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Big Agenda Ahead for New Financial Secretary

The new financial secretary needs to have very clear notions of financial management, strong leadership powers and political skills in order to put public finances on the right track.

He must have the utmost trust of Chief Executive Tung Chee-hwa, who needs in return to give a total freehand to his financial chief to convert his financial philosophy into actions.

During an interview with China Daily, Eric Li, the Legislative Councilor who represents the accounting constituency, lists the qualities and expertise that he thinks the next financial chief should possess and points to the tasks lying ahead for him.

Since the position has been vacant for nearly three weeks after the resignation of Antony Leung on July 16, and a number of well-known figures have openly declined the post, Li guesses that a civil servant or someone with government service background will be handed the job at the end of the day.

Li, who is also convener of the Breakfast Group of legislators, believes that Tung must have some names in mind but he might not have given anyone any firm offers.

Now it appears that Tung has very few choices after many favorite candidates, including Hong Kong Airport Authority Chairman Victor Fung, affectionately dubbed as Tung's number One Friend, ruled himself out of the race by saying he is not interested in taking any full-time government post in a statement last week.

The names tipped earlier included China Securities & Regulatory Commission adviser Anthony Neoh, Hang Seng Bank Vice-Chairman Vincent Cheng, DBS bank (Hong Kong) Chairman Frank Wong, and former head of the Central Policy Unit Edgar Cheng.

But judging from the latest developments, Secretary for Commerce, Industry and Technology Henry Tang has emerged as the top favorite to take over the financial secretary post. The way is also paved for him as there are increasing voices in the community saying that the deadline of returning to fiscal balance by 2006-07, as set by Antony Leung, should be removed.

Tang took up his current ministerial post in July 2002, after putting his garment and electronics businesses under the trust of his father. He was a member of the Legislative Council from 1991 to 1998, and was a member of the first term Executive Council from 1997 to 2002.

"It seems that civil servants and academics are the remaining choices," Li says, "but civil servants are the safer choices because they are loyal executors of government policies, whereas academics are too idealistic and too brave."

However, it may not be easy for Tung to find his favorite financial secretary from the business circle because there are many other factors to consider. For example, it is necessary to know if the candidate holds a foreign passport and whether or not he is willing to give it up. Similarly, it takes a long time for a potential candidate to hand over his family business to a trust or an administrator.

"There is also the possibility that the interested candidates will talk with Mr. Tung with a view to getting more acquainted with the current situation, restrictions within the government framework and exchanging with Mr. Tung his own financial philosophy," Li says.

"For example, one may ask Mr. Tung whether civil-service salaries can be decreased any more or if he will be allowed to raise taxes. If the person is not given sufficient freehand, he may tell Mr. Tung that 'I will not be able to balance the books if I cannot put my notions of financial management into practice'."

On the qualification of the new financial secretary, Li thinks that he must handle the job with the spirit of "corporate rescue" to put irregularities back on the right track. He must have very clear notions about re-financing, to identify new revenue sources and exercise proper expenditure control.

Besides, the new financial secretary must possess very strong leadership power in order to win the support and co-operation of the civil servants and to "stay above" the 11 bureau heads, who are seen as caring more about their own policy areas but are not working well as a team.

With the financial secretary post vacant, bureau heads such as Michael Suen, Secretary for Housing, Planning & Lands, and Sarah Liao, Secretary for Environment, Works & Transport, have taken this opportunity to announce important policies with strong financial implications in the absence of central financial control.

"hen the cat is away, the mice come to play," Li smiles, and says the financial secretary post must be filled as soon as possible.

If the post is left vacant for a month, problems regarding public expenditure may emerge, while the entire budget will slip out of control if the post is not occupied for three months or longer, he warns.

"Under the accountability system, the chief secretary and financial secretary do not have any real power," he says. "Mr. Tung must give the new financial secretary more power, say, to vet all financial proposals from the bureau chiefs before passing to him for approval, or the new financial secretary will be doing a very difficult job.

"At the appropriate time, the new financial secretary must also enter political compromises with political parties to defer certain revenue proposals in exchange for their agreement in tax increases at a later date."

After all, he reckons that Stephen Ip, currently Secretary for Economic Development & Labor, who is now doubling as financial secretary on a temporary basis, is an acceptable and a safe choice. But he does not agree that Chief Secretary Donald Tsang should return to his old job as that will mean "step backward" for him. Instead, he should be given more tangible duties and power so as to share Tung's burden.

But Li is unwilling to comment on Henry Tang's suitability and he laughs: "You have to judge for yourself if he fits the above criteria."

Regarding restoration to fiscal balance by 2006-07, as prescribed by Antony Leung, Li points out that now is the best opportunity to leave this goal behind and re-assess the entire situation.

Apart from the lofty goal of easing the budget deficit in three years' time, Anthony Leung also announced in the 2003-04 Budget the targets of reducing operating expenditure by HK$200 billion and a headcount of 10,000 civil servants to about 160,000 post within the same timeframe.

"Mr. Leung has now departed, but he has left behind an impossible task. He did not say how the HK$6 billion in taxes and HK$112 billion worth of government assets (as mentioned in the 2003-04 Budget) would be raised. It would be either stupid or foolhardy for his successor to continue pursuing these goals. If Mr. Leung were to stay on until 2006-07, he could be facing greater pressure and criticisms because he could never achieve these impossible missions."

On the tasks ahead, Li suggests the new financial secretary should consider the option of raising money over the short term. Possible options include railway bonds, housing bonds, mortgage bonds and privatization of the Housing Authority shopping malls (the government is the biggest shareholder of the Mass Transit Railway Corp., wholly owns the Kowloon-Canton Railway Corp. and funds the Housing Authority) for the purpose of stabilizing the capital shortage problem in Hong Kong and giving breathing space to society.

Then, he should spare no efforts in providing more dynamics to the Closer Economic Partnership Arrangement and the tourism industry because they will stimulate domestic consumption in the short term.

Li further suggests: "We will also need to stabilize the property market although it will take three to four years to digest all the unsold flats. People will regain confidence if they discover prospects if there are clear government policies and messages. Normally, property developers will begin applying to buy land from the reserve list two or three years before all the completed houses are sold, and I guess land application will become active again within a couple of years.

"Once the property market becomes stable again, the value of properties will not decrease and the number of negative equities will also diminish. Hopefully, the deflationary trend will be put under control and there may even occur mild inflation to stimulate people's spending mood, because people fear that the later they buy things, the prices will go higher."

(China Daily August 4, 2003)

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