LC Paper No. FC 28/98-99

(These minutes have been
seen by the Administration)

Ref : CB1/F/1/2

Finance Committee of the Legislative Council
Minutes of the fourth meeting
held at the Legislative Council Chamber
on Friday, 31 July 1998, at 2:30 pm

Members present :

Hon CHAN Kam-lam (Deputy Chairman)
Hon Kenneth TING Woo-shou, JP
Hon David CHU Yu-lin
Hon HO Sai-chu, JP
Hon Cyd HO Sau-lan
Hon Albert HO Chun-yan
Dr Hon Raymond HO Chung-tai, JP
Hon LEE Wing-tat
Hon Martin LEE Chu-ming, SC, JP
Hon Eric LI Ka-cheung, JP
Hon LEE Kai-ming, JP
Hon Fred LI Wah-ming
Dr Hon LUI Ming-wah, JP
Hon NG Leung-sing
Prof Hon NG Ching-fai
Hon Margaret NG
Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon MA Fung-kwok
Hon James TO Kun-sun
Hon CHEUNG Man-kwong
Hon Ambrose CHEUNG Wing-sum, JP
Hon HUI Cheung-ching
Hon Christine LOH
Hon CHAN Kwok-keung
Hon Bernard CHAN
Hon CHAN Wing-chan
Dr Hon LEONG Che-hung, JP
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Hon LEUNG Yiu-chung
Hon Gary CHENG Kai-nam
Hon SIN Chung-kai
Hon Andrew WONG Wang-fat, JP
Dr Hon Philip WONG Yu-hong
Hon WONG Yung-kan
Hon Jasper TSANG Yok-sing, JP
Dr Hon YEUNG Sum
Hon YEUNG Yiu-chung
Hon LAU Chin-shek, JP
Hon LAU Kong-wah
Hon LAU Wong-fat, GBS, JP
Hon Ambrose LAU Hon-chuen, JP
Hon Emily LAU Wai-hing, JP
Dr Hon TANG Siu-tong, JP
Hon CHOY So-yuk
Hon SZETO Wah
Hon Timothy FOK Tsun-ting, JP
Hon LAW Chi-kwong, JP
Hon TAM Yiu-chung, JP

Members absent :

Hon Ronald ARCULLI, JP (Chairman)
Hon James TIEN Pei-chun, JP
Hon Edward HO Sing-tin, JP
Hon Michael HO Mun-ka
Hon LEE Cheuk-yan
Dr Hon David LI Kwok-po, JP
Hon CHAN Yuen-han
Hon Howard YOUNG, JP
Hon CHIM Pui-chung
Hon Mrs Miriam LAU Kin-yee, JP
Hon Andrew CHENG Kar-foo

Public officers attending :

Miss Denise YUE, JP

Secretary for the Treasury

Mrs Carrie LAM, JP

Deputy Secretary for the Treasury

Mr K K LAM

Principal Executive Officer (General), Finance Bureau

Mr Nicholas YEK, JP

Judiciary Administrator

Mr P L KWAN

Director of Architectural Services

Mr C M LEUNG, JP

Secretary for Housing

Ms WONG Chiu-ying

Principal Assistant Secretary for Housing

Mr Victor SO, JP

Executive Director, Hong Kong Housing Society

Mrs Sarah KWOK

Principal Assistant Secretary for Security

Mr Colin REDSTON

Principal Assistant Secretary for the Civil Service

Mr LEE Chee-chung, FSMSM

Chief Fire Officer

Mr Patrick W M CHIM

Principal Assistant Secretary for the Treasury

Miss Annie TAM

Deputy Director of Government Supplies

Mr John WONG

Chief Systems Manager of Information Technology Services Department

Dr Nancy LEE

Head of Support Unit for the Standing Committee on Language Education and Research, Education and Manpower Bureau

Mr LEE Hing-fai, JP

Assistant Director of Education (Schools)

Mr CHONG Kwok-kit

Assistant Director of Education (Services)

Mr CHAU Tak-hay, JP

Secretary for Trade and Industry

Mr Francis HO, JP

Director-General of Industry

Mr Brian DAGNALL, JP

Director of Accounting Services

Clerk in attendance :

Ms Pauline NG

Assistant Secretary General 1

Staff in attendance :

Miss Polly YEUNG

Chief Assistant Secretary (1)3

Ms Sarah YUEN

Senior Assistant Secretary (1)4

As the Chairman, Mr Ronald ARCULLI, was not in Hong Kong, the Deputy Chairman, Mr CHAN Kam-lam, chaired the meeting.

Item No. 1 - FCR(98-99)21

RECOMMENDATIONS OF THE PUBLIC WORKS SUBCOMMITTEE MADE ON 22 JULY 1998

2. In response to members' request, the Chairman advised that items PWSC(98-99)2 and PWSC(98-99)10 would be dealt with separately. Mr HO Sai-chu, Chairman of the Public Works Subcommittee (PWSC), advised that at the PWSC meeting on 22 July 1998, members raised a number of queries on these two items. In response to PWSC members' request, the Administration had provided further information on the two items in writing. Despite the queries, the two items had been endorsed by a majority of members.

3. Paper FCR(98-99)25, except items PWSC(98-99)2 and PWSC(98-99)10, was put to vote and approved.

PWSC(98-99)2 27LJ Fanling Magistracy Building

4. Responding to a member's query on the adequacy of 19 car parking spaces for public users, the Judiciary Administrator explained that no car parking spaces were currently provided at law court buildings as it had been the Administration's policy to encourage the use of public transport. However, the Administration had proposed to provide 10 parking spaces at the Fanling Magistracy Building in view of its relatively remote location. Having considered members' views expressed at the PWSC meeting on 22 July 1998, the Administration had decided to provide an additional nine car parking spaces to cater for various court users and priority would be given to those with special needs, such as the physically disabled. The Director of Architectural Services also confirmed that the existing design of the building could only allow for the provision of an additional nine car parking spaces.

5. The member remarked that she was aware that the provision of car parking spaces at the Fanling Magistracy Building was already a step forward from the existing policy. She urged the Administration to review the existing policy and consider the provision of sufficient car parking spaces at law court buildings in future.

6. The Committee approved the proposal.

PWSC(98-99)10 67MC Public Health Laboratory Centre

7. The Committee approved the proposal.

Item No. 2 - FCR(98-99)26
LOAN FUND
HEAD 251 - HOUSING
Hong Kong Housing Society
Subhead 116 Home Starter Loan Scheme

8. Mr Gary CHENG Kai-nam said that Members of the Democratic Alliance for Betterment of Hong Kong (DAB) had supported the paper when it was put to the Committee at the last meeting as it sought to modify the drawdown schedule of the Home Starter Loan Scheme (HSLS) in order to help more eligible families acquire their own residential properties. Notwithstanding their support of the paper, Members of the DAB also urged the Administration to assist those aggrieved home buyers who were unable to secure mortgages for their property. He requested the Administration to convey the DAB's concerns to developers.

9. In explaining the Liberal Party (LP)'s position, Mrs Selina CHOW said that at the last meeting held on 17 July 1998, the LP had in fact requested the Administration to withdraw the proposal so as to consider members' views expressed at the meeting, but the Administration had declined the suggestion and insisted on putting the item to vote. The LP therefore had no choice but to vote against the proposal. Although the Administration maintained its decision against assisting the aggrieved home buyers in question with public money, the Chief Executive had expressed willingness to explore other ways to assist these buyers. As such, the LP would support the re-submitted proposal. Mrs CHOW further enquired about the Administration's proposed courses of action to assist aggrieved first-time home buyers and urged the Administration to take up the matter with banks and developers.

10. In response, the Secretary for Housing (S for H) stressed that the Government was sympathetic with the predicament of these aggrieved home buyers. He undertook that the Administration would convey, through existing channels, to the Real Estate Developers Association of Hong Kong, members' concern and suggestion that developers should provide assistance to these buyers within possible limits. He also agreed to highlight members' particular concern about first-time home buyers who would otherwise be eligible under the HSLS. The Administration would raise the matter with the Association as soon as possible and if so required, report the outcome of the discussion to members. The Chairman advised that further progress on assisting aggrieved home buyers should be followed up by the Housing Panel.

XX

11. In this connection, S for H cautioned that whilst the Administration would convey members' concerns to developers, it must not seek to exert pressure or intervene into what was essentially a contractual matter between the developer and individual home buyers. It would be up to the developers concerned to decide on any relief measures to help the home buyers.

12. Mr LEE Wing-tat stated that the Democratic Party (DP) supported the HSLS in principle but considered the present proposal unfair as first-time home buyers who met all the eligibility criteria under the Scheme but who had entered into a sale and purchase agreement could not apply for the loan. On behalf of the aggrieved home buyers, the DP requested the Administration to convey the following suggestions to developers:

1. in case an aggrieved home buyer failed to secure a mortgage and had to forfeit his deposits, he should not be liable for paying the developer further costs, such as the lost value of the property as a result of the drop in property prices; and

2. developers should consider lowering the interest rates for offering second mortgages.

Mr LEE added that the DP had also conveyed these suggestions to developers earlier on.

13. Whilst reassuring members that the Administration would convey members' concerns expressed at the meeting to developers, S for H pointed out that it would not be appropriate for the Government to convey the specific suggestions of the DP to the developers. Instead, he suggested that it would be up to Members to take up their own specific requests with the developers.

14. Mr CHEUNG Man-kwong and Mr Martin LEE queried why the Administration had refused categorically to convey the DP's suggestions to developers while agreeing to convey members' concerns raised at the meeting. S for H in reply re-affirmed the Administration's view that it would be inappropriate for the Administration to raise such specific and detailed requests in respect of what was essentially a contractual relationship between individual developers and buyers.

15. To address the concerns of the members and the Administration, the Chairman pointed out that the discussion, including members' views and the Administration's responses, would be recorded in detail in the minutes of the meeting. The Administration might wish to refer the developers to the relevant minutes of meeting when conveying members' concerns to them.

16. The Administration agreed with the Chairman's advice. In reply to Mr Martin LEE and Mr LAU Chin-shek's enquiry about how the Administration would handle the DP's specific suggestions when meeting the developers, S for H and the Secretary for the Treasury (S for Tsy) confirmed that while the developers would be aware of the DP's suggestions from the minutes of the meeting, the Administration would not be in a position to offer any comment or further information on the DP's suggestions.

17. Miss Emily LAU pointed out that there was in fact greater support amongst members of the Frontier for assisting the aggrieved home buyers than for the HSLS. Members of the Frontier had voted against the proposal at the last meeting along side with the LP and the DP for strategic reasons. Nevertheless, it was decided that Members of the Frontier would vote on the subject according to his/her own stance. Miss LAU indicated that she and Mr LEE Cheuk-yan (who was absent at the meeting) would support the proposal but would also urge for greater assistance to be provided to the aggrieved home buyers. Miss Cyd HO Sau-lan indicated that she would object to the HSLS on the grounds that public funds should not be used to salvage the property market and that the Government should not seek to provide incentives to induce people to purchase properties.

18. Miss CHOY So-yuk advised that the Hong Kong Progressive Alliance (HKPA) supported the proposed HSLS but urged the Administration to explore ways to assist the aggrieved home buyers.

19. Mr CHEUNG Wing-sum supported the proposal but considered that the Government should take practicable steps to help the aggrieved home buyers and adopt a more liberal interpretation on property ownership so that those aggrieved first-time home buyers who could not complete the sale and purchase of the property due to a failure to secure mortgages could become eligible under the HSLS.

20. Mr CHAN Wing-chan confirmed the support of the Hong Kong Federation of Trade Unions (FTU) for the proposal and added that the FTU had abstained from voting at the last meeting as they were not satisfied with the uncompromising attitude of the Administration.

21. Miss Margaret NG expressed grave reservations on the HSLS and said that she would vote against it. She considered it unfair to use public funds to bail out the property market. She further pointed out that apart from the downpayment, home buyers would also need to make monthly mortgage repayments. She cast doubt on the usefulness of the HSLS as people might be able to purchase properties even without Government assistance as a result of the drop in property prices.

22. Miss Christine LOH stated that she would continue to oppose the proposal as she considered that families earning as much as $70,000 a month should not be subsidized with public money to purchase properties at low interest rates. She added that the Citizens Party had objected to the Scheme at the outset when the proposal was first announced in the Chief Executive's Policy Address in October 1997.

23. Mr Andrew WONG also objected to the HSLS. He opined that proper assistance to home buyers should be provided in some other form, such as tax concessions on mortgage interests or a cut in mortgage interest rates across the board so as to benefit all home buyers.

24. In response to members' concerns and earlier media reports that the Administration would not re-submit the funding request for the HSLS to the Finance Committee in the current financial year, S for Tsy said that the media reports were not accurate. She clarified that in an earlier interview, she had confirmed that within the current financial year, the Government would not be in a position to introduce new measures on top of the nine measures already announced to ease the current economic adjustment. She went on to explain that had the Administration decided not to re-submit the revised drawdown for the HSLS in the current year , the need for submitting the funding proposal in the next financial year would not arise as the Finance Committee had already approved in January 1998 a total commitment of $18 billion for the Scheme to be drawndown by five annual instalments from 1998-99 onwards. The present proposal only sought to increase the drawdown for the current financial year from $3.6 billion to $7.2 billion and consequently to reduce the number of annual drawdown instalments to four.

25. As regards assistance to the aggrieved home buyers, S for Tsy reiterated that the Administration was sympathetic and its decision against using public funds to assist property buyers with mortgage problems had been reached after very serious consideration. Given that eligible persons could purchase properties from developers or from the secondary market, S for Tsy disagreed that the ones who would benefit most from the HSLS were property developers. She added that eligible families who would be able to acquire their own residential properties were direct beneficiaries under the Scheme. As participation in the HSLS was voluntary, she expected that applicants would have considered their repaying ability when deciding to apply for the loan to purchase properties.

26. On the eligibility criteria of the Scheme, Mr CHEUNG Wing-sum sought clarification on the rationale for disqualifying a home buyer under the HSLS solely for the reason that he had entered into a sale and purchase agreement to purchase a residential property. Noting the Administration's explanation that such a criteria had been laid down in the application form for the HSLS, he questioned if the implementation of the Scheme had deviated from its original purpose of helping first-time home buyers.

27. In this connection, Mr James TO sought clarification on the status of a home buyer whose sale and purchase could not be duly completed due to extraneous factors such as structural defects of the property, or failure on the part of the vendor to honour the sale and purchase agreement. He enquired whether the person would still be regarded as having owned property for the purpose of applying for the loan under the HSLS. In reply, S for H undertook to seek legal advice and revert to members in writing.

Admin.

28. Referring to the designation of solicitors' firms to undertake HSLS-related conveyancing, Mr James TO declared his interest as the partner of a solicitors' firm and said that he had received complaints from the profession that the HKHS had assigned the job to four solicitors' firms only. He queried the basis and procedures for appointing these law firms. In reply, the Executive Director of the Hong Kong Housing Society advised that the four solicitors were appointed by a selection committee to execute the loan agreement setting out the terms for the grant of the loan and the Second Charge in favour of the HKHS. There were plans to appoint an additional four or more solicitors upon the quota being increased from 6 000 to 12 000.

29. Mr James TO was not satisfied with the arrangement despite the proposed increase in the number of participating firms, citing the examples that all solicitors could handle the Second Charge in favour of the Government under the Home Financing Scheme for civil servants and that a relatively large number of solicitors could undertake similar work under the Housing Authority's Home Ownership Scheme. He indicated that he was considering requesting the Corruption Prevention Department of the Independent Commission Against Corruption to study the relevant appointment procedures. Miss Margaret NG shared his concern and remarked that the terms and conditions specified by the HKHS had placed large law firms in a more advantageous position. She confirmed that she would take up the matter through other channels.

30. S for H agreed that it was appropriate for the HKHS, being the administrator of the HSLS, to select reliable and reputable law firms for executing the loan agreement. Nevertheless, in response to members' concerns, he undertook to follow up the matter with the HKHS. The Chairman advised that members who wished to look into the operational details of the HSLS should raise the issue at the Housing Panel.

31. In response to Dr YEUNG Sum's request, the Chairman adjourned the meeting for five minutes.

32. After resumption of the meeting, Mr LEE Wing-tat reiterated that the DP had all along supported the HSLS and summarized the views of the DP as follows:

1. the aggrieved first-time home buyers in question should not be considered as owning any property and should therefore be eligible to apply under the HSLS;
2. property developers would benefit directly from the HSLS and should be more considerate towards the aggrieved home buyers; and
3. the DP was dissatisfied with the Administration's refusal to convey the DP's specific suggestions to developers.

He further advised that the DP would abstain from voting.

33. The Chairman put the item to vote. 30 members voted for the proposal, 5 members against and 11 abstained.

For:

Mr Kenneth TING Woo-shou	Mr David CHU Yu-lin
Mr HO Sai-chu	Dr Raymond HO Chung-tai
Mr Eric LI Ka-cheung	Mr LEE Kai-ming
Dr LUI Ming-wah	Mr NG Leung-sing
Prof NG Ching-fai	Mrs Selina CHOW LIANG Shuk-yee
Mr MA Fung-kwok	Mr Ambrose CHEUNG Wing-sum
Mr HUI Cheung-ching	Mr CHAN Kwok-keung
Mr Bernard CHAN	Mr CHAN Wing-chan
Dr LEONG Che-hung	Mrs Sophie LEUNG LAU Yau-fun
Mr Gary CHENG Kai-nam	Dr Philip WONG Yu-hong
Mr WONG Yung-kan	Mr Jasper TSANG Yok-sing
Mr YEUNG Yiu-chung	Mr LAU Kong-wah
Mr LAU Wong-fat	Mr Ambrose LAU Hon-chuen
Miss Emily LAU Wai-hing	Dr TANG Siu-tong
Miss CHOY So-yuk	Mr Timothy FOK Tsun-ting

(30 members)

Against:

Miss Cyd HO Sau-lan

Miss Margaret NG

Miss Christine LOH

Mr LEUNG Yiu-chung

Mr Andrew WONG Wang-fat

(5 members)

Abstentions:

Mr Albert HO Chun-yan	Mr LEE Wing-tat
Mr Martin LEE Chu-ming	Mr Fred LI Wah-ming
Mr James TO Kun-sun	Mr CHEUNG Man-kwong
Mr SIN Chung-kai	Dr YEUNG Sum
Mr LAU Chin-shek	Mr SZETO Wah
Mr LAW Chi-kwong

(11 members)

34. The Committee approved the proposal.

Item No. 3 - FCR(98-99)22
HEAD 45 - FIRE SERVICES DEPARTMENT
Subhead 003 Recoverable salaries and allowances (Airport Authority)

35. The Committee approved the proposal.

Item No. 4 - FCR(98-99)23
CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Government Supplies Department
New Subhead "Upgrading of the procurement computer system of the Government Supplies Department"

HEAD 47 - INFORMATION TECHNOLOGY SERVICES DEPARTMENT

Subhead 001 Salaries

36. In reply to a member's enquiry about the new functions contemplated under the new computer-aided Procurement Management System (PMS), the Principal Assistant Secretary for the Treasury (PAS/Tsy) advised that the new system would be able to, inter alia, facilitate processing of tenders and biennial supplier registration, improve monitoring of the draw-down rate of bulk contracts and of contractors performance, and keep records of contractors' claims. It was also planned that the PMS would be capable of accommodating new systems to be implemented in future. PAS/Tsy further confirmed that the PMS would be capable of providing Chinese characters processing function.

37. As regards whether the PMS would be able to support more users as Government departments expanded, the Deputy Director of Government Supplies (DD/GS) assured members that notwithstanding a ceiling for concurrent use, the new system could cater for many user terminals. Moreover, connection to more terminals was possible where necessary.

38. On the serviceable life span of the PMS, DD/GS said in reply to a member that the new system was expected to have a life span of at least five years.

39. The Committee approved the proposal.

Item No. 5 - FCR(98-99)24
HEAD 40 - EDUCATION DEPARTMENT
Subhead 149 General departmental expenses
Subhead 320 Code of Aid for special schools

40. Several members enquired about the progress in the recruitment of Native-speaking English Teachers (NETs) and the impact of the slow progress on the teaching of English in secondary schools.

41. In response, the Assistant Director of Education (Schools) (AD/E (Schools)) informed members that so far, a total of 155 NETs had been centrally recruited by the Education Department(ED). Five of them had been residing in Hong Kong and the rest came from overseas countries. He advised that in assigning the appointees to some 200 secondary schools in accordance with a priority list drawn up by computer, the ED also tried its best to cater for the special needs of individual schools. The ED would continue to recruit NETs for those schools which had not been assigned an appointee in its next recruitment exercise in September 1998. AD/E (Schools) further pointed out that schools and school sponsoring bodies were also encouraged to recruit NETs on their own. So far, a total of 97 NETs had signed employment contracts with individual schools and some 50 would likely be offered appointment. A total of about 300 NETs were expected to take up employment in September 1998.

42. On the number of NETs recruited which was lower than that originally expected, AD/E (Schools) said that part of the reason might be the stringent qualifications and experience requirements on NETs which the Administration considered necessary for ensuring the effectiveness of the NET Scheme. Nevertheless, he advised that it was the Administration's intention to appoint the promulgated target of 750 NETs in phases and assured members that the Administration would continue with its recruitment efforts.

43. As regards the impact of insufficient NETs on the Administration's declared objective of enhancing English teaching and proficiency, the Chairman advised that this issue should be followed up by the Education Panel.

XX

44.Addressing members' concerns about the adaptation of NETs to the local school environment, AD/E (Schools) highlighted the following major support measures undertaken by the Administration:

1. prior to the selection interview, each shortlisted candidate was issued an information package on Hong Kong for reference and one of the objectives of the interview was to ascertain the candidates' readiness to take up employment in Hong Kong;
2. the Administration would establish a network with the consulates of the NETs' countries of origin, local international schools and chambers of commerce of different countries in mid August 1998 with a view to assisting NETs to integrate into the local community;
3. induction programmes would be organized for NETs in late August 1998; and
4. workshops and seminars would be held in due course to facilitate the exchange of experience among NETs.

45. A member expressed reservation on the benefits of extending the NET scheme to special schools and questioned whether sufficient NETs could be recruited for special schools given the recruitment difficulty currently encountered by schools for able-bodied students.

46. In reply, the Assistant Director of Education (Services) (AD/E (Services)) explained that the proposed extension of the NET Scheme to special schools was based on the principle of equal opportunities. Moreover, some of the special school leavers would be integrated in other secondary schools. As NETs in these schools could act as English language resource teachers and help provide an environment more conducive to communicating in English, AD/E (Services) stressed that together with the input from teachers of special education and suitable learning aids, students in special schools could surely benefit under the NET Scheme as their able-bodied counterparts.

47. On the review of the NET Scheme, the Head of the Support Unit for the Standing Committee on Language Education and Research (SCOLAR) explained that SCOLAR was in the process of commissioning a consultancy study to assess the effectiveness of the Scheme in two years' time. Parties interested in bidding for the consultancy study had been briefed and they were aware of the need to report any irregularities identified in the course of the study as promptly as practicable, instead of at the completion of the review. The Administration would consider a member's request to include in the review the implementation of the NET Scheme in special schools.

Admin.

48. The Committee approved the proposal.

Item No. 6 - FCR(98-99)25
LOAN FUND
NEW HEAD "SMALL AND MEDIUM ENTERPRISES'
New Subhead "Special finance scheme for small and medium enterprises"

49. Members generally expressed support for the proposal.

50. A member noted the Administration's earlier confirmation that firms engaged in construction and engineering works would also be eligible under the proposed special finance scheme (SFS) for small and medium enterprises (SMEs).

51. In reply to a member's enquiry about the reasons for the failure of the pilot credit guarantee scheme (CGS) which would be merged with the proposed SFS, the Secretary for Trade & Industry (STI) explained that cumbersome application procedures, which involved not only the lending institutions but also the Hong Kong Export Credit Insurance Corporation, and the additional charges were the major reasons for the poor response to the CGS.

52. On the question of whether exporters would be disadvantaged as a result of merging the $500 million - CGS with the SFS, STI explained that companies involved in export business accounted for about 45% of the 290 000 SMEs and these companies would also be able to benefit under the SFS which had a much larger capital commitment of $2.5 billion.

53. Some members considered the maximum guarantee period of 365 days too short as it might take two to three years for the economy to revive. Moreover, they apprehended that some beneficiaries might have their credit line cut upon expiry of the guarantee period. Dr LUI Ming-wah and Members of the LP who had consulted their respective constituency also urged the Administration to provide for a longer guarantee period so as to sustain the availability of credit facilities to SMEs.

54. In response, the Director-General of Industry (DG of I) acknowledged members' concerns but also stressed the need for maintaining the revolving nature of the facility. The Administration considered the one-year period a reasonable balance between assisting SMEs to obtain credit facilities and enabling the SFS to offer credit guarantee to more SMEs in need upon the repayment of loans under guarantee. He further pointed out that where necessary, a beneficiary could make a new application after the expiry of the guarantee period.

55. Some members expressed strong reservation on the fairness of relying solely on the lending institutions to assess loan applications. They were concerned that the institutions would assess applicants' credit worthiness on the availability of collateral rather than by track records and business prospects. In response, STI advised that the Financial Secretary would issue a letter to all interested lending institutions explaining the objectives of the SFS and appealing for their co-operation in helping those SMEs which were creditworthy but hard hit by the liquidity crunch.

56. The Administration acknowledged members' concerns about expeditious assessment of loan applications and advised that it would be ready to enter into the relevant agreements with lending institutions in two to three weeks in the hope that loans could be granted in August 1998. In reply to a member, STI said that a total of 31 lending institutions had participated in the CGS but he could not speculate on the number of participating institutions for the SFS at the present stage. At the member's request, he confirmed that a copy of the deed with lending institutions could be made available for members' information.

Admin.

57. Miss CHOY So-yuk, on behalf of the HKPA, suggested that the interest for the loan to be charged on SMEs should be lower than the prevailing interest rates on bank loans.

58. While agreeing with the need to assist the SMEs, STI also stressed the importance of encouraging lending institutions to participate in the Scheme. The Administration considered that it would be most appropriate to allow lending institutions to determine the interest for the loans in accordance with their established principles. He further advised that the Administration considered a spread of 3% between the interest a bank charged on a successful applicant and the interest is paid to the Government for the corresponding deposit reasonable.

59. STI noted a member's suggestion that the Administration should formulate a long-term policy to assist SMEs. In response to another member's comment about a change in Government policy, STI disagreed that the adoption of the SFS meant that the Administration was now pursuing an interventionist policy. He added that the SFS would not provide direct subsidies to SMEs and the most significant implication was the injection of $2.5 billion into the banking system.

60. Responding to members' concerns about the effectiveness and operation of the SFS, STI confirmed that the Administration would make regular reports to the Trade and Industry Panel. He took note of members' request for an early review of the SFS and assured members that if response was poor or problems arose, the Administration would conduct a review without delay.

61. The Committee approved the proposal.

62. The Committee was adjourned at 5:40 pm.

Legislative Council Secretariat

18 September 1998