LCQ4: Measures to assist Hong Kong enterprises
Following is an oral reply by the Secretary for Commerce and Economic Development, Mr Gregory So, to a question by Dr Hon Lam Tai-fai in the Legislative Council today (November 9):
It has been reported that the debt crises in Europe and the United States continue to aggravate, creating uncertainties in the external economic environment as well as impacting on the external trade of Hong Kong, and banks have begun to tighten their credits. Compared with the same period last year, the exports of Hong Kong products dropped by around 29% and 25% respectively in July and August this year. The Financial Secretary stated that Hong Kong's external sector would encounter considerably serious challenges in 2012, and the external trade of Hong Kong in the remaining months of this year and even until early next year did not look optimistic, while Hong Kong's export trade and even the overall economy as well as the job market might deteriorate. In the face of various uncertainties in the external economy, will the Government inform this Council:
(a) given that under the existing Small and Medium Enterprises Loan Guarantee Scheme, the Government acts as guarantor for up to only 50% of the approved loans, and the Small and Medium Enterprises Financing Guarantee Scheme of the Hong Kong Mortgage Corporation provides a loan guarantee ratio of up to 70% only, of the respective numbers of applications received and approved under the two schemes since January this year and the loan amounts involved; and whether it will reconsider making reference to the arrangements of the Special Loan Guarantee Scheme and expeditiously review and improve the two schemes, including raising the loan guarantee ratio to 80%, so as to meet the actual needs of the small and medium enterprises (SMEs) and address their financing difficulties; if it will, when the relevant work will commence; if not, of the reasons for that;
(b) whether it will reconsider reviewing afresh and amending section 39E of the Inland Revenue Ordinance for the purpose of enhancing the assistance provided to Hong Kong enterprises on the Mainland in upgrading and restructuring, boosting their sustainable competitiveness as well as developing the domestic sales market; if it will, of the details; if not, the reasons for that; and
(c) given that at present, many SMEs and trade associations have reflected that they are facing an increasingly harsh business environment and that the Competition Bill (the Bill) still contains a large number of contentious provisions and details, the confidence of SMEs in the present business environment has been undermined and they are discouraged from pursuing continuous development, whether the Government will consider deferring the completion date of the legislative exercise for the Bill from the current legislative session as originally scheduled to the next term of the Government, so as to avoid increasing the uncertainties faced by SMEs at present and deepening their worries; if it will, of the details; if not, the reasons for that?
(a) Regarding the SME Loan Guarantee Scheme (SGS) run by the Trade and Industry Department (TID), TID has received 1 580 applications from January to October 2011. 1473 applications have been approved, involving a total loan amount of $3.56 billion. As for the Hong Kong Mortgage Corporation Limited's (HKMC) SME Financing Guarantee Scheme (SFGS), which was launched on January 1, 2011, 212 applications were received from January to October 2011. 207 applications have been approved, involving a total loan amount of $719 million.
Since the introduction of the SGS in 2001, the Government has introduced various enhancements to the scheme on several occasions in order to cope with the changing economic environment. Under the existing SGS, the maximum amount of guarantee for each small and medium enterprise (SME) is $6 million. Based on the maximum guarantee ratio at 50%, the corresponding loan amount reaches $12 million. The maximum guarantee period is 60 months. From the above application and loan figures, it can be seen that the SGS can meet the financing needs of business enterprises and is widely welcomed by SMEs. Because of the popularity of the scheme, we sought the approval of the Finance Committee of the Legislative Council on July 18, 2011 to substantially increase the total loan guarantee commitment for the SGS from $20 billion to $30 billion.
As regards the SFGS launched by the HKMC, the aim is to provide a market-based loan guarantee scheme to Hong Kong enterprises, so as to meet their financing needs in a rapidly changing business environment. Under the scheme, eligible Hong Kong enterprises may obtain 50% to 70% loan guarantee. To further encourage banks to provide financing to enterprises including SMEs through the SFGS, the HKMC has launched a series of enhancements to the SFGS since October 11, 2011 after consulting different banks and trade organisations. The enhancements include:
(1) allowing the SFGS's refinancing of revolving facilities guaranteed by the Special Loan Guarantee Scheme upon expiry of such guarantee;
(2) increase in the general interest rate ceilings for the SFGS-guaranteed facility from 8%-10% to 10%-12%;
(3) increase in the total loan limit of high interest rate loans, ie loans with interest rate over 10%, from HK$50 million to HK$100 million per financing bank; and
(4) allowing drawdown of all types of revolving facilities to be done in both Hong Kong dollar and foreign currencies.
In addition, the HKMC has also clarified the pari passu arrangement, and streamlined the operational and application processes and procedures etc, so as to help banks handle the applications more efficiently. These enhancements should help banks to make effective use of the SFGS to meet the financing needs of the enterprises including SMEs, especially during times of market stress and adverse economic climate.
We always monitor closely the changes in the economic situation and financial markets and introduce effective support measures on a timely manner. For instance, in the light of the credit crunch arising from the global financial crisis in 2008, we swiftly introduced the time-limited Special Loan Guarantee Scheme. With the recent sharp downturn in the external economy, our economy will face greater downside risks next year. As the Chief Executive has pointed out in the Policy Address in early October, we would brace ourselves for this and keep a close watch on changes in the external environment. We would pay particular attention to the difficulties faced by SMEs, and introduce timely and effective measures to tide them over when necessary.
(b) In replying to the oral question raised by Dr Hon Lam Tai-fai on November 24, 2010, the Secretary for Financial Services and the Treasury had already explained in detail the result of the review conducted by the Administration on whether the restriction of section 39E of the Inland Revenue Ordinance (IRO) should be relaxed as well as the related justifications. Subsequently, in response to a number of written questions raised by Dr Hon Lam Tai-fai, the Secretary for Financial Services and the Treasury had reiterated that in view of Hong Kong's established taxation principles of "territorial source" and "tax symmetry", as well as the problem of transfer pricing, the Administration had come to a conclusion that there were no justifiable grounds to relax the existing restriction in section 39E of the IRO. The Administration does not intend to conduct another review on the same issue.
(c) As regards the Competition Bill (the Bill), we understand the concerns of the business sector, especially those of SMEs. Without compromising the effectiveness of the Bill in tackling anti-competitive conduct, the Administration has proposed six amendments to the Bill to address the major concerns raised by the stakeholders, in particular SMEs.
The recent incidents of suspected anti-competitive conduct in the retail and wholesale sectors have shown that the competition law is closely related to the daily lives of our people. Only with the early implementation of the Bill could we effectively combat those anti-competitive conduct existing in the community, thereby safeguarding the interests of consumers, including business operators which are SMEs. To meet the public expectation, we will continue to build consensus on the Bill and maintain our original work plan to press ahead with the enactment of the Bill within the 2011-12 legislative session.
Wednesday, November 9, 2011