Maintaining a business-friendly environment in Hong Kong  (2013/5/23)

President, the business environment of Hong Kong has all along maintained a leading position in international ranking. According to the report on "Doing Business 2013" published by the World Bank in October last year, Hong Kong ranked the second globally in terms of the ease of doing business. Our ranking has risen three places from the fifth in 2007. While Hong Kong is ranked among the top and an influential financial centre in the world, we mainly rely on the service industry. In the event that we are hit by a downturn in the external economy, we would face greater volatility than other
neighbouring places. In order for Hong Kong to maintain its economic vibrancy and take forward economic development, the Government needs to be more vigilant and take precautions before the storm strikes.

The motion proposed by Mr Jeffrey LAM is most essential and timely. As we all know, small and medium enterprises (SMEs) have played a vitally important role in the economic structure of Hong Kong. They have made significant contribution to economic development and upgrading of our competitiveness in the market. The Government must not neglect this force. 

Tourism is one of the four major pillars of the Hong Kong economy. This tiny place of Hong Kong has as many as nearly 1 700 travel agencies, ranking the fourth among all provinces country-wide. Over 80% of these travel agencies are SMEs. To give Members a better understanding of the problems concerning the Government's support for the SMEs, I will try to make an analysis and put forward proposals from the angle of the tourism industry.

First, the Government should subsidize SMEs, so as to motivate them to make use of information technology (IT). As I have just said, a vast majority of the local travel agencies are SMEs, with many of them carrying a staff of two to three employees. For a long period of time, most of them have grown accustomed to handling their internal operation, finances and personnel matters manually, and not many of them can effectively apply IT in managing their companies, thus resulting in high costs and low efficiency, and this is a very common phenomenon in the industry. The reason is that it costs around $200,000 to purchase the most basic kind of software suitable for the business of travel agencies. The cost is even more expensive if a professional company is commissioned to write computer programs specifically for their use. Coupled with the annual maintenance fees, the costs involved are generally beyond the affordability of travel agencies.

In modern society, office computerization has already become a trend and it enables industries to avail themselves to the basic tools of competition. It is necessary for the Government to channel resources to this end and draw up support policies in the light of the actual situation. I propose that the Government should consider making provisions to set up a fund for the tourism industry to facilitate the centralized development of software suitable for application in small and medium travel agencies and provide suitable subsidies for the annual expenditure on system upgrading and maintenance.

Second, I propose that the Government should increase its expenditure on subsidizing the training of industry practitioners, so as to raise the professional standards of the industry. The Government implemented the Small and Medium Enterprises Training Fund from 2002 to 2005. It provided subsidies up to 70% of the actual expenditure incurred by an enterprise for each successful application and benefited about 33 700 employees of SMEs.

In recent years, the Government has promoted IT application among employees of SMEs through the Office of the Government Chief Information Officer by providing training to various trades and industries, but training is confined to specific industries each year and the programmes are time-limited. For example, the IT training programme for the travel industry in 2008-2009 could only benefit employees of 266 small and medium travel agencies. The programme ended in August 2010, and there has been no serious review of its effectiveness, nor has any plan or arrangement been made for ongoing initiatives. That the programme produced less distinguished results is mainly due to the Government's poor arrangements and inadequate publicity. As a result, most enterprises missed the opportunity to take part in the programme and could not benefit from it. For enterprises which did participate in the training programme,
their IT application has not seen any enhancement owing to a lack of continuous support. The programme has thus turned out to be more of a mere formality. 

President, under the current arrangements, enterprises can apply for subsidies only under the Continuing Education Fund and the Skill Upgrading Scheme of the Employees Retraining Board (ERB). As both schemes target individuals in providing subsidies for training, employers cannot make use of the funds to encourage their employees to take courses relating to the business of the company and so, it is difficult to directly help the upgrading of the company's business. 

The Employees Retraining Fund of the ERB currently has a balance of $2 billion. The Government plans to make a further injection of $15 billion into the Fund, but as the ERB's estimated expenditure for this financial year is only $1 billion, it will have a considerable amount of disposable fund in future. For this reason, I propose that the Government should restore the Small and Medium Enterprises Training Fund and also the IT training programme targeting the travel industry while making improvements to the programme, in order to directly benefit trades and industries which are given priorities by the Government in its support policy.

Third, I propose that the Government should organize external promotional activities jointly with the industries and appropriately subsidize such activities. In 2009, the Government established the $300 million CreateSmart Initiative to support the creative industries. Subsidies have been provided for a number of exhibitions. Sponsorship covers the air tickets, hotel accomodation and booth fees of exhibitors. For example, in the SmartHK held in Hangzhou in 2012, the booth fees alone cost $7,000 and after the grant of subsidies, the total amount of air tickets, hotel accommodation and booth fees payable by an exhibitor was reduced from $12,500 to $4,960. This approach of subsidization is worthy reference for other trades and industries. When government departments can directly take the lead to organize promotional activities, the promotion cost incurred by the SMEs can be reduced and the overall image of the Government also improved. 

President, in comparison, government support is obviously inadequate for the tourism industry. Every year, the Hong Kong Tourism Board (HKTB) organizes tours for the industry to participate in exhibitions or conduct site visits overseas but the subsidies provided are very limited. For example, for the tourism exhibition to be held in Barcelona, Spain, in October this year, an exhibitor who signs in for the exhibition through the HKTB is required to pay HK$55,000 for the booth and registration fees. Such expensive fees are no doubt banning the entry of most SMEs to these exhibitions. Compared with theneighbouring Macao, an exhibitor who will take part in the same exhibition is only charged MOP  2,000 for the booth fee by the Macau Government Tourist Office and the employees of the exhibitors are also given an allowance. I hope that the Government can learn from the experiences of other places, seriously review the forms of sponsorship for different trades and industries and formulateanew support policies in the interest of the SMEs.

Fourth, I propose that the Government should reduce or waive the licence fees of the relevant enterprises in trades and industries with operating difficulties. In May 2009, the Government rolled out a number of enhanced relief measures which included a one-year licence fee waiver for travel agencies, guesthouses, restaurants, hawkers, tour coaches, and so on, at a cost of $670 million. The Securities and Futures Commission also waived the licence fees for two years
starting from 1 April 2012, benefiting about 40 000 intermediaries. 

President, the tourism industry has faced fierce competition in recent years. In order to increase profits, hotels, airlines and other product suppliers have gradually reduced their reliance on travel agencies through various channels, including online marketing. For most of the small and medium travel agencies in Hong Kong, as their main business is to make bookings for hotel rooms and air tickets for clients, their operation has become increasingly difficult as their gross
profit is often as low as 3%, and many of them face a shrinkage of business and even closure. 

At present, apart from the annual business registration fee, local travel agencies also have to pay for the travel agents licence fee at $5,820 and the membership fee of the Travel Industry Council of Hong Kong at $1,000 plus an additional $600 for each branch office. If the Government can waive the registration fee for travel agencies for one year, the estimated loss of revenue to the Government will be some $9 million only. This will not greatly affect government revenue but will create a stimulus effect for small and medium travel agencies with operating difficulties. I hope that the Government will actively consider reducing or waiving the licence fees appropriately for trades and industries with operating difficulties (including the tourism industry), in order to demonstrate the Government's readiness to ride out the hard times with us.  

In the coming few years, the Hong Kong economy will still face uncertainties, while SMEs will bear pressure of varying degrees. I hope that the Government, while addressing the livelihood issues, will also pay attention to the commercial viability and development of enterprises, with a view to maintaining Hong Kong's competitiveness in the international market. 

President, I so submit.