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February, 2008:

Booming Hong Kong Cuts Taxes As Surplus Soars

6 days ago

HONG KONG (AFP) — Hong Kong’s financial chief on Wednesday promised sweeping tax cuts for workers and businesses and abolished duty on wine and beer on the back of a record budget surplus.

In his maiden budget speech, Financial Secretary John Tsang said he would increase spending on health services and introduce measures to bridge the widening wealth gap and reduce air pollution.

Duty on beer and wine will be abolished with immediate effect in a move aimed at creating a regional wine trading and distribution market in the southern Chinese territory, he said.

Wine consumption in Asia has risen sharply in recent years and Tsang said industry forecasts suggested there would be “considerable growth in table wine spending in this region.”

Tsang said the giveaways were made possible by a record budget surplus estimated at 115.6 billion dollars (14.8 billion US) in the year to March, four and a half times the government’s forecast and nearly twice as much as last year’s figure.

The territory’s reserves will reach 484.9 billion dollars, he said.

Tsang, who took over as financial chief last July, attributed the surplus to higher-than-expected tax revenues from the city’s booming stock and property markets as well as company profits and salaries.

Income taxes — already among the lowest in the world — will be cut to 15 percent in 2008-09 from 16 percent, while the corporate tax rate will fall to 16.5 percent from 17.5 percent.

Tsang announced a one-off 75 percent income tax rebate, up to a 25,000-dollar ceiling, and a rise in various tax allowances. Property taxes will also be subject to a one-off 75 percent rebate, up to a 25,000-dollar limit.

To combat worsening pollution, the government will introduce tax concessions for environmentally-friendly commercial vehicles and for companies that use green machinery and equipment.

The huge spending spree means Hong Kong will incur a 7.5 billion dollar deficit in 2008-09, Tsang said.

But credit agency Standard and Poor’s said it would not affect Hong Kong’s rating.

“This stance is prudent in view of the uncertainties over near-term fiscal performance,” said S and P credit analyst Kim Eng Tan.

Tsang said he would use this year’s budget surplus to help elderly or disadvantaged people and those on low incomes who had not benefited from the city’s economic boom but had been hit hardest by rising prices.

He announced one-off welfare payments, an increase in old age and disability allowances and increased spending on health care.

The government also plans to use its swelling coffers to boost tourism, building a new cruise terminal and increasing the capacity of its two runways to meet the expected growth in air traffic, with a third runway being considered.

Looking ahead, Tsang said he was “cautiously optimistic” about the city’s economic prospects for 2008, forecasting growth of between four and five percent in 2008/09 with inflation at 4.5 percent.

Tsang said the impact on Asia and Hong Kong of the credit crunch in the United States and Europe had so far been limited, but warned the city could be hit by the resulting global uncertainty.

“We should be aware of the possibility that the situation might deteriorate in the near future and that the fallout may be prolonged,” he said, adding he would be cautious about future spending in the face of a global economic slowdown and rising inflation.

Tsang said the economies of Hong Kong and China were becoming more closely integrated, with the mainland economy now at a crucial stage of change.

He cautioned that the upgrading of mainland industries would bring more competition to Hong Kong, while measures to cool China’s overheating economy could also impact the city.

Should The Proposed Incinerator Be Built?

Updated on Feb 29, 2008 – SCMP

The government plans to build an incinerator either in Tuen Mun or on Lantau. I appreciate that building an incinerator can help reduce the pressure on Hong Kong’s landfills.

In Tuen Mun, it has been argued, after the treatment of trash at the incinerator, the energy produced could be easily transferred to the power grid.

In spite of all this, I do not support the construction of the incinerator.

I think it will be able to cope with only about one-third of Hong Kong’s trash.

The remainder of the city’s waste will still end up being transported to our landfills.

This may allow us to use the landfills for a longer period, but it does not solve the main problem.

Also, I am concerned that the incinerator may cause pollution which could damage the environment. This would be particularly bad for residents living near the site.

If it was built on Lantau, I am worried about what effect it would have on the surrounding landscape and on marine flora and fauna.

It would cost a lot to build and its annual operating costs would also be expensive.

It could end up being a financial burden for the city’s taxpayers.

The government can learn from Japan and Singapore. Both are making great progress with recycling.

If all of us work together at recycling, this would be far better than having an incinerator.

Ho Mei-ying, Cheung Sha Wan

Hong Kong Willing To Share Data On Incinerator

HK willing to share data on incinerator

Cheung Chi-fai – Updated on Feb 29, 2008 – SCMP

Hong Kong was willing to share information and exchanges about the possibility of locating a waste-to-energy incinerator in Tuen Mun following concerns over its impact raised by Shenzhen residents, the environment chief said yesterday.

The remark came at a meeting with Tuen Mun District Council at which officials failed to convince the local politicians to support the project.

They instead passed a motion rejecting moves to site the incinerator locally.

It was the first time senior environmental officials had consulted the politicians since two potential sites were announced last month for the 3,000-tonne capacity incinerator – at the ash lagoon in Tsang Tsui or at Shek Kwu Chau off Lantau.

This week, Shenzhen residents vowed to oppose the plan, fearing that emissions from the plant might affect their health.

Some councillors said numerous polluting factories had been built in Tuen Mun and were upset that their district now looked even worse environmentally than Shenzhen.

Yim Tin-sang said that just a few kilometres away the Shekou district was being given a facelift to turn it into a prosperous commercial-residential zone along their coastline.

“But look at us, we are trashing our beautiful coast with landfills and incinerators,” he said.

Chan Wan-sang asked whether Hong Kong would consult Shenzhen residents about the incinerator.

Anissa Wong Sean-yee, director of environmental protection, who attended the meeting, did not directly address the issue, but she stressed there was uncertainty on the site selection before an environmental assessment was carried out.

2008 Hong Kong Government Budget

Chance To Cut Tobacco Sales Squandered 

Feb 29, 2008 – SCMP

Wednesday’s budget was a shocking indirect declaration from the government that it does not care about the health of our society.

Firstly, Financial Secretary John Tsang Chun-wah, failed to raise tobacco taxes, now for the eighth year in a row, making these taxes less than any other developed country. Had he doubled the tax rate, in order to be closer to the World Health Organisation guidelines, the government would have sent a message that it wants to reduce youth smoking by 32 per cent. There is a direct correlation between the reduction in smoking uptake rates and the price of cigarettes. Similarly, it would have resulted in an estimated drop of 20 per cent in adult smokers, and would have generated HK$2.5 billion in new revenue which could have been used for health, welfare and the environment.

In fact, failure to raise the price of tobacco is a direct contravention under the terms and conditions of the WHO’s Framework Convention on Tobacco Control. China is a signatory to this framework, and our government is obliged to follow this doctrine. Our own Dr Margaret Chan Fung Fu-chun, director-general of the WHO, said that “this is now one of the most widely supported treaties in the history of the United Nations. This is primary prevention at its best”.

Secondly, the government’s plan to subsidise electricity rates by HK$1,800 per household is a move that blatantly snubs the environment and runs counter to our leadership’s moral obligations to protect it. This sends the message that consumers can use even more electricity and not worry about conservation, efficiency or price impacts which should come with a properly-designed electricity pricing system based on peak demands. One would be hard-pressed to find any administration in the world today that would dare to be seen to encourage more energy consumption. Instead, these funds could have been used to create a modern, forward-looking energy policy.

The budget has demonstrated that the government has little consideration for our health. It is thus not hard to understand why our air quality objectives have not been revised in 20 years. The government’s failure to uphold its civic obligations has now further eroded its ability to convey trust. This confidence is greatly needed in order for our community to believe that something is being done to improve our environment.

Douglas Woodring, chairman, environmental committee, American Chamber of Commerce

Better Air Quality Engagement

Council for Sustainable Development’s Report on the Better Air Quality Engagement Process

Hong Kong has wrestled with the challenges of development over the years. Transformed from a manufacturing-based city to becoming a provider of the sleek service operations that are now on offer, Hong Kong has been successful in re-inventing itself as the need calls. But the urgency now lies with tackling our air pollution problem.

For many years, the price for Hong Kong’s development has been the environmental impacts caused by our energy consumption and transport usage. Our air quality has steadily declined as a result of the boosted levels of pollutants emitted and the lowered visibility that obscures our world famous landmarks like Victoria Harbour - and our health has suffered as a result.

It is not just our health either; Hong Kong’s image as a modern city is not given credence by the state of our air. Companies are facing problems attracting talent to our shores, the efficiency of our workforce is being affected and our young and vulnerable are facing severe challenges from breathing polluted air. From Government officials to the grassroots, the message has been clear - it is time to act.

This report by the Council for Sustainable Development which represents the fourth stage in its engagement process seeks to bring about a fundamental change in Hong Kong’s approach in tackling air pollution and aims to strengthen the political intent behind the Hong Kong Government’s efforts in this area as well as freeing up much needed resources to resolve this urgent matter.

Working with the Government, business and civil society, the Council is a platform for the views of parties with different interests to converge with the joint aim of resolving Hong Kong’s air quality problem. The Council has carried out one of the most intensive and comprehensive public engagement process in Hong Kong’s history. Over 80,000 people responded to the Council’s call insisting that action be taken to protect the health of Hong Kong’s citizens – on the strength of this number – the Council now believes it has the right to speak out on behalf of the community.

The Council’s report is structured as follows:

  • Background – in which the Council explains the basis for its work and the process through which it engaged over 80,000 stakeholders.
  • The Engagement Process – what the findings showed from the engagement process and what we have learned.
  • Recommendations – the Council provides its recommendations covering the major sectors including power, transport and business and invites the Government to respond.

The records of the written submissions received by the Council during the engagement process can be found on http://www.susdev.org.hk, as part of the Independent Evaluation of Feedback by the Social Sciences Research Centre of the University of Hong Kong.

See the full Council for Sustainable Development’s Report on the Better Air Quality Engagement Process here

Incentive Offered On Green Taxis And Buses

Cheung Chi-fai – Updated on Feb 28, 2008 – SCMP

The first-registration tax for commercial vehicles meeting stringent Euro V emission standards will be reduced or waived in the hope of improving roadside air quality.

Taxis, minibuses and non-franchised buses will enjoy a full tax waiver, while owners of goods vehicles will pay 30 to 50 per cent less, depending on their weight.

The government will lose at least HK$26 million in revenue if 15 per cent of new vehicles are cleaner models. But only two Euro V vehicle models are available.

According to the government’s timetable for upgrading vehicles, the Euro V standard – which reduces permissible emissions of nitrogen oxides by more than half from Euro IV levels – will become mandatory next year.

In April the government launched a scheme offering HK$3.2 billion in grants to replace pre-Euro and Euro I commercial vehicles. But Johnson Li, secretary of the Motor Traders Association, said he feared some people now running old diesel vehicles might further delay their plans to replace them, given that Euro V vehicles were nearly non-existent in the market.

He said it was difficult to say whether the extra concession would give a boost to the grant scheme. Only about 5 per cent of 74,000 eligible vehicles have been replaced.

Aaron Yeung Wai-hung, director of Argo Bus Services, said that under the new scheme, the savings would be about 3 per cent of vehicle prices.

“We are still struggling in getting the new Euro IV vehicles operating smoothly. Many of these vehicles we brought in under the grant scheme had problems with their engines.”

Financial Secretary John Tsang Chun-wah also proposed making capital expenditure on environmentally friendly equipment 100 per cent tax-deductible in the year it is bought.

China Factories Go Central

Squeezed in the south, China Factories Go Central

Reuters – Thursday February 28 2008

By Simon Rabinovitch

ZHENGZHOU, China, Feb 28 (Reuters) – China’s central provinces are vying to wrest the crown of cheap manufacturing heartland from the country’s south, luring factories with tax breaks, inexpensive labour and looser pollution controls.

Reports of smaller exporters, such as textile and footwear firms, buckling under the weight of costlier wages and a stronger yuan have been accompanied by dire warnings that China will lose its manufacturing industry to cheaper rivals such as Vietnam.

But businesses and analysts say the lower costs and incentives that once made the Pearl River Delta so attractive make inland China its best alternative.

Top leaders in Beijing, who convene their annual rubber-stamp parliament next week, are calibrating policy to encourage such a shift to help spread the country’s development more evenly.

“This is only the very early stage of the relocation process,” said Clement Chen, chairman of the Federation of Hong Kong Industries, which represents thousands of medium-sized businesses with plants just across the border in mainland China.

And it’s not only small companies making the trek.

To cut costs by as much as 30 percent, Unilever opened a factory in the central province of Anhui in 2003 that is on course to become its biggest manufacturing site in Asia.

It is hard to pin down how many factories in China’s southern manufacturing hub are actually closing.

The upper range of industry estimates is 15,000, or roughly 20 percent of factories there, though the Guangdong trade bureau has said fewer than 300 are shutting up shop. Most are smaller outfits owned by Hong Kong and Taiwanese investors.

“As far as our (albeit limited) evidence tells us, the large majority of companies are moving inland rather than offshore when their coastal production base becomes prohibitively expensive”, Stephen Green, head of China research at Standard Chartered Bank in Shanghai, wrote in a report.

Firms in the south are now unable to fill up to 11 percent of jobs because the flow of migrant workers has tapered off, the Guangdong government said last week. Those moving to central China have fewer staffing worries: they have gone straight to the source of labour.
“All the workers in coastal areas come from outside provinces. But here, there’s 100 million locals,” said Zhou Bin, manager of a medical equipment factory in the central province of Henan owned by Huacheng Yuanyi group headquartered in Hong Kong.

Zhou, with the eager smile of a salesman, presses glossy pamphlets into the hands of potential recruits at a busy job fair in Zhengzhou, capital of Henan.

“It’s getting more competitive to attract good people with more factories coming here, but we’re still in a better position than down south,” he said.

GO CENTRAL

The central government, always keen to coin pithy slogans, launched its “rise of central China” campaign in 2004. In concrete terms that has translated into business incentives, many of which have only been unveiled in recent months.

Tax breaks given to exporters for capital investments and imports of material have been scrapped in coastal provinces but maintained in inland China, Chen said.

“Privileges that enterprises had enjoyed over the past 20 years will continue to be enjoyed in the central provinces,” he said. “And the provinces are competing against each other to attract existing enterprises.”

Relocating to the centre may also give manufacturers a reprieve, albeit an illegal one, from China’s new labour contract law, which exporters say has soured their business prospects.

The law, which gives workers more collective bargaining rights, may add 10 to 25 percent to wage costs, according to industry estimates.
But the vast labour pool in central China, where good work has been scarce, means job seekers there are still leaping at opportunities without demanding formal contracts from employers, the Dahe Daily in Henan reported earlier this month.

Foreign direct investment (FDI) figures are beginning to tell a tale of catch-up between the regions.

The six central provinces of Anhui, Henan, Hubei, Hunan, Jiangxi and Shanxi attracted 46.2 percent more FDI in the first nine months of last year than in the same period of 2006.

That easily topped the 20.2 percent increase in flows to Guangdong through October, though central China is admittedly starting from a much lower base.

WRONG STRATEGY?

Critics say luring businesses to locales thousands of miles from the coast is not the ideal development strategy.

The government should instead encourage migration to urban centres by reforming the hukou, or household registration system, which makes it tough for rural families to move to the city, said Ran Tao, an economist at the Chinese Academy of Sciences.

“Labour is cheaper in inland China, but it is far from the international market and would be more efficiently used in coastal areas,” Ran said.
The government, though, has been loath to overhaul the hukou system for fear of massive population flows swamping big cities.

In the meantime, companies will look to keep costs down by breaking new ground far from the coast.

At a construction site near Xinxiang in Henan, a building manager, surnamed Zhao, offers a simple explanation for why his southern company, Guangzhou Senshi Fashions, chose the central province for a new clothing factory.

“There’s a lot of labour here,” he said. “And it’s cheap.” (Editing by Jacqueline Wong)

Building Upgrades To Fight Global Warming

February 28, 2008 – Environment

Upgrading energy efficiency in buildings is a cost-effective measure to address growing concerns about global warming and local air quality, as buildings account for 89% of Hong Kong’s electricity consumption, Permanent Secretary for the Environment Anissa Wong says.

She said at a public consultation forum today environmental protection is one of the Government’s major policy areas. The Government is committed to promoting energy efficiency and conservation, and to achieve the energy intensity reduction target of at least 25% by 2030 – with 2005 as the base year – set by the Asia-Pacific Economic Co-operation Leaders.

Today’s forum, staged by the bureau and chaired by Advisory Council on the Environment Chairman Lam Kin-che, attracted 120 people from various sectors including green groups, engineering professionals, property management firms and real estate developers to exchange views on the proposed mandatory implementation of the Building Energy Codes.

A public consultation was launched in Decembmer on a proposal to introduce mandatory implementation of Building Energy Codes for certain new and existing buildings to upgrade building energy efficiency, alleviate global warming and combat air pollution.

For more details click here. The consultation will end March 31. People can post comments to 46/F Revenue Tower, Wan Chai; fax them to 2123 9438; or email them to bec_consult@enb.gov.hk.

The bureau will consider views and comments received from the community during the consultation when finalising the proposal details.

Fudge Of Smog Figures Denied

Peter Simpson in Beijing – SCMP – Updated on Feb 28, 2008

“Beijing officials yesterday denied claims they had falsified pollution monitoring levels in a desperate bid to gloss over the capital’s poor air quality ahead of the Olympics.

It was reported last month that Chinese scientists had fiddled with statistics by dropping data from two of the city’s pollution-monitoring hot spots from their reports.

“This has not happened. This phenomenon does not exist. This is a misunderstanding,” Du Shaozhong, of the Beijing Environmental Protection Bureau, said.

“The monitoring stations have been improved. Our monitoring stations are larger, there are more of them and they are placed according to national regulations.”

US environmental consultant Steven Andrews also claimed in the report that without the changes made two years ago, Beijing would have fallen far short of its targets for reducing pollution levels in 2006 and last year.

But Mr Du said the accusations were unfair and that authorities had used monitoring devices like in “other cities” around the world, and “are constantly adding more and larger monitoring stations”.

“The statistics are accurate,” he said, adding that a website was available to the public to check the measuring stations’ data.

Pollution remains a major hurdle for Beijing to overcome as it seeks to allay fears that the Olympics will be blighted by smog.

In recent weeks, several prominent athletes and coaches have expressed concern about pollution, fearing it will affect athletes’ performances and health during the Games in August.

Last month, celebrated Ethiopian Olympian Haile Gebrselassie threatened to boycott his races because of fears about the capital’s air quality. And the International Olympic Committee said last year it would not hesitate to reschedule endurance events if pollution levels posed a health threat.

“The air quality in Beijing will definitely be up to international standards for the Games. Our targets will definitely be met, there is no doubt about that. We will honour all environmentally related pledges made,” Mr Du said.

Beijing had spent US$16.8 billion tackling pollutants over the past decade, he said.

Factories in neighbouring provinces will close and cars will be selectively removed from the roads in Beijing when the Games are on.

“); document.write(tmpText); Beijing officials yesterday denied claims they had falsified pollution monitoring levels in a desperate bid to gloss over the capital’s poor air quality ahead of the Olympics.

It was reported last month that Chinese scientists had fiddled with statistics by dropping data from two of the city’s pollution-monitoring hot spots from their reports.

“This has not happened. This phenomenon does not exist. This is a misunderstanding,” Du Shaozhong, of the Beijing Environmental Protection Bureau, said.

“The monitoring stations have been improved. Our monitoring stations are larger, there are more of them and they are placed according to national regulations.”

US environmental consultant Steven Andrews also claimed in the report that without the changes made two years ago, Beijing would have fallen far short of its targets for reducing pollution levels in 2006 and last year.

But Mr Du said the accusations were unfair and that authorities had used monitoring devices like in “other cities” around the world, and “are constantly adding more and larger monitoring stations”.

“The statistics are accurate,” he said, adding that a website was available to the public to check the measuring stations’ data.

Pollution remains a major hurdle for Beijing to overcome as it seeks to allay fears that the Olympics will be blighted by smog.

In recent weeks, several prominent athletes and coaches have expressed concern about pollution, fearing it will affect athletes’ performances and health during the Games in August.

Last month, celebrated Ethiopian Olympian Haile Gebrselassie threatened to boycott his races because of fears about the capital’s air quality. And the International Olympic Committee said last year it would not hesitate to reschedule endurance events if pollution levels posed a health threat.

“The air quality in Beijing will definitely be up to international standards for the Games. Our targets will definitely be met, there is no doubt about that. We will honour all environmentally related pledges made,” Mr Du said.

Beijing had spent US$16.8 billion tackling pollutants over the past decade, he said.

Factories in neighbouring provinces will close and cars will be selectively removed from the roads in Beijing when the Games are on.

Banks Warned Against Developers, Polluting Borrowers

Banks Warned Against Developers, Polluting Borrowers

CBRC wary over loans guaranteed by local governments

Reuters in Beijing – Updated on Feb 28, 2008

The mainland’s banking regulator on Thursday warned big lenders of the risks of lending to real-estate developers and highly polluting or energy-intensive firms, ordering them to step up controls to prevent a rebound in bad loans.

Despite a drop in their non-performing loan ratio last year, banks should not be complacent because they faced stiff challenges ahead, China Banking Regulatory Commission vice-chairman Jiang Dingzhi told executives from the big lenders.

“Banks should carefully implement the government’s macro control policies and effectively prevent various dangers,” he said, according to the watchdog’s website.

As well as singling out property developers and industries that consumed a lot of energy and caused pollution, Mr Jiang told banks to keep a close eye on manufacturers with obsolete plants and firms whose loans are guaranteed by local governments.

Highlighting the risks of real-estate lending, figures from the Shanghai banking regulator show two billion yuan (HK$2.18 billion) in property loans went sour last year, twice as much as in 2006, according to state media.

More than one quarter of the new loans extended by domestic banks in Shanghai last year went to real estate, and by the end of last year the sector accounted for about 32 per cent of their outstanding loans, the 21st Century Herald reported on Thursday.

The National Audit Office issued a separate warning that banks were lending too much to finance road construction – their exposure was 800 billion yuan at the end of 2005.

Bad management of some roads and insufficient toll collections meant many banks were finding it hard to recoup their loans, state media said.

The bank regulator said the four banks among the Big Five that are listed on the stock market – Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Bank of Communications – had an average non-performing loan ratio of 2.87 per cent last year, down from 3.6 per cent a year earlier.

The quartet improved their return on assets to 1.11 per cent last year from 0.88 per cent in 2006.

The other member of the Big Five, Agricultural Bank of China, is still burdened by a high NPL ratio because the state has yet to carve out its bad loans and recapitalise the bank.

Including ABC, the five largest banks had a NPL ratio of 8.05 per cent at the end of last year, down 0.55 percentage point from a year earlier.