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Budget Speech by the Financial Secretary (3)

Hong Kong's Competitiveness

23. Some citizens have expressed concern about Hong Kong losing its edge.  They worry that weakening competitiveness and slower development might see Hong Kong lose its international status to other places and take their toll on our economy and employment.  Our competitive edge cannot be taken for granted, nor is it self-sustaining.  It is essential that we seize every opportunity to improve, and aptly respond to possible crises along the way.  On the one hand, we should understand our advantages and limitations, and consolidate our time-honoured success model.  On the other hand, we should adapt to evolving circumstances.

24. Hong Kong's economic success over the years owes much to our efforts to grasp the opportunities presented by our country's development, to our steadfast commitment to free market principles and to our firm positioning as a world city.  In the Index of Economic Freedom released by The Heritage Foundation last month, Hong Kong ranked first for the 20th consecutive year.  For eight years in a row, we have been accredited by the World Bank with a top ranking for ease of paying taxes in its survey "Paying Taxes - The Global Picture".  Our total tax rate is among the lowest in advanced economies.  Hong Kong was rated as one of the world's three most competitive economies for the ninth consecutive year by the International Institute for Management Development in Lausanne, Switzerland.

25. Such international recognition and acclaim do not come easy.  The reports highlight a wealth of intangible assets we possess, including a set of relative strengths and social values upheld by years of hard work and perseverance.  But, as our competitors are also striving for excellence, we have to work harder to stay ahead.
26. The market economy regime encourages enterprises and individuals to translate their strengths and talents into economic benefits based on their own choices and their own efforts.  It thrives on our fine tradition of the rule of the law, a level playing field promoting fair competition, an efficient public sector, and a simple and low tax regime.

27. The Hong Kong economy could not have attained its economic achievements through the domestic sector alone.  The key has been to integrate with the global community, forge extensive and strong commercial ties with the rest of the world, and to tap into markets outside Hong Kong.  That is why we have all along maintained a highly open market to ensure the free flows of people, goods, capital and information, with a view to strengthening our position as an international city where East meets West.

28. All along, Hong Kong has been participating in, and has benefited from, China's reform and liberalisation.  Reunification has given us a unique competitive edge under "One Country, Two Systems".  Hong Kong has become not only the largest investor in the Mainland, but also an intermediary and a bridge for trade between China and the rest of the world.  Our nation's new round of economic reform will bring about new competition on the one hand, and much room for development on the other.

29. Our well-established trading and logistics industry, financial services industry, tourism industry and professional services have been showcasing Hong Kong to the international community.  They have become Hong Kong's pillar industries, not on account of any mandatory government selection, but because they have been able to capitalise on their own strengths as well as Hong Kong's edge.  Decades of effort by these industries amid natural selection in the international market have contributed to Hong Kong's position as a commercial hub, a financial centre, and an international tourist destination.

30. In the foreseeable future, there is still ample room for these industries to flourish and keep moving up the value chain in their pursuit of new areas of growth, providing support and job opportunities for our economy.  At the same time, we must nurture with patience new industries which have potential and international competitiveness.  By doing so, we are opening up more new opportunities for our future economic development.

31. Manpower, land supply and an ageing population are the major constraints to Hong Kong's future development.  To overcome them, we must endeavour to nurture a wealth of suitable talent for the future, increase land supply to expand the scale of the economy, and plan well ahead for an ageing society.

International Hub

32. Hong Kong boasts unparalleled access across Asia, and unrivalled connections both to international markets and to the China market.  With a complementary mix of talented people and efficient infrastructure, well-developed international and domestic transport networks, quality business support services and financial infrastructure of the highest world standards, Hong Kong will continue to thrive as an international hub, a focal point for multinational enterprises.

33. To stay highly efficient and become even more competitive, we must put in place a comprehensive strategy, not only for improving the efficiency in the flow of people, goods, capital and information, but also for enhancing the quality of our living environment and our position as an international hub.  Among other things, this tops the future agenda of Government.  Our financial commitment in capital works has reached a high of $340 billion.  This has yet to include our investments in mega projects, such as a new airport runway, new development areas, and reclamations.  These projects will help boost Hong Kong's efficiency and economic strength, improve the living conditions, and build an ideal city for the future.

Transport Networks

34. As a major international aviation centre, Hong Kong currently has nearly 110 air carriers operating about 7 100 scheduled flights per week to and from almost 180 cities.  As one of the busiest ports in the world, our city is served by about 80 international shipping lines with some 380 liner services per week to 550 destinations worldwide.  Moreover, we are well connected with the Mainland through four road-based boundary crossings, two rail-based boundary crossings and two cross-boundary ferry terminals.

35. The Hong Kong International Airport at Chek Lap Kok is Hong Kong's most important external transport infrastructure and an essential ancillary facility for all industries.  As one of the world's best and busiest airports, it handled almost 60 million passengers and more than 4.1 million tonnes of air cargo last year.  With the burgeoning demand for aviation services, hourly flight movements of the two existing runways will increase from the current 65 to 68 next year.

36. We are assisting the Airport Authority Hong Kong (AA) to press ahead with planning for a three-runway system.  The project, estimated to cost over $100 billion, will foster our long-term economic development and enhance our competitiveness.  The AA is conducting the environmental impact assessment with a view to securing approval this year in order to take forward the project as soon as possible for commissioning in 2023.  The AA is preparing the detailed project cost, formulating budgets and examining viable financing options, which include increasing recurrent revenue, issuing bonds and keeping its operating surplus as reserves.  Government will support the financing of the project.

37. Upon the commissioning of the Hong Kong-Zhuhai-Macao Bridge in 2016, the development potential of Lantau Island will be significantly enhanced as the island transforms from the western end of Hong Kong into the centre of the Pearl River Delta (PRD).  It will then take one hour to travel from Hong Kong to Macao and Zhuhai, three hours to most of the major towns and cities of the Western PRD, and about one day to major cities in Indochina such as Hanoi.  This increased connectivity will help expand our market hinterland, and facilitate people flows and logistics connectivity between Hong Kong and neighbouring areas.

38. Upon completion of work next year, the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL) will reduce the journey time between Guangzhou and Hong Kong to 48 minutes, bringing together our seven-million people metropolitan area and a market of 60-million people.  The XRL will also give passengers easy access to the Mainland's 16 000 kilometres high-speed railway network to all the major cities.

39. Domestically, we have been investing in large-scale strategic road and railway projects totalling over $90 billion in the past five years to upgrade network efficiency.  Projects under construction include the Tuen Mun-Chek Lap Kok Link, Central-Wan Chai Bypass and Island Eastern Corridor Link, as well as widening of Tolo Highway and Fanling Highway.  They are on track for completion successively before the end of 2018.  There are also major projects under planning, such as the Central Kowloon Route, the Tseung Kwan O-Lam Tin Tunnel, and Tseung Kwan O Cross Bay Link.

40. As for railways, the West Island Line, the South Island Line (East), the Kwun Tong Line Extension and the Shatin to Central Link, at a total cost of over $110 billion, are all under construction.  They are expected to be completed for commissioning between the end of this year and 2020.  The existing network will then be extended to strengthen the role of railways as the backbone of the public transport system.  Government will shortly announce a blueprint for railway development beyond 2020.

Financial Infrastructure

41. Apart from ensuring a better flow of people and goods, Hong Kong has been enhancing its financial infrastructure for a smoother flow of capital.  Three main components of the financial infrastructure, namely the interbank Real Time Gross Settlement (RTGS) systems, debt securities settlement and custodian systems, and system links for cross-border transactions.  These provide multi-currency and multi-channel platforms to handle local real-time transactions in Hong Kong dollars and major foreign currencies, covering global banking, equity and debt markets.

42. The Hong Kong Monetary Authority (HKMA) has been actively promoting electronic payment systems to boost the operational efficiency of enterprises and banks.  With the launch of the first Electronic Bill Presentment and Payment platform last year, the public can now receive and schedule payments for various types of electronic bills online.  Major bill-issuing departments of Government are expected to be on board by the end of this year to facilitate the online receipt and settlement of bills such as water charges and rates.

43. In collaboration with the Hong Kong Association of Banks, the HKMA has issued the Best Practice for Near Field Communication (NFC) Mobile Payment in Hong Kong to ensure the steady development of the market.  Four objectives are set out in the Best Practice, namely "multiple payment services on a single NFC-enabled mobile phone, service continuity despite switching mobile network operators, service continuity despite changing phones, and a high level of security".  Meanwhile, an "e-cheque service" is expected to be launched in the latter half of 2015.  The service allows individuals and enterprises to issue or deposit e-cheques via the Internet, thus cutting the time and cost for handling cheques by banks.

44. In last year's Budget, I proposed to introduce a licensing scheme to regulate stored value facilities (SVF), in order to ensure financial stability of SVF issuers, and to protect and manage the transactions properly.  The proposed regulatory regime will foster the development of local e-commerce and relevant information technology (IT) sectors.  We received general support as well as constructive suggestions from the public during consultation.  We seek to introduce the relevant bill into this Council in the next legislative session.

45. We are committed to strengthening the capacity of our trading platforms.  We are set to implement a scripless securities market with enhanced efficiency and investor protection.  Government plans to introduce the relevant bill into this Council in the first half of this year.

Development as a Smart City

46. Rapid IT development means swift access to worldwide information.  Capacity in information processing and analysis has become a key component of the competitive edge of modern large enterprises.  Small and medium enterprises (SMEs) in all sectors also stand to benefit from making use of IT for greater efficiency.  Hong Kong's IT infrastructure is well developed.  Today, 97 per cent of households are able to access broadband services, and 83 per cent make use of these services.  With 10 000 Wi-Fi hotspots offered by Government and commercial sector, Hong Kong has one of highest concentrations of hotspots in the world.  We also have a high mobile phone penetration rate of 237 per cent.

47. In fact, we have won wide international recognition for our achievements in areas such as IT infrastructure, internet security and the free flow of information.  Hong Kong was ranked first in International Internet Bandwidth.  As for the Global Innovation Index and Data Centre Risk Index, Hong Kong comes first in Asia.

48. In the recent fourth update of the Digital 21 Strategy, we have proposed a series of initiatives under the theme of "Smarter Hong Kong, Smarter Living", including the following five íV

(a) doubling the number of Wi-Fi hotspots with complete or time-limited free public access to 20 000 by the end of this year through public-private partnership to promote city-wide Wi-Fi for all.  We shall engage the public in the naming of a common Wi-Fi brand.  Citizens and visitors will have easy and convenient access to Wi-Fi services;

(b) making all government information released for public consumption machine-readable in digital formats from next year onwards to provide more opportunities for the business sector.  Currently, Public Sector Information available for free access covers real-time data such as road traffic information, geo-referenced public facility data, property market statistics, population census statistics, etc;

(c) further digitalising government operations and actively implementing paperless solutions to enhance efficiency, facilitate information sharing and protect the environment;

(d) looking into the wider use of the Internet of Things, sensors and big data analytics to enhance our municipal management; and

(e) considering the provision of digital identity to all Hong Kong citizens in order to develop a common, shared and safe platform for the delivery of services such as electronic health records and e-cheques.

A Liveable City

49. Hong Kong needs to keep investing in environmental infrastructure to ensure cleaner air, cleaner sea water, and better treatment of solid waste.  They are key to meeting the aspirations for healthy living and making Hong Kong an attractive place for all, locals as well as talents from abroad.

50. An incentive-cum-regulatory approach to phase out all the 82 000 pre-Euro IV diesel commercial vehicles by 2020 is being pursued.  We have earmarked $11.4 billion for the ex-gratia payment scheme, which will be open for application from March 1.  For years, we have been promoting the use of electric vehicles by exempting them from First Registration Tax.  I propose to extend the tax exemption by three years up to March 31, 2017.

51. The Harbour Area Treatment Scheme collects sewage from both sides of Victoria Harbour for centralised treatment at Stonecutters Island.  Stage 1 of the scheme has been completed at $8.3 billion.  As to Stage 2A, works are in progress at an estimated cost of $17.5 billion.  Upon the scheduled completion of the main works this year, the water quality of Victoria Harbour will further improve.  Sludge produced in the course of sewage treatment will be transferred to the Sludge Treatment Facility which will come into service this year.  The facility will turn the sludge into energy, while alleviating the burden on landfills.

52. As for the management of municipal solid waste, we shall invest about $30 billion in waste recycling and treatment facilities.  We are pressing ahead with the provision of organic waste treatment facilities, community green stations, and waste electrical and electronic equipment processing facilities.  Government is also actively pursuing measures to support the long-term and sustainable development of the recycling industry by setting up a Recycling Fund, enhancing training, promoting green procurement, etc.  We are also actively taking forward the development of the Integrated Waste Management Facilities Phase 1 and the extension of the three landfills.

53. Seventy to 80 per cent of Hong Kong's fresh water comes from Dongjiang.  Given the rising demand for fresh water in Guangdong Province and the challenge due to climate change, we shall endeavour to increase the supply of fresh water from local sources.  Government has reserved a site for the construction of a desalination plant, and the planning and investigation study will largely be completed early next year.  The desalination plant is expected to commence operation in 2020.  Although the initial annual output of the plant will account for just five to 10 per cent of Hong Kong's total fresh water consumption, I believe seawater desalination can serve as an important water source for Hong Kong in the long run as technology advances.

(To be continued)

Ends/Wednesday, February 26, 2014
Issued at HKT 11:26


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