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Following is a question by the Hon Hui Cheung-ching and a reply by the Secretary for Trade and Industry, Mr CHAU Tak Hay, in the Legislative Council today (Wednesday):
Question:
The value of Hong Kong's re-exports has registered negative growth in the months since January, except for a 3.7% growth in March; and the value of overall exports has dropped by 17.5% in October compared with the same time last year. On the other hand, it is reported that the throughput of the three largest container ports in the Mainland increased by 66% in the first half of the year. In this connection, will the Government inform this Council:
(a) whether it has assessed if the above phenomena indicates that the competitiveness of the container freight trade in Hong Kong is on the decline; if so, of the remedial measures to be taken; and
(b) given that starting from January next year, the relevant Mainland authorities will levy a value-added tax at a rate between 6% to 8% on the export products of industrial enterprises operated by Hong Kong manufacturers in the Mainland, whether it has assessed the impact of this measure on Hong Kong's export and re-export trade?
Reply:
Madam President,
(a) Although Hong Kong's exports recorded a drop of 17.5% in October and 6.6% from January to October 1998 as compared with the corresponding periods last year, the overall throughput of our container port still registered a growth rate of 1.5%. In the face of competition from neighbouring ports, we have adopted a series of measures to enhance the competitiveness of our container terminals and container freight industry. These include studies to explore the possibility of improving the layout of the existing container terminals and providing terminal operations with additional backup area to increase operational efficiency; dredging of the Rambler Channel to enable container terminals to handle the next generation of large container ships; construction of Container Terminal 9 to increase the handling capacity of our container terminals and to promote market competition; strengthening liaison with the Shenzhen authorities to improve the container traffic congestion problem at the boundary; and promotion of river freight to extend the catchment area of our container port and to reduce the cost of moving containers between the Pearl River Delta and Hong Kong. The Government will continue to work with all parties concerned in the container freight industry to identify measures to reduce container handling cost in Hong Kong and enhance the competitiveness of our port.
(b) The imposition of value-added tax on foreign-funded enterprises by the Mainland authorities in January next year undoubtedly will have some impact on the business profits of Hong Kong manufacturers in the Mainland. To a certain extent, Hong Kong's processing trade will also suffer. However, in the absence of operational statistics about Hong Kong enterprises in the Mainland (such as expenditures on raw material, staff cost and net profits), it is impossible for us to evaluate the actual impact of this measure on them and on the processing trade of Hong Kong. Besides, we have heard that the Central Government might postpone the application of this measure to foreign-funded enterprises registered before 31 December 1993. We are liaising with the relevant authorities to understand more about the latest development of this matter.
In summary, we believe that the following factors will help alleviate the negative impact of this measure:
(i) As we understand, Hong Kong manufacturers in the Mainland have learned for a number of years that the Central Government will impose value-added tax on their business operations by the year 1999. Many should have prepared themselves for this over the past few years by cutting costs and raising production efficiency.
(ii) The prices in the Mainland and in Hong Kong are dropping steadily and their interest rates as well as those of external economies are on a continuous downward trend. These trends will help relieve some of the pressure felt by Hong Kong manufactures both here and in the Mainland in terms of high operational costs.
(iii) In January this year, the Mainland authorities resumed the exemption of tariffs on imported equipment (in particular, imported machinery and raw material for key industries) for self use by enterprises which were the targets of foreign investment promotion. Meanwhile, these enterprises also continue to enjoy the exemption of value-added tax on imports. These tax concessions will reduce the operational costs of the enterprises concerned.
We will monitor developments of this matter. We will, through the Trade Department and Trade Development Council, also provide information about Mainland regulations on value-added tax and related subjects to Hong Kong manufacturers with business operations in the Mainland for reference.
End/Wednesday, December 16, 1998
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