Issuance of Government Bonds (Oral Question) ( 3 November 2004 )

DR RAYMOND HO (in Cantonese): Madam President, to provide funding for infrastructural projects as well as other investment projects, the Government has issued bonds worth a total of $26 billion in the market through government bonds and the Hong Kong Link 2004 Limited Retail Bonds. In this connection, will the Government inform this Council:

(a) of the total amount of the funds so raised that it plans to allocate for infrastructural projects as well as the details of the projects involved, including the names of such projects, the estimated amount of expenditure and whether the projects concerned are new projects or ongoing ones, and the total amount of funds that will be allocated for the new projects;

(b) as the 2004 policy address has stated that the Government plans to earmark an average of $29 billion per year for capital works projects for the next five years, and now that it has raised $26 billion through the issuance of bonds in the market, whether the expenditure on infrastructure for the financial year 2004-05 will be increased as a result; if so, of the details; and

(c) in the light of the keen market response to the issuance of government bonds, whether the authorities plan to issue bonds again; if so, of the details?

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Madam President,

(a) In his Budget speech delivered in the Legislative Council in March this year, the Financial Secretary stated that the Government hoped to achieve the following three objectives through the issuance of bonds: first, to fund infrastructure or other investment projects which will bring long-term economic benefits to Hong Kong as well as to provide greater flexibility in the management of public finance; second, to offer an additional investment option to both retail and institutional investors; and third, to promote the development of our bond market. In pursuing the first objective, the Government did not issue these bonds for the purpose of financing any specific infrastructure projects. All the funds raised through the issuance of these bonds have been credited to the Capital Works Reserve Fund Account for financing capital works projects.

(b) As stated in paragraph 38 of the 2004 policy address, the Government has earmarked an average of around $29 billion per year for capital works projects for the period up to 2008-09. In 2003-04, the actual expenditure for capital works projects was $31.4 billion. In 2004-05, the estimated expenditure for such projects is $32.9 billion. The average expenditure for these two years is more than $29 billion. We will continue to prepare the medium range forecast of the expenditure for capital works projects on the basis mentioned above, and will not adjust the expenditure for capital works projects in the short term because of bond issuance.

(c) We successfully issued the Hong Kong Link 2004 Limited securitization bonds and government bonds in May and July 2004 respectively, totalling $26 billion. These bonds have provided investors with an investment option with comparatively lower risk and stable return, and have attracted institutional investors from all over the world as well as local retail investors. Institutional investors who have subscribed for the bonds, though coming from various regions with different investment backgrounds, are all world-class quality investment institutions.

The two bond issuing exercises have helped promote the development of the capital market in Hong Kong . Through issuing bonds, we have successfully established yield benchmarks for government bonds of Hong Kong with different maturities in both local and overseas markets. This can serve as a reference for future bond issuance for organizations in the local public and private sectors. These bond issuing exercises have indeed enhanced the development of the local bond market and represented an important step in reinforcing our position as an international financial centre.

At present, we have no plan to further issue bonds. However, in view of the success of the bond issuing exercises in May and July this year, we will keep an open mind on issuing bonds to raise funds for our infrastructural developments and investment projects in the future.

Lastly, I would like to add that although the nearly $26 billion raised by issuing bonds has been credited as revenue to the cash-based accounts, it is in fact a loan, not revenue. The Government has to repay it in due course. We therefore should not expect the issuance of bonds will increase government revenue and solve the deficit problem.

DR RAYMOND HO (in Cantonese): Madam President, during the past few years, because of the economic depression in Hong Kong, many people, including myself, have suggested that the Government should make use of resources in the private market through issuance of bond to finance more infrastructure projects in order to solve the unemployment problem. In view of the keen market response to the issuance of bonds, why does the Government still turn a blind eye to the construction industry which has been badly affected by unemployment? Among the 300 000-odd workers in the industry, 16.3% are unemployed. The Chief Executive has publicly stated time and again that the unemployment problem would be solved by, for instance, embarking upon 169 municipal projects and loosening the strings of the recurrent expenditure purse. But why did the Secretary not deal with the problem in accordance with the policy objective of the policy address? Is it true to say that the Chief Executive makes his own pledge and the Secretary makes his own statement? May I ask the Secretary whether he will simply ignore the plights of the industry which is hard hit by unemployment and do nothing until its members are forced to take to the streets?

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Madam President, as I have just explained in the main reply, our average expenditure for capital works projects is around $29 billion. I hope Dr HO can understand that if the Government wants to embark upon any infrastructure projects which will incur expenditure, these projects have to bring economic benefits to us. We will not implement some projects simply for creating employment opportunities. Of course, these infrastructure projects will create employment opportunities, but we should not put the cart before the horse by implementing projects which are not effective and a waste of taxpayers' money and public money simply for creating job opportunities. I think this objective is very clear. We, as the Government, must optimize the use of public money.

    I would like to point out that 40 000-odd posts have been created by capital works projects launched over the past five years. I would like to remind the public that the number of workers required for infrastructure projects such as construction of the superstructure is often less than that required for constructing a building. The infrastructure projects carried out by the Government are often the so-called civil engineering projects which may not be able to create many job opportunities for construction workers.

    Noting that the property market has turned active recently, we hope that the employment situation of the construction industry can be improved since more and more construction companies will embark upon the construction projects of residential and commercial buildings, thus leading to an improvement of the unemployment situation. So, I do not quite agree with Dr HO's statement that the Government has not made any effort in this aspect. The Government has in fact committed a lot of resources to infrastructure works and honoured the pledge in the Chief Executive's policy address. So, it is not true to claim that the Chief Executive makes his own pledge and the Secretary makes his own statement. Our words tally with our actions.

DR RAYMOND HO (in Cantonese): Madam President, the Secretary has in fact not answered my question. I said the Chief Executive had mentioned the recurrent expenditure and solving the unemployment problem in this year's policy address. But the Secretary has not responded in the light of the policy address. In fact, I would like to ask the Secretary about the internal circular issued on 30 August 2002 . In the circular, he required all bureaux and departments to make sure that they could meet the recurrent expenditure before embarking upon any projects. Because of this, the development of some projects have been hindered, particularly the municipal projects or those related to the people's livelihood, and those which can create employment opportunities. Madam President, the Secretary has not answered this part of my question.

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Madam President, whenever Dr HO meets me, he will mention the circular issued in August 2002. He is kind of nostalgic. But I would like to take this opportunity to explain to all Members that the circular issued in 2002 is not binding forever. Rather, adjustments are made every year. So, I would like to do some clarification here. After the issue of the circular, some new circulars concerning adjustments of the annual recurrent expenses were issued respectively in 2003 and 2004. Why did we lay down such stringent conditions in 2002? It is because at that time, we were very worried that our fiscal deficit would be adversely affected by the economy. Therefore, we had stipulated very stringent conditions in the hope that all departments would seriously consider their capital works expenditure instead of embarking upon some road construction projects without prior consideration of their cost-effectiveness. So, we had slightly tightened the conditions. New guidelines were issued afterwards in 2003 and 2004. Dr HO should also know that our current policy does take into account the actual needs of some departments for some projects and less stringent criteria are adopted when dealing with these projects. So, Dr HO, the circular issued in 2002 is no longer effective.

PRESIDENT (in Cantonese): Dr HO, has your follow-up not been answered?

DR RAYMOND HO (in Cantonese): Madam President, sorry, the Secretary has not answered my question. Can I ask again and add something new?

PRESIDENT (in Cantonese): No, you cannot add anything new. You can only ask the question you have just asked. Perhaps you wait for another turn. Fine?

DR RAYMOND HO (in Cantonese): Fine, I will wait for a second turn.