Panel on Trade and Industry(Minutes) 13 April 99

Legislative Council

LC Paper No. CB(1) 1875/98-99
(These minutes have been seen
by the Administration)

Ref: CB1/PL/TI/1

Panel on Trade and Industry

Minutes of meeting
held on Tuesday, 13 April 1999, at 10:45 am
in the Chamber of the Legislative Council Building Members present :

Hon CHAN Kam-lam (Chairman)
Dr Hon LUI Ming-wah, JP (Deputy Chairman)
Hon Kenneth TING Woo-shou, JP
Hon James TIEN Pei-chun, JP
Hon Cyd HO Sau-lan
Hon NG Leung-sing
Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon MA Fung-kwok
Hon CHEUNG Man-kwong
Hon CHAN Kwok-keung
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Hon SIN Chung-kai
Dr Hon Philip WONG Yu-hong

Members absent :

Hon David CHU Yu-lin
Prof Hon NG Ching-fai
Hon HUI Cheung-ching

Public officers attending :

For Item IV
Miss Annie TANG,: Deputy Director-General of Industry
Mr Stephen MAK,: Principal Assistant Secretary for Information Technology and Broadcasting
For Item V
Mr Francis HO,: Director-General of Industry
Mr Bobby CHENG,: Principal Assistant Secretary for Trade and Industry
For Item VI
Miss Yvonne CHOI,: Deputy Secretary for Trade and Industry
Ms Ellen CHOY,: Principal Assistant Secretary for Trade and Industry

Clerk in attendance :

Ms LEUNG Siu-kum,: Chief Assistant Secretary (1)2

Staff in attendance :

Miss Becky YU,: Senior Assistant Secretary (1)3

I Confirmation of minutes of previous meeting
(LC Paper No. CB(1) 1093/98-99)

The minutes of the meeting held on 1 February 1999 were confirmed.

II Information paper issued since last meeting

2. Members noted that a publication entitled "Hong Kong Industries" provided by the Industry Department was circulated vide LC Paper No. CB(1) 1053/98-99.

III Date of meeting and items for discussion

3. The Panel agreed to discuss the subject of "Year 2000 compliance in Government and non-government organizations funded or regulated by Government under the purview of the Trade and Industry Bureau" at the next meeting scheduled for Monday, 3 May 1999, at 2:30 pm.

4. Members agreed to visit one of the industrial estates in Hong Kong. Details of the visit would be worked out in due course.

IV Report on the consultancy study on strategy to promote the use of information technology in Hong Kong
(LC Paper No. CB(1) 1103/98-88(01))

5. The Deputy Director-General of Industry (DDGI) informed members that the Industry Department had commissioned the Consultancy Study on Formulation of Strategies for Promoting the Use of Information Technology in Hong Kong in October 1997. The study aimed to take stock of the present status of information technology (IT) application in Hong Kong and to recommend a practical and definitive strategy for promoting the use of IT in Hong Kong. The total cost of the study was $4 million.

Findings of the Study

6. While acknowledging the long-term benefits of IT investment, Mr CHEUNG Man-kwong noted with concern that small firms in Hong Kong were less likely to have an IT plan. Given the large number of 290,000 small and medium enterprises (SMEs) in Hong Kong and their significant contribution to the economy, Mr CHEUNG considered that the Administration should promote the use of IT among SMEs with a view to improving their competitiveness. Expressing similar concern, Dr LUI Ming-wah attributed the reluctance of SMEs to invest in IT to constraints such as cost of capital investment in equipment, insufficient IT support and uncertainty over appropriate software. To this end, Dr LUI opined that the Administration should adopt a sector-specific approach to encourage the use of IT in different sectors. The Administration should collaborate with various trade associations to identify tailor-made software for individual sectors. Congresses and conferences on IT and software development in different sectors should also be organized to facilitate a better understanding on the benefits of sector-specific software. DDGI took note of Dr LUI's suggestions.

Recommendations of the Study

7. On IT outreach counsellors, Mr CHEUNG held the view that the proposed establishment of three IT outreach counsellors was far from enough to meet the demand of the 290,000 SMEs in Hong Kong. DDGI clarified that the three IT outreach counsellors referred to were in addition to the 13 counsellors currently employed by the Hong Kong Productivity Council (HKPC). As most of these 13 counsellors were focusing on manufacturing-related IT matters, there was insufficient IT support for SMEs in the service sectors. The IT Committee of the Industry and Technology Development Council (IT Committee) therefore agreed that there might be a need to establish additional IT outreach counsellors for the service sectors.

8. Mr CHEUNG was not convinced of the Administration's response. He remained of the view that the total number of counsellors, even after the proposed addition, in Hong Kong was still far from adequate as compared with those in overseas countries such as the United Kingdom where 40 counsellors were available to support 4,250 firms. In reply, the Principal Assistant Secretary for Information Technology and Broadcasting (PASITB) stressed that the proposed introduction of IT outreach counsellors was only a first step to increase awareness of IT development at the sector or trade association level. The ultimate goal would be for the respective industry associations to work out the best way for providing similar counselling services in a self-sufficient manner. He added that apart from IT outreach counsellors, the Information Technology and Broadcasting Bureau would launch publicity programmes on initiatives such as "Digital 21" and the Electronic Service Delivery programme to raise the public awareness of the benefits IT and publicize events on the support services available for different sectors.

9. On financial services innovation lecture, Mr NG Leung-sing opined that apart from the proposed lecture on IT innovation, more concrete programmes should be organized to promote IT awareness in the financial sector given its current keen competition in the provision of financial services with neigbouring cities in the region. PASITB explained that large international and local banks had adequate resources in IT development. The smaller local banks however might be reluctant to invest in IT as they tended to focus on managing cots and perceived IT as an expenditure rather than a source of business advantage. The objective of the proposed lecture was therefore to promote the use of IT to enhance business competitiveness. He assured members that the consultant's recommendation and members' suggestions would be conveyed to the Financial Services Bureau and the Hong Kong Monetary Authority for consideration and necessary follow-up actions.

10. On IT graduate skills, Ms Cyd HO expressed disappointment at the lack of business education and sector specific awareness modules in the syllabuses of IT courses in higher educational institutions. She urged the Administration to discuss with the University Grants Committee and various higher educational institutions on issues related to curriculum development and the need to attract high calibre academics to Hong Kong. Ms HO added that a long-term IT manpower plan should be in place to delineate demand for IT personnel for the business sector and for academic IT development and to study strategies for producing the required manpower. PASITB noted Ms HO's concern and advised that the Education and Manpower Bureau was currently commissioning a consultancy study on the manpower and training needs of IT industry. The study would focus on the existing manpower supply and demand of the IT sector as well as the extent of the mismatch and would recommend a long-term strategy for IT manpower planning and training. The findings of the study would also be forwarded to relevant bureaux and departments for future references.

11. On IT starter consultancy support, Mr James TIEN questioned why the IT Committee had expressed reservations on the recommendation for a support package of free diagnostic advice and subsidies for computerization initiatives, which in his view would be very useful to encourage SMEs to adopt greater use of IT. DDGI explained that as the major constraint for SMEs to adopt IT in their operations was the lack of knowledge and manpower support, the effect of the proposal would be very limited. To tackle the problem, industry support bodies such as HKPC were strengthening their efforts on promoting the use of IT in businesses. Mr TIEN was not convinced of the Administration's response. He reiterated that SMEs were reluctant to adopt IT due to the high cost of capital investment in equipment and uncertainty over appropriate software. As such, the proposal for free diagnostic advice would definitely help SMES in the process of computerization and was therefore worth pursuing. As regards subsidies for computerization initiatives, Mr TIEN noted that it might not be feasible for the Administration to provide such subsidies which would involve public resources. However, upon recommendation by professional IT counsellors, the Administration could solicit the cooperation of banking institutions to consider favourably loan applications from SMEs in respect of computerization. The Chairman supplemented that the Administration should also consider offering tax concession as an incentive to encourage the adoption of IT by SMEs.

12. As regards resources of HKPC in providing IT support, Mr TIEN commented that the Administration had relied too much on HKPC which might not have the capacity to provide all the assistance required by SMEs. DDGI took note of Mr TIEN's concern and advised that a new one-stop service centre would be established by the Industry Department in August 1999 to assist SMEs in the adoption of IT. At members' request, the Administration undertook to report back to the Panel on the operation of the service centre in due course.

Admin

The way forward

13. Referring to Table 5.3 of the consultancy report, Mr SIN Chung-kai noted that Hong Kong lagged behind both the United Kingdom and Singapore in respect of government IT support. He asked how the Administration would carry out sustainable follow-ups on the findings and recommendations made in the study. He also suggested to set up a three to four-year IT promotion programme as one of the follow-up actions. DDGI assured members that the Administration would take into account the comments of the IT Committee on the recommendations in the consultancy report and take necessary follow-up actions accordingly. At members' request, DDGI undertook to provide a progress report on the follow-up actions taken by the Administration.

Admin

V Special Finance Scheme for small and medium enterprises
(Legislative Council Brief (Ref: TIB CR 12/10/2) and LC Paper No. CB(1) 1103/98-99(02))

14. Mr SIN Chung-kai remarked that the Special Finance Scheme (SFS) was only meant to be a temporary measure and should lapse when the liquidity crunch problem began to subside. The Director-General of Industry (DGI) advised that although the liquidity problem of the banks might have eased, many SMEs still had difficulty in obtaining financing due to the overall economic climate and the drastic decrease in collateral values. As such, there was still a need for the Scheme to continue for the time being. He nevertheless agreed with Mr SIN that the Administration should look into other alternatives to provide assistance to SMEs on a longer term basis. To this end, the Administration was collating experience from overseas countries such as the United States and Singapore with a view to mapping out a plan that best suited Hong Kong's own needs. However, the time-frame for such a plan had yet to worked out.

15. On risk-sharing ratio, Mr CHEUNG Man-kwong noted that given the current maximum guarantee limit of $2 million by the Government, the proposed change in the risk-sharing ratio between the Government and participating lending institutions (PLIs) from 50:50 to 70:30 would reduce the maximum loan available to SMEs from $4 to $2.86 million. He expressed concern that according to the statistics, 11% of beneficiaries had applied for loans exceeding $3 million. It could therefore be projected that under the new risk-sharing ratio, a similar proportion of the applicants would be unable to obtain adequate loans. Mr CHEUNG asked if the Administration would consider raising its maximum guarantee limit from $2 to $2.8 million so that the maximum loan available to SMEs could remain at $4 million.

16. In response, DGI advised that the change in risk-sharing ratio should not have a significant impact on the loan size of most applicants as statistics revealed that the average loan size per applicant was around $700,000. Moreover, there is no Government-imposed cap on the loan size. The actual amount of loans to be offered to SMEs was determined by PLIs in accordance with their established lending principles. As regards those applicants who applied for loans exceeding $2.86 million, DGI admitted that they might not be able to obtain the amount they preferred if PLIs were unwilling to bear higher than 30% risk. Notwithstanding, the Administration had to strike a balance between the interest of these applicants and the need to optimize the number of beneficiaries under SFS.

17. While appreciating the proposed change in the risk-sharing ratio, Mr Kenneth TING remained concerned that SMEs would not be able to obtain sufficient financing if PLIs put too much emphasis on collateral rather than business prospect of SMEs. He considered that efforts should be made to institute a change in the lending culture and attitude among PLIs in the long run. Expressing similar concern, Mrs Sophie LEUNG opined that the Administration should model after some overseas countries to require PLIs to earmark a certain percentage of deposits as loan facility for SMEs. She added that apart from PLIs, the Administration should also encourage other financial institutions to provide loan facility to SMEs as was the case with the United States.

18. DGI took note of the members' suggestions but admitted that it might be difficult to bring a change to the requirement for collateral by PLIs, in particular amidst the economic downturn since PLIs would tend to be more cautious in approving loan applications to reduce risk. Besides, it would not be appropriate for the Administration to interfere with any commercial decisions made by PLIs in respect of granting of loans as this might reduce their interest in joining the Scheme. As regards statistics on the actual amount of loans granted to SMEs as opposed to their collateral values, DGI advised that the Administration did not process such information.

19. Mr James TIEN enquired if there was an increase in the number of participating PLIs as a result of the change in risk-sharing ratio. DGI replied that although the number had yet to be confirmed, many PLIs agreed that the change would serve as an incentive for them to join the Scheme.

20. On maximum guarantee period, Messrs Kenneth TING and NG Leung-sing opined that the Administration should further extend the guarantee period from two to three years taking into account that some trades had longer credit repayment period. DGI reiterated that the objective of the Scheme was to ease the liquidity crunch problem. He cautioned that a longer guarantee period would in turn reduce the number of beneficiaries under SFS.

21. On matching deposit, members noted that only 138 out of 558 cases approved by PLIs had demanded for matching deposits which did not appear to be a major attraction to PLIs in making use of SFS. Mr NG therefore asked whether the Administration would review the interest arrangement for loans under SFS in order to attract more PLIs to participate in the Scheme. DGI responded that PLIs would determine the interest for the loans they offered to SMEs in accordance with their established principles, and that the Government would not intervene in such commercial decisions.

VI Competition Policy Advisory Group: Progress report
(LC Paper No. CB(1) 1103/98-99(03))

22. Messrs SIN Chung-kai and James TIEN considered that there was a need to include non-government representatives in the Competition Policy Advisory Group (COMPAC). The Deputy Secretary for Trade and Industry (DSTI) explained that as COMPAC was responsible for reviewing policy issues on the promotion of competition, it was appropriate only to include government officials as the core members. However, relevant local or overseas experts such as representatives from the Consumer Council would be invited to participate in the deliberations as observers on a need basis. She nevertheless undertook to relay to the Administration members' concern on the need to include non-government representatives in COMPAC. In reply to some members' question on participation of bureaux outside the membership list of COMPAC, DSTI confirmed that officials from relevant bureaux and departments would also be invited to attend meetings of COMPAC when subjects under their purview were discussed. Mr TIEN remarked that the Administration should clearly set out this arrangement in the progress report.

23. Having regard to the increased calls for protectionism in many overseas countries, Mr NG Leung-sing expressed worries that the Administration's efforts to foster competition might put Hong Kong in a disadvantageous position. He therefore opined that the Administration should include an additional term of reference for COMPAC so that it could consider competition-related matters which may have a bearing on the overall interest of Hong Kong. DSTI noted Mr NG's concern but considered that there was no discrepancy between the proposed function and the current responsibilities of COMPAC. The latter already enabled COMPAC to assess whether certain practices and activities had limited or would limit market accessibility or market contestability, whether they had impaired or would impair economic efficiency or free trade, to the detriment of the overall interest of Hong Kong.

24. Mr SIN was disappointed that the progress report was merely a summary of measures taken or would be taken in various sectors by different bureaux. The Government had not promulgated any comprehensive plan for implementing the competition policy. He queried the role of COMPAC given that individual bureaux and departments were responsible for introducing initiatives under their purview. DSTI explained that one of the major responsibilities of COMPAC was to review existing practices, whether statutory or administrative, of different bureaux and departments which were or would prone to anti-competitive practices. It would also consider and advise on all remedies and new initiatives proposed by the relevant bureaux and departments where appropriate. By way of illustration, the Electrical and Mechanical Services Department (EMSD), after consultation with COMPAC, had abolished the agency link requirement whereby a lift/escalator contractor had to demonstrate that he had technical support from a lift/escalator supplier before he could be admitted into the respective registers.

25. As to whether the Administration would consider introducing a comprehensive competition law, DSTI advised that there was at present no plan for such a legislation. Nevertheless, Hong Kong would be obliged to follow any agreement reached in the international arena. At present, discussions on trade and investment liberalization as well as trade and competition were underway in the World Trade Organization and the Asia Pacific Economic Cooperation. COMPAC would monitor the development of such discussions that might have a bearing on Hong Kong.

26. Mr CHEUNG Man-kwong was not convinced by the Administration's response. He pointed out that in his speech delivered on 23 March 1999, the Chief Executive of the Hong Kong Monetary Authority (HKMA) had affirmed the need for an anti-monopoly law to curb manipulation in the financial market. Mr CHEUNG therefore considered that the Administration should re-visit the proposal for a comprehensive competition law with a view to rectifying the restrictive practices in the 32 areas identified in the progress report. DSTI advised that the Government was committed to promoting competition and had been actively introducing measures to fulfil its commitment in this respect. She pointed out that most of the 32 cases listed in the progress report were new initiatives to promote competition rather than restrictive practices. Many of the new initiatives or rectification action had already been implemented or were being followed up by relevant bureaux and departments. As regards the financial market, DSTI advised that apart from the new initiatives outlined in the progress report, the Hong Kong Banking Sector Consultancy Study had also put forward a number of measures to enhance the competitiveness of the banking sector. HKMA was consulting the public on the recommendations in the consultancy report and would consider the way forward in the light of comments received. Mr CHEUNG did not accept the Administration's explanation. He remained of the view that the 32 cases involved restrictive practices and a certain extent of monopolisation, and therefore a competition law was required to ensure economic efficiency and free trade in Hong Kong. In reply, DSTI stressed that the Administration would not rule out the possibility of introducing legislation in specific areas to maintain a level-playing field if the relevant administrative measures were proved to be ineffective. Mr James TIEN shared the Administration's view that a broad competition law might not be useful as this might arouse unnecessary litigation.

27. On admission criteria for barristers, Mr NG agreed with the need to open up the profession for foreign lawyers from non-Commonwealth jurisdictions with a view to promoting competition. He however emphasized that international standards should be adopted in assessing applications for admission. In the event of absence of such standards, the Administration should ensure that competition would not affect the overall professional standard.

28. On registration of lift and escalator contractors, DSTI advised that to ensure public safety, an agency link requirement was imposed in the past whereby an applicant had to demonstrate that he had technical support from a lift or escalator supplier in order to be eligible for inclusion in the respective registers of lift and escalator contractors. Following a review of the requirement, EMSD had made alternative arrangements to replace the requirement so that the lift or escalator maintenance market could be further opened up. Mr TIEN asked if contractors under the new arrangements could undertake maintenance of lifts or escalators of any brands; and procure spare parts from the manufacturers direct without having to route through the suppliers in Hong Kong. DSTI undertook to relay Mr TIEN's questions to EMSD for consideration and would revert back to the Panel in due course.	Admin

29. On terminal handling charges (THC), Mr Kenneth TING remarked that despite the freeze of THC for one year up to April 2000, shippers still considered THC too high in Hong Kong. They opined that THC should be further reduced, and that a fixed charge system should be introduced. They also requested for more transparency and consultation in future revision of THC. DSTI undertook to relay Mr TING's views to the Economic Services Bureau for consideration.	Admin

30. On review of the Rice Control Scheme, Mrs Selina CHOW considered that the Administration should announce a definite time-frame within which the rice trade would be opened up for free competition. DSTI advised that the Trade Department (TD) had been moving towards the direction of increasing competition and reducing barriers of entry to the trade. To this end, TD introduced the Optional Quota System in the last quarter of 1997 and the System had also been further developed from January 1999 to further promote competition. TD would review the effectiveness of the System in early 1999. DSTI undertook to provide more information on the review to the Panel.	Admin

31. On import of live chickens, Mrs CHOW considered that the trading of live chickens was not operated in a free market having regard to the quota on supply of imported live chickens in Hong Kong, and that the mere increase in the transparency of market demand and supply would not help to promote competition in the trade. She opined that the Administration should liaise with the relevant authorities in the Mainland with a view to abolishing the quota. DSTI clarified that Hong Kong had only reached an agreement with the Mainland authorities on the minimum number of live chickens to be imported to Hong Kong. There was however no upper limit on the number of imported live chickens. Moreover, an increase in transparency would enable the Administration and the public to have a better understanding of the operations of the trade. At members' request, DSTI undertook to provide more information on the measures to increase the supply of live chickens from the Mainland and to promote competition in the trade.	Admin

32. Mrs Sophie LEUNG asked if COMPAC would also consider providing a level-playing field for competition between parallel imports and copyright products provided by exclusive licencees, particularly in view of the increased trend of catalogue shopping through Internet. DSTI took note of Mrs LEUNG's concern but advised that as parallel importation was legally allowed in Hong Kong, this should not constitute a bearing on competition. She nevertheless undertook to relay Mrs LEUNG's concern to COMPAC for consideration.

VII Any other business

Pacific Economic Cooperation Council

33. DSTI informed members that the Hong Kong Committee for Pacific Economic Cooperation (HKCPEC) would bid for the chairmanship of the Pacific Economic Cooperation Council (PECC) in 1999-2001. The PECC Standing Committee (SC) would decide on the chairmanship at its meetings to be held on 15 and 16 April 1999 in Canberra, Australia. It was anticipated that the taking up of the PECC chairmanship by HKCPEC in 1999-2001 would:

- enhance HKCPEC's image because as PECC Chair, HKCPEC would set the theme for the General Meeting (GM). In this way, HKCPEC would be seen as leading PECC into the 21st century and helping to set the scene for PECC activities in the next millennium;

- help raise the international profile of Hong Kong as an international business, financial, tourism and convention hub as a result of the international media coverage of GM. The GM would also be a good opportunity for HKCPEC to showcase the world-class infrastructure in Hong Kong; and

- bring economic benefits to Hong Kong since there would be around 1,000 visitors, including PECC delegates, media representatives and businessmen, coming to Hong Kong for the three-day GM and other preceding meetings.

34. Noting that PECC was a non-government organization, Mrs Selina CHOW questioned the need for the Administration to brief the Panel on PECC activities. DSTI explained that as there was a government representative in HKCPEC, albeit participating in his personal capacity, the Administration considered it appropriate to inform the Panel, particularly on the bid for PECC chairmanship. Moreover, if HKCPEC were successful in chairing PECC, it would have to host some of the PECC meetings in Hong Kong and would bring tangible economic benefits to Hong Kong. Mrs CHOW enquired if there was a need to seek funding from the Finance Committee of the Legislative Council for organizing these activities. DSTI replied that this would be absorbed by internal resources, and that no additional funding would be required.

35, Before concluding, Mrs CHOW expressed dissatisfaction that the subject was raised without prior notice, thus leaving insufficient time for members to examine the issue in detail. She also commented that the Administration should have provided relevant information papers before the meeting to facilitate discussion by members. DSTI took note of Mrs CHOW's view.

36. There being no other business, the meeting ended at 1:05 pm.

Legislative Council Secretariat
7 September 1999