Press Release

 

 

Financial Secretary's speech at Biennial Conference of HK Economic Association

**************************************************************************

Following is the full text of the speech (English only) by the Financial Secretary, Mr Donald Tsang, at the Biennial Conference of the Hong Kong Economic Association Dinner tonight (December 15):

Professor HO Lok-sang, ladies and gentlemen,

I am delighted to be here tonight for this dinner reception to mark the first Biennial Conference of the Hong Kong Economic Association. You are now more than half way through a very comprehensive agenda, and I'm sure you will welcome this 'time out' from your weighty deliberations.

First, I wish to give a warm welcome to all our international visitors to Hong Kong. I trust you are being well looked after; and I hope you will have some spare time to look around our amazing city and perhaps take part in two of our favourite pastimes - eating (and tonight's a start) and shopping. I think you'll agree there is no other city quite like Hong Kong where the range is so diverse and the quality unsurpassed. And, coincidentally, this happens to bring me to the topic I wish to raise tonight - competition. It's a word that has generated considerable discussion and debate in our community recently.

Despite our concentrated market, Hong Kong has flourished on competition. And why not? We are fully committed to free market principles and practices. We have no direct subsidies for businesses, no tariffs or non-tariff barriers to imports, no exchange controls, and no interference in the economy other than a light prudential framework. Our markets are free, open and often characterised by a high level of competition among market players.

And Hong Kong is competitive. This is dictated by the nature of our small and highly externally-oriented economy. That's why we have repeatedly been ranked as one of the freest markets in the world. At the start of this year, the Fraser and Cato Institutes of Canada and the U.S., in conjunction with 52 other independent research foundations, ranked Hong Kong as the world's freest economy. By year's end, the Heritage Foundation - for the 7th year in a row - gave us top billing. And interestingly Fortune Magazine, which only a few years ago predicted the death of Hong Kong, recently voted us the best city for doing business in the Asia Pacific Region.

These international endorsements are no coincidence. They reflect the performance of our economy, which thrives under free market dynamics underpinned by sound institutional framework - a framework we never tire of repeating. The rule of law; an independent judiciary; an effective and apolitical administration; a level playing field for doing business; low taxes; the free flow of news and information, capital, goods and services; and openness to international trade.

With Hong Kong's open economy, our competition policy is, as you would expect, based on the philosophy of free trade and minimum government intervention. We believe this is the best way to nurture competition, to enhance market accessibility and economic efficiency, and to benefit consumers at the end of the day.

However, competition is not an end in itself. It is more a means to achieving economic efficiencies and a free flow of trade. As a result, our approach may differ significantly from countries which have some form of competition legislation.

Whenever the subject of competition is raised in Hong Kong, there are usually calls for the introduction of a comprehensive competition law to counter the perception that cartels and monopolies dominate our economy.

The fact that some big players seem to dominate a market sector has led to a wrong perception that the environment favours cartels. This is simply not the case. The perception over-simplifies the market situation and the argument does not carry weight.

For instance, the property sector does have a heavy concentration of large companies. But this does not necessarily mean lack of competition. We see vigorous competitive strategies every time these companies promote the sale of new flats. Individual property developers face direct price competition not only from other developers in the primary market, but also from the great multitude of landlords holding existing property stock in the secondary market.

Non-price competition in the form of better fittings and facilities, higher quality construction, and better estate management are also becoming more prominent. But more significantly, there are no barriers to other players entering the property market if they have the necessary financial, professional and management resources. In short, the market is freely accessible.

The government's land sales and property development project vetting systems do not favour any developers. A level playing field applies to all. As a way of enhancing competition, our land disposal programme provides a range of sites suitable for either large or small developers, and we will be forever careful that in this programme, unless there are overriding town planning or engineering considerations, we make our sites on sale as small as reasonably possible.

Supermarkets are another sector that has often been cited as monopolistic. This is based on the premise that the two leading supermarket chains in Hong Kong account for as much as 70% of supermarket sales. Again, market concentration does not by itself mean lack of competition. There are other supermarket chains. There are many other forms of private sector retail trade for foodstuffs and household products which are alternative outlets for the sale of a whole range of dry and wet goods, particularly foodstuffs. There are of course government markets established all over Hong Kong. Their provision and operation are heavily subsidised. Most of them remain popular and pose a healthy competition to the large supermarkets. Taking these retail outlets into account, market concentration in the two leading supermarket chains is distinctly lower.

And, we often see keen competition amongst the two chains to the benefit of customers, by way of substantial price cuts and service differentiation, including such things as store environment, customer service and home delivery. In fact, the situation here in Hong Kong does not much differ from many other countries in relation to the market share of major players in the supermarket field.

Therefore, with the diversity of circumstances in different sectors, we should take care not to generalise the impact of any market phenomenon on economic efficiency and market accessibility. That's why we believe it is more effective to adopt a broad-ranging competition policy and to complement it with appropriate sector-specific measures, where necessary. Even in this regard, we are always careful to avoid implementing policy measures that could in themselves be a disincentive to private sector business initiatives.

In an effort to ensure our objectives are met, I have set up a Competition Policy Advisory Group. This provides a dedicated forum to oversee competition-related issues and examines how to enhance competition in different sectors.

Indeed, I have asked all bureaux and departments to give due regard to competition when they formulate policy. They must examine the impact of all major policy proposals on competition, consider initiatives to promote competition, review existing practices to ensure they comply with the competition policy, and handle related complaints.

We have also asked all businesses to voluntarily cease any existing restrictive practices that impair economic efficiency or free trade. We have urged them to refrain from introducing any anti-competition measures. The government also has a range of sector-specific measures we can use to rectify anti-competitive behaviour. These include licensing conditions, contractual provisions, codes of practice, administrative means, public censure and legislation.

As far as possible though, we prefer to leave it to market forces to make the necessary adjustments. But, when business practices limit market accessibility, impair economic efficiency or free trade to the detriment of the overall interests of Hong Kong, we will never hesitate to take action to tackle such practices.

We also review the regulatory measures covering different economic sectors from time to time to ensure that they meet the needs of evolving circumstances. If we find they are outdated, we will take the initiative to liberalise the sector to promote competition.

In recent years, we have opened up the market in a number of key areas. In the transport sector, all bus routes have been operating on a non-exclusive basis since September 1997, and all franchisees are no longer subject to a profit control scheme. In the telecommunications sector, the market is now one of the world's most liberalised. We have 10 licensed operators in the local fixed telecommunications market and three local wireline-based network services to operate external facilities. This is complemented by satellite-based and cable-based facilities providing opportunities for new players. The banking sector is opening up to more foreign competition. The Interest Rate Rules have been relaxed on time deposits and the rules relating to interest rates on current and savings accounts will be relaxed some time next year.

These are just some examples of how our sector-specific approach allows flexible, defined and effective means to regulate anti-competitive behaviour in Hong Kong. It also promotes competition without the risk of over regulating and incurring excessive legal and administrative costs, which would be the case if an all-embracing competition law were enacted.

We believe this approach has worked well for Hong Kong, and currently we see no need for any change to our competition policy. In today's modern business environment driven by rapid changes and market diversification, there is no consensus among international economic organisations and academic circles on whether a business practice hinders competition, or what is the best approach to deal with such practices.

The choice is heavily influenced by the characteristics, development and socio-economic background of an economy. Even for countries which have introduced competition laws, their scope of control, enforcement mechanisms and remedies available differ widely.

As a government, we are not averse to legislative changes, where necessary. But we do not believe that our economy suffers from restraints or abuse of market dominance to an extent that warrants all-embracing legislative controls.

A general competition law may not be able to address the special concerns, circumstances and needs of individual sectors, but may catch some harmless economic activities.

A general competition law runs the risk of over-regulating, enlarging the public sector, stimulating expensive litigation, and creating uncertainty amongst the business sector. Most important, it may compromise our free and open trade principles.

Just imagine, if we were to introduce a competition law enabling a competition authority with investigative powers to demand detailed financial statements from companies, to interrogate business executives, to search premises for evidence of collusion. What sort of signal would that send to investors and our international trading partners?

Finally, I wish to make the point that free market forces have been an essential element of our economic success. We should be careful not to upset an environment that has served us well for so long. The absence of a competition law has clearly not compromised our competitiveness. Indeed, we have remained one of the most open and competitive economies in the world.

Looking ahead, now that we have transformed from a manufacturing centre to a services driven economy, we have to face the challenge of ensuring that our service industries are as internationally competitive as possible. With this in mind, we will continue to strengthen our systems and institutions for business, raise productivity, tackle resource and capacity constraints, upgrade the quality of the workforce, improve language proficiency, and contain the cost of doing business. And we will do this while continuing to look after the interests of the community we serve.

Thank you very much.

End/Friday, December 15, 2000

NNNNN