OFFICIAL RECORD OF PROCEEDINGS
Wednesday, 18 November 1998
The Council met at half-past Two o'clock

MEMBERS PRESENT:

THE PRESIDENT
THE HONOURABLE MRS RITA FAN, G.B.S., J.P.

THE HONOURABLE KENNETH TING WOO-SHOU, J.P.

THE HONOURABLE JAMES TIEN PEI-CHUN, J.P.

THE HONOURABLE DAVID CHU YU-LIN

THE HONOURABLE HO SAI-CHU, J.P.

THE HONOURABLE CYD HO SAU-LAN

THE HONOURABLE EDWARD HO SING-TIN, J.P.

THE HONOURABLE ALBERT HO CHUN-YAN

THE HONOURABLE MICHAEL HO MUN-KA

DR THE HONOURABLE RAYMOND HO CHUNG-TAI, J.P.

THE HONOURABLE LEE WING-TAT

THE HONOURABLE LEE CHEUK-YAN

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

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

THE HONOURABLE LEE KAI-MING, J.P.

THE HONOURABLE FRED LI WAH-MING

DR THE HONOURABLE LUI MING-WAH, J.P.

THE HONOURABLE NG LEUNG-SING

PROF THE HONOURABLE NG CHING-FAI

THE HONOURABLE MARGARET NG

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

THE HONOURABLE RONALD ARCULLI, J.P.

THE HONOURABLE MA FUNG-KWOK

THE HONOURABLE JAMES TO KUN-SUN

THE HONOURABLE CHEUNG MAN-KWONG

THE HONOURABLE AMBROSE CHEUNG WING-SUM, J.P.

THE HONOURABLE HUI CHEUNG-CHING

THE HONOURABLE CHRISTINE LOH

THE HONOURABLE CHAN KWOK-KEUNG

THE HONOURABLE CHAN YUEN-HAN

THE HONOURABLE BERNARD CHAN

THE HONOURABLE CHAN WING-CHAN

THE HONOURABLE CHAN KAM-LAM

DR THE HONOURABLE LEONG CHE-HUNG, J.P.

THE HONOURABLE MRS SOPHIE LEUNG LAU YAU-FUN, J.P.

THE HONOURABLE LEUNG YIU-CHUNG

THE HONOURABLE GARY CHENG KAI-NAM

THE HONOURABLE SIN CHUNG-KAI

THE HONOURABLE ANDREW WONG WANG-FAT, J.P.

DR THE HONOURABLE PHILIP WONG YU-HONG

THE HONOURABLE WONG YUNG-KAN

THE HONOURABLE JASPER TSANG YOK-SING, J.P.

THE HONOURABLE HOWARD YOUNG, J.P.

DR THE HONOURABLE YEUNG SUM

THE HONOURABLE YEUNG YIU-CHUNG

THE HONOURABLE LAU CHIN-SHEK, J.P.

THE HONOURABLE LAU KONG-WAH

THE HONOURABLE LAU WONG-FAT, G.B.S., J.P.

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

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

THE HONOURABLE EMILY LAU WAI-HING, J.P.

THE HONOURABLE CHOY SO-YUK

THE HONOURABLE ANDREW CHENG KAR-FOO

THE HONOURABLE SZETO WAH

THE HONOURABLE TIMOTHY FOK TSUN-TING, J.P.

THE HONOURABLE LAW CHI-KWONG, J.P.

THE HONOURABLE TAM YIU-CHUNG, J.P.

THE HONOURABLE FUNG CHI-KIN

DR THE HONOURABLE TANG SIU-TONG, J.P.

MEMBER ABSENT:

DR THE HONOURABLE DAVID LI KWOK-PO, J.P.

PUBLIC OFFICERS ATTENDING:

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

THE HONOURABLE ELSIE LEUNG OI-SIE, J.P.
THE SECRETARY FOR JUSTICE

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

MR RAFAEL HUI SI-YAN, G.B.S., J.P.
SECRETARY FOR FINANCIAL SERVICES

MR JOSEPH WONG WING-PING, G.B.S., J.P.

SECRETARY FOR EDUCATION AND MANPOWER

MR KWONG KI-CHI, G.B.S., J.P.
SECRETARY FOR INFORMATION TECHNOLOGY AND BROADCASTING

MISS DENISE YUE CHUNG-YEE, J.P.
SECRETARY FOR THE TREASURY

MR DAVID LAN HONG-TSUNG, J.P.
SECRETARY FOR HOME AFFAIRS

MRS REGINA IP LAU SUK-YEE, J.P.
SECRETARY FOR SECURITY

MR TAM WING-PONG, J.P.
SECRETARY FOR TRADE AND INDUSTRY

MR PATRICK LAU LAI-CHIU, J.P.
SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS

CLERKS IN ATTENDANCE:

MR RICKY FUNG CHOI-CHEUNG, J.P., SECRETARY GENERAL

MR LAW KAM-SANG, J.P., DEPUTY SECRETARY GENERAL

MRS JUSTINA LAM CHENG BO-LING, ASSISTANT SECRETARY GENERAL

MR RAY CHAN YUM-MOU, ASSISTANT SECRETARY GENERAL

PAPERS

The following papers were laid on the table pursuant to Rule 21(2) of the Rules of Procedure:

Subsidiary Legislation	L.N. No.
Quarantine and Prevention of Disease Ordinance (Amendment of First Schedule) Order 1998	346/98
Prevention of the Spread of Infectious Diseases Regulations (Amendment of Form) Order 1998	347/98
Dangerous Drugs Ordinance (Amendment of First Schedule) Order 1998	348/98
Food Business (Regional Council) (Amendment) (No. 2) Bylaw 1998	349/98
Frozen Confections (Regional Council) (Amendment) Bylaw 1998	350/98
Milk (Regional Council) (Amendment) Bylaw 1998	351/98
Fisheries Protection (Amendment) Ordinance 1998 (36 of 1998) (Commencement) Notice 1998	352/98

Sessional Papers

No. 57	─	Accounts of the Government for the year ended 31 March 1998
No. 58	─	Environment and Conservation Fund Trustee Report 1997-98
No. 59	─	Report of the Director of Audit on the Accounts of the Government of the Hong Kong Special Administrative Region for the year ended 31 March 1998
No. 60	─	Report No. 30 of the Director of Audit on the results of value for money audits - June 1998
No. 61	─	Report No. 31 of the Director of Audit on the results of value for money audits - October 1998

Report

Report of the Bills Committee on Securities (Amendment) Bill 1998

ORAL ANSWERS TO QUESTIONS

PRESIDENT (in Cantonese): Questions. I would like to remind Members that question time normally does not exceed one and a half hours, with each question being allocated about 15 minutes on average. When asking supplementaries, Members should be as concise as possible. They should not ask more than one question, and should not make statements.

First question. Mr NG Leung-sing.

Bank Robberies

1. MR NG LEUNG-SING (in Cantonese): Madam President, it is reported that 20 bank robberies took place in the first nine months of the year, representing a 53% increase compared to the same period last year. In this connection, will the Government inform this Council:

(a) of the total amount of money stolen in these robberies and the number of casualties involved;

(b) of the reasons for a large increase in the number of bank robberies this year; and whether it has estimated how the number of bank robberies next year will compare with the figure this year; and

(c) whether it has assessed if the banks in Hong Kong have currently taken adequate security measures to prevent robberies and protect the safety of their staff; if the assessment indicates inadequacies in such measures, of the suggestions for improvement which the Administration will make?

PRESIDENT (in Cantonese): Secretary for Security.

SECRETARY FOR SECURITY (in Cantonese): Madam President,

(a) The total amount of money involved in the 20 bank robberies cases which occurred in the first nine months of 1998 was $249,010. No one was injured. 50% of these cases were unsuccessful attempts. There is no evidence that organized crime was involved in the successful cases.

(b) Although bank robbery cases increased by 53% in the first nine months of 1998 compared with the same period last year, the actual number of cases increased by seven only. There was a significant increase in percentage terms because there were only 13 bank robbery cases in the same period of 1997. Compared with 41 cases in the same period of 1996 and 73 cases in the same period of 1995, this type of crime actually decreased markedly by 51% and 73% respectively in the first nine months of 1998.

The police are of the view that this type of crime is basically "opportunistic" in nature, that is, not involving much meticulous planning and often driven by the desire for quick cash. Our statistics indicate that the incidence of this type of crime fluctuates considerably from year to year, but no casual relationship between this type of crime and unemployment has been identified. It is difficult to estimate how many bank robbery cases will occur next year. However, on the basis of the trends in recent years, there is no reason to believe that there would be any significant upsurge or decline next year.

(c) The Crime Prevention Bureau (CPB) of the Police Force has been in touch with the banking industry to provide advice on the adoption of appropriate security measures to prevent bank robberies. For example, it has issued guidelines to the Hong Kong Association of Banks on concrete measures to prevent bank robberies. It also keeps a database of the security measures adopted by banks to facilitate the tendering of advice. In addition, it conducts training seminars for employees of banks on how they should react in a bank robbery. The assessment of the CPB is that the banks have generally adopted appropriate security measures to prevent robbery and to protect their employees.

To further improve the security measures, the CPB has suggested that all banks should install full-height bullet resistant screens. Unfortunately, some banks are unwilling to do so in order to maintain customer friendliness. Although the installation of full-height bullet resistant screens is favoured by the police from a crime prevention point of view, the adoption of such measures must ultimately be left to individual banks. Nevertheless, the CPB will continue to urge banks to conduct more simulated exercises so that their staff could react appropriately in a robbery situation to ensure their safety.

PRESIDENT (in Cantonese): Mr NG Leung-sing.

MR NG LEUNG-SING (in Cantonese): Madam President, from the Government's main reply, we find that bank robberies have actually increased by seven. This is not a particularly big number though, because if the percentage of increase is high, I believe it would warrant greater attention. Have any significant changes been observed in the use of firearms in robberies during the last nine months comparing to the same period last year?

PRESIDENT (in Cantonese): Secretary for Security.

SECRETARY FOR SECURITY (in Cantonese): Madam President, insofar as the use of firearms in bank robberies is concerned, it is classified into three categories: use of real firearms, use of objects resembling firearms and use of imitation firearms. I can gladly tell Mr NG that we have seen in recent years a decline in all three categories. In this year, the number of cases in which real guns were used is zero, that is, no real firearms were used in any of the robberies. For cases in which objects resembling firearms were used, there are five this year, so far while there were 74, 19 and 37 in 1993, 1994 and 1995 respectively. From this we can see a significant decline in the number of cases involving either real firearms or objects resembling firearms.

PRESIDENT (in Cantonese): Mr CHAN Kam-lam.

MR CHAN KAM-LAM (in Cantonese): Madam President, from the Secretary's reply, we can see that despite the dropping number of bank robberies yearly, there are still over 20 cases this year. What is the police detection rate of bank robberies and the general punishment for such offenders?.

PRESIDENT (in Cantonese): Secretary for Security.

SECRETARY FOR SECURITY (in Cantonese): Madam President, there were 20 such cases in the first nine months of this year. According to our statistics, the detection rate was 36% in 1993, a little lower at 7.6% in 1994, 26.8% in 1995, 41.7% in 1996 and 50% last year. Since some of the cases that occurred this year are still under investigation, as it stands, the detection rate is 17.4%. Therefore, the detection rates have varied from about 20%, 30%, 40% to 50%. As regards punishment, statistics show that the prison terms for most convicted offenders are three to six years.

PRESIDENT (in Cantonese): Mr LAU Kong-wah.

MR LAU KONG-WAH (in Cantonese): Madam President, nowadays bank robberies do not necessarily come off as a face-to-face confrontation. The robbers may rob the automatic teller machine or steal money by electronic means. Have the Police Force made any assessment of these two respects and taken any preventive measures against them?

PRESIDENT (in Cantonese): Secretary for Security.

SECRETARY FOR SECURITY (in Cantonese): Madam President, I did not catch Mr LAU's question clearly.

PRESIDENT (in Cantonese): Mr LAU Kong-wah.

MR LAU KONG-WAH (in Cantonese): Madam President, all along we have been referring to bank robberies as incidents in which robbers armed with guns go to a bank and threaten the staff there for money. There were cases in which the whole automatic teller machine was removed from the bank when no one was present. Now there are also cases in other countries where people stole money from the bank by means of electronics technology. Has the Secretary not heard or does she not know about such cases? Have the Police Force made an assessment of such cases?

PRESIDENT (in Cantonese): Secretary for Security.

SECRETARY FOR SECURITY (in Cantonese): We do not categorize the theft of money from a bank by means of electronics technology as bank robbery. As regards the recent case in which an automatic teller machine was pried out of the bank and taken away, we have not categorized it as bank robbery either. Hence, these two types of crime do not come under the category of bank robbery.

While fewer and fewer cases involve the use of real or imitation firearms, most bank robberies are now carried out by handing out threatening notes. According to our statistics, both the number of cases and the amount of money involved have shown a drop in recent years.

PRESIDENT (in Cantonese): Mr LAU Kong-wah.

MR LAU KONG-WAH (in Cantonese): Madam President, although the theft of automatic teller machines or of money by means of electronics technology are not categorized as bank robbery, these crimes do rob banks of their money. Have the police made any assessment on such cases, or anticipated the incidence of such crimes? I believe that the Secretary should give a clear account about it.

PRESIDENT (in Cantonese): Mr LAU, the main question is about bank robberies. I have already let the Secretary answer your supplementary questions and left it to her to decide whether or not your questions were related to bank robbery. But she has already indicated that those crimes are not bank robberies. Therefore, if you wish to follow up on that question, you may do it via other channels. Miss Emily LAU.

MISS EMILY LAU (in Cantonese): Madam President, I have thought that many people would raise questions on this. But since no one does so, let me do it. (Laughter)

In her main reply, the Secretary said that the police had advised the banks to install bullet resistant screens but some banks were reluctant to do so in order to maintain customer friendliness. I would like to ask the Secretary whether statistics have shown that the incidence of some bank robberies is due to the absence of such screens there. Are there very strong reasons to suggest that banks should adopt the police recommendation as far as possible?

PRESIDENT (in Cantonese): Secretary for Security.

SECRETARY FOR SECURITY (in Cantonese): Madam President, according to our statistics, out of the over 1 500 banks and their branches, 62% have installed full-height bullet resistant screens, and the number of banks having adopted such a design has increased. We have noticed that some robberies took place in banks of an open plan design. The police do of course advise them not to use this design and install high screens instead to protect their tellers. However, as I have said, it is up to the bank to make the ultimate decision. If the banks are not willing to do so, the police will also advise them to adopt other preventive measures, such as installing alarms, limiting the cash kept in each counter to a certain amount, and adopting a certain design in the bank lobby, which are also proved to be effective.

PRESIDENT (in Cantonese): Are there any other supplementary questions for the first question? Mr LAU Chin-shek.

MR LAU CHIN-SHEK (in Cantonese): Madam President, will the Secretary inform this Council whether the number of robberies will decrease among banks which are installed with those full-height screens?

PRESIDENT (in Cantonese): Secretary for Security.

SECRETARY FOR SECURITY (in Cantonese): Madam President, I think that it is very hard to conclusively say whether the installation of full-height bullet resistant screens in banks will cause a direct drop in the number of bank robberies. Although there is a dropping trend, it may be due to other reasons. As I have said just now, this preventive measure is of course effective but there are other measures which are also very important. Hence, it is very hard for me to conclude that it must be this measure that has led to the drop in the number of bank robberies.

PRESIDENT (in Cantonese): Mr LAU Chin-shek.

MR LAU CHIN-SHEK (in Cantonese): Madam President, perhaps I should put it in another way. Have any of the banks installed with full-height screens been robbed so far? If yes, how many?

PRESIDENT (in Cantonese): Secretary for Security.

SECRETARY FOR SECURITY (in Cantonese): Madam President, I do not have the data on hand as to whether any of the banks installed with full-height screens have been robbed or banks which having been robbed are installed with the screens. I will give Mr LAU an answer after looking up the data. (Annex I)

PRESIDENT (in Cantonese): Second question. Miss Margaret NG.

Trial of Crimes Committed in Hong Kong

2. MISS MARGARET NG: The recent trial of several residents of the Hong Kong Special Administrative Region (SAR) in Guangzhou for kidnapping allegedly committed in Hong Kong has caused wide concern. With reference to Articles 18, 19, 22 and 39 of the Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China (the Basic Law), will the Government inform this Council what steps it has taken to ensure that:

(a) these residents were tried in the right jurisdiction and given a fair and open trial;

(b) crimes committed in Hong Kong will be tried only in Hong Kong; and

(c) acts done in Hong Kong will not be the basis for criminal proceedings in mainland China?

PRESIDENT (in Cantonese): Secretary for Justice.

SECRETARY FOR JUSTICE: Madam President, this question is in three parts.

(a) As to the first part, it is understood that CHEUNG Tze-keung and 35 other co-defendants were tried in the Mainland for offences committed there under the mainland laws. Article 6 of the People's Republic of China (PRC) Criminal Law provides that the Law is applicable to all who commit crimes in the Mainland, unless otherwise specified, and that the occurrence of either an act or a consequence of a crime in the Mainland is deemed to constitute the commission of a crime in the Mainland. In the case of CHEUNG Tze-keung, although the kidnappings were allegedly perpetrated in Hong Kong, they were planned in the Mainland, the preparatory work including the purchase of ammunition and explosives was carried out in the Mainland. Members will no doubt note that planning of a crime constitutes preparation for a crime which is an offence punishable under Article 22 of the People's Republic of China Criminal Law.

I am aware of the concern that the media were not allowed to cover the court proceedings. As far as we are aware, the trial was open to the family members of the defendants and other authorized personnel. CHEUNG and his co-defendants were legally represented by altogether 56 lawyers. The persons convicted have the right to appeal against the conviction and the sentence, and they may lodge their appeal to the Guangdong Provincial Higher People's Court. If there is any doubt over the fairness of the trial, they may raise these issues in the appeal. Whilst the Administration is not in a position to pass judgement on the perceived fairness of the trial proceedings conducted in other jurisdictions, the Administration will, in view of the concern of the Hong Kong media, reflect their views to the mainland authorities.

(b) With regard to the second part of this question, under Article 19 of the Basic Law, the courts of the SAR have jurisdiction over any person who is alleged to have committed an offence under SAR criminal law.

However, Article 19 does not confer "exclusive jurisdiction" on SAR courts. There are situations in which another country or jurisdiction is entitled, under its own laws, to bring criminal proceedings for acts alleged to have taken place in Hong Kong. Similarly, there are situations in which proceedings may be brought in Hong Kong courts for offences committed outside Hong Kong.

In the public statement which I made on 3 November 1998, I explained that, according to my understanding of Article 7 of the Chinese Criminal Code, mainland courts have jurisdiction to try Chinese nationals who are residents in the Mainland and who have committed offences outside the Mainland. However, such extra-territorial jurisdiction does not apply to Hong Kong residents committing offences in the SAR, because under Article 19 of the Basic Law, the courts of Hong Kong have been vested with jurisdiction over all cases in the Region.

In order that criminal proceedings may be brought in Hong Kong against persons who have committed offences in Hong Kong, but have gone elsewhere, the Administration is taking steps to put in place as many formal arrangements for the surrender of fugitive offenders as possible. This will enable us, in appropriate cases, formally to seek the return of a suspect to face trial in Hong Kong.

So far as the Mainland is concerned, we have been discussing the possibility of a formal agreement on rendition, but no such agreement has yet been reached. Pending such a formal rendition agreement, we have in place an informal administrative arrangement whereby Hong Kong residents are returned to Hong Kong if they are involved solely in crimes committed in Hong Kong or, if they are also involved in crimes under the mainland laws, after the necessary proceedings in the Mainland have been completed and the sentences, if any, have been served.

(c) The answer to the third part of this question is similar to that I have just given. There are situations in which the mainland courts can lawfully assume jurisdiction over acts committed in Hong Kong, for example, where criminal acts were also committed in the Mainland. The steps the Administration has taken to reduce the exercise of that jurisdiction have been to enter into the informal arrangement I have just mentioned and to work towards a formal rendition agreement. Without rendition agreement, the division of jurisdiction will be quite meaningless. Because if the suspect has escaped into the Mainland and the court in the Mainland does not exercise jurisdiction over him, he will be free from the long arm of the law.

In the course of discussing possible rendition arrangements with the Mainland, the Administration will attempt to clarify the situations in which there may be concurrent jurisdiction over events occurring in Hong Kong and how such situations should be dealt with and resolved.

PRESIDENT (in Cantonese): Miss Margaret NG.

MISS MARGARET NG: Madam President, part (c) of my question is not confined to criminal acts. Acts which are lawful under Hong Kong law may be considered unlawful under the mainland law. What will the SAR Government do to ensure that a person will not be rendered to the mainland authorities for these acts done?

PRESIDENT (in Cantonese): Secretary for Justice.

SECRETARY FOR JUSTICE: Madam President, in negotiating for the rendition agreement, it is intended that there has to be double criminality. In other words, the act would have to constitute an offence both in Hong Kong and in the Mainland before any rendition arrangement will be made.

PRESIDENT (in Cantonese): Mr Jasper TSANG.

MR JASPER TSANG (in Cantonese): Madam President, will the Government inform this Council of the number of cases, at the time before and after the reunification, in which offenders, who were Hong Kong residents or mainland residents having committed offences in Hong Kong but arrested in the Mainland or having committed offences in the Mainland but were arrested in Hong Kong, were eventually rendered for trial in the place of incidence?

PRESIDENT (in Cantonese): Secretary for Security.

SECRETARY FOR SECURITY (in Cantonese): Madam President, the data I have on hand clearly shows that since 1990 the Mainland has rendered 128 Hong Kong residents suspected of fleeing to the Mainland after having committed crimes in Hong Kong and were then arrested in the Mainland before being rendered to Hong Kong. As to the other figures requested by the Honourable Member, I will have to look them up later.

PRESIDENT (in Cantonese): Mr Martin LEE.

MR MARTIN LEE (in Cantonese): Madam President, I think there seems to be certain inconsistencies or self-contradictions in part (b) of the main reply by the Secretary for Justice. In part (b), second paragraph, it was mentioned that Article 19 of the Basic Law does not confer "exclusive jurisdiction" on SAR courts, meaning mainland courts have the jurisdiction as well. But the Secretary said in the third paragraph that according to her understanding of Article 7 of the People's Republic of China Criminal Law, the Article in fact applies to Chinese nationals who have committed offences outside the People's Republic of China. But in her explanation, the Secretary used "Mainland" instead of "the People's Republic of China". So, the meaning becomes that the Article applies to Chinese nationals who have committed offences outside the Mainland. Having made that explanation, the Secretary then pointed out that such extra-territorial jurisdiction does not apply to Hong Kong residents committing offences in the SAR, because under Article 19 of the Basic Law SAR courts have been vested with jurisdiction over all cases in the Region. However, the Secretary said in the second paragraph that it was not an "exclusive jurisdiction" while in the third paragraph it was said that extra-territorial jurisdiction does not apply to Hong Kong residents having committed offences in the SAR, followed by a reference to Article 19 of the Basic Law. What was the Secretary trying to say?

PRESIDENT (in Cantonese): Secretary for Justice.

SECRETARY FOR JUSTICE (in Cantonese): Madam President, undoubtedly Hong Kong courts have jurisdiction over cases in which it has jurisdiction. But Article 19 does not confer jurisdiction to Hong Kong only. In some cases there is jurisdiction for both places and I believe everybody agrees with this. For example, recently CHEUNG Wai-ming was convicted of collaborating to murder CHUI To-yan in Singapore. In that example, the offence was committed in Singapore and Singapore has jurisdiction over it, but Hong Kong also has jurisdiction over it. Nobody says, because of Hong Kong's jurisdiction over it, the jurisdiction of Singapore was affected or its judicial independence was affected.

What I meant to say was Article 7 of the Criminal Law states to the effect that: "This law is applicable to nationals of the PRC who commit crimes specified by this law, provided that this law stipulates a maximum sentence of a three-year fixed term of imprisonment for such crimes, in which case the matter will not be pursued. This law applies to state personnel and military personnel who commit crimes specified by this law outside the territory of the PRC." Under this Article, the People's Republic of China has jurisdiction over Chinese nationals who have committed offences outside its territory. My understanding of "territory" is "territory of jurisdiction" rather than territory of the State. So, in the light of Article 18 of the Basic Law which states that national laws shall not be applied in the SAR except for those listed in Annex III to the Basic Law, we consider the Criminal Law does not apply in Hong Kong. Therefore it does not apply on Hong Kong residents who have committed offences in Hong Kong.

Therefore, Hong Kong residents having committed offences in Hong Kong are regulated by Article 19 of the Basic Law. In other words, Hong Kong courts have jurisdiction over Hong Kong residents who have committed offences in Hong Kong. If Chinese nationals of the People's Republic of China commit offences outside the jurisdiction, the Criminal Law applies to them. Since Hong Kong is outside the territory of jurisdiction, the Criminal Law does not apply to Hong Kong residents who have committed offences in Hong Kong.

PRESIDENT (in Cantonese): Mr Martin LEE.

MR MARTIN LEE (in Cantonese): Madam President, I would like to know whether the Secretary has ......

PRESIDENT (in Cantonese): Mr Martin LEE, which part of your supplementary question do you think has not been answered?

MR MARTIN LEE (in Cantonese): Madam President, the Secretary interpreted 'territory" mentioned in Article 7 of the Criminal Law as "jurisdiction" but the English version is "the territory, territorial waters and space of the PRC". How can that be taken to mean "jurisdiction" ?

PRESIDENT (in Cantonese): Mr Martin LEE, would you please state your supplementary question? It seems you are advancing an opinion for the Secretary, but question time does not allow debates.

MR MARTIN LEE (in Cantonese): Madam President, I would like to know whether the Secretary has read the English version of the Criminal Law?

PRESIDENT (in Cantonese): Secretary for Justice.

SECRETARY FOR JUSTICE (in Cantonese): Madam President, I have. The Criminal Law is not prepared for the SAR alone. When we interpret the law we must interpret the Criminal Law together with the Basic Law. On this basis, my understanding and that of the experts in Chinese law is that "territory" means "territory over which there is jurisdiction".

PRESIDENT (in Cantonese): Mr Albert HO.

MR ALBERT HO (in Cantonese): Madam President, the Secretary referred to Article 18 of the Basic Law, which states that national laws shall not be applied in the SAR except for those listed in Annex III to the Basic Law. We in Hong Kong in general think that laws should apply to or regulate acts rather than individuals. For instance, some people holding certain certificates of identity need to obey certain laws, while those holding certain other types of certificates of identity need to obey some other laws. There should not be any differentiation like that in the Basic Law. Everyone should be equal before it and it should be applied to everyone and mainly on acts of people.

PRESIDENT (in Cantonese): Would you please state your supplementary question?

MR ALBERT HO (in Cantonese): Madam President, my supplementary question is: The Secretary referred to the Criminal Law and indicated that under certain circumstances it applies to certain people, that is, to certain acts done by Chinese nationals in Hong Kong. Does that mean the Criminal Law prevails over the Basic Law, and the Criminal Law can be treated as an exception so that an opening is made in Article 18 of the Basic Law, making it possible for the Criminal Law to be applied in Hong Kong?

PRESIDENT (in Cantonese): Secretary for Justice.

SECRETARY FOR JUSTICE (in Cantonese): Madam President, I certainly did not mean that. What I meant was the Criminal Law does not apply to Hong Kong. Criminal acts in Hong Kong are regulated by Hong Kong laws and Hong Kong courts are vested with the power to try criminal acts committed in Hong Kong. This is the Hong Kong situation. In the Mainland, the Criminal Law, in addition to specifying the place where a crime is committed, has conferred jurisdiction upon the courts over "personalis", which means nationals of the People's Republic of China.

PRESIDENT (in Cantonese): Many Members are interested in the issue. Although we have spent 15 minutes on the question I will allow more time for this question so that more Members can ask questions. But I hope Members can co-operate by keeping their questions as concise as possible. Leave debates to another occasion. Dr YEUNG Sum.

DR YEUNG SUM (in Cantonese): Madam President, the Government response to the term "the territory" mentioned in Article 7 of the Criminal Law was that it could be interpreted as "jurisdiction" but as the Honourable Martin LEE said the English version of the Criminal Law had it that "territory" meant "the territory, territorial waters and space of the PRC". As a Member who has no legal training, I would say that means "territory"......

PRESIDENT (in Cantonese): Dr YEUNG Sum, what is your supplementary question?

DR YEUNG SUM (in Cantonese): Madam President, my supplementary is: If in the English version of the Criminal Law "territory" refers to "the territory, territorial waters and space of the PRC", why can the term not be taken to mean "territory of the State"? Why "jurisdiction"? I do not understand it. Can the Government explain again in this regard? Here the term obviously means "territory of the State" not "jurisdiction"? I really do not understand it. Can the Secretary enlighten us here?

PRESIDENT (in Cantonese): Dr YEUNG, would you please sit down and let the Secretary explain. Secretary for Justice.

SECRETARY FOR JUSTICE (in Cantonese): Madam President, the Articles 6 and 7 of the Criminal Law I have been referring to involve criminal jurisdiction and that is why my construction of the term "territory" is that it means "jurisdiction". We must understand that the Criminal Law was not written just for the SAR. It is a set of laws for nation-wide application. It is a law written for the People's Republic of China. We need in particular at the initial stages when the Basic Law was implemented to see how the Basic Law could be read together with other laws in the Mainland. This is my understanding. "Territory" means territory of "jurisdiction". Members may hold divergent views but our views remain views so held by us. The final decision as to what constitutes the correct interpretation of the term rests with the court.

PRESIDENT (in Cantonese): Mr James TO.

MR JAMES TO (in Cantonese): Madam President, the entire argument of the Secretary rests on what we have been asking. She said she has sought advice from legal experts. Given that the court decision is most important, would the Secretary inform this Council whether, as she formed her understanding about the point, she had consulted the mainland authorities or even the Central People's Government? What is their understanding of this point? Was her understanding formed after discussion? Did the legal experts she consulted possess professional or academic authority? If this is not confidential, would the Secretary disclose which legal experts she consulted?

PRESIDENT (in Cantonese): Secretary for Justice.

SECRETARY FOR JUSTICE (in Cantonese): Madam President, to begin with, I think we all understand even our courts cannot request the Chief Justice to interpret a certain law without a case on hand. So, in this connection, I have not requested courts in the Mainland for an interpretation.

PRESIDENT (in Cantonese): Mr James TO.

MR JAMES TO (in Cantonese): Madam President, the Secretary might have gotten the question wrong.

PRESIDENT (in Cantonese): Mr James TO, you need not be so uptight. (Laughter)

MR JAMES TO (in Cantonese): Madam President, I am sorry. I did not say "the court". I referred to the Government and the experts. I did not refer to "the court".

PRESIDENT (in Cantonese): Secretary for Justice.

SECRETARY FOR JUSTICE (in Cantonese): Madam President, the right to interpret the law lies with the court. I apologize to the Honourable Member for having taken the question to mean whether I have asked for advice from the court or from judges. I trust as a matter of practice judges will not give opinion on a hypothetical question. That is why I have not sought advice from mainland courts or judges about the matter. My contacts with the legal profession was made on a purely confidential basis; so it would not be possible for me to disclose the list of names of those legal professionals from whom I have sought advice.

PRESIDENT (in Cantonese): Mr James TO.

MR JAMES TO (in Cantonese): Madam President, my supplementary question was about whether the Secretary had contacted the Central People's Government or the relevant authorities in the Mainland. I did not mean the court. Maybe the Secretary mistook "the authorities" for "the court". So, I wanted to elucidate. I hope she can understand my question was about whether any explanation was ever sought from the mainland administration, the enforcement authorities or the Central People's Government, not the courts on the Mainland. I hope the Secretary understands my question but she has not answered my question.

PRESIDENT (in Cantonese): Mr James TO, the Secretary has answered your question. She said as regards other consultations she could not disclose on grounds of confidentiality. Have you got anything to add, Secretary?

SECRETARY FOR JUSTICE (in Cantonese): No, Madam President.

PRESIDENT (in Cantonese): Mr James TO.

MR JAMES TO (in Cantonese): Despite of the fact that the relevant details cannot be disclosed, will the Secretary inform this Council whether it is impossible to disclose if attempts were ever made to consult?

PRESIDENT (in Cantonese): Secretary for Justice, let me try to repeat Mr TO's question. He is asking whether there has been any consultation; he is not demanding information about the people contacted or details of the consultation.

SECRETARY FOR JUSTICE (in Cantonese): Madam President, I have made consultations.

MR JAMES TO (in Cantonese): Madam President, the Secretary has not clearly answered whether it was legal academics or the administration on the Mainland. This is the main thrust of my question.

PRESIDENT (in Cantonese): Mr TO, are you asking whether the Secretary has consulted officials from the Central People's Government?

MR JAMES TO (in Cantonese): Yes, I am sorry for that.

PRESIDENT (in Cantonese): Secretary for Justice.

SECRETARY FOR JUSTICE (in Cantonese): Madam President, I have consulted people in state organizations with professional legal knowledge.

PRESIDENT (in Cantonese): Miss Emily LAU.

MISS EMILY LAU (in Cantonese): Madam President, part (a) of the main question of the Honourable Miss Margaret NG was: Will the Government inform this Council what steps it has taken to ensure that residents of the SAR were tried in the right jurisdiction? In the main reply, Madam President, the Secretary for Justice said "it is understood". I do not think that is an answer. Madam President, my question is: What has the Government done? Are they satisfied that it was the right jurisdiction just because someone told them something has been done?

PRESIDENT (in Cantonese): Secretary for Justice.

SECRETARY FOR JUSTICE (in Cantonese): Madam President, CHEUNG Tze-keung is not being tried just for kidnapping. He is also being tried for smuggling arms, ammunition and explosives, crimes alleged to have taken place in the Mainland, and CHEUNG Tze-keung and other co-defendants were arrested in the Mainland. So, under the Criminal Law, judicial organs in the Mainland have the right to try these cases. Article 6 of the Criminal Law states to the effect that "The law is applicable to all who commit crimes within the territory of the PRC, except as specifically stipulated by law. When either the act or consequence of a crime takes place within the territory of the PRC, a crime is to be deemed to have been committed within the territory of the PRC." In other words, criminal acts carried out outside the territory of the People's Republic of China but planned within the People's Republic of China can be tried in the Mainland. Mainland judicial organs exercise their jurisdiction on the ground that certain crimes were committed in the Mainland, not because the SAR is a part of the People's Republic of China. As the Criminal Law is not applied in Hong Kong, mainland judicial organs will not exercise their jurisdiction on Hong Kong residents who are suspected to have committed crimes in Hong Kong only.

We are satisfied that mainland courts have jurisdiction over the case. In addition, the Security Bureau has also sent staff to follow up the case. We are also satisfied that the case is being tried under practices within the judicial system of the People's Republic of China. The defendants have a team of 56 lawyers representing them. Under these circumstances, we do not think there is any need to take any other actions in respect of the case. CHEUNG Tze-keung's lawyer and the lawyer of another defendant by the surname of CHAN later requested that we transfer the case to Hong Kong for trial. After some deliberations, we came to the view that as there was no mutual legal assistance, or rendition arrangements and since the proceedings have begun we could not accede to their request for a suspension of the trial and transfer the case to a Hong Kong court for trial. We have not received other requests demanding that the Government take actions to guarantee that the said persons can receive a fair and open trial.

PRESIDENT (in Cantonese): Miss Emily LAU.

MISS EMILY LAU (in Cantonese): Madam President, the Secretary has not answered my supplementary question. My question is very simple. There are worries that crimes committed in Hong Kong will be tried in the People's Republic of China; so my question is: What steps has the Government taken to prove that that is not possible? The Secretary needs to inform this Council what measures have been taken to prove kidnappings committed in Hong Kong will not be tried in the People's Republic of China? Madam President, I do not think the Secretary has answered the supplementary question despite the lengthy answer she gave. This is a question that causes grave concern among Hong Kong people.

PRESIDENT (in Cantonese): Secretary for Justice.

SECRETARY FOR JUSTICE (in Cantonese): Madam President, in the main reply I have explained clearly CHEUNG Tze-keung and others are not being tried in the Mainland for crimes committed in Hong Kong. In fact, the proceedings clearly show the crimes were carried out in the Mainland and therefore the Mainland has the jurisdiction.

PRESIDENT (in Cantonese): Honourable Members, we have spent 26 minutes on this question. Although there are still Members who would like to follow up, I suggest they do so through other channels.

Third question. Mr Howard YOUNG.

Target of Immigration Personnel at the New Airport

3. MR HOWARD YOUNG (in Cantonese): Madam President, as there are 30% more immigration counters in the new airport at Chek Lap Kok than in the old airport at Kai Tak, will the Government inform this Council:

(a) whether the target of clearing 92% of passengers within 30 minutes previously set for the old airport has been raised at the new airport; and

(b) whether the processing time for holders of various types of travel documents (including the Hong Kong Identity Cards of permanent residents) by the immigration personnel at the new airport has been shortened; if so, what the details are; if not, why not?

PRESIDENT (in Cantonese): Secretary for Security.

SECRETARY FOR SECURITY (in Cantonese): Madam President,

(a) The Government is committed to providing efficient immigration clearance service at all control points. The Immigration Department has made a performance pledge to clear 92% of passengers within 30 minutes at all immigration control points.

In the Policy Objective for Security Bureau in the policy address this year, we have undertaken to improve the speed of immigration clearance at the Hong Kong International Airport. Our new target is to clear 92% of all passengers within 15 minutes in 1999.

(b) As the clearance procedures in respect of different types of travellers have not been changed following the move to Chek Lap Kok, the processing time for each type of travellers remains basically the same. However, the waiting time has been substantially reduced thanks to the design of the new airport which is more conducive to efficient immigration processing and the availability of more immigration counters. The decrease in passenger volume also contributed to the shorter waiting time. Although our performance pledge remains to clear 92% of passengers at the airport within 30 minutes of their entering the immigration hall, in fact, a special survey undertaken during the first two weeks after the delivery of the policy address indicates that we succeeded in clearing about 98% of all passengers within 15 minutes. Such a processing speed has in fact surpassed many international major airports. Although no special survey has been mounted again in the past few weeks, basing on our observations, we have good reason to believe that immigration clearance service at the new airport has been maintained at roughly the same level.

PRESIDENT (in Cantonese): Mr Howard YOUNG.

MR HOWARD YOUNG: Madam President, the processing time and procedures of Immigration officials at the new airport is one area where to date, I only receive favourable comments and no criticisms. But it does not mean that we can be complacent. The airline community reckons that by using what is called the serpentine system, instead of the individual queuing up at each counter, would help to shorten the processing time. I do not know whether this is proven or not. I would like to know whether the Hong Kong Immigration Department has looked at these two different systems and has come to the conclusion as to whether or not this so-called serpentine system could be further improved?

PRESIDENT (in Cantonese): Secretary for Security.

Secretary for Security (in Cantonese): Madam President, in regard to the so-called serpentine system which many banks have adopted to shorten the waiting time for their clients, the Government has in fact looked into it before relocating the airport. However, we have come to the conclusion that there is no need for us to adopt such a system at the new airport. In using the facilities there, Honourable Members may have noticed the design of the new airport, in particular the long Y-shaped passageway which allows the airlines to park their airplanes right at their relevant gates, and because of this long Y-shaped passageway, passengers arriving on different flights will not come to the immigration counters all at the same time; besides, the arrival buffer hall at the new airport is also larger than the old one. Because of the space constraint of the old airport, arriving passengers would soon find themselves in the arrival hall upon reaching the Passenger Terminal; therefore, if several 747 flights arrived at the airport at the same time, more than 1 000 passengers would have to wait in long queues at the arrival hall. However, with such a long passageway, passengers arriving at the new airport at the same time on different flights will eventually come to the arrival hall at different times. Moreover, since we have provided 24% more immigration counters and more staff at the new airport, arriving passengers could reach the counters expeditiously and hence queues could hardly be seen there. For these reasons, we do not think there is any need for us to try the serpentine system.

PRESIDENT (in Cantonese): Mr HO Sai-chu.

Mr HO Sai-chu (in Cantonese): Madam President, we were glad to hear the Secretary said in the last paragraph of her main reply that the waiting time had been reduced by more than 50%; however, the Secretary also attributed the shorter waiting time to the reduced passenger volume as well. In this connection, could the Secretary inform this Council whether the Government has any confidence in maintaining the speed of immigration clearance should there be any increase in passenger volume, say clearing 90%, 92% or 98% of all passengers within 15 minutes?

PRESIDENT (in Cantonese): Secretary for Security.

Secretary for Security (in Cantonese): Madam President, we believe there are several factors contributing to the present satisfactory results. First of all, thanks to the design of the new airport, the larger arrival buffer hall and immigration hall have enabled us to set up more immigration counters; besides, we have also deployed more manpower to the new airport. Another reason is that the passenger volume has undoubtedly dropped. In this connection, while the passenger volume last year was 8% less than that of the year before, this year has also recorded a reduction of 8% compared with that of last year. The passenger volume has been on the decrease recently, despite the some 8% annual growth rate recorded in the past.

We believe it is necessary to observe further to see if the target to clear within 15 minutes 92% of all passengers or more could be achieved over a long period of time before revising our performance pledge, since there are also other factors that we must take into account. We certainly hope that the various measures to boost our tourism industry could take effect and attract more visitors to come to Hong Kong; as such, we do not expect the passenger volume at the new airport would continue to decrease for a long time. We believe there are several effective measures that could attract more visitors. Let us take mainland visitors holding Two-way Exit Permits as an example. In the past, they could come to Hong Kong on land or by sea only, but since October this year, they could also come here by air. In addition, the number of travel agencies specialized in inbound tours has also been increased to encourage new travel agencies to operate more inbound tours with airplanes as the means of transportation. Moreover, Taiwan passengers holding Mainland Travel Permit for Taiwan Residents have been permitted to pass through Hong Kong in transit, and the China Travel Agency has also set up service counters at the new airport to issue entry endorsement for these Taiwan passengers. We are preparing to introduce more relaxation measures in the future to attract other foreign visitors to come to Hong Kong. Therefore, we need to take some time to observe the situation and confirm the rate of increase of the passenger volume before revising our performance pledge.

PRESIDENT (in Cantonese): Mr Howard YOUNG.

Mr Howard YOUNG (in Cantonese): Madam President, I welcome the continual introduction of relaxation measures in future to attract tourists. I am pleased with the target to clear 98% of all passengers within 15 minutes, and I believe the immigration clearance for local residents would normally take less than two minutes. In this connection, could the Secretary inform this Council whether the Immigration Department would consider adopting two targets in future, with one for all passengers in general and the other solely for local permanent residents? My rationale is that since immigration clearance for local permanent residents could usually be completed very quickly, the average speed of the service will be lowered if it is counted together with that of the immigration clearance service for other passengers; besides, we would not be able to find out how long it would really take the other passengers to complete the immigration clearance procedures.

PRESIDENT (in Cantonese): Secretary for Security.

Secretary for Security (in Cantonese): Madam President, it is in fact not our target to clear 98% of all passengers within 15 minutes, it is the level of service that we have achieved currently. Our present target is still to clear 92% of all passengers within 30 minutes. Regarding the performance pledge to clear 92% of all passengers within 15 minutes in the coming year as referred to in the policy address, we have now achieved the target in advance. I think Mr Howard YOUNG was quite correct to say that immigration clearance service for local residents could be completed within a very short time, since we only take more than a dozen seconds to complete the procedure. As a matter of fact, our service for local permanent residents has already reached the level of clearing 100% of all passengers; however, we have no intention to make two different performance pledges, as we want to keep it simple for the public to understand our level of service. Nonetheless, I think local permanent residents should not have any worries in this connection, since they could tell from their experience that the clearance procedures for local permanent residents could always be completed expeditiously. I believe we should direct our attention to the service for other visitors.

PRESIDENT (in Cantonese): Mrs Selina CHOW.

Mrs Selina CHOW (in Cantonese): Madam President, my supplementary is quite the opposite of that raised by Mr Howard YOUNG. From my recent experiences in the airport, I have found that the queue of local permanent residents is far much longer than the queues of foreign visitors, as every time there was only one single immigration counter for locals. I should like to ask the Secretary whether the Immigration Department would consider the need to increase the number of counters for locals in the light of the real situation such as the weekly pattern of arrivals, since one single counter is not enough to cope with the needs.

PRESIDENT (in Cantonese): Secretary for Security.

Secretary for Security (in Cantonese): Madam President, our existing policy is to maintain four counters for permanent residents. Basically, there are three types of counters available at the airport, with one for permanent residents, a second one for local residents and foreign visitors holding Hong Kong Multiple Visit Permits or the APEC Business Visit Permits, and the third one for all other visitors. according to the figures I have on hand, a total of four counters are available for permanent residents on average, another eight for type two visitors, and some 60 to 70 for other visitors. However, since the immigration hall at the new airport is comparatively more spacious, there has been suggestion that we should set up the counters at separate locations; as such, instead of grouping the counters for permanent residents at either the east or west end of the hall, we have scattered them in different locations. May be this is the reason why passengers cannot locate the other counters. As a matter of fact, four counters for permanent residents are available at the airport at all times. We would certainly keep in view the actual situation and adjust the number of counters in the light of the different types of passengers arriving at Hong Kong.

PRESIDENT (in Cantonese): Mr SIN Chung-kai.

Mr SIN Chung-kai (in Cantonese): Madam President, according to the main reply provided by the Secretary, she has chosen to conduct the special survey two weeks after the policy address was published. However, as far as I understand it, October is not the peak season for the tourism industry. In this connection, could the Secretary inform this Council whether she has any plan to conduct a relevant survey during the peak season to find out the waiting time that tourists have actually taken?

PRESIDENT (in Cantonese): Secretary for Security.

Secretary for Security (in Cantonese): Madam President, we are conducting surveys in this respect from time to time, and we will certainly be doing so in the peak season to come.

PRESIDENT (in Cantonese): Mr Howard YOUNG.

Mr Howard YOUNG (in Cantonese): Madam President, the Honourable Mrs Selina CHOW's experience was quite different from mine, perhaps it was because she did not know how to take the short cut. What I would like to know is: Should I come to the counter for Hong Kong Permanent Residents and find a long queue in front of it, could I move over to the other counters designated for Hong Kong residents or with the sign "APEC" or "Visitor" and wait there to have my immigration clearance processed? Is it true that the relevant officers there will not ask me to go back to the first counter I have reached and wait for my service there? In this way, Hong Kong Permanent Residents could have their clearance procedures processed promptly if there are not many passengers queuing in front of other counters.

PRESIDENT (in Cantonese): Secretary for Security.

Secretary for Security (in Cantonese): Madam President, the answer is an absolute yes. Members of the public could of course have the right to choose; but in most cases, instead of shifting to counters for visitors, people will naturally move over to counters with the "Hong Kong Permanent Residents" plate once they see them. On the contrary, visitors or non-permanent Hong Kong residents would most often move over to the counters for Hong Kong Permanent Residents. Normally they do not do that intentionally, since the situation is usually caused by the fact that some of their family members are holders of Hong Kong Permanent Identity Cards while others are not. Should such cases arise, in order not to create any unpleasant feeling among the visitors, we would normally process the clearance procedures for all the familiy members together.

PRESIDENT (in Cantonese): Fourth question. Mr LEE Cheuk-yan.

The 50th Anniversary of the Universal Declaration of Human Rights

4. MR LEE CHEUK-YAN (in Cantonese): Madam President, will the Administration inform this Council of the activities it has planned to mark the 50th anniversary of the Universal Declaration of Human Rights (UDHR) on 10 December 1998?

PRESIDENT (in Cantonese): Secretary for Home Affairs.

SECRETARY FOR HOME AFFAIRS (in Cantonese): Madam President, we are not planning any ceremonial celebrations for the 50th anniversary of the UDHR. The reason is that human rights promotion, as a firm commitment of the Administration, has been an ongoing programme. We have done this through educational and publicity programmes in consultation with the Committee on the Promotion of Civic Education. During the past three years, we have produced a number of teaching materials on human rights for youth and children. Human rights messages have been disseminated to the community at large through our TV and radio APIs. We have also been giving funding support to non-governmental organizations for organizing human rights promotion programmes. Hong Kong has an excellent record on human rights comparable to any advanced country/territory in the world and we are proud of it.

Nevertheless, in order to step up our promotional effort and add to the current civic education programme to tie in with the aforementioned 50th anniversary next month, we are planning the following:

(a) publication of a bilingual booklet on the original text of the UDHR for distribution to the public with effect from early next month;

(b) to complement (a), production of a further booklet in layman's language and accompanied by graphic illustrations of each of the articles of the UDHR. This booklet will be ready in early January 1999; and

(c) we are arranging for the Chinese and English texts of the UDHR and the six human rights treaties applicable to Hong Kong to be placed on the Internet. These treaties are the International Covenant on Civil and Political Rights, International Covenant on Social, Economic and Cultural Rights, Convention on the Elimination of All Forms of Discrimination against Women, the International Convention on the Elimination of All Forms of Racial Discrimination, the Convention on the Rights of the Child, and the Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment. They will become on-line by early next month.

PRESIDENT (in Cantonese): Mr LEE Cheuk-yan.

Mr LEE Cheuk-yan (in Cantonese): Madam President, judging from the content of the main reply, it should be the logic of the Government or the Secretary for Home Affairs that since the matter has become an ongoing programme, ceremonial celebrations for its 50th anniversary would not be necessary. As such, I should like to ask the Secretary whether he will celebrate his golden wedding, since wedding anniversary is an ongoing annual event. I should also like to know if the Secretary would, basing on this logic of his, consider it not necessary for the Chinese Government to celebrate the 50th national Day next year simply because the national Day is celebrated every year? Could the Secretary inform this Council whether he could see the importance behind the 50th anniversary; and whether the absence of any celebrations is a reflection of the fact that the Government has indeed taken the UDHR lightly?

PRESIDENT (in Cantonese): Secretary for Home Affairs.

Secretary for Home Affairs (in Cantonese): Madam President, I believe we have not taken the 50th anniversary lightly, nor have we neglected the importance of human rights. As I have stated very clearly in my main reply, Hong Kong has all along attached great importance to promotion of human rights education, the result of which are demonstrated through the various aspects of our daily lives. I believe our achievement in this respect is comparable to any places in the world. As to whether I celebrate my wedding anniversary every year, I could recall that I did not have any special celebrations for my silver wedding. (Laughter) however, that does not imply I have taken my marriage lightly. In fact, I always attach great importance to both my marriage and my family. I certainly understand that these are my personal matters only, but since the Honourable LEE Cheuk-yan has raised the question, I cannot but tell him the truth. Moreover, I could also assure Mr LEE that the Government of the Hong Kong Special Administrative Region (SAR) attaches great importance to human rights. In regard to human rights education, we will continue our efforts on the one hand and strive for more resources on another. We will certainly keep up our work in this area. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr LEE Cheuk-yan.

Mr LEE Cheuk-yan (in Cantonese): I am afraid neither his wife nor the public will agree with what the Secretary has just said.

PRESIDENT (in Cantonese): Please sit down, Mr LEE, you should not air your views now. Miss Christine LOH.

Miss Christine LOH (in Cantonese): Madam President, I believe people who keep an interest in human rights would find all these measures useful but not at all adequate. Will the Secretary consider really implementing some measures that can incite people, such as inviting the United Nations Commissioner for Human rights to visit Hong Kong in 1999 － since we do not have much time left this year － perhaps that might help to incite us to conduct more in-depth human rights discussions in 1999? Could the Secretary inform this Council whether the Government would promise to allocate resources to this end in 1999?

PRESIDENT (in Cantonese): Secretary for Home Affairs.

Secretary for Home Affairs (in Cantonese): Madam President, I must thank the Honourable Miss Christine LOH for her suggestions. I could promise her that we would take her suggestion into consideration. I believe the supplementaries raised by both Miss LOH and Mr LEE have in fact a further meaning, which is to urge the Government to do more in the field of human rights. This is indeed a very good suggestion; I will certainly take it into careful consideration. Moreover, I will also take active actions to identify areas where we could put in more efforts still.

PRESIDENT (in Cantonese): Miss Cyd HO.

Miss Cyd HO (in Cantonese): Madam President, due to the special situation in Hong Kong, some of the articles listed in the booklets published by the Home Affairs Bureau will not be implemented (in the past when we signed the Declaration, we have in fact incorporated quite a number of Savings). In this connection, I should like to know if the Savings would be included in the booklet, since I have no idea as to the number of copies distributed or the number of years for which the booklet would remain valid. In view of the fact that several years have lapsed since we signed the UDHR, and that our concern for human rights has increased over the years, could the Secretary inform this Council whether the Government would consider repealing those Savings and removing them from the booklet?

PRESIDENT (in Cantonese): Secretary for Home Affairs.

Secretary for Home Affairs (in Cantonese): Madam President, I believe any actions we might take in this respect must be taken in accordance with the provisions under the Basic Law. As regards a review of the Savings laid down in the past, I believe it is possible for us to do so. However, I should like to make one point and that is, the UDHR does not have any specific legal base, since it is mainly a manifestation of ideals. For clarification purposes, I need to stress that we must act in accordance with the provisions under the Basic Law. Nevertheless, since the Honourable Member has made such a suggestion, I may as well review those clauses again. Thank you, Madam President.

PRESIDENT (in Cantonese): Miss HO, which part of your supplementary has not been answered by the Secretary yet?

MISS CYD HO (in Cantonese): Madam President, the Secretary has not answered whether the Savings would be included in the booklet.

PRESIDENT (in Cantonese): Secretary for Home Affairs.

Secretary for Home Affairs (in Cantonese): Madam President, I have answered that we need to check if there is still any need to keep those Savings. For instance, we must check if a revocation would in any way breach the Basic Law; as such, I could not answer Miss HO right away. However, I could provide her with a written reply afterwards or give her the answer the next time I meet her.

PRESIDENT (in Cantonese): Mr Martin LEE.

Mr Martin LEE (in Cantonese): Madam President, just now in replying a supplementary raised by the Honourable LEE Cheuk-yan, the Secretary disclosed that he did not celebrate his silver wedding; besides, he has also indicated in the first paragraph of his main reply that since the Government has been doing a good job, there should not be any need for celebrations. In this connection, I should like to ask the Secretary if he is aware that such remarks of his would impose a grave negative effect on the restaurant and catering sector, since anyone who intends to hold a dinner party at a restaurant to celebrate his wedding anniversary will be quried by his wife as to whether he admits that he has done something bad after marrying her and that he is not proud of the marriage.

PRESIDENT (in Cantonese): Mr LEE, I do appreciate your sense of humour, (Laughter) even though your supplementary is in fact not at all relevant to the UDHR. But since the Secretary has answered Mr LEE Cheuk-yan's supplementary, I will let the Secretary answer yours. Secretary for Home Affairs.

Secretary for Home Affairs (in Cantonese): There may not necessarily be any direct relationship between the importance one attaches to his marriage and his decision to celebrate or not his first, 25th or 30th wedding anniversary at a restaurant; besides, throwing a dinner party at the restaurant is not the only way to celebrate an anniversary. I certainly understand that the business of the restaurants is not as good as before in the face of the current economic downturn, but things should now be changing for the better as the performance of the stock market has improved somehow. In any case, I believe it is a good thing to hold one single activity such as a banquet to celebrate the 50th anniversary of the UDHR; however, it must be an one-off celebration, since the community is also planning some celebration activities. In this connection, I think some long-term work such as the promotional efforts made by the Government could produce more far reaching and long-lasting effects; besides, I do think we could and should do more among the younger generation. Nonetheless, different people may just have different views; but on my part, I do believe the approach taken by the Government in this connection is appropriate. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr Albert HO.

Mr Albert HO (in Cantonese): Madam President, we can tell from the Secretary's main reply that the Government does not intend to hold any activities or ceremonies to celebrate the 50th anniversary of the UDHR. On the other hand, we could also tell from the Secretary's reply that the Government is in support of the community's effort to promote human rights. Perhaps the Secretary is also aware that certain non-governmental organizations have grouped together to conduct on 10 December, which is the Human Rights Day, a ceremonial celebration. The Chief Executive will also be invited to attend the celebration, and in case the Chief Executive is unable to attend the function, it is hoped that his representative could do so on his behalf. In this connection, will the Secretary suggest to the Chief Executive he attend the function; and if the Chief Executive cannot do so, will he attend the function on behalf of Mr TUNG?

PRESIDENT (in Cantonese): Secretary for Home Affairs.

Secretary for Home Affairs (in Cantonese): Madam President, in regard to the ceremony to be held by non-governmental organizations on the day, which I suppose is 10 December, I received an invitation last Friday. I think my colleagues would most probably receive invitations this Thursday or Friday. Upon the receipt of their invitations, I believe my colleagues will check with their schedules and give careful thoughts to the invitation, since the ceremony will be held during lunch time. As regards the Chief Executive, I cannot say on his behalf as to whether he has the time to do so on that day. In fact, he received the invitation only last Thursday or Friday while making preparations for his attendance at the APEC conference; as such, he was unable to make any decision then. I do wish very much to attend the function, but since I have another lunch meeting on that day, I am now making arrangements to see if anything could be done to allow me to attend both functions.

PRESIDENT (in Cantonese): Last supplementary. Mr LEE Wing-tat.

Mr LEE Wing-tat (in Cantonese): Madam President, part (c) of the main reply really should not be considered as a programme, since the Secretary for Information Technology and Broadcasting who is now sitting behind the Secretary for Home Affairs will certainly get that work done regardless of whether there is the 50th anniversary. In this connection, will the Government consider increasing the financial provisions for the Committee on the Promotion of Civic Education, in particular the fund available for non-governmental organizations to organize activities to promote the 50th anniversary of the UDHR? Thank you, Madam President.

President (in Cantonese): Secretary for Home Affairs.

Secretary for Home Affairs (in Cantonese): In regard to the current financial year, I understand that the Government has recently provided grants for the organization of various activities, but the amount of additional grants available would certainly depend on the different natures of the programmes concerned. Nevertheless, the Committee on the Promotion of Civic Education does have its own criteria in assessing the applications. When the committee is assessing the applications, I could perhaps put forward a proposal to lay emphasis on the importance of human rights education. And as far as I know, the Committee has by now approved more than $400,000 for the organization of various programmes on promotion of human rights. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr LEE Wing-tat.

Mr LEE Wing-tat (in Cantonese): Madam President, the Secretary has mistaken my meaning. I was asking whether the Government would increase the total amount of financial provisions available to non-governmental organizations for application through the Committee on the Promotion of Civic Education; by that I did not mean the allocation of a greater proportion of the existing grants to the non-governmental organizations. The Government has to provide additional grants to finance the programmes. This is the thrust of my supplementary.

PRESIDENT (in Cantonese): Secretary for Home Affairs.

Secretary for Home Affairs (in Cantonese): Madam President, in regard to the total amount of grants, I am afraid I could not speak on behalf of the Finance Bureau. As a matter of fact, it has always been our hope that more resources could be allocated to the promotion of civic education as well as other activities. In this connection, the Home Affairs Bureau shares the same hope and view with the Honourable LEE Wing-tat, as we both believe more resources should be provided for the organization of civic education programmes, including programmes to promote human rights education. Thank you, Madam President.

PRESIDENT (in Cantonese): Fifth question. Mr SIN Chung-kai.

Use of Internet by Government Departments

5. MR SIN CHUNG-KAI (in Cantonese): Madam President, regarding the Government's efforts to improve the efficiency of the Civil Service with the use of information technology, will the Government inform this Council:

(a) of the number of civil servants who are currently provided with an Internet account by their departments, its percentage in the total number of civil servants, and the measures in place to encourage civil servants to obtain various kinds of information via the Internet;

(b) if it has assessed whether it is more cost-effective to communicate by electronic mail system through the Internet than by manual delivery; if it is the case, whether any specific timetable has been drawn up for replacing manual delivery with e-mail transmission where appropriate, as the means of communication among government departments; and

(c) whether it has any plan to include Internet e-mail addresses of civil servants who are provided with an Internet account in government directories and government web pages, so as to facilitate communication among government departments and with the public?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

SECRETARY FOR INFORMATION TECHNOLOGY AND BROADCASTING (in Cantonese): Madam President,

(a) All bureaux and departments have Internet accounts which allow them to access the Internet and to issue electronic mail. In addition, there are some 6 000 government officers who are currently provided with Internet e-mail addresses by their offices, representing 3.2% of the total number of civil servants.

To encourage government officers to make wider use of the Internet for obtaining information useful to their work, whether through browsing or communication, the Civil Service Training and Development Institute and the Government Information Services provide a wide range of training courses on the use of the Internet. Besides, we are planning to take various measures to encourage the use of the Internet:

(i) we will be building a centrally managed gateway between government bureaux and departments and the community for providing a secure environment for communication and service delivery through the Internet;

(ii) we are launching a series of pilot projects in selected departments to use the Internet for communication and for improving service quality and efficiency; and

(iii) we are preparing for the launching of the Electronic Service Delivery scheme to provide public services to the community over the Internet.

(b) Generally, we believe that communication between government departments by electronic mail, where it is available and appropriate, would be more efficient than manual delivery. However, for security reasons, the Government's electronic mail system is operated on its own dedicated and interconnected network, and not through the Internet. The network now covers all bureaux and offices in the Government Secretariat and 26 departments. We will complete the connection covering all other departments by the end of 2000.

(c) We have included the web sites and Internet e-mail addresses of individual bureaux and departments in the latest edition of the Government Telephone Directory. We will ask all bureaux and departments to include the Internet e-mail addresses of individual officers in the next edition of the Government Telephone Directory.

In addition, we have also adopted as a practice the inclusion of the relevant Internet e-mail addresses of individual bureaux and departments in their web pages, promotional materials and publications so as to facilitate electronic communication with members of the public.

PRESIDENT (in Cantonese): Mr SIN Chung-kai.

Mr SIN Chung-kai (in Cantonese): Madam President, in his main reply the Secretary mentioned that some 6 000 government officers are currently provided with Internet e-mail addresses. Could the Secretary inform this Council whether the Government has conducted any internal assessment regarding the number of public officers who need to use the Internet or whose work could make use of the Internet; and of the time by which the Government could provide those officers with the relevant e-mail addresses required?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

Secretary for Information Technology and Broadcasting (in Cantonese): Madam President, it is in fact entirely up to the relevant heads of department to determine in the light of the operational needs who should be provided with Internet e-mail addresses. Thus, we do not have any centralized target on the number of government officers to be provided with Internet e-mail addresses for example by the year 2000 or 2001.

PRESIDENT (in Cantonese): Mr YEUNG Yiu-chung.

Mr YEUNG Yiu-chung (in Cantonese): Madam President, I believe the application of information technology in different departments may vary in terms of extent and level. In this connection, could the Secretary inform this Council of the government departments which have applied information technology in their work more extensively; of those which have applied the same less extensively; and of the reasons behind the variance?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

Secretary for Information Technology and Broadcasting (in Cantonese): Madam President, I do quite understand how this supplementary is directly related to the question raised by the Honourable SIN Chung-kai.

In regard to the application of information technology by government departments, the level of application is not determined by the Information Technology and Broadcasting Bureau but by the relevant heads of department in the light of the departmental need to apply information technology to assist in the provision of services. The Bureau will then decide on how the relevant systems should be provided through resource allocation.

PRESIDENT (in Cantonese): Mr LAW Chi-kwong.

Mr LAW Chi-kwong (in Cantonese): Madam President, I should like to follow up the same issue. Could the Secretary inform this Council whether the Government has required the various departments to submit an assessment of their respective needs for e-mail addresses; and whether it has considered requiring all departments to formulate plans to achieve the targets promptly or fix a date by which their targets could be achieved?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

Secretary for Information Technology and Broadcasting (in Cantonese): Madam President, in regard to e-mail addresses, perhaps I should separate the issue into two parts. Firstly, I have mentioned that the e-mail communication between government departments is operated on the Government's own dedicated and interconnected network. In this connection, we have a plan to complete the connection covering all other government departments by the end of 2000; by then, all government officials who have been specified by their relevant departments as having such needs would be provided with internal e-mail addresses. As I referred to earlier, some 6 000 government officials have been provided with with Internet e-mail addresses by their offices. In this connection, other than those under the Information Technology and Broadcasting Bureau and the Marine Department which are undergoing pilot tests, all such e-mail addresses have in fact yet to be connected with the interconnected network within the Government. This is mainly due to security reasons. Therefore, I have mentioned in part (a)(i) of the main reply that we will be building a centrally managed gateway to provide a secure environment for government departments to combine the use of their Internet e-mail addresses with that of their internal ones. If the Honourable Member was asking about the Internet e-mail addresses, then , as I said before, it is entirely up to the relevant heads of department to determine in the light of their respective operational needs.

PRESIDENT (in Cantonese): Mr Howard YOUNG.

MR HOWARD YOUNG: Madam President, the Secretary said in paragraph (b) that the Government operated its own dedicated and interconnected network for the reason of security. As far as I know, the dedicated and interconnected network of a major commercial organization was hacked by an outsider last month. Is the Government satisfied with its own dedicated and interconnected network? Can it actually meet the objective of security and adequately protect itself against hackers?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

SECRETARY FOR INFORMATION TECHNOLOGY AND BROADCASTING: Madam President, the answer is yes.

PRESIDENT (in Cantonese): Mr SIN Chung-kai.

Mr SIN Chung-kai (in Cantonese): Madam President, it has been referred to in part (a) of the main reply that the Government would take various measures to encourage the use of the Internet. Could the Secretary inform this Council whether the Internet account provided for the various departments and the expenses incurred from the Government's own interconnected network would be counted as the relevant departments' expenses or under the Information Technology Services Department? On the other hand, some government departments may allocate very low priority to the use of the Internet taking into account their other operational needs. In this connection, could the Secretary inform this Council of the basic requirements of provision?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

Secretary for Information Technology and Broadcasting (in Cantonese): Madam President, of the 6 000 e-mail addresses of government officials I referred to just now, 2 400 are Internet e-mail addresses managed centrally by the Information Technology Services Department; as such, the relevant expenses would be borne by the Department. As for the remaining 3 600 e-mail addresses, they are provided through arrangements made by individual departments with Internet service providers, and the expenses incurred would be covered by the respective provisions made to the respective departments.

PRESIDENT (in Cantonese): Miss Emily LAU.

Miss Emily LAU (in Cantonese): Madam President, the Secretary said in the main reply that the Government would encourage government officers to make wider use of the Internet through browsing or communication to obtain information useful to their work. However, since it is impossible to keep track of the manner in which government officers make use of the Internet, could the Secretary inform this Council whether there have been any cases of abuse; and if so, of the measures taken to prevent further abuses?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

Secretary for Information Technology and Broadcasting (in Cantonese): Madam President, we have issued certain guidelines on the use of the Internet. Besides, we have also required the various government departments to issue internal guidelines should such needs arise. I am sure the management would make the best effort to implement the relevant guidelines.

PRESIDENT (in Cantonese): Miss Emily LAU.

Miss Emily LAU (in Cantonese): Madam President, I think the Secretary should tell us some of the contents of the guideline to let us know how abuses could be prevented.

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

Secretary for Information Technology and Broadcasting (in Cantonese): Madam President, if Honourable Members are interested in the relevant guideline, I could provide them with some copies later. (Annex II)

PRESIDENT (in Cantonese): Mr LAW Chi-kwong.

Mr LAW Chi-kwong (in Cantonese): Madam President, the Secretary has mentioned in part (c) of the main reply that e-mail addresses would be included in the Government Telephone Directory. I have tried to contact the Secretary via e-mail, but I could not find his e-mail address on the web pages. There are also other bureaux secretaries and deputy secretaries whom I wish to make contact with more quickly instead of through their personal secretaries. Could the Government provide us with more convenience by including the e-mail addresses of the bureaux secretaries on the web pages, thereby further enhancing the communication between Members of this Council and government officials?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

Secretary for Information Technology and Broadcasting (in Cantonese): Madam President, the Internet e-mail address I referred to in my main reply are not the Internet e-mail addresses of individual government officers but those of individual bureaux and departments. Since e-mail addresses are quite similar to direct telephone lines, it should be up to the relevant officers to decide on the disclosure or otherwise of their addresses.

PRESIDENT (in Cantonese): Mr SIN Chung-kai.

Mr SIN Chung-kai (in Cantonese): I should like to follow up the same issue as well. At present, Government Telephone Directory is available for sale to the public, and we could certainly find the office addresses of the relevant officers in the Directory. In this connection, could the Secretary inform this Council whether the Government has any policies to require individual officers to include their e-mail addresses in the Directory, since the Internet accounts provided for them are for operational purposes?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

Secretary for Information Technology and Broadcasting (in Cantonese): Madam President, just now I was talking about direct telephone lines. We conducted a survey in August this year regarding Internet e-mail and found that we received on average 22 500 Internet e-mail messages per month, and this figure represents only those messages received by the registered bureaux. If any of our colleague discloses his personal e-mail address, he may be receiving some 100 to 200 messages everyday; what is more, those messages may not necessarily be directly related to his work or need to be handled by him directly. As such, we believe it should be up to the relevant officers to decide on the disclosure or otherwise of their e-mail addresses.

PRESIDENT (in Cantonese): Dr TANG Siu-tong.

Dr TANG Siu-tong (in Cantonese): In part (a)(i) of the main reply, the Secretary said that the Government would be building a centrally managed gateway for security reasons. Could the Secretary inform this Council which government department is responsible for managing the gateway, as well as which government officer is responsible for the whole matter?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

Secretary for Information Technology and Broadcasting (in Cantonese): Madam President, the Information Technology Services Department and its staff would be responsible for the whole matter.

PRESIDENT (in Cantonese): Mr SIN Chung-kai.

Mr SIN Chung-kai (in Cantonese): According to the Secretary, of the 6 000 e-mail addresses, 2 400 are provided by the Information Technology Services Department while the rest 3 600 are provided by individual departments through Internet service providers. In view of the wide range of Internet service providers involved, I should like to know the rationale behind the adoption of the practice of "one government, two systems". Is it a kind of government policy? Or is it the outcome of some other events?

PRESIDENT (in Cantonese): Secretary for Information Technology and Broadcasting.

Secretary for Information Technology and Broadcasting (in Cantonese): Madam President, our existing policy is to delegate the powers to the various departments as far as practicable. Therefore, we will not discourage individual departments if they believe they could handle the matter themselves.

PRESIDENT (in Cantonese): Sixth question. Mr LEE Wing-tat.

Vacancy Rates of Commercial Premises under the Housing Authority

6. MR LEE WING-TAT (in Cantonese): Madam President, will the Government inform this Council:

(a) of the number of commercial premises under the Hong Kong Housing Authority (HA) which have never been leased out as at the beginning of this month, together with a breakdown by the vacancy period of such premises;

(b) whether it has assessed if the failure to lease out these commercial premises is related to the upset rents currently set by the HA; if they are related, whether the HA will lower the upset rents for its commercial premises in order to lease them out; and

(c) whether the HA has any plan to let such vacant commercial premises as short-term tenancies?

PRESIDENT (in Cantonese): Secretary for Housing.

SECRETARY FOR HOUSING (in Cantonese): Madam President, currently there are over 15 000 tenants in commercial premises operated by the HA. The vacancy rate is about 4.9% in terms of floor area. Members may refer to the information tabled. However, I wish to point out that the HA cannot supply information on the number of commercial premises which have never been leased out and the vacancy period of these premises because individual premises are often sub-divided or re-grouped by the HA to meet the changing demand of the market. Owing to the large number of commercial premises, the HA has not conducted any investigation or survey so far to track down those premises which have never been leased out. If the Honourable LEE Wing-tat wishes to know more about a particular estate, I am pleased to follow this up with the HA and consider providing the information later.

In fact some commercial premises are left vacant for various factors which may not necessarily be related to the upset rents. Like private commercial premises, the commercial premises operated by the HA may not be leased out over a long period as a result of the overall economic climate and the prospect of individual trades. If a particular unit cannot be leased out mainly because the upset rent is relatively high, the HA will be prepared to reduce the rent.

In order to fully utilize resources, the HA will try to be flexible in handling tenancy agreements for commercial premises. While the length of tenancy of commercial premises under the HA is normally three years, the HA will be prepared to lease vacant commercial premises on a short-term basis, depending on individual circumstances.

Annex

Vacancy of Shops in Public Housing Estates

(Position as at 1 November 1998)

Vacancy	Estates
0%	Chai Wan Estate	Ko Chun Court	San Fat Estate	Tung Tau Estate (1)
	Cheung Fat Estate	Ko Yee Estate	Sau Mau Ping Estate (1)	Un Chau Street Estate
	Cheung Kwai Estate	Kwai Chung Estate	Sau Mau Ping Estate (2)	Upper Ngau Tau Kok Estate
	Cheung On Estate	Kwai Hing Estate	Sau Mau Ping Estate (3)	Upper Wong Tai Sin Estate
	Cheung Sha Wan Estate	Kwai Shing East Estate	Shatin Pass Estate	Valley Road Estate
	Ching Lai Court	Lam Tin Estate (1)	Shek Lei Estate (2)	Wah Ming Estate
	Ching Wah Court	Lam Tin Estate (2)	Shek Yam East Estate	Wah Sum Estate
	Choi Fai Estate	Lee On Estate	Shek Yam Estate	Wan Tau Tong Estate
	Chuk Yuen North Estate	Lei Muk Shue Estate (1)	Shun On Estate	Wang Tau Hom Estate
	Chung Nga Court	Lok Fu Estate	Tai Hang Tung Estate	Wo Lok Estate
	Fu Shan Estate	Lok Wah South Estate	Tai Ping Estate	Wong Chuk Hang Estate
	Fung Wah Estate	Lower Ngau Tau Kok Estate	Tai Yuen Estate	Wu King Estate
	Hau Tak Estate (1)	Lower Wong Tai Sin Estate	Tin King Estate	Yan Ming Court
	Hiu Lai Court	Lung Tin Estate	Tin Shui Estate (1)	Yan Shing Court
	Ho Man Tin Estate	Ma Hang Estate	Tin Shui Estate (2)	Yau Oi Estate
	Hong Tin Court	Mei Chung Court	Tin Yiu Estate (1)	Yin Lai Court
	Hung Hom Estate	Model Housing Estate	Tin Yiu Estate (2)	Yuen Long Estate
	Kam Ying Court	Nam Cheong Estate	Tsing Yi Estate	Yuet Lai Court
	King Lam Estate	Ping Tin Estate	Tsui Ping South Estate Tsui Wan Estate
		Po Hei Court	Tsui Yiu Court
		Sai Wan Estate	Tsz Ching Estate
Under 2%	Cheung Hang Estate	Lai Kok Estate	Ping Shek Estate	Sun Chui Estate
	Cheung Hong Estate	Lei Muk Shue Estate (2)	Sam Shing Estate	Tak Tin Estate
	Fu Heng Estate	Lei Tung Estate	Sha Kok Estate	Tsui Lam Estate
	Fu Tung Estate	Lek Yuen Estate	Shek Kip Mei Estate	Tsz Wan Shan Shopping Centre
	Hau Tak Estate(2)	Lung Poon Court	Shek Lei Estate(1)	Wah Kwai Estate
	Ka Fuk Estate	Nam Shan Estate	Shun Tin Estate	Wo Che Estate
	Kwong Tin Estate	Pak Tin Estate	Siu Hong Court	Wong Tai Sin Shopping Centre
2.1%-5%	Butterfly Estate	Hin Keng Estate	Oi Man Estate	Tin Ma Court
	Cheung Fat Shopping Centre	Hing Man Estate	On Kay Court	Tin Ping Estate
	Cheung Wah Estate	Kai Yip Estate	On Ting Estate	Tin Tsz Estate
	Cheung Wo Court	Kwong Yuen Estate	On Yam Estate	Tin Wan Estate
	Choi Hung Estate	Lai King Estate	Po Lam Estate	Tung Tau Estate (2)
	Choi Wan Estate (1)	Lai Yiu Estate	Pok Hong Estate	Wah Fu Estate (1)
	Chuk Yuen South Estate	Lok Wah North Estate	Shun Lee Estate	Yue Wan Estate
	Chung On Estate	Lung Hang Estate	Siu Lun Court
	Fu Shin Estate	Mei Lam Estate	Tai Hing Estate
5.1%-10%	Apleichau Estate	Kin Sang Estate	Shek Wai Kok Estate	Wan Tsui Estate
	Choi Ha Estate	Lok Fu Shopping Centre	Siu Hei Court	Yiu Tung Estate
	Chun Shek Estate	Ma Tau Wai Estate	Siu Sai Wan Estate	Yue Tin Court
	Fuk Loi Estate	Ming Tak Estate	So UK Estate
	Heng On Estate	North Point Estate	Tai Wo Hau Estate
	Hing Wah Estate (2)	Shan King Estate	Tai Wo Shopping Mall
10.1%-20%	Chak On Estate	Hing Tin Estate	Long Ping Estate	Tsui Ping North Estate
	Cheung Ching Estate	Hing Tung Estate	Mei Tung Estate	Wah Fu Estate (2)
	Cheung Shan Estate	Kwai Fong Estate	Sheung Tak Estate
	Choi Yuen Estate	Kwai Shing West Estate	Shui Pin Wai Estate
	Fung Tak Estate	Kwong Fuk Estate	Sui Wo Court
20.1%-30%	Leung King Estate
Above 30%	Lai On Estate	Ngan Wan Estate	Peng Lai Court	Sun Tin Wai Estate
	Lei Cheng UK Estate

Vacancy of Shopstalls in Public Housing Estates

(Position as at 1 November 1998)

Vacancy	Estates
0%	Cheung Fat Shopping Centre	Ho Man Tin Estate	Sheung Tak Estate	Valley Road Estate
	Cheung Sha Wan Estate	Ka Fuk Estate	Shun On Estate	Wah Kwai Estate
	Chung On Estate	Kwong Tin Estate	So Uk Estate	Wah Ming Estate
	Fu Heng Estate	Lei Muk Shue Estate (1)	Tai Hang Tung Estate	Wong Chuk Hang Estate
	Fu Tung Estate	Lung Poon Court	Tin Ma Court	Yiu On Estate
	Fuk Loi Estate	Mei Tung Estate	Tin Shui Estate (2)	Yue Wan Estate
	Fung Tak Estate	San Fat Estate	Un Chau Street Estate
	Hau Tak Estate (2)	Sau Mau Ping Estate (2)	Upper Ngau Tau Kok Estate
	Hing Tung Estate		Upper Wong Tai Sin Estate
Under 5%	Apleichau Estate	Kwai Hing Estate	Pok Hong Estate	Tai Wo Hau Estate
	Fu Shan Estate	Kwong Yuen Estate	Sau Mau Ping Estate (3)	Tak Tin Estate
	Heng On Estate	Lek Yuen Estate	Sha Kok Estate	Tsui Ping North Estate
	Kai Yip Estate	Leung King Estate	Shek Kip Mei Estate	Tsz Wan Shan Shopping Centre
	Kin Sang Estate	Lok Fu Shopping Centre	Shun Tin Estate	Wan Tau Hom Estate
	King Lam Estate	Lok Wan South Estate	Siu Sai Wan Estate
5.1%-10%	Cheung Wah Estate	Lee On Estate	Tin Yiu Estate (1)	Wo Che Estate
	Choi Wan Estate (1)	Lei Muk Shue Estate (2)	Tsing Yi Estate	Yau Oi Estate
	Chuk Yuen South Estate	Pak Tin Estate	Tsui Lam Estate
	Kwai Fong Estate	Shek Lei Estate(1)	Tung Tau Estate(2)
	Lai King Estate	Siu Hong Court	Wan Tsui Estate
10.1%-20%	Butterfly Estate	Hing Tin Estate	Oi Man Estate	Shun Lee Estate
	Cheung Ching Estate	Kwong Fuk Estate	On Ting Estate	Sui Wo Court
	Choi Hung Estate	Lai Kok Estate	Po Lam Estate	Tai Hing Estate
	Fu Shin Estate	Lung Hang Estate	Sam Shing Estate	Tai Wo Shopping Mall
	Hin Keng Estate	Nam Shan Estate	Shan King Estate	Tai Yuen Estate
20.1%-30%	Chak On Estate	Lai Yiu Estate	Ping Shek Estate	Wan Tau Tong Estate
	Cheung Hong Estate	Lei Tung Estate	Shek Wai Kok Estate	Wong Tai Sin Shopping Centre
	Hing Man Estate	Long Ping Estate	Tin Ping Estate
	Kwai Shing West Estate	Mei Lam Estate	Wah Fu Estate (1)
Above 30%	Cheung Hang Estate	Chun Shek Estate	On Yam Estate	Sun Tin Wai Estate
	Cheung Shan Estate	Hing Wah Estate (2)	Siu Hei Court	Wah Fu Estate (2)
	Choi Yuen Estate	Kwai Shing East Estate	Sun Chui Estate

PRESIDENT (in Cantonese): Mr LEE Wing-tat.

MR LEE WING-TAT (in Cantonese): Madam President, as reflected by many commercial tenants and shopstall tenants, there were still no bidders for a large number of commercial premises or shopstalls with upset rents after several invitations to tender. Will the Government consider changing this policy of artificially setting upset rents irrespective of rules of the market? Although the vacancy rate of 4.9% is not very high, a large number of units is involved. I would like to ask, first, whether the Government will consider changing this policy and second, whether it will investigate if this is really the situation. Thank you, Madam President.

PRESIDENT (in Cantonese): Secretary for Housing.

SECRETARY FOR HOUSING (in Cantonese): Madam President, the policy is made by the HA, since it must have some standards to determine the rents of commercial premises. The present method is quite normal. While some premises have upset rents, others may be leased on a first-come-first-served basis or through selective tender. However, as I said in my main reply, if vacant commercial premises cannot be leased out and there are people interested, the HA will consider leasing them out on other terms. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr TAM Yiu-chung.

MR TAM YIU-CHUNG (in Cantonese): Madam President, I have a question for the Secretary. At present, some housing estates face the problems of ageing of the population and dwindling traffic. In addition, there are more and more households who do not do any cooking at home. Under these circumstances, will the HA consider setting a longer rent-free period, as is the practice in private shopping malls, or linking rent with the volume of business or profit, or changing the usage of the relevant premises and allocating them for other community use?

PRESIDENT (in Cantonese): Secretary for Housing.

SECRETARY FOR HOUSING (in Cantonese): Madam President, if the tenancy agreements or rents of the commercial premises are changed as the Honourable TAM Yiu-chung suggested, it will involve changing the major basis of a policy. The HA may of course take it into consideration. As for calculating rent according to profit, it seems to be a new idea which the HA has never thought of. With regard to another point raised by Mr TAM Yiu-chung, that is, if some commercial premises have not been in great demand and have remained vacant, the HA could certainly consider changing their use. First, the nature of business could be changed, that is, instead of one particular trade, the premises could be used for another. However, if there is little demand for commercial premises in a particular area, the HA might consider allocating the commercial premises for non-commercial use, such as welfare facilities. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr Ambrose CHEUNG.

MR AMBROSE CHEUNG (in Cantonese): Madam President, from the information provided by the Secretary, we can see that the vacancy rate of shops in 24 housing estates is over 10%, while the vacancy rate of shopstalls in 25 housing estates is over 20%. I would like to ask the Secretary if the HA and the Housing Bureau have a mechanism in place for the optimal utilization of resources. If yes, how do they use the relevant mechanism to deal with such vacancy? Actually, any landlord would constantly keep track of units that have not been leased out and their vacancy period. However, in his main reply, the Secretary said that such information could only be obtained after an investigation or survey. With what mechanism does the Secretary supervise the vacancy of these premises in order to achieve better utilization of resources?

PRESIDENT (in Cantonese): Secretary for Housing.

SECRETARY FOR HOUSING (in Cantonese): Madam President, with regard to information, the HA has of course its own method of operation. We cannot lay down strict rules as to how an independent executive organization should operate. Actually, the HA does not need to have the information requested by the Honourable LEE Wing-tat. The main task of the HA is to fully utilize the commercial premises and there is no need for it to focus on certain information. If certain information must be obtained, time and manpower are needed to collect it. As I pointed out in my main reply, if there is a genuine need for such information, I will talk to the HA to see if information on individual housing estates could be gathered.

With regard to the vacancy rate, the Honourable Ambrose CHEUNG mentioned that some housing estates had higher vacancy rates. However, we cannot look at those figures alone. I wish to point out that these vacancy rates represent the position as at 1 November. As we all know, due to the economic downturn, business is slow. While a vacancy rate of 4.9% may seem high, it is not really high compared with the overall figures. The overall vacancy rate of private commercial premises is nearly 9%. Therefore, the HA's vacancy rate of 4.9% is comparatively low. If we look at past figures, the vacancy rate of commercial premises under the HA over the years was even lower, at an average of around 2.5% to 3%. It increased to the higher rate of 4.9% during the past year only because of the economic downturn. Therefore, I hope that Members will not just look at the figure of a particular housing estate and neglect the overall figures, or the overall economic conditions in Hong Kong. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr CHAN Kam-lam.

MR CHAN KAM-LAM (in Cantonese): Madam President, I am glad to hear the Secretary say that he understood how difficult it was to do business. We also welcome his remarks in the main reply that the HA would try to be flexible in handling commercial tenancy agreements in order to fully utilize resources. Some tenants made their bids last year and the rents fixed then are certainly higher than the rents now. In view of this, how will the Secretary flexibly deal with these tenants who have won their bids but have not yet occupied the premises or sign the tenancy agreements?

PRESIDENT (in Cantonese): Mr CHAN's supplementary question is about vacant commercial premises. I wonder what the Secretary will say to that. Let us hear how he replies.

SECRETARY OF HOUSING (in Cantonese): Madam President, for those tenants who have made their bids and won, even though no tenancy agreement has been signed, there is already a kind of contract between the two parties. We naturally hope that they will honour their commercial obligations. If there are any special difficulties, I am sure that they can talk to the HA. However, I cannot guarantee how the HA will react. Clients should be able to work out something with the HA. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr Fred LI.

MR FRED LI (in Cantonese): Madam President, the information provided by the Housing Bureau shows that the vacancy rate of commercial premises in 23 public housing is over 10%. Recently, the HA has adopted the method of leasing out vacant commercial premises on a first-come-first-served basis. In that case, will those housing estates with a high vacancy rate be put on the list of housing estates with commercial premises for leasing out on a first-come-first-served basis? If not, why not?

PRESIDENT (in Cantonese): Secretary for Housing.

SECRETARY FOR HOUSING (in Cantonese): Madam President, generally speaking, the HA could include them in the list in leasing out commercial premises on a first-come-first-served basis. There are many commercial premises in those housing estates mentioned by Mr LI with a vacancy rate of over 10%. Actually, as we can see, their number is quite small and only accounts for 12% of the total. Therefore, I hope that Members will note that this number is not great enough to affect the overall situation. I hope that they will understand this. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr LI, which part of your supplementary question has not been answered?

MR FRED LI (in Cantonese): The most important part, that is, whether the housing estates with the highest vacancy rates are included in the list for leasing out on a first-come-first-served basis.

PRESIDENT (in Cantonese): Secretary for Housing.

SECRETARY FOR HOUSING (in Cantonese): Madam President, I have already answered just now. The answer is yes.

PRESIDENT (in Cantonese): Mr LAU Kong-wah.

MR LAU KONG-WAH (in Cantonese): Madam President, in the last part of the main reply, the Secretary mentioned short term tenancy agreements and that the length of tenancy used to be three years. I would like to know if this is a new policy. When he says short term, how long must the term be before they agree to lease out the premises?

PRESIDENT (in Cantonese): Secretary for Housing.

SECRETARY FOR HOUSING (in Cantonese): Madam President, as I said in my main reply, the length of tenancy of the HA is usually three years. The HA may consider shortening the term in the light of individual circumstances. I do not think that there should be too much restriction on this. However, from the business point of view, I do not think tenants can enter into a tenancy agreement with the HA with too short a term. This means that I believe that one may consider a term of not less than one year. Anything less than that will have nothing to do with business consideration at all. Thank you, Madam President.

PRESIDENT (in Cantonese): Miss CHAN Yuen-han.

MISS CHAN YUEN-HAN (in Cantonese): Madam President, in the last paragraph of the main reply, the Administration said that the HA would try to be flexible in handling tenancy agreements for commercial premises in order to fully utilize resources. Several Members also mentioned this earlier. I have looked at the Annex. Just now an Honourable colleague talked about the shops. Let me talk about the shopstalls now. There are 45 housing estates with a vacancy rate over 10%, while there are 72 with a vacancy rate under 10%, if one says that under 10% is not bad. If we compare the two groups, we can see that there is a big difference between them. The natural reaction of many people would be that the HA is often too "arrogant". In terms of management, one could in fact be quite flexible. However, it does not seem to be flexible in order to fully utilize resources, contrary to what the Administration said. I have cited some examples before ......

PRESIDENT (in Cantonese): Miss CHAN, please come to your question.

MR CHAN YUEN-HAN (in Cantonese): The Administration said that it would be handled with flexibility but did not say how. It just said that the length of tenancy was three years. Can the Secretary explain why there are 72 housing estates with a vacancy rate of under 10% and another 45 with a vacancy rate of over 10%? What is meant by "full utilization of resources"? Does the Secretary understand my supplementary question?

PRESIDENT (in Cantonese): If there is anything unclear, the Secretary may ask Miss CHAN to repeat her question and Miss CHAN should try to keep it concise.

MISS CHAN YUEN-HAN (in Cantonese): I will try to be concise. The Administration said resources should be fully utilized. I am not talking about shops; I am talking about shopstalls. Some estates have 0% vacancy rate and some have 5% to 10%. There are 72 housing estates with a vacancy rate of up to 10% and 45 housing estates with a vacancy rate of 10% to over 30%. The Secretary said just now that this was due to the poor economy. However, I wish to point out that the vacancy rates vary greatly. How can the Government say that this is good and flexible management and that resources have been fully utilized? I would like the Secretary to give a satisfactory answer to my supplementary question. Thank you, Madam President.

PRESIDENT (in Cantonese): Secretary for Housing.

SECRETARY FOR HOUSING (in Cantonese): Madam President, when I talked about utilizing resources fully and flexibly, I was referring to the time before the tenants entered into tenancy agreements for commercial premises with the HA. I was not saying that one could ask the HA to be flexible after the occupation of the commercial premises. Before entering into tenancy agreements, the commercial tenants can talk to the HA and agree on a tenancy agreement for a shorter term, that is, shorter than three years. Basically, this is something that can be discussed between both parties. What happens after the occupation of the commercial premises? I think Members will have noted that early this year and in the middle of this year, the HA twice adjusted the rents of these commercial tenants. When I say "adjust", I mean making an assessment. Early this year, the HA made an assessment and decided to freeze some rents and lower others with effect from 1 February this year. The second step is that as from 1 July this year, those existing commercial tenants who entered into tenancy agreements between 1996 and January 1998 may apply for a rent reassessment by the HA. During the past few months, the reassessment achieved very good results. As far as I know, the rents of the majority of the commercial tenants were adjusted. 83% of the commercial tenants had their rents cut by 30% or lower. 17% of the commercial tenants had their rents reduced by over 30% and some by over 50%. Therefore, Members should know that the HA understands the popular sentiment very well and has thus taken active actions for reassessment. Thank you, Madam President.

PRESIDENT (in Cantonese): Many Members would like to ask supplementary questions on this issue. But since we have already spent 19 minutes on this question, I hope Members will follow this up through other channels.

WRITTEN ANSWERS TO QUESTIONS

Assistance for Battered Wives and their Families

7. MISS CYD HO (in Chinese): Regarding the provision of accommodation for women who were battered by their spouses and subsequently left their residence with their children, and the arrangements for the transfer of their children to other schools, will the Government inform this Council:

(a) of the number of such women who are eligible under the Conditional Tenancy Scheme but have not been rehoused directly from their refuges to public housing over the past three years, and the reasons why such rehousing arrangements have not been made; and

(b) if these women and their children are arranged to move away from the districts in which they originally resided, how long the Administration will take on average to transfer the women's school-age children to primary and secondary schools in the district where their new homes are located, and whether any performance pledge has been set in this respect?

SECRETARY FOR HEALTH AND WELFARE (in Chinese): Madam President, the Conditional Tenancy Scheme provides timely housing assistance to divorcing couples, including battered spouses, who are likely to be granted custody of their children. To qualify for assistance under the Scheme, which is means-tested, the applicant must also demonstrate an immediate housing need on the basis of social or medical grounds.

(a) According to the Housing Department, 438 cases have been handled since April 1996 under the Scheme. However, not all have involved battered spouses. Four applications did not succeed. In two of the cases, the couples eventually reunited whilst in the other two, the spouse chose to remain in their existing public housing accommodation. According to the Social Welfare Department, all four cases involved applicants seeking assistance because of spouse battering. Therefore, the requirements of battered spouses who seek compassionate rehousing and who meet the Scheme's criteria, are met.

(b) The Education Department provides placement assistance to pupils receiving basic education (that is, from Primary One to Secondary Three) including those who have to change school because they, for whatever reason, have changed the district in which they live. The Education Department has pledged to arrange the first school interview within 14 working days of application and to see the pupil admitted to a new school within three months. Under normal circumstances, however, these pupils will resume schooling within 21 school days.

Private Sector Participation in the Provision of Water Supply Services

8. MR CHAN KWOK-KEUNG (in Chinese): It is learnt that the Water Supplies Department plans to conduct a feasibility study on private sector participation in the provision of water supply services. In this connection, will the Government inform this Council:

(a) of the reasons for conducting the study;

(b) of the scope and content of the study;

(c) when the consultant selection process in respect of the study is expected to commence; and

(d) whether it has considered setting up a steering committee to monitor the progress of the study; if such a committee is to be set up, of its composition; and whether representatives of staff members will be included?

SECRETARY FOR WORKS (in Chinese): Madam President, as an ongoing exercise, the Administration has been exploring ways to enhance the efficiency and quality of services provided by the departments. In line with this broad objective, we will commission a study to examine whether there is any benefit for the Government and the public from the participation by the private sector in the provision of water supply services.

The consultant will examine various options for private sector participation (including privatization, corporatization, contracting out, and so on) in water supply, taking into account overseas experience. The consultant will make recommendations having regard to the existing situation and arrangements in the provision of water supply services in Hong Kong.

We expect that the study will commence in late November or early December 1998 after the approval of the Central Consultants Selection Board has been obtained for the award of the contract.

A Steering Committee under the chairmanship of the Secretary for Works will monitor the progress of the study. Members include Director of Water Supplies and representatives of the Secretary for the Treasury, Secretary for the Civil Service and Director, Business Services Promotion Unit. Although the Steering Committee does not include staff representatives, the Government will maintain close liaison with staff of the Water Supplies Department on the progress of the study and will consult them before making a decision on taking forward any of the consultant's recommendations.

Height Limits for Farm Structures

9. MR WONG YUNG-KAN (in Chinese): It is learnt that if the heights of those structures which are built upon agricultural land and are used solely for livestock farming (commonly known as "farm structures") exceed the height prescribed limits, the concerned farm structures have to be demolished. In this connection, will the Government inform this Council:

(a) of the present height limits for farm structures used for livestock farming;

(b) of the number of farm structures demolished in the past three years on the grounds that their heights exceeded the limits; and

(c) whether consideration will be given to relaxing the height limits for farm structures, in view of the current shortage of land; if not, why not?

SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS (in Chinese): Madam President,

(a) Structures on agricultural land that are used solely for agricultural purposes (including livestock farming) and approved by the Lands Department are allowed to be of a height of not more than 4.57 m. However, squatter structures registered in the 1982 Housing Department's Squatter Control Survey that are used for agricultural purposes are tolerated in their original form as recorded in the Survey, as long as there is no alteration to the structures and until they are affected by land clearances;

(b) There is no record of agricultural structures approved by the Lands Department having been demolished in the past three years on the ground that they exceeded the height limit. However, about 400 squatter agricultural structures were demolished in the same period because of unauthorized erections/extensions or changes of usage; and

(c) The present height limit of 4.57 m is considered to be reasonable for structures on agricultural land that are used solely for agricultural purposes. We see little justification for increasing the limit.

Day Care and Residential Services for Disabled People

10. MR LAW CHI-KWONG (in Chinese): In the 1998 policy address, the Chief Executive undertook that the Government would provide over 400 extra day and residential places for disabled people in 1999-2000. In this connection, will the Government inform this Council:

(a) whether these places include the 40 residential places which are still in the pipeline;

(b) of a breakdown of these places according to the types of service and target clients; and

(c) of the specific plan for fulfilling the undertaking?

SECRETARY FOR HEALTH AND WELFARE (in Chinese): Madam President,

(a) The undertaking to provide over 400 additional day and residential places as pledged in the 1998 policy address is in addition to the 40 extra halfway house places announced in the 1997 policy address¹. The 40 additional halfway house places have just been completed and are being allocated to eligible applicants.

(b) The additional day and residential places pledged in the 1998 policy address include:

- two hostels for severely mentally handicapped adults with each providing 50 places;

- one halfway house providing 40 places for discharged mental patients;

- one day activity centre with 50 places for severely mentally handicapped adults; and

- two sheltered workshops providing 240 places for disabled adults.

(c) Apart from the halfway house and one sheltered workshop, all of the projects in (b) above have already been allocated to non-governmental organizations to operate. The allocation process for these two service units is in progress. As regards construction, work is already well underway and all projects are scheduled for completion before the end of 1999. The Administration will closely monitor the individual construction programmes.

Errors in Contents of Textbooks

11. MR CHAN KAM-LAM (in Chinese): It is reported in the findings of a survey that some of the General Studies textbooks for primary schools which have been included into the Recommended Book List (RBL) by the Education Department (ED) contain incorrect and outdated information, including that describing the government structure. In this connection, will the Government inform this Council of:

(a) the procedure adopted by the ED for reviewing textbooks; how the procedure can be refined;

(b) the mechanism to ensure that errors in textbooks as identified by the ED in the course of the review are corrected by publishers; and

(c) whether consideration will be given to the means of assisting publishers in obtaining up-to-date information, such as through the ED taking the initiative to provide them with up-to-date information on certain subjects?

SECRETARY FOR EDUCATION AND MANPOWER (in Chinese): Madam President,

(a) If publishers want to have their textbooks included in the RBL, they must submit the drafts of the textbooks to the ED for review. The review will be conducted by two front-line education professionals (including staff of tertiary institutions) and a Curriculum Officer of the relevant subject from the ED. The three reviewers will carry out the review independently. The main review criteria include whether the textbooks meet the aims and objectives as laid down in the relevant syllabuses and whether the language used is appropriate. Taking into consideration the views of the three reviewers, the ED will, where necessary, suggest amendments to the publishers and decide whether the textbooks should be included in the RBL. In general, this review system has been working well.

With regard to the findings of a survey that some of the General Studies textbooks for primary schools on the ED's RBL contain incorrect explanation and outdated information, the ED has taken follow-up action immediately. Some examples cited involve explanations of terms and expressions. The ED considers that from a teaching standpoint, as the textbooks are for primary school students, it is not inappropriate to use broad terms to introduce the subjects. As regards the outdated information quoted in the survey, some publishers have already sent out corrigenda to schools which use their textbooks. Also, since information for the General Studies subject requires frequent updating, the ED has specifically reminded teachers in the relevant syllabus to keep abreast of current affairs so that they may teach students with accurate and the most up-to-date information.

(b) When reviewing textbooks for a new curriculum, the ED will suggest amendments for errors identified. Publishers need to rectify the errors and submit revised drafts for a second review. Records show that in most cases the revised versions submitted are able to meet the ED's requirements. For the small number of textbooks which still fail to meet the requirements fully, the ED will remind the publishers concerned to ensure full accuracy of the printed textbooks. The ED has also made it clear to publishers that should certain textbooks fail to make the amendments as suggested in the review report, the ED can strike them out from the RBL.

(c) Some subjects such as General Studies require regular updating of information. The ED will specifically remind teachers through the syllabuses that they should be alert of current affairs, and be informed of the latest development on relevant subjects. The ED also organizes seminars regularly and invites experts from different fields to give talks on specific topics, so as to keep teachers abreast of the latest developments. In addition, if current textbooks are found to have errors or omissions or need updating, the ED will ask the publishers to send out corrigenda to schools which use their textbooks.

Finally, publishers have the responsibility to actively ensure the accuracy of their textbooks, including collecting information and updating the content of their textbooks.

Water Consumption of Domestic Households

12. MR LAU WONG-FAT (in Chinese): Will the Government inform this Council of the total volume of water consumption of domestic households and the average volume of water consumption per capita in Hong Kong in each of the three years before and after the commencement of collection of sewage charges in accordance with the Sewage Services (Sewage Charge) Regulation (Cap. 463 sub. leg.)?

SECRETARY FOR WORKS (in Chinese): Madam President, sewage charges, which are determined by the consumption level of potable water, have been levied since April 1995. According to the Water Supplies Department, the total domestic consumption of potable water and the daily average consumption per capita in the territory in each of the three years before and after the implementation of the sewage charging scheme, that is, from 1992-93 to 1997-98, are as follows:

Year	Total Domestic Consumption of Potable Water Per Annum (in million cu m)	Population size	Daily Average Consumption per Capita (in cu m)
1992-93	235.6	5 844 050	0.110
1993-94	245.4	5 949 500	0.113
1994-95	252.9	6 077 350	0.114
1995-96	255.8	6 213 050	0.113
1996-97	258.0	6 366 150	0.111
1997-98	265.1	6 559 600	0.111

Failure Rate of Octopus Cards

13. MR LEUNG YIU-CHUNG (in Chinese): Does the Government know:

(a) of the number of incidents, since the introduction of the Octopus system, in which passengers could not use Octopus cards due to the malfunctioning of its debit devices;

(b) of the failure rate of Octopus cards since the introduction of the system and whether it is higher than expected; and

(c) how the company concerned will reduce the incidence of malfunctioning of debit devices and cards?

SECRETARY FOR TRANSPORT (in Chinese): Madam President,

(a) Since Octopus began operation in August 1997, there have been incidents of malfunctioning of debit devices involving 2 540 units.

(b) So far, about 5.2 million Octopus cards have been sold, of which malfunctioning has been reported in respect of 176 000 cards. The percentage of failed cards is higher than the target failure rate of 1% by about 2%.

(c) Management of the Octopus cards is carried out by the Creative Star Limited. On debit devices, the equipment supplier has been asked to strengthen support for replacing failed units and the service provider has been asked to reinforce technical support for investigating and minimizing system failures.

On Octopus cards, the operator has taken the following steps to improve the functioning of the cards:

(i) issuance of plastic protective pouches to Octopus holders;

(ii) the manufacturer of Octopus cards has developed an enhanced fabrication technique to better protect the chips. The first production run would be made available for sale soon;

(iii) distribution of Q-cards and information notices advising cardholders on the ways to take care of the cards; and

(iv) the City University has been commissioned to conduct a behavioral study of the causes of damage to the chips embedded in the Octopus cards. On the basis of the preliminary report, a publicity campaign and a product range of hard protective pouches will be introduced. The final report is due in December 1998.

Traffic Accidents

14. MR HOWARD YOUNG (in Chinese): In respect of the past three years, will the Government inform this Council:

(a) of a breakdown of traffic accidents by class of vehicles involved;

(b) of the ratio of the number of traffic accidents to

(i) the number of registered vehicles;

(ii) the average number of km travelled by each vehicle

in each class of vehicles; and

(c) of the measures in place to reduce the number of traffic accidents in respect of those classes of vehicles with higher ratios above?

SECRETARY FOR TRANSPORT (in Chinese): Madam President,

(a) In the past three years, 21 918, 21 160 and 21 568 vehicles were involved in traffic accidents. A breakdown of vehicle types involved in traffic accidents are as follows:

Class of Vehicle	1995	1996	1997
Private car	7 634	7 283	7 460
Light goods vehicle	3 772	3 372	3 490
Taxi	3 350	3 336	3 346
Motorcycle	2 761	2 779	2 718
Public bus	1 568	1 596	1 736
Medium and heavy goods vehicle	1 408	1 270	1 330
Public light bus	816	1 027	982
Tram	109	95	78
Light rail vehicle	19	15	17
Others	481	387	411
Total	21 918	21 160	21 568

(b) (i) The accident involvement rate per each 100 registered vehicles for different vehicle types in the last three years are as follows:

	Involvement rate per 100 registered vehicles
Class of Vehicle	1995	1996	1997
Tram	68.0	59.0	48.0
Public light bus	18.8	23.7	22.7
Taxi	18.8	18.7	18.8
Light rail vehicle	19.0	15.0	17.0
Public bus	17.5	16.8	16.7
Motorcycle	13.3	12.9	11.7
Light goods vehicle	4.5	4.2	4.4
Medium and heavy goods vehicle	3.9	3.4	3.5
Private car	2.7	2.5	2.5
Total	4.7	4.5	4.4

(b) (ii) The accident involvement rate for each million km travelled by different vehicle types in the last three years are as follows:

	Involvement rate per million km
Class of Vehicle	1995	1996	1997
Tram	15.9	16.7	11.5
Motorcycle	10.9	10.5	9.5
Public bus	4.7	4.6	4.0
Public light bus	2.3	2.9	2.6
Light goods vehicle	3.0	2.7	2.6
Light rail vehicle	2.1	1.6	1.8
Private car	2.1	2.0	1.7
Taxi	1.5	1.4	1.3
Medium and heavy goods vehicles	0.7	0.6	0.6
Total	2.1	2.0	1.8

(c) For comparison purpose, the accident involvement rate per million km is generally considered a more reliable indicator as it takes into account the actual distance travelled by vehicles on the road. Measured by this yardstick, trams, motorcycles and public buses are the classes of vehicles with higher accident rate than others.

The Hong Kong Tramway Company Limited has been implementing safety measures to reduce the number of traffic accidents. These include upgrading of the electrical and wiring system of tramcars to enhance reliability; installation of automatic braking systems; installation of a full automatic switching system to replace manual control at junctions of the tramway and organizing refresher courses on defensive driving for tram drivers.

In the case of motorcycles, the Government is considering the introduction of a probationary driving licence scheme for newly qualified motorcyclists as they are found to be five times more accident-prone than their more experienced counterparts. We will be putting proposals for consultation with the Transport Advisory Committee and the Legislative Council Panel on Transport shortly.

In respect of franchised buses, early this year, a special task force of the Transport Department reviewed the driver training programme, driver scheduling, driver performance monitoring and vehicle maintenance programmes of bus companies. The review recommended a number of measures to improve bus safety. These include reducing the instructor/trainee ratio, the organization of more road safety seminars, the trial use of tachographs on buses, where practicable the reduction of route/bus type changes in drivers' duties and improvement to maintenance facilities of bus companies. These improvement measures have all been accepted by franchised bus companies and are being implemented.

Counselling and Support Services Concerning Matrimonial Problems

15. MR LAU KWONG-WAH (in Chinese): Will the Government inform this Council:

(a) whether it knows the total number of cases involving extra-marital affairs for which the assistance of the Social Welfare Department or voluntary agencies has been sought, and of the districts where these cases are more prevalent, indicated by a breakdown of the numbers of cases by district; and

(b) whether it has reviewed the adequacy of the counselling and support services provided in connection with matrimonial problems at present; and whether consideration will be given to providing more counselling and support services in this respect?

SECRETARY FOR HEALTH AND WELFARE (in Chinese): Madam President,

(a) Of the current 51 000 active cases handled by the Family Services Centres (FSCs) run by the Social Welfare Department (SWD) and non-governmental organizations (NGOs), over 2 400 involve problems relating to extra-marital affairs. Districts with the largest number of cases are Tuen Mun, Tsuen Wan/Kwai Tsing and Eastern/Wan Chai. A district breakdown is attached.

(b) The SWD provides a wide range of services to assist those families with extra-marital problems. Individuals requiring counselling services may approach the 65 FSCs, operated by the SWD and NGOs, to help resolve their marital problems. To strengthen support for families with needs such as these, we have provided an additional 26 family caseworkers this financial year and will provide another 29 caseworkers next year. By March 2000 the number of caseworkers will be 760.

In addition to marriage counselling, a variety of other family support services are available to help prevent a breakdown in marital relationships or to assist divorcing couples to meet their parental responsibilities. For example, clinical psychologists in the SWD and NGOs are available to provide psychological assessment and therapeutic treatment to individuals with problems. In case of domestic violence, refuges providing temporary accommodation are available.

As regards preventive services, the family life education programmes organized by the 79 SWD and NGO Family Life Education officers, aim to enhance public awareness of the importance of developing positive attitudes towards marriage. The 32 Group Work Units and 22 Family Activity and Resource Centres also run educational and support groups to promote harmonious family life. These services are also designed to foster mutual help and social networking amongst participants, and facilitate early detection of family problems to enable timely referrals for necessary assistance.

Breakdown in the Number of Family Cases Involving Extra-marital Affairs by District
District*	No. of Cases As at 30 September 1998
Central and Western/Islands	148
Eastern/Wan Chai	265
Southern	90
Kowloon City	173
Sham Shui Po	138
Yau Tsim Mong	55
Kwun Tong	149
Wong Tai Sin/Sai Kung	198
Tsuen Wan/Kwai Tsing	285
Tuen Mun	343
Sha Tin	206
Tai Po/North	236
Yuen Long	166
	--------
Total	2 452
* Distribution according to the address of the client.

Assistance to Single-parent Families

16. DR DAVID LI: It is reported that there is a 20% increase in the number of single-parent families in receipt of Comprehensive Social Security Assistance (CSSA), compared to January this year. In this connection, will the Government inform this Council whether it has any plans to provide more child care centres in order to relieve the burden of single parents and to enable them to take up employment?

SECRETARY FOR HEALTH AND WELFARE: Madam President, to strengthen support for families with child care needs including single-parent families receiving CSSA, the Government has allocated resources to provide an additional 5 600 day nursery and day creche places in the next five years. Of these, over 3 600 places are scheduled to become available by March 2000. At present, 41 800 day nursery places and 1 700 day creche places are available in Hong Kong. Of these, 26 200 are government aided day nursery and 1 550 aided day creche places. In addition, the Government provides occasional child care support and extended hour services in some of these facilities. Taken together, these services help support those families including single-parent families, which require child care assistance.

Where necessary, single-parent CSSA recipients are accorded priority in the use of these services.

Prosecution Against Food Suppliers for Unlicensed Operation

17. MR CHEUNG MAN-KWONG (in Chinese): At present, quite a number of students attending whole-day primary and secondary schools place group orders for lunch-boxes with food suppliers through schools. In this connection, will the Government inform this Council:

(a) of the respective numbers of complaints received by the Administration in the past two years against food suppliers about their unlicensed operation, undesirable hygiene conditions in their food factories or unsanitary food supplied by them; of the number of cases in which these suppliers were prosecuted; and the average penalty imposed for each successful prosecution;

(b) how it will ensure that these suppliers operate under licences and the lunch-boxes that they supply meet hygiene standards; and

(c) whether it will step up inspection of the food factories concerned and eliminate unlicensed operators?

SECRETARY FOR HEALTH AND WELFARE (in Chinese): Madam President,

(a) The Provisional Urban Council and the Provisional Regional Council are the licensing authority of food premises including school lunch-box suppliers.

In the past two years, the Regional Services Department (RSD) has received one complaint against a school lunch-box supplier operating as an unlicensed food factory and having poor hygienic condition in the premises with unhygienic food. During the same period, 13 summonses were taken out against school lunch-box suppliers for operating as unlicensed food factories. According to the RSD, nine out of the 13 summonses have so far been convicted, with an average fine of $4,800 (ranging from $2,000 to $10,700). In the case of the Urban Services Department (USD), there have been no similar complaints and prosecutions against school lunch-box suppliers during the same period.

(b) Under the Food Business (Urban/Regional Council) Bylaws, Cap. 132, an appropriate food business licence issued by the Provisional Urban Council/Provisional Regional Council is required to run any food business including a food factory supplying lunch-boxes to schools. The licence will only be issued when the business operator can demonstrate that his premises meet all the necessary hygiene standards.

In parallel, the Education Department issued in August 1996 the "Guidelines on Meal Arrangement in Schools" advising schools to order lunch boxes and cooked food only from licensed food establishments when arranging meals for pupils. Schools are also encouraged to set up co-ordination groups to supervise, co-ordinate and improve meal arrangements. According to the Guidelines, school management should obtain the latest list of licensed food suppliers from USD/RSD district officers for reference.

(c) Health Inspectors of the USD and RSD have all along been conducting regular unannounced inspections to food factories (including food factories supplying lunch-boxes to schools). Inspections will also be stepped up to those food factories previously involved in food poisoning cases or with unsatisfactory hygiene condition to ensure that they are operated in compliance with legislative and licensing requirements. Any person who operates an unlicensed food factory is subject to prosecution actions and the premises concerned may be closed by the department if the unlicensed food business continues.

Insurance System for Bank Deposits

18. MR FRED LI (in Chinese): Will the Government inform this Council whether the Administration had early this year considered conducting a study to determine if there were justifications for the introduction of an insurance system for bank deposits:

(a) if the Administration had considered conducting such a study and

(i) the result was that the above-mentioned study would be conducted, of the specific timetable for the study and the reason for the Administration not including the study as one of the policy initiatives in the 1998 policy address; or

(ii) the result was that the above study would not be conducted, of the reasons for that; and

(b) if the Administration had not considered conducting such a study, of the reasons for that?

SECRETARY FOR FINANCIAL SERVICES (in Chinese): Madam President, in Hong Kong, depositor protection is provided through paying depositors in priority to other unsecured creditors when a bank is in liquidation. Pursuant to section 265 (db) of the Companies Ordinance, in the event of a bank liquidation, depositors are accorded priority of payment of claims for their deposits up to an aggregate maximum of $100,000, subject only to claims for remuneration and other payment to employees and statutory debts.

There are at present no specific plans to study other forms of deposit insurance in addition to the above statutory protection. However, as stated in the 1998 Policy Objective for the Financial Services Bureau, the Hong Kong Monetary Authority (HKMA) is undertaking a consultancy review of the banking supervisory regime. Depositor protection is one of the issues being addressed in that study. When the consultant's final report is ready by the end of this year, the HKMA will consider any recommendation concerning this particular issue in the wider context of other regulatory policies and the overall stability of the banking sector.

Upgrading Requirements for the Hong Kong Institute of Education

19. MR YEUNG YIU-CHUNG (in Chinese): The Chief Executive stated in the 1998 policy address that the Hong Kong Institute of Education (HKIEd) would be developed into a degree-awarding teacher training institute. In this connection, will the Government inform this Council of the following in respect of the Institute:

(a) the total number of lecturers at present and among them, the number of those with a bachelor's degree in education or a postgraduate diploma in education;

(b) the present number of lecturers holding a doctoral degree and among them, the number of those with a doctorate in education;

(c) the number of lecturers currently taking doctoral degree programmes and their percentage in lecturers who do not have a doctoral degree; and

(d) the requirements for the Institute to be upgraded to a university and whether the requirements include that the number of lecturers with doctorates has to reach a certain percentage; if so, what the percentage is; and what measures the Institute will take to meet the upgrading requirements as early as possible?

SECRETARY FOR EDUCATION AND MANPOWER (in Chinese): Madam President,

(a) The HKIEd's existing teaching staff strength is 392. All of them possess a degree qualification, 267 (or 68%) possess either a bachelor's degree in education or a postgraduate diploma/certificate in education. In addition, 89 (or 23%) possess other professional teaching qualifications such as Teacher's Certificate, Certificate for Teachers of Deaf and Partially Hearing Children, Graduate Diploma in Teaching English as a Second Language, Certificate in Teaching of English as Foreign Language, Diploma in Child Development and Pre-school/Primary Education, and so on.

(b) Among the 392 teaching staff, 73 (or 19%) of them possess doctoral degrees, 53 of these being a doctoral degree in education.

(c) Of the 319 teaching staff who do not possess a doctoral degree, 194 (or 61%) of them are currently pursuing such programmes.

(d) For an institution to become a university, it has to first achieve self-accreditation, that is, it has to take full responsibility for accrediting its own degree programmes. A Review Panel comprising academic and accreditation experts will be formed by an external accrediting body to ascertain whether the institution has the capability for self-accreditation. For an institution to merit self-accreditation, it has to demonstrate that its academic environment and academic processes are suitable for the implementation, development and maintenance of degree programmes and that it has in place effective and efficient systems and processes of quality control and assurance for its programmes.

A prescribed level of teaching staff with doctoral degrees is not a pre-requisite for the granting of self-accrediting and university status to an institution, but the level of qualifications of academic staff may be a factor in considering an institution's readiness of self-accreditation and eventually award of university status.

The HKIEd has been progressing smoothly in moving towards a teacher training degree-awarding institution. The Institute has started to offer a Bachelor of Education programme in the 1998-99 academic year. Starting from the 1999-2000 academic year, the existing 2 400 sub-degree teacher training places at the Institute will be upgraded progressively to degree or above level in the HKIEd and other tertiary institutions. The degree programmes offered by the HKIEd are currently subject to external validation by the Hong Kong Council for Academic Accreditation (HKCAA).

The Institute has also taken the following steps in preparing for eventual self-accreditation:

- reform its academic structure;

- review its existing in-service teacher education courses to tie in with the new degree level programmes and to meet the current needs of schools and teachers;

- validate all new courses internally before external validation by the HKCAA; and

- organize staff development activities to prepare them for teaching at degree level.

Review on the Age of Criminal Responsibility

20. MR ERIC LI (in Chinese): In accordance with the Juvenile Offenders Ordinance (Cap. 226), children under the age of seven years will not be prosecuted for criminal offences. In this connection, will the Government inform this Council:

(a) of the number of criminal cases in which the alleged offenders were not prosecuted because they were below the age of seven years in the past five years; and

(b) whether it will consider reviewing the age of criminal responsibility stipulated in the Ordinance?

SECRETARY FOR SECURITY (in Chinese): Madam President,

(a) The police do not keep statistics on the number of criminal cases where prosecutions were not initiated because the alleged offenders concerned were under the age of seven.

(b) The issue of the minimum age of criminal responsibility has been referred to the Law Reform Commission (LRC) for study. A public consultation exercise will be conducted by the LRC on this issue in early 1999, after which it will submit a report to the Government for consideration.

BILLS

First Reading of Bills

PRESIDENT (in Cantonese): Bills: First Reading.

INDUSTRIAL TRAINING (CLOTHING INDUSTRY) (AMENDMENT) BILL 1998

ADAPTATION OF LAWS (NO. 7) BILL 1998

ADAPTATION OF LAWS (NO. 8) BILL 1998

CLERK (in Cantonese):	Industrial Training (Clothing Industry) (Amendment) Bill 1998
	Adaptation of Laws (No. 7) Bill 1998
	Adaptation of Laws (No. 8) Bill 1998

Bills read the First time and ordered to be set down for Second Reading pursuant to Rule 53(3) of the Rules of Procedure.

Second Reading of Bills

PRESIDENT (in Cantonese): Bills: Second Reading. Secretary for Trade and Industry.

INDUSTRIAL TRAINING (CLOTHING INDUSTRY) (AMENDMENT) BILL 1998

SECRETARY FOR TRADE AND INDUSTRY (in Cantonese): Madam President, I move the Second Reading of the Industrial Training (Clothing Industry) (Amendment) Bill 1998.

In today's fast-changing world of commerce, the ability to keep up with international trends is critical to continued success. With the birth of the electronic age, one of these trends is to replace paper-based procedures with electronic ones to improve efficiency and reduce cost.

The Government seeks to promote and accelerate the widespread use of electronic methods by gradually introducing the submission of a number of key government trade-related documents through electronic means. Import and Export Declarations are among these documents.

Electronic submission of Import and Export Declarations was first introduced in April 1997 and, under current government plans, such declarations may only be lodged electronically in April 2000. To tie in with this, we will withdraw postal lodgement in early 1999 and to run down gradually the counters operated by Customs and Excise Department ending in complete withdrawal by April 2000.

This Bill, together with the Import and Export (Registration) (Amendment) (No. 2) Regulation 1998 which was tabled in this Council on 4 November 1998, seeks to withdraw postal lodgement as one of the methods of lodging Import and Export Declarations.

Thank you, Madam President.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the Industrial Training (Clothing Industry) (Amendment) Bill 1998 be read the Second time.

In accordance with Rule 54(4) of the Rules of Procedure, the debate is now adjourned and the Bill referred to the House Committee.

PRESIDENT (in Cantonese): Secretary for Planning, Environment and Lands.

ADAPTATION OF LAWS (NO. 7) BILL 1998

SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS (in Cantonese): Madam President, I move that the Adaptation of Laws (No. 7) Bill 1998 be read the Second time.

The Bill seeks to effect necessary adaptations to seven Ordinances relating to general land matters to bring them into conformity with the Basic Law and with the status of Hong Kong as a Special Administrative Region (SAR) of the People's Republic of China.

Some of the references contained in these seven Ordinances, such as "the Governor", "the Colony" and "the Crown", are inconsistent with the Basic Law or with the status of Hong Kong as a SAR of the People's Republic of China, and need to be amended as appropriate. Although the Hong Kong Reunification Ordinance and the Interpretation and General Clauses Ordinance already laid down how terminology inconsistent with the Basic Law or with the status of Hong Kong as a SAR of the People's Republic of China are to be construed, it is considered unacceptable to retain such terminology in our laws. Accordingly, we now need to introduce the Bill to effect the necessary textual amendments.

Most of the proposed amendments are merely terminological changes. These adaptations when passed into law shall take effect retrospectively, as from the date of the establishment of the Hong Kong SAR.

The Bill obviates the need to make cross references to the Hong Kong Reunification Ordinance and the Interpretation and General Clauses Ordinance. I hope Members can support the Bill.

Thank you, Madam President.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the Adaptation of Laws (No. 7) Bill 1998 be read the Second time.

In accordance with Rule 54(4) of the Rules of Procedure, the debate is now adjourned and the Bill referred to the House Committee.

PRESIDENT (in Cantonese): Secretary for Planning, Environment and Lands.

ADAPTATION OF LAWS (NO. 8) BILL 1998

SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS (in Cantonese): Madam President, I move that the Adaptation of Laws (No. 8) Bill 1998 be read the Second time.

The Bill seeks to effect necessary adaptations to two Ordinances relating to land matters in the New Territories to bring them into conformity with the Basic Law and with the status of Hong Kong as a Special Administrative Region (SAR) of the People's Republic of China.

Some of the references contained in these two Ordinances, such as "the Governor" and "the Governor in Council", are inconsistent with the Basic Law or with the status of Hong Kong as a SAR of the People's Republic of China, and need to be amended as appropriate. Although the Hong Kong Reunification Ordinance and the Interpretation and General Clauses Ordinance already laid down how terminology inconsistent with the Basic Law or with the status of Hong Kong as a SAR of the People's Republic of China are to be construed, it is considered unacceptable to retain such terminology in our laws. Accordingly, we now need to introduce the Bill to effect the necessary textual amendments.

The proposed amendments are merely terminological changes. These adaptations when passed into law shall take effect retrospectively, as from the date of the establishment of the Hong Kong SAR.

The Bill obviates the need to make cross references to the Hong Kong Reunification Ordinance and the Interpretation and General Clauses Ordinance. I hope Members can support the Bill.

Thank you, Madam President.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the Adaptation of Laws (No. 8) Bill 1998 be read the Second time.

In accordance with Rule 54(4) of the Rules of Procedure, the debate is now adjourned and the Bill referred to the House Committee.

Resumption of Second Reading Debate on Bill

PRESIDENT (in Cantonese): We will resume the Second Reading debate on the Securities (Amendment) Bill 1998.

SECURITIES (AMENDMENT) BILL 1998

Resumption of debate on Second Reading which was moved on 29 July 1998

PRESIDENT (in Cantonese): Under Rule 21(4) of the Rules of Procedure, I have permitted Mr Ronald ARCULLI to address this Council on the Report of the Bills Committee on Securities (Amendment) Bill 1998. Mr Ronald ARCULLI.

MR RONALD ARCULLI: Madam President, with your permission, I would like to make a short report on the deliberations of the Bills Committee on Securities (Amendment) Bill 1998 of which I was elected Chairman.

The Bill aims to provide a legislative framework for the granting of discretionary payments to claimants against the Unified Exchange Compensation Fund (the Fund) before the normal apportionment of the compensation limit of $8 million under the existing law. The benefit of such an arrangement is to enable speedy payment to claimants without having to wait for the completion of verification and apportionment of all claims. Members of the Bills Committee are aware that the introduction of discretionary payment will facilitate the implementation of a per claimant compensation limit of $150,000 for clients of the C.A. Pacific Group, but note the absence of an express provision in the Bill spelling out any compensation limit. As the Bill empowers the Stock Exchange of Hong Kong to authorize discretionary payments to claimants, members of the Bills Committee are concerned about how the Stock Exchange would exercise this discretionary power. We have, therefore, critically examined the desirability of specifying a compensation ceiling in the Bill.

In addressing our concern, the Administration has pointed out that the Bill has already set out the conditions under which the Stock Exchange may exercise its power. Amongst the conditions specified, the Compensation Committee of the Stock Exchange should take into account all the ascertained and contingent liabilities of the Fund and must be satisfied that the assets of the Fund permit it to give discretionary payments. The majority of the members of the Bills Committee accept the Administration's view that fixing an amount of compensation will limit the flexibility of the Compensation Committee and may not be conducive to the interests of the claimants at large. Nevertheless, to provide sufficient checks and balances on the power of the Stock Exchange in respect of discretionary payments, the Bills Committee considers it necessary to amend the Bill to enable the Securities and Futures Commission (SFC) to act if the Stock Exchange has decided on an unreasonable amount of compensation to claimants. The Secretary for Financial Services has taken on board the Bills Committee's suggestion and will move an amendment at the Committee stage.

But I must point out at this juncture that some members of the Bills Committee remain of the view that a per claimant compensation limit should be specified in the Bill. Since my colleague, the Honourable Albert HO, has given notice to move an amendment in this respect, I shall leave it to Mr HO to explain to Members the reason for his amendment.

In the course of deliberations, members of the Bills Committee have also examined the existing provision regarding the subrogation right of the SFC. After a payment is made to a claimant under the proposed discretionary payment arrangement and the existing apportionment procedure, the SFC is subrogated to the claimant's rights against the defaulting broker to the extent of the payment made. The existing provision allows the SFC to have a priority over the claimant in insolvency distribution. In other words, any asset of the defaulting broker available for distribution in liquidation proceedings will be allotted to the SFC first. Only after the SFC has fully recovered the compensation paid to a claimant including both discretionary payment and pro rata payment under the apportionment procedure would the claimant be given any money in the liquidation proceedings. Some members of the Bills Committee have pointed out that after the exhaustion of the SFC's subrogation right, the chance of a claimant receiving any money would be slim because normally there are limited assets available for distribution in liquidation proceedings. Mr Albert HO proposes to amend the Bill to the effect that the SFC and the claimants should be accorded equal priority in insolvency distribution. The Bills Committee, however, does not agree with Mr HO's proposed amendment. The majority of our members consider the existing arrangement reasonable as it ensures that claimants will not receive from both the Fund and the liquidation process more than what they are entitled to. Moreover, the monies recovered by the SFC in the liquidation proceedings up to $8 million will be paid to claimants to meet any outstanding claims against the Fund.

Finally, I would like to add that the Bills Committee note the issue of A Consultation Paper on New Investor Compensation Arrangements for Hong Kong in late September which examines the overall compensation mechanism. Having regard to the time that will be needed to complete the consultation process, members of the Bills Committee agree that the broad issue of compensation system should not be considered in the context of the Bill in order that compensation could be made to the C.A. Pacific Securities clients as early as possible.

Madam President, with these remarks, and on behalf of the Bills Committee, may I appeal to Members for their support to the Bill. And before I sit down, Madam President, may I take this opportunity to remind Members that I am also a non-executive director of the SFC.

PRESIDENT (in Cantonese): Does any other Member wish to speak? Mr Albert HO.

MR ALBERT HO (in Cantonese): Thank you, Madam President. Since the outbreak of the financial turmoil in October last year, the financial system of Hong Kong has met a lot of challenges. The Administration used to turn a blind eye to the irregularities in the securities trading system, and had employed a procrastinating tactic until the four securities companies, namely, Foreground Securities Limited, Forluxe Securities Limited, C.A. Pacific (C.A. Pacific) Securities Limited and Ming Fung Securities Limited ran into trouble, thus fully exposing the related problems. Although the Administration is rather late in introducing amendments to the legislation, it is still better late than never. We are glad that the Administration is finally facing up to the reality, and we hope that this is only the first step towards perfecting our securities trading system; and other reforms, such as the regulation of finance companies, the improvement of the financing mechanism under which shares are used as collateral and the introduction of an insurance compensation system should also be implemented as soon as possible. What is more, the related bills on these issues should also be submitted to this Council.

The securities companies' practice of operating "margin" financing services through licensed money lenders has a long history. In the late 1980s and early 1990s when more stringent financial resources requirements and regulatory guidelines on stock traders were in force, securities companies began to take advantage of the less stringent requirements under the Money Lenders Ordinance to set up affiliated finance companies to provide loans to "margin" account holders. These finance companies are virtually subject to no control: they are not regulated by the Securities and Futures Commission (SFC), the Hong Kong Monetary Authority (HKMA), or the Stock Exchange of Hong Kong Limited (SEHK). But they can legally engage in the business of financing securities dealings. Though the Administration once intended to tighten the control on such companies, its proposal was turned down by members of the SEHK and was subsequently aborted. It was not until January 1998 when the C.A. Pacific Finance Limited failed to settle its accounts because of financial difficulties, and thus rendering it impossible to settle its accounts through the Central Clearing and Settlement System (CCASS), that the Administration began to take the problem of non-regulated "margin" financing companies seriously and started to consider introducing legislative amendments so as to put these finance companies under the regulatory regime. I hope that the Administration will soon submit the necessary amendments to this Council so as to prevent incidents similar to the C.A. Pacific case from recurring.

On the other hand, there is insufficient protection for client assets. In April 1991, the Office of the Commissioner of Banking issued a directive to the banks, reminding them that in making out loans to stock brokers who use the shares of their clients as collateral, they should confirm that such acts have been authorized by the clients concerned. However, this directive has never been strictly enforced, and the banks have made out loans to stock brokers without observing this requirement. In the cases of C.A. Pacific and other securities companies, a large number of clients never signed any authorization, and a lot of them deposited their shares with the finance companies without the knowledge that they will be used as collateral; and some of them were misled by their stock brokers. Furthermore, though the Securities Ordinance allows securities dealers to use the shares of their clients as collateral on the power of written authorizations from their clients, it also provides that such authorizations must be renewed once every 12 months. This, however, has not been observed by a large number of securities dealers. Moreover, in mid-1998, the Administration also pointed out in its consultation paper on regulating margin financing activities that some securities dealers had failed to put the balance of their margin clients' deposits into trust accounts in accordance to section 84 of the Securities Ordinance. This shows that there are a lot of ambiguities in the existing regulatory ordinance and that its provisions have not been duly enforced, thus leading to the recent four cases in which clients' assets were embezzled without their authorization.

As regards the issue of compensation, section 109 of the Securities Ordinance specifies that investors who suffer losses because of the default of SEHK members are entitled to claim compensation. The rate of compensation will be fixed on per defaulting stock broker basis, and will be apportioned amongst the claimants. Initially, the ceiling of compensation payable was fixed at $1 million, but this was later revised to $2 million and $8 million in the '80s and 1992 respectively. In recent years, the volume of transactions has greatly increased, and in 1996 and 1997, the annual tradings were in the order of trillions (that is in terms of thousands of billions). The annual trading volume was $1.4 trillion ($1,400 billion) in 1996 and $3.8 trillion in 1997. Therefore, the ceiling of $8 million is obviously out of keeping with the times. If the ceiling of the compensation payable from the Compensation Fund per defaulting stock broker is fixed at $8 million, the investors will not be able to know how much compensation they can actually receive; and since the amount of compensation is alloted by apportionment, investors with a bigger claim will be alloted a greater sum of compensation, and hence the interests of small investors are directly affected. Unfortunately, the Administration had not faced up to this problem until the C.A. Pacific incident, which involved the biggest ever size of claims. If the ceiling of compensation payable is still retained at $8 million, it will certainly lead to a confidence crisis in our financial system. Therefore, at the press conference held on 25 January, the former chairman of the SFC, Mr Anthony NEOH mentioned that "since the claims of most claimants are less than $200,000, most people will be fully compensated if the ceiling of compensation per claim is fixed at $200,000." The Administration also indicated that the SFC and the SEHK had each agreed to inject $150 million, and if necessary, another $150 million, into the Fund, and the Administration may also grant a loan to the Fund if there is a further need. In June, the Administration announced that it would allow a sum of not more than $150,000 per claim.

All this shows that the Administration has been negligent in regulating finance companies in the past, and investors suffered losses as a result. The Administration should learn a further lesson from its mistakes and take steps to plug the loopholes, so as to prevent similar cases from occurring again. In principle, the Democratic Party supports the Administration's proposed amendments to the Securities Ordinance to provide investors with more reasonable compensation arrangements, but we think that there is still room for improvement as regards certain details of those arrangements. This is why the Democratic Party has proposed an amendment to the Bill. I shall elaborate on the amendment at the Committee stage later on.

Lastly, as mentioned by the Chairman of the Bills Committee, Mr Ronald ARCULLI, we hope that the Administration will complete the study and review on the insurance compensation package for the securities trading business as soon as possible. We also hope that it will submit a relevant bill to this Council as soon as possible, in order to perfect our compensation mechanism. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr Jasper TSANG.

MR JASPER TSANG (in Cantonese): Madam President, it is totally out of no choice that the Government has sought to amend the Securities Ordinance. It has been forced to do so. The Government has also explained that the amendment is made entirely because of the C.A. Pacific incident which occurred early this year. In this incident, thousands of small investors who had made investments through C.A. Pacific lost their assets overnight. For some of these people, these assets represented their life savings.

This incident has caused tremendous repercussions in the community. In particular, it has caused a panic among investors in the securities market. In view of this, the Government fears that if proper compensation arrangements are not made, it might give rise to a domino effect among securities companies. For this reason, shortly after the incident, the Government made an early commitment to the public and the clients who had suffered losses to change the method of compensation and raise the ceiling for compensation. At that time, some members of the public criticized the Government for being soft-hearted. This is far from being the truth. The Government did not undertake to change the method of compensation out of sympathy for C.A. Pacific clients who had suffered losses. Rather, it did so out of the fear that the incident would precipitate a social crisis and deal a blow to the financial markets. That was why the SFC Chairman came out and said a lot of reassuring words, which the Honourable Albert HO quoted just now.

At the time, the C.A. Pacific clients were given the impression that the Government was prepared to increase the amount of compensation and raise the compensation ceiling. It was even said that those who had lost $200,000 or under would be fully compensated. Moreover, the SFC Chairman told these C.A. Pacific clients that registration for claims would begin as soon as possible and was expected to end by the end of May, so that the first batch of compensation payments could be made before July. Representatives of C.A. Pacific clients were present on that occasion.

However, several months later, the Government suddenly awoke to the fact that no one had the authority to do that. Neither the SFC, nor the Government, nor the SEHK had the authority to alter the method of compensation and raise the compensation ceiling because of the Securities Ordinance. Thus, it hastened to draft an amendment to this Ordinance. However, today, the circumstances have changed, since the threat of the C.A. Pacific incident causing a panic in the financial markets no longer exists. Instead, a new situation has arisen. Following C.A. Pacific, securities companies such as Ming Fung and Foreground also went into trouble. After calculation, it was found that $200,000 per claim was too much. Thus, it was proposed that it should be lowered to $150,000. However, is $150,000 suffice? We have asked officials of the Financial Services Bureau several times how the Government made the estimation. For instance, with the ceiling of $200,000 per claim, how much compensation payment must be made in its estimation and whether one can afford it? If the ceiling is $150,000, can one afford it? We have not got a definite answer. In fact, not even the Government can calculate this.

Actually, before this Council deliberated on this amendment Bill, not even the C.A. Pacific clients, not to mention the public, knew what the compensation package was all about. During the course of our deliberations, Honourable colleagues did not understand how the whole compensation package was worked out, since the subrogation right is a very mysterious business. Under this method, the limit has been increased to $8 million. Before the apportionment of the $8 million, individual clients may receive a compensation payment based on the ceiling of $150,000 or $200,000 ─ as the Government says now, the amount should be $150,000. After the liquidation of the securities company, the monies recovered will be allotted to the Compensation Fund first due to the so-called subrogation right of the SFC. The C.A. Pacific clients realized at once that this is advance payment. How can it be called compensation? Supposing that I have lost $1 million. After receiving a compensation payment of $150,000, my losses would still amount to $850,000. After receiving the $150,000, if I was so lucky as to be apportioned $150,000 in the liquidation proceedings, I would have to pay that back to the Fund in full. I would not get even a cent of compensation. My actual losses would still be $850,000. How can that be called compensation?

According to the Government's explanation, monies recovered through the subrogation right will be redistributed to clients who still suffer losses. However, when they are redistributed, the limit of $8 million will again apply. With such a mysterious arrangement, I do not know whether Honourable colleagues can work out how much compensation the C.A. Pacific clients would receive in the end. The Government for one cannot say.

The reason why we put so much effort into studying this amendment was because we were trying to improve the method of compensation. We do not know how much compensation the C.A. Pacific clients would receive in the end based on the Government's amendment. With regard to the $150,000 that would be paid to them, is it just for temporary safekeeping, like the chicken used as offering which is put there just for a while and then taken away? Do they have to pay it back to the Compensation Fund? No one has the answer. Besides, as the Government pointed out, the amount of money that would be recovered after liquidation might be quite small. We were quite stunned on hearing this. For a long time after the C.A. Pacific went into trouble, we heard from different sources, including people inside the Government, that C.A. Pacific had quite substantial assets. Some authorities told us that most of the stocks that clients left in C.A. Pacific's care were still intact. If so, why should they be gone by the time of liquidation? Very early, the C.A. Pacific clients already said that if liquidation was carried out, their assets would be taken away by the liquidators and would not be apportioned to them after all. Is this true? If very few assets are left after liquidation for apportionment, there is really something very wrong with this system.

Madam President, we are now all well aware of the limit. Even if more capital is injected, there is a limit to the Compensation Fund no matter how much more capital is injected. However, it seems that the Government still cannot estimate how much compensation must be paid. What if the promised amount of compensation is too high and one cannot pay afterwards? One has to pray that there would be no new incidents before the new compensation package is introduced. Otherwise, who knows where one should get the money to pay the compensation?

But since the Government and the SFC have promised to pay a reasonable amount of compensation to the C.A. Pacific clients from the start, how can we turn back? I fully agree that we should work out a new compensation package soon in order to solve, through an insurance mechanism, the problems of compensation that might arise in future. Before this can be done, we should still handle the matter fairly.

Mr Albert HO will introduce an amendment to the Bill. We understand that there are disadvantages in fixing an amount in this legislation. As the Honourable Ronald ARCULLI has put it, such a payment ceiling will be much less flexible than that decided by the SFC and the Compensation Committee of the Stock Exchange and will limit their options. We understand that given the subrogation right, if the SFC and all claimants should be given the same priority in apportionment during the liquidation proceedings, the subrogation right would become quite meaningless. However, if we do not make this provision, how can we convince the victims of those securities companies concerned that this Ordinance is enacted for the protection of their interests? Therefore, we will support Mr Albert HO's amendment.

Madam President, this amendment came into being because of the C.A. Pacific incident. I would like to say a few words for clients of C.A. Pacific. Since the outbreak of the incident, there were many comments in the community accusing C.A. Pacific clients of adopting a "lose-hit, win-take" attitude, and that they were trying to make the Government repay them after losing in stock and margin speculations. Recently, commentators were still using this as an example to illustrate that Hong Kong people's mentality had changed. This is really extremely unfair. Maybe some clients of C.A. Pacific really lost in their margin speculation. However, these people did not come out and loudly demand compensation from the Government. As we have seen, the people who were most agitated and depressed and who run around for help were those who had really made investment following the rules. They did not suffer losses because of market fluctuations, but wholly on account of the default of the securities company. They are fully entitled to the protection of the relevant compensation provisions of the Securities Ordinance.

Some people may say that one has to bear risks in choosing securities companies. One should not choose an unreliable company for the sake of convenience, saving time or making fast money. Let me ask this question quite frankly. Before C.A. Pacific got into trouble and had its accounts frozen, had anyone (including government departments) provided information to small investors saying that this particular company was unreliable and in trouble, that there were loopholes in supervision and that major problems could arise? Some investors knew very well that they had not speculated on margin trading and that their assets were just stocks. Those clients who had bought stocks in cash thought that it was safe to keep the stocks at C.A. Pacific. They did not know that they would be all gone. Some investors had sold all their stocks before C.A. Pacific got into trouble and C.A. Pacific had given them cheques already. However, they failed to cash their cheques at the bank. Their money were all gone. How can we blame these investors?

As an old saying goes, "It is the fisherman who has done injury to the fish. What injury has the fish done to the fisherman?". Who had got these investors hooked? Some people say that those people were not smart enough and therefore should bear the responsibility themselves. I think this is utterly unfair. Shortly after the C.A. Pacific incident, some authorities pointed out that the stocks of those clients who had paid in cash could be recovered and distributed to them in three months. Now, nobody knows whether those stocks could be recovered for distribution.

Thank you, Madam President.

PRESIDENT (in Cantonese): Mr FUNG Chi-kin.

MR FUNG CHI-KIN (in Cantonese): Madam President, it is extremely regrettable that I did not have the chance to take part in the discussion held by the Bills Committee earlier. But still I would like to take this opportunity to express the sentiments of practitioners in our trade.

We deeply sympathize with the fact that many investors incurred losses as a result of the C.A. Pacific incident. The incident has not only brought shame to the sector, but also undermined the image of our profession and of Hong Kong as a financial centre. All of us feel so ashamed. This is why I have urged people of our trade on numerous occasions to exercise self-discipline, operate business in accordance with the law, strengthen their internal risk management, and bear in mind not to bring disgrace to their own group. The C.A. Pacific incident has also exposed numerous regulatory loopholes. As Mr Albert HO has said the SFC was all along aware of the existence of "margin" finance companies, which have in fact been in existence for many years. But I do not agree to Mr Albert HO's point that some of our members refuse to be supervised. How can we say that we do not want to be supervised? Therefore, it is all due to the fact that the regulators have failed to take timely measures in a decisive manner. In particular, no measures for strengthening supervision were taken in 1997 when the market was so robust and transactions so heated. At the same time, we saw that some broker's firms unceasingly set up branch offices and shops on the street though one might say that they were being aggressive. It seems that the capital requirements and regulatory conditions imposed on these expanding companies by the regulatory authorities were too loose. As such, I share the point that we should not criticize investors for "believing in others indiscriminately" and asking them to bear the responsibilities on their own. An important point to note is that regulators have not thought of how to strengthen and perfect supervision after the market has undergone such a massive development.

The C.A. Pacific incident has given rise to not only social instability, but also systematic instability in the financial markets. But one of the reasons is that the responsible officer of the SFC at that time causally remarked to the effect that: 18 broker's firms have developed problems but it is not known exactly which firms are having problems. As a result of this, the whole sector was thrown into a state of total chaos. With shareholders running for their stocks, the Hong Kong Securities Clearing Company found it impossible to cope with the demand even it had worked overtime around the clock every day. Consequently, the situation as cited by Members today came into being: the Government was forced to alter the rules of the game in a drastic manner by instantly changing the compensation mechanism we have adopted for years, that is, from an upper ceiling of $8 million to ─ as what people in our trade said ─ an unknown amount of compensation. Members may have overlooked one point and, that is, according to one of the provisions concerning the control of the Compensation Fund, if there is insufficient funds, the SFC is empowered to ask the trade and the SEHK to make up for the shortfall. As such, I hope Members understand that people in our trade are extremely worried. How can the trade pool enough money if we are asked to pay hundreds of millions and even up to a billion dollars in compensation? Of course, if the Government is willing to shoulder the responsibility at the same time when it changes the rules of the game drastically, it can definitely afford to pay for the compensation. It was in fact the Government which took the initiative to solve the problems arisen in connection with the 1987 stock crisis ─ all it needed to do was to rush a Bill through its three Readings and there was absolutely no need to delay the matter until today. Therefore, we should hold the SFC responsible for the default, and we should definitely not hold stock brokers responsible instead. Otherwise, it will become "you invite the guests but I foot the bill".

As I understand it, the situation was quite tense after the C.A. Pacific incident broke out. As a result, the concerned parties gathered together to discuss how to organize a consortium to solve the problems related to broker liquidity. But at the time of the meeting, it turned out to be discussing how to raise the amount of compensation. Many council members of the SEHK were at a loss as to what to do ─ this is a kind of "high-handed" tactic. Of course, at the time of investment, the mentality harboured by investors is not like buying a large batch of cake coupons, whereas stock brokers were not selling cakes either. Therefore, regulators should indeed laugh at themselves for the default.

The commission charged by the stock broking profession has not been adjusted for many years. Of course, 1997 was, relatively speaking, a prosperous year. Our business can be said to be "having been doing no business for years, a prosper year shall reap us earnings for the coming three years". In fact, we have been arranging investments for investors by charging a very low commission. The Government should simply not ask the people in our trade to pool funds constantly to pay for compensation just because of a handful of black sheep in the trade. Furthermore, we have now come to a situation that we are asked to pool funds into a bottomless hole! Nevertheless, stock brokers working in our profession are still very understanding, and they know very well that they have to take the whole situation into account. We perfectly understood that there was no alternative for us under the circumstances at that time. Therefore, it was necessary for us to "spend within our means". We have already sacrificed some opportunities for market development. Our money was drawn from our reserves. Our foremost objective was to solve the issues pertaining to compensation. But we do not want to drastically alter the rules of the game as a result of this. We are extremely worried that any defaults that may arise in future will be compensated in this manner.

During the 1987 stock crisis, the Government and three major banks lent a helping hand to the former futures exchange and saved the market. I also remember that there was tens of millions of dollars left under the special transaction fees charged at that time. Who is now being responsible for managing the fees? I have been unable to get an answer despite repeated enquires. No one was able to give me an answer. As far as the interest accrued from this sum of money is concerned, I believe it may be close to hundreds of millions of dollars. Why can the Government not use this sum of money to resolve the C.A. Pacific incident? Anyway, it is going to serve the same purpose of saving the market!

Stock brokers working in our profession have also accepted the reality. We have reached a consensus, hoping that the C.A. Pacific incident and cases related to several other securities companies can be resolved with a relatively uniform package. We also hope that those investors who have suffered losses can at least get some comfort and subsidies. What is more, we hope that the Government can complete the work necessary to cope with the aftermath of the incident as soon as possible. For instance, it should pay special attention if it finds that an individual stock broker firm expands excessively, operates in an inappropriate manner or displays weak management. All these will become internal factors that will contribute to eventual problems. Of course, we also need to take into account external factors such as whether or not the financial system is in extreme turmoil or, as many Members pointed out, the regulatory authorities have failed to do their work properly.

All stock brokers ─ after all, we are stock brokers ─ are faced with the problem related to receptability. Many stock brokers find it hard to bear with the extremely volatile financial markets. Therefore, we cannot say that only a few stock broker firms have developed problems. In fact, many stock brokers have incurred losses, many of them because their clients have refused to pay for their debts or refused to pay the bills. What redress do we have! Thus many stock brokers were forced to swallow the bitter pills in silence.

Banks are able to bear with the challenges of the financial turmoil. They can even write off bad debts to the tune of billions of dollars. The stock broker profession is in fact faced with the problems of inadequate receptability and poor supervision. Therefore, we suggest the Government and the profession to strengthen supervision, enhance transparency and try every means possible to restore the confidence of stocks investors. For instance, the Government may allow the Hong Kong Securities Clearing Company to open personal account for investors directly. The most important thing is to work out how to restore and enhance the image of the profession and the market as soon as possible.

During this transitional period when the market mechanism is still unresolved, I have some reservations about the compensation system. This is because after several decades of development, some systems in the market may have become obsolete. Nevertheless, I am not prepared to discuss this problem here today. During the transitional period, the Government should make good use of resources, identify more major issues clearly, as well as preventing similar major incidents which have a big implication from occurring again.

I object to adding a specific compensation amount into the amendment.

Thank you, Madam President.

PRESIDENT (in Cantonese): Dr YEUNG Sum.

DR YEUNG SUM (in Cantonese): Madam President, I am very glad that the Government has officially tabled the Securities (Amendment) Bill 1998 for scrutiny by this Council today. Actually, as Vice-Chairman of the Democratic Party, I have never kept tap on financial affairs. Still, I would like to say a few words on this matter. When our members were helping C.A. Pacific clients to fight for their rights, we had discussed one thing very carefully and that is, if a political party intervenes into this matter, is it using political action to influence commercial operation and even commercial decisions? I remember that after thorough discussions, we decided to go through with it. Thus, Members can see that several of our members have followed up this matter very diligently and intensively. Thanks to efforts and assistance from all sides, I am very glad that the Government has finally paid attention to this problem. Just now I listened to the Honourable FUNG Chi-kin's speech very attentively. He pointed out that there was inadequate government supervision. Actually, many C.A. Pacific clients believed what the Government said: "As Hong Kong has a sound financial system, people may have confidence in making investment. Hong Kong is one of the world-renowned financial centres. How can anything go wrong? There is no need to worry." Obviously, as Mr FUNG Chi-kin has pointed out, there is basically inadequate government supervision. At first, the Government did not admit this. In the end, it had to admit its mistake and introduce an amendment. As the Honourable Albert HO said, "better late than never".

Mr FUNG also pointed out that there were indeed black sheep in the industry tarnishing Hong Kong's reputation as a financial centre. He hoped that we would take this matter seriously. I think this point is quite important. This time, members of the Democratic Party have assisted in this matter and made the Government admit its mistake and amend the system. Naturally, Mr FUNG is quite concerned about the system of compensation in the future. I am sure that the industry will continue to pay attention to this issue. In any case, this amendment will obviously serve to plug the loopholes. The Government has at least reacted to the development of the situation by reviewing the matter and introducing an amendment, and it should deserve credit for this. Although it has not reacted very quickly, it is better than nothing. Thank you, Madam President.

PRESIDENT (in Cantonese): Miss Cyd HO.

MISS CYD HO (in Cantonese): Madam President, with regard to this Bill, there are some views that the Government should not use public money to compensate investors, so as not to indirectly encourage them to be careless about their own investment. However, we approve and support the Bill because the whole incident is caused by maladministration.

I remember that the Financial Secretary once admitted on a public occasion that the Government had received a report from the Securities and Futures Commission (SFC) about licensed stock brokers forming finance companies to engage in stock transactions, which did not come under the SFC's supervision, since the law has not conferred upon the SFC such regulatory powers. After receiving this report, the Government consulted the industry. However, it was said that there were strong reactions from the industry, and as a result, the Government did not take any effective measures to endow the SFC with the proper power.

What I would first like to ask is this: SEHK is the object of supervision, what would happen if the Government only consults the industry on how to tighten the law, which will naturally affect the conveniences that it enjoys in operation and transaction? Actually, we can well imagine that anyone would wish the law to give him as much convenience as possible. However, is the law there to protect the public or safeguard the operation of the industry? We agree that the Government should consult the industry in order to understand its operation. However, we do not think that the Government should let the views of the industry prevail. Indeed, the Government should have considered carefully the risks investors may face as a result of the activities of these finance companies and immediately amended the law to plug the loopholes and protect public interest.

Second, the SFC is indeed responsible and is certainly to blame. Although the SFC is not empowered by law to supervise the stock transactions of these finance companies, it does have the responsibility of supervising the market. For example, if there is a hole in the ground, even if the SFC does not have the means to fill up the hole, it should at least warn the public that there is a hole and they should not step into it. At least it could have told the public clearly that if they engage in stock transactions through finance companies, they might not be protected by the law and might bear some risks. However, the SFC has not done this and therefore it should share the responsibility.

Due to the failure of the executive authorities to carry out supervision and management effectively and efficiently, people have fallen into a commercial trap and incurred losses. Therefore, we agree that the Government should deal with the aftermath. We support this Bill introduced by the Government to compensate stock investors. We also wish to make the point that we should draw a lesson from past events and look forward to the future. I remember at the last meeting of the Panel on Financial Affairs, we said to representatives of the SFC that a big investor had joined the stock market, and the name of the investor was "the Government". This investor bought stocks in large numbers without asking about the price. With the presence of this investor, how much greater is the risk borne by other investors? On that occasion, the SFC representatives undertook to explain this clearly to the public in the future. Here, I have to remind the SFC of this once again.

Although we believe that the Government should be responsible for dealing with the aftermath, that is, losses incurred by the public as a result of its maladministration, we do not agree that the amount of compensation should be prescribed in the law. There are four reasons for this:

1. Legislation should not be tailor-made. We should not enact a piece of legislation for a single incident. We hope that the legislation of Hong Kong can provide clear principles to deal with different circumstances fairly.

2. During our scrutiny of the Bill, we failed in fact to find sufficient objective grounds for prescribing a specific amount in the Bill. $150,000 or $200,000, we failed to find any objective criterion.

3. The existing legislation gives the Council of the SEHK discretionary powers to decide the amount of the first compensation payment. No matter what amount is prescribed in the legislation, it will affect future compensation cases and other investors who have incurred losses may not be able to obtain a higher amount of compensation. This may be unfair to future claimants.

4. If a compensation amount is prescribed, it might create a so-called moral hazard. If the amount is set at $200,000, we would be indirectly encouraging members of the public to open investment accounts with not more than $200,000. Thus, they might open five or 10 such accounts. After diversifying their investments, investors would not have to choose reliable brokers very carefully. Instead, they could shift the responsibilities onto others.

In our view, the first priority now is to wind up the liquidation procedures as soon as possible. Since the liquidation costs are very high, at a daily rate of $600,000, the longer they drag on, the less money affected claimants will be able to recover after liquidation. We hope that the liquidation procedures could be wound up speedily so that investors who have incurred losses could obtain the highest amount of compensation as soon as possible.

Moreover, we urge the Government to set a higher first compensation payment amount as far as possible when exercising its discretionary power to determine the compensation amount so that members of the public who have incurred losses will be compensated soon.

Madam President, the Frontier supports the original Bill but opposes the amendments. Thank you.

PRESIDENT (in Cantonese): Mr SIN Chung-kai.

MR SIN CHUNG-KAI (in Cantonese): Madam President, first of all, I would like to thank the Honourable Jasper TSANG of the Democratic Alliance for the Betterment of Hong Kong (DAB) for supporting the Honourable Albert HO's amendment. But I would like to respond to the point made by the Honourable Miss Cdy HO of the Frontier. She questioned the justification for setting the compensation limit at $200,000, a particular point which I would like to address. I share Mr Jasper TSANG's view that it is inappropriate to specify the compensation amount, be it $150,000 or $200,000, in the legislation. Since we know it is not appropriate, why do we still have to write it into the law? It is because we are short of an objective criterion if it is not specified in the law.

The SEHK now makes an open undertaking that the compensation limit will be $150,000. This is a promise. But why should it be $150,000? I understand that the SEHK will keep its words by compensating each claimant $150,000 once the Bill is passed. This is an objective fact. All stock investors came to know of such an objective fact when the Government, or the SFC made such an open undertaking on 25 January, which was broadcast live by Cable TV. Just now, Miss Cdy HO talked about "moral hazard". I have to query whether the Government has the obligation to honour its own promise. Of course, she is aware that Mr Anthony NEOH, the former chairman of the SFC, had said that there was still room. But the question remains: What would stock investors react on hearing Mr NEOH's statement? This is the first point.

The second point I would like to clarify is whether we are using public money to compensate the stock investors. The answer is in the negative. It is not your money or mine, nor the taxpayers'. There is absolutely no such case as using public funds. The Government can clarify whether, under the entire compensation mechanism, it is going to compensate the stock investors with public money or the mechanism itself has already in place provisions for compensation. Both the SFC and the SEHK have injected funds into the Compensation Fund. During the stock market debacle in 1987, the Government had also made compensation to the SEHK or the Hong Kong Futures Exchange out of transaction levies. By the same token, compensation can be made from the transaction levies when the Compensation Fund is insufficient to meet the claims. It has nothing to do with the issue of spending public money. The current problem is that there are loopholes in the market. As loopholes have long been in existence, how are we going to give remedy to the victimized stock investors? How are we going to restore their confidence in stock transactions, as mentioned by Mr FUNG Chi-kin? To put it simply, the most fundamental job for the Government is to honour its promise made openly on 25 January.

Moreover, in my opinion, we should understand the mentality of the stock investors, in particular, the clients of C.A. Pacific, Ming Fung, Forluxe and so on. Most investors did have a long history in investment. They all understand that there are risks in investment and they should be prepared to shoulder them. No matter how low the share prices are, they know that once they have bought the shares, they have to bear the risk that the share prices may fall. But it has never occurred to them that they have to bear some unpredictable risks arising from default brokers who have fled without a trace or pledged their shares with other organizations and so on. None of these are investment risks.

The Government now proposes some new compensation arrangements, and in this connection published a report. Instead of remedying the victims' current losses, these arrangements can only tackle future problems. The aim of Mr Albert HO's amendment in raising the compensation limit from $150,000 to $200,000 is to remedy the Government's negligence and fulfil its open undertaking made out of its failure to exercise sufficient supervision. From an objective point of view, a compensation of $200,000 is more realistic than $150,000 because it can practically compensate stock investors to a greater extent. But I would like to stress a point which was also raised by the Administration at the Bills Committee meeting. If the compensation limit is set at $150,000, about 70% of affected stock investors will be compensated. If the compensation limit is increased by $50,000, the percentage of stock investors who can get compensation will be increased to 80% or nearly 80%. Will the amount borne by the Government be largely increased if the compensation is increased by $50,000? In the Government's explanation, this is not its main concern. Now the crux of the question is whether the undertaking will be honoured, rather than how well or satisfactorily a bill is drafted. If the SEHK openly said that the compensation limit was 200,000 as promised by Mr Anthony NEOH, I think Mr Albert HO would not have moved his amendment. But now the problem is: The SEHK has reiterated that the clients of the four finance companies would receive the same treatment, namely, they will be compensated $150,000. I would like to ask this Council how it is going to handle the whole issue. As we all know, if we negative Mr Albert HO's amendment today, the Government will once again be disgraced because it is not going to honour the promise made by a regulatory authority under its supervision.

Thank you, Madam President. I hope the Frontier will reconsider their decision.

PRESIDENT (in Cantonese): Mr LEUNG Yiu-chung.

MR LEUNG YIU CHUNG (in Cantonese): Madam President, I will support Mr Albert HO's amendment, basically because ...... . I think we should not regard this as a simple question of either $150,000 or $200,000. Rather, most importantly, I hope that the Government can accord a fair and reasonable treatment to all those investors who have suffered losses as a result of the SFC's neglience and the brokers' malpractices, and I also hope that all investors can be treated equally without any variance. The Government has in principle agreed to give a compensation of $150,000 to each C.A. Pacific client, but to me, this should not be regarded as a minimum figure at all because the minimum should always be calculated at 70% of their losses. Following this line of reasoning, therefore, for the clients of other securities companies in the future, their compensation may not necessarily be $150,000. The amount of compensation may well be $120,000, $100,000 and so on, depending on the actual amount of the 70% ceiling in each case. I have discussed with the Government on many occasions, and the Government agrees that this principle may well become a very significant one in the future. That being the case, why should people be treated differently, if all of them have suffered unfortunate losses of the same kind? Why $150,000 for some, but not $150,000 for others? Therefore, I very much hope to set down a uniform treatment for all those stock investors who have suffered losses through no fault of their own.

Second, some Honourable colleagues say that it is not too good to set down an "inflexible" limit of $200,000, commenting that this is not very appropriate from the legislative point of view. I also agree to this point. However, as also rightly pointed by these Honourable colleagues, there is in fact no alternative because the Government has failed to tell us clearly how the investors concerned will be compensated. That is why Mr Albert HO has proposed his amendment. I have discussed the matter with Mr HO, and both of us do not actually want to set down such a limit. However, we feel that we have no alternative, because if we do not do so, we will not be able to achieve the effect I have described. Therefore, I must say that we have practically been forced to set down the limit of $200,000. I hope Honourable Members can appreciate our situation. If we are really willing to pay compensation, why then should we endorse an amount which cannot meet the requirements of fairness and equality? This I cannot accept.

I also agree with the Honourable SIN Chung-kai that the Government does not really have to pay the money required, because the money will come from a whole series of financing activities. I therefore hope that Honourable Members will stop arguing endlessly about this issue. Rather, they should understand that the plight now suffered by these investors is not the result of their own erroneous investment decisions. So, I really hope that Honourable Members can consider the following. What criteria should be adopted if these investors are to be compensated? What should be the bottomline of compensation? The amounts of investments of these people are different. Why do we not set down a uniform compensation limit? We should look at this matter from these angles. I support the amendment proposed by Mr Albert HO. Thank you, Madam President.

PRESIDENT (in Cantonese): Does any other Member wish to speak?

(No Member indicated a wish to speak)

PRESIDENT (in Cantonese): Secretary for Financial Services.

SECRETARY FOR FINANCIAL SERVICES (in Cantonese): Madam President, the Securities (Amendment) Bill 1998 was read for the First time in the Legislative Council on 29 July this year. As I said in moving the First Reading, the purpose of the Bill is to provide a clear legal basis for the implementation of the compensation arrangements for C.A. Pacific clients released by the Government on 25 January and 10 June this year.

Before replying to questions on the Bill, I would like to state the stance of the Government in respect of the Rules of Procedure of the Legislative Council. The Government has reservation as to how, according to the Rules of Procedure of the Legislative Council, certain provisions of the Basic Law applicable on the operation of the Legislative Council should be handled. Without affecting the stance of the Government on this matter, we have decided to resume the Second Reading debate of this Bill to avoid delaying the procedures of giving out compensation.

The C.A. Pacific Group collapsed early this year and its subordinate securities companies and companies engaged in share margin financing were ordered into liquidation by the SFC. More than 10 000 clients were affected and many of them claim that they are induced to open security money (commonly known as "margin") accounts with C.A. Pacific before they were fully briefed of the consequences. Having considered the market conditions at that time including factors such as generally weakened investor confidence, possible systemic market risks and the size of the possible claims against the broker company, the Administration, SFC and SEHK made a joint announcement on 25 January that a flexible approach would be adopted in relation to the applications for compensation filed by C.A. Pacific clients. Having examined more than 5 000 applications for compensation, the SFC and SEHK made another joint announcement on 10 June this year regarding the particulars of the compensation arrangements, and such details were set out in Annex B of the Legislative Council Brief submitted earlier. The principle of the proposed arrangements is to enable all eligible claimants to obtain more compensation than they would otherwise be entitled under the existing mechanism with the limited resources of the Unified Exchange Compensation Fund (the Fund). The smaller claimants, who constituted the majority, will get relatively more additional compensation, if not full compensation. Another purpose of the arrangements is to give C.A. Pacific clients compensation expeditiously.

In order to implement the compensation arrangements, we need to make amendments to the existing provisions of the Fund in accordance with the Securities Ordinance. These includes the following:

(1) To enable the SFC to inject money out of its reserves into the Fund;

(2) to introduce a per claimant ceiling of compensation on top of the statutory compensation limit of $8 million calculated on a per defaulting broker basis; and

(3) to make compensation payments immediately after verifying and approving the relevant claims instead of waiting until the completion of all work in respect of the verification of claims and apportionment of compensation.

Upon the adjournment of the Second Reading debate, the Securities (Amendment) Bill 1998 was referred to the Bills Committee. The Committee has held three meetings and Members have expressed their views on all aspects of the Bill and invited clients affected by the closing down of C.A. Pacific and other securities companies to attend the meetings to express their views in person. Mr Ronald ARCULLI, Chairman of the Bills Committee has just briefed the Legislative Council on the report and conclusion of the Committee. I would now reiterate the Government's stance in respect of some of the more controversial issues that have been discussed by the Bills Committee.

As I have said earlier on, this amendment exercise seeks to provide a clear legal basis for the compensation arrangements and to implement them as soon as possible. Although the legislative amendments can be applicable to future compensation cases, our consideration is undeniably focused on the C.A. Pacific case. Conspicuously, this amendment exercise makes no attempt to effect a complete review of and alter the existing compensation mechanism. For this reason, we do not think that material changes should be made to the important mechanism under the present regime, and our stance has been recognized by the Bills Committee.

Compensation limit

Members of the Bills Committee have divergent views on the compensation limit of $150,000 to C.A. Pacific clients. In their views, as the former Chairman of the SFC has mentioned a compensation limit of $200,000 in public, the Government should increase the compensation limit to $200,000, otherwise, it is going back on its promise. Mr Anthony NEOH, former Chairman of the SFC, explained this clearly at a meeting of the Panel on Financial Affairs on 23 July. As this question was again raised for discussion at the Bills Committee, Madam President, I find it necessary to elucidate it once again here. Mr NEOH was asked about the details of the compensation arrangements at a press conference on 25 January and he used the example of a $200,000 compensation limit to illustrate that the new compensation mechanism could allow many smaller claimants to obtain more compensation than they would otherwise obtain under the old mechanism. However, Mr NEOH repeatedly stressed that $200,000 was just an example and it did not mean that the Government had finalized the compensation limit. We have attached the verbatim record of Mr NEOH's speech delivered at the press conference to the letter dated 26 October to the Clerk of the Bills Committee to give Members an understanding of what actually happened.

We should adopt an objective and comprehensive approach in determining the compensation limit and we should consider the cases on individual merits such as the number of claimants and the total amounts claimed, the market conditions and the reserve level of the Fund. In respect of the C.A. Pacific case, the SEHK has decided on a $150,000 compensation limit for this will enable most claimants to get full compensation and allow the reserve of the Fund to be kept at a reasonable and sound level. We find this ceiling reasonable and any suggestion to revise this amount may affect on the financial stability of the Fund, thus affecting the compensation that other claimants may get.

Subrogation rights of the Fund

Members are also concerned about the subrogation rights of the Fund. Subrogation rights mean that after compensation has been made from the Fund to the claimants, the SFC is entitled to recover the payments made from the Fund through subrogation of the claimants' rights in the liquidation proceedings which do not exceed the compensation amounts. In other words, in the course of liquidation, the SFC will recover through subrogation the payments made from the Fund. For resource considerations, the Bills Committee finds this acceptable but some Members think that this arrangement reflects that the Fund is advancing the payments only. Considering its resources and moral risks, the Fund has not pledged to give affected clients full compensation. As I have said, under the proposed compensation arrangements, all eligible claimants can get more compensation and the smaller claimants will get relatively more additional compensation. Actually, when the assets of the brokers concerned fall short of their debts, the Fund will give play to its compensation function. In other words, eligible clients can get more additional compensation from the Fund than they will otherwise get through liquidation or other channels. Furthermore, the SFC will make compensation to the claimants first before it is completely sure that it can recover the compensation in full; this way, it will be bearing risks for eligible claimants.

I hope that Members, having understood how the said subrogation rights operate, will understand why the SFC should be given priority in the liquidation proceedings. By virtue of this amendment to the Ordinance, in addition to reallocating the $8 million first recovered as provided by legislation, the SFC will return all the other recoveries through subrogation to the Fund reserve to satisfy other claims for compensation. As the financial burden of the Fund under the new mechanism has already exceeded its designed affordability, if the SFC cannot possibly recover the paid discretionary compensation from the liquidation proceedings, the financial position of the Fund will essentially be affected to a certain extent. If the reserve level of the Fund keeps dropping, it will not only affect the compensation amounts of future claims, more importantly, it will strike a blow at investor confidence in the Fund and even the whole securities market. In addition, the subrogation right system is an important mechanism under the existing compensation arrangements and the SFC has introduced to the public and the industry a new set of suggestions on insurance and compensation mechanism on 30 September. As consultation is in progress, at this stage, especially under the circumstances that some special cases call for amendments to be made to the old system, we do not agree to any material changes.

The above stance also explains why the Government opposes the amendment proposed by Mr Albert HO concerning the compensation limit and subrogation rights. I will further supplement this at the Committee stage.

Conclusion

Madam President, the closure of C.A. Pacific and its subordinate finance companies reveals that ambiguities are found in respect of supervision of the financial markets and that the existing compensation mechanism is inflexible in the face of massive applications for compensation. In this regard, the Administration, the SFC and the SEHK have speedily studied how they can step up monitoring share financing activities and have published a relevant consultation paper to canvass the views of the public and the industry. The Financial Affairs Bureau is drafting the relevant legislation and we estimate that a Bill will be submitted to the Legislative Council early next year.

As for a review of the compensation mechanism, I have also mentioned earlier that after we have collected public opinions and passed the amendments to the relevant Ordinance, we expect the new compensation insurance system will be implemented within a year or two and we hope that it will be a long-term solution to the inadequacy of the existing mechanism.

Finally, I would like to reiterate that the Government has introduced the Securities (Amendment) Bill 1998 with the practical purpose of introducing a more flexible compensation package under the existing mechanism during this transitional period to cope with massive claims and give most claimants more compensation. We understand that this Bill cannot meet the requirement of every Member or claimant but as I have explained, all eligible claimants will get more compensation under the new compensation system than under the old one. Most smaller claimants will get more compensation than they will otherwise be entitled under the old mechanism. More importantly, the new mechanism will facilitate the pay-out of compensations within a shorter time. Take C.A. Pacific as an example, if the Bill is passed by the Legislative Council, we estimate that the first batch of payments can be made early next month.

From the outbreak of the C.A. Pacific to date, we understand very well that the affected clients would like to get compensation as soon as possible. Moreover, the SEHK Council has agreed at a meeting this month that besides C.A. Pacific clients, the compensation arrangements for the other three compensation cases including compensation for the clients of Foreluxe, Foreground and Chark Fung will follow the C.A. Pacific example. Therefore, the passage or otherwise of this Bill will have a direct bearing on the clients concerned.

Madam President, I so submit and hope that Members will support the motion.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the Securities (Amendment) Bill 1998 be read the Second time. Will those in favour please raise their hands?

(Members raised their hands)

PRESIDENT (in Cantonese): Those against please raise their hands.

(No hands raised)

PRESIDENT (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the motion passed.

CLERK (in Cantonese): Securities (Amendment) Bill 1998.

Council went into Committee.

Committee Stage

CHAIRMAN (in Cantonese): Committee stage. Council is now in Committee.

SECURITIES (AMENDMENT) BILL 1998

CHAIRMAN (in Cantonese): I now propose the question to you and that is: That the following clauses stand part of the Securities (Amendment) Bill 1998.

CLERK (in Cantonese): Clauses 1, 2, 3, 4 and 6.

CHAIRMAN (in Cantonese): I now put the question to you as stated. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

CHAIRMAN (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the motion passed.

CLERK (in Cantonese): Clause 5.

CHAIRMAN (in Cantonese): Secretary for Financial Services.

SECRETARY FOR FINANCIAL SERVICES (in Cantonese): Madam Chairman, I move that clause 5 be amended as set out in the paper circularized to Members. In order to maintain consistency in the text of the provisions of the amended Securities Ordinance, I move to add "committee of the" after "allowed by the" in the proposed new section 113(5A). This amendment is purely of a technical nature and policy neutral. With these remarks, Madam Chairman, I hope Members will support the amendment.

Proposed amendment

Clause 5 (see Annex III)

CHAIRMAN (in Cantonese): Does any Member wish to speak?

(No Member indicated a wish to speak)

CHAIRMAN (in Cantonese): I now put the question to you and that is: That the amendment moved by the Secretary for Financial Services be passed. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

CHAIRMAN (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the amendment passed.

CHAIRMAN (in Cantonese): Mr Albert HO.

MR ALBERT HO (in Cantonese): Madam Chairman, I move that clause 5 be further amended, as set out in the paper circularized to Members. Madam Chairman, in the Second Reading debate just now, many colleagues have commented on the proposed amendment to clause 5, that is, the amount of compensation to be made to the claimant shall be set at $200,000 or under individual circumstances, a smaller amount determined by the Compensation Committee of the Stock Exchange of Hong Kong (SEHK), whichever is less. Madam Chairman, our main purpose for moving this amendment is to allow, by means of legislation, those people who have suffered losses on account of the collapse of the C.A. Pacific Group or other securities companies to receive a compensation of $200,000 or less if the amount claimed is under $200,000.

Why should we propose to put in such a provision? There are several reasons. First of all, we feel that this is a reasonable level affordable by the Unified Exchange Compensation Fund (the Fund). And this amount has also been repeatedly brought up by the Securities and Futures Commission (SFC), leaving a deep impression on the people and giving stock investors the expectation that this is the compensation that they will get.

First, I would like to talk about the last point concerning the Chairman of the SFC, Mr Anthony NEOH, who mentioned the amount of $200,000 on more than one occasion. Of course I agree with the Secretary for Financial Services that he has not specified the compensation would definitely be this amount. If he has put it so explicitly, I believe it has already constituted a legal liability. But I have to point out that Mr NEOH has mentioned this figure on more than one occasion, other than at the press conference on 25 January where he specifically cited the amount of $250,000 as an example and said that he hoped most people could receive a full compensation. On another occasion in a radio programme known as the "Letter to Hong Kong" on 3 February, he said the following, I quote, "If the ceiling of the SEHK's Compensation Fund can be raised so that all claimants claiming for HK$200,000 or less can receive a full compensation, most of the clients of the C.A. Pacific Securities can recover their investments." Therefore, since the person in charge of this monitoring body has repeatedly quoted this figure in his explanation, the claimants have got a very deep impression from the media. More importantly, from our observation, the Government has never clarified that this figure of $200,000 is not correct, that it is nothing more than a benchmark and the report in the newspapers is mistaken and is therefore a mistake. Even if it is a mistaken impression, as the Government claims, it has been repeatedly mentioned and widely reported and the people are well aware of it. Why does the Government want to revert the decision about this amount? If the Government had really had such a decision, people would think that it is because the Government was compelled to re-calculate the compensation amount in the wake of a series of collapses involving securities companies. In any case, as the head of the SFC, Mr NEOH must have certain representativeness and authority. But now the Government is unwilling to commit itself to honouring the promises that he has make; it will only make people feel that it has gone back on its words. Would it be a wise thing to do?

I would like to talk about some figures, that is, the difference between $150,000 and $200,000. Taking $150,000 as the upper limit, the total compensation made to claimants against the C.A. Pacific Group will amount to $410 million and the number of claims eligible for compensation is 3 598, representing 70% of the total number of claims filed. But if the limit is raised to $200,000, the total compensation will amount to $480 million, that is, with an additional $70 million, the number of claims eligible for full compensation will be 3 939, representing 77% of all claims filed. In other words, raising the amount to $200,000, the number of cases receiving full compensation will increase by 341, and although 1 201 cases claiming for over $200,000 will not get a full compensation, the claimants are still compensated with an additional $50,000 and their losses will be reduced. Many colleagues have questioned earlier whether it is right in principle to include the compensation amount in the law. Will it set a bad precedent? The Honourable Miss Cyd HO has even questioned whether the amendment is specifically tailored for these several cases. I appreciate such criticisms but I have to stress that from the legislative point of view, this piece of legislation seeks to do more than dealing with four cases, rather it tries to set a fixed compensation amount. Actually, there are laws that set the compensation amounts, for example, those concerning the compensation for accidents and Members may recall that there is a fixed compensation of $150,000 for injured and deceased victims in accidents. In fact, this is only a way to provide a fixed compensation through legislation. Therefore, this has nothing to do with suiting it to a certain case and I believe that this piece of legislation will also be applicable to all future cases until it is amended.

Moreover, some say that they do not like to set a fixed amount in the legislation for they do not consider there are sufficient grounds. Frankly speaking, I believe that this is also a policy option as to whether $150,000 or $200,000 is more reasonable. We do not have specific grounds as to whether $150,000 or $200,000 is more reasonable but we think that since the Government's representative, or more specifically, the person in charge of the SFC has repeatedly mentioned the amount of $200,000, the Government should, for its own credibility, commit itself to bearing this compensation amount that the public has considered as a promise. Madam Chairman, if we do not set the compensation at $200,000, what will be the outcome? It is very simple. Now that the SEHK has proposed to offer a compensation of $150,000 and if we do not mention the $200,000, the SEHK may consider the compensation claims on a case by case basis. The clients of the C.A. Pacific Group may be compensated by $150,000 and the compensations received by clients of the other three securities companies may not be disclosed. Now if it is announced that the amount is $150,000, the clients will get $150,000 and we will not be able to change the result. Hence, if we do not set a fixed amount in the legislation, the SEHK will set the amount on its own and everyone knows that the compensation will be $150,000. As a result, the claimants will get $50,000 less, whereas they should get $200,000. If we pass a law on that, they will be able to get $200,000; otherwise, they will only get $150,000. We can see that this will be the result. But do we want such a result?

Furthermore, it is the question of discretion. Miss Cyd HO has also said that if we do not write the provision about the discretionary power into the law, the future compensations may be higher, which may amount to $250,000 or $300,000. I think that this is purely theoretical. I do not believe that this will happen. I have pointed out very clearly that if we do not write it into the law, what will actually happen is that the claimants will only get $150,000. Therefore, we should not look at the issue from a theoretic or hypothetical point of view, assuming that someone will get a higher compensation. This will simply not happen. Madam Chairman, the compensation that they will get is $150,000. Someone would question whether it would involve the moral risks in the sense that if we put down $200,000, everyone will deposit their stocks with the brokers without a second thought. Then, if we set the compensation at $150,000, will there not be the same problem? If in future we have an insurance mechanism providing a fixed insurance indemnity, we will also face the same problem. So, I think that we should not say that the principle of setting the compensation at $200,000 is not right just because of the risks. Therefore, Madam Chairman, whether or not we write it into the law, the SFC has already decided the compensation to be $150,000. If we wish to reverse this decision and raise it to a level that we consider more reasonable and at the same time reflect the promise made by the Government or the SFC or let the public know that such a promise was indeed made, we think that it is good and appropriate to raise the compensation to $200,000.

We would also like to say that, as my colleague the Honourable SIN Chung-kai has pointed out, the Government may not necessarily incur an extra burden as a result of this amendment to the Ordinance. According to our estimation, the existing funds in the Fund should be able to meet all the compensation claims against the four securities companies at present with over $100 million in surplus. Of course, we do not know if similar incidents would happen again in future that would require compensations from the Fund. None of us hopes to see the same incidents happen again. I believe that all colleagues will urge the Government and the relevant organizations, the SFC and the SEHK to take all preventive measures possible against the collapse of any securities companies, as it will affect the security of the whole system and cause a public panic. Of course, after this compensation arrangement, the sector will continue to collect a transaction levy according to the present arrangements and inject the money into the Fund until it reaches the level of $400 billion as set at present. I believe that when this incident is over and compensation is made from the Fund, we will continue to inject the transaction levies into the Fund. In any case, the government official has also told us that the present arrangements are only transitional. We truly hope that this compensation amount to be written into the law will only be used to cover the present four cases and there will not be other cases that will require large sums of compensation.

Since everyone hopes that it is only a transitional arrangement, even though there are many places that colleagues find dissatisfactory, we do not have too much choice. I very much agree with the Honourable Jasper TSANG that we really do not have many options. Under the present circumstances, we feel that this is a relatively appropriate and reasonable way to deal with it. We also hope that the Government will draw up a compensation mechanism and submit a Bill on the mechanism to the Legislative Council soon and we will also do our best to scrutinize and pass the relevant legislation. Thank you, Madam Chairman.

Proposed amendment

Clause 5 (see Annex III)

CHAIRMAN (in Cantonese): Does any Member wish to speak? Mr Ronald ARCULLI.

MR RONALD ARCULLI: Madam Chairman, the amendment by the Honourable Albert HO raises three points. First, it seeks to set a statutory amount of $200,000 to be paid to the claimants, unless their actual loss is less than that and in that case, they will get a lesser amount, or unless a lesser amount is determined by the court. Second, it allows the Securities and Futures Commission (SFC) to increase the $200,000 but not to lower it. Third, it deals with a variation of subrogation rights under the existing law.

The Liberal Party does not support any of these amendments. When I reported to Honourable colleagues earlier as Chairman of the Bills Committee scrutinizing this Bill, I have set out the reasons why the majority of the Bills Committee did not support Mr Albert HO's amendment. I would like to add, however, that at the $150,000 level, my understanding is, as Members have heard, about 70% of the clients of the C.A. Pacific Securities will be compensated in full. That is quite a significant percentage of investors who will not suffer a loss.

I do not know whether the amendment was prompted by the dispute between the Administration and the SFC on the one hand, and the clients of the CA Pacific Securities on the other, that the compensation should be set at $200,000 as allegedly promised by the former Chairman of the SFC.

I say this because without the proposed amendment, the clients of the C.A. Pacific Securities will only get a maximum of $150,000. And if there have been a commitment by the former Chairman of the SFC or the relevant authorities, I am quite sure Members today would want the Government to stick to their promise and to stick to their commitment. But having looked at everything, we are quite satisfied that there was no such commitment. And indeed, what Mr Albert HO has just said confirms our conclusion.

As for the advisability of setting out in the relevant law that the amount to be a statutory amount of compensation, we believe that this is part of a separate exercise which is now on the way. The Liberal Party does not want this Bill to be delayed by entering into that discussion now. We believe that the time for that discussion will come after the present consultation is concluded.

Turning to the question of the right of subrogation, we believe that the current regime is reasonable. It is terribly attractive to change the rules of the game in favour of the investors in mid-stream, so to speak. If that is to be done, we must be fair to everyone concerned and not just to those who sadly suffer losses.

As a personal advice, we doubt the fairness and reasonableness of any variation to the subrogation right set out in the law as it stands.

Madam Chairman, there are different views in the community regarding payment of compensation and the amount of compensation. Some do not favour the proposal of $150,000 to be paid to the clients of the C.A. Pacific Securities at all. Others have voiced their concern as to where payment will stop, and have made a point that investors ought to look after their own interests a little better and perhaps to be a little bit more carefully. I heard what Honourable Members said earlier that these were not the risks that investors had made. But in any dealings in life, the counterparts that you deal with would give you that exposure. And I hope, I sincerely hope, that Members in this Council will encourage the community and our investors to look very carefully before they deal in any field, no matter whether they are well acquainted with it or not.

Madam Chairman, there are also views of support for a compensation or an insurance regime. Others have warned us about more hazards, sloppy management and so on. However, that discussion is part of the consultation exercise that is currently undertaken. I hope that the community will give us views to be relayed to the Government, so that in their policy considerations, they will take into account all different views from different strata and different walks of life in our community here. As a community, as an international financial centre, we must strike the right balance. Getting the right balance, Madam Chairman, as we all know, is never easy. But that does not mean that we should not try. And I think we must try our best and try to do so as quickly as possible.

Thank you.

CHAIRMAN (in Cantonese): Mr FUNG Chi-kin.

MR FUNG CHI-KIN (in Cantonese): Thank you, Madam Chairman. I think the amendment moved by Mr Albert HO may well mislead other Honourable Members. He keeps on referring to what Mr Anthony NEOH has reportedly said and insists on setting down a compensation limit of $200,000. He thinks that his amendment will raise the limit from $150,000 to $200,000, but the fact is that this Bill does not even mention anything like $150,000. The Bill simply gives a discretionary power to the SEHK, authorizing it to allocate a sum of money from the compensation fund for the sole purpose of dealing with some special cases. So, the focus of this Amendment Bill is in fact how best we should deal with some special cases.

As far as I know, the market and the SEHK have already examined the overall situation, and they hope to accord uniform treatment to the cases of default relating to C.A. Pacific and the other securities companies. They have reached this decision after carefully considering the existing resources of the compensation fund. If a compensation limit of $200,000 is set down in the relevant Ordinance, this limit will certainly form the basis of consideration for all other similar cases of default in the future, and this will lead to very far-reaching consequences. Well, I do not rule out the possibility that the compensation fund may well have other sources of income in the future. However, under the existing Ordinance, transaction levies are not transferred directly to the Compensation Fund, and there is no formal channels through which these levies can be injected automatically into the Fund. And, be it $150,000 or $200,000, any such compensation limit will inevitably become a reference mark for compensation. That is why I think that we should now focus only on dealing with the present four cases as special cases. Besides, we also hope to use this as an opportunity to deliver a clear message to investors that the cases now in question are special cases, and the compensation paid out this time will not become any precedent. If we do not deliver such a message, people will regard the amount of compensation this time as a precedent. Even if we simply ask the SEHK to offer $150,000 as compensation without setting down a compensation limit of the same amount in the Ordinance, people will still regard this as a precedent. Investors will thus be induced to hold a wrong belief that there will always be a compensation of $150,000 for all cases of default in the future. But I do not think that investors should be induced to hold such a misunderstanding.

Thank you, Madam Chairman.

CHAIRMAN (in Cantonese): Miss Cyd HO.

MISS CYD HO (in Cantonese): Thank you, Madam Chairman. I very much agree with Mr Albert HO that our decision on this legislative amendment will be of immense significance. If we do not incorporate the amount concerned into the Ordinance, the compensation offered by the Government and the SEHK to stock investors this time around, that is, $150,000, will probably become the ceiling for similar compensation in the future. But I still wish to say that we should not legislate solely with these four cases in mind. Rather, I hope that the relevant laws of Hong Kong can set down fair standards for all other similar cases.

The piece of legislation we are now dealing with will affect many other similar cases which may arise in the future. And, I do not agree with the Honourable FUNG Chi-kin, who says that our focus should be how we are going to deal with some individual cases. The reason is that once the relevant standards are incorporated into the Ordinance, they will no longer apply to specific cases only, and in case of similar incidents in the future, they must invariably be adhered to. There is no denying that following the media reports on the remarks made by the top leaders of some statutory bodies, people have been induced to think that the amount of compensation will be as high as $200,000, very much contrary to what the Government has recently said. So, I can well appreciate the disappointment of all those concerned.

I wish to look at the matter from two perspectives. The first perspective concerns the credibility of the remarks made by government officials or representatives of statutory bodies. People naturally hope that the remarks of these people will all be subsequently honoured. But I must say that this should not lead us to deal with the issue of credibility in this Ordinance. Well, if any Honourable Member wishes to introduce a law under which all government officials are obligated to honour what they have said, I am sure that he or she will certainly receive the support from many in this Council. However, I do not think that we should really set an amount of $200,000 in the Ordinance simply for the purpose of implementing what the person in charge of a statutory body has told the media. Moreover, I also hope that Honourable colleagues can realize that as legislators, we should not focus only on the present four cases. Instead, we should scrutinize the Ordinance very cautiously with the aim of dealing with any similar incidents which may arise in the future.

Some Honourable colleagues consider that since a new ordinance on this type of compensation will hopefully be implemented one or two years later, the only thing we need to do now is to deal with the present four cases; to them, the provisions of the Ordinance we are now looking at are not a matter of any real significance at all. However, the consultation exercise on this new ordinance is still underway, and we simply do not know what the Government will come up with finally. Since the Government is always so "good' at conducting consultation, we just do not know how it will interpret and use the public opinions collected. So, even if members of the public and Honourable colleagues do submit their views to the Government enthusiastically, we simply do not know whether or not the legislation eventually drafted will contain the provisions we wish to see. That is why I think that we must deal with the Bill today very carefully, instead of taking it as an interim measure.

Finally, I wish to draw Honourable Members' attention to a point of facts. Some Honourable colleagues argue that taxpayers do not have to pay anything extra because the money to be used for compensation can be drawn from existing funds. But according to the Securities and Futures Ordinance, any surpluses from the trading funds can only be kept for a maximum of two years, after which all unused money must be handed back to the Treasury. Therefore, although the money to be used for compensation will not be drawn directly from the Treasury, there is still a chance that it may be handed back to the Treasury and used for the people.

Thank you, Madam Chairman.

CHAIRMAN (in Cantonese): Mr Jasper TSANG.

MR JASPER TSANG (in Cantonese): Madam Chairman, actually, what Mr FUNG Chi-kin said just now has explained precisely why we should insist on a fixed amount despite the possibility of problems. According to Mr FUNG Chi-kin, we need to deliver a clear message to the public, telling them that the payment of compensation this time should not be regarded as a precedent. What is the rationale behind his point? Why only just once? Why is it that only the clients of C.A. Pacific and the other three securities companies, that is, the Foreground Securities Limited, the Forluxe Securities Limited and the Ming Fung Securities Limited, can receive compensation? What is happening now seems to suggest that since some government officials have mentioned a compensation of $150,000, these clients are thus going to receive a compensation of $150,000 each, but their case will not constitute any precedent for other similar cases in the future. Are we then supposed to tell other investors that they must always pay close attention to the amount of compensation? Are we supposed to tell them that if the size of the Compensation Fund is large, they can make investments without any worries, but if the size of the Compensation Fund is small, they should caution themselves that they are not going to receive any compensation because the amount of compensation offered this time is no precedent at all? Is that really what we are supposed to tell investors? Is this fair? I fail to see the point. However, if a definite amount of compensation is set down, investors will be able to know the ceiling of compensation. The problem of risks was mentioned a moment ago ...... Investors will then know what risks they have to bear.

During the Second Reading debate just now, the Secretary for Financial Services said that the amount of $150,000 represented a reasonable and prudent level of compensation, and that any adjustments would lead to troubles. I fail to see his point either. Why can he assert that $150,000 does represent a reasonable and prudent level of compensation? Excuse me for being frank, but is it true that both the Government and the Secretary know for sure that the Compensation Fund will be exhausted after paying compensation to the clients of these four securities companies? And, my Honourable colleagues must not be misled either. A raise from $150,000 to $200,000 does not mean that the money paid out from the Compensation Fund will bound to increase by 75%. Not everyone will receive an extra $50,000 in compensation. Why? Because those who each suffer a loss of less than $150,000 will not receive the maximum compensation of $200,000. Once their losses are compensated in full, they will not receive any extra compensation.

If the proposal of the Government is accepted, 70% of the claimants will receive compensation amounting to their full losses. As for those who suffer big losses, Mr Albert HO has made the calculation that since there are slightly more than 1 000 of them, if each of them is given an extra $50,000 in compensation, an additional $70 million will be required. People who suffer big losses will be apportioned more compensation after liquidation; and, because of the subrogation right, the money obtained as a result of liquidation has to be ploughed back into the Compensation Fund. But the money thus ploughed back will not be distributed as further compensation, and even if this is the case, the amount of compensation can never exceed the total of $8 million. That being the case, if the game goes on in this manner, how much more has to be paid out from the Fund? In other words, if the ceiling is raised from $150,000 to $200,000, how much more will have to be paid out from the Compensation Fund? I hope that the Government will make some calculations to ascertain how much more will have to be paid out. I also hope that the Government will explain why the extra amount involved will turn what is now a reasonable and prudent level into one which is beyond the affordability of the Fund. If the Government can do this, it may perhaps make its argument a bit more convincing. Thank you, Madam Chairman.

CHAIRMAN (in Cantonese): Mr SIN Chung-kai.

MR SIN CHUNG-KAI (in Cantonese): Let me also respond to the comments made by some of my Honourable colleagues. I would say that this Bill is in itself an interim measure. Why do I say so? Well, this Bill is submitted to this Council months after the incidents concerned have occurred, and it carries retrospective effect, something which enables it to offer compensation to victims in those events happening in January, right? If the usual practice is followed, once this Bill is passed today, it will be applied to similar compensation cases in the future. However, this is not the case now, which is why I say that the Bill is in itself an interim measure with retrospective effect, aimed at dealing with what happened in January. But since we have decided to tailor-make a suit, why do we not seek to make sure that it can fit us perfectly.

The second point. Some Honourable colleagues argue that if we set down a definite compensation amount of $200,000, people will make reckless investments. They maintain that people should themselves bear the consequences of their own reckless investments. But this is simply not where the problem lies. The main question is whether or not people will thus be induced to choose some unreliable brokers in a reckless manner. I do not know whether this will really happen. But this seems to be a question about brokers, right? Investors should know better than anyone else whether or not they will choose brokers recklessly once the compensation amount of $200,000 is set down.

The third point. Since January when the incidents occurred, the Government has been doing a lot of remedial work, such as asking the Securities and Futures Commission (SFC) to investigate the practices of some brokers, so as to ascertain whether they have behaved like C.A. Pacific and mortgaged their clients' stocks and shares to banks through affiliated finance companies. Now, almost a year has passed, and if the Government still tells us that it is unable to come up with any solutions, I must say that it has failed in its duties. In other words, in theory at least, if we do pass the Bill today, we should have no need to tailor-make a law for the clients of these four securities companies which have recently closed down. So, the Bill today is indeed an interim measure. But it is precisely because of this reason that we must consider how best to deal with the present four cases.

Long before today, or even before a much earlier time, the SFC and the Government should have dealt with or contained some potential problems, and they should have solved them all by now. As for transaction levies, as the Honourable FUNG Chi-kin pointed out a moment ago, this is not the main problem. The main problem is, however, that a precedent was already set as early as 1987. If the Government really wants to do something, rushing the relevant bill through the three Readings will certainly not be a problem, and it can do this indeed very easily should there be such a need. Therefore, in the end, the people may not have to pay any money at all. The trading fund of the SFC does not come from the Government, but from the very same market. That is why the issue simply does not involve any financial burden of the public as such.

I wish to stress one final point. What are we disputing today? There are only two points of dispute. First, will the amount we propose give stock investors a more reasonable compensation? In other words, does our amendment represent a more reasonable arrangement? Our answer is "yes". To those investors who have suffered losses, the amount we propose can certainly provide a relief of some kind, though the compensation will still be modest. Second, how are we going to restore people's confidence in the financial markets? If we refuse to pay even such a small compensation, and if the open promises of the Government, or the remarks made by the persons in charge of public bodies, are not kept (as mentioned by Mr Albert HO just now), people will find it very difficult to believe either the Government or its institutions.

Thank you, Madam Chairman.

CHAIRMAN (in Cantonese): Dr YEUNG Sum.

DR YEUNG SUM (in Cantonese): Madam Chairman, I shall be very brief. I am sure that having listened to Mr FUNG Chi-kin, a representative of the financial sector on this Council, the Honourable Miss Cyd HO will certainly change her mind and support the amendment moved by Mr Albert HO. This is because Mr FUNG Chi-kin has emphasized that the amount of compensation offered this time should not be regarded as a precedent, saying that we should not expect too much compensation in future cases, because all will have to depend on the circumstances at that time. In other words, it is likely that there will be even less protection in the future. And, the Bill before us does not specify a compensation amount of $150,000; Miss Cyd HO should be well aware of this! Therefore, one simply does not know how much will be offered as compensation in the future. The representative of the financial sector has said that the compensation offered this time will not constitute any precedent and that we must not cherish any illusory hopes, for the reason that one just cannot look after a poor friend forever. So, we just do not know what to do in the future.

But if we can set down a compensation amount of $200,000 in the Ordinance, when the worst comes to the worst, there will still be some kind of basic protection for all investors, and such an amount can also caution the financial sector against malpractices. If those in the sector do not want to offer that much as compensation, they should remind themselves that they must not allow themselves to become the "black sheep". All in all, Mr FUNG Chi-kin's remarks have made me find it all the more necessary to support Mr Albert HO's amendment. If we do not support the amendment now, we simply do not know whether there will be any compensation in the future, particularly because the sector concerned has made this point very clear too.

Thank you, Madam Chairman.

CHAIRMAN (in Cantonese): Mr Albert HO, can you withhold your further remarks until you give your reply?

Secretary for Financial Services, do you wish to reply?

SECRETARY FOR FINANCIAL SERVICES (in Cantonese): Madam Chairman, to start with, I would like to talk about some matters relating to principles. Without prejudice to the position held by the Government towards the application of the Legislative Council's Rules of Procedure, which involve certain provisions of the Basic Law, to the ways the Council deals with its operation, the Government considers the amendment has a "charging effect" as specified in Rule 57 of the Rules of Procedure.

Madam Chairman, we are aware that you do not share our view. We wrote to the Secretariat again yesterday to further explain the Government's position, but ......

CHAIRMAN (in Cantonese): Mr LEE Wing-tat, do you have a point of order?

MR LEE WING-TAT (in Cantonese): Madam Chairman, I wish to raise a point of order. Normally, Members will not openly dispute or criticize the President's rulings. But may I ask whether government officials are allowed to criticize and discuss the President's rulings on public occasions? Thank you, Madam Chairman.

CHAIRMAN (in Cantonese): Honourable Members, it is Council practice that Members are not supposed to comment on the President's rulings. However, I do not think that I should go so far as to forbid Members to air their views on amendments. This also applies to government officials. If government officials think that a certain amendment will involve government commitment or expenditure, or if they think that an amendment has resource implications, they can by all means state their positions. But they cannot in any case comment on the President's rulings.

MR LEE WING-TAT (in Cantonese): I wish to seek a further point of elucidation. As far as I am aware, through your legal adviser, you have already conducted a very lengthy discussion on this matter with the Government. I will naturally respect the President's rulings, but I must ask whether the ruling in question will become a precedent. The President will most certainly make many more rulings in the future, and, like what has happened, Members and government officials may well disagree with the President. So, since you are now so kind as to permit government officials to comment on your ruling, can one then infer that you will allow Members and government officials to do the same in the future? Thank you, Madam Chairman.

CHAIRMAN (in Cantonese): Mr LEE, let me answer your question directly. Members and government officials are both not permitted to comment on the President's rulings. But I would permit government officials to air their views if they simply wish to state their positions instead of commenting on my rulings. And, what the Secretary for Financial Services said a moment ago was precisely a clarification of his own position. I have ruled that Mr Albert HO can move his amendment today. My rulings must be respected because in this Council, the President's rulings are final.

SECRETARY FOR FINANCIAL SERVICES (in Cantonese): Madam Chairman, first of all, I have to apologize to you and Honourable Members. If I could speak a few more sentences just now, I would not have wasted Members' time. In fact, we have absolutely no intention to comment on the President's ruling. What I originally intended to say was in response to the question raised by Mr SIN Chung-kai as to whether the compensation involved public moneys. He said the moneys did not come from taxpayers. But the Government actually considers there is a question of charging public moneys. What I actually wanted to do was to respond to the comments raised by Mr SIN Chung-kai. I have no intention whatsoever to criticize the President's ruling. It is already not right to criticize Members, let alone the President. (Laughter)

CHAIRMAN (in Cantonese): Secretary for Financial Services, let me say a few words. It is not true that you are not allowed to make criticisms. It is only that you cannot comment on the President's ruling.

SECRETARY FOR FINANCIAL SERVICES (in Cantonese): Excuse me, I have not commented on the President's ruling either. (Laughter) I cannot help it even if Mr SIN wants to have my comment. Perhaps he should ask the Secretariat for the relevant government documents. Excuse me, I am not allowed to comment here.

It is clearly specified in the legislation that a compensation ceiling imposed in respect of an individual claims application and unit must have an objective basis, including the consideration of the distribution of the investment amount of local investors in the securities market, risk levels, moral risks, previous compensation cases, and a financial source which is sufficient for meeting the expenses.

The abovementioned issues have been mentioned in our previous speeches as well as in the consultation paper on the new compensation mechanism. We hope that we can come up with a reasonable view after grasping the views of the markets and investors. But at this stage, we are basically lack of a highly objective basis for our consideration. According to Mr HO, $200,000 will definitely be the right sum. But that is something which should come under the new mechanism. It is not included in the existing legal framework. I do not want to repeat what Mr Anthony NEOH, the SFC Chairman said here. I believe, as Mr Ronald ARCULLI has said, against the prevailing political environment and social standards, it will be extremely difficult for the Government to go against its commitments if it has made any actual commitments. As a matter of fact, those are not actual commitments. This is why we cannot incorporate a figure, which was cited only for the purpose of illustration, into the legislation.

Secondly, Mr HO's amendment will reduce the flexibility of the new compensation mechanism, thereby posing an obstacle to its future operation. By virtue of the amendment, the $200,000 upper ceiling can be uplifted but not lowered. As a result, the new discretionary power may not be exercised in some future cases just because the reserves of the Compensation Fund are not sufficient to meet the compensation ceiling of $200,000. I hope Members can take note of this possibility of reducing the flexibility.

Moreover, we must also take one factor into account in formulating the compensation ceiling and that is, we must ensure that the Compensation Fund can maintain at a reasonable and stable level so as to uphold the investor confidence in the protection mechanism. In this incident, we proposed to set $150,000 as an standard because we consider that this ceiling can enable most clients to receive full compensation on the one hand and maintain the Fund at a reasonable and stable level on the other. Mr HO's amendment, however, will affect the financial stability of the Fund and lower its reserves level. Consequently, it may affect the interests of other claimants. Therefore, the amendment is undesirable.

With these remarks, Madam Chairman, I urge Members to vote against Mr Albert HO's amendment for the abovementioned reasons. Thank you.

CHAIRMAN (in Cantonese): Mr Albert HO, please reply.

MR ALBERT HO (in Cantonese): Thank you, Madam Chairman. I would like to respond to a few points.

First of all, just now Mr FUNG Chi-kin alleged that my amendment might mislead people into thinking that the compensation limit of $150,000 would be increased to $200,000. In fact, people will not be so misled because, as every Honourable colleague may see, this figure is not stipulated in the Bill. The debate earlier also made it very clear that precisely because such a figure is not spelt out, the Stock Exchange of Hong Kong (SEHK) must exercise its discretion and the amount of compensation this time is only applicable to the present case and will not be taken as a precedent. Therefore, the above-mentioned misleading should not occur. While I believe that Mr FUNG was not directing against me and deliberately said that I misled people, I would like to stress that every Honourable Member should, before coming to the meeting to make a decision, read the Bill carefully and note the absence of an express provision in the Bill spelling out a compensation limit of $150,000.

The second point concerns the question of expediency and principle. Miss Cyd HO's earlier speech was a bit contradictory. She does not like expediency and thinks that we should stick to principle. What I am proposing now in my amendment is to specify a compensation ceiling as a matter of principle so as not to allow the SEHK to decide on the amounts of compensation for different cases in an expedient manner, so that it will not pay $150,000 in this case, $80,000 in the next case, $50,000 in another and $300,000 in yet another. I propose that expediency should not be allowed and a limit has to be clearly spelt out, telling people what protection they may expect or what risk they should take. The whole idea of the amendment is to deal with systematic crises. In this connection, the Government has tabled the Bill as a matter of expedience and as we pass it today, there will also be some expedient results such as the retrospective effect — the effective date of the Bill will be traced back to January this year. However, my amendment today seeks exactly to revoke a very important expediency, that is, the discretionary power to decide on the amount of compensation. I am sorry about this but I think it is something that should not exist. The amount of compensation must be stipulated clearly. In fact, this policy is in line with the future insurance compensation mechanism which lets people know how much compensation they may expect to obtain. Therefore, I hope Members will not get mixed up, for the amendment is made clearly as a matter of principle even though the result may be expedient. Of course, we hope this will not be applicable to more than the four cases which have already happened.

Lastly, the Secretary for Financial Services talked about the problem of flexibility just now. I propose in my amendment that, if the compensation ceiling has to be raised in view of inflation or other factors in the future, it can be done by the Financial Secretary putting forward a proposal to the Securities and Futures Commission before a new amount is to be decided on. If the ceiling is to be lowered, it is not impossible either and can be done by means of a legislative amendment. I believe it will be more difficult to reduce the amount than to increase it. In normal circumstances, the figure can be adjusted by a relatively simple procedure if the amount is to be increased. This is how I drafted the amendment.

Since Honourable Members have already debated my amendment thoroughly, I do not intend to make any repetition here. I hope Members will support my amendment. Thank you, Madam Chairman.

CHAIRMAN (in Cantonese): I now put the question to you and that is: That the amendment moved by Mr Albert HO be passed. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr Albert HO rose to claim a division.

CHAIRMAN (in Cantonese): Mr Albert HO has claimed a division. The division bell will ring for three minutes.

CHAIRMAN (in Cantonese): Will Members please register their presence by pressing the button and then proceed to vote.

CHAIRMAN (in Cantonese): Before I declare the result, are there any queries? If not, the result will now be displayed.

Functional Constituencies:

Mr Michael HO, Mr CHEUNG Man-kwong, Mr Ambrose CHEUNG, Mr CHAN Kwok-keung, Mr CHAN Wing-chan, Mr SIN Chung-kai, Mr WONG Yung-kan and Mr LAW Chi-kwong voted for the amendment.

Mr Kenneth TING, Mr James TIEN, Mr Edward HO, Dr Raymond HO, Mr Eric LI, Mr LEE Kai-ming, Dr LUI Ming-wah, Miss Margaret NG, Mrs Selina CHOW, Mr Ronald ARCULLI, Mr HUI Cheung-ching, Mr Bernard CHAN, Dr LEONG Che-hung, Mrs Sophie LEUNG, Dr Philip WONG, Mr Howard YOUNG, Mr LAU Wong-fat, Mrs Miriam LAU, Mr FUNG Chi-kin and Dr TANG Siu-tong voted against the amendment.

Geographical Constituencies and Election Committee:

Mr Albert HO, Mr LEE Wing-tat, Mr Martin LEE, Mr Fred LI, Mr James TO, Miss CHAN Yuen-han, Mr LEUNG Yiu-chung, Mr Gary CHENG, Mr Jasper TSANG, Dr YEUNG Sum, Mr LAU Chin-shek, Mr LAU Kong-wah, Mr Andrew CHENG, Mr SZETO Wah, Mr CHAN Kam-lam and Mr YEUNG Yiu- chung voted for the amendment.

Miss Cyd HO, Mr LEE Cheuk-yan, Mr Andrew WONG, Miss Emily LAU, Mr TAM Yiu-chung, Mr David CHU, Mr HO Sai-chu, Mr NG Leung-sing, Prof NG Ching-fai, Mr MA Fung-kwok, Mr Ambrose LAU and Miss CHOY So-yuk voted against the amendment.

THE CHAIRMAN, Mrs Rita FAN, did not cast any vote.

THE CHAIRMAN announced that among the Members returned by functional constituencies, 28 were present, eight were in favour of the amendment and 20 against it; while among the Members returned by geographical constituencies through direct elections and by the Election Committee, 29 were present, 16 were in favour of the amendment and 12 against it. Since the question was not agreed by a majority of each of the two groups of Members present, she therefore declared that the amendment was negatived.

CLERK (in Cantonese): Clause 5 as amended.

CHAIRMAN (in Cantonese): In order to let Members have a better understanding of the procedure, I shall explain it a little bit here. Just now the Secretary for Financial Services moved an amendment to clause 5, and it was voted on and approved by this Committee. Now I am asking Members to vote again so as to add the amended clause 5 to the Bill.

Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

CHAIRMAN (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the motion passed.

CHAIRMAN (in Cantonese): Mr Albert HO.

MR ALBERT HO (in Cantonese): Madam Chairman, since the Rules of Procedure stipulate that any proposed new clause shall be considered after the clauses of a Bill have been disposed of, may I seek your consent to move under Rule 91 of the Rules of Procedure that Rule 58(5) of the Rules of Procedure be suspended in order that my proposed new clause 5A may be considered ahead of clause 7.

CHAIRMAN (in Cantonese): Mr Albert HO, as only the President may give consent for a motion to be moved, without notice, to suspend the Rules of Procedure, I order that Council do now resume.

Council then resumed.

PRESIDENT (in Cantonese): Mr Albert HO, you have my consent.

MR ALBERT HO (in Cantonese): Madam President, I move that Rule 58(5) of the Rules of Procedure be suspended to enable the Committee of the whole Council to consider my proposed new clause 5A ahead of clause 7.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That Rule 58(5) of the Rules of Procedure be suspended to enable the Committee of the whole Council to consider Mr Albert HO's proposed new clause 5A ahead of clause 7.

PRESIDENT (in Cantonese): I now put the question to you as stated. Will those in favour please raise their hands?

(Members raised their hands)

PRESIDENT (in Cantonese): Those against please raise their hands.

(No hands raised)

PRESIDENT (in Cantonese): I think the question is agreed by a majority respectively from each of the two groups of Members, that is, those returned by functional constituencies and those returned by geographical constituencies through direct elections and by the Election Committee, who are present. I declare the motion passed.

Council went into Committee.

CHAIRMAN (in Cantonese): Council is now in Committee.

CLERK (in Cantonese):

New clause 5A

Subrogation of the Commission to right, etc of claimant on payment from fund.

CHAIRMAN (in Cantonese): Mr Albert HO.

MR ALBERT HO (in Cantonese): Madam Chairman, I move that new clause 5A, as set out in the paper circularized to Members, be read the Second time.

Madam Chairman, I wish to take this opportunity to give a brief account of the changes which will be brought about by new clause 5A. Under the existing provisions, after a payment is made to a claimant, the Securities and Futures Commission (SFC) is subrogated to the claimant's rights to the extent of the payment made. In other words, if any assets or dividends are available for distribution in liquidation proceedings, the SFC will have priority over the claimant in insolvency distribution and can first recover in full the compensation paid to the claimant. My focus is the word "priority". Of course I understand that the monies received by the SFC up to the first $8 million will be paid to claimants to meet any outstanding claims against the Fund, and I do not intend to dwell any further on this point. However, I wish to stress that the changes I seek to introduce actually concerns the issue of priority only; my amendment does not contain any proposals to remove the subrogation right. The effect of my amendment will be that if a claimant is not compensated in full, he can ask for further payment from the official receiver to meet his outstanding claim. This means that the SFC and the claimant will have equal priority in insolvency distribution. Let me use an actual example to illustrate my point. If a claimant has lost $400,000 and the SFC has paid $200,000 to him as compensation, then there will be a shortfall of $200,000. In that case, he can lodge a claim with the official receiver, asking him to pay dividends to him if any monies are left after the liquidation proceedings; and, on a pro rata basis, the claimant can get $200,000. Similarly, because of the subrogation right, the SFC will also get $200,000. So, in a way, the claimant and the SFC will enjoy equal priority. If dividends are distributed in the future, and if the amount payable to the claimant is $100,000, then the SFC and the claimant will each receive $50,000. But under the existing legislation, the situation is different because the SFC has priority over the claimant. I think this principle is very unfair. I believe that the principle of equal priority should be applied to enable the claimant to receive dividends during the liquidation proceedings. No doubt, after the SFC has received the monies, it will plough them back into the Fund and may also pay further compensation according to its own principles. But this is already a separate matter. It can thus be seen that I am not proposing to replace the subrogation right. I only hope that the SFC and the claimant will have equal priority, so that if the claimant is not compensated in full, he can receive the shortfall in the form of dividends after the liquidation proceedings. Both should enjoy equal priority.

The second point I wish to stress is that the arrangement I propose will not enable the claimant to receive anything more than the amount he has lost. The reason is that if he has been compensated in full, he will not be eligible for lodging any further claims. In that case, how can he possibly ask for more money from the official receiver? This will not happen any way. When the Honourable Ronald ARCULLI briefed this Council on the report of the Bills Committee, he said that the claimant might receive more than the amount of his losses, and he even used the word "overpayment". That I cannot understand. Actually, this will never occur because once the claimant is compensated in full, the SFC will be subrogated to his rights to the full extent, and the claimant will no longer have any right to ask for dividends from the official receiver. Therefore, the problems of priority and equal priority simply do not exist. I have moved my amendment with precisely this principle in mind, and I do not think that this will produce any impact or a negative bearing on the entire compensation mechanism. I hope Honourable Members will support me. Thank you.

CHAIRMAN (in Cantonese): I now propose the question to you and that is: That new clause 5A be read the Second time.

Does any Member wish to speak? Mr Jasper TSANG.

MR JASPER TSANG (in Cantonese): Madam Chairman, during the Second Reading debate, the Secretary for Financial Services said that some Members have asked whether subrogation rights would turn compensation into advance payment and I am one of those who have raised this query. It is a pity that the Secretary has only simply said, in response to this query, that the Compensation Fund is not committed to give investors who suffer a loss full compensation. It seems that if we infringe upon subrogation rights, we are asking the Fund to give those who suffer a loss full compensation and it is far from the truth. We cannot possibly ask for full compensation to people who suffer a loss but at least we have reasons to ask for compensation to them. In fact, the Fund is established to compensate those investors who suffer a loss in the course of investment as a result of broker default. As they have suffered a loss as a result of default on the part of securities companies, they should get compensation although we are not asking for full compensation.

However, if the original subrogation rights are exercised, investors or people who suffer a loss may get no compensation at all. I have earlier given an example. For example, a person loses $1 million as a result of default on the part of a securities company and he gets $300,000 through liquidation, in other words, he loses $700,000 and he has claimed compensation from the Fund. If the Government fulfils its commitment, it will give him $150,000 compensation because Members have negatived the $200,000 proposal. Nevertheless, out of the $300,000 he gets from liquidation, he will have to return $150,000 to the Fund under subrogation rights. In other words, he loses $700,000 but he cannot get any money back. We cannot say that he has won $300,000 as this amount will only make him lose less. He gets the money from liquidation, it is his assets and that is why he has lost $700,000. Subrogation rights may have such a consequence.

We can say that the recovered amounts will be redistributed but a Member reminds me that our discussion is about an amendment to the original legislation that already exists, therefore, we should not alter the spirit of the original legislation. The original legislation covers subrogation right and it is true that we should not change it. However, the subrogation rights arrangement in the original legislation has a tail, that is, the original ceiling of the amounts recovered is $8 million and the money so recovered will be redistributed. For those who suffer a loss but have not been compensated in full, more out of the $8 million can be paid until the $8 million has been used up or all losses have been compensated. There is still such a mechanism under the original subrogation right. However, does the mechanism still exist after the amendment? Certainly yes. However, it does not mean that the money originally received including $150,000 per claimant other than the $8 million will be redistributed. I am sorry that this is no longer possible. The limit is $8 million and it is the mysterious part. Once the amendment is made, when the monies recovered under subrogation rights is redistributed, it will be less than the amount in full. For clients who have suffered heavy losses, all or most of the assets they get from liquidation may have to be returned to the Fund. Is this reasonable?

I do not think that the method suggested by Mr Albert HO is perfect. On the basis of such a method, we still cannot calculate how much compensation affected clients can really get but at least, after a long liquidation process, the clients will not find that they have to hand over to the Fund the assets they originally had. Thank you, Madam Chairman.

CHAIRMAN (in Cantonese): Secretary for Financial Services.

SECRETARY FOR FINANCIAL SERVICES (in Cantonese): Madam Chairman, as far as the contents of the amendment are concerned, Mr HO proposed to put the claimant's right in winding up to receive a sum in the same position as the Securities and Futures Commission (SFC)'s right acquired by subrogation so that both of them are given the same priority. This amendment will produce a significant impact on the existing practice whereby the existing compensation mechanism accords the SFC's subrogation right a priority, as well as exerting tremendous financial pressure on the Compensation Fund. Therefore, we cannot support the amendment.

In considering this proposal, a very important factor we must take into account is how, under the new compensation arrangements, we can preserve the limited resources of the Compensation Fund as far as possible in order to meet claims applications that may arise in future and to safeguard the interests of investors in general. The Government is of the view that the existing practice of giving priority to SFC's subrogation right can maintain a stable source of revenues for the Fund so that it can stay at an adequate level for handling any problems that may arise in future.

Limiting the priority enjoyed by SFC will definitely lead to a loss in the reserves of the Fund. The sum that can be used for meeting other claims applications will also be reduced accordingly. In doing so, it will not only be unfair to other investors, but also produce a negative impact on the statutory functions of the Fund.

For the abovementioned reasons, I urge Members to vote against the motion. Thank you, Madam Chairman.

CHAIRMAN (in Cantonese): Mr Albert HO.

MR ALBERT HO (in Cantonese): Thank you, Madam Chairman. I believe that the Secretary has said very clearly that it is most important to ensure that the compensation made from the Fund is not excessive so as to avoid a drain on money which will affect the financial position of the Fund. However, the Secretary has not answered my question. I would like to thank Mr Jasper TSANG for the very good example he has just given. Under many circumstances, advances cannot actually achieve the same effects of compensation. Would Members please consider whether the Fund can really achieve any compensation effects? Or, is it just advancing money under certain circumstances? If it is advancing money, it can certainly safeguard the stability of the Fund as it is not spending money and it can recover the money lent. But is this fair? Is this the purpose of the Fund? I hope that Members will consider supporting this amendment. Thank you.

CHAIRMAN (in Cantonese): I now put the question to you as stated. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr Albert HO rose to claim a division.

CHAIRMAN (in Cantonese): Mr Albert HO has claimed a division. The division bell will ring for three minutes.

CHAIRMAN (in Cantonese): Will Members please register their presence by pressing the button and then proceed to vote.

CHAIRMAN (in Cantonese): Before I declare that voting shall stop, are there any queries? If not, the result will now be displayed.

Functional Constituencies:

Mr Michael HO, Mr CHEUNG Man-kwong, Mr CHAN Kwok-keung, Mr CHAN Wing-chan, Mr WONG Yung-kan and Mr LAW Chi-kwong voted for the motion.

Mr Kenneth TING, Mr James TIEN, Mr Edward HO, Dr Raymond HO, Mr Eric LI, Mr LEE Kai-ming, Miss Margaret NG, Mrs Selina CHOW, Mr Ronald ARCULLI, Mr HUI Cheung-ching, Mr Bernard CHAN, Dr LEONG Che-hung, Mrs Sophie LEUNG, Dr Philip WONG, Mr Howard YOUNG, Mr LAU Wong-fat, Mrs Miriam LAU, Mr FUNG Chi-kin and Dr TANG Siu-tong voted against the motion.

Geographical Constituencies and Election Committee:

Mr Albert HO, Mr LEE Wing-tat, Mr Martin LEE, Mr Fred LI, Mr James TO, Miss CHAN Yuen-han, Mr LEUNG Yiu-chung, Mr Gary CHENG, Mr Jasper TSANG, Dr YEUNG Sum, Mr LAU Chin-shek, Mr LAU Kong-wah, Mr Andrew CHENG, Mr SZETO Wah, Mr CHAN Kam-lam and Mr YEUNG Yiu-chung voted for the motion.

Miss Cyd HO, Mr LEE Cheuk-yan, Mr Andrew WONG, Miss Emily LAU, Mr TAM Yiu-chung, Mr David CHU, Mr HO Sai-chu, Mr NG Leung-sing, Prof NG Ching-fai, Mr MA Fung-kwok, Mr Ambrose LAU and Miss CHOY So-yuk voted against the motion.

THE CHAIRMAN, Mrs Rita FAN, did not cast any vote.

THE CHAIRMAN announced that among the Members returned by functional constituencies, 25 were present, six were in favour of the motion and 19 against it; while among the Members returned by geographical constituencies through direct elections and by the Election Committee, 29 were present, 16 were in favour of the motion and 12 against it. Since the question was not agreed by a majority of each of the two groups of Members present, she therefore declared that the motion was negatived.

CLERK (in Cantonese): Clause 7.

CHAIRMAN (in Cantonese): As the new clause 5A proposed by Mr Albert HO has been negatived at Second Reading, Mr Albert Ho cannot propose further amendments to clause 7 as this will be inconsistent with the decision already taken.

CHAIRMAN (in Cantonese): I now put the question to you and that is: That clause 7 stand part of the Bill. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

CHAIRMAN (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the motion passed.

CLERK (in Cantonese): New clause 6A

Commission may act where committee fails to do so.

CHAIRMAN (in Cantonese): Secretary for Financial Services.

SECRETARY FOR FINANCIAL SERVICES (in Cantonese): Madam Chairman, I move that the Securities (Amendment) Bill 1998 be amended, as set out in the paper circularized to Members, by adding new clause 6A to act as new paragraph (c) of section 121A of the original Securities Ordinance. The amendment was proposed by Members during the Bills Committee stage. Under section 121A of the existing Securities Ordinance, if the Securities and Futures Commission (SFC) is satisfied that the committee of the Stock Exchange has failed or refused to exercise its powers, functions or duties in respect of the operation of the Compensation Fund, or unreasonably delayed the making of any determination in relation to the approval of claims applications, it may, on behalf of the committee of the SEHK, exercise any of the powers, functions or duties conferred to the committee under the Ordinance.

During the Bills Committee deliberations, some Members expressed the concern that this provision could not deter the committee of the Stock Exchange from, under section 113 (5A), setting an unreasonable upper ceiling in respect of compensation and feared that the claimants might be treated unfairly. We understand this concern though it did not tally with the track record of the Compensation Fund. In order to enable Members to have better confidence in the Bill, the Government, after consulting and obtaining the approval of the SFC and the SEHK, decided to add a new provision to section 121A of the Securities Ordinance in order to empower the SFC to exercise the powers, functions or duties of the committee of the SEHK if the committee unreasonably exercised its powers under section 113(5A). Madam Chairman, I believe this amendment will be supported by Members. Thank you.

CHAIRMAN (in Cantonese): I now propose the question to you and that is: That new clause 6A be read the Second time.

Does any Member wish to speak? Mr Albert HO.

MR ALBERT HO (in Cantonese): Madam Chairman, the Democratic Party supports the amendment moved by the Government.

I wish to relate the deliberations of the Bills Committee during its process of scrutiny. When we discussed the matter, we found that the authority responsible for vetting compensation applications would be the Compensation Committee of the SEHK and that the payment of compensation would be directly related to the levies paid by members of the SEHK in the future. Therefore, we were a bit worried that there might well be a conflict of interests in the compensation mechanism. We were also worried that claimants might feel insecure because they might think that they would not be protected by a fair and independent mechanism. At that time, some Honourable Members asked whether we should introduce some drastic changes, so as to help the SEHK in making structural reorganization.

As a matter of fact, I personally think that it is inappropriate to perform such a big surgery without first conducting a full-scale consultation exercise. And, I do respect Honourable Members' decision that we should withhold all institutional changes until the Government submits a consultation paper or discussion paper and until a relevant bill is drafted. That is why I think that we should accept the amendment moved by the Government as an interim measure. As proposed in the amendment, when the Compensation Committee fails to make reasonable decisions as required by the Ordinance, the SFC shall be empowered to take the place of the SEHK and exercise the power of granting compensation. I think that this arrangement is acceptable.

As have been pointed out by the Government, it will conduct a full-scale review of the Stock Exchange and the Futures Exchange. I hope that it will do so as quickly as possible, and I hope that the whole thing can be implemented as soon as possible too. I do call upon Honourable Members to support this amendment. Thank you.

CHAIRMAN (in Cantonese): Mr Ronald ARCULLI.

MR RONALD ARCULLI: Madam Chairman, I will be very brief. I think during the scrutiny by the Bills Committee of this particular Bill, we were concerned that the Securities and Futures Commission did not have sufficient power in limited cases to give directives to the Stock Exchange. The concern at that stage was that directives could be given in terms of public interest. But if it came to an issue of compensation and particularly in respect of the amount of the compensation, it may not bring in the issue of public interest. So at that moment, we suggested to the Government, and the Government accepted, that there might be a loophole. In the unlikely event, and I emphasize, in the unlikely event that the Compensation Committee has acted totally without foundation unreasonably, then there would be some counterbalances, and checks and balances, and that is the only purpose for this amendment.

Thank you.

CHAIRMAN (in Cantonese): Secretary for Financial Services, do you wish to reply?

(The Secretary for Financial Services indicated that he did not wish to reply)

CHAIRMAN (in Cantonese): I now put the question to you as stated. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

CHAIRMAN (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the motion passed.

CLERK (in Cantonese): New clause 6A.

CHAIRMAN (in Cantonese): Secretary for Financial Services.

SECRETARY FOR FINANCIAL SERVICES (in Cantonese): Madam Chairman, I move that new clause 6A be added to the Bill.

Proposed addition

New clause 6A (see Annex III)

CHAIRMAN (in Cantonese): I now propose the question to you and that is: That new clause 6A be added to the Bill.

I now put the question to you as stated. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

CHAIRMAN (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the motion passed.

CHAIRMAN (in Cantonese): Council now resumes.

Council then resumed.

Third Reading of Bill

PRESIDENT (in Cantonese): Bill: Third Reading. Secretary for Financial Services.

SECURITIES (AMENDMENT) BILL 1998

SECRETARY FOR FINANCIAL SERVICES (in Cantonese): Madam President, the

Securities (Amendment) Bill 1998

has passed through Committee with amendments. I move that this Bill be read the Third time and do pass.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the Securities (Amendment) Bill 1998 be read the Third time and do pass.

PRESIDENT (in Cantonese): I now put the question to you as stated. Will those in favour please raise their hands?

(Members raised their hands)

PRESIDENT (in Cantonese): Those against please raise their hands.

(No hands raised)

PRESIDENT (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the motion passed.

CLERK (in Cantonese): Securities (Amendment) Bill 1998.

MOTION

PRESIDENT (in Cantonese): Motion. Resolution under the Interpretation and General Clauses Ordinance. Secretary for Housing.

INTERPRETATION AND GENERAL CLAUSES ORDINANCE

SECRETARY FOR HOUSING (in Cantonese): Madam President, I move the resolution which has been printed on the Agenda.

The Estate Agents Ordinance, passed in May 1997, aims to improve the competence and professional conduct of estate agents, and to give greater protection to consumers involved in property transactions. The establishment of a licensing and regulatory system for the trade will be a milestone in the development of estate agency trade in Hong Kong.

To implement the licensing system, the Estate Agents (Licensing) Regulation was made by the Estate Agents Authority with the approval of the Secretary for Housing, and laid on the table of the Legislative Council on 21 October. The Regulation sets out the licensing requirements and other miscellaneous matters on licensing procedures. A Subcommittee of this Council was subsequently set up to examine the Regulation. I am grateful to Mr Andrew CHENG, the Chairman, and other members of the Subcommittee for their advice and useful comments in scrutinizing the Regulation. These amendments have already been discussed and agreed by the Subcommittee, and they should help to make the licensing system to be introduced more equitable.

The amendments include one major change concerning the definition of "existing practitioners" which will now include those who are practising estate agency work at the time of making application and those who have done estate agency work for a period totalling at least three months within a period of 18 months before the implementation date, that is, 1 January 1999. The amendments are necessary, taking into account the exceptional adjustment and shrinkage of the estate agency trade owing to changing economic conditions. This is in line with the objective to minimize unnecessary disruption to the trade.

The other two amendments are relatively minor. They relate to limiting the power of the Estate Agents Authority to extend the period within which a licensee has to comply with the licence conditions, and to defining the 12-month period within which an unsuccessful applicant cannot make a new application.

Madam President, I beg to move.

The Secretary for Housing moved the following resolution:

"That the Estate Agents (Licensing) Regulation, published as Legal Notice No. 328 of 1998 and laid on the table of the Legislative Council on 21 October 1998, be amended -

(a) in section 2, by repealing the definition of "existing practitioner" and substituting -

""existing practitioner" (現存從業員) means an individual, including a senior practitioner,

(a) has done estate agency work in Hong Kong for a period or periods totalling at least 3 months within the period of 18 months immediately before the implementation date; or

(b) is doing estate agency work in Hong Kong on the date of his making an application for the grant of a licence and the application is made before the implementation date;";

(b) in section 7 -

(i) in subsection (1) -

(A) by repealing "subsection (2)" and substituting "the other provisions of this section"'

(B) in paragraph (b) (ii), by repealing the fullstop at the end and substituting "; or";

(C) by adding -

"(c) the licence to be renewed is one granted or renewed under this subsection.";

(ii) by repealing subsection (4) and substituting -

"(4) Where an existing practitioner or a senior practitioner who does not comply with the relevant condition before 1 January 2002, satisfies the Authority that the reason he did not so comply was due to exceptional circumstances (including the case where the practitioner is incapacitated by ill health), then the Authority may, if it considers that it would be oppressive and unjust not to do so, grant an extension of time, expiring not later than 31 December 2002, within which period the practitioner must comply with the condition.";

(c) in section 15 -

(i) in paragraph (a), by adding "or" at the end;

(ii) in paragraph (b), by repealing "; or" and substituting a comma;

(iii) by repealing paragraph (c)."

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the resolution moved by the Secretary for Housing, as set out in the Appendix to the Agenda, be passed. Mr Andrew CHENG.

MR ANDREW CHENG (in Cantonese): Madam President, the House Committee formed a Subcommittee on the Estate Agents (Licensing) Regulation, the Estate Agents (Exemption from Licensing) Order and the Estate Agents Ordinance (Cap. 511) (Commencement) Notice 1998, and I am Chairman of this Subcommittee. I will now highlight the result of the deliberations of the Subcommittee.

The Estate Agents (Licensing) Regulation provides for the licensing of estate agents and salespersons.

During the scrutiny period, a great part of discussions was on the definition of "existing practitioner" in section 2. Subcommittee members generally consider the definition too loose as the provision allows a person who has only been in the estate agency trade for one day in 1998 to obtain a licence, thus enabling him to practise in the trade for the next three years. Members therefore proposed to set a minimum period requirement to ensure that any licensed practitioner will have reasonable experience in the trade.

Madam President, the Administration is very clear about members' concern in this respect. They pointed out the Regulation had already provided that all existing practitioners must pass a relevant examination within three years and all licensees would in future be required to comply with a set of over 60 regulations, so consumer interests would be given a certain degree of protection. In view of the Administration's explanation, most members realized that with less than two months before the implementation of the licensing system, an imposition of any licensing requirements that would stir up confusion in the trade would affect the operation of the whole licensing system. After repeated negotiations with the Administration, the Subcommittee accepted today's resolution proposed by the Administration to amend the Regulation to the effect that an existing practitioner who has done estate agency work in Hong Kong for a period totalling at least three months within the period of 18 months immediately before 1 January 1999 can be licensed to engage in the work. Moreover, to avoid existing practitioners losing their jobs because of the failure of meeting the minimum period requirement on 1 January 1999, the Subcommittee has also agreed to the Administration's amendment that if an existing practitioner is doing estate agency work in Hong Kong on the date of his making an application for the grant of a licence, he will also be licensed to continue with his work.

Madam President, other than section 2, the Administration has also accepted the Subcommittee's proposal to amend section 7(4) of the Regulation to spell out the condition of granting an extension of time within which an existing practitioner must obtain a licence. The Government will also amend section 15 to avoid obstructing a practitioner's appeal against a refusal of licence.

In summary, Madam President, today's resolution is the result arrived at within a matter of nine days between the Subcommittee and the Administration after three meetings. The Subcommittee supports the resolution of the Administration moved under this Agenda.

Madam President, I have spoken just now in the capacity of the Subcommittee Chairman. With your permission, I wish now to speak not as the Chairman. As the Chairman of the Bills Committee on the Estate Agents Bill of the Legislative Council in 1996, I would like to comment on this resolution regarding the licensing system. We may still remember that most members of the Bills Committee on the Estate Agents Bill then were of the opinion that the licensing conditions set out by the Estate Agents Bill should be strict rather than relaxed. Among the members of the Subcommittee this time, I am one of the minority who think that the definition of an existing practitioner should be one who has at least three months' experience in estate agency work during the 12-month period rather than within 18 months immediately before 1 January 1999. However, owing to the glib talks and vigorous lobbying of the officials of the Housing Bureau, especially the Principal Assistant Secretary, Housing Bureau, Mrs Eva TO, who has repeatedly cited the limited time and the disruption to the trade as the reasons, the Subcommittee has arrived at today's result.

I have to stress that the principal purpose of the licensing system is to improve and establish the quality of the estate agency work. We do not wish to see Members being deprived of the chance to have a thorough debate in the Legislative Council to come up with a well-conceived licensing system for estate agents because of the limited time. I hope that the Administration will, when submitting the subsidiary legislation relating to the Estate Agents Ordinance to the Legislative Council for discussion and endorsement, allow Members more time to discuss and debate in order to formulate a sound licensing system so that the estate agency trade can go further forward.

Madam President, I so submit.

PRESIDENT (in Cantonese): Does any other Member wish to speak? Mr LEE Wing-tat.

MR LEE WING-TAT (in Cantonese): Madam President, I rise to speak in support of the resolution moved by the Secretary for Housing. First, I agree with the Honourable Andrew CHENG, and I have already put forward my views at the meetings of the House Committee. This time, very much reluctantly, I would accept the excuse of the Housing Bureau that we cannot afford a long scrutiny period because we are hard-pressed by time. But I must make it clear in this Chamber that we are not going to accept this excuse every time when it is advanced again in the future because we really need time to scrutinize principal ordinances and their subsidiary legislation, and we must also consult the sectors involved whenever necessary. A mere two weeks will not be sufficient for the Legislative Council to deal with subsidiary legislation or regulations which are of such considerable importance. I hope the Government will understand our feelings.

Second, I wish to discuss the stringency of the Ordinance. I am of the view that the stringency of the Ordinance is just about right. But I also hope that our friends in the estate agency trade can appreciate that we have considered their circumstances quite adequately this time around. To begin with, under the Ordinance, with effect from January 1999, practitioners in the estate agency trade are required to obtain licences by examination. But anyone who once worked as a estate agent for three months in the 18-month period before January 1999 will be allowed to sit for the licensing examination. So, in a way, those who are genuinely engaged in the trade or those who really want to work as estate agents will face no restrictions at all. I think the Legislative Council is really very lenient to the occupation this time around. So, I hope that those engaged in this occupation will refrain from pressing the Housing Bureau to further relax the requirements of the licensing examination. As far as I am aware, the licensing examination will be in the form of multiple-choice, very much like the written part of the driving test, in which very few people fail. I hope that those in the occupation will make more efforts to raise their own professional standards.

The third point I wish to raise received relatively little attention during the scrutiny of the Regulation, and this concerns the fact that the ambit the Regulation does not cover estate agents solely engaged in transactions of outside-Hong Kong properties, and I did raise this point in the House Committee for discussions. I am a bit worried because if people are not aware of this fact, they may wrongly think that following the enactment of the Regulation today, with effect from 1 January 1999, the dealings of property agencies in relation to outside-Hong Kong properties (especially mainland housing properties) will also be put under the supervision of the law. I hope that both the Housing Bureau and the estate agency trade will conduct more publicity on this point, so as to enable members of the public to realize that the legislation to be enacted today is mainly concerned with transactions of local properties. And, even if I were to be criticized for being long-winded, I must once again express my hope that the Housing Bureau can draw up a piece of legislation on the regulation of outside-Hong Kong property transactions and submit it to the Legislative Council as soon as possible. The reason is that though the problem relating to failed mainland housing projects first surfaced as early as 1993-94, it has not really been solved completely. Occasionally, the press still reports that some local buyers of failed mainland housing projects are still having problems. Even though more people now choose to buy completed housing properties in the Mainland, and there have not been too many complaints about failed mainland housing projects as a result, this does not necessarily mean that no further problem will arise in the future. So, I hope that the Bureau can submit a relevant regulation to the Legislative Council as quickly as possible.

My final point is that following the enactment of this legislation and its implementation on 1 January, the Housing Bureau or estate agents should carry out more publicity to tell people that the provisions are applicable only to transactions in local properties, and that outside-Hong Kong properties are not covered. Thank you, Madam President.

PRESIDENT (in Cantonese): Secretary for Housing, do you wish to reply?

SECRETARY FOR HOUSING (in Cantonese): Madam President, I perfectly understand that Members would like to have more time to consider the regulation relating to the estate agency trade.

The Housing Bureau is also well aware of this message. I will relate this situation to the Estate Agents Authority and hope that they can speed up their progress of work so as to give Members more time for deliberation.

As for other regulations, such as those mentioned by Mr LEE Wing-tat, the Housing Bureau will deal with them expeditiously and formulate regulations in respect of relevant issues. Thank you, Madam President.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the resolution moved by the Secretary for Housing, as set out in the Appendix to the Agenda, be passed.

Will those in favour please raise their hands?

(Members raised their hands)

PRESIDENT (in Cantonese): Those against please raise their hands.

(No hands raised)

PRESIDENT (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the resolution passed.

MEMBERS' MOTIONS

PRESIDENT (in Cantonese): Members' motions. Two motions with no legal effect. I have accepted the recommendations of the House Committee as to the time limits on speeches for the motion debates. The movers of the motions will each have up to 15 minutes for their speeches including their replies, and another five minutes to speak on the amendments. The movers of amendments will each have up to 10 minutes to speak. Other Members will each have up to seven minutes for their speeches. Under Rule 37 of the Rules of Procedure, I am obliged to direct any Member speaking in excess of the specified time to discontinue.

First motion: Amending legislation to regulate wage reductions. Mr CHAN Wing-chan.

AMENDING LEGISLATION TO REGULATE WAGE REDUCTIONS

MR CHAN WING-CHAN (in Cantonese): Madam President, I move the motion which has been printed on the Agenda.

Over the past few months, many employees in Hong Kong have experienced something unprecedented in more than a decade, that is, a wave of wage cuts, bonus cuts and reductions of benefits. Some employers even blatantly cut the wages of employees by 10% to 20%. Employees who refuse would be dismissed at once. Other employers use all kinds of means to cut staff wages and benefits such as cutting over-time pay, basic salaries, commission and various allowances. Towards the end of the year, more and more companies have resorted to cutting the double pay or bonuses of staff.

One piano company is an obvious example. It has forced its over 100 staff to accept a 70% cut of their double pay. Despite the assistance by Members of this Council in the negotiations, it has not changed anything. I remember a news photo of the press conference announcing the results, with the Honourable LEUNG Yiu-chung, representatives of the employer and employees on it. The caption said "speechless and resigned". I felt rather sad too when I saw the photo. It is extremely unreasonable that the year-end bonus of employees which they were going to collect in a month or so should be withheld by the employer arbitrarily. This has also set a very bad precedent which is obviously detrimental to employees' interests. I said at that time that I hoped employers would not follow this example in reducing the year-end bonus and that it would not lead to a wave of wage cuts. No sooner had this died down than the Hongkong Telecom (HKT) quickly took the hint and announced the day before yesterday that it had proposed to staff that the year-end bonus should be abolished in favour of a bonus system linked with profits. Under the proposal if the company's profit grows by 3% to 5%, staff will only get half-a-month's salary as bonus. They will get a one-month bonus only if profit growth is between 5% to 12%. After learning about the above figures, we felt that the HKT had set the profit growth targets too high. Under the present difficult business environment, it would be impossible for staff to get a one-month bonus.

No wonder that spokesmen of three unions including the HKT Employees Unions pointed out that "staff would not get the extra month's bonus next year, over the next three to four years or ever". In my view, HKT has merely repackaged the "wage reduction plan" which was shelved last time. This is wage reduction and scrapping the double pay bonus in disguise and is even worse than the first wage reduction package. The above-mentioned three unions have good reason to reject HKT's change of the double pay bonus system. Despite its huge surpluses, HKT has adopted such unreasonable methods to cut staff wages and benefits. I fear that other companies will follow suit. I hope that HKT will listen to and accept the views of the unions or the proposals they will make in future to arrive at a satisfactory solution to the question of staff wages and benefits. This will be useful to the employers, employees and the community alike.

During the process of wage cuts, employees are often in a passive position and lack bargaining power. When the wave of wage cuts first began, some companies merely gave notice to their staff and did not consult them at all. Sometimes, they had to sign an agreement and were not even given any time to think about it. For instance, in August this year, a rather well-known company selling electric home appliances changed its commission system. Some staff complained to us that the company asked them to sign an agreement right on the spot. If they refused to sign, they were not allowed to leave or go out. It was just like keeping them in custody. It is utterly shocking that some companies would coerce their staff with such high-handed measures in the '90s.

From January to September this year, the Hong Kong Federation of Trade Unions (FTU) received 885 complaints about employers unreasonably altering employment contracts, and increasing the number of working hours and the workload. The largest number of complaints fell to reduction of wages and benefits by employers. The number of complaints in the third quarter was much greater than that in the previous two quarters.

There were 451 complaints in the first and second quarters, while there were 404 complaints in the third quarter alone. The largest number of complaints was about employers being in arrears with wage payment. This was followed by complaints against wage reduction. The sectors most seriously affected were of course retail, department stores, hotels and trade, followed by the catering sector. Many employees have accepted pay cuts or changes in the conditions of employment in order to keep their jobs. I believe the majority have not lodged complaints with the Labour Department or trade unions. Otherwise, the situation would be much worse than the examples that I have cited and all sectors would be involved.

In this wave of wage cuts, the more fortunate employees have had 5% to 6% of their wages cut, while some have had their wages cut by 20% or more. Under these circumstances, employees have to shoulder a heavy financial burden, especially those of the middle and low income groups who could just make ends meet. It is very difficult to save on regular expenses such as children's education and transport or medical expenses. Once their family members have to accept pay cuts and their income is reduced, they will find it difficult to meet all expenses. Still, they might manage for a while if they cut back on meals and clothings. For employees who have to make mortgage repayments for their home, if they cannot afford to make the repayments after accepting wage cuts, they would have no place to live and would even get into debts. Their plight is even worse.

In the process of wage reduction, some employers are even so unscrupulous as to dismissing employees after introducing wage cuts, so as to save considerably on long service payments or severance payments.

Although the Labour Department has formulated a set of guidelines on wage reductions, it has no legal effect and is virtually useless. For instance, the guidelines stipulate that employers must give seven to 14 days' notice to employees for wage reductions. However, what if employers do not follow the rules and ask employees to reply or decide immediately on receipt of the notice? Employers are under no legal obligation and employees have no protection. They can do nothing about it. Madam President, I believe the Employment Ordinance should be amended so that employees will be given sufficient time to consider the changes and discuss with their colleagues, family, friends and, most important of all, the trade unions. What I mean by sufficient time is about 20 days. However, it must be protected by the law and not just laid down in "guidelines" that have no legal effect.

On the issue of wage cuts, we call for the enactment of legislation to protect employees, stipulating that employers must give an undertaking to their employees to revert their wages and benefits to the original levels after the companies have tided over the period of difficulties, that is, after the economy has recovered to a certain extent. In circumstances where employees have to be laid off or made redundant, their severance payments or long service payments should be calculated on the basis of their original wages before reduction. This should be complemented by amending the Protection of Wages on Insolvency Ordinance to protect employees' rights. We know that the present economic situation is bad. If there is no alternative to wage cuts as a means to relieve the financial difficulties of companies and if employers are willing to consult employees rather than forcing them to accept wage cuts, I am sure that most staff would be prepared to talk to their companies and work out with their employers a plan to "weather the hard times together". However, even if staff are willing to "share adversity" with their employers, are employers ready to "share prosperity" with their staff? Wage cuts are indeed only a temporary solution. Employers should be required to give an undertaking to revert their employees' wages and benefits to the original levels after the companies have improved their profits or turnover. This way, the morale of staff will not be affected. Instead, it will give them an incentive to share the trouble as people in the same boat. Employers can certainly create such a situation where both sides stand to win.

What I am concerned about is the protection of staff after wage reductions. If a company shuts down or lays off staff after wage cuts are effected, severance payments and long service payments will be calculated on the basis of the existing income of staff under existing law, that is, their income after the wage reduction. Employees will lose a big slice of their severance payments and long service payments if they are calculated in this manner.

Therefore, the FTU urges the Government to amend the law expeditiously, so that in case employers dismiss their employees after wage cuts or reduction in benefits, the long service and severance payments should be calculated on the basis of their original wages before reduction. And if several wage cuts have been made, such payments should be calculated on the basis of their wages before the first wage reduction.

With regard to the Protection of Wages on Insolvency Ordinance, payments are now calculated on the basis of employees' wages at the time they are laid off. If they are calculated on the basis of their wages after reduction, employees applying for ex-gratia payments from the Protection of Wages on Insolvency Fund (the Fund) will receive a reduced amount of payment. The FTU considers that the Ordinance should be amended expeditiously to plug the loopholes and protect employees' interests.

At present, the Fund still has a large surplus of $820 million, in addition to an annual income of over $100 million. But since the number of applications for payment from the Fund has increased considerably this year, its financial position might become tight. The Government should inject capital into the Fund to cope with future applications.

If the economic environment fails to improve in the short term, the number of cases of layoffs and wage reductions is bound to rise and rise constantly. As the end of the year draws near, there will be more and more cases of employers scrapping or reducing the double pay and other bonuses. An amendment to the law therefore brooks no delay. Let me repeat: The FTU urges the Government to expeditiously amend the Employment Ordinance and the Protection of Wages on Insolvency Ordinance, so that employees will be given reasonable protection at an early late.

With these remarks, Madam President, I beg to move. Thank you.

Mr CHAN Wing-chan moved the following motion:

"That, in view of the successive cases of private companies reducing their employees' wages and benefits on the grounds of cutting costs, this Council urges the Government to:

(i) expeditiously amend the Employment Ordinance, with a view to ensuring that employees will be given sufficient time to consider the changes in the conditions of employment initiated by employers, and stipulating that employers must give an undertaking to revert their employees' wages and benefits to the original levels after the companies have tided over the period of difficulties; and in circumstances where employees have to be laid off or made redundant, their severance payments and long service payments should be calculated on the basis of their original wages before reduction; and

(ii) amend the Protection of Wages on Insolvency Ordinance to stipulate that ex-gratia payments should be calculated on the basis of the employees' existing wages or their wages before reduction, whichever is higher."

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

DEPUTY PRESIDENT (in Cantonese): I now propose the question to you and that is: That the motion moved by Mr CHAN Wing-chan, as set out on the Agenda, be passed.

DEPUTY PRESIDENT (in Cantonese): Members have been informed by circular on 13 November that Mr Andrew CHENG has given notice to move an amendment to this motion. His amendment has been printed on the Agenda. In accordance with the Rules of Procedure, the motion and the amendment will now be debated together in a joint debate.

I now call upon Mr Andrew CHENG to speak and to move his amendment. After I have proposed the question on the amendment, Members may then speak on the motion and the amendment. Mr Andrew CHENG.

MR ANDREW CHENG (in Cantonese): Mr Deputy, I move that Mr CHAN Wing-chan's motion be amended, as set out on the Agenda.

Mr Deputy, a month ago, in the midst of a wave of wage reductions and retrenchments, the authorities concerned already indicated that it was actively preparing the publication of a set of guidelines on wage reductions and retrenchments, stressing that the guidelines should suffice to bring about more talks between employers and employees on the issue of wage reductions and retrenchments. At that time, the Democratic Party repeatedly pointed out that the guidelines were insufficient and that they could not ensure that employers would comply since they had no legal effect. As it turned out, today, one month afterwards and three weeks after the publication of the guidelines, we have not seen much improvement on the old situation. Employers continue to wield the axe at their employees. Some unscrupulous employers turn out one proposal after another to reduce wages or benefits on the pretext of cutting costs, when in fact they are trying to maintain high profits. Due to the continuing high unemployment rate, many employees are forced to compromise for fear of losing their jobs.

Mr Deputy, in a street survey conducted by the Democratic Party last week, it was found that of the 306 people interviewed, one third had had their wages or benefits reduced by their employers in the last month alone. Despite calls by the relevant authorities and the publication of a set of guidelines on wage reductions and retrenchments early this month advising employers to give employees seven to 14 days' notice for wage reduction, nearly 63% of the employees who had had their wages or benefits cut claimed that they had not been given any notice by their employers. This shows that the majority of employers ignore these guidelines.

Urgent need for legislation to provide protection

Mr Deputy, the day before yesterday, the Government Economist, Mr TANG Kwong-yiu admitted in Kuala Lumpur that another real adjustment of wages was expected before the end of the year and the Chinese New Year. Clearly, in the next one to two months, the wave of wage reductions will further threaten the general wage earners. Over the past year, the unemployment rate rose continuously and wages kept falling, while the bargaining power of employees constantly declined. How long must the people put up with this before the Government will admit to the importance of legislating to protect employees from wage reductions and layoffs? Mr Deputy, the guidelines say that "it is an offence for employers to unilaterally introduce wage reductions without securing their employees' agreement". At a time of a high unemployment rate and low bargaining power of employees, how can employees afford to say "no"? The so-called flexibility to which the guidelines refer will only give unscrupulous employers the opportunity to oppress employees who have no bargaining power.

Mr Deputy, although it was cloudy last night, thousands of people flocked to different spots in Hong Kong to get a glimpse of the Leonid meteor shower. The clouds did not disperse until four or five o'clock in the morning, when one finally caught sight of meteors slicing across the sky. Mr Deputy, is the Government asking us to wait for the amendment to the law, just as we waited for the meteors hoping that lady luck would one day smile on us?

Maybe the Government does not have a miraculous cure for unemployment. However, it should at least strengthen the statutory protection for employees so that they will not be unreasonably exploited in the midst of an economic downturn. Still, the Government refuses to legislate and continues to stress the use of the guidelines to mediate between employers and employees. Such an indifferent attitude is really disappointing. Turning a deaf ear to the frequent reports of wage reductions, reduction of double pay and the benefits of employees, the Government insists that the guidelines are sufficient. Is this the way a responsible government should behave? We can say that the guidelines are just like wastepaper, and the Labour Department an ostrich oblivious to the calls of employees.

From the information that I have gathered, since 1992 (I counted only from 1992 onwards), that is, during the past six years, as many as 47 major and minor amendments have been made to the Employment Ordinance. Out of the over thousand ordinances in Hong Kong, this particular ordinance has been amended relatively frequently. Due to the constantly changing social environment, there are changing demands for employees' benefits and protection. The recent wave of wage reductions that has swept our labour force is unprecedented. To protect employees effectively, why should we not make one more amendment?

To weather the hard times together under the principle of fairness

Mr Deputy, many employers' organizations and the Government call on employees to show understanding for their employers in a time of economic downturn and to weather the hard times together with their employers. Actually, if companies are in temporary financial difficulty, I am sure that a lot of employees will be accommodating and be prepared to weather the hard times together with their employers. However, at present, many employers have adopted the attitude of enjoying prosperity themselves while asking their employees to share the adversities. We stress that even if we have to weather the hard times together, we must have a fair system with adequate protection for employees. The Government should stipulate that once the financial conditions of companies have stabilized, employers should increase employees' wages and benefits to the original or higher levels. If employees were to reconcile themselves to their sacrifices, there should at least be a hope of a change for the better.

Mr Deputy, to tackle the issue of retrenchment after wage reduction, the Democratic Party proposes two additional methods of calculation on top of the basis of calculation under the existing Employment Ordinance. If an employee has had his wages cut and then laid off, he may choose to have his severance payments and long service payments calculated on the basis of his wages prior to the first wage reduction during a period of two years prior to such layoff or his average income for the 12 months prior to the layoff. Actually, under the existing Employment Ordinance, employees who are laid off may choose to have their severance payments calculated on the basis of their last month's wages or their average monthly income of the 12 months prior to the wage reduction. We are merely applying the spirit of the Employment Ordinance to protect employees who have had their wages reduced.

The Democratic Party proposes that it should have retrospective effect for a period of two years. Since we allow employees who have had their wages reduced before being laid off to choose to have payments calculated on the basis of their average income of the 12 months prior to the first wage reduction, we are in effect proposing that this should have retrospective effect for three years. Some people may ask of course why two or three years but not four or five years. We wish to stress that no matter where we draw the lines, there is bound to be argument. A proposal with a specific term is more desirable, since it would make the law clearer to employers and employees and avert unnecessary disputes. The Democratic Party considers that it is reasonable to extend the retrospective period up to three years. Most academics and analysts have forecast that Hong Kong's economy will recover in two years. A two-year period will be sufficient to plug loopholes and prevent some "unscrupulous employers" from saving on severance payments and long service payments through wage reduction.

The related Protection of Wages on Insolvency Ordinance should also be amended in the same spirit to ensure that ex-gratia payments to employees will not be affected by wage reduction.

Mr Deputy, when the meteor shower lights up Hong Kong's night sky in these days, many employees and I share the wish that employees and employers would weather the hard times together in a fair environment with reasonable protection. I hope this wish will come true soon with the arrival of the meteor shower.

Mr Deputy, with these remarks, I call on Members to support the Democratic Party's amendment.

Mr Andrew CHENG moved the following amendment:

"To delete "private companies" and substitute with "wage reduction in the past year, the failure of existing labour legislation to provide reasonable protection for employees whose wages have been reduced, and the continuing trend of employers"; to delete "expeditiously" and substitute with "immediately"; to delete", with a view to ensuring that employees will be given sufficient time to consider the" and substitute with "to provide that employers must give at least 14 days" written notice to their employees when initiating"; to delete "initiated by employers" and substitute with "thus allowing them sufficient time to consider the wage reduction proposals,"; to delete "stipulating" and substitute with "stipulate"; to delete "give an undertaking to revert their employees'" and substitute with "increase the"; to add "of the employees whose wages have been reduced" after "wages and benefits"; to add "or higher" after "to the original"; to delete "companies" and substitute with "companies" financial conditions"; to delete "tided over the period of difficulties" and substitute with "stabilized"; to delete "in circumstances where" and substitute with "to provide that if"; to delete "have to be" after "employees" and substitute with "whose wages have been reduced are"; to add "they can choose to have" after "laid off or made redundant,"; to delete "should be" from "long service payments should be calculated"; to delete "original" from "on the basis of their original wages"; to add "the first" after "wages before"; to add "effected during a certain period of time prior to being laid off, so that the rights and benefits of employees will not be affected by wage reductions" after "reduction"; to delete "to stipulate" from "amend the Protection of Wages on Insolvency Ordinance to stipulate" and substitute with ", with a view to ensuring"; and to delete "should be calculated on the basis of the employees" existing wages or their wages before reduction, whichever is higher" and substitute with "to employees under the Ordinance will not be affected by wage reductions"."

DEPUTY PRESIDENT (in Cantonese): I now propose the question to you and that is: That the amendment moved by Mr Andrew CHENG be made to Mr CHAN Wing-chan's motion.

Does any Member wish to speak? Mr LAU Chin-shek.

MR LAU CHIN-SHEK (in Cantonese): Mr Deputy, as the year is fast approaching the end, I believe the wage earners will only have "bitterness" to welcome in the new year. A friend of mine joked with me recently that it would be very hard for the Honourable SZETO Wah and me to write the Lunar New Year scrolls. When I wish to write "Happy New Year", the one to receive it would say, "How can you be happy when your salary plunges straight down?" When I wish to write "wealth keeps flowing in", he would say, "Do you mean those who sack the staff and cut their wages have wealth keep flowing into their pockets?" When I wish to write "rise higher and higher", he would say, "I am most worried that the unemployment rate will rise higher and higher." It can be said that the wave of wage reductions and retrenchments has driven everyone into a state of anxiety and all have become badly frightened.

Recently, it appears that there is a phenomenon that irrespective of the topic this Council's motion debates, colleagues can begin their speeches with "Since the onset of the Asian financial turmoil, ......" In fact, the so-called "Asian financial turmoil" has also become the best excuse for the various enterprises to take advantage of the economic downturn to cut the workers' wages or even sack the workers in order to "lower the operation costs of the company" and "enhance the competitiveness".

The Guidelines on "What to do if wage reductions and retrenchments are unavoidable" issued by the Labour Department appear to be objective and neutral and try to balance the interests of the employer and employee. But in fact, the premise of the guidelines themselves is to affirm the "direction of wage reduction", ensure that "enterprises have to lower their operation costs" and affirm the practice of "the employers to dismiss the employees"! I have repeatedly ask the Government: Do they know whether a company is really in a very bad financial shape and whether a company has no other alternatives but to reduce the workers' wages or sack some workers in order to survive? The Government's answer is that they "will not look at the performance of the company"! I would then like to ask: If the Government does nothing at all to find out whether an enterprise really has trouble in its operation, and only one-sidedly affirms that it is necessary to lower the operation costs of the whole community, does it imply that it has already assumed that "wage reductions and retrenchments" are reasonable and what matters is only whether the staff of these companies have been notified in advance? I believe that the workers are willing to tide over the rough times with the employers together, provided that the company is genuinely faced with financial difficulties. But they can never tolerate a company laying off its workers when its business is still profitable or even reaping huge profits. At the same time, the Government also needs to consider assisting the enterprises to adopt other cost reduction measures, such as lowering the rents, which can be much more effective than reducing the wages. Why does the Government not make a greater effort in this regard?

The Labour Department's "guidelines on wage reductions" have made no mention whatsoever about the employees' right to know the company's performance, neither have they mentioned the employers' obligation to disclose the relevant data to their staff to prove that the company indeed has operational difficulties. On the contrary, in the foreword of the guidelines written by the Commissioner for Labour, one paragraph reads, "In an economic downturn, employees should show understanding of employers' problems and co-operate with employers to tide over tough times." I would like to ask: Is the Government asking employees in the whole territory to co-operate with the employers to allow themselves to be trampled upon? Is this what the Government has in mind?

In fact, the opinions expressed by government officials and Members of the Executive Council in the last couple of days have further substantiated the argument that the Government is opening the way for enterprises to reduce staff wages. The day before yesterday, the Government Economist, Mr TANG Kwong-yiu, who accompanied the Chief Executive to Malaysia to attend the Asia Pacific Economic Co-operation meeting, openly commented that "the wage reduction by business undertakings is a step in the right direction" and that "in the process of an economic adjustment, the labour sector has to do its part and realize the importance of the wage adjustment". That very same day the management of the Hong Kong Telecommunication Limited (HKT) proposed a "proposal on salary cuts" again. I would like to ask whether the argument of the Government Economist was to create the momentum subjectively or objectively for the management of HKT. Yesterday, Mr Antony LEUNG, Member of the Executive Council, even more explicitly showed his support for the wage reductions and retrenchments in his remarks. Mr LEUNG was reported to have said, "Because of the rise in unemployment, more people are unable to find jobs of salaries comparable to their former jobs after they have been laid off, and so they have to look for jobs of a lower salary level. This will bring to an overall reduction in salaries in the whole territory." He also added, "As for how much will be reduced, it will depend on how capable you are. If you have not the capability, sorry, there is no place for you!"

The inclination of the Chief Executive and the Government towards wage reductions could not be more explicit, and that is, to help the bosses of big companies to pressurise the employees and take the opportunity to sack them! The Government's repealing of the ordinance on collective bargaining, refusal to set a minimum wage, creating the momentum for the employers while issuing the "guidelines on wage reductions", and so on have clearly shown which side the Government is on ─ to suppress the labour sector. The workers simply do not believe that they can rely on the Government's guidelines on wage reductions alone to protect their interests and rights. I have to reiterate that only by unifying themselves and joining their powers together can the labour sector best protect their rights and interests.

Mr Deputy, in an economic downturn, I am also worried that the Government will take advantage of the hardships faced by the lower social strata to create a social division, a situation which I feel the general public should guard against. At present, the community is filled with all kinds of false and specious arguments such as to "lower the operation costs", companies have to reduce workers' wages, our competitiveness is affected by the excessively high salaries of the Hong Kong workforce, the Comprehensive Social Security Allowance (CSSA) will "nurture lazy bones" and so on. As a result, the employers suppress the employees' salaries, many people support the cut in the CSSA payments received by the lower classes, people also want to cut the salary of domestic helpers, and even owners' corporations of buildings are also inviting new tenders in order to lower the pays of the caretakers and cleaning workers. I have to point out here that in an economic downturn, the Government should put in even more resources and support to prevent the living quality of the lower strata from deteriorating. But it is a shame that the Government not only refrains from helping the lower strata but even creates a social division, hoping that we will "pass down the pressure from one stratum to another", so as to allow the upper strata of society to continue enjoying the absolute large proportion of the resources.

I have to reiterate that only by unifying themselves can the general public and workers protect their well deserved rights and interests. The coalition movement of the three trade unions of HKT in this afternoon was a good start. Mr Deputy, I so submit.

DEPUTY PRESIDENT (in Cantonese): Mr HO Sai-chu.

MR HO SAI-CHU (in Cantonese): Mr Deputy, after studying the motion moved by the Honourable CHAN Wing-chan on "amending legislation to regulate wage reductions" and the amendment moved by the Honourable Andrew CHENG, the Liberal Party cannot support either the original motion or the amendment.

As we all know, it has always been the policy of Hong Kong to pursue a free economy where investors are given the greatest freedom possible to compete in the market. The Government does not intervene in the management and operation of enterprises as long as they do not go against the public interest, and everything is left to the market to decide. One of the factors that contribute to the success of Hong Kong is that in this pluralistic society, all sectors are allowed to live in harmony and pursue interests together. In respect of the relations between the employer and employee, we have all along strove for harmony and communication between them, settling industrial disputes by means of negotiation, helping them arrive at a situation where both can benefit. This social culture must continue to be preserved and allowed to develop.

In an economic downturn, employers have to lower costs in order to maintain competitiveness in the market to avoid being driven out. In such difficult times, employees also have to face the pressures of retrenchments and wage reductions. It is of course a pain to employees to face such threats, but we understand that employers are also under great social pressures in making the decision to lay off the staff or reduce their wages. They must pay a price in taking these actions.

The success or otherwise of a business undertaking hinges on the working attitude of its workers, their morale and their spirit of striving for a common goal. Big enterprises or public utilities companies also need to care about their image in the public's eyes. Insofar as the principles of business administration are concerned, retrenchment and pay cuts are difficult decisions made only when there are no other alternatives, as after these actions are taken, the company may have to face declined staff morale, as well as criticisms and pressures from the public.

Recently, the Singaporean Government has ordered a 15% across-the-board cut in salaries offered by all enterprises in order to enhance its competitiveness and revive the economy. Is such a directive economic strategy suitable for Hong Kong? I believe that the situations in Hong Kong and Singapore are different. Singapore can give an administrative order to lower the wages across the country, but it is inappropriate for Hong Kong to follow suit blindly because the wages in Hong Kong have always been regulated by the market force where which rise and fall reflect the labour market's supply and demand as well as the economic situation. When the environment is unfavourable and the prospects are uncertain, an overall downward adjustment in wages is unavoidable in order to enhance the competitiveness. But when the prospects are positive and the economy bounces back, a rise in wages is also certain. In Hong Kong where its long-standing policy is to maintain a free economy and an open market, both the employer and the employee have to face the ups and downs of the economy together. Basing on the above understanding, the Liberal Party opines that in the adjustment process, the Government should not and need not intervene by way of legislation or legislative amendments in order not to tarnish Hong Kong's image as a free economy and jeopardize the soundness and stability of our free market mechanism.

In the wage adjustment process, the Government should play the role of a "mediator" between the employer and the employee by providing all appropriate guidance possible, mediating and trying to establish the communication between these two parties in a company when conflicts arise, so as to help them come up with a solution through negotiation. This is in line with the principle of a free economy and suits the goal of maintaining social harmony.

Recently, in consultation with the Labour Advisory Board, the Labour Department has provided some guidelines for the employer on the issue of wage reduction. This is a right approach. The Labour Party is of the view that the Government has played its role well during the economic adjustment in its handling of conflicts between the employer and employee through mediating, sorting out their differences and issuing guidelines. If again the Government is to handle the issue by means of legislation or legislative amendments, it will give investors an incorrect message that the Government is trying to intervene and influence the operation of the free market, which in turn will only jeopardize its flexibility and do all harm but no good to it.

Legislation is a solemn matter. Laws are most particular about clarity and those with confusing wordings are not only hard to enforce but also prone to be abused. The original motion and the amendment provide that employers must give an undertaking to revert their employees' wages and benefits to the original levels after the companies "have tided over the period of difficulties" or when "companies' financial conditions have stabilized". But when do we consider that a company has "tided over the difficulties" or its "financial conditions have stabilized"? How do we measure it? Every company caught in financial difficulties can be in a different situation, how can we standardize the definition through legislation?

Even so, if a company violates this law, what penalties can the Government impose on it? If a fine is to be imposed, how is the fine determined? If the intent of legislation or legislative amendments is to protect the employees' interests, we have to consider whether the fines or other punitive provisions will put a company into further difficulties, thereby putting the employees in an even worse position.

To address the problems between the employer and employee, it takes more than legislation, legislative amendments, regulation or punishment. We must understand that under the economic structure of Hong Kong, the employer and the employee need to conduct negotiations on the common ground of maintaining their mutual interests. During this process, the Government should help to establish communication between both sides, mediate and sort out their misunderstandings and conflicts and help them arrive at a consensus, so that both sides can tide over the difficulties together with one mind in the midst of these economic difficulties.

If the Government is to introduce legislation to regulate the wage reductions, what would the employers think? They will think that to enable more people to hold a job, it is better to reduce the wages of the workers than to lay them off during these economic difficulties. However, over the issue of wage reduction, the employers wish to maintain the flexibility of the market. If legislation is introduced to provide rigid regulation on wage reduction, employers will feel that given the great constraints imposed by the law, they might as well sack the workers instead. In the end the workers will suffer even more. The lack of flexibility in determining the increase and decrease of wages will scare away international investors from making investments in Hong Kong.

In conclusion, the Liberal Party thinks that the free market system in Hong Kong can regulate the wages and benefits of workers flexibly without any regulation effected by legislation or legislative amendments.

With these remarks, I object both the original motion and the amendment.

DEPUTY PRESIDENT (in Cantonese): Mr LEE Kai-ming.

MR LEE KAI-MING (in Cantonese): Mr Deputy, at present the Hong Kong economy is experiencing a painful adjustment process, and the position is still volatile. Although Hong Kong people can see light at the end of the long tunnel, their confidence is nevertheless weak because the unemployment rate is still rising. The Government has been acting positively in stabilizing labour relations but it has not done its best yet. The Labour Department recently released a set of guidelines on "What to do if wage reductions and retrenchments are unavoidable" (the Guidelines). The Guidelines (the Honourable LAU Chin-shek has mentioned much of what is said in it) calls for both employer and employee to "work in partnership, tide over difficulties". Its aim is to remind employers in financial difficulties that only when they have no alternatives should they consider wage reductions and layoffs. They could work out other ways to control costs, such as enhancing the productivity of their staff. Regrettably, the guidelines are not legally binding. The good intentions and thoughtfulness of the Government could not achieved the desired effects. The well-intended message from the Government is built upon the conscience of the employers but the cruel fact is that the message was never driven home.

Recently, Hongkong Telecom (HKT) proposed a repackaged wage reduction proposal in disguise. From next year onwards, double pay for its staff will be linked to the performance of the company. With competition introduced into the telecommunications market, when double pay is payable only if there is a growth in the profits of the company, perks are like castles in the air. I would like to remind the management of HKT that they should bear in mind the overall interest of stabilizing the Hong Kong economy rather than the interests of shareholders in the short term. At this critical moment, it should not take the lead in wage reduction and destroy the confidence of Hong Kong people, as it would cause unemployment to rise and undermine what little progress there is as the position stabilizes because this can delay the recovery of our economy. The incident also indicates that the interests of employees can be protected only by law. Everybody may recall how the Employment Ordinance, enacted in 1968 and revised and perfected from time to time thereafter, contributes to stabilizing labour relations, fostering social stability and promoting prosperity in Hong Kong. I trust that to legislate for regulation on wage reduction may not give rise to labour disputes.

Moreover, the Guidelines is no substitute for laws. The Protection of Wages on Insolvency Fund (the Fund) cannot protect employees in their claims for the wages in arrears and severance payment in accordance with the guidelines. If a company goes bankrupt some time after wage reduction, employees can seek compensation from the Fund for the amount owed calculated on the reduced wages for the number of years they have worked for the company. Employees will then incur heavy losses. I hope the Secretary for Education and Manpower may provide a response later as to whether the Fund will follow the Guidelines.

In addition, although the Guidelines is the result of discussions of the Labour Advisory Board and employers, including the Honourable HO Sai-chu who indicated the commercial sector will adhere to the Guidelines, it is not binding on unscrupulous employers. As such, and as good employers are willing to abide by the Guidelines, why are good employers not prepared to make the Guidelines into law and support legislation to that effect?

As regards the request to amend the Protection of Wages on Insolvency Ordinance, it is by no means a request to increase labour welfare. It is no more than a request to protect the lawful interests of employees. For example, under the present Ordinance, the ceiling for the maximum payment from the Fund in respect of a severance payment is $36,000, in excess of which applicants can only receive half of the amount claimed. Statistics from the Fund shows that only 70% of the workers will not incur losses. Over 30% of the workers will suffer losses under the Ordinance. Is it fair for employees to suffer from such losses in addition to suffering from unemployment and layoffs? The Federation of Hong Kong and Kowloon Trade Unions only wants to extend the protection for severance payment, in the light of the deficit the Fund will incur for this fiscal year. Adjustments to wages in arrears and wages in lieu of notice can wait until the economy improves. Given the present economic recession where a number of shops have been closed and employees laid off, it has become a matter of urgency to increase the amount of severance payment paid out by the Fund as laid off employees will need to live on such payments during the period when they remain jobless, which can last for some time. It is therefore unreasonable that under the existing Ordinance they cannot be compensated to their full entitlement. Increasing the amount of severance payment will not exhaust the Fund which has accumulated $800 million, despite the deficit for this fiscal year and the difficult period we are facing, which should not be long. Unless the Secretary thinks the recession is going to last for a considerable period of time, the deficit and the recession should be short-lived.

Therefore, I support the Honourable CHAN Wing-chan's original motion. Thank you, Mr Deputy.

THE PRESIDENT resumed the Chair.

PRESIDENT (in Cantonese): Miss CHOY So-yuk.

MISS CHOY SO-YUK (in Cantonese): Madam President, since the financial turmoil that started last year, almost the entire Asia has been hit by currency devaluation and the effect of negative assets. With a linked exchange rate, Hong Kong has been able to fend off one of the blows and suffers from negative asset value only. The Hong Kong dollar did not devalue but there is a price for this. As the Hong Kong dollar is still much stronger than neighbouring competitions, it is comparatively less competitive against these regions despite a rapid drop in asset value. To regain its competitive edge, other than bringing down the asset value, salary reduction is another sign of the automatic market mechanism whereby market forces will function. At a time of severe economic recession, wage reduction could be a necessary evil for such hardest hit sectors as the retail and catering trades.

In fact, many employers will agree that wage reduction is certainly not a positive way to enhance competitiveness. Usually, staff salaries are a major component of the operating costs. A reduction in wages can surely achieve the immediate effect of cutting expenditures, but it can also destroy staff morale immediately. When staff resentment converts to a go-slow, employers lose, not gain, from the wage reduction. Although operating costs are a major factor for consideration, cost-effectiveness is even more important. Therefore, I hope employers do not reduce the salaries of their employees unless it is absolutely necessary to do so. Some employers, such as HKT, demand a pay cut from their employees despite the much-envied profit and its praise for its staff. So, it is demanding pay cuts from its staff just on grounds of its profit not being as good as expected. What is saved, however, cannot be put to boosting its overall profits by any significant amount. Whichever way one looks at the matter, HKT cannot be said to be tiding over the difficulties together with the staff who are in the same boat.

On the other hand, I hope employees can understand that to many employers, their businesses are everything to them. Profits are of course important, but if business is bad and they are forced to close down, employees will suffer the most. If employers can do nothing but to reduce salaries in order to survive, employees should be understanding. More importantly, in the process of negotiating for wage reductions, both employers and employees alike should avoid a confrontational stance or manoeuvre to politicize the issue. The guidelines on "What to do if wage reductions and retrenchments are unavoidable" issued by the Labour Development recently the contents have reasonable points worth observance by both parties.

Madam President, I am not against the spirit of the motion moved by Mr CHAN Wing-chan. But we must be careful in deciding whether or not legislation should be introduced to solve the complex problem. In fact it is difficult to express clearly in legal terms some concepts such as "overcome the present adversities", or "business performance of the company improves" or "company's situation worsens". They are all difficult to define.

A more important issue is that amending the relevant laws will give investors a bad impression because they will think the tradition of harmonious labour relations and free market will henceforth be changed. A valuable point of this tradition is that the Government respects the diversified self-adjustment mechanism of the market. Under the mechanism, employers have room to act freely and focus their attention and recources on changes in the market and cope with these changes with flexibility; while employees will not resort to collective strikes or antagonistic actions as they please because there will not be any winners in these emotional and counter-productive actions. Although Hong Kong is facing the most critical economic recession in 40 years and the confidence of the people have been badly shaken, there is still stability in society and international investors are still confident that Hong Kong will be the first in the Asian region to rebound from the financial turmoil. Why? Because in Hong Kong there are harmonious labour relations and the free market is running well by and large. This is undeniably a pertinent factor.

We must be wary of the fact that neighbouring competitors are hoping to overtake Hong Kong while we are busy fixing our own economic problems. Hong Kong must value and strengthen its established edge. Hong Kong must not undermine its own confidence.

Madam President, I so submit.

PRESIDENT (in Cantonese): Mr CHAN Kwok-keung.

MR CHAN KWOK-KEUNG (in Cantonese): Madam President, ever since Hong Kong was first hit by the financial turmoil, cases of wage reduction and retrenchment have occurred almost every other day. The pressure faced by employees does indeed beggar description.

In the past, when everybody was intoxicated by the illusory prosperity of our bubble economy, many employers did make a lot of money, either because of their own business skills or because of sheer luck. Those who were generous enough might have given their employees some wage increases, but for those who were not, they simply pocketed all the money without bothering to share the fruit of success with their employees.

Today, all our trades and industries are seriously hit by the current economic downturn. Employers who face difficulties have all taken this opportunity to implement structural adjustments, so as to enhance their future competitiveness, so to speak. Therefore, employers have one after another asked their employees to accept lower wages, saying that all should join hands to tide over the current difficulties. In some cases, employers even ask for several wage reductions. These employers have totally ignored the feelings and plight of their employees, and they have also failed to discharge their social obligations.

Madam President, at a time when Hong Kong is undergoing a period of economic adjustment, everybody is suffering immensely, and more and more people have come to take wage reductions for granted. But has it ever occurred to us that "wage reduction" is indeed a very complex issue? Employers simply should not deprive their employees of their lawful rights and cut their wages whenever they want to, just for the reason that they are facing difficulties. Such acts actually involve a unilateral alteration of employment contracts, and are obviously in breach of the law and detrimental to labour relations.

In view of the gravity of the "wage reduction" problem, the Labour Department has recently published the guidelines on "What to do if wage reductions and retrenchments are unavoidable" which advises employers on the ways of handling wage reductions and retrenchments. I remember that some officials of the Education and Manpower Bureau once said that the Labour Department would make active and all-out attempts to assist the parties involved in handling the labour disputes arising from wage reductions and retrenchments, so as to prevent any possible deterioration in labour relations. These officials expressed very great confidence in the effectiveness of the guidelines and even asked us not to worry. We in the labour sector naturally had to "listen with all ears". But I must still say that the guidelines have proven to be of very little practical effect.

The guidelines have failed to bring any good to employees; many employers simply do not get the essence of the guidelines and they even think that the guidelines will legitimize their attempts to cut wages. So, employees are still hard-pressed, because these guidelines are so unreasonable.

It is stated in bold type on Page 5 of the guidelines that "To implement wage reductions, you (employers) must obtain the consent of your employees. It is an offence for employers to unilaterally introduce wage reductions without securing their employees' agreement". But many employers simply do not see why they have to consult their employees, and even when they do so, they will not issue any administrative directives, but will instead ask their employees to give immediate replies; or they will simply take their employees' silence as consent. For example, I have in hand here a notice issued by a certain company to its employees on the change of employment terms. It is said in this notice that the employer will temporarily cease its contributions to his employees' provident funds and stop the payment of double pay. What is most important is that if an employee does not reply by 1 December, the employer will proceed as if the employee has given his consent.

Is the employer concerned breaking the law, since he forces his employees to sign the agreement or to give their silent approval? Does such a notice run counter to the spirit behind the guidelines? And, how is the Labour Department going to deal with employers who insist on unilaterally depriving employees of their legitimate rights? How is the Labour Department going to mediate actively, or even prosecute all those employers who have broken the law?

Madam President, I also doubt the effectiveness of the guidelines. The Government has been trying hard to publicize the guidelines on television. But I notice that even the Labour Department itself has failed to effect good internal communication on this very issue. A few days ago, my personal assistant went to the Mong Kok office of the Labour Department and asked for copies of the guidelines. To her surprise, the front-line staff of the Department there told her right away that they did not know of the guidelines. My personal assistant was asked to approach the Labour Relations Division. But she insisted that the Government had printed over 100 000 copies for both members of the public and employers, saying that there was no reason why the Labour Department did not know. In the end, having searched all around for quite some time, the staff member managed to find one copy and gave it to my assistant. But when my assistant asked for one more copy, the staff member asked her to fill out a registration form before entertaining her request.

What does this incident tell us? Are the guidelines intended only for employers, not employees? Given such a situation, how can an ordinary worker obtain a copy of the guidelines and thus learn how to tackle his employer's request for wage reduction? How can workers convince themselves that the guidelines will work for their benefit?

Therefore, when the Government tackles this problem, it should take proactive steps to introduce corresponding legislative amendments which can offer some kind of protection to employees faced with the problem of wage reduction. I must stress that workers are entitled to such protection. The Government should not turn a blind eye to unequal labour relations and allow employers to deprive employees of their rights and interests.

Madam President, I hope that one day, when our economy recovers, employers will say, " We are now making huge profits. Let us all share the riches and fruits of success". I hope employers will then cease asking employees to sacrifice their interests for the sake of tiding over the difficulties.

Madam President, I so submit.

PRESIDENT (in Cantonese): Mr LEE Cheuk-yan.

MR LEE CHEUK-YAN (in Cantonese): Madam President, the Hong Kong Confederation of Trade Unions (CTU) has two basic stands on the issue of wage reduction. First, we object to taking advantage of the workers of their greatly disadvantaged position; second, we object to using high-handed means to subdue the workers into accepting the employers' proposal. We feel that employer and employee should seek a new balance point acceptable to both sides through collective bargaining instead of letting the former high-handedly force the latter to give in. But in the recent incidents in society, we do not see collective bargaining come into play. What we have only seen is the pressure passing down one stratum after another from the very top to the very bottom. Workers who refuse to accept the reduced wages will be fired and that is the only choice they can make. In the lobbying from the top to the bottom, the employees have no say, no equal status to negotiate for their terms. At the same time, we can see another phenomenon where some unscrupulous employers "take advantage of the disadvantaged position of the employees" and the Government and some Members of the Executive Council have betrayed the people's trust and foment this evil trend. The case in point is Mr Antony LEUNG, Executive Council Member, who said to the effect that, "The offer of the Hong Kong Telecommunication Limited to change the staff's year-end double pay to bonus is actually an act of kindness." For a company that had made a profit of $17 billion in a year to change the employment contract, violate the spirit of the contract by changing the double pay to a bonus and pegging it to its profits, Mr LEUNG could have said that it was an act of kindness. I do not understand how kind it was. I can only say that perhaps Mr LEUNG was simply unsympathetic. Did Mr LEUNG imply that the company had wanted to cut off the workers' hands and now it only cuts off their fingers, so they had been lucky, and that was an act of kindness. Did he mean that? To change the double pay to a bonus is actually to reduce their wages by 8%. A company that has made over $10 billion in profit still has to exploit its staff. Who can say that it is reasonable? Please do not forget that the Government has already compensated $6.7 billion to HKT and those Members in this Chamber who were Members of the Provisional Legislative Council did take part in the approval of this compensation. I am not saying that those Members have to be held accountable for this because they did everything right then. But the problem is, the Government made the compensation out of the understanding that competition was going to be keen and its profits would drop. That being the case, is HKT cheating as it has already received $6.7 billion from the Government, and now it exploits its staff on the excuse that its profit is going to drop? Is it fair to do so?

My biggest worry, which is also most people's worry, is that the HKT wage reduction incident has triggered off a domino effect which is already felt. The Sidefame Limited has announced that it will change the double pay to a bonus. Even a company that has reaped huge profits resorts to such tactics. It is no wonder that others will follow suit. Why do we consider HKT the culprit of all this? It is because despite having reaped huge profits, it still has to employ such tricks. I find it also worrying that an Executive Council Member could be so indifferent to the staff of HKT. I think that if he were to make policies for Hong Kong, none in Hong Kong would be spared of hardships.

The Government is also fomenting the evil trend. First, after its establishment, the Government of the Hong Kong Special Administrative Region (SAR) repealed the law on workers' rights to collective bargaining, allowing the inequality between the employer and the employee to continue. This is the first sin. The second sin is that in the face of such a serious wave of wage reductions, it still refuses to provide statutory protection to the workers. What protection are we asking for? It is the protection of such insignificant matters of giving sufficient advance notice and also that the severed workers can get a severance payment calculated on the basis of their wages before reduction. The Government is even unwilling to do such insignificant things but issues a set of guidelines instead. I have always maintained that such guidelines are useless. This time, I would like Members to see how these guidelines can apply. The Honourable HO Sai-chu quoted a sentence from the guidelines earlier that I consider very good. It reads, "When business performance of the company improves and the difficulties are over, employees should be paid back the wages that have been reduced." But HKT did not even have difficulties when it proposed to cut staff salaries and benefits. What is the use of the guidelines when a company seeks to cut the pay of the staff before it even has difficulties? When Mr HO Sai-chu was a member of the Labour Advisory Board, he once said that if an employer did not play by the rules, he should be reprimanded and criticized by the public. Well then I would like to ask him to criticize HKT for cutting the pay and benefits of the staff before it even has any difficulties. Is this fair? What is the use of the guidelines? Then, I would like to see how the guidelines can be applied to make HKT withdraw its proposal to change the double pay to a bonus. Therefore, I consider that the Government has been playing an extremely poor role in this issue. The Chief Executive keeps saying that the first and foremost thing to do now is to stabilize property prices. But why is there no one to propose that the first and foremost thing to do is to stabilize the wages? Is property prices more important than wages? Are the property developers more important than the ordinary people? Why is there no one to propose that the most important thing to do now is to stabilize wages?

The CTU's objection to the wage reduction is based on several reasons. First, from the macro-economic point of view, I do not believe that wage reduction should be used as a means to stimulate economic growth. It will only weaken the internal demand and consumption power, which will in turn even hinder economic recovery, as 60% of the local economic activities depend on internal consumption. Second, to many wage earners, if all prices are adjusted downwards at the same time, they do not mind having a wage cut. But as the local inflation still stands at 2.7%, consumer prices have not dropped. Someone says that some shops are selling a chicken for $1, but one may have to spend $10 on the transport to get to the $1 chicken. It is just impossible to have an overall downward adjustment for all prices, as there is no reduction in transport fees, electronicity charges or public housing rents. Overall speaking, the decrease in prices falls short of 10% but the wages of the workers are to be reduced by 10%. I feel that the Financial Secretary has put it very correctly in his comment, "You must treat the employees as humans. Only when there are happy workers can there be productivity." Just as Mr LAM Shan-muk has also said, "Unhappy workers will certainly lead to decreased productivity." Decreased productivity will also lead to the weakening of the local economy. Therefore, we hope that all Members will today support introducing legislation on wage reduction but such legislation has to include the following. First, employees have to be given the right to know; second, employees should enjoy the rights to collective bargaining; third, if workers who have worked in a company for under two years and refuse to accept the wage reduction are dismissed, they should be given severance payment on a pro rata basis. I believe that only this will give us a more balanced society. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr YEUNG Yiu-chung.

MR YEUNG YIU-CHUNG (in Cantonese): Madam President, a wave of wage reduction has recently swelt among private firms. We hear about cases of wage reduction almost every day. Take today as an example, two hotels have announced plans to reduce staff wages. The Hong Kong Federation of Trade Unions received 400-odd complaints against wages in arrears or wage reductions in the third quarter of this yea, is twice the number for the first two quarters. The position for the fourth quarter is expected to worsen.

At the beginning of this month, 12% of the staff at Marks and Spencer, a British chain store, were dismissed or had their wages reduced. Last Wednesday, Chaifa Investment Limited put forth a proposal for wage reduction and retrenchment. Some companies reduce wages and staff welfare using other means in disguise. For example, the Tom Lee Music Company Limited has decided to reduce the year-end bonus of its staff. Hutchison Telecommunications Limited cut down on holidays and overtime pay. More serious is the case of Dickson Concepts which reduced staff wages twice within slightly over a month. The worst piece of news for wage earners is that in Singapore all employees will have their wages reduced by 15%. Although employer groups in Hong Kong have indicated they would not follow suit, employees are haunted by a thick cloud of fear for wage reduction or retrenchment. A social issue that has reason to become public concern is the protection of the interests of workers when the wave of wage reduction is raging.

We cannot blame some companies which are in financial difficulties or find it hard to continue their operation when they resort to wage reduction in order to survive. But employers must obtain understanding from their employees. They must communicate with and consult their employees.

Some companies are taking the chance to rip off employees. They reduce wages on the pretext of cost reduction. There are possibly companies which dismiss their staff after reducing their wages so that they can pay less upon dismissal. These acts obviously jeopardize the interests of the affected employees. Some companies, such as Hongkong Telecom (HKT), propose plans to reduce staff wages or plans that are in effect wage reduction plans despite the huge profits they are making and the growth in their business. Last year, HKT had a profit of over $14 billion and for the first half of this year it had made $6 billion. For such companies, staff wages or welfare reduction is unjustified and inconsiderate.

Madam President, the Hong Kong Social Security Society conducted a research basing on government information. The 2.06 million workers in Hong Kong recorded negative growth in their salaries in the past five years after deducting inflation from their salary adjustments. The decrease ranges from 1.4% to 3%. In the past five years, workers in fact had salary reductions in real terms. They now need to face wage reductions. So, for them all these mean extra hardship.

When employers force employees to choose between layoffs and wage reductions, employees often find themselves helpless insofar as the protection of their interest is concerned.

The guidelines on wage reductions, issued by the Labour Department, though suggest that employers should give employees a notification period for any proposal for wage reduction and urge employers to assure employees that severance pay will be calculated on basis of employee's wage level before the wage reduction, are indeed useless as they are not legally binding. The ineffectiveness is evidenced by the fact that shortly before and after the guidelines were announced companies still sticked to their course of wage reductions.

Particularly worrying is that wage reductions by some companies have triggered off violent industrial actions by employees in some companies, giving rise to some adverse effect on social stability.

Therefore, I think we need to regulate wage reduction by means of legislation in order to foster good labour relations and prevent unscrupulous employers from abusing wage reduction. Thus we can genuinely protect the interests of the working class.

I trust harmonious labour relations are one of the factors contributing to the success of Hong Kong. It is time we helped each other to tide over the difficulties. We hope employers can deal with wage reductions in a cautious manner and protect the rights of employees whose wages are reduced. The guidelines are a consensus reached after consultation by both labour and capital. They are deemed to be acceptable by both parties. So, bringing legal force to the guidelines by amending the Employment Ordinance should be practicable and in line with the interests of both labour and capital.

With these remarks, I support Mr CHAN Wing-chan's motion. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr LEUNG Yiu-chung.

MR LEUNG YIU-CHUNG (in Cantonese): Madam President, since our economy went downhill, we could see that a series of layoffs and salary cuts took place in Hong Kong. In the policy address, Mr TUNG Chee-hwa also said that as Hong Kong was now undergoing an economic downturn, he hoped we could tide over the difficulties together. This sounds to be appealing. But in Hong Kong's history, similar situations did take place in the '70s and the '80s. In times of economic hardship, employees were willing to tide over the difficulties with their employers. I remember during the period from the '70s to the '80s, some employees even took the initiative to propose salary cuts in order to tide over the difficulties with their employers. From this, we can see that employees are not unreasonable and that they will understand the situation. But it is extremely regrettable that nowadays the situation always turned out to be the opposite, just as many of my Honourable colleagues have mentioned earlier. Although employers are constantly making money, they behaved in a unscrupulous manner and even went so far as to reduce the employees' wages and benefits. Under such circumstances, an undesirable atmosphere started to develop in Hong Kong. But regrettably, as far as this issue is concerned, the Hong Kong Government and Labour Department have not only watched indifferently with folded arms, but also added to the misfortunes of those who are already unfortunate.

Why did I say this? Just now, Mr CHAN Wing-chan said that in the Tom Lee Music Company labour dispute dealt with by me, the management side set a bad example in paying out only 31% of the double pay. If I say this is a bad example, the guidelines issued by the Government will then have set a very bad example. Madam President, why did I say this? This is because the guidelines seek to explain under what circumstances employers can reduce wages, that is to say, it teaches people how to reduce wages. And in other words, employers can reduce their employees' wages even if there is no such a need. The Government will adopt an encouraging attitude as long as employers reduce wages in accordance with the procedures laid down in the guideline. Madam President, under such circumstances, what else can we say if we do not say that the Government is adding to the misfortunes of those unfortunate? In my opinion, a responsible government should not take an objective position in encouraging certain employers to reduce wages at this moment. Instead, it should help employees tide over the difficulties together with their employers in an objective and pragmatic manner. But regrettably, I fail to see any concrete government action to help employees tide over the difficulties together with their employers. On the contrary, many employers have taken the opportunity to "take advantage of the employees' difficulties for their own benefits".

Recently, an organization indicated after conducting a survey that the performances of many companies were basically excellent. However, they still watched on the market silently to see if they could reduce their employees' wages or benefits. Under such circumstances, Members can well imagine that employers are "taking advantage of the employees' difficulties for their own benefits" where there is actually no such a need. If this undesirable atmosphere is allowed to continue, the guidelines issued by the Labour Department can hardly absolve itself of the blame because it fails to produce any deterrent effect. Nor is it able to safeguard the employees' rights and benefits. On the contrary, it has created an objective basis so that someone can take advantage of the opportunity created. Therefore, we should not focus only on the expression "wage reduction" today. It will only be proper for us to talk about "protecting" the employees' benefits. We should, on the existing basis, protect the employees to prevent their wages and benefits from being slashed by their employers.

Mr LEE Cheuk-yan was right in saying that, for the time being, our first and foremost task was to sort out how to stabilize wages so that there would be no more salary or benefit cuts. Just now, Mr CHAN Wing-chan said that the expression "helplessness" appeared on the newspaper. Of course, we felt extremely helpless. We wanted to talk to the employers but they refused to talk to us. Why? Because we have not put in place a mechanism. What else can we do if the employers indicate that they do not want to talk to us? I wonder if the Secretary can tell me what we can do. In dealing with the Tom Lee incident, I knew it clearly that we could not do anything if the employers did not want to talk to us. Will the Government tell us what we can do? The employees indicated that they would resort to industrial action and strikes. But the relevant legislation concerning strikes provides that employees should inform their employers seven days in advance, lest they will be deemed to have violated the law. Under such circumstances, what else can the employees do?

Therefore, if we are to stabilize our overall economy and to calm down our emotions to enable all of us to have the same desire to work, the Government must make extra efforts in setting up relevant mechanisms in concrete terms. This will give employees channels to express their dissatisfaction as well as setting up channels for employees to express their views to their employers. It is most saddening that some employers only gave their employees the options of either layoffs or wage cuts for the reason that their business was not doing well. But actually no one knew whether their business was really so bad. Some employees told me the business of their employers was doing very well and they did not find any problems with the business. But their employers still firmly held that their business was not doing well, no matter other people believe it or not. Under such circumstances, what can the employees do? Subsequently, the employers asked their employees to choose between reducing their double pay and resignation.

Madam President, could you tell our employees what they can do? The Labour Department suggested both sides to open negotiations. But what is the result after four, five or even six rounds of negotiations, with each session lasting several hours? The management took a tough stand by stating that employees could only choose one of two options. As such, if we do not have a mechanism or a channel, the collective bargaining right we have been striving for will turn out to be futile.

Lastly, we propose to amend the relevant law on strikes. According to the existing legislation concerning strikes, employees must notify their employers in advance before they can go on strike. But in that case, the strike will become entirely useless because the employers can make good preparations within seven days. It is not because we always think of going on strike. But this is the last weapon we have. Regrettably, even this weapon is now gone. What else can we do then? It is for these reasons that we must have the right to collective bargaining and the right to strike. It will be fundamentally impossible for us to protect the employees if they are not given such rights. In that case, wage reduction will definitely become a prevailing trend.

Therefore, in my opinion, today's motion should not only seek to enact legislation, but also amend former unreasonable systems. Only through setting up mechanisms for the right to collective bargaining and the right to strike can we protect the rights and interests of employees. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr CHAN Kam-lam.

MR CHAN KAM-LAM (in Cantonese): Madam President, Hong Kong has been practising free economy for over a hundred years. Many enterprises boast a long history of doing business in Hong Kong. Some examples are: Hongkong Electric, China Light and Power (CLP), Hongkong Telecom, Towngas, Hongkong Tramways, Hongkong and Yaumati Ferry, Star Ferry, Swire, Cathay Pacific, Kowloon Motor Bus, Jardines, Hongkong Bank, Chatered Bank, Bank of China and so on, just to name a few. Big enterprises like these have been using Hong Kong as a base to serve the people and contribute immensely to the prosperity of Hong Kong. Undoubtedly, investors have been successful in reaping large profits because of their foresight, their ability to develop their business and the persistent expansion of their market share. But it is equally important that there should be a team of hard-working and faithful employees. There are quite a number of faithful employees around. Last Saturday, an employee with 30 years of service was invited to press the button for the demolition of a chimney by explosives at the Tsing Yi Power Plant of CLP.

In fact, the relation ships between employees and enterprises are very close. Employees want their companies to make profits as they will then be able to keep their jobs and receive stable emoluments or even year-end bonuses. If enterprises treat their employees well enough, they will then be stronger and more powerful. United, the enterprises may perform better. Harmonious labour relations and loyal staff are not uncommon in modern enterprises.

Regrettably, the Hong Kong economy is undergoing a period of adjustment this year. Some enterprises find themselves in financial difficulties and left with no alternatives but to resort to closure, retrenchment or wage reduction. If they do need to take necessary measures to survive due to the economic downturn, such as measures to cut costs to remain afloat, their employees and the community will be understanding. But if they were taking the opportunity to adjust wages and pursue high profits, they would be doing something undesirable. They would then be forfeiting mutual dependence between labour and capital and neglecting their social responsibility. They would be regarded as "unscrupulous".

Basically, the ideas contained in the Guidelines on "What to do if wage reductions and retrenchments are unavoidable" (the Guidelines) issued by the Labour Department and the contents of Mr CHAN Wing-chan's motion coincide. They include suggestions for employers to give seven to 14 days' notice in writing for employees to consider whether or not to accept wage reduction proposals, for assurances to employees to the effect that when business performance improves, appropriate adjustments be made to employees' wages, and if retrenchment has to be considered, severance pay will be calculated at the employee's wage level before the wage reduction scheme was introduced. However, as the Guidelines are not legally binding, the observance is left to the discretion of employers. For some employers with huge surpluses and are reducing wages just to save costs, the Guidelines are useless as far as the protection of the interests of employees are concerned.

In fact, employees are currently faced with the dilemma between summary dismissal and wage reduction. Employers may give notice according to the Guidelines but when employees are dismissed after having accepted schemes for wage reduction, employers may still refuse to calculate the payments on basis of wages before the wage reduction scheme was introduced, and as the Guidelines are not legally binding, employees would lack the legal base to fight for their entitlements.

Madam President, we understand the Government may assume most employers in Hong Kong are not minded to exploit their employees, thus using the Guidelines instead of enacting laws to effect the obligations. The Democratic Alliance for the Betterment of Hong Kong (DAB), however, thinks the assumption would render most other laws useless. Severance pay and long service payments need not be stipulated in the laws then. Our aim in demanding legislation is to ensure that if employees are unfairly treated, they may obtain a reasonable solution to their problems through a proper legal mechanism. In fact, at times of economic downturn, staff wages and welfare are the easiest and most direct preys of cuts by employers.

Recently, many employers tended to cut down their expenditure on items such as double pay, in addition to wage reductions and retrenchments. After some negotiations, staff of the Tom Lee Music Company Limited could finally reach an agreement for a 30% double pay. HKT, despite its surplus of more than $6 billion in the first half of the year, came up with the idea of linking double pay for its staff with company performance. As double pay is part of staff wages, which is different from bonuses, the link is in essence a wage reduction in disguise. As a major employer in Hong Kong, HKT's repeated attempts to cut staff welfare will certainly trigger off a wave of wage and welfare reductions among other organizations. The Guidelines issued by the Labour Department has no suggestions regarding moves taken by employers to reduce staff welfare. The DAB is worried that there will be a trend for employers to cut double pay and welfare to reduce their expenditure in future.

In fact, according to the Employment (Amendment) Ordinance passed last year, there should be a provision for annual double pay or bonus in the employment contract unless otherwise specified. The Labour Department is duty bound to enhance publicity on this provision so that all employees are aware of this.

With these remarks, Madam President, I support Mr CHAN Wing-chan's original motion.

PRESIDENT (in Cantonese): Mr James TIEN.

MR JAMES TIEN (in Cantonese): Madam President, both the original motion and the amendment have said in their introductions that in view of the cases of private companies reducing their employees' wages and benefits on the grounds of cutting costs, the Government is urged to provide for some protection in the Employment Ordinance by stipulating a period of seven to 14 days as the negotiation time limit for the employers and employees concerned.

Madam President, at the beginning of his speech, the Honourable LAU Chin-shek (he is not in this Chamber now) mentioned that many Members or the commercial and industrial communities would regard the hardships brought about by the financial turmoil as the major rationale behind the wage reductions. But my view is that even if there were no financial turmoil, the bubble economy would just go wrong sooner or later. The bubble economy is attributable to not only high land prices but also high wage levels as well as other factors. Hong Kong is losing its competitiveness, and high wages is one reason. Whereas the manufacturing industry may resort to automation or computerization, the manpower-intensive service sector, such as the hotel industry or the retail industry, must employ a certain number of staff. As such, wages have constituted a large proportion of the costs among the sector. When we look at our neighbouring countries, we will find many of them have in effect lowered their wage levels significantly due to the depreciation of their currencies. Singapore has recently adjusted the wage levels downward by 15% across the nation to enhance its competitiveness. With the Singapore dollar depreciated to 80% of its peak value, Singapore now enjoys a 30% lead over Hong Kong in terms of wage levels.

Madam President, I must clarify I am not giving support to what the Singaporean Government is doing. Nor am I saying the Hong Kong Government should follow the footsteps of Singapore. I only want to point out what other countries are doing. Many foreign newspapers report that from the point of view of investors, the competitive edge of Singapore has been greatly sharpened. Of course they did not say that the competitiveness of Hong Kong has been greatly undermined. They just said the competitive edge of Singapore has been greatly sharpened. I hope colleagues could take note of this point.

Madam President, in the face of the economic downturn, small and medium enterprises or companies should discuss with their employees whether or not to reduce wages or the staff size. The view of the Liberal Party is that we should choose the lesser of the two evils, since neither is a good choice. However, the most important point is to help the workers keep their jobs. I do not rule out the possibility that, as pointed out by some colleagues, there are certain unscrupulous members among the employers of the more than 3 million workers This should come as no surprise. But I do not think that is true of the majority of the employers. Talking about unscrupulous employers today, are owners of small and medium companies "unscrupulous employers"? They might well be "miserable employers" if they lost their businesses. Employees took their share of the success over the past ten years or so. At least they have got their pay cheques. Whether they have saved up any amount from their income is another issue. For the owners of small and medium enterprises, what can they do if they lost everything, despite earnings of several tens of thousands dollars each year in the past years or even four or five million dollars in the last two years? I do not think they should be regarded as "unscrupulous employers". "Unfortunate employers" would be a more appropriate term. Indeed if both employers and employees can co-operate to tide over the difficulties, it would be so much the better. Nevertheless, I do not know when we can get out of the woods. Many small and medium enterprises have indicated that they would continue their operation through Christmas and see what the position is, as business is usually at its best during Christmas and in January. Many enterprises may use what they can earn during the period to pay off debts due to banks and then terminate their operation. Therefore, I think the unemployment rate would be even higher at the beginning of next year.

Madam President, the crux of today's motion is legislation for the seven-day notice. My view is that ─ of course I do not support what HKT did, partly because it cannot dismiss over 10 000 employees at one go given its large size. But for small and medium enterprises which have just five to six employees, a practicable way is to do things the other way round. They may issue under lawful conditions the letters of dismissal first (since the seven-day period is a statutory period), and then discuss with employees during the next seven days. What can we say about that? As everything is done legally, employees have no alternatives but to discuss. This is what might happen if the Guidelines were made into law and the requirement was that there should be a seven-day notice given to employees to think things over. I can see Mr LAU Chin-shek is now checking the papers. Sometimes a one-month notice is given, and sometimes a seven-day notice. Which one is better? Of course I do not wish to see that owners of small and medium enterprises, being confused by the legislation, would issue dismissal letters indiscriminately and then discuss with employees one by one; by then, only those who are willing to compromise could stay, whereas those who are not would be at the mercy of the employers, since the dismissal letters will start to take effect. So, the amendment proposed by the Honourable Andrew CHENG gives rise to even more problems. Under the circumstances, employers actually do not need to discuss with their employees at all. They may just issue the dismissal letters first and then take their time to bargain with the employees. What can we do then?

Madam President, in responding to Mr HO Sai-chu's remarks on the Guidelines, the Honourable LEE Cheuk-yan has referred to the phrase "tided over the period of difficulties" in the motion put forward by Mr CHAN Wing-chan and queried the meaning of that phrase. He also questioned how one should define the meaning of "the companies' financial conditions have stabilized". My view is that as the Guidelines are not legally binding, we can only insert these phrases to help describe the situation. If, however, the Guidelines were made into law, I would ask: Given that the phrases "tided over the period of difficulties" and "the companies' financial conditions have stabilized" cannot be clearly defined, how would we punish the offender employer? Fine him? His company may be in a state of bankruptcy. Put him in jail? He may already be out of a job, I mean even as an employer of a small company he may have lost his job and we are asking that he be jailed! So, I do not think legislation will work.

Madam President, I need to respond to several points. On collective bargaining, if owners of small and medium enterprises find it impossible to continue the business operation, what is there left to bargain? Can the employers say: If the employees find us business, we will not dismiss them but discuss with them? Collective bargaining is not relevant here. Madam President, it is almost time. With these remarks, the Liberal Party opposes the original motion and the amendment.

PRESIDENT (in Cantonese): Miss CHAN Yuen-han.

MISS CHAN YUEN-HAN (in Cantonese): Madam President, I have a script but I do not want to speak on it now as I find several colleagues who spoke before me have voiced out the views contained in my script. I will be trying to speak on the Guidelines rather than the script.

I would like to read aloud three important points contained in the Guidelines. Paragraph 1.3 thereof says: "Employers must be open and frank with their employees regarding their business problems. They should seek the understanding and co-operation of their employees on ways to reduce costs." Then another point is: "Do not enter any discussions with your staff with a 'take it or else' attitude." The third point is: "Assure employees that if the organization's situation worsens still further, and retrenchment has to be considered, severance pay will be calculated at an employee's wage level before the wage reduction scheme was introduced."

Madam President, I have highlighted these three points to show that the Guidelines are useless. What I want to say is Mr HO Sai-chu and Mr James TIEN ─ in particular Mr HO, I would like to leave Mr TIEN for a while as he was drawing a beautiful picture of the issue and taking part of what officials said in the common room ─ said the guidelines were excellent as they wanted to give me support when I talked to government officials. They both were drawing a beautiful picture. I find Mr HO representing the commercial sector in the Labour Advisory Board, or officials from the Education and Manpower Bureau dealing with labour matters, appear to be telling fairy tales rather than what is really happening in Hong Kong. Madam President, the Guidelines were issued after 30 October. Let me cite four cases which I have dealt with on reductions in wages and welfare to show that the Guidelines are useless, contrary to what the Government has said.

Example one. The Government says no matter what happens employers should discuss with employees, and should not uniliterally carry out wage cuts; they should explain to employees. This afternoon, the Park Hotel announced a wage reduction scheme to more than 300 employees who were frightened by the news, which has been rumoured for a week. The Park Hotel is a hotel with a long history. Many employees have worked with it for a long time. Employees could not help shivering at the thought of the news for the past week. Then came this afternoon when the news was formally released. There was no discussion, not double pay. I mean there was no discussion before the decision to reduce wages was made. Employees had to choose between agreeing to the reduction and leaving the hotel at once after getting their severance pay. The seven-day notice, as suggested by Mr TIEN, was never given. Employees had to indicate their acceptance or otherwise at once. There was no discussion or negotiation. The four examples were cases that I have handled.

Another example is Side Fame, a fashion boutique with almost 100 employees and 14 outlets. The boutique demanded that employees give a response to the wage reduction scheme within one or two days. The employees were very angry and they lodged a complaint with the trade union. What could the union do? As there is no protection from the Government, the union could only use the influence of the media to protect the employees. After disclosing the matter to reporters, the reporters asked the proprietor of the boutique for clarification as to whether employees were given only one or two days to respond. The one or two-day time limit was withdrawn immediately and employees were given seven days to respond.

Madam President, I apologize for not attending the meeting of the House Committee last Friday. Why? Because I had to go on strike, to stage a sit-in, not against this Council but in support of a group of shop assistants of the shops selling "Playboy" and "Garfield" products. I did that because in the process of the labour dispute employees were never given the chance to talk. When they tried to talk they were all dismissed. All employees in the 10-odd shops met the same fate. What actually happened? Let me tell you the story, Madam President. In April the company wanted to cut $1,000 from the commission of its employees and do away with the $300 attendance bonus. Employees were kind enough to help the company in view of its difficulties. They agreed to the cuts. In August, the company wanted a wage reduction and employees agreed. In September the company wanted to cancel the double pay and replace it with something else. Then employees said it was not acceptable as their wages were already reduced by over 20%. They could not accept any further reductions and so they approached the trade union for assistance. When the labour union stepped in the company just stalled. There was no discussion and soon it dismissed all staff.

What I wanted to tell you, Madam President, is that all these cases prompted us to ask: Can the Guidelines help? I wanted to tell Mr TIEN ─ Mr HO is not in this Chamber now ─ that was what people in his trade did. I am not sure if they were part of the commercial sector or whether the management acted with good conscience or unscrupulously, but these examples are only three among the many that emerged after the guidelines were issued. I do not intend to speak about the HKT case now. So, there is in fact no explanation to employees. When there is a problem we can only rely on the media. If they acted, employers would be concerned, as the Government says. But will the employers follow the Guidelines in paying their employees on basis of the wage levels before the wage reduction scheme was introduced? No, they will not, even when officers from the Labour Department assisted in the negotiation between labour and management for the employees in the "Playboy" and "Garfield" shops. The management did not pay staff on the wage level before wage reduction. These are facts that took place after the Guidelines were issued. Now the Government has given the direction that employees and employers should speak out. But whoever speaks will be dismissed.

If the Government repeats the message that the Guidelines can solve problems, I would not agree. The HKT case speaks volumns about this. I hope the Government can face the reality. It must admit that in the labour disputes happening after the Guidelines were issued, not one single case developed as the Government has described in the Guidelines. The employers were not the kind described by Mr HO Sai-chu. They were completely different. So, I hope everyone can be realistic and think of some means to save workers from the fright they experienced as employees of the Park Hotel did. Side Fame employees were also frightened and their case is being dealt with. There are still other cases involving transportation companies and I do not want to disclose their names. Lots of cases are coming. What can we do? Now every case require the help of the media to spread it out and so the support of society is also important. We should not support the kind of wage reduction plans of HKT which are being done in disguise. We should side with employees of the HKT. I think the wave of reduction in wages and welfare as we have seen recently will not stop until the Government enacts laws to protect employees. Thank you, Madam President.

PRESIDENT (in Cantonese): It is time, Miss CHAN. Mr Michael HO.

MR MICHAEL HO (in Cantonese): Madam President, many Members mentioned HKT this evening. HKT wields the axe at its employees despite its huge profits. That is a typical example, which will be cited not just in these days but also for quite some time in the history of trade unionist activities in Hong Kong. HKT has put in great efforts to repackage its plans to reduce wages and dismiss its staff. What for? For saving two or three hundred million dollars. Such manoeuvres by a large company are not what a big company should do. It has neglected the importance of working together to tide over difficulties. While the company performance was good, why did it not think of linking bonuses with its performance? Now, when it is quite clear competition is keen, the company uses the link to make a plan that means salary reduction in disguise. When there is the slightest indication of a downward trend in its profits, the company immediately cuts welfare and wages. Despite its huge size, it is prepared to act in contravention of the spirit of contracts.

We need to face all this. Certainly we cannot rule out the possibility that some employers may have a real need to negotiate with employees to reduce wages so that they can survive the economic downturn by way of cost reduction. But we do see some employers are cutting wages just to ride the wave of wage reduction, at the same time taking the opportunity to reduce expenditures and to lay off staff. In fact what we are asking is only reasonable protection. We hope that with reasonable protection in place, we may boost staff morale at a time when morale is low and then to enhance productivity.

Indeed, the aims of the amendment by the Democratic Party and the original motion by Mr CHAN Wing-chan are compatible. So, what is the difference? The difference lies in the fact that we have put down in clearer terms the details, such as the notice period for wage reduction. That notice period has indeed been discussed in the Labour Advisory Board and a decision should have been reached. I really do not understand why colleagues cannot support the idea this evening. As a matter of fact, I just want to describe in more concrete terms a plan to protect employees to ensure all details are clearly set out. Thus employers, employees and the Government may find it easy to enforce. What is it that Mr Andrew CHENG is proposing? One of the items is about the notice period, which is proposed to be 14 days, not seven days. Mr James TIEN also questioned the need to oppose the proposal now. What we are talking about is how arrangements can be made after wage reduction to protect the long service payment and the severance pay entitlements of employees. Indeed, we do not have too much a difference here. We are all basically against the idea of having a wage reduction followed by calculation of long service payment and severance pay on basis of the wage level after wage reduction. So, under these circumstances, I really do not see why colleagues have to raise objections.

Mr HO Sai-chu spoke about free economy, but our proposals have been put forward on sound principles of free economy. We are not asking for legislation to fix wages. We are trying to find ways to protect the employees' long service payment and severance pay entitlements, when they are requested to reduce their wages. Mr James TIEN mentioned in his speech the idea of working together to tide over difficulties and the idea of sound financial position, all of which according to him are hard to define. Mr Andrew CHENG's amendment and the private bill we are going to put forward will not incorporate these ideas. So, as far as legislation is concerned, I really do not see any big difference among us. Why can colleagues not support us? I very much hope that colleagues can consider it again and support Mr Andrew CHENG's amendment.

Thank you, Madam President.

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

DEPUTY PRESIDENT (in Cantonese): Mr Ambrose CHEUNG.

MR AMBROSE CHEUNG (in Cantonese): Mr Deputy, I wish to raise two points concerning the debate today. The first one is my opinion about wage reductions and the other is my technical comments on the subject of this motion debate.

First, let me say a few words on wage reductions. Generally speaking, I do not support wage reductions, nor do I wish to see the recent emergence of such a trend in Hong Kong. Why do people need to cut wages? The main reason is that in times of economic recession, people would very much want to identify ways of boosting and reviving the economy. That is why many companies have sought to enhance their competitiveness and reduce their operating costs by resorting to wage cuts. However, the wage cuts which we now see in Hong Kong have not been implemented on a fair basis, and they cannot in any way be interpreted as genuine concerted efforts to tide over the current difficulties. I believe that if we are to boost the economy, it will be most important for us to identify the most effective means. Wage reductions cannot possibly boost the economy. That being the case, what should be the most effective means? I think the Government must take the lead, because what matter most are interest rates and money supply. If our interest rates can remain at a stable level, and if the supply of money is not tight, then all enterprises, be they large, medium or even small ones, will have a much lighter burden in terms of trading capitals and operating costs. Under such a situation, or, to put it in our usual jargons, once we enter such a favourable investment environment, our economy will U-turn in the direction of recovery. That being the case, if we are to enhance our competitiveness, much will have to depend on whether or not the linked exchange rate is stable. Under such a situation, the prices of other assets may well drop, but such an asset depreciation will just be a temporary phenomenon in some specific sectors. Some Honourable Members asked whether or not commodity prices and living expenses will also fall. Well, actually, our inflation rate has not yet dropped to zero, which is why wage reductions will achieve the opposite result of affecting the livelihood of low-income groups. I think that wage reductions must be complemented by other measures before they can serve the purpose of helping us tide over the current difficulties. If wage reductions are really necessary, should the Government and the Civil Service also consider such a possibility? At a time when different organizations are requesting their employees to accept wage reductions, should we set down some criteria, such as those that can prevent low-income employees from being affected? As we know, employees with higher income are always more capable of withstanding negative impacts.

Having looked at the matter from various perspectives, I have to ask, "Is it absolutely necessary for an organization to cut wages before it can maintain its competitiveness?" Actually, in order to increase productivity and reduce costs ...... Rents have now gone down, and so have interest rates, and it is also much easier to borrow trading capitals from banks now. So, operationally, I think we can really manage to survive for a further difficult period of two to three years. Requesting employees to accept lower wages will be my last resort.

So much about my views on wage reductions. Let me now turn to some technical issues. Although I strongly support the original motion and the amendment, I do have some worries. I agree to the proposal regarding the notice period. And, I also agree to the proposal that in the event of a layoff, the wage levels before wage reductions should be adopted as the base of calculating severance payments. My only worry is that the motion proposes that when the employer has overcome his difficulties, or when his financial situation has become stable again, employees' original benefits should be restored or even enhanced. This proposal in fact involves many technical problems. If the relevant ordinance is not properly written in this respect, many labour disputes will follow. For example, how should we define "the difficulties are over" and "stable financial situation"? I hope the Honourable Members moving the original motion and the amendment can offer a more detailed explanation. I hope they can tell us how all this can be technically quantified to facilitate the enforcement of the ordinance.

The overall protection for employees is not adequate. If I am asked to choose between guidelines and legislation, I would certainly choose the latter. I would prefer legislation as a means of protection because it is fairer to do so. But if we choose to legislate for the protection of employees, we must study the related technicalities very carefully, so as to ensure that the ordinance can always realize the intended protection without leading to any adverse consequences. The adverse consequences are the disputes between employees and employers on what should be regarded as "the difficulties are over " and "stable financial situation". Provided that concrete definitions can be worked out, I will absolutely support the original motion and the amendment today. If not, I will have some reservations.

Thank you, Mr Deputy.

DEPUTY PRESIDENT (in Cantonese): Dr LUI Ming-wah.

DR LUI MING-WAH (in Cantonese): Mr Deputy, very much unfortunately, Hong Kong has been hit by the financial turmoil, and our businesses and industries have thus been plunged into immense difficulties. In an attempt to struggle for survival, many employers in the commercial and industrial sectors have resorted to wage reduction as a means of cutting costs. I am sure that all of us can understand why they have done so.

Since wage reduction is a matter between employers and employees, they should be left to make the commercial decisions required. The Government should not introduce any legislation to regulate wage reduction, a purely commercial issue as I have just said. This is very much similar to what happened a decade or so ago, for example, when our economy was booming. At that time, wages and salaries kept on increasing every year, but the Government did not legislate on the regulation of wage increases. Instead, it allowed the market itself to decide the wage levels.

Therefore, Mr Deputy, I object to any form of wage reduction regulation. Thank you.

DEPUTY PRESIDENT (in Cantonese): Does any other Member wish to speak?

(No Member indicated a wish to speak)

DEPUTY PRESIDENT (in Cantonese): I will now call upon Mr CHAN Wing-chan to speak on Mr Andrew CHENG's amendment. Mr CHAN Wing-chan, you have up to five minutes.

MR CHAN WING-CHAN (in Cantonese): Mr Deputy, before I comment on Mr Andrew CHENG's amendment, I would like to thank all the 14 Honourable Members who have spoken on my motion. Having listened very carefully to their remarks, I notice that most of them are in support of legislating on the protection of employees' rights and interests. Several Honourable Members ask how we are going to define employees' rights and interests before the economic conditions become stable. I have to advise them that mine is a motion, not a bill, and for this reason, if a bill is really moved and a Bills Committee set up in the future, the related definitions can then be studied and set down more clearly.

Let me now turn back to the amendment. When Mr Andrew CHENG was preparing the submission of his amendment, he once approached me for my comments, and I also had a rough look at the wording of his amendment. I pointed out to him that his amendment contained nothing really new because it was very similar to my original motion. I added that if he could really put forward some new insights, it would be fine for him to move an amendment. If not, I told him, he would be moving an amendment just for the sake of doing so. I also told him that the wording of his amendment was less than satisfactory. At first, he proposed that the wages in the 12 months before a particular wage reduction should be used when calculating long service payments. I told him right away that under his proposal, the payments which workers could receive would certainly be smaller compared with those they could get under my proposal, because my original motion stated that the wages immediately before the wage reduction concerned should be used as the basis of calculation. Although Mr Andrew CHENG added the remark of "dating back three years" when he spoke just now...... Well, even though Mr Andrew CHENG has borrowed my ideas to word his amendment, I do not think that this matters very much anyway.

The amendment proposes that employers must give 14 days' written notice to their employees whenever they want to change any conditions of employment. I have some reservations about this, though the expression "at least" is used. My original intent is that whenever employers want to change any conditions of employment, they should give their employees sufficient time, say 20 days or even more, to consider the changes. In the case of HKT, for example, its change of the double-pay arrangement is indeed a very complex matter. For such a big corporation, which affects the community so very much, and which employs so many workers, is it really possible to handle the very complex issues relating to changes in employment conditions in a matter of 10 days, eight days or even 10-odd days? This may well be possible for a small company employing just a few dozen or some one hundred people. But if more than 10 000 employees are affected, more time should be needed. If a legislative amendment is put before this Council in the future, we should conduct more discussions on this particular point.

The greatest flaw of Mr Andrew CHENG's amendment is that it deletes "近期不斷有私人機構"
from my original motion and replaces it with "減薪事件在過去1年接二連三發生". As I
understand it, or as we usually understand the expression, "接二連三" actually means just a few
cases, and once these few cases are over, there will be signs of a halt. Besides, Mr Andrew CHENG also fails to see what really happened with respect to wage reductions in the past year. This is 1998 now, and in the past year, that is 1997, the trend of wage reductions had yet to emerge. The only incident of significance was the closing down of Yaohan Department Store in late 1997, but, strictly speaking, this was simply a closing down of business; the trend of wage reductions still did not emerge yet. My original motion reads "近期不斷" ─ and please note the
expression "不斷" ─ "有私人機構削減員工的薪酬和福利". This is in fact a very appropriate
description of the situation. "不斷" means endless. But if my motion is amended to refer specifically
to the past 12 months, the period being covered will be the last two months in 1997 and the first 10 months in 1998. I do not know why Mr Andrew CHENG has been so careless, why he has wrongly used an expression like "the past one year". I hope Honourable Members will oppose such a careless and poorly worded amendment by Mr Andrew CHENG.

Thank you, Mr Deputy.

DEPUTY PRESIDENT (in Cantonese): Secretary for Education and Manpower.

SECRETARY FOR EDUCATION AND MANPOWER (in Cantonese): Mr Deputy, the Government is extremely concerned about the wage reductions taken place recently as a result of the economic downturn, particularly the impact of these incidents on the employees whose wages have been reduced. Therefore, we understand that it is due to their sincerity in caring about the people's livelihood that a number of Members have put forward proposals to protect the interests of the affected employees.

The objectives of Mr CHAN Wing-chan's motion and Mr Andrew CHENG's amendment are very much the same. Both of them are aimed at urging the Government to amend the Employment Ordinance and the Protection of Wages on Insolvency Ordinance, as well as giving better protection to the interests of the affected employees in such areas as wages, benefits, severance payments, long service payments and Protection of Wages on Insolvency Fund ex-gratia payments. Therefore, I would like to give a comprehensive response here.

Based on the two reasons listed below, the Government objects to amending legislation to strictly provide for what employers should do in dealing with wage reduction arrangements as well as strictly providing for the compensation and interests due to employees whose wages have been reduced.

Firstly, as the wage reduction problems faced by individual enterprises are not entirely identical in nature, employers and employees should, through consultation, work out the best way to deal with their problems. Introducing legislative amendments to strictly specify a standardized solution will only undermine the flexibility of labour consultation. The effect may even turn out to be just the opposite. But this does not mean that the Government will only sit back and watch. As a matter of fact, the Labour Department has published in October a set of guidelines to explain to employers and employees how to deal with wage reductions and retrenchments in order to help both parties to seek solutions jointly through frank and sincere consultation. Given the fact that the guidelines were introduced not long ago, we should first of all review the effectiveness of these guidelines before deciding whether or not we should take further action.

Secondly, the existing legislation already gives employees who are faced with wage reductions and retrenchments proper protection. We must study the issue seriously and balance the employers' and employees' interests, as well as assessing the impact on the overall economy before considering making any amendments.

Let me now explain in detail the maintenance of the flexibility of labour consultation and the protection given by the existing legislation to employees.

Maintenance of the flexibility of labour consultation

As regards labour relations, including the problems arisen as a result of individual enterprises' wage reductions, the interests of the employers and employees involved are not the same since each case is unique. It is, therefore, impossible for us to work out a solution that is applicable to all situations. According to the experience of the Labour Department in handling labour disputes, the enactment of legislation to oblige employers and employees to adopt certain modes of behaviour is not going to be the most effective solution. Whether each labour dispute can be completely resolved shall depend mainly on whether or not both the labour and management sides are willing to discuss and negotiate in a candid manner in order to seek an arrangement which is acceptable to both parties. The room and flexibility for both parties to negotiate will be undermined if we enact legislation to standardize the manner in which certain types of labour issues should be handled. This may not be beneficial to employers and employees eventually.

As for the handling of issues related to wage reductions, it is particularly important to maintain the flexibility of labour consultation. Hong Kong has all along been practising a free market economy. The levels of employees' wages and other benefits are mainly determined by the supply and demand situation of the labour market. If we enforce the setting of wage levels by way of legislation, such as requiring employers to, under certain circumstances, raise wages to their original or an even higher level, we will interfere with the operation of the labour market and affect the flexibility of labour consultation.

Hong Kong is now undergoing an economic adjustment period with the unemployment rate standing high and numerous enterprises facing difficulties. Both employers and employees should, therefore, make concerted efforts to solve the problems. To this end, the Labour Department published in October a set of guidelines to provide guidance for employers and employees as to how to handle wage reductions and retrenchments. Furthermore, the guidelines provide a series of practical and feasible measures in place of wage reductions and retrenchments, as well as a set of reasonable solutions in circumstances where there is a need to seriously consider wage reductions or retrenchments. The objective of the guidelines is to encourage both employers and employees to enter into frank and sincere consultation with a rational and understanding attitude, with a view to seeking solutions and preventing unnecessary disputes or confrontations.

In fact, the contents of the guidelines have roughly covered the few suggestions of principle put forward by Mr CHAN and Mr CHENG for amending the Employment Ordinance:

1. Should there be a need to cut operating costs, employers should first consider other feasible options rather than wage reductions or retrenchments;

2. When employers find it unavoidable to consider wage reductions, they should enter into frank and sincere discussions with their employees to explain to the employees their business difficulties to find ways to resolve their problems;

3. Employers should allow a reasonable notice period in writing to give employees sufficient time to consider whether or not to accept the proposal. The duration of notice will depend on the circumstances of each organization, but in any case, employees should have between seven to 14 days to consider the proposal;

4. Employers should assure employees that when business performance of the company improves, appropriate adjustments will be made to their wages; they should also assure employees that if the company's situation worsens still further, and retrenchment has to be considered, severance pay will be calculated at the employees' wage level before the wage reduction scheme was introduced.

Some people criticized that the guidelines are not legally binding. I would like to point out that the guidelines were formulated on the basis of the tripartite consensus reached by employers, employees and the Government after detailed discussions by the Labour Advisory Board (LAB). The employers' representatives from the LAB have undertaken that they will publicize the guidelines extensively.

We have reasons to believe that the guidelines have produced definite positive effects. During the two weeks since the publication of the guidelines, the Labour Relations Division of the Labour Department has received nearly 250 enquiries, with 69 of which being directly related to retrenchments and wage reductions. This proves that employers have, before executing their wage reduction schemes, first consulted the Labour Department in accordance with the recommendations of the guidelines and considered, in the context of the spirit of working in partnership to overcome the adversities as promoted in the guidelines, whether or not there is really such a need to formulate wage reduction proposals. And in implementing the wage reduction proposals, they will consult their employees frankly and sincerely. As far as the cases handled by the Labour Department are concerned, all employers have followed the recommendations of the guidelines in giving their employees seven to 14 days to consider their wage reduction proposals. Some employers have also, in accordance with recommendations given in the guidelines, asked their senior staff to shoulder a bigger share of the cuts so as to set an example.

Since the publication of the guidelines at the end of October, the Government has taken a series of measures to publicize the guidelines extensively. These measures include:

─ distributing the guidelines through various offices of the Labour Department and District Offices.

─ distributing the guidelines to various chambers of commerce and registered trade unions.

─ distributing the guidelines to nearly 100 000 organizations which employ five persons or more through the "Labour Focus" published by the Labour Department.

─ producing publicity tapes and TV footage to be broadcast on radio and television stations respectively with effect from November.

─ introducing the guidelines to the public through the Internet.

─ arranging the Labour Department to, in the coming few months, organize various publicity activities, including seminars, training programmes, experience-sharing meetings, exhibitions and so on to vigorously promote the guidelines.

Some Members stated that some employees found it difficult to obtain the guidelines. I will be pleased to follow up this matter. And I can assure Members that any persons, including employees, who are interested in obtaining the guidelines will definitely be able to get them.

I do not intend to comment on individual cases related to labour consultation. But I would like to point out that, subsequent to the issue of the guidelines, the Labour Department will play a more active and positive role in acting as an intermediary. It will also help employers and employees seek proper solutions when such need arises.

Existing legislation

As far as the current legislation is concerned, employers shall be deemed to have contravened the law under the existing Employment Ordinance if they unilaterally enforce wage reductions without their employees' consent. Similarly, any wage reduction shall carry no retrospective effect; otherwise, they shall be deemed to be illegal. In June last year, the Government amended the Employment Ordinance by adding a provision related to employment protection in order to protect employees against any unilateral and unreasonable variation of terms of employment contracts. By virtue of the relevant provisions, if an employer amends the terms of an employment contract without obtaining his employee's consent, the employee can lodge a claim with the Labour Tribunal for compensation. If it is ruled that the employee wins the case, he will be awarded with a terminal payment. If an employee is dismissed by reason of retrenchment, he can be awarded with a severance payment or long service payment. Moreover, the employee has the right to choose to calculate his severance payment or long service payment according to the monthly wages he receives on the date of dismissal or the average wages he received over the past 12 months. In other words, if the employee's wages have been cut by his employer during the 12 months before the dismissal, the employee can choose to calculate his severance payment or long service payment according to the average wages he received over the 12 months (that is, to include the wages received before the wage cut).

As for the proposal of amending the Protection of Wages on Insolvency Ordinance, an employee may, under the current provisions of the Ordinance, apply for an ex-gratia payment from the Protection of Wages on Insolvency Fund (the Fund) for arrears of wages, unpaid wages in lieu of notice and severance payment due to him when his employer is insolvent.

The ex-gratia payments paid under the Fund have been substantially raised in February 1996. At present, the maximum ex-gratia payment awarded to each applicant is $221,500. In 1997, employees who succeeded in receiving their arrears of wages, unpaid wages in lieu of notice and severance payment account for 94%, 98% and 75% respectively. The great majority of claimants have been able to obtain most of the payments, if not all the payments due to them.

If we are to amend the method of calculating ex-gratia payments to employees who have been affected by wage reductions or retrenchments, we must, first of all, consider the impact of the amendment on the Fund. In 1997-98, the Fund had a deficit of $25 million. It is expected that the deficit will further rise to $90 million in 1998-99. It is thus predicted that the total cumulative amount of the Fund will drop from $810 million in October this year to $760 million by the end of 1998-99. Taking into account the current economic conditions, it is estimated that the falling tendency will continue.

In view of the recent retrenchments and unemployment situation, the LAB discussed lately whether it was necessary to adjustment the upper ceiling on the ex-gratia payments granted for arrears of wages, unpaid wages in lieu of notice and severance payments. It was concluded that the Fund could provide adequate protection in both areas of arrears of wages and unpaid wages in lieu of notice as over 90% of the applicants had been able to recover all payments due to them. It is, therefore, unnecessary to raise the upper ceilings for these two ex-gratia payments for the time being. As for the ex-gratia payments granted in respect of severance payments due to employees, the LAB was of the view that the Protection of Wages on Insolvency Fund Board should review the upper ceiling on the ex-gratia payments to see if there would be a need to make adjustments. The Government will consider the recommendations and views of the LAB and the Protection Wages on Insolvency Fund Board in detail before deciding whether or not the upper ceiling on the ex-gratia payments granted in respect of severance payments should be adjusted.

The Government does not support the enactment of legislation to strictly provide for actions of employers in handling the wages and benefits of employees affected by wage reductions. But we understand that certain special circumstances may arise and, that is, in spite of the fact that certain employers had promised that they would calculate severance payments according to the wages of employees before the wage cuts, they subsequently failed to pay for the severance payments due to bankruptcy. We will fully consult the views of employers and employees in this aspect through the LAB to decide whether or not we should amend the method of calculating severance payments under the Employment Ordinance as well as the provisions related to ex-gratia payments granted in respect of severance payments under the Protection of Wages on Insolvency Ordinance.

Conclusion

In face of economic difficulties, both employers and employees should, in a spirit of "working in partnership", enter into frank and sincere discussions with a view to solving their problems. The Government is obliged to, when there is such a need, take the initiative to mediate in disputes. I would like to thank Mr Andrew CHENG sincerely for reminding us that the Employment Ordinance has been amended for more than 40 times over the past few years. Mr LEE Kai-ming has also stressed that the Ordinance has been the cornerstone of harmonious labour relations over the past three decades. I agree very much with what they have said. However, I must add that almost all the amendments were tabled before this Council by the Government and were passed by the legislature upon the reaching of a consensus by the LAB after detailed discussions as well as upon the general agreement reached by employers and employees and the public in general.

We will closely monitor the effectiveness of the guidelines, and we are prepared to continue to listen to the views of employers, employees and Members of this Council with an open mind. We will also consider in detail the views of the LAB on whether or not we should adjust the severance payments and long service payments and how we should go about it before deciding whether there is a need to amend the relevant legislation.

Thank you, Mr Deputy.

THE PRESIDENT resumed the Chair.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the amendment moved by Mr Andrew CHENG be made to Mr CHAN Wing-chan's motion.

Will those in favour please raise their hands?

(Members raised their hands)

PRESIDENT (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr Andrew CHENG rose to claim a division.

PRESIDENT (in Cantonese): Mr Andrew CHENG has claimed a division. The division bell will ring for three minutes.

PRESIDENT (in Cantonese): Will Members please first register their presence by pressing the button and then proceed to vote.

PRESIDENT (in Cantonese): Before I declare that voting shall stop, Members may wish to check their votes. If there are no queries, voting shall now stop.

Functional Constituencies:

Mr Michael HO, Mr CHEUNG Man-kwong, Mr SIN Chung-kai and Mr LAW Chi-kwong voted for the amendment.

Mr Kenneth TING, Mr James TIEN, Mr Edward HO, Dr Raymond HO, Dr LUI Ming-wah, Mrs Selina CHOW, Mr Ronald ARCULLI, Mr HUI Cheung-ching, Mr CHAN Kwok-keung, Mr CHAN Wing-chan, Dr LEONG Che-hung, Mrs Sophie LEUNG, Dr Philip WONG, Mr WONG Yung-kan, Mr Howard YOUNG, Mrs Miriam LAU, Mr Timothy FOK, Mr FUNG Chi-kin and Dr TANG Siu-tong voted against the amendment.

Mr LEE Kai-ming, Miss Margaret NG and Mr Ambrose CHEUNG abstained.

Geographical Constituencies and Election Committee:

Miss Cyd HO, Mr Albert HO, Mr LEE Wing-tat, Mr LEE Cheuk-yan, Mr Martin LEE, Mr Fred LI, Mr James TO, Mr LEUNG Yiu-chung, Mr Andrew WONG, Dr YEUNG Sum, Mr LAU Chin-shek, Miss Emily LAU, Mr Andrew CHENG and Mr SZETO Wah voted for the amendment.

Miss CHAN Yuen-han, Mr Gary CHENG, Mr Jasper TSANG, Mr LAU Kong-wah, Mr TAM Yiu-chung, Mr David CHU, Mr HO Sai-chu, Mr NG Leung-sing, Prof NG Ching-fai, Mr MA Fung-kwok, Mr CHAN Kam-lam, Mr YEUNG Yiu-chung, Mr Ambrose LAU and Miss CHOY So-yuk voted against the amendment.

THE PRESIDENT, Mrs Rita FAN, did not cast any vote.

THE PRESIDENT announced that among the Members returned by functional constituencies, 26 were present, four were in favour of the amendment, 19 against it and three abstained; while among the Members returned by geographical constituencies through direct elections and by the Election Committee, 29 were present, 14 were in favour of the amendment and 14 against it. Since the question was not agreed by a majority of each of the two groups of Members present, she therefore declared that the amendment was negatived.

PRESIDENT (in Cantonese): Mr CHAN Wing-chan, you may now reply. You have one minute and 20 seconds out of your original 15 minutes.

MR CHAN WING-CHAN (in Cantonese): Madam President, the Secretary has said earlier that he would conduct a review of the Protection of Wages on Insolvency Ordinance. This is most welcome. The Guidelines concerned have been branded as a toothless tiger. It is an apt description. Mr WONG said that moral sanction is better than legislation and he also said that there would not be any legislation in this respect. He was of the view that this was out of touch with reality. But how many employers these days would comply with Mr WONG's "talk Jesus" kind of moralizing? And that is why I have moved this motion to urge the Government to legislate expeditiously to protect the rights of workers. I urge all Honourable Members to support my motion as well. If we can give teeth to this toothless tiger set of guidelines and let it make full use of them, then it will be very useful ......

PRESIDENT(in Cantonese): Mr CHAN, a Member has raised a point of order. Would you please sit down?

MR ANDREW WONG (in Cantonese): I hope the President can make a ruling, because the expression "talk Jesus" can be blasphemous, unless we all think that this is acceptable and fine in the language used in Hong Kong. Otherwise, I think such expressions should not be used in the Legislative Council.

PRESIDENT (in Cantonese): Mr CHAN, I would let you make your reply first, then I shall decide whether there is a need to make a ruling on this.

MR CHAN WING-CHAN (in Cantonese): Just now I was saying if the Secretary only talks morals, then no one would be listening to him. If we can give teeth to this toothless tiger, then it will be binding and useful. If this Council also passes my motion, coupled by an introduction of legislation by the Government, then this will be a perfect match for the Guidelines will be then given legal power for the benefit of protecting the interests of workers.

Thank you, Madam President.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the motion moved by Mr CHAN Wing-chan as set out on the Agenda be passed.

Will those in favour please raise their hands?

(Members raised their hands)

PRESIDENT (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr CHAN Wing-chan rose to claim a division.

PRESIDENT (in Cantonese): Mr CHAN Wing-chan has claimed a division. The division bell will ring for three minutes.

PRESIDENT (in Cantonese): Would Members please register their presence by pressing the top button and then proceed to vote.

PRESIDENT (in Cantonese): Before I declare the result, Members may wish to check their votes. If there are no queries, the result will now be displayed.

Functional Constituencies:

Mr Michael HO, Mr LEE Kai-ming, Mr CHEUNG Man-kwong, Mr CHAN Kwok-keung, Mr CHAN Wing-chan, Mr SIN Chung-kai, Mr WONG Yung-kan and Mr LAW Chi-kwong voted for the motion.

Mr Kenneth TING, Mr James TIEN, Mr Edward HO, Dr LUI Ming-wah, Mrs Selina CHOW, Mr Ronald ARCULLI, Dr LEONG Che-hung, Mrs Sophie LEUNG, Dr Philip WONG, Mr Howard YOUNG, Mrs Miriam LAU and Mr Timothy FOK voted against the motion.

Dr Raymond HO, Miss Margaret NG, Mr Ambrose CHEUNG, Mr HUI Cheung-ching, Mr FUNG Chi-kin and Dr TANG Siu-tong abstained.

Geographical Constituencies and Election Committee:

Miss Cyd HO, Mr Albert HO, Mr LEE Wing-tat, Mr LEE Cheuk-yan, Mr Martin LEE, Mr Fred LI, Mr James TO, Mr CHAN Yuen-han, Mr LEUNG Yiu-chung, Mr Gary CHENG, Mr Jasper TSANG, Dr YEUNG Sum, Mr LAU Chin-shek, Mr LAU Kong-wah, Miss Emily LAU, Mr Andrew CHENG, Mr SZETO Wah, Mr TAM Yiu-chung, Mr CHAN Kam-lam and Mr YEUNG Yiu-chung voted for the motion.

Mr HO Sai-chu voted against the motion.

Mr David CHU, Mr NG Leung-sing, Prof NG Ching-fai, Mr MA Fung-kwok, Mr Ambrose LAU and Miss CHOY So-yuk abstained.

THE PRESIDENT, Mrs Rita FAN, did not cast any vote.

THE PRESIDENT announced that among the Members returned by functional constituencies, 26 were present, eight were in favour of the motion, 12 against it and six abstained; while among the Members returned by geographical constituencies through direct elections and by the Election Committee, 28 were present, 20 were in favour of the motion, one against it and six abstained. Since the question was not agreed by a majority of each of the two groups of Members present, she therefore declared that the motion was negatived.

PRESIDENT(in Cantonese): Second motion: Resumption of Land Sales. Mr LEE Wing-tat.

RESUMPTION OF LAND SALES

MR LEE WING-TAT(in Cantonese): I move the above-mentioned motion in accordance with the Rules of Procedure.

Madam President, starting from March this year, the Government has introduced a series of measures in a bid to rescue the property market. On 22 June this year, the Government introduced yet more measures to prop up the market. One of these was the moratorium on land sales for nine months. But the property market did not recover as a result of this measure. In October, the Chief Executive delivered his policy address in which he stated that a decision on whether land sales should be resumed in April 1999 would only be made in early 1999. The Democratic Party thinks that there is only one party who would benefit from the suspension of land sales, and that is the big developers. And there are numerous parties who would lose: the prospective home-buyers would be hesitant to buy flats because they fear the roller-coaster kind of ups and downs in property prices and they are not sure when would be the right time to get on the train, as it were; the small and medium developers would lose the chances of bidding for land lots and they do not have the huge land reserves as the big developers; rising unemployment has surfaced in trades associated with the property sector, such as planners, architects, engineers, surveyors and construction workers; and the Government has $30 billion less income in its coffers during this nine-month moratorium. To maintain a steady supply of land and housing, and to enable a supply of affordable accommodation, are the vital tasks of the Government. When land sales have been suspended for nine months and there are no signs of resumption, does that mean Hong Kong is now ruled by the big developers?

Property prices have kept on rising since the beginning of 1991. In 1994, the average prices were already three times that of 1989. In 1997, the average prices were as high as 4.2 times that of 1989, with an average of $5,600 per sq ft. Such exorbitant prices were largely related to the high land premium policy of the Government. It was also related to the Sino-British Land Commission agreement under which the annual amount of land to be granted for private housing would be not more than 50 hectares. The rocketing prices in 1994 deprived many people of the chance to buy flats. The vociferous resentment in the community prompted the Government to introduce a series of measures to curb speculative activities. In 1995 property prices eased off. But in 1996 prices for flats rose to the 1994 levels. In 1997 prices were pushed yet further. Then the financial turmoil caused flat prices to plummet to a lowest average of $3,600 per sq ft. Prospective home-buyers were thwarted by the sky-high prices, and yet the drastic fall also made them stay away from the property market. For though they might seem to have a golden opportunity to buy a flat, they also feared that property prices had yet to hit the rock-bottom level, and there might be further drops if they decided to buy a flat at that time. There are only two kinds of people who would be overjoyed to see property prices stay sky-high: the developers and the speculators. For those people who were not qualified to receive the various housing assistance and those who failed many times in making a successful application, they were forced to buy flats at sky-high prices. The unsteady supply of land and housing caused property prices to rock ups and downs and this has scared prospective home-buyers off, while home-owners' mood followed the ups and downs of the property market every day. However, even if property prices rise, the increase in asset value does not enhance the actual productivity of Hong Kong. Only when the supply of land and housing stabilizes, and when property prices stay at a steady and affordable level, then the people can hope to live in peace.

Through the moratorium on land sales, the Government hopes to cause a recovery of the property market by cutting the supply of land and housing. But such a suspension does not produce any stabilizing effect on the market. We can see that there was a downward adjustment in the market from June to September this year. On the other hand, the levelling off of the Japanese yen and the fall in interest rates produced a slight recovery in the property and stock markets. During the period from June 1998 to March 1999 when land sales are suspended, the supply of private housing flats will fall by 11 000 flats, and Private Sector Participation Home Owners' Scheme flats and Sandwich Class Housing Scheme flats are reduced by 19 000 flats. The reduction in supply of these 30 000 flats will appear in about three years. If the Government suspends land sales for yet another year, the number of flats involved will be some 20 000 to 30 000 flats according to estimates. This number will increase to 50 000 to 60 000 in four to five years. The Government claims that it will watch the changes in housing demand closely. But if the economy recovers, or if the population growth is higher than government expectations, there may well be a substantial rise in demand for housing in the next two to three years, then even if more land are granted, it will not be able to cope with the increased demand. Property prices may soar again. Therefore, the Government must ensure an adequate supply of land and housing so that prospective home-buyers can receive a positive message that there will be sufficient supply of housing and property prices will not take on a roller-coaster track. For the public, a stable supply of housing is of vital importance. We have all along been opposed to the Government's reaction to the property prices which only intends to deal with the symptoms instead of going to the roots, that is, in introducing measures to curb speculative activities when the prices are high, and launching market rescue efforts when prices fall. It is the public who will be victimized. For they will enjoy wealth on paper only if they buy flats at a low price, but if they buy flats at a high price, they will only get negative assets. The Government must learn from this painful lesson and to make the stabilization of housing supply as its target. In fact, not only are the users unwilling to see the price of flats fluctuate, even the developers and property agents we have contacted also said that stable property prices would be more favourable to them, for buyers will have more confidence in buying flats when the prices are stable. From this we can see that stable prices are good to all parties.

The moratorium on land sales is unfair to small and medium developers. It is because the big developers have a vast reserve of land and even if land sales are suspended, they can make use of the conversion of land use to build private housing flats. For example, the total area of lands which the few local giant developers applied for a conversion of land use for the years 1997 and 1998 is more than the total area of lands which the Government has suspended for sale. The land reserves of these giant developers are sufficient for their use in the next five years. Some small and medium developers had complained that they did not have the money to bid for lands when the prices were high, because a lot would cost at least from a few billions to $10 billion. Now that prices have fallen, the Government has suspended land sales and created some artificial barriers in the market. So when can they have the chance to take part in land sales? Even if land sales are suspended, the giant developers would still be able to build houses because they have land reserves. Many small and medium developers, however, can only find land through auctions and sales. Therefore, the moratorium on land sales would further undermine the strength of the small developers. This is not conducive to fair competition.

Moreover, the moratorium on land sales poses severe financial pressure on the Government. There will be a $30 billion reduction in revenue if we just take the nine-month period when land sales are suspended. I am not saying that I think the Government should make land sales as a major source of revenue. But that is indeed a source of revenue for the Government. The Democratic Party proposes that the Government should study into the ways to make more sectors, such as the services and industries sectors, apply more innovative technologies. This will facilitate diversification of the economy and reduce the reliance on land sales and real estate as a major source of income. But before the sources of income are expanded, a suspension of land sales for a further year will result in $40 billion loss in revenue. Mr SIN Chung-kai of the Democratic Party will elaborate on this later.

The moratorium on land sales will affect the business of the related sectors. A survey made by the Hong Kong Institute of Architects found out that there have been layoffs and wage reductions recently in the 10 largest architectural firms in Hong Kong. It is estimated that by the middle of next year, as many as 8 000 people will lose their jobs when most of the current projects are finished. These include architects and technical support staff such as CAD draughtsmen. The number of unemployed construction workers takes up 20% of the unemployed, that is, 37 000 people. If land sales do not resume, I am afraid more professionals and the general working class will join the unemployed masses.

Furthermore, we suggest that the Government should ensure a level playing field in the property market and introduce more forms of land sale. To make the market digest the land supplied more easily, we suggest that smaller lots should be put up for sale when sales resume in April next year. The Government can also disclose the land lots scheduled for sale in the year 1999-2000. Should developers feel interested in any of the lots on the list, the Government can put up that particular lot for sale by tender or by auction. This will ensure participation by all interested developers and maintain an open and fair competition. The Government should exercise prudence when it makes use of this method, and take measures to prevent those giant developers from joining hands to force a reduction in land prices. Therefore, the Democratic Party suggests that a reserve price should be set for each piece of land put up for sale.

Madam President, the Democratic Party does not agree to the amendment proposed by Mr Ronald ARCULLI. I have said just now that the moratorium on land sales is not a remedy to stabilize the market. On the other hand, this method lacks in flexibility and will produce a disruption in housing supply. If the price of flats is not stable, the people will lose confidence in the property market. Land sales should be made a standing measure for the benefit of achieving a steady supply of land and housing. A moratorium on land sales should be a contingency measure made only under very special circumstances. We think the issue of making a review of land sales is really a non-question. So we are opposed to the amendment proposed by Mr ARCULLI.

Madam President, I so submit.

Mr LEE Wing-tat moved the following motion:

"That this Council urges the Government to resume land sales in April 1999, so as to maintain the supply of land and housing and to stabilize Government revenue."

PRESIDENT(in Cantonese): I now propose the question to you and that is: That the motion moved by Mr LEE Wing-tat as set out on the Agenda be passed.

PRESIDENT(in Cantonese): Members have been informed by circular on 13 November that Mr Ronald ARCULLI and Mr LAU Kong-wah have separately given notice to move amendments to this motion. Their amendments have been printed on the Agenda. In accordance with the Rules of Procedure, the motion and the two amendments will now be debated together in a joint debate.

In accordance with Rule 34(5) of the Rules of Procedure, I will call upon Mr Ronald ARCULLI to speak first, to be followed by Mr LAU Kong-wah; but no amendments are to be moved at this stage. Members may express their views on the motion and the amendments. Mr Ronald ARCULLI.

MR RONALD ARCULLI: Madam President, to be perfectly honest, I do not understand why we are having this motion debate. It was less than five months ago when the Administration announced that all land sales by the Government would be suspended until the end of March 1999. It was less than two months ago that the Chief Executive, Mr TUNG Chee-hwa, in his policy address, said that a review on land sales would be conducted in early 1999. As at this moment, we cannot be more than three months away from a decision by the Administration as to whether land sales will be resumed in April 1999.

Madam President, I would like to remind my Honourable colleagues how all of us came to a consensus on a six-point plan that was sent to the Financial Secretary on 3 June 1998, and the Financial Secretary's response on 22 June 1998. All of us were most concerned at that time that Hong Kong was on such a downward spiral that drastic measures had to be taken to break that spiral and that steps had to be taken to stabilize the property market, lower the interest rates, restore public confidence and revive the economy.

The motion implies that the concerns that all of us had have disappeared. It also implies that everything should revert to our pre-crisis mode. True, the sentiment is better, but that could be due to reductions in interest rates by the United States Federal Reserve Bank out of concern that their economy is slowing down and a rescue package had been put forward in Japan, including a US$30 billion economic aid package for Asia. Two days ago, we were less than one hour away from the armed conflict in Iraq. As at this moment, Indonesia remains of much concern both politically and economically. Only yesterday, the Organization for Economic Co-operation and Development warned of a world economic crisis if central banks are not ready to cut interest rates. Our local banks must take faster action in this respect.

Madam President, I have mentioned a few external factors that would influence Hong Kong. But what about purely local factors? How have they changed to bring about today's motion? Our unemployment rate has gone up from 5% to 5.3%. Our liquidity crunch is still here. Our businesses are trying desperately to survive and our workforce are trying to cope with unavoidable wage cuts. Consumer confidence is not at a sufficient level to resuscitate our economy. Economists are still not optimistic that our economy will grow in 1999. Indeed, only two days ago, the International Monetary Fund said that they expected our Gross Domestic Product growth to remain weak during the first part of 1999 with the prospect of some recovery in the second half of 1999, provided the markets would not take another beating or regional economic conditions would not worsen.

Madam President, it is timely that I remind my Honourable colleagues of what the Financial Secretary said on 22 June 1998 when he announced the package, and I quote:

"Since the latter part of last year, property prices have dropped by about 40%. Moderation in an over-heated property market is in Hong Kong's long-term interest. However, a drastic correction has hurt a lot of people and adversely affected other sectors of the economy. The banks are also put under exceptional pressure as a result of the depreciation of the assets they are holding against loans. We must not allow the situation to deteriorate. We have, therefore, considered it necessary to take decisive and responsive action to stabilize property prices. This will help restore people's confidence."

Surely, we should not have such short memories.

Madam President, I will now offer my comments on the motion and the amendment by the Honourable LAU Kong-wah.

As for the motion, I cannot believe that stabilizing government revenue is a reason for resuming land sales irrespective of the economic climate next year. We have extremely healthy reserves which are supposed to see us through rainy days. Is the Democratic Party saying that we should not use these reserves for 1999-2000 at all? As for maintaining supply of land and housing, so long as the Administration is able to produce a five-year rolling plan on land supply, there should be no concern at all over the lack of land. So long as there is an adequate supply of land, there will be enough housing unless there is no demand for housing. Adopting flexible pre-sales alone is enough to tackle this issue. As of now, developers have a 20-month pre-sale period. This could be extended or further relaxed to meet demand.

I now turn to the amendment by Mr LAU Kong-wah. He asks for land sales to be resumed in April 1999, but land sales have to be flexible according to demand. Quite honestly, I do not know what he is trying to tell us. Is he trying to say, "Sell, but before you do, be flexible and make sure you anticipate demand"? Or is he saying that so long as the Administration has sold one tiny lot of land, it would have met the first part of his amendment? Or is he hoping that the media will simply report," The Democratic Alliance for the Betterment of Hong Kong (DAB) supports land sales in April 1999" without looking at the qualifications he has included?

Madam President, the Liberal Party believes that however well-intentioned the motion and the amendment may be, it is too soon to go firm on a resumption of land sales in April 1999 at this moment. We believe that the Administration was absolutely right when it announced the freezing of land sales on 22 June 1998. We also believe that in conducting the planned review in early 1999, the Administration must not lose sight of its original objectives in freezing land sales. However, if the picture is not as clear as we would want before land sales are resumed, we believe that limited land sales could be considered provided that the sentiment has improved and regional economic conditions are stable. Let me explain.

The Administration, for example, could announce its five-years land sales programme. Our first priority would be to use the application method. This means that anyone interested, say, Developer A, in buying land could write to the Administration stating his interest as well as the minimum price for a particular lot he would bid for plus a 5% forfeitable deposit if he does not bid its stated minimum price. That deposit would be paid into an interest bearing account. Developer A's identity should not be revealed so as not to influence the market. If Developer A's minimum price exceeds the reserve price, then that lot should be auctioned within four to six weeks. The lot will then be sold to the highest bidder at a price which should at least be equal to, if not in excess of, Developer A's minimum price. Thus, everybody gets a chance to bid for that piece of land.

Our second priority would be to reintroduce payment by instalments of the sale price which would, of course, carry interest.

Our third priority would be the resumption of sale of small lots which would measure, say 1 000 sq m or so on terms more favourable than existing terms. We say this is our third priority, because if there are no bidders or if bids do not reach the reserve price, the consequences that will follow could be even more severe than if a larger lot is not sold.

In conclusion, whilst the Liberal Party is unable to support either the original motion or the amendment by Mr LAU Kong-wah, we are able to support at least one aspect of the motion and the amendment as I understand it, and that relates to the question of commercial or industrial land, as both the motion and the amendment specifically mention housing and make no reference to commercial or industrial land. I have, therefore, assumed quite rightly that the Democratic Party and the DAB are not asking for resumption of sales of commercial or industrial land where there is a serious over-supply in the market.

Before I sit down, Madam President, I am actually quite disappointed that the Honourable LEE Wing-tat does not feel he is able to support my amendment. My amendment does not call for no land sales in April. My amendment simply calls for a review in early 1999 to see whether conditions are sufficiently stable at that time and to make a decision at that time.

Thank you very much.

PRESIDENT (in Cantonese): Mr LAU Kong-wah.

MR LAU KONG-WAH (in Cantonese): Madam President, the motion on resumption of land sales today is not only a question of to sell or not to sell, to sell sooner or later, it is about why and how to sell land. This is the reason why I have proposed this amendment. As we all know, the moratorium on land sales has indeed greatly reduced government revenue. Do we want this drop in revenue to go on forever? The 20-or-so lots shelved will probably cause a shortage of flats supply by more than 30 000 in the next few years. Do we want to make the home-buyers suffer from buying flats at high prices again? Some small developers voiced their opposition when the Government decided to suspend land sales. Do we only allow big developers to do business while denying these small developers the chance of doing business? Some people have recently suggested suspending land sales for the coming two years. We think that idea is totally unacceptable and we urge that land sales be resumed as early as possible.

In his policy address and in some recent remarks he made, the Chief Executive mentioned four factors leading to the recovery of the Hong Kong economy. Three of these factors are very clearly-defined. The fourth factor is public confidence. What does a continued moratorium on land sales demonstrate? Does it not reflect the Government's lack of confidence? Or that of the big developers? If the Government and the big developers do not have any confidence, how can one expect to find confidence among the public? How can one expect the Hong Kong economy to recover?

The way land sales were conducted in the past enabled us to see clearly the biennial land disposal programme as presented by the Government. On top of this, there would be land put up for sale every two months. This rigid requirement might give rise to situations where there was no land to be sold and there was no one to buy land. So, we want to propose a flexible mechanism and integrate it into the land disposal programme. First, about the current biennial land disposal programme, in addition to continuing with this practice, developers should also be encouraged to make applications and submit tenders on their own initiative for sites that they are interested. If the Government thinks that the price offered is above the reserve price, it can put up the land for open tender. In this way, the initiative can go from the seller to the buyers as well. Buyers are given a choice and this flexible mechanism can also influence market directions. I believe Mr ARCULLI must support this flexible mechanism.

Second, if land sales are to be resumed, they should focus on small and medium size sites. As far as redevelopments are concerned, we can seek the co-operation of developers of different scales. The Government does not seem to encourage payment by installments. But we think that for the benefit of enhanced competition in the market, the Government can give some suitable incentives to the banks in this respect.

Third, the biennial land disposal programme should not be too rigid. It can be reviewed about twice annually. The Government can also consider a land disposal programme spread over five years. If the Government thinks that in two years from now, certain sites may not be formed yet, or if these lots do not have any flyovers and drainage systems in place, they can still be put up for sale. These can be called "pre-sale land". If only some developers can be willing to build, for example, a flyover or a drain, the Government may as well put that piece of land up for sale by tender. Therefore, the Government should not stick to rigid patterns of thinking as it did in the past. We hope that market orientation, competition and market research can be made the major components of land sales. This is also totally in keeping with market principles and we hope that in future there will be land to be sold and there will be people to buy land.

The motion moved by Mr LEE Wing-tat states that there are two objectives for land sales. These seem to be equally important objectives, but I think there should be a distinction between objectives of major and secondary importance. And the grounds for making such a distinction should rest in the future philosophy of governance. The fact is: we cannot put all the eggs in one basket and we should never let real estate become our principal source of income. In this connection, I wish to quote some remarks made by Mr CHEUNG Man-kwong of the Democratic Party in a debate this September. He said, "In the past, Hong Kong's economic policies were profit-oriented. As a result, our industries were completely replaced by the financial and property sectors, which has thus become the only pillar that generate income for our economy. As a result, our bubble economy came into being. Now, this bubble economy has completely burst, bringing to Hong Kong a lot of pains." The miseries of the bubble economy are the miseries of the Government and also of the people. These miseries should not be allowed to happen again. Land sales should therefore resume as soon as possible. As a matter of fact, in terms of global trends, the appreciation of land value is like that of petroleum, both used to have their days of glory. Now the trend is for added value in knowledge and I believe the people of Hong Kong are well aware of that.

As for the amendment proposed by Mr ARCULLI, I am in full support of the factors that he mentioned. These are really the factors that we should take into account before land sales are launched. But after considering these factors, we think that land sales should still be resumed. And the first sentence in Mr ARCULLI's amendment does not exclude the possibility of resuming land sales in April next year. Therefore, we ask Mr ARCULLI to consider our amendment.

Mr ARCULLI mentioned some questions about memory. Let us now recall what he said in the South China Morning Post before the handover: "After years of debates, trials and errors and painful lessons, the Administration and the community are convinced that the sole solution to the property problem lies in supply." Does it make any difference before and after the handover? Are the experience we have got and the lessons we have learned all wrong? Is supply no longer the sole solution? Having said this, I still believe in the conclusion which Mr ARCULLI has drawn. It is filled with blood, sweat and tears. Mr ARCULLI, you have all my support. So in return please support our call to resume land sales as well.

There are indeed some developers who oppose the suspension of land sales. If we are to continue suspending land sales, it would deal a severe blow to the architects and surveyors whom Mr Edward HO represents. It would also hit the retail sector that Mrs Selina CHOW represents, for they have to bear the exorbitant rents. In the same way, Mr Kenneth TING's electronics sector, Mrs Sophie LEUNG's textile sector, will also suffer because of the rise in costs. On a wider scale, lawyers, engineers and accountants will all be affected. And doctors, social workers, teachers and so on will have to bear the brunt of the fluctuations in property prices again. Do our Honourable colleagues like to see such a thing? I hope that this Council would strike a clear message home to the Government and tell it that land sales must resume as soon as possible.

Madam President, to conclude, this amendment embraces the short-term interests of all sectors and strata in society. It is the most effective way to achieve the most important objective. So I call on everyone to support it. If the Government tells us that no decision will be made on this issue, then it has to address a very important question, and that is: If the moratorium on land sales continues, then how are we going to guarantee a steady supply of housing and industrial land for the next few years to come? This is a question the Government will have to answer. Thank you, Madam President.

PRESIDENT (in Cantonese): Does any Member wish to speak? Mr MA Fung-kwok.

MR MA FUNG-KWOK (in Cantonese): Madam President, in view of the drastic adjustment in the economy and the plummeting of property prices after the financial turmoil, the Government in a bid to avert greater repercussions in the property sector which is the linchpin of the local financial and economic systems, adopted the contingent measure at the beginning of this year to suspend land sales for nine months with a view to stabilizing property prices.

As an interim measure, it is understandable that land sales be suspended in order to stabilize property prices. It should never be forgotten, however, that one of the main causes of the soaring property prices before the handover was the inadequate supply of land. The moratorium on land sales should therefore not to be used as a long-term measure to maintain property prices at a stable level. When property prices begin to firm, the Government should consider resuming land sales, so that the problem of a disruption in housing supply will not aggravate two years later. In order to remove this time-bomb in housing supply, there should not be any extension to the suspension period for land sales. That is why I proposed in the "motion of thanks " debate on the policy address earlier that land sales should resume next year.

If the moratorium on land sales continues, there will be a drastic cut in the supply of private housing flats in the coming two or three years. A sharp rise in property prices may then happen. Some people from the property sector have made the estimation that the nine-month suspension of land sales would cause a reduction in the supply of flats in the private sector by at least 10 000 flats over the next two financial years. The figure does not include Home Ownership Scheme and Sandwich Class Housing Scheme flats, together with those flats affected by delayed redevelopment projects. From the beginning of this year to date, there have been only a dozen or so agreements on land premium reached between developers and the Government. From this we can see that the pace of redevelopment in private sector housing has slowed down. A shortage of private sector housing is therefore expected in the next few years. Before the financial turmoil, government officials predicted that a total of more than 73 000 private housing flats would be supplied in the next two financial years. However, it is estimated now that the number of private housing flats for sale two years from now would be far less than the above figure.

As the population continues to grow, living conditions of the people need to be improved. The demand for housing is remains very strong. No wonder property prices rise sharply when supply fails to cope with the demand. By then, the same fiasco of soaring property prices before the financial turmoil may be triggered off all of a sudden, giving rise to social and economic instability again. After the painful experience of adjustment in the wake of the financial turmoil and the sharp decline in property prices, the people of Hong Kong, including a great number of developers, will not like to see property prices going off the rails again.

Now that property prices have firmed and a so-called springtime scenario has returned to a certain extent, the numerous measures aiming at propping up property prices are beginning to see their effects. The objective of this moratorium on land sales has been reached. On the issue of whether land sales should be resumed next April, various developers have taken different stances. This is mainly due to the amount of their land in reserve and their cash flow situations. The overall interests of society are not taken into consideration. As land is a public asset, for those who have the need, they can get the supply through open and fair channels by paying a reasonable price. If land sales are to be suspended for a long time, will that be fair to those small and medium developers and those new developers who want to enter the market at this stage? As for other related sectors such as building and surveying, there is no reason that they should be affected by this long-standing and artificial intervention in the form of a moratorium on land sales.

Of course it is too early to say that the property market has recovered. For such a recovery really hinges on the pace of economic recovery in the territory and public confidence in the market. Comparatively speaking, the effect of a continued moratorium on land sales is waning. The focus of our housing policy should now be shifted onto maintaining the stability of the property market.

Given the potential instability in property prices in the foreseeable future, the Government should make every effort to make property prices stable well before any sweeping changes happen in the local and regional economic scenes. Land sales should be resumed at once in early April next year. This will produce a favourable background against which the imbalance in supply and demand caused by the shortage of land and reduced flat production can be usefully revised. On top of this, land sales are an important source of revenue for the Government. In the face of a potentially massive deficit, a resumption of land sales is more necessary than ever.

When land sales resume, the Government should aim at greater transparency in this respect. It should make public the information of the land lots available for sale in each district, plus information of land lots which will be put up for sale some time after. Land should be sold flexibly according to market demand and a reserve price should be set for each lot so as to prevent it from being sold at rock-bottom prices like one recent case has been. For this will erode the confidence of the developers in their prospects. Moreover, the Government can put up some smaller lots for sale when land sales are resumed initially. This can serve to gauge market sustainability so that the confidence of developers and the public can be gradually restored.

With these remarks, I support the motion moved by Mr LEE Wing-tat and the amendment proposed by Mr LAU Kong-wah. Thank you.

PRESIDENT (in Cantonese): Dr Raymond HO.

DR RAYMOND HO (in Cantonese): Madam President, a free market economy has been upheld and well-established in the territory. The policy of active non-intervention is practised in the industrial sector. But in the area of land sales, this principle is not always applicable. The Government has announced earlier that it would suspend land sales for a period of nine months up to March 1999 in order to make the property market stable. The Chief Executive in his policy address this October also mentioned that the Government would decide in early 1999 whether this measure would be lifted. Primary considerations would be given to stabilizing the property market, so he said.

A marked improvement was seen in the market in October. If the overall property market continues to turn for the better, the Government should consider resuming land sales next year. Such a move may strike home an important message to all the parties concerned and bring revenue to government coffers. More importantly, resuming land sales will effect a positive impact on the construction industry which is now in the ebbs.

Market prices should be determined by supply and demand in a free and robust market. The current moratorium on land sales will undoubtedly make the property prices stable for the time being, but on the other hand it also reveals that our property market is at a downturn. It reveals the fact that the Government is lacking the confidence to sell more land, for fear that the increased supply will affect property prices. So when circumstances permit, land sales should be resumed as soon as possible. This will give us the message that the market has stabilized. On the other hand, prices reached at land sales are themselves important messages vital to the developers, property buyers and the future plans of related sectors.

Past experience shows that excessive control of land supply is not conducive to stable property prices. Since a certain amount of time is required in property development from land purchase to the completion of construction works, we need not wait until a complete recovery of the economy before we resume land sales. Otherwise, another sharp rise in property prices may be caused and a bubble economy will be formed again.

The recently announced unemployment figures are an all-time high for the last 15 years, reaching 5.3%. According to figures released by the Hong Kong Construction Industry Employees General Union, of the 86 000 construction workers, 30 000 are unemployed. For the 90 000 workers in the decoration sector, 45 000 of them are underemployed. Other people who are likewise affected by the downturn in the property market include professionals such as engineers, architects and surveyors and so on. Therefore, a clear-cut decision should be made in the resumption or otherwise of land sales in the coming year. Positive effects can then be produced on the local construction and related industries should land sales resume. This will in turn become a driving force for economic growth and will help to bring about a recovery of the economy.

Of course, the Government should consult the sector for its advice on the issue of resumption of land sales. Any decision should ultimately rest on the overall interests of the territory. On the other hand, the Government can make use of different ways of selling land, such as selling lots of different sizes, in order that market reactions can be gauged. A review of the responses and confidence level in the market should then be undertaken regularly at specified times.

Madam President, I so submit.

PRESIDENT (in Cantonese): Mr HUI Cheung-ching.

MR HUI CHEUNG-CHING (in Cantonese): Madam President, as land is scarce and the population huge in Hong Kong, the most cost-effective natural asset is land. In view of the relatively low taxation, land sales have become the most important source of revenue for the Government other than taxation. For members of the public, the most important decisions to make are those on the buying and selling of flats and mortgage payments. As for the effects of land supply and the movements of the property market, not only will they exert a decisive influence on the development of the closely related real estate, building and banking sectors, but also influence every businessman which uses his property as a collateral to secure loans from the banks. Therefore, no matter what the Government's decision on the issue of resuming land sales is, it will be felt by every sector of the community.

The Hong Kong Progressive Alliance (HKPA) understands that the Government is in a dilemma. On one hand, the painful adjustment of the economy is not yet over: layoffs and pay reductions continue, interest rates stay high, consumption is weak, and there is a big divergence of opinions between people from different sectors on the future developments of the property market. Therefore, one cannot say that the gloom in the property market has cleared up. But on the other hand, deficits for this financial year are estimated to reach $50 billion. A further moratorium on land sales would definitely make the Government go deeper into the reds. For the international credit rating institutions, this will certainly be another excuse for them to lower the credit rating of the Hong Kong Government. At the end of the day, the borrowing costs of the major companies are bound to rise. The vicious circle thus triggered off is definitely unfavourable to the recovery of our economy.

For most part of the year, property prices have fallen 30% to 50% already. Moderate measures should be used by the Government such as flexibly selling land in small lots so that the market can find its perching point. The Government should not be over-anxious in this matter because given the political and economic stability of the territory, the support lent by our strong motherland, and the leading edges we still possess in trade and finance, Hong Kong remains as a first-class place to live and to do business. A sustained period of freezing land sales would on the contrary make people feel that the Hong Kong Government is artificially distorting the true situation of the property market. This will erode the confidence of investors.

The HKPA thinks that the Government can resume land sales flexibly in keeping with market demands. Before land sales resume, the sector can be consulted on the types of land which can better suit its needs. Flexibility should also be exercised in the way how land is to be sold, such as by secret tender and to set a reserve price which is based on a reference price above the market value. If the tender price is lower than the reserve price, the lot should be taken back for sale at an appropriate time later.

As the issue of land sales is one which will affect every sector of society, the Government should introduce a package of measures which are comprehensive, inter-departmental, forward-looking as well as retrospective. Only by this can the difficult decision of resuming land sales can play an active role in stabilizing the economy. This package of measures should include the following:

First, the Hong Kong Monetary Authority must work at easing the money supply in the banking system, perfecting the various defensive measures for the linked exchange rate to produce an incentive for the banks to cut their interest rates. In fact, after the introduction of the "seven strokes and 30 twists", these measures have made the local financial market more stable than three months ago. Coupled with the brightening up of the international financial scenes, in particular the firming of the Japanese yen and the subsiding hedge fund activities, the time is now ripe for a cut in interest rate in Hong Kong.

Second, the Government must straighten out its public housing policy, especially in respect of the price and design of public rental housing and Home Ownership Scheme housing, so that a clear distinction can be made between the needs for these types of housing and those found in the first hand and second hand markets in the private sector. In the end, this will prevent a scramble for buyers in these two categories of housing markets which are by their very nature different from each other.

Third, the taxation proposals for the Budget next year should focus on the stimulation of investments, promoting trade and tourism, and enhancing the competitiveness of Hong Kong, for a speedy revitalization of the economy is, after all, the key to increasing revenue and restoring public confidence in home ownership.

Madam President, I so submit.

PRESIDENT (in Cantonese): Mr NG Leung-sing.

MR NG LEUNG-SING (in Cantonese): Madam President, in early September, the Government introduced a package of measures aiming at stabilizing the financial market and strengthening the linked exchange rate. This was matched by favourable external factors, in particular the downward revision of the interest rate for US dollar, leading to a levelling off of the interest rate for Hong Kong dollar and some signs of a recovery began to appear in the property market. According to information from the Land Registry, 7 000 property transactions were recorded for the month of October, with a total value of more than $18 billion. Such an amount represented an increase of more than 30% compared to that of September. Signs are showing that confidence is gradually restored in the market and the present property price levels are expected to become stable.

At the same time, the moratorium on land sales has caused a serious loss in revenue on the part of the Government. For the General Revenue accounts in the first half of the financial year, the item of income from land transactions is blank. It is a huge difference from the $7.4 billion income from land sales over the same period last year. There are estimates that the Treasury would lose $19 billion during the period from June this year to March next year when land sales are suspended. According to government estimates, the total deficit this year would be as high as $50 billion. The Government has also admitted that the moratorium would reduce housing supply for the year 2002-03 by about 20 000 flats. Against such a background, if the Government wishes to maintain its sound financial position and to prevent a long-standing sharp rise in property prices, there is a crying need for land sales to resume next year. Besides, the moratorium has inevitably deprived financially capable developers of the chance to buy land even if they want to. This makes the employment prospects of the interior design, surveying, building and other related sectors bleak. The Government should make a review of the market situation, and when there are no major changes in the external and local economies, a resumption of land sales next April or at some other appropriate time would be welcome.

The changes in the external and internal economies over the past year, especially the blitz of the regional financial turmoil, have taught us the painful lesson that even the most professional economic forecasts would sometimes be no more than purely wishful thinking. We have to admit that there are still a lot of unpredictable variables in our economy since it is influenced by so many factors. Political instability is found in some countries in Southeast Asia, possibilities of a new wave of regional currency crisis cannot be brushed off lightly, the effects of the latest scheme to stimulate the Japanese economy remain yet to be seen, and the exchange rates of the Japanese yen are erratic and volatile. Thus the external factors influencing our economy are becoming uncertain. The local economy is still weak, as seen in the latest unemployment rate of 5.3% which is the highest in 15 years. Consumption and the incentive to buy property are further dampened. It will take some time to restore and affirm confidence in the people for an economic recovery. Therefore, I think it still sounds premature on this day in mid-November to make any judgement on the state of the economy next April. We recall when the Government announced in June this year that land sales were to be suspended, its intention was to boost market confidence so that the downward adjustment of property prices would not be so drastic as to cause a complete melt-down, thereby creating detrimental effects on the banking system and the economy as a whole. These measures indeed are effective to a certain extent. For example, the property market has gradually become stable despite the existence of uncertainties in the economy. However, the negative impacts of these measures have to be addressed. Therefore, to ensure its credibility, I think the Government can make assessments in the following areas as stated in the policy address: the effectiveness of these measures, the stability of the property market, changes in the external environment, movements in interest rates, public confidence and so on. The findings can be used to make the authorities well-prepared for the possible resumption of land sales next April. The size of the land lots for sale, the pricing, tender method and even timing have all to be carefully and skilfully planned. The balance of the interests of the sector and those of the public have to be closely monitored. All this will ensure land sales can meet the practical needs as well as being beneficial to the economy.

Madam President, the policy address proposed to build a land reserves mechanism in the long run as a means to stabilize the property market, so that the supply of land can be regulated more effectively to meet market needs. This measure, aimed at smoothing out market operations, should be introduced as soon as possible. The people of Hong Kong would like to see a property market which grows steadily under a sound system. They would not like to see a market which fluctuates sharply. They would not like to see a brake being suddenly applied on the supply of land again.

Just now I heard Mr LEE Wing-tat mention the ceiling set by the Sino-British Land Commission insofar as land disposal was concerned during the transitional period. I would like to add here that since the Commission was set up, the land granted each year did in fact exceed the ceiling. Besides, land prices before the Commission was set up, that is, before 1984, also rose and fell sharply. The Commission has transferred the Land Fund under its administration before the handover to the Special Administrative Region Government. The close-to $200 billion fund asset has made substantial contributions by greatly enhancing the defensive power of the Government in the last financial turmoil.

Madam President, I so submit.

PRESIDENT (in Cantonese): Mr Edward HO.

MR EDWARD HO (in Cantonese): Madam President, before 1997, property prices in Hong Kong stood at high levels, and there was heated speculation. One of the main reasons for that was the economic prosperity at that time. But there was also an important reason: for many years land was in short supply. At that time, many developers and bankers reaped huge profits. Some people became speculators. One could see them talking to a mobile phone and making quick money. They thought that all the world was in their hands. The professionals at that time were able to make money as well. But as property prices, inflation and wages were all high, the operating costs were exorbitant. One could say one earned barely enough money for the meals. Actual profits were just reasonable. We all agree that the situation at that time was much better than that of an economic downturn these days. But that was unhealthy and so it merits our special attention.

I can recall from 1991 to date, in each year's Legislative Council debate on the policy address, I mentioned the need to increase land supply as a means to solve the housing problem at its roots. In May 1994, I even moved a motion to debate the issue of land supply. Therefore, when the Chief Executive, Mr TUNG Chee-hwa, proposed his 10-year housing construction plan in October 1997, I was very supportive. But after 23 October last year when the Asian financial turmoil happened, the local economy entered into recession, property prices fell sharply, and the entire issue of housing and land became very much different from before and so the way to handle it should be different from the previous methods used.

Apparently, the market mechanisms have greatly slashed property prices, transactions and turnover. So the problem we face is not just one of the demand and supply of land. At the beginning of this year, government officials announced that they would handle land sales in a flexible manner. This is meant to give the market a message that although the Chief Executive's 10-year housing construction programme is meant to stay, the Government would not go on selling land regardless of the fall in property prices and the kinds of problems that may surface. At that time, the so-called flexibility message was not clear and in the end no one knew what measures the Government would take. No one knew for sure whether and how much land would be sold. The Liberal Party, including I myself, all suggested suspending land sales because we would like to see the property market stabilize. We also feared that the property market would be further affected by the economy and pressure would be exerted on the banks. We hoped that the Government would review the economic situation and that of the property market as well. But I was very surprised when the Government announced in June this year that land sales would be suspended for nine months. That land sales would be suspended for such a long period as nine months is unprecedented in Hong Kong. I have the impression that the Government is being either inactive or too active in this matter. Nor has it thought of whether negative impacts would be caused by the comprehensive moratorium on land sales. At this point in time, the property market can be said to have been stabilized, but we are not sure if this is the result of the moratorium.

In fact, there is still a shortage of residential housing in Hong Kong, so once the buyers think that property prices have reached reasonable levels, there would still be demand for property. The many residential developments which have been put up for sale recently are all well-received, and that is due to the demand. The nine-month moratorium has given rise to the negative impact where developers are prevented from re-entering the market. Most of these are small and medium developers and they do not have a rich land reserve. But even some big developers have told me personally that they were in support of resuming land sales and against the moratorium.

The second negative impact is that there is no real market price for land since there is no land sold. This should not be allowed to go on in a free market economy.

Third, as land sales have been suspended for a few months already, private sector developments must have been greatly reduced. The result would be a serious shortage in housing supply three years later. Fluctuations may then arise in the market. This is something we cannot afford to ignore, for there should be a regular supply of land for housing developments.

Fourth, the moratorium on land sales will directly affect those professions and trades related to the property development sector. Just now I heard many of my Honourable colleagues expressing their concern for our sector. I appreciate their concern. As we all know, many sectors are having a very difficult time. They may even experience layoffs and wage reductions. Of course, we should simplify the matter as to say that the moratorium will stabilize the market, and the resumption of land sales will make everyone do a roaring trade all of a sudden and there will be lots of jobs waiting to be filled. Basically, even if we do not sell land, and if the economy is sound, the developers can still do business because they still have land in reserve or they can carry out redevelopments.

Time is running short. I just want to say that I support the motion moved by the Democratic Party. As for the amendment made by Mr ARCULLI, though he did not say that he was against land sales, I would not support his amendment because he has placed many stumbling blocks and the amendment was not clear and definite enough. I would also support Mr LAU Kong-wah's amendment, because he supports land sales. Thank you.

PRESIDENT (in Cantonese): Mr HO, your time is up.

PRESIDENT (in Cantonese): Mr Gary CHENG.

MR GARY CHENG (in Cantonese): Madam President, the pounding impact of the financial turmoil has caused a landslide in property prices and a great erosion in the confidence of the public in home ownership. The Government announced in June this year a measure to suspend land sales and tender for nine months. Some people think that the measure would have a stabilizing effect on the property market. But at most this can only produce a "pain-killing" and "curative" effect. To cope with the massive demand for housing and satisfy the home-buyers' demand, to resume land sales as soon as possible is a feasible way. It is also in line with the housing objective of the Government.

Currently, there are two voices in society. One is to resume land sales. The other is to extend the period of the moratorium on land sales. The Democratic Alliance for the Betterment of Hong Kong (DAB) of course goes for the former. We think that land sales should resume in April next year and we are glad to see Mr Edward HO joining our ranks.

According to the Territorial Development Strategy announced by the Government in 1996, it is estimated that by the year 2011, the population of Hong Kong will reach 7.5 million to 8.1 million. The demands for housing will of course be very substantial. Figures released by the Government also indicate that the nine-month moratorium will make housing supply from 2002 to 2003 fall short by 20 000 units. The figure may even be more accurate than the one mentioned by Mr MA Fung-kwok earlier on. With these two figures in mind, we cannot help but feeling worried should the Government further put off the timetable for land sales, because this may cause an imbalance in the demand and supply of housing; the extent of the rise and fall of property prices will be hard to regulate. The high land price policy of the Government has put many prospective home-buyers off and increased the burden on businessmen. We cannot make the same mistake again, especially when the painful lesson is still fresh in our minds, otherwise, the reaction in the community is likely to be very adverse. Therefore, the Government must make land supply stable in order to meet the demands of the people in terms of flat production and land supply.

At the same time, the Government should review proactively the current methods used for land sales. Land sales used to be conducted by way of auctions. When land is put up for sale and no one is interested, this will not only embarrass the Government but, more importantly, also lead to repercussions throughout the market. The DAB thinks that when land resources are being opened up in order to increase land supply, consideration should also be given to adopting a flexible approach in land sales and to make public a list of land lots available for sale in the next few years. Developers can then fill in application forms to apply for land purchase. Auction will then be held. The list of land available for sale should include lots of various sizes so as to meet the needs of different developers when they submit their tenders. This will serve to prevent as much as possible a monopoly on land by a few major developers.

We know that a lot of factors have to be considered when the Government decides whether or not to lift the moratorium on land sales. For example, the views of the banking sector, the desire of the developers to submit tenders, the financial scene, public confidence in home ownership, and estimations of the proceeds of land sale. We understand that the decision to suspend land sales is certainly meant to regulate the supply and prices of flats in future.

The DAB's call on the Government to resume land sales and to review the methods of sale is indeed in line with the Government's intentions insofar as the principle is concerned. The crucial difference is that we think now is the time and the matter should not be allowed to drag on. Our biggest difference with Mr ARCULLI is precisely on this point of timing ─ a factor which is not being considered by the Government alone, but also by the public, the banking sector and the developers. The key lies in the current economic downturn, irrespective of whether land is kept in the land bank or put up for sale, no one wants it, or no income will be derived. Now that the situation seems to have turned better, if land sales are conducted flexibly in the form of interested developers filing an application with the Government to buy land, then the Government can feel the market pulse in the fastest and most direct way.

In fact, the Government needs only provide land for sale at a steady pace and to get a good grasp of market assessment information. As for the number of applications for land sales and the prices offered, they can be left to the developers' commercial decisions in accordance with changes in external and local situations. We will also ask the Government to set reasonable reserve prices when land auction is deemed necessary. If market demand is in excess of the amount of land being offered, considerations can be given to releasing more land from the land bank. This flexible land disposal policy will do no harm to the principles held by the Government on the one hand, and strengthen the market-led principle on the other. Moreover, it will also make developers more keen on making tenders for land, as well as boosting public confidence in home ownership. As we all pursue the market-led principle, we should adhere to it by taking concrete steps.

The DAB thinks that if land sales are resumed, and if market response is good, it will help to increase the Government's revenue, thus obviating the need to rack its brains to explore new items of taxation or tax increases. However, the DAB wishes to stress again that a prerequisite condition for our approval of a resumption of land sales is that the market demands for land and housing must first be satisfied. The Government's revenue considerations should come next.

I so submit in support of the amendment proposed by Mr LAU Kong-wah.

PRESIDENT (in Cantonese): Dr TANG Siu-tong.

DR TANG SIU-TONG (in Cantonese): Madam President, the Government introduced nine market rescue measures last June to save the weakened economy and stabilize the rapidly plummeting property prices. The most irksome measure is the moratorium on land sales for nine months. This not only delayed the launch of 39 000 flats but also reduced the Government's revenue by $30 billion. Truly, given an almost 50% drop in property prices, a high unemployment rate at 4.2%, the interest rate standing at about 10%, and a dramatic drop of confidence among people at the time, the Government was right in deciding to impose a moratorium on land sales. However, on the expiry of the moratorium in March next year, the Government must prudently consider a review to resume land sales.

As a free market model, Hong Kong has been well-known in the world for its low tax rate and enormous surpluses. I wonder whether Members have ever thought about why the governments of countries like the United Kingdom, the United States, Japan and Singapore could only operate normally by maintaining their tax rates at 28% to 40% whilst the Hong Kong Government can operate so effectively with a tax rate of 15%? It is definitely not because the Hong Kong Government knows how to economize or because it has a smaller scale than the governments of other countries, but because it always generates stable and abundant revenue from land sales and the related income such as premiums, rates and stamp duties. In the last financial year (1997-98), the revenue from land sales was $17.87 billion, around 4% of the total government revenue. This obviously shows the importance of land sales to government revenue.

Given that land sales is an important source of revenue, the effect of the moratorium on land sales on the financial position of the Government is remarkable. At present, the Government's fiscal deficit is estimated at $50 billion, thanks to a large extent the freeze on revenue from land sales. With the existing deficit, the Government can perhaps make ends meet for a short while with its abundant reserves or even by privatizing some public assets such as the three railways and tunnels, or by listing them on the market to increase government revenue. However, as it is generally estimated that the tax revenue next year will not be promising, and a substantial tax hike is out of the question as it has to alleviate people's hardship, it seems that the Government would inevitably have to review whether land sales should be resumed.

Madam President, in the course of the review as to whether land sales should be resumed, the Government must consider the stability of the property market, people's confidence in the market, land supply and the external factors. Actually, since October, there have been signs that the external factors that affected Hong Kong have ameliorated. For instance, the hedge funds which have been disturbing Hong Kong are facing financial crisis, the Federal Reserve of the United States has twice reduced the interest rate and the Japanese yen has stabilized. All these give our economy a breathing spell, during which the local interest rate has slightly dropped and the property and stock markets gained strength for a short while. It is generally expected that our economic downturn will hopefully come to an end in February next year. Therefore, it will be acceptable for land sales to be resumed in the latter half of the year.

Nevertheless, in reviewing whether land sales should be resumed, the Government must note that although the property market has recently stabilized, people's confidence in the market is still shaky. Our economy is still undergoing an adjustment and the unemployment rate still fluctuates around 5% while layoff and wage reductions continue. In addition, although the interest rate has fallen to 9.75% or even lower, the actual rate of interest is still at a high level and these make buyers less willing to make investments. Once the Government launches excessive land for sale, the market can hardly digest it and the property prices may drop further. Therefore, when the Government considers a resumption of land sales, it must do so in line with the market situation and launch lands step by step to test the receptability of the market and avoid unnecessarily striking a blow at the property market.

A resumption of land sales will not only have a direct impact on the property market, but also give rise to chain effects across all trades and industries in Hong Kong. Therefore, the Government must carefully review the resumption of land sales in April next year from the perspective of the interests of the public and under the premise of forestalling pressures of budget deficits and stimulating our economic revival. I am convinced that a resumption of land sales is almost a must. Therefore, we should conduct a thorough review and make a decision early next year as to whether land sales should be resumed in April.

Madam President, I so submit.

PRESIDENT (in Cantonese): Miss CHAN Yuen-han.

MISS CHAN YUEN-HAN (in Cantonese): Madam President, many Hong Kong people are living in very cramped places as a result of the policies on high land prices and high rental values in the past. It can be said that the housing conditions of the general public are very poor. In the past, especially before the reunification last year, property prices surged to $10,000 per sq ft and the burden and pressure on the general public were huge. How are we going to solve the housing problem? We know very well that an important reason for the high land prices in the past is an unstable land supply. We have discussed this repeatedly in the former Legislative Council and the Provisional Legislative Council. The Government is duty-bound to open up more land and increase the supply of residential flats. Therefore, the Hong Kong Federation of Trade Unions (FTU) today supports the original motion and the amendment of Mr LAU Kong-wah. In our view, if land sales are not resumed in the March next year, we fear that the shortfall in supply of residential land in Hong Kong will be even greater a few years later. We have seen this in the past. For example, there were few new properties in 1993 and 1994 as there was an abnormal land supply before then. Therefore, it is imperative for the Government to resume land sales in March as this will avert the emergence of a bubble economy again as a result of another round of property speculation a few years later.

As the property market is in a slump and there is an adequate supply of residential flats, some people worry that if land is put up for sale next year, the situation will become even worse and the property market can hardly revive. However, this is not true. Although 90 000 flats will be built in the next two years, the nine-month moratorium on land sales has held up the sales of 29 residential lots. If land sales is again frozen after March next year, I am afraid that the land supply in future will dwindle further, causing serious impacts on the property market a few years later. Any land sold next year will only affect construction projects in the distant future, and it is not closely related to the supply of flats in the next two years. Therefore, the number of flats to be supplied next year cannot be taken as the criterion for a decision on the resumption of land sales. On the contrary, a continued moratorium on land sales will have a significant bearing on the future development of the property market.

Moreover, a resumption of land sales next year will give the property market a chance to develop again. In the past, large property developers monopolized the land and property market in Hong Kong and there was no fair competition to speak of. According to a report released by the Consumer Council in 1996, 70% of newly completed buildings then were supplied by a few developers. These companies can monopolize the supply of buildings not only because they are wealthy and strong, but also because land prices are high and large lots are sold. High land prices make it hard for small and medium developers to compete with large developers. As large lots are sold each time, small and medium developers fail to acquire such land as they are short of means. Take 1993 and 1995 as an example, out of the 45 pieces of land sold, more than half of them exceeds 5 000 sq m. Lands of such large area are affordable by large developers only. If this trend continues, small and medium developers could only watch other people monopolizing the market which they cannot practically slice a share. Thus an oligopoly emerges. Without being threatened in any way by opponents, large developers can set high prices to reap handsome profits while the public are hard-pressed by high property prices.

The property market is now going through an adjustment and it is time for the Government to change this phenomenon. It can give full play to its functions in respect of land sales. It should choose some land of moderate size for auctions so that small and medium developers who find it affordable can join the tender. For instance, in the scheme for property development along the railway involving 4 hectares to 21 hectares of land, the Government can sell the land in batches to different developers. In particular, it can specially designate smaller pieces of land for tender by small and medium developers. As for large pieces of land, the Government can sell the land by way of tender and invite bids from large developers. Large, medium and small developers can then get what they want. In a word, a freeze on land sales will strengthen the monopoly of large developers over property supply and allow them to maintain absolute superiority. Once our economic situation improves and the public rekindles interest to buy properties once again, and if there is still an oligopoly, those who will be benefited will definitely not be the public or our society, but large developers.

Finally, I would like to talk about the revenue from land sales. In the past, the Government intentionally or unintentionally relied on land sales as the major source of government revenue. It was wrong and the FTU has long been criticizing such a practice of the Government. A healthy economic structure has many components, and we should not depend solely on income from a single economic activity to support our society. This unhealthy phenomenon has brought about the adverse consequence today. It is now time for us to restructure our economy and engage in industrial and other developments. However, we are caught in a dilemma now. There is no new development while we need income, therefore, we are forced to accept the fact that our expenditure has to be supported by land sales. We really have no alternative.

We will support the original motion and the amendment of Mr LAU Kong-wah, but oppose the amendment of Mr Ronald ARCULLI. Thank you, Madam President.

PRESIDENT (in Cantonese): Mr SIN Chung-kai.

MR SIN CHUNG-KAI (in Cantonese): Madam President, I would like to elucidate two points and I would like to respond to the views expressed by Mr Ronald ARCULLI in regard to the Democratic Party's comments on the relationship between land sales and government revenue.

I would first elucidate one point. When the Democratic Party considers whether lands sales should be resumed, it has taken into account mainly the development and needs of the property market, while government revenue is only a factor of secondary importance. Our views match those of the Democratic Alliance for the Betterment of Hong Kong. Under this premise, we have to analyse whether the existing situation permits a resumption of land sales. In June, the Democratic Party did not support the Government's imposition of a nine-month moratorium on land sales and we only supported flexible land sales. It seems that the situation has now ameliorated, in particular, the United States Federal Reserve announced a 0.25% reduction in interest rate yesterday (Mr LAU Kong-wah and Mr Fred LI may meet with members of the Hong Kong Association of Banks again this Friday). In my opinion, this change or trend will have positive effects on the property market and relieve the burden of people making mortgage repayments. This provides a firmer basis for assessing the possibility of resuming land sales.

Secondly, I would like to discuss about government revenue. In the past 10 years, the Government's revenue from land including land sales and other land-related revenue has increased from around 9% to 23% at the peak between 1997 and 1998. Between 1990 to 1991 when the Government's revenue was the most unsatisfactory, revenue from land accounted for 4%. The property market had relatively poor performance then probably because of the aftermath of the June 4th incident. Although we do not agree that we should rely excessively on revenue from properties, in fact, in the 1998-99 financial year, we will lose $30 billion revenue in one go because of the moratorium on land sales. Originally, we estimated that there would be some $50 billion revenue from land in the year 1998-99, but as property and land prices have fallen, even though we manage to sell the same quantity of land, the land may be sold at only half or even less than half price. With prices discounted, our deficit in the year 1998-99 may be roughly $40 billion to $50 billion. However, if we freeze land sales again, the deficit in the year 1999-2000 may exceed $50 billion, and there will be a total deficit of $100 billion in two years. This is not a good or positive message to people in the market, the international rating agencies, the International Monetary Fund or the World Bank. At least, we should make efforts to carry out prudent fiscal management in accordance with the Basic Law.

If the circumstances permit, for instance, the property market has begun to stabilize, when the Government considers balancing the pressure of a tax increase or land sales, it should first consider land sales for land sales can satisfy market demands and stabilize government revenue. Even though there is a substantial reduction in land prices, or land of smaller areas are put up for sale or less land is sold, the Government will still incur revenue and less deficit. We hope that the Government will keep the deficits at a level lower than that of this year.

We should understand that corporate profits or other tax revenues including stamp duties in the year 1998-99 have substantially reduced. Within half a year, the performance of listed companies have fallen by about one third to a half on average. Therefore, government revenue from profits tax will seriously decrease. Under such circumstances, if the Government does not take an overview at its books, its revenue will be adversely affected.

Mr Ronald ARCULLI said that we have abundant fiscal reserves now. It is right that at the beginning of 1998, that is, the beginning of this financial year, we have around $450 billion fiscal reserves. However, if there will be $100 billion deficits in two years' time, our reserves will have decreased by 25% which is not a good message for our fiscal reserves will have sharply decreased within two years. Although we agree that we have to store up grain against a lean year, as we have to use our reserves now, if we have the opportunities and are well able to do so, we must look after government revenue. We hope that the Government will give consideration to land sales as a source of government revenue when it publishes the fiscal budget in three months' time. Thank you, Madam President.

PRESIDENT (in Cantonese): Dr LUI Ming-wah.

DR LUI MING-WAH (in Cantonese): Madam President, I support a resumption of land sales early next year for two reasons. First, as other Members have said, it can increase government revenue and second, it allows developers to build more flats to stabilize property prices.

In my opinion, the Government of the Special Administrative Region (SAR) has suspended land sales mainly because property prices have fallen too steeply this year, leading to adverse effects on the financial market and people's confidence as well as our economy as a whole. I do not think that the SAR Government has suspended land sales because property prices are too low, for the property prices in Hong Kong at the existing level are still much higher than those of our competitors and this will continue to affect our overall competitiveness. In the long run, it will be harmful to our economic development. Therefore, we hope that property prices in Hong Kong will not further decline and we think that property prices should remain at the existing level but not go on increasing.

Madam President, it can be seen from the number of new flats sold recently that the public has the capital and they need flats. If land sales are not continued, there is much room for property prices to rise. As far as long-term development is concerned, this will not be a blessing for Hong Kong. Certainly, I know clearly that developers in Hong Kong have generous land reserves and even though land sales are resumed early next year, in the short run, it will give little help to the adjustment of property prices. However, taking psychological factors and principle into account, I support a resumption of land sales by the Government early next year in the hope that this will keep property prices stable and bring benefits to the public, the industrial and business sectors and our economy as a whole.

I so submit.

PRESIDENT (in Cantonese): Dr YEUNG Sum.

DR YEUNG SUM (in Cantonese): Madam President, I would simply talk about a few incidents that happened around me.

One day, I met a professor from the Faculty of Architecture of the University of Hong Kong who was gravely worried that his students would have great difficulties in finding jobs after the Government had stopped land sales. Not long after then, I met a group of students from the Faculty of Law who would soon graduate and they told me that they would take up a master of laws degree course as the property market was in a slump and law firms had poor business, and they would wait until the market situation improves before looking for jobs with law firms.

We have also received complaints from small and medium developers who seldom file complaints with us. According to them, when the market situation is good, they are not capable of competing in tenders with large developers. But when the property market is in a slump and they would like to buy land, the Government has put a freeze on land sales which would last for a fairly long time. They wonder whether free and fair competition has disappeared in Hong Kong because the Chief Executive is too closely related to some large developers. They have actually given a very important warning. I find it a great pity that they have such worries and I sincerely hope that the Government will drive away their worries and allow Hong Kong to uphold a free market and free competition. Thank you, Madam President.

PRESIDENT (in Cantonese): Does any other Member wish to speak?

(No Member indicated a wish to speak)

PRESIDENT (in Cantonese): I now invite Mr LEE Wing-tat to speak on the two amendments to his motion. Mr LEE Wing-tat, you have up to five minutes to speak.

MR LEE WING-TAT (in Cantonese): Madam President, I am grateful to Honourable colleagues for their enthusiastic discussions about this issue and I will respond to their speeches briefly.

Mr Ronald ARCULLI has asked how we should handle land sales now that there is an economic downturn. Actually, before we proposed this motion, we had repeatedly discussed this among ourselves. We can actually consider this issue from a long-term perspective. If the economic situation is really poor and this persists until 2000 and even 2001, in Mr Ronald ARCULLI's logic, do we have to suspend land sales for two more years? If the economic situation does not improve by 2003, do we have to suspend land sales for four years? We should start pondering over this. In our view, even if the economic situation is poor in 2000, we can take some more cushioning measures and try our best to reduce the impacts of land sales on the property market and property developers. Many Honourable colleagues have actually expressed fairly moderate views, and according to our usual stance, their views can be described as conservative. For instance, they would consider the interests of property developers. They suggest that smaller pieces of land should be sold and ask developers to file applications for the purchase of land by hire purchase. Putting this coarsely, they fear that land sales would scare developers away. In fact, it is not that terrible as developers themselves have divergent views. I do not hope that this debate will become antagonistic for I think that the interests of the whole community is the most important. Furthermore, I hope that large developers would not be worried for I believe that the Government, in considering this issue, will certainly take the acceptability of developers into account and take appropriate cushioning measures.

As regards the second amendment, some reporters have asked whether I would support the amendment moved by the Democratic Alliance for the Betterment of Hong Kong (DAB). Having thought this over, I told them that there is no reason why I should not support it. If Mr TSANG, their party leader, proposes a motion in future and asks for 100% direct elections in 2000, I will certainly support him. In my view, I am pinpointing at issues but not the DAB. The amendment by the DAB does not differ much from my principle and I find the flexible mechanism in the amendment acceptable. On the other hand, they also accept a resumption of land sales in April 1999 as stated in my motion. Therefore, I hope that Members will also support the amendment of Mr LAU Kong-wah.

Thank you, Madam President.

PRESIDENT (in Cantonese):Secretary for Planning, Environment and Lands.

SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS (in Cantonese): Madam President, I believe few government decisions in the last few months have generated as much ongoing and active public discussion as the moratorium on land sales. The diverse views on the decision itself, and the arguments either urging or cautioning the Government to lift the moratorium after end of March next year, have already been reported widely in the media. They are largely heard again today in this motion debate.

A number of Members have spoken on the adverse impact of the moratorium on the operation of the economy, employment in the construction industry and related professions, small and medium-sized property developers and related professions. There were also a number of Members who expressed concern about the impact of the moratorium or the continuation of the moratorium on future private housing supply and on government revenue. In this respect, I am very grateful to Members for being so concerned with the "wallet" of the Government.

I do not propose to rehash today the rationale of the moratorium which was introduced as part of a package of exceptional measures to bring relief to the economy. It might have come as a surprise to most people but it was certainly not a hurriedly-made decision. We should perhaps ask ourselves what might have happened to our property market, our stock market, our employment, our economy and indeed the confidence of our community if the Government had chosen not to introduce those measures at that time. Maybe Members should also ask themselves these questions.

Honourable Members today have offered the Administration their views and suggestions on two aspects of land disposal next year. The first aspect is whether government land sales should resume in April next year and what factors the Administration should take into account in reaching a decision on the question.

I would like to inform Honourable Members that the Administration has indeed been closely monitoring all relevant factors including those highlighted by Mr Ronald ARCULLI and other Members in this debate. I am glad that the Administration and Honourable Members largely see eye to eye on the factors concerned and the guiding principles for the formulation of a land sales programme. However, for the time being, there is no consensus on when land sales should resume. The Chief Executive in his policy address stated clearly that the Government will decide early next year whether or not to lift the moratorium and will set the stabilization of the property market as the prerequisite for making the decision. There are still more than four months before the expiry of the current moratorium, and we have all learned from recent experience that the market could be more volatile and demand for housing and land could be more elastic than we would estimate. Moreover, as Mr Ronald ARCULLI and Mr NG Leung-sing said, economic and political developments in Asia and around the world beyond our control are even more of a wild card in the equation on when land sales should resume. In this regard, even within a short period of the last few weeks there has been a noticeable evolvement in the views in certain quarters on whether land sales should resume next April. This goes to show that there is no need for us to rush into a decision to resume land sales at this stage. It is most important, though, that whatever decision the Administration will be making, it must fully take into account developments in the coming months, including the developments mentioned by Honourable Members, and must provide a clear message to developers and home-buyers alike on its land disposal plans.

Notwithstanding the moratorium, we are pressing on with our efforts to make ready the sites covered by our five-year land disposal programme announced in March this year for disposal in accordance with the timetable. To avoid possible misunderstanding, let me stress that "ready for disposal" does not mean we have decided that we are going to resume land sales next year. The Steering Committee on Housing and Land Supply chaired by the Financial Secretary has in fact been meeting regularly to supervise the production of adequate land for housing development. This is necessary to ensure that whenever land sales resume, we will have an adequate supply for the market.

The second aspect of land disposal next year on which Members have expressed concern is how land might be best disposed of to fully achieve our land policy objectives and with regard to the interests of various sectors of our community. Some Members have suggested that the resumption of land sales could start with smaller lots. Some suggested that the Government should, depending on the inclinations of property developers, allow them to lodge applications before embarking on land sale programmes. I am grateful to Members for their various suggestions on how to render our land sales programme more flexible and more in tune with market demand and reception. Some of the suggestions have indeed been our practice, an example being the sale of smaller lots. About 60% of the total number of sites sold by the Government in the last five financial years were smaller than 1 hectare in size. Other suggestions, such as the proposal of allowing property developers to lodge applications before embarking on land sale programmes, will require further consideration. If Members in the meantime have other practical suggestions, we will also consider these suggestions with an open mind. I believe the Government's objective is the same as those of Members. The Government's objective, if and when land sales resume, is to implement a clear but flexible programme responsive to demand for land and housing and at the same time striving to stabilize the property market and government revenue.

Thank you, Madam President.

PRESIDENT (in Cantonese): I now call upon Mr Ronald ARCULLI to move his amendment to the motion. Mr Ronald ARCULLI.

MR RONALD ARCULLI: Madam President, I move that the Honourable LEE Wing-tat's motion be amended, as set out on the Agenda.

Mr Ronald ARCULLI moved the following amendment:

"To add ", when conducting its review in early 1999 on whether" after "That this Council urges the Government"; to delete "so as to maintain the supply of land and housing and to stabilise government revenue" and substitute with "to take into consideration all relevant factors, including the importance of a stable property market, the restoration of public confidence, the level of interest rates, the supply of land, the demand for housing, and external factors"."

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the amendment moved by Mr Ronald ARCULLI be made to Mr LEE Wing-tat's motion.

I now put the question to you as stated. Will those in favour please raise their hands?

(Members raised their hands)

PRESIDENT (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr Ronald ARCULLI rose to claim a division.

PRESIDENT (in Cantonese): Mr Ronald ARCULLI has claimed a division. The division bell will ring for three minutes.

PRESIDENT (in Cantonese): Will Members please register their presence by pressing the top button and then proceed to vote?

PRESIDENT (in Cantonese): Before I declare that voting shall stop, Members may wish to check their votes. If there are no queries, voting shall now stop.

Functional Constituencies:

Mr Kenneth TING, Mr James TIEN, Mr Eric LI, Dr LUI Ming-wah, Mrs Selina CHOW, Mr Ronald ARCULLI, Mr Ambrose CHEUNG, Mr HUI Cheung-ching, Dr LEONG Che-hung, Mrs Sophie LEUNG, Dr Philip WONG, Mr Howard YOUNG, Mrs Miriam LAU, Mr Timothy FOK, Mr FUNG Chi-kin and Dr TANG Siu-tong voted for the amendment.

Mr Edward HO, Mr Michael HO, Dr Raymond HO, Mr LEE Kai-ming, Miss Margaret NG, Mr CHEUNG Man-kwong, Mr CHAN Kwok-keung, Mr CHAN Wing-chan, Mr SIN Chung-kai, Mr WONG Yung-kan and Mr LAW Chi-kwong voted against the amendment.

Geographical Constituencies and Election Committee:

Mr David CHU, Mr HO Sai-chu, Mr NG Leung-sing, Mr Ambrose LAU and Miss CHOY So-yuk voted for the amendment.

Miss Cyd HO, Mr Albert HO, Mr LEE Wing-tat, Mr LEE Cheuk-yan, Mr Martin LEE, Mr Fred LI, Mr James TO, Miss CHAN Yuen-han, Mr LEUNG Yiu-chung, Mr Gary CHENG, Mr Andrew WONG, Mr Jasper TSANG, Dr YEUNG Sum, Mr LAU Chin-shek, Mr LAU Kong-wah, Miss Emily LAU, Mr Andrew CHENG, Mr SZETO Wah, Prof NG Ching-fai, Mr MA Fung-kwok, Mr CHAN Kam-lam and Mr YEUNG Yiu-chung voted against the amendment.

Mr TAM Yiu-chung abstained.

THE PRESIDENT, Mrs Rita FAN, did not cast any vote.

THE PRESIDENT announced that among the Members returned by functional constituencies, 27 were present, 16 were in favour of the amendment and 11 against it; while among the Members returned by geographical constituencies through direct elections and by the Election Committee, 29 were present, five were in favour of the amendment, 22 against it and one abstained. Since the question was not agreed by a majority of each of the two groups of Members present, she therefore declared that the amendment was negatived.

PRESIDENT (in Cantonese): The Council has disposed of Mr Ronald ARCULLI's amendment. Mr LAU Kong-wah, you may move your amendment.

MR LAU KONG-WAH (in Cantonese):Madam President, I move that Mr LEE Wing-tat's motion be amended, as set out on the Agenda.

Mr LAU Kong-wah moved the following amendment:

"To add "and to review the current mode of land sales with a view to introducing a flexible mechanism whereby the future provision of land can be adjusted according to the demand and supply in the market," after "That this Council urges the Government to resume land sales in April 1999"; to delete "maintain the supply of" and substitute with "meet the needs for"; and to add "in doing so," after "land and housing and"."

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the amendment moved by Mr LAU Kong-wah be made to Mr LEE Wing-tat's motion.

I now put the question to you as stated. Will those in favour please raise their hands? p>(Members raised their hands)

PRESIDENT (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr LEE Wing-tat rose to claim a division.

PRESIDENT (in Cantonese): Mr LEE Wing-tat has claimed a division. The division bell will ring for three minutes.

PRESIDENT (in Cantonese): Will Members please register their presence by pressing the top button and then proceed to vote?

PRESIDENT (in Cantonese): Before I declare that voting shall stop, Members may wish to check their votes. If there are no queries, voting shall now stop.

Functional Constituencies:

Mr Edward HO, Mr Michael HO, Dr Raymond HO, Mr LEE Kai-ming, Dr LUI Ming-wah, Miss Margaret NG, Mr CHEUNG Man-kwong, Mr HUI Cheung-ching, Mr CHAN Kwok-keung, Mr CHAN Wing-chan, Mr SIN Chung-kai, Dr Philip WONG, Mr WONG Yung-kan, Mr Timothy FOK, Mr LAW Chi-kwong, Mr FUNG Chi-kin and Dr TANG Siu-tong voted for the amendment.

Mr Kenneth TING, Mr James TIEN, Mr Eric LI, Mrs Selina CHOW, Mr Ronald ARCULLI, Mr Bernard CHAN, Dr LEONG Che-hung, Mrs Sophie LEUNG, Mr Howard YOUNG and Mrs Miriam LAU voted against the amendment.

Mr Ambrose CHEUNG abstained.

Geographical Constituencies and Election Committee:

Miss Cyd HO, Mr Albert HO, Mr LEE Wing-tat, Mr LEE Cheuk-yan, Mr Martin LEE, Mr Fred LI, Mr James TO, Miss CHAN Yuen-han, Mr LEUNG Yiu-chung, Mr Gary CHENG, Mr Jasper TSANG, Dr YEUNG Sum, Mr LAU Chin-shek, Mr LAU Kong-wah, Miss Emily LAU, Mr Andrew CHENG, Mr SZETO Wah, Mr David CHU, Prof NG Ching-fai, Mr MA Fung-kwok, Mr CHAN Kam-lam, Mr YEUNG Yiu-chung, Mr Ambrose LAU and Miss CHOY So-yuk voted for the amendment.

Mr Andrew WONG and Mr HO Sai-chu voted against the amendment.

Mr TAM Yiu-chung and Mr NG Leung-sing abstained.

THE PRESIDENT, Mrs Rita FAN, did not cast any vote.

THE PRESIDENT announced that among the Members returned by functional constituencies, 28 were present, 17 were in favour of the amendment, 10 against it and one abstained; while among the Members returned by geographical constituencies through direct elections and by the Election Committee, 29 were present, 24 were in favour of the amendment, two against it and two abstained. Since the question was agreed by a majority of each of the two groups of Members present, she therefore declared that the amendment was carried.

PRESIDENT (in Cantonese): Mr LEE Wing-tat, you may now reply and you have up to three minutes 10 seconds out of your original 15 minutes.

MR LEE WING-TAT (in Cantonese): For Honourable colleagues' health and to allow everybody to go to bed earlier, I so submit. (Laughter and applause)

PRESIDENT (in Cantonese): Please be quiet. Although everybody including me welcome Mr LEE Wing-tat's suggestions, we still have to maintain order in the Council.

PRESIDENT (in Cantonese): I now put the question to you and that is: That the motion moved by Mr LEE Wing-tat, as amended by Mr LAU Kong-wah be passed.

Will those in favour please raise their hands?

(Members raised their hands)

PRESIDENT (in Cantonese): Those against please raise their hands.

(Members raised their hands)

PRESIDENT (in Cantonese): I think the question is agreed by a majority respectively of each of the two groups of Members, that is, those returned by functional constituencies and those returned by geographical constituencies through direct elections and by the Election Committee, who are present. I declare the amended motion passed.

NEXT MEETING

PRESIDENT (in Cantonese): I now adjourn the Council until 2.30 pm on Wednesday, 25 November 1998.

Adjourned accordingly at twenty minutes past Eleven o'clock.

Annex I

WRITTEN ANSWER

Written answer by the Secretary for Security to Mr LAU Chin-shek's supplementary question to Question 1

The information on the number of banks which had installed full-height bullet-resistant screens and had been robbed is attached at the Appendix.

Appendix
Figures of Banks which had installed full-height bullet-resistant screens and robbed in 1995-1998
Year	1995	1996	1997	1998 (up to 30 November 1998)
Number of banks which had installed full-height bullet- resistant screens and robbed	59	29	9	11

Annex II

WRITTEN ANSWER

Written answer by the Secretary for Information Technology and Broadcasting to Miss Emily LAU's supplementary question to Question 5

A copy of the guidelines issued by the Information Technology Services Department on the proper use of the Internet by civil servants with official Internet access is now attached for Members' information.

ITSD Circular No. 10/96

Internet Service Acceptable Use Guidelines

This circular describes the guidelines, referred to as Acceptable Use Guidelines, for the proper use of the Internet Service within Government. This Circular should be observed by all Branches and Departments who are providing staff with such services. Branches or Departments should, based on the principles described in this Circular, draw up their own guidelines adding other DO's and DON'Ts to meet their specific needs. In this respect, ITSD Circular No. 10/95 is also relevant. A secured "firewall" system must be in place to safeguard the government network if the latter is to be connected to the Internet Service. Branches or Departments which have such a requirement should contact ITSD, otherwise they should only use standalone workstations or workstations that are connected to a LAN for connection to Internet via dial-up lines.

GENERAL PRINCIPLES

2. The Internet Service shall be restricted to officers authorized by the Head of Department or Branch as the case may be. Moreover, officers should only use the kind of services they are authorized to access. Any kind of unauthorized use of, or access to, the Internet Service shall be strictly prohibited.

WRITTEN ANSWER ─ Continued

3. The purpose of making available the Internet Service to individual officers is to enhance their capabilities and efficiency in carrying out their official duties in:

	-	providing a more efficient means in communication with external parties;
	-	facilitating search and retrieval of information available on the Internet which is relevant to official duties; and
	-	keeping abreast with and gaining hands-on experience on Internet technology for the effective discharge of their duties.

Use of the Internet Service for other purposes is unacceptable unless authorized by the Head of Department/Branch.

4. Other prevailing Government policies, regulations, standards, house rules etc e.g. Security Regulations and Guidelines, should also be observed in the use of the Internet Service, in particular when communicating with external parties.

5. An Internet Service user should always represent himself/herself personally when communicating, never as someone else. When communicating on behalf of Government, care and discretion should be exercised in the same manner as in the provision of a written reply on paper. Internet Service users are also subject to laws of slander (e.g. in the case of voice-mails), libel and copyright.

6. Material that would be considered inappropriate, offensive or disrespectful to others should not be accessed, made, assembled, stored or disseminated.

7. Downloading of freeware, shareware or other software from Internet onto government's computer systems is subject to the prevailing procedures for software acquisition. Adding alien software to any departmental computer systems without seeking proper technical endorsement may cause interruption to the user services and/or corruption of files/data. In any case, thorough virus checking must be performed on all downloaded programs and the license agreement arrangements stipulated by the author or publisher must be adhered to.

WRITTEN ANSWER ─ Continued

GENERALLY ACCEPTABLE USES

8. Generally acceptable uses include:

	-	E-mail communication with overseas/local vendors for soliciting product or services information. However, such e-mail communication should not replace the formal communication channels established for that purpose. When in doubt, letter confirmation should be sent to the vendors afterwards.
	-	Communication and information exchange with professional and academic institutions, other government bodies, etc so as to keep abreast of the latest development in aspects relevant to the work of individual Departments and Branches.
	-	Any other communications in direct support of departmental functions.
	-	Communication incidental to otherwise acceptable use.
SPECIFICALLY UNACCEPTABLE USES
9.	Unacceptable uses of the Internet Service include:
	-	Use for profit-making or related activities (e.g. consulting for pay, sale of tickets to any events, and so on) unless covered by the General Principles or as a generally acceptable use.
	-	Extensive use for private or personal communication or activities.
	-	Dissemination of classified or sensitive information as governed by Security Regulations and "Information which may be refused" under the Code on Access to Information.
	-	Processing of chain letters, anonymous E-mails, or E-mails pretending to come from someone else.
	-	Downloading/Uploading of pirated software, or pornographic material, or of copyrighted or licensed material without the express permission of the copyright or licence holder.
ENQUIRIES
10. Any enquiries concerning this circular should be addressed to our TSSC Help Desk at 2961 8383.

Annex III

SECURITIES (AMENDMENT) BILL 1998

COMMITTEE STAGE

Amendments to be moved by the Secretary for Financial Services

Clause	Amendment Proposed
5	In the proposed section 113(5A), by adding "committee of the" after "allowed by the".
New	By adding -
	"6A. Commission may act where committee fails to do so
	Section 121A is amended -
	(a) in paragraph (a), by repealing "or" at the end;
	(b) in paragraph (b), by repealing the comma and substituting "; or";
	(c) by adding -
	"(c) unreasonably exercised its power under section 113(5A),".".

SECURITIES (AMENDMENT) BILL 1998

COMMITTEE STAGE

Amendments to be moved by the Honourable Albert HO Chun-yan

Clause	Amendment Proposed
5	(a) In proposed section 113(5A), by deleting "as it thinks fit" and substituting "as specified in subsection (5B)".
	(b) In section 113, by adding -
	"(5B) (a) If the committee of the Exchange Company allows a payment to be made under subsection (5A), the amount of this payment shall be equal to -
	(i) $200,000; or
	(ii) the amount of the claimant's claim as allowed or partially allowed by the committee of the Exchange Company under subsection (1) or (2) or by an order of the Court under this Part,
	whichever is the less.
	(b) The Commission, after consultation with the committee of the Exchange Company and after taking into account all ascertained and contingent liabilities of the compensation fund, may by notice published in the Gazette increase the amount specified in paragraph (a)(i) and specify the effective date for the increase. The increase may apply retroactively and shall be effective from the date specified in the notice.".
New	By adding -
	"5A. Subrogation of the Commission to right, etc., of claimant on payment from fund
	Section 118 is amended -
	(a) by renumbering it as section 118(1);
	(b) in subsection (1)(a), by repealing "; and" and substituting a full stop;
	(c) by repealing subsection (1)(b);
	(d) by adding -
	"(2) For the avoidance of doubt, the claimant's right in bankruptcy or winding up to receive in respect of the loss a sum out of the assets of the stock broker concerned or any dealing partnership in which he is a partner, or where the loss was caused by the defalcation, fraud or misfeasance of a servant or partner of the stock broker, the assets of that servant or partner shall be given the same priority as the Commission's right acquired by subrogation under subsection (1)(a) to receive a sum from the aforementioned assets.".".
7	By deleting "113" and substituting "113, 118".