Submission on the 2010-2011 Policy Address(2010.08.31)

Submission of the Hon K P Chan to the Chief Executive on Policy Address of 2010/11


1. Listen to industry on independency of Insurance Authority. In the consultation paper issued by the Government, many recommendations are too general for meaningful feedback. At this juncture, the Government should listen to the industry and address causes for concern with more particulars to facilitate further discussions. It would be difficult for the industry to support the independency of Insurance Authority if these concerns are not adequately addressed.

2. Enlarge repatriation of renminbi. Hong Kong is endeavoured to develop off-shore market for renminbi in recent years and thus accumulating substantial receipts in the national currency. In the absence of corresponding off-shore investments, these receipts could not be deployed effectively to generate acceptable returns outside the Mainland. To issuers of renminbi financial instruments, therefore, repatriation arrangement is essential for deploying such funds on the Mainland to generate acceptable yields. In turn, it would make financial services denominated in renminbi, like insurance policies, more attractive. The People’s Bank (PBOC) is introducing such arrangement for financial institutions to deploy funds in Mainland debt market. The SAR Government should endeavour to expand and refine the whole arrangement.

3. Provide tax incentives for insurance premiums. As a means of encouraging people to better prepare for future, the Government should offer personal tax allowance up to HK$20,000 for purchase of insurance products, in particular life and medical insurances. It would encourage individual to transfer risks to insurance, thereby reducing future reliance on Government.

4. Launch supplementary healthcare financing proposal consultations. The Government should commence consultations on supplementary healthcare financing proposals early. Meanwhile, the Government should review adequacy of the earlier undertaking of HK$50 billion for the scheme in light of inflation and other factors.

5. Offer financial management in the school curriculum. Nowadays, the significance of financial management needs no explanation. The school curriculum should offer comprehensive financial knowledge including investments, insurance and banking. With a systematic approach to these fundamentals, they would be knowledge for life. It would also help reduce social problems arising from monetary disputes.

6. Take lead to facilitate various economic activities.

(A) Imminent development of economies of headquarters. Many multinational enterprises have moved their regional headquarters out of Hong Kong to Singapore, Beijing and Shanghai in recent years. Their choices are serious threats to the status of Hong Kong as Asia’s financial centre and eroding international competitiveness of the territory. The Government should take imminent and positive steps to respond to challenges, including provision of tax incentives and operational convenience that appeal to business concerns around the world to set up regional headquarters in Hong Kong. In turn, this would not only bring more employment and more diversified job opportunities to Hong Kong but also enlarge upward progression and international perspectives of our young people.

(B).Take the helm in developing six major industries. Our neighbours are aggressive in the wake of rapid global developments. The Singaporean Government is not only attracting foreign investments with aggressive tax incentives and operational advantages but also assuming leadership role in research and development. It offers hardware and software as well as various forms of financing to encourage joint ventures of foreign enterprises with local business or even the public sector in research and development. With the clustering of talents, local capabilities in product development and commercialization would be strengthened and global competitiveness would be improved. Similarly, the SAR Government should play positive and aggressive role in leading the development of six major industries. It should provide tangible supports in hardware, software and policy to nurture new industries for Hong Kong.


1. Revisit universal retirement protection. After operating for years, many shortcomings of Mandatory Provident Fund are obvious, in particular inadequacies in protecting the low-income or those who are not working. In the wake of an aging population, it is timely to revisit universal retirement protection. It would not only provide more extensive security but also help resolving the burden of an aging population, or at least part of it, early. The new system would also help resolving the rich/poor gap.

2. Resolve labour mismatch. Serious sectoral imbalance has led to serious labour mismatch. The issue is aggravated by the population policy that has led to substantial increases in low-skilled labour. The Government should reconsider the contract-out arrangement of jobs not requiring specialist skills like cleaning and security with a view to protecting these workers and from malpractices of intermediary agencies and to safeguarding their welfare. Moreover, the Government should promote labour-intensive industries like tourism. It should also consider joining hands with the private sector in establishing supportive services like phone centres in places like Tin Shui Wai and Tung Chung where manual labour is populous. These initiatives would create more jobs and vocational opportunities at these localities and would accelerate the development of New Towns.

3. Evaluate impact of population policy. Economic transformation and population policy are supplying substantial low-skill and low-educated labour, leading to deteriorating labour mismatch and rich/poor gap in Hong Kong. Immigration figures for the period 2004 to 2009 (Q1) show that there were 206,995 Mainland entrants with single-journey permits. Over 70 percent have attended secondary school only and over 10 percent have post-secondary education. Around 40 percent to 50 percent of entrants each year were housewives and 7 percent to 12 percent were unemployed whilst on the Mainland. The Government should review and reassess impacts of the current population policy on future employment in Hong Kong together with Mainland authorities and look for preventive means and resolutions that would not upset family reunion.

4. Look into negative income tax and other means of encouraging job-seeking. With regard to helping the poor, employed poverty and minimum wages, the Government should have the courage of leading the community to debate on related tax policy and making deliberations more comprehensive and constructive. The US Government launched Earned Income Tax Credit (or Earned Income Credit) back in 1975 with a view to encouraging low-income earners to seek better jobs. Nowadays, EITC is a key measure in national policy in helping the poor. Many economists have studied economic and social impacts of EITC in depth, including Milton Friedman, the guru who advocated “negative income tax” and Joseph Lin, former Chief Editor of Hong Kong Economic Journal (Shun Pao). Mainstream economists are supportive and it deserves further studies by the SAR Government.

5. Provide cross-district transport subsidy early. The Government should extend cross-district transport subsidy scheme to the whole territory early. It would not only relieve the financial burden of workers but also encourage more people who might not afford transport expenses otherwise to seek jobs.


1. Accelerate public housing, revive homeownership. In view of rich/poor gap and aging population, the Government should accelerate provision of public housing to accommodate people who are still living in adverse conditions. Improvement in housing would help alleviate growing grievances. On the other hand, the Government should also revive the homeownership scheme for eligible families who could not afford private housing to improve their living standard as well.

2. Ensure adequate supply of private housing. A major driver behind the surge of property prices is serious shortage in land supply under the “Application List” policy. The lesson should be learnt. The Government should formulate and announce rolling five-year land supply plans according to changing economic and population factors in order to assure adequate supply of living quarters. For instance, annual supply should not be less than 20,000 under prevailing circumstances.

3. Formulate anti-speculation measures. Chinese people are fond of property investment. If investors are inclined to speculate on market booms through short term purchases and sales or even “confirm-mortgage” deals, property prices would surge irrationally. With the growing interest of Mainlanders in Hong Kong properties in recent years, the situation is worrying. The Government should introduce anti-speculative measures like means of increasing transaction costs to arrest such unhealthy sentiment. Meanwhile, the Government should review whether property should remain an eligible asset under the Capital Investment Entrants Scheme.


1. Increase of power generation by natural gas early. Power plant is the largest source of pollution in Hong Kong. An increase in use of natural gas as against coal in power generation would reduce emission of sulphur dioxide and suspended particles. The Government should raise the ratio of power generation by natural gas from 28 percent to 50 percent imminently. Although the Government has cautioned that this would cause the tariff to increase by 20 percent by stages, the authority should realize the many advantages of improving air quality. At least, better health would mean less medical expenses. Moreover, better air quality would mean more attractiveness to foreign investors. Therefore, the Government should absorb part of the increase in outlay and realize the plan early.

2. Retract Pre-Euro and Euro-1 diesel vehicles early. Government subsidy scheme for replacement of Pre-Euro and Euro-1 diesel vehicles is over. There are still 38,000 commercial vehicles of these two categories running on the road. As they are all old model vehicles of 10 years or older, they are producing serious air pollution at road side. Apparently, their owners were not attracted to the subsidized replacement scheme. The Government should consider other measures such as acquisition to withdraw these most polluting vehicles from the road.

3. Assist bus companies to replace old buses early. Some 1,700 pre-Euro and Euro1 buses and some 2,600 Euro-2 buses are still in service. As buses are running long-hours everyday, these old models are seriously polluting the air at road side. The Government should assist bus companies to replace them with new models early.

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