Ideas on Setting the Agenda for the Services Promotion Strategy Group
A paper by the Hong Kong Coalition of Service Industries
April 1997

Introduction

1. The Hong Kong Coalition of Service Industries is pleased and honoured to be represented, through its Chairman, on the Services Promotion Strategy Group.
2. It has been the HKCSI's long-held position that promotion of services has to be, by nature, a joint and multi-sectoral effort. This Strategy Group and the new Business and Services Promotion Unit of the Financial Secretary's Office will together provide a useful structure to coordinate and enhance the work among government, implementation agencies, client industries, and their overseas counterparts in the promotion of Hong Kong's service sector, in the end ensuring that the efforts of different organisations complement each other effectively.
3. As we look forward to participating constructively in this Strategy Group, we would emphasise the need for a broader view of promotion. "Promotion" should be more than just marketing Hong Kong's services abroad but should also include the promotion of high standards and good quality, as well as an efficient regulatory system, which together underlie Hong Kong's competitiveness.
4. We believe that in the course of setting its agenda and deciding priorities and in view of the diversity of service sector issues, it would be useful for the Strategy Group to first have a flavour of some of the concerns of the service industries represented by the HKCSI. It is with this in mind that following consultation with our members, we prepared the following ten issues for the Task Group's consideration. At this stage these are merely thoughts, they are not ranked in order of priority and they are not intended to be definitive and new topics and issues will no doubt develop as the Strategy Group moves along.

Strategic issues

One: Future role of Hong Kong

5. Among private enterprises it is often the case that those with a vision - and know how to work towards it - will prosper. It follows that Corporate Hong Kong as a whole - the "Hong Kong Inc." - should also benefit from discussion on a possible future vision. Although it may not be possible nor indeed desirable for a concensus to be reached, the thought process itself should be well worth the while.
6. Hong Kong is a service centre for the region and a key question now being discussed is how this status is to be maintained and enhanced. In light of the ongoing discussion about industrial policy, global liberalisation, growth of China and the Asia Pacific, etc., the future role of Hong Kong may need to be re-examined in the longer term.
   • Should "regional service centre" continue to be Hong Kong's primary role?
   • Should there be any change of emphasis, e.g.

     a global service centre?

     a regional/global industrial and service centre?

   • If there were to be no change in emphasis and Hong Kong's key role were to remain a regional service centre, how should this role be maintained or enhanced?

Two: The information revolution

7. The LegCo Information Panel has convened a number of meetings on the subject of National Information Infrastructure (NII). From the various presentations by industry, academic and government bodies, a strong message has come across. There is a remarkable concensus of views that Hong Kong needs urgently to upgrade its information infrastructure and to enhance its ability in the everyday application of information technology.
8. Hong Kong needs to develop a strategy to position itself for the information society of the future. There is a clear need to develop advanced infrastructure and common standards upon which applications can be developed and implemented. Just as cities with few telephones or fax machines would not be able to flourish in the modern world, Hong Kong would not be able to compete if it did not apply IT more vigorously whereas in other cities there is a computer in every room.
9. An advisory committee on information infrastructure has been set up by the Office of Telecommunications Authority. This will no doubt play an important part in the deliberation over NII. More importantly, however, government at the highest level should start formulating a policy on NII. It should seek to define its role in promoting the use of NII and address issues such as formulating education and training strategies, incentives to use and invest in NII, the legal and regulatory framework for NII application, and research and development of business solutions for small and medium sized enterprises.

Three: Work space revolution

10. A number of developments like the Internet, the de-industrialisation (or, in the context of an industrial policy, a re-industrialisation) and the high cost business environment have led to a need to re-examine current space usage assumptions. A failure to anticipate the growth of the service economy has led to the current problem over obsolete industrial buildings. If the same is to be avoided for the current stock of office buildings, a process should be established to identify optimum office space usage solutions in light of changes in working routines, activities and relationships. This could also turn out to be what holds the key to competitiveness for businesses in future.

Four: Strategic land use for Kai Tak

11. After the relocation of the airport to Chek Lap Kok, Kai Tak and the associated Kowloon Bay reclamation will be the biggest and most valuable piece of real estate in metro Hong Kong. There will be no other site in Hong Kong for which there will be the same degree of freedom to plan for the best land use pattern on such a large scale.
12. Taking account of the importance of the site in the strategic context of Hong Kong, there should be widespread consultation between government and industry over how the land should be used. There will be competing demands for the use of land from residential, community and business uses and it is important to ensure that these demands are met in the most complementary manner. For example, the proposal from the freight forwarders of retaining the existing air cargo terminal as a downtown freight-forwarding or consolidated transportation centre should be seriously considered, while the travel and tourism sector would like an integrated development with adequate provision of hotels, tourist attractions and harbour fronting land use. There has also been suggestions for Hong Kong to be developed as a Geneva-like centre for international agencies in Asia, in the context of the growing importance of the Asia Pacific region. All these should be carefully examined.

Competitiveness and cost of business

13. A number of studies have given Hong Kong a high ranking in the world league of competitiveness. There is, however, no cause for complacency, as Hong Kong's trading partners in the region have also made great strides in improving their competitiveness. Perhaps a study should be conducted to review the strategies of Hong Kong's regional neighbours in enhancing their competitiveness, so as to provide a reference for discussion and debate on the needs of Hong Kong in improvement our own competitive position.
14. There are many aspects to competitiveness but for the purpose of this paper, we would like specifically to comment on the subject of the workforce, taxation, and port and airport charges.

Five: The changing workforce

15. With the rapid restructuring of Hong Kong's economy, the presence of displaced workers has become a fact of life. This is a situation which Hong Kong should not accept.
16. The current solution is to retrain these workers but as the HKCSI has pointed out repeatedly, retraining programme will only work to a limited extent. While skills can be retrained, attitude and motivation - which is a key requirement of many service industries - often cannot. What is needed is a re-orientation of the worker towards service sector careers, rather than just re-skilling.
17. In the early days of Hong Kong's industrialisation, workers took pride in being able to work in factories. Now the same workers rarely feel proud of being in a service sector job. The challenge is to create a positive attitude in the workers towards service sector careers, and motivating them to provide quality service. This would remain a key challenge for the retraining programme but at the same time, solutions that are based on the working of the market should be developed. At the end of the day, market solutions (such as encouraging people to develop their own small businesses) would be more effective than administrative solutions (such as the retraining scheme).

Six: Taxation

18. An important element in Hong Kong's success has been its continued recognition as a low cost tax centre from which to do business in and from. However, over the years our competitors, particularly within the Asean region have aggressively reduced their level of taxation and have created specific incentive packages to attract overseas investors.
19. Given Hong Kong's substantial reserves and reductions in margins of taxation between ourselves and our regional competitors, consideration should be given to reducing Hong Kong's base tax rates to restore the margin of competitiveness previously enjoyed.

Seven: Port charges

20. Over the past few years the shipping and export sectors have raised a concern over what they perceive as very high terminal handling charges (THC) presently being imposed by the container terminal operators. They have raised the concern that the high THC is disadvantaging Hong Kong exporters and that if charges were not brought down more and more cargo flows might avoid Hong Kong.
21. As a matter of principle, the pricing of terminal services should be a matter that is best dealt with by the working of the market. The HKCSI would not, therefore, support government control over commercial pricing. At the same time, however, we appreciate that the level of THC is a genuine concern of exporters and shipping lines. The port is a key - some would say the key to Hong Kong's economy. Given that 95% of Hong Kong's general cargo movement is carried out in shipping line containers, and that Hong Kong presently is the largest volume port in the world, this matter merits attention as it could have important implications on Hong Kong's overall competitiveness.

Eight: Airport charges

22. The airline industry recently raised a concern over the anticipated rise in airport landing charges at Chek Lap Kok.
23. We agree with the Airport Authority that Chek Lap Kok should be run on prudent commercial principles and we find no reason to doubt the Airport Authority's ability to do so. However, we do understand the travel industry's concerns over a possible perception of Chek Lap Kok as an expensive airport. Irrespective of what the final level of airport charges would be, it is important that Chek Lap Kok not be perceived as an "expensive airport".
24. Apart from being a business itself, the airport is a basic industry which facilitates almost all other businesses. Of the 14 sectors identified by the Financial Secretary in his campaign on promotion of services, half are directly affected by the way the airport operates, namely:
    • Air transport
    • Import and export trade services
    • Land transport services
    • Maritime transport services
    • Professional services
    • Tourism, convention and exhibition services
    • Wholesale and retail services
25. In view of the increasingly more competitive global and regional environment in aviation, it is important to get Chek Lap Kok right at the beginning without having to make costly adjustments to rectify any miscalculations. To that end, there should be more regular consultation between government, the Airport Authority and airport users on the operation of the new airport, including the structure and level of user charges.

Trade and investment promotion

Nine: Outward investment and imports

26. In trade and investment promotion there is an emphasis on promotion of exports and inward investments. This has traditionally been the case for goods and it appears also to be the case as we move into promotion of services. This is a mercantilistic approach. Imports and outward investments have been and will continue to be important to the service industries of Hong Kong.
27. In the past years the development of Hong Kong's service industries has to a large extent been brought about by the outward investments Hong Kong-based firms made in China and other parts of the region. Without these Hong Kong would not have so much transportation, warehousing, import/export, banking, insurance and finance, and other service activities we have today.
28. On a trade policy level the matter is partly taken up by the negotiations of the General Agreement on Trade in Services over the "commercial presence" mode of delivery. Ona practical level, however, there should be a role for government in cooperation with the private sector to look into ways of minimising problems investors face when they invest outside Hong Kong. The government should explore what could be done to help Hong Kong firms overcome unfair treatment overseas. In the case of banking, for example, helping local banks get branch licences to operate overseas is a way of promoting Hong Kong's own service sector. A regular dialogue with the relevant authorities in China, for example, should be a useful step.
29. It is important also to reduce barriers to imports. The benefits of free access for goods import is clear to Hong Kong. The same should be true of services. While there is no tariff on services imports, barriers do exist in various forms. Although even more barriers exist in Hong Kong's trading partners, this should not be a justification for Hong Kong to maintain its own. A concerted effort is needed to identify these barriers and to knock them down step by step in order to develop a level playing field and allow the most efficient service providers to operate in Hong Kong.

Ten: Promotion of services into China

30. On an everday level the service industries are already promoting their businesses into China through various means. On a more general level, a major issue of concern is that of standards and quality of services provided in China. Here a big potential exists in the promotion of Hong Kong services to China through education and training of Chinese officials, managers and professionals in the modern ways of business practice. This is acknowledged by mainland Chinese officials and on a practical level it is being carried out by the many private sector bodies which have developed an association with their counterparts in China. The concept could be further developed with the assistance of academic institutions in Hong Kong.
31. The benefits of such an association is apparent. It not only consolidates Hong Kong's image as the "expert" of Asia in modern service business practices, but also provide, in the longer term, a source of qualified personnel for Hong Kong-based operations in the mainland. It is hence also an indirect means of enhancing Hong Kong's exports of services.
32. While such an association is often effected by the private sector, the public sector may have a facilitating role in the overall marketing of Hong Kong's experience in management of the systems and process of modern service industries. In the broader context, since most corporations in Hong Kong have a China strategy, Hong Kong Inc as a whole should also examine the need or otherwise for an overall "China strategy" in promotion of services.

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