February 1999 - Hong Kong General Chamber of Commerce

Is it a copier that can print,

or a printer that can copy?

As you can see, our latest invention creates some confusion.

Is it a copier? Or is it a printer? It's both. It's the first Network

Copier. On the one hand, the Oce 3165 is a digital copier for the

office corridor. One that has Image Logic. This means no more

regulating and adjusting the image quality.

What's more, the original is only scanned once, then stored in

the memory, regardless of the number of copies. And that impro

ves the speed (62 copies per minute) and the reliability.

Connect it to your network and suddenly it also becomes a

printer. A departmental printer that can probably replace all your

current desktop printers. After all, what printer produces 62 prints

a minute? And all high quality. Because naturally we've equipped

this network copier with the unique Oce Copy Press Image

Transfer System. Which means unparalleled print quality and

virtually no chance of jams.

The Oce 3165 is a fine piece of technology. And yet just like all

Oce equipment, it's extremely user-friendly. So the only question

it can raise when you use it is: is it a copier or a um ... ?8 For details, call 2577 6064 or fax 2577 8957.

oceOce (Hong Kong China) Ltd., 12/F., 1202 The Lee Gardens

33 Hysan Avenue, Causeway Bay, Hong Kong.

Smart solutions in copying, printing and plotting.

i�Blilletin A Hong Kong General Chamber

of Commerce magazine

CHAIRMAN

Peter Sutch

DEPUTY CHAIRMAN

C C Tung

VICE CHAIRMEN

Dr Lily Chiang

Anthony Nightingale

DIRECTOR

Dr Eden Woon

EDITORIAL BOARD

Ian Perkin

Dr. Y.S. Cheung

Dr. W.K. Chan

Sidney Fung

Louise Parkinson

TRANSLATED BY

Eliza Yeung

Priscilla Lo

ADVERTISING

Carmen Ho CHAMBER SERVICES LTD

Tel: 2823 1291 Fax: 2527 0380 The Chamber is apolitical. Any advertisement of a

political nature does not necessarily imply•

endorsement by the Chamber

PUBLISHED BY

The Hong Kong General

Chamber of Commerce 22/F United Centre,

95 Queensway, Hong Kong

. Tel 2529 9229 Fax: 2527 9843

www.hkgcc.org.hk

PRODUCED BY

The Publisher, (address above) and

OMAC Production House 5/F EIB Tower,

4-6 Morrison Hill Road,

Wanchai, Hong Kong

Tel: 2572 7144 Fax: 2832 7903

PRINTED BY

Excellent Printing Co Flat G & H, 20/F Blk 2, Kingley Ind Bldg,

33.35 Yip Kan St, Wong Chuk Hang, HK

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CONTENTS

COVER STORY

P.12 Is there a recovery in tourism?MrnH\Hr�UlB'il��n.l]§ ?

ON OTHER PAGES

P.20 EU helpful to Asian importersiUHBzilli tij □ iftf $11Uffi & 11Hli$:

P.28 Rules change in Euro take-off1!1:5cW!Ji r.\7iffi-ffi

The Bulletin welcomes letters and articles from Chamber members, but reserves the right to edit any material supplied. Letters or other contributions should be sent to: The Managing Editor, The Bulletin, The Hong Kong General Chamber of Commerce, 22/F United Centre, 95 Queensway, Hong Kong. Fax: 2527-9843. Email: [email protected]

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Ii O f1lll : 2527-9843 •• : [email protected]

FEBRUARY 1999

Tourism• n'ifJ1fHIL P.12 Recovery still tentative for Hong

Kong's tourist arrivals �;i!*�J-.J�)�J!@lfl-

P.15 Government looks to long-termstrategy to revive tourism �-�■ �JU�*�

P.38 Crime Rate - Economic crime upslightly, but overall rate still low �i:H$�fl- 1&11�$$1iitt

P.39 Good citizen stops burglarytE:$:M!Utm�

Regular F ature A� r>--J "t

P.5 Editorial • *Ht P.7 From the Director • #Ui�ifi!i P.9 legco Report• fl5t:'ffI1'\=¥lx1s-P.20 Roundtables • 1Ht1/.<'f:t'ff

- EU helpful to Asian importers-��§illitij □��Uffi&��n;;

P.22 - Regaining control over costs-�*Y&�'!I!

P.26 SME Policy� 1NfJ.feJ\Uli�

P.30 legal- Focus on GITIC affair��14W�±m:uxm:iE

P.33 Tax • :&�Ji� P.40 Staff delight in modest Christmas

gathering �I-!JUHHl

P.42 Chamber in Action • *�lb�P.46 Forecast• $iJlffl�

HKGCC SPRING DINNER 1999 :t, 10]

Following five consecutive years of success, the SME Committee is #ltorganising its sixth annual Chamber Chinese New Year Spring ' it Dinner on Fridav, 12 March 1999.Ji

This event has proved to be a useful and effective medium for it 1__-,1i memhers to express their appreciation to staff, to strengthen � I ¾ ties with suppliers and business partners, to entertain friends ,:!-or to mingle with fellow members. With this ready-made #.,\R event, there are no hassles with planning, prize-raising, and � other logistical concerns that comes with organising your own .4r-

I=)

event. The only thing that you and your guests need to do is to enjoy I&_ the evening's get-together. Ji

-H-

Cost of participation has been maintained at 1997 prices at 7J ,J,

�K$3,888 per table of 12 persons or HK$368 per person which jJLincludes a full Chinese banczuet with unlimited supply of beer and so[J drinks card and/or mahiong games karaoke and lud · draws. it

it

Date : Friday, 12 March 1999 Cost : HK$368 per head or N

Venue: Metropol Restaurant HK$3,888 per table 00

N

4/F United Centre Time : Games from 4:00 p.m. w

95 Queensway, Hong Kong Dinner at 8:00 p.m. f-' N

0

We need your SUPPORT through bookings and/or donations/ 0

sponsorship of lucky draw prizes. These can be in the form of merchandise or cash. The function is again expected to be very well attended and all contributors will have the opportunity to showcase their products and services before prospective clients.

For further details, please call Miss Karen Au at tel : 2823 1200.

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Hong Kong - Guangdong Environmental Partnership Seminar on Environment and Energy

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Ji-J,t a tE. � � t0l ,?;ff-it if15 March 1999 9:15 a.m. to 5:00 pm. Conrad Hotel

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According to a 1997 World Bank report, China's rapid economic growth has given rise to some of the worst pollution problems. The costs of environmental damage in deaths, sickness and lost output are estimated to be HK$421 billion or about 5% of GDP. The central government, in its Ninth Five-Year Plan (1996-2000), has pledged to double its environmental spending from 0.8% in 1995 to 1.5% of GDP by the turn of the century. On a provincial level, Guangdong will be spending up to HK$13 billion over this five year period and implementing several large projects in the delta region. What is happening in South China will have a direct effect on Hong Kong given the geographical proximity and close economic ties. The Seminar will focus on promoting understanding of China's environmental policy and the business synergies arising from cooperation between Hong Kong and Guangdong Province to clean up the environment Full details available on the Chamber website http://www.hkgcc.org.hk or by calling 2823 1200.

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Sponsors f' JIJJ 1tAt : cp:!j,E@.:tJ(cp��

CLP Power China

IE)f{ONI

EXXON ENERGY LIMITED

J!<:l'i:.Nlile)»i\:/iff� '"jsj

-��ng [TI �;fft;:lJl

(S: A CABLE & WIRELESS COMPANY

John Swire and Sons

t Jf1 eI-1� �}Ju� El ,Bf-if� , -t-t--Jt Elf at1hf ♦ Full day seminar including lunch and simultaneous interpretation

The Hong Kong General Chamber of Commerce

Chamber Committees

Chairmen

General Committee

Chamber Council

Mr Peter SUTCH

Americas

Mr Andrew YUEN

Arab & African

Mr Lawrence FUNG

Asia

Mr Joseph POON

China

Mr Tony FUNG

Economic Policy

Mr Martin BARROW, OBE, JP

Environment

Mr Barrie COOK

Europe

Mr Manohar CHUGH

Human Resources

Mr Yun POON

lndustr and Technolo Committee

Hon

Dr Lily CHIANG

Legal

Mr R T GALLIE

Membership

Ms Fanny LAI

Shipping

Mr Terence SIT

Small & Medium Enterprises

Mr Denis LEE

Taxation

Mr Roderic SAGE

Hong Kong International

Mr Brian STEVENSON

Dr Lily CHIANG

HK Coalition of Service Industries

Executive Committee

Mr Stanley KO

Financial Services

Mr David RUAN

Information Services

Mr Tony AU

Transport/Infrastructure

Mr K KYEUNG

Professional Services

Mr Anthony GRIFFITHS

Real Estate Service

Mr Nicholas BROOKE

Statistics

Mr George LEUNG

Hon Kon Franchise Association

Mr Eric CHIN

Associate Organisation

Pacific Basin Economic Council

Hong Kong

Mr John STRICKLAND

EDITORIAL

Budget challenges in the year of the rabbit

This is truly the time of the year for reflection on past events and re-affirmation of our faith in the future. The beginning of the new calendar year signaled that the new Millenium

(at least in terms of the Christian or Western calendar) grows ever closer. The onset of the Lunar New Year reminds us of Hong Kong's Chinese heritage (and its Chinese future), the need to dispense with past baggage and to look forward to good fortune and good health in the year ahead.

It is perhaps appropriate, therefore, that this time of renewal and revitalisation also brings with it the presentation of the Hong Kong Government's annual Budget, this year on Wednesday, March 3. With the prolonged impact of the Asian financial crisis on both the local economy and public confidence, this year's Budget will probably be the most challenging of the Financial Secretary, Donald Tsang Yam-kuen's career. It will be even more challenging than the 1996-97 Budget straddling the return of Hong Kong sovereignty to China. Peter Sutch, Chamber Chairman.

In fact, the Hong Kong Government this fiscal year (1999-2000) probably faces its toughest Budget task in almost two decades. It is for this reason that the Chamber presented its own Budget submission to the Financial Secretary some months ago. The submission contained a range of recommendations aimed at restoring confidence in the local economy, improving employment prospects and setting Hong Kong toward a more prosperous future, without sacrificing Budgetary prudence.

In the past year, the sharp downturn in the local economy, now expected to result in a real five per cent contraction in Gross Domestic Product (GDP) for 1998, effectively left the Government's 1998-99 Budget plans in tatters. This much slower growth meant its revenue and expenditure plans for the fiscal year could not be met. In addition, the suspension of land sales for the final three-quarters of the fiscal year left a gaping hole in the Budget, costing some $30 billion and turning an estimated $10 billion surplus into a ,projected $20 billion deficit. After other revenue effects, the total deficit for the 1998-1999 year could exceed $40 billion.

The background to the new Budget for the 1999-2000 fiscal year is therefore not a happy one with the Government faced with lower revenues, higher expenditures, a large Budget deficit and a still slowing economy. Despite a better performance in financial markets and recent perceptions of a healthier economic outlook, the immediate prospects for both are uncertain. Looking ahead, therefore, the Government needs to use the 1999-2000 Budget to help boost confidence into the economy while still maintaining its prudent financial stance. This will not be easy.

Economically, the Budget will be a difficult one for the Financial Secretary because it involves reconciling lower revenue expectations with increased spending demands by a community adversely affected by the financial crisis. Politically, it will be difficult because it will be presented to a new Legislative Council (elected 24 May 1998), with its diverse range of populist and business interests with competing demands.

The 1999-2000 Budget is the most challenging task facing a Financial Secretary since Sir John Bremridge in the early 1980s. If there is one important difference between the present situation and that of the early 1980s it is that Hong Kong is, by any standards, a far wealthier community today than it was then. As a result it has far stronger fiscal reserves and greater overall resources to cope with the downturn. The task facing the current Financial Secretary remains, however, a daunting one.

From a business perspective, the broad thrust of the 1999-2000 Budget measures should be aimed at helping to restore confidence in the local economy, enhancing economic growth, increasing employment prospects and improving the cash flow of the business sector. The Chamber's Budget submission to Government offered some suggestions on how these aims might be achieved. We hope they find favour with the Financial Secretary when he presents his Budget on March 3. We certainly wish him well in the Year of the Rabbit. ■

£ Peter Sutch Chairman

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FROM THE DIRECTOR � -t\ � #;

Getting information to our members

Communicating with our members is an essential task for the Chamber. It is a task which requires constant improvement, so that we can get timely information to our members. But we are sensitive to the fact that many members do not want to be inundated with announcements or mailings/faxes

from the Chamber. So we are always trying to strike a balance between getting the word to those who want it or being too diligent in our notifications. In addition, we always rely on those who get our information to pass it along to colleagues who may not be getting that information.

Contained below is a summary of how we notify our members of events and information: 1. Minutes of all Chamber committees are now summarised and put on our Web site

(www.hkgcc.org.hk) for all Chamber members to view. This includes the General Committee. Chamber Director,Complete minutes are only sent to committee members. I remind you that the committee chairmen/ Dr Eden Woon. secretaries contact information is on the Web site also, so you can always contact them for further �if!ilW!U��J;l.�it± 0

information on the committee 1s deliberations.2. Event announcements and Chamber circulars are sent out in the following ways:

(1) Via email to any employee of any member company who provides us with an email address. (2) Multifax summary of events goes out every weekend to our general mailing list.(3) Mailings notifying events go out every other week to our general mailing list.(4) Advertisements and other non-time-dependent announcements are mailed out with The Bulletin once a month.(5) Special announcements of an event may be sent out via multifax or mail at any time to our general mailing list or to a specificaudience list.(6) A summary of all upcoming Chamber events is periodically updated and can be viewed on our Web site. Let us know if you wantto be added or deleted from any list we have.

3. Issues affecting certain members are sent out from time to time through fax or by mail to those who we believe would be most affectedby them. For example, recently we have sent out a number of articles to the China Committee and others who have expressed intereston the issue of tax rebates in China. Once again, they will also be posted on the Web site.

At any time, please check our Web site for the latest information, which also includes the current Bulletin, the latest Government statistics, our press releases and other articles written by our staff. The front page contains "what's hot11 and is frequently updated. You can visit our library at United Centre for more in-depth information in catalogues or journals. Finally, you can of course always call us for any economic or business information you believe the Chamber may have or can find for you. ■

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I iffi FI �J 1999 � 2 FI 7

SCHAEFER OTL STORAGE EQUIPMENT CO., LTD. &!ii SCHAEFER

TO ft 0

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Co., Ltd. is a joint venture between the Oriental

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Province. We are professionally managed and

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our services are comprehensive, ranging from

project design to installation and system

management consultancy. Customers need

only specify their storage concerns and we will

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HEAD OFFICE & FACTORY: WEI SAN ROAD, ETDZ, ZHENJIANG,JIANGSU PROVINCE P.C: 212009

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LEGCO REPORT

A wish for prosperity in the New Year

As the Year of the Rabbit approaches, I wish you every success in your business and life. While the local economic restructuring is not yet over and the business community must endure this period of hardship, I sincerely hope that you will maintain your confidence in

order to further develop your business.

No sooner had my last report, urging interest rate cuts, been published, than I received, and welcomed, the news of lowering the rates again by the Hong Kong Association of Banks. However, considering five reductions within a quarter amounting to only 1.25 per cent, I feel that it is still too slow and the cutback relatively small. I will continue to push the banks to reduce rates to relieve the James Tien

burden on the local business sector and speed up the economic recovery.

Meeting with the Chief Executive Recently I met Mr CH Tung, the Chief Executive of the SAR, outlined the current plight of the business sector and urged him to

improve the business environment. During our discussion, I suggested, for example, an immediate improvement in business licensing procedures in which the lead-time should be shortened for facilitating business launches. In the long run, the Government should establish a license issuing body undertaking all related examination procedures, currently handled by various departments. I also mentioned the ineffectiveness of the $2.5 billion Special Finance Scheme for SMEs and asked for prompt adjustments, including increasing the Government's guaranteed portion, modifying the criteria for approval, cutting the lending rates and extending the repayment period.

Furthermore, I discussed with him the issue of Hong Kong's international image. In the eyes of some expatriate businessmen and tourists, the image of Hong Kong as an international metropolis has deteriorated since reunification, and there are much fewer opportunities for the local community to use English. As a result, the number of foreigners investing and touring in Hong Kong may be affected. In order to maintain Hong Kong as an international metropolis, I think the Government should promote the importance of English and Chinese languages more actively and encourage the learning of both. In the meeting, I indicated that the worsening pollution problem would play its part in tainting the SAR 1s international image. Thus the Administration should allocate more resources to environmental protection.

Overhaul of civil service structure I welcome the comprehensive review and reform of the SAR's civil service system as announced by the Government, yet I feel the

action is too late. The current civil service framework has run for more than a decade and has long been criticised. Therefore, an overhaul of its system is inevitable. A month earlier, I questioned the civil service pay review system in a Legco meeting.

I suggested that the basis for a civil service pay review - the survey findings on pay trends in the private sector - cannot reflect the real picture of the employment market in Hong Kong. The survey mainly covered large private corporations with employees ranging from as many as 1,500 to around 100 persons, but SM Es, with less than 100 staff, amounting to over 90 per cent of the local business sector, are surprisingly excluded in the study. In the present economic turmoil, these companies are the hardest hit and the fluctuations of their salaries/wages are the best reflection of the general market situation in the private sector. The negligence of the Government in this respect is not acceptable.

Moreover, the survey focuses only on the pay figures, ignoring the attempt by the private sector to cut labour cost through means such as downsizing and the like. Evidently, findings from the survey seriously distort reality. The inaccurate results lead to overwhelmingly high wages for civil servants when compared to employees in the private sector. More than that, the pay scale is only one of the many revisions which need to be done in the existing civil service framework. The SAR Government will face an uphill task in such a restructuring process, and tangible outcomes may not be expected in the near future.

Bills Committee I have joined the Bills Committee for the District Councils Bill in order to examine the relevant regulations on the upcoming District Board

Election. The Government plans to submit the Bill to Legco in February for approval so that the election can be held late this year. ■

Your comments are welcomed.

Address: Legislative Council Building, 8 Jackson Road, Central, Hong Kong

Tel: 2301 3602; Fax: 2368 5292

I iffi JH-IJ 1999 1f 2 fa.I 9

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10 The Bulletin February 1999

-Vocational 111/A llriil I TRAINING COUNCIL

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It Pays to Train Your Own Engineers Join the Engineering Graduate 1

.,

raining Scheme

ttnru111Iil8ili 1171f,l7'Stil The Vocational Training Council (VTC) is inviting employers in the Iffit�JfJ!l#Jltl�Hl��rJUI;fi�tz. 1Ji±�J�Il--t-�'.i:wll following fields to participate in the Engineering Graduate Training Scheme (EGTS):

( a ) Building Services Engineering; ( b ) Chemical Engineering; ( c ) Civil Engineering; ( d ) Electrical Engineering; ( e ) Electronic Engineering; ( f ) Environmental Engineering; ( g ) Geotechnical Engineering; ( h ) Manufacturing/Industrial Engineering; ( i ) Marine Engineering (Shore-base); ( j ) Mechanical Engineering; ( k ) Naval Architects; ( l ) Information Engineering; ( m ) Structural Engineering.

The Engineering Graduate Training Scheme (EGTS) aims at bringing about sufficient practical training opportunities for engineering graduates and students in sandwich courses to enable them to complete their training as engineers and to satisfy the training requirement of the Hong Kong Institution of Engineers for professional status.

Under the EGTS, a subsidy will be granted to a trainee being trained under an approved training scheme. The subsidy is to help employers meet the high cost of training their trainees. The subsidy will be paid through his employer as part of his salary. The subsidy period is 18 months which may comprise partly sandwich and partly post-graduate training. The maximun subsidy period under sandwich training is 12 months. The current subsidy rate is $5,885 per month for graduate trainee and $3,500 per month for sandwich trainee.

The Committee on Technologist Training of the VTC is responsible for the administration of the EGTS, and the training of the trainees under the EGTS will be monitored by the Committee through appointed

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Name of company:

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COVER STORY - TOURISM

Tourist numbers stabilised during 1998.

1998 �ntt�AIUUl.fJIJE'. 0

12 The Bulletin Feburary 1999

Recov

Hong A

fter the unprecedented boom in tourists arriv ing b efore the auspicious date of July 1 , 1997,

there was a massive drop in numbers of almost two million in the second half of 1997. Hong Kong then faced adverse publicity relating to the treatment of Japanese visitors and the outbreak of the bird flu virus.

Tourist numbers have certainly taken a knock in 1997-98 and are now up only 0.2 per cent compared with the same posthandover doldrums in 1997, according to Ms Amy Chan, Executive Director, Hong Kong Tourist Association.

· "Of all our Asian markets, MainlandChina and Taiwan were least affected by the economic turmoil. The biggest increase in arrivals for December 1998 is from the Thailand with a growth rate of 63 per cent compared to the same period in 1997. Other notable growth markets for tourist arrivals are Indonesia [47 .3 per cent] and Malaysia [29.3 per cent]," she said.

The North Asian region produced the heaviest reversal of fortune. South Korea showed a decline of 49.8 per cent and Japan 30.9 per cent, in 1998 compared to 1997.

"In retrospect we can see that the seeds of misfortune were sown in 1996, when visitor volumes rose more than 40 per cent

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ry still tentative for ong's tourist arrivals

and Hong Kong became the leading outbound destination for Japanese travelers, ahead of Hawaii for the first time. Both the Japanese travel trade and Hong Kong industry capitalised feverishly on market interest in visiting the colonial territory and collecting a passport 1 trnphy 1

• Market pressures prompted premium prices. Inevitably, neither the growth rate nor the premium rates were sustainable beyond June 1997. The negative trend was sharpened by media reports of discriminatory pricing policies within the hotel industry," she said.

In October 1998 the guests staying the longest were from Indonesia (4.5 days) and the length of time they stayed further increased in 1998. The Japanese were the shortest stayers averaging just 2.8 days.

Total tourist spending is down by 29.7 per cent in January to September 1998. Those from North Asia are still the biggest spenders with the Canadians spending more than they did in 1997, as are visitors from the Middle East.

11 Visitors from the Middle East are spending more on shopping whilst tourists from the Nordic countries are increasing their spending on entertainment, compared with 1997,U she said.

Indians have increased their spending on tours in 1998 while Australians and the Swiss spend the least on tours.

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It is not al I doom and gloom, recent figures do show signs of a slight recovery. Tourist arrivals in December last year increased by,an encouraging 11 .1 per cent over the same month in 1997; total arrivals for the month were 936,914.

Worldwide growth in tourism is expected to be sustained well into the next century.

Although it is uncertain as to whether Hong Kong can recover its position as a leading destination, a study by the World Tourism Organisation (WTO) anticipates 1 .6 billion worldwide travellers and a tourist dollar value of some US$2,000 billion for the year 2020.

Amid all this predicted growth, the WTO expects that by 2020 China will become the top visitor destination worldwide and Hong Kong will rank fifth in the top ten visitor destinations with close to 60 million visitors that year.

11 Hong Kong is best positioned to capitalise on the growth of China tourism acting as a transportation hub to capture both in- and out-bound visitors," she said.

11A shortage of investment capital is seen as a major barrier to growth in tourism throughout the region. Tourism as a sector of economic activity is one that tends to generate relatively conservative returns over longer periods despite the high risks," she said.

In Hong Kong, the investment market and the development industry have little experience in tourism projects. This lack of experience may dampen investment particularly during periods of relative capital scarcity, or when the cost of borrowing is high.

11 Another important issue is poor en v-i r on men ta I con d it ions that w i 11 eventually lead to disaster for the tourism sector by turning away potential visitors," she said.

Hong Kong is facing challenges on two fronts - the price competitiveness of the SAR compared to long,haul markets is gradually disappearing and Hong Kong is losing its price advantage over other cities in Asia.

With anticipated dramatic urban growth, it is important that tourism assets, such as the quality of air, water and landscape are protected.

The HKTA plans to develop North Lantau as a major tourist generator taking advantage of its close proximity to Chek Lap Kok.

11 W e a r e actively exploring t h e possibility of developing a film city that will be the 'Universal Studio of the East' and a theme park on Tsing Yi that will include hotels, a golf course and resort," she said.

In Tung Chung the HKTA is considering

Tai 0, with its traditional character, is targeted as a tourist attraction.

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I iffi' ,El flJ 1999 1f 2 ,El 13


designating a site for an aquatic centre for water-based recreation.

"There are also a number of valuable historic assets in Tung Chung New Town such as the Tung Chung Battery and Hau Wong Temple, 11 she said.

The Mass Transit Railway Corporation has also been asked to spearhead the cable car project linking Tung Chung with the giant Buddha at Ngong Ping.

11A cable car link from the airport to one of the world 1 s biggest Buddhas should prove a fascinating attraction/ she said.

Tai 0, close to Tung Chung, is one of Hong Kong 1 s few remaining unspoiled fishing villages retaining its traditional character and unique stilt houses. The HKTA aims to sympathetically develop this into a major tourist attraction.

The Territorial Development Strategy that was approved by the SAR Government in early 1998 recognises tourism as a sector with long-term opportunities for privatesector investment and job creation.

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11 This r e c ognit ion of tourism 1 s importance is a significant breakthrough for the industry/ she said.

Central and Western has been selected as an area'where existing tourist attractions might be proactively developed and marketed. A study into this possibility will inventory all tourism resources, including attractions, events, faci I ities and other unique characteristics of the district and will analyse the potential for their enhancement.

The HKTA is also working on a Green Guide to Hong Kong in the hope of attracting eco�tourists.

11 The guide will incl ude useful, scientifically-based but non-technical information for visitors and local residents interested in the natural environment/ she said.

The guide will encourage users to appreciate and learn about the diversity and richness of Hong Konts flora and fauna, detailing many of Hong Kong 1 s beautiful trails. ■

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Government looks to long-term strategy to revive tourism

By IAN K. PERKIN, Chief Economist

The Hong Kong SAR Chief Executive Mr Tung Chee Hwa's decision late last year to establish the position of

Commissioner of Tourism was a direct response to the various crises which had affected the industry from mid-1997.

The dramatic slump in visitor arrivals from previous record levels in the latter half of 1997, the bird flu, red tides and negative international pub I icity (overdone in many cases) on the return of sovereignty, the new airport opening and other events would have all played their role.

But his decision was also probably inspired by a general and long-standing dissatisfaction within the broader travel and tourism sector over the lack of any longer term strategic plan for the development of the economically important multi-billion dollar industry.

In the past, the local industry (including the Hong Kong Tourist Association) has been long on marketing and short on strategy, despite various consultants' reports on how the industry might be enhanced and developed in the longer term.

The appointment of a Commissioner, with a broad industry brief, should at

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IiftfJH·IJ 1999 if.2 ftl 15


least offer the opportunity to rectify this situation.

Given the importance of the industry's revenue generating abilities to the local economy, its substantial role as an employer and its contribution to services export receipts, the Government is right to be concerned about ensuring its longerterm viability and development.

The decline in the number of inbound Hong Kong visitors evident since the handover ceremonies and the onset of the East Asian f inancial crisis in mid-1997 moderated somewhat in the second half of last year, to the evident relief of all those involved in the travel and tourism industry.

But the overall figures disguised significant structural changes in the sources of those visitors, in particular the continued rise of the Mainland as a key visitor source and the much increased share of "One China" (Mainland, Taiwan, Macau) in the overall number of visitor arrivals.

Latest figures for the 1998 calendar year, for example, show that overall visitor arrivals were down eight per cent on the same period of 1997. If, however, Mainland visitors are excluded from the numbers the decline was an even more substantial four per cent.

For the first time in 1998, the total share of visitors to Hong Kong coming from the "One China" sources, exceeded the 50 per cent level, with the Mainland providing the biggest share of al l inbound arrivals at well over a quarter. In the 12 months to November, the "One China" share of all visitors to Hong Kong was 50.6 per cent and the Mainland's share alone was 27 .1 per cent.

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As a result of the continued downturn in arrivals (see accompanying table), total revenues of the industry are estimated to have tumbled $16 billion or almost 29 per cent in the nine months to the end of September last year.

But this was at least a better result than the 35.6 per cent or $14 billion setback experienced in the six months to June when revenues were down to $25.6 billion from $39.8 billion in 1997.

Still, the industry needs to do a lot more if it is to recover fully its pre-hand-over levels of activity. The appointment of a Commissioner of Tourism will not help unless there is some quick action to put in place a longer-term strategic plan for the maintenance and expansion of the SAR's role as a travel and tourism hub.

New Airport With last year's mid-year transfer of

its international airport to the new site of Chek Lap Kok, 2 5 kilometres from the city centre, the Hong Kong SAR may well have gained one of the world's best ( i f initially trouble-prone) airports. But it also lost one of its greatest tourist attractions, the landing at the old Kai Tak airport.

The dramatic flight path over the city's crowded Kowloon Peninsula into the historic Kai Tak site is now gone forever. With its spectacular views of - and into -the high rise apartment blocks along the route and dramatic right-hand 45 degree turn and swoop onto the single runway 13, the entry to Kai Tak was an inevitable talking point for any first time visitor to Hong Kong.

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For commercial airline pilots, Kai Tak provided the mother of all landings in a world of more conventional airports; for visitors it became the subject of subsequent dinner conversations the world over.

It is yet to be seen whether the dramatically new and expanded airport at Chek Lap Kok - already effectively shortened to CLK in both local argot and international airline terminology - will become a similar attraction to visitors.

Instead of the jumble of buildings that is Kowloon City, the visitor to Hong Kong is now greeted by a more conventional airport approach over the open sea with the green hillsides of the island of Lantau, to Hong Kong's west, as the backdrop.

The airport design itself is spectacular (if somewhat on the huge side), but that's about it. It is not the stuff of dinner party reminiscences of past visitors.

The move to the new airport does, perhaps, serve as a metaphor for the state of the inbound industry in the posth a n d-o v e r H ong K o n g S p e c i a l A'dm in istrative Re gion (SAR) of the People's Republic of China. Something may be missing for tourists as a result of the change, but what its ultimate impact wi II be is sti II in doubt.

Similarly, the return of sovereignty over the former British colony to the People's Republic of China on July 1, 1997 has resulted in changed perceptions of Hong Kong, even though there may have been little change in the reality of Hong Kong itself.

Hong Kong is a different political entity, it flies a different flag and it is no longer that oddity in the modern world, a colony, but it remains Hong Kong nonetheless. It also

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maintains its key roles as an entry point for the Mainland and as a regional hub.

Serious Questions Certainly the downturn in the number

of visitor arrivals in the past year and a half has prompted serious questions about the present health and the future prospects of the local tourist industry.

What makes Hong Kong attractive to visitors? Will it stay an international tourist magnet, a global shopper's paradise and a touch of East-meets-West exotica, or will it become purely a business destination?

Is its future merely as a stopover on the way to the more diverse attractions of Mainland China, or elsewhere in the East Asian region? Or perhaps its future is as a 11domestic11 destination for visitors from the Mainland and from Taiwan?

Answers to all these questions and more are still being sought. It is the importance of the tourist industry to the new Hong Kong Special Administrative Region (SAR) that makes the answers vital. Hong Kon g's inbound tourism industry has long been one of the pillars of strength of the local economy, particularly in expanding its external trade in services.

Foreign Exchange The annual influx of visitors, bringing with

them their D-marks, Yen and dollars, has for decades helped underpin the local economy and made the industry, at least for a year (1996), the biggest foreign exchange earner for the former British territory. But in recent years things began to change for the industry.

The evidence of change was clear even before the dramatic downturn in visitor

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arrivals around the return of Hong Kong sovereignty to China mid-way through last year. As long as the money continued to roll in, there was an apparent reluctance to recognise the changes that were occurring, but occurring they were.

And they are now having a tremendous impact on the whole local industry as it grapples with the twin problems of defining its own image and coping with the East Asian economic downturn.

They include the dramatic alteration in the balance between long haul (global) and short haul (regional) arrivals. In particular, the increasing reliance on the nearby markets of Japan, Taiwan and, ultimately, Mainland China itself.

They include the narrowing of the tourist trade balance as outbound tourism has grown along with relative affluence to rival the inbound market, at least in dollar terms. (Preliminary figures for 1997, for example, show that Hong Kong had a negative trade balance on tourism, although these numbers are often subject to radical revision later.)

And they include the changes in the visitor arrival mix from the purely leisure business, true Hong Kong tourism, to a business and stopover mix.

All have been evident for some time� but have been masked by the annual increases in overall numbers and revenues. It took the downturn in arrivals and revenues following the return of sovereignty last year, however, to clearly bring to the industry's attention the new structure and reality of the industry.

Record Year Hong Kong's tourism industry hit an all

time high in the calendar year 1996 with

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arrivals at a record 11.7 million and revenues of HK$84.5 billion (US$10.9 billion).

In 1997, however, arrivals dropped 11.1 per cent to just over 10.4 million and total receipts were down 14.7 per cent to HK$72.09 billion (US$9.3 billion). (The expenditure figures are HK$82.5 billion and HK$70 billion respectively if spending by air crew and transit passengers is excluded.)

More importantly, the annual numbers for 1997 disguised the more dramatic reversal that occurred mid-way through the year.

In the run-up to the return to Chinese sovereignty in the first half of 1997 the visitor arrivals in Hong Kong actually increased 5.2 per cent to almost 5.71 million (up from 5.42 million in the record year of 1996). But in the final half of the year they dropped by more than a quarter on the 1996 figures.

Arrivals in the second half were actually down 25.2 per cent (including arrivals from the Mainland) to just under 4.7 million compared with 6.28 million a year earlier. Excluding Mainland arrivals the fall was an even more dramatic 28.8 per cent to 3.62 million from 4.3 million.

This relatively bleak picture continued into 1998, with the opening half-year numbers coming off extremely high visitor arrival levels ahead of the return of sovereignty. There was, however, some improvement apparent in the second half.

Overall arrivals in the first six months were down 21 per cent to 4.51 million from 5.71 million in the same period a year earlier. Excluding Mainland arrivals (themselves down 2.9 per cent for the six months), total arrivals were down a massive

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Iifi'jJ:H-IJ 1999 � 2 .FI 17

COVER STORY -TOURISM

25.9 per cent at 3.33 million compared with 4.49 million a year earlier.

The only two signif icant source countries to record increases were the still relatively small markets of Canada and New Zealand.

In the full year, however, total arrivals were off by a far more modest eight per cent to 9.57 million visitors (compared with 10.41 million in the same period of 1997). This partly reflected the much lower base of comparison in the final six months of the year.

But a lot of the cushion came from a 13.1 per cent increase in arrivals from the Mainland (up to 2.6 million from 2.3 million in 1997), with non-Mainland arrivals being down a far more substantial 14 per cent (to 6.98 million from 8.12 million).

Asian Crisis With a full year's figures now available

for 1998, it is also clear that the East Asian financial-cum-economic crisis cannot be blamed for the entire downturn in the industry, nor can the reversion of sovereignty over Hong Kong to China.

Although the numbers coming from the crisis-affected short-haul, regional markets have declined substantially, there also appears to have been some sort of posthand-over effect in other source markets, most importantly the long haul markets of Europe and North America.

Both North Asia Uapan and Korea), down 34.8 per cent for the 12 months, and south east Asia, down 20.2 per cent; have seen dramatic declines and are most obviously tied to the currency, financial and economic turmoil in the region since the middle of last year.

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18 The Bulletin Febu rary 1 999

But arrivals from Europe, Africa and the Middle East were also down 11.5 per cent in the 12 months, with one country in Europe showing a far bigger decline (G_frmany, down 27 per cent).

North American arrivals were also down 1 .4 per cent for the period, with arrivals from the USA alone down 3.4 per cent, despite its buoyant economy.

Still, all the figures for the 12 months did show far more modest drops than were apparent in the opening six months of the year (from the high base in 1997), giving hope that the indus�ry had at least turned the corner.

But the question still worth asking is what would happen to the local industry -already affected by the crises in south east and north east Asia - if there were also economic slowdowns in the US, Europe and, importantly these days, in China?

While arrivals have been down, revenue has declined even further because those visitors that are coming are spending less and the local travel and tourism industry has cut prices to better keep the arrival numbers up.

Total tourism receipts for the first half of the year were down an estimated 35.6 per cent, or HK$14.2 billion to HK$25.6 billion from HK$39.8 billion a year earlier.

There was a slight improvement in the picture for the nine months to September, but not much. Receipts for the first three quarters

were down 28.8 per cent at $39.4 billion, compared with $55.4 billion in the same period of 1997.

Tougher economic times have meant that spending by visitors from every corner of the globe was down for the 11 months, both in terms of overall spending and on a per capita basis.

The decline in overall spending ranged from a relatively modest 17.5 per cent drop for visitors from North America to 52.2 per cent for North Asia and 49.5 per cent for South East Asia. Even Mainland spending dropped 11 .2 per cent.

On a per capita basis, overall spending dropped 19.9 per cent. Per capita spending declines ranged from 12.6 per cent for visitors from North America to 25.6 per cent for Australia and New Zealand and 29.9 per cent for South East Asia. Mainland per capita spending was off 20.9 per cent.

With the local tourist industry having emerged from its Summer low season, however, there are some signs that the decline in visitor arrivals and revenue figures nave stabilised somewhat.

But the 1998 arrivals and revenue figures will still be substantially down on their 1997 levels and well below the record-breaking year in 1996. Moreover, the longer-term questions facing the local travel and tourism industry need to be addressed. ■

Visitor Arrivals (by Country of Residence) and Tourism Industry Receipts 1997-98

1997-1998 ¥1tli��AjJA� (t�J§:11±tHtjf) &M01Ht�4Ha

Statistics 1997 H1 1997 H2 1997 Total 1998 H1 1998 (to Nov)

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Total Arrivals 5,709,157 4,697,104 10,406.261 4,512,567 8,637,797 �.,A.ljt),J:!� (+5.2) (·25.2) (·11.1) (-21.0) (-9.7)

Total Avenue ($bill) 39.8 30.1 69.9 25.6 39.4 (Sept) ! l&M. (-35.6) (·28.8)

The Americas 558,796 484,991 1,043,787 499,395 939,041 �y}H (+14.8) (·0.3) (+7.3) (·10.6} (-2.6)

Europe, Africa, Middle East 679,773 496,414 1,176,187 515,067 .961,939 �jffl ,1�;:ftt, q:,]l'l (+3.3) (-20.0) (-8.0) (-24.2) (·12.8)

Australia, New Zealand, Pacific 193,443 161,287 354,730 166,868 304,766 �*' :/!:'!';$� (-1.4) (-13.1) (-7.1) (-13.7) (-6.9)

North Asia 1,055,267 671,259 1,726,526 504,843 1,013,701 :lt.mJti (-13.3) (-57.0) (-37.9) (·52.2) (-37.3)

South and South East Asia 849,161 649,304 1,498,465 570,344 1,035,047 1¥l�.&.ll'li$i� (+9.4) (·22.7) (-7.3) (-32.8} (·24.3)

One China 2,372,717 2,233,849 4,606,566 2,256,050 4,383,303 .:k'1'1i¥!11!� (+13.5) (·13.5) (·1.4) (-4.9) (+4.7)

- Mainland 1,221,110 1,076,018 2,297,128 1,186,074 2,342,139 -'1'11.:k\!i (+8.9) (-9.6) (·0.6) (·2.9) (+13.3}

-Taiwan 879,654 902,926 1,782,580 864,466 1,646,738 -�� (+22.1) (·18.0) (·2.1) (-1.7} (+0.6)

- Macau 271,953 254,905 526,858 205,510 394,426 -�r, (+9.2) (·12.9) (·2.7) (-24.4) (·18.3)

Arrivals (excluding Mainland) 4,488,047 3,621,086 8,109,133 3,326,493 6,295,658 AJlJ..11( Cf-!i!}i!ip;i!lllJ..±) (+4.3} (-28.8) (·13.7) (·25.9) (-16.0)

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ROUNDTABLE

EU helpful to Asian importers

Any proposal that Asia can export itself out of recession by trading with the European Union (EU), must

consider their anti-dumping legislation and protectionist sentiment in future EU trade policy, according to Ms Nancy Kontou.

Ms Kontou a Member of the Cabinet, European Commission, was speaking at a Roundtable at the Chamber on January 12.

110ne question that a lot of companies ask me these days is whether the Asian financial crisis will have an impact on the trade policy of the EU and business Asia can do in Europe. Certainly there· is an increase in imports from Asia but the answer is simple, nothing will alter the direction of the EU trade policy towards liberalisation," she said.

11The impact of the financial crisis has been quite significant in terms of the trade patterns we have seen in 1998. Imports have increased by 20 per cent and average exports have dropped by more than 30 per cent," she said.

There have also been sectors like steel where the shift in the trade balance has been even more marked.

11lndustry comes to our door everyday and says 'this is an unbearable situation, we cannot survive'. The answer we give ..,. although it is difficult - is that we want to continue liberalisation efforts, provided of course the necessary restructuring is taking place in countries where it is needed and that antidumping rules are not infringed," she said.

The US has also been subject to the same pressures from their industry due to

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an increase in imports. There has been much lobbying from the steel industry and not just on anti-dumping measures but also on import restraints.

11We are following this closely because it will have an impact on the EU in terms of diversion of trade. However, we are determined to pursue liberalisation despite what happeris, 11 she said.

Ms Kontou said the next landmark event in the trade world will be the Millennium Round - the new round of multilateral trade negotiations within the World Trade Organisation (WTO).

11We won't just be negotiating tariffs but also new issues such as trade and competition, trade and the environment and government procurement," she said.

As far as Hong Kong is concerned there has only been one anti-dumping case with the EU over microdisks. Measures were imposed in 1994 and will expire this year.

11China has more cases. Both Sir Leon Brittan [head of the Cabinet] and I are not enthusiastic supporters of anti-dumping, but it is in our legislation and must be upheld," she said.

The Commission has been trying to apply anti-dumping measures in a reasonabte way and introduce practices that will take into consideration the interests of importers and consumers.

11Even if you have dumping that causes injury to EU industry we may not take antidumping measures if you show that damage will be caused to consumers and end-user industries due to higher prices," she said.

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The US does not have this policy because it is not enforced by WTO, so in this respect, the EU has gone further.

Another area the EU has gone further than the WTO requirements is in their antidumping measures.

11We have a rule called the lesser duty rule. This means when we take into account th�'.knti-dumping duty we don 1 t just estimate the anti-dumping margin we also consider how much injury you have caused to industry. The lowest of these figures will be the anti-dumping duty," she said.

This is of advantage to the exporting countries because injury to industry is often lower than the dumping margin.

11 ln the US you don't have the lesser duty r�le and dumping margins are very high," she said.

11There are some changes that we have made to our legislation last year that could be of interest to Hong Kong, particularly because most industries here have interests in Mainland China.

11 What we saw is that companies operating in China were very different in the way they conducted business there. So it would be unfair to consider everyone operating in China as operating under the same conditions. Until recently we had no choice but to calculate dumping by taking the normal value of the product (the price you sell in China) and compare that to the export price to the EU. The dif ference would be the dumping margin," she said.

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However, the Mainland is not a market economy so this value would not take into account costs of production.

11S0 we had to use a third country as an analogue. That is a country that has roughly the same economic conditions as the Mainland - we used their prices and costs of production to calculate the dumping,'1 she said.

If a company can show that the conditions in which they operate on the Mainland are very similar to normal market conditions then an analogous country is not used.

11This is important because if we take companies 1 data operating in China there won 1 t be an anti-dumping duty at the end of the day or it will be very low/ she said.

But the change that has been made will not always guarantee that your dumping margin will be lower.

11 lf it happens that the resu It is less favourable for a company than if we used an analogue third country we can not do anything about it - it is a risk that you take/ she said.

Ms Kontou. stressed that companies operating on the Mainland must apply for market economy treatment - it is not the Commission 1 s job to decide whether this is relevant.

"We have market economy claim forms which are sent to companies that are under investigation. There are administrative deadlines and this form must be submitted within 21 days of the s tart of the investigation," she said.

This new legislation came into force in July 1998; so far there have been no companies that have asked for market economy treatment in cases involving the Mainland. ■

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ROUNDTABLE

Regaining control over costs 0 ne lesson from the recessions in

Europe is that every company should have a plan to cut costs, even

if they don 1 t want to implement it immediat ely, according to Mr Alan Hetherington, Senior Consultant at Hodgson lmpey Cheng Consultants. Mr Hetherington was speaking at a Roundtable on January 13.

11One of the costs that is significant in any business is overhead costs - these are all the costs other than direct manufacturing or production labour, utilities, packaging and materials. Good cost reduction challenges the definition of fixed versus variable costs,U he said.

People-costs are by far the highest of discretionary costs and account for at least 65 per cent.

11Many businesses think you can make substantial savings by buying a cheaper sort of paper clip - sadly you will not save much. If you are thinking of doing anything meaningful with costs, you must address the sensitive area of people," he said.

Mr Hetherington said it is sensible to find out what the options are and then think about implementing them.

11Direct manufacturing costs are relatively straightforward to address because we can correlate them to volume. Overheads are more insidious and it is more difficult to analyse the value of them," he said.

Overheads have a very significant impact on profits and loss account.

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If costs are six times greater than net profit and a reduction in costs by 15 per cent can be made, profitability can increase by 90 per cent - almost doubling profit.

11 l t does not take much in many businesses to double the bottom line profit," he said.

Unlike manufacturing costs, with overheads, one dollar saved is one dollar on the bottom line-it is a dollar for dollar switch.

There are traditional ways that people use to tackle overheads.

11 Time af ter t i m e sophis t i c a t e d c o m p a n i e s tackle o verheads w i t h methodologies that are very crude. Usually they take an across the board approach -cutting 10 per cent of every department or they reduce training, entertaining, marketing and consultancy - easier things to grapple with," he said.

But there are many problems associated with these crude methods - they are very arbitrary and they are seen by those who work in the business - especially the managers - to be very arbitrary.

11 Using these methods you run the risk of throwing the baby out of the bath.water -you might be cutting a department that in a recession you should be increasing/ he said.

If a business decides to freeze recruitment it does nothing fundamental about the workload of a particular department - and so after a month the supervisor comes and says they are unable to cope.

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11As a result you add extra people and very quickly any attempts to save money have been dissipated. You need to tackle overheads with something that is slightiy more analytical, slightly more comprehensive and effective," he said.

There are three levels of approach for opportunities to cut overhead costs.

The first, efficiency improvement, is about doing better what you do - this may involve using more computers.

11Most of the people are pretty good at this - they employ good managers and install PCs," he said.

The second approach is determining the added value of job activity - what adds dollars to net profit.

11When we talk about activities we are looking at people and what they do. But we are not looking at overall jobs - it is very easy to class people as the position they represent or the report they produce. We have to look at the whole picture, because they might be a key person in your organisation. However, the thing they do that is vital may only take part of their time, so you should be interested in what they do the rest of the time," he said.

The third level of opportunity is reengineering. This means that you need to stand back from a business, forget the traditional structures and reevaluate how a business can work more efficiently.

11You need to look at the basic processes

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involved. If you forget the functional boundaries and cluster the overhead costs closer to the process you can not only make considerable savings, but improve the flow of the process," he said.

The way that a business uses people is critical.

11You may be able to use a person in two departments. But this does not normally happen because department one is under director number one and department two is under a sepa_rate director. And, however good the directors- were in doing cost reduction in their own department they are not empowered enough to look over the b o u n d a r i e s i n t o s o m e o n e e l s e 1 s department/' he said.

When analysing professionals, while part of the day they are doing their professional work, which justifies their salaries; part of the day is spent doing more trivial work - which could be done by someone on half their salary.

11 Co s t r e d u c t i on i s s o m e t i m e s rebalancing professionals, where using two professionals can be replaced with one professional and a support person. It looks too simple but, believe me, I can quote many examples/ he said.

Another aspect that can be used to cut costs is looking at business peaks and troughs.

"Most of the businesses that l go into l find that people are manning to the peak. But this is usually expensive - manning to the trough is better.

11One way of doing this is to move the peak- as they are usually related to internal deadlines rather than customers - and realigning this can be cheaper/ he said. ■

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Hong Kong to host regional CIO Forum 0 n M a r c h 24-25, 1 999,

Business Week Magazine and t h e H o n g Kong G eneral

Chamber of Commerce will host the Chief Information Officers Forum, at the Grand Hyatt Hotel in Hong Kong_ The CIO Forum, entitled Leading Change: Business Alignment Through Information T echnology d i s c u s s e s s t r a t e g i c informatio11 technology issues that are critical in today 1s corporation in Asia. The Forum follows the inaugural Asian CIO Forum which was held in Singapore in September 1998. Up to 200 delegates will participate in a series of plenary sessions, breakout workshops, social events and dinners, in an atmosphere of discussion and audience interactivity, in what is Hong Kong 1 s most important strategic IT event. The conference _is also developed in association with the Hong Kong Productivity Cou·nci I and is p r o d u c e d by H o n g Ko n g b a s e d_ dnmStrategies.

What is a CIO?

The CIO is a facilitator of information distribution and business communication processes. The CIO understands the new role of managing the asset of organisational information and understanding how that in formation can give business a corn petitive advantage in a. market environment. As information becomes more accessible to all levels of an

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organisation, and the value of information is realised in projecting, forecasting, pattern studies, consumer relations and company valuation, the position of CIO is growing beyond the ranks of the multinational corporation.

Some key discussion topics are: • Information Technology: Gaining

the Boardroom• Aligning Business Strategy with an

IT Strategy• Year 2000 Compliance or Bust• Enterprise Architecture• Initiatives in Virtual Private Networks • Optimising IT Assets • Locating and Retaining Technology

Employees • Inf or mation Tec hnology in a

Finance Environment• Hong Kong 1s IT Initiatives and Hong

Kong 1s Role in the Region• R e d e f i n i n g S u p p l y-C h a i n

Management• V e n d o r s A s s e s s m e n t a n d

OutsourcingHear from leading CIOs and IT

practitioners from Hong Kong Telecom, Federal Express, AT & T, ORIGIN, Gartner Group and others.

For more information regarding the CID Forum, the most important executive level IT event in Hong Kong in 1999, please contact Ms Carmen Ho/jenny Wong at tel: 2823 1291/2823 1268, fax:2527 0380 or email:[email protected]. •

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Iiffi.F.ltlJ 1999 �2 J=I 23

Government policy for SMEs - some recommendations by the Chamber

By Simon Ngan*

It has been frequently quoted that approximately 98 per cent of business establishments in Hong Kong are of

small and medium size and. that they employ about two thirds of the workforce while accounting for about 60 per cent of GDP. The notion of SMEs as engines of growth cannot be overstated and it should fol low that greater attention shou Id be devoted to protecting and nurturing this very important business sector through a coherent policy for SMEs.

The Chambe r ' s SME Committee suggests that an SME policy should aim at fulfilling two objectives - (1) strengthening the institutional framework to enhance SME dynamism by facilitating access, including information access, to support services, and (2) removing constraints and impediments to SME development including, but notlimited to, Government deregulation.

Strengthening the institutional framework

The m o s t impo r ta n t a s pect of Government's role is to demonstrate a strong commitment to SMEs. The announcement by the Chief Executive in his Policy Address on the creation of an SME Office within the Industry Department is therefore a welcomed measure in realising this commitment. Because most SMEs find it

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difficult and time consuming to deal with a wide range of agencies to obtain information on the types of assistance available, there is a strong case for the creation of a one-stop service centre to better coordinate SME agencies at a central agency level. The Chamber rec,ommends that the SME office assume the role of a coordination and promotional agency, with the delivery of support services taken on by institutions (like the Chamber, the Hong Kong Productivity Council, the Trade Development Council, and the Vocational Training Council, etc) and private sector practitioners (such as trainers and consultants).

To increase the effectiveness of the proposed SME Office, it is suggested that this Government unit work closely with the Business and Services Promotion Un it (BSPU) and be vested with the authority akin to that of the BSPU.

Removing barriers A conducive policy environment

benefits all enterprises by reducing the cost of doing business and removing barriers to growth. In this sense, an SME policy cannot be aimed at benefiting every enterprise just on the basis that they are small. That would be co rporate welfar ism, which is incompatible with free market principles. Rather, a policy for the development of SMEs should feature mechanisms to help business operators overcome market imperfections and market failure.

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In crafting an SME policy, Government should be mindful that this does not eventually give rise to a situation of overregulation. A common sentiment expressed by SMEs is that government can help by not doing more, bt;Jt by doing less. Private sector input is a 'significant feature of the streamlining process and active participation therefore needs to be encouraged.

Major programme areas Although flexibility should be the key

·factor in designing and implementingprogrammes to assist SMEs, there are some areas where SME needs are generic and one would reasonably expect that similaractivities would be needed from time totime. In the longer term, areas such aspromoting information flow, enhancingbusiness-networking opportunities,removing impediments, and providingaccess to finance will need to be addressed.

Other short term strategies that can be adopted by Government in its SME policy include training, p r o blem so lvingconsultancies, research and development, support grants, incubation subsidies,i n d u s t r y - a c a d e m i c c o o p e r a t i o nprogrammes, credit guarantee and loanfinance schemes, and computer training

T h e C h a m b e r h a s w r i t t e n t oGovernment with the recommendationsoutlined above. ■

*Simon Ngan is Senior Manager of theChamber's Business Policy Division

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A s A N

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-

EURO

Rules change in Euro take-off

The Euro will be more than just another currency - its introduction last month will force companies to

rethink their strategies and it could ultimately lead to restructuring of activities, according to Mr Kenneth Fok, Vice President, Head of Transactional Banking Division, ABN AMRO Bank.

11By eliminating forex risk, reducing cross-border transactions cost and bringing about price transparency throughout the European Monetary Union [EMU] zone, the euro wi 11 accelerate the trends towards market globalisation and the European single market," he said.

Increased competition and price transparency will squeeze prices, especially for standardised products and services.

11As price transparency increases, differentiation through customer service and satisfaction will become more important. Low cost providers will have a competitive advantage, 11 he said.

In the single market, companies will define their segmentation criteria based on language groupings or cultural similarities.

11 European export sales could be restructured into domestic sales, distribution channels may be streamlined by an increase in direct sales, electronic sales and direct marketing. Treasury organisations and risks and asset and liabilities management can be more easily centralised," he said.

Possibilities of joining forces with other companies at home or abroad, through

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Mr Kenneth Fok, Vice eresident, Head of Transactional Banking Division, ABN AMRO Bank.

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alliances, acquisitions or mergers will increase.

11The present revival of mergers and acquisitions in the financial sector is, no doubt, part i n s p i r e d by the E M U perspective/' he said.

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There will be direct comparability of production costs across Europe, possibly leading to the wish to relocate production facilities and realise further economies of scale.

11 ln the absence of forex considerations differences in national taxes wi 11 become more important in deciding where to invest," he.said.

Reduction in the number of currencies in Europe will lead to a simplification of treasury and cash management and will provide opportunities for savings in various areas, such as reduction in currency hedging costs, improvement in transaction services and possible lowering of financing costs.

Anticipated benefits of the Euro are that it safeguards and supports the functioning of the European single market. It will prevent the recurrence of revaluations and devaluations, which have so often disrupted trade and investment within the EU in the past.

11The costs of exchanging currencies and hedging against foreign currency risks will be reduced. Direct savings on transaction costs have been estimated at between 0.25 per cent and 0.5 per cent GDP, 11 he said.

There will be fewer risks in crossborder investment within the EMU. The elimination of exchange rate uncertainty should result in a more efficient al location of resources, as it will be easier to

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11 The will be deeper and broader financial markets, and an important greater role for the euro as a contracting and invoicing currency in international trade, partly at the expense of the role of the US$ .. This will further reduce the foreign currency risks for European businesses, 11 he said.

The enlarged financial market as a result of greater competition between banks and the enlarged capital markets will reduce financing expenses. EMU will also require European governments to put and keep their finances in order, which will lead to lower interest rates in the EMU area.

"Purchasing decisions will benefit from greater price transparency - conversely, it will be more difficult to apply price differentials in different national markets/ he said.

The introduction of the Euro will give rise to cost-saving organisational change for example capitalisation of treasuries, standardisation of administrative systems as well as commercial opportunities.

"There will be increased pressure for structural reform in order to maintain competitiveness - liberalisation of labour markets, deregulation of goods and services markets, privatisation, wage moderation, and a reform of social security, tax and pension systems. This will lead to further integration and flexibility of the single market - which will help the mar ket to adjus t to any diverging economic developments within the EMU, 11

he said.

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But, there will also be a loss of sovereignty on monetary and foreign exchange policy (i .e. the ability to adjust o f f i c i a l i n t e r e s t rates and currency rates).

11 lf EMU economies start to diverge, limited real wage flexibility and limited labour mobility imply that the costs of adjustment will, at least in the short-term, to a greater extent be borne by the real economy (that is economic activity and employment) and by national fiscal pol icies, 11 he said.

There will be a small and temporary loss of i nvestor confidence i n the core currencies. It will take some time for the EMU to acquire full confidence in financial markets. The Euro exchange rate may therefore initially be slightly weaker, and interest rates perhaps marginally higher, than would have been the case without the EMU. These effects have al ready been largely discounted in present currency and interest rates.

"There will be a substantial conversion cost to society (e.g. the costs of realigning operational processes and IT systems, costs relating to the conversion and adaptation of many cash handling machines etc). For banks, these conversions are particularly high. In addition, they have to face a permanent income loss, due to lower revenues from forex and money market dealings as well as from cross-border payments, 11 he said.

The EMU of 25 member states will have an economic commercial weight equal to that of the l)S and larger than that of Japan.

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"The combined GDP of 11 countries that will be a part of the starting group is US$6.9 trillion. This is somewhat less than the GDP of the US (US$7.4 trillion). Export figures of these 11 EU-countries (US$790 billion) are larger than the US export figure (US$625 billion). This also points to somewhat more openness of the EMU� bloc," he said.

Compared to the US the EU scores well on balance of payments. On inflation, Europ e will a lso do well , but the differences with the U S are small. Regarding relative economic strength, Europe's present position compared to the US is not very strong. However, a European cyclical upturn has already started and as for structural weakness, initiatives have been and continue to be taken to address them.

"Although it seems that most major governments worldwide would like to diversify to some extent out of the US$, there is only a minor chance of the Euro ousting the US$ as the favoured reserve currency. The extent of the switch will also depend on the use of the Euro as transaction currency," he said.

Today, the US$ is the most commonly used currency in trade invoicing. Despite the US having only a 20 per cent of world trade, the US$ was used in 48 per cent of al I trade transactions.

"Although the Euro will play an important role in the international financial markets and as an invoicing currency in international trade in goods and services, the US$ will remain the most •important transaction currency," he said. ■

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Ijfi'jJH·IJ 1999 1f 2 J'3 29

LEGAL

Focus on GITIC affair By Zhao Xiaolu and Xu Chunlei,

Lawyers, China Law Office.

A View of the Regulations on Foreign Debts and Foreign Exchange Guarantees Raised by C h i ne se F i na nc ial Institutions and Risk Control for R ights of Overseas Creditors through the GITIC Affair

In October, 1998, the Central Government of China ordered the shutdown of Guangdong International

Trust Investment Corporation (G ITIC), sending shock waves through the banking sector of Hong Kong. Newspapers and magazines in Hong Kong widely reported the affair. Now, guaranteeing the legal rights of creditors became the main focus of the public.

I. Major Forms of Foreign LoansRaised by Chinese Trust InvestmentInstitutions

At present, relatively large Chinese fiduciary investment companies raise foreign loans mainly in the following forms:

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F irstly, the raising of international commercial loans (including trade loans at call, short-term circulating fund loans, bilateral loans and syndicated loans); secondly, the issue of bonds in foreign currencies overseas; thirdly, the provision of foreign exchange guarantees for third parties; fourthly, the trading of various forms of derivative means (mainly the trading of various for.ms of financial futures and options); and fifthly, the borrowing of foreign debts by subsidiaries registered in Hong Kong.

II. System of Management andRegistration of Foreign Debts andForeign Exchange Guarantees

Foreign Debts In line with the principle of centralised

management by corresponding authorities, Chinese institutions managing foreign debts vary according to the different types of foreign debts. The People 1s Bank of China is the Chinese authority in charge of the w o r k o f review i n g an d a p p.ro v i n g applications for international commercial loans, authorising the State Administration of Foreign Exchange and its sublevel administrations to specifically review and approve applications for international commercial loans and to supervise and manage the use of such loans. The head office of the People 1s Bank of China is the Chinese authority responsible for reviewing and approving applications of institutions within China for issuing bonds in foreign

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currencies outside China. The State Administration of Foreign Exchange and its sub-level administrations are the Chinese authorities responsible for managing the overseas issue of bonds in foreign currencies by institutions within China.

They are responsible for approving, coordinating and supervising the overseas issue of bonds in foreign currencies and the use of the Kinds raised through the issue of such bonds, and managing the repayment of debts in this respect.

111. Commercial LoansThe State stipulates that a system shall

be applied to strictly review and approve plans for borrowing international commercial loans and that a separate plan shall also be applied to regulate the quota of short-term international commercial Loans. That 1s to say, all institutions within China, except for foreign-funded enterprises, shal I gain prior approval by the State Administration of Foreign Exchange of their plans for borrowing loans overseas. All borrowings of medium- and long-term international commercial loans with terms exceeding one year shall be included into the national plan for the utilisation of foreign capital, and shall be required to gain prior approval by the State Administration of Foreign Exchange. Without such approval, any contracts signed for borrowing loans overseas shal I not be effective, relevant foreign exchange administration authorities shall not register the loans concerned as

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foreign debts, Chinese banks shall not open foreign exchange accounts for the loans, and the principal and interest of the loans concerned may not be remitted out of China. For short-term international commercial loans with terms of less than one year (including one year), foreign exchange administration authorities shall manage them by the balance, and the State Administration of Foreign Exchange shal I approve the quota of such loans.

IV. Overseas Issue of Bonds inForeign Currencies

For institutions within China needing to issue bonds overseas, they shall file applications to the local foreign exchange administration authorities. The applications filed must be submitted to the State Administration of Foreign Exchange for review and verification and must be transferred to the head office of the People's Bank of China for approval. Institutions issuing bonds overseas for the first time, must apply for the rating of credibility. Only those satisfying the required conditions in the rating of credibility can issue bonds overseas.

For the issue of bonds needed by the business operation of the issuing institution, the funds raised must be used in line with the approved use, and the issuing institution will be liable to repay the principal of the bonds issued and pay the corresponding interest. For the issue of bonds by commission from local governments, the funds raised shall be used for projects designated by the local governments concerned, and the repayment of the principal and payment of the interest o� the

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bonds issued shall be included into the plan of the local governments for the spending of foreign currencies and will be bearable by the local governments concerned. ..,

V. Registration of Foreign DebtsChina applies a system of registration

and management of foreign debts. For institutions within China (including foreignfunded enterprises) borrowing loans overseas or issuing bonds in foreign currencies, should contact the State Administration of Foreign Exchange and its sub-level administrations for registration.

In line with relevant regulations of the Chinese Government, the funds in foreign currencies obtained by borrowers from foreign-funded banks and Si no-foreign joint-venture banks registered in China shall be treated as foreign debts, which shall be subject to the registration of foreign debts. However, the funds in foreign currencies borrowed by foreign-funded banks and Sino-foreign joint-venture banks registered in China from overseas sources wi II not be treated as foreign debts, which shall not be subject to the registration of foreign debts.

The registration of foreign debts comprises case-by-case registration and regular registration. For the foreign. loans borrowed by banks and non-banking financial institutions in China as well as the loans extended by foreign governments and international financial organisations which are separately under the management of the Ministry of Finance, the Ministry of Foreign Trade and Economic Cooperation, the People's Bank of China, the Ministry of Agriculture and the Bank of China, they will subject to regular registration. For the loans

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borrowed by other government authorities and enterprises (including foreign-funded enterprises) in China other than those registered regularly, they will be subject to case-by-case registration.

VI. Management Institutions andtheir Major Functions

The State Administration of Foreign Exchange and its sub-level administrations are the Chinese government institutions in charge of managing activities of foreign exchange guarantee. They are responsible for reviewing and approving plans for foreign exchange guarantees and managing and registering activities of foreign exchange guarantees.

The total of the value of foreign exchange guarantees provided by a financial institution and the value of its foreign debts may not exceed 20 times the total of exchange capital in its possession.

The value of foreign exchange guarantees provided by a non-financial bus_iness corporation may not exceed the amount of exchange capital in i ts possession. Chinese guarantors may not provide foreign exchange guarantees for the registered capital of their foreign partner in foreign-funded enterprises.

Institutions within China may provide foreign exchange guarantees with the letter of guarantee, the stand-by letter of credit, the cashier's check, the bill of exchange and so on, or through the mortgage of property or the pledge of movables and rights in line with the Guarantee Law of the People's Republic of China.

Wholly foreign-owned enterprises may provide foreign exchange guarantees for

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I ifi'f J:! flJ 1999 � 2 J:! 31

LEGAL

themselves, which is not necessarily subject to the approval of the State Administration of Foreign Exchange. However, the provision of foreign exchange guarantees by other forms of businesses shall be subject to the approval of competent foreign exchange administration authorities. Otherwise, the foreign exchange guarantees provided will be invalid.

After providing foreign exchange guarantees externally, guarantors shall contact the relevant sub-level foreign exchange administrations at their place of business to go through the formalities for registering the foreign exchange guarantees. Where guarantors have not contacted local foreign exchange administration authorities for registering the foreign exchange guarantees provided, the foreign exchange

. administration authorities concerned shall not permit them to purchase foreign currencies or remit funds in foreign currencies out of China in honouring contracts concerned.

Overseas creditors should conduct studies about the application of different laws in different subjects of debts and different ways of raising loans. Where subjects of debts are institutions within China, Chinese law shall apply. Where subjects of debts are registered companies in Hong Kong, relevant laws of the Hong Kong Special Administrative Region shall apply.

Overseas creditors should conduct studies about forms of debts and the legal binding force of contracts for loans. Under Chinese law, the legal consequence of valid contracts is different from that of invalid contracts. All the contracts for foreign debts and foreign exchange guarantees registered in line with the law shall be valid civil

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contracts, and shall be handled in accordance with the legal consequence of valid civil acts. For all the contracts for foreign debts, foreign exchange guarantees and other forms of foreign debts (such··as deals of options) which have not been registered in line with the law, they shall be invalid civil contracts, and shall be handled in accordance with the legal consequence of invalid civil acts.

Overseas creditors should conduct studies about whether other subjects of debts legally assume joint liabilities in the capacity of debtors. For example, under Chinese law, where the ·registered capital of a company is insufficient, the shareholders of the company shall assume joint liabilities for compensation. Where a debtor concurrently holds the right to claim the repayment of debts from a third party, his debts may be

transferred to the third party under a special arrangement with the agreement between the creditor, the debtor and the third party. And, under Chinese law, where a local government or the State commissions a party to issue bonds in foreign currencies, the local government or the State shall be liable to repay the principal and the interest on the bonds issued.

Overseas creditors should conduct studies about the possibilities of the conversion of their creditor's rights into stock rights to restructure liabilities. The restructuring of liabilities is conducted mainly through merger and acquisitions.

For overseas creditors, they should have strict legal risk control measures for their future extension of loans, in order to establish a benign circle of debtor-creditor relationships on the basis of reliable legal guarantee. ■

THE HONG KONG GENERAL CHAMBER OF COMMERCE

ANNUAL GENERAL MEETING

27 APRIL 1999

The Annual General Meeti11g of the Chamber will be held at 6:00 pm on Tuesday, 27 April 1999 in the Ballroom of the Island Shangri-la Hotel. Registration of members and a cocktail reception will start at 5:00pm.

SIX members of the General Committee are required to retire this year and may stand for re-election. They are Mr Peter D A Sutch (John Swire & Sons (HK) Ltd), Mr Peter Barrett (Organisation Development Ltd), Mr Linus Cheung (Hong Kong Telecommunications Ltd), Mr Walter Kwok (Sun Hung Kai Properties Ltd), Mr Victor Li (Cheung Kong Holdings Ltd), Mr J B M Litmaath (Scarfell Enterprises Ltd).

• Any Chamber members intending to nominate for election to the Genera}Committee should contact the Chamber Director, Dr Eden Y Woon, ontelephone 2823-1211 or facsimile 2527-7886, BEFORE APRIL 1.

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TAX

Mainland export VAT Vincent Lo and Caesar Wong of

Arthur Andersen

An examination of the changes in PRC Value-Added Tax policies on Foreign Investment Enterprises' export sales

Over the past few years, the ValueAdded Tax (11VAT11) policies on export sales in China have been

constantly changing, making them difficult to follow and confusing to foreign investors. In this article, we will firstly outline the major changes over the years and the current policies. We will then analyze the impacts of the current policies on the export sales of foreign investment enterprises (11FIE11) in China. We hope the following discussions help readers understand the subject matter better.

A. Major changes in the policiesPursuant to the Provisional Regulation

of Value Added Tax of China which took effect from January 1, 1994, export sales were subject to VAT at zero rate (0%). In

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other words, the corresponding input VAT could be refundable to the exporters. However, there have been numerous subsequent changes to the VAT policies on export sales announced by the responsible PRC authorities since 1994. The major cha nges which affect the FIEs are summarized as follows:

• Ministry of Finance (11MOF11) andState Administration of Taxation ("SAT") issued Circular No. (94) 058 in August 1994 which stipulated that for FIEs established before January 1, 1994 ("the Old Enterprises11), export sales are exempted from VAT whereas there is no refund of the corresponding input VAT. This is known as 11No-Tax-No-Refund 11 policy (11the NTNR Policy11).

• The SAT issued Circular No. (95) 012 in February 1995 which stipulated that for FIEs established after December 31, 1993 ("the New Enterprises11), the ExemptCredit-Refund Method (11the ECR Method"; please see Part B for details) should be adopted for export sales. This means that for the New Enterprises, export sales are no longer subject to VAT at zero rate.

• Circular No. (95) 92 was issued by MOF in late-1995 and Circular (96) 123

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* 1995 4 2 faJ T Ji EB � m � (1995)012 JJ;r. X f4, ti 1993 4 12 faJ 31 B CJ�

11 Jll[ I rffi 1f tc s9 1r rffi t9: � 1t * (CJ T $ f-m , f=JT it *J) 1: i¥ 89 tll P � � � JI& r � ' t� ' i!8. J ¥,0¥ m (¥l1Hld$ Jl * )(-z, fffS 1;t) fhHJI[ ill 1=1 i!8. fR , 2JJ' ep � 7K fJT

it* tll o ��W'.l1'r�f�$ 0

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was laid down by the SAT in mid-1996. These Circulars stipulated that for the New Enterprises, the ECR Method and the PayFi rst-Ref u nd-Late r Method should be adopted for export sales.

• The PRC government has alsoadjusted the VAT refund rates on export sales several times. For goods which are s u b j e c t t o V A T a t 1 7% , t h e corresponding VAT refund rate for export sales of these goods has generally been reduced to 9%. As such, the exporters wi 11 not receive a fu 11 refund of the related input VAT.

• To tackle the problems arising in theimplementation of the VAT policies, the State Council announced in February 1997 that for al I export sales of production enterprises which export their products themselves or through import/export agents, the ECR Method should be adopted with effect from January 1, 1997; the Old Enterprises should still follow the NTNR Policy unt i l December 31, 1998. Subsequently, Circular No. (98) 184 was issued by the responsible authority in late 1998, which stipulated that the NTNR Policy for the Old Enterprises is extended to December 31, 2000 while the ECR

� � � 9% , ft fJ' � 0'-J � rJ fR $: � ��$:fil@Jo

* � it fl m fi r:p tll ™ 09 r.,, Ji!! , ii ti � "!Jt 1997 4 2 )=J 5JJi fij � i¥ 1£ * § 1f E'X � t-E tt:£1 ill P � � � - � § 1997 4 1 fa11BMl'.lfi,�, tff· filJM�;@ �it* {J!J PT MUI jf fi 1� 1l � filJ I¼: * � 1998 4 I 2 )=J 31 B O Jt: 1f , fJ' � 'lr� r� Jit 1998 4 m'i T �i M f5l '=¥= (1998) 184 JffGJc 14 , ��::tit* '.l fi ,� 1l � filJ I¼: * � 2000 £J=: 12 faJ 31 B ; ffeJr 1£ * JlU 'mf • iJU* ffl 1 � , tlf , filJ r#f= 1!: 0

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z;. 1 � , :ttt, mJ � 51_t � ?Jd� ,�, tlf, filJ it t! FI EE

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r/ffi FI f1J 1999 � 2 FI 3 3

According to relevant requirements, the formula for the ECR Method is as follows:

Net VAT payable in the current period

where,

Output VAT on (

All domestic sales in - input the current period credit

NCR amount )

Unutilized input in the current .� credit from

period previous periods

The NCR F.O.B. price of (

VAT VAT )

Composite value of bonded (

VAT amount in the export sales in x rate - refund - materials in the current period x rate current period the current period rate as ascertained by the Custom The NCR amount (which can be up to 8% of the F.O.B. price of the export sales) becomes a cost to the exporters. The amount of VAT refund on export sales is calculated according to the following formulae: If: F.O.B. price of goods x refund rate Unutilized input VAT then: VAT refund= Unutilized input VAT On the other hand, if: F.O.B. price of goods x refund rate< Unutilized input VAT then: VAT refund= F.O.B. price of goods x refund rate Moreover, Input VAT brought forward to next period= Unutilized input VAT of the current period - VAT refund

VAT ) refund

rate

Method should continue to be used by the New Enterprises.

In summary, the two sets of prevailing VAT policies on FIEs' export sales are as follows:

B. The ECR Method

The ECR Method consists of three interrelated procedures - Exempt, Credit and Refund - as described below:

of the above enterprises, which should be refundable, can be used to credit against the VAT payable on domestic sales.

• For Old Enterprises, the NTNRPolicy should be applied until December 31,2000;and

• For New Enterprises, the ECRMethod should be used.

The main differences between the two policies is in the amounts of input VAT that can be utilized and whether the VAT refund is available on export sales.

rm:J - ¾ t� m 1=t 11 i£ � 13 ft tl:l P � � 1E �r � i£ � 1-t Jlf!. tl:l P B"l

it � J!l -f- ill ii B"J §dt ffl *-H4 Yr � It B':J ii JJ m ii tfi f□ pq !§ 1t � B':J J!l � m t}io

Exempt

For production enterprises which export 'their products themselves or through import/export agents, the export sales are exempted from VAT.

Credit

The input VAT of the raw materials used in the production of export products

1illJ- ¾1�1=tiii£�§f!;tl:\P � � 1E �r � i£ � 1i: W tl:l P 1t � 1ti !� i£ � 'it M � t� 1t � i§ � tJi 50% � _t B':J, {E-1mJ*JJt pq, IE!JlfiliiB"JfJl n:xntffl�mmnm*m1□5cffi¥, }�

Refund

If the export sales represent 50% or more of the total sales value, and in a quarter, the amount of credit is greater than the VAT payable and the excess c r e d i t has n o t been u t i l i zed, the unutilized amount can be refunded to the exporter upon the approval of the competent tax authority.

3:: � tl:l P fil m B"J m l1HI II tttl1b £;t * tfi :t□ Jc B"J m tl tHJ'- r � fil fJl 0

pey . It 8:1 i:1 iE: �U1'9 � W tl:l Cl i£ � � T II 1L' tl:l Cl 1t tm ii&

tui ��it JE, r�, tll, �J i¥ 51dt � 0 � �□ r:

1t M Jl�mn

;It �

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iut * m :t□ 5c B"JiiJJimmt

-=r � W: , tfi :t□ tP = EEi , .,., P x W: m $ - m m * - � m ii P :¥11- 14 x W: f}?, * -

'itMiliP�� "<!f-1,,§tl:l :a:� ( ) 'itM�lltid§ (

illmB"lma �•�•ffl mmttmMffl

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tl:\P��-fil�ffimmi,*T�0��-: (-) �□ *:

iliPMJJi�mixillm$(*ffi�5c�ilJJimmt Jllj :

•mma = *1�1□% B"J"Plmtl 0

(-=) �□ *:

tl:lPMJJi�mixillm$<*:tlf�5c��JJi&mi Jllj : .filf}?,mi = l§Ji1i}:mixfilfJ?.$ 0

�MTM�iiJJi&mt=ttM*m�jc�•JJima-•m.ma


TAX

C. Impacts on export enterprisesApart from the changes in policies,

exporters are actually more concerned about the impacts on them of the prevailing VAT policies on their export sales. Here are some of the issues which are frequently discussed by the FIEs:

• I f the New Enterprises utilizebonded raw materials for theproduction and al I the products are exported, is it true that the adoption of the ECR Method has no impacton them?

• Are the Old Enterprises followingthe NTNR Policy better off than theNew Enterprises using the ECRMethod?

• If commercially feasible, should the New Enterprises utilize bonded raw materials sourced from overseas inplace of raw materials purchased in China?

• Purely from a VAT perspective and s u bje c t t o the e x p o r t r a t i orequirements, should enterprises try to reduce their exports and use thesame for domestic sales?

We are going to discuss the above questions briefly:

Impacts of the NCR Method on export sales using bonded raw materials

Pursuant to Circular No. (98)432 issued by the SAT, it is stipulated that if the 11NCR amount11 is larger than the 1

1all input VAT

m s{J � � 7r , 't: fr� � • 1! 1UJ 11 :m fi � ffi � 't: fr, s{J � • , fffl t&: :x * � Mu s{J ';lit Jl r.,� HJ! 'fil 15 T jU � I�

*iL�dJrif:�BRffl *mtit Cl# 14 , w £ � � tt tr i� , BR m r it , :fi£ , ill J 1¥ 1! ¾ � � B fr, ti � � JI ?

* ¾ � � iE: � ¥A fr 17G � 7G illJ � m it BR m r it , :t� , ill J m ?! s{J fJT 11:: ��fl�?

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*¥1fU�OO:m�Jtrffl�, if:�� ft ft ifF s{] �I it pg � Y ili Cl � !Im rm ±i:iJO pgi� l:t{Jtl?

lJi tE , � fr� lf.i:-t ffJt � IUl r.,i J1! tit fr M • t1 � 0

.ilL:__� ill J i¥ f! ft � Mt � l±H't� a1J ,,qep

t� f1l II f5t � (1998) 432 � x 14 s{J

tJi JE , �o I Ii WI ili Cl � !Im 7G r it � ,

ta: to to ill fJl s{J fJl �J * M� r1t WI� JJi m tJ!J (Jl 7-Js: x Z, fffH5t 0 �) , � fJl tri 'if :f§ � ±i :/Jo , � tri 7G li t# � #i ,t ,!l 7G 1l � 1� J ITT• 0 lzsJ .lit , � f! fJT 11::�,R tlffl *fJl� Cl *4f4fffl £ ��

credit11 (please refer to the formula in Part B above), the amount of VAT payable should be increased accordingly. Moreover, the balance can neither be carried forward on the accounts nor reduced to zero (i.e. zerorized). Therefore, although the New Enterprises only utilize bonded raw materials and export all their products, in principles, the exporters have to absorb that VAT cost (which can be as high as 8% of the added-value of the export goods). This

Example 1 - Impacts of the ECR Method on export sales using bonded raw materials

Assumed: (1) All products are exported at F.O.B.

price of $300. (2) All raw materials are imported into

China under bonded treatment and their CIF value assessed by thecustoms is $200.

(3) VAT rate is 1 7% and VAT refundrate is 9%.

VAT on domestic sales Less: Input VAT

Less: NCR amount

VAT payable * NCR amount

$0 ($8)*

$_0

($8) _$1L

= ($300 X (17-9)%) - ($200 X (17-9)%) = $8 (8% of added-value ($300 - $200 = $1 00) of the export goods)

� ill Cl , ill Cl 11:: � mi J!IJ _t �]: � it � � ili o � � ±i m $ 15t s{J 8% s{J ±1/: m mfj , 4- ill Cl 11:: � s{J nit 7-Js: ±i :/J□ 0

� fJtl - JiJr Jl , EE � � � 7G 1l t1= 1 � J it • , _t � ili Cl iE: � mi &U _t w� � it :f§ � JiS: ill Cl � !Im ±fili 00: $ {5t ( �p ill Cl £ � {jf t� � * fJl tit Cl f4 14 s{J � i� {jf ) s{J 8% , 4- � ill Cl nit 7-js: � :/JO 0

[?G IL:F illJ tt 1 �, � filJ Af:? 1zs1 ill m * tt � m * 1� :fll it • �

illf5ts{J¥lt7G[A], -�rm�, tlm tit ;¥4 :/Ja I 1 � ii m � s{] ili o 11:: � , • lr I it ' ta: ' filJ m $ fr tt, jf fi I 7G

� 7G ill J m ?! s{J 11:: � � 111 1! $ s{J ±t mfJl 0 {§.¾, �JiS:±�BRffl Ii pgmif4 s{J ill Cl 11:: �, f! ffl 1it' ta:' filJ '1¥ ?!& ffijfr tt 17G�7GfilJ '1¥1!ff(�� Y s{J ±� oo: m � it O

� � 1� = 0

f:E fJtl = 9'1 , BR ffl I it, :tl , filJ ffi ?ti: , ill Cl 11:: * s{J � 00: ;fil � � it 'hi $24 (&P M T=? 1J t� s{J 8%) 0

� � :t; 11:: * �m s{J r � � 7G fil J m 1* ITT • , • rt ili o��it�±�ffim, 1.§.tEtl�mi#� 11 � s{J $34 m JJi fJl � tl � ¥I :t� to1zs1 ffij � i£: * s{J ±t ffi fJl � � ft � $34(±� m m tit rJ m M) 0 ljJ' &P ¾ tJl tE _t �

increases the cost to the exporters in respect of the export sales.

As illustrated by Example 1, since the negative amount resulting from deducting the NCR amount from the input VAT cannot be reduced to zero, the exporter has to bear 8% of the added-value of the export goods (which is equal to the F.0.B. price of export sales less the CIF value of the bonded raw materials used), which increases the costs to the exporter.

The NTNR Policy better than the ECR Method?

As the VAT refund rates are lower than the VAT tax rates and the base amounts for calculating VAT payable and VAT refundable are different, the VAT borne by the exporters using the ECR Method is generally higher than those following the NTNR Policy. Nevertheless, for exporters utilizing mainly domestic raw materials, they could be better off if they use the ECR Method than if they follow the NTNR Policy. This can be illustrated by the Example 2.

In the above Example, for the New Enterprise using the ECR Method, the VAT burden is $24 (i.e. 8% of the F.O.B. price of the export goods). With the same assumptions, for the Old Enterprise following the NTNR Policy, the full amount of the input VAT (i.e. $34 paid on purchase of domestic raw materials) incurred in the production of the export goods is not

(t� -) r it, m, filJ m 1t ��tit� tll 11:: * s{J � �

11!:Ui (1) � $ � !Im tll Cl , M T=? 1J t� 'hi

$300 (2) � $ mi )¥4 * m tit Cl , #tJ: 1UJ t¾ i�

fl � $200(3) � oo: m * 1 7% ; m m * 9% 0

pg i� � !Im s{J t� JJi m n $0 � : m rJ m M $0

�: 7Grit�-tL£ to :tP fil fJl s{J fJl '.ffj ($8) *

* �r��- titofoillms{Jmtfi

= ($300 X (17 - 9) %) - ($200 X (17 -9%)

= $8 (&P tll Cl 1li !Im ±t 00: $ {5} ($300 -$200 = $100) s{J 8%)

I�JHIJ 1999 �2 fa.I 35

Example 2 - Impacts of the ECR Method o n e x p o r t e r s u s i n g domestic raw materials

Assumed: (1) All products are exported at F.0.8.

price of $300.(2) All raw materials are purchased

locally at cost of $200 (excludingVAT).

(3) VAT rate is 17% and VAT refundrate is 9%.

(4) VAT paid on purchase of the rawmaterials is $34 (i.e. $200 x 17%).

VAT on domestic sales $0 Less:lnputVAT $34

Less:NCR amount ($24)*

VAT refundable * NCNR amount= ($300 X (17-9)%)= $24Total VAT borne by the exporter=$34 - $10

_1_lQ_ ($10)

= $24 (8% of the F.O.8. price of export sales (i.e. $300))

creditable because the export sales are exempted from VAT. The $34 will be charged to the Old Enterprise as its cost of sales. Therefore, if raw materials are sourced locally, the amount of VAT borne by the New Enterprise is $10 less than that by the Old Enterprise.

1Jtl r q:i , tE ii � 1* �J JJl3: f4 ITT ii 1t fl rt; r · lJr it � s{:J ±1\H11 fJl � tt it 1:t t§ IP] m 11 s{:J � it � :J,-- $1 o 0

;9j &r , lli AA fJ" i� � m q:i ii j[j: m �

JE1f.?Xt��if�{5l£ 8b s{J t:l:l i=i ill;fil$Ll �9Uf tt � z� � fJ" rm t:l:l i=i it � ITT � tt 0

A q:i ' fJ" s{:J £ 1=1"'b (.:E. J�>eL!'r!i �I i'Jl!t 1,U.ft fm· �=H.&�r£1=11:lJ:1, mM-IJ"t., 11

ff 1!UiH� Q9 * IHI � £ 8b) s{J ill fJt $ J! m � � 11 m * 7J<. f O it t* m r � -

m • illJ It 11 t:l:l i=i � �m iff if11=1 s{:J � it *� � JrHrm :tct m ,@, 0 rn m t:l:l i=i � !Im s{:J fil fJt $ � »� JJl3: 1!/& fJt $ , � 1 �, tlt, filJ IHi YdJH ft • s{:J t:l:l i=i � !Im � -f' JG 1!/& , :ta:totPfilifils{:JmtJ�Ji�� (J!,;txz. if� {5l 0 5:\) , ZJJ' ElP ¾ m l±l i=i m � � � s"J t§ �m tlPJHJt tJt PJ 11 ± il fil @l

f.§.Jj-1flif, m�tl:l i=i��s{:Jill fJt $ , Jl!J * §t ;!; ». tA fi r� 1!/& � filJ �JfLft;1=l;¾LslHt4.:l:.�¾ �MB{:)�

it�, m��it�l±l i=i �!Jo/JB{J±�ffi fJt � tt t:t tE t§ IP] ffi rt; � fl= 13{] iJr it *

t§ it tE * � :t� rWi ill tJl * iw � Ji!e J! *· r�Ht�1�Tm��it�s{Jtl:l i=itl * §� fJ O t:t :tm tE 1jtl = s{:J ·� t5L q:i ,� ¾ fil fJt $ ffE 9% m � � 17% (ElP W 1!/& fJt $ t§ �) , Jl!J BR ffi 1�, tlf, illJ


Furthermore, it was recently reported that the PRC government had decided to further increase the VAT refund rates for certain goods in order to reduce or even remove the VAT to be borne by the exporters. For instance, the VAT refund rate of the four main categories of electrical and electronics goods will be restored to 17% (i.e. as same as the VAT tax rate on such goods). Undoubtedly, this will be good news for the New Enterprises which export these kinds of goods. For the export of such goods, since the VAT refund rate equals to the VAT tax rate, the NCR amount calculated in accordance with the ECR Method (please refer to the formula in Part B above) becomes zero. In other words, the full amount of the input VAT paid on these export goods can now be refunded to the exporters.

However, the Old Enterprises, especially for those with most raw materials purchased in China, cannot benefit from the increases in VAT refund rates because they abide by the NTNR Policy. In fact, as the VAT refund rates increase, the difference in the amounts of VAT borne by the Old Enterprises and the New Enterprises operating in ·similar situation is widening and the Old Eriterprises 1

export products will be comparatively less competitive. In Example 2, if the VAT refund rate is restored from 9% to 17%, i.e. the VAT rate equals to the VAT refund rate, the VAT to be borne by the New Enterprise which uses the ECR Method will be reduced from $24 to zero. However, the amount of VAT

(fftl =l r � , m , fil J m rt: it � �1l ±tl:lit�B"J�W

fen�:

(1) ±�� l±l i=i , �l*fU�� $300(2) ± if� JJl3: f4 tE ii � BR m , 1ft ,;t �

$200 (� § :J% ±t ffi fJt) (3) ±t {11 fJt $ I 7% ; fil fJt $ 9% 0

(4) JJl3: t4 s{:J tit .ri tJt fili $ 34 (ElP $ 200 x17%) 0

� i� � !Im ITT i� Jl m fili $0 � : tit .ri m fili $34

�: �-f'�1J, 1'tt to f P ill fJt s{J fJt fili �*

.JUQ_ PJ ill ii. fJt fil[ ($10)

* � -f' JG 1.!/& , 11 to fP fil fJt s{:J fJl 11 = ($300 X (1 7 - 9) °lo)= $24tl:l i=i it * s{J *� 111 fJt *-� � tt

= $34 - $10= $24(ElP t:l:l i=i � � 1¥ fl ($300) s"J 8%)

borne by the Old Enterprise is still $34. As a result, the VAT borne by the New Enterprise will be $34 less than that borne by the Old Enterprise (compared to $10 when the VAT refund rate was 9%). As such, Old Enterprises will not necessarily be better off as a result of the extension of the 11grace period11 of the NTNR Policy to the end of the year 2000.

Using more bonded raw materials and reduce locahpurchases?

Under the ECR Method and for goods which VAT refund rates are lower than the

VAT tax rate, if the required raw materials are available at the same cost in both the local and overseas markets, one way to reduce the VAT burden to the New Enterprises is to utilize more bonded raw materials sourcing from overseas.

As shown in Example 1, the exporter ·will in principle pay VAT of $8 (i.e. 8% of the added-value· of the export goods)although all the raw materials are imported under bonded treatments and all theproducts are exported. As the enterprise has not purchased any raw materials locally,there is no input VAT paid and the total

VAT borne by the exporter (i.e. $8 inExample 1) is lower by $1 6 than that borne by the exporter only using domestic raw materials (i.e. $24 in Example 2).

With regard to how much of raw materials should be sourced locally and how much to be imported, it varies from case to case and

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fr 1 � 1.!/& � illJ iliUl 13{] � it� 139 ±� 111 tJt � tt * rt ¾ $34 ° m � , fJr it * 13{] tt it m � tt 1g- 1:� � it � :1> $34 (JJl3: � 9% ill fJt $ l1ft • � � $1 O) 0 Yr Ll · tE m iw m T , � it * 11 1� fil � • fi r � 11 � fil J � � � 2000 1f ® , � - '.iE fw"��-100�it��*fJ-Jf&o

1! � � m m � fJt tit i=i t4 11 m1 l1u1 Yil�BRm?

• fr r JG , Jtt , filJ m 11 , tE m a�

� m * * f r - fet * � �" w �r m 1PJ �JJl3::Mt4:z:.ftt�t§ IP] tJrit*��y tt ffi fJt � 111 · ;tt q:i - 100 n 1-! ¾ BR ffl ��fJttit Q JJl3:;j,4o

ftp fPLl - Yr ff, , 1ruUt ± if� JJl3: � � � 1ifJttiti=i, ±$��JGfJtl±l i=i, @ it * @: J'!U J: ZJJ' �Ji �J *� $8 13{] ±� fi m(ElP tl:l i=i � tm ±t ffi $ 15l B"J 8%) 0 m �

it*[zs]�ti�BRffii!�@:;¥4, ii1� fffl � ti tit :I]: tt ffi f,£ 0 Jifi Ll , ±� ffi fJl ,t� Jrl. ti ($8) � {Ptl = Jifi ff, t* ffl ii � @: ;¥4 s{:J ·� bL r ($24) y $16 (ElP $24 - $8) 0

� Ji� lJT it � m $ JJl3: t-t s{J � &r BR J1' 1:t f Ptl f!U � tJt f fJ" rm it * s{:J � a ti t£fP;1=/;lffi*75Jl��JE 0

r=

TAX

very much depends on the particular circumstances as well as the business considerations in each individual case.

Is it better to lower the export ratio? In general, if the goods can be sold at

the same price in both the local market and the overseas market, the enterprise may try to maximum its local sales, subject to the prescribed export ratio, in order to pass on the VAT burden to the customers in China.

In Example 3, as all products are sold locally, the VAT will ultimately be passed on to the end users and the VAT burden to the seller becomes zero.

For the New Enterprises, as mentioned previously, if the VAT refund rate on the export goods can be restored to the same level as the VAT tax rate, the VAT burden to the exporters can be reduced to zero. From this aspect, the New Enterprises will be indifferent as to whether the goods should be exported or sold locally because the VAT burden will be the same (i.e. zero) in both cases. However, in respect of the goods which are subject to a VAT refund rate which is lower than the VAT tax rate, if the goods can be sold at the same price in both the local and overseas markets, the New Enterprises may wish to maximize the local sales, subject to the prescribed export ratio, in order to reduce its VAT burden on export sales. This has been explained in Examples 2 and 3. In Example 2, as all the goods are exported, the VAT burden to the

it '1% � Y >1b &i'J Jm t� to r3g &i'J fik � E � 1i i'J?

- !ffx w 1§" , � ¾ � � af.J >1r &� [7g &/1jf�HI tlH�1 , it * PJ il :i: t1JJ: 1Llt iff PJ

af.J�rg&i§ffttffu, m��rg&/1jaf.J fi & , t� t� ffi tJt ji_ bid$ � � � rg � * , � � y 1t * § 5t af.J t� 11r rJt t@ ·� tt O � :i" tu -= 0

ft fJtl -= r:p ' EEi ]J(' � if� � t?JJ lg � [7g i�, t�ffitJtM;Jrn��J'f*�W, !Yr � ii§ ff ::0 f1t{ ffi fJt � tJi � � O

IHUl ffl I fR, , :tfl> ill J 1¥ � af.J ifi 11:: * , � ¾ ;rt tl:l l=l � � rt! ill f>t $ 51 q� m � It 1�U$t $ Jt -1fZ-, J:lU tl:l Q 1t * a� t� mm�w��; lzsltlt, :;f�� t?JJ ¾ >1r i� wt ¾ rg i� , tl:l Q 1t * a� t� m m jJ_ tt m ¾ - -rt (fAJ � �) , ife 1t * 11 � w � � 1a: Jt t1t1 11r rJt � w w � m ;rt [7g >1r &/1j tt fJtl O 11L� , !1itt 1iU1H$t $ fr£ Jif 1l rJt * af.J � � , 1E¾ � >1r i� ».. [7g i� (:;f 'EL 1% t1t1 m m) af.J ff 11 t§ fA1 , #JUtn1E , M;J *310T )Pr l/§ a�� tm ,i ;% rg &� , M� PJ � y {t * rt} f� {1[ f>t � tJi O � PJ :fit tt � {ftl = ».. ffu -= rti t� m m -� � w ;i- tl:l O ft ffu = r:r , rn Et � tm � i� >1r ii§ , t1t1 m fJt 1� � tJi F,li $24 , {g ft fJtl -= , E8 fit � � � if� rg ii§ , f1tl ffi tJt 1� � W .J:lU � � 0 >1r ffiJ

Example 3 - With only local sales and local purchases

Assumed: (1) All products are sold locally at

price of $300 (excluding VAT).(2) All raw materials are purchased

locally at cost of $200 (excludingVAT).

(3) VAT tax rate is 17% and VATrefund rate is 9%.

(4) Input VAT p a i d o n t h e rawmaterial's purchased is $34 (i.e.$200 X 17%).

VAT on domestic sales $51 (received from buyers on top of the selling price) Less: Import VAT $34

Less: NCR amount N/A ($34)

VAT payable $17 Total VAT burden to the enterprise =$34+$17-$51

(VAT received from buyers) = $0

exporter is $24. In Example 3, as all the goods are locally sold, the VAT burden has been passed on to buyers and the VAT burden to the enterprise becomes zero. This effect encourages FI Es to maximize their local sales, which is inconsistent with China's long-established policy on encouraging export sales.

( fJtl -=) [7g P-1' [7g i� 1E¾ �Jt (1) � if� � � rg i� , ii§ ff fl ;t� �

$300 (� 'EL t! f1t{ {1[ fJt) 0

(2) � $ ®: 14 1:E � rg t3R R'1 , ftx: 7-Js: ;% $200 (:;f 'EL tis t� m m)

(3) i'IW ffi f>t $ 17% ; ill_ fJt $ 9% 0

(4) ®: *4 rti ii JJi fJl n $34 o�P $200 x 17%) 0

[7g &� � � ftJ ii§ JJi f>t fill $ 5 1 (loJ Ji * 1i >1r 4� I!R) � : ii J]l f>t fill $34

�: �-f,fR,{l, t!f fO -fp ill. fJt

af.J fJt n :;f � m

1t * a� t� 11r m t.!Y � w= $34 + $1 7 - $51

($34) $17

(loJ Ji * 1& ltl a� i� JJ[ f� ffi fJt) = $0

From the above examples, generally speaking, the New Enterprises may prefer to utilize more bonded raw materials and maximize the local sales in order to reduce their VAT burden in view of the fact that VAT refund rates are still lower than the VAT tax rates for most goods. In spite of this, enterprises should take other factors, such as import duty on imported raw materials, consumption tax, quality of raw materials, export ratio requirements, etc., into consideration before jumping into a decision.

D. Conclusion

As the VAT refund rates are lower thanthe VAT tax rates, and the base amounts for calculating VAT payable and VAT refundable are different, the related input VAT may not be fully refunded to the exporters, which in most cases would increase the costs to the exporters. In the long run, this may slow down the pace of foreign investment in China, and thus adversely affects the fiscal income and the economic development of China. In order to encourage foreign investments to China, to reduce the cost to the exporters and to strengthen the competitiveness of export goods from China, it was reported in January 1999 that China had decided to further raise the VAT refund rates on certain categories of export goods (VAT refund rates on some goods have been restored to as same as the original VAT tax rates). It is hoped that the China government will further increase the VAT refund rates for more and more goods. ■

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I lffi ,El flJ 1999- if 2 fa.I 3 7

CRIME RATE 1998 �, � !-t Jt.

Economic crime up slightly, but overall rate still low

Hong Kong's crime rate remained at a relatively low level in the 1998 calendar year, despite the adverse

impact of the East Asian financial crisis on the local economy.

In a letter to the Chamber last month, the Commissioner of Police, Mr Eddie Hui Ki-on, said the Asian crisis and the sharp downturn in economic growth had made 1998 an eventful year for the SAR.

"Hong Kong nevertheless fared much better from a policing perspective, with crime remaining at a low level,1

1 he said. Mr Hui added that the decreasing trend, which saw crime fall to its lowest level in 24 years in 1997, levelled out during 1998.

"Although the overall crime rate and violent crime rate rose slightly by 3.9 per cent and 3.8 per cent respectively in 1998, violent crimes such as robbery with firearms, homicide and serious narcotics offences continued to decrease," he said. 11At the end of 1998, Hong Kong 1s crime rate was considerably lower than in many other metropolitan cities.1

1

He said that whilst the general increase in crime could not be directly related to

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the recent economic downturn, certain crimes could. "Property crimes such as pickpocketing and snatching, as well as criminal intimidation with i I legal debt collection overtones, are undoubtedly attributable to the economic situation," he said.

The Commissioner's figures showed that the overall number of crimes committed last year increased 6.8 per cent to 71,962 from 67,367 in 1997. The crime rate (the number of crimes per 100,000 of population) increased 3.9 per cent to 1,076.1 from 1,036.1 in 1997.

The biggest percentage increases were in firearms seized (up 63.6 per cent), criminal intimidation (up 51.2 per cent), pickpocketing (up 39.5 per cent) and bank robbery (up 62 . 5 per cent), although al I robberies rose only 7.7 per cent. The biggest declines were in kidnapping, homicide and serious narcotics offences.

Mr Hui said that throughout 1998 Hong Kong continued to enjoy excellent cooperation with the Mainland and overseas law enforcement agencies, a fact illustrated by a series of successful drug trafficking,

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120

100

20

I ■ -- "'

kidnapping and counterfeiting cases conducted during the year.

"Despite a fal I in the quantity of drugs seized in Hong Kong, substantial quantities of drugs were recovered in other parts of the world.·as a result of our joint investigatio'ns with overseas counterparts,11

he said. "M oney l a undering legis la t ion

continued to be used effectively during the year to maintain pressure on triads, drug syndicates and organised crime groups. As a result, $379 million in criminal assets were successfully confiscated and a further $187 million frozen pending confiscation," he said.

"Just as I pledged before, we have continued to police Hong Kong throughout 1998 in exactly the same way as we have always done; fairly, impartially and professionally," Mr Hui said.

11As far as I am concerned, the only way

in which the policing of Hong Kong will change is for the better, as we strive to provide an even more reliable and transparent service for the people of Hong Kong.11

■

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88 89 90 91 92 93 94 95 96 97 98

W�JE0 ° J

Year .if-*

Overall Crime (1988-1998).

-ftAA��-ftftA��aw•

GOOD CITIZEN � rp � �

Good citizen stops burglary 0 n the afternoon of July 26, 1998,

four premises in an industrial building were burgled. At about

1455hrs, a security guard saw two men emerge from the first floor car park carrying plastic bags and a knapsack.

li ttM � jf 1P R Looking suspicious, the security guard

attempted to stop them. As they dashed out of the building, the security guard chased and managed to catch one.

Mr Yu Tat-leung, aged 46, happened to be driving his taxi past the building and saw the pursuit and realised what had happened. Mr Yu saw one man run across the road so he drove his taxi up to him, intending to intercept him. Before Mr Yu could alight, the man boarded the taxi and told him to drive to the KCR. Mr Yu initially complied with the instruction, but later drove the man back to the scene. Realising Mr Yu 1 s intention, the man fled once the taxi had s topped. Mr Y u alighted immediately, and with the assistance of a passer-by, subdued the man and later handed him over to the police. Some burglary tools and property valued at HK$240,000 were recovered. ■

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With the support of the Hong Kong General Chamber of Commerce, tfie Good Citizen Award Ceremony was held on December 2, 1998. Dr Eden Woon, Chamber Director, presented an award to Mr Yu Tat-leung, taxi driver. t:!WrlH�.1!UH.t��J S:1-ff5tHt�•tfll)J , ht1998 1¥ 12�2B.fi 0 �•*•�--�--±•��ff$ ��3!N_o

Theatre / Exhibition and Conference Cent e AT

22/F United Centre, 95 Queensway, Hong Kong (above Admiralty MTR Station)

Suitable for :

Exhibitions

Meetings

In-House Trainings

Sales Presentations

Press Conference

Workshops

For details please call

2823 1205 / 2823 1246

Room Rates :- Chamber Members get 20% discount

�onday - Friday Seating capacity 09:00 - 17:30

--

09:00 - 13:00 or13:00 � 17:00

- -

Extra Time Per Hour

Theatre/Exhibition Conference Room 1 110 seats (1,300 sq ft) 40-60 seats (830 sq ft)

$8,100 $5,200

$5,600 $3,600

$1,540 $990

Conference Room 2 Committee Room -

15-30 seats (470 sq ft) 5-8 seats ( 135 sq ft)$2,950 $840

---

$2,000 $580

$550 I $160 Includes - Overhead Projector, Whiteboard, Reception Area, Slide Projector, TVNideo recorder and Self-service Cate Bar

Itffi � f-lJ 1999 1¥ 2 � 39

CHAMBER STAFF PARTY

Staff Delight in Modest Christmas Gathering

In line with the harsh economic environment, the Chamber refrained from its usual gala Christmas dinner this year and decided on a far more low key approach by holding its annual staff party in the new °Theatre facility at its head office in the United

Centre. A delicious buffet was enjoyed by staff and participants took time out to enjoy relaxed

chat and informal banter with colleagues. Chamber Director, Dr Eden Woon, congratulated staff on their hard work and

announced promotions to star performers: Emma Ho - Senior Manager for Human Resources Joseph Wong - Senior Manager for Information Technology Poon Yuk-chun - Customer Services Manager Cynthia Chung - Assistant Customer Services Manager Poon Ka-kin - Assistant Customer Services Manager Ellen Liu - Assistant Manager for China Wendy Chan - Information Technology Assistant Amy Tse - Administrative Assistant. Certificates were also presented to retiring employees in appreciation for their long

years of dedicated service. The finale of the night was the Lucky Draw, thanks to the generous donations of our

members. The Grand Prize - two business class roundtrip tickets to Australia - contributed by our Chairman Mr Peter Sutch, went to Eva Tong, CO Division; Once again, many thanks to the members who made it happen. ■

Many thanks to those members who kindly contributed gifts for the Lucky Draw:

The First Ten Prizes:

Ms Trevina Suen, PA to the Chamber Director, is presented with a gift from Santa at the annual Chamber staff Christmas party.

Two Business Class Roundtrip Tickets within Cathay Pacific Australasia Network - John Swire & Sons (HK) Ltd

$3,000 Seibu Gift Coupon - Manhattan Garments (lnt'I) Ltd

$3,000 Cheque - Dr Eden Woon

Two HK$2,000 Royal Park Chinese Restaurant Coupons - Sun Hung Kai Properties Ltd

3 Sets of Philips Haloplate - China Light & Power Co., Ltd.

Steam Jet Oven - Chen Hsong Holdings Ltd

$1,000 Cash Coupon - Bank of China, Hong Kong Branch

$1,000 Cheque - Eralda Industries Ltd

$1,000 Cheque - Sun Hing Shipping Co Ltd

HK$1,000 Pizza Hut Coupon- Jardine Pacific Group Ltd (c/o Pizza Hut)

Other Prizes:

Alice and Law Co Ltd

AXA Investment Managers Hong Kong Ltd

Che Wah & Company

China Everbright Ltd

CKI Materials Ltd

Credit Lyonnais Securities (Asia) Ltd

Ernst & Young

Fanny P Lai & Co Certified Public Accountant

GML Consulting Ltd

Harilela's

HK and Shanghai Banking Coproration Ltd

Hong Kong Telecommunications Ltd

Jardine Matheson Ltd

Lippo Group

Mr D W M Fergusson

N M Rothschild & Sons (Hong Kong) Ltd


Nisha Electronic Industries Ltd

On Kun Hong Ltd

Orient Overseas (International) Ltd

Peninsula Knitters Ltd

Robert W H Wang & Co

Scarfell Enterprises Ltd

Shui Hing (HK) Ltd

Shui On Group Ltd

Standard Chartered Bank Economics Dept

Time/system (Hong Kong) Ltd

Tradelink EDS Ltd

Wharf (Holdings) Ltd

Wing Han Trading Co Ltd

Wing Tai Exporters Ltd

World-Wide Shipping Agency Ltd

Yangtzekiang Garment Mfg Co Ltd

H ]llj:mjt

CD CD CD

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CHAMBER IN ACTION

Chamber gears up for New Year

Despite the onset of the Christmas-New Year holiday break the Chamber was kept busy during the month under

review planning for the year ahead and answering queries on the current state of the economy and the business outlook for 1999.

The year ahead is certainly going to be a challenging one in all divisions of the Chamber, with the economic and business uncertainties far from over, both locally and in regional and global markets.

The tone for the year may have been already set with some concerns emerging about business conditions on the Mainland and Brazil's economic problems further unsettling the global financial markets.

Locally, the SAR economy continues to show signs of weakness and although lower nominal interest rates will help things somewhat, it is clearly going to be a difficult year.

To keep members ahead of the game, the Chamber has begun already organising events aimed at shedding some I ight on present conditions and the immediate outlook.

The Tripartite Forum on the services sector was held and the United States Consul-General, Mr Richard Boucher spoke t o members on the U S and regional cond ltions.

The Government's Budget is just around the corner, being scheduled for March 3, just two weeks after the Lunar New Year break (February 16-to-18) celebrating the beginning of the Year of the Rabbit.

Other Chamber events are also well i n to t h e p I a n n i n-g stages, i n c I u d i n g

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preparations for the annual meeting in April, ensuring a busy first half of the year for Members.

ECONOMIC AND LEGISLATIVE

AFFAIRS DIVISION

Like the Chamber as a whole, activities within the Division were affected by the Christmas-New Year holiday break during the month unde·r review. The Division was nevertheless kept busy answering media and analysts questions on the economic and business outlook, meeting with overseas visitors, preparing The Bulletin and other pub I ications, and preparing for the challenges of the year ahead.

During the month, the Chief Economist met with delegations from the US and Europe to discuss local economic conditions, conducted media interviews and attended the Executive Committee meeting of the Hong Kong Retirement Scheme Association, of which he is a member. He also delivered a speech to the Hong Kong Society of Accountants on the regional financial situation and the outlook for the Horig Kong economy.

Committee Meetings There were no committee meetings within

the Economic and Legislative Affairs Division during the month. Meetings of all Committees were, however, scheduled for late January -Economic Policy on January 27, Taxation Committee for January 28 and Legal Committee for January 29. All will concentrate on tasks for the year ahead.

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INTERNATIONAL BUSINESS

DIVISION

Trade Committees

China On December 18, more than 70

members attended a Roundtable luncheon on 11The enfo.rt::ement of the 'exempt, setoff, refund' method for the calculation of value added tax (VAT) applicable to exports by foreign investment enterprises 11

• Mr Vincent Lo, Partner of Arthur Andersen, explained in detail different calculation methods and their implications for foreign investors.

A 10 -m e m b e r d e l e g a t i on f rom Guangdong General Chamber of Commerce visited the Chamber on December 30. The delegation, led by Mr Lin Senquan, Deputy Director-General, United Front Department of Guangdong Province, met with the Chamber Director, Dr Eden Woon.

Europe A Moscow mission led by Dr Eugeny

Egorov, Minister of the Moscow City Government and Head of the Department of Support and Development of Small Business, visited the Chamber on December 17. The delegates were briefed by Mr Manohar Chugh, Chairman of the Europe Committee, and Mr Sidney Fung, Assistant Director for International Business.

Mr Fung met the following guests during the month: Mr D Voveris, Ambassador of Lithuania, Embassy of the Republic of

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Lithuania in Beijing, H E V Kuznyatsou, A m b a s s a d o r E x t r a o r d i n a r y a n d Plenipotentiary of the Republic of Belarus in Bei j ing, Mr Giorgio. Pellicelli and Mr lnnocenzo Orlando of the Salerno Chamber of Commerce, Italy, and a delegation from the Undersecretariat of Foreign Trade and Exporters Unions of Turkey.

The Division organised a Roundtable luncheon on January 12 at which Ms Nancy Kontou, Member of Sir Leon Brittan's Cabinet, European Commission, gave a briefing on 11 EU 's Pol icy on Anti-dumping and Other Trade Measures". Members were briefed on changes to the EU's anti-dumping legislation.

Hong Kong International Mr Kumiharu Shigehara, Deputy

Secretary-General of the Organisation for Economic Cooperation and Development (O ECD), met Mr Peter Sutch, Chamber Chairman, and Dr Eden Woon, Chamber Director, on January 6. Mr Shigehara was briefed on the global financial crisis and Hong Kong's approach to dealing with the economic turmoil.

On January 7, Ambassador Stanislaw Patek, Head of the Swedish Delegation to the 113 Textiles Committee, Ministry of Foreign Affairs of Sweden, met with Dr Eden Woon and other interested members to discuss textiles and clothing issues in Hong Kong.

Pacific Basin Economic Council The P BEC ICM 1999 Organising

Committee met on December 23 and January 7 to review organisational progress.

The official ICM registration booklet has been printed and is ready for distribution. The

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booklet contains detailed information about the conference agenda, social events, a post conference tour to China and the two post conference symposia on intellectual property rights and financial services respectively. Registrations received before March 31 will enjoy the early bird rate of US$1,500 for PBEC members, US$1 ,700 for non-members. Visit the ICM web site at www.pbecigm99.orgfor up-to-date information.

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Dr Eden Woon, Chamber Director, presented his views on policy issues relating to e-commerce at the Sing Tao Electronic Business Seminar.

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BUSINESS POLICY DIVISION

Chamber Business Policy

A wide range of business policy issues were considered by the Division during the month including: Government SM E policy, Government housing policy, competition in the exhibition contracting industry, liberalisation of trade in services under the

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CHAMBER IN ACTION

wro, regulation of unsolicited email, strategy on promotion of franchising, and regulation of Mainland China's tax system and retail trade

Environment Committee The third meeting of the Steering

Committe·e on an Eco-Product's Award was held on December 21. Members discussed setting up a working group to oversee administrative and logistical matters. It was decided that the Centre of Environmental Technology should take over the secretariat from the Chamber.

Industry and SME

Industry and Technology Committee A Roundtable was organised on

December 16 at which Dr Orna Berry, Chief Scientist with the Israeli Ministry for Trade, spoke on the experiences of her country in moving up the technology ladder. The luncheon, chaired by Dr Lily Chiang, was attended by 1 3 members.

SME Committee A training workshop on 1

1Market and Sales Psychology11 was held on December 18 and 19 and 11 members attended.

A special meeting was held on December 21 to discuss the drafting of a paper on SME Policy which will be circulated to the General Committee for endorsement before being submitted to Government.

The SME Award Organising Committee met on January 6 to select companies to proceed to the final round of judging on January 22.

A seminar on 11 Using Technology to Manage Remote Businesses1 1 was organised on January 7. lt was attended by 20 members who were introduced to the various

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applications by speakers from Hongkong Telecom.

Preparations were underway for the launch of a homepage on the Internet in cd'hjunction with a pl'anned SME Week from February 5-12. The homepage was to feature video-clips of speakers, a resources page, a forum for the exchange of views and an online competition.

Hong Kong Coalition of Service Industries

Tripartite Forum About HO senior officials, business

people and academics attended the second Tripartite Forum on the policy agenda.for promotion of services on the morning of January 14. The Forum was opened by the Financial Secretary, HKCSI Chairman Stanley Ko and Hong Kong University Vice Chancellor Professor Y C Cheng.

The subjects of discussion included 11competition policy11

1 11the quality of life

sectors11

, 11innovation and technology1

1 and 11maki ng the non-traded sectors tradeable11

•

The Forum was re-convened in the evening at Government House, with the Financial Secretary as Chairman. Mr John Strickland, immediate past Chairman of HongkongBank, delivered the keynote speech.

Services 2000 Study An introductory leaflet about the study has

been published and is being distributed. The consultant team from City University has begun work on compiling the "Handbook of Business Opportunities in Services11

•

World Services Congress A meeting was held on December 17

between the HKCSI, Business and Services

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Promotion Unit and the Trade Development Council to discuss Hong Kong 1s possible participation in the World Services Congress scheduled for November 1999. The three organisations agreed to further explore the merits of putting up a strong Hong Kong presence at the Congress.

Housing The Real Estate Services Committee

met with Acting Secretary for Planning Environment and Lands, Mr Patrick Lau, on Decemb�r 22 to exchange views on the housing asp'ects of the Chief Executive 1 s October 1998 policy address. A similar meeting was held on January 7 with Deputy Secretary for Housing, Mr Andrew Wells.

Brainstorming The s.econd brainstorming dinner of the

HKCSI Executive Committee was held on January 8, hosted by K C Kwok, HKCSI Vice Chairman.

Hong Kong Franchise Association

Forum on Franchising Opportunities The HKFA organised a Forum on

Franchising Opportunities on Tuesday, February 9 during which eight franchise operators were to introduce their franchise systems and investment packages to interested parties. They were: Agfa Express, Futurekids, Hong Kong Convenience Stores, Japan Home Centre, Paperus, Pet Kingdom, Saint's Alp and Worldsites Greater China. This forum provided local franchisors or master franchisees with a golden opportunity to promote their system to potential investors.

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OPERATIONS DIVISION

Membership Some 19 members and guests took part in

an outing at Clearwater Bay Golf Club on December 22 .. Chamber members were invited to subscribe to the Dinner Club for 1999. A new members' briefing, in Cantonese, was held on December 15 and 32 members attended.

Human Resources A one day training course on "Coaching

and Teambuilding Skills for Managers and Supervisors11 was held on December 1 6 with 10 participants. A one day training course on 11 D e v e l op i n g Sup e r v i s o r y Ski l l s fo r Tomorrow's Managers11 was held on January 13 with seven participants.

Information Technology A new section of Chamber News is now

on the Chamber Web site. The section serves as a bulletin board to give members brief news items about the Chamber.

Administration There were 33 tenders announced by the

Government Supplies Department and 12 tenders for other Departments on the Chamber Web site. The January issue of the Discount Club Newsletter, announcing 12 offers, was delivered to all Chamber members and listed on the Chamber Web site. There were seven Race Meetings during the month with a total of 389 participants.

Events A subscription Luncheon with Dr Tien

Chang-I in, Chairman of Commission on Innovation and Technology, was held on December 17 with 120 participants. ■

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Acknowled2ment of donations to the Trailwalker 1998 -- 1998 fflfj� J ffll«**�•

Mr Anthony Nightingale �)E� Dr Lily Chiang �JUiJtt± Mr William Fung l�ll#.ifli Mr Peter Sutch Ni*� Mr Liang Xiapting �VNl Mr Michael Dalton ��ffllx Mr Nicholas Brooke fflnHJt Mr HY Hung ?#1Uf Mr James Tien EB��f� Mr Chan Wing Kee l�Jukt!I;Dr Hari N HarilelaIlU*it±Mr T B Stevenson/ii[)({"/§ Mr Johnson Hung 1Lllit, Mr Linus Cheung sfb:k# Mr Ross Sayers �� Mr David J Rimmer 7-it*m Dr Eden Woon �i'�!ttf± Mr David Eldon >tfilU.X Mr Simon Lee :$:w]]Jf Mr David Ruan ��Jljl; Dr Y S Cheung sfHlnttt± Chamber Staff ,�@p;iji;tij��

Total: HK$289,359

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Jardine Pacific Ltd 't�fo x 3¥� 1HIH� P.] Chen Hsong Holdings Ltd Ai.lt:fJ� II lH!i 0 P.] Li & Fung Group ;flj��[I) John Swire & Sons wmx-s�1111

r

�Ji0P.] Bank of China i:p �i!Hr¼1l5H1· Robert W H Wang & Co I 't1t�W ar!HI Brooke International ili1:;tsll�!J&J�IDfr,,, Wing Han Trading Co Ltd 1i<.'t7JIJl JHH!i0 Rl Manhattan Garments (International) Ltd 7-it��::& (il�) lH�0P.]

Yangtzekiang Garment Mfg Co Ltd -!�JI�::&� Harilela's IlU*�lll Ernst & Young 1b:kit!Hilf$NNr Air Eagle International Freight (HK) Ltd �Jlfll�it� (w1ll MI.H�P.] Hong Kong Telecom ¼1lffi:l!HH!i0Rl China Light & Power Co Ltd i:/=1¥�.1Jlf�Ji0R] Rimmer & Co 7.it*wrWai!I$riYr Chamber Director wmt.t p;ljwrt�� The Hongkong & Shanghai Banking Corp Ltd ¼1lJ:�IHBUiifi1HJi0P.] Sun Hing Shipping Co Ltd Jf"JT J!!.fi�H·Jilf �&0 P.] AXA Investment Managers Hong Kong Ltd ��:J5t�'g'J.lw�lf�&0Rl Chamber Assistant Director wmM!lp;ijwrmJ.1,t��

. --...... ,

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IjtijJHIJ 1999 � 2 J=l 45

COMING EVENTS

Feb 26, 99

Joint Subscription Luncheon: Development of Electronic Commerce in Hong Kong (English)

Mar 2, 99

Roundtable Luncheon: "Hong Kong Visas: The Door is Closing?" (Cantonese)

Mar 9, 18 & 24, 99

Training Course: Management Skills for Balancing the Life of a Career Woman (Cantonese)

Mar 9, 99

Roundtable Luncheon: Taking Control of Business Property Outlays and Uncover Hidden Value (English)

Mar 12, 99

HKGCC Spring Dinner 1999

Mar 15, 99

Training Course: Effective Performance Management (Cantonese)

Mar 15, 99

Hong Kong / Guangdong Environmental Partnership, Seminar on Environment & Energy (English)

Mar 15, 18 & 22, 99

Training Course: Corporate Financial Management (Cantonese)

Mar 16, 99

Training Course: Management of Business Files and Records (Cantonese)

COMMITTEE MEETING

Feb 23 General Committee

Mar 17 Europe Committee

Mar 26 Americas Committee

Meeting

(Regular committee meetings

open to respective committee

members only, unless otherwise

specified.)


OUTBOUND MISSION

Feb 23-25

Chamber Goodwill Mission

to Okinawa, Japan

Mar 4-5

Chamber Working Mission to

Beijing

Diary Dates

Feb 26. 1999 (12:30 - 14:00)

Joint Subscription Luncheon MrK CKwong,

Secretary for Information Technology and Broadcasting

''Development of Electronic Commerce in Hong Kong"

Conrad International Hotel (Enquiries: Ms Joe Cheng,

Tel 2823 1225)

Mar 12. 1999 (20:00 - 22:00)

HKGCC Spring Dinner

Metropol Restaurant, 4/F., United Centre, Admiralty (Enquiries: Ms Karen Au,

Tel 2823 1200)

Mar 15, 1999 (08:45 - 17:00)

Hong Kong I Guangdong Environmental Partnership.

Seminar on Environment and Energy

Conrad International Hotel (Enquiries: Ms Karen Au,

Tel 2823 1200)

May 14-19, 1999

Pacific Basin Economic Council 32nd International General Meeting

HK Convention and Exhibition Centre

(Enquiries: Ms Polly Leung, Tel 2823 1202)

Website: www.pbecigm99.org

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February 1999 - Hong Kong General Chamber of Commerce

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