating more employment opportunities.

Thank you, Mr President.

MR HENRY TANG (in Cantonese): Mr President, I do not know whether Members will agree that tax concession is in fact a way of accumulating wealth among the people. I have no idea whether the Financial Secretary will agree to it or not. However, should a caring government, when having sufficient reserves and tax revenue for general social expenditures, accumulate wealth in the people? Members are not shaking their head. Are they indicating disagreement or otherwise?

The Liberal Party suggests that corporate profits tax be reduced to 15% from 16.5% and standard salaries tax be reduced from 15% to 13.5%. To avoid misunderstanding, I must clarify that we are not suggesting reducing the standard tax rate only. We are recommending that tax rate for all tax bands should be reduced by 1.5%. By clarifying this, there should not be any misunderstanding that we are appealing for tax break for the rich only and not other people. We also suggest that personal allowances be increased to $87,000. I believe these proposals are not too aggressive. The first two kinds of tax break would involve a loss of revenue of about $5 billion. Despite that, I believe the daily operation of the Administration would not be affected although the government revenue would be reduced by this amount.

Mr President, presently our economy is slowing down and the inflation rate is high. All trades are shrinking. The shrinking of retail trade is to a great extent a chain reaction caused by the economic downturn suffered by our overseas trading partners. Hong Kong is an entrepot where there are numerous people engaged in trading. Faced with declining businesses, it is natural that people do not want to spend money. This reflects people's mentality of preparing for a rainy day. As a result, consumer trades such as retail, hotels and restaurants are those which bear the brunt of the economic downturn. The Government's fiscal philosopy should ensure that "money got from the people be spent on the people and wealth be returned to the people". Where the overall financial situation allows it, the Government is duty bound to take the lead in alleviating people's unnecessary expenditure burden. Tax concessions will leave more money in people's pocket. Besides saving the money up, people will spend it and boost the consumer market.

In principle, I am optimistic with regard to the long-term economic development of Hong Kong. I do support a fiscal policy which emphasizes stability, low inflation rate and high economic growth. So I have reservations towards an inflationary economic policy. We must avoid subjecting Hong Kong to impacts, for doing so will result in a higher inflation rate, high consumption expenditure but a hollow-out economy.

Mr President, I support the Honourable James TIEN's original motion and do not support the two amendments. Firstly, in regard to the Honourable CHAN Kam-lam's amendment which urges the Government to "make good use of its fiscal reserve", the wording is too vague that I do not know what Mr CHAN is driving at. In regard to his proposal of raising the personal allowances for salaries tax, I think no one will oppose it. However, Mr CHAN proposes to delete the words "seriously consider lowering the corporate profits tax and salaries tax immediately" from the original motion. This lets me down. I believe that a society needs to strike a balance between the interests of all sectors. Always considering the interests of the working class will make a person adopt a biased point of view. Will it be totally unacceptable to strike a balance and take the interests of the investors into account as well? This should not be the right principle.

Mr President, Mr CHAN and most of the Members who are representing the working class seem to be too narrow-minded to understand others' difficulties. Last week, quite a number of Members from the labour sector did not support the proposal of freezing the government fees and charges on the ground that the charges concerned are only imposed on commercial institutions and are not related to people's livelihood. I was surprised to hear that. Are the investors not members of the public? Faced with a slackened economy, the investors have their difficulties too. It would be unwise for the Members to ignore the causes, give no quarters and create class conflicts. I have been of the opinion that the employers and the employees should co-operate with each other. As they are in the same boat, the investors should not be discriminated against. On the other hand, I appreciate and admire the Democratic Party for proposing, on its own initiative, a reduction of tax rates.

Dr the Honourable LAW Cheung-kwok's proposal of distributing money is an innovative idea. Yet I do not understand why more employment opportunities can be created by doing so. Dr LAW previously suggested distributing $10,000. But he changed his proposal to $5,000 after being ridiculed by people. He seems to have no confidence in his own proposal. I have never heard of any economist agreeing that economic growth can be fostered by such "money-distribution theory". So I am glad that Dr LAW does not withdraw his amendment because I am very curious to know how many votes he can get besides the four votes from the Hong Kong Association for Democracy and People's Livelihood.

Mr President, with these remarks, I support the original motion.

MR LAU CHIN-SHEK (in Cantonese): Mr President, the motion moved by the Honourable James TIEN today seeks to stimulate our economy. He thinks that this is beneficial to Hong Kong as a whole.

What is it all about? Let us look at the other propositions of Mr TIEN as well as the Employers' Federation of Hong Kong and the Hong Kong General Chamber of Commerce. Let us see whether their overall plan is in compliance with the interests of Hong Kong as a whole, and see who will actually benefit from their propositions.

Mr TIEN, the Employers' Federation of Hong Kong and the Hong Kong General Chamber of Commerce have three main propositions:

1. Suppression of employees' wages to negative growth;

2. Unlimited quota of labour importation;

3. No opposition against the increase in fees and charges by public utilities.

What benefits would the suppression of employees' wages to negative growth bring to Hong Kong? What benefits would the unlimited quota of labour importation bring to Hong Kong? And what benefits would no opposition against the increase in fees and charges by public utilities bring to Hong Kong?

Owing to the above reasons, there are no grounds for me to believe that the motion of Mr TIEN is going to benefit Hong Kong. This, coupled with the reduction of profits tax, comes close to being a stimulation of our economy, as claimed by the business sector. But this finally suppresses people at the lower-middle level of our community and benefits the employers.

Profits tax is only payable when businesses generate profits. The rate of profits tax in Hong Kong is the lowest among the "Four Little Dragons in Asia". As a matter of fact, the amount of profits tax now paid by the 10 major listed companies in Hong Kong accounts for about 30% of the gross profits tax payable ($50 billion). If the rate of profits tax is being cut by 1.5%, the 10 major companies earning huge profits will thus pay less profits tax to the tune of $1.5 billion. Profits tax is an important part of a budget. If the profitable business sector pays less profits tax, the tax revenue will have to be supplemented by the employees. There is a common saying among Hong Kong that the employees are working for the banks and the property developers; for the sake of getting a shelter, they have to make mortgage payments. Why should we still give the business sector tax subsidies to lessen their responsibility of repaying the community?

The business sector always says that the employers and the employees have to be mutually dependent, and this has just been mentioned again by some Members. I agree to this statement. This statement points out a fact that if profits are made, they should be shared by both parties; if profits are not made, both parties have to endure this together. However, Mr TIEN's motion and the recent moves made by the business sector make us understand once again that if profits are made, the employees will be the last to benefit; if no profits are made, the employees will have to tighten their belts as they are the first to suffer. On the contrary, the employers are given tax reduction while the public utilities are granted fees and charges increase. This is not dependence of employers and employees on one another. This will only aggravate the confrontation between the two parties and is not beneficial to Hong Kong. I would ask Mr TIEN, the Employers' Federation of Hong Kong and the Hong Kong General Chamber of Commerce to think thrice before they act.

Mr President, I so submit.

DR PHILIP WONG (in Cantonese): I have heard of stimulating the economy by means of relaxing the money supply and lowering the interest rates, but I have never heard of stimulating the economy by lowering the tax rates. It is because even if the tax rates were to be reduced to zero, it would not be helpful at all to companies or people who simply need not pay tax.

As to the amendment motion proposed by Dr the Honourable LAW Cheung-kwok, I entirely agree with the arguments put forward by the Honourable ERIC LI, and therefore I do not want to say any further. Thank you, Mr President.

MR LAW CHI-KWONG (in Cantonese): Mr President, today, I want to play the role of a fortune-teller for the economy of Hong Kong. The diagram I hope to get is one of Jiji, which depicts water on top and fire underneath, signifying an embodiment of complementary elements known also as Likan.

The Government has been refusing to believe that the economy of Hong Kong is facing a crisis, and it even thinks that a 5% economic growth in real terms is satisfactory. I think most Hong Kong people, including Members of this Council, would agree that the economy of Hong Kong is slipping towards a slump. That being the case, and also because of the confidence problem in the run-up to 1997, the economy of Hong Kong will have to face even greater crises if we still do not take any actions now.

Quite a number of my colleagues in this Council have just spoken on the economic problems Hong Kong is now facing. I now briefly summarize them as five points:

- low desire for re-investment;

- beginning of a dangerous ebb in consumer spending;

- gradual rise in the unemployment rate;

- widening of the gap between the rich and the poor;

- high inflation.

In many of the debates going on in recent days, we have heard quite a lot of different views. There are proposals on stimulating the economy, which, unfortunately, fail to take account of the gap between the rich and the poor; there are other proposals on stimulating consumer spending by enhancing the redistribution of resources, which, again very unfortunately, also fail to consider the possible effects of accelerating inflation. The rich hope that workers will ask for less salary increase, while workers hope that the rich can pay them more. In the Hong Kong of today, do we really have to single out the so-called class conflicts before we can solve our problems?

If we are to solve the problems confronting us today, we must realize that all of us, who are in the same boat, should help one another out. In the Policy Address debate, I proposed that the business sector should work with the labour sector to strike up amicable labour relations. Today I also urge people from various classes to work towards bringing about a harmonious community, in which they co-operate actively to prepare Hong Kong for the advent of 1997 and the 21st century.

The Democratic Party has prepared quite a number of recommendations, and my colleague will discuss them in detail later on. But, let me just say here that the recommendations made by the Democratic Party are in essence a four-point programme, the ingredients of which complement one another, like water and fire in the Jiji diagram:

Firstly, to boost consumer spending, we advocate a substantial reduction in income tax by increasing tax allowances and widening the tax bands.

Secondly, since boosting consumer spending will push up inflation, we propose at the same time that government fees and public utilities charges be freezed to curb inflation.

Thirdly, we advocate a mild reduction in the rate of profits tax as a means of increasing investors' confidence in our low and stable tax rates, in the hope that this can boost re-investment and create job opportunities.

Fourthly, in order to reduce the unemployment figure, we advocate that Hong Kong should abolish the labour importation schemes so as to enable displaced workers to seek alternative employment easily and to have a reasonable share of the fruit of our economic progress.

Boosting consumer spending and re-investment is suggestive of "fire", symbolizing forces that are too drastic; freezing fee increases, on the other hand, is suggestive of "water"; a combination of water and fire will constitute a complementary situation. Halting labour importation and thus allowing the local labour market to adjust by itself conforms with the concept of yin and yang and will work as an effective remedy to narrow the gap between the rich and the poor. Mr President, playing the role of a fortune-teller, just for today, I wish the economy of Hong Kong the best of the luck and fortune.

These are my remarks.

MR CHEUNG HON-CHUNG (in Cantonese): Mr President, two Members have one after another proposed to amend the original motion moved by the Honourable James TIEN. The motion and amendments moved by these three Members have one thing in common, that is, under the circumstances of an economic slowdown, the Government should use its reserves appropriately to stimulate the economy and to create more job opportunities.

No matter which proposal the Government chooses to adopt, it has to make fiscal commitments. How should the money be spent? We should consider this carefully. The three different proposals would produce three different kinds of results and effects. May I ask Members where the resources should be injected in order to produce the effects initially mentioned by Mr James TIEN? Should money be spent on the industrial and commercial sector or on the well-off people or should everyone have the right to enjoy these resources regardless of their financial status? Or do we want to appropriate the resources to those who are adversely affected by the depressed state of our economy so as to increase their propensity to spend once again and then stimulate our economy?

Mr President, let us analyse the three different proposals carefully.

The Democratic Alliance for the Betterment of Hong Kong (DAB) thinks that money should be spend on the grassroots people because they are the ones who are most vulnerable in an economic downturn. Initially, this group of people have a certain propensity and ability to spend. However, their propensity to spend has been reduced in tandem with economic depression and therefore, if money is spent on these people, their propensity to spend will certainly be revived and the economic slowdown will be alleviated. Mr James TIEN has proposed to reduce corporate profits tax and salaries tax. Everyone knows that Hong Kong is already one of the places in Southeast Asia and in the world which has the lowest rate of profits tax. Reducing the rate of profits tax will not enhance the propensity to invest at all, it will only increase the profits made by enterprises and companies which are already making profits. I believe Mr TIEN is a grateful and kind-hearted employer and the profits made by his company would be distributed reasonably to his employees. However, other employers may not be the same. Consider the proposal made by the Hong Kong Trade and Industrial Organization and the Employers' Federation of Hong Kong to keep the rate of pay rise next year below that of inflation. I believe most employees would know fairly well how things stand and they would lose confidence in their employers. These two proposals will only make the industrialists and the businessmen even richer, and this will not be of benefit to the grassroots people at all and they will not have a greater propensity to spend. Reducing the rate of salaries tax will not benefit the general public because, under the present taxation system, more than half of the population do not have to pay individual salaries tax. As the tax rate is progressive, tax paid by earners of high salary already constitutes a majority of the salaries tax collected by the Government. Reducing salaries tax will only be beneficial to the earners of high salary and most people will not be benefited. For the earners of high salary, this will only be gilding the lily. Apparently, riches will then be centralized in the hands of a minority of the community and the disparity between the rich and the poor will be widened even further. As this is not what we want to see, the DAB and I will not support Mr TIEN's motion.

As regards the amendment proposed by Dr the Honourable LAW Cheung-kwok, he has changed the proposal of "distributing money" into one of "distributing consumption coupons". That may well have a theoretical basis from the angle of economics, but in practice, riches may then be found in the pockets of those who are not in need. To those who are already earning a high salary, this is only gilding the lily and it will not make any difference. Although Dr LAW's proposal is well-intentioned and similar measures have also been adopted by Alaska and Singapore, it is contrary to the spirit of us, Hong Kong people, who strive to lay the foundation of businesses through our own efforts. We have to uphold the spirit of Hong Kong people and therefore I cannot agree to Dr LAW's motion.

The DAB's amendment put forward by Mr CHAN Kam-lam which urges the Government to "make good use of its fiscal reserve and raise the personal allowances for salaries tax" is worth supporting and is the most desirable proposal out of the three proposals. I hope that this amendment can be carried so that the grassroots people will be benefited and those who used to pay salaries tax will no longer have to do so such that they can have spare resources which can be used on consumption. The heightened propensity to spend will then stimulate economic development and benefit the general public as well as the employers in the industrial and commercial sector. Therefore, Mr CHAN Kam-lam's motion is the most desirable one out of the three and I urge my colleagues to lend their support to the DAB's motion.

Mr President, these are my remarks.

DR HUANG CHEN-YA (in Cantonese): Mr President, the GDP growth rate in the second quarter as announced by the Census and Statistics Department was only 4.8%, the lowest in four years. It is small wonder that the people of Hong Kong have lost confidence in their economic prospects. As is widely known, the Government of Hong Kong has been upholding the principle of non-intervention, and will not therefore resort to fiscal measures as a means of economic adjustment. However, at a time of economic slowdown coupled with a high unemployment rate, how can Hong Kong overcome the difficult situation when the Government totally ignores the functions of fiscal measures, reduces the Budget to nothing more than an accountant's books and hoards up huge fiscal reserves instead of using the money for any meaningful purposes?

Therefore, the Democratic Party puts forward a series of proposals on tax concessions and public expenditure aimed at speeding up economic recovery and creating more employment opportunities. The Honourable LAW Chi-kwong has already mentioned some arrangements to tie in with these tax concessions. I will focus on schemes of boosting the economy and my other colleagues will talk of plans to ease the tax burdens of the lower and middle classes.

The schemes proposed by the Democratic Party to boost the economy include reduction of the profits tax as well as using tax concessions to encourage manpower training and promote the development of the manufacturing industry.

As regards the profits tax, the Democratic Party's proposal is different from that of the Liberal Party. We think that during the economic slowdown, small and medium-sized businesses are facing a more difficult situation than big enterprises. They may have difficulties in obtaining loans and thus face liquidity problems. It must be noted that the businesses in Hong Kong are mostly small and medium-sized and such businesses together employ more people than big enterprises do. In view of this, we suggest adopting a progressive profits tax system to encourage profitable small and medium-sized businesses to accumulate more capital for expansion or future development. We suggest lowering the tax rate for the first taxable $1 million by 1%, that is, from 16.5% to 15.5%, and by 0.5% for all subsequent taxable amounts.

Some Members may well criticize that even if the profits tax is lowered, businesses may not necessarily plough their profits back into further investments in Hong Kong. Criticisms of this kind are in fact based on the assumption that the businesses in Hong Kong always want to pull out. Given such an assumption, it may well be a waste of efforts to ask the Government to formulate industrial policies and establish a science park! Therefore, we think that such an assumption really cannot help much. Rather, we should take active steps to create a more favourable environment that can prevent further business failures and attract more investments.

Cost-wise, cutting the profits tax has more advantages than the "cash pay out" scheme proposed by the Hong Kong Association for Democracy and People's Livelihood (ADPL). According to the Government's estimation, lowering the profits tax by 1% will reduce the Treasury's revenue by $2 billion in one year. This is far lower than the cost of the ADPL's proposal, which involves the paying out of $20 billion in one year.

Effect-wise, the Democratic Party's proposal of lowering the profits tax is definitely better than the ADPL's "cash pay out" package as well. Dr the Honourable LAW Cheung-kwok says that the "cash pay out" package can directly stimulate consumption and boost economic growth by 1.5%. But, the Democratic Party believes that with a cut in the profits tax, businesses can use their tax savings to invest in machinery, create more employment opportunities or maintain wage growth. All these will increase local capital investment and consumer spending, in addition to reducing the number of unemployed workers. Such chain reactions will boost GDP growth, and speed up economic recovery, thus generating more tax revenue for the Government in the end. The Democratic Party is convinced that under the current economic slowdown, lowering the profits tax is an important factor that can contribute to restoring economic growth. Therefore, I cannot support the Honourable CHAN Kam-lam's amendment.

Mr President, I want to stress two points: First, the Democratic Party's package of proposals is different from that of the Liberal Party in that it includes not only the lowering of the profits tax, but also the provision of other tax concession measures aimed at assisting various businesses, such as making a company's research and development spending 200% tax deductible, subject to a ceiling to be set at 20% of the company's total profits. Another tax concession measure applies to machinery and equipment depreciation, and this involves raising the initial tax allowance from 60% now to 80%, as a means of encouraging investment in machinery and manpower training. Second, the main purposes of our profits tax reduction proposal are, first, to encourage small and medium-sized businesses to develop themselves to meet current economic circumstances, and, second, to set up a profits tax regime oriented towards assisting businesses in dealing with the economic transformation. Therefore, I hope that the Democratic Alliance for the Betterment of Hong Kong and the trade unions will support the Democratic Party's proposal to lower the profits tax.

On the other hand, the strengthening of manpower training has become a pressing issue in view of the need to maintain Hong Kong's competitive edge. The Democratic Party suggests the creation of a tax concession for personal training, and this is to be offered to middle and lower-level employees as a means of encouraging them to further their studies. Similar tax concessions are also offered in countries like Singapore and Malaysia. Furthermore, to encourage companies to provide staff retraining courses, especially for middle-aged and lower-level employees, we propose that the course spending involved should be made 150% tax deductible.

Of course, it takes more than just tax measures to revive the economy. Therefore, as regards public expenditure, the Democratic Party thinks that the Government should inject capital into the Employees Retraining Board to train workers and also to set up a "skills training fund" to encourage businesses to provide on-the-job training for their staff.

Mr President, such tax concessions and capital injection for retraining are all better than paying out money that can only serve a one-off purpose. Our proposal, on the other hand, will create long-term opportunities for employees to make a living.

At the same time, we also think that the Government must allocate more resources to assist the development of businesses. We will dwell on this in the next debate.

As for the salaries tax, the Democratic Party proposes to increase the tax allowance and widen the tax bands instead of abolishing the standard rate. My other colleagues will speak on all these aspects.

MISS CHAN YUEN-HAN (in Cantonese): Mr President, I would like to speak on the Honourable James TIEN's motion and I would respond to the speech made by Dr the Honourable HUANG Chen-ya of the Democratic Party.

If the Government is to administer the right remedy, so that the entire society can be benefited, there are a couple of things that the Government should do: seriously review the taxation system of Hong Kong; strengthen the progressive scale of levy in the existing taxation system, so as to promote vertical fairness; increase the personal allowance for salaries tax and widen the tax band. However, I cannot agree to the proposal of Mr James TIEN, which urges for a cut in the corporate profits tax. I also do not share the opinions expressed by the Democratic Party Members.

At the present stage, how can our problems be solved? I would like to cite some figures for discussion with Members. In fact, is it a must that we agree with the Democratic Party and with what it suggested in Mr James TIEN's motion in that the corporate profits tax has to be cut? There are many people in the community who have recently attacked the standpoints of the two political parties. Only companies which make profits would have to pay profit tax. Therefore, a cut in profits tax will have no effect on the medium or small-sized enterprises or on those companies which are not making profit at all. If we cut the rate of profits tax at this time, it will run against the fiscal objectives of the Government. To our understanding, the public expenditure of Hong Kong will have a direct bearing on the economy and social development of Hong Kong, and that will have positive or negative effects on the livelihoods of the people of Hong Kong. Tax revenue is the major source of public money. When there is surplus, we should consider how to use the surplus in a pro-active manner with a view to promoting the livelihoods of the community and creating employment opportunities. We should not cut the source of revenue in furtherance of personal interests under the pretext that there is a surplus.

We may look at some figures. I hope that those political parties which care for people's livelihood will, together with us, probe and analyse them.

In the financial years from 1986 to 1989, the Government, on the pretext that there was a surplus, cut the profits tax a number of times to the effect that the rate of profits tax dropped from 18.5% in 1986 to 16.5% at present. I believe that Members may recall that during the early 1990s when the financial situation of the Government was tight, government expenditure was squeezed numerous times. The expenditure in the area of social welfare was cut drastically to meet the enormous expenditure incurred by the infrastructure projects. The Government then found itself in a fix in face of the limited amount of fiscal reserves available following the repeated profits tax rate cuts. The emergence of this problem is precisely the result of the short-sightedness of the Government, its favouritism towards the business sector and some people's failure to see the root of problems. All this has led to neglect of the well-being of the people.

If the Government had been far-sighted then and had not taken the hasty decision to reduce the already low rate of profits tax, we believe that in the early 1990s the people of Hong Kong would not have had to bear the additional burden caused by the austerity programme.

Mr President, the objective behind the fiscal management policy of the Government is to promote the harmonious development of our society. I agree entirely with the Honourable LAW Chi-kwong in that we are in the same boat and we should strive to keep it afloat, thereby ensuring everyone a pleasant place to live and work in. However, when there is a surplus, we lower the rate of profits tax and cut the revenue of the government instead of improving people's livelihood. And when the financial situation is tight, the well-being of the general public is sacrificed by reducing the social welfare services available to the public. What kind of financial management principle is it? What sort of principle is it? Is it true that we are in the same boat and we work together to keep it afloat? I really want to know. This is only a typical manifestation of the principle of protecting the interests of the business sector and bullying the grassroots people.

Furthermore, I believe that if we lower the rate of profits tax at this time, it will run against equitable principles. Some people question why I support the raising of the personal allowance for salaries tax but at the same time oppose the lowering of the rate of corporate profits tax. This point in fact was made by the Honourable Henry TANG who, when referring to the Honourable CHAN Kam-lam's speech, said that it was a specious argument that we allow the raising of the personal allowance for salaries tax but oppose the lowering of the rate of profits tax. I would like to say to those colleagues who belong to the business sector, other Members from other political parties in this Council and even to you, Mr President, that the taxation system of Hong Kong lacks horizontal fairness.

The "wage earners" territory-wide have been taking up more and more of the tax burden while the tax burden on the business sector is lessening. Mr President, my argument is based on statistical figures. In 1980-81, profits tax accounted for 60.5% of the total income from direct taxes while salaries tax accounted for 18.7%. In 1992-93, the share of profits tax dropped to 48.5% while the share of salaries tax rose sharply to 41.3%. We may well say that the burden on the shoulders of the "wages earners" has been intensifying. I believe that Mr President will also agree with me. At the same time, the burden on the business sector is lessening. Why should the business sector be generously treated while the "wage earners" have to be sacrificed? Why did Mr Henry TANG and some other colleagues in this Council say such things? I am furious.

Faced with such an unfair and unreasonable situation, I urge those groups or individuals who claimed that they would help the "wage earners" to request the Government to increase the personal allowance for salaries tax. I also urge those colleagues in this Council who have claimed that they are concerned with people's livelihood to oppose the motion moved by Mr James TIEN, now that the gap between the rich and the poor is widening. Only in so doing can they honour their promise.

Lastly, I would like to reiterate that tax revenue is the source of revenue of the Government. This is also the tool with which the wealth of society can be redistributed. The taxation system should develop in a fairer direction instead of in a retrogressive direction. The reform of the taxation system should aim at promoting the redistribution of wealth in society instead of further widening the gap between the rich and the poor. In view of this, I believe that the Government should conduct a comprehensive review of the taxation system and should not lower the rate of profits tax. Instead, the rate of profits tax should be lifted by more than one percentage points. I believe it is high time for the Government to use the taxation system to enable the wealth of society to be more evenly distributed.

Mr President, with these remarks, I oppose the motion moved by Mr James TIEN.

MR CHIM PUI-CHUNG (in Cantonese): Mr President, I believe the Financial Secretary will be most interested in this motion debate that we are having today. It is because he is keen on hearing Members' views so that he will not have to consult Members on his next Budget.

Mr President, as I said before, in any motion debate each Member will have the opportunity to express his or her views. We are free to comment on the views held by the Member who moves the original motion and by Members who move amendments to it. Members, particularly those with political party backgrounds, should not comment on the personal views held by other Members. It is because those other Members will not have the opportunity to respond. I hope my colleagues will bear this in mind when expressing their own views.

First of all, I would like to respond to the amendment proposed by Dr the Honourable LAW Cheung-kwok. According to press reports, he is arguing for "returning wealth to the people" in the form of $5,000 per person. I feel that, as far as wage earners and others are concerned, $5,000 is not "wealth" at all but just a trifling benefit. Therefore, the word "wealth" in the catchcry of "returning wealth to the people" is very much open to question. I believe that the Government will not distribute $20 billion to 4 million people who are over the age of 18. However, I would suggest that Dr LAW first distribute his own wealth among his children to enable them to buy whatever they like. I wonder if Dr LAW would be willing to do so. Last time when the Honourable David CHU moved his first motion I labelled him "Chu with just one cannonball in his gun barrel". Even he himself knew that he would be "Chu with just one vote in his favour". Today let me label Dr LAW "Law with just four rallying to his call" (laughter). Maybe it would not turn out the way I predict.

Secondly, with regard to the Honourable CHAN Kam-lam's proposed amendment, I believe the Financial Secretary will this year do it the way as urged by Mr CHAN. But to lay too much emphasis on this would not, I think, be worthwhile. It is because the difference would be no more than $1.5 billion to $1.6 billion, that is to say, after the tax allowance is raised, the Government would receive $1.5 billion to $1.6 billion less in revenue. I believe the Government is already planning for this in the upcoming Budget. However, in emphasizing and holding this out as a measure to benefit the Hong Kong economy, the proponents, according to my personal opinion, are seeking to ingratiate themselves with the public. It is uncertain if the Government will consider it. It is uncertain if the Government will agree to give up that much. Anyway, the Government would receive $1.6 billion less in revenue.

Lastly, Mr President, let me comment on the original motion. Today I am surprised to find that Dr the Honourable HUANG Chen-ya has presented rather rational views on behalf of the Democratic Party ─something he never ever did during his past four-year tenure as a Member of this Council. This perhaps is in response to his party leader's remark that the Democratic Party wants to work in harmony with all sectors of society. I believe that the Democratic Party's support for the proposal to lower the tax rates is prompted by its desire to curry favour with the business sector and to profess itself the leading political party. What worries me is that between them the Democratic Party and the Liberal Party can command 29 votes in this Council. Of course, the Honourable LAU Chin-shek, whom I persuaded a moment ago to quit the party, may not toe the party line and there may be one vote fewer. Therefore, it may not be 29 votes that the two parties can jointly command in the future.

Mr President, in terms of revenue from income tax, one percentage point represents about $3 billion, in other words, in the context of Hong Kong's overall tax revenue, profits tax accounts for about $300 billion. Therefore, 16.5% would translate into $49.5 billion. If we adopt the Honourable James TIEN's proposal , the Government would receive $4.5 billion less in revenue from profits tax. This, coupled with the salaries tax concessions, would mean a loss of $6 billion in revenue. Of course, this is not an absolute amount but only an approximate amount.

I personally will oppose Mr James TIEN's motion. The grounds for my opposition are: Profits tax implies that there is profit derivable from income. If there is profit, how can we prove that the downward adjustment by one percentage point will really promote the local economy? I am personally worried that this provides yet again another opportunity for the Liberal Party and the Democratic Party to "join hands". As far as the overall economy is concerned, how can we come up with data which can prove that if the profits tax rate is adjusted downwards by one percentage point many people will be ready to invest? This situation is akin to the one in which the labour sector demands the scrapping of the labour importation scheme. In principle, I support the scrapping of the labour importation scheme. But there must be data to prove that after the scrapping of the labour importation scheme local workers will immediately have jobs to do. Therefore, for a similar reason, I oppose the original motion. Mr James TIEN must provide data in this regard.

Mr President, we have to understand that Hong Kong's economy has experienced ups and downs. During the past 30 years, there have been six ups and downs. Of course, discussion of this figure can wait until the debate on the Honourable Allen LEE's motion on economic issues about to start in a moment. We have to understand that when the economy is performing well we have to grasp the opportunity; when the economy is not doing well, we cannot just eye the $100 billion-odd that the Government has in reserve. Basically, a government is like a company or a citizen ─ society is made up of families and then a government comes into existence. In terms of financial management philosophy, when an opportunity arises a government must build up its fiscal reserve. Fiscal reserve will help Hong Kong raise its international standing; fiscal reserve will help raise the social and economic standing of a company; and fiscal reserve will help ensure the well-being of a family. Members of this Council have expressed their fervent hope that the Government will mobilize its reserve and spend part of it. The Government will naturally be happy to listen and accept Members' views and to make arrangements for it. However, in my personal view, such specific money-spending proposal being put to the Government is inappropriate, particularly in the present circumstances.

Therefore, we should make suggestions as to how the Government will promote Hong Kong's economy and how, on the taxation front, it will expand the tax base. But if we suggest that the Government use the fiscal reserve, I personally think it will do no good to the Government, to the business sector or to the labour sector. Too many suggestions that the Government use the fiscal reserve will not help promote the overall economy of our society.

Mr President, today I will adopt the "three-opposition policy", that is to say, I will oppose the three motions.

MRS SELINA CHOW (in Cantonese): Mr President, in order to attract investment and to stimulate the economy, the first step will be to create a propitions environment. The first and foremost thing to do is to enhance people's consumption power and their confidence in the territory's prospects.

The Honourable Jame TIEN's proposal of reducing the salaries tax and corporate profits tax is to leave more money in people's pocket. The former Financial Secretary emphasized the concept of leaving money in people's pocket in his last two budget speeches. I believe the new Financial Secretary will not do the contrary and take money out of people's pocket.

There are different ways of leaving or returning money to the people. Dr the Honourable LAW Cheung-kwok's proposal of distributing money is also one of the methods. But methods can be good or bad. Distributing money is a welfare concept. It is a welcome suggestion as everybody will get a share. However, it will indirectly encourage laziness because one will get one's share by merely holding out one's hand no matter whether one works or not. If it is a subject for academic study and discussion, it will be barely acceptable. But if it is put forward as a serious and solemn proposal for the public's consideration, it will really be an insult to the dignity of the industrious people of Hong Kong.

The effect of tax reduction is just the opposite. It will encourage a capitalistic concept of more work more pay. The more one works, the more one earns and keeps in one's pocket. Dr LAW, however, thinks that this proposal will make the rich better-off. His argument is misleading because tax break will also benefit the poor. Those who are outside the tax net or those who are unemployed will be benefited as they will have more employment opportunities or better employment terms as the economy as a whole revives. At least, they need not be worried that their companies will wind up or do retrenchment.

Profits tax cut is not only advantageous to the employers. It is also a positive encouraging signal to the investors. The Hong Kong Taxation Institute pointed out yesterday that cutting corporate profits tax to 15% will stimulate the economy and create more job opportunities. Another misleading argument against tax cut is that all those who are eligible to pay profits tax are rich people. This is a mistaken concept and cannot reflect the actual situation of most of the small business operators. Neither can it fully reflect their opinions.

In regard to the salaries tax, we should not forget that now there are 1.5 million people subject to the salaries tax. 9% of these people pay the standard rate. To leave more money in the pocket of these 1.5 million people who are economically active will certainly enhance consumption power and confidence which will in turn revive the economy.

In regard to raising the personal allowances in order to reduce some taxpayers' burden, it will only further narrow the tax base such that the tax net will be concentrated on a smaller number of people. This may not be favourable to the stability of government revenue. But, on the other hand, if the tax rate is reduced as suggested by the Liberal Party, the tax base will basically remain unchanged while people's tax burden can be alleviated. This will be a sound arrangement.

Mr President, the Government, on the pretext of positive non-interventionism, said that there is little it can do. The Government's statement shows that it is shirking its responsibility and is incorrect. This may be a cue from the Financial Secretary that we should not "positively intervene" in the work of the Government. A small move on the part of the Government can in fact have a profound psychological effect. The Government should not look at figures on the book and ignore the psychological factor, the impact of which will be much greater.

In 1993 when the Government scrapped the duty on cosmetics, all cosmetics trade associations promised to cut price by 10% to 12% in the following year. Eventually, in 1993, the total value of imports in 1993 was increased by 40% whereas the total value of imports in 1994 was increased by more than 30%.

On the contrary, lawful sale of cigarettes in 1991 after the tobacco duty had been doubled dropped by 30% leading to a large amount of cigarettes being smuggled into Hong Kong. Revenue from tobacco duty in that year had only increased by 15% compared with the year before. In 1993, specific rate on tobacco was further increased by 9.5%. But the actual revenue was $0.6 billion less than expected. The revenue that the Government had lost went to the pocket of the illegal dealers. The Government's revenue has dropped on the one hand, yet not much actual effect was seen in terms of improvement of the people's health, which was put forth as a ground for raising tobacco duty. Today, tobacco dealers estimate that there are 30% of smokers who are still consuming cigarettes smuggled into Hong Kong. Did the Government calculate how much revenue from tobacco duty it had lost over the past few years?

Similarly, ad valorem duty on alcohol was introduced in 1994. It was originally expected to fetch $1.3 billion in revenue. But this duty led to a drop in the sale of high-priced alcoholic beverage. The revenue from this kind of duty in a year was only $0.9 billion, almost 30% less than expected. A similar situation was observed in the motor car sector. Various kinds of duties, fines and big increase in tunnel tolls have all dampened people's desire to purchase cars. There was almost a 20% drop in the sale of cars from 1992 to 1994. The sale of private cars during the first nine months of this year has dropped by more than 30% compared with the same period last year. Can the Government be indifferent on seeing that these trades are suffering loss? Is the Government proud of seeing less revenue for the Treasury?

Obviously, the Government's tax policy can influence the market development. The Government must seriously review whether these arrangements have any negative effect on the Hong Kong economy. If they do, the Government must have the courage to make changes.

Tax cut gives us an instant impression that the Government will incur losses. But the above examples illustrate that tax increase will lead to reduction of revenue while tax cut will stimulate the economy and revenue will be increased. Why not take a measure that will give us two advantages?

The tax issue I have just said illustrates that the Government can influence the market by different taxation policies. This depends on the Government's willingness to do it and how to go about it.

Tax concession or the relaxation of unnecessary regulation will stimulate the economy and increase employment opportunities. In Singapore, for instance, a different kind of incentive is given to employers who have hired elderly workers so as to encourage them to employ more elderly workers. The Hong Kong Government can also attract factory operators to establish their factories in Hong Kong by offering tax concession so that more local workers can get jobs. It can also expand the concept of industrial estate so that not only large-scale industries can develop in the industrial estate. These are other suggestions that are worth considering.

Mr President, with these remarks, I support the original motion.

MR CHENG YIU-TONG (in Cantonese): Mr President, I am against the Honourable James TIEN's motion in relation to reduction of corporate profits tax. The reason is very simple. During economic recession, people in the business sector ask for reduction of corporate profits tax. But during economic growth, they never ask for increase of corporate profits tax. Last year, the Financial Secretary delivered the budget under the title of "Managing Prosperity". However, after a little more than a year, I think it will be more proper to retitle it "Mismanagement to the Retrogression of Prosperity".

I have no intention to deny the contributions of the Government in its management of finances, nor dare I negate the economic achievement of Hong Kong. I only query whether the Government is "robbing the poor to subsidize the rich". During the last decade, the gap between the rich and the poor has been getting wider and wider. The Government only knows how to protect the interests of the business sector but neglects the interests of the lower strata of the community, not to say restoring wealth to the people. The entire taxation system is built on unjust social principles!

At present, the corporate profits tax is paid according to a fixed rate irrespective of the amount of profits earned by the companies. As a result, even though the business sector is earning huge profits, it is unable to shoulder the responsibility of reasonably paying back to society. Besides, the taxation policy of the Hong Kong Government is obviously in favour of the business sector. The government income from corporate profits tax last year was 20% more than the previous year. But this year's income exceeds last year's by a drastically reduced margin of 3.6%. On the contrary, the income from salaries tax last year was only 4% more than the previous year. But this year's income exceeds last year's by a much wider margin of 11%. This demonstrates that the proportion of salaries tax as a component of the total income from direct taxation is getting larger, while the proportion of corporate profits tax is getting smaller. In fact when we look back, this taxation policy of the Government should be even more obvious. A moment ago, the Honourable Miss CHAN Yuen-han also mentioned that in 1980, corporate profits tax accounted for 60.5% of the total income from direct taxation. But in 1992, it dropped to as low as 48.5%. In contrast, the proportion of salaries tax has increased from 18.7% to 41.3%. No wonder some employees earning meagre income have been caught in the taxation net. Mr President, I would like to ask Honourable Members whether this taxation policy of the Government seeking to protect the interests of the business sector can be regarded as "proper management of finances"?

In the past any proposal to reduce the rate of corporate profits tax would of course be most welcome to the business sector. However, whenever there was a proposal to increase the rate, they would raise various kinds of objections on the grounds that this would "hamper foreign investment and weaken the competitiveness of Hong Kong". As a matter of fact, low tax rate is not a main factor for consideration by the investors. Relatively speaking, what is even more important is the overall investment environment which includes: stability of society, soundness of the legal system, quality of labour, provision of skills and so on. Slight adjustment of the profits tax rate, in fact, will not alter the "low tax rate" nature of Hong Kong. In regard to the profits tax rates of the Four Little Dragons of Asia in 1994, it was 34% for South Korea, 27% for Singapore and 25% for Taiwan. Comparatively speaking, the 16.5% profits tax rate for Hong Kong was by all means still on the low side. However, the gap between the rich and the poor in Hong Kong is the widest among the Four Little Dragons of Asia. In this connection, Mr President, I would like to ask Honourable Members whether Hong Kong can be regarded as "prosperous and progressive"?

Mr President, I would like to take this opportunity to specifically point out that Members from the Democratic Party, who always put it about that it is their responsibility to care for people's livelihood, have suddenly altered their image of defending the grassroots people this time by supporting the reduction of corporate profits tax. Do they really want to turn to speak for the interests of the business sector, or do they really believe that reduction of the corporate profits tax rate from 16.5% to 16% can greatly stimulate the economy of Hong Kong and speed up investment? I cannot figure it out indeed.

In view of the high inflation rate of Hong Kong at the present moment, I reckon that increase of the proportion of corporate profits tax as a component of direct taxation can alleviate the pressure from the Government's increase of various kinds of indirect taxes and charges. This will have a positive effect on curbing inflation.

Based on the belief of "fairness" and "redistribution of wealth", I request that the Government should increase the corporate profits tax rate by not less than 1%, and should increase the personal allowance for salaries tax to $96,000.

Mr President, these are my remarks.

MR RONALD ARCULLI (in Cantonese): Mr President, as a matter of fact, I wanted to speak last but, having thought it over, I think I had better speak earlier. It is because I would like to call on colleagues in the Legislative Council to support the Honourable James TIEN's motion while they are expressing their views.

Some colleagues remarked that they would adopt a policy which says no to the original motion and the two amendments today. If this "triple no" policy is successful, it will turn out to be a policy which deprives us of the chance to play a part. Some colleagues said that the proposal of a tax break by the Liberal Party is unfair to wage earners who are paying salaries tax. Mr James TIEN suggested the lowering of the profits tax by 1.5%. 1.5% of 16.5% is roughly equivalent to 9% but against the 15% salaries tax, this 1.5% stands for 10%. As a matter of fact, the reduction in salaries tax for wage earners will be greater than that in the corporate profits tax. This is the first point.

Secondly, Members may forget that in our meetings with the Financial Secretary in the last couple of weeks, he has provided us with a great deal of information. Where salaries tax is concerned, there are now some 1 million people paying salaries tax but the 100 000 people who pay salaries tax at the 15% standard rate contribute 58.7% of the total salaries tax. Is it fair that these 100 000 people who make up a mere 10% of taxpayers are paying 58.7% of the total salaries tax? The community or the media do not have much discussion or coverage on the Liberal Party's proposal regarding the tax band. Perhaps they know nothing of it or we were negligent in not letting them know. But we have expressed our views on the tax band and the personal allowance for salaries tax as well as the Government's budget. Yet, this debate today does not concern the Government's revenue estimate for next year. It is about what we should do under the existing economic environment in Hong Kong.

Lastly, I would like to bring one thing to Members' attention. As we are making demands in respect of tax, different Members of different parties may have to vote in a way which is somewhat contrary to their own demands. Yet, under all circumstances, if Members support the amendment of the Honourable CHAN Kam-lam or that of Dr the Honourable LAW Cheung-kwok, I have the feeling that you will feel sorry for what you did sooner or later. (Laughter) If you support their amendments, the Financial Secretary will be very happy for this will close the door on further demands for a tax break. Such being the case, even though you do not support Mr James TIEN's motion, you must not support the amendment of Mr CHAN Kam-lam or that Dr LAW Cheung-kwok and please abstain when it comes to the vote on Mr James TIEN's motion so that we, the Liberal Party, will have a smooth transition. (Laughter)

Thank you, Mr President.

MR CHAN WING-CHAN (in Cantonese): Mr President, I will speak solely on the amendment proposed by Dr the Honourable LAW Cheung-kwok, not because his amendment is appealing but because many other Members have already spoken of many things.

Mr President, in view of the fact that the Government has a huge fiscal surplus now, that there is a high unemployment rate in the territory, and that the general public, in particular, the labour sector, which constitutes the lowest class in the community, is now facing a comparatively difficult situation, the Federation of Trade Unions supports the concept of "returning wealth to the people" proposed by Dr LAW Cheung-kwok. That is to say, now that our society has such a need, the Government should inject part of the wealth amassed from society back to society. However, I have reservations about Dr LAW Cheung-kwok's proposal of distributing part of the wealth to the residents of Hong Kong on an equitable basis.

The Federation of Trade Unions has always agreed that the wealth of society should be handled in line with the principle of redistribution. The poor and the vulnerable in society should be given particular attention whereas the rich should take up greater responsibilities for taking care of the poor and the vulnerable. In this connection, Mr LI Ka-shing and Mrs Anson CHAN whom Dr LAW Cheung-kwok mentioned earlier should not be the beneficiary of this proposal of "distributing money". Based on this principle, we do not agree that "returning wealth to the people" is tantamount to distributing wealth to residents of Hong Kong on an equitable basis. We are of the view that the wealth which is to be returned to the people should be given out to the poor, the vulnerable and the needy in our society. This end can be specifically achieved through specific social welfare and relief measures such as medical subvention or unemployment assistance. For this reason, I oppose the amendment of Dr LAW Cheung-kwok and support Mr CHAN Kam-lam's amendment.

Mr President, these are my remarks.

MR MOK YING-FAN (in Cantonese): Mr President, today, we are supposed to discuss how to improve Hong Kong's economy and the labour problem. But having listened to the debate more carefully, I find that what Members have been discussing is really the question of "money". I think Members know it very well that once we come to talk of money, what one will say depends on what position one is in. The businessman of course hopes that profits tax can be reduced because as he makes more money, he will wish he could pay less tax to the Government. However, I believe that to the general public, this is very unfair. Later on, we may have to pay more even for taking a public light bus because the Government is talking about improvement to air quality, so that when public light buses switch to petrol, the cost will certainly be passed onto consumers, that is, those who take public light buses.

Mr President, over the past 20 years, with the rapid developments in technologies, transport and computer information, the world has evolved into a single market. Hence, Hong Kong's economic competitors are from places all over the world. Nevertheless, the Government has failed to make suitable overall and forward planning according to the developments in the world market, and what is more, inappropriate development policies in respect of population and human resources have been adopted. The result is that the workers of Hong Kong have fallen victim to shaky political confidence and the rapid structural transformation of the industrial and services sectors, so that the unemployment rate keeps on rising.

However, the basic conditions and assumptions on which the Honourable James TIEN bases himself in dealing with the two current and major issues of Hong Kong's economic slowdown and unemployment are:

(1) since Hong Kong has a huge accumulated fiscal surplus, it is not necessary at this stage to maintain the growth of the fiscal surplus by means of maintaining the profits tax rate and the salaries tax rate;

(2) the profits tax rate and salaries tax rate of Hong Kong are too high and they affect the economy of Hong Kong and result in an unfavourable business environment.

On the first point, we of the Hong Kong Association for Democracy and People's Livelihood (ADPL) agree only to the extent that, with Hong Kong's huge accumulated fiscal surplus, we should make good use of it to boost spending in Hong Kong, promote economic development and create job opportunities. For this reason, the ADPL proposes to "return wealth to the people" which is meant to stimulate Members' thinking in this aspect. But we have to make it clear that "returning wealth to the people" is not the only means to the above end. What we hope is that through discussions and drawing on the collective wisdom of this Council, we can endeavour to achieve the above end.

However, the ADPL does not think that lowering the profits tax rate and salaries tax rate can effectively promote the economic development of Hong Kong and create job opportunities. As a matter of fact, the present unsatisfactory economic and investment environment of Hong Kong has led to stagnation of economic development and unemployment of a large number of workers. Just as I said at the very beginning and according to DR the Honourable LAW Cheung-kwok's analysis, the situation is absolutely not the result of the profits tax rate and salaries tax rate being too high. The reasoning behind the motion moved by Mr James TIEN has incorrectly assumed that as long as profit-gaining companies and high income earners can retain in their pockets more profits or money by way of tax reduction, then the re-investment and spending by these "first money-makers" will enable the social wealth to filler down which will lead to the economic development and job creation of Hong Kong.

I take the United States as an example. In the days of the Reagan Administration, Ronald REAGAN also overlooked the macro-economic shift of the world and believed in the "filtering down" theory. Hence he implemented the tax reduction policy, thinking that the benefits tax reduction brought would "filter down" to the poor and everyone in the community would eventually benefit from it. But the result showed that not only had REAGAN's tax reduction policy sown the evil seed of an ever-rising fiscal deficit, but it had also led to the United States Government's financial stringency. Hence it entered the loan market to grab money, which resulted in the continuous rise in interest rates. With interest rates staying high and investments on the decline, the unemployment rate kept on rising. Furthermore, those who had grown richer because of tax reduction only transferred to other regions (both inside and outside the country) assets and profits they had gained so as to go for a higher return in profits. Between 1949 and 1959 and between 1979 and 1989, the United States economic growth in real terms fell from 3.8% to 2.6%. Between 1973 and 1989, the median household income in real terms failed to grow and, in 1988 United States dollar terms, there was only an increase of US$82. During the same period, the number of jobs in the high-paid manufacturing industries of the United States kept on diminishing, and the number of jobs in the low-paid retail and services sectors was increasing. And, what is more, there was a 59% rise in newly created jobs in the period between 1979 and 1984, the annual salary of which being less than US$7,000. This widened the gap between the rich and the poor.

Therefore, the motion moved by Mr James TIEN merely serves to rationalize the unfair social structure and widen the gap between the rich and the poor. The ADPL is of the view that the profits tax rate must not be lowered any further. And in order to have the upper and middle class people bear more responsibility towards the community, the ADPL recommends that a mild progressive scale of tax rates should be adopted instead. For the sake of protecting the middle to low-income people, the Government should increase the personal tax allowances and should not lower the salaries tax rates any further. In the long run, the Government should work towards the goal of improving the quality of the human resources of Hong Kong.

With these remarks, I oppose Mr James TIEN's motion and support the amendment motions moved by the Honourable CHAN Kam-lam and Dr LAW Cheung-kwok.

THE PRESIDENT'S DEPUTY, DR LEONG CHE-HUNG, took the Chair.

MR ANDREW CHENG (in Cantonese): Mr Deputy, before I start to deliver my speech, I would first like to express my admiration towards two Members.

The first one is the Honourable CHIM Pui-chung who is a bigwig of the financial services sector. Earlier on Mr CHIM said that during the debate we should focus our attention on those Members who have proposed a motion or an amendment but it seems that Mr CHIM has contradicted himself. He spoke about Dr the Honourable HUANG Chen-ya and he criticized the Democratic Party. Dr HUANG Chen-ya is the Democratic Party's spokesman on economic policy and I am deputy spokesman. Dr HUANG has just returned to this Chamber, and he may add his observations after I have spoken if he wishes to. I thought that since Dr HUANG was not in this Chamber, I, being his deputy, should say something. The Democratic Party has often been criticized for being completely ignorant, devoid of any merit and only looking after the interests of the middle and the lower class. However, when we make concrete proposals or have a specific stance on economic development, for instance, when the Honourable LAW Chi-kwong and Dr HUANG Chen-ya state their positions, we will often be labelled as collaborating with the industrial and the commercial sector. I hope that Mr CHIM will take a closer look at our position before making criticisms.

The second Member whom I admire is Dr LAW Cheung-kwok. His courage is worthy of my admiration. He persists in putting forward the proposal of "distributing money" and he circulated his article in this Council again to tell us his position in the hope that we will support him. I wish I could learn to be as persistent as he is because I have stated clearly in my political platform that I will fight to implement the proposal to "give tax concession to first-time home buyers". I wish I could learn to adopt his attitude today and persistently fight for this course on behalf of the Democratic Party.

As regards my response to the Honourable James TIEN's motion to reduce the rate of salaries tax, I wish to focus on less controversial issues, namely, the proposal to reduce salaries tax and the proposal to give tax concession to first-time home buyers.

Mr Deputy, to the home buyers, the larger portion of their mortgage repayment will go to interests. Therefore, the Democratic Party proposes to introduce "tax concession on mortgage interests for first-time home buyers" (referred to as "tax concession for first-time home buyers" below) in the calculation of salaries tax in the financial year 1996-97 so that the heavy burden of the sandwich class to pay interests will be slightly alleviated.

This kind of tax concession is actually in line with the principle of a number of schemes which the Government has now adopted, for example, the Sandwich Class Housing Loan Scheme administered by the Housing Society and the mortgage subsidy scheme offered by the Government. However, it seems that the number of persons who can benefit from schemes offered by the Housing Society and the Government is very limited. The former scheme mainly helps sandwich class families who have no fewer than three members and the scheme is subject to a quota. Although the mortgage subsidy scheme offered by the Government provides subsidy for mortgage interests directly, unfortunately, it aims at helping full-time employees of aided schools, grant schools and health authorities only. Mr Deputy, the Democratic Party wishes to emphasize that tax concession on mortgage interests is offered by many countries including Britain, the United States and Taiwan.

I would like to describe this proposal of giving tax concession in detail. The tax concession to be given to first-time home buyers will be half of the total amount of mortgage interests they have paid each year, with the maximum threshold being $100,000 per year, to be given for a period of five years. Applicants should be first-time home buyers who actually occupy the flat. In this regard, the Financial Secretary has discussed with me and asked me whether I have any specific suggestions to verify that applicants are first-time home buyers. I believe Members of this Council will not have the slightest doubt regarding the ingenuity of the Financial Secretary and Mr Anthony AU-YEUNG, the Commissioner of Inland Revenue, who will surely think of ways to ensure that applicants will not give false particulars. One of the feasible measures will be to require applicants to swear or affirm the particulars contained in their applications and make it a criminal offence to declare false particulars in such applications. Besides, we propose to make it a requirement that the annual income of each applicant should not exceed $300,000 and that buyers of Home Ownership Scheme flats, public housing units and those who are receiving government subsidies for mortgage interests will not be eligible to apply for such tax concession.

This kind of tax concession will alleviate the burden of first-time home buyers. For instance, for a family earning an annual income of $300,000, if they can obtain $100,000 tax concession for first-time home buyers under the present tax band and threshold, they can save about $20,000 per year which would otherwise be paid as tax. I believe that, to the middle and the lower class, this move would be like "offering charcoal on a snowy day".

The Democratic Party supports the Government's policy to stabilize property prices so that the public's wish to own a home can be fulfilled. The tax concession for first-time home buyers which we propose will not only avoid property speculation, but will also take care of the interests of the middle and the lower class because there will be an earnings limit and the concession will only be given to first-time home buyers who buy flats for their own use. Besides, I will reiterate that this tax concession will not be very helpful to those who cannot afford to pay the down payment. Therefore, the introduction of such tax concession will not lead to an upsurge in property prices.

In fact, the Legislative Council has had a motion debate on the issue concerned early this year. Therefore, on behalf of the Democratic Party, I urge the Government once again to look into the matter. I will also keep learning to be as persistent as Dr LAW Cheung-kwok and demand for the introduction of tax concession for first-time home buyers.

With these remarks, I support Mr James TIEN's motion. Thank you.

MR LEE CHEUK-YAN (in Cantonese): Mr Deputy, I would like to respond briefly to the points some Members have made in the debate just now.

First, the Honourable James TIEN says that the tax concession he proposes is not to pay out to the rich class but he hopes that the economy will be stimulated and jobs be created through this means. But I feel that such saying is not too proper as it postulates a policy of "robbing the poor to help the rich" in the name of the poor. Recently, we have seen the business community going for tax cuts, wage curbs and "slimming down". It is a worrying tend. Tax-cutting is the issue that we are discussing today; wage curbing is indicated by the General Chamber of Commerce's proposal to set the rate of wage increase no higher than 8%. This is not only happening this year. In the past the Chamber used to make such an appeal every year, calling upon its members to curb wage rises for their staff by setting increases at "inflation minus 2%". The third is "slimming", that is, cutting staff. What is most unfortunate now is that an unprofitable organization would reduce its staff but a profitable organization would also cut its staff. Profitable organizations like the Hong Kong Telecom and San Miguel Brewery as well as the not so well-off Fairwood are all trimming staff. All organizations are "slimming down", cutting costs to increase profit. Therefore, we are worried that even when the taxes are lowered, they may go on "slimming down" because this would be only natural. Man should work in furtherance of his interests and thus it is very natural for investors to go after bigger profits. Therefore, after the taxes are lowered, if employers cut the wages further and "slim down" again, who will be benefited in the end? This is my first major question.

The second question is: I feel that the entire tax system is very simple and its purpose is to provide the Government with income to spend. The question is in what way the revenue is to be generated. Concerning the profits tax, the Honourable Mrs Selina CHOW has mentioned just now that small businessmen are also having great difficulties as they are not rich. I totally agree with her point. But I cannot help but ask: Why should we not levy the profits tax based on a progressive scale of rates? Why is it that small businessmen have to pay a 16.5% profits tax while big consortiums like the Hong Kong Bank which has a profit of $20 billion also pay the tax at 16.5%? If things are according to what Mrs Selina CHOW says, we might as well introduce progressive tax bands to lighten the burden of the small businessmen. Many a time Members say they are making pleas on behalf of small and medium-sized businesses. So they might as well really do something for them by proposing to adopt a progressive rate system so that small businessmen would pay 1.5% less tax. Then the tax would be progressively raised so that big consortiums which, as the Honourable CHIM Pui-chung has observed, have made profits could afford to shoulder more social responsibility. I feel that only in the way can the gap between the rich and the poor in the present society be really narrowed. In fact, the tax system is more than just to collect taxes; it is also a mechanism to bridge the gap between the rich and the poor.

Thirdly, during the entire debate just now, Members have stressed the spirit of "people in the same boat helping one another". I do not see any problem as far as this spirit is concerned. The real problem is: From the angle of the labour sector, no one can feel the existence of such spirit. In my mind, I see a boat in which everyone is rowing hard. And then, I think of a cartoon in which the Honourable Paul CHENG is riding in the first class cabin of a ship and crying out, "If you do not let me import workers, I will jump onto the de luxe life-boat", meaning that he will relocate his factories to other places. He already told us yesterday that if labour importation was banned, he would leave. Under such circumstance, how can we feel the spirit of people helping one another? I feel that if we are really to help one another, we must show our sincerity and stride forward. Then we can feel this spirit.

Another incident is also related to ships. Eight staff of the Hong Kong Ferry are going to sleep outside the company tomorrow in protest against not receiving any compensation when they were laid off after working for the company for over 10 years. The reason relied upon by the company is that they were formerly seamen and, according to labour ordinances, there is no need to give compensation to seamen upon termination of their services. However, these people worked on the ferries of the company instead of ocean liners. Under such circumstance, where is the spirit of helping one another? If the spirit of helping one another is observed, there should be dialogues and discussions. When the employers try to "slim down", do they discuss it with the workers? The reality is that, there is no discussion at all. Once the order is given, the staff are sacked.

I sincerely hope that all concerned will give the workers a chance to talk things over. If one feels the need to help one another, one should discuss with one's staff before getting rid of them. One should not just give the order and go straight ahead. I feel that most of the time the employees do understand the difficulties of the employers. For example, I know of some workers whose employers are behind in the payment of their wages for four or five months. I asked them why they would let their employers do so. They said that they wanted to help out and hoped that their employers would be able to make money later. They are really helpful. Even though they have not been paid for four or five months, they still understand. Is this not helping one another indeed? Therefore, I hope that when one talks about helping one another, one should not just pay lip service but should take some concrete action and show one's sincerity. From the angle of the workers, I want to ask, "Have you ever loved me?" If Members can tell me of one matter which shows that employers have the interests of workers at heart, then I can tell the workers that the employers are really willing to walk side by side with them, for better or for worse. I truly hope that I can receive some positive messages and be given real examples in future discussions which can help the "wage earners" of Hong Kong and can allow me to tell them that the employers are really observing the spirit of helping one another.

Thank you, Mr Deputy.

DR SAMUEL WONG (in Cantonese): Mr Deputy, both the original motion and the two amendments seek to ascertain whether the economic development of Hong Kong can be promoted and whether more employment opportunities can be created.

First of all, can the returning of part of the accumulated wealth to the people of Hong Kong on an equitable basis promote the economic development of Hong Kong? I am not an economist and I have no intention to utter a prediction. However, I am definitely sure that it cannot create more employment opportunities. The reason is simple: most people would put the money they share, be it $5,000 or $10,000, into the bank to meet urgent and unpredictable needs in the future. I therefore will certainly not support the amendment moved by Dr the Honourable LAW Cheung-kwok.

By the same token, the first part of the Honourable CHAN Kam-lam's amendment aims at urging the Government "to make good use of its fiscal reserve". I totally agree with this view. However, regarding the other part of the amendment, that is, the raising of the personal allowance for salaries tax, it may seem to be worthy of support at first blush. However, by putting only such a minimal amount of money back into people's pockets, can economic development be promoted and employment opportunities be created? I beg to differ.

The original motion urges the Government to lower the corporate profits tax immediately, in order that more employment opportunities can be created. I do not think that I need to say further as to the effectiveness of this measure. Some people hold that the public coffers are already "awash with cash", and less tax should be collected in the future so that the economy can be stimulated. Such being the case, I would rather see the Government allocate some more funds to train up our local labour force to cope with the advanced technology and to meet the demand of an ever-advancing society.

The families of Hong Kong have an excellent way of teaching and guiding their children: it would be better to educate them so that they are equipped with some skills than to share the family wealth with them because they may be swindled out of that money. However, if they receive good education and good training, they would then be skilled in some kind of work. Similarly, instead of distributing $5,000 to the people, let us help those in need by providing them with skill training that is valued at $10,000 each person.

Early last month, I had the opportunity to attend the Annual Conference of the British Labour Party held in Brighton where I was glad to listen to the speech made by the young Labour Party leader. I would like to share with Members some of his thoughts: "technology advances by leaps and bounds and education is for life. Education does not stop when you walk out of the school gates for the last time. We must understand that the more you learn the more you earn. The use of new technology, the mobilization of information power and the enhancement of employment opportunities are the best means to create wealth".

Thank you, Mr Deputy.

MR FRED LI (in Cantonese): Mr Deputy, the Hong Kong economy is obviously slackening. The Government's projection of GDP growth for 1995 has been readjusted from 5.5% to 5%. The latest figure is 4.8%. This growth rate is not only lower than the figures from 1991 to 1994 but also compares poorly with our neighbouring countries such as Singapore, Taiwan and Korea. Our economy is slackening while the unemployment rate is on the rise. Unemployment and underemployment in June and July were 3.5% and 2.5% respectively, representing a rise of 3% and 2% respectively compared with the period from May to July. Besides, applications for liquidation and bankruptcy have increases tremendously while the number of newly registered companies has also dropped. To our disappointment, the Government is still sticking to the laissez-faire policy which excludes the adoption of fiscal measures to adjust the economy.

Faced with an economic downturn and abundant fiscal reserves held by the Government, the Democratic Party is of the opinion that the Government should alleviate the tax burden of the middle and lower classes. In so doing, their living standard can be improved, and on the other hand, their disposable income can be increased. This will in turn stimulate consumption and accelerate the revival of the economy.

Our proposal of tax cut is mainly targeted at the middle class, the disabled and the single-parent families.

Firstly, the existing tax bands system places a greater burden on the sandwich class. The Democratic Party suggests that for the year 1996-97, the first and second tax bands should be $40,000 respectively and the tax rate for each band should be 2% and 9% respectively. The residual taxable income should then be subject to the current marginal tax rate of 20%. Should the Democratic Party's proposal on the tax bands be accepted and the personal allowances be raised to $91,000, the middle income group and the sandwich class will benefit the most, who will have their tax bill cut by more than $6,000.

We propose that the personal allowances be adjusted in line with the median wage and the inflation rate. So we propose that the personal allowances for the year 1996-97 be $91,000, representing a 15% increase compared with the personal allowances of $79,000 in the year 1995-96. This proposal will enable 100 000 lowly-paid taxpayers to be exempted from taxation.

Besides, the Government has only adjusted the personal allowances in line with the inflation rate during the past couple of years. Although the personal allowances were not eroded by inflation, people were unable to share the fruit of economic success. They can barely catch up with inflation. So the Democratic Party considers that, having regard to the healthy financial situation and the need for economic development, all items of allowances can be increased in line with the growth rate in per capita income, that is 13.5%. In other words, allowances are adjusted in line with inflation rate and the economic growth rate. So the dependent parent and grandparent allowance should be increased to $31,800 and the allowance for the first and the second child should be $25,000 respectively.

In regard to taking care of the vulnerable, we proposed that an allowance be given to individuals who have to take care of disabled dependants. The Government, in the last financial year, took our advice and introduced a new allowance for a disabled dependant. But it is a pity that the allowance is too low, only $11,000, which is far from enough to alleviate the burden of a person who has to take care of disabled dependants. When a family has to take care of a disabled dependant, it will suffer a heavier financial as well as emotional burden. The current allowance for a disabled dependant is not enough to meet the long-term expenditure for a disabled family member. So we proposed that the allowance for a disabled dependant be one half of $91,000 for a single person. So it will be $45,500 for the year 1996-97.

Meanwhile, we also suggest that an extra allowance for a working disabled person be introduced in order to encourage the disabled to find employment. The allowance will be one half of that of a single person, that is $45,500.

The expenditure of a single-parent family is no less than the expenditure of a double-parent family. It may even be greater. In a double-parent family, there two parents working for a living and the duty of looking after the children is also shared by the two of them. However, a single parent has to look after his/her children and support the family alone. In view of this, it is not justified to grant a lesser allowance to a single-parent family. The current allowance for a single-parent family is only 50% of a double-parent family. It is really unreasonable. We suggest that allowance for a single-parent family be increased from $40,000 to $91,000, in order to bring it in line with the allowance for a double-parent family.

The above suggestions on taxation can reflect that the Democratic Party is not going to make the rich better-off. Instead, we want to help the needy. On the contrary, the Hong Kong Association for Democracy and People's Livelihood's proposal of distributing money does not focus on people's needs, because everybody, no matter the rich or the poor, will get $5,000. Although it is called a proposal aimed at returning wealth to the people, it is in fact at variance with the wealth-redistribution principle of the progressive tax system.

Mr Deputy, I would like to discuss briefly another main point of this motion debate, that is, the Government's fiscal management principle. The intention of our proposals, whether they be proposals of reducing the corporate profits tax or the salaries tax or money distribution, is to urge the Government not to sit tight on the huge reserves. I hope the Secretary for the Treasury, when making response, will not reiterate the principle of balanced budget and maintaining a robust reserve. We should always maintain a large amount of savings to prepare for a rainy day. But when will the rainy day come? I think the Secretary for the Treasury should provide a reasonable explanation. A deficit budget is not impossible. It did come up last year. However, in the event, we did not have a deficit in that year. Why should we maintain a balanced budget in a situation where the economy is slowing down and a robust reserve is being kept? What is the definition of robust reserve? I remember that in early 1992 when I proposed a motion debate, I urge the Government to set up a broadly-represented tax review committee to look into the Hong Kong taxation system across the board. The review should cover the tax regime, concrete measures to widen the revenue base and the impact of our taxation system on Hong Kong. I think this recommendation is still a sensible one. The taxation system should be reformed in line with social changes. We have not reviewed our taxation system for more than a decade. I therefore call on the Government to undertake this task.

With these remarks, I support the Honourable James TIEN's motion.

THE PRESIDENT resumed the Chair.

MR IP KWOK-HIM (in Cantonese): Mr President, two of my colleagues have today initiated motion debates in regard to the poor economic situation of Hong Kong and how to increase employment opportunities. We can see that these problems are really harassing the Hong Kong people. An accountable government definitely cannot sit by idly and remain indifferent.

Entering 1995, the objective environment of Hong Kong has already changed. The industries and service trades in Hong Kong can no longer keep their favourable positions as in the past; the economy becomes sluggish and the unemployment rate keeps climbing. The newly announced real domestic economic growth for the second quarter marks a plunge to the lowest point in four years ─ only 4.8%, which is even lower than the figure in the Government's yearly forecast. The Financial Secretary reiterated that the present situation of Hong Kong cannot be regarded as economic recession, but only a slackening of the economy, while others described the present economic downturn as an inevitable phenomenon during the economic cycle. Yet this does not necessarily mean that we can stay put and silently wait for the chance to come along when the economic environment will recover naturally.

We should also understand that recently the consumption desire of the public is very low, the market condition is inactive, some enterprises have closed down and some companies have to lay off their staff. The rise in the unemployment rate has brought enormous pressure to bear on society and affected the prosperity and stability of Hong Kong. Thus the Government should, with a positive and pragmatic attitude, work out a long-term strategy with a view to stimulating investment and creating more employment opportunities.

In order to create a more favourable investment environment so that the local and foreign investors can feel at ease to invest here, first of all we must maintain the political stability of Hong Kong. During the past three years, Sino-British relations came to a deadlock due to the political package of Governor PATTEN. This has indeed weakened the confidence of not a few investors in the economic development of Hong Kong. Therefore, our urgent task at the moment is to restore the favourable investment environment of Hong Kong to win the confidence of the investors.

At present, the Hong Kong Government is sitting on a huge amount of surplus. Apart from properly using the surplus to help those in need during economic recession, the Government should also use that amount to speed up the infrastructural projects, especially the construction of the new airport, in order to increase employment opportunities and to stimulate the economic activities of other trades. Besides, the Government can, having regard to the needs of the market, increase its investment in other aspects, for example, strengthening the research and training in respect of new scientific technology.

Apart from the above, Hong Kong will also be similar to other economically developed countries in the sense that its economic development will be gradually dominated by the service industry. To be in line with the development of scientific and technological research as well as economic restructuring, the Government will have to allocate resources to expand and to improve the existing retraining programme so as to provide the market with the necessary manpower. At the same time, in regard to the education system of Hong Kong, efforts should also be put in to enhance the quality of the local workforce.

I believe that after the investment desire of the business sector has revived under the Government's effective measures to stimulate the economy, the competitiveness of the economy of Hong Kong will be restored and more employment opportunities for the local workers will be created.

Mr President, profits tax is a very important source of taxation income in Hong Kong. Hong Kong is one of the areas with the lowest profits tax rates in the world. I reckon that the investors have no reason to believe that the existing profits tax rate is a stumbling block to Hong Kong's competitiveness. The maintenance of the present profits tax rate will only render a brighter investment perspective to the investors. I am extremely surprised by the Democratic Party's support for a profits tax cut. Mr President, although the Democratic Party says that reduction of profits tax is to safeguard the interests of those entrepreneurs with medium to small scale businesses, this absolutely fails to cover up the Democratic Party's intention of currying favour with the major consortia. With these remarks, I support the Honourable CHAN Kam-lam's amendment to the motion.

Thank you, Mr President.

MR FREDERICK FUNG (in Cantonese): Mr President, the views of the Hong Kong Association for Democracy and People's Livelihood (ADPL) on this motion have basically been presented by Dr the Honourable LAW Cheung-kwok and the Honourable MOK Ying-fan in the course of the debate. I just want to respond to the remarks of some colleagues.

First of all, I think the original motion moved by the Honourable James TIEN represents a policy of "three non-guarantees" in that: firstly, it does not guarantee what kind of spending the Government will be having. Why have I said that? It is because should there be a reduction of 1.5% in profits tax or salaries tax this year, then would it be next year or the year after next that tax rates be raised to make up for lost revenue? If it is next year that the rates be raised, then we would have a tax cut this year, a tax rise next year, and perhaps a tax cut again the year after next. This would make our tax system unstable, and the message conveyed would be unclear. Secondly, if there is not going to be a tax rise next year but only a 1.5% tax cut this year, and another 1.5% next year, that would mean a loss of $7 billion next year, and another $7 billion this year, making a grand total of $21 billion in three years. This is the first "non-guarantee".

The second "non-guarantee" is that it does not guarantee that the people of Hong Kong can benefit from it. The Honourable Mrs Selina CHOW has just said that tax reduction makes it possible for the money to be retained in the pockets of members of the public. But just the pockets of which members of the public that she refers to? They are the pockets of major corporations of the business sector! They are the pockets of 200 000 high-income earners! With the present system of salaries tax, only 1.2 million out of the three million workers are paying tax, whereas 1.8 million are not. Furthermore, there are over one million people, including elderly people and recipients of Comprehensive Social Security Assistance (CSSA), who are jobless. Therefore, they cannot benefits from the tax reduction. For this reason, this motion will only bring the greatest benefit in relation to salaries tax to 200 000 high-income earners. If there is money to be retained in people's pockets, it is to be retained in these people's pockets. This is the second "non-guarantee".

The third "non-guarantee" is that there is no way of guaranteeing that these people will make investments, unless this tax reduction measure is accompanied by a provision that money saved in this way will have to be invested on pain of breaking the law. Given that there is no such a basic condition, how can it guarantee that these people will re-invest? My view is that even if they make re-investments, the re-investments will probably be another manufacturing plant to be set up in mainland China instead of in Hong Kong. So, I think these "three non-guarantees" are not acceptable.

I wish to add to Dr LAW Cheung-kwok's comments concerning the returning of wealth to the people. First, where does the money come from? According to the Financial Secretary, in 1991 it was estimated that there would be $78.1 billion in fiscal reserves in 1995-96. But the amount is already $144 billion now, and it has not even included the $8 billion or more in the Land Fund. The point is how this money should be utilized, irrespective of how the Government has accumulated it. We feel that there is the need to set up a mechanism to prevent the money from being squandered away. We feel that we ought to make sure that there is sufficient reserve to meet public expenditure for one year before we may make use of the remainder. But the question is how it can be made use of?

We feel that the target group to benefit from returning wealth to the people is "people", not poor people or rich people, but Hong Kong people. If you happen to be a Hong Kong citizen, you will be entitled to it. This is a matter of right. No one can say for sure whether the $20 billion comes from salaries tax, profits tax or land sales. Perhaps there are people who work very hard, only to earn very meagre wages, whereas some money is in fact not available to them. For this reason, I feel that people should have the right not just because they are poor, for if that should be the case, this motion should not be like what it is; instead, it should be rewritten as a motion to increase the CSSA.

Second, according to some people, a number of labour organizations have pointed out that this move, though it bypasses the tax system, would have the effect of redistributing wealth. But this motion is not asking for a redistribution of wealth. This motion does not seek to do that. But is it the affect that the motion does not in the least seek to do that? Not exactly so. Why is it? It is because when everybody gets $5,000, Mr LI Ka-shing gets $5,000, and I get $5,000, too. In terms of proportion, what I get is clearly more than Mr LI Ka-shing's. Therefore it is not exactly the case that it will not effect a redistribution of wealth, only that the effect is not very marked. But one cannot say that there is no such effect. This is the second point.

The third point I want to raise is whether Dr LAW Cheung-kwok's motion will help economic development and increase employment. If I remember correctly, Hong Kong's GDP comes to about $1,000 billion. So, $20 billion is equivalent to 2%. If we ensure that all $20 billion is spent, the GDP of Hong Kong will then rise by 2%. Now in what way should we achieve that? Giving out money is one way, the spending coupon mentioned by Dr LAW Cheung-kwok just now is another as it ensures that the entire amount can be spent. This is a way which clearly will increase economic growth. The question is whether or not, in the cycle of economic growth, job opportunities can be created. And that will depend on what estimation Members as well as we, the ADPL, are able to make. It is our estimation that it can, and therefore what we propose is relevant to the subject.

There are people who say that such kind of proposal was unheard of. Things unheard of are not necessarily things that people in the world have never done, and things never done by people in the world are not necessarily things that cannot be done. This has been done in Singapore. Members may find it laughable, but Members might not have known that in Singapore, about $200 to $300 in Singaporean currency is put aside as provident fund. In Alaska, the same has been done. But since when did Alaska begin to do it that way? Years ago I happened to visit Alaska, and I saw that there was a sudden and sharp rise in the financial assets of the State Government of Alaska after Alaska had struck oil. So, the State Government gave each Alaskan citizen who had resided in Alaska for over one year US$300 to US$400 at the end of every year, and in 1991, the sum was raised to as much as US$1,000. Should we laugh at Alaska for its ignorance or stupidity? Such a move might have its political purpose, for example, the extra money might have been used to achieve some economic or political purpose. But this is something that can be achieved, and we must not conclude too soon that it cannot be done.

So, apart from the above few points I have made by way of views added, I would agree with the amendment motion moved by the Honourable CHAN Kam-lam. By agreeing, I mean that our principles are in fact the same, and they differ only in form. He asks for an increase in tax allowances, which in essence is actually giving out money to members of the public. The difference lies merely in how the money is to be given out to members of the public. His way is to take less from the people, and my way is to give them money directly. It is just a matter of difference in form, but the principles are the same. For this reason, I cannot see why Members would oppose it. Conversely, let me ask the Honourable Fred LI this. As he often asks for more tax allowances whenever he speaks, why then should he oppose the motion moved by Mr CHAN Kam-lam?

I would like to add this ─ I am really disappointed with the view taken by the Democratic Party. The Democratic Party keeps saying to us that it hopes to have consensus politics. But when I look back, I find that many a time the consensus was reached with the Liberal Party. So far, none has been reached with us the ADPL. The consensus politics we see now is clearly for the benefit of the business sector. I am not against the business sector, but just do not let members of the public come away empty-handed. I often say this: "Who can rival the Liberal Democratic Party?" It is a sure win for the Democratic Party because the total number of votes of the two parties put together is 29. I hope that the Democratic Party can look again more carefully at this motion which is about profits tax and salaries tax, and not about training, CSSA and so on as the party has claimed. These are items for debate in the Budgets to come, whereas today is not a rehearsal for the Budget debate. Let us look at the motion more carefully and note that it is about the huge reserve. Secondly, in what way can we achieve our goal which is the promotion of economic development and increase of employment opportunities? One way, for example, is to reduce tax, and what we are arguing for is to give out money. This is indeed the very subject of this debate. So, I hope that the Democratic Party can reconsider whether it can reach a consensus with us.

MR YUM SIN-LING (in Cantonese): Mr President, I also think that the reduction of profits tax will not directly increase investment and job opportunities and so it cannot achieve the purpose of stimulating the economy. Earlier on, two Members from the commercial sector who fully understand the operation of the capitalist economy have also expressed the view that reducing profits tax will not necessarily increase investment. Besides, we have to understand that if we reduce profits tax this year, we will not be able to increase it substantially straightaway once we feel the need to raise it because this will cause the Government to increase other charges and salaries tax in the future as compensation. Therefore, even if we reduce both profits tax and salaries tax today, there will still be hidden chances of causing harm to the lower class in the future.

I believe people support the reduction of profits tax mainly because they are aware that the Government is holding a huge amount of reserve and they wish to stimulate the economy by increasing investment. If so, I would rather suggest the Government follow the examples of Taiwan and Singapore and try to attract investment by means of the introduction of "tax holiday" (for example, by giving a tax-free period of five years), especially in attracting investment in the so-called "high and new" technology industries. The experience of Taiwan and Singapore shows that the introduction of tax holiday will not only be beneficial to the employment of workers and the economy, but will also contribute greatly to the improvement of industrial technology and the prevention of such technology from diverging from the world standard. Therefore, I think this kind of "tax holiday" can be introduced in Hong Kong. For example, trading companies and companies providing services which employ more than 50 people or manufacturing companies which employ more than 100 people can be given a tax-free period. This will not only facilitate the industrial transformation of Hong Kong, but also fill up the empty space left by the relocation of industries out of the territory. In this way, job opportunities can really be created.

I agree to the basic spirit of Dr the Honourable LAW Cheung-kwok's amendment, but I also agree that it is meaningless to distribute money to people in the middle and upper income bracket.

Therefore, if consumption coupons really have to be distributed to the public, I suggest that they be distributed to the following three classes:

1. All elderly people aged 60 and above, as an expression of gratitude for the contributions they have made to Hong Kong;

2. All recipients of the Comprehensive Social Security Assistance;

3. All tax-payers who have paid tax for three years or more, as a little reward to them for fulfilling their responsibility because many high income earners in the community do not pay any tax, for example, vendors in the market may earn tens of thousands of dollars a month. Therefore, those who have complied with the law and have paid tax for three years or more should be rewarded.

Perhaps some people will still be asking the question of whether distributing consumption coupons will involve giving such coupons to the wealthy people. The answer is yes, but we do not have to worry about this because, if consumption coupons are distributed, the charitable organizations will naturally ask the rich to donate their coupons and I believe many of them will be happy to do a favour at little cost to themselves.

Mr President, although I know that Dr LAW Cheung-kwok's amendment will not be carried, it does not mean that his proposal is bizarre. If certain revisions can be made to his amendment, it will still have something to recommend it.

Mr President, these are my remarks. Thank you.

MR LEE WING-TAT (in Cantonese): Mr President, initially I did not intend to speak. However, after hearing the Honourable Frederick FUNG's speech, I would like to respond. First, Mr Frederick FUNG said there was no consensus. In fact, there is consensus between the Democratic Party and the Hong Kong Association for Democracy and People's Livelihood. Both parties agree to raise the personal allowances of salaries tax and the rates of the Comprehensive Social Security Assistance and to increase the supply of public rental housing units. As far as politics is concerned, both parties approve of democracy. Perhaps Mr FUNG has forgotten about these.

During this week, there have been differences of opinion, but it cannot be said that they are totally incompatible. The Honourable Miss CHAN Yuen-han has mentioned the issues of profits tax and public expenditure to which I would like to respond. Miss CHAN Yuen-han said that from the late 1980s to the early 1990s, when the Government started to reduce profits tax, it reduced public expenditure as well because it did not have money. I believe the Financial Secretary does not agree to such analysis. Neither do I. That is because the public expenditure philosophy of both the former and the present Financial Secretary has nothing to do with profits tax at all. The growth of public expenditure, including that of our social welfare, housing and education, is related to the growth of our Gross Domestic Product (GDP). Therefore, an increase of profits tax will not necessarily mean an increase of public expenditure. Public expenditure will not increase in this way unless the Financial Secretary has abandoned his practice of pegging the growth of public and government expenditure to that of the GDP. That is precisely the so called "golden rule" which the then United Democrats of Hong Kong, the Meeting Point and the present Democratic Party have asked the Financial Secretary, whether he be Sir Hamish MACLEOD or Mr Donald TSANG, to break or abolish over these four years. This rigid method of increasing public expenditure will really reduce the expenditure on social welfare for the lower class. Therefore, I hope Miss CHAN Yuen-han can understand that at present the growth of what is known as public expenditure and social welfare has nothing whatsoever to do with the increase or reduction of profits tax.

Finally, many colleagues including the Honourable IP Kwok-him, Mr CHENG Yiu-tong and Miss CHAN Yuen-han have observed that it looks as if the Democratic Party is not helping the lower class this time. I hope that when we are considering the motion and our speeches, we can have a clear understanding of a few things. First, the overall emphasis of our speeches is to increase the tax allowance for employees in general. According to our calculations, I propose to give the employees an increase of tax allowance which is higher than the 1% or 0.5% reduction in profits tax that we have proposed. In other words, as regards tax concession, we propose to look after the interests of this category of tax-payers first. On this point, I do not agree with my colleagues from the Democratic Alliance for the Betterment of Hong Kong who are arguing that it seems we are not looking after the interests of the grassroots. As far as this question is concerned, people can see for themselves what our views are on such issues as the termination of importation of foreign labour, the increase of expenditure on public housing, or even the payment of the Comprehensive Social Security Assistance Scheme in so far as it relates to the relaxation of the upper limit of cash or the base figure for assets.

Perhaps some colleagues are wondering why the Democratic Party is suddenly having a discussion on the reduction of profits tax. First, we have to discuss what the objectives are behind the general taxation philosophy of the Government. According to the Government's taxation philosophy, first, there has to be sufficient revenue to pay for the recurrent and non-recurrent expenditures; second, there has to be sufficient surplus so that there will be improvement and growth in both kinds of expenditure each year; and third, we should have sufficient reserve to face any crisis and be able to provide a safety net in times of difficulty so that government expenditure will not be adversely affected. We agree that there should be such a buffer effect. Let us take a look at the tax revenues of the Government. Even after all of the three conditions have been satisfied, the present situation is that there is still a lot of money in the Government's pocket. We would like to ask what the Government is going to do with such a large amount of money. A surplus amounting to more than $100 billion that we are having will already be sufficient to pay for the recurrent expenditures for a year. Yet the Government is intent on collecting more money each year. What really is the Government going to do with the money? That is the question and we are not asking for the reduction of profits tax for its own sake. We wish to discuss whether the revenue collected by the Government has already exceeded what is needed. Earlier on, the Honourable LEE Cheuk-yan mentioned reducing the tax burden of businessmen. That is the main reason why the Democratic Party proposes to reduce profits tax. As far as profits tax is concerned, we propose to have a reduction of 1% for businessmen who earn a small profit in order to achieve this purpose. I hope that we will not presume that all businessmen are wealthy. Hawkers selling vegetables in the market, public light bus drivers, taxi-drivers and the small businessmen will not be earning any huge amount of profits each year. Therefore, it is wrong to say that asking for a general reduction of profits tax is helping the big businessmen. Some colleagues said that as regards profits tax there would certainly be other ways to help the small businesses and businessmen. I entirely agree. However, the question is whether we should set down any principles. Having set down the principles, we hope we can then take measures and discuss the matter.

Mr President, I would not go into further detail. However, I think the crux of the question is what we should do to give tax concessions to the small businessmen and the employees having regard to the has huge reserves that the Government has amassed.

Thank you, Mr President. MR HOWARD YOUNG: Mr President, the crux of today's motion is about how to stimulate the economy and create more employment. I will be mentioning in the debate to follow that, in my view, the only people who can create more employment are either investors or consumers.

I was very tempted to bring out some other issues which the Liberal Party did raise with the Financial Secretary when we visited him this week to talk about revenue measures for next year, which included my pet topics of reducing the hotel tax from 5% to 4% and doing something with the airport tax. However, since that is not within the purview of the original motion, I will not bore Members with that.

But I would like to comment on the two amendments to Mr James TIEN's motion. First is the amendment by Mr CHAN which urges the Government to raise personal allowances on salaries tax. I believe this, in fact, is in line with what the Liberal Party did also suggest to the Financial Secretary this week. I have no problem with that. And in fact, had Mr CHAN's amendment been an addendum or attached onto Mr TIEN's original motion, that might even have been acceptable. However, he has taken away the major thrust of the original motion, that is, to reduce taxes. Therefore I shall not be supporting that amendment.

Now, as for the second amendment, Dr LAW's amendment about distributing money, over the last few weeks, I have given a lot of thought to that. I mean, it strikes one as a novel idea and I do not think that one should just write it off completely since Dr LAW says there are precedents both in Singapore and, I believe, Alaska which have tried it before, although I believe the way that Singapore did it was just to boost up everyone's personal accounts in their central provident fund which is different. It is a different concept from what he is proposing today. I do not know what happened in Alaska. The only thing I can think of is maybe someone decided to encourage Eskimos to buy refrigerators in return for messing up the environment by pumping out the oil from underground. But I do not think that that sort of situation is applicable to Hong Kong.

My feeling is that, if you were to suddenly inject $20 billion into the economy, would it stimulate the economy? Now, I did mention that I believe customers are people who can create employment. So, if you had coupons given to everyone, not only with just the rider that you must spend it, but you must spend it on something presumably ─ I think the easiest thing to spend it on is to either go to the races or buy some consumer goods, consumables, within a short period of time. Yes, I think the little knowledge I have of economic theory shows that it could stimulate purchasing and therefore stimulate the economy to some extent. But the other side of the coin is that, and this is even more common sense, to have a sudden injection in liquidity and spending, money spinning round the economy, will also fuel inflation.

So I think one has to ask oneself which is the worse of two evils. Is it high inflation or is it the slowing down of the economy? I think over the past few years, more people have been concerned with high inflation, and with a lot of efforts it has been brought down somewhat. But I do believe that Dr LAW's suggestion, if implemented, would probably have a side-effect of fuelling inflation, which would probably offset more benefits we would have in stimulating consumer spending.

I would add, though, that had he raised this idea in another context, not for sound economical reasons, perhaps 20 months from now, as a celebration of the inauguration of the Special Administrative Region, to make everyone feel good with a freebie all round － if that were put forward as a political move, then perhaps it would have more merit than it does today.

With these remarks, Mr President, I support the original motion only and I will be voting against the two amendments.

MR BRUCE LIU (in Cantonese): Mr President, even as I speak and count the votes that would come his way, I am almost certain that the amendment moved by Dr the Honourable LAW Cheung-kwok, a member of the Hong Kong Association for Democracy and People's Livelihood (ADPL) will not be able to escape the fate of being negatived. However, I believe that Dr LAW will lose only a battle but win the war because Dr LAW's amendment has successfully pointed out some of the problems inherent in the Honourable James TIEN's speech and the speeches of some other Members made during the debate. First, he pointed out the fact that Mr TIEN's motion was the icing on the cake and it would only make the rich even richer. Second, he pointed out that this was not the right time for Hong Kong to cut the profits tax because it remained a question whether this proposal was to be an one-off exercise or a long-term policy. If the tax revenue of the Government dwindled, how were we going to meet the expenditure on social welfare and on improving people's livelihood? It would seem that even Mr TIEN could not come up with good solutions to these problems. Third, he pointed out the fact that the fiscal reserves of the Government was enormous. We have ignored this point in the past. The Government has to account to the public how the reserves can be satisfactorily used and it will also work out and set a figure as the reasonable amount of our fiscal surplus. Fourth, he pointed out that this motion was only aimed at lowering the tax revenue to be received by the Government, but where could the Government obtain adequate resources to meet the additional expenditure that might be incurred by Members' appeal to enhance social welfare and improve people's livelihood to be made in the upcoming debates.

Some Members have just criticized the amendment moved by Dr LAW Cheung-kwok. Some of the criticisms are more or less personal attacks. I hope that these criticisms will not be made again. For example, some Members said that the payout scheme is a very stupid proposal. The implication in so saying is that all the governments in the world that implement this proposal are very stupid. Some Members also said that members of the public would not spend the money received but would only place it on deposit in the banks. These Members seemed to have turned a deaf ear to the speech made by Dr LAW who had specifically mentioned that using coupons will possibly solve the problem. Furthermore, some Members said that the amendment moved by Dr LAW is ineffective in stimulating the economy. These Members may have missed the point that, according to the ADPL's estimation, if coupons are distributed, it is estimated that Hong Kong's economy will grow by almost 1.5% in the first year and about 1% in the second year.

Of course, Members may have paid no heed to the many merits of Dr LAW's proposal, including the fact that the proposal is simple and easy to understand, that it offers to the people of Hong Kong aged 18 or above fair treatment, and that they will be equitably benefited irrespective of whether they are rich or poor.

I speak to supplement the speech delivered earlier by Dr LAW. I would like to reiterate here that the ADPL supports Dr LAW Cheung-kwok's amendment and Mr CHAN Kam-lam's amendment but opposes Mr James TIEN's motion.

SECRETARY FOR THE TREASURY (in Cantonese): Mr President, immediately after this motion, this Council will have a debate on Hong Kong's economy which is a more general motion and the Financial Secretary will give his reply. It is no easy task to provide sufficient grounds for the motion which is now under debate and avoid repetition in the following one. However, to avoid repetition, I will focus on the two key points of this motion, namely, to advise the Government to reduce the profits tax and salaries tax immediately, or to make use of the fiscal reserve of Hong Kong to foster the development of the economy and to create more job opportunities.

Let me talk about the principles of our fiscal policies first. The major fiscal policies adopted by the Hong Kong Government include the following:

First, to maintain a simple and clear tax system with low tax rates;

Second, to have a sufficient reserve to cope with the unexpected; and

Third, having considered our financial conditions, to provide tax concessions for the people or the economic sectors which are most in need. I have to stress that these policies are not created unilaterally by the Government without justification and the legislature and the public are not forced to accept these principles. On the contrary, these policies have been worked out through close co-operation, frequent consultation and a number of amendments. Therefore, these policies are a representation of the public's consensus.

I will speak on these policies one by one. First, as well all know, Hong Kong has adopted a tax system with low tax rates and therefore gained a reputation in the world. It is our belief that wealth should be kept in the hands of those who have created it. That is because according to our experience, people will create even more wealth in this way so that there will be economic growth for the community as a whole which will be beneficial to everyone. Considering that the present rate of profits tax is 16.5% and that of salaries tax is 15%, Hong Kong has the lowest tax rate among the major economies. That clearly shows the efforts we have made in this regard.

Second, reserve. The Hong Kong Government in fact has a huge reserve amounting to $151 billion and this is looked on with admiration by the rest of the world. We think that it is most important to maintain a large reserve to ensure that we can cope with any economic fluctuations which may arise in the future. When the economy is suffering from a temporary downturn, the reserve will be able to provide us with sufficient protection so that there will not be any forced reduction on the funding which has been committed on public expenditure items. Maintaining a reserve can also greatly strengthen the public's confidence in the transition period. Certainly, when we consider developing the large-scale infrastructural projects which require a huge amount of capital investment, such as the new airport, the Airport Railway or the future Western Corridor Railway, the reserve will give us more options when we are working out the financing plans for these projects.

Third, the policy of giving tax concessions. The Financial Secretary is now carrying out a comprehensive consultation exercise with Members of this Council to confirm their opinions about revenue priorities for the 1996 Budget. I do not wish to give any comments here because before the revenue forecast has been produced, it is difficult to ascertain the areas in which tax concessions can be given. However, I can point out that the method we have adopted in the past focuses on areas in which tax concessions are most needed and there will not be a lot of changes to this method.

According to the principles which I have briefly introduced just now, I would like to examine whether the proposals of tax reduction in the motion can stimulate economic development and create more job opportunities. I believe everyone knows very well why companies making a lot of profits would welcome a reduction of corporate profits tax. Earlier on, some Members have questioned whether the companies which have paid less tax will spend the money thus saved on local investment or consumption. That is really doubtful and so we cannot expect to have any stimulation of economic development or more job opportunities. As regards companies making little profits or even incurring a loss, reducing profits tax will be of little use or even no use to them. Therefore, the argument that reducing profits tax will help to create more job opportunities is very dubious. It is not only ineffective to the unemployed, it will also aggravate their disappointment because it will raise their expectations and make them think that such tax reduction would help them resolve their problems.

The situation regarding salaries tax is also similar. More than half or our working population actually do not have to pay any salaries tax and those who actually pay salaries tax of 10% or less, including those who do not have to pay any tax, constitute more than 96% of the working population. Therefore, reducing the standard rate will not be beneficial at all to 96% of the working population. It will only benefit the minority earning a high salary who is already paying tax at the standard rate of 15% of their total income. In the beginning, I have already pointed out that this standard tax rate is already very low and I do not think there are sufficient grounds to reduce this tax rate any further. In addition, I do not think there is any support for the argument that reducing the tax paid by this minority will actually help to stimulate the economic development of Hong Kong or to create more job opportunities.

The question to be considered next is the costs of tax reduction. The final version of the motion tabled in this Council today does not contain any specific figures. It is certainly easy to ask for tax reduction without considering the costs involved. It is like ordering a meal from a menu without a price list. However, as we all know, there is in fact no free lunch. Hence, what are the costs involved? Can we afford to pay the costs? For example, when the Honourable James TIEN was putting this motion forward, he suggested that the corporate profits tax and salaries tax be reduced by 1.5%. I believe Members would know that the largest source of revenue of the Hong Kong Government comes from profits tax and salaries tax and it is estimated that this source would constitute about 40$ of the total income for 1995-96. If these two kinds of tax are reduced by 1.5% at the same time, it is estimated that the revenue which we will lose will amount to about $5.8 billion per year, which is equivalent to 3% of the total recurrent income and is almost five times the total amount of all kinds of tax concession given in the 1995 Budget. According to the medium range forecast (that is, for the year 1998-99), the loss in revenue arising from such concessions will exceed $26 billion. If the rates of all tax bands are lowered almost at the same time, as the Honourable Henry TANG suggested, the loss in revenue will even be greater. Without this huge amount of recurrent revenue, how can this steady tax system be maintained and how can the principle of keeping expenditure within the limits of income be followed?

However, although I have put forward all these arguments, that does not mean that the Government should not consider any tax reduction. On the contrary, as I have explained earlier, we certainly believe that a tax system with low tax rates should be adopted and if there is room for any tax reduction, we would consider it in a positive light. However, the objective of adopting tax concessions should be to benefit those who are most in need or the economy as a whole. We certainly cannot reduce tax because of short-term political reasons. A government which will reduce tax because of short-term political interests today will also easily increase tax by a similar or even greater proportion because of political interests tomorrow. To make unpredictable policy changes will ring the knell of the reputation of cautious financial management which Hong Kong has strived to acquire. Clear and reasonable policies are the wishes of investors, not arbitrary policy changes. Investors would wish to know what will be the tax rate in five, seven or 10 years under reasonable circumstances in order to estimate the returns of their medium term and long-term investment. If they have confidence in such returns, they will continue to invest in Hong Kong and provide more job opportunities for the people of Hong Kong. However, if the opposite occurs, they will have doubts about the policy of cautious financial management which Hong Kong has been adopting for a long time and they will not invest any more. Not only will there not be any new vacancies then, the present positions will also be affected. It will not resolve the problems which Members have in mind, it will only aggravate the situation.

I will now turn to the question of reserve. In fact, how much is a sufficient reserve? The Financial Secretary has on other occasions pointed out that we cannot use a rigid formula to calculate how much reserve we should have. I can only say that considering the present level of reserve, we indeed have a sufficient reserve. However, let us not forget that we are moving into a critical era in Hong Kong's history. To a certain extent, the confidence of the public and the investors will be challenged. In other words, although it cannot be said that we are suffering from economic difficulties and we are not having the so-called "rainy days" when we have to use our reserves to meet the needs of emergency, we are already facing a period of time when we have to maintain stability. Under this situation, I think it is most inappropriate to reduce Hong Kong's reserve substantially and I do not agree to ignore the needs of individuals and to take out a large amount of money from the reserve and distribute it to all residents of Hong Kong. That is not a cautious way of spending the Government's money. If we implement this proposal, I cannot bear to contemplate what overseas investors' views towards Hong Kong will be. Not only can this move not stimulate economic development, I am afraid it would also bring about negative effects. It seems that the proposal to distribute money has not obtained the support of the community.

To stimulate the economic development of Hong Kong, we should not be tempted by short-term stop-gap practices. We should focus on practical and effective measures, for instance, to increase productivity, effectiveness and competitiveness; to improve the infrastructure and to strengthen our manpower; to eliminate restrictions on growth and to provide better education and to make improvements in technology and so on, as some Members have pointed out earlier. We should concentrate our energy in these areas because they are the right paths towards future development. Later on, the Financial Secretary will discuss these questions in detail.

Mr President, I would like to take this opportunity to thank Members who have spoken to express their unbiased views in the debate this afternoon. Being reasonable is a good quality of the people of Hong Kong. In working out the Budget, we will consider whether any adjustment has to be made to the tax rate, but at the same time, we have to consider the social, economic and financial situations of the time as well. The Financial Secretary is now consulting Members' opinions on the 1996 Budget. The work is now under way. Today I have heard different proposals by Members on the increase and reduction of various categories of tax and I certainly cannot respond to all of them. However, I can confirm that when we are working out the proposals concerning revenue, we will consider Members' opinions carefully to decide on any tax concession which is feasible. I would emphasize that we would provide assistance and support to the people or the economic sectors which are most in need according to our financial ability. However, we are not seeking short-term political benefits. Certainly, the results of our careful consideration will only be published in March next year when the Financial Secretary presents the Budget. The motion or the amendments today seem to be very attractive and popular, but in fact, these proposals are costly to implement and they cannot attain the goals of stimulation of Hong Kong's economic development and creation of job opportunities desired by Members. As the adage says, "It is only by giving up doing something that one can be more successful in completing what is intended to be done." Certainly we cannot harm the long-term interests of society for short-term political ends. We have to hold fast to what is good, we have to uphold the long-term interests of Hong Kong and resist the temptation of the present motion and amendments, and we have to stick firmly to the principle of prudent management of public finance.

PRESIDENT: Mr CHAN Kam-lam has given notice to move an amendment to the motion. His amendment has been printed on the Order Paper and circularized to Members. I shall now call on him to move his amendment.

MR CHAN KAM-LAM to move the following motion:

"To delete "unfavourable economic and business conditions which Hong Kong is facing" and substitute with "slowing down of the economic growth, the high unemployment rate"; and to delete "seriously consider lowering the corporate profits tax and salaries tax immediately" and substitute with "make good use of its fiscal reserve and raise the personal allowances for salaries tax"."

MR CHAN KAM-LAM (in Cantonese): Mr President, I move that the Honourable James TIEN's motion be amended as set out under my name in the Order Paper.

Question on Mr Chan Kam-lam's amendment proposed

PRESIDENT: Mr James TIEN, do you wish to speak? You have a total of five minutes to speak on the two amendments.

MR JAMES TIEN (in Cantonese): I put forth this motion because the Hong Kong economy has shown signs of slowing down since early this year. As I have just said, the profit earned by all listed companies during the first six months of this year has slowed down to a considerable extent. Compared with the average profit over the past five years, it is slashed by half. During the first nine months of this year, the number of companies declared bankrupt is more than the total number last year. These are concrete examples showing that the Hong Kong economy is not good at all.

To return to the subject, what does the Government collect taxes for? Of course, there is a saying that tax revenue is collected for future use. But if one cares about the future only but not today, then what about today? Today, we are facing a special problem. There will be reversion of sovereignty in 20 months. Reading all those overseas newspapers, I have never come across an article that expresses optimistic sentiments about Hong Kong. Some knowledgeable Americans and Europeans will ask me why I have not emigrated whenever they see me. No one will ask me whether there are plenty of investment opportunities in Hong Kong. In Vietnam, 10 years' tax grace period has been granted. Effectively, it is tax free and discussion of its tax rate is meaningless. But Vietnam is a developing country. We need not mention this country. Singapore is also trying to erode our competitiveness all the time. She urges companies round the world to establish their business there instead of investing in Hong Kong. In my opinion, the simplest and the most explicit way of placing the world's and the investors' focus on Hong Kong is the pitching of the level of taxation.

The Secretary for the Treasury said that tax reduction will not stimulate the economy. A number of colleagues have also spoken on this. The Secretary said that should my motion be carried, it would cost the Government $5.8 billion in revenue. I am not asking the Government to cut the total expenditure of $180 billion by $5.8 billion. Instead, I am asking the Government to reduce its revenue by $5.8 billion. The Government said that to reduce the revenue will be a kind of free lunch. This is the first time I ever heard of such an argument. Now the Government is holding $150 billion in reserves. Besides, there is $400 billion in the Exchange Fund and the Hong Kong Monetary Authority is earning a 12% return for the Government. Returns from these sources will easily exceed $10 billion each year. By calculation, the return on the $150 billion will be more than $10 billion. Does one regard the $10 billion as money in one's pocket? Or can one regard it as the normal or recurrent income? In addition to that, we have corporate profits tax, proceeds from land auctions and other charges. Adding all these up, the Government can afford to expend $180 billion. We are not asking the Government not to spend the public money. This is the first point.

I would have liked to talk about the second point. But as I have only five minutes, I would rather talk about the amendments proposed by the other two Members. We feel that my motion is able to take the business sector as well as the grassroots people into consideration. I am not proposing to cut only the corporate profits tax by 1.5%. Instead, I propose to cut both the corporate profits tax and the salaries tax. In regard to corporate profits tax, I would like to point out one thing. 80% of companies in Hong Kong are small-sized companies. The definition of small-sized companies is that they employ less than 20 staff. Most of these companies earn a few hundred thousand dollars a year. A 10% reduction from their original tax payable which amounts to several tens of thousand dollars will mean a saving of a few thousand dollars. So I consider tax cut will be helpful to the small-sized companies as well, not only the big syndicates. In regard to Dr the Honourable LAW Cheung-kwok's proposal of handing out $5,000, I will not go into details because many Members have criticized it. I only want to respond to one point he has made. He said that a tax cut of $5.8 billion in one year would amount to $58 billion in 10 years. At the very beginning, I have pointed out that tax cut will be for the short term, which means a couple of years, unless the South China Brokerage Company Limited considers that short term means 10 years. Assuming I refer to a couple of years, then three years later, we will have passed 1997. At that time, we will consider the economic situation again. If the unemployment rate is low and economic growth is high, we will support the Government readjusting the tax rates.

Mr President, I so submit.

Question on Mr CHAN Kam-lam's amendment put.

Voice vote taken.

THE PRESIDENT said he thought the "Noes" had it.

Mr Frederick FUNG, Mr LEE Wing-tat and Mr IP Kwok-him claimed a division.

PRESIDENT: Council shall proceed to a division.

PRESIDENT: Will Members please register their presence by pressing the top button in the voting units on their respective desks and then cast their votes by pressing one of the three buttons below?

PRESIDENT: Before I declare the result, Members may wish to check their votes. Are there any queries? The result will now be displayed.

Mr Frederick FUNG, Mr LEE Cheuk-yan, Mr CHAN Kam-lam, Mr CHAN Wing-chan, Miss CHAN Yuen-han, Mr CHENG Yiu-tong, Mr CHEUNG Hon-chung, Mr CHOY Kan-pui, Mr IP Kwok-him, Mr LAU Chin-shek, Dr LAW Cheung-kwok, Mr LEE Kai-ming, Mr LEUNG Yiu-chung, Mr Bruce LIU, Mr MOK Ying-fan and Mr YUM Sin-ling voted for the amendment.

Mr Allen LEE, Mrs Selina CHOW, Mr Martin LEE, Mr SZETO Wah, Mr Edward HO, Mr Ronald ARCULLI, Mrs Miriam LAU, Mr Albert CHAN, Mr CHEUNG Man-kwong, Mr CHIM Pui-chung, Mr Michael HO, Dr HUANG Chen-ya, Miss Emily LAU, Mr LEE Wing-tat, Mr Eric LI, Mr Fred LI, Mr Henry TANG, Mr James TO, Dr Samuel WONG, Dr Philip WONG, Dr YEUNG Sum, Mr Howard YOUNG, Mr WONG Wai-yin, Mr James TIEN, Mr Andrew CHENG, Mr Anthony CHEUNG, Mr Albert HO, Mr LAW Chi-kwong, Mr TSANG Kin-shing and Dr John TSE voted against the amendment.

THE PRESIDENT announced that there were 16 votes in favour of the amendment and 30 votes against it. He therefore declared that the amendment was negatived.

PRESIDENT: Dr LAW Cheung-kwok has also given notice to move an amendment to Mr James TIEN's motion. His amendment has also been printed on the Order Paper and circularized to Members. Now that Mr CHAN's amendment has been negatived, Dr LAW may move his amendment now.

DR LAW CHEUNG-KWOK to move the following motion:

"To delete "lowering the corporate profits tax and salaries tax immediately in order to" and substitute with "distributing immediately part of the accumulated fiscal surplus to the residents of Hong Kong on an equitable basis, so as to encourage consumption,"."

DR LAW CHEUNG-KWOK (in Cantonese): Mr President, I move that the Honourable James TIEN's motion be amended as set out under my name in the Order Paper.

Question on Dr LAW Cheung Kwok's amendment proposed.

PRESIDENT: Mr James TIEN, do you wish to speak on Dr LAW's amendment? You have a mere balance of 15 seconds.

MR JAMES TIEN: No, Mr President.

Question on Dr LAW Cheung-kwok's amendment put.

Voice vote taken.

THE PRESIDENT said he thought the "Noes" had it.

Mr Frederick FUNG claimed a division.

PRESIDENT: Council shall proceed to a division.

PRESIDENT: I would like to remind Members that they are now called upon to vote on the question that Dr LAW Cheung-kwok's amendment be made to Mr James TIEN's motion. Will Members please register their presence by pressing the top button in the voting units and then cast their votes by pressing one of the three buttons below?

PRESIDENT: Before I declare the result, Members may wish to check their votes. Are there any queries? The result will now be displayed.

Mr Frederick FUNG, Dr LAW Cheung-kwok, Mr Bruce LIU, Mr MOK Ying-fan and Mr YUM Sin-ling voted for the amendment.

Mr Allen LEE, Mrs Selina CHOW, Mr Martin LEE, Mr SZETO Wah, Mr Edward HO, Mr Ronald ARCULLI, Mrs Miriam LAU, Mr Albert CHAN, Mr CHEUNG Man-kwong, Mr CHIM Pui-chung, Mr Michael HO, Dr HUANG Chen-ya, Miss Emily LAU, Mr LEE Wing-tat, Mr Eric LI, Mr Fred LI, Mr Henry TANG, Mr James TO, Dr Samuel WONG, Dr Philip WONG, Dr YEUNG Sum, Mr Howard YOUNG, Mr WONG Wai-yin, Mr James TIEN, Mr LEE Cheuk-yan, Mr CHAN Kam-lam, Mr CHAN Wing-chan, Miss CHAN Yuen-han, Mr Andrew CHENG, Mr CHENG Yiu-tong, Mr Anthony CHEUNG, Mr CHEUNG Hon-chung, Mr CHOY Kan-pui, Mr Albert HO, Mr IP Kwok-him, Mr LAU Chin-shek, Mr LAW Chi-kwong, Mr LEUNG Yiu-chung, Mr SIN Chung-kai, Mr TSANG Kin-shing and Dr John TSE voted against the amendment.

Mr LEE Kai-ming abstained.

THE PRESIDENT announced that there were five votes in favour of the amendment and 41 votes against it. He therefore declared that the amendment was negatived.

PRESIDENT: Now that both Mr CHAN Kam-lam's amendment and Dr LAW Cheung-kwok's amendment have been negatived, we are back to the original motion. Mr James TIEN, you are now entitled to reply and you have five minutes 24 seconds, out of your original 15 minutes.

MR JAMES TIEN (in Cantonese): Mr President, I would like to respond to a few points raised by the Government. As for other colleagues, I thank them for their speeches. As my motion is likely to be carried, I should not go into details in responding to other Members' views.

Mr President, I think all Hong Kong people are in favour of living within our means. However, the word "means" involves the question of income. How much income is enough then? Assuming that the Government is having $150 billion in reserves, which can almost cover a whole year's public expenditure, then, if I remember correctly, Singapore is the only place in the world that fares better than Hong Kong. Other countries mentioned by Members such as the United States and Britain are running on deficit, not to mention reserves. As the Hong Kong Government has promised the Chinese Government that reserves for the Special Administrative Region after 1997 will be $25 billion only, we consider that the $150 billion which is now being hung on to by the Hong Kong Government is more than enough.

Mr President, I am not asking the Government to spend all the $150 billion. What I am suggesting is to use the income generated from the $150 billion to cover part of the recurrent expenditure this year to make up the $180 billion revenue originally budgeted to come solely from corporate profits tax, salaries tax, land auctions and charges. Am I asking the Government to cut government expenditure as my motion will cost the Treasury billions of dollars? No, I am not asking the Government to cut its expenditure. I do not have any comments on housing or medical expenditures. I am only asking whether we can, from an accounting point of view, make use of the income generated from the $150 billion so that this amount of reserves will not continue to snowball. Growth in reserves is certainly a good thing. But in view of our unfavourable economic situation, what we need to do is to make use of the money for one or two years down the road until 1997 in the hope that we can have a smooth transition. If so, investors will restore their confidence in Hong Kong which will see an increase in investment. Our economy will then be revived and the unemployment rate will be reduced. By that time, should the Government intend to raise the tax rates again, we would not oppose it.

Mr President, I so submit.

Question on Mr James TIEN's original motion put.

Voice vote taken.

THE PRESIDENT said he thought the "Ayes" had it.

Mr James TIEN and Dr Philip WONG claimed a division.

PRESIDENT: Council shall proceed to a division.

PRESIDENT: I would like to remind Members that they are now called upon to vote on the question that the motion moved by Mr James TIEN as set out on the Order Paper be approved. Will Members please register their presence by pressing the top button in the voting units and then cast their votes by pressing one of the three buttons below?

PRESIDENT: Before I declare the result, Members may wish to check their votes. Are there any queries? The result will now be displayed.

Mr Allen LEE, Mrs Selina CHOW, Mr Martin LEE, Mr SZETO Wah, Mr Edward HO, Mr Ronald ARCULLI, Mrs Miriam LAU, Mr Albert CHAN, Mr CHEUNG Man-kwong, Mr Michael HO, Mr HUANG Chen-ya, Miss Emily LAU, Mr LEE Wing-tat, Mr Eric LI, Mr Fred LI, Mr Henry TANG, Mr James TO, Dr Samuel WONG, Dr YEUNG Sum, Mr Howard YOUNG, Mr WONG Wai-yin, Mr James TIEN, Mr Andrew CHENG, Mr Anthony CHEUNG, Mr Albert HO, Mr LAW Chi-kwong, Mr SIN Chung-kai, Mr TSANG Kin-shing and Dr John TSE voted for the motion.

Mr CHIM Pui-chung, Mr Frederick FUNG, Dr Philip WONG, Mr LEE Cheuk-yan, Mr CHAN Kam-lam, Mr CHAN Wing-chan, Miss CHAN Yuen-han, Mr CHENG Yiu-tong, Mr CHEUNG Hon-chung, Mr CHOY Kan-pui, Mr IP Kwok-him, Mr LAU Chin-shek, Dr LAW Cheung-kwok, Mr LEE Kai-ming, Mr LEUNG Yiu-chung, Mr Bruce LIU, Mr MOK Ying-fan and Mr YUM Sin-ling voted against the motion.

THE PRESIDENT announced that there were 29 votes in favour of the motion and 18 votes against it. He therefore declared that the motion was carried.

HONG KONG'S ECONOMY

MR ALLEN LEE to move the following motion:

"That, as Hong Kong's economy and market conditions show a trend of slowing down and local unemployment figures are on the increase, this Council urges the Government to tackle the root of these problems and expeditiously formulate and implement effective measures, including short-term, medium-term and long-term programmes, to stimulate economic development and encourage local and foreign investments in Hong Kong in order to increase employment opportunities for local workers."

MR ALLEN LEE (in Cantonese): Mr President, in the motion debate on the policy address at the end of last month, many colleagues in this Council made it the focus of their speeches the economic situation and problems of Hong Kong. One can infer from that the seriousness of the matter is not something which we can turn a blind eye to. In spite of the fact that the Government is still humming and hawing and refusing to tell Members the prospect of today's Hong Kong economy, the situation is no longer as uneventful as one had thought. This Monday the Government announced that the economic growth for the second quarter was 4.8%. This figure has already given a clear warning that we must act to revitalize the economy of Hong Kong. Must we launch a "rescue campaign" only when the economy registers negative growth? Would it not be too late if we waited tile then?

As elected Members of the Legislative Council, we have the bounded duty to urge the Government to tackle the problem of its root by formulating and implementing effective measures to stimulate economic development and enhance investment desire, so as to increase the job opportunities for local workers.

What is Hong Kong's economy like now? According to various data, study reports as well as the experience I have gathered in community work, we all can see that the overall economic growth is continuing its downhill slide, the growth in consumer spending has hit an all-time low for the past six years and there is a rise in the number of unemployed or underemployed people. It is unfortunate that both the Governor and senior government officials have told us that, relative to other countries, these figures are "not too bad". And what is more, they quote selectively from overseas study reports that Hong Kong is still doing well and that there is little to fear when the economy has slowed down a bit. I hope that when the Governor goes on a tour of inspection next time, he will ask just any member of the public or any taxidriver and he will see clearly that the present Hong Kong economy and the livelihood of the public are not as optimistic as he had put it.

We can be aware of the many bad signs of the economy just by looking at various social phenomena. If we give it more thorough thought, there are really quite a number of hidden crises. For example, in Hong Kong where the labour risk is not high, if some sizeable enterprises lay off employees within a year or so as a result of recession, it can be foreseen that as unemployment gets worse serious strikes by works may occur. When labour problems worsen and the conditions for running businesses have not improved, this naturally will directly affect investors' decisions, and Hong Kong companies would even go and find some better places elsewhere to run their businesses. This is no Munchausenism. Companies which have been operating in Hong Kong for many years are moving to places like Singapore, and such is no news to us in recent years. Another reality is that the economy of Hong Kong has slowed down. And it is not, as some senior government officials have claimed, "a cyclical slowdown of the economy" which would reverse itself and pick up speed again after natural adjustments. In fact, the slowdown of the economy of Hong Kong is structural in nature. In short, it is because the Government has failed to recognize the impact on population quality as a result of population movements, and has at the same time paid no attention to the specific difficulties of local employers and employees caused by the industrial transformation. When all these problems add together, we can hardly believe that, just by relying on the strategy of "natural adjustments", we can get the people of Hong Kong out of the predicament of an economic downhill slide.

Mr President, people always look forward, and people who make Hong Kong their homes must look forward even more positively. Therefore, we must take up the mission and put forward phased proposals which will stimulate the economy. Members can hold exhaustive discussions on the proposals and urge the Government to implement them vigorously. For this reason the Liberal Party is actively making recommendations to the Governor for the purpose of stimulating the economy.

First of all, I would like to speak on some short-term measures. The Liberal Party firmly believes that freezing various government fees and charges for one year can help reduce inflation, and such move can also play a leading role in this respect. In its financial management, the Government should seek to "use for the benefit of the people what is obtained from them and return wealth to the people". This represents a cycle in public finance determined mainly by the overall economy of Hong Kong as well as the Government's financial situation and fiscal reserve. The Government is duty-bound, where it is financially capable, to take the lead in reducing the expenditure pressure on members of the public and the business sector. The Government has a reserve of $150 billion at present; in comparison, the $2 billion in relation to the freezing of government charges represents a mere 1.33% of the reserve. To a government which serves the people, such an amount is absolutely well within its affordability. Moreover, the Government had initiated and implemented fees freezing measures in 1991 to combat inflation. The Government is not a profit-making organization and does not have to try its best to "make" profits. But even if the Government actually sees itself as a business venture, it is high time that "shareholders shared their dividends".

The Financial Secretary has remarked that it would be an exceptional move for the Government to freeze charges. In our view, such an argument is in no way valid. I have just said that it would be no exception, it was something we had done before. That the Government is prudent in financial management does not mean that it should stick to conventions. The Government should make suitable and flexible adjustments according to need. Moreover, the Government's budgets over the years sought to make adjustments to the economy, did they not? Rates, tax rates, labour policies and even property price dampening policies are all measures that have impacts on the economy and the operation of the market. It is not for the Government to say that these are all measures made coincidentally. The Hong Kong economy is not independent from the world economy. Just like most countries or regions in the world, the economic operation of Hong Kong is directly or indirectly influenced by the Government. Therefore, if what the Financial Secretary said last week to the effect that "the role of the Government should be one of maintaining the stability of the overall economy and creating a favourable environment for commercial development" was true, then the Government should agree to this short-term measure. Furthermore, the Liberal Party is of the view that before any public utility company raises its charges, consideration should be given to the present economic situation as well as the possible impact on the economy the increase will have.

The Liberal Party's recommendations also include relaxing the restrictions on the mortgage of private property. In this connection, we feel very disappointed that the Secretary for Economic Services has rejected the recommendation, and that is something we must follow up on. This is because an active property market has a positive impact on both the economy and employment. A lot of related businesses such as construction, interior decoration and property dealings are affected by the restrictions on the private property mortgage. If we insist on imposing strict control of it, it will help neither the labour market nor the spending power of members of the public, still less the potential first-time home buyers.

Apart from creating job opportunities, the Government, in our view, plays an indispensable role in helping the market by cracking down on illegal workers and checking whether non-domestic jobs are being taken up by overseas domestic helpers.

As to the views and recommendations in relation to tax reduction put forward by the Liberal Party earlier on, what the Honourable James TIEN said and explained in detail represents the position taken by the Liberal Party. What has disappointed me is that the Secretary for the Treasury is actually so obstinate that he sticks to the wrong view that the tax reduction proposal is made for political reasons. I now make a solemn declaration and I ask senior government officials to listen to this: we do so for economic reasons, not political ones.

Mr President, as for medium-term measures, we believe matters should be dealt with in three aspects which are: industrial development, labour and the competitiveness of Hong Kong. As we can see, the Government has not been making any effort in the planning of economic and industrial development. This has resulted in local workers being unable to receive suitable training at the time of industrial transformation which had been anticipated. This has brought about great difficulties in job matching as can be seen now. In addition, about 500 000 Hong Kong people who have received higher education have emigrated to overseas countries in the past 12 years, and most of the first-generation immigrants from China are holding jobs of relatively low level. Such kind of population shift and change in quality has eventually led to the imbalance in the supply of and demand for lower level jobs as well as a rise in the structural unemployment rate. For this reason, it is not for the Government to say rashly that the efforts to assist small and medium scale enterprises of Hong Kong should be given up. Instead, it should find out as soon as possible how to match Hong Kong's industrial development with neighbouring regions so that the enterprises concerned would not close down when they are unable to carry on with their businesses.

In the debate last week, the Financial Secretary said that it would not be feasible to set up an Economic Development Board, and he doubted whether such a body should be vested with powers and assigned functions. Our view is that the Financial Secretary deliberately shifted the focus to minutiae. We believe the matter hinges on the premise that the Government must admit there is the need to set up this body and have it entrusted with the specific responsibilities for the tasks mentioned above. These tasks are: to find out whether or not the competitive edge we have been enjoying would last, to find out why companies are moving out of Hong Kong one after another in recent years, to take the initiative in working together with the business sector to formulate countermeasures and to find out why Hong Kong cannot be as attractive as Singapore to investors. Of course, these tasks are more demanding than "natural adjustments", but it is our belief that government officials motivated by a sense of mission who make Hong Kong their home will have the courage and sincerity to take up the challenge of these tasks.

As for measures the Government will have to implement in the long run, the emphasis should be on how Hong Kong can be made more attractive and how more job opportunities can be created. Hong Kong's infrastructure projects and development of the tourist industry have caught the attention of local businessmen as well as overseas investors. If the Government is determined to take up its responsibilities, not only has it to speed up the construction of public housing, but it has also to sell public housing units at low prices so as to ensure cash flow and to make it faster for the target of home ownership to be achieved. At the same time, the Government must speed up the infrastructural projects as this will also help improve the transport of Hong Kong.

In order that the competitive edge we have been enjoying can be maintained and Hong Kong is made attractive to investors, we must not sit tight and wait for miracles to happen. Instead, we should strive more positively to develop our superior position in areas where Hong Kong has been possessing an edge. Hong Kong's capabilities in financial business, transport, telecommunication and even advanced technology are areas where long-term development should be strengthened. In front of the world, we must not deceive ourselves as well as others in thinking that Hong Kong will be sure to play the leading role in the region's economic development. Time will not stop and wait for the Government because of its lack of foresight. We must plan and act quickly, otherwise Hong Kong's status as "the Pearl of the Orient" will surely become untenable.

Mr President, with these remarks, I move the motion.

Question on the motion proposed.

DR HUANG CHEN-YA (in Cantonese): I already spoke on the short-term financial policy during the last debate. I would now focus on the medium and long-term measures that would be conducive to promoting the development of the industrial and commercial sector and to boosting employment opportunities, so that the "wage earners" would have jobs to do.

Asian Business published this moth the result of their Confidence Survey. It was shown that the Hong Kong Confidence Index among the business community was lower than the Confidence Indexes for other regions in Asia. They believed that the investment risk is derived mainly from political volatility, unfavourable rate of economic growth, inflation and high wages. In 1994, the Hong Kong Government conducted a survey on 1 846 regional headquarters of foreign-owned companies and 433 foreign-owned manufacturers. It was found that the worsening political situation, rent, wages and inadequate labour skills are the major problems. Therefore, we feel that the Government must address these problems and formulate policies to improve the economy of Hong Kong.

Let us look at several macro-economic problems first. The uncertain political prospects have not only curbed the desire to invest, but have also placed Hong Kong in a situation where it has to stick to the linked exchange rate. We therefore cannot control the inflation rate through the implementation of policies on the interest rate. However, let him who tied the bell on the tiger take it off. To enhance people's desire to invest, the Chinese Government must give up its ultra-leftist policy that it has always been subscribing to and stop damaging the post-1997 confidence of the people of Hong Kong in such aspects as human rights, freedom and democracy. If such is the case, I am sure that the Hang Seng Index will go beyond 15 000 tomorrow and may even breach 20 000. The economy of Hong Kong will surely grow substantially within a short time.

I hope that the Democratic Alliance for Betterment of Hong Kong (DAB), the Hong Kong Association for Democracy and People's Livelihood (ADPL) and the Liberal Party (LP) will support this suggestion.

The rise in wages is another problem faced by the industrial and commercial sector. As a matter of fact, during the 10 years between 1982 and 1992, wages grew only by 15% in real terms. It is therefore evident that the "wage earners" did not benefit from the annual GDP growth rate of above 5 to 6% in the past years. In the past two years, real wages dropped in many industries and sectors.

Therefore, high wage is in fact driven by high inflation. In other words, only the nominal wage is high. Therefore, to solve the problem of wages, we must control inflation.

In view of this, we believe that the Government must, in the long run bring in competition and increase productivity. We can see that since the bringing in of competition to the telecommunications industry, the charges for long distance calls in Hong Kong are now far below those in Singapore. That would be an attraction for many foreign-owned companies. It is therefore evident that competition is of paramount importance. In addition, we should also restrict the public utilities and the three railway companies from raising their fares. Government charges and public housing rental should also be frozen in the short term, so that inflationary pressure can be lessened.

The Government should also formulate a stable and far-sighted land supply policy, so as to curb soaring property prices and rent which would then fuel inflation.

I will focus on how the Government can promote the development of industries and the service sector.

We have just proposed that the profits tax be cut to enhance industrial development, thereby easing the unemployment problem among the manufacturing workers. We are all aware that a profits tax cut and assistance to industries through subsidies are very similar tactics in terms of financial management. The DAB has just fiercely attacked our viewpoint. I hope that they are not of the view that only state-owned enterprises are worth supporting while private-owned enterprises are not. I hope that they can elucidate this point later. So far, the industrial products of Hong Kong are mainly contracted out to Hong Kong factories for manufacture by foreign clients who provide the parts in their primary and unprocessed form. Therefore, the industry of Hong Kong remains dominated by small and labour-intesive factories.

The mere manufacturing of such products yields only very low marginal profits and demands only a low level of skill. Therefore, in face of competition from other regions, the industries of Hong Kong will of course withdraw from Hong Kong and move to the mainland and other regions where the wages are much lower. That would of course drive Hong Kong workers into the plight of having to either switch jobs or suffer from unemployment.

In view of this, to ensure that the manufacturing industry can continue to survive in Hong Kong so that the workers in the industry can continue to have employment, manufacturers must switch to the manufacturing of self-designed products which would yield higher profits. This up-market change would demand higher productivity and labour with higher skills. In this way, the manufacturers would not so readily move away and would bring to Hong Kong job opportunities. However, in the past 10-odd years, experience shows that only rare examples of success can be found in which Hong Kong manufacturers can by their own efforts raise their technological level. In view of this, the Government must lend a helping hand to the manufacturing industry so as to bring to it up-market changes.

In fact, there are lots of things that we can do to promote up-market changes in our industry.

(1) the Government should step up the training of technologically qualified people. The annual funding required for the operation of the industrial technology institute of Taiwan is $1.5 billion and 50% to 60% of the funding is subsidized by the Taiwan Government. Behind the robust development of Taiwan's electronics industry is the many qualified personnel made available through the provision of training by the industrial technology institute over the years.

(2) The Science Park in Hsinchu of Taiwan has a production value of over $50 billion and the annual growth rate is 50%. Now in Taiwan, it has been decided that another Science Park will be set up in Tainan. In fact, Hong Kong should also develop a Science Park as soon as possible so that new technology can be introduced and developed, thereby ensuring a really bright future for Hong Kong's manufacturing industry. However, the recently published consultancy study report on the Science Park shows that the proposed Science Park is just similar to an industrial estate, occupying only a very tiny area. Not a single word is mentioned in terms of offering tax concessions and capital subsidies which are of crucial importance if enterprises are to be attracted to invest in the Science Park. The Government should as soon as possible look into these problems; otherwise, it would just be the same old wine in a new bottle, having no effect at all. The Honourable SIN Chung-kai will speak on other problems relating to the provision of logistical support to industries. What I have said already illustrates that the Government in fact is capable of promoting the development of the industrial and commercial sector, and there is no reason for the Government to sit with its arms folded and do nothing at all. We do not agree with the Government putting all eggs in one basket by identifying champion industries and staking everything on it. However, a far-sighted scheme that aims at offering capital assistance in such aspects as infrastructure, manpower and technology would enable Hong Kong' economy to turn the corner. Mr SIN Chung-kai and Mr Andrew CHEUNG will later further elaborate on the manufacturing industry and the service industry.

With these remarks, I support the motion.

MRS SELINA CHOW (in Cantonese): Mr President, after years of phenomenal growth, the Hong Kong economy has started to slow down recently. There is no cause for alarm in fact. Yet when we find that the Government has the least determination to revive the economy, we cannot just sit and wait for a miracle. During the last financial year, registration of private companies, compared with the year before last saw a drastic reduction of almost 40%. Meanwhile the number of companies wound up through voluntary liquidation rose from 2 600 in 1992 to 3 100 in the last financial year. The increase is almost 20% indicating that the business climate is unfavourable and the investors or operators of small business have no confidence in the economic prospect. They date not set up new business rashly.

A worrying trend is that the current operating costs, compared with the past, have increased tremendously. Among other factors, high rental is a serious problem. As a representative of the wholesale and retail sector, I keep receiving messages from the sector. They are saying that they have to bear severe rental pressure and shops which have to close down because of drastic rent increase in recent years are too numerous. Last year, the rent of shops in some shopping arcades were increased by 50% upon renewal of their leases. I do support free market mechanism, yet I severely censure the landlords for their shortsightedness. Killing the goose that lays the golden eggs is a no win situation. The shops close down and the landlords have no rent to collect. Some boutique operators complained to me that they had been the pioneers of the shopping arcade concerned. Over the last two years, they worked very hard to keep their business going and bore high rent. Recently, the landlord lowered the rent in order to cut down vacancies in the shopping arcade. New tenants, nevertheless, have been given a 30% discount off the original rent. Yet the sitting tenants still have to pay the old rent and their competitiveness is severely reduced. What is even more ironical is that those shop operators, being unable to bear the high rent, turn to become illegal hawkers. They not only directly affect the business of the shopping arcade but also give the triads an opportunity to demand protection fee. If one frequents Mongkok at night, one will see that some illegal hawkers are all having a fixed stall. The rent that should be earned by the landlords of the shopping arcades eventually goes to the pocket of the triad members. The landlords in fact "go for wool and come home shorn". The operators of some shops which are apparently faring quite well will find themselves actually toiling for the landlords after the rental has been increased.

The Housing Authority, which is also a big landlord, is no exception. It is only concerned with increasing the rent of commercial premises and totally ignores the fact that there is an aging population in the housing estates and a changing commercial climate. I have heard that the Housing Authority has recently raised the base rent of some shops by more than 50% and introduced a two-fold increase in the percentage levy relative to business turnover. As a result, shops in housing estates have to keep going through the operators' painstaking efforts. I have heard that a number of shop operators in housing estates are uninterested in staying in business. If the Housing Authority does not rationalize its commercial rent policy, it will eat its own bitter fruit. I suggest that the Housing Authority should, if possible, commission outside professional surveyors to undertake the assessment of market rent of commercial premises. In doing so, the internal operating cost incurred in respect of assessment work can be saved. More importantly, it will ensure fairness and the calculation of rent will not be considered as something done behind closed doors in disregard of the changing commercial environment. The rent charged, as a result, is much higher than the real market value. In fact, quite a number of tenants have complained that the Housing Authority is too slow in responding to the declining market rent. It raises the rent when the market rent is actually falling. This has caused much difficulty to the commercial tenants. I suggest that officers in the Housing Authority should enhance the transparency of the appeal procedure in such a way as to inspire greater public trust in it.

Another operational difficulty faced by the wholesale and retail trade is product safety regulation. I am not advocating that there should be no regulation. However, I cannot agree that goods which have passed the quality standard and goods which have not should be confiscated indiscriminately. For instance, the Customs and Excise Department had once detained quality-passed goods for more than two months. These goods were eventually released only after much negotiation. This move constituted serious and unnecessary intervention of the activities of law-abiding businessmen. I urge for reasonable law enforcement in such a way that legislation will not become an unfavourable factor to proper business operation.

As regards sewage charge which has been vehemently criticized by the catering industry, I have spoken a lot on it. The Secretary for Planning, Environment and Lands said in a briefing session that sewage charge only accounts for 0.46% to 1.19% of the operating costs. I am not going to argue how much the percentage should be. I only want to cite a case. A chain of fast-food shops hired a laboratory to conduct a survey for its nine branches and found that the pollution level was 60% less than the official estimation. In other words, the payable sewage charge for these nine branches alone in a year is $620,000 more than their due. Of course, this fast-food chain has the right to appeal. But they have to pay the sewage charge first. Even though they win, they still have to pay in advance a large sum of money. If their appeal is dismissed, however, they will be required to pay $8 million more than the original estimated annual sum. Does the Secretary still consider that this is a trivial amount? Sewage charge has really dealt a severe blow to the catering industry. To be a benevolent government, the Administration should study the concerned charge objectively again and rectify its mistake.

In order to stimulate the economy, I suggest that the Hong Kong Government should set up a business development fund to enable those who wish to create their own business to obtain low interest loans from the fund if they can meet the necessary criteria. Their future repayment should include interest and investment return to the fund which should be ploughed back for providing further loans to other business founders as a means to foster small-scale and creative operations. This will stimulate the economy and create more jobs. In England, Australia, Singapore, and South Korea, similar schemes have been implemented successfully. It will not only encourage prospective businessmen to create their business but also create more employment opportunities. It is therefore worthwhile to learn from their experience and adopt the scheme.

In regard to rates, I hope the Government can take account of the declining market rent when it reassesses the rateable value of premises. The Rating and Valuation Department should not, as some have criticized, be quick to react to a rising market but slow to react when rental comes down.

Mr President, with these remarks, I support the motion.

MR CHIM PUI-CHUNG (in Cantonese): Mr President, it is absolutely normal for the Hong Kong economy to have ups and downs. According to history, from the 1950s up to the present, there were six years in which the economy suffered declined, namely 1956, 1962, 1967, 1974, 1982 and 1989. The most serious case is probably the one which happened after the riots in 1967 when there were a lot of changes which put the economy as a whole to a difficult test. Nevertheless, I would reiterate that Hong Kong is actually still a piece of blessed land. Although some newspapers may not agree, Hong Kong in fact has some special conditions. Today I will review the economy and express my opinions mainly with regard to two aspects, namely, the economic aspect and the financial aspect.

First, as far as the tourism industry is concerned, it has been estimated that there will be 9.3 to 10 million tourists coming to Hong Kong who will spend about $65 billion here. Under the circumstances, we have to understand that many tourists from Taiwan now go to China directly from Macao. We have to evaluate how this situation will affect the future of Hong Kong and I hope the Government will conduct a review on the matter.

The tourism industry ranks second among all the trades in terms of the value of consumer spending and it is also the second largest industry. We have to understanding that the predominant industry, the container industry, is still the best in the world and certainly it will face challenges from places like Kaohsiung and Singapore. The Government should examine how it can protect the industry and to reflect on the reasons why our aviation industry and our hotel industry which once ranked first in the world (although I have much reservations about the saying that our hotel industry ranked first in the world, it was a fact) have now lagged behind. The Government should examine the matter.

Besides helping the tourism industry, we have to appreciate that the Ocean Park and the Buddha statue in Lantau are pioneering undertakings which are good items in terms of the attraction they offer to tourists. We have to bear in mind that we can create the world's biggest discount store and an eating and drinking paradise in Hong Kong. Besides, the Chinese people in other parts of the world extremely enjoy the television and the film industry of Hong Kong. Therefore, a department should be set up to study these questions. I am very pleased to hear that the Financial Secretary will hold a discussion on the question of transforming Hong Kong into a consumption centre which, I think, is necessary. As I said before, we have to understand clearly what our special attractions are. Therefore, I still think that it is right for the Government to adopt the non-intervention policy, but at the same time, it has to give positive assistance and to study what the needs are. Why is that so? That is because the resources involved are not within the affordability of the ordinary businessmen or organizations. In 601 days, the Hong Kong Government will become the Government of the Special Administrative Region. In fact, since his arrival, Governor PATTEN has raised the political status of Hong Kong. However, very unfortunately, many European countries, especially, France and Germany, have little knowledge of Hong Kong. In particular, they have grave misgivings about the prospects of investment here. Although the Securities and Futures Commission has sent a delegation to promote Hong Kong, unfortunately, as the press has observed, the result is like that of the promotion work done by the Independent Commission Against Corruption in regard to its policy of not arresting people. In fact, such promotion work can be more effectively done by traders and businessmen. The Government should take positive steps to promote our economic activities and financial services to European countries, especially to countries like France and Germany.

Mr President, we understand that the most important undertaking which will affect the future of Hong Kong is the Beijing-Kowloon Railway. The Beijing-Kowloon Railway is a big investment undertaken by the Chinese authorities. Its commissioning was initially planned as a celebration of Hong Kong's sovereignty reversion to China. It will be a big celebration. Other than the Three Gorges hydro-power project, it is a very important investment item. I firmly believe that there were plans to bring forward to this year the railway's commissioning date but, probably because of technical problems, this railway will have to wait until 1997 before it can be commissioned. This railway covers almost six provinces and 17 cities which have a population of hundreds of millions of people. It is indeed a very, very huge potential market. The Government should immediately set up a commission to assess the needs and resources of these 17 cities and the provinces concerned because a market with hundreds of millions of people is a very big one and it will be very important to Hong Kong in the future in terms of entrepot trade, fuel supply and so on.

Mr President, I would also like to speak on the financial aspect. I have to reiterate that, after 1997, there will be absolutely no future in politics, whether there will be 19 or 18 representatives from geographical constituencies. What will be left will be the economic and financial aspects. The Government will know better as far as the economic aspect is concerned. As regards the financial aspect, Hong Kong can certainly increase its representativeness or input in the future, because the Chinese Government and the country as a whole lacks this kind of resources and talents and it really needs input from Hong Kong in terms of support and the supply of talent. Therefore, I very much hope that a training unit can be set up under the command of the Secretary for Financial Services to conduct a useful assessment of the prospects of the financial services sector of Hong Kong and China. That would be a feasible measure which would not be too costly. If that can be done properly, even if improvements cannot be made before 1997, the financial services sector of Hong Kong will certainly be able to better develop after 1997. I said the other day that about 5% to 6% of the labour force is now working in this sector and, if improvements can be made, it will become an important sector in Hong Kong in the future. Therefore, Mr President, as a representative, I will certainly express my views on the financial services.

With these remarks, I support the motion.

MR SIN CHUNG-KAI (in Cantonese): Mr President, the unemployment rate and underemployment rate of Hong Kong have been on the rise, and have hit an all-time high. Those unemployed and underemployed number about 200 000. This is partly attributable to the adjustment of the market. But what worries people more is that it has reflected the seriousness of the problems arising from economic transformation, that is to say, as the manufacturing industries keep on shrinking, the service industries are having difficulty absorbing the workers who have lost their jobs. The percentage of the manufacturing industries as a component of the GDP of Hong Kong has been falling year after year. In 1993, they accounted for a mere 11.4%. If the Government lets this state of affairs continue, the consequence will probably be this: Not only will the manufacturing industries be unable to create more job opportunities, but they will also be laying off more and more workers, and the unemployment rate of Hong Kong will be staying at a high level. This Council has been repeatedly urging the Government to formulate industrial policies for a balance to be struck between the development of the service industries and manufacturing industries within the Hong Kong economy, in order that our industries would not become deficient. However, the Government remains unmoved.

In the policy address debate of last year, the Secretary for Trade and Industry stated, "We must continue to develop policies and programmes which maintain Hong Kong's leading position as a regional manufacturing centre." This is the long-term major goal we are hoping to achieve. However, the Government must do so by injecting the necessary resources and working out the specific direction of development for the various industries. It should not just shout slogans and delay matters under the pretext of conducting a study or a consultation exercise. In this connection, the Science Park is the best example. In Taiwan, the Hsinchu Science Park has already become the most vital motive force for the economic growth of Taiwan, and Taiwan has already decided to build a second science park. In contrast to this, Hong Kong in the early 1990s started looking into the feasibility of setting up a science park. The ridiculous thing about it is that the studies are stilling going on today. Consultation on the Hong Kong Science Park Study 2 with the various sectors has at last got under way and the study has concluded that building the Science Park will certainly bring enormous benefits to Hong Kong. Having a Science Park now is like having spring that has come late. But "being late is better than never." Therefore, we urge the Government to implement the project as soon as possible and drawn up a timetable for the construction of the Science Park.

At present, there are many questionable areas with regard to the deployment of resources and employment of ways and means to support the industries of Hong Kong. The funds allotted to scientific research investments are of course scanty; besides, they are not regular funds. At present, such kind of finds for scientific research investments constitute only 0.085% of the GDP of Hong Kong, which is much less than the 1.12% of Singapore, the 1.82% of Taiwan, and it is even less than those of developing countries such as Indonesia and Malaysia. How Hong Kong can maintain her leading position as a regional manufacturing centre defies belief.

On the other hand, an academic conducted a survey with regard to Hong Kong manufacturers' degree of satisfaction with the local supporting bodies, and the result showed that only the Trade Development Council's support was regarded as sufficient. As to other bodies such as the Hong Kong Productivity Council, the Industry Department, the Vocational Training Council and the Labour Department, the support provided by them was considered by the manufacturers polled as insufficient. The survey also slowed that small to medium-sized manufacturers found it difficult to raise capital. Can the Government make a commitment to effect improvement?

It is not an easy thing for manufacturers of new technology products to obtain loans from the banks. Apart from providing some subsidies that are repayable, can the Government provide market and feasibility assessments so that it will be easier for manufacturers to obtain suitable ......

FINANCIAL SECRETARY (in Cantonese): Mr President, I think we are short of a quorum now.

PRESIDENT: There was another mistake that we made when we amended the Standing Orders. Under the new Standing Order 4C(3), we do not provide for interruptions to be raised by the three former ex officio Members in the Council, that is something we have to rectify some other time. But as for now, I shall count the Council.

The President asked the Clerk to ring the division bell to summon Members.

PRESIDENT: Mr SIN Chung-kai, please continue. We now have a quorum.

MR SIN CHUNG-KAI (in Cantonese): The above-mentioned situations have clearly shown that the Government has not tried its best to help the industrial development of Hong Kong. Moreover, as most industrial undertakings in Hong Kong are small to medium-sized, it would be difficult for them to upgrade the technology on their own. Therefore, the Government has to play an active role in allocating more resources to help enterprises move towards high value added activities and maintain quality manpower so as to enhance Hong Kong's competitiveness. In this connection, the Democratic Party has proposed to set up a "subsidizing fund for small and medium-sized enterprises". The fund will provide help to small to medium-sized enterprises in the form of loans or subsidies to enable them buy machinery, open up overseas markets, pay the fees for hiring consultants and apply for registration of intellectual property. The fund will also ensure increased funding for science and technology research. The Democratic Party has also proposed to set up a "skills training fund" to encourage the provision of on-the-job training to employees by enterprises.

Finally, I would like to respond to the Financial Secretary's grounds for refusing to set up the Economic Development Board in his reply last week. Firstly, the functions of the Economic Advisory Committee (EAC) are to study the economic development of Hong Kong and to make recommendation on maintaining the economic growth of Hong Kong to the Financial Secretary. However, one can say that this Committee is carrying out "clandestine operations", and we have no knowledge, whatsoever, of the subjects being studied or discussed by this Committee. And there is no way we can tell whether its performance has met our requirements. Therefore, I hope the Government can make public the subjects that the EAC has studied or discussed and make a genuine effort to review this Committee's functions before deciding whether or not there is the need to set up the Economic Development Board.

With these remarks, I support the Honourable Allen LEE's motion.

MR EDWARD HO (in Cantonese): Mr President, there are basically two different views held by the people of Hong Kong concerning the state of our economy. The first, which is held by the Financial Secretary and the Government, is that the present economic outlook is optimistic and the factors affecting the economy are running their course in a natural cycle and so the Government has no need to intervene in our economic development in any way.

The second view is held by members of the industrial and commercial sector and the labour sector. Everyone is aware of the rise in unemployment and the fall in the growth of the GDP and we do not want to dwell on these any longer.

Is the real cause for the present state of our economy just as what the Financial Secretary says ─ a natural phenomenon of the economic cycle ─ and that we have no need to take any action to help? I hope what he says is right. Then we do not need to worry. But, in fact, has our economy hit rock bottom yet? When will it bottom out? Should we wait until the economy hits bottom before we seek a solution to it? Anyway, I feel that the present economic situation of Hong Kong is a matter of concern, especially when the people are cherishing a negative feeling about it.

In my opinion, the following are the main reasons for the current economic slowdown.

First, persistently high inflation in the absence of a solution has kept the operational costs of all industries in Hong Kong on a constantly rising trend. Consequently, Hong Kong is gradually losing its superior competitiveness in the international community. In the past 20 years, many industries have been relocated from Hong Kong to mainland China and other Southeast Asian countries and this has led to Hong Kong's economic transformation. Consequently, the demand for labour by the manufacturing industry is gradually tapering off and hitting bottom. It is the distant cause for the dwindling number of employed workers in Hong Kong in recent years. And the immediate cause is the slowdown of the world's economy and the macro-economic regulation of China which has in turn led to the decline of our economy.

Secondly, because of the economic slowdown, ordinary people's consumption power has generally weakened. In addition, the uncertainties about our economic prospects have eroded the people's desire to spend money which directly affects all trades in Hong Kong.

Thirdly, Hong Kong people are worried about the political issues arising from the transition to 1997 and therefore they have all kinds of reservations about long-term investment or whether to remain in Hong Kong to help build Hong Kong. All these sentiments indirectly have a negative impact on Hong Kong's economy.

Under such circumstances, I feel that the Government has the need and the ability to take certain actions to improve the economy of Hong Kong. The Honourable Allen LEE has mentioned a series of measures which can stimulate the economy and improve the people's livelihood which are not "interventions" of the market at all. Other than short-term measures, the Government must make longer-term plans to create a better investment environment for Hong Kong. I might as well mention briefly the following:

1. As regards the setting of long-term goals for education and human resources, we know that the Government has worked hard to increase the tertiary institute places in recent years but I feel that it has not done enough in training workers with general skills.

2. Concerning industry, we should enhance the measures designed to assist industry. Take the industrial estates in Hong Kong for an example. The three industrial estates have provided local factory owners with land at reasonable prices to build factories and also equipped them with the necessary technologies which in turn have greatly enhanced their competitiveness. However, for the time being, small factories are not eligible to get a place in these industrial estates yet. Hence, the Government must consider the flexibility of as well as contributions these small factories have made in the industrial history of Hong Kong and give them more assistance such as setting up an industrial park.

3. Although the mainstay of Hong Kong's economy is the service industry, the Government has never provided it with any assistance. I hope that the Administration, especially the Trade Development Council, can promote our service industry abroad.

4. As regards the professional services, they are, of course, part of the service industry. I hope that the Government will positively respect the professional services and raise their professionalism. When hiring consultants for its projects, the Government always awards the tender to whoever bids the lowest price. I feel that this amounts to neglect of factors such as quality and goodwill. This in turn leads to vicious competition and lowering of the quality of the projects.

5. Although the rents of commercial units have fallen, according to a financial magazine, in terms of annual rental charged for grade A offices, Hong Kong still ranks third among the cities of the world, outranking even New York and London. I hope that the Government will set aside more land for commercial use, especially along railway lines or in the Northwest New Territories, so that cheaper land will be made available.

Mr President, the slowdown of Hong Kong's economy which has led to a rise in unemployment is a matter of concern of everyone. However, if the Government, members of the industrial and commercial sector and the labour sector will work together to strive for a consensus about the economic prospects of Hong Kong and formulate suitable long-term strategies, I will be optimistic about our economic prospects.

DR LAW CHEUNG-KWOK (in Cantonese): Mr President, the people of Hong Kong are facing two major economic problems and are having different views on them. Some people consider that the cake has been growing too fast,and some are of the view that the cake is not being equally shared. We consider that both views are very important. I am going to discuss how this cake can be shared equally.

In June 1993, the Honourable Frederick FUNG, our chairman moved a motion in this Council in respect of the gap between the rich and the poor and asked the Government to address this problem which was worsening. He moved the motion in view of the fact that, after Hong Kong's fast economic growth for over 10 years, those who were better off benefited by making investments in various ways, and their income and wealth grew by geometrical progressions, whereas the wages of the general public remained almost the same, and the Government had failed to do anything to redistribute the community's resources by means of some effective taxation, economic or social policy so as to narrow the gap between the rich and the poor. What has frustrated members of the public more is that the unemployment rate has kept on rising over the last couple of years and, in respect of wealth and income, not only are members of public not able to share the excellent economic fruit of the past, they are being dealt a heavy blow, affected as they are by the present economic slowdown and unemployment rate.

In the policy address this year, the Government has put forward a series of measures to stimulate the economy and improve unemployment, including the raising of Hong Kong's level of advanced technology, the establishment of the Applied Research Centre, the Science Park, and so on. But both myself and the Hong Kong Association for Democracy and People's Livelihood (ADPL) have doubts that just by having these policies and measures economic growth can be stimulated and job opportunities for local workers can be increased effectively. Still less can I see how facilities like the Science Park can help low-skilled, unemployed workers to get hold of new job opportunities. As regards economic policies, the ADPL and I propose, first of all, that the Government should model on the economies of European countries, the United States and countries of the Asian Pacific region to set up the Economic Development Board so as to study and make recommendations as soon as possible with regard to the development of all kinds of businesses. This will ensure that the development of the Hong Kong economy and the business sector will be more balanced, the production efficiency can be promoted, more job opportunities can be created, and the gap between the rich and the poor can be narrowed. In this respect, it is our view that the present tax system is the main cause of the widening of the gap between the rich and the poor. The ADPL has also recommended that a taxation review committee should be set up to redress the unfairness in the present tax system.

On the other hand, the ADPL has been paying close attention to the existence or otherwise of a level playing field where fair competition will be possible and whether the rights and interests of consumers can be safeguarded. According to the preliminary studies made by the ADPL and some other bodies, monopolization of businesses exists in many sectors, and newspapers, the Town Gas Company, airline companies, the container handling business, petroleum companies, cement companies and retirement fund management are amongst them. These have seriously hindered the operations of the free and competitive market of Hong Kong. The ADPL hopes that the Government can introduce as soon as possible legislation similar to Britain's Fair Trading Act which was enacted in 1973. The ADPL is in the process of drafting the relevant bill and is hoping to submit it to this Council for scrutiny in the form of a Member's Bill. Our purpose of doing this is that we hope to promote the free competition of the market, stimulate the economy and safeguard the rights and interests of consumers.

Moreover, the ADPL also recommends that the Government should establish a fund to help start and develop small businesses in order to encourage members of the public to start their own businesses and create more job opportunities. In this connection, so long as any member of the public or enterprise is able to submit to the Government proposals to start or expand a business, such proposals being capable of creating job opportunities which is a prime target to achieve, we hope that, after reasonable consideration by the Government, the Government can arrange long-term low-interest loans for the applicant jointly with the banks. Also, high inflation rate is another economic problem that affects the livelihood of the people. In spite of the fact that the Government has been saying over the past years that it will combat inflation, the result of its efforts is not marked. The Government has even taken the lead in stimulating inflation in a number of ways, the Government's routine approval of fares increase applications of public utilities every year being one of them.

Since the inflation problem has been with us for years, the gap between the rich and the poor is becoming wider. Low-income earners are not only unable to share the benefits generated by high property prices and the thriving stock market, the savings they put in the banks are earning very low interests at the rate of about 5% which, relative to the 9% inflation rate, are eroding their purchasing power so that it is actually decreasing continuously. In other words, the values of both the personal income and the savings put in the banks actually keep on depreciating. For this very reason, the Government, in its efforts to stimulate the economy, must also curb inflation so that the public's income would not cease to grow in the wake of inflation, and that their savings would not go on depreciating.

The ADPL is of the view that the Government should take the lead in freezing the rent increase of public housing as well as the fares increase application of public utilities and the three railway companies, so as to fulfill the Government's commitment to combat inflation.

With these remarks, I support the Honourable Allen LEE's motion. Thank you, Mr President.

MR ANDREW CHENG (in Cantonese): Mr President, I will speak in support of the Honourable Allen LEE's motion. I remember that my first encounter with Mr Allen LEE happened at a university forum in which I had some heated arguments with him on a number of issues. The journalists called me "a fearless new-born calf" and said that I had made Mr LEE "become arrogant on account of his seniority" because he had repeatedly reminded me, a junior Member, of his status of being a Legislative Council Member for 17 years. However, I believe after hearing this speech of mine "Senior Fei" will be feeling good again because I support his motion. That shows that there is no everlasting enemy in politics, just as the Democratic Party has co-operated with the Liberal Party this time and both parties have put aside the differences of their political views and strived for the prosperity of the economy.

Mr President, recently, with the inexorable rise in the unemployment rate and other economic uncertainties in Hong Kong, it is undeniable that the economy is suffering from a downturn. Under the present circumstances that the Government has plenty of financial resources, I hope the Government will face these problems positively and work out measures to stimulate the economy. I would like to stress that it is important to have on-the-job training and to formulate a comprehensive manpower development strategy.

Hong Kong is now undergoing transformation from an economy which was led by the manufacturing industry to one which is led by the service industry. Many workers of the manufacturing industry have been eliminated and that, in turn, has led to problems of unemployment and underemployment as well as difficulties in trade switching. These situations have shown that the manpower planning of the Government is inadequate and that there is no long-term planning to tie in with the economic development of Hong Kong.

Mr President, I know that the Government will prepare three reports on manpower next year which will contain a comprehensive review of the roles of the Employees Retraining Board, the Vocational Training Council and tertiary education to show its concern about the unemployment problem. However, the difficulties in finding a job and unemployment in Hong Kong are not problems which have arisen only recently and therefore I urge the Government to speed up in working out a time frame for the public and this Council and in deciding on its objectives for the future.

In addition, I hope that besides preparing the reports on manpower, the Government will also concern itself with the question of giving direct funding to the Employees Retraining Board. In the financial year of 1994-95, the Employees Retraining Board had a budget deficit and the Employees Retraining Fund relied solely on levies from employers who joined the scheme of the importation of foreign labour as its source of income and so, without sufficient funds, many courses or training programmes could not be offered. Therefore, asking the Government to increase its funding for the Employees Retraining Board in its next budget is a very important move.

Mr President, at present, more than 10 000 people are either unemployed or are first-time job-seekers and about 70 000 people are underemployed. However, only about 10 000 attendants of the retraining course will be able to get a job in 12 months' time. The retraining course will certainly not be able to solve the current problem of serious unemployment in Hong Kong. Therefore, besides providing more financial assistance to the Employees Retraining Board, the Government should have more co-operation with various trades so that more courses can be offered to meet the demands of the market and more on-the-job training can be provided.

At present, there are more than 300 000 employees working in the financial services, insurance, real estate and commercial services sectors. To maintain Hong Kong's status as an international financial centre, a lot of professional people are needed. However, we can see that not many training courses in these areas are offered. Those offered by the associations of the trades concerned and the tertiary institutions are very expensive and the Employees Retraining Board has not launched any programmes on financial services, insurance, real estate and commercial services. Under the present situation that these trades have gradually been moving north and there is a lack of effective training, not only are the job opportunities of the semi-skilled workers threatened, the talents of the financial and commercial services sectors are also put to the test and their job opportunities are also at risk. I therefore suggest that the Government strengthen the training provided to these employees so as to upgrade their skills to a professional level in order to ensure that Hong Kong would maintain its status as a financial centre and meet the needs of the long-term development of the economy so that the manpower of Hong Kong can be allocated properly. Besides, Mr President, I would urge the Government once again to work out a long-term plan for the service industry as soon as possible so that the industry can be developed.

Mr President, to stimulate economic development, not only do we have to solve the labour problem, we also have to pay attention to the development of the local bond market.

An international credit rating agency has indicated that it will continue to rate Hong Kong and Chinese companies after 1997. Yet the setting up of a local rating agency in order to safeguard Hong Kong's status as an international financial centre and to foster the development of the bond market merits consideration. Therefore, the Democratic Party urges the Government to respond to this matter positively.

We know that the bond market of Hong Kong is gradually developing. For instance, the central clearing system of bonds under the Hong Kong Monetary Authority has expanded the clearing and safekeeping services to cover debt instruments issued by private companies. Besides, the Mandatory Provident Fund Scheme will also help the development of the bond market of Hong Kong. However, the Government should improve its current facilities and supervision so as to ensure that capital will flow into the bond market of Hong Kong and not into overseas markets. Undeniably, the issue of bonds by Chinese and other organizations will help to develop the bond market of Hong Kong. But it seems that the Government has not set up any monitoring system and it has no long-term strategy. This is something I would ask the Government to take note of.

To conclude, under the present situation of an economic slowdown and a rising unemployment rate, I think the Government should try to resolve the various problems which I have mentioned without delay.

Mr President, these are my remarks.

MR CHAN KAM-LAM (in Cantonese): Mr President, according to the recently announced economic figures, the Gross Domestic Product (GDP) growth in real terms for the second quarter of 1995 is only 4.8% compared with the same period in 1994. The real growth in private consumption is even more deplorable registering a mere 1.4%.

The decline of the Hong Kong economic growth rate from 6.2% in 1992 to what we have today should be a matter of public concern.

The problems did not come overnight

Mr President, the economic problems of Hong Kong did not emerge overnight. The Democratic Alliance for the Betterment of Hong Kong (DAB) has long been asking the Government to seriously face up to various kinds of problems brought on by Hong Kong's economic restructuring.

We think that Hong Kong is now suffering from a kind of dislocation during economic restructuring. If this situation cannot be properly dealt with by some effective measures, a series of social problems will follow.

As a matter of fact, a great number of entrepreneurs already relocated their factories to mainland China from Hong Kong many years ago. Since 1986, the proportion of manufacturing industries as a component of the Hong Kong economy has been continuously decreasing. Factors like high property prices and high inflation rates for all these years have contributed to the economic problems of Hong Kong toady. In order to solve the existing problems, active participation on the part of the Government is very important. However, we have not yet heard of any great plans from the Government in this aspect, but can only hear some noises of blind optimism.

Be fully prepared for the future

In the presence of adverse circumstances, how can Hong Kong maintain its unique edge and further enhance its competitiveness to meet the new economic situation? We think that three questions have to be considered:

- How can Hong Kong co-ordinate with China in order to promote Hong Kong as a financial centre and high value-added industrial centre of China?

- How can the Hong Kong Government co-operate with the business sector and the local workers with a view to providing a level playing field and enhancing the efficiency of commercial institutions? and

- How can the Government upgrade the quality of local workers in order to cope with the future economic needs?

Strengthening the economic ties with mainland China

Mr President, dovetailing with the Mainland economy is an important aspect in the future economic development of Hong Kong. Unfortunately, most of the economic exchanges to date between the two areas are mainly handled by non-government groups and the business sector. Government support so minimal that it is not worth mentioning. The DAB has already proposed that the Hong Kong Government should set up without delay a "Bilateral Economic Development Committee" comprising both the Hong Kong and Chinese officials. The purpose is to deliberate together issues concerning cross-border economic co-operation such as how Hong Kong can accord with the economic development plan of China and how Hong Kong industry can cater to the Chinese market. But unfortunately, we can see that the leadership of Hong Kong has failed to do anything appropriate by way of improvement of Sino-British relations or cross-border co-operation. This has greatly disappointed the general public indeed.

Formulation of a long-term industrial policy by the Government

Furthermore, we also urge that the Hong Kong Government should study and discuss the formulation of a long-term policy in regard to industrial development as soon as possible.

One question that we have to pay great attention to is how we can mobilize resources in order to help develop the local high-technology industry and suitably help develop the local manufacturing industry so that the proportion of manufacturing industry as a component of the local economy can attain an optimal level to the effect that the local economy will not overwhelmingly lean towards the tertiary industries.

Sharing the same boat

At present, the economy of Hong Kong is entering a low-growth period in the economic cycle. The current economic problems are brought on by economic restructuring as a matter of course and is the result of long-term cumulative neglect. The could have been nipped in the bud if there had been measures to deal with them at the early stage. I hope that the Administration can draw from the experience by formulating effective measures to stimulate the economic development of Hong Kong.

Mr President, I think that Hong Kong's success in going through thick and thin for all these years has reflected the vitality of and good partnership between the businesses sector and labour sector of Hong Kong.

We hope that the employers and the employees can share the same spirit of helping each other while in the same boat, boosting together the productivity and competitiveness of Hong Kong and tiding over the current difficulties so that both parties can enjoy the fruits of economic growth in the future. This indeed is the win-win proposal for a smooth and successful economic restructuring of Hong Kong.

Mr President, with these remarks, I support the motion.

DR SAMUEL WONG (in Cantonese): Mr President, in the 1980s there were global economic downturns and high unemployment rates in various developed countries of the West. But comparatively speaking, Hong Kong enjoyed an enviable extent of economic growth during the same period of time. The main reason was none other than the opening of mainland China, an enormous market, which stimulated a multiple-fold increase in Sino-Hong Kong trading activities. Besides, a lot of labour and land intensive manufacturing trades moved their bases northwards to mainland China. This helped to lower the operation costs and increase Hong Kong's competitiveness. During that time, the negative impact on the territory's overall economic growth indirectly caused by the linked exchange rate of the Hong Kong dollar was not very much. It was because the imported labour necessary for infrastructural development and other occupations urgently in need of workers definitely helped to curb the soaring wages. The opening of China has given rise to a great demand for the well-trained human resources of Hong Kong. In tandem with the drastic increase of commercial activities, the rental of commercial premises and the wages in Hong Kong began to rise. Unfortunately, since China implemented the "macro-economic adjustment" programme, cross-border trading activities have decreased remarkably, and the market in Hong Kong has inevitably been affected. As consumer spending decreases, it is becoming difficult for companies to do business. They may resort to laying off their staff or even terminating their businesses.

From almost full employment a few years ago, Hong Kong has now become a city with an unemployment rate in excess of 3.5%. However, I believe that, after a period of time, the rental of commercial premises will certainly come down to a great extent. But I think that no one will want to see the wages in Hong Kong declining. Therefore, we can gradually see that some people will be out of job. But at the same time, there will also be some vacant positions. There are more than 100 000 unemployed while the vacant positions are roughly estimated to be between 40 000 and 50 000. Let me take the example of a skilled steel fixer from the construction industry. In early 1992, the daily wage of a skilled steel fixer was about $670. But in August this year, the daily wage has already risen to $950. The rate of increase is more than 40%. This is due to the retirement of senior skilled workers and the serious shortage of new comers who, though with different skill levels, are asking for skilled workers' wages. In other words, the wage level is raised but the productivity decreases. This has made it difficult for that occupation to survive and the request for imported labour is thus growing stronger.

I think that in order to solve the existing problems of high unemployment rate and low investment incentive over the short term, apart from reviewing the retraining of manpower and enhancing productivity immediately, the best method is to expand and promote the Job Matching Scheme of the Labour Department. The present rate of success of more than 50% is indeed encouraging. Besides, with the marked expansion of the On-the-Job Retraining Scheme of the Employees' Retraining Board, there should be positive help to the 100 000 unemployed. I believe that under full development, within one year, no less than 30 000 people will benefit from these two schemes of job-matching or retraining and be successfully referred to the appropriate positions. It is possible that this will be accomplished over the short to medium term.

As regards long-term planning, there are a number of ways to stimulate the economy and enhance the investment incentive of the business sector so as to increase employment opportunities in various occupations. The important things to note are:

Firstly, how to enhance the local workers' basis knowledge and level of skills so as to cope with the new working procedures or product requirements? This will involve a review and forward planning of primary and secondary education in the aspect of course co-ordination such as languages, computer, mathematics and science, as well as vocational training and even tertiary education.

Secondly, how to direct the business sector towards medium to high technology development?

Although it has been pointed out in the Governor's policy address this year that development of technology is the only way to enhance economic competitiveness, the Government, regrettably, has not come up with any concrete policies and directions or committed any resources for that purpose. On the contrary, during the Legislative Council debate, the Secretary for Trade and Industry responded to the effect that the Administration would not actively promote technological research or consider the consultation proposal of the Legislative Councillors in regard to scientific and technological development and research. He even pointed out that the economic situation of Hong Kong was different from that of Singapore or South Korea, and thus the maximum level of support and subsidy would not be granted to the industrial sector. His words show that the Government does not have much sincerity in revitalizing the industries of Hong Kong.

In regard to technological research investment expressed in terms of percentage of the Gross Domestic Product (GDP), it is 2.33% for South Korea, 1.79% for Taiwan, 1.77% for Singapore. But in Hong Kong the aggregate percentage over a number of year is only 0.05% which is indeed far too low. This figure includes the funding for technological research and the subsidy for the development of industrial technology in the past four years. When compared with the size and the progress of Hong Kong's economy, this amount is indeed negligible. If the Government is willing to allocate 0.5% of the GDP as the funding for technological development, there will be $5 billion to $6 billion per year for application and this can speed up achievements in those areas obviously bearing high development potential, such as environmental protection projects, telecommunication and video recording technology.

In the policy address, the Governor mentioned that we could not be parochial about technology and research, and encouraged us to work in partnership with the new scientific generation in China. For example, the Applied Research Centre was created last year. Its special task is to support projects which involved researchers from China as well as Hong Kong. Up till now, only $11 million has been allocated to fund two applied biotechnology projects which have been identified as offering exciting potential. However, such projects of technological research are inadequate and they only have very limited effect. At the present moment, what we need is 200 research projects or $2 billion to $3 billion of funding.

About 10 years ago, there was a position called Scientific Adviser in the civil service. Unfortunately, it was abolished due to personnel reasons. At present, there are positions like Political Adviser and Government Economist. But there are no advisers to assist the development of technology which is the most important aspect for the moment. Mr President, I therefore reckon that now is the best time for the Government to establish a department headed by an official of Secretary rank to be in charge of technological development affairs. With these remarks, I support the motion today.

MRS MIRIAM LAU (in Cantonese): Mr President, some people may regard the transformation of Hong Kong from a tiny fishing village in the past to an international financial and economic centre today as a miracle. Some other people, however, believe that the success of Hong Kong is more than simply a miracle, and should be attributed to its human resources, communication system, civil institutions and even its infrastructure and so on, in addition to its excellent geographical location.

Over the past 10 years or so, the economy of Hong Kong has been flourishing, marked by ever-rising productivity and a strong interest among local and foreign investors to invest in Hong Kong. Just two or three years ago, when the recruitment pages of newspapers were inch-thick, how could local workers know that they would have to worry about their "rice bowls" one day? But, good times never last. Practically the whole world is now hit by a general climate of economic slow-down, Hong Kong not excepted. What is more, due to economic restructuring and the northward shift of Hong Kong industries, economic and market sluggishness has started to emerge in Hong Kong, thus plunging more and more local workers into unemployment. Since Hong Kong is not almighty, it cannot possibly do anything to change the worldwide economic climate or to stop industries from leaving the territory. However, when it comes to boosting its domestic economy, Hong Kong should still have the ability to do so.

As the economy slows down and market conditions slacken, one effective remedy is for the Government to increase public spending for the purpose of boosting the economy and creating job opportunities. The United States also did this during the time of the Great Depression, when it embarked on numerous projects to build roads and bridges. Although Hong Kong is just experiencing an economic slowdown rather than an economic depression, the Government should promptly formulate and implement effective measures to cope with the situation before it worsens, so as to prevent the economic slowdown from inflicting further sufferings on the people.

In the context of today, building bridges and roads can still boost economic growth to a certain extent. And, this aside, we do in fact have an urgent need to build more flyovers and roads and to develop our mass transit system in view of the traffic congestion plaguing Hong Kong. Therefore, I urge the Government to expedite the construction progress of all transport infrastructure projects. This can boost the economy and create job opportunities on the one hand, and enhance the competitiveness of Hong Kong, and attract local and foreign investments on the other.

As far as transport matters in Hong Kong are concerned, the Government is in complete control. It has the final say as to where roads and bridges are to be built, and when railway systems are to be developed. Since it possesses the power, and in view of its very strong financial position, the Government should assume full responsibility in initiating a prompt development of all infrastructure items.

Nevertheless, several days ago, a senior government official, who is going to retire soon, still tried to defend the transport policy of the Government, pointing out that it is a worldwide practice for transport developments to take place after community developments. I doubt whether this is a golden rule of some kind that can be applied to Hong Kong. The reality is that the Government will not build any roads and bridges or increase the transport facilities in an area until the population there has reached a specific level, hence causing the people to suffer as a result of inadequate transport facilities. On the other hand, since many people do not prefer to move into an area with inadequate transport facilities, the development of many new areas has been hindered. I have always maintained that the provision of transport facilities should take place before or at least hand in hand with the community development of an area. For that reason, flyovers and roads should be built not only in greater numbers, but also with added speed; for the mass transit system, it needs not only development plans, but also early implementation.

The Railway Development Strategy released by the Government last year has come up with the decision to accord priority to the construction of the Northwest Railway, an extension of the Mass Transit Railway to Tseung Kwan O, a railway from Ma On Shan to Tai Wai and an extension of the Kowloon-Canton Railway from Hung Hom to Tsim Sha Tsui. Since the decision has been made, I urge the Government and the relevant railway companies to take active steps to implement the works projects concerned.

Of all the railway projects mentioned, the Northwest Railway is the most urgently needed. The Government's neglect of Tuen Mun residents' transport demand over the past 10 to 20 years has led to serious congestion along Tuen Mun Highway, which sometimes even reach catastrophic dimensions, thus causing not only immense inconvenience to the residents of northwestern New Territories, but also inestimable economic losses for Hong Kong. Since one should learn from past experience, should the Government still adhere strictly to the "golden rule" on transport policies as advocated by the senior official I mentioned just now?

Apart from serving to improve the external traffic of Tuen Mun, the Northwest New Territories Railway also involves the co-ordination of China-Hong Kong cross-border railway networks in future. Thus, this railway will affect the increasingly busy cargo transportation between China and Hong Kong. I hereby urge both the Chinese side and the Hong Kong side to conduct early negotiations in the Infrastructure Co-ordination Committee, with a view to achieving co-ordination between the railway networks on both sides, so that delays of the relevant works programmes can be avoided.

Railways apart, the existence of Hong Kong has always depended on its harbour since its inception. Without its harbour, Hong Kong will not have become what it is. That is why we must make the best use of this natural resource to enhance the competitive edge of Hong Kong as a whole, and of the container trade in particular. The Government should adopt a more active approach in the development of container ports. Schemes for the early construction of CT9 to CT11 should be submitted to the Chinese side as soon as possible.

Mr President, one of the objectives of the motion today is to urge the Government to take positive steps to revitalize the economy and increase job opportunities for local workers. But I want to point out that while increasing job opportunities, the Government should also pay more attention to the business conditions of some particular trades and allow room for these trades to survive. The Government should refrain from creating additional difficulties for them; otherwise, more people will be driven into unemployment.

Under the existing climate of weak consumption desire and general market sluggishness, even operators of taxis and minibuses are also affected. In recent years, minibus patronage has shrunk and taxi operators have recently experienced an even more difficult time. In addition to less business, these operators are further frustrated by congestion and numerous prohibited zones on the roads. Therefore, I hope the Government can have a compassionate understanding of their hardship, and make life easier for them amidst their difficulties by introducing flexible measures such as the provision of more picking up/setting down points for minibuses and taxis and more minibus stands.

Mr President, the need for revitalizing the economy aside, Hong Kong still has to develop its infrastructure as fast as it can. The competition Hong Kong is facing is becoming keener, although at the same time the territory is envied by many for its achievements. Apart from its traditional rivals like the other three little dragons of Asia, there is also the challenge from the Pearl River Delta. To maintain the competitiveness of Hong Kong, a good infrastructure is indispensable, and expediting its development will only do good to Hong Kong.

Mr President, with these remarks, I support the Honourable Allen LEE's motion.

Mr ERIC LI (in Cantonese): Mr President, there is nothing controversial in the Honourable Allen LEE's motion. But the difficult point is to urge the Government to tackle the root cause of economic slowdown. Economics is a social science involving many interplaying human factors. It is extremely difficult to identify the root cause by means of natural scientific method. It is even more difficult to ask the Government to formulate and enforce policies as if it is prescribing medicines. But the spirit behind the motion reflects the sentiment of the public. So it can be supported by regarding it as the spirit that charts a general course.

I have expressed my opinions on economic issues during the Motion of Thanks and the debate on freezing of fees and charges. Today, I would talk about my personal experience and the inspiration I can draw from it.

A couple of days ago, I took lunch in a restaurant which I often patronize. Otherwise engaged as I had been, I arrived there only when it was almost 3 p.m. I saw Mr CHUNG, the restaurant operator, eating with his subordinates. They are not necessarily in the same boat as the Honourable LEE Cheuk-yan has said, although the future situation remains unknown. On seeing me, Mr CHUNG poured out his grievances, and told me to relate his situation to the Legislative Council Members and the Government. He complained that the current rental was very high and wages as well as other expenditures were on the rise. Yet his business has fared badly, which has become unprofitable no matter how hard they run it. He was repeating the same few words while his subordinates were putting in edgewise to give him a helping hand. However, just a few words can fully reflect the thinking of many small businessmen in all trades in Hong Kong. What is worth mentioning is that Mr CHUNG has been engaged in the catering industry for several decades. He started as an odd-job labourer before he was promoted a waiter and then a cook. Eventually he set up his business in partnership with others which has grown from a small-scale one to a medium-size one. After years of hard work, he now has achieved moderate success. He is a portrayal of the majority of the well-off small businessmen in Hong Kong. He does not put on airs and is on good terms with his employees. He considers himself a man in the street. Under the current economic situation, he feels helpless and finds it difficult to continue his business. I believe he has the same feeling as those workers who are under the threat of unemployment.

Members invariably tend to show concern either for the big businessmen or the ordinary workers. Members may not sympathize with Mr CHUNG. However, even though they do not sympathize with him, they will agree that the spirit Mr CHUNG displays is the entrepreneurship which has been a key factor of Hong Kong's success. However, even the enterprising, hardworking well-off businessmen who have the bravery to set up their business are finding that it is now not the right moment to run a business and there is little prospect of success. In view of this, young people are far from willing to try. I believe this is the root of the problem.

The Government emphasized time and again that GDP still keeps growing and the situation is not too bad. The Government's point of views is different from the Members'. If the Government, as well as the Members, turn to look at the economic problem from the micro-economic perspective, they will concur with what Mr James TIEN has just said earlier on that, with the exception of a small number of trades which may be foreign corporations engaging in government infrastructure projects, and civil servants, and employees of subvented organizations who still enjoy salary increase, most businessmen in the private sector and the wage-earners including the professionals have earned less in real terms in the year 1995.

Blindly believing in macro statistics or figures derived from a variety of complicated factors will easily lead one into taking a superficial look at the real social situation. This is a mistake the Government is liable to make. I rise to speak to urge the Government not to pull the wool over its eyes and people's. It should not defend for its non-positive policies. Nor should it assert that the situation is all well and food. I would also remind the Government that it should not take the fact lightly that Hong Kong people are having less and less opportunity to start from scratch. I do not believe in the suggestions made by some Members that subsidies, subventions or some short-term measures can substitute people's entrepreneurship or other objective factors. Enterpreneurship and objective factors are the major factors leading to rapid economic development of Hong Kong. The absence of these will have a far-reaching impact on Hong Kong's economy. I think these are the factors which the Government should examine.

I would like to reiterate that I highly appreciate Dr LAW's suggestion of setting up a business development fund and other related recommendations. These are positive recommendations and I share his views. Although Dr LAW's suggestions can be said to be well-intentioned, however, there are two factors which have a direct and most important impact on Hong Kong's economy. The first one is the linked exchange rate system. This is a human factor which ties our hands and strips us of all effective economic adjustment measures. We are left with no leverage except in respect of public expenditure and tax rate only, which are basically minor adjustment measures having the least economic effect.

Secondly, as a number of Members have just mentioned, the economic systems of China and Hong Kong affect each other. The macro-economic control in China, in particular, is a human factor. None of these is the result of the natural economic cycle as the Government has alleged.

So I believe the Government can in fact grasp the situation. However, the enunciation of major principles and the production of lots of statistics will only make the Government hold fast to its official stance. We have already become apathetic to this. So I do not speak on this today. I intentionally avoid mentioning those macro-economic theories, which are difficult to understand and sound too remote to the people. I, instead, speak from a micro-economic perspective and tell this Council a real life story in the hope that the Government will adopt a more sympathetic attitude towards the people when discussing such a major topic as economic issues although it may well be aware that there is not much that it can do.

MR HOWARD YOUNG (in Cantonese): Mr President, I am in support of the Honourable Allen LEE's motion on stimulating the economy. Stimulating the economy will be helpful to the development of the tourist industry. In fact, they complement each other.

Recently, the issue of employment has become Members' focus of discussion. The most crucial thing is not unemployment, nor is it the scrapping of the importation of labour, but the increase of job opportunities.

Very often we talk of creating wealth. This idea and conviction of creating wealth has enabled Hong Kong to achieve outstanding development over the past few decades. Investors and workers (including those of the managerial class and other "wage-earners") join efforts to "create wealth". Even for those who stay at home to attend to the house hold chores, since they set the minds of other working family members at ease and enable the latter to concentrate on their work, these homemakers have contributed vastly to the effort of generating income.

In my view, there is a slight difference between employment and creating wealth. I think there are two categories of people who are able to create job opportunities, and this is not the same as creating wealth. These two categories of people are the investors and the consumers. Workers can create wealth, but I think workers cannot create job opportunities directly.

Amongst the various businesses of the tourist industry that I represent, hotel investment has assumed a very vital role. Recently, the Government has lifted the plot ratio to 1:15 for hotels. On the face of it, this will stimulate the desire to invest in hotels. However, at the same time the Government has taken away the favourable terms that were offered with regard to the hotels' basement and other facilities, so that the actual benefits are less or even worse than what the hoteliers used to enjoy. This is because of the special circumstances of the business. Hotels need a lot of extra space to accommodate massive air-conditioners, telephone operation rooms, security rooms, lobbies, gymnasiums, rest rooms for staff and a lot of space for administration purposes. A hotel is in operation round the clock, and it needs a lot more space for machinery and other facilities than an ordinary office. These areas do not produce extra revenue for the hotel, and are therefore called "non-revenue producing areas".

If the Government really means to assist the development of the hotel industry, it should reinstate the favourable terms for the basements of hotels as incentives for hotel investors to invest in Hong Kong, hence to stimulate the economy of Hong Kong and to increase job opportunities. Lifting the plot ratio and offering other favourable terms not only costs the Government nothing, the Government's revenue from land sale may also increase as a result of investors finding land for hotel development attractive.

Expanding the hotel industry can bring a lot of benefits for Hong Kong. When hotel investors find that the investment conditions in Hong Kong are favourable (for example, when the Government offers various kinds of favourable terms), and when the demand for hotel rooms rises, the capital invested in Hong Kong would be colossal. This is because hotel construction is a capital-intensive investment. What it brings is not just the capital required to build the hotels; what is more, the construction of just one hotel will produce hundreds of job opportunities, which include the posts for the managerial staff as well as front-line staff. On the average, a hotel in Hong Kong need to employ 500 to 600 workers. The larger the floor area and the larger the number of hotel rooms, the larger will be the number of people employed to achieve a higher standard of service. And therefore the more job opportunities there will be.

Hong Kong is facing an economic transformation. The days of booming manufacturing industries are actually fading out and even disappearing. Taking their places are the service industries. At present a lot of workers who were engaged in manufacturing are having difficulties in finding employment. But at the same time, quite a number of service industries that I have just mentioned, for example hotels, retailing and catering, have been expanding over the past few years and there is a great demand for workers. The Government's labour importation scheme can do no more than easing the shortage of manpower in the hotel industry to a limited extent. That the quota for workers in greatly reduced under the new supplementary labour importation scheme actually represents a further departure from the demand of the hotels.

As for the manufacturing industries and some of the service industries, they are able to move their machinery, computers, database and so on to places of lower costs. But in respect of hotels, people cannot move the whole building to another place. If they cannot get enough manpower, they will have to employ less staff selectively, but this will have a great impact on the quality of service.

Generally, in Asia and particularly the Southeast Asia region which includes Hong Kong, the ratio of hotel staff to guests is higher than the United States, Canada, Australia and Europe. Therefore our service standards are better. But if a large number of vacancies exists in the hotel industry, particularly when this affects posts having direct contact with guests, it will have a negative impact on the "quality" and "quantity" of service rendered to guests. This will erode our competitive edge. International tourist publications give ratings of hotels throughout the world every year, and from time to time three or four Hong Kong hotels are listed among the top 10 hotels in the world. Please note that it is rare for any country in the world to have more than one hotel on the top 10 list, and Hong Kong is merely a city.

So, we have to provide quality service to make visitors feel at home. This is a factor that serves to attract visitors so that they will keep coming. This is also a way to provide more job opportunities.

Just now the Honourable CHIM Pui-chung said that over 9.3 million people visited Hong Kong last year, whereas only about 200 000 people are engaged in various trades within the tourist industry, which means that, on the average for every 49.5 visitors we have, one job opportunity is created. Visitors are accommodated in the hotels of Hong Kong, and they go shopping, sight-seeing and savouring Chinese and other cuisines. All these can increase the revenue of Hong Kong's service industries. Therefore, I think if the Government devises and takes measures in regard to the tourist industry (including hotels and other kinds of businesses) to stimulate the investment desire, more visitors will be induced to come and spend money. Only in this way can we really create job opportunities and overcome the difficulties the Hong Kong economy is faced with.

MR JAMES TIEN (in Cantonese): Mr President, insofar as the industrial sector is concerned, we feel that one of the problems is that over the past 10 years or so when economic restructuring was under way the Government has not intervened which means it has let the industrial sector develop according to the needs of the market. Naturally, the service industries and the financial sector look more attractive nowadays and many people have switched trades, which has led to the inexorable decline of the manufacturing industries. The number of workers in the manufacturing industries has dropped from 1 million in 1990 to 400 000 today, something we had foreseen long time ago. Over the years, the industrial sector has been pleading with the Government and pointing out how it should help the industries. But the Government just sticks to its positive non-interventionism. Now in this Council, we also have many colleagues from the labour sector who often say that there is no need to help the business sector. They argue that should the Government help the business sector make money, any benefit so derived would only go to the business sector. Therefore they have not supported the Government's proposals. What we can see to date is this. To the remaining 400 000 workers in the manufacturing industries, it might sound very mean if we called them the old and the weak, but the fact is that it would be very difficult for the remaining 400 000 people to switch to another trade. Most of them are probably between 40 and 50 and have not even received secondary school education. If they are asked to switch from some jobs like handling and turning out a product such as a garment or an electronic radio to jobs in the service industries such as selling goods, advising people how to buy a T-shirt or a pair of jeans, many such workers may not be able to adjust readily.

Over the years, we have been of the view that the Hong Kong Government has absolutely given no help to the industries. The Government has done nothing other than collecting tax. Over the years, conditions offered by the Hong Kong Industrial Estates have been harsh; they simply are meant to encourage overseas investors to move into the Hong Kong Industrial Estates. As for industries that hire a large number of Hong Kong workers, such as garments, electronics, toys and plastics, they have not succeeded in entering the Hong Kong Industrial Estates. Consequently, they are forced to move to Shenzhen or the Pearl River Delta to set up their manufacturing plants. Conversely speaking, and as a contrast, the industries of Singapore can also move their plants to Malaysia and Indonesia. So why can their industries still survive? Why can their high-technology industries still survive? In Taiwan, the situation is the same. People have moved numerous manufacturing plants to Fujian, but the high-technology industries in Taiwan can survive all the same. It is so because over the years their governments have put their resources to use, and members from the labour sector sitting on these countries' assemblies and councils may have considered that if their business sector is doing well, it may provide job opportunities to their next generation just as well.

Mr President, today we would like to talk about the Science Park. In Taiwan and Singapore, such a scheme has been in operation for more than 10 years. In Hong Kong, the Government merely talks but takes no action, and then it talks again but there is still no action. Now that the piece of land in Taipo may be worth $10 billion, perhaps the scheme could be abandoned as $10 billion is a lot of money. And that piece of land could instead be sold for the purpose of housing development and the Treasury could derive more revenue. Well, if that were the case, then what would the situation be in 10 years' time? Have we considered that students studying for their degrees in engineering at the Hong Kong University of Science and Technology today would not be able to find employment after they have graduated? In that case, what should our policy be like? My view is that although it is late, the Science Park scheme should be implemented as soon as possible, I repeat, it should be implemented as soon as possible so that our next generation of industries will be able to catch up with Singapore and Taiwan at a higher level.

Mr President, with these remarks, I support the motion.

FINANCIAL SECRETARY: Mr President, Honourable Members, I welcome today's debate on the economy because it gives us an opportunity to examine together the essential ingredients of our economic policy. Indeed I agree to many points made by Honourable Members this evening. I shall certainly consider them very carefully. I look forward to continuing these discussions with Members as I prepare my ground for the Budget next March.

I want to make it clear today that I hope that we can proceed on a basis of consensus. I want to identify the real concerns of the community and I want to address them. But I am also determined to preserve the market-based economic philosophy and policies which have served us so well during more than three decades of economic expansion. I believe that there is a solid consensus on economic policy in this Council and in the community as a whole. This should be our starting point for today's debate.

I have noted that Mr Allen LEE has worded his motion very carefully. He does not talk about a recession. He does not talk about a crisis. He talks instead about a slow-down in economic growth and an increase in unemployment. He also talks about identifying the root causes of these problems and addressing them. This is exactly how we should approach the issues, and that is why I have no serious difficulty with this motion. I welcome it as a valuable opportunity to develop an important dialogue between this Council and the Government.

To identify the root causes of our economic problems and to develop an appropriate response, we need to clear the ground a little. Let us start with the facts, facts which I think provide common ground for the debate.

Hong Kong is not experiencing a recession. As we announced in August, we have trimmed our regional forecast for this year's GDP growth in real terms from 5.5% to 5%. First quarter growth performance was remarkable at 5.9%, but the pace of growth in the second quarter slowed somewhat to 4.8% as we announced on Monday. Nevertheless, we still expect to achieve a growth of 5% this year. Domestic exports have recovered well from a 2% decline last year and grew by 5% in real terms in the first nine months of this year. Re-exports are continuing to advance strongly, with a 16% expansion in the first nine months of this year. The investment picture is also very encouraging. Retained imports of capital goods increased by 28% in real terms in the first nine months in 1995. This reflects a strong investment trend as businesses build up the capital equipment they need to expand their productive capacity.

Given these facts, I do not think anyone can seriously doubt that our economy is soundly based or that it is continuing to grow steadily, but there are real concerns about economic prospects and this motion demonstrates that. These concerns seem to be focused on some key issues: the slower pace of growth; the high rate of unemployment; and the persistent pressure on inflation. These are the problems which we must face and overcome together.

Let me start with economic growth. If I have interpreted the mood of this Council correctly, the real concern is our revised growth forecast for the year could be a warning sign of worse to come, that is, a concern about a deterioration in our competitiveness, in market conditions, and in our ability to adjust to changed circumstances. There also appears to be a worry that we cannot simply leave it to market mechanisms to take the strains or find the answers. I recognize the force of these concerns. I can assure Members that we will continue to be vigilant in monitoring the economic data for the first sign of serious difficulties ahead. Nevertheless, I do not see how a modest paring of the 1995 growth forecast produced earlier in the year would justify losing faith in the free market policies which have served us so well for so long. In any case, a commitment to markets and competition must apply not only in good times, but also when times are not so good or even bad. Hong Kong cannot be a fair-weather free market.

So, how should we respond to the slowing-down in the pace of our growth rate? What is the root cause of the problems, and what can and what should we do about them? The root cause is not some failure in our economic policies. The root cause of our slower growth is quite simply the fact that we are a part of a global and regional economy. When some of our major trading partners experience slower growth, our exports to these markets also decelerate, and trading profits are generally harder to make. Also, our investment income from such economies tends to shrink; the less buoyant profits and earnings from outside then actually dampen consumption. Dampening consumption further is a now infamous "feel bad" factor, which stems from the earlier consolidation of our stock and property markets and a rise in the unemployment rate.

Of particular influence on our trade and income growth is the economic situation in China. The Chinese Government has succeeded in trimming back the phenomenal economic expansion in the country over the past two years. A slower pace of growth has been fully justified to avoid aggravating the inflationary pressures and bottlenecks which a rapid development process inevitably brings.

We in Hong Kong must welcome the way in which the Chinese economy is now growing at a realistic, but still impressive pace. This will ensure steadier and more sustainable growth over a longer term. In the meantime, we have to accept the implications for our own economic performance of the lowering of China's growth rates.

Hong Kong has not been helped by the way in which China's austerity measures coincided with measured growth elsewhere in the world economy. In North America and Western Europe, governments have identified a lower inflation and sustainable growth as their priorities. Growth rates for these important trading partners are likely to be some way below our own 5% in the coming year. The fact is that the world's leading economies do not seek growth at any price. They do not believe in achieving their maximum possible rate of economic expansion. The shared goal among our principal trading partners is stability ─ stable prices in particular ─ and growth trends which can maintain over a reasonable period of time.

Nor have we been helped by the difficulties which Japan has experienced during the l990s. The Japanese economy remains under pressure and there has been little growth for the past four years. Japan is an important trading partner for Hong Kong. We must face the fact that if the Japanese economy is experiencing difficulties, we are certainly going to feel the impact.

As I have said, Hong Kong is an open economy. We live by trade. We should not be surprised that our growth is strongly influenced by the economic situation of our major trading partners. But the fact that this external factor falls outside our control does not mean that we should not look for ways to improve our performance. I agree with many Members who have argued today that we need a strategy to facilitate investment, enhance efficiency and to reduce unemployment. The issue before us today and in the months leading up to my Budget is what should such strategy involve.

Clearly such a strategy should be based on markets, enterprise and free trade. I hope no-one is proposing that the Government attempts to manage the economy. The Government's role must be to support business by helping to enhance our productive capacity, improve efficiency and sharpen our competitiveness. That is why we invest billions of dollars each year in improving Hong Kong's physical infrastructure. We also invest billions of dollars each year in education and skills training.

I could list a formidable catalogue of recent new initiatives to improve the support we provide for industry to enhance the business environment and to expand our infrastructure of skills. The Industrial Technology Centre and the Applied Research Council are two recent examples, but Members know all of these very well. I want to reassure this Council today that the Government does not seek to rest on its past record or its current programmes. You have my personal assurance that I am prepared to consider any specific proposals, any practical measures which will enhance our productivity and our competitiveness, and in this regard I am most grateful for views expressed today. This open-minded commitment to respond to the needs of business is, in my opinion, exactly what the Government should be doing to support the economy.

But could we do more? For example, do we need a new, high level body bringing together business and representatives, representatives of the workforce and the Government? If the purpose is dialogue, then perhaps this proposal is a good idea. But as I said to this Council last week, I tend to think that we have already in place all the forums for discussion that we need. If the purpose is to attempt to manage the economy, to second-guess markets or to embark on government planning through a back door, then my answer is an emphatic "no". That is not what Hong Kong needs.

Should we be cutting taxes to stimulate the economy? We have just had a full debate on this question. The obvious questions are: Does anyone really believe Hong Kong businesses and individuals are over-taxed? Can anyone claim that our tax regime deters investment? How could reducing tax rates in Hong Kong stimulate demand for our goods and services abroad? How large an impact would lower taxes have on our domestic demand? It is worth noting that substantial tax reductions introduced in each of the last three Budgets did not seem to provide the sort of economic stimulus that advocates of lower taxes to boost growth rates are hoping for.

Shall we freeze government fees and charges? I understand the temptation to do so. But will such a freeze really help? It would do nothing useful to stimulate the economy. However, it would do serious and lasting damage to the principle that a user should pay for services provided by the public sector, especially when the users are commercial.

Shall we attempt to stimulate the economy by increasing public expenditure? The danger here is that higher recurrent and capital expenditure will worsen inflation rather than improve employment and real incomes. We have a relatively small public sector. In very rough terms, we would need to double the growth in public expenditure to produce 1% increase in our growth rate.

In practice, of course, this Council would not approve proposals to increase government spending designed simply to boost economic growth. Quite rightly, week after week, the Finance Committee demands a detailed justification of the Government's case for spending money, whether on new projects or additional posts. And if this Council stepped back from this critical monitoring role, I believe that the community would object very strongly. Hong Kong cannot relax its commitment to total accountability for public spending, the principle of maximum value for money in public expenditure.

Modern practitioners in public finance generally agree that monetary or fiscal measures designed to increase output and employment by artificially boosting aggregate demand invariably fail. Renowned economists, including Professors FRIEDMAN and LUKACS, have warned us that arbitrary measures by the government to counter short-term fluctuations in the economy would be ineffective or counter-productive, even for those economies with a public sector relatively much larger than Hong Kong. I feel strongly that we should heed their sound warnings. Attempting to boost economic performance through increased public expenditure is not part of Hong Kong's system of public finance.

So, we should not try to follow the example of economies elsewhere and push up our growth rate by cutting taxes because experience shows that their success in stimulating the economy is doubtful, or by increasing public expenditure because we already spend as much as reasonable, consistent with our commitment to small government and to financial accountability.

But that does not mean there is nothing that the Government can do to improve the business climate and to enhance the investment environment. Both the Governor and I have announced important initiatives to do so. I have established a Task Force to review what the Government can do to support the services industries. These are now the dynamo of Hong Kong's growth, the main source of our prosperity. The Governor has directed that the Administration should give special priority to removing the bureaucratic bottlenecks to business, the redundant regulations. We want our legal and supervisory systems to encourage enterprise instead of stifling initiative. As concrete proposals emerge from these exercises, we shall brief this Council and seek Members' advice as well as the business community's input, and we should not lose sight of the fact that inward and domestic investments are already growing strongly.

I spoke earlier of the three economic problems we face: slower growth, unemployment and inflation. I now want to address specifically concerns about unemployment. I realize that there is nothing to be gained from pointing out that Hong Kong's unemployment rate is very low by the standards of most other mature economies. The point is that our unemployment rate is now high by our own Hong Kong standards. For the unemployed workers, international comparisons offer no comfort at all.

Nevertheless, we have to start our discussion with the facts of our own labour market. In recent months, we have experienced a more than 4% increase in labour supply. At the same time, the number of jobs has been growing at about half that rate. Of course, we must welcome the return of a large number of former emigrants from Hong Kong and we also welcome the increased family reunions because of the higher number of new arrivals from China. But the economy has not been able to accommodate immediately and in full the demand for jobs from the increased labour force. And behind the cold statistics of labour market are the real stories ─ the distress and the disappointment of those unable to find suitable employment. The Government accepts a duty to help these people and we are doing so. The Labour Market Job Matching Programme has been upgraded to help people identify the jobs which best suit their skills and experience. There are over 50 000 job vacancies in the private sector at present, which means we should be able to make a success of this programme. The Employees Retraining Board has overhauled its efforts to help unemployed workers acquire new skills to equip themselves for the changed labour market. So far this year, it has helped over 5 000 workers to find jobs.

Retraining and job-matching are the keys to helping the labour market work more efficiently and more humanely. They are among the highest priorities of the Government today.

The other issue we need to address in the context of unemployment is the importation of labour. I know there are strong-held views on this issue and I understand Members' concerns. I believe that on this issue the Government, this Council and the community share much the same goals. We all want to make sure that we have an adequate supply of the right types of labour to maximize our potential for economic growth. This will benefit the whole community. At the same time, all of us want to give priority to local workers. The Government's proposals for the Supplementary Labour Importation Scheme were designed to get the proper balance between these two important goals. The Secretary for Education and Manpower has been engaged in a dialogue with Members of this Council to build on this common ground. The Governor's Employment Summit will tackle this issue tomorrow. I am sure that with patience and good will we shall get the approach right.

Our third economic challenge is inflation. To put it bluntly, our inflation rate is too high. Yes, it has moderated from the peak of 13.9% in the spring of 1991. But at 8.9%, it is higher than a rate experienced by many other economies in our own region as well as in Europe and North America. We must take the greatest possible care to ensure that we do nothing to squander the gains we have made in reducing price pressures in the past few years. I hope Honourable Members will understand me when I say I am simply not prepared to take any risks with inflation. We will hold down government spending to reduce competition from the public sector for scarce resources. We will chase every source of improved efficiency in the public sector, whether through higher productivity or more modern management systems. We will continue to tackle the bottlenecks which push up private sector costs, whether through an improved supply of skilled labour or a streamlined regulatory environment, or better transport or communications infrastructure.

So, where do we go from here? We must first recognize that the problems we face ─ slower growth, high unemployment in particular ─ are linked. They are not isolated phenomena. We have to be clear about the root causes of our problems, and I think we have gone a long way towards doing so in our debate today. We must then develop responses, as I have said already. The solutions to our difficulties lies in greater productivity, enhancing competitiveness and greater flexibility. They do not lie in more bureaucracy, more government intervention, higher public expenditure or short-term measures to inflate earnings or consumption.

This evening, we have started a dialogue on economic policy. This will continue in the weeks ahead as I frame our Budget proposals. Within the Government, we shall be looking at ways to improve our support for business, to encourage more investment and to help the unemployed acquire new skills and to find new jobs. What we cannot do is to break with the sound principles which have helped us achieve 35 years of unbroken GDP growth. We must reject calls to adopt dangerous experiments in an economy which is growing at an incredible rate by the standards of any advanced economy. We certainly cannot adopt bureaucratic solutions for the problems of our open economy and its free markets. I am sure that I speak for a majority of this Council and the business community in Hong Kong as a whole when I say we have one best guide in our present difficulties: we must retain our faith in markets and free enterprise, and not clutch at Keynesian straws at the first sign of economic difficulties. Subject to these remarks, I shall consider very carefully the proposals which emerged during the debate today.

PRESIDENT: Members, again I have to say I was mistaken, this time in depriving the Financial Secretary of the right to interrupt on a point of order pertaining to quorum. Although I said that the Financial Secretary had no right to interrupt, I decided to count the Council as my attention was rightly or wrongly drawn to the very apparent fact of the lack of a quorum.

I have reconsidered the matter, and I rule that the Chief Secretary, the Financial Secretary and the Attorney General (that is, the three former ex officio Members of this Council), do have the right to interrupt under Standing Order 29 as the said Standing Order is not excepted in Standing Order 4C(3). And although Standing Order 10(Quorum) is excepted in both Standing Order 4C(2) and Standing Order 4C(3), it is excepted in the sense that public officers (the three said public officers included) cannot count as Members for the purpose of constituting a quorum.

Although there is no need for me to make this ruling to validate my previous decision to count the Council, this ruling is necessary for future sittings, and it is to the effect that the Chief Secretary, the Financial Secretary and the Attorney General do have the right to interrupt on a point of order in general and for lack of a quorum in particular.

I further rule that the proviso in Standing Order 4C(2) is meant to limit the right of a public officer (other than the Chief Secretary, the Financial Secretary and the Attorney General who are not limited) to interrupt only in relation to an item of business in respect of which he has been designated to attend the Council.

All in all, public officers cannot count as Members in constituting a quorum, but can act as Members in interruptions which include pointing out the lack of a quorum.

Mr Allen LEE, you have 55 seconds for your reply.

MR ALLEN LEE (in Cantonese): Mr President, as time is running out, I cannot respond in detail to the Financial Secretary's reply. I want to thank my colleagues in this Council for supporting my motion. Their support at least shows that they are aware of the difficult situation our economy is faced with. I just want to say that we are not asking the Financial Secretary to adopt any unorthodox means. Nor are we asking him to seek quick solutions to our problems. We are just asking him to devise a plan to help Hong Kong. The challenges Hong Kong is facing are numerous, and no one single economic formula or international economic formula can adequately measure or assess the situation characteristic of Hong Kong's specific circumstances and social structure. That is why we will certainly follow up the matter with the Financial Secretary in relation to the situation confronting us now. That is all I can say, given the time available today.

Question on the motion put and agreed to.

ADJOURNMENT AND NEXT SITTING

PRESIDENT: In accordance with Standing Orders, I now adjourn the Council until 2.30 pm on Wednesday 15 November 1995.

Adjourned accordingly at six minutes past Ten o'clock.

Note: The short titles of the Bills/motions listed in the Hansard, with the exception of the Non-local Higher and Professional Education (Regulation) Bill and the motion under the Interpretation and General Clauses Ordinance, have been translated into Chinese for information and guidance only; they do not have authoritative effect in Chinese.