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1. China's largest waste recycling project launched

2. Missing links and many holes. We need more answers, Mr Leung

3. Cartoon

4. More numbers and fewer explanations

5. Accountability faces a key early test

6. Sound proposal worthy of a standing ovation

1. China's largest waste recycling project launched
CHEUNG CHI-FAI, SCMP 10 March 2003

Construction of the country's largest waste recycling project has started in Guangdong.

The $3 billion National Demonstration Eco-Industrial Park and South China Environmental Protection Industry Park, located in Nanhai 25km southwest of Guangzhou, will be completed in three to four years.

The project is backed by the State Environmental Protection Administration.

Spread over 6.6 sq km, the park will be home to a variety of green industries, such as environmental protection consultancies, research and design units, green products manufacturers and waste recyclers.

Guangdong officials hope the park will attract overseas technology, skills and capital to help upgrade the province's recycling industry.

The provincial government has offered tax concessions to foreign investors, while land in the park will be sold on 50-year leases at just 180 yuan ($169) per square metre. More than 56 companies, including some international firms well-known for environmental protection, have so far agreed to invest in the project.

The South China Environmental Protection Investment Company, the project developer, said plastics, electronic appliances and even vehicles would be recycled at the park.

However, Hong Kong environmentalists believe the project may affect the special administrative region (SAR) government's plan to build a waste-recovery park in Tuen Mun.

Professor Carlos Lo Wing-hung, of the Polytechnic University's department of management, said the Tuen Mun park would not be able to compete with the Nanhai project.

"There is cheap labour and land on the mainland and, most importantly, a strong determination in the provincial government to assist the development of recycling industries," he said.

"In this case, how can the park in Tuen Mun compete with the one in Guangdong?"

Professor Lo urged the Hong Kong government to rethink its policies on waste recycling and re-position the Tuen Mun park as a more advanced recycling centre to avoid direct competition with the Guangdong project.

Zhao Feng, the vice-chairman of the company developing the Nanhai park, said the intention was not to compete with Hong Kong.

He said both Hong Kong and Guangdong would benefit if the SAR became one of the main suppliers of recyclable materials to the Nanhai project.

"Of course, it would be much cheaper to process and recycle waste on the mainland," Mr Zhao said.

Donald Tong Chi-keung, Deputy Secretary of the Environment, Transport and Works Bureau, said concerns about possible competition between the two parks were unfounded for the foreseeable future.

But he admitted it had been difficult to develop the recycling industry in Hong Kong because of high land and labour costs.

Mr Tong said even without a local recycling industry, Hong Kong could still earn about $2 billion a year by exporting its recyclable materials to the mainland and overseas.

2. Missing links and many holes. We need more answers, Mr Leung
Philip Bowring, SCMP 10 March 2003

The Budget is fine as far as it goes - which is not far at all. It is a curious mix of good sense, evasion and wishful thinking. Financial Secretary Antony Leung Kam-chung deserves some praise. He has, at last, begun to reverse the erosion of the direct-tax base.

That was started by Hamish McLeod and continued with ever increasing recklessness by his successor, Donald Tsang Yam-kuen, who oversaw a massive rise in allowances, but tried to engineer the economy in favour of the property developers and the upper-middle class, by providing tax relief on mortgage interest.

A reduction in allowances and adjustments in tax bands and marginal rates is fair, sensible and politically quite bold, although one detects Chief Executive Tung Chee-hwa's timidity in the decision to phase it over two years. As a result, Mr Leung has had to apply the same two-step process for unincorporated businesses and income from property, but the increase in profits tax on corporations - from 16 per cent to 17.5 per cent - takes effect immediately. It is hard to see the logic in this - or indeed of maintaining the differential between profits and other direct taxes.

Although Mr Leung is moving in the right direction, direct tax will have to continue to rise if, through force majeure, Hong Kong is unable in the future to tax citizens through land price inflation. Effective rates are still extraordinarily low for everyone - except the maids whose long hours and low pay provide a huge effective income subsidy to Hong Kong's spoiled top 15 per cent or so of households.

It is odd that while increasing some direct taxes, Mr Leung is allowing yield from property rates to fall, by not compensating for a decline in rateable values with an increase in the percentage. Rates are the simplest, most neutral tax available, spreading across all classes and economic activity. Failure to use this tax tool effectively looks like another surrender by a "business friendly" administration to its property-developer friends.

Mr Leung may be optimistic in expecting to raise $1.5 billion from football betting. If the Jockey Club monopoly offers poor odds, punters will continue to use offshore centres.

Significantly, he made no mention of the shameful and racist tax on maids.

The bottom line of Mr Leung's tax proposals remains very disappointing. The operating deficit, even after investment income, is forecast at $53 billion for the coming year, not much of an improvement on 2002-2003, and equal to 35 per cent of revenue - remarkable considering the books balanced just five years ago, and previously generated a large surplus. Even on Mr Leung's perhaps optimistic assumptions about the economy, he does not foresee the operating balance being restored before 2007.

In the short run, a deficit of 4 per cent of gross domestic product ($52 billion) may be justified by economic circumstances. For sure, deflation would be worse and unemployment much higher but for the deficit. But it is the lack of a convincing road map to get to a balance which is disturbing. On the spending front, this year Mr Leung is doing no more than hold steady. The civil service is still much better off than its recent bleating would lead us to believe, both in terms of salary and staffing levels. Mr Leung admits the need for more revenue sources in future, but makes no indication of what these will be. Have we not had enough discussion of the options - higher direct taxes, broad or selective consumption taxes - to lay the groundwork, provide a declaration of intent? Personally I prefer direct taxes. But given the narrow base of income tax there is clearly a case for more consumption taxes.

Another missing link in Mr Leung's story is capital spending. First, he sees land revenue rising to $13 billion in 2004-05 from almost nothing now and to $19 billion in 2005-06, and the sale of $112 billion of government assets over five years. But can assets be sold without the radical restructuring of pricing of fares and facilities? The issue has not been addressed. The government can also sell loans, but what is the difference between selling a loan and selling down fiscal reserves? It is just a book-keeping exercise unrelated to the real issue - revenue.

On the capital spending side, the government juggernaut moves on, regardless of budget constraints. Billions remain allocated for environmentally destructive reclamation projects, while Kai Tak and other major sites sit idle. The Cyberport is providing taxpayer-financed subsidies which are damaging the private sector, and the government remains hell-bent on wasting public money on its self-important harbourside headquarters. This is madness and suggests Mr Leung has scant control on the spending departments.

Welfare spending is largely determined by the ageing population and unemployment levels, but capital spending is much easier to control. Of course, infrastructure is an investment in the future. But given the low population growth and skill, and service orientation of the economy, how urgent is the need for many more roads and government offices, or even schools now that the school-age population has peaked? Mr Leung also shied away from fees and charges, due to be unfrozen at the end of this month. Surely decisions on charging should have been made by now and taken into account. Why not, Mr Leung? Please fill in the many holes in your Budget.
Philip Bowring is a Hong Kong-based journalist and commentator.

3. Cartoon
SCMP 10 March 2003

4. More numbers and fewer explanations
Philip Bowring, SCMP 10 March 2003

This is my 30th year of writing about Hong Kong budgets. Over time, the numbers have got bigger, and the explanations of policy shorter. Financial Secretary Antony Leung Kam-chung has stated his measures with clarity. But his lack of discussion of policy issues - of the implications of decisions - is obvious. His suppositions about future income, about the logic behind spending choices, and the specifics of asset sales required explanation. The future of issues such as a goods and services tax, also needed addressing.

I look back almost with nostalgia on the two to three-hour epic performances of the late Sir Philip Haddon-Cave, financial secretary from 1971 to 1981. They were boring to listen to, but his written commentaries were a mine of information. Budget specifics were placed in a wider intellectual context, and much of it went over the heads of the public. But Sir Philip felt a need to justify himself and his policies to his peers.

Not that budgets have ever been models of clarity. Actual net cash spending is obscured by payments into and out of loan funds, capital works and investment funds, and by the complex relationship between the government itself and bodies such as the Housing Authority. I recollect that it was Sir John Brembridge, the Swire executive who succeeded Sir Philip, who presided over much of the increase in opacity. The capital works reserve fund was supposed to smooth out budgeting for major works, but it, and similar funds, have made budget analysis increasingly complex.

However, the idea floated by Christine Loh's Civic Exchange that the government should move from cash to accrual account budgeting seems to be a red herring which has drawn attention away from the core issues of taxation and spending.

It is all very well to claim that the deficit would be $35 billion, not $70 billion, if major works were depreciated rather than accounted on a cash basis. But the corollary must be for the government to charge more for usage of such assets. Let us not kid ourselves. There is a need to raise additional revenue whether via taxes or charges.

As for existing ways of accounting for the economy, I note the decision to drop the item "real estate developers' margin" as a separate item in the gross domestic product (GDP) data. It is being incorporated into private sector expenditure on building and construction. This is said to be to bring Hong Kong into line with international statistics. But I must ask whether this is to hide the size of the bite that the developers continue to take of GDP - almost 3 per cent, even in 2001. That is down from a peak 9 per cent in 1997, but still worthy of note.

Philip Bowring is a Hong Kong-based journalist and commentator.

5. Accountability faces a key early test
SCMP, 10 March 2003

Hong Kong's Financial Secretary Antony Leung Kam-chung, probably wished he was back in, banking early yesterday.

The relative peace of his; post-Budget Sunday; morning shattered by an expose in a local mass-market newspaper concerning a recent car purchase, Mr Leung 'found himself facing a small army of reporters at the end of his driveway on Shouson Hill Road.

Given the facts of the case, Mr Leung had little option but to give them what they wanted - a statement that suggested he should not have bought the car given the steep rise in vehicle registration taxes announced in his Budget last Wednesday.

Mr Leung, bought the car, a new Lexus 430, for $790,000 back in late January. It was not until last month, he claimed, that the decision was made to increase car taxes in last week's Budget. Luxury vehicles at the top end of the market were hit hardest. The price of the same car rose to $840,000 overnight.

Taken at his word, Mr Leung's purchase appeared to show considerable political naivete to say the least. He sought to deflect criticism yesterday by stressing needed a new car to cope with his newborn daughter - herself the subject of a great deal of media attention after being born to mainland diving queen Fu Mingxia, Mr Leung's wife, on February26.

"I believe people would understand that parents-to-be would prepare everything before the birth of the child," Mr Leung said yesterday.

He might find that understanding a little lacking when people discover the Lexus was to be his fourth car - his Porsche' 911 Carrera; Toyota Land Cruiser and official government BMW being all apparent unsuitable for the purpose of carrying children. It is, of course, a situation many ordinary commuters in Hong Kong could only dream of

Amid the welter, of concern expressed yesterday from a range of legislators and academics, nobody has yet suggested anything more sinister at work. Given his considerable wealth - he earned tens of millions in senior management positions at Citicorp and Chase Manhattan - It is hard to see how he would have bothered misusing his position .to make a paltry $49,000.

That said, it is hard to see how Mr Leung could not have been aware of how the deal would be perceived.

In the wake of adverse publicity about the purchase, Mr Leung has made the honourable move to pay double the amount of the new taxes to charity. That may help salvage ,his public image a little, but,lt his detractors are unlikely to stop attacking him anytime soon.

Until now, Mr Leung has widely been considered one of the most politically astute of those ministers who hailed from the private sector. It is, as Mr Leung's case may show, inevitably a difficult transition, He would not be t the first to stumble.

Nonetheless, it is disconcerting to find him under siege for a momentary lapse of attention to the implication of a private purchase of his public duties. There is little doubt that Mr Leung's , blunder comes at the worth possible time for the administration of Chief Executive Tung Chee-hwa.

With public confidence still dangerously low and pressures to sell a belt. tightening budget, Mr Tung really does not need this sort of damage to one of his most important lieutenants as he tries to make the ministerial accountability system work.

This looks set to be one of its key early tests and the actions of both Mr Tung and Mr Leung over the next few days will be pivotal to limiting the fall-out. Undoubtedly, more assurances and explanations will be needed from both men.

6. Sound proposal worthy of a standing ovation
SCMP, 10 March 2003

If entertainment facilities were the sole indicator of a city's international standing, the debate over whether Hong Kong was part of that elite club would easily have been settled - we are not a member.

While a number of regional capitals are often on the programme of internationally renowned performers, we too often miss out.

The problems is not our image but our lack of a venue.

It is such a simple problem to solve, yet one that has baffled too may people for too long.

The construction of the stadium in Causeway Bay seemed the answer until government noise regulations got in the way of performances. Protests by nearby residents in 1995 prompted a government order that concert-goers wear gloves. A request that headphones be worn at Elton John's Handover concert in 1997 prompted the pop star to cancel in disgust.

Lack of a big enough venue caused a deal to bring Michael Jackson here to fall through. Since then performers have had to play at either the 12,500 seat Coliseum, or the 8,000 capacity Convention and Exhibition Centre.

It is there that the Rolling Stones, who fill 70,000 seat stadiums elsewhere in the world, will play on March 28 and 29. Other popular acts to play here in coming months include Moby, Mariah Carey and Santana.

The roster seems impressive but is not representative of the cream of international acts, who frequently bypass Hong Kong for Singapore or Tokyo. The main reason is our lack of a modern entertainment complex with adequate seating capacity for promoters to recoup their costs.

A recent project in west Kowloon for such a development fell through. Now as we report on Page 3 today, Convention Centre management director Cliff Wallace has stepped in to the breach to unite the entertainment industry for a applauded - and if it bears fruit, will finally put us on the international entertainment map.

We have been a laughing stock among the industry for too long. The government must support Mr. Wallace and ensure that this time, a purpose built, world-class facility is constructed. Only when the best in the world come here can we truly look at ourselves as being of international standing.