LCQ7: Capital Investment Entrant Scheme
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     Following is a written reply by the Secretary for Security, Mr Ambrose S K Lee, to a question by the Hon Abraham Shek Lai-him in the Legislative Council today (February 23):

Question:

     Since 2003, the Capital Investment Entrant Scheme ("CIES") has been implemented to facilitate the entry for residence by capital investment entrants who make capital investment but will not be engaged in the running of any business in Hong Kong.  However, following the revision of the CIES in last October, real estate has been suspended temporarily from being a class of Permissible Investment Assets ("PIAs") under the CIES.  In addition, it has been reported that only 28 out of the 2,000 Securities and Futures Commission authorised retail funds are included as PIAs under the CIES.  In this connection, will the Government inform this Council:

(a) of the criteria for approving and revising the PIA classes under the CIES;

(b) given that CIES real estate investment accounts for only around 1% in terms of the value of the total real estate transactions in recent years,

     (i) of the reasons for the policy revision of the PIA classes under the CIES last October, and whether it has conducted any consultation with each stakeholder beforehand; if so, of the details; if not, the reasons for that; and

     (ii) whether it has considered setting a sunset clause on the suspension of real estate as a PIA class; if so, of the details regarding any socio-economic consideration; and

(c) given that the number of applications under the CIES dropped from an average of 570 a month in the first nine months in 2010 to 242 last December,

     (i) of the percentage change of the categories of the applicants involved and that of the total amount of capital they brought to Hong Kong each month compared with the relevant statistics in the past three years respectively, and

     (ii) whether it has considered allowing all the aforesaid 2,000 authorised retail funds to be added to the PIA classes; if so, of the details; if not, the reasons for that?

Reply:

President,

     Our reply to the question is as follows íV

(a) The Capital Investment Entrant Scheme ("CIES") aims to facilitate the application for entry for residence in Hong Kong by persons who make investment but will not engage in the running of business in Hong Kong.  In preparing the list of Permissible Investment Asset (PIA) classes, the Government has not only consulted the concerned policy bureaux and organisations, but also made reference to similar overseas schemes to ensure the CIESíŽ smooth operation and competitiveness.  The main consideration in preparing the said list is to attract new capital into Hong Kong so as to generate additional local economic and financial activities.  An effective implementation and monitoring mechanism should also be put in place to achieve the stated objective.  At present, there are five types of specified financial assets under the PIA class, including Hong Kong dollar-denominated equities, debt securities, certificates of deposits, subordinated debt and Eligible Collective Investment Schemes.

(b)(i)&(ii) Despite the fact that real estate investments under the CIES in recent years have only represented about 1% of the value of the total real estate transactions before the amendment, the Chief Executive has announced at his Policy Address on October 13, 2010 to temporarily suspend real estate as a class of PIA in view of public concern on property prices and opinions of the Legislative Council members.  Similar schemes of many countries (including Canada, Australia, United Kingdom and Singapore) do not accept real estate investment. Therefore, the concerned amendment would not undermine the attractiveness of the CIES.  The Government has undertaken to regularly review the effectiveness and operation of the CIES when the concerned amendment was announced; we will accordingly undertake a comprehensive review of the CIES in 2013.

(c)(i) Investors of the CIES may invest in single or mixed PIA classes.  The Immigration Department does not maintain statistics by reference to the categories of the entrants.  The overall statistics for the past three years are as follows -

       Average monthly     Average monthly
       number of           investment
       entrants            amount (HK$)
      ----------------     ----------------
2008        129               0.919 billion
2009     217 (+68%)       1.519 billion (+65%)
2010     248 (+14%)       1.771 billion (+17%)

(c)(ii) According to the CIES rules, any fund authorised by the Securities and Futures Commission for sale to the public in Hong Kong can apply as an Eligible Collective Investment Scheme if it is denominated in Hong Kong dollars and has at least 70% of its average net assets in the four specified financial assets (i.e. Hong Kong dollar-denominated equities, debt securities, certificates of deposits and subordinated debt).  The requirement seeks to ensure that these investments have a close connection to Hong Kong, hence contribute to the generation of additional local economic and financial activities.  We believe that the current arrangement has provided the entrants with flexible investment choices, while achieving the CIES' intended objective.

Ends/Wednesday, February 23, 2011
Issued at HKT 16:12

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