Position Paper on the Services Support Fund
Hong Kong Coalition of Service Industries
June 1997

1. The HKCSI is a keen supporter of the "Services Support Fund" (SSF) established by the Financial Secretary and announced in his 1996 Budget Speech. Indeed, in the HKCSI's submission to the Financial Secretary on promotion of services in December 1995, the Coalition made 29 recommendations including the following:

   Government should consider providing support facilities for research and development for service industries, using the support schemes administered bu Industry Department for manufacturing as a reference.

2. When the SSF was created an amount of $50 million was allocated to the Fund. The Coalition believed that this amount was too small considering that the service sector occupies 84% of Hong Kong's GDP (91% if utilities and construction are included). However, on the understanding that the money was an initial allocation and that as a new scheme there is inevitably a tentative element in the Fund, the Coalition accepted that $50 million was a good starting point and encouraged its constituent member to support the Fund. We believe that the best justification for more funding for the SSF would be an enthusiastic and high-quality response to the Fund. We note with pleasure that this has indeed been the case.
3. In the first batch of applications, 112 applications with a total requisition of $322 million were received. In other words, the SSF was six times oversubscribed. Of the 112 applications, 14 have been approved with a total committed funding of $28 million. All of these approved applications are high-quality projects with demonstrable multiplier effects for the service sector, in line with the aim of the Fund.
4. Although delighted by the enthusiastic response, we were slightly uncomfortable that the small size of the Fund meant that a large proportion of the applications - 98 out of 112, or seven out of every eight applications - would have to be rejected. We believe the 14 approved projects succeeded because they are among the best of the proposals. We also believe that many of the remaining proposals have considerable merits and would have been sympathetically considered had more funding been available.
5. All proposals should ultimately be decided on the basis of their merits. To have projects not supported purely because of insufficient funding, will be contrary to the aim of the Fund which is "to provide financial support for projects which are beneficial to the overall development of Hong Kong as a service centre". It will also send a wrong message to other potential applicants that the SSF vetting committee is being unnecessarily "tough".
6. One particular feature of the initial 112 applications is that more than half (60) have come from academic institutions, out of which only 2 were among the approved list. Whilst many such applications have been rejected because they have not entirely satisfied the criteria of the Fund, for example, by being too acadmically oriented, we believe the time and effort which academics spent preparing these applications should not be ignored. Rather, industry should be encouraged to tap into the wealth of wisdom of the academic community and we believe that many of the academic proposals, when suitably modified with a much more practical and industry-oriented angle, can be turned into viable and valuable projects.
7. What remains of the Fund now - $22 million - is clearly too small. It risks being a dampener on people's enthusiasm rather than a serious call for contribution from the various sectors devoted to the development and promotion of the service industries.
8. In April 1997 the HKCSI convened two meetings with the academic and business community respectively to discuss and evaluate the working of the SSF and to gauge the response from SSF "users". From these meetings we concluded that interest in the Fund is still very strong but urgent action is needed if government is to really maximise value out of the SSF.

General recommendtions

9. We recommend that after the current batch of applications have been considered, there should immediately be an injection of funding of at least double the initial amount, i.e. $100 million, into the SSF.
10. In addition, we recommend that government give an unambiguous message that this Fund be made a rolling process. Whenever the balance in the Fund falls below a certain level, e.g. $25 million, another injection of fund should be made to top up the amount to $100 million.
11. For the longer term, the division of funding support into manufacturing and services is not sustainable. Hong Kong does not thrive on either manufacturing or services alone, but on the combination of the two. The way forward should be to combine the funding for manufacturing and services, although the two-tier vetting structure may be retained.

Recommendations on the working of the SSF

12. As a result of our meeting with the academic and business community, a number of further recommendations have been developed on the working of the SSF, as follows.
13. Most applicants would like to see more transparency in the vetting process. Every project which is rejected must have been rejected for a reason, and they would like to know the reason. Understandably, disagreement over the reasons for rejection will arise and it would be a great burden to the vetting committee if appeals were allowed, but applicants would prefer a system where reasons for rejection were given, even if appeals were not allowed.
14. There should be a mechanism which allows applicants to make a short presentation to the Vetting Committee, especially for projects that are considered "marginal" and that exceed certain budget (e.g. $3 million).
15. As it stands the official aims and criteria of the Fund are couched in very general language. Potential applicants would benefit from some guidance on the themes and topics which would be more relevant to the Fund. These need not be definitive but could serve as a useful indication for potential applicants in designing their proposals. If it is felt that Industry Department is not the right party to produce this guideline, the private sector should be encouraged to do so by publishing a list of priority areas of interest to them.
16. There should be a mechanism to follow up approved applications and to publicise the result of implementation of these projects.

(ends)

If you have any question, free to email us at csi@hkcsi.org.hk