For discussion
FCR(97-98)113
on 27 March 1998

ITEM FOR FINANCE COMMITTEE

LOAN FUND
NEW HEAD "TOURISM"
New Subhead "International Events Fund"

    Members are invited to approve the creation of a new Head "Tourism" under the Loan Fund and, under the new Head, a new subhead "International Events Fund" with a commitment of $100 million to provide a revolving loan facility for the Hong Kong Tourist Association to promote international events in Hong Kong.

PROBLEM

Given the adverse impact on the economy of the recent downturn in inbound tourist arrivals, we need to enhance the attractiveness of Hong Kong as a tourist destination through, inter alia, the promotion of event tourism. This is not possible without significant government funding.

PROPOSAL

2. We propose that Members approve the creation of a new Head "Tourism" under the Loan Fund and, under the new Head, a new subhead "International Events Fund" (IEF) with a commitment of $100 million to provide a revolving loan facility to the Hong Kong Tourist Association (HKTA) to promote international events in Hong Kong.

JUSTIFICATION

3. After a decade of continuous growth, tourism in Hong Kong has exhibited a downturn since mid-1997. In order to revive the declining market, we need to enhance the overall attractiveness of Hong Kong as a tourist destination through a number of initiatives. One of these is the promotion of event tourism.

4. The presence of major events which have an international appeal will help to induce visitors, who would otherwise have chosen other places to visit, to select Hong Kong as their destination. Such events could also encourage visitors, especially those on business or visiting their relatives, to extend their stay in Hong Kong. In addition to income from admissions, benefits to Hong Kong would include additional tourism receipts, more job opportunities and enhancement of cultural life. Moreover, the staging of major international events will bring about valuable international publicity for Hong Kong and enhance our image as the Events Capital of Asia.

5. Given the relatively high risks involved, event organisers have on occasions experienced problems in raising upfront capital and been forced to abort plans to stage some world-class events, thereby depriving Hong Kong of many tourism and socio-economic benefits.

6. To attract more international events to Hong Kong, the HKTA proposes to set up the IEF with a loan from the Government. The proposed IEF will provide financial and in-kind support to event organisers who need such assistance to bring suitable events to Hong Kong. These include sports, arts and culture, entertainment, food, convention and exhibition and other tourism related events. A list of such potential events for illustrative purposes is at the Enclosure. They are expected to attract tourists to Hong Kong, in the same way as, for example, the annual Chinese New Year parade and fiesta in Tsim Sha Tsui East, the International Dragon Boat Races, and the Takarazuka Revue Performance from Japan in January this year.

7. The IEF is expected to support the staging of some 50 events in Hong Kong over the next five years. It is estimated that the IEF will be able to generate up to 150 000 additional visitors and tourism receipts up to $1 billion.

8. The IEF will be the first of its kind in Asia. Closely comparable, however, are the Queensland Events Corporation and the Melbourne Major Events Company in Australia. Through these organisations, government grants are provided to event organisers to finance the bidding for and staging of major events. Under this arrangement, Melbourne obtained the right to host the Formula One World Motor Racing Championship and the World Masters Game in 2002. Brisbane will be host to the World Figure Skating Championships in 2000.

International Events Fund

9. The IEF aims to provide different types of financial and in-kind support to event organisers, including -

  1. upfront equity injection;

  2. loans, which may be at a commercial rate, concessionary rate or interest-free;

  3. grants; and

  4. in-kind assistance such as implementing umbrella publicity and marketing programmes to boost the events’ publicity and ticket sales.

10. When evaluating whether an event proposal merits financial support under the IEF, and if so what kind of support, HKTA will take into consideration such factors as the soundness of the event proposal, the potential in generating worldwide media coverage, the appeal to overseas audiences, the compatibility with Hong Kong's tourism business cycle, the potential for commercial sponsorship, the credentials of the organisers applying for financial support, as well as the overall financial position of the IEF.

11. HKTA will be allowed to draw down up to a maximum of $100 million, as seed capital of the IEF as and when required, within a period of five years from the date of the first drawdown ("the credit period"). HKTA will pay a simple interest at 5% per annum on the outstanding amount of the loan. This is in line with the rate offered to other statutory bodies such as the Estate Agents Authority and the Hong Kong Housing Society. Interest will be due on 31 March each year. Repayment of principal can be made at any time during the credit period. All outstanding loan amounts will need to be repaid by the end of the credit period. Subject to Members' approval of the proposal, we will sign an agreement with HKTA on the terms of the loan.

Management of the IEF

12. HKTA will be responsible for the day-to-day management of the IEF, overseen by a steering committee including representatives from Economic Services Bureau, Finance Bureau, HKTA, and the private sector. All major financial matters related to the use of the IEF will be subject to the approval of this Committee. HKTA will have to submit independently audited accounts and operation reports on the IEF on a yearly basis to the Government.

13. HKTA may invest cash in hand that is not required in the immediate future in accordance with investment guidelines to be agreed by the Secretary for the Treasury.

FINANCIAL IMPLICATIONS

14. The proposed IEF is a revolving loan facility with a commitment of $100 million. Since we will charge the HKTA a concessionary interest rate of 5% per annum, the maximum interest foregone would be in the region of $6.3 million, assuming that the whole $100 million will be drawn from the start and for the entire credit period at the current 'no gain, no loss' interest rate.

Consultation

15. We issued an Information Note to the Provisional Legislative Council Panel on Economic Services in March 1998. So far, we have not received any comments or requests for further information from Members.

BACKGROUND INFORMATION

16. The recent downturn in tourism has raised concerns about the future of the tourism industry. To maintain Hong Kong's attractiveness as a tourist destination, we will continue to plan and invest in tourism facilities and attractions.

17. The Chief Executive stated in his Policy Address on 8 October 1997 that a loan of $100 million would be made available to the HKTA to set up an IEF.



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Economic Services Bureau
March 1998

(LU0166/WIN8)


Enclosure to FCR(97-98)113

International Events Fund (IEF)

Examples of potential events to be supported by IEF
(For illustrative purpose only)

Event title

Stars of Asian Basketball Match

Action Asia Challenge

Indoor Windsurfing Championship

International Lion Dance Invitation Tournament

Spring-time Production Drama Theatre

Hong Kong Arts Festival

Treasures of the Kremlin Museum Exhibit

International Marathon

Broadway Musical

Hong Kong Arts Development Council Major Visual Art Exhibition