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LC: FS' speech in moving Resolution under Public Finance Ordinance
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     Following is a speech (English translation) by the Financial Secretary, Mr John C Tsang, in moving the Resolution under the Public Finance Ordinance in the Legislative Council today (July 8):

President,

     I move the motion standing in my name on the Agenda pursuant to section 29 of the Public Finance Ordinance.

     In the 2009-10 Budget Speech, I proposed launching a Government Bond Programme, under which bonds will be issued in a systematic manner with a view to promoting the further and sustainable development of the bond market in Hong Kong.  We believe that a local bond market with sufficient breadth, depth and liquidity would help develop another effective channel of financial intermediation apart from our banking and equity markets.  It would contribute to the financial stability of Hong Kong, consolidate Hong Kong¡¦s status as an international financial centre and as a conducive and efficient platform for capital-raising, investment and intermediation, as well as promote economic growth.

     To facilitate the implementation of the Programme, we propose setting up a ¡§Bond Fund¡¨ under the Public Finance Ordinance, to which sums raised under the Programme will be credited.  The ¡§Bond Fund¡¨ will not be treated as part of the fiscal reserves.  It will be managed separately from other government accounts.  The arrangement to set up a ¡§Bond Fund¡¨ separated from other government accounts to manage sums raised under the Programme will enable clear presentation and ready assessment of the financial performance of the Programme.  The ¡§Bond Fund¡¨ will be used to repay principal, meet the financial obligations and liabilities associated with the Programme, and make investments.  I will delegate the authority to the Financial Services and the Treasury Bureau to administer the ¡§Bond Fund¡¨.  The Bureau will assist me in maintaining a vigilant oversight of the ¡§Bond Fund¡¨ to ensure that only the financial obligations and liabilities associated with the Programme are charged to the ¡§Bond Fund¡¨.

     I would like to stress again that the purpose of the Government Bond Programme is to promote the further and sustainable development of the local bond market.  And the setting up of the ¡§Bond Fund¡¨ is a measure for meeting the operational need of the Programme.  Given this, sums contained in the ¡§Bond Fund¡¨ will not be used to cover government expenses.  Under paragraph (g) of this Resolution, if there is a positive balance in the ¡§Bond Fund¡¨ after all financial obligations and liabilities are met in relation to the Programme, the surplus funds may be transferred to the general revenue only after the Legislative Council has given the approval.  

     We shall adopt a long term and conservative strategy for the investment of the ¡§Bond Fund¡¨ with a view to ensuring prudent management of the fund.  This seeks to achieve the objectives of preserving capital and generating reasonable investment returns for covering the financial obligations and liabilities under the Programme.  To this end, we will adopt the same investment arrangement as that for the Exchange Fund for the investment of moneys in the ¡§Bond Fund¡¨.  And the ¡§fixed rate¡¨ sharing arrangement for investment income applicable to the fiscal reserves will apply to the ¡§Bond Fund¡¨.  That is, the investment income will be calculated on the basis of the average rate of return of the Exchange Fund¡¦s investment portfolio over the past six years or the average annual yield of three-year Exchange Fund Notes for the previous year, whichever is higher. We consider it appropriate to adopt the same investment arrangement as that for the Exchange Fund for the investment of moneys in the ¡§Bond Fund¡¨.  Such an arrangement will allow the ¡§Bond Fund¡¨ to benefit from the economy of scale of assets managed under the Exchange Fund and risk diversification.  The substantial size of the Exchange Fund can provide sufficient investment diversification for the achievement of a stable investment return for the ¡§Bond Fund¡¨, especially during the initial phase of the Programme.

     As regards the specific arrangement for implementing the Programme, I will direct the Hong Kong Monetary Authority to assist in coordinating the offering of the bonds under the Programme.  The relevant tasks for the Authority include ¡V

(a)  performing certain functions of an arranger, e.g. proposing the timing, size and pricing of individual bond issues under the Programme; proposing appropriate structure for the offerings of bonds; preparing legal and offering documentation; arranging for the issuance and redemption of bonds, etc;

(b)  managing the investment of moneys in the ¡§Bond Fund¡¨; and

(c)  providing an investment income for the ¡§Bond Fund¡¨ on the basis of the ¡§fixed rate¡¨ sharing arrangement applicable to the fiscal reserves.  

     We will put in place suitable arrangements for overseeing the implementation of the Programme and provide the Legislative Council with regular reports on the progress of implementation.  We will also set up an advisory committee, involving professionals active in the bond market, to tap and take into account fully market views to ensure that the Programme will be implemented effectively for promoting bond market development.

     We need the sequential approval of the Legislative Council of two relevant Resolutions, one for setting up the ¡§Bond Fund¡¨ pursuant to section 29 of the Public Finance Ordinance for managing sums raised under the Programme, and the other for authorising the Government to borrow up to a ceiling of HK$100 billion or equivalent for the purpose of the ¡§Bond Fund¡¨ in accordance with section 3 of the Loans Ordinance, for implementation of the Programme.

     The further and sustainable development of the local bond market will be conducive to promoting the financial and economic development of Hong Kong.  Implementation of the Government Bond Programme is no doubt an important step in promoting the development of the local bond market.  

     President, I earnestly hope that Members will support the Resolution under section 29 of the Public Finance Ordinance.  I would also like to take this opportunity to thank the Subcommittee set up to scrutinise the Resolutions for its hard work over the last month or so under the chairmanship of Hon Jeffrey Lam.

     Thank you, President.

Ends/Wednesday, July 8, 2009
Issued at HKT 18:01

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