Clerk in attendance :

Ms LEUNG Siu-kum,

Chief Assistant Secretary (1)2

Staff in attendance :

Miss Becky YU,

Senior Assistant Secretary (1)3

I. Confirmation of minutes of last meeting

(PLC Paper No. CB(1) 758)

The minutes of the meeting held on 12 December 1997 were confirmed.

II. Information paper issued since last meeting

(PLC Paper Nos. CB(1) 701 and 755)

2.Members took note of the information papers on "Surveillance of travel agents during high travel season", "Asia-Pacific Economic Cooperation: the Fifth Economic Leaders meeting and the Ninth Ministerial meeting", and "World Trade Organization General Agreement on Trade in Services and Financial Services and Financial Services Negotiation".

III. Business and services promotion

(Provisional Legislative Council Brief on "Helping Business and Promoting Services" and PLC Paper No. CB(1) 756(01))

3. At the invitation of the Chairman, the Director/Business and Services Promotion Unit (D/BSPU) briefed members on the work of BSPU. On the helping business side, BSPU was committed to cutting red tape without jettisoning the policy objectives on public safety, environment, health as well as fair and orderly markets. The Administration would set out broad parameters within which the business sector could achieve these policy objectives with maximum flexibility. As regards services promotion, BSPU had already in place a 10-point Publicity Programme and a 12-point Action Agenda for 1997-98. D/BSPU stressed that the Administration had no intention of abandoning manufacturing industries which were in fact an integral part of Hong Kong's economy, and had extensive interaction with the service industries.

4. Mrs Selina CHOW sought clarification on the effectiveness of BSPU in cutting red tape and controlling costs within the Administration. In response, D/BSPU emphasized the need for government regulation in achieving legitimate policy objectives. The key was to avoid unnecessary red tape and to strike a right balance between costs and benefits so as to make Hong Kong genuinely business friendly. To secure the right mindset among senior officials, BSPU had organized, as part of the Chief Secretary's regular Heads of Department meeting, a Helping Business Symposium in November 1997, to be followed by seminars for senior and middle directorate officers throughout the Administration. A computerized database setting out all regulatory activities undertaken by Administration with a record of date introduced and last revised, original objective etc was also in place so that BSPU could work systematically through the record to identify areas for potential future study. As a result, significant improvements had been made in a number of aspects. These included the change in payment method used by the Treasury and streamlining of licensing procedures within the Marine Department where applicants could send in their applications through facsimile. D/BSPU stressed that it required time to establish new regulatory measures. On cost control, BSPU had begun to undertake a pilot study to assess the costs and benefits of complying with regulatory measures to business and the need for these measures. The aim of the study was to devise a system within which policy bureaux and departments could assess the cost of compliance in contemplating new regulations.

5. As regards the setting of priority for specific studies, D/BSPU advised that on the helping business side, this would be decided by the three sub-groups of the Business Advisory Group (BAG) having regard to views collected from the business sector. BSPU would ensure that these studies would be completed within a reasonable time frame, and that the recommendations would be implemented by relevant bureaux and departments. On the services promotion side, BSPU would consult unofficial members of the Services Promotion Strategy Group (SPSG) on ways in which the Administration might be able to support the service sector when drawing up the action agenda for approval by the Financial Secretary.

7. In reply to a question on the promotion of information technology, D/BSPU reckoned that this was a concern area of BSPU. To ascertain how computerization could provide improved services to the community, he had visited the Victoria State of Australia where the public could get access to a whole range of services 24 hours a day. The relevant report would be submitted to the new Information Technology and Broadcasting Bureau for consideration.

8. Mr Paul CHENG expressed concern about the overlapping of functions among organizations such as the Trade Development Council and Economic and Trade Offices set up with the same objective of promoting business and services. D/BSPU advised that some changes were being considered but he was not in a position to comment on this.

IV.Review of the Applied Research and Development Scheme and Cooperative Applied Research and Development Scheme

(PLC Paper No. CB(1) 756 (04))

10. The Director-General of Industry (DG of I) explained that although the Applied Research and Development Scheme and the Cooperative Applied Research and Development Scheme had been in place for four and two years respectively, their actual performance had not been impressive as evidenced by the under-utilization of funds where only one-third of the original grants had been committed. To ascertain the effectiveness of the Schemes in meeting their objective of encouraging technology ventures and research and development (R&D) activities in local enterprises through the provision of financial assistance, the Applied Research Council (ARC) commissioned a review on the Schemes. The Industry and Technology Development Council and relevant trades had been consulted to ensure that an objective review had been conducted. The review concluded that although the overall performance of the Schemes had not been impressive, these had provided a readily available source of finance for technology start-ups and upgrades and, to some extent, helped to induce private sector investment in R&D activities and technology ventures. Therefore, the Schemes should be maintained, subject to improvements on various institutional problems arising from the current operational arrangements. The Board of Directors of ARC had accepted in principle recommendations of the review.

11. Prof NG Ching-fai asked if the Administration had conducted a post-mortem analysis on all funding applications, including unsuccessful ones, to ascertain the need for Fund Manager as proposed in the review. DG of I advised that the main difficulty hindering the performance of the Schemes was insufficient quality applications, which had resulted in the under-utilization of the funds. This was partly attributed to the use of part-time Secretariat staffed by civil servants. Owing to the lack of resources and expertise, the Secretariat could only respond to applications received rather than actively identifying potential projects. The proposed introduction of a full-time professional Fund Manager would change the passive approach of project identification. This would also ensure that all applications would be assessed according to the technological merits and commercial viability of projects, and that all supported projects would be properly managed. Furthermore, the expertise of Fund Manager in financial management would broaden the investment portfolio of projects through various means, such as listing in the proposed second board stock exchange market. As regards the performance of Fund Manager, DG of I said that this would be monitored by the Board of Directors of ARC according to a Fund Manager's Brief to be drawn up which set out clearly the objectives of the Schemes, duties and limitation of the Fund Manager, relationship between the Fund Manager and the Board of Directors as well as performance indicators.

12. While appreciating the Administration's commitment in strengthening the effectiveness of the Schemes and enhancing their contribution in promoting the technological development of Hong Kong, Prof NG enquired if the Administration would consider holding over the proposed injection of $500 million into the Schemes until establishment of the high level committee, since the latter might have better alternatives for the funding. DG of I took note of the member's concern but cautioned that it would take time to establish the high level committee and Hong Kong might suffer as a result of delay in technology upgrades given the rapid technological development within the Southeast Asian region. Nevertheless, the proposal of contracting out funds under the two Schemes to a venture capital firm in the private sector would facilitate the Administration to terminate the service of Fund Manager whenever the need for fund re-allocation arose. In reply to a related question on the cost for "contracting out", DG of I advised that this had yet to be worked out taking into account overseas experience. The basic package would include a standard administration fee plus a profit-sharing element. Dr YEUNG Chun-kam welcomed the "contracting out" approach but was of the view that apart from venture capital firms in the private sector, the Administration should consider contracting out the Schemes to banking institutions. DG of I took note of the member's view.

13. As regards the rationale for dispensing with the target financial rate of return of 5% for both Schemes, DG of I advised that the stipulation of such a target had caused the Board of Directors of ARC to attach overly stringent conditions on funded projects which caused a dampening effect on potential applications. Given the risky nature of R & D and technological ventures and the fact that economic benefits generated from R & D was difficult to quantify, the review recommended that ARC should aim at the best return rate achievable rather than a fixed numerical rate of return.

V. Rice Control Scheme

(PLC Paper No. CB(1) 756 (05))

14. In reply to some members’ question on the continuous need for the Rice Control Scheme, the Deputy Director-General of Trade (Acting) explained that the objectives of the Scheme were to ensure regular and adequate supply of rice to consumers and to provide a reserve stock for emergency purposes. Under the Scheme, registered stockholders were required to keep at any one time a certain amount of reserved stock of rice calculated in accordance with their allocated import rice quota. Consequent upon a review in June 1996, the Administration decided to retain the Scheme since rice remained the staple diet in Hong Kong. To ensure a more flexible mechanism for the rice trade and to enhance competition, measures such as increasing the number of stockholder from 45 to 50; modifying the level of reserve stock from absolute tonnage to number of days of consumption; removing the admission criterion on prior experience for registration as a stockholder; and introducing the Optional Quota Scheme had been implemented. The Secretary for Trade and Industry (Acting) (STI (Atg)) added that the high level Competition Policy Advisory Group chaired by the Financial Secretary would undertake an overall review on trade practices in the rice market in due course.

15. Noting that the rate of rice price increases in three out of the past ten years had surpassed the inflation rate of the same year, a member sought clarification on the causes of increase. STI (Atg) advised that the rate of increase would remain steady had the Administration taken into account the different consumption pattern in respect of types of rice in compiling the statistics. As regards the recent rise in retail prices of rice, particularly Thai rice regardless the fall in Thai Baht, STI (Atg) said that apart from exchange rate, rice prices could be affected by natural disasters, political crises or other problems in the supplying countries. Operation overheads such as rent and advertising would also have a direct impact on retail prices of rice. He stressed that the Administration was committed to fostering an environment conducive to fair competition in the rice trade, and that the retail prices of rice should be determined by the market.

16. As rice was the basic foodstuff of the local population, members generally supported the retention of a rice reserve for emergency purpose but urged the Administration to review the Scheme from time to time to ensure effectiveness.

VI. Date of next meeting and items for discussion

17. Members agreed to cancel the next regular meeting scheduled for Monday, 9 February 1998.

VII. Any other business

18. There being no other business, the meeting ended at 4: 20 pm.

Provisional Legislative Council Secretariat
18 March 1998