Hong Kong Yearbook - Annual Report for the Year 1994

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Cartography by Survey and Mapping Office, Lands Department (c) Copyright reserved - reproduction by permission only

114'20'E

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共圖書館

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Wan the compliments of

HONG

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HONG KONG 1995

A REVIEW OF 1994

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OPEN AMANTION HALL

CONTK CATION HALL

Cover: Rising to over 200 metres, the Tsing Ma Bridge became one of the most visible of the airport core projects in 1994.

Frontispiece: Coming soon to the Hong Kong Convention and Exhibition Centre-A spectacular extension which will more than double its present size.

1

CONTENTS

Chapter

Page

CALENDAR OF EVENTS IN 1994

123456

HONG KONG: A HARD-EARNED SUCCESS

11-23

CONSTITUTION AND ADMINISTRATION

24-48

THE LEGAL SYSTEM

49-58

4

IMPLEMENTATION OF THE SINO-BRITISH JOINT DECLARATION

59-62

THE ECONOMY

63-79

6

FINANCIAL AND MONETARY AFFAIRS

80-102

7

TRADE AND INDUSTRY

103-128

8

EMPLOYMENT

129-142

9

PRIMARY PRODUCTION

143-149

10

EDUCATION

150-174

11

HEALTH

175-194

12

SOCIAL WELFARE

195-208

13

HOUSING

209-225

14

LAND, PUBLIC WORKS AND UTILITIES

226-260

15

TRANSPORT

261-284

16

THE AIRPORT CORE PROGRAMME

285-294

17

PORT DEVELOPMENT

295-300

18

PUBLIC ORDER

301-341

19

TRAVEL AND TOURISM

342-346

20

THE ARMED SERVICES

347-351

21

COMMUNICATIONS AND THE MEDIA

352-372

22

RELIGION AND CUSTOM

373-378

23

RECREATION, SPORTS AND THE ARTS

379-408

24

THE ENVIRONMENT

409-442

25

POPULATION AND IMMIGRATION

443-450

26

HISTORY

451-459

APPENDICES

460-527

INDEX

528-537

URBAN COUNCIL PUBLIC LIBRARIES

Acc. No. 1443558

Class

Author

351.25

HOW

HKM V

HONG KONG 1995

Editor:

Renu Daryanani

Government Information Services

Photography: Stone Chiang, Augustine Chu,

David Ho, Au-yeung Yiu-man, Anthony Chu and other staff photographers.

Additional photographs by arrangement with the South China Morning Post

(nurses' graduation) and the Hong Kong Trade Development Council (frontispiece).

Design:

Wong Sui-ling

Government Information Services

Special Contributor:

Sir Hamish Macleod (Chapter 1)

Statistical Sources:

Census and Statistics Department

The editor acknowledges all contributors and sources.

Copyright reserved

Code No.: F30019500E0 (ISBN 962-02-0154-X)

Price: HK$68.00

US$26.00

UK£19.00

Printed and Published by H. Myers, Government Printer at the Government Printing Department, Hong Kong Printed on paper made from woodpulp derived from renewable forests

Events

Sculptures

Industry

Restaurants

ILLUSTRATIONS

Caring for Our People

Airport Core Programme

Disciplined Services

Recreation

END-PAPER MAPS

Front:

The Territory of Hong Kong

Back:

Reclamation & Development in Hong Kong

Between pages

10-11

50-51

114-115

146-147

194-195

290-291

322-323

402-403

APPENDICES

Appendix

Page

1-4

CONSTITUTION AND ADMINISTRATION

462

5

OVERSEAS REPRESENTATION

468

6-12

THE ECONOMY

474

13-16

FINANCIAL AND MONETARY AFFAIRS

484

17-19

TRADE AND INDUSTRY

489

20-23

EMPLOYMENT

494

24-26

PRIMARY PRODUCTION

499

27-31

EDUCATION

501

32-35

HEALTH

504

36

SOCIAL WELFARE

507

37

HOUSING

508

38-40

LAND, PUBLIC Works and UTILITIES

509

41-42

TRANSPORT

512

43-47

PUBLIC ORDER

516

48

COMMUNICATIONS AND THE MEDIA

523

49

RECREATION, SPORTS AND THE ARTS

524

50-51

THE ENVIRONMENT

525

52

HISTORY

527

HONG KONG GOVERNMENT PUBLICATIONS

are obtainable from

THE GOVERNMENT PUBLICATIONS CENTRE

Queensway Government Offices, Low Block, Ground Floor, 66 Queensway, Hong Kong

Leading bookshops throughout Hong Kong

GOVERNMENT INFORMATION SERVICES

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and from

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6 Grafton Street, London, W1X, 3LB

A list of current official publications will be sent on request

When dollars are quoted in this report, they are, unless otherwise stated, Hong Kong dollars. Since October 17, 1983, the Hong Kong dollar has been linked to the US dollar, through an arrangement in the note-issue mechanism, at a fixed rate of HK$7.80=US$1.

*

*

Some figures in the text are estimated; actual figures appear in the appendices.

CALENDAR OF EVENTS IN 1994

January

3

6

10

18

20

27

A White Bill is published seeking public views on reconstituting the Provisional Airport Authority into a permanent government-owned organisa- tion to develop and operate Hong Kong's new airport, which is under construction at Chek Lap Kok.

The Law Reform Commission publishes its report on copyright, recommend- ing improved protection for broadcasting, literary works, video tapes and computer programmes.

Twelve people are killed and one injured in a fire set by an arsonist at the Shek Kip Mei branch of the Hongkong and Shanghai Banking Corporation.

The Governor, the Right Honourable Christopher Patten, leaves on an eight- day visit to London for talks with the Prime Minister, Mr John Major, and other officials on the progress of legislation on political development in Hong Kong.

The Governor gives evidence before the House of Commons Foreign Affairs Committee in London, which is looking into the United Kingdom's relations with China, up to and beyond 1997.

The Central Tender Board accepts a $122 million bid for the provision of electrical and mechanical services for the Cheung Ching Tunnel as part of the Airport Core Programme (ACP). It was the first of 63 contracts, amounting to over $18.4 billion, awarded during the year by the government, the Provisional Airport Authority, the Mass Transit Railway Corporation and the Western Harbour Tunnel Company Limited for a range of ACP-related works.

The Secretary for Trade and Industry, Mr Chau Tak-hay, leads a high-level Hong Kong delegation to the World Economic Forum annual meeting in Davos, Switzerland, to promote the territory in the international business community.

1

CALENDAR OF EVENTS IN 1994

February

1

2

4

6

13

24

25

26

March

2

6

2

Hong Kong and China sign an agreement in Beijing to establish an air traffic control exchange training programme, to promote further co-operation and understanding between air traffic control staff and aviation authorities in the two territories.

Hong Kong and Denmark sign an investment promotion and protection agreement in Copenhagen.

The government accepts the recommendations of the Boundary and Election Commission for a total of 346 constituencies for the district board elections in September.

Hong Kong begins to receive electricity generated by the Guangdong Nuclear Power Station in Daya Bay, China.

The Governor begins his first official visit to Australia, during which he meets the Prime Minister, Mr Paul Keating.

The Electoral Provisions (Miscellaneous Amendments) (No. 2) Bill 1993 is passed in the Legislative Council. The Bill provides a 'single seat, single vote' system for all three tiers of geographical constituency elections; lowers the voting age from 21 to 18 years; abolishes appointed membership in the municipal councils and district boards; and relaxes existing restrictions on Hong Kong residents who are members of Chinese People's Congresses. The United Kingdom and Hong Kong Governments publish a White Paper giving a full account of talks with China on arrangements for the 1994-95 elections. The Chinese Government releases its own version of the talks on February 28.

The Finance Committee of the Legislative Council approves $4.8 billion to fund the construction of a major extension to the Hong Kong Convention and Exhibition Centre.

The government announces the setting up of a committee to review the powers and system of accountability of the Independent Commission Against Corruption (ICAC). On December 23, the committee publishes its report, recommending the retention of the ICAC's existing investigatory powers but greater accountability and transparency in its work.

The Financial Secretary, Sir Hamish Macleod, presents the 1994-95 budget, providing for greater spending on social welfare, health and education. At the same time, tax reduction measures will see 420 000 people drop out of the tax net altogether and a further 1.1 million people pay less tax.

Her Royal Highness the Princess Royal arrives in Hong Kong for a four-day visit.

CALENDAR OF EVENTS IN 1994

11

19

25

April

1

6

13

15

The Immigration Department announces details of a one-year pilot scheme to allow 1 000 professionals and managers in China to come to work in Hong Kong.

The redeveloped Hong Kong Stadium, funded by an $850 million donation by the Royal Hong Kong Jockey Club, is officially opened.

The Secretary for the Treasury, Mr Donald Tsang, leads a Hong Kong delegation at the two-day conference of finance ministers of the Asia-Pacific Economic Co-operation (APEC) in Honolulu.

A record price of $13 million is paid for the vehicle registration number '9' in a government auction. The proceeds go to charity.

Three Hong Kong and two British soldiers missing for a month during a training expedition on Mount Kinabalu in Malaysia, are found alive by a helicopter search team.

A three-month voter registration campaign opens for the district board and municipal council elections. A total of 510 000 new electors come forward, taking the total registered electorate to 2.45 million.

A senior citizen card scheme, aimed at promoting more respect and concern for the elderly, is launched, giving persons aged 65 and above access to concessionary fares, priority treatment and discounts offered by participating companies.

The new Hong Kong Sports Development Board is set up, amalgamating the former Hong Kong Sports Development Board and the Hong Kong Sports Institute.

Hong Kong is listed as the world's eighth largest exporter and seventh largest importer in 1993 in the annual report issued by the General Agreement on Tariffs and Trade (GATT) Secretariat.

The House of Commons Foreign Affairs Committee publishes its report on Sino-British relations in the period up to and beyond 1997. The report supports the Hong Kong Government's approach on political development in the territory and recommends the establishment of an independent, statutory, human rights commission.

Legislators invoke the Legislative Council (Powers and Privileges) Ordi- nance for the first time when they begin a public hearing into the dismissal of a former deputy director of the Independent Commission Against Corruption. The Secretary for Trade and Industry, Mr Chau Tak-hay, joins over 120 ministers in signing the Final Act embodying the results of the Uruguay Round trade negotiations in Marrakesh, Morocco.

The Hong Kong Arts Development Council is set up.

3

4

CALENDAR OF EVENTS IN 1994

19

21

24

25

The Organisation for Economic Co-operation and Development (OECD) Council approves Hong Kong's application for observer status on the OECD's Trade Committee and its working party.

The Sino-British Land Commission holds its 28th meeting and agrees that 117.27 hectares of land should be made available during 1994-95.

The Chief Secretary, Mrs Anson Chan, begins her first official visit to the United States, during which she meets the Vice-President, Mr Al Gore.

The Hong Kong Institute of Education is established, to take over the management of the four colleges of education and the Institute of Language in Education.

May

1

9

20

24

27

The Royal Hong Kong Police celebrates its 150th anniversary.

The Bank of China becomes the third note-issuing bank in Hong Kong. The government announces proposals on new financial arrangements with the Hong Kong Housing Authority, aimed at speeding up the supply of public housing and upgrading existing estates.

The Governor begins a 10-day visit to London, to review the latest developments on Hong Kong.

The government approves university titles for the City Polytechnic of Hong Kong, the Hong Kong Polytechnic and the Hong Kong Baptist College. Hong Kong welcomes the decision of the United States President, Mr Bill Clinton, to renew China's Most Favoured Nation (MFN) trading status. Hong Kong and Sweden sign an agreement on the promotion and protection of investments.

June

1

2

3

8

Hong Kong becomes the first port to handle more than 900 000 containers in a single month.

The government accepts the recommendations of the Boundary and Election Commission on the delineation of municipal council constituencies for the March 1995 elections. There will be 32 constituencies for the Urban Council and 27 for the Regional Council.

The Finance Committee of the Legislative Council approves $715 million for the Mass Transit Railway Corporation for construction of the airport railway immersed tube.

The government announces a package of measures to dampen property speculation; increase housing and land supply; and strengthen consumer protection and the administration of its housing policy.

CALENDAR OF EVENTS IN 1994

9

16

21

223

30

Hong Kong donates $2 million towards emergency assistance to Rwanda. It is the first of five grants totalling $12 million to be made from the Disaster Relief Fund during the year in aid of Rwanda.

The government announces a package of measures to further enhance public access to information. These include the introduction in early 1995 of a code of practice setting out the type of information government departments will be permitted to release.

The Sino-British Joint Liaison Group begins its 29th meeting in Hong Kong, culminating with an agreement on the future use of existing military lands. The New Territories Land (Exemption) Bill, which gives women equal succession rights to land or property in the New Territories in the absence of a will, is passed in the Legislative Council. The Bill overturns the centuries- old tradition under which only men could inherit rural land if the owner died intestate.

The Legislative Council (Electoral Provisions) (Amendment) Bill 1994 is passed after more than 17 hours of debate in the Legislative Council. The Bill broadens the franchise of certain existing functional constituencies; establishes nine new functional constituencies encompassing Hong Kong's workforce; and provides for an election committee, comprising district board members, to return 10 members of the Legislative Council in 1995.

July

1

5

8

12

The British Government, in its response to the House of Commons Foreign Affairs Committee report on Sino-British relations up to and beyond 1997, agrees that the Hong Kong Government's constitutional development package is within the agreements reached with China, but concludes that the case for an independent, statutory, human rights commission is not well- founded.

The Environmental Protection Department awards a $2.3 billion contract for the development of the Northeast New Territories Landfill, as part of the territory's long-term waste management strategy.

The Chief Justice, Sir Ti Liang Yang, announces the appointment of a steering committee to promote the use of the Chinese language in the courts. Hong Kong donates $20 million from the Disaster Relief Fund in aid of flood victims in China.

A consultation paper containing details of the government's proposed old age pension scheme is published for public comment. Under the proposals, the government would make a one-off capital injection of $10 billion to the scheme; employees and employers would each contribute 1.5 per cent of the employee's salary; and all eligible elderly residents aged 65 or above would receive $2,300 monthly at 1994 price levels.

5

CALENDAR OF EVENTS IN 1994

20

22

23

26

227

August

1

4

8

10

6

The Minister of State for Foreign and Commonwealth Affairs, Mr Alastair Goodlad, arrives in Hong Kong after an official visit to China and meets the Governor, and Executive and Legislative Councillors.

The government announces plans to introduce comprehensive legislation to protect people with a disability against discrimination and harassment.

The Governor leaves for London for meetings with the Prime Minister and other officials on Hong Kong issues.

The government reports a surplus of $19.2 billion for the 1993-94 financial year, bringing its total fiscal reserves to $140.2 billion.

Five people are killed and three injured when a retaining wall at Kwun Lung Lau Estate in Western collapses after heavy rain. Two thousand families are evacuated. An independent review by a Canadian expert, commissioned by the government, later concludes that a number of key events in combination, including the thinness of the wall, contributed to the collapse.

The government announces that the interest rate cap on time deposits will be removed in phases from October. The announcement is in response to the Consumer Council's study on the banking sector.

The second Ap Lei Chau Bridge, built at a cost of $110 million, is officially opened.

Nomination of candidates for the September district board elections opens. A total of 757 candidates register to compete for the 346 seats.

Hong Kong and Canada sign a Memorandum of Understanding on cultural co-operation, and exchange letters for the extension of their bilateral agreement to continue mutual co-operation in the suppression of drug trafficking.

The Law Reform Commission proposes in its report on the protection of personal data that the collection and use of information about individuals be legally controlled.

The Hang Seng China Enterprises Index is launched, to serve as an indicator of the overall performance of Hong Kong-listed, state-owned enterprises of the People's Republic of China.

The last remaining United Kingdom-based infantry battalion of the British army to be stationed in Hong Kong, the 1st Battalion The Black Watch (Royal Highland Regiment), completes its tour of duty in the territory.

CALENDAR OF EVENTS IN 1994

September

7

9

15

16

18

20

223

23

29

October

3

5

9

Hong Kong is ranked fourth among the world's major economies, ahead of every European country, in the 1994 World Competitiveness Report, published by the World Economic Forum and International Institute for Management Development.

Six people are killed and two injured when a wall collapses at a demolition site in Yau Ma Tei. A government team is set up to investigate the incident and look at how to prevent similar occurrences.

The British Foreign Secretary, Mr Douglas Hurd, arrives in Hong Kong for a two-day update on the territory's developments.

The government announces that agreement has been reached on additional scheduled airline flights between Hong Kong and destinations in China. Hong Kong experiences its strongest earthquake in 76 years. The quake, measuring 6.5 on the Richter Scale, causes no injury or major damage.

A record 693 223 voters, representing 33.1 per cent of the electorate, turn out for the district board elections - the first in which all district board members

were chosen by direct elections.

The Sino-British Joint Liaison Group holds its 30th meeting in Beijing to discuss arrangements for the smooth transfer of sovereignty over Hong Kong in 1997.

Hong Kong and Switzerland sign an agreement on the promotion and reciprocal protection of investments.

Six crew members are killed and another six injured when a Hercules transport plane plunges into Kowloon Bay shortly after takeoff from Hong Kong International Airport.

The British Foreign Secretary, Mr Douglas Hurd, and Chinese Vice-Premier, Mr Qian Qichen, meet in New York to exchange views on issues including those relating to Hong Kong.

Hong Kong, represented by Financial Secretary Sir Hamish Macleod, and the World Bank and International Monetary Fund (IMF) sign a memorandum in Madrid, setting out the territory's obligations in providing services and facilities for the World Bank/IMF annual meetings in Hong Kong in 1997. The Governor delivers his third policy address in the Legislative Council, outlining the government's priorities to meet public aspirations in the years ahead.

The Chief Secretary, Mrs Anson Chan, begins her first official visit to Canada, during which she meets the Prime Minister, Mr Jean Chretien.

7

8

CALENDAR OF EVENTS IN 1994

12

14

15

17

24

25

November

1

2

3

4

5

9

The Legislative Council appoints a select committee to inquire into the Kwun Lung Lau landslip and related issues.

The Sex Discrimination Bill, which outlaws sex discrimination and sexual harassment and provides for the establishment of an Equal Opportunities Commission, is gazetted.

Her Royal Highness Princess Alexandra and her husband, the Honourable Sir Angus Ogilvy, arrive in Hong Kong for a week-long visit.

The Broadcasting Authority gives approval for Television Broadcasts Limited to invest in a satellite television broadcasting service.

Hong Kong-USA '94, the biggest business and cultural promotion staged by Hong Kong in the United States, is launched in New York by the Chief Secretary, Mrs Anson Chan. The promotion also covered Chicago and Atlanta.

Hong Kong is rated as the best city in the world for doing business, in Fortune magazine's annual 'Best Cities for Business' survey.

The Governor leaves for a week-long trip to London for another round of regular, stock-taking meetings with the British Prime Minister and other ministers.

with an outer ring of goes into circulation.

Hong Kong's first bi-metal coin, the new $10 coin cupro-nickel and an inner core of nickel-brass The government accepts the Boundary and Election Commission's recom- mendations on the Legislative Council geographical constituency boundaries for the September 1995 elections. There will be 20 single-seat constituencies.

The Lok Ma Chau-Huanggang Border Crossing Point opens to goods vehicles 24 hours-a-day. It was previously closed from 10 pm to 7 am.

The Sino-British Airport Committee meets in Hong Kong to sign an agreed minute concerning the overall financing arrangements for the new airport and the airport railway.

The Yuen Long Southern Bypass is opened. The new 3.5-kilometre highway was built at a cost of $396 million.

His Royal Highness, the Prince of Wales, arrives in Hong Kong for a five-day visit.

Government proposals to tackle traffic congestion through measures ranging from tax increases in the short term to electronic road pricing in the long term, are published for public consultation.

CALENDAR OF EVENTS IN 1994

10

11

12

14

17

18

20

25

December

2

8

9

The Broadcasting Authority approves an application by Hutchvision Hong Kong Limited to carry seven new radio channels on its satellite broadcasting service.

The Secretary for Trade and Industry, Mr Chau Tak-hay, represents Hong Kong at the 6th Ministerial Meeting of the Asia-Pacific Economic Co- operation in Jakarta, Indonesia. The meeting lasts two days.

The Governor begins an official visit to San Francisco, Seattle and Los Angeles.

The Financial Secretary, Sir Hamish Macleod, attends the two-day Economic Leaders Meeting of the Asia-Pacific Economic Co-operation in Bogor, Indonesia.

The Sino-British Land Commission holds its 29th meeting, during which it sets the amount of land to be provided for the new airport, the Home Ownership Scheme and the Sandwich Class Housing Scheme, among other developments, during 1994-95.

The Finance Committee of the Legislative Council approves a commitment to inject equity totalling $22.9 billion into the Mass Transit Railway Cor- poration for the airport railway project.

The Chief Secretary, Mrs Anson Chan, departs for London on her first duty visit to the United Kingdom.

Hong Kong's own 48 Gurkha Infantry Brigade is disbanded after more than 50 years of service. The brigade exercised operational control over the army combat units of the Hong Kong Garrison.

Their Royal Highnesses the Duke and Duchess of Kent arrive in Hong Kong for a seven-day visit.

The government announces the establishment of the Sino-British Co- ordinating Committee on Major Cross-border Infrastructure between Hong Kong and the Mainland.

The government and six committed companies and community organisations sign the Hong Kong Community Charter on AIDS as founder signatories. The key principles of the charter are non-discrimination in dealing with employees or potential employees, and maintaining confidentiality regarding a person's HIV status.

The United Nations Human Rights Committee issues a report after its hearing on Hong Kong's economic, social and cultural rights situation in Geneva between November 23 and 25. The government announces it will carefully examine the report's advice and recommendations.

9

10

CALENDAR OF EVENTS IN 1994

11

14

19

The Governor begins a six-day visit to the Republic of Korea and Japan. In his first official visit to the Republic of Korea, the Governor meets its President, Mr Kim Young-sam. In Japan, he meets the Prime Minister, Mr Tomiichi Murayama, and has an audience with Emperor Akihito and Empress Michiko.

The Sino-British Joint Liaison Group holds its 31st meeting in London.

The government announces the Railway Development Strategy, which maps out plans for the future development of the railway system in Hong Kong.

Hong Kong, along with Singapore, is rated tops in having the highest amount of economic freedom in the world, in the 'Index of Economic Freedom' published by the Heritage Foundation.

11

Previous page: His Royal Highness the Prince of Wales climbs to the top of a Tsing Ma Bridge tower during his visit to the territory in November.

This page: The Governor, Mr Christopher

Patten, called on the Japanese Prime Minister, Mr Tomiichi Murayamu (right), and the Korean President, Mr Kim Young Sam (below), when he visited their

countries in December

A

The Australian Prime Minister, Mr Paul Keating, welcomed the Governor to Kirribilli House, his Sydney residence. when Mr. Patten visited Australia in February.

Opposite page: Canada's Prime Minister, Mr Jean Chretien, had a warm greeting for the Chief Secretary, Mrs Anson Chan, during her official visit to Canada in October.

Top (left): Mrs Chan also called on the Lieutenant Governor of Ontario, Mr Henry Jackman, in Toronto, in October, and (top, right) the U.S. Vice-President, Mr Al Gore, at the White House in April.

Above: The Chief Secretary shares a light-hearted moment with students from the Hong Kong Academy for Performing Arts after their performance in Atlanta, during the U.S. promotion HK*USA'94.

C

KONG

Above: School-children in Atlanta besiege the Chief Secretary with requests for her to autograph their souvenirs at the Hong Kong Showcase Exhibition in their city. Right: Decorations announcing the HK*USA'94 promotion were displayed prominently in New York, Chicago and Atlanta during October.

T

Showcase-

HONG KONG APH

WR

HONG KONG SHOWCASE

EXHIBITION October 21-23

In Celebration of Hong Kong * ESAT

EXIT

ARE SA NE

公貢西

AFAL

Left: Baroness Thatcher of Kesteven stops to chat with one of Sai Kung's younger residents during her tour of the district, with the

Governor, in October.

Below: The District Board elections, in September, was a major milestone of the year. Here, the Governor watches vote-counting procedures in Eastern District.

Above: Captured by the camera during one of the less formal moments at the Economic Leaders Meeting of the Asia-Pacific Economic Co-operation in Bogor, Indonesia, in November, are: (right to left) the U.S. President, Mr Bill Clinton; the Prime Minister of Malaysia, Dr Mahathir Mohamad; the President of Korea, Mr Kim Young Sam; Hong Kong's Financial Secretary, Sir Hamish Macleod; and the President of the People's Republic of China, Mr Jiang Zemin. Right: Sir Hamish also had a meeting in Indonesia with President Suharto.

HONG KONG: A HARD-EARNED

SUCCESS

A personal view by Sir Hamish Macleod, KBE, JP.

mish began his career with the Hong Kong Government in 1966, Becoming Financial Secretary in 1991. He retires in 1995.

SUCCESS is not guaranteed but earned. And in Hong Kong more than in most places, given our dependence on trade in goods and services with the outside world, we must ensure that we continue to be able to adjust rapidly to a rapidly changing world. This is not a theoretical point. It is worth recalling the impact of the world oil crisis of the early 1970s. In 1975, unemployment in Hong Kong rose to some nine per cent. In the words of a newspaper article of the time: "No one really knew the figure because unemployment had been such an unheard of thing in the Colony that the Government had not troubled with statistics." Thankfully, the figures rapidly subsided to the levels we are more familiar with.

Given the migrant background of much of our population and the peculiar status of Hong Kong, we are particularly keenly aware of the potentially fleeting nature of success. It is this awareness that has contributed to our dynamism; our relentless thrust ever-upwards. For the same reasons, we should not too readily decry the high value placed on personal financial success, and more broadly, on economic success for the community as a whole. This priority is entirely rational: financial and economic success do help cushion us against unexpected downturns, whether personal or communal. And we do face more risks than most.

I remember a small example which brought home to me this difference in attitude, this drive to succeed. During a trade negotiation visit to Norway, I had dinner with the Norwegian agent of a Hong Kong garment exporter. He told me with pride that the business was so profitable that he had been able to reduce his working week to only three days; probing revealed he had no interest in expanding into importing garments from places other than Hong Kong. I hid my amazement, but I could not imagine any Hong Kong businessmen taking such a view here surely was a chance to expand into other products, other suppliers, not to take it easy!

      Symbolically, perhaps, the cover of this Hong Kong Annual Report is a dramatic construction picture of the Tsing Ma Bridge, a vital transport link to Lantau Island and the new airport at Chek Lap Kok. The cover for the yearbook for 1967, my first full year in the Hong Kong Government, was of 16-storey flats in Aberdeen which formed part of Hong Kong's massive housing resettlement programme.

Both are symbols of Hong Kong's extraordinary ability to cope with change and to set new standards of achievement. They also, in a sense, mark the beginning and final stage of my career with the Hong Kong Government: I started as a novice administrative officer in the Resettlement Department (later to become the Housing Department), and I have been

11

HONG KONG: A HARD-EARNED SUCCESS

12

intimately

and at times frustratingly

                   involved in the Airport Core Programme, first as Secretary for the Treasury and then as Financial Secretary.

Housing in the Early Days

We were immensely proud of the resettlement programme of the late 1960s: the 1966 report described it as "the world's foremost resettlement programme". Hong Kong was not rich in those days, but the programme attracted worldwide attention because of the speed with which the homes were being built, the scale of the project and the problems it was designed to solve. The 1967 report recorded that the resettlement building programme had reached a remarkable milestone when its millionth tenant was housed, only some 13 years after the building programme began.

And for those who think we have only recently been converted to providing adequate social services, it is worth recording that the rent for a family in the older blocks was about $18 a month, or roughly 4.5 per cent of the average family income. Even in those early days, it was an automatic response to provide schools, clinics, community centres and other welfare facilities, admittedly at a fairly basic level. Many of us can remember the cheerful clamour from the open, fenced-off playgrounds of the rooftop schools which were common then, space being desperately short. Crowded and basic as these early housing and school facilities were, they afforded many of our population a good start in life; given the social mobility in Hong Kong, then and now, many of our successful citizens began in this relatively humble way.

  It is also worth remembering why it was called the 'resettlement' programme. This wasn't any ordinary housing improvement project. Hong Kong had to absorb nearly a million refugees after the end of the war. They brought problems as well as opportunities. One of the main problems was the great number of squatters, a problem described graphically in the 1953 Hong Kong Annual Report:

 "There is another feature of the landscape which our observer could see with great ease and, if he were a kindly man, with great regret. The slopes rising from certain, predominantly industrial, parts of the urban area are covered with flimsy, disreputable shacks so tightly packed that they seem to elbow each other off the precarious cliffs to which they cling. They are the homes of some 250 000 people, possibly one-eighth of the Colony's whole population. This is Hong Kong's greatest social problem. Its origin lies not in Hong Kong's callousness or indifference to the welfare of its people, but in its humanity and in its long and proud tradition as a free port to the world and a place of refuge for any Chinese who cared to step across the border."

The problem became urgent in early 1954, after a series of disastrous fires in squatter areas left 53 000 people homeless, and the resettlement (of squatters) programme resulted.

  I remember in my first year in Hong Kong going out with a young professional rating and valuation officer to assess the rents for the shops and restaurants which operated on the ground floors of the resettlement blocks. In one respect, these facilities were an exception to our normal philosophy that market forces should prevail, for the numbers (and size) of shops had more to do with the quantity of shop-owners to be cleared and resettled than supply and demand - which duly led to all sorts of problems later. But in other ways, this was a good example of the Hong Kong way of doing things. The system was delightfully simple. There were only four rent levels: A, B, C and D. The rules were easily understood. It was also

HONG KONG: A HARD-EARNED SUCCESS

understood that nobody would admit to doing good business, but not difficult to assess the real situation. And there was a well-used appeal system to non-officials, in this case Urban Councillors, who in those days had supervision of the resettlement programme and kept us on our toes. Transparency of the rules and the right to appeal have continued to be a hallmark of the administration to this day.

Comparing 1966 to 1994

Looking at the whole period since my early years, the following table provides some interesting comparisons of economic and social indicators in 1966 and 1994.

Population (million)

GDP per capita (US$)

World league of trading economies

World league of banking centres

World league of foreign exchange reserves

Hang Seng Index (year high)

Size of Government Budget (HK$ billion)

Cargo throughput:-port (million tonnes)

-airport (thousand tonnes)

Number of manufacturing workers (thousand) Number of workers in service sector (thousand) Number of tourists (million)

Unemployment rate (%)

Number of trips by Hong Kong residents

travelling abroad (million)

Number of public housing flats (thousand)

Home ownership (percentage of households)

HOS/ESPS

-private Free T

Number of university graduates

Car ownership (number per thousand population)

Number of telephone lines per thousand population

Number of fax lines per thousand population

Outward international telephone traffic (million minutes)

1966

1994

3.7

6.1

686

21 760

23rd

8th (1993)

15th (1979)

4th

29th

6th

79.7

12 599

2

145

10

141

22

1 291

728 (1971)

446

639 (1971)

2 214

0.5

9.3

4.5 (1971)

2.1

0.1

32.6

260 (1971)

685

0

10.3

14.7 (1971)

33.6

893

14 300

15

51

62

506

0

2 (1968)

41

1 304

Some of these comparisons are truly dramatic; developments which may take centuries in other places have been realised within the short span of one man's career in Hong Kong. It is worth looking at some of these achievements, starting with the Airport Core Programme.

Hong Kong's $158.2 billion Airport Core Programme (ACP) is setting world standards for the imagination and scale of the concepts, and for the speed and budget-consciousness of the construction. The total cost of the ACP is a staggering 81 times the government budget in 1966. The Tsing Ma Bridge is only one of the 10 infrastructure projects in the ACP, focused around the new airport at Chek Lap Kok, which will help Hong Kong's externally- oriented economy to continue to expand. The bridge itself dramatically illustrates our ability to succeed. It will be the longest suspension bridge carrying a railway as well as a road, and it will become a major landmark and a tourist attraction in its own right.

13

HONG KONG: A HARD-EARNED SUCCESS

14

The new Hong Kong International Airport at Chek Lap Kok will handle 35 million passengers a year on opening - 70 times the number of tourists who visited Hong Kong in 1966. An estimated 1.6 million tonnes of cargo will be handled annually, making the new airport one of the busiest in the world.

With a population of about 70 per cent of that of Tokyo and a geographical area about 1.3 times the size of New York city, Hong Kong has undergone other no less dramatic changes during this period:

  • Our economic growth, averaging over seven per cent a year in real terms, has resulted in our GDP per capita exceeding that of Britain, Canada, Italy and Australia. In terms of actual buying power, our GDP per capita is ranked the sixth highest in the world. In money-of-the-day terms, our GDP broke the $1 million mark for the first time in 1994.

• We are the world's eighth largest trading economy, ranked just after the Group of Seven industrialised economies.

• We have grown into a major transport and communications centre. We are the world's busiest container port. The world's third busiest airport. We have the world's first fully- digitalised telephone system and the most comprehensive optical fibre network.

• We have transformed ourselves from a small manufacturing enclave to an international financial centre. Our stock market is Asia's second largest in terms of market capitalisation. We have the world's sixth largest foreign exchange market in terms of daily turnover.

Others seem to agree we are doing well. Nineteen hundred and ninety-four saw a number of accolades for Hong Kong. The Heritage Foundation of the United States of America put Hong Kong at the top of a world league table in terms of 'economic freedom'. Fortune magazine chose Hong Kong as the 'best city for business', followed by such famous centres as New York, London, Atlanta, Chicago, Singapore, Toronto, San Francisco and Frankfurt. And the World Competitiveness Report 1994 (published by the International Institute for Management Development and the World Economic Forum) ranked Hong Kong as the fourth most competitive economy in the world, after the United States, Singapore and Japan. The benefits of this success have been passed on to the community as a whole. Real wages have increased, year after year. And, for the less fortunate, our growing wealth has enabled us to implement major improvements in our social services. For example, in 1966, recurrent spending on social welfare accounted for less than two per cent of total government recurrent expenditure. By 1994, it had grown to nearly 10 per cent. Indeed, nearly half of the total public spending in Hong Kong is devoted to housing and the social services, a figure higher than that of many developed countries.

   All this has been achieved while ensuring that government expenditure does not increase faster than economic growth - a deceptively simple guideline that has dramatic results if applied consistently, year after year. We are an outstanding example of 'small government'; public spending runs at less than 20 per cent of the GDP, whereas in developed economies the percentage would typically be double that figure.

Such rapid growth in so many areas requires an ability to adapt flexibly and constructively to change. Here Hong Kong excels. Perhaps the most graphic illustration of that is the way in which we have adjusted to the opening up of China's economy, and especially to the mushrooming growth of southern China- turning ourselves, at the same time, into a predominantly services-oriented economy. It is estimated that at least three

HONG KONG: A HARD-EARNED SUCCESS

million workers (equivalent to about half of Hong Kong's total population) are now employed directly or indirectly by Hong Kong companies in Guangdong's manufacturing activities. This transformation has been achieved without the large-scale unemployment problem normally associated with such economic restructuring.

What lies behind all these impressive achievements? What is it that has turned this cluster of hills and islands on the southern tip of China into a world-famous example of entrepreneurial success? What lessons can we learn for the future, so that Hong Kong can continue to be a world leader in economic terms in the years ahead?

Hong Kong's Strengths

Our success stems fundamentally from the people of Hong Kong, whose entrepreneurial dynamism, innovative skills and sheer hard work have made it all possible. Then, too, we have an unbeatable geographical location on the southern tip of China, at the trading crossroads of Asia, with a deep natural harbour.

But these traditional explanations are not, of course, the whole story. These assets alone are not enough to explain our success. They need an administration which allows them to flourish. It would not be difficult to squander such excellent resources and hinder adaptation to change through heavy-handed policies which deter enterprise with heavy taxation and restrictive regulations. Or, through failing to make timely investments in education, transport and communications, and in all the other infrastructure which enables business to flourish.

$

       We have a clear philosophy, consistently applied, which is based on a commitment to market forces, free enterprise and free trade. We believe in creating an environment with minimum government regulation and interference, plus maximum government support in terms both of infrastructure and of protection for the needy, leaving business free to flourish. And that belief is strengthened by our own experience of how well such an approach has actually worketh I would underline here, also, the key importance of the rule of law and of combating corruption: business needs a stable and predictable environment in which contracts are observed, and a satisfactory and respected system for resolving disputes.

$

We also believed, long before it became fashionable, that the private sector should provide essential public services wherever feasible with minimum government interfer- ence and at prices set by market forces. As a result, almost all our public transport and utility services are provided by private sector companies, operating on a fully-commercial basis without any subsidy from public funds.

       Our reluctance to interfere with management in the private sector has not, however, prevented us from stepping in, when necessary, to regulate in the public interest. For example, we responded to rising public concern about the cost of electricity and the performance of the power companies by drawing up schemes of control agreements with China Light and Power Company Limited in 1964 and Hong Kong Electric Company Limited in 1979. These agreements, which were recently renewed, aim to provide a balance between the obligations of the companies and the government. The companies agree to provide adequate power supplies at reasonable cost to all consumers in their supply areas, and to submit their development plans to the government for approval. For its part, the government has given assurances about the rate of return that the companies can be allowed on their investments. We have also been ready to introduce new forms of regulation as

15

HONG KONG: A HARD-EARNED SUCCESS

16

market circumstances change. In the case of local telephone services, which will cease to be a monopoly next year, we have moved the Hong Kong Telephone Company Limited from a profit control scheme to a price-capping mechanism more appropriate to its position as a dominant carrier in a competitive market.

   We are perhaps best known for operating a low-tax regime which minimises the burden on wealth-creators, and acts as a catalyst for hard work and new investment. Add to that financial policies which provide for a stable currency, a balanced budget in which public spending does not exceed economic growth and sound government financial management. We sometimes take these things for granted but the contrast with most of the rest of the world is staggering. Visitors are initially impressed on being told that salaries tax does not take away more than 15 per cent of a worker's salary; but they would be even more surprised to learn that only around two per cent of the working population pays the highest rate (15 per cent) in a progressive tax regime, with over half paying no salaries tax at all.

As I said in my 1994-95 budget speech, Hong Kong's taxes are low, simple and predictable. Indeed, the World Competitiveness Report 1992 estimated that Hong Kong's total tax revenue, at only 11.25 per cent of GDP, was the lowest of all 36 economies surveyed. That track record continues. Since I became Financial Secretary in 1991, we have abolished taxes on entertainment, cosmetics and soft drinks, as well as considerably reducing salaries tax.

   As an interesting sidelight, the increasing need to communicate and to persuade the public and the legislature to accept budget proposals, has led to a considerable change in the style and content of the budget speech itself and, in recent years, to a return to relative brevity. The text of the 1966 budget speech took up 31 pages in Hansard; this ballooned to 71 pages in 1980, before subsiding to 39 pages in 1994.

W

Our observance of the principles of free trade is generally recognised to be more complete than anywhere else in the world. This has served us well, and in my personal experience we are given some credit for it in trade negotiations, though it has to be said that domestic protectionist lobbies tend to loom larger in the minds of most opposing negotiators. As a US negotiator once said to me, somewhat cynically: "In Washington, goodwill plus 50 cents will buy you a cup of coffee." We are fierce champions of free trade, and enthusiastic supporters of the free trade aspirations of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organisation, and of that relative newcomer on the scene, the Asia-Pacific Economic Co-operation (APEC) forum. I believe APEC has real potential to take free trade in the region another major step forward.

   I have also spent much of my career, with other colleagues' strong support, in ensuring that here in Hong Kong, we operate a strictly level playing field, with open competition and no discrimination in favour of local companies, or indeed in favour of British or Chinese companies. Again, this is unfortunately not common in the rest of the world. This level playing field is most apparent in our rules for the award of government contracts, and the result is keen competition for contracts and, as a result, keen pricing. This approach also applies in other areas: for example, we do not introduce subsidies for industries or services to help protect Hong Kong businesses against outside competition.

   Very occasionally during my time in the Hong Kong Government, we have come under pressure from some sector or other to intervene in the workings of the market of economic forces. For example, when labour-intensive manufacturing activities started moving across

HONG KONG: A HARD-EARNED SUCCESS

the border into Guangdong, there was some pressure for us to intervene. Rules were suggested that would protect our factories from those in southern China, in the event of a downturn. But the pressure was half-hearted because our attitude was so well-known, and generally accepted. We, of course, did not intervene. We have always resisted going down that slippery slope, and it is essential that we should continue to do so. We shall only flourish if we allow outsiders free rein to operate on equal terms with established businesses.

We have of course been fortunate that this overall approach has fitted in so well with the flexible trading and entrepreneurial instincts of Hong Kong people, who are well used to constantly adapting to changing market needs. Our entrepreneurs' willingness to take risks has been reinforced over the years by the high success rate of their endeavours and by our low tax policies, to such an extent, I believe, that Hong Kong is one of the last strongholds of a valuable species in danger of dying elsewhere the decisive, risk-taking, capitalist businessman. Long may he continue to flourish here, to the benefit of the whole community! We have also been fortunate in enjoying virtually full employment for years, and to have no large-scale basic industries or large purpose-built factories to protect, apart arguably from the textile and garment industries. (Thus, the problem has not been protecting our own textile and garment industries, which are well able to compete without such aids, but gaining access to others' protected markets, whose 'temporary' protection by quotas has been extended again and again. Now, hopefully, following the Uruguay Round, such quotas are to be phased out.)

Because our policy has been seen to be successful, we have not come under the sort of pressure to protect old industries and jobs which often leads other economies into protectionist policies. The manufacturing sector in Hong Kong has, of course, not been static. Over the years, we have seen various industries rise and fall, and new product lines continue to emerge. Even the textile and clothing industries, the mainstay of our manufacturing sector, have declined in relative importance. We have also seen declines in such traditional industries as plastics (though we were still the largest exporter of artificial flowers in 1992) and footwear. Against this, industries producing toys, watches and a variety of electronics products have grown in significance. Now, services are to a great extent supplanting goods, though there will continue to be a successful and increasingly sophisticated manufacturing sector. The point is that we have allowed this to happen, and not attempted to rescue the various industries as they died from natural causes.

A New Trading Pattern

Hong Kong's buoyant economic performance over the past decade has increasingly enabled us to pursue these policies with considerable success, despite the severe constraints on our supply of land and labour. I have already drawn attention to some of the indicators of our success, including our dramatic ascent in the ranking of world trading economies, from 23rd in 1966 to the eighth largest overall at present.

That is so dramatic that it often eclipses other far-reaching changes in our economy and in the pattern of our trade; in particular, China has replaced the USA as our largest trading partner, and we have undergone a major restructuring of our economy, with the emphasis shifting from manufacturing to services.

In 1966, our trade with the USA totalled $3.2 billion and with China $2.8 billion. By 1994, the position had reversed and China trade led with $855 billion, well ahead of the

17

HONG KONG: A HARD-EARNED SUCCESS

18

USA with $361 billion. Japan has remained our third largest trading partner, but the United Kingdom has dropped from fourth place to eighth, while Taiwan has risen from the 14th position to fourth.

   The relative decline in UK trade mirrors the trend with Europe as a whole, not surprisingly at a time when our trade with Asia in general, and China in particular, has become much more important. The share of our global trade accounted for by the 12 countries currently in the European Union has decreased from 21 per cent in 1966 to 12 per cent in 1994, while the share of countries that are now members of APEC has grown from 65 per cent to 80 per cent.

   These figures illustrate the shift that has occurred in world trade, with the centre of gravity moving from the Atlantic to the Pacific as dynamic, smaller Asian economies have become wealthy consumers, and as China has opened up with its market reforms. Indications are that this trend will continue. When trade statistics are combined with the number of infrastructure and other contracts up for tender in the Asia-Pacific, one can see why increasing economic power is also clearly shifting to the region.

   Given Hong Kong's established role in international trade and our location at the cultural, trading and communications crossroads of the Pacific, we will continue to play a significant role in what is often called the Asia-Pacific Century. Our APEC membership will be valuable here because, as a leading trading and service economy, Hong Kong depends on such relationships more than most. But we shall always ensure that the rules of the GATT/ WTO are observed, and that the latter body has our full support. APEC does not weaken that priority.

   There has also been a significant shift in the composition of Hong Kong's exports from domestic exports to re-exports, in line with the re-emergence of our role as an entrepôt for the region in general and for China in particular. Accordingly, the share of domestic exports in Hong Kong's total exports fell from 76 per cent in 1966 to 19 per cent in 1994.

   Underlying all these statistics is a dramatic upgrading in the level of sophistication of Hong Kong products. I remember the Chinese Manufacturers' Association annual exhibition in the late 1960s, with its very low technology exhibits - cheap plastic buckets, toys and flowers, and basic textiles and garments. One must not decry such products. We were proud of them at the time. They have been the starting point for many of our most successful entrepreneurs, as well as for an important phase in the development of Hong Kong itself. But they provide a dramatic contrast with current trade promotions of up-to-the- minute fashion designs, advanced consumer electronics and other up-market goods.

   The shift into services is well illustrated by the fact that the number of Hong Kong's employees in manufacturing has roughly halved since 1981, while the services sector has grown to roughly 77 per cent of GDP.

Financial Services

Turning to an area which lies at the heart of Hong Kong's recent success, the expansion of our financial services has been phenomenal. From not being featured at all on the maps denoting international financial centres in the late 1960s, we are now a leading international financial centre. We have 85 of the world's top 100 banks in Hong Kong. As many as 30 of the top 50 debt securities issuers have listed their issues here. The total number of authorised financial institutions has risen from 76 in 1966 to 380. Total deposits stand at $1,942 billion

HONG KONG: A HARD-EARNED SUCCESS

against $8.41 billion in 1966. Total loans and advances have risen to $3,262 billion compared with $5.38 billion.

Alongside the enormous rise in the Hang Seng Index mentioned earlier, there has also been an increase in the market capitalisation from a mere $3.75 billion at the end of 1966 to $2,085 billion at the end of 1994. Total turnover of the stock market for the whole month of December 1966 was $20.12 million, while the average daily turnover for 1994 was $4.6 billion.

The government's policy of minimum intervention and sensitive regulation has provided the basis for these dramatic financial market developments. We leave the markets to take as many decisions for themselves as possible, only assuming a more active role when that is necessary.

This does not mean the development of Hong Kong as a major financial centre has been trouble-free. The positive side is that we have learned from the various banking and stock market crises and, as a result, greatly strengthened Hong Kong's regulatory systems, which has enabled us to adjust to the rapidly-changing global financial scene. For example, the development of a sound system of banking regulation followed bank failures in the 1980s. This framework has continued to evolve and to be refined as Hong Kong's own status as a financial centre has grown. Similarly, in the wake of the 1987 stock market crash, the government completely overhauled the regulatory and risk management infrastructure of the securities and futures markets. The more notable measures included the establishment of an independent Securities and Futures Commission; the restructuring of the ruling bodies of the stock and futures exchanges to provide a wider spectrum of representation in the decision-making process; and the introduction of sophisticated clearing and settlement systems for both markets, which has made Hong Kong's risk management capability one of the best among the major markets in the world.

The setting up of the Hong Kong Monetary Authority in 1993 marked another significant step forward in the development of a more sophisticated regulatory structure, and in putting into one organisation responsibility for central banking functions in Hong Kong. The authority, established by merging the offices of the Exchange Fund and of the Commis- sioner of Banking, is responsible for maintaining currency stability, the safety and stability of the banking system, and the efficiency of the financial system.

Recent Events and the Future

The job of the administration has, of course, changed over the years, partly because of the increasing internationalisation of business and trade and partly because of political developments, most notably the growing role of the Legislative Council and the evolving relationship with China as we move through the transition towards the change in sovereignty in 1997.

       We have to take account of a far wider range of issues than when I arrived in 1966. Generally, we seem to have adapted quite quickly to the challenges and I believe we have successfully resisted any temptation to use this trend as an excuse to unnecessarily enlarge the role of the government.

The development and democratisation of the Legislative Council, and accompanying cultural changes in the general community have had a major impact. The powers of civil servants to command and influence have, inevitably, been reduced. This is symbolically

19

20

HONG KONG: A HARD-EARNED SUCCESS

illustrated by the recent replacement of the Chief Secretary and the Financial Secretary as the respective chairman of the Finance Committee and the Public Works Sub-committee. The prospect of such a change would probably have horrified the government that I joined in 1966; but in the mid-1990s it seems part of the natural course of events.

The public role of senior civil servants has grown considerably. We now spend more time discussing policies and initiatives with Legislative Council members and others in the community. To succeed as a civil servant, it is more important than ever to be prepared to speak out in support of policy initiatives, to listen to the views of the council and the rest of the community and take them into account, and then to steer through the best solution for all concerned. We have increasingly become quasi-politicians. Just as 'capitalist' is not a dirty word in Hong Kong, I see no need for 'politician' to be so either.

It is a truism to say Hong Kong's future is based on its past. But as we look ahead to the change of sovereignty in just over two years, it is worthwhile remembering the factors that have contributed to our success, and that will continue to do so. I have tried to set out some of those factors in the earlier part of this chapter.

Hong Kong thrives because we are superbly efficient. We are home to over 4000 overseas-incorporated companies, as well as many other companies owned and controlled by foreign interests. They come, and they stay, because we offer substantial advantages over other Asian cities such as Tokyo, Singapore and Bangkok. We may be more expensive than some (and we must watch that), but we provide what they want - the freedom to operate within an environment set by a government that believes in providing maximum infrastructural support and the rule of law, but with minimum bureaucratic intervention.

It is vital that Hong Kong maintains the rule of law, administered by an impartial judiciary, together with the essential ingredients of successful capitalism - free trade, a level playing field, minimal government intervention, a low and stable taxation regime and budgets which, on average, are roughly balanced.

Which of those is most important is probably an impossible question to answer. But if I had to answer it, I would plump for the rule of law and minimalist government. If the rule of law and the independence of the judiciary is put in doubt, international businessmen will shy away and residents will think of leaving. And if bureaucrats build up restrictive structures and regulations, or become less honest, we would rapidly be overtaken by our competitors. Hong Kong would then become just another Asian city. I am sure that this will not happen. I am sure that my colleagues in the administration will continue to jealously guard the principle of the level playing field. The Legislative Council and the press will alert the public to any apparent inefficiencies or inadequacies.

In sum, Hong Kong has strong foundations that will carry it prosperously through to the next century, playing a key role in the development of the Asia-Pacific region.

HONG KONG: A HARD-EARNED SUCCESS

Growth trends of Gross Domestic Product (GDP) and per capita GDP

Index (1966 = 100)

800

700

600

500

400

300

200

100

Improvement in economic well-being:

GDP in real terms rose by 6 times whilst per

capita GDP in real terms rose by about 3 times from 1966.

In 1994, GDP amounted to HK$1,019 billion (US$132 billion) and per capita GDP to HK$168,151 (US$21,760) at current prices.

GDP in real terms

Per capita GDP in real terms

66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94

Contributions to Gross Domestic Product by major economic sectors

Wholesale, retail and import/export trades, restaurants and hotels 21.4%

1980

Manufacturing 23.7%

Others 12.5%

Transport, storage and communication 7.4%

Finance, insurance,

real estate and

other business

services 23%

GDP at

current

prices:

HK$ 142 billion

(US$ 28 billion)

Wholesale, retail and import/export trades, restaurants and hotels 26.5%

1993

Manufacturing 11.4%

Others 11.1%

Community, Transport,

social and

personal

services

12.1%

storage and

communication

9.9%

Finance, insurance, real estate and other business services 25.7%

Community, social and personal services 15.3%

HK$ 898 billion

(US$ 116 billion)

21

HONG KONG: A HARD-EARNED SUCCESS

Growth trends of total exports, container throughput and visitor arrivals

Index (1974 - 100)

1600

1400

1200

1000

800

600

400

200

Over the past 20 years, container throughput and exports in real terms both rose by about 14 times, whilst visitor arrivals rose by 6 times

Total exports in real terms

Visitor arrivals

0

74 75 76 77 78 79 80 81 82 83

84 85

Year

Container throughput

90

91

92

28

88

86

87 88

89

00

69

Hong Kong's total exports by major markets

1966

USA 28.3%

JAPAN 5.8%

CHINA 0.9%

1994

CHINA 32.8%

35

93

94

95

UK 13.4%

GERMANY 5.7%

OTHERS 45.8%

OTHERS

USA

30.5%

23.2%

JAPAN UK GERMANY

5.6% 3.2%

4.7%

22

Value of total

exports:

HK$ 8 billion

(US$ 1 billion)

HK$ 1,170 billion

(US$ 151 billion)

HONG KONG: A HARD-EARNED SUCCESS

Growth trends of domestic exports and re-exports

Index (1974 = 100)

11000

10000

9000

In the past 28 years, the growth rate in real terms of re-exports was much faster than that of domestic exports.

8000

In 1994, the value of re-exports amounted to HK$948 billion (US$123 billion), and the value of domestic exports to HK$222 billion (US$29 billion).

7000

6000

5000

4000

3000

2000

1000

0%

Re-exports in real terms

Domestic exports

in real terms

66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94

Year

Hang Seng Index and stock exchange turnover

Hang Seng Index

       (Average covering the Index on the last trading day of each month in the year. Index for 31.7.64 = 100)

10000

Annual stock exchange turnover (HK$ billion)

1400

0000

1200

8000

Over the past 28 years, the Hang Seng Index rose by 114 times whilst the stock exchange turnover was higher by about 3250 times.

Stock exchange

turnover

7000

1000

6000

5000

4000

3000

2000

1000

Hang Seng Index

66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94

800

600

400

200

O

23

24

2

CONSTITUTION AND ADMINISTRATION

Arrangements for the 1994 and 1995 Elections

THE Governor announced, in his annual policy address in October 1992, a number of proposals for the September 1994 district board elections, the March 1995 municipal council elections and the September 1995 Legislative Council elections. The proposals were to ensure that the elections were held in an open and fair manner, and were acceptable to the people of Hong Kong.

The Governor reiterated in his policy address in October 1993 the hope of the British Government that legislation be introduced on these proposals on the basis of an agreement with the People's Republic of China. However, despite 17 rounds of talks between April and December 1993, Britain and China were unable to reach agreement. To provide slightly more time for the talks to continue on the more difficult issues, draft legislation on the more straightforward and immediate issues relating to the elections was introduced into the Legislative Council on December 15, 1993.

   The Electoral Provisions (Miscellaneous Amendments) (No. 2) Bill 1993 provided for the lowering of the voting age from 21 to 18 for all three tiers of elections; the adoption of the 'single-seat, single-vote' voting method for the district board, municipal council and Legislative Council geographical constituency elections; the abolition of appointed district board and municipal council membership; and an increase in the number of elected municipal council seats (from 15 to 32 for the Urban Council, and from 12 to 27 for the Regional Council).

The Bill also proposed permitting, as proposed by the Chinese side during the talks, Hong Kong residents who were members of Chinese People's Congresses at various levels to serve in the Legislative Council, municipal councils and district boards. The Bill was passed by the Legislative Council on February 24, 1994.

   Although the British side had made clear to the Chinese side that they were prepared to continue, in the limited time remaining, talks on the outstanding, more difficult issues covering functional constituencies, the election committee and the 'through-train' arrange- ment (which would allow members of the Legislative Council elected in 1995 to remain in the legislature through 1997 for their full four-year term) the Chinese side demanded that the Electoral Provisions (Miscellaneous Amendments) (No. 2) Bill 1993 must first be withdrawn before talks could resume. The British side found the demand unacceptable. No further talks were, therefore, held.

CONSTITUTION AND ADMINISTRATION

       By late February 1994, it was clear that the legislative process for the remaining proposals must begin if the legislation was to be enacted in time for the elections. On February 25, the Legislative Council (Electoral Provisions) (Amendment) Bill 1994 was gazetted, for introduction into the Legislative Council on March 9. It provided for, in respect of the 1995 Legislative Council elections, the abolition of all forms of corporate voting in functional constituency elections; the expansion in the franchise of five existing professional functional constituencies (social service; teaching; health care; architectural, surveying and planning; and tourism); the creation of nine new functional constituencies, covering the entire working population; and the establishment of an election committee to elect 10 Legislative Council members. The nine new functional constituencies cover the primary production, power and construction; textiles and garments; manufacturing; import and export; wholesale and retail; hotels and catering; transport and communications; financing, insurance, real estate and business services; and community, social and personal services sectors. The election committee is to comprise all elected district board members, while candidature for the 10 Legislative Council seats would be open to all electors registered in the general electoral roll.

       On the same day, the British Government published a White Paper on Representative Government, giving a full account of what the talks between the British and Chinese sides were about, why agreement was not possible, and how it was intended to proceed.

       The Legislative Council (Electoral Provisions) (Amendment) Bill 1994 was passed by the Legislative Council with a clear majority (32 votes for, and 24 votes against) on June 30.

       The district board elections were successfully held on September 18 under the new provisions. A record number of 693 000 voters turned out to vote for the 296 contested seats some 270 000 more than the number of voters in the 1991 district board elections. The turnout rate of 33.1 per cent was also slightly higher than the 32.5 per cent in 1991. Fifty seats were uncontested and the only candidates nominated for these were automatically returned.

-

General

Hong Kong is administered by the Hong Kong Government, which is headed by the Governor. The Governor is the representative of the Queen in Hong Kong. He has the ultimate direction of the administration of Hong Kong. An Executive Council offers advice to the Governor on important matters of policy.

       At the central level of the three-tier system of representative government, the Legislative Council passes laws, debates policy issues and controls public expenditure. At the regional level, the two municipal councils- the Urban Council and the Regional Council - pro- vide public health, cultural and recreational services in their respective regions. At the district level, 18 district boards (19 before October 1) offer advice on the implementation of policies in their districts and provide an effective forum for public consultation.

       Under the terms of the Sino-British Joint Declaration on the Question of Hong Kong, which entered into force on May 27, 1985, Hong Kong will become, with effect from July 1, 1997, a Special Administrative Region of the People's Republic of China.

25

CONSTITUTION AND ADMINISTRATION

26

Constitution

The Letters Patent establish the basic framework of the administration of Hong Kong and, together with the Royal Instructions passed under the Royal Sign Manual and Signet which lay down procedures that must be followed, form the written constitution of Hong Kong.

The Letters Patent create the office of Governor and Commander-in-Chief of Hong Kong, and require him to observe laws and the instructions given to him by the Queen or the Secretary of State. They also deal with the constitution of the Executive and Legislative Councils, the Governor's powers in respect of legislation, the disposal of land, the appointment of judges and public officers, pardons, and the tenure of office of Supreme Court and District Court judges.

The Royal Instructions deal with the appointment of members of the Executive and Legislative Councils, the nature of proceedings in the Executive Council, the Governor's responsibility to consult the Executive Council on important policy matters, and his right to act against its advice (a right only exercised once, in 1946). They also deal with the membership of, and election to, the Legislative Council, the nature of proceedings there, and the nature of legislation which may not be passed.

   There are various well-established practices which determine the way in which these constitutional arrangements are applied. Hong Kong is governed by consent and through consultation with the community. Although from the constitutional instruments described above, Her Majesty's Government would appear to have substantial control over the way in which Hong Kong is run, in practice the territory largely controls its own affairs and determines its own policies. Similarly, the Governor, by convention, rarely exercises the full extent of his powers.

Role of the Governor

The Governor is appointed by the Queen and derives his authority from the Letters Patent. He has ultimate direction of the administration of Hong Kong and is also the titular Commander-in-Chief of the British Forces stationed in Hong Kong. He makes policy decisions on the advice of the Executive Council, and makes laws by, and with the consent of, the Legislative Council. As head of the government, he presides at meetings of the Executive Council. The present Governor, the Right Honourable Christopher Patten, assumed office on July 9, 1992, and is the 28th incumbent.

The System of Government

Executive Council

The Executive Council comprises three ex-officio members- the Chief Secretary, the Financial Secretary and the Attorney General - and 10 other members appointed by the Governor with the approval of the Secretary of State, including one official. The council normally meets once a week, and its proceedings are confidential, although many of its decisions are made public.

   The Governor is required by the Royal Instructions to consult the council on all important matters of policy. The Governor in Council - the Governor acting after consulting the Executive Council-is Hong Kong's central and highest executive authority on policy matters. In practice, decisions are arrived at by consensus rather than by division. Members tender their advice in an individual capacity, and the council is collectively responsible

CONSTITUTION AND ADMINISTRATION

for the decisions made by the Governor in Council. Individual non-official members do not hold personal responsibility for given subjects or portfolios. That is a matter for the government.

       In addition to policy matters, the Governor in Council determines appeals, petitions and objections under those ordinances which confer a statutory right of appeal. The council also considers all principal legislation before it is introduced into the Legislative Council, and is responsible for making subsidiary legislation under numerous ordinances. The council's advice on matters of policy involving the expenditure of public funds is subject to the approval of the necessary funds by the Finance Committee of the Legislative Council.

Legislative Council

the

The Legislative Council comprises 60 members. There are three ex-officio members Chief Secretary, the Financial Secretary and the Attorney General - and 57 non-official members. Of the non-official members, 18 are appointed by the Governor with the approval of the Secretary of State, and 39 are elected. Among the elected members, 21 come from functional constituencies, each representing an economic, social or professional sector; and 18 are returned by direct elections in geographical constituencies which cover the whole territory. The President of the Legislative Council is elected among the non-official members themselves.

       The Legislative Council's procedures are governed by its Standing Orders, which derive their authority from the Hong Kong Royal Instructions, and by the Legislative Council (Powers and Privileges) Ordinance. The main functions of the Legislative Council are to enact laws, control public expenditure and monitor the performance of the government by putting forward questions on matters of public interest. The government is responsible for initiating legislative and public funding proposals to the Legislative Council for consideration.

       Legislation is enacted in the form of bills. Most business, including the passage of bills, is transacted by way of motions, which are decided by the majority of the members present. Private bills, not representing government measures and intended to benefit particular persons, associations or corporate bodies, are introduced from time to time and enacted in the same way. A bill passed by the Legislative Council becomes law when it receives the Governor's assent, which is normally given on the day following its third reading. After the Governor's assent, a bill becomes an ordinance without being subject to external approval, although the Queen has reserve powers to disallow an ordinance. The power of dis- allowance has not been used for many years. During the 1993-94 Legislative Council session, 104 bills were passed 20 more than in 1992-93.

       Apart from the enactment of legislation, the council holds two major debates in each legislative session: a wide-ranging debate on government policies which follows the Governor's address at the opening of the new session in October each year; and the budget debate on financial and economic affairs concerning the annual Appropriation Bill, which takes place in March.

       Members of the council may question the government on policy issues for which the latter is responsible, either seeking information on such issues or asking for official action on them. Members may request either oral or written answers to the questions, and may put forward supplementary questions for the purpose of elucidating an answer already given.

27

CONSTITUTION AND ADMINISTRATION

28

Altogether, 145 oral and 815 supplementary questions on a wide range of topics were raised during the 39 sittings in 1993-94. In addition, 449 written questions were sent to the administration for reply.

   The council normally meets in public on Wednesdays for the transaction of normal council business. Also, about once a month, the Governor addresses or answers questions from members at a special sitting. At present, all Legislative Council sittings and most meetings of its bills committees, sub-committees and panels are open to the public. The increased transparency of the Legislative Council has helped promote better awareness and understanding of the constitutional role and functions of the council.

-

   The council operates four standing committees - the Finance Committee, the House Committee, the Public Accounts Committee, and the Committee on Members' Interests.

Finance Committee

Before October 1, 1994, the Finance Committee of the Legislative Council consisted of the Chief Secretary as the chairman, the Financial Secretary and 56 non-government members of the council. A new Finance Committee chairman and deputy chairman were elected among non-government members on October 3 for the 1994-95 Legislative Council session. The Chief Secretary and the Financial Secretary, as ex-officio members of the council, remain committee members until the dissolution of the council in 1995.

The Finance Committee scrutinises public expenditure, both at special meetings held in March to examine the draft estimates of expenditure for the year ahead, and at regular meetings, held between October and July, at which members consider proposals which entail changes to the provisions agreed upon by the council in the estimates each year, or note financial implications of new policies. Both the special and regular meetings are held in public.

    The Finance Committee has two sub-committees: the Establishment Subcommittee and the Public Works Subcommittee, which also meet in public.

The Establishment Subcommittee consists of 22 non-government members of the council. It examines the administration's proposals for the creation, redeployment and deletion of permanent and supernumerary posts remunerated from the directorate pay scales, and changes to the structure of civil service ranks and grades (including pay scales, new grades and new ranks); and makes recommendations on such proposals to the Finance Committee for approval. It also reports to the Finance Committee on the size and cost of the civil service and the changes in departmental establishments. The terms of reference of the Establishment Subcommittee were extended during the year to include the creation of directorate-level consultancy positions for periods lasting more than 12 months.

The Public Works Subcommittee formerly consisted of the Financial Secretary as the chairman and 32 non-government members of the council. Since April 1, it consists of 35 non-government members, who elect the chairman and deputy chairman from among themselves. The Financial Secretary remained an ex-officio member until the end of the 1993-94 Legislative Council session. The sub-committee examines the administration's proposals for the upgrading of projects to, or downgrading from, Category A of the Public Works Programme, or changes to the scope and approved project estimates of projects already in that category. It makes recommendations on such proposals to the Finance Committee for approval.

CONSTITUTION AND ADMINISTRATION

House Committee

The House Committee consists of all members of the council other than the President and ex-officio members. Its chairman and deputy chairman are elected from among its members. The House Committee performs overall co-ordinating functions in respect of the business of the council and its committees.

When the council is in session, the House Committee meets every week to discuss council business and prepare for sittings of the full council. Regularly on the agenda of these meetings are reports on subsidiary legislation tabled in the council; questions that members intend to put to the government; motions and bills to be debated; and any other matters of public concern or relating to the business of the council.

       The House Committee may appoint sub-committees to assist in the consideration of specific subsidiary legislation and issues of public concern.

Public Accounts Committee

The prime concern of the Public Accounts Committee is to see that public expenditure has not been incurred for purposes other than those for which the funds have been granted, that full value has been obtained for the sums expended, and that the government has not been faulty or negligent in its conduct of financial affairs.

The committee, established in 1978, consists of a chairman and six members nominated by the President of the council. It examines reports of the Director of Audit on the government's annual statements of account, prepared by the Director of Accounting Services. It also looks into, and reports on, matters relating to the performance of the Director of Audit's duties and the exercise of his powers under the Audit Ordinance, and on matters relating to value-for-money audits carried out by the Director of Audit.

The Director of Audit submits two reports to the Legislative Council each year. The first, tabled in April, relates to value-for-money audits. The second, tabled in November, relates to the audit of the government's annual statements of account. Following the tabling of the reports, the Public Accounts Committee may invite the controlling officers for certain heads of expenditure to its public hearings to give evidence. The committee's report, based on these hearings, is tabled in the Legislative Council within three months of the submission of the Director of Audit's report to which it relates.

The government's response to the committee's report is contained in the government minute which describes the measures taken to give effect to the committee's recommenda- tions, or reasons why these recommendations cannot be accepted. The government minute is also tabled in the Legislative Council, within three months of the tabling of the Public Accounts Committee's report.

Committee on Members' Interests

The Committee on Members' Interests was established by a resolution of the Legislative Council in 1991. Comprising a chairman and six members, the committee studies the arrangements for the compilation, maintenance and accessibility of the Register of Members' Interests. It also considers matters pertaining to the declaration of interests by council members and matters of ethics in relation to the conduct of members in their capacity as such, and makes recommendations on matters relating to members' interests.

29

30

CONSTITUTION AND ADMINISTRATION

Bills Committee

After a bill has been introduced into the Legislative Council, it is referred to the House Committee which may, as it sees fit, allocate the bill to a bills committee for detailed scrutiny.

   Any member of the Legislative Council, other than the President and ex-officio members, may join a bills committee. The chairman is elected by the committee from among its members. Government officials and members of the public may be invited to attend such meetings. A bills committee may consider the principles and merits of a bill allocated to it for scrutiny, as well as the detailed provisions of the bill. In addition, it may consider any amendments relevant to the bill. A bills committee may also appoint sub-committees for the purpose of assisting it in the performance of its functions.

   After a bills committee has completed scrutiny of a bill, it will report back to the House Committee. A bills committee is normally dissolved after it has reported on the bill concerned to the House Committee.

Panels

The Legislative Council has set up 18 panels to examine issues of public concern and to monitor government policy matters. Since October 1994, the panels have been restructured to obviate or minimise the need for policy secretaries and government officials having to brief two or more panels at their respective meetings on the same subject within a short period of time. The panels now cover administration of justice and legal services; constitutional affairs; economic services; education; environmental affairs; financial affairs; health services; home affairs; housing; information policy; planning, lands and works; manpower; public service; recreation and culture; security; trade and industry; transport; and welfare services.

   Council members, other than the President and ex-officio members, may join any of the panels. A panel may examine any issue that touches on the policy area with which it is concerned. The subjects for discussion can be brought up by members themselves, be referred to them from meetings with district boards, result from public complaints and representations, or arise from proposals presented by the administration. To facilitate deliberations, senior government officials and interest groups are often invited to provide information on the matters to be considered. A panel may also form sub-committees to study specific issues.

   The year saw the invocation of the Legislative Council (Powers and Privileges) Ordinance for the first time since the enactment of the ordinance in 1985. Members of the Security Panel voted to go ahead with an inquiry into the dismissal of a former deputy director of operations of the Independent Commission Against Corruption (ICAC), following the refusal by the administration to divulge publicly the reasons behind the dismissal. A number of persons, including the Commissioner of the ICAC, gave evidence before the panel. In its report published in October, the panel considered, among other things, that the commission's decision to dismiss Mr Alex Tsui was proper but recom- mended that the government should review its experience from this incident and consider how accountability on issues of public concern can be addressed. It also recommended that the government review the appropriateness of the Commissioner's power under Section 8(2) of the ICAC Ordinance in the present-day situation.

CONSTITUTION AND ADMINISTRATION

Select Committees

The Legislative Council may appoint select committees to consider matters or scrutinise bills in depth. The purpose is to enable small groups of members to examine complex problems and to report their findings and recommendations to the council. Meetings of a select committee are normally held in private unless the committee decides otherwise. All select committees are dissolved at the end of the session. In October, the council decided to appoint a select committee to look into the landslip at Kwun Lung Lau Estate earlier in the year and at related issues. The select committee has not yet completed its inquiry.

Redress System

Legislative Councillors operate a redress system under which members of the public can make representations on, or seek solutions to, problems arising from government policies, decisions and procedures.

Under the system, members take turns to be on 'ward duty' during their duty week to meet individual complainants and to give on-the-spot guidance to staff in processing cases. Cases received are examined in the light of government policies and procedures. If members consider a complaint to be justified, they will ask the government department concerned to reconsider the matter or to re-examine the procedures that have given rise to the complaint. Cases involving matters of policy, or of particular importance, are put to the appropriate Legislative Council panels for further consideration. Where a change in policy or in law is considered necessary, members will make recommendations to the appropriate policy branch in the Government Secretariat. Members may also ask questions during council sittings on the problem itself, or the policy giving rise to it.

per cent

During the 1993-94 session, more than 2 000 new cases were handled. About 12 of the cases handled were group representations, while the rest were complaints and requests for assistance from individuals. In addition to these, over 2 000 telephone enquiries were handled.

The redress system was fine-tuned in 1993-94, having regard to the changes and developments in other complaints systems in the public sector. Since June 1994, complaints about maladministration can be taken directly to the Commissioner for Administrative Complaints without having to be referred by a non-official Legislative Council member. In the light of this development, it has been decided that the primary target of the Legis- lative Council's redress system should be towards representations that raise wide policy issues and matters of public concern, although the ambit of service to the public remains unchanged.

Legislative Council Commission and Secretariat

The year saw the coming into being of a totally independent Legislative Council Com- mission, with financial and managerial autonomy. The Legislative Council Commission Ordinance, providing the legal framework for the Legislative Council to direct and oversee the operation of its secretariat, came into effect on April 1. The commission, chaired by the President of the Legislative Council and comprising 10 council members, is given the powers and responsibilities to employ its own staff, determine the organisation and support facilities, formulate and execute policies on their effective operation and expend funds in ways it sees fit to support these activities.

31

CONSTITUTION AND ADMINISTRATION

32

A new Legislative Council Secretariat has also been set up to provide administrative support and services to members. Previously, such services were provided by the Office of the Clerk to the Legislative Council, which was part of the administration, and the Office of Members of the Legislative Council. Headed by a Secretary General, the new secretariat comprises nine functional divisions providing a wide range of support services to members, including servicing meetings of the council and its committees, providing legal advice, research and library services, public information support, and translation and interpretation services. The secretariat also maintains a representative office in London to keep council members abreast of the political scene in Britain, and to broaden British opinion-formers' understanding and appreciation of political developments in Hong Kong.

Urban Council

The Urban Council is a statutory council with responsibilities for the provision of municipal services to some 3.1 million people in the urban areas. These services include street cleansing, refuse collection, control of environmental hygiene, and ensuring the hygienic handling and preparation of food in restaurants, shops, abattoirs and other establishments.

The Urban Council is also the authority for the control of hawkers and street traders, although some of this work devolves to the police as the council does not have the manpower or finances to shoulder the whole burden.

Within the urban areas, the council provides and manages all public recreation and sporting facilities such as swimming pools, parks, playgrounds, indoor and outdoor stadia, tennis courts, football grounds, squash courts and basketball courts; and promotes a large number of sports at district level. Included among its facilities is the redeveloped Hong Kong Stadium, which was opened in March. With a seating capacity of 40 000, it provides a multi-purpose venue for sports activities and mass entertainment events.

   The council manages museums, public libraries and several major cultural venues and multi-purpose facilities, including the City Hall, the Queen Elizabeth Stadium, the Hong Kong Coliseum, the Hong Kong Science Museum and the Museum of Art. The City Hall, opened in 1962, has undergone a $72 million renovation programme to improve the efficiency and effectiveness of its infrastructure. The council promotes cultural per- formances and runs a comprehensive programme of public entertainment throughout the urban areas.

The council consists of 15 members elected from geographical constituencies, 15 members appointed by the Governor and one representative member from each of the urban district boards. It meets in public once a month to pass by-laws and deal with its finances, formal motions and questions on its activities.

The routine business of the Urban Council is conducted by the Standing Committee of the whole council, supported by 14 select committees and 26 working groups or sub-committees. All the council's committees, sub-committees and working groups have opened their meetings to the public.

The council's chief executive is the Director of Urban Services, who controls the operations of the Urban Services Department, with its staff of 16 300. The director is charged with carrying out the council's policies and implementing its decisions.

   The council is financially autonomous and during 1993-94, spent about $4,783 million on council-controlled activities and projects. It is financed by a share of the rates, which

CONSTITUTION AND ADMINISTRATION

forms the main part of its income, with the balance coming from various licence fees and other charges.

The council has ward offices spread throughout the urban areas, where council members deal with the public on a wide variety of matters. Members of the public may also make their complaints and views known to the council through the 'Members Duty Roster System'. Under this system, council members are placed on a duty roster to meet the public, by appointment, twice a week.

Regional Council

The Regional Council is the statutory municipal authority for the New Territories, where some 2.8 million people live. It is responsible for all matters concerning environmental hygiene, public health, sanitation and liquor licensing; and the provision of recreational, sports and cultural facilities and services within its jurisdiction.

The Regional Council consists of 12 members elected from geographical constituencies, 12 appointed by the Governor and one representative member from each of the nine New Territories district boards. There are also three ex-officio members who are the chairman and the two vice-chairmen of the Heung Yee Kuk (a statutory advisory body which represents the indigenous population of the New Territories). The chairman and vice- chairman of the council are elected by members among themselves.

The council's policies are implemented by its executive arm, the Regional Services Department, which is headed by the Director of Regional Services and has a staff of about 10 500.

The council is financially autonomous. Its main source of revenue comes from rates collected in the council area, and in 1993-94, this provided about 84 per cent of its total revenue. The remainder of its revenue comes from fees and charges, and rental income (mostly from market stalls). In 1993-94, total revenue amounted to $2,582 million, while total expenditure stood at $2,865 million. The deficit was met by the council's General Reserve Fund.

The council discharges its responsibilities through four functional select committees and a Liquor Licensing Board. The four select committees, which meet monthly, are responsible for finance and administration, capital works, environmental hygiene, and recreation and culture. The Liquor Licensing Board meets quarterly to consider contested applications. All meetings of the council, its various committees and the Liquor Licensing Board are open to the public, unless confidential items are under discussion.

The council has established nine geographically-based district committees to assist in gauging local needs and aspirations in the planning and provision of municipal services and facilities. Each district committee comprises eight Regional Council members, four district board members and three co-opted personalities. They meet every two months.

The Regional Council also maintains close liaison with the district boards in the New Territories and the Heung Yee Kuk, to ensure that local aspirations and views are taken into account in its deliberations.

The council is represented on a number of organisations whose work is closely related to its responsibilities. These organisations include the Sports Development Board, the Hong Kong Arts Centre, the Chung Ying Theatre, the Hong Kong Children's Choir, the Hong Kong Ballet, the Hong Kong Sinfonietta and the Hygiene Services Advisory Committee.

33

34

CONSTITUTION AND ADMINISTRATION

District Administration

District boards are statutory bodies which provide a forum for public consultation and participation in the administration of the districts. With effect from October 1, 1994, there are 18 district boards (nine in the urban areas and nine in the New Territories), with 346 elected members and 27 ex-officio members who are rural committee chairmen. Appointed membership has been abolished from that date.

   A new round of district board elections was held on September 18. A total of 757 candidates were nominated for the 346 seats. With only 50 seats returned unopposed, the election was hotly contested. For the contested seats, 2 093 603 voters (among the registered electorate of 2 450 372) could vote for the members to represent their respective contested constituencies. A record 693 223 voters (33.1 per cent) turned out to vote, compared with the 424 023 (32.5 per cent) turnout rate for the last election in 1991.

The main function of the district boards, established in 1982, is to advise the government on a wide range of matters affecting the interests or well-being of the people living and working in the districts. Through their advice, important contributions are made to the management of district affairs. District boards are also consulted on a wide range of territory-wide issues.

   The budgets of district boards were increased in 1994 to give them greater influence over district matters. In 1994-95, $100 million has been made available to the district boards for the implementation of minor environmental improvement and community involvement projects in the districts. An additional $16 million has been provided by the two municipal councils for district boards to undertake minor environmental improvement projects.

   As an important service for residents, each district board operates a 'meet-the-public' scheme, under which residents may meet board members face-to-face to express their views on any district problems. The scheme has been well received by the general public and has proved effective in providing a direct channel for collecting public views on local issues and reflecting them to the government.

   In each district, there is a district management committee, chaired by the district officer, comprising representatives of departments providing essential services in the district. It serves as a forum for inter-departmental consultation on district matters and co-ordinates the provision of public services and facilities to ensure that district needs are met promptly. The district management committee works closely with the district board and, as far as possible, follows the advice given by the board. To improve communication between the district management committee and the district board, district board chairmen attend district management committee meetings as observers.

   Area committees and mutual aid committees were set up in districts in the early 1970s throughout the territory, in support of the Keep Hong Kong Clean Campaign and Fight Violent Crime Campaign.

Following a review of the area committees, a number of changes relating to their number, composition, terms of reference and geographical coverage were introduced in November 1994 to streamline their operation. Area committees encourage public participation in district affairs, assist in the organisation of community activities and government campaigns, and advise on issues of a localised nature affecting the relevant area.

   Mutual aid committees are building-based resident organisations, established to improve the security, cleanliness and general management of multi-storey buildings.

CONSTITUTION AND ADMINISTRATION

       At present, there are over 70 area committees and 4 000 mutual aid committees. They provide an extensive and effective network of communication between the government and the people at the local grassroots level.

       Attached to the district offices are 19 public enquiry service centres, which provide a wide range of free services to members of the public, including answering general enquiries on government services; distributing government forms and information materials; administering oaths and declarations for private use; and referring cases under the meet- the-public scheme, the free Legal Advice Scheme and Rent Officer Scheme. Under the latter scheme, rent officers from the Rating and Valuation Department are available at 15 public enquiry service centres on specified days of the week to advise on tenancy matters and the statutory rights and obligations of landlords and tenants. During the year, a total of 14 947 000 cases were handled. To strengthen the service and enable members of the public to make enquiries without having to travel to a public enquiry centre, a central telephone enquiry centre also operates during office hours.

Links Between the Representative Institutions

The Urban Council and the Regional Council, which cover much the same fields in their respective areas, hold liaison meetings and institute joint ventures.

       These two municipal councils are closely linked to the district boards. Each district board in the urban area has a representative member on the Urban Council. In addition to a similar arrangement between the Regional Council and the district boards in the New Territories, members of the latter are also included in the district committees under the Regional Council. Through these channels, the district boards are consulted on a wide range of municipal council matters affecting their areas.

New Territories district boards maintain a close relationship with the Heung Yee Kuk. Seats are reserved on the district boards for rural committee chairmen, who are also ex-officio members of the Kuk's executive committee.

The Regional Council also has a formal link with the Heung Yee Kuk through the ex-officio membership of the Kuk's chairman and two vice-chairmen on the council.

       Starting from the 1991-92 Legislative Council session, the two municipal councils and the Heung Yee Kuk became functional constituencies, each returning one member to the Legislative Council.

The Electoral System

The General Electoral Roll

Elections to the Legislative Council geographical constituencies, municipal councils and district boards are through a broad franchise. Practically everyone who is 18 years of age or over, and who is a Hong Kong permanent resident or has ordinarily resided in Hong Kong for the preceding seven years, is eligible to apply for registration as an elector in the constituency in which he lives. An applicant should be ordinarily resident in the territory at the time of application.

A registration exercise is conducted between April and June each year, although appli- cations for registration can be made at any time of the year. The 1994 electoral roll carried 2 450 372 names, representing 61.8 per cent of an estimated potential electorate of 3.96 million.

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Electoral System for the Municipal Councils and District Boards

Elections to the Urban Council, Regional Council and district boards are on a geographical constituency basis. For the 1991-94 district board term, there were 19 district boards, with 274 directly elected members from 146 single-seat and 64 double-seat constituencies, and 140 appointed members. In the New Territories, the 27 rural committee chairmen were ex-officio members of the respective district boards. Starting from October 1994, there are 18 district boards with 346 single-seat constituencies, returning 346 directly-elected mem- bers. All appointed seats have been abolished, but the ex-officio seats in the New Territories district boards have been retained.

For the Urban Council, 15 members are returned from geographical constituencies, 15 are appointed by the Governor, and 10 representative members (who are themselves district board members) are elected by the 10 urban district boards. In the March 1995 Urban Council elections, 32 members will be elected from geographical constituencies and nine representatives from the nine urban district boards. All appointed seats will be abolished. In regard to the Regional Council, 12 members are elected from geographical constituencies, 12 appointed by the Governor, and nine elected as representatives of the nine New Territories district boards. There are also three ex-officio members, being the chairman and the two vice-chairmen of the Heung Yee Kuk. In the March 1995 Regional Council elections, there will be 27 members elected from geographical constituencies. Members elected to represent the New Territories district boards and the ex-officio members will be retained, but all appointed seats will be abolished. The geographical constituencies of the municipal councils, both currently and after March 1995, are all single-seat.

   Elections to both the district boards and the municipal councils are by simple majority. An elector may vote only in the constituency in which he has been registered. A candidate may, however, stand for election to the Urban Council, Regional Council or a district board in any constituency, provided he has been ordinarily resident in Hong Kong for the preceding 10 years, attained the age of 21 and his nomination is supported by 10 electors in that constituency.

Electoral System for the Legislative Council

The electoral system for the Legislative Council comprises both geographical and func- tional constituencies.

The present Legislative Council, elected in September 1991, consists of nine double-seat geographical constituencies - two on Hong Kong Island, three in Kowloon and four in the New Territories, returning a total of 18 members. The 1991 elections for geographical constituencies were by simple majority, and each elector could cast two votes.

In addition, there are 21 functional constituency seats, covering the commercial, industrial, finance and financial services, labour (two seats), tourism, real estate and construction, social services, medical and health care, teaching, accountancy, legal, engineering, architectural, surveying and planning, Urban Council, Regional Council, and rural sectors. A preferential elimination voting system was used in 1991 for the functional constituencies.

The franchise for the Legislative Council geographical constituency elections consists of all electors on the general electoral roll. For the 1991 functional constituency elections, the electorate was made up of either individual or corporate electors, or a mixture of both. An

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       individual elector in a functional constituency was required to be a registered elector for the geographical constituency elections. A corporate elector which wished to vote at a functional constituency election was required to nominate an authorised representative to vote on its behalf. In 1994, the electoral roll for functional constituencies carried 71 327 entries.

The qualifications for candidature in geographical constituency elections are the same as in the district board and municipal council elections. For functional constituency elections, a candidate must have, in addition, a substantial connection with (or, as from the 1995 Legislative Council elections, is a registered elector of) the relevant functional constituency in which he stands. For the 1995 elections, the candidate must be a registered elector of the relevant functional constituency. Each nomination requires 10 subscribers who are electors in that functional constituency, except for the municipal council functional constituencies which require only five subscribers, due to the small electorate in these two constituencies. With the passage of the Legislative Council (Electoral Provisions) (Amendment) Bill 1994 on June 30, the new Legislative Council to come into being in October 1995 will see the abolition of seats for the three official members and for the 18 appointed members. The wholly-elected council will be composed of 20 seats directly elected from geographical constituencies, 30 seats from functional constituencies and 10 seats to be returned through an election committee formed by the district board members elected in September 1994. The increase in functional constituency seats from the present 21 to 30 will encompass the entire working population in the territory, estimated to be some 2.9 million. Nine new functional constituencies, each returning one seat, will cover the primary production, power and construction; textiles and garments; manufacturing; import and export; wholesale and retail; hotels and catering; transport and communications; financing, insurance, real estate and business; and community, social and personal services sectors. There will also be some rationalisation of the electorate of the existing 21 functional constituencies; notably, the replacement of corporate electors by individual electors.

Boundary and Election Commission

The independent and apolitical Boundary and Election Commission, established under the Boundary and Election Commission Ordinance since July 1993, is responsible for reviewing the geographical constituency boundaries of the Legislative Council, municipal councils and district boards, and making recommendations to the Governor. The three- member commission is also responsible for overseeing the conduct and supervision of elections, keeping under review the procedure for these elections and the arrangements for registration of electors to ensure that the elections are conducted openly, honestly and fairly.

The commission accomplished a number of major tasks in 1994. Having conducted extensive public consultation on its provisional recommendations and having regard to the representations received on the proposed demarcations, the commission submitted its recommendations on the demarcation of the electoral boundaries for the 1995 municipal council elections and the Legislative Council elections to the Governor in April and September, respectively.

In February, the commission saw the introduction of its first set of subsidiary legislation to regulate voter registration for the geographical constituency elections. It staged a

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successful, three-month voter registration drive from April and recruited some 520 000 new electors over 100 000 of whom were 18 to 21 years of age and eligible, for the first time in the history of Hong Kong, for registration as electors.

   In June, the commission saw the passage of subsidiary legislation to regulate the electoral procedures for the geographical constituency elections. In mid-July, after extensive public consultation, it published a comprehensive set of guidelines on election-related activities.

The commission successfully organised and supervised its first territory-wide district board elections in September. In December, in accordance with the statutory requirement under the law, the commission submitted to the Governor its report on the district board elections which, in its view, had been conducted fairly, openly and honestly. The report also contained findings of its review of the electoral arrangements and recommended improvements.

During the last quarter of 1994, the commission embarked on the preparation of the relevant legislation and planning of the voter registration for the functional constituencies of the Legislative Council, including the nine new functional constituencies.

The Registration and Electoral Office

The Registration and Electoral Office, headed by the Chief Electoral Officer, is the executive arm of the Boundary and Election Commission. It works under the direction of the commission and carries out its decisions. The work of the Registration and Electoral Office includes the review and demarcation of geographical constituencies for the district boards, the municipal councils and the Legislative Council; the registration of electors; and the conduct and supervision of elections.

   To reflect the independent status of the Boundary and Election Commission, the Registration and Electoral Office was excised from the Government Secretariat from April 1, to become a separate government department.

Advisory Boards and Committees

The government's network of advisory boards and committees is a distinctive feature of the system of government, which seeks to obtain, through consultation with interested groups and individuals in the community, the best possible advice on which to base decisions. Advisory bodies of one kind or another are found in nearly all government branches and departments.

In general, advisory bodies can be divided into two major categories- statutory bodies (such as the Antiquities Advisory Board and the Pilotage Advisory Committee) and non- statutory bodies (such as the Construction Advisory Board and the Economic Advisory Committee). Both types of bodies give advice to the government through a branch secretary or a head of department. Their areas of activities are wide-ranging. Some of them deal with the interests of a particular industry, such as the Fish Marketing Advisory Board. Others advise on a particular area of government policy or public interest, such as the Transport Advisory Committee and the Social Welfare Advisory Committee. Some of these bodies also carry out executive functions, such as the Hong Kong Examinations Authority and the Hospital Authority. There are also local committees concerned with the affairs of particular areas and neighbourhoods throughout the territory. They include the area committees and District Fight Crime Committees.

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       Government officials and members of the public are represented on these boards and committees. About 5 600 members of the public have been appointed to serve on a total of about 350 boards and committees, and some serve on more than one. These members are appointed for their specialist knowledge or expertise, or for their record or interest in contributing to community service. Increasing importance has been attached to their contribution to the formulation and execution of government policies. In order to fully utilise their potential, the composition and effectiveness of these bodies are regularly monitored. Where appropriate, the government broadens the cross-section of representa- tion and encourages an inflow of new ideas through a reasonable turnover of membership.

The Administration

Role of the Chief Secretary

The Chief Secretary is principally responsible to the Governor for the formulation of government policies and their implementation. She is the head of the Public Service. The Chief Secretary is one of the Governor's principal advisers, along with the Financial Secretary and the Attorney General.

The Chief Secretary exercises direction primarily as head of the Government Secretariat, the central organisation comprising the secretaries of the policy branches and resource branches and their staff. She deputises for the Governor during his absence, and is the Senior Official Member of the Executive and Legislative Councils.

Role of the Financial Secretary

The Financial Secretary, who reports directly to the Governor, is responsible for the fiscal and economic policies of the government. He is an ex-officio member of both the Executive and Legislative Councils, and a member of the Finance Committee of the Legislative Council.

As the government official with primary responsibility for Hong Kong's fiscal, monetary and economic policies, the Financial Secretary oversees the operations of the Finance, Financial Services, Trade and Industry, Economic Services, and Works Branches of the Government Secretariat, and the Hong Kong Monetary Authority. He also chairs the Exchange Fund Advisory Committee.

The Financial Secretary is responsible under the Public Finance Ordinance for laying before the legislature each year the government's estimates of revenue and expenditure. He delivers the annual budget speech, outlining the government's budgetary proposals and moving the adoption of the Appropriation Bill, which gives legal effect to the annual expenditure proposals contained in the budget.

Role of the Central Policy Unit

The Central Policy Unit forms part of the Government Secretariat, but it is not a policy branch and does not have responsibility for a defined programme area of its own. Its role is to undertake in-depth examinations of complex policy issues, to analyse options and to recommend solutions. These issues are assigned to it by the Governor, Chief Secretary and Financial Secretary, and are specified on a case-by-case basis. They are mostly issues of a long-term, strategic nature, or issues which cut across, or fall between, the boundaries of several policy branches or government departments.

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Role of the Efficiency Unit

  The Efficiency Unit was established in May 1992. The unit reports to the Chief Secretary. Its objective is to pursue the government's commitment to improve services to the community and to enhance openness and accountability by formulating, securing support for, and overseeing, the implementation of a programme of public sector reform.

The Structure of the Administration

The administration of the Hong Kong Government is organised into branches and departments. The branches, each headed by a policy secretary, collectively form the Government Secretariat. There are currently 13 policy branches, and two resource branches concerned with finance and the Public Service.

   The policy branches whose secretaries report directly to the Chief Secretary are the Constitutional Affairs; Education and Manpower; Health and Welfare; Home Affairs; Housing; Planning, Environment and Lands; Recreation and Culture; Security; and Transport Branches.

   The Civil Service Branch, a resource branch, also comes under the aegis of the Chief Secretary.

   The policy branches whose secretaries report directly to the Financial Secretary are: Economic Services, Financial Services, Trade and Industry, and Works.

The Finance Branch, a resource branch, is also responsible to the Financial Secretary. There are 76 departments and agencies whose heads are, with certain exceptions, responsible to the branch secretaries for the direction of their departments and the efficient implementation of approved government policy. The exceptions are the Audit Department, whose independence is safeguarded by the Director reporting directly to the President of the Legislative Council; the Independent Commission Against Corruption and the Office of the Commissioner for Administrative Complaints, whose respective independence is safe- guarded by the Commissioners reporting directly to the Governor; the Judiciary, which is the responsibility of the Chief Justice; and the Legal Department, which is the responsibility of the Attorney General.

   To assist in the co-ordination of government policy, there are, under the umbrella of the Chief Secretary's Committee, seven policy groups which bring together branch secretaries in related programme areas. The six which are chaired by the Chief Secretary are: Community Affairs; Constitutional Affairs; Lands, Works, Transport, Housing and Environmental Protection; Public Services; Social Services; and Legal and Security. The Legal Affairs Policy Group is chaired by the Attorney General.

Office of the Commissioner for Administrative Complaints

The Commissioner for Administrative Complaints (COMAC) is an independent authority, established in 1989 under the Commissioner for Administrative Complaints Ordinance. The purpose of the office is to provide citizens with a means through which an independent person outside the Public Service can investigate, and report on, grievances arising from administrative decisions, acts, recommendations or omissions. COMAC has jurisdiction over practically all government departments, except the Royal Hong Kong Police and the Independent Commission Against Corruption, which have their own independent bodies to deal with complaints from the public.

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In mid-1992, the government undertook a review of the COMAC redress system to identify areas where improvements could be made to strengthen its role as a safeguard against government maladministration. As a result, legislative amendments were enacted in June 1994 to widen COMAC's powers and jurisdiction. The major changes include allowing members of the public to take their complaints directly to the Commissioner. (Previously, a referral system required a complaint lodged with the Commissioner to be referred to him by a non-official member of the Legislative Council.) The Commissioner's jurisdiction has also been extended to six major statutory bodies the Hong Kong Housing Authority, Kowloon-Canton Railway Corporation, Mass Transit Railway Cor- poration, Securities and Futures Commission, Regional Council and Urban Council. The Commissioner also has the power to initiate investigations of his own volition, without any complaint being received; and to publicise investigation reports of public interest, subject to the withholding of the names of the individuals involved in the complaints.

As a result of these changes, the number of enquiries and complaints received during the year increased sharply by threefold and sixfold, respectively.

In 1994, a total of 549 complaints were received by the office. Together with 36 cases carried over from the previous year, there were in all 585 cases for disposal. During the year, 222 cases were completed. Of these, 78 were formally investigated and 15 were settled informally. Of those cases investigated, eight (10 per cent) were found to be substantiated in whole and 25 (32 per cent) in part. In 45 cases (58 per cent), the complaints were found to be unsubstantiated.

The areas which attracted substantial numbers of complaints related to errors or wrong decisions; followed by delay, rudeness, negligence or omission; abuse of power; faulty procedures and disparity in treatment or unfairness. In terms of complaints against departments, the Housing Department received the most complaints, followed by the Lands Department, the Urban Services Department, the Transport Department, the Hospital Authority, the Immigration Department, the Social Welfare Department, the Inland Revenue Department and the Legal Aid Department. Most of these departments have frequent contact with members of the public and are more vulnerable to complaints than the others.

Office of the Director of Audit

The necessity for an audit presence was recognised in the very early days of Hong Kong and the Audit Department is, in fact, one of the oldest departments in the territory. An Auditor-General was first appointed in 1844, only three years after the cession of the territory.

       The audit of the accounts of the Hong Kong Government is carried out under the terms of the Audit Ordinance, enacted in 1971. This provides for the appointment, security of tenure, duties and powers of the Director of Audit; for the submission of annual statements by the Director of Accounting Services; for the examination and audit of those statements by the Director of Audit; and for the submission of the latter's report on these to the President of the Legislative Council. Certain specific duties relating to the examination, audit, reporting and certification of the government's accounts are prescribed in the ordinance, and wide powers are given to the Director regarding his access to books, documents and records, and the explanations which he may require. In the performance of his duties and the exercise of

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his powers, the Director is not subject to the direction or control of any other person or authority, and considerable discretion is given to him in the conduct of his inquiries. The Director functions independently of the administration and he is free to report publicly as he sees fit.

   Aside from auditing the government's accounts, the Director of Audit also audits the accounts of the Urban Council, the Regional Council, the Vocational Training Council, the Hong Kong Housing Authority, the ex-government hospitals under the Hospital Authority, three trading funds and more than 50 statutory and non-statutory funds and other public bodies. He reviews, in addition, the financial aspect of the operations of the multifarious government-subvented organisations in Hong Kong.

   Government auditing practised in Hong Kong falls into two main categories, termed 'regularity' audit and 'value-for-money' audit, respectively. The regularity audit, which is intended to provide an overall assurance of the general accuracy and propriety of the financial and accounting transactions of the government and other audited bodies, is carried out by means of selective test checks and reviews designed to indicate possible areas of weakness. The audit is designed to ensure, as far as reasonably possible, that the accounts are properly presented or give a true and fair view of the state of affairs although, with the considerable volume and variety of government revenue and expenditure, it cannot be expected to disclose every accounting error or financial irregularity. Value-for-money audits are carried out according to guidelines tabled in the Legislative Council by the chairman of the Public Accounts Committee in 1986. The audit is intended to provide independent information, advice and assurance about the economy, efficiency and effec- tiveness with which any branch, department, agency, other public body, public office or audited organisation has discharged its functions. This involves going beyond the normal accounting records. In line with contemporary developments in both government and commercial auditing elsewhere, it is also becoming increasingly relevant to ascertain whether efficient and economical practices are being followed in pursuing prescribed goals and whether these goals are being achieved.

The Director of Audit's report, after it has been submitted to the President of the Legislative Council and laid before the council, is considered by the Public Accounts Committee. In 1994, the Director submitted two reports. The first report was tabled on April 27, covering the results of value-for-money audits completed, and the second report on November 16, covering the audit certification of the government's accounts for the preceding financial year, as well as the results of value-for-money audits completed.

   The Director's reports on the accounts of other public bodies are submitted to the relevant authority in accordance with the legislation governing the operation of these bodies.

Foreign Relations

The Role of the British Government

Because of Hong Kong's status as a dependent territory, the Secretary of State for Foreign and Commonwealth Affairs is constitutionally responsible to the British Parliament for the actions of the Hong Kong Government and he has authority to give directions to the Governor of Hong Kong. In practice, however, such formal directions have not been issued in living memory, and Hong Kong conducts its affairs with a high degree of autonomy in all domestic matters.

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      The relationship between London and Hong Kong is essentially one of co-operation. One important task regularly undertaken by the Foreign and Commonwealth Office is to ensure that Hong Kong's interests and views (which are not always identical to those of the United Kingdom) are properly considered within the British Government machinery, particularly when new policies are being formulated by other Whitehall departments.

      Hong Kong's foreign relations are constitutionally the direct responsibility of the British Government. The British Government is internationally responsible for ensuring that the Hong Kong Government fulfils its obligations under the many international conventions and agreements which extend to Hong Kong, as well as to the United Kingdom. But in the day-to-day conduct of external affairs, Hong Kong in practice enjoys a considerable degree of autonomy, and full autonomy regarding trade matters. It is a contracting party to the General Agreement on Tariffs and Trade, and a member of the Asia-Pacific Economic Co-operation and the Asian Development Bank in its own right.

The Role of the Political Adviser

The Political Adviser is a senior member of the British Diplomatic Service, seconded to the Hong Kong Government principally to advise the Governor and the Chief Secretary on international and political issues, and particularly matters concerning Hong Kong's relations with China. His office is part of the Hong Kong Government.

The Political Adviser's office, in conjunction with the Constitutional Affairs Branch, is closely involved in the work of implementing the Sino-British Joint Declaration on the Question of Hong Kong. In addition, the Political Adviser's office continues to offer advice, and in some cases to co-ordinate action, on many other matters, notably in promoting the wide range of contacts between Hong Kong Government departments and their counterparts in China, particularly in Guangdong Province and in the Shenzhen Special Economic Zone. Close and effective cross-border co-operation has developed in diverse areas, including immigration, the fight against crime, anti-smuggling operations, transport, environment issues, customs, the postal services and telecommunications.

       The Political Adviser's office is also a communication channel between the Hong Kong Government and foreign and Commonwealth missions in the territory. These missions deal directly, however, with the relevant departments of the Hong Kong Government in most day-to-day matters.

The Public Service

The Public Service employs about 6.1 per cent of Hong Kong's workforce. It provides staff for all government departments and other units of the administration. As at July 1, 1994, the total strength of the Public Service was 180 064. Nearly 99 per cent are local officers. The service is structured into some 428 grades or job categories in the administrative, professional, technical and manual fields, with about 1 230 ranks or job levels.

      Overall responsibility for the management of the Public Service lies with the Civil Service Branch of the Government Secretariat. The branch deals with matters such as appointments, pay and conditions of service, staff management, manpower planning, training and discipline. It is also the focal point for consultation with the principal staff associations. There are five departmental divisions, each responsible for the full range of personnel management matters of a group of departments; and six functional divisions,

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dealing with service-wide issues such as staff relations and pensions. In addition, its General Grades Office is responsible for the overall management of some 30 000 officers in certain categories of general grades.

   Recruitment and promotion to the middle and senior ranks of the Public Service are subject to the advice of the Public Service Commission, which is independent of the government. The commission has a full-time chairman and prominent citizens serving as members.

   The government is advised on matters relating to pay and conditions of service by four independent bodies. The Standing Committee on Directorate Salaries and Conditions of Service advises on matters affecting directorate officers (the 1 000 or so most senior public servants). The Standing Committee on Judicial Salaries and Conditions of Service advises on matters affecting judicial officers. The Standing Committee on Disciplined Services Salaries and Conditions of Service advises on the salaries and conditions of service of the disciplined services. The Standing Commission on Civil Service Salaries and Conditions of Service advises on matters affecting all other civil servants.

   Improvements to the civil service housing package, which comprises a Home Financing Scheme, an Accommodation Allowance Scheme and a Home Purchase Scheme, were implemented in November. The objective of the housing package is to make effective use of the resources provided for civil service housing benefits and to encourage home ownership among civil servants. Over 18 500 officers are currently receiving benefits under the schemes.

   The government fully recognises the value of regular communication and consultation with staff. There are four central consultative councils- the Senior Civil Service Council, the Model Scale I Staff Consultative Council, the Disciplined Services Consultative Council and the Police Force Council. Departmental consultative committees, established in most government departments, constitute an important part of the consultative machinery. In addition, individual staff or staff associations have ready access to the departmental or grade management, as well as to the Civil Service Branch. Staff are encouraged to make suggestions to improve the efficiency of the service under the Staff Suggestions Scheme, which was recently revised to enable individual departments to consider and reward valuable suggestions, rather than having all suggestions considered centrally. The Civil Service Branch also publishes a quarterly news magazine with a circulation of some 230 000, which keeps serving and retired civil servants abreast of developments which may interest them.

   In recognition of staff commitment and contributions, long-serving civil servants are granted awards under the Long Service Travel Award Scheme and the Long and Meritorious Service Certificate Scheme. Those with 30 years of meritorious service are also presented with a gold pin. A retirement souvenir is given to long-serving civil servants. To enable more civil servants to receive this benefit, the service criterion for the retirement souvenir was recently reduced from 20 years' government service or more, to 10 years.

   Traditionally, the terms of appointment offered to civil servants have been divided into two major categories - overseas and local. Whether an officer should be offered overseas or local terms was determined before he joined the service and could not be altered after the appointment, irrespective of changing circumstances. After a review of the policy in the light of the Bill of Rights, it was decided that a two-stage approach should be adopted.

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As an interim measure, the government announced in July 1993 that overseas agreement officers who were permanent residents of Hong Kong could apply for transfer to local conditions of service if they met certain criteria. However, the Public Officers (Variation of Conditions of Service) (Temporary Provisions) Ordinance, introduced into the Legislative Council as a private member's bill, suspended the interim measure until April 1994, despite opposition by the government. The ordinance was later extended until July.

After extensive consultations with staff associations and the Legislative Council, the government announced a set of modified arrangements for transfer to local conditions of service. The gist of the arrangements is that if an applicant for transfer is found to be replaceable by an officer on local terms, he has to transfer at one rank below his existing one, but he will receive the personal salary and benefits of his original rank on local conditions of service. In this way, the local replacement could be promoted to fill the vacancy left by the transferee. The purpose of the arrangement is to allow overseas agreement officers to stay in the service and transfer to local conditions with the same take- home pay as before, while local officers' reasonable aspirations under the longstanding localisation policy are addressed. The modified arrangements strike a balance between the interests of local and overseas staff.

As a related development, the government considered the possibility of opening up the positions occupied by agreement officers (overseas and local alike) when their agreements expire. Under its proposal, the incumbent officer occupying a promotion rank will have to compete with officers one rank below for the job and the most suitable officer will be appointed. After consulting departments and the Senior Civil Service Council, the government decided to introduce the arrangement in December 1994 in respect of agreements expiring on or after September 1, 1995.

      For the long term, the government has proposed bringing in a uniform set of terms of appointment and conditions of service for all staff, and defining for the first time who should in future be regarded as 'local'. The objective is to converge with the Basic Law of the Hong Kong Special Administrative Region while complying with existing laws. A wide-ranging consultation exercise has been conducted. In view of the overwhelming support for the concept of uniform terms and conditions of service, the direction of the proposals has been reaffirmed. Some of the detailed proposals have been modified in response to comments received. As the proposals will have implications on the civil service after 1997, they have been passed on to the Chinese side of the Sino-British Joint Liaison Group for discussion.

The government has given a commitment that all senior posts equivalent to the future 'principal officials' of the Special Administrative Region Government will be filled by local officers who are potentially qualified under the Basic Law in good time before 1997. To achieve this, it will be necessary to compulsorily retire, or supersede for promotion, a number of senior overseas officers under the Limited Compensation Scheme. Particular care and attention is being paid to the selection and grooming of senior government officials.

Public Sector Reform

Public sector reform is a programme of financial and management reforms, aimed at bringing about long-term improvements to the efficiency and management of the public

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sector, and better service and accountability to the community. The Efficiency Unit was established to serve as a focal point to direct and co-ordinate the efforts of public sector reform.

   The government is committed to providing the best service possible to the public. In October 1992, the Governor launched the performance pledge programme, to help engender a culture of service in the public sector. All government departments directly serving the public have already produced performance pledges, informing their customers what services are available, what standards have been set and how those standards are being monitored. All departments with substantial interface with the public have either an advisory group or a customer liaison group in place. These channels provide an effective forum for the public to have a say on the performance of government departments. The performance pledge programme will be a permanent feature of the public sector. The government will continue to build on the message of serving the community within the Public Service.

The government has embarked on a practical programme of public sector reform which sees the Civil Service Branch and Finance Branch concentrating more on their strategic roles; and policy branches and departments being given more responsibility over the way in which they manage their activities. This gives the necessary authority to those responsible for the delivery of programmes to do so in the most effective way, channelling available resources to priority activities. Departments now have greater authority in matters such as non-directorate appointments and promotions, leave and passage, and professional training. The government has also introduced a system of programme management, which divides a department's work into its major activities, for monitoring and review purposes. This has placed more emphasis on performance measurement, quality of service, value for money and, not least, accountability. It has also adopted a more business-like approach to the delivery of services. This has seen an increase in the use of new technology, including office automation, desktop publishing and automated telephone-answering systems.

As part of the public sector reform, the government has completed a comprehensive review of its personnel policies and practices. The purpose of this human resource management review is to develop a more dynamic management environment so that staff will be motivated, developed and managed in a way which maximises their contribution to the civil service. The review recommended a number of improvements to the various areas of recruitment, training, discipline and performance management. These recommendations will be implemented over the next few years.

Civil Service Training

The government attaches great importance to the training of civil servants in order to increase efficiency and effectiveness, and to help them meet new challenges. Induction and refresher training are provided by many departments to equip staff with the knowledge and skills to carry out their duties effectively. Where the need arises, staff are also sponsored on overseas training courses or attachments, so that they can keep abreast of the latest developments in their specialised fields.

To meet common departmental needs, the Civil Service Training Centre conducts a wide range of management, language and computer courses, and co-ordinates the management training undertaken by public servants at local and overseas institutes. It also provides

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advice and assistance to departments to help them develop a systematic approach to training and development, and in implementing their training programmes.

To help departments take up more authority and responsibility as a result of the public sector reform, the centre organises an increasing number of courses on human resources management and financial management.

      The China Studies Programme, which aims to provide officers with a better under- standing of various aspects of life and government in China, is being strengthened. More seminars and talks are being conducted for officers at various levels; and training videos and self-learning packages are developed for use by departments. Courses on China- related subjects and familiarisation visits to China are arranged to give officers first-hand experience of the country. Chinese-language training, which includes Putonghua and official Chinese writing, is being offered to a larger number of officers.

      The programmes offered by the Senior Staff Course Centre play an important role in the training and development offered to senior public servants. The centre emphasises 'learning from doing'. Participants analyse real administrative and organisational problems, and make proposals for improvement.

Government Records Service

The Government Records Service is responsible for the management of government records. It undertakes two different but related programmes: the Records Management Office is responsible for a records management programme to handle current as well as inactive records, and the Public Records Office for an archives administration programme to look after the preservation and use of permanent records.

      The appropriate management of records affects the efficiency of business in government. It is the responsibility of the Records Management Office to oversee and develop a comprehensive system to manage records effectively and efficiently, from their creation to their destruction, when all useful purposes have been served.

      In May 1994, government branches and departments appointed their own departmental records managers to ensure that departmental records are properly managed and maintained in accordance with the guidelines and advice provided by the Government Records Service. A Records Management Strategy has been developed to establish a long-term direction for improving the quality of records services, controlling the growth of paper records, reducing the records stock, and improving the cost-effectiveness in records management.

       The Public Records Office is one of the largest local sources of information for historical and other studies relating to Hong Kong. The public archives also help to foster the identity of the Hong Kong community through the safe-keeping of permanent records on its history and development.

Language

The official languages of Hong Kong are English and Chinese. The Official Languages Ordinance, enacted in 1974, provides that both languages possess equal status and enjoy equality of use for the purposes of communication between the government or any public officer and members of the public. Correspondence in Chinese from the public is replied to by government departments either in Chinese or in English accompanied by a Chinese version. Major reports and publications of public interest issued by the government are

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CONSTITUTION AND ADMINISTRATION

available in both languages. Simultaneous interpretation is provided at meetings of the Legislative Council, Urban Council, Regional Council and other government boards and committees where English and Chinese are used.

   A Bilingual Laws Advisory Committee was set up in October 1988 to advise the Governor in Council on, among other things, the authentication of Chinese texts of existing laws which are being translated. Since July 1992, the Chinese text of 57 ordinances have been declared to be authentic. All new principal legislation enacted since April 1989 is in both English and Chinese.

   Cantonese is the most commonly-spoken dialect in the territory among the local Chinese community, while Putonghua has gained in popularity as closer ties with China are developed. English continues to be used not only by the expatriate community, but by a wide cross-section of the local community in commercial, financial and professional circles.

3

THE LEGAL SYSTEM

THE legal system in Hong Kong is firmly based on the rule of law and the independence of the judiciary.

The Sino-British Joint Declaration on the Question of Hong Kong and the Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China provide that the present judicial system will be maintained after 1997, except for those changes consequent upon the establishment of the Court of Final Appeal (CFA). At the 20th meeting of the Sino-British Joint Liaison Group (JLG) in September 1991, the two sides reached agreement in principle on the early establishment of the CFA in Hong Kong.

The Hong Kong Government has drafted a Court of Final Appeal Bill on the basis of this JLG agreement, and with due regard for the relevant provisions of the Joint Declaration and the Basic Law. The draft CFA Bill was handed over to the Chinese side in May. The government also sought comments on the draft Bill from the legal profession in Hong Kong in November. It is hoped that the Bill will be passed by the Legislative Council by July 1995, to allow sufficient time for the establishment of the CFA by July 1996.

The body of local jurisprudence on the Hong Kong Bill of Rights Ordinance continued to grow during the year, mainly in relation to the criminal law. Plans have been drawn up to establish courts at various levels to handle the increasing number of cases involving the Bill of Rights.

      The past year saw major developments in the area of human rights protection. Among these were the announcement of plans for legislation on the protection of personal data and for the setting up of an Equal Opportunities Commission.

Law in Hong Kong

The Governor, acting with the advice and consent of the Legislative Council, has the power to enact laws for the peace, order and good government of Hong Kong. Most of the legislation applicable in the territory is enacted in the form of ordinances or as subsidiary legislation made under an ordinance. These ordinances, together with the common law and rules of equity, are the main sources of law in Hong Kong.

The Attorney General's Chambers are responsible for drafting new legislation in both Chinese and English, and for translating existing legislation into Chinese. Both the Chinese and English texts are authentic texts of the laws. The first bilingual ordinance was enacted on April 13, 1989. Since then, all new principal legislation has been enacted bilingually. In

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  October 1988, the government set up the Bilingual Laws Advisory Committee, to advise on the quality and authentication of Chinese texts of existing ordinances. The committee examines Chinese texts prepared by the Law Drafting Division of the Attorney General's Chambers, and then recommends that the Governor in Council declare these approved texts as authentic texts of the laws. The first Chinese text of existing legislation was declared authentic in July 1992. Since then, the Chinese texts of about 40 ordinances have been declared authentic. The authentication of Chinese texts of ordinances is progressing well. At each Executive Council sitting, the Chinese texts of two to three ordinances are declared authentic.

   In the Law Drafting Division, a bilingual legal glossary is being kept in a database. This glossary has grown to about 12 700 entries and is still growing at a rate of about 440 entries per week. An English-Chinese glossary of legal terms, in booklet form, containing legal and relevant terms appearing in legislation which has an authentic Chinese text will be published. The first issue in the series, containing about 4 000 entries, is expected to be published in March 1995.

   Until 1989, the laws of Hong Kong were published in a 32-volume compilation known as the Laws of Hong Kong. This was updated annually. A new loose-leaf edition of the Laws of Hong Kong is in the course of preparation and is virtually complete. The new edition will be updated continuously. In addition, all new laws are published in the Hong Kong Government Gazette.

   The Application of English Law Ordinance provides that the common law of England and the rules of equity shall be in force in the territory so far as they are applicable to the circumstances of Hong Kong or its inhabitants, subject to such modifications as circumstances may require. The ordinance applies some English Acts, such as the Habeas Corpus Act 1816, to Hong Kong.

   United Kingdom legislation may be applied to Hong Kong either directly or by order of Her Majesty-in-Council. In practice, the exercise of these powers is largely confined to matters which have a bearing on Hong Kong's international position. For example, the Multilateral Investment Guarantee Agency (Overseas Territory) Order 1988 is an Order-in- Council implementing in Hong Kong a treaty to which the United Kingdom is a party.

To ensure that by 1997, Hong Kong will possess a comprehensive body of law which owes its authority to the legislature of Hong Kong, it is necessary to replace such United Kingdom legislation which applies to Hong Kong by local legislation on the same topics. The Hong Kong legislature has been empowered under the Hong Kong Act 1985 to repeal or amend any enactment so far as it is part of the law of Hong Kong, and to make laws having extra-territorial operation, if the enactment relates to one of a number of topics (including civil aviation, merchant shipping, fugitive offenders and intellectual property) or if it is required in order to give effect to an international agreement which applies to the territory. Legislation has already been enacted to localise laws in the fields of admiralty jurisdiction, marine pollution, merchant shipping and civil aviation, and work in other areas is in progress.

   A Localisation and Adaptation of Laws Unit has been established in the Attorney General's Chambers. The unit's role is to give legal advice on the localisation of United Kingdom legislation which presently applies to Hong Kong. It also advises on the adaptation of the laws of Hong Kong to ensure compatibility with the Basic Law of the

In the midst of Hong Kong's bustling cityscape our urban sculptures command attention from even the most distracted passer-by. Artistic monoliths to surprise, to soothe, or simply to delight the eye, they can be found in all shapes and sizes...

Previous two pages: Double Oval and Oval With Points, both by Henry Moore, are enjoyed each day by many thousands of people in Central.

Above: Conceal, by local artist Lau Yau-kuen, affords the observer much food for thought, outside the Hong Kong Museum of Art.

Right: City workers find a calm oasis, in Chater Garden, where they can sit at lunchtime and admire the graceful lines of Swallows by Chu Honsan.

The Flying Frenchman, a gift to the people of Hong Kong from a French company, makes a striking statement in the piazza outside the Hong Kong Cultural Centre at Tsimshatsui.

!

The architectural elegance of Exchange Square is complemented by Ju Ming's powerful Tai Chi - Single Whip Dip (above), and Ward Buffalo I

by Dame Elisabeth Frink (bottom, right).

Top, right: Hong Kong Park is an apt setting for the rustic Spring.

EEEEEEEE!

]

TREEEY

Images evoking the sea and sky set a relaxing mood for visitors to the Gold Coast developments on Castle Peak Bay, Tuen Mun.

THE LEGAL SYSTEM

Hong Kong Special Administrative Region, which was promulgated in April 1990. In that respect, a review by policy branches of all ordinances within their spheres of responsibilities has been completed and, where necessary, drafting instructions will be prepared with a view to appropriate amendments being made on, or before, July 1, 1997.

Human Rights

The International Covenant on Civil and Political Rights (ICCPR) and the International Covenant on Economic, Social and Cultural Rights (ICESCR) have been extended to Hong Kong since 1976. The Sino-British Joint Declaration on the Question of Hong Kong guarantees that the provisions of the two covenants, as applied to Hong Kong, shall remain in force after 1997.

In view of the strong support in the community for the embodiment of basic civil and political rights in a justiciable Bill of Rights, the Bill of Rights Ordinance (BORO) was enacted in June 1991. It gives effect in local law to the provisions of the ICCPR as applied to Hong Kong.

      To complement the protection afforded by the Bill of Rights, the Letters Patent for Hong Kong have been amended, to the effect that no law can be made in the territory which restricts the rights and freedoms enjoyed in Hong Kong in a manner which is inconsistent with the ICCPR as applied to the territory. The amendment came into operation at the same time as the Bill of Rights Ordinance.

Article 22 of the BORO provides that all persons are equal before the law and are entitled, without any discrimination, to the equal protection of the law. Action has been taken to review, and if necessary to remove, laws which provide for different treatment between women and men. In response to widespread public support, the decision was announced in June 1994 to seek the extension of the Convention on the Elimination of Discrimination Against Women to Hong Kong and at the same time, to prepare legislation against sex discrimination.

       The Sex Discrimination Bill was introduced into the Legislative Council on October 26. The Bill renders unlawful sex discrimination and sexual harassment in specified areas of activity. These include employment, education, provision of goods and services, and disposal and management of premises. To oversee the implementation of the sex discrimination legislation, the Bill provides for the establishment of an Equal Opportunities Commission which will, among other things, work towards the elimination of sex discrimination and sexual harassment, and promote equality of opportunities between women and men. It will also investigate, upon complaint, any act alleged to be unlawful by virtue of the Bill and endeavour, by conciliation, to effect a settlement of the matter in dispute.

      In addition, an announcement was made in July of a decision to prepare legislation against discrimination on the ground of disability.

      It is recognised that the privacy of the individual faces a special threat from technological advances that facilitate the holding, processing and transfer of vast quantities of personal data. Based on recommendations of the Law Reform Commission, contained in a detailed and comprehensive report published in August, the government is currently preparing legislation to protect individual privacy from this threat. It is intended to introduce the legislation into the Legislative Council in early 1995.

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THE LEGAL SYSTEM

The United Nations Convention on the Rights of the Child was extended to Hong Kong in 1994. It places Hong Kong under continuing international obligations to respect children's rights and protect their interests. The existing legislation and practice in Hong Kong concerning the protection of the rights of children are in full compliance with the convention as it is applied to Hong Kong.

The Judiciary

A key element in the past success and continuing attraction of Hong Kong is that its judicial system operates on the principle, fundamental to the common law system, of independence of the judiciary from the executive and legislative branches of government. The courts make their own judgements, whether disputes before them involve private citizens, corporate bodies or the government itself. The independence of the judiciary will be maintained after 1997, as provided for by the Sino-British Joint Declaration on the Question of Hong Kong and the Basic Law.

  The Chief Justice of Hong Kong is head of the judiciary. He is assisted in the overall administration of the judiciary by a Judiciary Administrator and her supporting team. Appointed in March, at a level equivalent to that of a government policy secretary in the Government Secretariat or a High Court Judge, the Judiciary Administrator has taken over from the Registrar, Supreme Court, as the administrative head of the judiciary. The Registrar now concentrates on his judicial and statutory duties.

  The Hong Kong courts are organised, and staffed, on levels according to a number of factors, including the seriousness, complexity and number of cases handled, with the aim of ensuring fair and timely judgements and with a view to attracting and promoting the most appropriate judicial talent from as wide a pool as possible.

The most senior court in the territory is currently the Supreme Court, which covers both the Court of Appeal and the High Court. Sitting in the Supreme Court, in addition to the Chief Justice himself, are nine Justices of Appeal and 23 High Court Judges. The court's Registrar and Deputy Registrars serve as Masters of the Supreme Court in civil trials in the High Court. The Court of Appeal hears both civil and criminal appeals from the High Court and from the District Court. Further recourse for appeal lies with the Judicial Committee of the Privy Council in London.

  The jurisdiction of the High Court is unlimited in both civil and criminal matters. Civil matters are usually tried by High Court Judges sitting without juries, although there is a rarely-used provision for jury trials in certain cases, including defamation. For criminal trials, they sit with a jury of seven, or sometimes nine on special direction of the judge. The issue of guilt is determined by the jury, which must have a majority of at least five to two; where charges are serious enough to still attract the death sentence, unanimity of the jury is required for a guilty verdict.

  The District Court is the next level of court below the High Court. Including a new post of Chief District Court Judge, there are 30 Judges, who always sit without a jury. The District Court's civil jurisdiction is currently limited to disputes involving a monetary value of up to $120,000. Its criminal jurisdiction is limited to crimes with sentences of up to seven years' imprisonment, excluding, for example, those cases alleging murder, manslaughter or rape. Jurisdictionally part of the District Court, the Family Court mostly deals with divorce cases, under the Family Judges.

THE LEGAL SYSTEM

The Magistrates' Courts have the highest volume of cases of all the courts, trying some 90 per cent of the cases heard annually in Hong Kong. Including one Chief and 10 Principal Magistrates, there are 68 professional magistrates sitting in 10 magistracies - two on Hong Kong Island, four in Kowloon and four in the New Territories. They have a purely criminal jurisdiction covering a wide range of offences. Professional magistrates are empowered to impose sentences of up to three years' imprisonment and fines of up to $5 million for certain offences under the Gambling Ordinance. They also try cases in the Juvenile Court, which has jurisdiction in charges against children and young persons aged up to 16 years, except in cases involving homicide. In addition to the professional magistrates, there are 11 Special Magistrates, who are not legally qualified. They handle routine cases such as littering and minor traffic offences. Their powers of sentencing are limited to fines of up to $50,000.

In addition to these principal courts of civil and criminal jurisdiction, there are five tribunals presided over by judicial officers. The Small Claims Tribunal hears minor civil claims, up to a limit of $15,000 at present. The Labour Tribunal hears civil claims arising from contracts of employment. The Lands Tribunal, which forms part of the District Court, has a specialised role with jurisdiction in matters of rating and valuation, and in assessing compensation when land is resumed by the government or reduced in value by development. The Obscene Articles Tribunal is also specialised, with jurisdiction to determine whether or not an article is obscene, and to classify it into statutory categories of acceptability or otherwise. The Coroner's Court handles inquiries into unusual circum- stances causing death.

       The main official language of the courts in Hong Kong is English. This is exclusively so at present in the Court of Appeal, the High Court and the District Court, while in the other courts and tribunals Cantonese may be used. Whichever language is used by the court for a case, however, a party or witness may still use Chinese or English, or indeed any other language permitted by the court. After two preliminary studies, the Chief Justice appointed, in July, the Steering Committee on the use of Chinese in Courts, chaired by a High Court Judge, to advise him on the implementation of a wider use of the Chinese language in courts.

Arbitration and Alternative Dispute Resolution

Arbitration has been a popular method of dispute resolution in Hong Kong for some time. It is governed by the Arbitration Ordinance, which has two distinct regimes a domestic regime based on English law and an international regime which includes the UNCITRAL Model Law, the model law adopted by the United Nations Commission on International Trade Law. Arbitral awards made in Hong Kong can be enforced in more than 80 other jurisdictions which are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

       The Hong Kong International Arbitration Centre (HKIAC) was established in 1985, to act as an independent and impartial focus for the development of all forms of dispute resolution in Hong Kong and Southeast Asia. The HKIAC provides information on dispute resolution and arbitrations both in Hong Kong and overseas. It operates panels of international and local arbitrators, and maintains lists of mediators. The HKIAC premises, situated in Central district, have purpose-built hearing rooms and full support facilities. The number of cases involving the HKIAC has substantially increased in recent years. It is anticipated, given the

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54

increasing popularity of arbitration and mediation as a means of dispute resolution, that there will be a further increase in such cases in the future.

The Attorney General

The Attorney General is the Governor's legal adviser. The Royal Instructions provide for him to be an ex-officio member of both the Executive Council and the Legislative Council. He is chairman of the Law Reform Commission of Hong Kong, and a member of the Judicial Services Commission, the Operations Review and Complaints Committees of the Independent Commission Against Corruption, and the Independent Police Complaints Council.

All government departments requiring legal advice receive it from the Attorney General. He is the representative of the Crown in all actions brought by, or against, the Crown. He is also responsible for the drafting of all legislation.

The Attorney General is responsible for all prosecutions in Hong Kong. It is his responsibility to decide whether or not a prosecution should be instituted in any particular case, and, if so, to institute and conduct the prosecution.

The Attorney General is chairman of the Legal Affairs Policy Group, one of several policy bodies established under the umbrella of the Chief Secretary's Committee, to bring together branch secretaries in related programme areas. The group plays an important co-ordinating role in legal policy matters, decision-making and allocation of responsibility for legislative initiatives which have a substantial legal policy content. Often, the group will call upon the Attorney General to take responsibility, as sponsor and spokesman, for legislative proposals to be submitted to the Executive and Legislative Councils.

The Attorney General's Chambers have six divisions, five of which are headed by a Law Officer to whom the Attorney General delegates certain of his powers and responsibilities. The remaining division deals with administrative matters concerning the chambers.

The Civil Division, headed by the Crown Solicitor, provides legal advice to the government on civil law and conducts civil litigation, arbitration and mediation, on behalf of the government.

The International Law Division, headed by the Law Officer (International Law), deals with all external legal matters arising out of the Sino-British Joint Declaration and other international agreements, and advises upon questions of international law.

The Law Drafting Division, headed by the Law Draftsman, is responsible for drafting and translating all legislation, including subsidiary legislation, in Chinese and English, and assists in steering legislation through the Executive and Legislative Councils.

The Solicitor General heads the Legal Policy Division, which includes the Law Reform Commission Secretariat. The division services the professional needs of the Attorney General, and provides legal input on a wide variety of topics being considered by the government. The division also advises on issues affecting the administration of justice, human rights, constitutional law and China law.

The Prosecutions Division is headed by the Crown Prosecutor, who is commonly known as the Director of Public Prosecutions. Counsel from this division conduct the prosecution in the majority of High Court and District Court trials, and often appear before magistrates when an important point of law is involved. The division also provides legal advice to the police and other government departments responsible for prosecuting offences.

THE LEGAL SYSTEM

Law Reform Commission

The Law Reform Commission was appointed by the Governor in Council to consider and report on such topics as may be referred to it by the Attorney General or Chief Justice. Its membership includes Legislative Councillors, academic and practising lawyers, and prominent members of the community.

Since its establishment in 1980, the commission has published 25 reports covering subjects as diverse as commercial arbitration, homosexuality, bail, sale of goods and supply of services, and illegitimacy. The recommendations in 11 of its reports have been implemented, either in whole or in part. The other reports are still under consideration.

The commission is currently considering references on hearsay evidence in civil actions, fraud, privacy, guardianship and custody, insolvency, description of flats on sale, and interpretation of statutes.

Director of Intellectual Property

The post of Director of Intellectual Property was established in 1990 as a statutory office by the Director of Intellectual Property (Establishment) Ordinance, to take over from the former Registrar General the statutory offices of Registrar of Trade Marks and Registrar of Patents. The Intellectual Property Department includes the Trade Marks and Patents Registries, which provide and administer a system of trade mark and patents registration under the Trade Marks Ordinance and Registration of Patents Ordinance. The department is also responsible for enhancing other forms of intellectual property protection, and will serve as a focal point for the further development of Hong Kong's intellectual property regime.

The Legal Profession

There are around 3 100 solicitors and 470 local law firms in Hong Kong. In addition, there are around 40 foreign law firms which advise on foreign law.

The Law Society is the governing body for solicitors. It has wide responsibilities for maintaining professional and ethical standards, and for considering complaints against solicitors.

There are around 550 barristers in the territory.

The Bar Committee is the governing body for barristers. The conduct and etiquette of the Bar are governed by the Code of Conduct for the Bar of Hong Kong.

Legal Aid, Advice and Assistance

Hong Kong has developed, over the years, a comprehensive system of legal aid to ensure that any person who has reasonable grounds for pursuing or defending a legal action is not prevented from doing so by lack of means. The provision of legal aid services is funded by the government through the Legal Aid Department, and the Duty Lawyer Service which is administered by the Law Society and the Bar Association.

Legal Aid

The Legal Aid Department provides legal representation in both civil and criminal cases which are heard in the Magistrates' Courts where the prosecution is seeking committal of a defendant to the High Court, in the District Court, the High Court, the Court of Appeal in

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56

Hong Kong and also, the Judicial Committee of the Privy Council in London. Such aid is available to any person in Hong Kong, resident or non-resident, who is able to satisfy the Director of Legal Aid on financial eligibility (the means test) and the justification for legal action (the merits test).

Under the means test, a person whose disposable financial resources, including both income and capital, do not exceed $120,000 is eligible for legal aid. In calculating an applicant's disposable financial resources, the value of his owner-occupied home, tax payments and contributions to retirement schemes, in addition to various allowances for the support of himself and his dependants, are deducted. In criminal cases, the Director of Legal Aid has a discretion to grant legal aid to an applicant who fails the means test, if it is in the interests of justice to do so. Legal aid is provided either free of charge or on payment of a graduated contribution, depending on the disposable financial resources of the aided person.

The Director of Legal Aid will assign the case either to a private lawyer or to one of the department's own lawyers in its Litigation Division.

Legal Aid in Civil Cases

In civil cases, apart from financial eligibility, an applicant must satisfy the Director of Legal Aid that he has reasonable grounds for pursuing or defending a legal action.

  Legal aid is available for a wide range of civil proceedings, including traffic accident claims, landlord and tenant disputes, claims in respect of industrial accidents, employees' compensation, immigration matters, breach of contract, professional negligence and every branch of family law. Admiralty, bankruptcy and companies winding-up proceedings are also undertaken by the Legal Aid Department, the majority of which deal with employees' wages and severance pay.

An applicant who is refused legal aid may appeal against such refusal to the Registrar of the Supreme Court, or in Privy Council cases, to a committee of review.

  The department's total expenditure for 1994 was $106 million in civil cases. During the year, 20 328 applications were received, out of which 7 066 were granted legal aid. Altogether, $433 million was recovered for the aided persons.

The Director of Legal Aid also operates the Supplementary Legal Aid Scheme, which provides legal assistance to persons whose resources exceed the financial limits under the ordinary legal aid scheme but are not sufficient to meet the high costs of conducting litigation on a private basis. The scheme is self-financing, funded by contributions from damages or compensation recovered. The scheme is available for civil claims in the High Court, the Court of Appeal and certain claims in the District Court for damages and compensation for death or personal injuries. An applicant with financial resources exceeding $120,000, but not exceeding $280,000, is eligible to apply. A successful litigant under the scheme pays 10 to 12.5 per cent of the damages or compensation recovered. The total expenditure of the scheme in 1994 was $5 million. A total of 100 applications were received, out of which 57 were granted legal aid.

Legal Aid in Criminal Cases

In criminal cases, legal aid is available for representation in proceedings in the High Court and District Court, in the Magistrates' Courts (where the prosecution is seeking committal

THE LEGAL SYSTEM

of a defendant to the High Court), in appeals from the Magistrates' Courts, and appeals to the Court of Appeal and to the Privy Council.

For appeals against conviction for murder, subject to financial eligibility, the grant of legal aid is mandatory to ensure that all relevant matters are placed before the court by the appellant's legal representative. For all other criminal appeals, legal aid will be given, subject to financial eligibility, if the Director of Legal Aid is satisfied that there are arguable grounds of appeal.

Since July 1992, an amendment to the Legal Aid in Criminal Cases Rules has provided the Director with discretion to grant legal aid to an applicant charged with a criminal offence even if his disposable financial resources exceed the limit of $120,000, if the Director is satisfied that it is in the interests of justice to do so. The great majority of persons charged with criminal offences have therefore become eligible for the grant of legal aid.

The total expenditure on legal costs on criminal cases for 1994 was $151 million. During the year, 3 401 applicants were granted legal aid, out of 5 160 applications received.

Legal Aid Policy Review

A comprehensive review of the law, policy and practice governing the provision of legal aid services was completed in July 1994 by an interdepartmental working group. The review took into account the comments made on the proposals published in a consultative paper in April 1993.

The government accepted the working group's 25 recommendations which are aimed at improving the provision of legal aid services. Some of the recommendations meet the public demand for greater access to legal aid. These include an expansion of the scope of the Supplementary Legal Aid Scheme for the 'sandwich' class and an extension of the Director of Legal Aid's present discretionary power to waive the means test in criminal cases to meritorious civil Bill of Rights cases.

In response to increasing concerns over the status of the Legal Aid Department as a government department, the working group recommended the setting up of an independent Legal Aid Services Council to oversee the operation of the Legal Aid Department and the Duty Lawyer Service in providing legal aid services. This council will advise the government on legal aid policy and funding requirements. It will, therefore, explore the feasibility and desirability of other options of enhancing the independence of legal aid administration, including the establishment of a non-government authority for the day-to- day administration of legal aid services.

      The implementation of most of the working group's recommendations will require legislative amendments. It is envisaged that the necessary legislation can be enacted in the 1994-95 Legislative Council session and that the various recommendation should be in effect by April 1995.

The Official Solicitor

Following the entry into force of the Official Solicitor Ordinance in August 1991, the Director of Legal Aid was appointed the first Official Solicitor and a separate office, with a senior lawyer and support staff, was established to represent persons under a legal disability in court proceedings in Hong Kong. Since its inauguration and up until July 1994, the Official Solicitor received 220 requests for representation, mostly in matters involving

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receivership, unclaimed estates, adoption and guardianship. The Official Solicitor assigned less than 10 per cent of the cases to private lawyers and litigated the balance herself.

Duty Lawyer Service

The Duty Lawyer Service operates the Legal Advice Scheme, which provides legal advice; the Duty Lawyer Scheme, which provides legal representation; and the Tel Law Scheme, which provides legal information over the telephone.

The service was, until August 17, 1993, known as the Law Society Legal Advice and Duty Lawyer Schemes. It is jointly managed and administered by the Law Society and the Bar Association of Hong Kong. It is funded by the government and the subvention in 1994-95 was approximately $59.8 million.

  The Legal Advice Scheme was set up in 1978 to provide to members of the public free advice, without means testing, at five advice centres located in the District Offices. Members of the public can make appointments to see the volunteer lawyers through one of the 120 referral agencies, which include all District Offices, Caritas Services Centres and the Social Welfare Department. There are approximately 496 lawyers in the scheme. A total of 3 793 people were given legal advice during the year.

The Duty Lawyer Scheme was introduced in 1979. It initially provided free legal representation to defendants charged with one of six 'scheduled' offences in three magistracies. This was subsequently extended to nine 'scheduled' offences in 1981 and covered all magistracies in 1983. Upon the enactment of the Bill of Rights Ordinance in 1991, the scheme was expanded to offer representation to virtually all defendants charged in the magistracies who have passed both the means and merits tests.

Applicants are subject to a simple means test, with the financial eligibility limit set at a gross annual income of $90,000. The administrator of the Duty Lawyer Service has a discretion to grant legal representation to defendants whose gross annual income exceeds the specified financial eligibility limit. An applicant is also subject to a merits test, based on the 'interest of justice' principle in accordance with the Bill of Rights Ordinance. The prime consideration is whether the defendant is in jeopardy of losing his liberty or whether a substantial question of law is involved.

  The scheme also assigns barristers and solicitors, on a roster basis, to advise defendants facing extradition, to monitor the one-way viewer in police identification parades and to represent hawkers upon their appeals to the Governor in Council.

  In 1994, there were approximately 779 remunerated barristers and solicitors on the duty lawyer roster. A total of 38 799 defendants facing charges received advice and representation at trial under the Duty Lawyer Scheme.

  The Tel Law Scheme was introduced in 1984 to provide members of the public with a free telephone enquiry service with basic taped legal information, in both English and Chinese, on the legal aspects of everyday problems. These tapes cover aspects of matrimonial, landlord and tenant, criminal, financial, employment, environmental and administrative law. They are constantly updated, and new tapes are added when another subject is identified as being of interest to the public. During the year, Tel Law handled over 51 636 calls.

4

IMPLEMENTATION

OF THE SINO-BRITISH

DECLARATION

JOINT

THE Sino-British Joint Declaration on the Question of Hong Kong was signed by the British and Chinese Governments on December 19, 1984. Under the terms of the agreement, on July 1, 1997, the British Government will restore Hong Kong to the People's Republic of China and Hong Kong will become a Special Administrative Region (SAR) of China, enjoying a high degree of autonomy. Also, the capitalist system and lifestyle of Hong Kong will remain unchanged for 50 years.

To ensure effective implementation of its provisions, the Joint Declaration provided for the establishment of the Sino-British Joint Liaison Group (JLG) and the Sino-British Land Commission.

The Sino-British Joint Liaison Group

The functions of the JLG are to conduct consultations on the implementation of the Joint Declaration, to discuss matters relating to the smooth transfer of government in 1997, and to exchange information and conduct consultations on such subjects as may be agreed upon by the two sides. It is an organ for liaison, with no role in the administration of Hong Kong.

      The JLG comprises a senior representative and four other members on each side. It held its first meeting in July 1985. Since July 1988, it has taken Hong Kong as its principal base. Both sides have established offices in the territory and their respective senior repre- sentatives are resident in Hong Kong.

      The JLG holds plenary sessions at least once every year in Beijing and London, besides Hong Kong.

      During the year, the JLG held three plenary sessions in June, September and December, the last one being its 31st meeting. It also held expert talks on a number of issues. Matters discussed included defence lands, the Court of Final Appeal, major franchises and con- tracts extending beyond 1997, right of abode, travel documents, international rights and obligations, air services agreements, arrangements for the surrender of fugitives, mutual legal assistance agreements, and localisation and adaptation of laws.

      While progress in a number of areas has been possible, many important issues still need to be resolved in the JLG.

      The British side has expressed willingness to explore with the Chinese side various means to speed up the work of the JLG, including the holding of more plenary sessions and expert group meetings.

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IMPLEMENTATION OF THE SINO-BRITISH JOINT DECLARATION

60

Defence Lands

At the 29th JLG meeting in June, the two sides initialled an agreement on the future of the military estate. Fourteen sites will be handed over to the Chinese Government on July 1, 1997. They will be used exclusively for defence purposes. Twenty-five sites will be returned to the Hong Kong Government for socio-economic development, when they are no longer required by the British garrison. The Hong Kong Government will reprovide certain military facilities affected by the return of military sites to Hong Kong. The Finance Committee of the Legislative Council approved $4 billion for this purpose in June.

Court of Final Appeal

Agreement in principle on the early establishment of a Hong Kong-based Court of Final Appeal before 1997, was reached with the Chinese side at the 20th meeting of the JLG in September 1991. A draft Bill to establish the court, drawn up on the basis of the JLG agreement, was passed to the Chinese side in May 1994. The Hong Kong Government subsequently answered questions raised by the Chinese side. In the meantime, the views of the legal profession on the draft Bill have been sought. The government's aim remains to introduce the Bill into the Legislative Council as early as possible in 1995.

Franchises and Contracts Extending Beyond 1997

The JLG continued to discuss a number of major franchises and contracts extending beyond 1997. Agreement was reached on the contract for the Northeast New Territories Landfill and the management contract for the Aberdeen Tunnel.

Discussion on the Container Terminal No. 9 project has been underway for nearly two years, but the JLG has not yet been able to reach a consensus. The urgency of the project and the consequences of its delay on the economy have been highlighted in the many exchanges between the two sides. An early resolution of the issue is important to Hong Kong's port development.

Right of Abode

The JLG continued to discuss the alignment of the provisions on right of abode in the Immigration Ordinance with those in the Basic Law of the Hong Kong SAR.

Travel Documents

  So far, the JLG has reached agreement on transitional arrangements for nearly all existing travel and identity documents. The two sides are continuing discussion on the types and eligibility criteria for Hong Kong SAR passports and travel documents.

International Rights and Obligations

The Sub-group on International Rights and Obligations was formally established under the JLG in July 1986, to examine and discuss the continued application after 1997 of international rights and obligations affecting Hong Kong. The sub-group reports its con- clusions to the JLG.

During the year, the JLG reached agreement on the continued application to Hong Kong of 34 international treaties. The two sides have now reached agreement on the continued application of more than 160 of the approximately 200 multilateral treaties which currently

IMPLEMENTATION OF THE SINO-BRITISH JOINT DECLARATION

     apply to Hong Kong. These include agreements on Hong Kong's continued participation in 30 international organisations, including the Asian Development Bank, the Economic and Social Commission for Asia and the Pacific (ESCAP), the International Labour Organisation and the International Maritime Organisation.

Air Services Agreements

In order to maintain Hong Kong's status as an international civil aviation centre after 1997, there is an ongoing air services agreements (ASAs) separation programme, under which provisions involving Hong Kong in United Kingdom ASAS are separated into discrete Hong Kong ASAs. To date, Hong Kong has signed 10 ASAS, with the Netherlands, Switzerland, Canada, Brunei, France, New Zealand, Malaysia, Sri Lanka, Brazil and Australia.

Surrender of Fugitive Offenders Agreements

Existing arrangements for the surrender of fugitive offenders will lapse with effect from July 1, 1997. Hong Kong has already embarked on a negotiation programme to establish a network of bilateral agreements, so as to prevent the territory from becoming a haven for criminals after 1997.

      To date, Hong Kong has signed three agreements (with the Netherlands, Canada and Australia) and initialled four (with Malaysia, the Philippines, India and the United States of America).

Mutual Legal Assistance Agreements

A network of bilateral agreements on mutual legal assistance in criminal matters will enable Hong Kong to receive assistance in the investigation and prosecution of criminal offences. Agreement from the Chinese side was given at the 30th JLG meeting in September for Hong Kong to start the negotiation programme. To date, Hong Kong has initialled one agreement (with Australia).

Localisation and Adaptation of Laws

The Joint Declaration provides that after the establishment of the SAR, the laws previously in force in Hong Kong shall be maintained, except for those that contravene the Basic Law, and subject to any amendment by the legislature of the SAR.

      British laws which currently apply to Hong Kong will need to be localised and re-enacted as Hong Kong laws in order to survive July 1, 1997. About 32 localising bills are required to complete the whole programme.

      So far, with agreement reached in the JLG, nine ordinances have been enacted and four bills have been introduced into the Legislative Council. The proposals in respect of two bills have been agreed upon with the Chinese side and will be introduced shortly. Work on the remainder continues.

The laws of Hong Kong also need to be reviewed and, if necessary, 'adapted' to ensure their compatibility with the Basic Law, so that they can continue to be in force after June 30, 1997.

      During the year, both sides continued to exchange views on the localisation and adaptation of laws.

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Land Commission

  The Sino-British Land Commission was established in 1985 in accordance with Annex III to the Joint Declaration. Its function is to conduct consultations on the implementation of the provisions of Annex III on land leases and other related matters. It holds meetings in Hong Kong.

The Land Commission held its 28th and 29th meetings in April and November 1994, respectively. The two sides agreed to make available, during the 1994-95 financial year, a total of about 1 410.73 hectares of land. This included, among other things, 1 248 hectares of land for the new airport at Chek Lap Kok; 7.52 hectares for airport railway-related property development; and about 30 hectares for the airport railway depot at Siu Ho Wan, North Lantau.

Under the terms of the Joint Declaration, premium income obtained by the Hong Kong Government from land transactions is, after the deduction of the cost of land production, to be shared equally between the Hong Kong Government and the future SAR Government. The Hong Kong Government's share of premium income is put into the Capital Works Reserve Fund for financing public works and land development. The future SAR Government's share is held in a trust fund, called the Hong Kong Special Administrative Region Government Land Fund, established by the Chinese side of the Land Commission. The fund is managed under the direction and advice of an investment committee, which includes prominent bankers in Hong Kong, as well as a monetary expert from the Hong Kong Government. Over $68,636 million, representing the future SAR Government's share of premium income for the period May 27, 1985 to December 31, 1994, has been transferred to the fund.

The Basic Law

The Joint Declaration provides that the basic policies of the People's Republic of China regarding Hong Kong will be stipulated in a Basic Law of the Hong Kong SAR by China's National People's Congress (NPC). The Basic Law Drafting Committee and Basic Law Consultative Committee were established in 1985 to undertake the drafting of the Basic Law and to canvass public views on the drafts of the Basic Law. The first draft was published in April 1988 and the second draft in February 1989. The Basic Law was promulgated in April 1990 by the NPC, together with the designs for the flag and emblem of the SAR. It will come into effect on July 1, 1997.

Like the Joint Declaration, the Basic Law provides that the SAR will enjoy a high degree of autonomy and that the capitalist system and way of life shall remain unchanged for 50 years after July 1, 1997. It also prescribes the systems to be practised in the SAR.

5

THE ECONOMY

THE Hong Kong economy continued on a course of steady growth. The gross domestic product (GDP) rose by 5.5 per cent in real terms in 1994, with increases of 5.4 per cent in the first half and 5.6 per cent in the second half. The corresponding growth rate in 1993 was 5.8 per cent.

      Externally, re-exports continued to register double-digit growth in 1994. Although the growth rate was less rapid than in previous years, this was the 12th successive year of strong growth, notwithstanding a much higher base of comparison. Re-exports have been providing the main impetus to overall export growth since 1987. Recently, however, a greater volume of goods was being shipped out as transhipments rather than as re-exports, indicating that Hong Kong's external trade is undergoing further structural change.

      With the continued shift in the composition of Hong Kong's exports towards re-exports, the performance of domestic exports has been far less impressive in recent years. Following the declining trend since the second quarter of 1993, domestic exports fell further in the first half of 1994, before recovering to register a small growth in the fourth quarter.

      Imports rose markedly in 1994, supported by the strong growth in re-exports and a sharp increase in retained imports. During the year, there were more imports of a variety of items for local use, including capital goods and consumer goods. Apart from the need to replenish stocks which were depleted in the latter part of 1993, when retained imports were drastically reduced, the ongoing process of automation and mechanisation and the rising import requirements for the construction of the territory's infrastructure, also contributed to the increase. Along with this strong pick-up in imports, a larger visible trade deficit was recorded in 1994 than in 1993.

      Exports and imports of services both continued to grow steadily in overall terms. Although tourism grew more slowly after the marked increase in 1993, trade-related services and offshore trading activities showed further notable growth. Exports of various other professional and support services also remained robust, in line with the development of Hong Kong as a regional trade, finance and business services centre. There was a sustained surplus in invisible trade that more than offset the deficit in visible trade.

      Domestically, consumer spending registered a more moderate increase in 1994. The moderation was mainly due to weaker spending on consumer durables. Sales of clothing and footwear, however, remained strong. Investment spending, on the other hand, recorded an accelerated growth. Reflecting this, the growth rate of retained imports of capital goods rose

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to 20 per cent in the second half of the year, following a four per cent increase in the first half.

Against the background of steady economic growth, there was a continued marked increase in overall employment. The labour market remained generally tight. Both the seasonally-adjusted unemployment rate and underemployment rate stayed at low levels, at two per cent and 1.5 per cent, respectively. The local workforce as a whole continued to enjoy full employment and rising incomes.

The residential property market experienced a significant downturn during the second half of 1994, following the successive increases in mortgage rates from March, the setting up of the government's Task Force on Land Supply and Property Prices in April and the announcement in June of a package of measures to stabilise the market. As a result, speculative activities virtually disappeared and flat prices fell. Flat rentals continued to rise steadily reflecting sustained end-user demand, though with some moderation towards the end of the year.

Consumer price inflation measured in terms of the Consumer Price Index (A) moderated to an average of 8.1 per cent in 1994, down from 9.4 per cent in 1992 and 8.5 per cent in 1993. There was a temporary upsurge in this inflation rate in the summer, when the prices of vegetables and certain other fresh food items showed greater volatility due to the poor weather in Hong Kong and South China. The underlying inflationary pressures, however, remained basically domestically-generated, concentrated mainly on housing rentals, transport fares and charges for various consumer services. There was a rise in imported inflation in the latter part of the year, along with the weakening of the Hong Kong dollar in line with the US dollar, and the uptrend in basic commodity prices and product prices in the world market.

In line with the moderation in consumer price inflation, the GDP deflator, as a broad measure of overall inflation in the economy, also recorded a more moderate increase of 7.7 per cent in 1994, compared with an 8.8 per cent rise in 1993. The rate of increase in the domestic demand deflator, at 7.4 per cent, was also slower than the eight per cent increase in 1993.

Structure and Development of the Economy

A small territory with limited natural resources and six million people, Hong Kong is probably one of the most densely-populated urban economies in the world. It has, however, a deep-water harbour and is strategically located on the international time zone that bridges the time gap between Asia and Europe. It is close to China and has strong traditional links with the Southeast Asian economies. In addition, it has a low tax environment, free and fair market competition, a sound legal and financial framework, a fully convertible and secure currency, a highly efficient network of transport and communications and, most important of all, a competent workforce working with a pool of enterprising entrepreneurs. These have all contributed to the success of the Hong Kong economy.

Hong Kong is now ranked the eighth largest trading entity in the world. It operates the busiest container port in terms of throughput. Its airport is the third busiest in the world in terms of the number of international passengers and the second busiest in terms of the volume of international cargo handled. The territory is also the world's fourth largest banking centre in terms of the volume of external banking transactions, and sixth largest

THE ECONOMY

foreign exchange market in terms of turnover. Its stock market is the second largest in Asia in terms of market capitalisation. All these attest to the fact that the territory has firmly established itself as a major international trade and financial centre. According to the World Competitiveness Report 1994, published by the International Institute for Management Development and the World Economic Forum, Hong Kong was ranked the fourth most competitive economy in the world, after the United States of America, Singapore and Japan. According to a survey commissioned by Fortune magazine, Hong Kong was the most attractive city in the world in which to do business.

Over the past two decades, the Hong Kong economy has more than quadrupled in size. With its GDP growing at an average annual rate of about seven per cent in real terms, Hong Kong has out-performed the Organisation for Economic Co-operation and Development (OECD) countries and has been growing more than twice as fast as the world economy. Per capita GDP, after discounting inflation, has almost tripled. Its average annual growth rate was about five per cent in real terms. Valued at US$21,800 in 1994, Hong Kong's per capita GDP surpassed that of the United Kingdom, Canada and Australia, and was next only to Japan and Brunei in Asia. Benefiting from this economic performance, the local workforce has been able to enjoy a continuous rise in income, as well as full employment since 1986. As a small and open economy, Hong Kong's economic success owes a great deal to the remarkable performance of the external trade sector. Trade in goods expanded more than 37-fold over the past two decades. Trade in services also rose rapidly, by more than 24 times in the same period. As an illustration of the highly externally-oriented nature of the Hong Kong economy, the total value of visible trade (comprising re-exports, domestic exports and imports) reached $2,421 billion in 1994, representing 238 per cent of the GDP. The corresponding ratios were 124 per cent in 1966, 148 per cent in 1980 and 221 per cent in 1990. Including also the value of exports and imports of services, the ratio was 276 per cent in 1994. The corresponding ratios in 1966, 1980 and 1990 were 158 per cent, 181 per cent and 260 per cent, respectively.

Contributions of the Various Economic Sectors

The relative importance of the various economic sectors can be assessed in terms of their contributions to the GDP and to total employment.

      Primary production (comprising agriculture and fisheries, mining and quarrying) is very small in terms of its contributions to both the GDP and employment.

      Within secondary production (comprising manufacturing, construction and the supply of electricity, gas and water), the manufacturing sector still accounts for the largest share in terms of both the GDP and employment. However, reflecting the progressive relocation of manufacturing processes across the border into China and the continued expansion of the services sector, the contribution of the manufacturing sector to the GDP declined steadily from 31 per cent in 1970, to 21 per cent in 1982. It then increased to 23 per cent in 1983 and 24 per cent in 1984, before stabilising at around 22 per cent during the period from 1985 to 1987. It fell again, to 19 per cent in 1989 and further to 11 per cent in 1993. The share of the construction sector in the GDP increased from four per cent in 1970 to eight per cent in 1981. It then fell back to seven per cent in 1982 and six per cent in 1983, before settling at around five per cent during the period from 1984 to 1993. The combined share of electricity, gas and water supply, meanwhile, fell from two per cent in 1970 to slightly more than one

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per cent in 1980 and 1981, before rising to around three per cent during the period from 1985 to 1987. It then declined to slightly more than two per cent in the following years.

The contribution of the tertiary services sector as a whole (comprising the wholesale, retail and import/export trades, restaurants and hotels; transport, storage and communica- tions; finance, insurance, real estate and business services; and community, social and personal services) to the GDP increased from 60 per cent in 1970, to 65 per cent in 1982. It then fell to around 62-64 per cent during the period from 1983 to 1986, before rising steadily to 77 per cent in 1993.

The most notable change in employment since the early 1970s was the continuous decline in the share of the manufacturing sector in total employment, from 47 per cent in 1971 to 41 per cent in 1981, and further to 20 per cent in the first three quarters of 1994. On the other hand, the share of the tertiary services sector as a whole in total employment increased from 41

per cent in 1971 to 47 per cent in 1981, and further to 71 per cent in the first three quarters of 1994.

The Services Sector

Over the past decades, the rapid growth in external trade has not only enabled Hong Kong to build up a strong manufacturing base, it has also provided the underlying conditions for the services sector to flourish and diversify. Of particular note has been the rapid growth and development of finance and business services, including banking, insurance, real estate, and a wide range of other professional services.

China's open door policy and its economic reforms and trade liberalisation saw Hong Kong resume its prominent role as a major regional entrepôt in the 1980s. Rapid economic growth in the Asia-Pacific region over the past decade provided an added stimulus. Trade and other business links between Hong Kong and the region in general, and China in particular, expanded rapidly. Re-export trade showed a sharp increase, with an average annual growth rate of about 25 per cent in real terms from 1985 to 1994.

Over the years, Hong Kong has developed an efficient wholesale and retail network to cater for the growing consumption needs of a more affluent population. Supermarkets, large department stores, convenience stores and modern shopping centres have become increasingly popular. This development has been reinforced by a rapid growth in tourism. Restaurants and hotels have also seen a substantial increase in business. With higher household incomes, there has been a growing demand for goods and services of a better quality, and services in the community, social and recreational fields have also grown substantially.

Externally, reflecting the ongoing development of Hong Kong as a major regional trade, finance and business services centre, trade in services has continued to expand rapidly in recent years. Apart from trade-related services and tourism, there has been a rising demand also for professional and other support services. Offshore trading, cross-border land transport services and other business services, including exports of construction, legal, accountancy, computer and management consultancy services to China and other East Asian economies, have all shown rapid increases.

  Between 1984 and 1994, exports of services rose at an average annual rate of eight per cent in real terms, and imports of services at 11 per cent. The major components of Hong Kong's trade in services are shipping, civil aviation, tourism and various financial services.

THE ECONOMY

The shares of transportation services in total exports and total imports of services were 37 per cent and 27 per cent, respectively, in 1993. Travel services accounted for 28 per cent of the total value of exports of services and 43 per cent of the total value of imports of services. Other trade-related services, such as offshore trading and purchasing/merchandis- ing services, contributed 19 per cent of the total value of exports of services and 11 per cent of the total value of imports of services. The corresponding shares for financial and banking services in total exports and total imports of services were six per cent and four per cent, respectively.

      Analysed by sectors, the contribution to the GDP of the wholesale, retail and import/ export trades, restaurants and hotels was the largest, rising from 21 per cent in 1980 to 23 per cent in 1985, and further, to 27 per cent in 1993. The second largest contributor was the finance, insurance, real estate and business services group, contributing 26 per cent to the GDP in 1993. The corresponding share in 1980 was 23 per cent, but it fell to 16 per cent in 1985, affected by the slump in the property market in the early 1980s. The share of community, social and personal services in the GDP reached 15 per cent in 1993. It rose from 12 per cent in 1980 to around 17 per cent in 1985, before falling back to about 14 per cent during the period from 1987 to 1989. The share of transport, storage and communications in the GDP rose steadily from seven per cent in 1980 to eight per cent in 1985, and further, to 10 per cent in 1993.

Between 1984 and 1993, the net output or value added of the finance, insurance, real estate and business services sector showed the fastest increase, at an average annual rate of 20 per cent in value terms. This was followed by the wholesale, retail and import/export trades, and restaurants and hotels; and transport, storage and communications. Their respective average annual rates of increase were 18 per cent and 17 per cent, respectively. The combined value added by the services sector as a whole rose strongly, at an average of 18 per cent per annum over the same period.

The wholesale, retail and import/export trades, and restaurants and hotels field was the largest employer, accounting for 29 per cent of the total employment in the first three quarters of 1994. This was followed by community, social and personal services (19 per cent); transport, storage and communications (12 per cent); and finance, insurance, real estate and business services (11 per cent). The services sector as a whole thus accounted for 71 per cent of the total employment. The respective shares of these sectors in employment in 1981 were about 19 per cent, about 16 per cent, about eight per cent and about five per cent, respectively, giving a total of 47 per cent.

The Manufacturing Sector

Manufacturing firms in Hong Kong are well known for their versatility. The existence of a large number of small establishments, providing an extensive local sub-contracting system, has greatly facilitated production in coping with the frequent changes in the requirements of overseas markets. Moreover, the growing use of the outward processing facilities in China has greatly increased the flexibility of production in terms of capacity. A major proportion of Hong Kong's manufacturing output is eventually exported. Given the space constraints within Hong Kong, manufacturing industries in the territory usually operate in multi-storey factory buildings, resulting in the concentration of the production of light manufactured products.

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Over the years, the pressures of protectionism in a number of major markets and growing competition from other economies in East Asia have led to even greater diversification of both products and markets. This has been attributed to the initiative of local manufacturers and exporters, as well as promotion efforts with the support of the government. To maintain competitiveness, there has also been a continuous upgrading of product quality.

  In consequence, many industries have emerged and grown, the most notable ones covering toys and electronics. The textiles and clothing industries remain prominent, despite their continuous decline in relative importance. Other industries of importance include plastic products, fabricated metal products, electrical appliances, watches and clocks, jewellery, and printing and publishing.

  Of particular note is the significant improvement in labour productivity within the manufacturing sector. During the period from 1980 to 1993, the value of net output by the manufacturing sector grew at an average annual rate of nine per cent, while manufacturing employment fell at an average annual rate of four per cent. Even after taking into account the effect of price increases on the output value, a significant improvement in labour productivity was evident.

  On market diversification, China's share of the territory's exports has been rising steadily. Since 1993 it has become the territory's largest market. The shares of exports to a number of other economies in the Asia-Pacific region have also risen. Hong Kong's exports have also diversified into new markets, including countries in the Middle East, Eastern Europe, Latin America and Africa.

Increasing Economic Links between Hong Kong and China

Economic relations between Hong Kong and China have grown rapidly over the years. From these growing economic relations, both places have derived substantial benefits. The prospect for even closer economic links is promising.

In 1994, the total value of visible trade between Hong Kong and China amounted to $855 billion, representing an increase of 15 per cent over 1993. China was the second largest market for Hong Kong's domestic exports, accounting for 27 per cent of the total. China was the largest market for, as well as the largest supplier of, Hong Kong's re-exports. About 89 per cent of the goods re-exported through Hong Kong were destined for, or originated from, China.

In addition to trade in goods, Hong Kong also serves as an important service centre for China generally and South China in particular. This includes the provision of infrastructural facilities such as the port and airport, as well as service support covering a wide range of financial and business services. Hong Kong is also a convenient gateway to China for business and tourism. In 1994, 25 million trips to China were made by Hong Kong residents, and another two million trips to China were made by foreign visitors through Hong Kong. These represented increases of seven per cent and one per cent, respectively, over 1993.

Besides visible and invisible trade, Hong Kong is also the most important source or conduit of external investment in China, accounting for about two-thirds of the total. While the territory's direct investment in China has been concentrated in light manufacturing industries, investment in hotels and tourist-related facilities, property and infrastructure has been increasing. As can be expected, Guangdong Province occupies an important position in this respect. It has been estimated that in Guangdong, more than three million people are

THE ECONOMY

working for Hong Kong companies, either through joint ventures or in tasks commis- sioned by Hong Kong companies in the form of outward processing arrangements and compensation trade. This, in effect, provides Hong Kong with a substantial production base. Concurrently, China has also been investing heavily in Hong Kong. Its investment ranges from traditional activities such as banking, importing and exporting, wholesaling and retailing, and transportation and warehousing, to newer areas such as property development, financial services, manufacturing and infrastructural projects.

      Increasing financial links between Hong Kong and China are reflected by the rapid growth in financial transactions with China in recent years. The Bank of China Group is the second largest banking group in Hong Kong, after the Hongkong Bank Group. The latter group, meanwhile, is among the best-represented foreign banks in China; others include the Bank of East Asia and the Standard Chartered Bank.

       Hong Kong is a major funding centre for China. Most of China's fund-raising activities in the territory have taken the form of syndicated loans. Although in some cases Hong Kong is not the direct source of funds, it serves as a window through which China can gain access to external borrowing. These loans are mostly for financing China's own economic development, but some are used by China-interest companies in Hong Kong to finance their investment activities in the territory or abroad. In addition to syndicated loans, China- interest banks and other enterprises have been making greater use of negotiable certificates of deposit, bonds and the issue of shares to raise funds. A major development over the past two years has been the listing of the shares of 15 of China's state-owned enterprises on the Hong Kong Stock Exchange.

The Economy in 1994

External Trade

Re-exports continued to provide the key impetus to export growth, rising by 15 per cent in value terms in 1994. After discounting price increases, the growth rate in real terms was about 14 per cent. The corresponding increases in 1993 were 19 per cent and 20 per cent, respectively.

      China remained the largest market for, as well as the largest source of, Hong Kong's re- exports. Although re-exports involving China grew strongly by 16 per cent in value terms in 1994, the rate of increase was less rapid than in the preceding year. The macro-economic adjustment and control measures implemented by China since July 1993 resulted in a slackening in Hong Kong's re-exports to China for the latter's internal use. Re-exports to China for outward processing also recorded a slower growth in the first half of the year, before resuming a rapid increase in the third quarter.

      Re-exports to the United States of America and Japan continued to show substantial growth, increasing by about 14 per cent and 21 per cent, respectively, in real terms in 1994. A pick-up in the demand for imports, coupled with the effect of exchange rate movements, boosted Hong Kong's exports to these two markets. While re-exports to Germany and the United Kingdom slowed down considerably, transhipments to both markets showed sub- stantial increases. The major suppliers of Hong Kong's re-exports, apart from China, were Japan, Taiwan, the United States of America and the Republic of Korea.

      Hong Kong's re-exports comprised mostly consumer goods, and raw materials and semi- manufactures, accounting for 53 per cent and 28 per cent, respectively, of the total value.

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Re-exports of telecommunications and sound recording and reproducing equipment, electrical machinery, appliances and parts, as well as textiles, registered faster increases than re-exports of other commodity items.

Domestic exports recorded zero growth in value terms in 1994. After allowing for price increases, there was a decline of about two per cent in real terms. This compared with a decline of five per cent in value terms, or four per cent in real terms, in 1993. The performance of domestic exports improved, however, as the year progressed. Following a 10 per cent decrease in real terms in the first quarter, the year-on-year rate of decline moderated to two per cent in the second quarter. Domestic exports then showed virtually no growth in the third quarter, and recovered to register a growth of about two per cent in the fourth quarter.

Analysed by major markets, domestic exports to China fell by about five per cent in real terms in 1994, compared with a two per cent increase in 1993. A large proportion of these domestic exports were related to outward processing arrangements commissioned by Hong Kong companies. While domestic exports to Singapore and Japan rose by about five per cent and three per cent, respectively, in real terms in 1994, those to the United States of America recorded a small decline of about one per cent in real terms. Domestic exports to Germany and the United Kingdom remained weak, declining by about nine per cent and eight per cent, respectively, in real terms. Domestic exports to a number of economies in the Asia- Pacific region, however, remained robust.

Supported by the strong growth in both re-exports and retained imports, imports rose significantly by 17 per cent in value terms, or about 14 per cent in real terms, in 1994. This compared with an increase of 12 per cent in value terms, or 13 per cent in real terms, in 1993. The major sources of Hong Kong's imports were China, Japan, Taiwan and the United States of America.

The growth rate of retained imports picked up sharply in 1994, by 19 per cent in value terms or about 14 per cent in real terms. Among the various end-use categories, retained imports of fuels showed the fastest increase, up by about 50 per cent in real terms. This was followed by retained imports of foodstuffs, consumer goods, capital goods, and raw materials and semi-manufactures, with respective increases of about 15 per cent, 15 per cent, 12 per cent and 11 per cent.

With the value of total exports (domestic exports plus re-exports) smaller than that of imports, a visible trade deficit of $81 billion, equivalent to 6.5 per cent of the total value of imports, was recorded in 1994. This compared with a deficit of $26 billion, equivalent to 2.5 per cent of the total value of imports, recorded in 1993. The larger visible trade deficit in 1994 was partly caused by a deterioration in terms of trade, as import prices rose faster than export prices. The significant replenishment of stocks, as well as greater import requirements for construction and for increased domestic exports in the latter part of the year, were also contributing factors.

Domestic Demand

Domestic demand grew by 11 per cent in real terms in 1994, representing a marked acceleration from the five per cent increase recorded in 1993. This was underpinned by the strong growth in investment demand and the significant replenishment of stocks during the year. Gross domestic fixed capital formation, as an overall measure of investment demand,

THE ECONOMY

surged by 13 per cent in real terms in 1994. This contrasted with a moderate growth of about four per cent in 1993. Among the major components, expenditure on building and construction intensified further, with a growth rate of 15 per cent in real terms in 1994, compared with a nine per cent increase in 1993. Work on a number of major infrastructural projects in the public sector was well under way. Activity in the private sector also staged a marked recovery, led mainly by a revival in building activity. Civil engineering activity also intensified during the year. Reflecting a rebound from the earlier consolidation, the growth rate of expenditure on machinery and equipment also accelerated to 14 per cent in 1994, compared to the five per cent increase in 1993.

      Private consumption expenditure, after a marked increase in the first quarter of 1994, recorded slower growth in the ensuing quarters. But for the year as a whole, a growth rate of eight per cent in real terms was still recorded, which was broadly similar to the increase in 1993. The consolidation in the stock and property markets could have had some negative effects on consumer sentiment. The successive increases in interest rates from March onwards could have also affected the consumption pattern, particularly among households burdened with home mortgages. The slowdown in growth was concentrated largely in the purchase of consumer durables, especially motor vehicles which are often bought on instalment payment terms and are therefore more interest rate-sensitive. Nevertheless, spending on clothing and other non-durable goods remained strong. Government consump- tion expenditure (in national accounts terms) registered an increase of four per cent in 1994, compared with an increase of two per cent in 1993.

The Labour Market

The labour market remained generally tight in 1994. There was a continued marked increase in employment. Had it not been for a sustained net inflow of people to Hong Kong, resulting in a further significant growth of the labour force, the labour market could have become even tighter. In the fourth quarter, the seasonally-adjusted unemployment rate was two per cent - 0.3 of a percentage point lower than in the preceding quarter but virtually unchanged from the same quarter in 1993. The underemployment rate, at 1.5 per cent, was 0.4 of a percentage point lower than in the preceding quarter while remaining unchanged from the same quarter in 1993. Closer examination showed that utilisation of the employed work- force remained intense. The proportion of the employed population working longer hours was on an uptrend.

The shift in employment from the manufacturing sector to the services sector continued. Employment in the manufacturing sector decreased by 14 per cent from a year earlier to 438 400 in September 1994, while vacancies also declined by 14 per cent over the same period to 12 100. Offsetting this, employment in the services sector as a whole increased by nine per cent to 1 869 900, and vacancies by 11 per cent to 62 000. In the services sector, employment in the wholesale, retail and import/export trades increased by 12 per cent; that in water transport, air transport and services allied to transport by eight per cent; that in finance, insurance, real estate and business services by seven per cent; and that in restaurants and hotels by only one per cent.

      On building and construction sites, employment surged by 16 per cent. For the building and construction industry as a whole, employment of site and non-site workers taken together rose more moderately by four per cent.

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  Amid sustained full employment, the local workforce generally enjoyed a continued rise in real income. Comparing September 1994 with September 1993, average earnings in the services sector as a whole registered increases of 11 per cent in money terms, or two per cent in real terms. Earnings in manufacturing also rose, by 12 per cent in money terms or three per cent in real terms. Construction wage rates showed a steady increase of nine per cent in money terms with little change in real terms.

  Analysed by sectors, average earnings in the community, social and personal services reported the fastest increase, by 17 per cent in money terms in September 1994, over the average earnings of a year earlier. This was followed by the transport, storage and communication, and the manufacturing sectors, with increases in average earnings of 13 per cent and 12 per cent, respectively, in money terms. After discounting inflation, the increases in real terms for these sectors were seven per cent, four per cent, and three per cent, respectively. Average earnings in both the finance, insurance, real estate and business services sector, and in the sector for restaurants and hotels, rose by nine per cent in money terms, representing virtually no change in real terms. Average earnings in the wholesale, retail and import/export trades registered a more moderate increase of four per cent in money terms, equivalent to a decline of four per cent in real terms.

The Property Market

The residential property market experienced a significant downturn during the second half of 1994. In the first quarter, residential property prices escalated sharply amidst hectic trading. Market sentiment soon took a downturn, following the setting up of the government's Task Force on Land Supply and Property Prices in April, and the subsequent announcement in June of a package of measures to dampen speculation and stabilise the market. The uptrend in interest rates and the banks' continued tight mortgage lending policy also contributed to cooling down the market. The market quietened further towards the end of the year, due to a further upward adjustment in the interest rate in November and the bearish performance of the stock market. Reflecting this downturn, flat prices eased from their peak in March/April. Speculative activities virtually disappeared. Flat rentals continued to rise steadily amidst sustained end-user demand. However, there were also some downward pressures towards the end of the year as more landlords, who were unwilling to sell at the prevailing price level, placed their flats on the rental market.

  Amidst keen interest from investors and end-users, the sales and rental market for office space showed a robust performance during the first half of 1994. There were, nevertheless, pressures on prices in the latter part of the year, partly due to an abundant supply in the pipeline, and partly due to a turn in market sentiment amidst rising interest rates and some tightening of mortgage lending for office premises by the banks. The sales market remained soft towards the end of the year, despite the Task Force's announcement in November that the government did not intend to intervene in the market for office space. The increase in office rentals also moderated somewhat towards the end of the year as tenants became more resistant to the high rental levels. On shop premises, the rental market settled in the latter part of 1994, partly due to tenants' resistance to further rental increases, and partly due to a slower growth in local consumer and tourist spending, which affected retail business. Prices also eased amidst a generally subdued investment sentiment and a tighter mortgage lending policy by the banks on commercial property.

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      In the industrial property market, the ongoing relocation of manufacturing processes to China continued to dampen the sales and rental markets for conventional flatted factory premises. But modern industrial premises designed also for office-use fared better, with moderate increases in prices and rentals during 1994. Trading and leasing activities nevertheless slowed in the latter part of the year. There was a keen interest in acquiring old industrial buildings with potential for redevelopment into modern industrial-cum-office buildings earlier in the year. But with the turn in market sentiment this interest was also dampened towards the year's end.

      The response to the government land auctions became less favourable as the year wore on. For instance, the price fetched in the auction of a residential site in March was better than expected. In contrast, a residential site put up in the auction in December was withdrawn in the absence of bidders.

Inflation

Consumer price inflation measured in terms of the Consumer Price Index (A), or CPI (A), moderated further to 8.1 per cent in 1994, from 8.5 per cent in 1993. The CPI(B) rose by 8.6 per cent in 1994, close to the increase of 8.7 per cent in 1993. The Hang Seng CPI, however, showed a faster rate of increase of 10.1 per cent in 1994, compared with 9.5 per cent in 1993. This was partly because increases in housing rentals and in the prices of various consumer services had a stronger influence on households covered by the Hang Seng CPI than those covered by the CPI(A) and CPI(B). The Composite CPI, as an aggregate measure of consumer price inflation covering these three indices, rose by 8.8 per cent in 1994, the same as in 1993.

The year-on-year rate of increase in the CPI(A) decelerated markedly to 7.3 per cent in the first quarter of 1994, from 8.7 per cent in the fourth quarter of 1993. It then rose again to 7.7 per cent in the second quarter and further to 8.9 per cent in the third quarter, before moderating to 8.5 per cent in the fourth quarter. This fluctuation was attributable mainly to volatility in the prices of vegetables and certain other fresh food items, due to the serious flooding in South China and several rainstorms in Hong Kong during the summer.

      Among the various components of the CPI(A), the prices of consumer services showed the fastest increase, up by an average of 12 per cent in 1994. This was followed by housing rentals, transport fares, and the prices of clothing and footwear, with increases of 11 per cent, nine per cent and nine per cent, respectively. These four components together accounted for 59 per cent of the overall increase in the CPI(A). The corresponding proportions of the overall increase accounted for by these five components in the CPI(B), Hang Seng CPI and Composite CPI were 66 per cent, 74 per cent and 66 per cent, respectively.

      The prices of miscellaneous goods, food, alcoholic drinks and tobacco, fuel and light and durable goods rose less rapidly, by seven per cent, six per cent, six per cent, three per cent and three per cent, respectively. Since faster price increases were recorded mainly for items with a larger local input, inflationary pressures were still basically generated domestically. There was, however, a rise in imported inflation in the latter part of the year, as import prices rose more swiftly along with the weakening of the Hong Kong dollar in line with the US dollar and the general uptrend in basic commodity prices and product prices in the world market.

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Economic Policy and Public Finances

Economic Policy

The government's basic policy of minimum interference and maximum support for the economy is a key factor underlying the continued economic success of Hong Kong. Owing to its small size and open nature, the economy is vulnerable to external factors, and government actions designed to offset unfavourable external influences are of limited effectiveness.

  The government advocates free and fair competition. Business decisions are left to the private sector, except where social considerations are an overriding factor. It is considered that the allocation of resources in the economy is best left to market forces. With this free market philosophy, the government has not sought to influence the structure of industry through regulations, tax policies or subsidies. The tax system is kept as simple as possible. The corporate tax rate was, moreover, lowered during the year from 17.5 per cent to 16.5 per

cent.

  Maintaining a small and efficient public sector is a crucial aspect of Hong Kong's fiscal policy. In 1994, public sector expenditure accounted for around 17 per cent of the GDP. When adjusted to exclude transfer payments, the share was only about 12 per cent. The underlying aim is to ensure that the government will not take an excessive amount of resources from the private sector. In concrete terms, the growth rate of public sector expenditure is to be kept within the trend growth rate of the economy.

  The government sees its major role as providing a good environment and a sound legal and institutional framework in which business can flourish.

  As individual sectors in the economy are not burdened by undue government regulations, industries in Hong Kong are able to adapt swiftly to changes in market conditions, and the economy as a whole is better able to weather external shocks. The simple tax structure, with low tax rates, in particular, provides a good incentive for workers to work and for entrepreneurs to invest.

Structure of Government Accounts

In accounting terms, the public sector is taken to include the Hong Kong Government itself, the Hong Kong Housing Authority, the Urban Council, the Regional Council and the government trading funds. Government grants and subventions to institutions in the private or quasi-private sectors are included, but expenditure by organisations in which the government only has an equity stake (such as the Mass Transit Railway Corporation and Kowloon-Canton Railway Corporation), is excluded.

  The government controls its finances through a series of fund accounts. The General Revenue Account is the main account for day-to-day departmental expenditure and revenue collection. Five other funds exist mainly to finance capital investments and expenditure, and government loans. They are the Capital Works Reserve Fund, Capital Investment Fund, Disaster Relief Fund, Loan Fund and Lotteries Fund.

  The Capital Works Reserve Fund finances the public works programme, land acquisi- tions, capital subventions, major systems and equipment items and computerisation. On May 27, 1985, when the Sino-British Joint Declaration on the Question of Hong Kong came into effect, the fund was restructured to enable the premium income from land transac- tions to be accounted for in accordance with the arrangements in Annex III to the Joint

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Declaration. The income of the fund is derived mainly from land premia and appropriations from the General Revenue Account.

The Capital Investment Fund finances the government's capital investments (mainly in statutory public bodies), such as equity injections in the Mass Transit Railway Corporation, capital investments in the Hong Kong Housing Authority and advances to the Provisional Airport Authority. Its income is derived mainly from dividends and interest on investments and appropriations from the General Revenue Account.

      The Disaster Relief Fund was set up in December 1993 and finances grants for humanitarian aid in the event of disasters that occur outside Hong Kong. Its income is derived mainly from appropriations from the General Revenue Account.

      The Loan Fund finances government loan schemes such as housing loans and student loans. Its income is derived mainly from loan repayments, interest on loans and appropria- tions from the General Revenue Account.

      The Lotteries Fund finances social welfare services through grants and loans. Its regular source of income is derived mainly from the sharing of the proceeds of the popular Mark Six lotteries.

Management of the Budget

The government manages its finances against the background of a rolling five-year, medium-range forecast of expenditure and revenue. This provides a model for the con- solidated financial position of the General Revenue Account and of all the funds except the Lotteries Fund.

      The most important principle underlying the government's management of public ex- penditure is that the growth rate of public expenditure should, over a period, be close to that of the gross domestic product.

      The budget presented by the Financial Secretary to the Legislative Council each year is developed against the background of the medium-range forecast, to ensure that full regard is given to these principles and to longer-term trends in the economy.

Public Expenditure

Public expenditure in 1993-94 totalled $155.2 billion. The government itself accounted for $134 billion, excluding equity injections to the Sewage Services Trading Fund, the Provisional Airport Authority and other bodies. The growth rate over the preceding year was 25.7 per cent in nominal terms or 15.2 per cent in real terms, largely as a result of a number of special non-recurrent items implemented in 1993-94 to compensate for underspending on capital projects in the previous two years. Some $46.2 billion, or 29.8 per cent of the public expenditure in 1993-94, was of a capital nature. An analysis of expenditure by function is at Appendix 7.

Public expenditure has remained comfortably below 20 per cent of the gross domestic product for the last decade. The growth rate of public expenditure is compared with the rate of economic growth at Appendix 9.

      Total government revenue in 1993-94 amounted to $166.6 billion. The consolidated cash surplus, after the repayment of $1.2 billion for bond redemption, was $19.2 billion. Details of revenue by source and of expenditure by component for 1993-94 and 1994-95 (estimated) are at Appendix 10.

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The draft estimates of expenditure on the General Revenue Account are presented by the Financial Secretary to the Legislative Council when he delivers his annual budget speech. In the Appropriation Bill introduced to the Legislative Council at the same time, the administration seeks appropriation of the total estimated expenditure on the General Revenue Account.

The estimates of expenditure contain details of the estimated recurrent and capital expenditure of all government departments, including estimates of payments to be made to subvented organisations and estimates of transfers to be made to the statutory funds. They also provide for the repayment of public debt.

For the past 10 years, the government's consolidated account has achieved a surplus every year. The accumulated surpluses, which form the government's fiscal reserves, are available to meet any calls on the government's contingent liabilities and enable the government to cope with any short-term fluctuations in expenditure relative to revenue.

The Urban Council and Regional Council, which operate through the Urban Services Department and Regional Services Department, respectively, are financially autonomous. They draw up their own budgets and expenditure priorities. The expenditures of the two councils are financed mainly from a fixed percentage of the rates from property in the Urban Council area (Hong Kong, Kowloon and New Kowloon) and in the Regional Council area (New Territories). Additional income is derived from fees and charges for the services the councils provide.

The Hong Kong Housing Authority, operating through the Housing Department, is also financially autonomous. Its income is derived mainly from flat sales and rents. If the authority's cash flow is inadequate to meet the construction costs of new estates, it may request an injection of capital by the government. The authority is provided with land on concessionary terms for the construction of public rental housing. Part of the authority's recurrent expenditure, for activities such as clearances and squatter control, is financed from the General Revenue Account.

Revenue Sources

Hong Kong's tax system is simple and relatively inexpensive to administer. Tax rates are low, and the government accords a high priority to curbing tax avoidance and evasion. The major sources of revenue are salaries tax and profits tax. Others include rates on property, stamp duty on property and stock market transactions, betting duty and duties on certain specified commodities. (For the major sources of revenue, see Appendix 12).

The Inland Revenue Department is responsible for the collection of over 50 per cent of total revenue, including earnings and profits tax, stamp duty, betting duty, estate duty and hotel accommodation tax. Revenue from these sources is collectively described as internal

revenue.

  Earnings and profits tax, which alone accounted for about 38 per cent of total revenue in 1993-94, is levied under the Inland Revenue Ordinance. Persons liable to this tax may be assessed on three separate and distinct sources of income: business profits, salaries and income from property.

Profits tax is charged only on net profits arising in Hong Kong, or derived from a trade, profession or business carried on in Hong Kong. Profits of unincorporated businesses are currently taxed at 15 per cent and profits of corporations are taxed at 16.5 per cent (reduced

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in the 1994 budget from 17.5 per cent). Tax is payable on the actual profits for the year of

assessment.

Profits tax is paid initially on the basis of profits made in the year preceding the year of assessment and is subsequently adjusted according to profits actually made in the assess- ment year. Generally, all expenses incurred in the production of assessable profits are deductible. There is no withholding tax on dividends paid by corporations, and dividends received from corporations are exempt from profits tax. In 1993-94, the government received some $40 billion in profits tax, amounting to about 24 per cent of the total revenue. Salaries tax is charged on emoluments arising in, or derived from, Hong Kong. The basis of assessment and method of payment are similar to the system for profits tax. Tax payable is calculated on a sliding scale which progresses from two per cent on the first segment of net income (that is, income after deduction of allowances) of $20,000, to nine per cent and 17 per cent on the second and third segments of $30,000 each, respectively, and then to 20 per cent on remaining net income. No one, however, pays more than 15 per cent of their total income. The earnings of husbands and wives are reported and assessed separately. However, where either spouse has allowances that exceed his or her income, or when separate assessments would result in an increase in salaries tax payable by the couple, they may elect to be assessed jointly. Salaries tax contributed some $23 billion, or 14 per cent of total revenue, in 1993-94. Due to generous personal allowances under Hong Kong tax law, about 44 per cent of the territory's workforce has no salaries tax liability at all.

      Owners of land or buildings in Hong Kong are charged property tax at the standard rate of 15 per cent of the actual rent received, less an allowance of 20 per cent for repairs and maintenance. There is a system of provisional payment of tax similar to that for profits tax and salaries tax. Property owned by a corporation carrying on a business in Hong Kong is exempt from property tax (but profits derived from ownership are chargeable to profits tax). Receipts from property tax totalled $1.5 billion in 1993-94.

The Stamp Duty Ordinance imposes fixed and ad valorem duties on different classes of documents relating to assignments of immovable property, leases and share transfers. The revenue from stamp duties accounted for about 11 per cent of total revenue, or some $18 billion, in 1993-94.

Betting duty is imposed on bets at the Royal Hong Kong Jockey Club and on the proceeds of Mark Six lotteries the only legal forms of betting in Hong Kong. The duty now accounts for about six per cent of total revenue. The rate of duty is 11.5 per cent, or 17.5 per cent of the amount of the bet (depending on the type of bet placed), and 20 per cent on the proceeds of lotteries. The yield in 1993-94 totalled some $10 billion.

      Estate duty is imposed on estates valued at over $5.5 million, at levels ranging from six per cent to a maximum of 18 per cent, while a hotel accommodation tax of five per cent is imposed on expenditure on accommodation by guests in hotels and guest-houses.

      The Customs and Excise Department is responsible for collecting and protecting duty revenue. The Dutiable Commodities Ordinance imposes controls on the import, export, manufacture, sale and storage of dutiable items. In 1993-94, $7.1 billion was collected in duties, accounting for about four per cent of total revenue. Duties are levied on four groups of commodities - hydrocarbon oils, alcoholic liquor, methyl alcohol and tobacco.

      Duties are imposed irrespective of whether the product concerned is locally manufactured or imported. There is no discrimination on the grounds of geographic origin.

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The Rating and Valuation Department is responsible for assessing and collecting rates, which are levied on landed properties at a fixed percentage of their rateable value. The revenue raised helps finance the various public services provided by the government, the Urban Council and the Regional Council, as well as providing a stable and reliable revenue stream for the government.

The rateable value is an estimate of the annual rent at which a property might be expected to be let, as at a designated date, and general revaluations are conducted at intervals to keep rateable values up-to-date. The current lists of rateable values came into force on April 1, 1994, and reflect rental values at July 1, 1993.

  The percentage charge is fixed annually by the Legislative Council in accordance with the financial requirements of the government, the Urban Council and the Regional Council. For 1994-95, the percentage charge was fixed at 5.5 per cent. A rates relief mechanism is currently in place to cushion ratepayers from the effects of the increases in rateable values following the general revaluation which came into effect on April 1. The mechanism restricts the increases in rates payable in 1994-95 to 20 per cent of the amount paid for the same premises in 1993-94.

In 1993-94, the number of assessments in the Valuation Lists at the year-end stood at about 1 338 000, and the total net revenue from rates was $10.8 billion. Of this amount, $4.1 billion, collected from Hong Kong Island and Kowloon, was credited to the Urban Council and $2.2 billion, collected from the New Territories, went to the Regional Council. The remainder, amounting to $4.5 billion, was credited to the government's General Revenue Account.

The government derives significant amounts of revenue from a number of other sources. Fees and charges for services provided by government departments generated a total of about $8.6 billion in 1993-94. It is the government's general policy that fees charged should be set at a level to allow recovery of the full cost of providing the goods and services. Certain essential services are, however, subsidised by the government or provided free.

A further $8 billion was generated by government-operated public utilities. The most important of these, in revenue terms, are water supplies, postal services and the airport. Significant sums also accrued to general revenue from the tax imposed for the registration of motor vehicles under the Motor Vehicles (First Registration Tax) Ordinance. This revenue, amounting to approximately $4.2 billion in 1993-94, was collected by the Commissioner for Transport.

In addition, some $18.5 billion, or about 11 per cent of the total revenue of the year, was generated by land transactions. Following the implementation of Annex III of the Joint Declaration, revenue from land transactions decided upon before the coming into force of the Joint Declaration, and from those conferring a benefit that expires on or before June 30, 1997 (amounting to $264 million in 1993-94), is credited to the General Revenue Account. All revenue from other land transactions is credited to the suspense account of the Capital Works Reserve Fund, pending sharing with the future Hong Kong Special Administrative Region Government. The sharing arrangements in 1993-94 resulted in the transfer of $18.2 billion to the works account of the Capital Works Reserve Fund and $16.9 billion to the future Hong Kong Special Administrative Region Government's Land Fund.

A further $1.4 billion was received in the same year by way of royalties and concessions. These are paid by certain major companies holding franchises, such as the Cross Harbour

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Tunnel Company Limited and television broadcasters, as well as holders of concessions to operate taxis and petrol stations.

      The government's revenue sources provide for a stable and fairly broad-based revenue system, which is able to ensure that adequate funds are available for the implementation of its medium-term expenditure programmes, as well as the maintenance of a prudent level of fiscal reserves.

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FINANCIAL AND MONETARY AFFAIRS

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HONG KONG's financial sector comprises an integrated network of institutions and markets which, under various forms of regulation, provide a wide range of products and services to local and international customers and investors.

Some 537 authorised institutions and local representative offices of banks from about 40 countries conduct business under the Banking Ordinance. The presence of 85 of the world's top 100 banks has helped promote the territory as an international financial centre. The external assets of the banking sector and the forex turnover are among the highest in the world.

Hong Kong has the second largest stock market in Asia outside Japan. In 1994, the market faced consolidation in line with the global bearish trend. Having peaked at an historical intra-day high of 12 599 points on January 4, the Hang Seng Index drifted generally downwards in the subsequent months. It closed the year at 8 191, 31 per cent below the level at the end of 1993.

In August, Hong Kong took a major step forward in improving the transparency of financial reporting by the authorised institutions. In a joint announcement, the Hong Kong Monetary Authority (HKMA), the Stock Exchange of Hong Kong Limited and the Securities and Futures Commission announced recommendations on additional disclosures to be included in the accounts of both listed and non-listed authorised institutions for accounting periods ending on, or after, December 31, 1994.

The joint disclosure package will provide greater detail on, among other things, the institutions' actual level and breakdown of profits and the nature and quality of assets, bringing Hong Kong's standard of disclosure substantially in line with that of other major financial centres.

Also in August, the World Bank and the International Monetary Fund announced that their 52nd annual meetings will be held in Hong Kong in September 1997. The HKMA is responsible for the planning of this prestigious event, which will be a timely affirmation of Hong Kong's continuing status as an international financial centre.

On October 1, the Hong Kong Association of Banks removed the interest rate ceiling on Hong Kong dollar deposits fixed for more than one month.

This was the first step in a phased liberalisation programme, announced in August, that will introduce more competition in retail interest rates and be conducive to product innovation and greater efficiency.

FINANCIAL AND MONETARY AFFAIRS

Financial Institutions

Hong Kong maintains a three-tier system of deposit-taking institutions - licensed banks, restricted licence banks and deposit-taking companies, which are collectively called authorised institutions.

      While banking licences and restricted banking licences are granted at the discretion of the Governor in Council and the Financial Secretary, respectively, the authority to register deposit-taking companies rests with the HKMA.

      There are different sets of authorisation criteria for locally-incorporated applicants and overseas applicants for a banking licence. A local applicant incorporated in Hong Kong should satisfy the criterion that it is predominantly beneficially owned by Hong Kong interests, or, in the opinion of the Governor in Council, is otherwise closely associated and identified with Hong Kong. The local applicant is also required to have a paid-up capital of at least $150 million and a minimum trading period of 10 years as an authorised institution. The minimum requirements on assets (net of contra items) and public deposits are $4,000 million and $3,000 million, respectively.

In the case of a bank incorporated outside Hong Kong applying to establish a branch in the territory, the asset size requirement (net of contra items) is US$16,000 million. A licence may still be granted in exceptional circumstances, however, if the bank is of exceptionally high standing or if banks from its country of incorporation are under-represented in the territory. Hong Kong poses no major barriers to overseas banks operating domestically in the territory, whether in Hong Kong dollars or other currencies. However, overseas banks licensed after 1978 are subject to a condition which effectively restricts them to one branch, a measure designed to avoid overcrowding in retail banking. Even this restriction was relaxed in September 1994, and foreign banks are now allowed to open one regional office and one back office, in separate buildings, to conduct such activities as strategic planning, general liaison with correspondent banks and corporate entities, and processing and settlement of transactions already entered into by the branch office. The purpose of the relaxation is to help foreign banks reduce their operating costs by allowing them to move some of their operations to areas where rentals are less expensive. The relaxation also applies to foreign restricted licence banks.

      At the end of 1994, there were 180 licensed banks in Hong Kong, 32 of which were locally incorporated. They maintained a total of 1 464 offices in Hong Kong. In addition, there were 157 representative offices of foreign banks. The total deposit liabilities of all the licensed banks to customers at the end of the year was $1,884 billion.

      Only licensed banks may operate current or savings accounts. They may also accept deposits of any size and any maturity from the public. The Interest Rate Rules of the Hong Kong Association of Banks (of which all licensed banks are required, under their licensing conditions, to be members) result in the setting of maximum rates payable on bank deposits in Hong Kong dollars of original maturities of less than 15 months, with the exception of deposits of $500,000 or above, for which banks may compete freely.

      The Interest Rate Rules were partially lifted on October 1, when the Hong Kong Association of Banks removed the interest rate cap on Hong Kong dollar deposits fixed for more than one month. This was the first step in a phased programme that would, by April 1, 1995, deregulate interest rates on all deposits fixed for more than 24 hours - representing 95 per cent of existing time deposits governed by the Interest Rate Rules. As for 24-hour call

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deposits, deregulation will be phased in, by gradually lowering the deposit cap during the rest of 1995, subject to the condition that both the HKMA and the Hong Kong Association of Banks are satisfied that the stability of the monetary and banking systems would not be undermined.

Applicants for restricted bank licences are required to have a minimum issued and paid-up capital of $100 million, and to meet certain criteria regarding ownership, general standing and quality of management. If incorporated overseas, the applicants must also be subject to adequate home supervision. Restricted licence banks may take deposits of any maturity from the public, but in amounts of not less than $500,000. There are no restrictions on the interest rates they may offer. At the end of 1994, there were 63 restricted licence banks and their total deposit liabilities to customers was $37 billion.

Restricted licence banks may use the word 'bank' in describing their business in promotional literature and advertisements, but this must be qualified by adjectives such as 'restricted licence', 'merchant', 'investment' or 'wholesale'. To avoid confusion with licensed banks, descriptions such as 'retail' or 'commercial' are not allowed. Overseas banks seeking authorisation as restricted licence banks may operate in branch or subsidiary form. If in branch form, they may use their registered name even if it includes the word 'bank' or a derivative, but in this case it must be qualified prominently by the words 'restricted licence bank' in immediate conjunction.

  In addition to certain basic criteria, registration of deposit-taking companies will be granted only to companies that are more than 50 per cent owned by a bank. Deposit-taking companies are required to have a minimum paid-up capital of $25 million. They are restricted to taking deposits of not less than $100,000, with a term to maturity of at least three months. At the end of 1994, there were 137 deposit-taking companies, and their total deposit liabilities to customers was $20 billion.

Dealers in securities, investment advisers, commodity dealers and commodity-trading advisers, leveraged foreign exchange traders, and their representatives, are required to be registered with the Securities and Futures Commission. To obtain registration, they must comply with the requirements (including the 'fit and proper' test) stipulated in the Securities Ordinance, the Commodities Trading Ordinance, the Leveraged Foreign Exchange Trading Ordinance, and the Securities and Futures Commission Ordinance. At the end of 1994, there were 14 191 registered persons. Of the 421 registered corporate securities dealers, 199 were from overseas. Of the 128 commodities dealers, 54 were from overseas.

  Only members of the Stock Exchange of Hong Kong Limited are permitted to trade on the stock exchange. At the end of the year, the stock exchange had 563 corporate and individual members. Only shareholders who have applied for and been granted membership of the Hong Kong Futures Exchange Limited can trade on the Futures Exchange. At the end of 1994, the Futures Exchange had 115 members.

Under the Insurance Companies Ordinance, insurance companies are authorised by the Insurance Authority to transact business in Hong Kong. At the end of 1994, there were 229 authorised companies. Of these, 126 were overseas companies from 29 countries.

Regulation of the Financial Sector

The government has consistently worked towards providing a favourable environment in the financial sector, with adequate regulation to ensure, as far as possible, sound business

FINANCIAL AND MONETARY AFFAIRS

standards and confidence in the institutional framework, but without unnecessary impediments of a bureaucratic or fiscal nature.

      The authority for the prudential supervision of banks, restricted licence banks and deposit-taking companies is vested in the HKMA. Its authority is derived from the Banking Ordinance, the provisions of which relate to the supervision of authorised institutions. The main objectives of the ordinance are to provide a measure of protection to depositors and to promote the general stability and effective operation of the banking system.

The HKMA has broadened its approach to supervision, which was previously mainly reliant on on-site examinations. Such examinations are still an integral part of the supervisory process, but are supplemented by off-site reviews and prudential meetings with authorised institutions. Off-site reviews involve the analysis of regular statistical returns, and accounting and other management information supplied by institutions, with a view to assessing their performance and compliance with the Banking Ordinance. Such reviews are followed by prudential interviews with the senior management of the institutions, at which the business, prospects and potential areas of concern of institutions are discussed. This broader approach to supervision enhances the HKMA's ability to identify potential areas of concern, which can be followed up by on-site examinations.

As an international financial centre, Hong Kong follows banking supervisory policies that are in line with international standards, especially those recommended by the Basle Committee on Banking Supervision. In 1992, the Basle Committee issued a set of minimum standards that the G-10 countries have agreed to apply in the supervision of international banking groups and their cross-border establishments. These standards are designed to provide greater assurance that no international bank can operate without being subject to effective consolidated supervision. To ensure compliance with these standards, Hong Kong added them to its bank licensing criteria in September 1992. In the case of a foreign applicant, its home supervisor must have established, or be working to establish, the necessary capabilities to meet the minimum standards. In February 1993, the same requirement was added to the licensing criteria for restricted licence banks and deposit-taking companies. The Basle Committee also issued a paper in 1992 setting out a number of proposals on the supervision of liquidity for consideration by banking supervisors worldwide. In the light of these proposals, the HKMA carried out a review of its own regime on the supervision of liquidity. Following extensive consultation with the banking industry, the HKMA introduced a new regime for the supervision of authorised institutions' liquidity on August 1, 1994. Under the new approach, the adequacy of an institution's liquidity will be assessed having regard to a number of factors, including liquidity ratio, maturity mismatch profile, ability to borrow in the interbank market, intra-group transactions, loan-to-deposit ratio, and diversity and stability of deposit base.

      The Basle Committee issued three consultative papers in 1993 on the subjects of netting, market risks and interest rate risk. In 1994, the Basle Committee confirmed its proposals on netting while the supervisory approach to the other two areas of risk is still under review.

      The Basle Committee's proposals on netting define the conditions under which banks would be permitted to net, on a bilateral basis, the credit risk arising from trading in off- balance sheet transactions such as swaps. For calculating such credit risk on a net basis,

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banks are required to demonstrate that netting arrangements are legally enforceable in each of the relevant jurisdictions involved in a transaction. Following consultation with the banking industry and the Hong Kong Law Society, which deems that Hong Kong law is generally supportive of netting, the HKMA will issue its new policy on netting in early 1995.

In August, the HKMA introduced a new regular Return on Interest Rate Risk Exposures of authorised institutions. In the first half of 1995, the HKMA will participate in a Bank for International Settlements global survey on foreign exchange and other financial derivatives activities in Hong Kong. This survey will provide the HKMA with updated information on authorised institutions' exposure to market risks.

At the same time, the HKMA is closely monitoring the proliferation of financial derivative products in the territory, with a view to issuing formal guidelines on the risk management requirements of derivative activities. The guidelines would reflect the broad principles set out in a paper issued by the Basle Committee on the same subject.

In view of the sharp rise in property prices and speculation in the property market, the government issued in 1991 several warnings calling for greater prudence in residential mortgage lending. In November that year, a number of leading institutions responded to these warnings by lowering their loan-to-value ratio for residential mortgages to 70 per cent, which has since become an industry norm. In February 1994, the HKMA issued a letter through the industry associations to all authorised institutions, recommending that those institutions whose percentage share of property-related loans to total loans was above the industry average of 40 per cent should stabilise or reduce their percentages and that the growth of such lending should generally not exceed the nominal rate of GDP growth, at about 15 per cent.

In August, the HKMA, the Stock Exchange of Hong Kong Limited and the Securities and Futures Commission announced joint recommendations on additional disclosures to be included in the accounts of both listed and non-listed authorised institutions for accounting periods ending on, or after, December 31, 1994. The joint disclosure package will provide greater transparency on a bank's actual level of profits, nature and quality of earnings and assets, cost structure and sources of funding. It represents a major step taken by authorised institutions in Hong Kong towards improving transparency of their financial reporting and bringing the territory's standard of disclosure substantially into line with that of other major financial centres.

Discussion between the HKMA, the Stock Exchange of Hong Kong Limited and the Securities and Futures Commission is continuing on further disclosures to be included in the 1995 accounts. These include additional information on off-balance-sheet exposures, segmental analysis and the cash-flow statement. The HKMA will also undertake a review on the disclosure of balance sheet inner reserves in mid-1995.

Hong Kong is a member of the Financial Action Task Force, an organisation with a mandate to encourage international efforts in the fight against drug money-laundering. To help combat money-laundering, a guideline on the prevention of the criminal use of the banking system for the purposes of money-laundering was issued in 1989 by the then Commissioner of Banking. This guideline was revised in 1993, in the light of the new anti- money-laundering initiatives taken by the international community. It spells out clearly the HKMA's expectations of the internal policies and procedures which institutions should

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adopt to guard against money-laundering. The objective is to ensure that Hong Kong's system to prevent money-laundering conforms to international standards.

      The Commissioner of Insurance and the Securities and Futures Commission (SFC) have also taken initiatives to ensure that the insurance and securities and futures indus- tries, respectively, take appropriate measures to guard against money-laundering. These initiatives include the issue, in December 1993, of a guideline by the Commissioner of Insurance and a plan for rules to be drawn up by the SFC to require appropriate action to be taken by registered persons.

Stepping up efforts to combat money-laundering, the HKMA plans to further revise its guideline to take into account amendments to existing money-laundering laws and new legislation in this area. For example, the recently-enacted Organised and Serious Crimes Ordinance has extended the money-laundering offence to other indictable offences. The Hong Kong Association of Banks also produced, in 1994, a training package that aims to improve the awareness of frontline bank staff in combating the money-laundering problem. The SFC, which was established in 1989 in response to the weakness in Hong Kong's financial markets at the time of the October 1987 world stock market crash, exercises prudential supervision over the securities, financial investment and commodities futures industries in Hong Kong.

      It administers the Securities and Futures Commission Ordinance, the Securities Ordinance, the Protection of Investors Ordinance, the Commodities Trading Ordinance, the Stock Exchanges Unification Ordinance, the Commodities Exchanges (Prohibition) Ordinance, the Securities (Clearing Houses) Ordinance, the Securities (Disclosure of Interests) Ordinance, the Securities (Insider Dealing) Ordinance and part of the Companies Ordinance in so far as it relates to prospectuses and purchases by a company of its own shares. During the year, the commission assumed additional regulatory responsibilities for leveraged forex trading targeted at the retail end of the market.

      The Securities Ordinance and the Stock Exchanges Unification Ordinance, together with the Securities and Futures Commission Ordinance, provide a framework within which dealings in securities are conducted and the stock exchange operates, enabling trading in securities to be regulated. They require the registration of dealers, dealing partnerships, investment advisers and other intermediaries. They also provide for the investigation of suspected malpractices in securities transactions and the maintenance of a compensation fund to compensate clients of defaulting brokers.

      The Protection of Investors Ordinance prohibits the use of fraudulent or reckless means to induce investors to buy or sell securities, or to induce them to take part in any investment arrangement in respect of property other than securities (the latter being controlled by the Securities Ordinance). It regulates the issue of publications relating to such investments by prohibiting any advertisement inviting investors to invest without the advertisement first being submitted to the commission for authorisation.

      The Commodities Trading Ordinance, together with the Securities and Futures Commission Ordinance, provides a regulatory framework within which the Futures Exchange operates and dealers, commodity trading advisers and representatives conduct their business. It includes provisions for the registration of dealers and their representatives, and the maintenance of a compensation fund to compensate clients of defaulting commodity dealers.

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The Securities (Clearing Houses) Ordinance provides for the recognition of a clearing house and approval of clearing house rules by the Securities and Futures Commission, and makes certain exceptions to insolvency law in relation to a clearing house and its role in guaranteeing the settlement of market transactions.

Two important components of the regulatory framework in Hong Kong are the Securities (Insider Dealing) Ordinance and the Securities (Disclosure of Interests) Ordinance, which were brought into operation in September 1991.

The Securities (Insider Dealing) Ordinance provides much stricter penalties for insider dealing than those previously applicable. The year 1994 witnessed the successful con- clusion of the first inquiry of the Insider Dealing Tribunal, set up under the ordinance to look into cases involving suspected insider dealing referred to it by the Financial Secretary. In that case, the tribunal imposed fines on persons found to have committed insider dealing and issued orders to disqualify them from holding such positions as that of a director of a listed company. The Financial Secretary has referred two other cases to the tribunal for inquiry. During the year, the scope of the ordinance was extended to derivative products in respect of listed securities. Previously, the ordinance only covered insider dealing on listed securities.

The Securities (Disclosure of Interests) Ordinance requires that company shareholders with 10 per cent or more of the voting shares of a listed company disclose their interests and dealings publicly, and that directors and executives disclose certain dealings.

The Leveraged Foreign Exchange Trading Ordinance, enacted in June 1994 and brought into effect on September 1, added a new component to the regulatory framework. The ordinance provides for the regulation, by the SFC, of the retail end of leveraged foreign exchange trading where an investor buys or sells foreign currencies by putting up a small percentage of the full value of the contract, settlement being made with reference to differences in exchange rates rather than actual delivery. This was an area which had been subject to frequent investor complaints against malpractices by unscrupulous traders over the past few years, and the introduction of a legislative framework was necessary to protect the interests of investors. The regulation of the market was effected through the licensing, by the SFC, of leveraged foreign exchange traders and their representatives who are required to fulfil 'fit and proper persons' criteria. The ordinance also provides for the investigation of suspected trading malpractices, supplemented by rules governing arbitra- tion, conduct of business, maintenance of financial resources, accounts and audit, contract notes and appeal procedures.

The Office of the Commissioner of Insurance exercises prudential supervision over the insurance industry in Hong Kong. It administers the Insurance Companies Ordinance, which brings all classes of insurance business under a comprehensive system of regulation and control by the Commissioner of Insurance (the Insurance Authority). The conduct of insurance business in or from Hong Kong is restricted to authorised companies, Lloyd's members and underwriters approved by the Insurance Authority. All new applications for authorisation are subject to careful scrutiny by the Insurance Authority to ensure that only insurers of good repute, established track-record, undoubted financial standing, and who meet all the authorisation criteria are admitted. The ordinance stipulates minimum share capital and solvency requirements for all authorised insurers and requires them to submit financial statements and other relevant information to the authority annually. It also requires

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all insurers carrying on general insurance business to maintain assets in the territory to match their Hong Kong insurance business liabilities plus a solvency margin for protecting the interests of Hong Kong policy-holders. It provides that any person who is not considered by the authority to be a fit and proper person to be associated with an authorised insurance company cannot acquire a position of influence in relation to such a company. It also empowers the authority to intervene in the conduct of the business of insurance companies in certain circumstances. Where the authority has cause for concern, it may take remedial or precautionary measures to safeguard the interests of policy-holders and claimants, including the limitation of premium income, the restriction of new business, the placing of assets in custody and petitioning for the winding-up of the company involved.

Self-regulatory measures to strengthen professional discipline in the insurance market have been formulated by the insurance industry, after consultation with the government. The measures involved the adoption by the industry in 1989 of two Statements of Insurance Practice governing the writing of insurance contracts for long-term and general insurance business, and the establishment in 1990 of an Insurance Claims Complaints Bureau, which provides an independent avenue for resolving claims disputes arising from personal insurance policies. Enabling legislation has been enacted to support the self-regulatory system, under which no person shall be allowed to act as an insurance intermediary unless he is a registered insurance agent or an authorised insurance broker. The self-regulatory system will benefit Hong Kong as a developing international insurance centre.

The Occupational Retirement Schemes Ordinance, providing a registration system for voluntarily established occupational retirement schemes, was brought into force in October 1993. The Commissioner of Insurance, as Registrar of Occupational Retirement Schemes, is responsible for the regulation of private sector retirement schemes. The objective of the ordinance is to provide greater certainty that retirement scheme benefits promised to employees will be paid when they fall due. Existing occupational retirement schemes are required to apply for registration or exemption on, or before, October 15, 1995. The ordinance requires all schemes operating in, or from, Hong Kong to be either registered with, or exempted by, the Registrar. All registered schemes must meet certain basic require- ments including asset separation (the assets of a scheme must be kept separate and distinct from the assets of the employer or the scheme administrator); independent trusteeship (there should be at least one independent trustee who must not be the employer, his employee or an associate); restricted investments (any loan to the employer of the scheme or his associate out of the scheme's assets is prohibited, as is any excessive investment in the business undertaking of the employer); funding (the assets of the scheme must be sufficient to meet its aggregate vested liability); independent audit and actuarial reviews; and the submission of annual financial statements to the Registrar. There are also requirements for disclosure of information concerning the operation of the scheme to its members.

      The Registrar of Occupational Retirement Schemes is engaged in the registration, by October 15, 1995, of an estimated 25 000 schemes. At the end of the year, 1 869 applica- tions for registration and exemption of schemes had been received.

The Securities and Futures Commission

The Securities and Futures Commission (SFC) was established in May 1989, following the enactment of the Securities and Futures Commission Ordinance, which represented

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 a first important phase in the overhaul of securities legislation in Hong Kong and the implementation of some of the major recommendations made by the Securities Review Committee in May 1988.

The ordinance transfers to the SFC the functions of the former Securities Commission, the Commodities Trading Commission and the Office of the Commissioner for Securities and Commodities Trading. It provides a general regulatory framework for the securities and futures industries, leaving certain elements to be covered by regulations, administrative procedures and guidelines developed by the commission.

  The SFC was established as an autonomous statutory body outside the civil service. It has 10 directors (half of them executive), including the chairman and deputy chairman of the commission. The directors are appointed by the Governor. Each year, the commission must present to the Financial Secretary a report and an audited statement of its accounts, which are laid before the Legislative Council.

  The commission seeks advice on policy matters from its advisory committee, whose 12 independent members are appointed by the Governor and are broadly representative of market participants and relevant professions. Decisions of the SFC relating to matters concerning the registration of persons and intervention in their business are subject to appeal to the Securities and Futures Appeals Panel, the members of which are independently appointed by the Governor.

  The SFC is funded largely by the market and partly by the government, although no funding has been sought from the latter in the past two years. The market contribution is in the form of fees and charges for specific services and functions performed (on a cost- recovery basis), plus a statutory levy on transactions recorded on the stock and futures exchanges. Its annual budget in 1994 was about $221 million. On December 31, 1994, the SFC had an establishment of 239.

  In its first five years of operation, the SFC has successfully developed a detailed framework of securities and futures regulation that brings Hong Kong into line with internationally-accepted standards of market regulation and practice. As part of this exercise, it has issued revised versions of the Code on Unit Trusts and Mutual Funds and the Code on Takeovers and Mergers. The revised versions ensure the codes conform with the increasingly sophisticated investment environment and incorporate a number of features designed to deal with situations which are unique to Hong Kong. Two codes (the Code on Investment-Linked Assurance and Pooled Retirement Funds and the Code on Immigration- Linked Investment Schemes) have also been issued, enhancing the level of protection for investors of these funds within the framework of the Protection of Investors Ordinance.

  In July 1994, the Securities and Futures Commission Ordinance was amended to enable the SFC to conduct preliminary inspections of the books and records of listed companies and their subsidiaries. This enhanced the ability of the SFC to promptly identify possible misbehaviour in such companies. Legislative amendments were also introduced to the Legislative Council in October to assist the SFC in providing reciprocal investigatory assistance to overseas regulators and company inspectors, which is in line with the global development toward closer cross-border regulatory co-operation.

  The SFC has been encouraging the development of more efficient equity trading systems and a greater variety of securities and futures products. It worked closely with the stock exchange on the Automatic Order Matching and Execution System (AMS), which was fully

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     implemented in early 1994, under which orders are entered into the screen-based trading system and executed automatically when the buy and sell prices match. The AMS enhances the trading capacity and efficiency of the stock market and enables the instant capture and dissemination of market data, which will contribute to greater market integrity and transparency. The stock exchange is planning to install a second AMS terminal for its members to fully utilise the potential of the system.

Implementation of the AMS also facilitated the introduction of the short-selling of stocks on January 3. A sound regulatory structure was developed to allow such short-selling through registered members of the stock exchange. Twenty-one shares are eligible for short- selling. They are the largest Hang Seng Index constituent stocks, a significant proportion of which are in the hands of the public.

      The Hong Kong Securities Clearing Company continues to operate the Central Clearing and Settlement System (CCASS), which is one of the most important reforms to the risk management system introduced after the 1987 market crash. CCASS is an automated book- entry system that handles the settlement of securities among brokers. Its efficient operation was evident in late 1993 and early 1994, when the system was tested by the sharp increase in turnover in an exceptionally volatile market.

      Both the stock exchange and futures exchange have introduced codes of conduct for their members. In addition, the SFC introduced a code of conduct that applies to all other persons registered under the Securities Ordinance and the Commodities Trading Ordinance in 1994. All these codes are based on the principles developed by the International Organisation of Securities Commissions, of which Hong Kong is a member.

      The government and the SFC are taking steps to rationalise and update Hong Kong's securities and futures legislation into a coherent, well-organised and user-friendly corpus of securities law. A draft bill was being prepared during the year, with the aim of consulting the market on proposed changes in the course of 1995.

      Transaction costs of securities trading decreased further during the year under review. Due to strong market activities, the statutory levy was reduced from 0.02 per cent to 0.013 per cent on the value of each purchase and sale of securities.

Hong Kong as an International Financial Centre

The favourable geographical position of Hong Kong, which provides a bridge in the time gap between North America and Europe, together with strong links with China and other economies in Southeast Asia and excellent communications with the rest of the world, have helped the territory to develop into an important international financial centre.

      The absence of any restrictions on capital flows into and out of the territory is also an important factor.

Hong Kong's financial markets are characterised by a generally high degree of liquidity and operate under effective and transparent regulations which meet international standards. Hong Kong has a very strong presence of international financial institutions. At the end of the year, there were 148 foreign incorporated banks. Of the world's top 100 banks in terms of monetary assets, 85 have operations in the territory. In addition, 155 subsidiaries or related companies of foreign banks operate as restricted licence banks and deposit-taking companies.

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  The importance of Hong Kong in the global banking world is also demonstrated by its external orientation. At the end of November, banks and deposit-taking institutions held US$590 billion of external assets, which accounted for about eight per cent of the world total. Based on this measure, the territory was ranked among the highest in the world.

  Equally well established is the interbank money market. Wholesale deposits are traded actively both among local authorised institutions, and between local and overseas institu- tions, with an average daily turnover of $127.8 billion in December. The interbank money market is mainly for short-term money-with maturities ranging from overnight to 12 months, for both Hong Kong dollars and US dollars. The traditional lenders of Hong Kong dollars are mostly the locally-incorporated banks, while the major borrowers are those foreign banks without a strong Hong Kong dollar deposit base. At the end of the year, the interbank market accounted for 33 per cent of the Hong Kong dollar liabilities, and 77 per cent of the foreign currency liabilities, of the banking sector.

  The territory also has a mature and active foreign exchange market, which forms an integral part of the global market. The link with other overseas centres enables foreign exchange dealing to continue 24 hours-a-day around the world. Based on the latest survey conducted by the Bank for International Settlements, the daily average foreign exchange turnover in Hong Kong in April 1992 was US$61 billion, which represented 5.4 per cent of the world total. Hong Kong was ranked sixth in the world, after the United Kingdom, the United States, Japan, Singapore and Switzerland.

  The local stock market recorded exceptional volatility in 1994. Following the strong upswing in late 1993, the Hang Seng Index reached a record intra-day high of 12 599 on January 4, 1994. The market turnover also peaked in January and, on one occasion, exceeded $17 billion. The market, however, then consolidated in line with the global trend. Concern about increases in US interest rates was the main factor dampening investment sentiment. The index closed at 8 191.04 on December 30, 1994 - 31 per cent below the closing of 11 888.39 at the end of 1993. The average daily turnover in the local stock market dropped to $4.6 billion in 1994, compared with $4.9 billion in 1993.

  At the end of the year, 529 public companies were listed on the Stock Exchange of Hong Kong Limited. With a total market capitalisation of $2,085 billion, the Hong Kong stock market ranked eighth in the world and second in Asia. The number of newly-listed companies was 53, raising a total of $17.2 billion. Among these newly-listed companies, nine were state-owned enterprises of the People's Republic of China. They attracted particular market attention. The listing of these enterprises in Hong Kong was one of the most important market development initiatives in recent years. The process started in July 1993 and, so far, a total of 15 enterprises have listed in Hong Kong, altogether raising $17.9 billion of capital.

  In addition to new share issues, funds were tapped through rights issues ($5.6 billion) and private placements ($10.5 billion).

Hang Seng Index options and Hang Seng Index futures continued to be actively traded on the Hong Kong Futures Exchange. The average daily turnover for the Hong Kong Index options increased from 1 186 contracts in 1993 to 2 446 in 1994. The volume of Hang Seng Index futures trading averaged 16 906 contracts per day in 1994 - a 74 per cent increase over the 9 702 contracts traded per day in 1993 - with a post-1987 crash high of 42 438 contracts reported on October 25. Hang Seng Sub-Index futures were, however, unable to

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     share a similar level of activities, while the trading of gold futures and interest rate futures remained inactive.

       There is an active gold market in Hong Kong, in which the main participants are banks, major international bullion houses and gold trading companies. It is commonly known as the Loco-London gold market, with prices quoted in US dollars per troy ounce of gold of 99.95 per cent fineness and with delivery in London. Trading in this market has expanded in recent years. The price of Loco-London gold moved between US$368 and US$398 in 1994. The price of gold dropped from US$391 per troy ounce at the end of 1993 to US$383 per troy ounce at the end of the year.

      The Chinese Gold and Silver Exchange Society operates one of the largest gold bullion markets in the world. Gold traded through the society is of 99 per cent fineness, weighed in taels (one tael equals approximately 1.2 troy ounces) and quoted in Hong Kong dollars. Prices closely follow those in the other major gold markets in London, Zurich and New York. The price of gold at the Chinese Gold and Silver Exchange Society exhibited movement similar to that of Loco-London gold. At the end of the year, gold cost HK$3,533 per tael. Turnover on the exchange totalled 23.6 million taels in 1994.

       The number of unit trusts and mutual funds increased to 978 at the year's end, from 895 a year earlier. Of the 140 newly-authorised funds approved by the Securities and Futures Commission during the year, many were invested in the emerging markets of Asia and Latin America, including five funds invested in China.

Opportunities in China

The international nature of Hong Kong's financial markets has contributed to the development of China's financial markets, particularly in upgrading professional skills and bringing in competition through market participation. In the past three years, Hong Kong-incorporated authorised institutions more than doubled their number of branches and representative offices operating in China. Of those China offices, at the end of 1994, 12 were in Shenzhen, eight in Shanghai and 31 in other cities.

      The newly-established Shenzhen Foreign Exchange Trading Centre linked its rate quotation system with that of the Treasury Centre of the Bank of China Group in Hong Kong in 1994, as a first step to link China's domestic forex market to the world market. There are also regular contacts between the HKMA, the Stock Exchange of Hong Kong Limited and their counterparts in China on regulatory issues.

      As the reform and liberalisation of China's economy intensify, Hong Kong is playing an increasingly prominent role as a window through which China can access international capital. By the end of 1994, 15 China state-owned enterprises had tapped equity capital through the listing of 'H' shares on the Stock Exchange of Hong Kong. In response to the increasing prominence of H-shares in investors' portfolios, the Hang Seng China Enterprises Index (HSCEI) was introduced in August, with a base value set at 1 000 on July 8, 1994. All H-shares have been included as constituent stocks of the index, amounting to a total market capitalisation of US$2.56 billion at the year's end. The HSCEI stood at 1 069.67 at the end of December.

      Portfolio investment in the form of 'China funds' has also become increasingly popular. At the end of the year, there were 15 such funds, authorised by the Securities and Futures Commission, investing in B-shares listed on the Shanghai and Shenzhen stock exchanges as

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well as in H-shares listed in Hong Kong. Many of the funds have only a short history and some are accessible to institutional investors only. At the end of 1994, these funds amounted to over US$190 million.

Developments in Financial Infrastructure

To remain internationally competitive, Hong Kong is giving priority to the development of a robust financial market infrastructure. To this end, the HKMA and the banking community have been working closely to identify, minimise and, as far as possible, eliminate the risk in Hong Kong's payment system.

Hong Kong's payment system is still primarily a paper-based system dominated by the use of cheques, with next day finality of settlement. In December 1993, the Working Party on Payment and Settlement System, comprising representatives from the HKMA and the industry, completed its study on Hong Kong's payment system and recommended that the territory move to Real Time Gross Settlement (RTGS) as soon as possible. The committee also recommended that more detailed studies be undertaken to assess the practical issues involved in introducing RTGS in Hong Kong, and that interim measures be adopted to improve the existing payment system and to reduce the value of paper clearing.

The Hong Kong Association of Banks, which operates the clearing house, accepted the recommendations and undertook a feasibility study on the implementation of RTGS. It is envisaged that the new RTGS system would comply with international standards and allow for domestic and international linkages to facilitate instantaneous 'delivery versus payment' in the domestic securities markets and real time 'payment versus payment' in cross-border multi-currency transactions.

Improvements in the debt clearing system for financial instruments are also important for speeding up the development of the Hong Kong dollar debt market. As a first step towards reducing transaction costs and settlement risk, the HKMA started the Central Moneymarkets Unit (CMU) four years ago for clearing Exchange Fund paper. The CMU, which is an electronic central clearing system that provides an efficient, safe and convenient clearing and custodian facility, extended its service to private sector debt securities at the beginning of 1994. Currently, there are 133 recognised dealers for the trading of Exchange Fund paper and 174 CMU members for the trading of private sector debt securities.

  The CMU Service for private sector debt securities has developed rapidly. Since the start of the service on January 31, 1994, 143 issues of Hong Kong dollar debt, amounting to $31 billion, have been lodged with the service. Secondary market turnover in the private sector CMU instruments has increased gradually, with an average of $118 million in daily turnover.

On October 1, the CMU added to its list of services the role of a payment agent. The CMU will disburse interest payments and principal redemptions to the respective CMU members holding CMU instruments, on condition that full payment has been received from the issuers/arrangers. Other projects in the pipeline for improving its services include the launching of a 'securities lending programme', expected in 1995.

  Moving further towards building a multilateral network that links up different local and regional securities clearing centres, the CMU Service was hooked up with Euroclear and Cedel in December. These links, which are the first between a debt securities system in East

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Asia and an international clearing system, will broaden the appeal of Hong Kong's debt instruments to international investors.

The Evolving Hong Kong Dollar Debt Market

     The local debt market also saw major developments in 1994. A wave of credit ratings for large companies in the territory and their debt paper facilitated the raising of capital, both domestically and internationally. Those employing international credit rating services ranged from banks, investment companies, holding companies and real estate developers to public bodies such as the Mass Transit Railway Corporation. The rapidly expanding capital market activities also attracted two leading credit rating agencies to set up their regional offices in Hong Kong. In March, Moody's Investors Service established a regional unit in the territory as its headquarters for East Asia and the Asia-Pacific region. Standard and Poor's Corporation is expected to set up an operation in Hong Kong in January, 1995, serving both local customers and facilitating China's access to capital.

The year also saw the private sector develop asset-backed securitisation. Four issues of mortgage-backed securities totalling $3 billion were launched - three by banks and one by a company affiliated to a real estate developer. The development of such a market can be helpful in reducing maturity mismatch and concentration risk in banks' balance sheets. The liquidity management of the issuers has been enhanced, together with the spreading of credit risks, and this effect will be stronger as the liquidity of the secondary market improves with expansion in the size of the market and the number of participants.

      The beginning of debt market developments can be traced back to the launching of the Exchange Fund Bills programme in March 1990, which invigorated the local capital markets. Commencing with the weekly issue of 91-day bills, the programme was expanded to include the fortnightly issue of 182-day bills in October 1990 and the issue of 364-day bills every four weeks in February 1991. The bills are issued for the account of the Exchange Fund and are available in minimum denominations of $500,000. They are sold on a discount basis by tenders, which are open to recognised dealers appointed by the HKMA. To promote secondary market activity, 30 market-makers and 103 recognised dealers had been appointed by the end of 1994. The market-makers are obliged to quote two-way yields for the bills during normal money market trading hours. At the year's end, outstanding issues of 91-day, 182-day and 364-day bills amounted to $19.5 billion, $10.4 billion and $6.5 billion, respectively.

      Two-year Exchange Fund Notes were first issued in May 1993, replacing the outstanding two-year government bonds. The notes' proceeds are credited to the Exchange Fund, instead of the Capital Works Reserve Fund as in the case of government bonds. To help further develop Hong Kong's debt market, the first issue of three-year Exchange Fund Notes was launched in October 1993, followed by the inaugural issue of five-year Exchange Fund Notes in September 1994.

      The Exchange Fund Notes, together with the outstanding two-year government bonds, amounted to $7.5 billion at the year's end. As with the Exchange Fund Bills Programme, both recognised dealers and market-makers have been appointed under the Exchange Fund Note Programme. The notes are available in minimum denominations of $50,000.

      The Exchange Fund Bills and Notes are used primarily as a monetary market instrument and are issued in paperless form. These securities are welcomed by the banking community

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as a liquid asset free of credit risk. Trading in these instruments has been highly active, with daily turnover averaging $22.3 billion in 1994, representing almost half of the amount outstanding.

  With the establishment of longer-term benchmarks, the maturity profile of new issues in fixed rate Hong Kong dollar debts has lengthened considerably. In 1991, paper of longer than seven years' maturity accounted for less than four per cent of the total issued value, but the proportion increased to six per cent in 1994. Supra-nationals have also been encouraged to tap the longer-term Hong Kong dollar debt market. By the end of the year, five issues had been launched by the World Bank, seven by the International Finance Corporation, five by the Asian Development Bank, four by the Nordic Investment Bank, two by the European Bank for Reconstruction and Development and one by the European Investment Bank and the Inter-American Bank, respectively. The maturity of these issues ranged from three to eight years.

  The fact that many of these issues involve redemption after the reversion of the territory's sovereignty to China in 1997 clearly demonstrates investor confidence in the future of Hong Kong. This confidence was further evident from the favourable market response to the first three-year and five-year Exchange Funds Notes issued in 1994 that will straddle July 1, 1997. The tenders were very encouraging, with respective over-subscription rates of 4.5 times and 2.1 times. The notes were traded with a very narrow spread over the US Treasury notes of equivalent maturity, of 38 basis points and 37 basis points, respectively, at the issue dates.

The World Bank/IMF Meeting in 1997

In August, the World Bank and the International Monetary Fund (IMF) announced that their 52nd annual meetings will be held in Hong Kong in September 1997, shortly after the reversion of sovereignty to China. Two months later, a memorandum was signed between Hong Kong and the World Bank and IMF, setting out the territory's obligations in providing such services and facilities as meeting rooms, temporary offices and hotel accommodation. The HKMA will co-ordinate the planning for the 1997 annual meetings.

  More than 10 000 participants from the world financial community, including finance ministers, central bank governors, leading bankers and the press corps, are expected to be present on the occasion. The staging of such a prestigious event will be a timely affirmation of Hong Kong's continuing status as an international financial centre.

Companies Registry

The Companies Registry's main functions and responsibilities include the incorporation and registration of companies; the administration and enforcement of the Companies Ordinance and a number of other ordinances (including the Trustee Ordinance as this relates to trust companies, the Registered Trustees Incorporation Ordinance and the Limited Partnerships Ordinance); the registration of documents required to be lodged by registered companies; and the provision of facilities for the search of company records.

  It was a year of consolidation and improvements for the registry, which became an independent department operated on a trading fund basis in 1993. As a trading-funded department, the registry is allowed to retain part of its income and, unlike a vote-funded department, is able to apply its income flexibly, commensurate with its needs, business

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turnover and changes in customer demands. From the commencement of its operation, on August 1, 1993, until the end of its first financial year, on March 31, 1994, the Companies Registry Trading Fund had managed to generate a surplus of $15.6 million - $11.3 million in excess of the budgetted surplus. This was mainly due to lower than expected interest rates and delays in filling staff vacancies. The trading fund status has also helped the registry to respond more swiftly to customer needs and to improve its services.

      During the year, having successfully obtained additional office accommodation, the registry was able to provide larger and extensively refurbished public areas for its customers. At the same time, the registry's control book and document index for incoming documents were computerised. The registry's customers are now able to use, free of charge, the improved computer terminal facilities for tracing company documents filed, as well as company names searches.

      The Companies Ordinance is subject to continual revision and improvement on the advice of the Standing Committee on Company Law Reform, which was established in 1984. The primary task of the committee is to ensure that Hong Kong's company law meets the up-to- date needs of government and business. In his 1994-95 budget speech, the Financial Secretary announced that an overall review of the Companies Ordinance would be carried

out.

      On April 29, 1994, the provisions in the Companies (Amendment) (No. 2) Ordinance 1993, governing the filing of annual returns, were implemented. Under these provisions, private companies with a share capital must file their annual returns within 42 days of the anniversaries of their dates of incorporation, instead of within 42 days of their annual general meetings. These arrangements enable most companies in Hong Kong to file their annual returns on dates more evenly distributed throughout the year, instead of every January or February. The same date also saw the implementation of the requirement for all listed companies in Hong Kong to report to the registry details of all the directorships held by their directors. A computerised directors' index of all listed companies became available for public search in November.

The Companies (Amendment) Ordinance 1994 was enacted in May. The principal purpose of this legislation is to introduce improved provisions to disqualify certain persons from becoming company directors and liquidators, or being in any way concerned with the promotion, formation or management of a company. Particulars of such disqualifications are recorded in a register maintained by the Registrar of Companies and made available for search by the public.

On incorporation under the Companies Ordinance, a local company pays a registration fee of $1,450, plus $6 for every $1,000 of nominal capital. In 1994, 42 723 new companies were incorporated. The nominal capital of new companies registered totalled $6,380 million. Of the new companies registered, 277 had a nominal share capital of $5 million or more. During the year, 9905 companies increased their nominal capital by amounts totalling $45,636 million. At the end of the year, there were 452 789 local companies on the register, compared with 415 911 in 1993.

Companies incorporated overseas are required to register certain documents with the registry, within one month of establishing a place of business in the territory. A registration fee of $715 and some incidental filing fees are payable in such cases. During 1994, 573 of these were registered. At the end of the year, 3 956 companies were registered from 75

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countries, including 756 from the British Virgin Islands, 747 from the United States of America, 383 from the United Kingdom, 349 from Bermuda, 336 from Japan and 53 from China.

  The registry has taken vigorous action to remove from its records those companies that have become defunct. Such companies include those caught under the provisions of Section 290A of the Companies Ordinance, namely, companies that have failed to file annual returns for two consecutive years. Special teams of staff have been formed to pursue this objective. Once the registry's database has been purged of defunct company details, it will become more meaningful for the department to pursue its longer-term plans of providing remote search facilities for its customers, and other technical improvements regarding the retention and retrieval of company information.

Money Lenders

Under the Money Lenders Ordinance, anyone wishing to carry on business as a money lender must apply to a licensing court for a licence. The ordinance does not apply to banks and deposit-taking companies authorised under the Banking Ordinance.

  Any application for a licence is, in the first instance, submitted to the Registrar of Companies as Registrar of Money Lenders. A copy is also sent to the Commissioner of Police, who may object to the application. The application is advertised, and any member of the public who has an interest in the matter also has the right to object. During the year, 763 applications were received and 158 licences were granted. At the end of 1994, there were 736 licensed money lenders.

The ordinance provides severe penalties for a number of statutory offences, such as carrying on an unlicensed money-lending business. It also provides that any loan made by an unlicensed money lender shall not be recoverable by court action. With certain exceptions (primarily authorised institutions under the Banking Ordinance), any person, whether a licensed money lender or not, who lends or offers to lend money at an interest rate exceeding 60 per cent per annum commits an offence. Any agreement for the repayment of any such loan, or security given in respect of such a loan, is unenforceable.

Bankruptcies and Compulsory Winding-up

The Official Receiver's office administers the estates of individual bankrupts and com- panies ordered to be compulsorily wound up by the High Court.

Once a receiving order is made against the property of an individual debtor or a winding- up order against a company by the High Court, the Official Receiver becomes the interim receiver or provisional liquidator of the debtor or company, respectively.

  Where the assets of an estate are unlikely to exceed $200,000 in value, the Official Receiver applies to the High Court for a summary procedure order and is appointed trustee or liquidator. In other cases, meetings of creditors in bankruptcy, or of creditors and contributories in compulsory liquidations, are held to decide whether the Official Receiver or some other fit person from the private sector should be appointed trustee or liquidator. If a debtor submits a proposal for a composition in satisfaction of his debts or a scheme of arrangement of his affairs, he will not be adjudged bankrupt if the proposal is accepted by a majority of his creditors and the High Court. As in past years, the Official Receiver was appointed trustee or liquidator in most cases.

FINANCIAL AND MONETARY AFFAIRS

The work of the Official Receiver where he acts as trustee or liquidator includes the investigation of the affairs of the bankrupt or the wound-up company, the realisation of assets and the distribution of dividends to creditors. The Official Receiver also prosecutes certain offences set out in the Bankruptcy and Companies Ordinances. In addition, he supervises the work of outside liquidators and trustees, and monitors the funds held by liquidators in compulsory and voluntary liquidations.

During the year, the High Court made 306 receiving orders and 426 winding-up orders, a decrease of 0.68 per cent over the previous year. The assets realised by the Official Receiver during 1994 amounted to $101.84 million, while $62.57 million in dividends were paid to creditors in 232 insolvency cases. A total of 77 summonses were issued and 72 convictions obtained. The total amount of fines imposed by the magistrates' courts was $548,380.

Hong Kong Monetary Authority

To maintain the continuity and professionalism in Hong Kong's monetary and reserves management and banking supervision, in a way that commands the confidence of the people of Hong Kong and the international financial community, the HKMA was established in April 1993 by merging the Office of the Exchange Fund with the Office of the Com- missioner of Banking. The Exchange Fund (Amendment) Ordinance 1992 provided for the establishment of the HKMA.

The HKMA is responsible for the development and execution of monetary policy; maintenance of exchange rate and monetary stability; the development of the debt market in Hong Kong; promoting the efficiency, integrity and development of payment and settle- ment arrangements; managing the assets of the Exchange Fund; prudential supervision of authorised institutions under the Banking Ordinance; and formulating policies relating to banking supervision. These functions are carried out by its five departments: the Monetary Management Department, Reserves Management Department, Banking Policy Department, Banking Supervision Department and External Department. The latter was set up in 1994 to develop contacts and co-operation with other central banks and multilateral financial institutions, to strengthen the HKMA's research capabilities and to monitor international monetary developments.

      The HKMA is an integral part of the government, but is able to employ staff on different terms to those of the civil service to attract personnel of the appropriate experience and expertise. The staff and operating costs of the HKMA are charged directly to the Exchange Fund, instead of the general revenue.

The HKMA is accountable to the Financial Secretary, who is advised by the Exchange Fund Advisory Committee on matters relating to the control of the Exchange Fund. The involvement of the committee in respect of monetary and investment matters has become much stronger. It functions very much like a management board, meets monthly and advises the Financial Secretary on, among other things, the annual budget of the HKMA.

Monetary Policy

A linked exchange rate system was introduced on October 17, 1983, after a period of volatility in the exchange rate of the Hong Kong dollar. Under the system, certificates of

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indebtedness (CIs) issued by the Exchange Fund, which the note-issuing banks are required to hold as cover for the issue of Hong Kong dollar notes, are issued and redeemed against payments in US dollars at a fixed exchange rate of HK$7.80 to US$1. In practice, therefore, any increase in note circulation is matched by a US dollar payment to the Exchange Fund, and any decrease in note circulation is matched by a US dollar payment from the Exchange Fund. In the foreign exchange market, the exchange rate of the Hong Kong dollar continues to be determined by forces of supply and demand. Against the fixed exchange rate for the issue and redemption of CIS, the market exchange rate stays close to the rate of HK$7.80 to US$1. From January 24, 1994, banknote transactions among banks are for Hong Kong dollar value (instead of US dollar value under the previous arrangement).

With the adoption of the linked rate system, the exchange rate is no longer a variable in the economy's adjustment process. Interest rates, the money supply and the level of economic activity adjust automatically, over time, to balance of payments pressures. If there is an outflow of money, caused, for example, by a tendency for the balance of payments to be in deficit, there will be a contraction in the money supply and higher interest rates. These changes will induce an inflow of funds to offset the original outflow arising from the balance of payments deficit, while reducing domestic demand and imports and enhancing export competitiveness, contributing to restoring the external balance. Alternatively, if there is an inflow of money, caused, for example, by a tendency for the balance of payments to be in surplus, there will be an expansion in the money supply and lower interest rates. These will, on the one hand, induce outflow of funds and, on the other hand, increase domestic demand and imports and erode export competitiveness, again restoring the external balance.

When there is a tendency for the Hong Kong dollar to weaken relative to the US dollar, Hong Kong dollar interest rates will rise relative to US dollar interest rates. They may rise to a level where the interest rate gap between the Hong Kong dollar and the US dollar is large enough to stem or reverse the outflow from the Hong Kong dollar. Similarly, when there is a tendency for the Hong Kong dollar to strengthen relative to the US dollar, Hong Kong dollar interest rates will fall relative to US dollar interest rates. They may fall to a level where the interest rate gap between the Hong Kong dollar and the US dollar is large enough to stem or reverse the inflow into the Hong Kong dollar. From the monetary policy point of view, it is sometimes desirable to expedite this adjustment process in order that the economy is not unduly disrupted by speculative flows of funds aimed at manipulating the value of the Hong Kong dollar. To ensure that the interest rate gap is large enough to produce the corrective inflows or outflows, there is no limit on how low or high interest rates can move. The lower limit for interest rates was eliminated when the Hong Kong Association of Banks, after consultation with the Financial Secretary, introduced in January 1988 revised Interest Rate Rules, under which banks may impose deposit charges (negative interest rates) on large Hong Kong dollar credit balances maintained by their customers, if the need arises. The revised rules provided a tool to deter speculation on a revaluation of the Hong Kong dollar, which emerged in late 1987 and continued in early 1988. In practice, however, there has been no need to impose the deposit charges, as the mere threat of their imposition has been effective in deterring speculation.

The upper limit for interest rates was removed in July 1988, when the Money Lenders Ordinance was amended to exempt all authorised institutions under the Banking Ordinance

FINANCIAL AND MONETARY AFFAIRS

from the restriction of lending money at an effective interest rate exceeding 60 per cent per

annum.

To enable the HKMA, through the use of the Exchange Fund, to exercise more effective influence over liquidity and interest rates in the interbank market and so assist it in maintaining exchange rate stability within the framework of the linked exchange rate system, accounting arrangements were entered into in July 1988 between the Exchange Fund and the Hongkong and Shanghai Banking Corporation Limited (HSBC) as the management bank of the clearing house of the Hong Kong Association of Banks. Under these arrangements, the HSBC maintains a Hong Kong dollar account with the Exchange Fund. The HKMA uses the account at its discretion to effect settlement of its Hong Kong dollar transactions with the HSBC or with other banks. The HSBC is required to ensure that the net clearing balance (NCB) of the rest of the banking system does not exceed its balance in the account and that the NCB is not in debit; otherwise, it will have to pay interest to the HKMA for the account of the Exchange Fund.

      Consequently, the HKMA, through the use of the Exchange Fund, has effectively become the ultimate provider of liquidity in the interbank market, a role which was previously performed by the HSBC. Through the borrowing of Hong Kong dollars in the interbank market, or selling foreign currencies for Hong Kong dollars in the foreign exchange market, the HKMA is able to reduce the supply of Hong Kong dollars and so raise interest rates in the interbank market, in this way offsetting a weakening of the exchange rate of the Hong Kong dollar against the US dollar. Similarly, it may increase interbank liquidity and lower interest rates by taking action in the opposite direction, offsetting a strengthening of the exchange rate.

      Under the accounting arrangements, the HKMA can also influence monetary conditions in the interbank market through its buying or selling of Hong Kong dollar financial assets of acceptable quality. For this purpose, the HKMA has developed a programme for the issue of short-term and longer-term paper for the account of the Exchange Fund (the Exchange Fund Bills and Notes). The Exchange Fund paper is designed to complement the accounting arrangements by providing the HKMA with an additional instrument for conducting money market operations.

      In June 1992, the Liquidity Adjustment Facility (LAF) was introduced to assist banks in making late adjustments to their liquidity positions. The bid rate (for taking overnight deposits from banks) and offer rate (for lending overnight money to banks) are set having regard to the level of interest rate appropriate for maintaining exchange rate stability. These rates provide an additional tool for the HKMA to influence the movements of the interbank interest rates.

The Monetary Situation

Since the end of February, increases in US interest rates have been closely followed by increases in the comparable Hong Kong interest rates. Notably, the LAF rates, Hong Kong's version of the discount rates, have followed their US dollar counterparts almost immediately and to an identical extent. Since May 18, the LAF bid and offer rates have been revised upwards by a total of 175 basis points (bps) and stood at 3.75 per cent and 5.75 per cent, respectively, at the end of 1994.

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These prompt monetary actions ensured an effective adjustment of interbank interest rates. For most of the year, the overnight HIBOR (Hong Kong Interbank Offered Rate) remained well within the corridor set by the LAF bid and offer rates. The spread with its Euro-dollar counterpart has been very small, ranging within -137.5 bps to 87.5 bps during 1994. At the same time, the best lending rates offered by major banks and various deposits rates governed by the Hong Kong Association of Banks were raised four times, with the former rising by a total of 200 bps and the latter by a range of 225 bps to 275 bps.

   Since the removal of the interest rate cap on time deposits fixed for more than one month in October, competition for such deposits has become more intense among banks. Initially, a wide range of rates were quoted, but the market soon adjusted to establish a systematic rate structure. Attracted by higher market interest rates, the proportion of Hong Kong dollar time deposits in Hong Kong dollar M3 increased slightly by 2.15 percentage points from October to December.

   The exchange rate of the Hong Kong dollar to the US dollar was stable, moving within a narrow range from HK$7.723-7.749 during the year. Closely following the performance of the US dollar, the trade-weighted exchange rate index showed a gradual depreciation against the currencies of Hong Kong's major trading partners, including the Renminbi (RMB), of 4.8 per cent during the year. The weakening of the Hong Kong dollar against the Deutschemark and Japanese Yen was particularly notable. An 11 per cent depreciation against the Yen was reflective of the protracted US-Japan trade talks. The strengthening of the German economy and the associated narrowing interest rate spread between the Deutschemark and the US dollar contributed to the weakening of the latter and, consequently, the Hong Kong dollar, by 10.6 per cent. Reflecting these developments, the trade-weighted exchange rate index closed the year at 121.4, against the high of 127.5 in early January.

At the beginning of the year, the buoyant stock market and property market attracted a strong inflow of funds to Hong Kong, fuelling the growth of Hong Kong dollar M3 to a high of some 36 per cent compared to a year earlier, while the Hang Seng Index reached a record high of 12 201. The rise in the US federal funds rate in early February was among the factors which prompted the stock market correction which followed. In line with the stock market consolidation, IPO (Initial Public Offerings) activities were markedly reduced, with total subscription moneys dropping from $230 billion in January to less than $30 billion in each of the subsequent months, contributing to a more stable money supply growth during this period.

The series of rises in local interest rates that followed helped to produce slower credit expansion. In particular, the growth of outstanding mortgage lending slowed from July onwards, recording a monthly average growth of 0.57 per cent during the second half of 1994, compared with 1.4 per cent during the first half. A ceiling of 70 per cent for the mortgage-to-value ratio on new home loans continued to be observed by banks.

The interest rate rises induced continuous switching from transaction balances and liquid savings accounts to term accounts during the year. Correspondingly, narrow money, comprising cash and demand deposits, as a proportion of broad money, M3 Hong Kong dollars, fell from 18.5 per cent at the end of February to 15.9 per cent at the end of August, stabilising after that. Meanwhile, the broad money supply returned to a more sustainable growth track, increasing by 18.3 per cent during 1994.

FINANCIAL AND MONETARY AFFAIRS

Exchange Fund

The Hong Kong Government's Exchange Fund was established by the Currency Ordinance of 1935 (later renamed the Exchange Fund Ordinance). Since its inception, the fund has held the backing to the note issue. In 1976, its role was expanded, with the assets of the Coinage Security Fund (which held the backing for coins issued by the government) as well as the bulk of foreign currency assets held in the government's General Revenue Account, being transferred to the fund. On December 31, 1978, the Coinage Security Fund was merged with the Exchange Fund.

      In 1976, the government began to transfer the fiscal reserves of its General Revenue Account (apart from the working balances) to the fund. This arrangement was introduced to avoid fiscal reserves having to bear exchange risks arising from investments in foreign currency assets and to centralise the management of the government's financial assets. The fiscal reserves are not permanently appropriated for the use of the Exchange Fund, but are repaid to the General Revenue Account when they are required to meet the obligations of the general revenue. Through this transfer of the fiscal reserves, the bulk of the government's financial assets are, therefore, with the fund.

      The statutory role of the Exchange Fund, as defined in the Exchange Fund Ordinance, is to influence the exchange value of the Hong Kong dollar and it is used to intervene, when necessary, in the local money market or foreign currency markets to maintain stability. The functions of the fund were extended on the enactment of the Exchange Fund (Amendment) Ordinance 1992 by introducing a secondary and subsidiary role of maintaining the stability and integrity of the monetary and financial systems, with a view to maintaining Hong Kong as an international financial centre.

      The management of the fund is undertaken by the HKMA. Apart from ensuring that the fund meets its statutory roles, the principal activity of the HKMA on a day-to-day basis is the active management of the fund's assets. These are held mainly in the form of bank deposits and marketable interest-bearing instruments in certain foreign currencies and in Hong Kong dollars.

      In the past, the management of the fund was largely passive, characterised by a conservative approach with a preference for a high degree of liquidity and for short-term investments. Both the overall size of the fund, and the greater emphasis on the long-term stability and strength of Hong Kong's financial system, now enable the HKMA to have a longer-term outlook. The HKMA has an ongoing programme of upgrading and modernising its management of the Exchange Fund, which is now comparable to other central bank reserves management operations. Strategies appropriate to a long-term fund, such as a benchmark approach and a greater use of the long-term capital markets, have been adopted, and the range of currencies and instruments used has also been increased. The HKMA places great emphasis on establishing links with other market participants; the management style is one of openness and co-operation with the market, with a view to encouraging close working relationships to enable the markets to play their part in assisting in the HKMA's management of the fund. The returns from the management of the fund, and the investment style adopted, are set out and explained in the HKMA's annual report each year.

      Another function related to the Exchange Fund is the supply of notes and coins to the banking system. Bank notes in the denominations of $20, $50, $100, $500 and $1,000 are issued by the Hongkong and Shanghai Banking Corporation Limited, the Standard

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Chartered Bank and, from May 1994, the Bank of China. The first two banks also issue $10 notes. Apart from a very small fiduciary issue, which is backed by eligible securities, the note-issuing banks may only issue currency notes against holdings of Certificates of Indebtedness issued by the fund. These non-interest-bearing Certificates of Indebtedness are issued to or redeemed by the note-issuing banks as the amount of their notes in circulation rises or falls. The fund bears the costs of maintaining the note issue (apart from the proportion of the costs relating to the fiduciary issue), and the net profits of the note issue (seigniorage) accrue to the fund.

Coins of $10, $5, $2, $1, 50 cents, 20 cents and 10 cents denominations, and currency notes of one-cent denomination, are issued by the government, and the assets received against their issue are held in the Exchange Fund. The administration of the coin circulation is the responsibility of the HKMA. In 1994, the final two coins in the new series depicting the bauhinia flower were introduced the 10-cent coin in May and the new $10 coin in November. The latter is Hong Kong's first bimetal coin, and will eventually replace the current $10 notes. The total currency in circulation at the end of 1994, with details of its composition, is shown at Appendix 15.

  On December 31, 1993, the total assets of the fund stood at $348 billion, of which foreign currency assets amounted to US$43 billion. The accumulated earnings of the fund amounted to $128 billion. The financial position of the fund for the six years from 1987 to 1993 is shown at Appendix 16.

·

7

ADE AND INDUSTRY

HONG KONG Continued its evolution from a low-cost manufacturing entity towards that of a regional commercial centre and high value-added manufacturing base.

      The relocation of low value-added manufacturing processes to southern China and elsewhere contributed to stagnating domestic exports, which registered a 0.4 per cent decrease, totalling $222,092 million in value. However, total exports continued to register double-digit growth in 1994, increasing by 11.8 per cent over the previous year. This was due in large part to the buoyancy of re-exports, given the territory's role as an entrepôt for trade with China. The gross total value of re-exports was $947,921 million, representing an increase of 15.1 per cent. Imports rose by 16.6 per cent to $1,250,709 million.

      The government took steps to improve the technological infrastructure to support the move towards high value-added, technologically-advanced industries, including the launch of a special fund for projects which will enhance the territory's technological and industrial development. Plans for an applied research centre were also announced.

      The work of the Consumer Council in promoting the legitimate interests of consumers, including its studies on the state of competition in Hong Kong and the setting up of the Consumer Legal Action Fund to help consumers take action against unscrupulous traders, is also covered in this chapter.

Trade and Industrial Policies

Hong Kong's continuing success as a leading commercial and manufacturing centre owes much to a simple tax structure and low tax rates, a versatile and industrious workforce, its excellent infrastructure, and the government's firm commitment to free trade and free enterprise. The government believes its task is to facilitate commerce and industry within the framework of a free market.

      Hong Kong's trade policies seek to promote a free, open and stable multilateral trading system; to safeguard Hong Kong's rights and to fulfil its obligations under multilateral and bilateral trade or trade-related agreements; and to secure, maintain and improve access for the territory's markets.

      Its industry policies aim to promote industrial development by ensuring a business- friendly environment, and by providing support services. The government provides land for general and specialised industrial use, maintains and develops advanced education and training facilities, ensures a modern legislative and regulatory environment, and funds

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facilities to enhance productivity and quality and encourage applied research. It also encourages technology transfer through an inward investment promotion programme. However, the government neither protects nor subsidises manufacturers.

Trade and industry policies are kept under review by the Trade and Industry Branch of the Government Secretariat. The Secretary for Trade and Industry is advised on industry matters by the Industry and Technology Development Council (ITDC), and on trade issues by the Trade Advisory Board and the Textiles Advisory Board. The members of these bodies include prominent industrialists and businessmen, representatives of major industry and trade organisations and relevant government officials.

External Trade

Hong Kong is the world's eighth largest trading entity in terms of the value of its merchandise trade.

With total exports valued at $1,173,630 million and imports at $1,251,136 million, the territory recorded a trade deficit of $77,506 million in 1994.

Its largest trading partner is China, followed by the USA and Japan. Appendices 17 and 18 provide summary statistics of external trade.

Imports

Hong Kong is almost entirely dependent on imported resources to meet the needs of its population of six million and its diverse industries.

In 1994, imports of consumer goods, valued at $514,776 million, constituted 41 per cent of total imports. The major consumer goods imported were: clothing ($96,964 million); radios, television sets, gramophones, records, tape recorders and amplifiers ($71,451 million); footwear ($46,990 million); baby carriages, toys, games and sporting goods ($41,092 million); and travel goods, handbags and similar containers ($24,919 million).

Imports of raw materials and semi-manufactured goods totalled $430,658 million, representing 34 per cent of total imports. The principal items imported were transistors, diodes, semi-conductors and integrated circuits ($68,791 million); plastic materials ($38,260 million); woven fabrics of man-made fibres ($33,711 million); iron and steel ($22,280 million); woven cotton fabrics ($17,494 million); and watch and clock movements, cases and parts ($15,976 million).

Imports of capital goods amounted to $229,583 million, or 18 per cent of total imports. They consisted mainly of electrical machinery ($31,867 million); transport equipment ($24,058 million); office machines ($22,335 million); scientific, medical, optical, measur- ing and controlling instruments and apparatus ($8,551 million); and textile machinery ($4,823 million).

Imports of foodstuffs were valued at $53,338 million, making up four per cent of total imports. The principal imported food items were fish and fish preparations ($12,777 million); meat and meat preparations ($7,651 million); fruit ($7,407 million); and vegetables ($4,558 million).

Mineral fuels, lubricants and related materials worth some $22,781 million were imported during the year, representing two per cent of total imports.

China and Japan were the principal suppliers of imports, providing 38 per cent and 16 per cent, respectively, of the total. China alone supplied 27 per cent of Hong Kong's imported

TRADE AND INDUSTRY

foodstuffs. Taiwan ranked third as a supplier of imports, providing nine per cent, followed by the USA, Singapore, Korea, Germany and the UK.

Domestic Exports

Clothing remained the largest component of domestic exports, valued at $73,233 million or 33 per cent of the total. Exports of miscellaneous manufactured articles, consisting mainly of jewellery, goldsmiths' and silversmiths' wares, plastic toys and dolls, and plastic articles, were valued at $19,454 million, representing nine per cent of domestic exports. Exports of office machines and automatic data-processing equipment, valued at $17,681 million, contributed another eight per cent. Electrical machinery, apparatus and appliances mainly for household use, transistors and diodes, at $25,241 million, made up 11 per cent of the total. Photographic apparatus, equipment and supplies, optical goods, and watches and clocks were valued at $15,900 million or seven per cent of the total. Other important exports included textiles (seven per cent) as well as telecommunications and sound recording and reproducing apparatus and equipment (five per cent).

      The pattern and level of Hong Kong's export trade is highly susceptible to the economic conditions and commercial policies in major overseas markets. In 1994, 43 per cent of all domestic exports went to the USA and the European Union. The largest markets were the USA ($62,049 million or 28 per cent of the total); China ($61,426 million or 28 per cent); Germany ($12,718 million or six per cent); and Singapore ($12,321 million or six per cent). Other important markets were Japan, the UK, Taiwan and the Netherlands.

Re-exports

Re-exports showed a very significant increase in 1994, primarily because of China's buoyant economic development and the continued importance of Hong Kong as an entrepôt for China. The gross total value of Hong Kong's re-exports accounted for 81 per cent of the combined total of domestic exports and re-exports. The principal commodities re-exported were miscellaneous manufactured articles ($122,508 million); clothing ($93,491 million); textiles ($82,315 million); telecommunications and sound recording and reproducing apparatus and equipment ($100,262 million); electrical machinery, apparatus and appliances ($84,189 million); and footwear ($53,314 million). The main origins of these re- exports were China, Japan, Taiwan, the USA and Korea. The largest re-export markets were China, the USA, Japan, Germany and the UK.

The Manufacturing Sector

For many years, manufacturing was both the territory's largest employer and its most important economic sector. It lost this dominating position, however, in the 1980s as manufacturers took advantage of China's open door policy to shift labour-intensive jobs into China, reaping the benefits of the lower land and labour costs there. Between 1984 and 1994, employment in manufacturing dropped from 904 709 (41.7 per cent of total employ- ment) to 438 382 (17.1 per cent). From 1984 to 1993, its contribution to the gross domestic product (GDP) fell from 24.3 per cent to 11.4 per cent. Manufacturing is now the territory's second largest employer, and made the fourth largest contribution to the GDP after wholesale, retail and import and export trades, restaurants and hotels; financing, insurance, real estate and business services; and community, social and personal services in 1993.

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  Hong Kong remains export-oriented: about 80 per cent of the territory's manufactured products are exported. Major exports include clothing, electronic products, textiles, watches and clocks, and plastic products. The major markets in 1994 for Hong Kong's manufactured exports, worth $222,092 million, were the United States of America (27.7 per cent), China (27.5 per cent), Germany (5.8 per cent), Singapore (5.5 per cent) and Japan (4.7 per cent).

  There were 34 068 manufacturing establishments in Hong Kong in 1994, of which 29 849 employed fewer than 20 persons, and 32 552 fewer than 50 persons. The remaining 1 516 establishments accounted for about 49.4 per cent of Hong Kong's total manufacturing employment. Many smaller establishments are linked with larger factories through an efficient and flexible sub-contracting network, which has enabled the manufacturing sector to respond swiftly to changes in external demand.

Clothing

The clothing industry, including the manufacture of wearing apparel, knit outerwear and knit underwear, is the largest employer and export-earner in the manufacturing sector. In 1994, it employed 136 789 workers (31.2 per cent of total manufacturing employment) and earned $73,086 million in exports (32.9 per cent of Hong Kong's total domestic exports). Hong Kong is one of the world's leading suppliers of clothing, and produces a wide variety of products from simple accessories to expensive and high-quality fashion wear.

Electronics

The electronics industry, including the manufacture of electronic watches and clocks and electronic toys, is the second largest employer and export-earner. In 1994, it employed 45 896 workers (10.5 per cent of total manufacturing employment), and earned $58,091 million in exports (26.2 per cent of total domestic exports). The industry produces a wide range of high quality products and components, including television sets, hi-fi equipment, wired and cordless telephones, video telephones, modems, microcomputers, computer memory systems, facsimile machines, watches, multi-layer printed circuit boards, semi- conductors and surface-mounted devices.

Textiles

The textiles industry, excluding the manufacture of knit outerwear and knit underwear, is the third largest export-earner. It is also a major supplier of yarns and fabrics for local clothing manufacturers. The industry comprises four main sectors: spinning, weaving, knitted fabrics manufacturing and finishing. Textiles finishing, including bleaching, dyeing and printing, is the largest among the four sectors. In 1994, the industry employed 36 107 workers (8.2 per cent of total manufacturing employment), and earned $15,038 million in exports (6.8 per cent of total domestic exports).

Watches and Clocks

The watches and clocks industry is the fourth largest export-earner. In 1994, the industry employed 13 165 workers (three per cent of total manufacturing employment), and earned $13,196 million in exports (5.9 per cent of total domestic exports). Besides complete electronic and mechanical watches and clocks, the industry also produces high quality

TRADE AND INDUSTRY

components and accessories. Hong Kong is the world's second largest exporter of complete watches by value.

Plastics

During 1994, the plastic products industry employed 19 867 workers (4.5 per cent of total manufacturing employment), and earned $5,152 million in exports (2.3 per cent of total domestic exports). Major export items included toys, containers, packing bags, household articles, travel goods, handbags and plastic parts and components.

Printing

The printing industry has grown significantly in the past two decades. Most manufacturing industries in Hong Kong produce mainly for export, but the majority of the output of the printing industry is for local consumption. In addition to printing books, newspapers and periodicals, the industry supports other manufacturing industries by providing packaging printing services. In 1994, the industry employed 42 621 workers (9.7 per cent of total manufacturing employment) and earned $4,520 million in exports (two per cent of total domestic exports).

Other Industries

Other important light manufacturing industries include jewellery, industrial machinery, metal products, food and beverages, toys, household electrical appliances and photographic and optical goods. The development of the industrial machinery and metal products industries has enabled Hong Kong to produce sophisticated parts and components, as well as moulds, dies and other semi-manufactures of high quality. This has benefited the manufacturing sector in general as the quality of finished products depends heavily on the capability of the linkage industries which service them.

Hong Kong's shipyards provide a competitive repair service and build a variety of vessels, while the aircraft engineering industry has a high international reputation and provides extensive maintenance and repair services. Facilities are available for the complete overhaul of airframes and engines for many types of aircraft.

External Investment

There were 433 manufacturing companies in Hong Kong with inward direct investment at the end of 1993, according to a survey by the Industry Department. The total value of inward direct investment in manufacturing was $40,899 million. The 433 companies employed 66 322 workers (13.7 per cent of total manufacturing employment) and accounted for 25 per cent of Hong Kong's total domestic exports. The main sources of investment were Japan (34 per cent), the United States of America (28 per cent), China (11 per cent) and the United Kingdom (four per cent). About three-fifths of this investment was concentrated in four industries: electronics (30 per cent), electrical products (nine per cent), textiles and clothing (10 per cent) and chemical products (nine per cent). In addition, 1846 multinational companies had established regional headquarters and offices in Hong Kong to conduct and co-ordinate their regional economic activities.

The Industry Department recognises that inward investment can help raise technological levels in the local manufacturing sector. It has an active programme to promote inward

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investment, and operates overseas Industrial Promotion Units in Tokyo, San Francisco, New York, Toronto, Brussels and London. These provide advice and assistance on investment opportunities in Hong Kong's manufacturing sector and give assistance in the development of investment plans.

  Hong Kong has concluded investment promotion and protection agreements with several of its major investment partners, including the Netherlands and Australia. During 1994, agreements were signed with Denmark, Sweden and Switzerland.

Documentation of Imports and Exports

As a free port, Hong Kong keeps its import and export licensing requirements to a minimum. Most products do not need licences to enter or leave the territory. Where licences or notifications are required, they are intended to achieve two main objectives. Firstly, they help Hong Kong to fulfil its international obligations to restrain exports of textile products and to monitor the flow of these products into and out of Hong Kong. Secondly, they are imposed on health, safety, environmental, security or anti-smuggling grounds. Items covered include strategic commodities, reserved commodities, pharmaceutical products and medicines, pesticides, radioactive substances and irradiating apparatus, left-hand drive vehicles and ozone-depleting substances.

Hong Kong maintains a certification of origin system that, apart from enabling the origin of goods which Hong Kong exports to be established, also supports claims for preferential tariff treatment from donor countries where such schemes are operated. The Trade Department administers this system and issues certificates of origin where required. Five other organisations have been designated by the government to issue certificates of origin. They are the Hong Kong General Chamber of Commerce, the Federation of Hong Kong Industries, the Indian Chamber of Commerce Hong Kong, the Chinese Manufacturers' Association of Hong Kong and the Chinese General Chamber of Commerce.

Electronic Data Interchange

Hong Kong's use of electronic data interchange has expanded considerably during the past few years. Electronic data interchange, the computer-to-computer exchange of business information in a standard format, is one of the techniques being implemented worldwide in an attempt to curb the amount of paperwork involved in business and to improve efficiency. The government is keen to encourage this trend to maintain the territory's competitive- ness in international markets. A particularly important area is the processing of statutory trade documents. Following a joint study with Tradelink Electronic Document Services Limited (a group of 11 leading trade-related organisations in Hong Kong), the government has taken a substantial shareholding in the company. Tradelink will fund and manage a Community Electronic Trading Service. The service will act as the electronic gateway between the trading community and the relevant government departments, checking and validating electronic submissions before passing them on for approval.

  Both Tradelink and the government are now installing the computer systems required. The current plan is to launch a commercial service in 1996. The scope of the initial service will cover the lodging of trade declarations and applications for export licences for textiles and clothing shipped under quota. The service will bring about a significant increase in the number of companies using electronic data interchange.

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      In the interests of compatibility, the government agreed that the United Nations Electronic Data Interchange for Administration, Commerce and Transport, a standard language developed by the United Nations for electronic trading, will be adopted for government transactions wherever applicable.

The Industry Department

The mission of the Industry Department is to facilitate the further development of manu- facturing and manufacturing-support industries in Hong Kong within the framework of a free market. To achieve this, the department works with its partners in government, business, tertiary institutions and industrial support organisations to provide the necessary land, physical infrastructure and trained human resources; to facilitate access to relevant technologies; to encourage applied research and development; and to monitor developments in markets and technologies which may impinge upon the competitiveness of the local manufacturing sector.

Land

The Industry Department works with the Lands Department and the Hong Kong Industrial Estates Corporation (HKIEC) to ensure an adequate supply of land. During the year, the government put up for sale by auction or tender five pieces of industrial land with a total area of 25 667 square metres. About 266 000 square metres of flatted factory space were completed by private developers. In September, the HKIEC opened the first phase of its third industrial estate, comprising 28 hectares.

Education and Training

The department is represented on the Vocational Training Council, which provides technical education and industrial training in two technical colleges, seven technical institutes and 24 industrial training centres. On behalf of the department, the council runs a New Technology Training Scheme, which provides financial assistance to employers to train, either locally or overseas, their technologists and managers in new technologies which are important for the industrial and economic development of Hong Kong. The department is also represented on the Clothing Industry Training Authority, which runs two training centres. Technological training at higher levels is mainly provided by the tertiary education institutions. In 1994, the department also organised an internship programme to prepare tertiary students to join the biotechnology industry.

Technology

     The Hong Kong Productivity Council, which is substantially funded by the government, is the main agent for technology transfer in both product and process technologies, as well as many soft technologies such as quality management and flow control. The department is represented on the council, as well as on the government-owned Hong Kong Industrial Technology Centre Corporation. The latter was set up in 1993 to promote technological innovation and the application of new technologies in local industries by providing space and services to technology-based companies. The centre runs an 'incubation programme' for start-up companies, and also facilitates the transfer of technology by organising technology seminars, serving as a third party in brokering and licensing technologies.

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In 1994, the government set up a revolving fund to provide financial support for projects recommended by the Industry and Technology Development Council which contribute to Hong Kong's industrial and technological development. By the end of the year, the government had committed $159 million for 73 projects which are being undertaken by industrial support agencies, tertiary institutions, and other organisations. As part of efforts to facilitate the development of biotechnology industries, the department published a biotechnology directory to facilitate networking and collaboration among research institu- tions, government departments, and local and overseas businesses.

Quality Services

The department is increasingly involved in promoting the wider application of quality assurance in the manufacturing sector. Its Quality Promotion Programme seeks to persuade manufacturers that investment in quality is beneficial. As part of the programme, the department has established an independent organisation, the Hong Kong Quality Assurance Agency, to audit factories which adopt quality management systems conforming to the international standard ISO 9000. The response to the scheme has been very enthusiastic.

  The department operates the Hong Kong Government Standards and Calibration Laboratory, which holds the territory's official standards of measurements and provides a calibration service for manufacturers and other end-users. The department's Product Standards Information Bureau advises manufacturers on national and international standards affecting their products. During the year, the bureau introduced several measures to improve its services, including the acquisition of CD-ROMs allowing speedy retrieval of international standards, and the establishment of a customer liaison group to improve communications with clients.

The department also runs the Hong Kong Laboratory Accreditation Scheme (HOKLAS), designed to improve the standard of testing and management in the territory's laboratories and to provide official recognition for those assessed as competent. HOKLAS has so far accredited 52 laboratories for testing items such as toys, textiles, electrical and electronic goods, food and construction materials. HOKLAS participates actively in the International Laboratory Accreditation Conference (ILAC) and hosted the 1994 ILAC Plenary Session in October. It has concluded mutual recognition agreements with counterparts in the United States of America, the United Kingdom, Australia, the Netherlands and New Zealand, clearing the way for mutual acceptance of test certificates, in this way avoiding unnecessary duplication of testing. This, in turn, facilitates trade.

Applied Research and Development

Major efforts have been made to encourage applied research and development in recent years. The Applied R&D Scheme started in February 1993 with precisely this aim, to foster the technological capabilities and competitiveness of industry. The scheme is run by a government-owned company, the Hong Kong Applied R&D Fund Company Limited, and can fund up to half the cost of an applied R&D project, or a total of $10 million for a single company or organisation. Funding support can either take the form of a loan or equity participation, or a combination of both. All locally-incorporated companies are eligible. Project proposals are assessed mainly in terms of their technological merit, innovation and potential for commercial exploitation. Support is not limited to particular industries. By late

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1994, 11 projects for research in areas such as software development, telecommunications products, security systems, multimedia technology and environmentally-friendly packaging materials had been approved for funding.

In 1995, the government plans to provide $50 million to establish an Applied Research Centre, which will promote joint projects with China's leading research institutes.

Monitoring Technology and Market Trends

The department conducts periodic studies of the main manufacturing industries to look at technology and market trends and identify constraints on industrial development. In 1994, it commissioned a consultancy study on the local software industry to identify obstacles to further growth and to advise on means to overcome them. Studies on the electronics and plastics industries were completed. As a result of a study commissioned by the department in 1992, it was decided to undertake a feasibility plan for the establishment of a science park in Hong Kong. A consultant was commissioned to examine how a science park can be established. Following the 1993 study on the metals and light engineering industries, several technologies for enhancing the manufacturing capabilities of specific sectors were identified and action was taken to make these available in the territory.

Environmental Controls

In response to new legislative proposals to curb pollution, the department stepped up efforts to inform manufacturers how they could comply with environmental controls affecting them. In addition to general advice, the department produced specific guidance for textiles bleachers and dyers, electroplaters and printed circuit board manufacturers. It also commissioned other organisations to assist, including the Centre for Environmental Technology Limited and the Hong Kong Productivity Council. The former operates an information hotline and a directory of pollution control and prevention equipment. The latter is implementing several projects including the holding of regular seminars and workshops, factory visits to offer initial advice, the testing of initial effluent samples to identify problems, and offering advice on waste management and improved designs for environmental control.

Governor's Award for Industry

The department co-ordinates the annual Governor's Award for Industry, which recognises and encourages excellence in six categories of industrial performance. The Federation of Hong Kong Industries is responsible for the consumer product design category; the Chinese Manufacturers' Association of Hong Kong for the machinery and equipment design category; the Hong Kong Productivity Council for the productivity category; the Industry Department for the quality category; the Private Sector Committee on the Environment for the environmental performance category; and the Hong Kong Trade Development Council for the export marketing category.

Industrial Support Agencies

Hong Kong Productivity Council

The Hong Kong Productivity Council (HKPC) was established by statute in 1967 to promote increased productivity in industry. It is financed by an annual government subven- tion and by fees earned from its services.

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  The council consists of a chairman and 22 members appointed by the Governor. Its membership is drawn from the management, labour, academic and professional fields and from the government.

  The HKPC has over 500 staff members with expertise in a wide range of disciplines. It provides a variety of training programmes, industrial and management consultancies and technical support services to assist industry in manpower, product and process develop- ments. Its resources are available in 17 operational divisions computer services, electronics services, automation services, quality management, computer-aided design services, chemical and metallurgical, manufacturing engineering, textiles and apparel, business management services, training, environmental management, information services, human resources, development and administration, public relations, marketing and accounting.

  There was a growing demand during the year for the HKPC's consultancy and technical support services. The council undertook 1 320 consultancy projects, covering, among other things, feasibility studies, production management, new plant projects, environmental management, quality management, product design and development, information technol- ogy and industrial automation services.

To facilitate industry's transition to high value-added production, the HKPC continued to develop and upgrade CAD/CAM software for use in product development, including surface modelling and precision mould and die design and manufacturing.

  The HKPC organised 693 training courses for 13 980 participants, covering management and supervisory techniques, advanced programming and electronic data processing; and a range of technology programmes for various industries. In-company courses continued to be popular and 96 programmes were organised during the year to meet the specific training needs of individual companies.

  Eight overseas study missions were organised for local industrialists to gain first-hand information on the latest technology and management techniques practised in various areas, including quality control, metal working and machinery, plastics and mould technology, sheet metal processing and die technology, responsive manufacturing, and environmental control technology.

  The HKPC is the government's agent for the Asian Productivity Organisation (APO) on industrial productivity issues. During the year, the HKPC hosted three APO programmes - a workshop on 'green' productivity in small and medium enterprises, a symposium on electric databases in Asian countries and a seminar on Total Quality Management with special focus on ISO 9000.

The HKPC Building in Kowloon Tong houses most of the council's operations. It con- tains a display area, an auditorium, a technical reference library, electronic data processing facilities and a computer-aided design service centre. There are also laboratories for surface mount technology, radio frequency and digital communications, photo-chemical machin- ing, metal finishing and industrial chemistry, environmental management, sheet-metal processing, precision machining and die-casting. The building also houses a mould and die technology centre, a 3D-stereolithography technology centre, and a calibration centre.

Hong Kong Industrial Estates Corporation

The Hong Kong Industrial Estates Corporation is responsible for developing and managing industrial estates in Hong Kong. It offers developed land, at cost, on its industrial estates to

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companies with new or improved technologies and processes which cannot operate in multi- storey factory buildings. The corporation has three industrial estates in the New Territories at Tai Po, Yuen Long and Tseung Kwan O. The industrial estates are fully serviced with roads, drains, sewers, electricity and water. Companies on the estates design and construct their own factory premises to meet their specific requirements. They are required to adopt appropriate environmental protection measures to meet current standards. Over 110 factories were operating in the Tai Po and Yuen Long estates and more were being built at the end of the year. On the Tai Po estate, which has 73 hectares of industrial land, only two vacant sites of about 4.32 hectares, reserved for a high-technology industry, remained. The Yuen Long estate has 67 hectares of land in total, of which a few hectares were still available for leasing. The land premia stood at $2,200 per square metre for the Tai Po estate and at $1,800 per square metre for Yuen Long.

Construction of the third industrial estate at Tseung Kwan O began in August 1991. The first phase, with 28 hectares of serviced sites, was available in 1994. The land premia stood at $2,100 per square metre for an ordinary site and $2,650 per square metre for a waterfront site. The second phase, covering another 42 hectares, will be ready in 1996. The new industrial estate is only three kilometres from the centre of Tseung Kwan O new town. Ocean-going ships will be able to use both the waterfront sites and berthing facilities.

The corporation's estates are held under leases from the government which extend to the year 2047. The corporation also grants sites to 2047, enabling investors to plan up to the middle of the next century with certainty.

Hong Kong Industrial Technology Centre Corporation

The Hong Kong Industrial Technology Centre Corporation (HKITCC) was established on June 1, 1993, by statute, to facilitate the promotion of technological innovation and application of new technologies in Hong Kong industry. The HKITCC is governed by a board of directors, consisting of a chairman appointed by the Governor and 15 directors appointed by the Financial Secretary.

      The HKITCC aims to fulfil its mission through three primary functions: the incubation and accommodation of technology-based businesses; the provision of technology transfer services; and the provision of product design and development, and support services.

      The government has provided a grant of $250 million and committed another $188 million as an interest-bearing loan to meet the initial expenses of setting up the technology centre. The HKITCC is required to conduct its business according to prudent commercial principles. It is expected to gradually become financially self-sufficient, with income from rent and incubation services.

      The HKITCC moved into purpose-built premises in Kowloon Tong in September 1994. Providing a floor area of 22 000 square metres, the technology centre is designed to accommodate some 80 technology-based companies of different sizes.

      The HKITCC introduced a pilot incubation programme in early 1992 in leased space in the Hong Kong Productivity Council Building. At the year's end, there were eight, start-up, technology-based companies under the programme. They have been provided with a range of infrastructure and support services, including rental subsidy, assistance in business planning and development, communications, marketing and access to laboratory facilities at higher educational institutes. Other services such as conference facilities, accounting and

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secretariat services are also available on site. The incubation programme will eventually accommodate about 30, start-up, technology-based companies.

  The centre is also developing technology transfer capabilities. To this end, it sponsors and organises technology transfer and innovative technology seminars. It intends to establish links with tertiary institutions and industrial support organisations to facilitate technology transfer among companies in the programme and local industry. Through its technology transfer support services, the HKITCC assists tenants by brokering and licensing technology, and by providing referrals for research, design and development contract services.

External Commercial Relations

Hong Kong possesses full autonomy in the conduct of its external commercial relations. The Governor is entrusted with executive authority to conduct external relations on behalf of the territory, including the conclusion and implementation of trade agreements, whether bilateral or multilateral, with states, regions and international organisations.

  Within the context of the government's free trade policy, Hong Kong's commercial relations are designed to ensure that its trading rights in overseas markets are protected and that its international obligations are fulfilled. The territory's success is reflected in the steady rise in the value and sophistication of its exports in recent years.

General Agreement on Tariffs and Trade

The General Agreement on Tariffs and Trade (GATT) is the cornerstone of Hong Kong's external trade relations. It was drawn up in 1948 to help promote international trade and, consequently, world economic development, by reducing tariffs and trade barriers. Up to 1986, Hong Kong participated in the GATT as a part of the United Kingdom delegation. Since April 1986, the territory has become a separate contracting party to the GATT in its own right. This status will continue beyond 1997, reflecting Hong Kong's autonomy in the conduct of its external commercial relations as guaranteed under the Sino-British Joint Declaration on the Question of Hong Kong and the Basic Law of the Hong Kong Special Administrative Region.

  Hong Kong participated actively in the Uruguay Round (UR) of multilateral trade negotiations held under the auspices of the GATT since its launching in 1986. The major objectives of the Round were to further liberalise trade and to strengthen the disciplines of the multilateral trading system. The UR negotiations were concluded on December 15, 1993, after seven years of protracted negotiation. On April 15, 1994, Hong Kong signed the UR Final Act and, on October 1, 1994, completed the ratification process for the Marrakesh Agreement Establishing the World Trade Organisation.

  The successful implementation of the UR will bring substantial economic benefits to the world, and in particular to major trading entities like Hong Kong. Agreements reached in UR negotiations include an integrated dispute settlement system; tighter disciplines in areas covered by existing GATT agreements, such as anti-dumping and subsidies; and the extension of multilateral trading rules to trade in services, intellectual property rights and investments.

  Perhaps the most significant achievement of the UR is the strengthening of the multilateral trading system by the creation of the new World Trade Organisation (WTO) to

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Industrial estates at Tai Po and Yuen Long have given a sound footing to some of Hong Kong's most modern and environmentally-friendly manufacturing processes. A third estate at Tseung Kwan O (left), which opened in September, is showing early signs of becoming as popular as the two established estates which are both nearly full.

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This page: (top, left) A Josephson Junction voltage standard is prepared with liquid helium at the goverment's Standards and Calibration Laboratory, while (bottom, left) a co-worker sets up a high-voltage divider to measure equipment of up to 100 000 volts. (Top, right) An advanced industrial camera in one of the Hong Kong Productivity Council's laboratories is used for the photo chemical machining of sheet metal. Nearby, in the HKPC's environmental management laboratory (bottom right), tests are carried out on water, air and sediment samples in a service designed to assist both the industrial and commercial sectors.

Opposite page: A temperature-regulated oil bath is used for the calibration of standard resistors at the Standards and Calibration Laboratory, which is responsible for maintaining the reference standards of measurement for Hong Kong and for disseminating these standards to industry.

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Hong Kong products attract world-wide attention at a spectacular array of industrial fairs held throughout the year at the Hong Kong Convention and Exhibition Centre.

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replace the GATT. Hong Kong, as an existing member of GATT, will automatically become one of the original members of the WTO when it is set up in 1995.

Given the open nature of the Hong Kong economy and its reliance on trade, open and free trade under an effective multilateral trading system is of vital importance to the territory's continued success. Hong Kong will continue to play an active role in the organisation to uphold the integrity of the multilateral trading system and to safeguard the territory's trading interests.

Textiles

Bilateral agreements negotiated under the Multi-Fibre Arrangement (MFA) currently govern Hong Kong's textiles exports to Austria, Canada, the European Union (EU), Finland, Norway and the United States of America. In the UR, it was agreed that the MFA will be replaced by the WTO Agreement on Textiles and Clothing (ATC), which provides for the gradual removal of quantitative restrictions on these products in 10 years' time. Hong Kong has been working closely with other exporters of textiles and clothing in the International Textiles and Clothing Bureau to prepare for the phasing-out of the MFA and the implementation of the new ATC.

Austria, Finland, Norway and Sweden are seeking accession to the EU. The impending alignment of their import regimes with that of the EU would result in the extension of quota restrictions on textile products to them. Compensating quota adjustments for Hong Kong have been secured, following bilateral consultations between the Hong Kong Government and the European Commission in November 1994.

During the year, representatives of the governments of Hong Kong and the United States of America met to discuss bilateral and international co-operation to control and eliminate illegal transhipments of textiles and garments. Both governments agreed to continue their mutual efforts to address the matter.

Non-textiles Issues

Despite representations from the Hong Kong Government, the EU concluded the anti- dumping investigation on 3.5-inch magnetic floppy discs originating in Hong Kong with the imposition of definitive anti-dumping duties ranging from 6.7 per cent to 13.3 per cent for investigated companies, and a residual rate of 27.4 per cent for all other companies.

In September, the EU initiated a 'sunset' review relating to the anti-dumping measures on video cassette tapes. Existing anti-dumping measures, which were imposed in 1989 and would otherwise have been due for termination, will remain in force until the review is completed.

In March and April, two anti-dumping proceedings against Hong Kong, initiated by Australia in respect of glass and by New Zealand in respect of men's shirts, were terminated. However, Argentina and Australia initiated two new anti-dumping investigations against the territory during the first half of 1994, in respect of men's shirts and disposable plastic cutlery, respectively.

On July 14, the United States of America revoked its anti-dumping duty order against Hong Kong exports of man-made fibre (MMF) sweaters. The revocation came as a result of a final court decision in June, upholding the United States International Trade Commission's revised determination in 1992 that the United States' domestic industry was

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 not injured by the subject imports. Since the imposition of the anti-dumping duties in 1990, the Trade Department has held three rounds of bilateral consultations with the United States administration in 1991, 1992 and 1994. This was also a vindication of the patience and determination of the Hong Kong textiles industry in defending the case through the appropriate legal avenue since the launching of their appeal in 1990.

  During the first half of the year, the Hong Kong Government and the private sector continued to emphasise to the United States administration and members of Congress the adverse effects on Hong Kong's economy if the United States were to withdraw China's Most Favoured Nation (MFN) status, or to impose conditions on the renewal of the status. On May 26, President Bill Clinton announced his decision to renew China's MFN trading status for another year, at the same time de-linking future MFN renewal decisions from human rights issues. The decision removed a significant area of uncertainty in the relations between China and the United States, and was generally believed to be conducive to better relations between the two countries. As China and the United States are Hong Kong's two largest trading partners, good relations between them are of vital importance to the territory.

Trade Department

 The Trade Department is responsible for Hong Kong's commercial relations with foreign governments. It implements trade policy and agreements, and conducts import and export licensing and origin certification.

  The department consists of five divisions, three of which deal with bilateral commercial relations with Hong Kong's trading partners in different geographical areas. Their work includes the conduct of trade negotiations and the implementation of textiles agreements, as well as the collection and dissemination of information on developments which may affect Hong Kong's external trade, especially those relating to trade policies and measures adopted in its major markets. One of these divisions has, in addition, responsibility for regional economic co-operation and the introduction of the electronic data interchange. The fourth division deals with the multilateral aspects of Hong Kong's external commercial relations, such as its participation in the GATT and the MFA. The fifth division is responsible for the textiles export control system, common services, origin certification, the computerisation of the department's licensing systems, the import and export licensing of commodities other than textiles, and the rice control scheme.

The department is assisted by eight overseas Hong Kong Government offices, administered by the Trade and Industry Branch, in its work on commercial relations.

Hong Kong Economic and Trade Offices

These offices seek to promote Hong Kong's economic and trade interests by enhancing understanding of the territory among opinion-formers; closely monitoring developments that might affect the territory's economic and trading interests, such as proposed legislation; and liaising closely with the business and commercial sectors, politicians and the media. They also have a role in promoting Hong Kong's image overseas.

  The Geneva Office represents Hong Kong as a contracting party to the General Agreement on Tariffs and Trade, which will be replaced by the World Trade Organisation

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(WTO) in 1995. Hong Kong will become an original member of the WTO, and the Geneva Office will participate in all its regular activities, including all multilateral trade negotiations. The Geneva Office also represents Hong Kong as an observer on the Trade Committee of the Organisation for Economic Co-operation and Development, and is responsible for commercial relations with Switzerland.

      The Brussels Office represents Hong Kong's economic and trade interests in dealings with the European Commission and the member states of the European Union (other than the United Kingdom), as well as other European countries (apart from Switzerland). It is also responsible for encouraging inward investment from Europe (other than the United Kingdom and the Nordic countries).

      The London Office is responsible for Hong Kong's commercial relations with the United Kingdom, and inward industrial investment promotion activities in Finland, Norway, Sweden and the United Kingdom. It is also responsible for monitoring parliamentary activities in the United Kingdom that are of interest to Hong Kong.

      The Toronto and Tokyo offices have a similar role, covering Hong Kong's interests across Canada and Japan, respectively.

       There are three offices in the United States: in Washington, New York and San Francisco. In recognition of the importance of the United States-Hong Kong relationship to the territory's economic and trade interests, the government decided to upgrade its represen- tation there by appointing a Commissioner in October 1993 to supervise and co-ordinate the work of the three offices.

Participation in International Organisations

As an integral part of the Asia-Pacific economy and an important regional services centre, Hong Kong has a role to play, and a contribution to make, in regional economic co- operation.

      The territory's economic links with the region continued to expand. In 1993, some 80 per cent of Hong Kong's total external trade was conducted with the other 16 member economies of the Asia-Pacific Economic Co-operation (APEC).

      During the year, Hong Kong participated actively in the work of the APEC. The Secretary for the Treasury led the Hong Kong delegation to attend the APEC Finance Ministers Meeting on March 18 and 19 in Honolulu. Another delegation, led by the Secretary for Planning, Environment and Lands, attended the APEC Environment Ministers Meeting in Vancouver from March 23 to 25. The Secretary for Trade and Industry led the Hong Kong delegation at the APEC Trade Ministers Meeting on October 6 in Jakarta; the APEC Small and Medium Enterprise Ministerial Meeting on October 22 and 23 in Osaka; and the APEC Ministerial Meeting on November 11 and 12 in Jakarta. The Financial Secretary represented Hong Kong at the Second APEC Economic Leaders Meeting held on November 15 in Bogor, Indonesia. The Declaration of Common Resolve issued at the end of the meeting set, among other things, a goal of free trade in the region, to be achieved by the

year 2020.

      The Hong Kong Committee of the Pacific Economic Co-operation Council (PECC), set up in March 1990 to advise on the territory's participation in, and to co-ordinate the territory's input to, the PECC process, continued to participate actively in the council's

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various task forces, including the Pacific Economic Outlook Project, Trade Policy Forum and other activities of interest to the Hong Kong economy. The territory was also represented at the 10th General Meeting of the PECC, held from March 22 to 24 in Kuala Lumpur, Malaysia.

  Since 1989, Hong Kong has been participating actively in workshops organised by the Organisation for Economic Co-operation and Development (OECD), as part of OECD's informal dialogue with Dynamic Non-Member Economies. Hong Kong became an observer on the OECD Trade Committee in April 1994. The Trade Committee plays a unique role as a forum for debates and discussions on trade policy matters, many of which are of concern to the territory. Ideas which are first introduced in this committee are often followed up in the GATT and translated into binding multilateral agreements or codes.

Hong Kong Trade Development Council

The Hong Kong Trade Development Council (TDC) was set up by statute in 1966 to promote and expand the territory's trade. As the international marketing arm for the territory's manufacturers and traders, it plays a vanguard role in opening new and difficult markets for Hong Kong companies.

  It was a landmark year for the TDC. Since utilisation of the council's existing Hong Kong Convention and Exhibition Centre is fast approaching saturation, work started on building an extension to it which will more than double its size. The project was entrusted to the TDC by the government. The extension, to be built on reclaimed land directly in front of the existing facility and to be completed in mid-1997, will ensure that Hong Kong retains its lead as Asia's trade fair capital and sourcing hub.

  By organising trade fairs for all major Hong Kong industries, the council provides local manufacturers and traders with a cost-effective way of reaching international buyers. Many TDC fairs, such as the Hong Kong Fashion Week, the Hong Kong Electronics Fairs and the Hong Kong Toys and Games Fair, are among the largest of their kind in Asia. The Hong Kong Watch and Clock Fair is among the largest for that industry in the world. The TDC's 16 trade and consumer fairs set new records in 1993-94 with the total number of exhibitors increasing by 12 per cent to nearly 6 000, and total business up by 57 per cent to reach HK$15 billion in value. The total number of visitors was 1.4 million.

  Four new overseas offices were added to the TDC's global network, in 1993-94, bringing the number of offices to a total of 40 in 27 countries. Nine more offices are scheduled to open in 1994-95. This growing network is essential in expanding and boosting international awareness of business opportunities in Hong Kong, and the rising quality and design excellence of the territory's products. A key aim is to promote Hong Kong as the most effective gateway to China, and to the markets of the Asia-Pacific region.

  Another important task of the TDC's overseas offices is to gather information about international buyers, which is fed into the council's global corporate database. This contains details of almost 400 000 companies worldwide, including 120 000 mainland Chinese enterprises, and can be accessed quickly by over 65 000 Hong Kong traders and manu- facturers.

  The database provides the cornerstone of the council's Trade Enquiry Service, and is invaluable to the myriad of small companies in Hong Kong which lack the resources to build their own network of overseas buyers and business partners.

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To help Hong Kong companies diversify and develop new markets, the TDC mounted 306 promotions worldwide in 1993-94, with more than 60 per cent of them held in emerging markets such as Vietnam, Russia, South Africa and India. A total of 9 160 companies participated in these events, generating total business worth $33 billion.

      Hong Kong's most important emerging market is in China, where trade liberalisation and a growing consumer market have seen quick growth. More than 1 300 Hong Kong companies joined the TDC's 76 China projects during the year, which included four international trade fairs in Shenzhen and six 'Hong Kong Showcase' promotions in leading mainland department stores.

       The TDC's research department contributed to the council's diversification drive by providing market intelligence on a wide range of countries and sectors, to enable local companies to respond strategically to changing markets and new opportunities. It produced 80 reports on countries including Vietnam and Colombia; on cities such as Miami and Shanghai; and on topical trade issues involving, among other things, sporting equipment in Japan and the impact of China's taxation reforms. Over 270 000 copies were circulated during the year. More than 60 000 manufacturers and traders visited the TDC's business library and more than 10 000 attended the 125 workshops, business seminars and training courses organised by the council.

In its efforts to ensure that Hong Kong products can compete effectively in world markets, the TDC works intensively with the territory's companies to upgrade the quality and design of their products. The TDC's Design Gallery featured 18 000 products over the year, and sent 1 800 outstanding products to international trade fairs and exhibitions. At the same time, it promoted more than 1 000 individual fashion designers and labels, and staged 37 fashion shows before 45 000 international and local buyers. The TDC's new specialised library for fashion design was used by more than 2 000 professional and student designers. Trade publications are a vital promotional tool for the TDC in opening, and further penetrating, markets for Hong Kong companies. The council's 13 product magazines are particularly valuable in reaching buyers in new markets where there are few established trade fairs or where connections with Hong Kong suppliers are not yet strong. For overseas buyers, the council's magazines facilitate easy and convenient sourcing from Hong Kong. More than 1.7 million copies of the TDC's product magazines are circulated worldwide, ranging from the flagship Hong Kong Enterprise, to stalwart magazines such as Hong Kong Apparel, Hong Kong Toys and Hong Kong Leather Goods and Bags. The TDC also publishes product magazines in Chinese, specifically for the mainland market.

      To promote a positive image and environment for trade and to build a solid foundation for Hong Kong's business interests in international markets, the council maintains contacts with business leaders, economic policy-makers and the media around the world. It organises and participates in business seminars and conferences at international, regional and local levels. Highlights of the TDC's international networking efforts during 1993-94 included meetings of the Hong Kong/Japan Business Co-operation Committees and the Hong Kong/ United States Economic Co-operation Committees, and the hosting in Hong Kong of the 2nd Europe/East Asia Economic Forum in partnership with the Geneva-based World Economic Forum. The council formed two more Hong Kong business associations in overseas markets, bringing the total to 21 with 7 400 members. More than 150 overseas journalists were assisted on visits to the territory.

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Hong Kong Export Credit Insurance Corporation

The Hong Kong Export Credit Insurance Corporation (ECIC) helps the territory's exporters to minimise risks and expand their markets.

The ECIC is a statutory corporation set up in 1966. It provides insurance protection to exporters against the risk of monetary loss arising from non-payment by their overseas buyers for goods exported and services rendered on credit, which are not normally covered by commercial insurers.

  The government guarantees the payment of all moneys due by the corporation, with the limit for maximum contingent liability arising from its insurance and guarantee operations currently set at $7,500 million.

  Under the Hong Kong Export Credit Insurance Corporation Ordinance, the ECIC has a paid-up capital of $20 million provided by the government and is autonomous in day-to-day operations. It is run on a self-sufficient, commercial basis. A 12-member advisory board, comprising prominent members from the business sector and representatives from the government, advises the corporation on the conduct of its business.

  During 1993-94, the ECIC insured exports worth $15,631 million and received gross premium income of $91 million. The maximum liability of policies was $6,889 million. The gross claim payments amounted to $51 million. The excess of income over expenditure was $42.27 million.

The ECIC is a member of the International Union of Credit and Investment Insurers (the Berne Union) and has an international network of contacts. It has ready access to confidential and updated economic and market information on other countries, and credit reports on overseas buyers.

The ECIC's services to the exporting community fall into three main categories.

  The first category is the protection provided by the corporation to indemnify policy- holders for up to 90 per cent of their losses. Besides domestic exports and re-exports, shipments from third countries direct to overseas buyers are also covered. Protection is provided to exporters against non-payment due to buyers' insolvency, default or repudiation; war or civil disturbance and transfer delays. Cover can be extended to outward processing operations against confiscation and non-repatriation of raw materials, work in progress and finished products. For the export of capital goods and services sold on medium or long-term credits, the ECIC can provide tailor-made insurance policies.

  Secondly, the ECIC provides credit advisory services to its policy-holders. On request by a policy-holder, the corporation will investigate the prospective buyer's creditworthiness, having regard to the market trading environment and the terms of payment of the proposed transaction, and advise the policy-holder on the amount of credit that can be prudently extended to the overseas buyer.

  Thirdly, when a policy-holder encounters payment problems, the ECIC provides a risk management service and advises the policy-holder on possible courses of action, either to prevent or minimise any loss.

  During the year, the corporation continued to step up its links with trade associations, banks and individual exporters, as well as publicity and outreaching activities to exporters and manufacturers.

  Service standards outlined in its performance pledge were met within the target turnaround time.

TRADE AND INDUSTRY

Other Trade and Industrial Organisations

A number of associations have been established in Hong Kong to represent the interests of industry and commerce. Among the larger, long-established and more influential associations are the Federation of Hong Kong Industries, the Chinese Manufacturers' Association of Hong Kong, the Hong Kong General Chamber of Commerce and the Chinese General Chamber of Commerce. Other important organisations include the Hong Kong Management Association, the Hong Kong Exporters' Association, the American Chamber of Commerce, the Indian Chamber of Commerce and the Hong Kong Japanese Chamber of Commerce and Industry.

      The Federation of Hong Kong Industries is a statutory body, established in 1960 to promote and protect the interests of Hong Kong's manufacturing industry. It offers a wide range of services, covering certificates of origin, the Hong Kong Quality Mark Scheme, a custom-built multi-risks insurance policy, consultancy work on quality assurance, trade marks and copyrights, trade enquiries and economic research. With a membership of more than 2 400 industrial and trade establishments, the federation services the Hong Kong Toys Council, the Chemical and Pharmaceutical Industries Council, the Transport Services Council, the Hong Kong Watch and Clock Council, the Hong Kong Electronics Industry Council, the Hong Kong Plastics Industry Council and the Hong Kong Mould and Die Council. It also runs the annual Young Industrialist Awards of Hong Kong and is respon- sible for organising the consumer product design award category of the Governor's Award for Industry.

      The Chinese Manufacturers' Association of Hong Kong (CMA), established in 1934, is a non-profit-making chamber of commerce and industry. It is also a member of the International Chamber of Commerce. With a membership of nearly 4 000 industrial and trade establishments, the CMA is authorised by the government to issue certificates of origin. It also provides trade information; handles trade enquiries; organises missions, fairs and exhibitions; and is active in encouraging product development and quality improvement. The CMA Testing and Certification Laboratories provide technical backup services, including materials and product testing, pre-shipment inspection and technical consultancy services. The CMA also organises various seminars and training courses, and operates two pre-vocational schools to provide technical education and training for more than 2 000 students. The association provides scholarships annually to outstanding students of technical colleges and post-secondary institutions. Since 1989, the CMA has been appointed by the government to organise the machinery and equipment design award category of the Governor's Award for Industry.

The Hong Kong General Chamber of Commerce is the oldest internationally-recognised trade association in Hong Kong and is one of the 10 largest chambers of commerce in the world. Founded in 1861, its membership of around 4000 member companies is representative of every sector of commerce and industry. The chamber organises trade and goodwill missions overseas and receives in-bound delegations. It handles trade enquiries and extends assistance to individual visiting businessmen. It is authorised by the govern- ment to issue certificates of origin and is the sole local issuing authority for international Association Temporarie Admission Carnets through its nine local certification offices. Although it is an independent, autonomous organisation receiving no subvention, the chamber is represented on a wide range of official advisory committees and bodies. The

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 chamber founded and formed the Hong Kong Article Numbering Association, the Hong Kong Coalition of Service Industries and the Hong Kong Franchise Association; and sponsors the Hong Kong Committee of the Pacific Basin Economic Council.

   Established in 1900, the Chinese General Chamber of Commerce is an association of local Chinese firms, businessmen and professionals. It has a membership of around 6 000, representing a wide spectrum of trade interests and industries. Apart from providing a variety of services, including certification of origin and organisation of seminars, exhibitions, trade missions and other trade promotional activities, it maintains close links with trade organisations both in Hong Kong and China. Since 1957, it has been entrusted by the Chinese Export Commodities Fair authorities to issue invitations on their behalf to local Chinese firms to attend the fair. It has been operating courses for senior government officials of China since 1982, to enable them to better understand the various aspects of Hong Kong's economy.

  The Hong Kong Management Association is a professional management organisation, incorporated in 1960 to improve the efficiency and effectiveness of management in Hong Kong. With a membership of around 9 800, it organises some 1 600 training programmes yearly and provides various management services such as translation, recruitment and the organisation of exhibitions.

The Hong Kong Exporters' Association was formed in 1955, and has a membership of 300 export and manufacturing companies. Its objectives are to protect and promote the interests of its members, to disseminate trade information, and to act as a representative body to voice members' concerns and assist in solving any trade problems they may

encounter.

Customs and Excise Department

The Trade Controls Branch of the Customs and Excise Department is responsible for enforcement of the Import and Export Ordinance and other legislation relating to certifica- tion of origin, import and export licensing of textiles, strategic trade controls, reserved commodities controls, and verification and assessment of trade declarations.

  The branch works closely with the Trade Department to protect Hong Kong certification and licensing systems, to fulfil obligations under international trade agreements, and to combat infringements with a vigorous enforcement programme. This includes factory and consignment inspections, investigations and prosecutions. A high level of enforcement action continues to be maintained against country of origin fraud and illegal transhipment, through the conduct of more physical checks on textile imports and exports and the monitoring of consignments, traders and forwarders suspected of involvement in illegal transhipment.

  An officer of the branch was posted to the Secretariat of the Customs Co-operation Council in Brussels in September, as a technical attaché to the committee on the harmonisation of origin rules - a project to be undertaken in pursuance of the GATT Uruguay Round Agreement on Rules of Origin.

  In the field of consumer protection, the branch continues to play an active enforcement role. Apart from investigating complaints, it has initiated spot checks to deter the fraudulent use of inaccurate weighing and measuring equipment and the sale and supply of unsafe toys and children's products. It ensures compliance with the legal requirements relating to the

TRADE AND INDUSTRY

standard of fineness of articles of gold and platinum, including their alloys. The branch will also undertake enforcement of the Consumer Goods Safety Ordinance when it is brought into effect.

Trade in Endangered Species

The import, export and possession of endangered species of animals and plants, including parts and derivatives, are strictly regulated by the Animals and Plants (Protection of Endangered Species) Ordinance, which gives effect to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). The licensing policy follows closely the principles of the convention. Commercial trade in highly-endangered species is prohibited, and trade in less endangered species is subject to strict licensing requirements.

The ordinance is administered by the Agriculture and Fisheries Department, and enforced by officers of the department and the Customs and Excise Department through checking at entry points, markets, shops and restaurants, as well as inspection of endangered species shipments. All suspected offences are investigated and prosecutions are instituted if there is evidence of a breach of the ordinance. During 1994, there were 518 seizures and 557 prosecutions under the ordinance.

Government Supplies Department

The Government Supplies Department is the government's central organisation for procurement and supply of stores and equipment required by government departments and certain subvented organisations.

Since 1979, the department has represented the Hong Kong Government as an entity in the Agreement on Government Procurement of the General Agreement on Tariffs and Trade. Under the agreement, except for special requirements, all purchases exceeding Special Drawing Rights 130 000 ($1.41 million in 1994) are widely advertised and open to competitive bidding internationally. All purchases, ranging from simple office sundries to complex computer systems, are made entirely on the basis of the 'best value for money', regardless of the source of supply. Due to its open procurement policy, goods and services are purchased from over 40 countries and some 4 100 registered local and overseas suppliers.

To ensure continuity of supply, the department maintains goods which are generally required by other departments in its main stores on Hong Kong Island and in Kowloon and in two sub-stores especially established to serve the government's engineering workshops. To achieve more economical use of resources and greater efficiency, the department is planning to move to a new purpose-built warehouse in 1996. It also seconds supplies staff to other departments to ensure a professional approach to the acquisition and maintenance of stores and equipment.

      In 1993-94, the department placed orders totalling about $3 billion. The major sources of supply were the United States of America, the United Kingdom, China, Germany, Japan and Hong Kong itself. Major items of purchase included computer systems, rations and pharmaceuticals.

In the purchase of goods and equipment, the department always takes into consideration environmental protection factors.

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Intellectual Property

The Intellectual Property Department, which includes the Trade Marks and Patents Registries, provides a focal point for the development of the Hong Kong intellectual property regime.

  During the year, the Law Reform Commission released its report on the reform of the law of copyright and designs. The department was considering these proposals for reform at the year's end. It was also considering proposals for the reform of the trade marks and patents law in the light of the consultative documents issued in 1993 on these subjects.

Trade Marks and Patents

The Trade Marks Registry is a registry of original registration. Trade marks are registered under the Trade Marks Ordinance, the provisions of which are similar to trade marks legislation in the United Kingdom. Since March 1992, it has been possible to register trade marks for services as well as goods. The procedure in applying for registration is laid down in the Trade Marks Rules, and the prescribed forms may be obtained free from the Trade Marks Registry. Every mark, even if it is already registered overseas, must satisfy the requirements of the ordinance before it may be accepted for registration. During 1994, 15 470 applications were received, 13 063 of which were in respect of goods and 2 407 in respect of services. Altogether, 9 230 applications, including those made in previous years, were accepted and allowed to be advertised. A total of 8 700 marks were registered in 1994, compared with 5 720 in 1993. The principal origin of applicants was as follows:

USA

2214

Hong Kong

2 094

France Italy

435

269

Japan

1 012

Switzerland

275

UK

Germany

498 398

Taiwan

234

Netherlands

158

The total number of marks on the register at December 31, 1994 was 73 144. Unlike the Trade Marks Registry, the Patents Registry is not a registry of original registration. It registers patents that have been granted in the United Kingdom and European Patents (United Kingdom). The Registration of Patents Ordinance provides that any grantee of a United Kingdom Patent or European Patent (United Kingdom) may, within five years from the date of its grant, apply to have the patent registered in Hong Kong.

  A total of 1 500 patents were registered in the territory during the year, compared with 1438 in 1993. Registration of a United Kingdom Patent or European Patent (United Kingdom) in Hong Kong confers on the grantee the same privileges and rights as if the patent had been granted in the United Kingdom with an extension to Hong Kong. The privileges and rights run from the commencement of the term of the patent in the United Kingdom, and continue for as long as the patent remains in force there.

Layout-design (Topography) of Integrated Circuits

 An ordinance was enacted in March 1994 to protect the original layout-designs (topographies) of integrated circuits of qualified persons. Protection is automatic and there is no need to register or deposit the layout-design (topography) in Hong Kong.

TRADE AND INDUSTRY

Consumer Council

The Consumer Council, established in 1974, is a statutory body charged with the responsibility of protecting and promoting the interests of consumers of goods, services and immovable property.

The council's chairman, vice-chairman and 20 members are appointed by the Governor from a wide cross-section of the community. A chief executive heads the 101-strong office, which is divided into five sections: administration, complaints and advice, information and publication, survey, and research.

      The council is engaged in a wide spectrum of consumer protection activities. These include developing new consumer protection initiatives, conducting studies on the state of competition and trade practices of various business sectors which affect consumer interests, mediating in disputes between consumers and businesses, conducting product testing and surveys on products and services, disseminating consumer information and advice to enhance consumer awareness, and promoting consumer well-being and sustainable consumption lifestyles.

      The year 1994 marked the 20th anniversary of the council. A territory-wide consumer education and publicity campaign featuring 'fair trading' was launched in June to celebrate the occasion. This theme will continue to guide the council's efforts in trade liaison and consumer education for the coming two years.

      The council continued to pursue its research into the competition environment in the domestic market. Sectorial studies on the banking sector, the driving instruction industry and the supermarket industry were completed. The study on gas supply was near completion at the end of the year.

      The council's first competition study report, entitled Are Hong Kong Depositors Fairly Treated?, was released in February. The two main issues addressed by the report included the level of interest rates governed by the Interest Rate Rules (IRR) made by the Hong Kong Association of Banks and the extent of disclosure of financial information by the banking sector in Hong Kong.

The report concluded that the IRR, the barrier imposed by the regulatory framework on entry to the market for retail deposits, and the lack of product substitutes had enabled the banks to profit at the expense of depositors. With the improvements over the recent years to the systems of banking supervision and monetary management, the existence of the IRR was considered to be no longer justified and should therefore be abolished in phases.

On the question of financial disclosure, the report observed that banks in Hong Kong generally published less information than their counterparts in other major financial centres. It concluded that more disclosure would be beneficial to the stability of the financial sector. In July, the government responded to the report. Having regard to the need to balance the competing considerations of introducing more competition but maintaining the stability of the monetary and banking systems, the government accepted the recommendation to remove the interest rate cap on time deposits in phases. Instead of starting in 1995 as recommended by the report, the liberalisation started in October 1994. Further steps will be considered after the impact of the deregulation of time deposits has been fully assessed.

The government also reaffirmed its commitment to greater financial disclosure by banks, previously recommended by a government working group prior to the release of the Consumer Council report. The first phase of improvements in financial disclosure will take

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effect when banks report their 1994 accounts. Preparatory work is also underway for further improvements to be introduced in respect of the 1995 accounts of banks.

Following a study on the driving instruction industry, the council called upon the government to devise a long-term policy for the development of the industry in a manner that would be consistent with the government's White Paper on transport policy, Moving Into the 21st Century. The council recommended specific measures to improve competition. After carefully studying the recommendations, the government concluded that the present arrangements for the provision of driving instruction were fair and already provided ample scope for competition. This view was fully endorsed by the Transport Advisory Committee. The report on the supermarket industry was released in November. The objectives of the study were to examine the current competitive environment of the supermarket industry and to evaluate the impact of the market structure of the industry on suppliers and consumers. A number of recommendations to promote competition and enhance consumer interests were put forth by the council. The government will publish a detailed response within six months of the release of the report. It has invited the public to give views and is consulting relevant parties on the recommendations.

The study on gas supply aims to review the competition between towngas and liquified petroleum gas (LPG) with regard to consumer interests, and to examine whether LPG can be considered an ideal substitute for towngas.

During the year, the council examined 10 045 complaints and received 181 180 enquiries through its 16 consumer advice centres. These centres played an important role in mediating in disputes between consumers and traders. The settlement rate stood at an average of 85 per cent of justifiable cases. In certain cases, unscrupulous traders were publicly censured by the council for engaging in dubious business practices.

In cases where traders refused to resolve disputes through mediation, the council advised the aggrieved complainants to seek legal redress in the Small Claims Tribunal or other courts, where appropriate. In September, the Governor in Council approved the appoint- ment of the Consumer Council as the trustee of a charitable trust named the Consumer Legal Action Fund. The fund seeks to provide assistance to groups of consumers as well as to individual consumers in taking legal action against unscrupulous traders. The provision of assistance to groups of consumers to take legal action on a collective basis will avoid litigation involving multiple actions, and promote more efficient and cost-effective legal proceedings. It will improve consumers' access to justice and help protect their rights. In November, the Finance Committee of the Legislative Council approved an allocation of $10 million as seed money to establish the fund. The fund expects to receive its first application in 1995.

  The council believes that self-regulation of any trade or industry should be backed up effectively by an appropriate legislative framework. It welcomed the amendment to the Insurance Companies Ordinance, in July, to provide statutory support for the self-regulation of insurance intermediaries. On the same basis, the council also supported and worked closely with the parties concerned to implement the proposal of introducing a mandatory licensing system and performance standards to regulate estate agents.

  The council welcomed the enactment of four pieces of consumer protection legislation in October - the Consumer Goods Safety Ordinance, the Sale of Goods (Amendment) Ordinance 1994, the Supply of Services (Implied Terms) Ordinance and the Unconscion-

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able Contracts Ordinance. The legislation represented a major milestone in enhancing consumer protection in Hong Kong. The council will assist consumers and relevant government departments in the vigorous enforcement of these laws.

      Altogether, 30 product tests, 47 in-depth studies and 14 survey projects were carried out in 1994 with a view to collecting independent objective information to assist consumers to make the right decision. The findings induced positive efforts from manufacturers and traders in improving product quality and provided solid grounds for government policy considerations. These projects were carried out either at the initiative of the council or in response to the needs expressed by consumers.

      The council has taken on the promotion of 'green consumerism' to change the public's consumption patterns and lifestyles, particularly by adopting energy-saving and pollution- minimisation measures. In conjunction with the Environmental Protection Department and the Retail Management Association, the council launched a campaign to encourage the public to use fewer plastic bags, in May. The objective was to reduce the quantity of plastic bags dispensed in major retail outlets by at least 10 per cent in the first year. Some 30 major retailers, comprising nearly 1 500 outlets, took part in the campaign. Another plastic bag reduction campaign will be launched in selected 'wet' markets to assess the feasibility of introducing different packaging options in markets.

      With an average monthly circulation of 30 000, the council's monthly magazine CHOICE is a source of regular information for consumers, as well as providing a stimulus for media coverage on consumer issues and concerns. The council also issued topical publications, such as the Property Guide, Medical Digest and Camera Buying Guide. About 250 consumer educational activities were carried out at district level through the council's consumer advice centres.

The council works closely with the government through the Trade and Industry Branch and is consulted on major policies affecting the interests of consumers. It maintains regular contacts with overseas counterparts and foreign government agencies in the exchange of information and ideas on consumer issues of common concern. Through these contacts, collaboration in joint product tests and research projects is made possible. The Consumer Council is a council member of the International Organisation of Consumers Union (IOCU). In September, the council was elected a member of the Executive Committee of the IOCU.

Metrication

The government's policy on metrication seeks to promote and facilitate the progressive adoption of the International System of Units (SI) in Hong Kong. The Metrication Ordinance, enacted in 1976, provides for the eventual replacement of non-metric units by SI units in all legislation in the territory. Government departments use metric units exclusively. The Metrication Committee, comprising representatives of industry, commerce, manage- ment and consumer bodies, and government officials, is the focal point of liaison for all matters concerning metrication. It advises on, and encourages the commercial and industrial sectors to develop, metrication programmes.

      During the year, the committee continued to direct its efforts towards the retail sector. Metric scale demonstration counters were set up in a number of Hong Kong Housing Authority shopping centres to familiarise members of the public with the use of metric units of measurement. An encouraging response was received from primary and secondary school

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 students participating in the territory-wide, Chinese creative writing competition on metrication. The committee took part, for the first time, in the 5th Food Expo organised by the Hong Kong Trade Development Council. The information-cum-demonstration counter set up at the exhibition proved to be an effective channel in enhancing public awareness of metrication in the retail food sector. Following the success of the 1993 Metrication Ambassador programme, 48 members of the Junior Police Call were appointed as Metrication Ambassadors during the year to assist in various promotional activities organised by the committee.

8

EMPLOYMENT

THE proposed mandatory Old-age Pension Scheme received centre-stage attention in the second half of the year.

Details of the scheme, to be financed by both employers and the workforce, together with a significant commitment of public funds, were released by the government for public consultation in July. A total of 6 665 submissions had been received when the consultation period ended on October 31. The Chinese Government was consulted through the Sino- British Joint Liaison Group.

     During the year, there was continued growth in employment in the various services sectors, but employment in the manufacturing sector declined further. This mainly reflected the continued re-orientation of the economy towards services, along with the relocation of industrial processes to China.

Overall, the labour force grew moderately. In the third quarter, it had grown by 3.6 per cent compared to the corresponding period of 1993. The territory's labour force stood at three million, of whom 63 per cent were male and 37 per cent were female.

With a buoyant economy, unemployment and underemployment remained low, at 2.3 per cent and 1.1 per cent, respectively, of the labour force.

Of the employed, the majority, or 75.9 per cent, were engaged in the services sectors - 32.1 in wholesale, retail, import and export trades, restaurants and hotels; 12.1 per cent in transport, storage and communications services; 11.4 per cent in financing, insurance, real estate and business services; and 20.3 per cent in community, social and personal services. About 15.3 per cent were working in the manufacturing sector.

As a result of the expansion during the past decade, establishments in the services sector now employ four times as many workers as the manufacturing sector. In September, there were 1 869 947 persons employed in the services sector (not including most of the self- employed and those engaged in the provision of personal services), an increase of 8.5 per cent over the corresponding figure in 1993. In contrast, there were only 438 382 persons employed in the manufacturing sector (excluding outworkers), a decrease of 13.7 per cent compared to a year ago. With this continuing shift in employment, many manufacturing workers have been displaced from their jobs. The Employees Retraining Board, set up in 1992 to retrain affected workers, exceeded its retraining target by 23 000 at the end of 1994. As a result, the board has increased its target for the period up to August 1995 from 25 000 to 50 000 workers.

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In terms of employment size, the import and export trade is the largest industry group in the services sector, employing 532 913 persons in September. Other major service industry groups include the retail trade, restaurants and business services, which had an employment size of 207 772, 191 870 and 143 334 persons, respectively.

Despite declining employment, the clothing industry remains the largest manufacturing industry, employing 136 789 persons in September. Establishments in the electronics and printing and publishing industries are the next two largest groups of employers in manufacturing, employing 45 896 and 42 621 persons, respectively.

New initiatives launched in 1994 included a pilot scheme to admit 1 000 graduate professionals and managers recruited directly from China, to offer some relief for the shortage of people with degree-level qualifications and knowledge of China.

Details of the distribution of establishments and employment by industry group are shown at Appendices 20 and 21, respectively.

Wages

Wage rates are calculated on a time basis, either daily or monthly, or on an incentive basis according to the volume of work performed. The average wage rate for employees up to the supervisory level, including wage-earners and salaried employees, increased by 9.4 per cent in money terms between September 1993 and September 1994. After discounting for rises in consumer prices, the rate increased by 0.8 per cent in real terms.

In September 1994, the average monthly wage rate for the supervisory, technical, clerical and miscellaneous non-production workers in the wholesale, retail, import and export trades, restaurants and hotels sector was $9,423. This represented an increase of 9.9 per cent over the same period in 1993, or 1.3 per cent in real terms.

Over the same period, the average wage rate in the manufacturing sector rose by 8.1 per cent in money terms, equivalent to a decline of 0.4 per cent in real terms. In September 1994, 75 per cent of the craftsmen and operatives in the manufacturing sector received a daily wage of $203 or more; and 25 per cent received $323 or more. The overall average daily wage was $270, or $6,843 per month for these craftsmen and operatives.

Employee Benefits

The Employment Ordinance stipulates employment-related benefits and entitlements including statutory holidays, annual leave, rest days, maternity leave, sickness allowance, severance payment and long-service payment for employees. In addition, some employers provide employees with fringe benefits such as subsidised meals or food allowances, good attendance bonuses, free or subsidised medical treatment, and transport to and from work. Many employees also enjoy a year-end bonus of one month's pay or more under their employment contracts, usually paid just before the Lunar New Year.

Old-age Pension Scheme

Debate on the proposed mandatory Old-age Pension Scheme was widespread. The scheme would provide immediate benefits upon implementation, with income security for all eligible elderly residents, including low-income employees, housewives and retirees. Inflation-proof income, set at a guaranteed basic level, would be available at a modest contribution rate.

EMPLOYMENT

      The initial pension level would be $2,300 a month at 1994 price levels. This would be adjusted as the cost of living increased.

      The contribution rate would be 1.5 per cent of assessable income each from employees and employers. The self-employed would meet the total contribution. Persons earning less than $4,000 a month would not have to contribute to the scheme, but would still receive the pension.

      The government would make a substantial financial contribution to the scheme, amounting initially to about one-third of the scheme's cost. This would include a one-off capital injection of $10 billion; the savings from the existing normal and higher old age allowances, and the standard rate payable to elderly people under the Comprehensive Social Security Assistance Scheme (amounting to $3.6 billion in 1994); the government's contribution to the scheme as an employer (equivalent to $1.2 billion in 1994); and an annual tax revenue foregone on employers' contributions to the scheme (estimated at $800 million at 1994 price levels).

The scheme would be run by a new, non-civil service, public agency.

      The government would also continue to promote voluntary occupational retirement schemes. Under the Occupational Retirement Schemes Ordinance, all existing schemes operating in, or from, Hong Kong have to apply for registration or exemption with the Registrar of Occupational Retirement Schemes by October 15, 1995. At the year's end, 1 111 schemes had been registered, while 42 schemes were exempted.

Labour Administration and Services

The Labour Department, headed by the Commissioner for Labour, is responsible for implementing labour policies and enforcing labour legislation.

These objectives are achieved through the promotion of the safety, health and welfare of the working community as well as the promotion of harmonious labour relations, safeguarding of the rights and benefits of employees and the provision of free employment services and careers guidance.

      The Registry of Trade Unions, formerly an independent government department, became part of the Labour Department in 1994.

Labour Conditions

The employment of children aged under 15 years is prohibited in the industrial sector. Children aged 13 and 14 years may take up employment in non-industrial establishments, subject to the condition that they attend full-time schooling if they have not yet completed Secondary 3, and other provisions which are aimed at protecting their safety, health and welfare.

      Working hours, night work, rest periods and overtime work for women and for young persons aged below 18 years, in industrial establishments, are strictly regulated by law for their protection.

      The Labour Inspectorate of the Labour Department is responsible for monitoring employers' compliance with requirements in the Employment Ordinance relating to the employment of women and young persons, payment of wages, annual leave and statutory holidays, sickness allowance and maternity protection. The ordinance applies to both local and foreign workers.

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Labour Legislation

The Commissioner for Labour is the principal adviser to the government on labour affairs. He is responsible for initiating proposals to enact new labour laws and amend existing ones. The government's labour policy is to achieve levels of safety, health and welfare for employees in Hong Kong which are broadly equivalent to those provided in neighbouring countries at a similar stage of economic development. This objective has been achieved through a total of 118 legislative enactments in the past decade.

  During 1994, 10 pieces of labour legislation were enacted. Among them, the Minor Employment Claims Adjudication Board Ordinance was enacted to establish the Minor Employment Claims Adjudication Board to help resolve quickly wage claims involving small sums of money. The Factories and Industrial Undertakings (Suspended Working Platforms) Regulation was enacted to provide for control of the safe operation and maintenance of suspended working platforms.

In addition to new enactments, a number of amendments were made. The Factories and Industrial Undertakings Ordinance and its subsidiary regulations were amended to increase the penalties in order to maintain their deterrent effect. The Factories and Industrial Under- takings (Safety Officers and Safety Supervisors) Regulations were amended to tighten the requirement on the employment of safety officers and supervisors in construction sites and shipyards. The Construction Sites (Safety) Regulations were amended to prohibit the employment of untrained persons aged under 18 on construction sites. The Protection of Wages on Insolvency Ordinance was amended to enable the recovery from retirement schemes of any ex gratia severance payment made by the Protection of Wages on Insolvency Fund to employees covered by such schemes.

  In 1995-96, further new legislation is planned to continue to improve the benefits of workers and raise standards of industrial safety, and to set up a fund to compensate workers whose hearing is impaired as a result of their work.

  The government is also drawing up measures to penalise contractors who fail to meet safety standards.

Enforcement of Legislation

During 1994, there were 8 102 prosecutions for breaches of various ordinances and regulations administered by the department. Fines totalling $30,412,565 were imposed.

Labour Advisory Board

The Labour Advisory Board, a non-statutory body, was set up to provide a forum for consultation on labour policies and legislation. It has six members representing employers and another six representing employees. The Commissioner for Labour, or his deputy, is the ex-officio chairman.

  To cope with the increasing range and complexity of work and to encourage greater participation by employers and employees, committees have been set up under the board on special subject areas including employment services, industrial safety and health, labour relations, employees' compensation and the implementation of international labour standards. The views of the employers and employees canvassed through consultation with the board help to formulate a progressive programme of labour legislation for the benefit of all concerned.

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International Labour Standards

A number of international instruments set out labour standards. Among them are the International Labour Conventions of the International Labour Organisation. These con- ventions set out the standards on matters relating to labour administration, employment rights, conditions of work, industrial safety and occupational health, labour relations and social security. The Commissioner for Labour ensures that Hong Kong's obligations under these conventions are observed.

The International Labour Conventions have significant influence on the formulation of labour legislation in the territory. At the end of 1994, Hong Kong applied 49 conventions, which compared favourably with most members of the International Labour Organisation in the region.

Trade Unions

Trade unions must be registered under the Trade Unions Ordinance, which is administered by the Registrar of Trade Unions. Once registered, a trade union becomes a corporate body and enjoys immunity from certain civil suits.

      During the year, 25 new unions were registered. At the year's end, there were 548 unions, comprising 506 employees' unions, 26 employers' associations and 16 mixed organisations of employees and employers. Their total memberships were about 545 800, 2 500 and 14 600, respectively.

      The majority of employees' unions are affiliated to one of the five major labour organisa- tions registered under the Societies Ordinance. These are the Hong Kong Federation of Trade Unions (91 affiliated unions with about 200 300 members); the Hong Kong and Kowloon Trades Union Council (65 affiliated unions with about 30 600 members); the Hong Kong Confederation of Trade Unions (28 affiliated unions with about 78 500 members); the Joint Organisation of Unions - Hong Kong (16 affiliated unions with about 9 000 members); and the Federation of Hong Kong and Kowloon Labour Unions (23 affiliated unions with about 19 400 members). The remaining 283 employees' unions have a total membership of about 208 000.

Labour Relations

In 1994, the Labour Relations Division of the Labour Department conciliated in 166 trade disputes (each involving 21 or more workers) which involved three work stoppages and a loss of 355 working days. The division also dealt with 20 995 claims for wages and other employment-related payments.

      The Labour Relations Ordinance provides the machinery for special conciliation, voluntary arbitration and boards of inquiry to settle trade disputes which cannot be resolved through ordinary conciliation.

The division endeavours to promote harmonious labour-management relations in the private sector through promotional visits and talks to individual establishments, employers' associations and employees' trade unions; organising trade union gatherings, training courses, workshops, seminars and exhibitions; and publishing newsletters, information leaflets and pamphlets on a wide range of labour matters. Four territory-wide seminars and 12 workshops on the Employment Ordinance were organised in 1994, attracting some 700 participants.

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The Labour Tribunal

The Labour Tribunal, which is part of the judiciary, provides a quick, inexpensive and informal method of adjudicating various types of disputes between employees and employers.

In 1994, the tribunal heard 2 576 cases involving employees as claimants, and a further 65 cases initiated by employers. More than $45.5 million was awarded by the presiding officers. Of these cases, 97.6 per cent were referred by the department's Labour Relations Division after unsuccessful conciliation attempts.

Minor Employment Claims Adjudication Board

To speed up the settlement of minor wage claims between employers and employees, the Minor Employment Claims Adjudication Board was set up in the Labour Department on December 23, 1994, for the adjudication of rights claimed under the Employment Ordinance and in accordance with individual employment contracts.

The board hears and adjudicates claims involving not more than five claimants for a sum of money not exceeding $5,000 per claimant. Hearings are conducted in public and pro- cedures are simple and informal.

Claims involving more than five claimants, or more than $5,000 per claimant, are still heard by the Labour Tribunal.

Protection of Wages on Insolvency Fund

The Protection of Wages on Insolvency Fund is financed by an annual levy of $250 on each business registration certificate. Employees who are owed wages and other termination benefits by their insolvent employers may apply to the fund for ex gratia payment. The fund covers wages not exceeding $18,000 accrued during a period of four months preceding the date of application; wages in lieu of notice for termination of up to $6,000 or one month's wages, whichever is less; and severance payment up to $8,000, plus 50 per cent of any entitlement in excess of $8,000.

During the year, the fund received 6 892 applications and paid out a total of $83.5 million to 5 738 applicants.

Finding Employment

The Employment Services Division of the Labour Department provides free placement services to help employers recruit staff and to assist job-seekers in finding suitable employment.

Since 1992, employers wishing to employ foreign workers under the importation of labour schemes must notify the division of the vacancies available. This requirement ensures that local job-seekers have priority in filling the vacancies. For the General Importation of Labour Scheme in 1994, the division received notification of some 100 000 vacancies.

The division is also responsible for processing applications under the Employees Retraining Scheme and for assisting the retrainees to find employment.

During the year, 111 247 job-seekers registered with the division while employers reported 64 354 vacancies. The division made 98 533 job referrals and placed 17 227 134 persons in employment.

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Employees Retraining Scheme

The Employees Retraining Board was set up by statute to provide skills training for local employees to cope with structural changes in the economy. It came into operation in November 1992. By the end of 1994, training had been provided to 45 000 persons under the scheme.

      The board consists of a tripartite governing body comprising representatives from the government, employers and employees. Training institutions and manpower planning practitioners are also represented in the governing body. The board's policies are implemented by a full-time administrative office. Training is delivered through an expanding network of approved training bodies, with funding support for approved courses from the Employees Retraining Fund.

      The fund received a capital injection of $300 million from the government. It has a regular income of about $120 million a year, which comes from a levy charged on employers employing foreign workers under the General Labour Importation Scheme at the rate of $400 per worker per month.

      The Employees Retraining Scheme was initially focused on displaced manufacturing workers who had experienced difficulties in finding alternative employment. The scheme has been extended to cover housewives wishing to re-enter the job market, the elderly, the disabled and industrial accident victims. The scheme offers a wide variety of day and evening courses for local employees aged 30 and over. The courses fall into four main categories - job search skills, job specific skills, general skills and skills upgrading.

      Apart from skills upgrading courses, all courses are free and retrainees receive a retraining allowance of $3,800 per month for full-time courses or $40 and $33 per session, respectively, for half-day and evening courses.

      The scheme offers a free employment service for employers wishing to employ retrainees. Financial incentives, in the form of reimbursement of training expenses, are offered under the On-the-Job Training Scheme to employers employing retrainees of the age of 40 or above, or disabled retrainees, at the rate of one-third of a month's pay for the first three months.

Employing the Disabled

The Selective Placement Division of the Labour Department helps disabled persons integrate into the community through open employment. It provides a free employment counselling and placement service for the hearing impaired, sight impaired, physically disabled, mentally retarded and mentally restored persons.

      The division launched a series of activities to promote the employment of the disabled. These included exhibitions; presentation of awards to outstanding employers and disabled employees; special campaigns to canvass vacancies; presentations to interested parties and publication of quarterly newsletters, pamphlets and guidebooks. With the assistance of Radio Television Hong Kong, a series of television programmes to increase the public's awareness of the working abilities of the disabled were produced.

In February, the Governor chaired the first summit meeting on the employment of disabled persons, attended by major employers' associations and groups representing the disabled in Hong Kong. Follow-up action included promotional and publicity activities to enhance the acceptance of the disabled in open employment.

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Careers Guidance

The department's Careers Advisory Service is responsible for promoting careers education. It assists young people in choosing a career best suited to their talents, interests and abilities, and provides careers teachers with back-up information for conducting their careers guidance duties.

The service operates two careers information centres, each equipped with a reference library, an audio-visual unit and an enquiry service. To help disseminate the latest careers information, it produces written and audio-visual materials including careers pamphlets, job-sheets, slide presentations and films. All these materials are available to the public free of charge.

The service organises a wide range of activities to arouse the careers awareness of young people. In February, it joined hands with the Hong Kong Trade Development Council to stage the fourth Education and Careers Expo, which attracted more than 170 000 visitors. The 13th Careers Quiz for students, organised in November, attracted 140 512 participants. Throughout the year, it also organised seminars and student group visits to various commercial and industrial establishments.

Foreign Workers

The Immigration Department is responsible for controlling the entry of foreign workers. A foreigner may be permitted to work or invest in Hong Kong if he possesses a special skill, knowledge or experience of value to and not readily available in Hong Kong, or if he is in a position to make a substantial contribution to the economy. To maintain the territory's economic competitiveness, the department applies the policy in a flexible manner. Genuine businessmen and entrepreneurs are welcome to establish a presence in Hong Kong, bringing with them capital and expertise. Qualified professionals, technical staff, administrators and managerial personnel are also admitted with minimum formalities. During the year, 18 767 professionals and persons with technical, administrative or managerial skills from more than 60 countries were admitted for employment.

  In response to a special need identified by the business sector, the government introduced a pilot scheme in April to enable local employers to bring in 1000 professionals and specialists from China. As the demand exceeded the 1 000 quota, applications had to be drawn by way of four ballot exercises, with 250 applications handled in each quarter.

  Apart from persons with special expertise, employers could also import skilled workers and experienced operatives under the General Importation of Labour Scheme. In the 1994 scheme, the department received some 10 100 applications from employers, involving a total of 100 400 skilled workers and experienced operatives. A total of 2 400 workers were admitted under the scheme, bringing the total to 18 412.

  In addition, to facilitate the construction of the new airport and related projects, contractors were allowed to bring in construction workers from overseas, on condition that the number of workers would not exceed 17 000 at any one time. During the year, 2310 workers were admitted, bringing the total to 5 128.

Foreign Domestic Helpers

The entry of foreign domestic helpers is subject to the conditions that they have experience in that field of work, that their employers are bona fide Hong Kong residents who are

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prepared to offer reasonable terms of employment including wages and accommodation, and that the employers are willing to provide for the helpers' maintenance in the territory as well as the costs of return to their country of origin.

      Because of the affluence of Hong Kong society, the demand for foreign domestic helpers has increased steadily. In 1994, there were 141 368 such helpers in Hong Kong, representing an increase of 17.2 per cent compared with 120 604 in 1993. About 85.7 per cent of these domestic helpers were citizens of the Philippines.

Employment Agencies

The Employment Agencies Administration of the Labour Department is responsible for administering Part XII of the Employment Ordinance and the Employment Agency Regulations, which govern the licensing and operation of employment agencies. The department issued 1 240 licences in 1994.

Employment Outside Hong Kong

The External Employment Service is responsible for administering the Contracts for Employment Outside Hong Kong Ordinance to protect the interests of local employees engaged to work outside Hong Kong for foreign employers. All such employment contracts involving manual employees, or non-manual employees with monthly wages not exceeding $20,000, are required to be attested by the Commissioner for Labour. The department attested 21 contracts in 1994.

Industrial Safety

Hong Kong's unsatisfactory record of industrial safety is in marked contrast to the success of its economy and the sophistication of its work force. To remedy the situation, the government has made substantial amendments to the law on industrial safety. These efforts to tighten controls and reduce the number of accidents have started to produce results. In the first nine months of 1994, the number of industrial accidents fell by 39.1 per cent to 21 696 and the number of fatal accidents by 26 per cent to 54, compared to the corresponding period of 1993. A comprehensive review of industrial safety will be undertaken in 1995.

      The Factory Inspectorate Division of the Labour Department is responsible for enforcing the Factories and Industrial Undertakings Ordinance and its subsidiary regulations. The legislation provides for the safety and health of workers in factories, catering and cargo- handling establishments, building and engineering construction sites and other industrial undertakings. Advice and assistance are given to management on ways of providing and maintaining a safe and healthy work place. The division also investigates industrial accidents and dangerous incidents.

      To ensure the safe operation of builders' lifts, a special inspection exercise was launched in June by an interdepartmental task force team, comprising factory inspectors and technical staff of the Electrical and Mechanical Services Department and the Housing Department.

      The levels of maximum fines for offences under the Factories and Industrial Undertakings Ordinance and its subsidiary regulations were revised in January. For very serious offences, the maximum fines have been increased to $200,000, while the less serious offences carry maximum fines of $10,000 or $50,000.

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  Regulation 7B of the Factories and Industrial Undertakings (Lifting Appliances and Lifting Gear) Regulations became effective in March. It requires the installation of automatic safe load indicators on cranes having a maximum safe load of more than one tonne.

The Construction Sites (Safety) (Amendment) (No. 2) Regulation 1994 came into opera- tion in June. The regulation restricts the employment of young persons below the age of 18 years on construction sites, unless they have received proper training.

  The Factories and Industrial Undertakings (Safety Officers and Safety Supervisors) (Amendment) (No. 2) Regulation 1994 was enacted in June. It requires a proprietor to employ a safety officer if he employs 100 or more employees in one or more of his construction sites or in a shipyard, and to employ a safety supervisor in any of his shipyards with 20 or more employees.

  The Factories and Industrial Undertakings (Suspended Working Platforms) Regulation was also enacted in late June. It establishes the safety standards applicable to the operation of suspended working platforms.

The Factory Inspectorate placed much emphasis on regulatory activities in the high-risk areas of factories, catering establishments and construction sites. Special enforcement campaigns were launched to cover machinery safety, fire prevention and safety on construction sites including those of the airport core projects. During these campaigns, 23 166 factories, 318 catering establishments and 1 295 construction sites were inspected. The Industrial Safety Training Centre conducted courses for workers, supervisors and managers from various industries. Special talks were arranged with the Education Department as part of the summer job safety promotional activities. The centre also gave safety talks to university and post-secondary students and to various other organisations. In collaboration with the Hong Kong Polytechnic University, the centre continued to organise evening courses leading to the award of certificates in industrial safety. It also assisted the Construction Industry Training Authority in running certificate courses for construction safety officers. In 1994, similar assistance was extended to the City University of Hong Kong to help train more qualified safety personnel to meet the increasing needs of the industry.

  The inspectorate, in conjunction with the Information Services Department, launched a major publicity campaign in July to promote industrial safety and health. Seven television and radio announcements of public interest were produced. Posters and stickers were also printed. In addition, five large-scale symposia were held on safety and health management, the safe use of heavy machinery and electricity in construction sites and boiler safety, together with an award scheme for safety officers.

  The inspectorate has established a special enforcement team to inspect construction sites of the airport core programme and to ensure marine work safety in a joint effort with the Marine Department. The inspectorate took part in the multi-level safety committee meetings to help contractors formulate safety policies, review safety standards and procedures, and monitor safety performance at site level. It also assisted in organising

seminars.

Construction site safety award schemes for the construction industry and the airport core programme were jointly organised by the Labour Department, Housing Department, Marine Department, New Airport Projects Co-ordination Office, Provisional Airport

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Authority, Mass Transit Railway Corporation, Occupational Safety and Health Council, Hong Kong Construction Association Limited and Hong Kong Construction Industry Employees General Union.

Boiler and Pressure Vessel Safety

The Pressure Equipment Division of the Labour Department administers the Boilers and Pressure Vessels Ordinance and the Gasholders Examination Ordinance to ensure the safe use and operation of all pressure equipment covered by the two ordinances.

The former ordinance stipulates that pressure equipment, including steam boilers, thermal oil heaters, steam receivers, steam containers, air receivers and pressurised cement tanks mounted on trucks or trailers, must be approved by and registered with the division. The equipment is subject to initial and periodic inspections by qualified engineers who are on the list of approved examiners.

       The division conducts regular spot checks to ensure pressure equipment meets the required safety standards; investigates accidents involving pressure equipment; and conducts examinations for the issue of certificates of competency to boiler and steam receiver attendants. In October, a new computer system was installed to provide a more efficient service to the industry.

Under the Gasholders Examination Ordinance, the division approves the design of gasholders and carries out inspections during construction, and annually thereafter.

The division also provides technical advice to the Fire Services Department on the approval and initial inspections of pressurised containers and storage installations for compressed gases under the Dangerous Goods Ordinance.

       During the year, the division processed 2616 equipment registration applications, inspected 4 085 factories and 4 904 items of pressure equipment, and issued 264 certificates of competency and endorsements. It also continued to assist the Haking Wong Technical Institute and the Occupational Safety and Health Council in organising training courses on the safe operation of pressure equipment. Twelve safety training courses were conducted for operators.

The Pressure Equipment Advisory Committee advises the Boilers and Pressure Vessels Authority (currently the Commissioner for Labour) on the effective control of pressure equipment. During 1994, the authority issued four sets of codes of practice for pressure equipment owners, thermal oil heaters, steam receivers and fossil-fuel boilers.

Occupational Health and Hygiene

The Occupational Health Division of the department protects workers against health hazards arising from employment. It provides an advisory service to the government and the public on matters concerning the health of workers and the hygiene of the workplace, and complements the Factory Inspectorate Division in supervising health standards and practices in industry.

The division has published a series of booklets and codes of practice on occupational health and the prevention of occupational diseases. During the year, its staff continued their ongoing programme of occupational health promotion and educational activities.

      A major responsibility of the division is to investigate notified occupational diseases and potential health hazards reported by the Factory Inspectorate and to determine preventive

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action. Surveys were conducted in various industries and a number of epidemiological studies on health and hygiene conditions were completed. Programmes to monitor various occupational health hazards were also carried out.

The division carries out medical examinations on persons exposed to ionising radiation, users of compressed-air breathing apparatus and government employees engaged in diving or pest control. It also takes part in the Pneumoconiosis Medical Board to assess workers suffering from silicosis under the Pneumoconiosis (Compensation) Ordinance. Nurses of the division handle medical clearance for employees' compensation cases. Its occupational health officers are appointed as members of special assessment boards and prostheses and surgical appliance boards under the Employees' Compensation Ordinance.

The laboratory of the division, which is a member of the Hong Kong Laboratory Accreditation Scheme, continued to carry out analytical tests on environmental samples taken during site visits.

Occupational Safety and Health Council

The Occupational Safety and Health Council aims to promote a safer and healthier working environment through education and training; promotion of the use of modern technology; dissemination of technical knowledge; provision of consultancy services and encourage- ment of co-operation and communication among government and non-governmental bodies with similar goals. The council, a statutory body, is financed by a levy on the premium of all employees' compensation insurance policies in Hong Kong.

The council has established 10 industry-based safety and health committees and two advisory committees - the Chemical Safety and Health Advisory Committee and the Occupational Health Advisory Committee.

The council continued to expand the types and number of courses offered to the general public. A joint course scheme with the Labour Department was replaced in the second half of the year by a series of new safety and health courses for managers, professionals and supervisors. New courses in safety auditing; ergonomics; industrial ventilation and the safe operation of lorry-mounted cranes, steam boilers and steam receivers were among those organised during the year. The council also continued to conduct safety and health training courses for graduate engineers in conjunction with the Hong Kong Institution of Engineers, and laboratory safety training for laboratory technicians with the Government Laboratory. Co-operating with the City University of Hong Kong, it organised a certificate programme to boost the number of safety officers in Hong Kong. Tailor-made courses were also designed for construction contractors, hotels, building management companies and manu- facturing firms. A total of 5 500 persons attended the council's courses in 1994.

  During the year, the council organised 14 seminars and undertook several research projects. It continued to provide consultancy services on a cost recovery basis.

  Campaigns to arouse public interest included the Occupational Safety and Health Week held in November. There was a significant increase in co-operation with district-based organisations in staging promotional activities.

  To fulfil its role in the dissemination of technical information, the council produces safety and health literature, codes of practice and guidebooks, a bi-monthly journal Green Cross, safety advice pamphlets, bulletins for individual industries and posters. A comprehensive library on occupational safety and health is open for public use.

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The council's occupational safety and health employees' participation scheme continued to offer financial assistance to employees' organisations running safety and health activities. During 1994, 57 such organisations received subsidies under the scheme.

Employees' Compensation

The Employees Compensation Division of the Labour Department administers the Employees' Compensation Ordinance and the Pneumoconiosis (Compensation) Ordinance. The division ensures that injured employees and dependants of deceased employees covered by the Employees' Compensation Ordinance obtain compensation from their employers in respect of occupational diseases, injuries or deaths caused by accidents arising out of and in the course of employment. It also ensures that persons covered by the Pneumoconiosis (Compensation) Ordinance obtain speedy compensation from the Pneumoconiosis Compensation Fund, which is financed by a levy imposed on the construc- tion and quarrying industries.

The Employees' Compensation Assistance Scheme makes payments of statutory compensation and damages awarded under common law, which are due to an injured employee or dependants of a deceased employee where an employer defaults or an insurer becomes insolvent. It also covers claims from employers failing to obtain indemnity from their insolvent insurers. The division also administers a loan scheme to provide quick financial relief in the form of interest-free loans of up to $15,000 in each case to employees injured at work and to dependants of employees who die from work-related accidents.

      Under the two-tier Employees' Compensation Assessment Board system, employees with work-related injuries which are likely to result in permanent incapacity are assessed by the boards at 12 major hospitals. In 1994, ordinary assessment boards convened 545 sessions and completed assessments of 15 094 cases referred to them by the Commissioner for Labour, and 1 280 review cases. Special assessment boards convened seven sessions and completed assessments of four cases referred to them by the ordinary assessment boards, and three review cases.

      A total of 1081 pneumoconiosis cases were awarded compensation in the form of monthly payments from the Pneumoconiosis Compensation Fund. The Pneumoconiosis Compensation Fund Board, established to administer the fund, also financed research, educational and publicity programmes to enhance awareness of pneumoconiosis and to promote prevention of the disease.

Pneumoconiosis sufferers who were diagnosed before January 1, 1981 and who are not covered by the Pneumoconiosis (Compensation) Ordinance, receive ex gratia payments on a quarterly basis from the government.

The Employees' Compensation Ordinance was amended in July to provide for compensa- tion to employees who are injured by accident on their way to or from work when a typhoon signal No. 8 or above, or red or black rainstorm warning signal, is issued.

Telephone Enquiry Service

     The General Enquiry Telephone Service of the Labour Department handles enquiries on the Employment Ordinance and its subsidiary regulations, the Employees' Compensation Ordinance, the Protection of Wages on Insolvency Ordinance and matters relating to the employment of foreign domestic helpers.

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Callers are guided by the computer-operated answering facility of the service to select from a wide range of pre-recorded messages. They can also obtain information leaflets directly through the system if they have a fax machine. The system, with Chinese and English language options, operates round-the-clock. Staff operators are also available to deal with more complicated enquiries during office hours.

During the year, a total of 1 427 186 calls were handled by the service.

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PRIMARY PRODUCTION

AGRICULTURE in Hong Kong is a comparatively small sector, in a territory which is characterised by rapid urbanisation.

Farming is largely undertaken on the urban fringes and only about four per cent of the land area is under cultivation. In 1994, local farm production accounted for 25 per cent of vegetables, 27 per cent of live poultry, six per cent of live pigs, 13 per cent of freshwater fish and 69 per cent of all live and fresh marine fish consumed. To a certain extent, the competitiveness of local farm produce acts as a buffer against price increases of imported foodstuffs, and therefore plays a role in maintaining the stable and relatively low cost of living which has been essential to the territory's economic growth.

      Each day, Hong Kong people consume about 940 tonnes of rice, 1000 tonnes of vegetables, 7 580 pigs, 370 head of cattle, 270 tonnes of poultry, 500 tonnes of fish and 1 640 tonnes of fruit. About 40 per cent of Hong Kong's food requirements are imported from China.

      The Hong Kong government does not give direct subsidies to the local agricultural industry or attempt to protect it from the free operation of market forces. It does, however, provide a variety of infrastructural and technical support services to facilitate local agricultural development.

The Agriculture and Fisheries Department is responsible for the implementation of government policies on agriculture and fisheries. The department provides infrastructural support services to enhance agricultural productivity and to promote modern, efficient, safe and environmentally acceptable farming. These include wholesale market facilities, irrigation and drainage works, technical and development advice, the administration of agricultural loan funds, and agricultural development programmes such as the accredited farm scheme and agricultural land rehabilitation scheme.

Local production statistics are given at Appendix 25.

The Agricultural Industry

With scarce land resources, local agriculture is directed towards the production of fresh food of high quality through very intensive land use. Production efforts are aimed mainly at high-value, perishable foods.

The most common crops are vegetables and flowers, although a small quantity of fruit and other high-yield field crops are also grown. About 1 600 hectares of land were under

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vegetable and flower cultivation in 1994. The value of crop production was about $487 million.

  The main vegetable crops grown are Chinese white cabbage, Chinese flowering cabbage, leaf mustard and lettuce. These are cultivated throughout the year, with peak production in the cooler months. Some exotic vegetables, including celery, radicchio, supersweet corn and tomatoes, are also grown. Straw mushrooms are produced on a small scale, using industrial cotton waste as the growing medium.

  Common types of cut flowers such as ginger lilies and white jade orchids are produced throughout the year. A wide range of ornamental pot plants is produced in various commercial nurseries. Peach blossom, gladioli, chrysanthemums, lilies and ornamental citrus are grown especially for the Lunar New Year.

  Due to insufficient land for extensive grazing, pigs and poultry are the principal animals reared for food. Livestock production has suffered a decline in recent years due to the implementation of a livestock waste control scheme. Adjusting to the progressive implementation of environmental pollution controls, the industry has become increasingly modern and sophisticated, and there has been a steady but definite trend towards fewer but bigger farm units.

  Pigs in Hong Kong are mostly crosses of imported breeds. The value of locally-produced pigs in 1994 amounted to $206 million and that of poultry, including chickens, ducks, pigeons and quail, amounted to $440 million.

Agricultural Development

In the face of strong competition from imports, and land and labour constraints, the agricultural sector must increasingly turn to farming methods that are intensive, labour- saving and geared to high value-added production. The application of modern technology is essential.

  The Agriculture and Fisheries Department has been undertaking a considerable amount of adaptive research into modern techniques suitable for application in Hong Kong. New farming techniques, especially less labour-intensive ones, are evaluated and promoted. Experiments to improve quality and yield are conducted. Good quality seeds and breeding stocks of pigs and poultry are made available for commercial propagation. Local vegetable farmers are encouraged to cultivate premium vegetables including traditional Chinese types, exotic varieties and vegetables produced through organic farming, protected cropping and soilless culture for up-market outlets. The results of such work have been encouraging.

  The Hong Kong public has become increasingly concerned about pesticides, especially about their impact on the environment and public health. To conserve the environment and to protect consumers against unsafe pesticide residues, the department implemented an accredited farm scheme at the end of 1994. Under the scheme, accredited farms are strictly monitored and supervised by the department on their use of pesticides. Their produce is also checked for the presence of pesticide residue by the Vegetable Marketing Organisation before marketing. To facilitate easy differentiation of produce originating from these farms, special labels are provided and the produce is marketed at retail outlets accredited by the organisation.

  The long-running public concern about environmental protection stimulated the current legislation which controls the import and sale of highly toxic pesticides and chemicals, and

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sets the effluent standard for the livestock industry. To help farmers meet the environmental challenges, the department continuously promotes the proper use of agricultural pesticides, biological and physical methods of pest control and environmentally acceptable effluent treatment systems. The department has also developed the non-polluting, pig-on-litter method of pig rearing to assist local farmers to comply with the livestock waste control scheme. The method uses sawdust impregnated with bacterial products as bedding material on which pigs are raised. The livestock waste is decomposed in-situ and no effluent is discharged. Studies have also been conducted on the recycling of spent sawdust litter for horticultural and landscaping use.

      To return fallow land to efficient cultivation, the department has been implementing an agricultural land rehabilitation scheme, under which infrastructural improvements in irrigation, drainage and farm road access are being effected. A package of assistance, including tenure arrangements, advance payment of rent, soil improvement and marketing facilities, is also offered. The satisfactory results of pilot schemes at Cheung Po in Yuen Long and Hok Tau in Fanling have resulted in the extension of the scheme to other suitable

areas.

      The department also promotes improved agricultural productivity. Advisory visits to farms, training courses, seminars and demonstrations are conducted to help farmers with their specific production problems in respect of the use of pesticides, pest and weed control, crop husbandry, and livestock husbandry and health. Visits are arranged for farmers to see government experimental farms and farming projects. The department also organised an overseas study tour to the Netherlands, Spain and Britain for vegetable farmers, to enable them to broaden their technical knowledge and exchange experience and information with their overseas counterparts.

Besides technical support, low interest loans administered by the department are available to the agricultural industry from the Kadoorie Agricultural Aid Loan Fund, the J.E. Joseph Trust Fund and the Vegetable Marketing Organisation Loan Fund. At the end of 1994, loans issued since the inception of these funds had reached $313 million, with $304 million having been repaid.

The Fishing Industry

     Marine fish constitute one of Hong Kong's most important primary products. During the year under review, total production from marine capture and culture fisheries was estimated at about 219 600 tonnes, with a wholesale value of $2,610 million. This represented a decrease of one per cent in weight and an increase of three per cent in value compared with 1993. In weight terms, marine capture contributed 96 per cent towards total production, while the remainder came from culture operations.

The Hong Kong fishing fleet, manned by 21 600 fishermen, comprises some 4800 vessels, of which 4 400 are mechanised. It plays a vital role in primary production, catching over 150 species of commercially important fish and supplying over 60 per cent of all marine produce consumed locally. Golden thread, bigeyes, lizard-fish, squid, melon seed, conger pike eels, croakers, hairtail, scads and yellow belly are the most important species landed.

      Major fishing methods include trawling, lining, gill-netting and purse-seining. About 46 per cent of the vessels are between 10 and 34 metres in length, comprising mainly trawlers,

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liners and gill-netters that operate on the continental shelf of the South China Sea between the Gulf of Tonkin and the East China Sea. The remaining 54 per cent of the vessels are less than 10 metres long, consisting primarily of gill-netters, hand-liners, purse-seiners and mariculture craft which operate in shallow coastal waters.

  Trawling accounted for 79 per cent, or 166 500 tonnes, of marine fish landed in 1994. The total catch of live and fresh marine fish available for local consumption amounted to 84 170 tonnes, with an estimated wholesale value of $1,050 million.

  Marine fish culture is practised within 26 designated fish culture zones, most of which are found around the coast of the eastern New Territories. Fish culture licences are issued by the Agriculture and Fisheries Department. At the year's end, there were 1 628 licensed mariculturists. Young fish are reared in cages suspended from buoyed rafts. Grouper, seabream and snapper are the most common culture species. This sector supplied 2 990 tonnes of live marine fish valued at $180 million during the year.

  Freshwater fish are also cultured. Fish ponds covering 1 240 hectares are located in the New Territories, mostly around Yuen Long. Several different species of carp are cultured in the same pond, each with a different food requirement to maximise utilisation of the nutrients introduced. The land area devoted to fish ponds has gradually declined with the increasing urbanisation of the New Territories. During the year, pond culture yielded 5 500 tonnes, or 12 per cent, of freshwater fish for local consumption.

Fisheries Development

 Development activity in the Agriculture and Fisheries Department focussed on countering the environmental impact of pollution and intensive infrastructural development on fisheries and aquaculture.

The inshore marine environment is under unprecedented pressure from large-scale dredging for marine fill, dumping of mud and reclamation of the dwindling heritage of shallow seas to enhance the supply of land. Besides reducing water quality, this also destroys extensive areas of seabed habitats that support the marine fauna and fisheries resource. To mitigate against such damage, the department has begun a fisheries habitat enhancement project. Since the successful deployment of the first experimental artificial reef in late 1993, work has been underway to examine the potential benefits of deploying artificial reefs and enhancing the types of marine habitat favoured by commercial fish. Over the next few years, a variety of artificial habitats will be introduced over a significant area to help rehabilitate damaged seabeds, protect sensitive nursery areas and increase fish production.

Aquaculture studies are directed towards the development of more efficient culture systems and improved husbandry techniques to increase productivity and minimise the impact on the environment. A moist pellet preparation which substantially reduces pollution due to wastage and leacheate, and increases nutritional value was introduced to mariculturists to replace trash fish as feed. The feasibility of open sea cage culture is being explored with a view to introducing marine fish culture to more exposed coastal waters. Studies on the marine environment are conducted to assess the impact of pollution and red tides on fisheries, particularly mariculture operations, to help the industry minimise production loss. Low interest loans, administered by the department, are available to the aquaculture industry from the Kadoorie Agricultural Aid Loan Fund.

l

ALTEN

The delights of exotic dining dominate both tourist and local agendas in Hong Kong. Thousands of restaurants offer a tantalizing array of food styles, ranging from spicy Thai (previous page) to eclectic Western fare (left and above).

Next page: Attractive surroundings tempt discerning diners often as much as the culinary skills.

:

7

"PLANET HOLLYWOOD

Mexican spices, settings and music help to create the mood for a cross-cultural dining experience.

Next page: A shark's fin dinner epitomises classic Chinese haute cuisine.

ULTRA ACTRE

F

PRIMARY PRODUCTION

The larger vessels in Hong Kong's fishing fleet are among the most modern in the region, despite their traditionally wooden hulls. The department continues to stimulate the modernisation trend by maintaining development and advisory services on fishing vessel hull design (including steel hulls) and fishing methods, as well as fishing equipment which is available free to fishermen.

Training classes are held for operators, covering the conventional skills required for safe and effective fishing vessels. Increasingly, these extend towards the use of more sophisticated electronic aids such as radar, weather facsimile and, most recently, satellite communications. The department also organises sea-fishing endorsement courses to train operators to standards required by the Marine Department for steel-hulled fishing vessels. The courses are organised regularly at major fishing ports.

The department administers four loan funds servicing the fishing fleet. The Fisheries Development Loan Fund with $7 million provides long-term capital for the development of improved vessels, gear and equipment. The World Refugee Year Loan Fund, the Fish Marketing Organisation Loan Fund and the Co-operative for American Relief Everywhere Loan Fund, with a total capital of $28.62 million at the end of 1994, are revolving funds which provide shorter-term financing, mainly for recurrent purposes. By December 31, loans issued since the inception of the four funds totalled $274 million, with $251 million having been repaid.

At the end of the year, there were 64 co-operative societies and four federations supported by fisherfolk, with 2 086 members from the fishing community.

      Close contact with the community is maintained by liaison with producer associations and fishermen's co-operative societies through seven Fish Marketing Organisation liaison offices at the major fishing ports.

Marketing

Much of the wholesale marketing of primary products, particularly fresh foods, is the responsibility of the Agriculture and Fisheries Department, and the vegetable and fish marketing organisations. In 1994, 49 per cent of locally-produced vegetables and 64 per cent of the landed marine fish were sold through these organisations.

      The Vegetable Marketing Organisation operates under the Agricultural Products (Marketing) Ordinance, which also provides for the establishment of a Marketing Advisory Board to advise the Director of Marketing (the Director of Agriculture and Fisheries). It seeks to maximise returns to farmers by minimising marketing costs. The organisation is responsible for transporting locally-produced vegetables from the New Territories to the wholesale market in Kowloon, providing marketing facilities, and supervising sales and financial transactions in the market. Revenue is obtained from a 10 per cent commission on sales. The organisation is non-profit-making, and surpluses are ploughed back into the development of marketing services and the farming industries. It provides ancillary services such as the quality control of vegetables (pesticide residue checking), marketing of premium vegetables, and the awarding of secondary and tertiary education scholarships to farmers' children. During the year, 34 611 tonnes of local vegetables valued at $101 million were sold through the organisation.

      The Fish Marketing Organisation operates under the Marine Fish (Marketing) Ordinance, which also provides for the establishment of a Fish Marketing Advisory Board. The

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ordinance provides for the control of the landing, transport, wholesale marketing, and import and export of marine fish. The organisation operates seven wholesale fish markets. Revenue comes from a commission on the proceeds of sales. Surplus earnings are channelled back into the industry in the form of services such as low-interest loans to fishermen, improvements to the markets, financial support for schools for fishermen's children, and scholarships for secondary and tertiary education.

   In 1994, the wholesale fish markets handled 60 800 tonnes of marine fish, crustacea and molluscs which were sold for $570 million. This included 6 100 tonnes of imported marine fish.

The wholesale marketing of imported vegetables, fruit, poultry, eggs, freshwater fish and crustacea takes place at various Agriculture and Fisheries Department wholesale markets throughout the territory.

Facilities in some of these markets have become dilapidated and congested. Unable to cope with the increasing throughput, their marketing activities have spilled onto adjacent areas, causing obstruction, traffic congestion and environmental problems. To improve the situation, a long-term programme has been devised to replace the outdated markets with large modern wholesale market complexes, on Hong Kong Island and in Kowloon, and to centralise the wholesale marketing of fresh foodstuffs. The department has so far completed the reprovisioning of eight outdated wholesale markets. They were relocated, in phases, to two government-built permanent complexes. Phase I of the complex on Hong Kong Island, which handles fruit, freshwater fish and eggs, was commissioned in 1991 while its second phase, which handles poultry and vegetables, was commissioned in 1994. Phase I of the Kowloon complex, which provides facilities for the wholesale marketing of vegetables, freshwater fish and eggs and incorporating the Fish Marketing Organisation market for Cheung Sha Wan, was commissioned in 1993. Plans are in hand to proceed with the construction of the second phase, which will reprovision the dilapidated Yau Ma Tei Fruit Market and the temporary poultry market at Cheung Sha Wan. To make optimal utilisation of the site reserved for the second phase of the Kowloon market complex, a study was being conducted to look into the feasibility of incorporating the second phase with a mid-stream container-handling yard and overhead development. Pending the completion of the second phase of the Kowloon complex and the permanent markets planned for the New Territories, the department continues to operate two temporary wholesale markets at North District in the New Territories for agricultural products, and at Cheung Sha Wan in Kowloon for poultry.

During the year, the wholesale markets managed by the department handled 259 440 tonnes of local and imported vegetables, 79 280 tonnes of local and imported poultry, 50 640 tonnes of local and imported freshwater fish and fishery products, 155 290 tonnes of imported fruit and 83 420 tonnes of imported fresh and preserved eggs. The total value of the produce amounted to $5,737 million.

Mining and Quarrying

The Mines and Quarries Division of the Geotechnical Engineering Office of the Civil Engineering Department enforces legislation relating to mining, quarrying and explosives, and administers quarrying contracts. It processes mining and prospecting applications, and inspects mining and prospecting areas, stone quarries, blasting sites and explosives stores.

PRIMARY PRODUCTION

Hong Kong used 20 million tonnes of aggregates and other rock products in 1994. About 55 per cent of the territory's demand for aggregates and rock products was met locally, with the balance imported from China. Local quarries and stone-processing sites are supervised by the division.

A rehabilitation contract for the Shek O quarry was implemented during the year to facilitate the progressive rehabilitation of the quarry site within a defined time-span, in return for the granting of rights to the quarry operator to process and sell surplus rock excavated during the course of this work. The quarry site will be rehabilitated by recontouring and extensive planting to blend with the surrounding natural hillsides in accordance with guidelines set down in the Metroplan Landscape Strategy for the Urban Fringe and Coastal Areas. Rehabilitation schemes for the Anderson Road and Lamma Island quarries were being arranged at the year-end.

In 1994, there was one kaolin mine operating under a mining lease.

The division manages three government explosives depots, which provide bulk storage facilities for imported as well as locally-manufactured explosives, and undertakes the delivery of explosives from the depots to blasting sites. It also issues shotfirers' blasting certificates.

      The largest use of explosives during the year was for site formation works for the new airport project. A government explosives depot is in operation at the airport site on Chek Lap Kok Island to ensure uninterrupted supply for site preparation work. Explosives were also used in Hong Kong for quarrying works, sewerage tunnel construction and seismic surveys. The overall consumption of explosives was 25 000 tonnes.

In 1994, there were 24 applications for the use of pyrotechnics in the production of television programmes and theatrical performances. The division is responsible for issuing storage licences and removal permits, and provides technical support to the Recreation and Culture Branch in assessing the suitability of pyrotechnics and pyrotechnicians.

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EDUCATION, one of the main engines of Hong Kong's economic and social development, continued to receive high priority from the government and to attract great public interest and concern.

The creation of the Hong Kong Institute of Education marked the beginning of a new era in teacher training and development.

Reports by two working groups of the Education Commission - on language pro- ficiency and quality in school education - stimulated wide public debate.

A slight decline in the proportion of candidates achieving good results in school examinations underlined the importance of ongoing measures to raise the quality of primary and secondary education.

The Structure of the Education System

Educational opportunities encompass kindergartens, primary schools, secondary schools, technical institutes, technical colleges and tertiary institutions. The majority of places from primary school upwards are provided either free of charge or at highly subsidised rates. All kindergartens are in the private sector, as are international schools and schools providing language, computer and business courses.

All children must, by law, be in full-time education from the age of six to their 15th birthday (or completion of Secondary 3, whichever is earlier).

Most children attend kindergarten from the age of three. Primary school normally begins at the age of six, and lasts six years. At about 12, children progress to a three-year junior secondary course. After Secondary 3, most stay on for a two-year senior secondary course leading to the first public examination, the Hong Kong Certificate of Education Examination (HKCEE); others join full-time craft courses of vocational training, while a small number choose to leave formal education at this point.

Following the HKCEE, students progress to a two-year sixth form course leading to the Hong Kong Advanced Level Examination (HKALE); to a two or three-year vocational course leading to a certificate or diploma; or to a three-year course of teacher education. Post-HKALE opportunities include a place on a three-year first degree or diploma course, or on a two-year teacher education programme. Those leaving full-time education at the end of the senior secondary or sixth form courses have opportunities for part-time study or vocational training through to degree level.

EDUCATION

      Most schools are in the public sector. The government directly manages a small proportion of primary and secondary schools, but most are operated by non-profit-making voluntary organisations which receive public funds under a code of aid. Tertiary insti- tutions are autonomous statutory bodies. Seven of them receive public funds through the University Grants Committee (UGC). A comprehensive, publicly-funded system of technical education and vocational training is provided by the statutory Vocational Training Council (VTC).

      About 1.2 million students, or 20 per cent of the total population, were in full-time education during the year. They attended 2 200 institutions, and were taught by some 57 000 teachers assisted by a large number of support staff. There were some 146 600 candidates for the two local public examinations and 197 000 entries for overseas examinations.

The Legislative Framework

Any institution offering education to 20 or more students in a day, or to eight or more students at any one time, must operate in accordance with statutory requirements. The operation of schools (including kindergartens, primary and secondary schools, and commercial colleges) is governed by the Education Ordinance, which provides for the registration of schools, teachers and managers, and for attendance by children between the ages of six and 15.

      The subsidiary Education Regulations cover a wide range of matters including health and safety, fees and charges, and the qualifications of teachers.

      The Vocational Training Council Ordinance covers technical colleges, technical institutes, industrial training centres, and skills centres for the disabled. The Post-Secondary Colleges Ordinance covers institutions offering post-secondary courses outside the tertiary sector. Two important statutory bodies with a quality control role are the Hong Kong Examinations Authority and the Hong Kong Council for Academic Accreditation. The Education Scholarships Fund Ordinance provides for the administration of a large number of scholarships donated by generous members of the public.

The Government's Role

The Secretary for Education and Manpower, who heads the Education and Manpower Branch of the Government Secretariat, is responsible for formulating and reviewing education policy, securing funds in the government budget, liaising with the Legislative Council on educational issues, and overseeing the effective implementation of educational programmes.

      The Director of Education, who heads the Education Department, is responsible for supervising education at kindergarten, primary and secondary levels. He also supervises Hong Kong Shue Yan College, the only institution registered under the Post-Secondary Colleges Ordinance. He directly controls all government schools and the Curriculum Development Institute.

      The main responsibilities of the Education Department relate to planning and providing public sector school places; allocating places to pupils entering the primary, junior secondary, senior secondary and sixth form levels; developing curricula, including the Target Oriented Curriculum and related assessments; monitoring teaching standards; and

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administering the funding of public sector schools and some private institutions. The department also contributes to policy development and review.

In September, the four colleges of education and the Institute of Language in Education were transferred out of the Education Department to the newly-created, autonomous Hong Kong Institute of Education.

Community Participation

Members of the community play an important part in the planning, development and management of the education system at all levels, sitting on advisory bodies such as the Education Commission, Board of Education, Curriculum Development Council (CDC), University Grants Committee (UGC), and Research Grants Council; on executive bodies such as the Vocational Training Council (VTC), Hong Kong Examinations Authority and Hong Kong Council for Academic Accreditation; on management committees of schools; and on the governing bodies of tertiary institutions.

The Education Commission

The commission advises the government on the development of the education system, as a whole, in the light of community needs. Its terms of reference are to define overall objectives; formulate policies and recommend priorities for implementation, having regard to the resources available; co-ordinate and monitor the planning and development of education at all levels; and initiate educational research.

The commission has 16 members, of whom 14, including the chairman, are appointed from outside the government to bring a wide range of personal and professional experience to the issues under review. They include the chairmen of the Board of Education, UGC, VTC and Advisory Committee on Teacher Education and Qualifications (ACTEQ). The two government members are the Secretary for Education and Manpower, who is the vice- chairman, and the Director of Education.

During the year, the commission focused on three studies covering language pro- ficiency, educational standards and the funding of schools. Each study was conducted by a working group made up of commission members and co-opted members. A report on language proficiency was issued in July for public consultation, and a report on quality in school education was published in December.

The language proficiency report presented a comprehensive analysis of the language situation in Hong Kong, and made 28 recommendations aimed at improving the ability of the education system to develop desired levels of proficiency in both Chinese and English. Major recommendations included the creation of a new standing committee on language education and research; the development of alternative approaches to language develop- ment at the primary and pre-primary stages, with an emphasis on building a good founda- tion of mother-tongue skills before English is taught formally; improved support services for language teachers; and the setting of minimum language proficiency standards for those entering the teaching profession.

The report was generally welcomed by the public, although doubts were expressed about whether parents would be willing to accept a later start on formal English language lessons. At the end of the year, the commission was preparing its final recommendations to the government.

EDUCATION

The report on quality in school education described the present procedures for monitoring and promoting quality, and proposed a new strategy for quality assurance based on three measures: school development planning in all schools; the extension of school management reform along the lines of the School Management Initiative scheme; and a new agency to conduct external quality assessments.

       At the end of the year, the working group on educational standards was conducting a programme of briefings on the report.

The Board of Education

The board is a statutory body appointed to advise the government, through the Director of Education, on educational matters at school level. It focusses on the implementation of approved policies, and the need for new or modified policies relating to education in schools. Its members include the chairmen of advisory and executive bodies concerned with the school system, namely, the CDC; Private Schools Review Committee; and advisory committees on home-school co-operation, school guidance and support services, school administration and finance, and place allocation systems. Other members have experience in kindergartens, special schools, school administration, teaching, vocational training, tertiary education, business and the professions. Two government officials sit on the board: the Director of Education as vice-chairman, and the Deputy Secretary for Education and Manpower.

      In January, the board set up sub-committees to monitor the implementation of the Education Department's performance pledges, and the development and implementation of educational aims in schools in the light of the Statement of Aims published by the government in 1993. Another sub-committee reviewed pre-primary education, and in May, the board submitted to the government a report with recommendations for improving the training and qualifications of kindergarten teachers.

The Curriculum Development Council

The council is appointed by the Governor to advise the government, through the Director of Education, on curriculum matters. Its members include educators, employers and parents.

       During the year, the council continued to conduct research on curriculum issues, develop school-based curricula and help in developing the Target Oriented Curriculum. Following the issue in 1993 of curriculum guides for the kindergarten, primary, secondary and sixth form levels, promotional seminars were conducted for principals and senior teachers, and syllabuses were reviewed in the context of the curriculum guides.

The Curriculum Development Institute

The institute, established in 1992 as a new division of the Education Department, is staffed by both civil servants and educators recruited from outside the civil service. It develops and reviews curricula, liaising as appropriate with the Hong Kong Examinations Authority and teacher training institutions; helps schools implement curriculum policies and innovations; provides a secretariat for the Curriculum Development Council; and conducts research, experimentation and evaluation in curriculum planning. A major part of its work during 1994 was continuing to develop the Target Oriented Curriculum (TOC). This included publishing TOC documents, developing curriculum and resource materials, setting up a

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resource centre, and producing publicity materials to educate parents and the public. Other projects included the development of curricula for the academically gifted and the less able; and feasibility studies on the integration of subjects, a modular curriculum, and a mastery learning programme (in which learning objectives are specified, progress is assessed, and remedial or enrichment activities are provided, depending on the child's progress).

  During the year, the institute issued updated teaching guides, subject syllabuses and circulars on the teaching of various subjects.

Seminars were held for teachers on ways to make learning more pleasurable and effective. Guidelines on effective homework and testing were issued, together with leaflets, posters and other materials. Meetings were held with publishers' associations to discuss ways to reduce the weight and size of textbooks, in the light of increased public concern about heavy school bags.

The Language Fund Advisory Committee

In March, the government set up a Language Fund, with initial capital of $300 million, to raise standards in Chinese (including Putonghua) and English. The trustee is the Director of Education Incorporated. The Language Fund Advisory Committee was set up in May to advise on the funding of suitable projects. Its members include language experts, educators and business people. By the end of the year, on the advice of the committee, $54 million had been disbursed for 35 projects.

The University Grants Committee

The UGC is appointed by the Governor to advise on the development and funding of higher education, and administer public grants to the seven publicly-funded tertiary institutions. It comprises nine overseas academics, four local academics and four local professionals and businessmen. No government officials sit on the UGC, but its secretariat is staffed by civil

servants.

Since 1965, when the then University Grants Council was set up, full-time equivalent student numbers have multiplied more than 14 times, from 4 100 in two universities to over 56 000 in seven institutions. The major expansion of places which began in 1988 was completed by October.

In March, the UGC issued its interim review of the development of higher education for the years 1991-2001 for public consultation. The review described progress with the restructuring and expansion of tertiary education, and looked towards the next triennium (1995-98) and beyond to the next century. By July, when the consultation period ended, over 50 submissions had been received. The UGC aims to submit its final report to the government in late 1995.

  In April, the UGC members made a fact-finding visit to Beijing to gain a better understanding of the present state of higher education in China. The delegation visited Beijing University, Qinghua University, the Chinese Academy of Sciences and Beijing Normal University. It met Vice-Premier Li Lanqing and officials from the State Education Commission and the Hong Kong and Macau Affairs Office, and briefed them on the higher education system in Hong Kong and the role of the UGC.

  In September, the UGC assessed the recurrent funding requirements of the seven institutions for the 1995-98 triennium, and made recommendations to the government.

EDUCATION

The Research Grants Council

The council advises the government, through the UGC, on the needs of tertiary institutions for academic research and the funding required, and monitors the use of public research grants. It comprises six local academics, five overseas academics and three local pro- fessionals and industrialists. Grant applications are considered by four specialist panels comprising mostly local academics, covering physical sciences, engineering, biology and medicine, and humanities and social sciences. An independent network of academic referees provides impartial advice.

In 1994-95, the council received a record 703 applications and disbursed $260 million in earmarked grants for academic research.

       The council and the British Council again jointly sponsored the United Kingdom-Hong Kong Joint Research Scheme, aimed at strengthening existing links between local and British institutions.

The Vocational Training Council

The VTC advises the government on measures to ensure a comprehensive system of technical education and industrial training suited to the developing needs of Hong Kong. It administers technical colleges, technical institutes, industrial training centres, skills centres for the disabled, and statutory apprenticeship schemes. The council's 23 members include industrialists, academics and government officials.

The government, on the council's advice, has appointed 20 training boards and eight general committees, whose members represent those who employ graduates of VTC training courses. Each training board covers one sector of the economy, such as electronics, textiles and insurance; while general committees are concerned with training relevant to several sectors, such as precision tooling, translation and the training of technologists.

The Hong Kong Examinations Authority

The HKEA is an independent, self-funding statutory body, with members drawn from the teaching profession, tertiary institutions and the business community. It operates two local public examinations the Hong Kong Certificate of Education Examination (HKCEE) and the Hong Kong Advanced Level Examination (HKALE). It also offers proficiency tests in Putonghua aimed at adults. On behalf of overseas examining bodies, the authority conducts a large number of examinations leading to academic, professional or practical qualifications.

      During the year, 120 600 candidates sat for the HKCEE and 26 000 for the HKALE. A total of 17 new subjects at advanced supplementary (AS) level were examined for the first time in 1994. These included two core language subjects: Use of English, and Chinese Language and Culture. AS level subjects provide students with a broader sixth form curriculum. In the HKCEE, the percentage of grade awards at grade E and above for school candidates fell from 62.2 in 1993 to 60.5 in 1994. In the HKALE, the corresponding percentages for A-level subjects fell from 76.1 to 70.9 over the same period. The Education and Manpower Branch and the HKEA began discussing possible causes for this, so that measures for averting further falls could be identified. In the case of the HKALE, it is clear that the explanation was related to the large increase in the number of school candidates - up 23.5 per cent from 1993.

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Candidates for overseas examinations totalled 197 000, of whom 61 100 sat for the London Chamber of Commerce and Industry examinations, 45 000 for the Associated Board of the Royal Schools of Music, and 18 500 for the Test of English as a Foreign Language (TOEFL).

The Hong Kong Council for Academic Accreditation

The council is an independent statutory body with 22 members, including senior academics from Hong Kong and overseas, and local industrialists and business people. Its activities are administered by a small professional secretariat with expertise and experience in higher education and quality assurance.

  The council reviews the non-university degree-awarding institutions and their individual courses, to ensure that the degrees they award meet internationally-recognised standards. During the year, degree programmes were validated and standards were monitored at Lingnan College, the Open Learning Institute of Hong Kong and the Academy for Performing Arts. Seminars and professional development workshops on topics of quality assurance in higher education were held, and these attracted participants from all tertiary institutions. The council maintains a register of over 1 000 local and overseas academics and other experts, who supply members for institutional review and validation teams. It also assists tertiary institutions in their internal validation of degree programmes by drawing upon this register of specialists.

Advice was provided during the year to the government and other bodies on the standard of local and overseas institutions and the status of their awards. In particular, advice was given to the Advisory Committee on Teacher Education and Qualifications on the academic quality and professional relevance of teacher training and qualifications, and the recogni- tion of non-local qualifications; to a number of government departments on the acceptance of foreign qualifications; and to professional bodies on accreditation procedures.

  The council also advised the government on draft legislation aiming to control the operation of non-local tertiary institutions and professional bodies in Hong Kong. During the year, it published the first issue of an academic programmes guide which lists comprehensive information on the study courses offered by overseas institutions in the territory.

The council maintains contacts with quality assurance and accreditation bodies around the world. It has stimulated the creation of an international network for quality assurance agencies in higher education, for which it provides administrative and editorial support. It also maintains a close relationship with accreditation authorities in China. During 1994, its members visited China to participate in discussions and meetings with these organisations.

School Management Committees

Each school registered under the Education Ordinance has a management committee, which is responsible for the proper education of the pupils and operation of the school. One manager must be registered as the supervisor, whose main role is to be the point of contact between the management committee and the Education Department.

Each aided primary or secondary school is operated under a letter of agreement with a sponsoring body, which contributes the full cost of furnishing and equipping the premises, and nominates the first supervisor of the school. In the 1994-95 school year, a total of 1 110

EDUCATION

schools were in the care of 376 sponsoring bodies, the largest of which operated 116 schools.

      By September, 172 government and aided primary, secondary and special schools had joined the School Management Initiative (SMI) scheme. The SMI was started in 1991 to give government and aided schools more decision-making power and more flexibility in the use of resources, in return for more formal procedures for planning, implement- ing and evaluating their activities. During the year, the Advisory Committee on SMI produced primary school administration manuals and other reference materials, which were circulated to both SMI and non-SMI schools. A newsletter, the SMI Quarterly, was sent regularly to school heads and teachers to keep them informed of developments. An evaluation of schools which joined the SMI in 1991 showed that they were positive about joining the scheme, and had made tangible progress in adapting the management framework in their schools.

Governing Bodies of Tertiary Institutions

Each tertiary institution has its own structure of governance, set out in its ordinance. In all cases, that structure includes a governing body (called the court, the council or the board of governors), and a body to regulate academic affairs (called the senate or the academic board). Some institutions operate under three bodies: a governing body, an executive body and a body dealing with academic affairs. The Governor is empowered by the ordinances to appoint the chairman of each governing body, as well as a prescribed number of members. This ensures a balanced distribution of members from the industrial, commercial and academic fields.

Funding of Education

Approved public spending on education in the 1994-95 financial year amounted to HK$28,800 million, representing 21 per cent of the government's total recurrent expendi- ture and five per cent of capital expenditure. Public funds cover about 90 per cent of the capital cost of an aided primary or secondary school and virtually the full cost of tertiary institution campuses, the entire recurrent cost of providing tuition from Primary 1 to Secondary 3, and about 85 per cent of the recurrent cost from Secondary 4 up to courses at degree level.

Non-profit-making kindergartens are eligible for rent and rates reimbursements, and needy parents of kindergarten pupils may apply for fee remission. Private primary schools and pupils receive no public funding, on the grounds that there are sufficient places in the public sector; but some private secondary schools receive public funds under two schemes. Under the Direct Subsidy Scheme, a private secondary school meeting a specified standard may receive a recurrent subsidy related to the cost of an aided school place and the fee charged by the school. Under the Bought Place Scheme, a private secondary school from which the government buys places to make up shortfalls in government and aided school places, is given financial assistance to help raise standards.

Student Finance

The Student Financial Assistance Agency administers several schemes which ensure, as far as possible, that students are not denied access to education because of a lack of means.

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The agency also administers a number of scholarships, which are awarded on the basis of academic merit. These schemes are described below.

Student Travel Subsidy

Students aged between 12 and 25 in full-time study up to first degree level are eligible for a subsidy to cover part of their study-related travel expenses. In the 1993-94 academic year, 156 352 students received assistance totalling $145.8 million.

Textbook Assistance

Primary and junior secondary students who need help to meet the cost of textbooks and stationery may apply for a grant. In 1993-94, 113 526 students received assistance totalling $48.7 million.

Fee Remission

The Senior Secondary Fee Remission Scheme, which relieves students from Secondary 4 upwards of half or all of the standard school fee, helps those in need to continue their education without undue financial strain on their families. In 1993-94, 74 720 students were granted fee remissions amounting to $144.3 million.

  The Kindergarten Fee Remission Scheme provides assistance to eligible families, in the form of 50 or 100 per cent of the weighted average of fees charged by non-profit-making kindergartens, or the actual fee, whichever is lower. In 1993-94, $46.86 million was granted to 21 227 kindergarten pupils. The scheme was improved and brought into parity with the Senior Secondary Fee Remission Scheme from the 1994-95 school year.

Local Student Finance Scheme

Full-time students in UGC-funded institutions, the two technical colleges of the Vocational Training Council, and the dental technology course at the Prince Philip Dental Hospital, may apply for means-tested assistance under this scheme. The scheme provides for loans to meet living expenses and grants to cover tuition fees, academic expenses and student union fees. In 1993-94, 20 781 students received assistance. Of these, 18 684 received grants totalling $278.8 million, and 20 467 received loans totalling $436.1 million. In 1994-95, the scheme was extended to full-time students undertaking three-year or two-year pre-service courses at the Hong Kong Institute of Education.

Student Finance Assistance Scheme

Loans and grants are awarded to eligible full-time students of Hong Kong Shue Yan College and, up until 1993-94, the colleges of education. In 1993-94, 1664 students received loans totalling $17.3 million. Of these, 1 626 also received grants totalling $8.2 million.

United Kingdom-Hong Kong Joint Funding Scheme

A joint funding arrangement between the governments of the United Kingdom and Hong Kong provides grants and loans, on a means-tested basis, to full-time students on first degree or higher national diploma courses in the United Kingdom. The grant meets the difference between fees for United Kingdom home students and fees for overseas students.

EDUCATION

In 1993-94, grants of £4.4 million and loans of $10.5 million were made to 1 415 students. With the expansion of tertiary education in Hong Kong, the scheme will be phased out over three years starting from 1994-95.

United Kingdom-Hong Kong Scholarships Scheme

This scheme aims to help outstanding students from Hong Kong to pursue tertiary educa- tion in the United Kingdom. The scholarship fund is contributed equally by the United Kingdom Government and the Royal Hong Kong Jockey Club on behalf of the Hong Kong Government. Nine scholarships were awarded in 1993-94.

Sir Edward Youde Memorial Fund

The fund was established to manage public donations made in memory of the late Governor, Sir Edward Youde, who passed away in service in 1986. The fund promotes education and learning among Hong Kong people, and encourages research. In 1993-94, $8.4 million was disbursed. Twelve students were awarded fellowships or scholarships for postgraduate or undergraduate study overseas. Locally, 47 postgraduate students were awarded fellowships; and 71 under-graduate, diploma and certificate students received scholarships. Awards were also made to three students excelling in public examinations; eight disabled students at secondary, post-secondary and tertiary levels; and 625 out- standing senior secondary students nominated by school heads.

Other Scholarship and Assistance Schemes

In addition to the above, there are other scholarship and assistance schemes for school students, endowed by private benefactors. A large number of scholarships are administered by the Student Financial Assistance Agency under the Education Scholarships Fund Ordinance.

Schools and Kindergartens

Kindergartens

In September, 180 109 children aged three to five years were enrolled in 739 kinder- gartens. Kindergartens run on a non-profit-making basis are eligible for rent and rates reimbursements, and may be allocated premises in public housing estates. Most kindergartens operate two half-day sessions, but the number offering whole-day places is increasing.

      The Education Department gives professional advice to kindergartens through inspection visits; produces curriculum materials; organises seminars, workshops and exhibitions to help heads and teachers develop their professional skills; and runs basic in-service training courses for teachers. It also publishes guidelines to help teachers organise the curriculum and learning activities. A pamphlet on environmental education for kindergartens was issued in 1994 to provide guidelines and suggestions for environmental education, both within and outside the school setting.

      During the year, the government accepted in principle recommendations by the Board of Education for improving kindergarten teacher education and qualifications. Improvement measures planned to begin in 1995 include an expanded teacher training programme, and a requirement for at least 40 per cent of teachers in each kindergarten to be trained.

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Primary Schools

Primary schooling, beginning at the age of six and lasting six years, is provided free of tuition fees in all government schools and in nearly all aided schools. Although enough places are available in the public sector, about 10 per cent of parents prefer to send their children to private primary schools. Admission to Primary 1 in the public sector is processed through a central allocation system, which has helped to eliminate pressure on children caused by intense competition for entry to popular schools.

Most primary schools operate bi-sessionally. The normal class size in public sector schools is 40, but in schools adopting the activity approach - a less formal, pupil-oriented approach to teaching the class size is 35. In 1993, the size of all public sector Primary 1 classes was reduced by five places, and this reduction was extended to Primary 2 classes in September. During the year, 476 847 children were enrolled in 884 primary schools.

A new school design was drawn up, to provide more facilities for activities other than formal teaching and administration. The first school of the new design is expected to be completed in 1998. The first phase of a school improvement programme, to bring existing schools up to the new standard, started in 1994-covering 60 schools.

Whole-day schooling for all primary students is the long-term goal. Any primary school wishing to convert to whole-day operation is encouraged to do so if this will not adversely affect the supply of places in the district. New primary schools begin operating as whole- day schools wherever possible. During the year, 21 half-day primary schools converted to whole-day operation, bringing the total to 146.

The first phase of a policy to upgrade 35 per cent of primary school teachers to graduate status started in September, when 180 graduate posts were provided. The intention is to upgrade the professional and managerial skills of staff in government and aided primary schools. The teacher to class ratio is 1.4:1 for whole-day classes (improved from 1.2 since September 1992). For bi-sessional classes, a phased improvement to 1.3 teachers per class began in 1993.

Chinese is the medium of instruction in most primary schools, with English taught as a subject from Primary 1. Many schools teach Putonghua as a timetabled subject or an after- school activity. A few primary schools use English as the language of instruction.

The Guide to the Primary Curriculum, issued by the Curriculum Development Institute in December 1993, provides guidelines for organising a coherent and well-balanced curriculum to promote the all-round development of the child. All public sector primary schools adopt a core curriculum including Chinese, English, mathematics, social studies, science, health education, music, physical education, and arts and craft. Other learning programmes are offered on a cross-curricular basis or as separate optional subjects. General studies, a new core subject which will integrate social studies, science and health education, is planned for introduction in 1996. A syllabus for each core subject is prepared by the Curriculum Development Council, and is regularly revised and updated to meet changing educational and community needs. Awareness of the benefits of the activity approach is growing, and it is now used in 267 schools.

In January, the advisory committee on implementing the Target Oriented Curriculum (TOC) recommended to the Director of Education the adoption of a modified curriculum framework, strengthened teacher education programmes, more resource support to schools, a publicity and public education programme, and an implementation plan. In July, 13

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schools completed a trial of the TOC on a voluntary basis, and in September, another 20 schools began a voluntary TOC co-operative scheme, to strengthen teachers' confidence and skills in developing and implementing the TOC.

A teaching kit on the Acquired Immunodeficiency Syndrome (AIDS) was issued to all primary schools in July to provide basic information and suggestions for learning activities. Primary schools do not at present have libraries, but the class library service provides supplementary reading materials to support learning, encourage the habit of leisure reading and pave the way for effective use of the libraries in secondary schools. In-service courses and seminars were organised for teachers on managing, developing and promoting the use of class libraries. The 1994 reading award scheme for Primary 5 and 6 attracted 63 000 pupils from 290 schools.

At the end of the primary course, students are allocated places in government or aided secondary schools, or offered bought places in private schools. The allocation system is based on internal school assessments scaled by a centrally-administered academic aptitude test, and on parental choice. For allocation purposes, the territory is divided into 19 school regions. Taking part in the 1994 exercise were 85 263 primary pupils, of whom 74 834 (87.8 per cent) were allocated places in government and aided grammar secondary schools, 4 808 (5.6 per cent) in prevocational schools, and 5 621 (6.6 per cent) in private schools in the Bought Places Scheme.

Secondary Schools

Universal free education was extended to junior secondary classes in 1978. After Secondary 3, the aim is broadly to meet the demand for places on senior secondary or vocational courses. In 1994, there were subsidised Secondary 4 places for 85 per cent of the 15-year-old population, with places for a further 10 per cent on full-time craft courses of vocational training. The target for sixth form provision is to provide one public sector Secondary 6 place for every three public sector Secondary 4 places two years earlier.

      There are three main types of secondary schools: grammar, technical and prevocational. Two new types of school - practical schools and skills opportunity schools are being developed to cater for students who are either unmotivated by the mainstream curriculum, or who find it too demanding.

In 1994, the 410 grammar schools had a total enrolment of 415 430. These schools offer a five-year secondary course in a broad range of academic, cultural and practical subjects leading to the HKCEE. Most also offer a two-year sixth form course leading to the HKALE. The 20 technical schools, which prepare students for the HKCEE with an emphasis on technical and commercial subjects, had an enrolment of 21 330. Qualified candidates can continue their studies in the sixth form or in technical institutes.

      The 25 prevocational schools, with an enrolment of 21 439, offer an emphasis on practical and technical subjects upon which future vocational training may be based, while providing a good foundation of general knowledge. The curriculum in Secondary 1 to 3 consists of about 40 per cent technical and practical subjects, but this is reduced to about 30 per cent in Secondary 4 and 5. Students completing Secondary 3 in prevocational schools may enter an approved apprenticeship scheme, or continue in school and take the HKCEE. Qualified students can then proceed to the sixth form, or a course in a technical college or technical institute.

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  Secondary 3 leavers from all types of schools are selected for subsidised places in Secondary 4 or on craft courses according to internal school assessments and parental preference. The selection process aims to enable as many students as possible to progress to Secondary 4 within the same school. In 1994, 78 261 students took part in the exercise, of whom 64 472 (83.4 per cent) secured Secondary 4 places in public sector schools, and 5 004 (6.5 per cent) were admitted to basic craft courses.

  Admission to Secondary 6 depends on results in the HKCEE. In 1994, all 23 480 places available were filled.

  To meet provision targets, new secondary schools are built and places are bought from private schools. During the year, five new secondary schools, including two prevocational schools, were completed, providing 5 800 places. Most new schools are built to the standard design introduced in 1990. Fifty secondary schools were included in the first phase of the school improvement programme, which will provide more space for non-teaching activities.

In government and aided secondary schools, the staffing ratio is 1.3 teachers per class in Secondary 1 to 5, and two teachers per class in the sixth form. Additional teachers are supplied to strengthen language teaching; provide remedial teaching, careers guidance, counselling, extra-curricular activities and library services; and to enable split-class teaching of cultural, craft and technical subjects, as well as some sixth form subjects. The ratio of graduate to non-graduate teachers is about 7:3. The pupil to teacher ratio is about 21:1. In these schools, there are two main types of class structure: one with six classes each in Secondary 1 to 3, four classes each in Secondary 4 and 5, and two classes in each sixth form year; and the other with five classes each in Secondary 1 to 5, and two in each sixth form year.

The Direct Subsidy Scheme (DSS) was introduced in 1991 to strengthen the private secondary school sector and improve the quality and diversity of education. Private secondary schools meeting specified standards can receive a government subsidy for each eligible student. They are free to decide on their own curriculum and to set entrance requirements and fee levels. One school was admitted into the DSS in September, bringing the number of such schools to 12.

As part of the same policy package, the Bought Place Scheme will be phased out. Schools in the scheme are being helped to raise their standards so that they may, if they wish, apply to join the DSS. During the year, 19 private schools operated under contracts with the government which specify improvements in areas such as whole-day operation, class structure, teacher qualifications and school facilities. The contracts will expire in the year 2001, unless terminated earlier by either party, or when a school joins the DSS.

Junior secondary education is the final stage in the common core curriculum for nine years of universal education. The curriculum aims to provide a well-balanced and basic education suitable for all students in the age group, whether or not they continue formal education beyond Secondary 3.

The senior secondary curriculum aims to prepare students for education beyond Secondary 5 as well as for employment, and offers a wide range of subjects from which schools and students select according to the needs and interests of individuals, school traditions and the facilities available. Most students sit for the HKCEE at the end of Secondary 5.

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      Teaching syllabuses are prepared by the CDC for all subjects offered at the secondary level, and examination syllabuses are prepared by the HKEA. There is close co-ordination between the two bodies, and syllabuses are reviewed and revised as necessary to meet the changing needs of society. During the year, explanatory notes on the use of calculators in secondary mathematics were issued while the syllabus for human biology was revised. A guide to the Secondary 1 to 5 curriculum was published and distributed to schools, to help them develop a curriculum suited to their students' needs and interests.

All sixth form courses last two years. Subjects available include 18 at the advanced supplementary (AS) level and 22 at the advanced level. During the year, a feasibility study on introducing electronics as a new practical subject at AS level was completed, with positive findings.

      To help teachers implement the sixth form curriculum and become familiar with syllabuses, teaching approaches and strategies, the Curriculum Development Institute and Advisory Inspectorate offered short courses and seminars. The department also funded in- service teacher education programmes on individual AS level subjects which were mounted by tertiary institutions. The CDI published and distributed to schools a guide to the sixth form curriculum.

      The number of computers installed in secondary schools for computer education was doubled to over 9 000 during the year, giving every student on a computer course individual access to a machine.

Cross-curricular studies such as civic education, moral education, sex education, AIDS education and environmental education are promoted by making use of learning oppor- tunities in subjects across the curriculum and in extra-curricular activities. A booklet entitled Guidelines on the Prevention of Blood-borne Diseases in Schools and a video pro- gramme on AIDS Education at School were produced and issued to schools, and two three- day courses on drug education and sex education were organised for secondary school teachers in the summer. Curriculum resource kits with the theme 'Respect the Elderly' were developed and distributed.

All public sector secondary school libraries are staffed by a teacher-librarian. The 1994 reading award scheme for Secondary 1 to 5 attracted 33 000 students from 205 schools. The school library newsletter continued to provide a channel of communication for schools on managing, developing and using the library to support the curriculum.

      To promote greater use of Chinese as the medium of instruction in secondary schools, the Chinese Textbooks Committee continued to ensure the availability of good quality Chinese textbooks. A total of 82 sets of Chinese textbooks for 27 subjects at secondary level and 10 sets of Chinese reference books for five subjects at advanced level have so far been published.

      Secondary schools are encouraged to adopt Chinese as the medium of instruction, and discouraged from using a mixture of English and Chinese in classroom teaching. To support this policy, they were categorised during the year into Chinese-medium, English-medium and two-medium schools according to the language proficiency profiles of their Secondary 1 intakes from 1989 to 1993. Primary 6 leavers were grouped, for purposes of admission to secondary schools, into: (a) those able to learn effectively in either Chinese or English (33 per cent), (b) those who would learn best through Chinese (60 per cent), and (c) those who would learn better through Chinese but would probably also be able to learn in English

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(seven per cent). Parents were informed of their child's grouping and the medium of instruction chosen by individual schools, to help them choose secondary schools most suited to their children's language ability. Schools were advised to ensure a good match between their medium of instruction and the language proficiency of their incoming students. In September, 52 schools used Chinese for all subjects except English language, and over 100 more schools increased their use of Chinese, either for some Secondary 1 classes, or for all classes in some subjects.

Home-School Co-operation

The Committee on Home-School Co-operation, with members including educators and parents of kindergarten, primary and secondary school students and officers of the Education Department, aims to improve communication between schools and parents. In March, it completed a large-scale survey to determine perceptions of home-school relations among parents, students, principals, school managers, teachers and social workers, with a view to improving home-school co-operation in the future. The committee also organised various promotional activities.

Extra-curricular Activities

Extra-curricular activities are an integral part of school life, enriching formal learning in the classroom. They are usually conducted outside school hours, within or outside the school premises, under teacher supervision. The Education Department provides guidance and advice through in-service teacher education programmes and school inspections, subsidises some activities, and co-ordinates many inter-school programmes and activities. These include the Community Youth Club, the Duke of Edinburgh's Award Scheme, the Lions' Sister Schools Scheme, the Schools Drama Festival, sports and recreational activities as well as subject-based and interest-based activities.

The Community Youth Club (CYC), whose motto is "Learn, Be Concerned and Serve', had over 126 000 members from 1 168 primary and secondary schools. By the end of the year, 58 830 members had gained merit awards. A visit to Singapore was arranged for 39 outstanding primary and secondary school members during the summer. The CYC chose 'Respect for the Elderly and Concern for the Handicapped' as the theme of its activities for the year. To maintain the CYC's environmental education objectives, over 70 schools took part in the Country Parks Adoption Scheme. 'Greening for the Chest' activities helped raise over $4.5 million for the Community Chest.

The 19 operating authorities of the Duke of Edinburgh's Award Scheme in Hong Kong include the Education Department. The scheme attracted 24 000 members from 205 participating schools, and 130 training courses and functions at bronze, silver and gold levels were organised during the year.

The Lions' Sister Schools Scheme, set up under the auspices of the Lions Club International District 303, matches ordinary and special schools to promote social inter- action and friendship among students. Fifty special schools and 67 ordinary schools took part during the year.

The Schools Drama Festival attracted 145 schools, directly involving about 9000 students in play productions and about 110 000 students as audiences. Almost 4000 students from primary, secondary and special schools participated in the Schools Dance

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Festival in early 1994, and over 1 600 students took part in the annual winners' perform- ances. The Schools Dance Team participated in the Guangdong, Hong Kong, Macau Dance Exchange in July.

Training courses and competitions in canoeing, fencing, life-saving, gymnastics, trampolining, wind-surfing, netball and lion dancing, organised by the Education Depart- ment, attracted about 1000 course participants and 1 800 competitors. About 24 000 students and teachers from primary, secondary and special schools attended subsidised outdoor education camps. The Schools Physical Fitness Award Scheme, jointly organised by the department and the Hong Kong Childhealth Foundation, attracted about 28 000 pupils from 180 schools, and 1500 badges were awarded. Athletes from primary and secondary schools were selected to represent Hong Kong in the Schools Interport Com- petitions among Hong Kong, Macau, Guangdong and Fuzhou.

      In July, the Hong Kong Schools Sports Council hosted the Asian Schools Basketball Championships (Girls), with support from the Education Department, Urban Council, Hong Kong Sports Development Board and Hong Kong Basketball Association. Ten contingents from Korea, China, India, Macau, Malaysia, Singapore, Indonesia, Sri Lanka, Thailand and Hong Kong took part.

      Also in July, the Hong Kong Mathematical Society hosted the 35th International Mathematical Olympiad (IMO) the first time the IMO was held in Southeast Asia. Over 700 young mathematicians from 73 countries took part.

      The Music Festival, organised by the Hong Kong Schools Music and Speech Association, attracted 65 660 participants from 939 schools, while 67 100 students took part in the Speech Festival. Hong Kong students participated in four overseas art competitions and exhibitions in Japan, Norway and the United States of America. The Young Friends of the Hong Kong Arts Festival Scheme, jointly presented by the Education Department and the Arts Festival Society, attracted 3 940 students from 45 schools to attend pre-concert talks and concerts during the Arts Festival. The School Creative Music Showcase, jointly organised by the Education Department and the Hong Kong Composers' Guild, encouraged over 700 students to present their multimedia creative projects on stage.

Special Education

The main policy objective of special education is to integrate the disabled into the community through co-ordinated efforts by the government and non-governmental organisations.

      Early identification is an important preventive measure. Screening and assessment services identify special educational needs among school-age children, so that appropriate follow-up and remedial treatment can be given before problems develop into handicaps. Under the combined screening programme, all Primary 1 pupils are given hearing and eyesight tests. Teachers are given checklists and guides to help them detect children with speech problems and learning difficulties. Children requiring further assessments are given audiological, speech, psychological or educational assessments at special education services centres. Some are referred for ophthalmic advice.

      Children identified as having special educational needs are integrated into ordinary schools as far as possible. They are placed in special schools only when their handicaps are such that they cannot benefit from the ordinary school programmes. There are 63

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special schools (including a hospital school) for children who are blind, deaf, physically handicapped, mentally handicapped, maladjusted or socially deprived. Seventeen schools provide residential places. In addition to teachers, the special schools are staffed by specialists such as educational psychologists, speech therapists, physiotherapists, occupa- tional therapists, school nurses and social workers.

Special education classes in ordinary schools cater for partially-sighted and partially- hearing children, and children with learning difficulties. Services for children integrated into ordinary classes include school-based or centre-based intensive remedial support in the basic subjects, behavioural guidance to children and advice to teachers on how to help children with special needs. In 1994, a home-based teaching programme was introduced to enable children who were home-bound for health reasons to continue their education. A school-based remedial support programme was also implemented to support secondary schools with a high intake of academically less-able students. These schools were given greater flexibility and additional manpower to operate remedial services for their students. In general, special schools and classes follow the ordinary school curriculum, with adaptations or special syllabuses where appropriate to cater for the varied learning needs of the children. The Curriculum Development Council's special education co-ordinating committee, with members from government departments and schools, advises on special educational needs. Special schools give particular attention to daily living skills, and offer extra-curricular activities to enrich the practical life experiences of day and residential pupils.

During the year, a research project on the identification of academically-gifted children was commissioned, and planning proceeded for a resource centre for such children. A school support scheme providing school-based psychological services to secondary schools was also introduced.

Practical schools offer a curriculum with a practical orientation for junior secondary students who are unmotivated towards the common-core curriculum. They help students develop their interest and motivation in studying, and prepare them for further studies in vocational training or senior secondary education. Skills opportunity schools cater for students with severe learning difficulties. Students are helped to acquire basic social, independent and vocational skills through a tailor-made curriculum. In 1994, two practical schools provided 900 places, and one skills opportunity school provided 300 places. Further schools were being planned.

International Schools

In keeping with Hong Kong's international character, a number of schools offer curricula designed to meet the needs of particular cultural or linguistic groups.

The English Schools Foundation (ESF) operates nine primary schools (known as junior schools) and five secondary schools for children whose first language is English, and a special education school for English-speaking pupils with moderate to severe learning difficulties. The education provided is similar in content and method to that available in Britain, and leads to British public examinations. The ESF receives public grants based on grants paid to local aided schools, and charges fees to meet additional costs.

   Other international schools provide education on American, Canadian, French, Japanese, Swiss-German, Singaporean and Korean patterns. In 1994, there were 18 such schools

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      operating up to secondary level, 21 at primary level only, and 23 kindergartens. Some have received assistance from the Hong Kong Government in the form of favourable land grants and reimbursement of rates; others are sponsored by their own governments or communities. Some receive assistance from both sources. Five international secondary schools have joined the Direct Subsidy Scheme.

Teacher Education

In September, 2 721 full-time and 1 226 part-time students enrolled for the first time in the Hong Kong Institute of Education, a new autonomous tertiary institution amalgamating the four colleges of education and the Institute of Language in Education, previously managed by the Education Department.

      The institute offers full-time pre-service professional training for non-graduate teachers in primary and secondary schools; in-service initial training for primary, secondary and kindergarten teachers; refresher training courses to acquaint serving teachers in primary and secondary schools with modern teaching methods and approaches; and advanced courses of teacher education for non-graduate secondary school teachers of cultural, practical and technical subjects. Full-time pre-service courses last three years for students with HKCEE qualifications, and two years for those with passes in two subjects in the HKALE.

The institute plans to develop degree-level programmes within the next few years. On full development, it will provide courses for about 5 000 full-time equivalent students.

In-service language courses for serving teachers of Chinese (including Putonghua) and English, previously offered by the Institute of Language in Education (ILE), continued to be offered by the new institute. During the year, the ILE opened a new course for teachers of content area subjects using English as the medium of instruction, and conducted seminars for teachers. In 1994, a total of 760 teachers attended full-time language courses and 802 attended part-time courses. Of these, 148 attended an extension course in the United Kingdom during the summer.

The Council on Professional Conduct in Education

In April, the Council on Professional Conduct in Education was set up as a non-statutory body to advise on measures to promote professional conduct in education, draw up operational criteria defining the conduct expected of an educator, and advise the Director of Education in cases of disputes or alleged professional misconduct. The council aims to enhance the image and professionalism of teachers and to attract more high-calibre young people to join the teaching profession.

Support Services

Teaching and learning in schools is reinforced by a wide range of services, many of them provided or supported by the Education Department.

      The Advisory Inspectorate advises schools on curriculum implementation, teaching methodology and educational resources; and offers short courses, seminars and workshops for teachers. Its teaching and resource centres offer resources and advice in the areas of language, mathematics, science, social and moral education, sex education, AIDS education, environmental education and kindergarten teaching.

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The Hong Kong Teachers' Centre, set up in 1989 to promote professionalism and a sense of unity among teachers, is supervised by an advisory management committee with wide representation from schools, teacher organisations and educational bodies, and is staffed by the department. During the year, the centre organised, sponsored or hosted over 800 activities for 60 000 participants. It maintained a professional library and published newsletters.

Educational television programmes, produced jointly by the department and Radio Television Hong Kong, are transmitted to schools by two local television stations. Syllabus- based programmes for pupils in Primary 3 to Secondary 3 cover the Chinese and English languages, mathematics, science and social studies. Programmes for pupils in Primary 3 to 6 include health education.

A five-year information systems strategy was launched in late 1993 to extend the use of computer technology in managing and administering the school education programme. Computer networks are being developed to link up public sector schools with various sections of the department. In May, the Information Systems Division was established to oversee the development of 11 projects. Serving teachers and school heads are actively involved, to ensure that the system will be user-friendly and meet users' needs. When implemented in 1998, the strategy should reduce administrative workloads, increase productivity, enhance communications between schools and the department, and improve information management. This will help to improve the quality of education.

  The department's Educational Research Section conducts research, develops tests, evaluates education programmes and monitors educational standards. During the year, a new series (Series 4) of standardised Hong Kong Attainment Tests was developed for primary levels in Chinese, English and mathematics. These tests are administered yearly by primary and secondary schools to diagnose areas of strength and weakness, so that appropriate guidance, counselling and remedial teaching can be provided. The results also help the department to monitor standards across years and levels. Research projects completed by the section included three studies on the continuity of curriculum and teaching practices among various levels of education, and a study of the effects of changing the medium of instruction at junior secondary level. Studies also began on the implementation of the new Secondary 6 curriculum, and a pilot project on the implementation in schools of the educational aims set out in the policy document School Education in Hong Kong: A Statement of Aims.

The 19 district education offices, each headed by a senior education officer, provide advice and assistance to schools, teachers, parents and students, and facilitate communica- tions with the department. District education officers attend district board meetings for discussion of educational matters.

The department encourages a whole-school approach to student guidance, emphasising a caring and positive learning environment and the involvement of all staff in helping students resolve their developmental problems. The Student Guidance Section provides training for primary school guidance staff, enforces compulsory education and ensures an adequate provision of study room facilities.

The Careers and Guidance Services Section supports the delivery of careers and guidance services to secondary students. Training courses, conferences and workshops are organised annually for careers/guidance teachers, and a guidance teacher resource centre

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provides reference and support materials. The section offers a free public advisory service on local and overseas studies. During the year, about 3 222 students left to study in Britain, 2 787 left for Canada, 4 555 for the USA, and 3 109 for Australia. Exhibitions promoting overseas education were staged by British, Canadian, American and Australian organisations.

      The Non-graduate Teacher Qualifications Assessment Scheme was introduced in 1992-93 to assess the qualifications and professional competence of intending teachers who obtained their qualifications and training outside Hong Kong. The assessment helps to increase the supply of qualified primary school teachers. A total of 90 candidates passed the required examinations in the 1993-94 cycle.

The Students Division of the Hong Kong Government Office in London continued to maintain close contacts with Hong Kong students and encourage them to be young ambassadors overseas. Seminars and exhibitions on Hong Kong were organised by Chinese/Hong Kong student societies in various regions of the United Kingdom. The year 1994 was the last opportunity for first year undergraduate students to apply for the UK/HK Joint Funding Scheme, which is being phased out in stages starting from the 1994-95 academic year.

Technical Education and Industrial Training

A comprehensive system of technical education and industrial training offers school- leavers an alternative to further academic study, and helps to prepare them for specific careers. Publicly-funded courses are provided in the VTC's two technical colleges, seven technical institutes, and 24 industry training centres. Separate levy-funded authorities provide industrial training for the clothing and construction industries.

      Manpower needs for each sector are identified in regular surveys conducted by VTC boards and committees. During the year, 14 sectors were surveyed. Other support services to employers include help with in-house staff training schemes, out-centre training courses, the New Technology Training Scheme, training seminars, trade tests; and the publication of job specifications, trade test guidelines, training curricula, and glossaries of common technical terms.

Technical Education

Technical education at technician level is provided by the VTC's two technical colleges at Chai Wan and Tsing Yi. These offer higher diploma or higher certificate courses in science, business administration, computing and mathematics, construction, design, electrical and communications engineering, electronic engineering, hotel catering and tourism manage- ment, manufacturing engineering and mechanical engineering. Higher diploma courses are full-time, while higher certificate courses are offered on a part-time day release and evening basis. Short courses are also offered to people in employment. In October, enrolment totalled 3 260 full-time students on 36 courses, and 1 690 day release and 4 400 evening students on 44 part-time courses.

       The seven technical institutes provide technician and craft level courses in accounting, chemical technology, child care, clothing technology, commercial studies, computing, construction, design, electrical engineering, electronic engineering, environmental studies, hairdressing, hotel-keeping and tourism, manufacturing engineering, marine engineering

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 and fabrication, mechanical engineering, motor vehicle engineering, printing and textiles. Craft level courses, usually for Secondary 3 leavers, are offered on a full-time or part-time day release, block release and part-time evening basis. Full-time and part-time technician level courses are offered for Secondary 5 leavers. In September, total enrolment stood at 9 640 full-time, 15 060 part-time day and 23 200 evening students on 300 courses. About 11 000 people attended 209 short courses to upgrade their knowledge and skills. Full-time lecturing staff totalled 750, while evening courses were delivered by 1 750 part- time lecturers.

  In July, 4 511 full-time, 5 258 part-time day and 8 151 evening students graduated from the technical institutes. The annual survey of graduates from full-time courses again found that they were readily employed, most of them in jobs relevant to the courses they had studied.

Industrial Training

The VTC's 24 training centres offer basic skills training and upgrading for craftsmen and technicians in industry, and for clerical and supervisory staff in the service sectors. Over 42 000 full-time and part-time places were available during the year. Trade tests were offered for employees in the building, civil engineering, automobile, electrical, machine shop and metalworking, plastics and printing industries. Five training boards, in association with other bodies, organised out-centre courses to upgrade or bring up to date serving employees.

  The Construction Industry Training Authority, which is funded by a levy on the value of construction works exceeding $1 million, operates three training centres offering 4 500 places. Full-time courses are offered for new craftsmen, operatives and super- visors, and there are also part-time upgrading courses for those already working in the industry.

  The Clothing Industry Training Authority was set up in 1975 to provide training centres for the woven garment, knitwear, fur and footwear industries. It is financed by a levy of 0.03 per cent on the FOB value of clothing and footwear manufactured in and exported from Hong Kong. In 1993-94, two training centres trained 8 840 people at technician, craftsman and operative levels on full-time and part-time courses. The authority also provided seven retraining courses for the Employees Retraining Board.

  The Engineering Graduate Training Scheme, administered by the VTC, helps engineering students and graduates complete the professional training which will gain them recognition by the Hong Kong Institution of Engineers or other professional bodies. During the year, 82 firms took part in the scheme, providing 299 places.

The VTC's Management Development Centre conducts research and development projects and promotes management training. It works with owner-managers and entre- preneurial firms, develops learning materials, and organises activities with management trainers and executives.

Training in New Technologies

The VTC's Precision Tooling Training Centre houses a training unit for precision sheet metal processing. It was set up in 1990 with financial and expert help from the Japan International Co-operation Agency under an inter-governmental agreement.

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       The New Technology Training Scheme provides matching grants to companies wanting to help their staff to acquire skills in new technologies. During the year, 169 applications were approved.

Apprenticeship Schemes

The Apprenticeship Ordinance governs the training of craftsmen and technicians in 42 designated trades. Anyone aged between 14 and 18, employed in one of these trades, and who has not completed an apprenticeship, must enter into a contract with the employer. This must be registered with the Director of Apprenticeship, who is the executive director of the VTC. Contracts in other trades may be registered voluntarily. An apprenticeship normally lasts three or four years. Qualifications earned before the start of the apprenticeship, such as completion of a craft foundation course, may lead to exemption from the first year.

The Office of the Director of Apprenticeship advises and helps the employers of apprentices. Inspectors visit workplaces to ensure that training schemes are properly implemented, help to resolve disputes, and ensure that apprentices are enrolled on the required courses of technical education. A free placement service is offered to job-seekers interested in an apprenticeship. During the year, 3 650 contracts were registered (730 in non-designated trades), covering 3 100 craft and 550 technician apprentices. At the year's end, 7 930 apprentices were being trained.

Training for the Disabled

Five skills centres, three run by the VTC and two by voluntary agencies, prepare disabled people for open employment or mainstream technical education and industrial training. They provide 770 full-time places, of which 288 are residential.

Support services provided by the VTC include a vocational assessment service, using internationally-recognised tests and work samples designed to match local commercial and industrial skill profiles. All mildly mentally-disabled students undergo a one-week assessment in their final school year, while an eight-week programme is used in assessing the more complex cases. Short assessment programmes with specific objectives are also provided.

The VTC's Technical Aids and Resource Centre designs and makes aids for disabled trainees, students and workers to enhance their employment prospects, and provides information and resource materials on vocational rehabilitation.

An inspectorate unit advises skills centres on administration, curriculum, training methods and standards; and provides guidance to disabled students on technical education and industrial training courses. The unit works closely with the Labour Department's selective placement service to ensure that training matches the demand for skills in the local employment market. Over 80 per cent of disabled people completing full-time courses in technical institutes and skills centres entered open employment or enrolled in further courses in mainstream technical education during the year under review.

Tertiary Education

Ten years ago, less than five per cent of the 17-20 age group could receive tertiary education in Hong Kong. By 1994-95, this figure had increased to 18 per cent, with 14 500 places for first-year, first degree courses.

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Degrees up to doctorate level awarded locally are recognised by institutions of higher learning around the world. Academic standards are guaranteed by the appointment of external examiners from prominent overseas universities and colleges. The Hong Kong Council for Academic Accreditation validates degree courses offered by Lingnan College and institutions not funded through the UGC.

  In May, the government agreed in principle to a change to university title for the two polytechnics and Hong Kong Baptist College. Legislation to change the names of the institutions to the City University of Hong Kong, the Hong Kong Baptist University and the Hong Kong Polytechnic University was enacted in November.

The Tertiary Institutions

The oldest tertiary institution is the University of Hong Kong, founded in 1911 but continuing the work of a college of medicine dating from 1887. Its 10 503 full-time and 2 462 part-time students are enrolled in nine faculties: arts, architecture, dentistry, education, engineering, law, medicine, science and social sciences.

The Chinese University of Hong Kong was established in 1963 by bringing together New Asia College (founded in 1949), Chung Chi College (1951) and United College (1956). A fourth college, Shaw College, was founded in 1986. The university has 8 547 full-time and 1 288 part-time undergraduate students, and 777 full-time and 1 459 part-time postgraduate students in seven faculties: arts, business administration, education, engineering, medicine, science and social sciences.

The Hong Kong Polytechnic University, established in 1972 as the Hong Kong Polytechnic, offers postgraduate, degree and sub-degree courses in six faculties: applied science and textiles, business and information systems, communications, construction and land use, engineering, and health and social studies. The polytechnic has close links with industry, commerce and the community; and concurrent work and study are encouraged through part-time and sandwich courses. Enrolment in December was 10 721 on full-time and sandwich courses, and 10 369 on part-time courses.

Hong Kong Baptist University was founded in 1956 as the Hong Kong Baptist College by the Baptist Convention of Hong Kong. In 1983, it was incorporated under its own ordinance and became fully funded by the government. Since 1986, it has been empowered to award degrees, and all courses are now at first degree level or above. It has 4 000 full-time and 538 part-time students in five faculties and schools: arts, business, communications, science and social sciences.

The City University of Hong Kong, founded in 1984 as the City Polytechnic of Hong Kong, has 8911 full-time, 5 918 part-time and 415 sandwich course students. The four faculties of business, humanities and social sciences, law, and science and technology offer first degree courses, postgraduate diplomas, and taught master's degree courses, as well as Master of Philosophy and Doctor of Philosophy programmes by research. Diploma and higher diploma courses are offered by the College of Higher Vocational Studies through its divisions of commerce, humanities and social sciences, and technology.

  The Hong Kong University of Science and Technology was incorporated in 1988 and opened in 1991, offering first and higher degrees in three schools: science, engineering, and business and management. A fourth school, humanities and social science, offers only graduate degrees but provides general education for all undergraduates. The university has

EDUCATION

already developed interdisciplinary research projects in areas such as advanced materials, Asian financial markets, Hainan Island, biotechnology, economic development, environ- mental studies, information technology, infrastructure development, manufacturing, micro- systems, scientific computation and software engineering. In December, it had 4 367 undergraduate and 945 graduate students. At its second congregation in November, 576 bachelor and 213 advanced degrees were conferred.

      The Open Learning Institute of Hong Kong was established in 1989 to provide adults with more opportunities for higher education through open access and distance learning courses. In October, about 18 400 students were enrolled in 114 courses leading to degree and sub-degree qualifications in four schools arts and social science, business and administration, education, and science and technology -- and the Centre for Continuing and Community Education. Two new honours degree programmes - the Bachelor of Education and the Bachelor of Nursing - were introduced during the year, and more than 1 000 teachers and 1 000 nurses were enrolled in the programmes. Financial aid schemes of grants and scholarships were set up during the year to help needy students. At the end of 1994, the construction of the institute's permanent headquarters in Ho Man Tin was well underway and was expected to be completed in early 1996.

      Lingnan College was founded in 1967 to continue the tradition of Lingnan University. It came under the aegis of the UGC in 1991, and was incorporated as a degree-awarding institution under its own ordinance in 1992. It has three faculties arts, business and social sciences and a general education division. In December, enrolment was 1 947 full-time students, of whom 1 409 were pursuing honours degree studies and 538 were honours diploma students. Enrolment is planned to increase to 2 000 by 1995. At the year's end, the new Tuen Mun campus was under construction, with a target completion date of July 1995. Following its move to Tuen Mun, the college will be fully residential.

      Each institution publishes detailed information about admission criteria, courses, staff and other matters in its annual report, calendar and prospectus, obtainable through the institution's information office.

Post-Secondary Colleges

Hong Kong Shue Yan College, registered in 1976 under the Post Secondary Colleges Ordinance, operates a four-year diploma programme. Its faculties of arts, social sciences and commerce include 13 departments offering day and evening courses to 2 712 students. The college receives no public funding, but its students may apply for government grants

and loans.

Adult Education

Many formal and informal opportunities are available for adults to study in their spare time, either for personal development or to update knowledge and skills relevant to their work. Numerous private schools offer language, business and computer courses. The British Council, Alliance Française, Goethe Institute and Japanese Consulate all offer language

courses.

      All the tertiary institutions, except the Hong Kong University of Science and Tech- nology and Lingnan College, operate extra-mural departments or divisions of continuing education. They offer a large variety of courses, some at degree level, in such areas as

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languages, translation, business management and professional development for teachers, social workers and others.

The Education Department provides courses of second chance education for adults at primary and secondary levels, and courses of personal development at post-secondary level. Less formal activities, including hobby and fitness classes, are provided in adult education and recreation centres run by the department. During the year, the government subvented 433 adult education projects organised by 74 voluntary agencies.

The British Council

The aim of the British Council in Hong Kong is to offer British skills and expertise in the key areas of science and technology, the arts and English language teaching and learning, to meet the challenge of the territory's continuing educational and economic development into the next century.

English language teaching is one of the council's major programmes in Hong Kong. Through its general and business English courses, distance learning programmes, summer schools and programmes, and teacher training courses, the English Language Centre provided learning opportunities for nearly 40 000 Hong Kong residents in 1994. In addition, the council arranged for 115 student teachers from the colleges of education to visit the United Kingdom for courses jointly funded with the Education Department.

The council works closely with the government, and higher education and other organisations to provide access to British expertise in areas such as the environment, law, planning, education, medicine, nursing and public administration. It promotes technology transfer through academic and industrial links. In October, the council organised the first joint British Council/UK Department of Trade and Industry seminar on air quality control. A joint programme of research funding with the Hong Kong Research Grants Council supported some 30 projects in 1994, while planning started for a new scholarship scheme, the Chevening Awards, which will be offered at undergraduate, postgraduate and post- experience level.

The council's library and information services are open to all Hong Kong residents and cover all aspects of British life and culture, with an emphasis on English literature and English language teaching. The collections include books, magazines, newspapers, videos, CD-ROM, music on CD and audio tapes. The library facilities are computerised and free for students of the council's English Language Centre. Others are charged a nominal annual subscription.

The Education Counselling Service provides free and impartial advice to students on educational opportunities in Britain. În 1994, 24 000 students used the service. The council organised its fourth British Education Exhibition in February, with 184 exhibitor institutions from the United Kingdom. Over 90 000 people visited the exhibition.

The council plans to open a new Distance Learning Centre in January 1995 to provide potential students in Hong Kong with a reliable and objective source of detailed information about all UK distance learning courses and awarding insitutions. The centre will provide easy access to sample course materials in order to assist candidates to make an informed choice of the course best suited to their qualifications, professional development and career requirements.

11

HEALTH

THE Comprehensive range of health services available, together with improvements in the standard of living, have fostered a good general level of health in Hong Kong.

      The cornerstone of the government's health policy is that no one should be denied adequate medical treatment through lack of means. The government works to ensure that services and facilities of sufficient quality and quantity are available from both public and private sector providers to meet the needs of the community.

      Under an extensive development programme, there was continued progress in 1994 on the planning and improvement of medical facilities, including public hospitals, general out- patient clinics and specialist out-patient services. Phase I of a new private hospital, the Shatin International Medical Centre Union Hospital with 212 beds, opened in June. Plans were announced for a new 400-bed hospital at Tseung Kwan O.

The year saw an increase of 554 hospital beds, bringing the total number to 27 572 -- representing 4.5 beds per thousand of the population.

      Following support for the proposal outlined in the 1993 consultation document Towards Better Health, a pilot project to introduce a new class of semi-private beds in public hospitals began in July. The pilot will be conducted in three hospitals and the results evaluated before a decision on whether to extend the scheme is taken. As a further follow-up to the consultation document, the government was also finalising plans at the year-end for a co-ordinated voluntary medical insurance scheme.

In September, the government announced plans to establish a regulatory framework and statutory body to control the practice of scientifically-assisted human reproduction. This followed the endorsement of the recommendations of the Committee on Scientifically Assisted Human Reproduction, to protect the rights of both parents and children born of such procedures. Pending the setting up of the statutory body, a provisional board will be established by early 1995 to advise on the drawing-up of a code of practice and the issues to be covered by legislation.

In 1994-95, a sum of $17,602 million was allocated to medical and health services in the public sector, including $15,662 million for the Hospital Authority and $1,729 million for the Department of Health. In addition, subventions totalling $211 million were provided for other medical institutions and organisations.

Capital expenditure on new hospitals and related buildings, including equipment and furniture, was about $1,568 million.

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The Organisational Framework

The Department of Health is the government's health adviser and the agency for executing health care policies and statutory functions.

  It safeguards the health of the community through a comprehensive programme of promotional, preventive, curative and rehabilitation services. It works in collaboration with the private sector and teaching institutions to provide a wide range of primary health care services.

The Hospital Authority is an independent body responsible for the management and control of all public hospitals in Hong Kong.

  The authority was established in December 1990 to integrate government and government-assisted hospitals with a view to optimising the use of resources, facilitating hospital management reforms and enhancing community participation. Medical treatment and rehabilitation services are provided to patients through hospitals, specialist clinics and outreaching services operated by the authority. Since 1992, management reforms have been introduced in most public hospitals, with the emphasis on defining clear lines of accountability and providing greater devolution of responsibilities.

Of the 26 663 hospital beds in Hong Kong, 23 461 are in public hospitals under the Hospital Authority, 3 112 are in private institutions, 849 in correctional institutions and 84 are in institutions under the Department of Health.

At the end of 1994, 7 670 doctors were registered with the Hong Kong Medical Council 6 985 on the local list and 685 on the overseas list. The number of nurses registered with the Hong Kong Nursing Board was 33 664.

Health of the Community

The health of the population remains good, as indicated by health indices which are among the best in the world. The infant mortality rate is below five per 1 000 live births. The average life expectancy at birth is 81 years for females and 75 for males.

The leading causes of death in 1994 were cancers (31 per cent), heart diseases (16 per cent) and cerebrovascular diseases (11 per cent). These diseases mainly affect the elderly and are expected to continue to dominate the mortality picture as the population in Hong Kong ages.

Communicable Diseases

The Quarantine and Prevention of Disease Ordinance was revised in 1994 in view of changes in the epidemiology of communicable diseases and the amendment of international health regulations by the World Health Organisation. With the deletion of four diseases (smallpox, chickenpox, puerperal fever and opthalmia neonatorum) and the addition of five diseases (tetanus, legionnaires' disease, dengue fever, rubella and mumps), the new list of notifiable diseases contains 26 items. Other amendments included the revision of penalties and fines under the ordinance.

Communicable diseases are well under control. In 1994, there were 9 120 notifications of infectious diseases, including 5 989 cases of tuberculosis and 836 cases of viral hepatitis.

A total of 56 cholera cases came to attention in 1994, including nine imported cases. An outbreak of cholera affecting 12 patients occurred between June 15 and July 8 in Aberdeen. Investigations identified seafood kept in contaminated sea-water taken from the Aberdeen

HEALTH

typhoon shelter as the source of infection. Prompt and co-ordinated efforts by various departments successfully contained the outbreak. Legislation was introduced by the two municipal councils to regulate the water quality in fish tanks used by restaurants and markets.

Tetanus has been uncommon in Hong Kong since the successful implementation of tetanus immunisation programmes in the 1950s. An outbreak occurred between November 1993 and February 1994, affecting 43 people and resulting in 22 deaths. All were intravenous heroin users. An investigation identified heroin contaminated by tetanus organisms as the common source of infection. The tetanus outbreak was controlled by means of publicity, health education and free immunisation for drug-users.

      To protect the population from infectious diseases, children in Hong Kong are immunised against tuberculosis, diphtheria, pertussis, poliomyelitis, tetanus, hepatitis B, measles, mumps and rubella. The vaccine coverage is high. As a result, diphtheria and poliomyelitis have been virtually eradicated.

HIV Infection and AIDS

In 1994, up to November, 97 cases of HIV (Human Immunodeficiency Virus) infection and 19 AIDS (Acquired Immunodeficiency Syndrome) patients were reported. This represented an increase of 23 per cent and 27 per cent, respectively, when compared with 1993. The cumulative total was 513 cases of HIV infection and 127 AIDS patients.

      The Advisory Council on AIDS plays a key role in supervising Hong Kong's overall AIDS programme. A strategy paper entitled Strategies for AIDS Prevention, Care and Control in Hong Kong was prepared by the council to serve as the blueprint for the territory's policy on all AIDS-related issues.

      The AIDS Trust Fund, established by the government in 1993, provides financial assistance to those infected with HIV through transfusion of blood or blood products in Hong Kong prior to August 1985. It also supports community projects which provide direct services to those with HIV and AIDS, increase AIDS awareness or remove discrimination against those infected with the virus. So far, about $39.4 million has been disbursed from the fund.

      The AIDS Unit of the Department of Health provides counselling and medical consulta- tion for persons infected with HIV or at risk of infection. Members of the public can use a special telephone hotline (2780 2211), which is an interactive voice-processing system, to obtain advice in confidence. Callers may choose to listen to pre-recorded messages in Cantonese and English, obtain fax messages or talk to counsellors. Pre-recorded messages are also available in Putonghua, Thai, Tagalog and Vietnamese.

      The participation of non-governmental organisations is crucial in the fight against AIDS. The Hong Kong AIDS Foundation and AIDS Concern provide counselling and education as well as patient support services. The year 1994 also witnessed the development of other community initiatives, including the Hong Kong AIDS Memorial Quilt Project, the AIDS project of the Hong Kong Council of Social Service and the establishment of 'Reach Out' which focused on the commercial sex industry. The Department of Health, in collaboration with the Lions Club International District 303 Hong Kong and Macau, also launched a new project, the Community Charter on AIDS, to encourage companies and organisations to adopt a positive and non-discriminatory policy towards people with HIV or AIDS.

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Primary Health Care

Primary health care, which emphasises the promotion of general health and prevention of disease, is recognised worldwide as the most cost-effective means of providing health care services.

The Working Party on Primary Health Care, whose report was endorsed by the govern- ment in 1991, made 102 recommendations for improving primary health care services. Intense efforts are being made to implement these recommendations with improvements at all government general out-patient clinics, the establishment of new health services and the development of a district health system.

District Health System

The District Health System is an organisational framework for the delivery of primary health care services. It attaches importance to the need for efficient co-ordination among the various providers of medical and health services. The setting up of multi-sectoral district health committees, with members drawn from other health care and community service providers and the public, provides a forum for community participation in service planning and health promotion.

A pilot District Health System programme was initiated in 1992 in Kwun Tong. An evaluation of the programme was completed in early 1994 and submitted to the Health and Medical Development Advisory Committee, where it was favourably received. There are plans for the system to be extended to other districts.

Hospitals and Development Programmes

Public hospitals provide heavily-subsidised services which are easily accessible to the community.

During the year, the demand for hospital services remained high, as reflected by the 809 755 hospital admissions and 5 066 641 attendances at out-patient and specialist clinics. Accident and emergency departments of major public hospitals saw 1 661 694 attendances an average of 4 553 per day.

w

Projects in the hospital development programme progressed satisfactorily.

The number of beds available at Tuen Mun Hospital, which opened in 1990, increased to 1 319 at the end of the year. The hospital will provide a total of 1 606 beds upon full operation.

   The number of beds available at the 1 620-bed Pamela Youde Nethersole Eastern Hospital, which opened in October 1993, increased to 782 at the end of the year.

The Hong Kong Eye Hospital, which opened in Mongkok in September 1993 and offers specialist ophthalmology services at both the secondary and tertiary referral levels, became fully operational in 1994.

The Au Tau Infirmary was completed in August to provide 120 beds for the care of infirmary patients.

The territory's first cancer centre is being built at the Prince of Wales Hospital to conduct multi-disciplinary cancer research, diagnosis, treatment, counselling and public education. New or additional services are being progressively introduced at Tuen Mun Hospital, the Queen Mary Hospital Extension, Ruttonjee Hospital, Shatin Hospital and Yan Chai Hospital.

HEALTH

      Major projects under construction include the extension of the United Christian Hospital, redevelopment of the specialist out-patient clinic and refurbishment of Queen Elizabeth Hospital, extension and refurbishment of Princess Margaret Hospital, redevelopment of Haven of Hope Hospital and Castle Peak Hospital, extension of the out-patient facilities and refurbishment of Kwong Wah Hospital, a geriatric day hospital at Wong Tai Sin Hospital and the Tai Po Infirmary and Convalescent Hospital. Also in the pipeline are the Tseung Kwan O Hospital, the 618-bed North District Hospital and the relocation of Nethersole Hospital to Tai Po.

Clinics

The government operates 67 general out-patient clinics, providing affordable care to the public. It is estimated that about 13 per cent of the population seek medical consultation at these clinics. Total attendances in 1994 came to 10.4 million. To increase access to public services for residents of remote areas and outlying islands, there are also mobile dispensaries, floating clinics and a flying doctor service. To cater for increasing demand, nine additional clinics are planned in the next decade.

      Health care in the territory is also provided by medical practitioners belonging to the Estate Doctors' Association who run clinics in housing estates to provide a low-cost service for residents; medical practitioners in private practice; 85 clinics operated by various charity organisations and 129 exempted clinics registered under the Medical Clinics Ordinance.

Specialised Services

The Department of Health also operates 17 tuberculosis and chest clinics, 10 social hygiene clinics, nine dermatology clinics, five clinical genetic clinics and four child assessment

centres.

Medical Charges

Health promotive and preventive care services are generally free. Under a policy that nobody should be denied adequate medical treatment through lack of means, other medical charges (especially for hospital treatment) are heavily subsidised.

      Patients in general wards of public hospitals are charged $54 a day. This fee covers everything from meals, medicine and tests, to surgery or any other treatment required. The charge may be reduced or waived in cases of hardship certified by a medical social worker. Limited numbers of private beds are provided at major public hospitals with higher maintenance and treatment charges.

The charge for a consultation at general out-patient clinics is $29, while that at specialist clinics is $36. Charges for physiotherapy, occupational therapy and child assessment services are also $36 per session. Attendances at geriatric or psychiatric day centres and home visits by community nurses cost $44 per session. These fees may also be waived if warranted.

      The charge for injections and dressings in general out-patient clinics is $12, while charges for visits to family planning clinics and methadone clinics remain at $1.

Free medical services continued to be offered at maternal and child health centres, tuberculosis and chest clinics, social hygiene clinics, and accident and emergency departments.

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Performance Pledges

The department has set performance pledges with the aim of improving the delivery of services to the public and developing a more customer-oriented culture of service. All general out-patient clinics were included in the programme in late 1994. Improvements include the use of medical records and patient-held records to enhance continuity of care, labelling of all dispensed medicine, improving the clinic environment, health education and counselling by nurses. Emphasis has been placed on ensuring patient privacy and confidentiality of patient information. The programme will shortly be extended to maternal and child health centres.

Health Education

The Central Health Education Unit of the Department of Health is responsible for the planning, organisation and promotion of health education activities. In 1994, its focus included the prevention of communicable diseases such as hepatitis A, diarrhoeal diseases and malaria; organ donation; prevention of accidents and the health hazards of smoking. It liaises closely with both government and non-governmental organisations to promote health education activities.

A new Health Ambassador Scheme was launched during the year. Women and secondary school students were recruited and given training so that they could carry out further health promotional activities in schools and among families. Special training courses and seminars were arranged for teachers. Health talks and presentations were delivered in schools, and to voluntary agencies, private companies and government departments.

Health education materials including leaflets, slides, videos and exhibits were produced for distribution or loan. Some selected video titles are sold at cost.

A new computerised 24-hour telephone health education system (2833 0111), which delivers voice and fax messages on many health topics, was installed in 1994.

Family Health

The Family Health Service of the Department of Health offers a comprehensive health programme for women and children aged below six years through 47 maternal and child health centres. For children, immunisation, health advice, physical examinations and comprehensive observation services are provided. During the year, about 91 per cent of newborn babies attended such centres. For women of child-bearing age, ante-natal and post- natal medical consultation and family planning services are available. In addition, the first women's health centre commenced operation in May, to provide a health promotion and screening programme for women aged 45 years and above.

The government-subvented Family Planning Association of Hong Kong runs nine birth control clinics and three youth health care centres, providing contraceptives, sterilisations, vasectomies, gynaecological check-ups, pre-marital check-ups, youth counselling and advice on sub-fertility. It also promotes family planning, family life and sex education.

Medical Care for the Elderly

The provision of medical services for geriatric patients has been made an urgent priority. During 1994, the geriatric teams in acute hospitals were integrated with the general medical

HEALTH

teams to provide more efficient assessment and treatment for patients in acute hospitals. In addition, 50 day-places were provided for elderly patients.

      A network of nursing homes with medical and nursing facilities is being developed for elderly patients. In line with the spirit of community care, non-profit-making organisations are being invited to build and manage some of the nursing homes, with assistance from the government in the form of land and part of the capital and running costs. By 1997, seven nursing homes providing 1 400 beds will be in operation.

A pilot health centre for the elderly in Nam Shan commenced operation in May. It provides screening and health counselling services for elderly patients, as recommended by the Working Party on Primary Health Care.

      In 1994-95, six new specialist medical teams were formed to provide health care, assessment and rehabilitation services for a total of 55 700 elderly people.

School Health

The School Medical Service Scheme is operated by an independent School Medical Service Board. All students from Primary 1 to Form 3, from participating schools, can join the scheme voluntarily by paying a token fee of $20 a year. At the end of 1994, more than 336 417 children from 1 098 schools participated in the scheme - representing about 46 per cent of the eligible school population. Some 517 general medical practitioners were enlisted. Since November, a student pays $20 per consultation. The government contributes $14,615 a year for each pupil enrolled and also bears the administrative costs.

A new Student Health Service, with emphasis on health promotion, disease prevention and continuity of care, will replace the existing School Medical Service in November 1995. The commissioning of the service is being undertaken by the Department of Health.

       School health inspectors from the department also make regular inspections of schools, advising them on environmental hygiene and the sanitation of school premises. School health officers and nurses advise on the control of communicable diseases, and organise health education activities and immunisation campaigns.

Port Health

The Port Health Service is the control authority for preventing the entry of quarantinable diseases into Hong Kong by air, land or sea. It enforces the measures stipulated under the Quarantine and Prevention of Disease Ordinance and international health regulations.

      A 24-hour health clearance service is provided for all incoming vessels and radio pratiques are granted to ships. The service provides vaccination facilities and issues international vaccination certificates. It inspects and supervises the eradication of rats from ships on international voyages and ensures adequate standards of hygiene and sanitation on board vessels or aircraft.

       The food catering service for international airlines is kept under close surveillance to ensure that food and water supplies to flight kitchens are clean and safe.

      The service regularly exchanges epidemiological information with the World Health Organisation in Geneva and its Western Pacific regional office in Manila, as well as with neighbouring countries.

      In view of an outbreak of plague in India in late 1994, surveillance measures were strengthened at air and sea ports to prevent the introduction into, and the spread of the

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 disease in, Hong Kong. Health advice on the prevention of plague was given to travellers embarking for India.

Dental Services

The department's Dental Service aims to improve the oral health of the population. Oral health promotion activities are organised throughout the year to raise the awareness of oral care. The entire community has benefited from fluoridated water supply, resulting in a reduced rate of dental decay.

  Special efforts are made to ensure that Hong Kong has a dentally-healthy generation of children. All the 350 000 pre-school children are covered in an oral health education programme delivered through maternal and child health centres, kindergartens and pre- school centres. This programme aims to build up desirable oral care habits. A further 380 000 primary school children (or 83 per cent), receive annual dental check-ups and basic dental care through the School Dental Care Service. The Pilot Youth Dental Care programme, originally begun in Tuen Mun, was extended to Shatin in 1994. The programme provides continuity of care for students leaving the School Dental Care Service. Over 3 000 secondary school students enrolled.

  The government Dental Service also provides special dental care to hospital patients, disadvantaged groups such as physically and mentally handicapped persons, persons with serious and disabling oral diseases and individuals with specific medical diseases. An emergency dental service is provided for the public at a number of district dental clinics.

Services for the Mentally Ill and Mentally Handicapped

Medical services for mentally ill persons include treatment in hospitals, out-patient clinics, day hospitals and outreaching services. The Hospital Authority, in conjunction with various government and non-governmental organisations, provides a comprehensive psychiatric service for the territory. Patients are treated, as far as possible, in the community. Emphasis is placed on continuity of care and integrating rehabilitation with medical treatment.

  At the end of 1994, 4 054 beds were provided in psychiatric hospitals, and 1 251 beds in public psychiatric units of general hospitals. An additional 1 316 beds are being planned for psychiatric patients in public hospitals by the year 2000. Psychiatric day hospital places increased by 50 to 575 at the end of 1994.

  The community work and aftercare units of the psychiatric hospitals provide multi- disciplinary assistance to discharged patients. The community psychiatric nursing service and domiciliary occupational therapy service, in particular, aim to provide continual care and treatment programmes for discharged mental patients in their home settings, in this way assisting in their social readjustment and educating patients as well as their families on mental health. Four community psychogeriatric teams have been set up to provide designated care and rehabilitation programmes to psychogeriatric patients. There are 12 community psychiatric nursing service centres. Other complementary rehabilitative services include day-centres, half-way houses, long-stay care homes, vocational training, selective placement and social clubs, run by government departments and non-governmental organisations.

  Severely mentally handicapped persons requiring intensive nursing care and rehabilita- tion services are cared for at Tuen Mun Hospital (which offers 204 beds), Caritas Medical

HEALTH

Centre (300 beds), the Duchess of Kent Children's Hospital (25 beds) and the Siu Lam Hospital (300 beds).

Community Nursing Service

The Community Nursing Service of the Hospital Authority provides rehabilitative nursing care and treatment to the sick, the elderly infirm and the disabled in their own homes. The service is provided through a network of 11 hospital stations and 37 satellite centres. During the year, 20 935 patients were served and 293 091 home visits were made.

Support Services

The Pathology Service of the Department of Health provides public health laboratory services and clinical pathology services to support government clinics and some public hospitals.

      The Forensic Pathology Service works closely with the Royal Hong Kong Police on the medical aspects of criminology and other medico-legal work. It also performs investigations in all homicides and coroners' inquests.

      The Pharmaceutical Service serves all government clinics. It also deals with the inspection and licensing of pharmaceutical manufacturers and dealers, enforcement and the registration and import-export control of pharmaceutical products and medicines. In 1994, there were 100 prosecutions for the illegal sale and distribution of pharmaceutical products and medicines.

Radiation Health

To assess and monitor the working conditions of people working with radiation, inspectors of the Radiation Board carried out 840 on-site radiological safety inspections on medical, commercial and industrial premises in 1994. The centralised radiation monitoring service of the Radiation Health Unit monitored the radiation exposure of 5 800 workers. It detected an average individual occupational dose of 0.3 millisievert against a regulatory limit of 50 millisievert. The Environmental Radiation Monitoring Programme detected no significant change in the background radiation level in Hong Kong during the year.

      The unit collaborated with the Environmental Protection Department in commissioning a consultancy project to set up a purpose-built, low-level radioactive waste storage facility. It also initiated a work programme to condition the waste currently in store in the Queen's Road East Tunnel storage facility to prepare for its transfer to the new facility by the end of 1996.

Smoking and Health

The Hong Kong Council on Smoking and Health is an independent statutory body, established in 1987 to acquire and disseminate information on the hazards of using tobacco products, and to advise the government on matters relating to smoking and health.

      Following a public consultation exercise on further anti-smoking proposals in 1992, amendments to the Smoking (Public Health) Ordinance were enacted in October. These extended existing requirements for health warnings on cigarette packaging and advertising to cigars and pipe tobacco; prohibited the sale (or giving for the purposes of promotion) of tobacco products to people aged under 18, with tobacco retailers having to display a sign to

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this effect; and required all restaurants to display a sign stating whether or not they have a non-smoking area.

Training of Medical and Health Personnel

Basic training of doctors is provided by the University of Hong Kong and the Chinese University of Hong Kong, where the medical student intake in 1994 was 170 and 160, respectively. Under the Licentiate Scheme of the Hong Kong Medical Council, 22 externally-trained doctors passed the local licentiate examination during the year. After completing an externship programme in public hospitals, these doctors will become registered medical practitioners.

The Hong Kong Academy of Medicine is an independent statutory body with the authority to approve, assess and accredit all post-internship medical training. Since its inauguration in December 1993, the 11 founding colleges have been actively conducting training and examinations to award specialist qualifications to qualifying candidates.

Two types of basic education programmes are currently available in Hong Kong to prepare nurses for working in different clinical settings. General training is provided through a three-year, in-service training programme, leading to qualification as a registered nurse. This is conducted through 10 general nursing schools accredited by the Hong Kong Nursing Board (nine in public hospitals and one in a private hospital), with a total annual intake of 1 368 students. A full-time undergraduate degree course of four years is also run by the Hong Kong Polytechnic, with an annual intake of 40 students. Psychiatric training is provided through a three-year, in-service training programme, also leading to qualification as a registered nurse. This is conducted by two psychiatric nursing schools, with an annual intake of 160. These education and training programmes are complemented by lectures, seminars and workshops on various topics conducted by the individual employers, as well as degree or diploma courses leading to higher degree qualifications run by the tertiary institutions.

The School of Public Health Nursing in the Department of Health provides full-time and part-time public health nursing training programmes which lead to a diploma in public health nursing studies for registered nurses. The annual student intake of the school is 60 for the nine-month, full-time course.

Training in dentistry is available at the University of Hong Kong. A total of 40 dentists graduated in January 1994.

Traditional Chinese Medicine

The government set up the Working Party on Chinese Medicine in August 1989 to review the use and practice of traditional Chinese medicine in Hong Kong, and to advise on measures to promote its proper use and good practice. At present, there are no specific legal controls over herbal medicines or Chinese proprietary medicines for the purposes of import and export, registration and sale, or dispensing and purchase. Practitioners of traditional Chinese medicine are not required to be registered.

The interim report of the working party was released to the public for consultation in January 1992, giving an account of its findings and deliberations.

  In early 1994, the chairman and representatives of the working party visited Beijing, Guangzhou and Macau to look into the use and practice of traditional Chinese medicine in

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other territories. Opportunities were taken to examine how the use and practice of such medicines were regulated in those places and what problems were encountered. The visits were followed by extensive consultation with relevant professional and trade associations in Hong Kong.

In November, the working party finalised its recommendations and released the Report of the Working Party on Chinese Medicine. The major recommendation was that the government should set up a preparatory committee to establish criteria and procedures for the eventual statutory registration of practitioners of traditional Chinese medicine. The preparatory committee should also advise on the formulation of legislation which would provide a framework for the promotion, development and regulation of such medicine in Hong Kong. The legislation would also provide for the establishment of a statutory body to replace the preparatory committee in due course.

       While Western medicine has been the mainstream of the health care system in Hong Kong, traditional Chinese medicine does play a significant part, given its general popularity. The initiative to regulate its use and practice is a significant step in recognising the role of traditional Chinese medicine in the local health care system.

Government Laboratory

The Government Laboratory has major scientific and statutory commitments in the field of public health protection. A growing proportion of the laboratory's efforts concern, among other things, chemical surveillance of food and pharmaceutical products for the purpose of safety evaluation. Tests are frequently conducted on a wide variety of commodities to investigate the causes of any food-related complaints and suspected food poisoning.

In 1994, over 50 000 tests were carried out on food products, arising from regular surveys on the use of artificial food additives such as colours, preservatives and sweeteners and studies on the presence of contaminants such as toxic elements, mycotoxins, residues of hormones, antibiotics, pesticides and suspected chemical carcinogens. Modern techniques have increased the reliability of the tests and have extended the limits of detection to much lower levels of substances. The majority of food examined contained additives or contaminants well within legal limits.

Pharmaceutical products continued to be tested for compliance with the required standards of safety and quality before being marketed in Hong Kong or being issued to public hospitals or clinics. Chinese proprietary medicines were tested for the illegal presence of mislabelled medicine or controlled drugs, which could still be occasionally discovered in the local market.

Assessment of the possible health and safety hazards of consumer articles, such as cooking utensils, cosmetics, toys and educational materials, is an area which has expanded considerably over the past two years. In some cases, the examination of the samples confirmed the absence of any toxic or irritant compounds, while in others it revealed the existence of a hazard which was not known of previously.

       The checking of cigarettes for tar and nicotine content has continued to be an important part of the laboratory's work. Results from testing, which are used extensively in anti- smoking campaigns, are published regularly.

Certification work undertaken by the laboratory in connection with suspected offences against the law also increased steadily. These offences included the illegal use of marked

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diesel oil in road vehicles, the unlicensed storage of dangerous goods, adulteration of wines and spirits and offences committed under the Trade Description Ordinance. Other areas of work carried out by the Government Laboratory are described in Chapter 18.

Drug Abuse and Trafficking

The government's policy is to stop the illicit trafficking of drugs into and through Hong Kong; to develop a comprehensive treatment and rehabilitation programme for drug abusers; to dissuade people, in particular the young, from experimenting with drugs; and to eradicate drug abuse from the community.

  Data collected by the government's Central Registry of Drug Abuse in 1994, based on 40 000 reports on 20 000 persons, indicated that 90 per cent of drug abusers were male and 10 per cent female. Fifty-three per cent of the reported individuals were aged over 30 years, 26 per cent were in the 21 to 30 age bracket and 21 per cent were under 21 years.

  The most common drug of abuse was heroin, which was used by 94 per cent of the persons reported to the registry. In the case of young persons aged below 21, the common drugs of abuse included heroin, cannabis and cough medicines.

  A total of 5 000 drug abusers came to the notice of the registry for the first time in 1994. Of the new cases, 81 per cent were male and 19 per cent were female. Most of them (72 per cent) were within the age bracket of 16 to 30. The drugs reported to be commonly abused by these new cases were again, heroin, cannabis and cough medicines.

Overall Strategy and Co-ordination

The government has a comprehensive anti-drug programme which has achieved con- siderable success. The programme adopts a four-pronged approach - law enforcement, treatment and rehabilitation, preventive education and publicity, and international co- operation. Effective law enforcement induces abusers to seek treatment voluntarily, as a result of short supply of drugs. Treatment and rehabilitation are undertaken by the govern- ment and a number of voluntary agencies which offer a wide range of facilities to meet the different needs of drug abusers from varying backgrounds. The effectiveness of these treatment programmes reduces the demand for illicit drugs. At the same time, the government places great emphasis on preventive education and publicity to heighten public awareness of the drug problem and to promote the advantages of a drug-free lifestyle. Co- operation at the international level, through exchange of information and experience, and joint action against illicit trafficking, enhances the effectiveness of efforts in these areas.

  These efforts are co-ordinated by the Action Committee Against Narcotics (ACAN), a non-statutory body which includes both non-official and government members. The committee is the government's advisory body on all anti-drug policies and actions, including those undertaken by non-government agencies. It is serviced by the Narcotics Division, which is headed by the Commissioner for Narcotics.

Legislation and Law Enforcement

Progress was made during the year towards enabling the 1988 Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances to be extended to Hong Kong. This came with the enactment of legislation to give effect to the provisions of Articles 12, 16 and 17. The other main international agreements in this area, the 1961 Single Convention on

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Narcotic Drugs as amended by the 1972 Protocol and the 1971 Convention on Psychotropic Substances, have already been extended to the territory.

The Royal Hong Kong Police and the Customs and Excise Department seized some 446 kilograms of heroin, 3 329 kilograms of cannabis, 123 kilograms of methamphetamine and nine kilograms of cocaine during the year. Following joint operations with overseas law enforcement agencies, a number of international drug trafficking syndicates were neutralised, with substantial quantities of dangerous drugs seized and ringleaders arrested locally and abroad. In 1994, police and customs action resulted in the arrest of 15 601 persons for drug offences.

Treatment and Rehabilitation

The Action Committee Against Narcotics continued its efforts to improve public acceptance of the methadone maintenance programme, the objectives of which are often misunder- stood. As narcotic addiction is a chronic relapsing medical condition, the value of the methadone treatment programme is that it enables patients to adopt a normal and economically productive lifestyle, free from the health hazards and criminal activity associated with illicit drug use. Quick cash crimes to buy heroin are reduced when methadone is taken. This benefits the ordinary citizen, who can have less fear for his life and property, and keeps money out of the hands of drug traffickers. A reduction in the injecting of heroin due to the substitution of oral methadone means less sharing of needles. This slows the spread of blood-borne diseases, including AIDS, which can be passed from drug users to the general population. Less injecting also means fewer syringes discarded in public places and a better environment for everyone.

      A training course on the prevention of drug abuse and HIV infection for participants from China, Hong Kong and Macau was held in August at the Chinese University of Hong Kong, with financial assistance from the World Health Organisation and the United Nations International Drug Control Programme.

Preventive Education and Publicity

The government and the community continued to promote anti-drug preventive education and publicity. The anti-drug publicity campaign in 1994 focused on encouraging young people to adopt a healthy lifestyle and to say 'no' to all drugs; educating them on the building up of self-esteem and confidence; and helping them to resist temptation from their peers. At the same time, parents were reminded of their responsibility to guide their children away from drugs.

Eleven district campaigns were held, involving the community through carnivals, variety shows, competitions and exhibitions.

      The Narcotics Division's school talk team gave 318 drug education talks to 81 789 students in 224 primary and secondary schools and technical institutes. Talks were also organised for members of youth organisations, parents and juvenile offenders at the boys' and girls' homes operated by the Social Welfare Department.

To better equip prospective teachers, in-service teachers and social workers to cope with the issue of drug abuse, a series of drug education workshops were organised for in-service teachers and students of the Hong Kong Institute of Education, and a territory-wide seminar was held for social workers.

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In support of the annual International Day Against Drug Abuse and Illicit Trafficking, a large-scale exhibition and a live radio show disseminating anti-drug messages were held in Kwai Fong in June. Five radio shows were held during the summer holidays, reaching out to about 1 500 000 young people.

The anti-drug message 'Say NO to Drugs' was also applied as a post mark on all mail for two weeks in June and July.

The Community Against Drugs Scheme continued to provide encouragement to interest groups to plan and implement their own anti-drug education and publicity projects. Under the scheme, financial support of up to $6,000 is granted for each project. The 71-member ACAN Youth Volunteer Group took part in district campaigns and organised a number of community involvement projects.

The ACAN Drug Abuse Telephone Enquiry Service provided information on 12 types of commonly abused substances. Information on treatment facilities was also available. A total of 160 000 calls were received during the year.

A new charitable venture, the Life Education Activity Programme (LEAP), was launched in January. Operating out of a mobile classroom, LEAP reached out to primary school children aged from five to 12, helping them to learn about their bodies, the importance of health, the impact of drugs and how to make decisions.

International Action

Hong Kong continued to play an active international role, maintaining close links with the United Nations, inter-governmental agencies such as the Financial Action Task Force, Interpol and the Customs Co-operation Council, as well as with individual governments. The territory took part in 20 regional and international meetings and seminars concerned with anti-drug policies, law enforcement, treatment and rehabilitation, and preventive education.

The techniques and methods employed in Hong Kong have made it an important venue for training anti-drug personnel from overseas. During the year, 475 people from 33 countries and international bodies came to the territory on study visits and training courses. At the end of the year, bilateral agreements had been concluded with 11 foreign jurisdictions with a view to enhancing international co-operation, particularly with regard to the tracing and confiscation of the proceeds of drug trafficking.

The 15th conference of the International Federation of Non-Government Organisations for the prevention of drug and substance abuse was held in Hong Kong in December. The conference aimed to promote team-work between government and non-government organisations in developing practical alternatives to drug abuse and associated risk-related behaviours.

Auxiliary Medical Services

The Auxiliary Medical Services (AMS) is a disciplined medical civil defence corps, established in 1950 to provide supplementary resources to augment regular medical and health services in times of natural disasters and emergencies. In recent years, the service has begun to work on developing disaster-focused medicine in Hong Kong.

The AMS has an establishment of 90 permanent staff and 5 258 volunteers from all walks of life, including physicians, nurses, paramedical personnel, civil servants and laymen in the

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private sector. By statutory requirement, the Director of Health is the Commissioner of the AMS and is responsible to the Governor for its efficient operation.

     Volunteer members receive comprehensive training in areas covering first aid, squad drill, basic ambulance aid and practical ambulance manning, casualty evacuation, home nursing, clinical and hospital ward attachment, life-saving, leadership and management development. Recently, disaster management has been included in the training programme, with training seminars being organised both at local and international levels. In November, an AMS delegation attended a seminar in Beijing, China, on community first aid and emer- gency care.

During emergencies, AMS volunteer members are deployed to accident scenes to provide immediate treatment to the injured, convey casualties to hospitals and render nursing care to patients at both acute and convalescent hospitals. If paramedical assistance is required, the AMS Emergency Response Task Force is available at short notice. Members of the force are equipped with advanced life support equipment to provide nursing aid, minor surgery and other life-saving measures on the spot. An ambulance fleet is manned 24 hours a day to provide support for the regular ambulance service.

      Apart from performing these emergency roles, the AMS committed a total of 139 643 man-hours in 1994 to provide general coverage at country parks, cycle tracks, school activities and major public functions. It also committed more than 542 808 man-hours to assist in the daily manning of 22 methadone clinics and providing round-the-clock clinical services at eight sick bays in five Vietnamese boat people centres.

      The AMS further provides first aid, nursing and casualty evacuation training to frontline civil servants. Special training packages on human pile-ups have been designed for crowd control personnel. Regular seminars and demonstrations are organised to promote the public's awareness of home safety.

Environmental Hygiene

Working under the policy guidance of the municipal councils, the Urban Services Depart- ment and the Regional Services Department are responsible for environmental hygiene. This includes the cleansing of streets and gullies; collection of nightsoil, refuse and junk; management of refuse collection points, public toilets and bathhouses; pest control; and services for the dead. These responsibilities involve the deployment of 8 652 people and a fleet of 598 specialised vehicles such as refuse collection vehicles, street-washers, mechanical sweepers, nightsoil collectors, desludgers and gully-emptiers.

      Streets are swept from six times a day for busy thoroughfares to once every two days for village lanes. Mechanical sweeping is employed on highways where manual sweeping is not practical. Where local conditions warrant, streets and lanes are also hosed down once or twice every fortnight. Refuse collection points and hawker areas are washed more frequently. Given the success of pilot schemes and the encouraging findings of public opinion surveys conducted in 1993, the contracting-out of street cleansing is being extended in both the urban area and New Territories.

      The two departments collect 5 394 tonnes of refuse and junk each day, including 123 tonnes removed by a contractual barging service from the outlying islands. There are some 1 169 refuse collection points and 1 516 bin sites in the territory. A programme to improve refuse collection points is in place. In the urban area, most already have equipment to

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contain smells, with the more effective water-scrubber system now replacing carbon filtration as the de-odorising method. Following the successful trial of a static refuse collection compactor at the Yeung Uk Road Market, its use is being extended to other suitable refuse collection points in the New Territories.

In July, the Urban Council introduced on-street containers for the deposit of dog droppings.

There are phased plans to refurbish and improve public toilets. The Urban Council hosted the Asia-Pacific Seminar on Public Toilets 1994 as a forum for the exchange of ideas and management experience. During the year, 14 public toilets were renovated in the urban area. The Regional Services Department has begun detailed planning to modernise 21 old-style, trough type, toilets and improvement works to 602 aqua privies. Subject to technical feasibility, 33 of the latter will be converted to the flushing type. The cleansing of 199 public toilets and 42 bathhouses has now been contracted-out. The councils provide a free desludging service to public aqua privies and septic tanks. The service is also provided on a charge basis for private facilities upon request.

In view of the potential hazards from the improper disposal of clinical waste, the Regional Services Department undertook to provide a separate collection service for clinical waste from government clinics and hospitals prior to the completion of a central incineration facility. A special team has been assigned to collect about 8.5 tonnes of waste each week from 43 stops on three collection routes.

The Keep Hong Kong Clean Campaign continued to be a major publicity effort, with emphasis on education and community involvement, supplemented by enforcement. The Joint Urban Council/Regional Council Keep Hong Kong Clean Steering Committee, with assistance from district boards, organised district-based activities during Clean Hong Kong Week in November to encourage participation from the public and local bodies. Subsidies were provided to district organisations under the Keep Hong Kong Clean Activities Funding Scheme for local projects, to encourage anti-littering and discourage the indiscriminate dumping of rubbish.

To educate the younger generation on the importance of keeping the territory clean, additional children's stories were produced for the story-telling 'telelines'. This has been hugely popular since its introduction in December 1993.

In hand with the publicity campaign, legal action has been stepped up against littering offences, with particular emphasis on the littering of handbills and littering from vehicles. During the year, 36 658 litter offenders were fined a total of $12.35 million.

Controls

Staff of the two municipal services departments enforce the Public Health and Municipal Services Ordinance to ensure that the mandatory standards of public hygiene are main- tained. The staff regularly inspect licensed and permitted premises, common parts of buildings, squatter areas, construction sites and undeveloped land. They respond to complaints about sanitary nuisances and vermin infestation.

For the prevention of vector-borne diseases, the Urban Services Department and the Regional Services Department carry out integrated programmes to control rodents, mosquitoes, flies and other public health pests. Measures taken include environmental improvement, eradication of breeding places, health education and law enforcement.

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Special surveillance is maintained to prevent outbreaks of malaria in the detention centres for Vietnamese migrants. Technical support is provided by the Pest Control Advisory Section of the Department of Health.

Environmental Health Education

The Health Education Unit of the Department of Health's Hygiene Division promotes environmental health and food hygiene through education on a territory-wide basis. Working with the two municipal councils, the unit conducted a number of health educa- tional activities during the year, including the 1994 Public Health Education Exhibition, and the Food Hygiene Campaign organised for members of the food trades and school teachers. Publicity campaigns directed at the prevention of nuisances caused by mosquitoes and other insects in the home, as well as by dripping air-conditioners, were also staged during the year.

Health messages are disseminated through telephone hotlines and the mass media. Health education materials are also available to the general public at the unit's resource centre to publicise the importance of personal, food and environmental hygiene.

Apart from territory-wide health education, the Urban Council has attached great importance to public health education. An innovative Ambassador of Hygiene Scheme, targeted at school children, was launched to arouse awareness of the proper use of hygiene services and facilities. Three episodes on public health were televised during prime time in August. The annual Restaurant Hygiene Competition and the Health Education Fair were also in the spotlight. A permanent health education exhibition and resource centre at Kowloon Park, which will display health messages and provide consultancy services on health education, is scheduled to open in 1996.

Food Hygiene

The Hygiene Division of the Department of Health controls both imported and locally- produced food for sale. Supported by laboratory resources and assisted by a scientific advisory arm, the division ensures that consumers are able to buy good, wholesome food which is unadulterated, uncontaminated, properly described and of nutritious quality.

      Food samples are taken regularly for chemical analyses, bacteriological examinations and toxicity tests to ascertain their fitness for human consumption. For the purpose of sampling for laboratory testing, food items are prioritised according to the nature of the food and the risks that they may pose to consumers. Complementing regular laboratory analyses, field tests for pesticide residues are performed on imported vegetables at the points of entry into Hong Kong.

In 1994, there were 251 reported cases of food poisoning, involving 971 persons.

      With the increasing number of food establishments and varieties of food items, law enforcement is assuming greater importance. There is also a growing demand for services for health certification of foods for export and re-export. The Hygiene Division is therefore conducting a review of food legislation to ensure that laws are consistent with international standards, guidelines and recommendations based on scientific evidence. This will ensure a high standard of public health protection and facilitate international trade in foods.

      Hong Kong maintains close ties with the World Health Organisation, the Food and Agriculture Organisation of the United Nations and other international authoritative bodies

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on food. As the bulk of the local food supply comes from China, the territory works closely with the Chinese authorities. Regular meetings are held with officials from the Guangdong and Shenzhen Commodities Inspection Bureaux to promote food safety and better food hygiene.

Food Premises

The Urban Services and Regional Services departments have categorised licensed food premises into different grades according to their hygiene standards. The frequency of inspections is determined by the grade of the premises to better utilise manpower and

resources.

Both departments maintain a demerit points system for the suspension or cancellation of food premises licences or permits, to deter breaches of licensing and hygiene regulations. The system is regularly reviewed to ensure its effectiveness. Strict control is exercised over food premises which fail to apply for a licence, or which have not complied with the specified requirements. Weekly prosecution of repeated offenders has led to a drastic reduction in the number of unlicensed food premises.

To assist applicants for restaurant licences and to better co-ordinate inter-departmental scrutiny, a central vetting panel was set up. This advises applicants at an early stage whether the intended premises are suitable for licensed restaurants and provides an opportunity for discussion of proposed construction and decoration. The panel also gives initial advice on steps and action to be taken to meet licensing requirements and remedy any shortcomings.

The two departments also work closely with the Department of Health in the investigation and control of food poisoning incidents, substandard foods and infectious diseases.

For better control of licensed food premises, the Food Business (Regional Council) Bylaws were amended to disallow dogs in food premises. Following an outbreak of cholera in mid-1994, the Food Business (Urban Council) and (Regional Council) Bylaws were amended to control the quality of water in which live fish and shellfish are kept for human consumption. A code of practice was also issued to assist restaurateurs in maintaining fish tank hygiene.

Markets

The municipal services departments are responsible for the management of public markets in their respective areas.

The Urban Council operated 62 retail markets in the urban area in 1994. In these markets, 10 039 stalls offered commodities ranging from fresh food to household items.

Old and outdated markets have been gradually replaced by multi-purpose complexes managed by the council. The 16 existing complexes house new markets and cooked food centres on the lower floors, while upper floors provide a variety of facilities for indoor sports activities, and cultural and recreational pursuits. New markets with cooked food centres are built to meet not only hawker resiting commitments, but consumer demand.

The improvement works to the existing To Kwa Wan Market in Kowloon City District were completed in late April. The Kimberley Street Market, opened in May, is fully air- conditioned and operates like a modern supermarket with 21 spacious stalls. The redevelop- ment of Causeway Bay Market was completed by the end of the year. Other market projects under construction included the Pei Ho Street Complex, Hung Hom Complex, Smithfield

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Complex, Wong Nai Chung Complex and Tai Shing Street Market. The To Kwa Wan Cooked Food Centre and Sai Wan Ho Cooked Food Centre were air-conditioned at the beginning of the year. All future cooked food centres will be air-conditioned to improve the quality of service.

       A scheme for contracting-out cleansing operations had been implemented in 37 markets in the urban area at the year-end- 19 on Hong Kong Island and 18 in Kowloon.

      The Regional Council administered 45 markets in the New Territories, providing a total of 5 289 market stalls and 406 cooked-food stalls.

      In late 1994, the council opened a new air-conditioned market with 365 market stalls and 28 cooked-food stalls in Shek Wu Hui, Sheung Shui. The market accommodated stall lessees operating in the old Shek Wu Hui Market and Shek Wu Hui Temporary Markets I and II, which were scheduled for demolition.

      During the year, the council completed a series of long-term improvement measures at Sha Tin Market. Work also commenced on improvements to toilets, lighting, drainage and ancillary facilities at other selected markets. Further improvements are in the pipeline. The recommendations of the council's Working Group on Market Management, on market policy and related management matters, were implemented after endorsement by the council.

      The council contracted-out the cleansing operations of 11 markets during the year after a pilot scheme at three selected markets in Sha Tin, Tai Po and Yuen Long proved to be cost- effective.

Hawkers

Control over on-street hawking is maintained by the two municipal councils.

      In May, a new hawker control officer grade, with a fortified chain of command and streamlined supervisory structure, was established by the councils to tackle illegal hawking. The hawker control teams replaced the former general duties teams.

      The licensing of street hawkers in the urban area is the responsibility of the Urban Council. At the end of the year, there were 11 000 licensed hawkers in the urban area 800 less than in 1993. The decrease was mainly due to a policy of not issuing or allowing succession of itinerant hawker licences. In addition, the completion of the new Causeway Bay Market in late 1994 made it possible to resite 49 licensed hawkers formerly trading in the vicinity.

      The council's policy of eventually eliminating itinerant hawker licences was announced in March 1993. Itinerant hawker licences will cease to exist in April 1996. Until then, licence-holders are offered the option of surrendering their licences in exchange for either an ex gratia payment of $30,000, a fixed-pitch hawker licence or a market stall tenancy. By the end of 1994, a total of 1 140, or 33 per cent of, itinerant hawker licences had been surrendered under this policy.

       During the year, the hawker control teams in the urban area, comprising 2 177 civilian staff trained in law enforcement, secured 90 500 court convictions for hawking offences by both licensed and unlicensed hawkers.

The Regional Council accorded top priority during the year to implementing the recommendations of its working group on illegal hawking and illegal shop extensions. A sub-committee was formed to monitor the progress of the implementation work.

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A six-month experimental scheme in Tuen Mun had proved the effectiveness of dedicated teams in curbing illegal shop extensions. As a result, 10 such teams were set up in five districts of the New Territories.

During the year, the hawker control teams of the Regional Council, comprising 949 trained staff members, secured 44 000 court convictions on illegal hawking offences and reduced the number of unlicensed hawkers by 55 to 1 842.

Abattoirs

There are two abattoirs in the urban area and three slaughterhouses in the New Territories. With the exception of Cheung Sha Wan Abattoir, which is run by the Urban Council, all the others are managed by licensed private operators. To meet long-term demand, a site has been reserved for a new slaughterhouse in Sheung Shui.

During the year, these abattoirs and slaughterhouses handled 2 707 700 pigs, 132 200 head of cattle and 10 000 goats, which accounted for virtually all of the local fresh meat supply. To ensure the wholesomeness of the meat, all slaughtered animals were inspected by qualified health inspectors of the municipal services departments.

The Urban Services Department and the Regional Services Department also maintain vigilance against illegal slaughtering. In 1994, health inspectors carried out 350 raids on suspected illegal slaughterhouses. Staff also carried out spot checks on meat stalls and 24 persons were prosecuted for possessing unstamped carcasses for sale.

Cemeteries and Crematoria

It is government policy to encourage cremation, rather than burial, of the dead. During the year, over 76 per cent of the territory's dead were cremated. Human remains buried in public cemeteries have to be exhumed after six years and are either cremated or re-interred in an urn cemetery.

The Urban Council operates one public funeral parlour in Kowloon which provides free funeral services for the needy. Three service halls at the parlour are also open for public use free-of-charge.

In the urban area, the council manages five public cemeteries and two public crematoria, and monitors 18 private cemeteries. Two war cemeteries are under the management of the Commonwealth War Graves Commission.

In November, a new columbarium was completed at the Cape Collinson Crematorium, providing 19 509 new niches for use. Additional cremators are under construction at the crematorium to meet increasing demand.

The Regional Council manages four public crematoria and six public cemeteries in the New Territories. It also oversees nine private cemeteries and six private crematoria.

Columbaria are provided at Kwai Chung, Fu Shan, Cheung Chau, Wo Hop Shek, Lamma and Peng Chau for the deposit of cremated ashes.

Previous page: 'Green 'activities, such as tree-planting, serve to nurture both the environment and a caring disposition in our young people.

Above: Graduation Day happiness is shared by these dedicated young nurses and by the government too, as mutual aspirations are fulfilled by the provision of more trained nurses to serve the community.

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First-class facilities are combined with a garden environment and a gentle pace at the newly-opened Chi Lin Care- and-Attention Home at Diamond Hill.

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Important social messages and activities to foster well-being in the community are promoted throughout the year, attracting large investments of public sector manpower and funding.

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From modest beginnings, the Boys' & Girls' Clubs Association of Hong Kong has flourished into a major network of welfare and activity centres devoted to the interests of youngsters. Bottom, left and right: The association's premises in 1936; its headquarters, today, in Wanchai.

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SOCIAL WELFARE

THE Hong Kong community cares deeply about its state of welfare. Although the territory is not a welfare state, its residents expect the government to help the disadvantaged maintain an acceptable standard of living. To achieve this objective, spending on social welfare in 1994-95 was increased by 29 per cent to $10,282 million. This followed a government pledge to increase recurrent spending on this area by 26 per cent, in real terms, between 1993 and 1997.

      During 1994, the social security scheme and services for the elderly and people with a disability came under the spotlight.

      At the end of the year, a detailed examination of existing social security arrangements was underway, with a view to ensuring benefits meet the needs of the disadvantaged. New benefits under the Comprehensive Social Security Assistance Scheme were announced for single-parent families and children in October.

      While the government exceeded its targets in various social welfare areas, there were some that were behind schedule, including services for the elderly and people with a disability. This was due mainly to difficulties in finding sufficient premises. Determined to overcome the problem, the government stepped up its search for accommodation, looking for premises outside public housing estates and planning some purpose-built projects.

      In the wake of the report of the Working Group on Care for the Elderly, issued in August, the government announced it will set up a $200 million Elderly Services Development Fund to help non-governmental organisations establish self-financing projects for the elderly. The working group confirmed that the existing policies on care in the community, continuity of care and integration of services should be further pursued and developed. It also recommended that long-term residential care should be provided when family care and community care can no longer cope with the needs of frail elderly persons.

      Nearly $6 billion will be spent in 1994-95 on programmes to help people with a disability. To protect their rights, draft legislation will be introduced in early 1995 to prohibit discrimination against this group and to bring them within the ambit of the new Equal Opportunities Commission.

      The responsibility for carrying out government policies on social welfare rests with the Director of Social Welfare. It is based on the objectives set out in three White Papers Integrating the Disabled into the Community: A United Effort (1977), Primary Education and Pre-primary Services (1981) and Social Welfare into the 1990s and Beyond (1991).

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The government is advised on social welfare policy by two committees the Social Welfare Advisory Committee, covering the whole area of social welfare, and the Rehabilitation Development Co-ordinating Committee, on matters of rehabilitation. Members of these committees are appointed by the Governor, with non-officials as chairmen.

In the provision of welfare services, the Social Welfare Department maintains a close working partnership with non-governmental organisations, most of which are affiliated to the Hong Kong Council of Social Service.

During the year under review, many services were expanded with the addition of 1 376 day nursery places, 231 day creche places, 180 occasional child care places, 42 extended- hour child care service places, 14 small group homes, 80 foster care places, 16 home help teams, two urban hostels for single persons, one family care demonstration and resource centre, 19 family activity and resource centres, 37 family caseworkers, 16 family aides, 10 clinical psychologists and four family life education workers. For young people, two new outreaching social work teams were set up, 59 additional school social workers were provided and nine combined children and youth centres were established through the reprovisioning of existing centres. For older people, a further 252 homes for the aged, 1 531 care-and-attention places, 11 social centres, five day care centres and two multi-service centres were set up. For people with a disability, four sheltered workshops, six day activity centres, 12 hostels, three care-and-attention homes for severely disabled persons, two small group homes for mildly mentally handicapped children and one care and attention home for aged blind persons were established.

   The Protection of Children and Juveniles Ordinance, which came into operation on November 1, 1993, widened the circumstances in which a child may be considered to be in need of care or protection and provided the Director of Social Welfare with more flexible powers to investigate and intervene in a suspected child abuse case by requiring the child to go through an assessment procedure. An inter-departmental review of the implementation of the ordinance was conducted in June 1994 to further streamline the procedures for handling care or protection cases under the ordinance.

Co-ordinated efforts from multi-disciplinary professionals and various government departments are tackling the problems of children and youth at risk, including child abuse, teenage suicides and drug abuse, which have attracted public concern. The Co-ordinating Committee for the Welfare of Children and Youth at Risk was appointed in April 1993, under the chairmanship of the Secretary for Health and Welfare, to co-ordinate services and advise on the development of related policies in the future. Two working groups chaired by the Director of Social Welfare-the Working Group on Child Abuse and the Working Group on Services for Youth at Risk were established under this committee in mid- 1993. During the past year, the Working Group on Child Abuse re-examined its earlier recommendations, most of which have been implemented. A number of major issues are still being pursued by the working group, including the setting up of district fora on child abuse, publicity and public education to prevent child abuse, and a review of handling procedures on child abuse cases. The Working Group on Services for Youth At Risk completed its deliberations on the issue of teenage suicide and recommended a number of measures. These include a risk potential study among junior secondary school students, a survey of local hotlines for young people, promotion of a peer group support network and

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modernisation of children and youth centres. The working group is now looking into the problem of drug abuse.

Social Security

Social security is a major social welfare programme aimed at meeting the needs of vulnerable groups in the community who require financial or material assistance. The Comprehensive Social Security Assistance Scheme and the Social Security Allowance Scheme are the key elements in the non-contributory social security system and are administered by the Social Welfare Department. They are supplemented by three other schemes: the Criminal and Law Enforcement Injuries Compensation Scheme, the Traffic Accident Victims Assistance Scheme and Emergency Relief.

      A new computerised social security payment system came into operation in April. The new system enables all comprehensive social security assistance recipients to receive their payment through bank auto-pay. It enhances the overall efficiency in the administration of the Comprehensive Social Security Assistance Scheme and the Social Security Allowance Scheme, and provides a more comprehensive management information system.

      The Comprehensive Social Security Assistance Scheme replaced the former Public Assistance Scheme in July 1993. The scheme, which is means-tested, is designed to raise the income of needy individuals and families to a level where basic and essential needs are met. Persons who have resided in Hong Kong for not less than one year may be eligible if their income and other resources are below the prescribed levels. But an able-bodied unemployed person aged between 15 and 59, who is available for work, is required to register with the Labour Department for job placement to qualify for assistance.

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The scheme comprises a range of standard rates for different categories of recipients and special grants to meet individual needs. The standard rates apply to four broad categories of recipients the elderly, people with a disability, children and able-bodied adults - to meet their basic and essential needs. The monthly standard rates range from $1,115 to $3,400 for a single person and from $965 to $3,120 for a family member. A wide range of special grants are available to meet the special needs of individual recipients, such as rent, school fees, educational expenses, medically recommended diets, spectacles and dentures. In addition, an annual long-term supplement, ranging from $1,235 to $3,705 (depending on the size of the household), is paid to those who have received assistance continuously for 12 months to meet the cost of replacing household wares and durable goods. To encourage self-help, an individual's monthly earnings may be disregarded up to a maximum of $835 in the calculation of assistance payable. The standard rates and related payments were increased by 7.7 per cent in April 1994 to keep pace with inflation.

      In October, the government announced that from April 1995, each single-parent family on comprehensive social security assistance will receive a special supplement of $200 a month. The standard rates for children will also be increased by $205 a month. The sum will come on top of the $100 increase implemented from April 1994. The age at which the standard rates for children are paid to full-time students will be extended from 18 to 21.

      At the end of the year, there were 105 600 cases under the Comprehensive Social Security Assistance Scheme, compared with 92 000 cases in 1993. The majority of recipients were the elderly, those in ill health, people with a disability and single parent families.

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Expenditure on comprehensive social security assistance during the year amounted to $3,235.1 million, representing an increase of 56 per cent over the previous year.

The Social Security Allowance Scheme replaced the former Special Needs Allowance Scheme, also in July 1993. Former public assistance and special needs allowance recipients receive their payment under the Comprehensive Social Security Assistance Scheme. The Social Security Allowance Scheme provides flat-rate allowances for the severely disabled and the elderly who are not on comprehensive social security assistance.

Any person who is certified to be severely disabled and who has resided continuously in Hong Kong for at least one year immediately before application, is eligible for a disability allowance. A higher disability allowance, which is twice the normal rate, is payable to severely disabled persons who require constant attendance from others in their daily life but are not receiving such care in a government or subvented institution. The current monthly rate for the disability allowance is $970, and for the higher disability allowance $1,940. The allowance is non-means-tested.

The old age allowance is also non-means-tested for those aged 70 and above, and they are entitled to $550 per month. For those aged 65 to 69, the monthly allowance is set at $485, subject to a declaration that income and assets do not exceed the prescribed levels. To be eligible for an old age allowance, a person must have resided in Hong Kong for at least five years since the age of 60.

The disability allowance and the old age allowance were both raised by 7.7 per cent in April to reflect the rise in the cost of living.

The number of people receiving such allowances at the end of the year was 484 600, compared with 468 600 at the end of 1993. Expenditure on social security allowances during the year was $3,212.9 million, representing an increase of 5.3 per cent over the previous year.

The Criminal and Law Enforcement Injuries Compensation Scheme provides cash assistance to people who are injured in crimes of violence or while helping to prevent crime in Hong Kong. It also extends compensation to those injured by law enforcement officers using weapons in the execution of their duties. Payments are made to the surviving dependent family members in the case of persons killed in any one of these circumstances. The scheme, which is non-means-tested, is administered by the Criminal Injuries Compensation Board and the Law Enforcement Injuries Compensation Board. During the year, total payments amounted to $12.5 million, compared with $9.3 million in the preceding year.

The Traffic Accident Victims Assistance Scheme provides cash payments to victims of traffic accidents or their dependants. It is a non-means-tested scheme which disregards the issue of fault in accidents and is administered by the Director of Social Welfare in consultation with an advisory committee.

For a person to be eligible, the accident must fall within the definition of the Traffic Accident Victims (Assistance Fund) Ordinance and must have been reported to the police. Payments cover personal injury and death, but not damage to property.

Under the scheme, an applicant retains his right to claim legal damages or compensation from other sources for the same accident. In case of a successful claim, he is required to refund either the payment received from the scheme or the amount of damages or compensation, whichever is the less.

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During the year, 5768 applications were received and 5 284 were approved for assistance, with payments totalling $97.3 million, compared with $89 million in 1993.

      Emergency relief is provided to victims of natural or other disasters in the form of material aid such as hot meals, eating utensils and other essential articles. Grants from the Emergency Relief Fund are also paid to victims or their dependants to relieve hardship caused by disasters.

      During the year, emergency relief was given to 6 278 registered victims on 48 occasions. The Social Welfare Department also assisted in providing hot meals to refugees and boat people from Vietnam.

      The rates of grants payable under the Criminal and Law Enforcement Injuries Com- pensation Scheme, the Traffic Accident Victims Assistance Scheme and the Emergency Relief Fund were increased in September to cover the rise in living costs.

Social Security Appeal Board

The Social Security Appeal Board is an independent body comprising non-official members appointed by the Governor. It considers appeals from individuals against decisions by the Social Welfare Department concerning comprehensive social security assistance, social security allowances and traffic accident victims assistance. During the year, 106 appeals were heard by the board. Of these, 24 related to comprehensive social security assistance, 81 to social security allowances and one to traffic accident victims assistance.

Services for Offenders

The Social Welfare Department is responsible for carrying out a number of statutory duties to implement the directions of the courts on the treatment of offenders through social work. The overall objective is to rehabilitate offenders through probation supervision, the Community Service Orders Scheme, residential training for young offenders and after-care services with the aim of reintegrating the offenders into the community.

Probation applies to offenders of all age groups from seven years upwards. The probation service is provided in 11 probation offices which serve 10 magistracies, the District Court and the High Court. Probation officers make inquiries into the background and home surroundings of offenders as the court may direct, and of prisoners whose sentences are being considered for reduction. They also supervise the offenders in complying with the requirements of the probation order.

The Community Service Orders Scheme is a community-based initiative with punitive and rehabilitative objectives. It requires an offender over the age of 14, who is convicted of an offence punishable by imprisonment, to perform unpaid work of benefit to the community and to receive counselling and guidance from a probation officer. The scheme covers 10 magistracies.

      The Young Offender Assessment Panel, run jointly by the Social Welfare Department and the Correctional Services Department, provides magistrates with a co-ordinated view on the most appropriate programme of rehabilitation for convicted young offenders aged between 14 and 25.

      The Social Welfare Department operates seven residential institutions with a total capacity of 602 places, each with a slightly different training programme to cater for the

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needs of the residents. Educational, prevocational and character training are provided to assist juvenile offenders to return to the community as law-abiding citizens. Greater emphasis has been placed on group counselling, work with parents, development of volunteerism and participation in community activities among the youngsters undergoing residential training - with encouraging results. One of the projects undertaken by the trainees won the Commonwealth Youth Service Award for the first time in 1994.

In addition to the work carried out by the department, two subvented non-governmental organisations also provide hostel, employment, casework and volunteer services to help ex- offenders and young people with behavioural problems reintegrate with the community.

Family and Child Welfare

The Social Welfare Department and a number of non-governmental welfare organisations provide a variety of family and child welfare services. The overall objective is to preserve and strengthen the family as a unit, through assisting individuals and families to prevent, identify and solve their problems.

Family life education is a form of community education which aims to improve the quality of family life through the promotion of interpersonal relationships and social consciousness. Educational and promotional programmes are jointly organised by the department and non-governmental organisations.

To support the United Nations' proclamation of 1994 as the International Year of the Family, Hong Kong set up a co-ordinating committee to plan publicity strategies and organise activities to reaffirm the family's role as the basic unit of a stable community. The main theme was 'Family and Community: Unity, Harmony, Development'. Both the department and the non-governmental welfare organisations were involved in launching territory and district-wide programmes to spread the message. The Royal Hong Kong Jockey Club donated $3.3 million to support the programmes.

A family casework service helps individuals and families deal with problems. There are 58 family services centres throughout the territory, 35 of which are run by the depart- ment and 23 by non-governmental organisations. The major services provided include counselling and referrals for financial and housing assistance, employment placement and other welfare services such as rehabilitation and elderly and child care services. With an establishment of 476 family caseworkers at the end of 1994, the centres handled a total of 56 740 cases during the year.

As a complement to the casework service, a family aide service is provided by 36 family services centres. This aims to provide training for clients on home management and child care and to help families attain self-reliance. A family care demonstration and resource centre was established in June to provide training in practical home management and caring skills, as well as resource materials for social workers. Nineteen family activity and resource centres were set up in government-run community centres to provide a drop-in service, mutual support and early identification and referral of cases in need of intensive casework service.

  The clinical psychological service supports the casework service by providing in-depth and professional assessment and treatment to persons suffering from psychological and behavioural problems. At the end of the year, there were 32 clinical psychologists engaged in this work.

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The home help service, subvented by the government and operated by non-governmental organisations, provides meals, personal care and household work services to those in need. At the end of the year, there were 89 home help teams.

      Wai On Home for Women and Harmony House are run by the Social Welfare Depart- ment and a non-governmental organisation, respectively. They provide a total of 80 short- term residential places for women and children who may be victims of domestic violence, and for young girls at risk. A third refuge, with accommodation for 40 women, is under planning.

      The department continues to tackle the problem of street-sleeping. A total of three outreaching teams dedicated to helping street-sleepers are at work. The department also assists non-governmental welfare organisations to run temporary shelters, urban hostels and a day relief centre for street-sleepers.

      A wide range of child welfare services is provided. The department's adoption units are responsible for arranging local and overseas adoption of orphans, abandoned babies and children available for adoption. The Central Foster Care Unit promotes foster care services in the territory. The Child Custody Services Unit carries out statutory duties in respect of the supervision or care of children arising from custody and guardianship matters handled in the Family Courts or the High Court. The Child Protective Services Unit investigates and supervises child abuse cases, for the protection of children at risk. A fully-computerised Child Protection Registry was put in place in July 1994 to give quick access to information on child abuse cases. The registry will also facilitate the better planning of services for the protection of children at risk.

      The Social Welfare Department operates two children's homes - Chuk Yuen Children's Reception Centre and Sha Kok Children's Home, which provide temporary out-of-home care to children whose families are in crisis. It also operates a girls' home Wai Yee Hostel, which provides residential care and schooling for teenage girls in need of care and protection.

      A number of subvented welfare organisations also provide residential child care services through children's homes, homes and hostels for boys and girls, foster care and small group homes. The 1991 social welfare White Paper stated that residential services are to be developed on the principle that a family setting is the best environment for the healthy development of a child and should be the preferred choice over an institutional setting, particularly for young children. Accordingly, in 1994, foster care places were increased from 480 to 560, and small group homes from 32 to 46. It was also stated that when large children's homes are being reprovisioned, the opportunity should be taken to convert them into small group homes. Accordingly, two large children's homes run by non-governmental organisations were converted into 30 small group homes during the year.

      Child care centres provide day care facilities for children under the age of six. These centres must comply with the standards laid down in the Child Care Centres Ordinance and the Child Care Centres Regulations. They are required to be registered and are subject to inspection by the department's Child Care Centres Advisory Inspectorate. At the end of the year, there were 1 023 places in special child care centres, 37 073 places in day child care centres and 585 places in residential child care centres. New modes of child care services were being provided to meet the changing needs of families. A total of 135 occasional child care units, each with three places, were provided to take care of children for brief periods

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 during the day, allowing their families to attend to urgent business. For working parents, there are three day nurseries where children are cared for beyond normal working hours. Families with low income may make use of the Fee Assistance Scheme in meeting creche and nursery fees. A total of 9 919 children were receiving fee assistance at the end of the

year.

  The Social Welfare Department operates a telephone hotline service, answering enquiries and providing professional advice to the public on social welfare matters.

Medical Social Service

 The Social Welfare Department continues to provide medical social services in public hospitals and clinics to help patients and their families deal with their personal and family problems arising from illness or disability.

Care of the Elderly

The White Paper Social Welfare into the 1990s and Beyond laid down care in the community, and by the community, as the guiding principle for the planning and development of services for elderly people. The Working Group on Care for the Elderly, set up in November 1993 to review services for this group, reaffirmed that the principle of care in the community is pivotal to the provision of services.

In 1994-95, $6.8 billion will be spent on the elderly.

Community support services are provided to help families look after their elderly members and to enable old people to live with dignity in the community for as long as possible. These services include home help, day care, social and recreational facilities, canteens, community education, outreaching services for elderly people at risk and respite care. At the end of the year, there were 89 home help teams, 153 social centres, 21 multi-service centres, 18 day care centres, 17 respite care places, a holiday centre and two outreaching teams. Financial assistance includes social security assistance and special allowances. Housing assistance, comprising compassionate rehousing and priority allocation of public housing, continues to be available for those eligible. Sheltered housing is also provided, both in private flats and public housing estates, for 2 759 elderly people who are capable of living independently.

  Residential facilities are provided for those who, for health or other reasons, are unable to look after themselves and who have no relatives or friends to help them. At the end of 1994, there were 1 156 hostel (self-care) places, 6 389 places in homes for the aged and 6 247 places in care-and-attention homes.

  The Registration Office of Private Homes for the Elderly offers advice and assistance to private homes for the elderly to assist them to provide an acceptable standard of service. Higher service standards are encouraged through a voluntary registration scheme and through an offer to buy places from registered homes under the bought places scheme.

  To provide a regulatory framework and a set of uniform standards for all homes for old people, the Residential Care Home (Elderly Persons) Bill was introduced into the Legislative Council in November 1993. The Bill was passed in October 1994.

  Aside from the setting up of the $200 million Elderly Services Development Fund, the government is to embark on a large number of initiatives to improve services for the elderly as a result of the report of the Working Group on Care for the Elderly. It is estimated that the

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recurrent cost of implementing the working group's recommendations will increase from $37 million in 1995-96 to $108 million in 1999-2000. An Elderly Services Division will be established in the Health and Welfare Branch to act as a central co-ordinating unit for the development of services for the elderly. Among other measures, an additional 400 health workers will be trained for private homes for the elderly.

In April, to facilitate easy access to concessionary fares and discounts, the Social Welfare Department began issuing senior citizen cards, which serve as a generally recognised proof of age, to elderly persons aged 65 and over. So far, 350 000 cards have been issued and about 290 organisations have joined the scheme.

Services for Young People

To help and encourage young people to become mature, responsible and contributing members of society, services are designed for young people aged from six to 24 to foster the development of their personality, character, social aptitude and sense of civic respon- sibility. They are also helped to overcome developmental crises and to equip themselves with the skills to cope with the demands made on them and the problems they face.

At the district level, apart from providing group activities in community centres, the department promotes and co-ordinates youth programmes and volunteer groups through its youth offices. Since 1974, the department has been running the Opportunities for Youth Scheme. Every year, young people are given funds to implement a variety of community service projects designed to meet specific social needs. Awards are given to the outstanding projects.

Children and youth centres operated by subvented non-governmental organisations also organise a variety of programmes and activities for the personal and social development of young people. There were 211 children centres and 214 youth centres at the year's end. Since the youth population is declining and their needs are changing, there is a need for children and youth centres to move with the times. Following a review of the centres by a working party appointed by the Secretary for Health and Welfare, a new integrated service delivery model was implemented in April. Under this model, children and youth centres, outreaching social work, school social work and, where possible, family life education are provided by a team of social workers under one management structure. Initially, 10 teams will be set up over two years. Five such teams were set up in 1994. The service will be evaluated in 1996.

The outreaching social work service caters for the needs of young people who do not normally participate in conventional social or youth activities and who are vulnerable to undesirable influences. Outreaching social workers establish contact with these young people in the places they usually frequent to help them to overcome their problems and become socially reintegrated by giving them counselling and guidance. During the year, two additional outreaching social work teams were established, meeting the White Paper target of 30 outreaching social teams to serve the whole territory. A review is being conducted to study the demand for, and effectiveness of, this service. It will be completed in 1995.

      All secondary schools are provided with school social workers. The school social work service aims to identify and help students whose academic, social and emotional development is at risk. An additional 59 school social workers were provided in 1994, of

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whom 39 were allocated to schools with more serious student problems. Overall, there are 227 school social workers serving a student population of 448 000.

  Uniformed organisations offer young people opportunities to join organised activities with progressive training programmes for the development of character and leadership, to help them become responsible, self-reliant and caring members of the community. There are eight subvented welfare organisations, with 91 945 members, operating a wide range of activities for different groups of young people. The Duke of Edinburgh's Award Scheme has attracted a membership of 39 782 through its 19 operating authorities.

Rehabilitation of People with a Disability

The objective of Hong Kong's rehabilitation services is to integrate people with a disability into the community. It is estimated that the territory has 264 000 individuals with some form of disability. Services provided by government departments and non-governmental organisations help people with a disability to fully develop their physical, mental and social capabilities. These services are co-ordinated by the Commissioner for Rehabilitation, who also conducts regular reviews of the Rehabilitation Programme Plan. The plan projects the requirement for, and identifies shortfalls and overprovision in, rehabilitation services for the following 10 years. The future development of rehabilitation services was examined in the Green Paper on Rehabilitation published in 1992. It is expected that the White Paper will be published in spring 1995.

  The Green Paper comprehensively reviewed the entire spectrum of rehabilitation services and identified significant shortfalls, particularly in services for mentally handicapped persons. In response, the Governor pledged in his 1992 policy address that necessary funds would be made available to implement the key targets of the Green Paper in full. These relate to the provision of 3 930 additional residential places for people with various disabilities and 3 760 additional day services places for mentally handicapped persons by 1996-97.

  In 1994, to demonstrate the government's commitment to integrating people with a disability into the community and to tackle the problems of discrimination and harass- ment, the Secretary for Health and Welfare decided to introduce comprehensive anti- discrimination legislation into the Legislative Council. This legislation, when passed, will give people with a disability the legal weapons to fight for equal opportunities, and for access to and involvement in the community to the fullest extent possible. Public education plays an equally important role in changing people's perception of those with a disability and changing their attitudes towards them. That is why the government is spending $32 million between 1993 and 1997 on strengthening public education on integration.

  The Department of Health is responsible for providing immunisation programmes against various communicable diseases and for promoting health education to prevent disabi- lities. It also provides screening services for the early detection and identification of disabilities. The Hospital Authority is responsible for providing medical rehabilitation services. The Social Welfare Department is responsible for the planning and development of a wide range of social rehabilitation services, either through direct service provision or subvention to non-governmental organisations. The Education Department is responsible for the planning and development of education and related supportive services for school- aged children with a disability. The Labour Department is responsible for job placements

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for the hearing and visually impaired, the physically and mentally handicapped, and discharged mental patients. The Transport Department subvents a Rehabus service for people with a disability who have difficulties in using public transport. The Vocational Training Council is responsible for providing and co-ordinating vocational training for people with a disability.

At the end of the year, the Social Welfare Department and non-governmental organisations provided a total of 910 integrated programme places, 987 special child care places (including 54 residential places) and 905 early education and training centre places for pre-school disabled children. In addition, the service of a clinical psychologist was provided for autistic children in special child care centres. For adults with a disability, there were 2535 day activity centre places providing day care, daily living skills and work training for mentally handicapped persons; 5 095 sheltered workshop places providing employment for those unable to compete in the open job market; and 2 866 hostel places, 17 supported housing places and 32 small group home places for those who could neither live independently nor be adequately cared for by their families, or who lived in areas too remote from their places of training or employment. For aged blind persons unable to look after themselves adequately, or who were in need of care and attention, 325 places were provided in homes and care-and-attention homes. In addition, 200 long-stay care home places, 797 halfway house places and 160 day activity centre places were provided for discharged mental patients.

      Twenty-two social and recreational centres were provided for all categories of people with a disability.

The supported employment scheme, introduced by the department in 1988, continues to provide employment opportunities for people with a disability. Various supported employment service models are being developed.

      To improve service quality, professional backup from clinical psychologists, occupa- tional therapists and physiotherapists is provided in all rehabilitation day centres and hostels. Other support services include the respite service (which provides short-term relief to families with mentally-handicapped persons); five home-based training teams (which help train mentally handicapped persons while they await placement); seven home-based training teams with 105 places for pre-school disabled children; and 36 places of occasional child care service for children with a disability.

      The Queen Elizabeth Foundation for the Mentally Handicapped, set up in 1988, aims to further the welfare, education and training of mentally-handicapped persons and to promote their employment prospects. The management and use of the foundation's funds are determined by a council appointed by the Governor. During the year, the foundation allocated $10 million in the form of grants or sponsorships to 23 non-governmental organisations and three government departments, enabling them to undertake projects for the benefit of mentally-handicapped persons. The fund stood at $132 million on March 31, 1994.

Community Chest

The Community Chest, which organises and co-ordinates fund-raising activities for its member agencies, raised a total of $178 million in 1994-95, compared to $171 million in 1993-94.

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  Founded in 1968, the Chest is a non-government statutory body. It spreads the donations it collects from the community to 132 member welfare agencies, helping children and youth, the elderly, families in crisis, the handicapped, former drug addicts and ex-offenders who are in need.

  The Chest's own costs are covered by endowment funds, interest income, commercial sponsorships and grants. This means, in effect, that every dollar of donation by the public is passed on without deduction to its member agencies.

Staff Training and Development

 Social work training at degree and sub-degree levels is provided by five local universities and one post-secondary college. The Social Welfare Department and non-governmental organisations provide practical work placements for social work students from these institutions.

  The department, through its Lady Trench Training Centre, also provides various types of in-service training programmes. During the year, the training centre organised 286 programmes, seminars and workshops for 10 107 participants. The centre also operates a child care centre for 113 children aged between two and six years, which serves as a training facility for child care personnel.

  To keep its staff abreast of the latest developments in social services and to help them learn specialised skills in various areas of professional practice, the department sponsors officers to attend advanced local and overseas training programmes and international conferences. During 1994, a total of 208 officers attended 52 such courses and conferences.

  The Social Work Training Fund, administered by the department, continues to provide financial assistance for individuals to pursue social work training locally or overseas. In 1994, a total of 88 applicants were awarded either full or partial grants. It also provides funding support for other purposes, such as bringing in overseas experts as consultants or to provide training.

  The Advisory Committee on Social Work Training and Manpower Planning, comprising appointed members from different walks of life and the tertiary institutions, advises the government through the Social Welfare Advisory Committee on all matters relating to social work training and manpower planning to meet welfare service needs.

Research and Statistics

The department conducts surveys and research studies, and maintains data systems for the monitoring, planning and development of social welfare services. In conjunction with the Hong Kong Council of Social Service, it runs the Social Welfare Manpower Planning System which collates information on social work personnel and on the demand for, and supply of, trained social workers for facilitating overall manpower planning. Other data systems maintained by the department include the Child Protection Registry; the Street Sleepers Registry; the Planned Welfare Projects Registry; the Director of Social Welfare Wards of High Court Registry; the Private Elderly Homes Registry; the Integrated Law and Order Statistical System, on offenders under the charge of the department; and various central referral systems for co-ordinating the referral of clients to different types of welfare institutions.

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Subvention and Evaluation

Financial assistance is given to 167 non-governmental organisations for the provision of social welfare services in accordance with government policies. Financial assistance for capital and special expenditure is also provided through the Lotteries Fund.

      The Evaluation Unit of the department is responsible for monitoring and assessing services provided by subvented non-governmental organisations. For this purpose, departmental staff make regular visits to the agencies, which are in turn required to submit service statistics at specified intervals. Where appropriate, findings are submitted to the Subventions and Lotteries Fund Advisory Committee, which advises on the allocation of subventions and Lotteries Fund grants to agencies providing social welfare and rehabilitation services.

      In 1995, the government plans to commission consultants to examine the subvention administration system and advise on ways to strengthen the partnership with non- governmental organisations. Their recommendations will help to ensure that the resources allocated to welfare services are used as effectively as possible.

Community Building

A number of government departments and voluntary organisations contribute towards the community-building programme.

      This programme serves to foster among the people of Hong Kong a sense of belonging, mutual care and civic responsibility as society undergoes rapid socio-economic changes.

      Community-building efforts involve the provision of purpose-built facilities for group and community activities; the formation of citizens' organisations; and the encouragement of community participation in the administration of public affairs, solving community problems, promoting social stability and improving the quality of life in general.

      While the Home Affairs Branch has policy responsibility for the programme, the Home Affairs Department, known as the City and New Territories Administration before December 1, and the Social Welfare Department are principally responsible for its implementation.

      The Home Affairs Department, through its network of district offices, is primarily concerned with promoting mutual care and community spirit through local organisations such as area committees, mutual aid committees, rural committees, kaifong welfare associations, women's organisations and local arts and sports associations.

The Social Welfare Department is responsible for various aspects of group and community work aimed at promoting the development of individuals and groups, and at fostering a sense of community responsibility.

Commission on Youth

     The Commission on Youth was established in February 1990 with members appointed by the Governor. Its main objectives are to advise on matters pertaining to youth, initiate research, promote co-operation and co-ordination in the provision of youth services and serve as a focal liaison point with other international youth organisations for exchange programmes.

During the year, the commission placed much emphasis on promoting the Charter for Youth which was developed in April 1993. By the end of the year, 349 organisations and

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1 871 individuals had become subscribers of the charter. The commission has also set up a liaison network among organisation subscribers to prepare for the first biennial review of the implementation of the charter, to be held in 1995.

The commission completed two studies in 1994 - on youth participation in community activities and on the supportive system for youth. The findings of the two studies were released to the public. A seminar was also held in November to discuss the findings of the latter study.

  Working groups have also been set up to study the moral values, education and career plans of youth; underage drinking and the classification of films and publications.

  In June, the commission published a collection of articles on the influence of the mass media on youth. This publication was circulated to youth-related organisations and secondary schools.

Committee on the Promotion of Civic Education

The Committee on the Promotion of Civic Education was set up by the government in May 1986 to promote civic awareness and responsibility throughout the community. Made up largely of non-government members, the committee advises the government and community organisations on the objectives and scope of civic education. It encourages, through sponsorship, community efforts in organising civic education activities among different age groups.

  The committee focussed on the promotion of public participation in representative government in 1994-95. Its programmes included a 'Legislative Council Members Role Play Contest'; radio programmes on citizens' voting rights; a computer animation software design competition on the theme of elections and representative government; and a territory-wide intra-secondary school civic education quiz.

The promotion of human rights education continued to be a major task for the committee. A six-day civic education exhibition, featuring human rights and representative govern- ment, was organised in July. A human rights educational video was co-produced by the committee and Radio Television Hong Kong for secondary school students.

  The promotion of the rule of law was another major area of concern. A teaching kit on the subject was produced for secondary schools.

  The committee continued to liaise closely with voluntary agencies and district civic education bodies. It continued to offer sponsorship under the Community Participation Scheme to these organisations to encourage them to organise civic education activities. An allocation of approximately $1 million was made available for 29 projects in 1994-95.

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THE battle against spiralling property prices in the private sector dominated the housing arena in 1994.

      In March, the Governor, Mr Christopher Patten, announced that the increasing property prices constituted the leading domestic issue on his agenda.

     In response to public opinion that private residential property prices had risen beyond the reach of average households, an inter-departmental task force was established to look into the problem.

      In June, the task force issued its report and a package of measures was announced to increase the housing supply and dampen speculation. The measures resulted in a cooling of the market.

      A Secretary for Housing, with overall responsibility for private and public housing matters in Hong Kong, was also appointed in December.

      An inter-departmental Working Group on Housing Demand, chaired by the Planning Department, is undertaking a comprehensive assessment of housing demand. In the light of the working group's findings, the government will identify and allocate sufficient housing sites to meet the assessed demand.

      The government will continue to monitor the property market. It is firmly committed to providing sufficient land for housing development, both private and public, to ensure a steady supply of housing to meet the needs of the community.

      In 1994, the task force alone identified 120 hectares of land which are potentially suitable for housing development.

      These are in addition to the provisions contained in the existing five-year land disposal programme.

      Meanwhile, the public housing programme, for which the Hong Kong Housing Authority is responsible, was well on the way to achieving its objective of providing homes by the turn of the century for all those in need.

      Over three million people - half the population - now benefit from subsidised public housing in some 879 000 flats in 290 estates throughout the territory. Some 2.5 million live in 685 000 rental units while some 593 000 live in purchased public flats.

      In May, the government announced proposals for new financial arrangements with the Housing Authority, aimed at enabling the authority to make better use of its surplus cash to speed up the supply of public housing and upgrade its existing estates. A development fund

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to be set up with an initial cash balance of $7 billion will boost the production of public housing by up to 10 000 flats over the next five years.

  The Sandwich Class Housing Scheme, administered by the Hong Kong Housing Society, was also progressing well. All three phases of the interim loan scheme, aimed at offering loans of up to $2 billion to the so-called 'sandwich class', were launched before the end of 1994. Housing developments under the main scheme will benefit families from the end of 1995.

A more detailed report is given at the end of this chapter.

The Housing Strategy

 In pursuance of a free market economy, the government's philosophy on housing develop- ment is to provide sufficient land, supporting infrastructure and a financial environment which induces private sector investment in property development.

  Through the Housing Authority and the Housing Society, the government provides assisted housing for people who cannot afford private housing or who are affected by clearances and redevelopment of old housing blocks.

  Public housing estates are developed as total living environments and include a wide range of community, commercial and transport facilities. There is also a continuing pro- gramme to redevelop the older estates, to bring them up to date in design and standards.

  It is also government policy to promote home ownership in Hong Kong. The declared objective is to achieve an overall home ownership rate of just under 60 per cent by 1997.

  The Long Term Housing Strategy was first promulgated in 1987, although the provision of assisted housing has a much longer history. The declared policy objectives are, among other things, to provide adequate housing at an affordable price or rent to all households, and to achieve efficient and equitable use of resources by ensuring that housing subsidy is provided in relation to financial needs.

  As the principal organisation responsible for carrying out the public housing programme, the Housing Authority has planned the production of some 292 500 new flats in the years up to 2001. Of these, 162 000 will be rental flats and 130 500 public flats for sale.

  During the same period, the Housing Society, a non-profit-making agency, will produce 25 433 flats 3 248 for rent and 22 185 for sale.

Private Sector Housing

Private housing production averages about 30 000 flats each year. In 1994, 34 170 flats were built by the private sector.

  Since mid-1993, there had been growing public concern about rapid increases in property prices and pressure for government action to check the price spiral.

Property prices had increased sharply under the combined effect of a lower-than-average level of supply in 1992 and 1993; and an exceptionally strong demand due to population growth, changing social patterns, increasing affluence, negative real interest rates and the inflow of foreign capital into the property market.

  It was estimated that prices for private domestic properties had risen by an average of 145 per cent between the end of 1989 and 1993. Prices in respect of the more popular estate-type developments had increased by more than 200 per cent. Prices in popular developments soared by another 30 per cent in the first quarter of 1994.

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Rental increases averaged 40 per cent between 1989 and 1993, although the increases were more significant in the luxury flats sector. The shortage of residential property for lease coupled with strong demand resulted in a further seven per cent increase in luxury rents during the first quarter of 1994.

      The Task Force on Land Supply and Property Prices, chaired by the Secretary for Planning, Environment and Lands, was set up in April 1994 to examine the problem. The task force recommended a three-pronged approach in June, dealing with both the short and long-term aspects of the situation.

      It recommended the introduction of measures to reduce speculation, in this way freeing more housing units for genuine home buyers in the short term. It also recommended increasing the housing supply through the provision of more land, accelerating projects already in the pipeline and facilitating private redevelopment. Finally, it recommended a review of existing planning and development processes, and the improvement of manage- ment information systems to streamline procedures and increase the administration's knowledge of, and responsiveness to, changes in the market situation.

      The task force took a cautious and incremental approach, aiming to moderate property prices without causing a crash. There was no direct intervention in the price mechanism.

      The main thrust of the task force's recommendations was to increase the housing supply to meet the demand from a larger and more affluent population. The target is to produce a minimum of 45 000, and if necessary 60 000, additional flats before the year 2001. The minimum target of 45 000 flats will be made up of 20 000 public housing units, including Home Ownership Scheme and Private Sector Participation Scheme flats and rental housing; 10 000 sandwich class housing flats and 15 000 private domestic flats.

      Of the 120 hectares of land identified by the task force for housing development, about 70 hectares will be allocated before 1997-98, subject to agreement by the Sino-British Land Commission, to meet the additional housing commitment. The remaining 50 hectares will be held in reserve. A land reserve equivalent to about one year's land disposal will also be established over time.

The task force's anti-speculation measures aim to remove market distortion, ensure fair competition and protect the interests of genuine home-buyers.

      Its recommendations resulted in the tightening of controls over the pre-sale of uncompleted flats, which are the market leaders on property prices. The measures included a reduction in the quota for private sales of uncompleted flats from 50 per cent to 10 per cent; the prohibition of the resale of uncompleted flats before assignment; an increase in the size of initial deposits from five per cent to 10 per cent of purchase price and in the amount of forfeiture from three per cent to five per cent of purchase price; and extension of the consent scheme to cover substantive modifications and exchanges involving residential accommodation.

Following the task force recommendation that planning and development processes be improved and a project monitoring system be set up to enhance the administration's responsiveness to changes in the property market, a high level inter-departmental housing project action team, led by the new Secretary for Housing, was established to expedite the processing of housing development projects. A comprehensive review of the scale and composition of demand for both private and public housing and an assessment of redevelopment potential throughout the territory are under way.

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  By the end of 1994, prices of new flats offered by developers had in general moderated from 10 to 30 per cent, depending on the location of the property in question.

  The task force is not a one-off exercise. The government will continue to closely monitor the property market and take any necessary action to meet the housing needs of the community.

Regulation of Estate Agents

A working group on the regulation of estate agents was set up by the government in November 1993 to draw up proposals for a regulatory system with legislative backing and to examine the resource and enforcement implications. Its report was published for public consultation in August 1994. In November, the government endorsed the working group's final recommendations. A relevant Bill, targeted for introduction into the Legislative Council in mid-1995, is being prepared.

  The working group's major recommendations include the implementation of a licensing system, introducing three categories of licences with different requirements applicable to individual estate agents, corporations and front-line estate salespersons; establishing a statutory and self-financing Estate Agents Authority for licensing and enforcement; stating the obligations of estate agents in legislation and prescribing the use of written agency agreements. In the interim, the working group recommended that the two territory- wide trade associations, in consultation with the Consumer Council, the Independent Commission Against Corruption and the Law Society, should draw up a standard engagement agreement for inspection of premises and a standard provisional sale and purchase agreement. The Consumer Council and the Independent Commission Against Corruption will continue to promote consumers' awareness of their rights in property transactions.

Proposed Reform of Law on Sales Descriptions

In November 1992, the Law Reform Commission appointed a sub-committee to consider whether the law governing the protection of prospective purchasers and purchasers of uncompleted residential property relating to inadequate or misleading sales information should be changed and to make proposals for reform. The sub-committee issued its interim report in the form of a consultative document in April 1994, and finalised, in September 1994, its recommendations relating to the descriptions of uncompleted residential properties for sale in Hong Kong. The sub-committee's final report was endorsed by the Law Reform Commission in December. The commission's final report will be published in the first quarter of 1995.

Rent Control in the Private Sector

 Statutory controls on rents and security of tenure date back to 1921. The governing legislation is the Landlord and Tenant (Consolidation) Ordinance. Under Parts I and II, certain domestic tenancies have both their rent levels controlled and receive security of tenure. Under Part IV, nearly all the other domestic tenancies receive security of tenure, providing the tenant is prepared to pay the prevailing market rent.

The legislation allows controlled rents to increase progressively up to market levels so that rent controls can be removed by the end of 1996. The provisions for security of

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tenure will, however, continue to apply. Unless a tenant voluntarily vacates the premises, a landlord must apply on certain specified grounds and obtain an order from the Lands Tribunal before he can recover possession. Heavy penalties are prescribed for harassment of a protected tenant with intent to induce him to leave. Provisions exist though to facilitate an agreed surrender by the tenant of his protected tenancy in exchange for a consideration. The Rating and Valuation Department publishes explanatory pamphlets to help people understand their position in relation to the legislation. It provides an advisory and mediatory service to deal with the many practical problems arising from rent controls. It also operates a scheme under which rent officers attend district offices on certain days each week to deal with referred cases and answer enquiries on landlord and tenant matters.

Pre-war Premises

Legislation controlling rents and providing security of tenure for pre-war premises was introduced immediately after World War Two. It is presently contained in Part I of the Landlord and Tenant (Consolidation) Ordinance.

       Part I previously applied to both domestic and business premises, but from July 1, 1984, it has applied only to domestic premises. Substantially reconstructed buildings are, how- ever, excluded.

       Rents under Part I are controlled by reference to the standard rent of the premises (that is, the rent payable, on an unfurnished basis, on or most recently before December 25, 1941) and the prevailing market rent. The rent lawfully chargeable under the ordinance is the permitted rent, which cannot exceed the prevailing market rent of the premises.

      In order to implement the policy of phasing out rent controls, the legislation allows permitted rents to be progressively increased. With effect from July 1994, the permitted rent was increased from 55 to 65 times the standard rent of the premises. The multiplier will be further increased to 75 in July 1995 and to 85 in July 1996. Additionally, the legislation provides that the new rent shall not be less than a specified percentage of the prevailing market rent. The minimum percentage, initially set at 60 per cent, was adjusted upwards to 70 per cent in July 1994 and will be increased to 80 per cent in July 1995, and to 90 in July 1996. The Commissioner of Rating and Valuation is empowered to certify the standard rent and the prevailing market rent.

per cent

      The legislation provides for premises to be excluded from control if they are to be redeveloped, and generally, possession is subject to compensation being paid to the protected tenants. Jurisdiction under Part I is exercised by the Lands Tribunal, while technical functions are performed by the Commissioner of Rating and Valuation.

Post-war Premises

Comprehensive legislation to control rent increases in post-war domestic premises has been in force since 1963 except for the period between 1966 and 1970. This is now contained in Part II of the Landlord and Tenant (Consolidation) Ordinance.

      Part II controls rent increases and provides security of tenure to tenancies and sub- tenancies in post-war domestic premises completed or substantially rebuilt after August 16, 1945 and before June 19, 1981. It does not, however, apply to new lettings created on or after June 10, 1983, or to tenancies of premises having a rateable value of or above $30,000 as at June 10, 1983.

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Under Part II, landlords and tenants are free to agree on an increase in rent, but such agreements must be endorsed by the Commissioner of Rating and Valuation. Increases, except by agreement, are permitted only once every two years. Where an increase cannot be agreed, the landlord may apply to the Commissioner to certify the increase which may be made to the current rent. The permitted increase is arrived at by taking the lesser of (i) the difference between the prevailing market rent and the current rent or (ii) 30 per cent of the current rent. However, if the increase so determined, when added to the current rent, results in a rent less than a specified percentage of the prevailing market rent, the permitted increase will be the amount necessary to bring the new rent up to that percentage of the prevailing market rent. The minimum percentage, previously set at 75 per cent, was adjusted to 80 per cent in July 1994. It will be increased in stages to 85 per cent and 90 per cent in July in 1995 and 1996, respectively, to allow rent controls to be phased out by the end of 1996. Both landlords and tenants may apply to the Commissioner for a review of his certificate and may further appeal to the Lands Tribunal against the Commissioner's review.

The sitting tenants of nearly all domestic tenancies not subject to Part I or II controls are provided with security of tenure under Part IV of the ordinance, as long as they are prepared to pay the prevailing market rent on renewal of their tenancies. However, Part IV does not control rents. The legislation stipulates that a further tenancy must be granted to the tenant, unless the landlord can satisfy the Lands Tribunal that he requires the premises for his own occupation, or that he intends to rebuild the premises, or on one of the other grounds specified in the legislation. The parties are free to agree on the rent and terms for the new tenancy but, failing agreement, they can apply to the Lands Tribunal for a determination. Provisions also exist enabling tenancies to be transferred, under certain statutory condi- tions, from the ambit of Part II to Part IV.

Parts II and IV of the ordinance provide for the payment of statutory compensation to tenants dispossessed by the rebuilding of premises. The level of compensation is based on a multiplier of 1.7 times the current rateable value of the concerned property.

The Housing Authority

To take overall responsibility for the rapidly growing public housing programme, the Hong Kong Housing Authority was established on April 1, 1973, under the Housing Ordinance, combining a number of bodies which had been dealing with housing and resettlement matters.

The authority was re-organised on April 1, 1988 and given a separate financial identity and autonomy, together with sufficient flexibility to deal with the priorities set by the Long Term Housing Strategy.

The Housing Authority advises the Governor on all matters relating to housing and through its executive arm, the Housing Department, plans and builds public sector housing, either for rent or ownership, and temporary housing areas.

  It manages public housing estates, home ownership courts, temporary housing areas, cottage areas, transit centres, flatted factories and the ancillary commercial facilities throughout the territory, and administers the Private Sector Participation Scheme and the Home Purchase Loan Scheme. It acts as the government's agent to clear land, prevent and control squatting, and implement improvements to squatter areas.

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      The authority's members are appointed by the Governor for a two-year term. Chaired by a non-official, the authority comprises 20 other non-officials and four official members. Its nine standing committees, on which sit 46 non-official committee members, deal with various aspects of housing policies such as development, building, commercial properties, establishment and finance, home ownership, management and operations, allocation and standards of vacant flats as well as matters concerning tenancy appeals and administrative complaints. Many of the members of the authority and the committees also serve the Hong Kong community as executive, legislative, urban or regional councillors, or as members of the Heung Yee Kuk, district boards, area committees, mutual aid committees and other government boards and committees. Some members are themselves residents of public housing estates.

In addition, an ad hoc committee on housing for the elderly completed an overall review of the provision of housing for the elderly in June 1994. The special committee on the clearance of the Kowloon Walled City, established in January 1987, is expected to end its work soon. The authority will continue to provide homes at affordable rents and prices for the public. Under an arrangement which came into effect in April 1988, the government continues to ensure the availability of funds required for the housing programmes as set out in the Long Term Housing Strategy.

As at March 31, 1994, the government's capital investment and contribution to housing stood at about $153 billion. This comprised permanent capital of $26 billion, contributions to domestic housing of $116 billion and non-domestic equity of $11 billion.

In the 1993-94 financial year, recurrent expenditure on the authority's domestic operations totalled $7,544 million, covering mainly management and maintenance expenses (including a one-off depreciation adjustment of $1,121 million), while income from domestic operations was $6,430 million, resulting in a deficit of $1,114 million. After paying interest of $936 million on the government's permanent capital, the deficit increased to $2,050 million.

      The authority was able to partly offset this deficit from the net income derived from its non-domestic operations. Over this period, these operations generated a net surplus of $309 million (including a one-off depreciation adjustment of $744 million), after payment of interest of $183 million on the government's permanent capital and payment of a $492 million dividend to the government.

      An operating deficit of $3,225 million was incurred on home ownership operations. This deficit was determined after charging $15,660 million for Home Ownership Scheme (HOS) land values, as required under the existing financial arrangements. However, this amount is not required to be paid in cash (except for $1,387 million HOS land costs) but will be retained as an additional government contribution to domestic housing. A net positive cash inflow of $11,048 million was therefore generated from the home ownership operations.

      The authority self-financed all its capital expenditure, which amounted to $6,791 million, in 1993-94.

Rent Policy

Rents for domestic premises in public housing estates have been maintained at low levels.

      This has been possible, despite increasing operating and maintenance costs, as a result of government subsidies in the form of free land and average low interest rates.

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  In response to the demand for more living space, tenants may choose to live at the minimum internal floor area allocation standard of seven square metres per person, with the median rent-to-income ratio not exceeding 18.5 per cent; or at the minimum standard of 5.5 square metres per person with the median rent-to-income ratio not exceeding 15 per cent.

With rents being charged at $51.20 per square metre for the newest urban estates and $29.30 for the newest New Territories estates, domestic rents represent, on average, eight per cent of the median household income of Housing Authority tenants.

Rents are reviewed every two years and adjusted to take account of rates increases, maintenance and other costs, estate values in terms of location, facilities and services provided, and the tenants' ability to pay.

Housing Subsidy Policy

Under a modified housing subsidy policy introduced in April 1993, tenants who have lived in public housing for 10 years or more, and whose incomes exceed twice but are less than three times the waiting list income limit, are required to pay 1.5 times the net rent plus rates. Only tenants whose incomes exceed three times the waiting list income limit are required to pay double net rent plus rates.

There are some 309 000 households with 10 years' residence in public housing, and 15 per cent of these are required to pay extra rent.

Rent Assistance

Temporary relief is granted to domestic tenants facing financial hardship. In 1994, 450 families received rent assistance under the scheme.

Those tenants whose rent-to-income ratio exceeds the qualifying percentages as a result of an increase in rent or a reduction in household income, may apply for a reduction of rent for a period of 12 months, subject to annual review.

The amount of reduction will be 25 per cent for tenants whose rent-to-income ratio exceeds 25 per cent, and 50 per cent for tenants whose ratio exceeds 33 per cent.

Tenants who still face financial difficulty after 12 months may seek a transfer to cheaper housing in the same district. They will be granted a domestic removal allowance and a rent- free period of one month on transfer.

Elderly persons and persons with disabilities, however, are entitled to a 25 per cent rent reduction if their rent-to-income ratio exceeds 20 per cent and a 50 per cent reduction if their ratio exceeds 25 per cent; and they may remain in their existing homes on receiving rent reduction.

A family which has already moved to cheaper housing because of hardship but whose rent-to-income ratio still exceeds 25 per cent will be entitled to further rent assistance, subject to review every 12 months.

Allocation

In 1994, 11 400 new flats and 14 000 vacated flats were let to the various categories of eligible applicants.

The largest allocation of some 10 100 flats (39 per cent) went to waiting list applicants. Applicants for public rental housing through the waiting list are considered in the order of their registration and in accordance with their choice of districts. Accommodation is offered

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to those who are found eligible in respect of their family income and residence in Hong Kong. The income limits range from $8,300 for a family of two, to $21,800 for a family of 10 or more. There were 150 000 applications at the end of the year. In addition, there were 21 500 applications on the single-person waiting list, established in January 1985. The income limit for single persons is $5,000.

The next largest group allocated flats were tenants affected by the comprehensive redevelopment programme (20 per cent), followed by families affected by development clearance (20 per cent).

      The remainder of the flats went to junior civil servants, victims of fires and natural disasters, occupants of huts and other structures in dangerous locations, and compassionate cases recommended by the Social Welfare Department.

      Computerisation of information on about 3.5 million applicants and tenants now enables housing allocation and duplication checks to be carried out effectively. It also produces useful statistical information.

Housing the Elderly

Elderly couples or single elderly persons applying in groups of two or more are allocated public housing within two years. During the year, 2 200 people were rehoused under this priority scheme, bringing to 1 190 the number of flats allocated under this category.

      Since the introduction of the sheltered housing scheme in 1987, more than 2 200 housing units have been provided for able-bodied elderly persons aged 60 years or over who are self-reliant and independent. A warden service is also provided to deal with emergency situations.

       Persons requiring a higher level of health care are referred to the Social Welfare Department for transfer to more suitable housing.

      A Housing Authority ad hoc committee on housing for the elderly, set up in December 1993, completed an overall review of the provisions of housing for the elderly in June 1994. Its recommendations were later endorsed by the authority.

As a follow-up measure, new priority is being given to families applying for public housing with their elderly parents or dependent relatives, and waiting time for housing allocation is slashed by three years. So far, 8 300 families have benefited from this scheme. Apart from this, new housing for the elderly will be built on small urban sites by 1997. These will include high-rise composite buildings with enhanced safety and fire escape facilities. Housing for senior citizens will also be built on low-rise estate buildings such as car parks.

      In the five-year period from 1995 to 1999, the authority will spend $3.8 billion on the provision of 38 000 flats suitable for small households, 80 per cent of which will be used to rehouse elderly people.

Home Ownership Scheme

In response to the rising aspirations of the people, the Housing Authority established the Home Ownership Scheme (HOS) in 1978, providing flats for sale at prices below market value to lower and middle-income families and public housing tenants.

Since then, about 209 000 flats have been sold to eligible families. This figure includes 66 000 flats produced under the complementary Private Sector Participation Scheme 217

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 (PSPS), which aims to make more use of the resources of the private sector to produce flats for sale at subsidised prices.

  About 47 per cent of the families who bought property under the schemes were public housing tenants who were required to surrender their rental flats in return.

  Private sector applicants are not allowed to own domestic property and are subject to a household income limit of $22,000 a month. These restrictions, however, do not apply to public housing tenants, residents of temporary housing areas and cottage areas managed by the authority, households displaced by the clearance of squatter areas for development, natural disaster victims and junior civil servants.

As an encouragement, public housing tenants are accorded higher priority than private sector applicants in selecting HOS flats. This incentive has been extended to prospective tenants, so that more public rental flats will be available for applicants in greater need.

  The allocation quota of flats for the private sector and public housing applicants was changed during the year. Previously, public housing applicants were allocated 50 per cent of the flats in each development phase, but this figure was increased to 67 per cent.

  Favourable mortgage terms are provided by 44 financial institutions for the purchase of HOS and PSPS flats, in return for the authority's indemnity against loss in cases of default. This enables purchasers to borrow between 90 and 95 per cent of the flat price, with repayment periods of up to 20 years.

During the year, the HOS and PSPS schemes were over-subscribed 15 times. Some 10 430 flats were sold under the HOS scheme, and 2 340 flats under the PSPS scheme.

  The prices of flats sold ranged from $515,900 for a flat with a saleable floor area of 39.7 square metres at Peng Lai Court, Peng Chau, to $1,619,100 for a flat of 59.9 square metres at Kwai Chun Court, Kwai Chung. Prices were, on average, 48 per cent below market values. The annual production of ownership flats will range from 9 000 to 20 000 flats between 1995 and 1999. Of these, about 50 per cent will be upgraded flats in blocks originally intended for rental housing estates-providing a wider choice of flat sizes, standards, locations and prices.

Home Purchase Loan Scheme

Under the Home Purchase Loan Scheme, lower and middle-income families are given assistance to buy flats in the private sector. In 1994, 465 families benefited.

  Eligible applicants are offered an interest-free loan of $300,000, repayable over the same period as the bank mortgage on the property, up to a maximum of 20 years.

  Alternatively, they may opt for a monthly subsidy of $2,600 for 48 months, which need not be repaid.

  Since the start of the loan scheme in 1988, 8 600 loans and 390 subsidies have been granted. As a result, 4 760 public housing units have been recovered for allocation to other families.

Building Projects

 Some 105 000 flats were in various stages of construction during the year, with most of the work being carried out on the redevelopment of old housing estates in the urban areas.

  Two phases of the Tsz Wan Shan Estate redevelopment have been completed. Con- struction of a big commercial centre there will begin in early 1995. Other redevelopment

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projects in Lam Tin, Sau Mau Ping and Ko Chiu Road are progressing well, while infill site projects are being quickly developed to try to meet the demand for flats.

      In Tin Shui Wai, two public housing estates and two HOS courts have been completed, providing 19 360 flats for 71 800 people. There are plans to build some 17 740 more flats for 59 160 people in the new town between 1997 and 2000. These will be in Harmony block designs.

In Tseung Kwan O new town, not far from Kwun Tong, 2714 flats were completed during the year, and a further 4 146 flats were being built.

In the longer term, the area currently known as Tiu Keng Leng will be cleared to form part of Tseung Kwan O new town, producing 51 hectares to provide homes for 86 000 persons, half of them in public housing estates.

The authority has agreed to undertake the site formation work in this area, including the necessary roads and infrastructure. Plans for the project have been completed and clearance work will start in 1995, with completion of the first housing blocks expected in the year 2000.

Phase I of the comprehensive redevelopment of Ma Hang Village, Stanley, on the south side of Hong Kong Island was recently completed. This redevelopment will eventually stretch to the Stanley shoreline to include a village square and the rebuilt Murray House. The completion of Phase I has enabled the villagers to move from their squatter huts within the valley to the new flats, built to the latest standards and in a quite exceptional environment, featuring distinctive architecture, landscape and colour schemes.

In Tung Chung on Lantau Island, work has started on the construction of public housing which will be part of the new town being built on the doorstep of Hong Kong's new airport, presently under construction at Chek Lap Kok. Up to 15 000 people will be accommodated in public housing in the area.

Maintenance Services

The extensive works on the maintenance and upkeep of the authority's property stocks range from minor repairs to major structural repairs, and improvement programmes covering building services installations and renovation.

      Total maintenance expenditure for the year exceeded $2.25 billion. The stronger emphasis on services provided to tenants in the form of minor repairs was also reflected in the first stage of the authority's performance pledges announced in July 1993.

The CARE programme (Condition, Appraisal, Repair, Examination) continued as the framework for most maintenance-related activities. This cyclical programme will have included all the authority's estates by 1998. At the end of the year, 61 estates had been surveyed for repair works.

      A programme for the comprehensive replacement of deteriorated water supply pipes, using non-ferrous pipe materials, was launched and will be integrated with the CARE programme to minimise disturbance to tenants.

The survey and repair of external mosaic tile facades continued. Improvement pro- grammes related to the heights of railings in certain estates were also implemented.

      Good progress continued to be made on the structural strengthening and repair pro- gramme for older estates. Since the programme began in 1985, 139 blocks have been appraised and strengthened, and work continued on a further 60 blocks.

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  Regular inspection and maintenance of all slopes and retaining walls continued to be carried out, with assistance from three geotechnical engineering consultants.

  Meanwhile, work also continued on the upgrading of electrical installations. Over the past three years, 322 residential blocks have had electrical reinforcement or rewiring work carried out, and work is being undertaken on another 151 blocks, with completion scheduled for March 1995.

  The modernisation of lifts is an important aspect of the maintenance work, and 125 lifts which were over 20 years' old have been replaced in the past five years under this programme to ensure safe and adequate service.

  Under yet another maintenance programme, some 1 600 vacant flats are being regularly refurbished each month.

  In addition, commercial centres in estates are constantly upgraded to ensure that the facilities meet current-day standards. Under a major renovation programme, 22 shopping centres were being substantially upgraded.

  Encouraged by the authority, a large number of building contractors on the authority's list of contractors have obtained ISO 9000 quality accreditation, assisting the authority to meet its maintenance objectives.

Work is also under way to further improve security in housing estates in a number of ways.

  These include the installation of security gates at all estate entrances as well as closed circuit television surveillance within lifts, to be monitored at a central control room and seen on tenants' television sets.

Redevelopment

 Since 1988, 260 housing blocks in the older estates have been redeveloped to bring them up to current standards.

  This work is being carried out under a comprehensive programme as an integral part of the Long Term Housing Strategy.

Some 81 400 families have benefited.

In the next five-year rolling redevelopment programme beginning in 1994, some 53 000 more families will be rehoused. Affected tenants are formally notified 18 to 24 months before clearance work begins.

Construction

 Over the years, the authority has promoted quality construction through the wider use of industrial processes that allow easier and more effective quality control.

Currently, key building components including factory-produced doorsets, metal gates and kitchen sink units are provided by its own approved suppliers who have obtained quality certification, in this way enhancing quality operations and providing cleaner and safer site conditions.

  Further studies are being conducted to develop the concept of building standardisation to encompass the use of more factory-made components.

  Through the concerted efforts of other government departments and the building industry, it has been possible to shorten the lead time for the production of public housing by 11 months, to 61 months, without affecting quality or safety.

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Quality Assurance

The authority has continued the initiative begun in 1991 to ensure that its listed contractors attain the ISO 9000 series quality standards in order to be considered for admission to its tender lists.

By the end of 1994, about 80 listed building contractors were certified to ISO 9002.

      The target for electrical and lift contractors to be certified by October 1, 1994 has also been achieved. In addition, the authority's consultants have now begun to move towards ISO 9001, with a target certification date of April 1, 1996.

      Further to the certification of the authority's works group to ISO 9001 in 1993, various quality improvement projects are being implemented.

      The Performance Assessment Scoring System (PASS), which objectively measures the performance of building contractors on the new works construction projects, continues to highlight an ever-improving level of construction quality.

Defects Action Centre

The Defects Action Centre, set up in 1993, provides a useful database on building defects in Harmony blocks. It aims to identify the main causes of defects in newly-completed constructions and to consider action to minimise these in future. The centre's feedback reports are circulated monthly to project teams to inform them of particular instances of material failure or poor workmanship, and to offer solutions for implementation in ongoing contracts. Housing managers also render an invaluable contribution to this process by advising their tenants and decoration contractors of defects which arise from misuse or misunderstanding of fittings and services.

Site Safety

The authority's award campaign for site safety has been extended to cover civil and maintenance works sites as well as building sites.

      A five-star award system of gold and silver medals encourages companies to improve safety standards. Greater emphasis has been placed on the importance of adequate safety training for the contractors' workforce and their supervisors.

      Meanwhile, research is being undertaken by the authority's consultant, the University of Hong Kong, with a view to producing comprehensive guidelines on preventative measures which need to be adopted to improve the site safety record of certain high risk trades.

Exchanging Views

The chairman and members of the authority regularly visit estates to meet tenants and community representatives, and exchange views.

      These visits are in addition to regular meetings with the community representatives, either at the authority's headquarters or at other venues. Open meetings of the authority are also held regularly, so that members of the public may attend and observe the proceedings.

Information Centres

For the benefit of residents of private buildings affected by redevelopment, the authority has established three housing information centres in conjunction with the City and New Territories Administration. With the support of the Social Welfare Department, Labour

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Department, Education Department and Rating and Valuation Department, these centres provide enquiry and advisory services to the residents on matters relating to public housing, education, employment, social welfare, and their rights under existing tenancies.

The three information centres, at the Mongkok, Wan Chai and Tsuen Wan district offices, have proved popular. To provide further information to elderly people living in the private sector about priority public housing available to them, the two centres in Wan Chai and Mongkok will be relocated to larger ground floor premises and will each have a special information desk set up for them by early 1995.

Welfare Services

Some 1 045 welfare premises in the authority's estates and courts were let for welfare and community services at a concessionary rent of $33 per square metre a month. Non-domestic premises in less popular locations were also let at a fair market rate to community organisations.

The authority undertakes fitting-out works for some welfare projects and since 1984, 193 such projects have been fitted out.

The estate liaison officer scheme, providing outreaching services to elderly public housing tenants in various estates, has been extended. Under the scheme, housing management staff visit the elderly to offer assistance and encourage them to take part in various activities. Emergency alarm systems for elderly people are also being installed and, by the end of the year, 900 alarm sets had been provided in 10 estates.

Commercial Properties

The authority provides retail facilities in new estates. Five more shopping centres were completed during the year, bringing the total under management to 93.

Total stock was little changed at around 1.27 million square metres, new production being largely offset by the clearance of older estates.

This renewal process, coupled with an expanded improvement programme for older shopping centres under which selected centres will be upgraded by the private sector, is achieving rapid advances in overall quality.

The authority's portfolio includes 17 flatted factory estates and 3 400 shops in former resettlement estates. These shops and roughly half of the factory units were let initially at very low rents which, despite moderate biennial increases, remain well below market levels. With these exceptions, premises are let at market rents, normally for three-year

terms.

Lettings are primarily by tender supplemented by negotiation, which provides flexibility and assists in attracting anchor tenants and large-space users.

While management continues to be mainly in-house, the success of trial schemes has encouraged the authority to widen the role of the private sector. A fifth market, at Hau Tak Estate in Tseung Kwan O, was let to a single operator, and an entire shopping centre at Yiu Tung, Shau Kei Wan let to a single tenant for leasing and subsequent management - opened during the year.

  Overall performance was reflected in a record low vacancy rate of 1.7 per cent by the end of the year, and a 20 per cent growth in income over the previous year (including income from carparks), to $3.2 billion.

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Parking

The authority makes modest provision for monthly and hourly parking in estates and demand remains high for the 68 000 spaces available. Good results have been achieved from contract management and the number of spaces so managed increased from 20 000 to 36 000 during the year. It is envisaged that 90 per cent of all carpark spaces will be brought under contract management by 1995.

      The introduction of a fixed penalty ticket system to the estates during the year helped greatly in combating illegal parking.

Squatter Control

     As a result of rehousing through clearance and the waiting list, the squatter population has been reduced to 32 100 in the urban area and 220 600 in the New Territories.

      The 1982 squatter structure survey provides a baseline for control of new squatting on government land and private agricultural land. Squatter control has been effectively maintained by carrying out daily patrols and regular hut-to-hut checks.

      Meanwhile, the authority continues to undertake repairs and maintenance of services and facilities provided under the squatter area improvement programme. It is also responsible for settling electricity charges for public lights installed under this programme.

Squatter Clearance

During the year, 196 hectares of land were cleared, with 7 200 affected people given permanent rehousing and 5 200 given temporary rehousing. Some 670 industrial, com- mercial and agricultural undertakings affected by the clearances were awarded ex gratia allowances.

      On the advice of the Geotechnical Engineering Office of the Civil Engineering Department, which carried out re-inspections of 70 villages in the New Territories, a non- development clearance programme was drawn up. Some 3 200 persons living in squatter huts on slopes vulnerable to landslips in the event of heavy rain were provided with either permanent or temporary housing.

      A total of 620 people who lost their homes as a result of fires or other natural disasters were given either permanent or temporary housing.

Temporary Housing Areas

Temporary housing areas (THAs) provide accommodation for the homeless and those people affected by clearances, fires and natural disasters who are not eligible for permanent public housing. Temporary housing consists of single or two-storey structures provided with electrical fittings, individually-metered water supply, and kitchen and shower areas.

      The relaxation of the Hong Kong residence rule in March 1990 resulted in more people qualifying for permanent public housing and a reduction in the demand for temporary housing. Consequently, no new THA has been built since 1991. The demand is expected to decline further in the coming years because, since July 1993, the residence requirement for the rehousing of THA residents to permanent public housing upon clearance has been waived.

      A total of 19 000 THA residents were rehoused to permanent public housing in 1994. At the end of the year, 49 400 people were living in 44 THAs located throughout the territory.

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  Plans are in hand to offer flats to all THA residents by 1997. To this end, an accelerated clearance programme has been drawn up, with priority being given to clearing the older THAS. The programme envisages the clearance of an average of 16 300 persons each year from THAS over the next two years.

Transit Centres

 Transit centres provide free emergency accommodation for homeless people pending assessment of their eligibility for rehousing to permanent or temporary housing as a result of natural disasters, clearances, tenement redevelopments, squatter demolitions, govern- ment enforcement actions and the eviction of unauthorised persons from public housing units.

The Housing Department manages seven transit centres with a capacity of 1 150 persons.

Cottage Areas

There are six cottage areas on government land in the territory, in which some 9 850 people live in largely self-owned, single-storey structures built of stone or wood and tin.

These structures were originally built mainly by welfare organisations many years ago on hillsides as temporary shelter for homeless people. They were later placed under the responsibility of the Housing Authority.

The Housing Society

The Hong Kong Housing Society is an independent non-profit-making organisation which provides affordable, purpose-built flats of sound quality for Hong Kong citizens. It also promotes and practises efficient estate management and the development of new forms of housing to meet the changing demands of the community.

  At the end of 1994, the society had a total of 32 038 rental housing units and 7 213 flats under the urban improvement and flats-for-sale schemes. Its annual production averaged about 1 609 flats in each of the past five years.

  In July, following heavy rains, a retaining wall at the Housing Society's Kwun Lung Lau Estate in Kennedy Town collapsed, with five people killed and three injured. (For details, see Chapter 14.)

Sandwich Class Housing Scheme

To meet the needs of middle-income families who are neither eligible for public housing programmes nor able to purchase a private sector flat, the government introduced the 'sandwich' class housing scheme in mid-1993 and entrusted it to the Housing Society. The scheme is intended to provide home purchase assistance for families with monthly incomes of between $22,001 and $44,000. It comprises an interim loan scheme and a main scheme. The first phase of the interim scheme was launched in August 1993 with a capital injection of $2 billion from public funds to the Housing Society. It aimed to provide loans at concessionary interest rates to up to 4 000 eligible families to purchase flats in the private

sector.

  Under the second and third phases of the loan scheme in April and October 1994, respectively, successful applicants could borrow up to 25 per cent of the flat price or $550,000, whichever was less.

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The main scheme involves the granting of sites at concessionary premiums to the Housing Society for constructing flats for sale to eligible sandwich class families at affordable prices. The original target was to produce and offer 10 000 flats to the sandwich class by 1997. Ten sites with a production capacity of over 10 000 flats have been identified by the administration and endorsed by the Sino-British Land Commission for this purpose. The first such flats from the Tsing Yi site were put up for pre-sale at the end of 1994 and will be ready for occupation by end-1995. Flats from the other nine sites will come on stream by the end of 1997.

      As one of the measures to curb the property price spiral, the Task Force on Land Supply and Property Prices recommended in June that the main scheme be extended to provide an extra 10 000 flats between 1997 and 2000. Sites have been identified for this purpose. Subject to the agreement of the Land Commission, these sites will be allocated to the Housing Society between 1994 and 1997.

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THE year 1994 marked the 150th anniversary of the territory's public works programme. It was highlighted by a major increase in spending on public works and the introduction of measures aimed at improving the government's capacity to build new infrastructure.

  In all, some $250 billion worth of capital works projects were under management. To help ensure timely and efficient completion of the projects, a new, computerised management system and dedicated project teams were developed for the works group of departments. The Territorial Development Strategy Review entered its final stage, taking account of the need to adjust certain parameters in the light of long-term population forecasts. The final Technical Report for the study, which reviews the long-term land use, environmental and transport planning framework for the territory, will be released in three parts, with an executive summary to be issued in early 1995.

  The new town development programme saw the completion of another 320 hectares of land and the provision of more community facilities. The foundation for the ninth new town at Tung Chung on Lantau Island began to emerge from the sea, with the formation of over 70 hectares of land. At the same time, the quickened pace of urban development was manifested by the expanding new reclamations at West Kowloon and Central.

  In 1994, Hong Kong experienced its wettest July since 1884. There was widespread flooding in the New Territories. A large number of landslips also occurred, the worst of which involved the collapse of a retaining wall at Kwun Lung Lau, Kennedy Town, killing five people and injuring three.

  The government's firm commitment to addressing the flooding and landslip problems was bolstered by the enactment of the Land Drainage Ordinance, an essential component of the strategy to reduce flooding in the territory, in March. To strengthen slope safety, the government commissioned in July a three-year study into the status of all slopes and retaining walls in Hong Kong, and will inject more resources into the inspection, maintenance and upgrading of slopes.

  The government has also set up a task force to take tougher enforcement action against unauthorised land use and to undertake major improvement works in the New Territories, with the aim of improving the environment in that region over the next decade.

  In December, to shorten the decision-making process on the convergence and interface of cross-border infrastructure projects, the Sino-British Co-ordinating Committee on Major Cross-border Infrastructure between Hong Kong and the Mainland was established.

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In another major development, Hong Kong began to receive electricity generated by nuclear power from China during the year.

The Organisational Framework

The main objectives of the government's lands and works policies are to ensure an adequate supply of land to meet the needs of the public and private sectors, to optimise the use of land within the framework of land-use zoning and development strategies, and to ensure the co- ordinated development of infrastructure and buildings.

      The Secretary for Planning, Environment and Lands is chairman of the Development Progress Committee. This committee is responsible for monitoring the general progress of the physical development of the territory, as well as considering and approving detailed planning briefs, layouts and development plans. He is also chairman of the Town Planning Board, and has policy responsibility for conservation.

In addition to his policy functions, the Secretary for Planning, Environment and Lands oversees the operation of the Buildings Department, Drainage Services Department (jointly with the Secretary for Works), Environmental Protection Department, Lands Department and Planning Department, as well as the Land Registry, which is operated on a trading fund basis. He also oversees part of the work of the Agriculture and Fisheries Department, Civil Engineering Department, Electrical and Mechanical Services Department, Marine Department and Territory Development Department.

The Secretary for Works oversees, and has policy responsibility for, the works agency activities of the Architectural Services Department, Civil Engineering Department, Drainage Services Department, Electrical and Mechanical Services Department, Highways Department, Territory Development Department and Water Supplies Department. In addition, he oversees the operation of the Architectural Services Department (in part), Civil Engineering Department, Electrical and Mechanical Services Department and the Water Supplies Department's services. He is also responsible for the Sewage Services Trading Fund in the Drainage Services Department. The New Airport Projects Co-ordination Office (NAPCO) was set up in February 1991 under the Secretary for Works to co-ordinate the implementation of the Airport Core Programme (ACP).

Planning

     Given the limited land resources in Hong Kong and the territory's phenomenal economic growth, together with the changed aspirations of a more affluent society, it is a great challenge to plan for the competing demands of housing, commerce, industry, transporta- tion and the utilities, as well as for recreation, education, medical and health care, and other community facilities.

Town planning is carried out by the Planning Department under policy directives from the Planning, Environment and Lands Branch.

During the year, the department was involved in the drafting of a White Bill for the new Planning Ordinance; reviewing the Territorial Development Strategy; updating the Northwest, Southwest and Northeast New Territories Sub-regional Development Strategies and the Hong Kong Planning Standards and Guidelines; and follow-up work on the Port and Airport Development Strategy, the Metroplan Selected Strategy, and the Rural Planning and Improvement Strategy.

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  It was also engaged in forward planning and development control for the districts, including co-ordination of various urban renewal efforts; and in undertaking enforcement action against unauthorised developments in designated rural areas.

Review of the Town Planning Ordinance

The Town Planning Ordinance was first enacted in 1939. In 1987, the Executive Council ordered that an overall review of the ordinance should be undertaken, with a view to introducing new legislation to replace the existing one, to provide the necessary degree of guidance and control for planning and development to meet Hong Kong's changing circumstances.

  Public consultation on the comprehensive review of the Town Planning Ordinance was carried out in 1991. As part of the review, a special committee was set up to consider specifically the complex and contentious issue of compensation and betterment arising from planning actions. After careful consideration of the submissions and views from various sectors, the special committee completed its work and submitted a report to the Governor in 1992.

  The administration has completed analysis of the public comments received and the recommendations of the special committee. Proposals for the new Planning Ordinance have been drawn up. A White Bill is being drafted and is proposed to be published for public consultation in 1995.

Hong Kong Planning Standards and Guidelines

The Hong Kong Planning Standards and Guidelines is a government document of planning criteria and guidelines for determining the quantities, scales, locations and site requirements of various land uses and facilities. The document is applied to planning studies, the preparation or revision of town plans and development control. It is constantly under review to take account of changes in government policies, demographic characteristics as well as social and economic trends. Major work undertaken during the year included the formulation and revision of planning standards and guidelines for kindergartens, primary and secondary schools, vehicle repair workshops, and density guidelines for private residential areas.

  To promote public awareness of planning and to facilitate the application of these standards and guidelines by non-government bodies, the document has been made available in various libraries. The document is also available for sale to the public, on a chapter-by- chapter basis.

Territorial Development Strategy

The Territorial Development Strategy (TDS) is the highest tier in the hierarchy of town plans in Hong Kong. It provides a broad, long-term framework on land use, transport and environmental matters for the planning and development of the territory. It aims to facilitate the continued growth of Hong Kong as a regional centre of business and finance, a high- capacity container port and an international focal point for aviation.

  A comprehensive review of the strategy was commenced in 1990. Previous strategic development plans aimed mainly at meeting the territory's own needs in terms of land-use and infrastructure. The current TDS review, however, takes account of the relationship

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between Hong Kong and its economic hinterland in drawing up development proposals. As a basis for the current TDS review, two development scenarios have been postulated. The first scenario assumes the Pearl River Delta area as Hong Kong's primary economic hinterland, while the second scenario includes both Guangdong Province and some inner provinces of China as Hong Kong's economic hinterland.

       The TDS review consists of three main streams of work. The first stream comprises the foundation studies, including identification of goals and objectives, key issues, develop- ment constraints and opportunities, evaluation criteria, and sectoral land-use studies. The second stream relates to the formulation and evaluation of TDS development options on the basis of the foundation studies in the first stream. It also involves an assessment of community views based on a public consultation exercise which took place between October and December in 1993. In addition, contacts had been made with planning officials in Guangdong to discuss strategic issues of mutual concern. The third stream of the TDS review relates to the formulation of a recommended development strategy for the territory and a medium-term implementation plan. The first and second streams of work have been concluded. It is expected that the review will be completed in mid-1995.

Sub-regional Development Strategies

The Sub-regional Development Strategies serve as a bridge between the TDS and district plans. They translate long-term, broad-brush territorial concepts and goals into district planning objectives for the five sub-regions of Hong Kong the Metro area, Northeast New Territories (NENT), Southeast New Territories (SENT), Northwest New Territories (NWNT) and Southwest New Territories (SWNT).

      The Metroplan Selected Strategy was approved by the Governor in Council in 1991 as a planning framework for developing and upgrading the Metro sub-region, including Hong Kong Island, Kowloon, Tsuen Wan and Kwai Tsing, up to the year 2011.

      Following the approval of the Metroplan Selected Strategy, steps have been taken to prepare a series of Development Statements to translate the Metroplan concepts into more specific district planning objectives. The Development Statements for West Kowloon, Southeast Kowloon and Tsuen Wan-Kwai Tsing were completed and released for public consultation in May. The Hong Kong Island West Development Statement is expected to be completed in 1995. The preparation of the Central and East Kowloon Development Statement has just commenced and is expected to be completed in 1996.

      Work on the review of the NWNT and SWNT sub-regional development strategies commenced in 1990, following the government's announcement of the Port and Airport Development Strategy. These reviews aim at producing an appropriate land-use, transport and environmental framework to guide the planning and development of the sub-regions up to 2011. An Interim Recommended Strategy has been formulated for both the NWNT and SWNT. The recommended strategy will be finalised when the recommendations of other territorial planning studies, in particular the TDS, are ready. In the meantime, the NWNT Development Statements Study was completed in 1994 and has provided a planning context for the preparation of the outline zoning plans for the rural areas of NWNT.

      Work on the NENT Development Strategy Review commenced in September 1993. Key issues have been identified and alternative development options assessed. A recommended strategy for the sub-region is expected to be available in 1995. A review for the SENT is

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 considered unnecessary at this stage, as the planning policy emphasising conservation and the enhancement of the recreation potential in SENT (except for the new town development in Tseung Kwan O) remains unchanged.

District Planning

 Development projects are implemented in accordance with statutory or departmental district plans. These plans aim to regulate and provide guidance to development in terms of land-use, building density and development characteristics, to ensure that they are in line with the planning objectives of the districts.

Statutory Planning

Two types of statutory plans are prepared and published by the Town Planning Board (TPB) under the provisions of the Town Planning Ordinance the outline zoning plans (OZPs) and development permission area (DPA) plans. Apart from the preparation of these, the TPB is also charged with the processing of development scheme plans prepared by the Land Development Corporation (LDC) under the LDC Ordinance.

  The OZPS are intended to show the broad land-use framework for the areas in question, including the major roads and other transport systems, and provide statutory planning controls such as specific development restrictions within respective land-use zones.

  DPA plans have been prepared after the enactment of the Town Planning (Amendment) Ordinance 1991 for areas not previously covered by OZPs and they mainly cover the rural areas in the New Territories. DPA plans provide interim planning controls and guidance on development for selected areas before their replacement by OZPS within three years. Under the provisions of the ordinance, enforcement action can be taken against unauthorised developments within DPAS. The provisions for enforcement will continue to be applicable in the subject areas after the DPA plans are replaced by OZPs. By mid-1994, the first batch of 30 DPA plans prepared and published in 1991 had all been approved by the Governor in Council. They were replaced by draft OZPs before the statutory deadline in July.

  Each LDC development scheme plan is accompanied by a land-use diagram indicating the broad types of planned uses, as well as a set of notes setting out the permitted uses and the requirements for the submission of a master layout plan to the TPB in order to implement any redevelopment proposal within the scheme area.

  In 1994, 31 new OZPS and one new DPA plan were published, and 27 existing plans were amended by the TPB. At the end of the year, there were a total of 82 OZPs, six DPA plans and four LDC development scheme plans.

  Under the Town Planning Ordinance, any person affected by the statutory plans can lodge objections with the TPB. OZPs, DPA plans and LDC development scheme plans are subject to the same publication and objection hearing procedures. During the year, a total of 478 objections to statutory plans were lodged, and 406 objections (including those brought forward from the previous year) were considered by the TPB.

  Attached to each statutory plan is a schedule of notes showing the uses which are always permitted in particular zones and other uses for which the TPB's permission must be sought. The provision for application for planning permission allows flexibility in land-use planning and better control of development to meet community needs and changing circumstances. With a view to guiding applicants in their submission of planning

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applications, the TPB, up until now, has promulgated 13 sets of guidelines for applications for various types of development for public reference.

      In 1994, the TPB considered 1 003 applications for planning permission, compared to 736 applications in 1993-an increase of 36 per cent.

The ordinance also makes provision for an applicant who feels aggrieved by a decision of the TPB to apply for a review of its decision. In the past year, the TPB reviewed 157 applications, compared to 97 applications in 1993 (an increase of 62 per cent).

The Town Planning Appeal Board, a body independent of the TPB and government departments, was set up in 1991 to deal with appeals lodged by applicants who feel aggrieved by the decisions of the TPB upon review of their planning applications. In 1994, 15 appeal cases were lodged. A total of three cases were heard by the appeal board, of which one was allowed, one was dismissed and one was abandoned by the appellant.

Departmental Plans

Apart from statutory plans, the Planning Department also prepares departmental outline development plans (ODPs) and layout plans (LPs) for individual districts or parts of districts to show the planned land uses, development restrictions and transport networks in greater detail. These plans serve as a guide for land formation, implementation of public works projects as well as land sales and allocations. At the end of the year, there were a total of 92 ODPs and 328 LPs.

Enforcement

According to the Town Planning Ordinance, no person should undertake or continue a development in a development permission area unless the development was a use in existence before the gazetting of the relevant Interim DPA/DPA plans, or is permitted under the DPA plan or the replacement OZP, or has been approved by the TPB under Section 16 of the Town Planning Ordinance. Any development that does not satisfy any of these criteria is an unauthorised development. The Planning Authority (that is, the Director of Planning) can serve notices on the respective land-owners, occupiers and responsible persons, requiring the unauthorised development to be discontinued by specified dates unless permission for the development is obtained, or demanding a reinstatement of the land. If the requirements of the notices are not complied with, the authority can initiate legal proceedings.

      The authority can also instigate prosecution action immediately if any person undertakes or continues an unauthorised development within a DPA or an area covered by the replacement OZP.

      Unauthorised developments are detected through patrols, referrals from other depart- ments or public complaints. Survey teams established in the Planning Department undertake regular patrols and carry out detailed site inspections on suspected unauthorised developments. Of the unauthorised developments detected in 1994, the majority were related to pond-filling; site formation; the open storage of vehicles, containers, trailers/ tractors and construction materials; and vehicle repair workshops. In all, 157 enforcement notices for 32 cases and five reinstatement notices for three cases were served during the year. Prosecution was initiated in respect of 55 cases, and 142 defendants in 44 cases were convicted.

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Urban Development Areas

Work on new urban development areas generally takes account of the Metroplan. This document sets out a broad pattern of land-use and guidelines for the planning and development of new areas, which integrate with the replanning and redevelopment of adjoining old areas in a co-ordinated manner.

Hong Kong Island

 The Central and Wan Chai Reclamation, extending along the waterfront from Sheung Wan to Causeway Bay, will cover an area of 108 hectares. The project is being implemented in phases.

  The first phase of the Central Reclamation involves reclamation of about 20 hectares of land between Sheung Wan and Blake Pier, to provide land for the construction of the Hong Kong Central Station of the airport railway and the extension of the area's business district. Phase I works commenced in September 1993 and progress has been satisfactory. Land for the construction of the Hong Kong Central Station will be available in mid-1995. The supporting infrastructure will be available for the operation of the station in mid-1998.

  The second phase of the Central Reclamation, which involves the creation of about 5.3 hectares of land in the Tamar Basin area for commercial and open space development, commenced in December 1994.

  The detailed design for Phase III of the Central Reclamation, which will connect Phase I and Phase II, will commence in February 1995. The reclamation work is scheduled to start in early 1997.

  Wan Chai Reclamation Phase I, which will provide land for the extension of the Hong Kong Convention and Exhibition Centre, commenced in March 1994. Completion of the works is scheduled for January 1997, to tie in with the target opening date of the extension in mid-1997. Wan Chai Reclamation Phase II is under active planning.

  The Belcher Bay reclamation will create about 10 hectares of land, mainly for the construction of the Belcher Bay Link, a dual carriageway connecting the existing, upgraded, Connaught Road West with Smithfield Road in Kennedy Town. Both the reclamation and the construction of the link commenced in May 1993, for targeted completion in 1996-97, to tie in with the opening of the Western Harbour Crossing.

  The Aldrich Bay development will produce about 28 hectares of land for private and public housing, open space and other uses. The new typhoon shelter was put into use in early 1991, while reclamation of the old typhoon shelter started in August 1992 for completion, in phases, from 1995 to 1997.

  The Siu Sai Wan development includes the formation of about 56 hectares of land for industrial, residential, government, institutional, community and other uses. A secondary school has already been completed. Another secondary school, a private sector participation scheme housing development and an Urban Council sports ground are under construction.

Kowloon

Large-scale reclamation work is currently underway at West Kowloon and Hung Hom Bay. Some 340 hectares of land are being formed in West Kowloon, including reclamation at Stonecutters Island, to tie in with the government's proposed programme for the

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development of Hong Kong's new international airport at Chek Lap Kok. The reclamation is destined for private and public housing, commercial development and strategic transport links to the airport such as the third harbour crossing, the West Kowloon Expressway and the airport railway. It will also be used to compensate for land-use deficiencies in adjacent areas by providing more open space and government facilities. Steady progress has been maintained in the West Kowloon Reclamation and more than 90 per cent of the area has been formed. A new wholesale market occupying 10 hectares of the reclamation was opened in September 1993-completed only 21 months after the first piece of reclaimed land made its appearance. Construction of a new road network will begin in mid-1995. Work on other infrastructure and facilities, for a planned population of 91 000, will also commence progressively from 1995 onwards.

Reclamation at Hung Hom Bay was substantially completed, providing 36 hectares of land for private and public housing, commercial development, extension of the existing Kowloon-Canton Railway freight yard, government facilities, institutional and community facilities, schools, open space and roadworks. The area will house about 11 500 people. Engineering infrastructure, including two trunk roads (the Hung Hom Bypass and Princess Margaret Road Link), is being designed and will be completed by 1998.

Upon the relocation of Hong Kong International Airport to Chep Lap Kok, an area of about 670 hectares in Southeast Kowloon will be released for development in line with the Metroplan concept. Of this, about 300 hectares will be reclaimed from Kowloon Bay, about 270 hectares will be obtained from the existing airport site and about 100 hectares will be reserved for the proposed typhoon shelter and cargo-working area at Cha Kwo Ling. The adjoining 260 hectares of existing urban areas at Hung Hom, To Kwa Wan, Ma Tau Kok and Kowloon City will also offer opportunities for urban restructuring. The development and restructuring of Southeast Kowloon will require a wide range of engineering works, including the reprovisioning of marine and land-based facilities; reclamation; highway construction and the provision of drainage, sewerage, sewage treatment and other public utilities. The development will be implemented in phases, striding into the next century. Upon completion, it will accommodate about 285 000 people and provide about 110 000 jobs. Consultants have already prepared a report on the development statement of Southeast Kowloon. Action is being taken to commission consultants for further detailed studies to transform the development statement into action plans for implementation.

In line with the Metroplan, a feasibility study on Kowloon Point Development, which covers an area of about 60 hectares at the southern end of the West Kowloon Reclamation, will also be commissioned. The study will investigate the essential aspects of planning, urban design, landscaping, traffic and transport, engineering, environmental impact assessment, port and marine works, programming and costing in developing Kowloon Point. It will formulate practical and optimum solutions for the phased and integrated development of the study area within the framework of the latest strategic planning, traffic and transport proposals. The selection of consultants is underway. The feasibility study is. expected to start in mid-1995 and will take about 15 months to complete.

Urban Renewal

In preparing the Metroplan, the older urban districts were seen as offering redevelopment opportunities for comprehensive renewal, to create a better urban environment.

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  The government and private developers are both involved in the redevelopment of the older urban districts, where buildings are old and in a dilapidated condition and where the provision of various community and infrastructure facilities is inadequate.

  The Land Development Corporation (LDC) was established in 1988 to undertake, encourage, promote and facilitate urban renewal. Since its inception, about 34 projects have been initiated within the designated old urban districts. At the end of 1994, redevelopment scheme plans for five major comprehensive redevelopment projects had been drawn up and gazetted under the Town Planning Ordinance.

  Of the five redevelopment plans, the Jubilee Street, Wing Lok Street and Queen Street plans were approved by the Executive Council over the past two years. The Argyle Street/ Shanghai Street plan was approved in July 1993. The Shamchun Street scheme was abandoned by the LDC following an upholding of objections from local residents by the Town Planning Board.

  All private properties in the Wing Lok Street Scheme and the nearby Jubilee Street Scheme have been resumed and construction work has started. Upon completion, the two schemes will provide high-quality commercial buildings and much-needed open space and community facilities for the Sheung Wan and Central districts. Acquisition of the properties in the Queen Street Scheme is in progress. The scheme will provide space for residential, commercial and office uses, supplemented by the provision of a multi-purpose social welfare complex, public open space, a cooked-food centre and a day nursery to redress the shortfall in these facilities in Sheung Wan.

  In Kowloon, acquisition of the properties in the Argyle Street/Shanghai Street Scheme is underway. In addition to the provision of commercial space, there will be a public light bus terminus, a cooked-food centre, a neighbourhood community centre and public open space facilities.

  Apart from these schemes, the LDC has also undertaken several smaller commercial and residential redevelopment projects. On Hong Kong Island, a commercial development in Queen's Road Central and residential developments in Third Street, Tai Yuen Street, Wan Chai Road and Li Chit Street have been completed. In Kowloon, a residential development in Soy Street was completed, while two commercial and residential projects in Dundas Street and Sai Yeung Choi Street were in progress. Another project in Yim Po Fong Street, to provide commercial and residential space, was under planning and construction work will start soon.

  The Hong Kong Housing Society has also contributed to the urban renewal process by undertaking a number of urban improvement schemes in the older areas. Two projects, in Lai Chi Kok Road and Bonham Strand, were completed in 1994. Another three projects, in Yau Ma Tei, Queen's Road Central/Hollywood Road and Ma Tau Kok, were under construction. Two 'Comprehensive Development Area' schemes in Tsuen Wan and Kennedy Town were being reviewed and planned.

New Towns and Rural Townships

The development of new towns in Hong Kong saw continued progress in 1994, with the formation of additional land, the construction of new and improved infrastructure and the addition of further community facilities. Government expenditure in this area amounted to more than $2.5 billion.

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About 190 hectares of new land were formed for new town development, the bulk of it at Tseung Kwan O and Tung Chung. Plans were being considered to accelerate either the provision of additional land or the construction of new infrastructure to activate the use of land reserves already formed. Concurrent with the rapid development was the landscaping and greening of the new towns.

       At the end of the year, about 2.6 million people were housed in the new towns, close to parks and open spaces, community and recreational facilities, schools, markets and shopping centres, and with convenient transport links.

Tsuen Wan

Tsuen Wan new town embraces the areas of Tsuen Wan, Kwai Chung and Tsing Yi Island. Its population is expected to stabilise over the next 10 years at around 700 000. While new development and redevelopment continues, the gradual reduction in family sizes and increased provision of larger flats will result in a decrease in population in some areas, resulting in no overall increase.

In addition to the district's historic elements, the new town is characterised by the location of Hong Kong's container terminals in its midst in the Kwai Chung area. The new Container Terminal 8 development, with the exception of some outstanding back-up areas, was completed by October 1994.

Container Terminal 9 is planned for Southeast Tsing Yi. Detailed design for the duplicate Tsing Yi South Bridge has been finalised.

      Major highway projects will further extend and reinforce the principal road network. In Tsuen Wan, the improvement works to Texaco Road Phase II are progressing satisfactorily. Upon their completion in early 1995, the existing traffic congestion at Tsuen Tsing Interchange will be alleviated. In Kwai Chung, upon the completion of improvement works to Hing Fong Road at the end of 1994, the capacity of the Tsuen Wan Road/Kwai Tsing Road junction was significantly improved, at the same time alleviating existing traffic congestion problems in the area.

Additional community facilities are under construction. These include Tsing Yi Town Park Phase II, Tak Wah Park Phase II, a swimming pool complex and sports ground on Tsing Yi, a swimming pool complex at Shing Mun Valley and Ha Kwai Chung Polyclinic. Construction of the Kwai Tsing Civic Centre, which will provide a 900-seat auditorium and auxiliary facilities such as an exhibition hall, dance room and restaurant, also commenced in late 1994.

Sha Tin

Sha Tin new town is, to a large extent, complete and already home to over half a million people. Sha Tin, well known for its planning and integrated development, is situated at the head of Tolo Harbour.

The final reclamation contract at Ma On Shan, completed in 1994, has boosted the total development area to about 1 900 hectares. Work on the last section of the primary road link to Ma On Shan Town Centre has started and is scheduled for completion in 1998.

The programme to improve conditions in the many old villages in and around Sha Tin continued during the year. The village improvement schemes for Hin Tin, Sheung Keng Hau and Ha Keng Hau were completed in 1994.

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  Community facilities were being reviewed for this mature new town, with additional facilities to be provided when needed.

Tai Po

In the past 20 years, Tai Po has grown from a small market town of 25 000 into a new town with a population of 265 000, accommodated on about 1 270 hectares of development area. Most of the new town's engineering infrastructure is in place. Its infrastructure was being further improved by the construction of sewers along the Tai Po Road to Kwong Fuk Estate and an additional road to the Tai Po Industrial Estate. A further expansion of the Tai Po sewage treatment works was in progress, to cater for the remaining development in the town area and the industrial estate.

  Construction of the Nethersole Hospital and the Tai Po Convalescent/Infirmary Hospital continued. Upon their completion in 1996 and 1997, respectively, the needs of the region will be adequately met with a combined capacity of 1 662 beds. Construction of the Waterfront Park started in August.

Fanling and Sheung Shui

Fanling and Sheung Shui, just a few kilometres from China, have grown from a group of villages in 1973 to a town of 170 000 people accommodated on 515 hectares of development area. Their combined population is expected to increase to 220 000 by the turn of the century.

  Flood control measures were carried out within a section of the River Indus Minor downstream of the railway bridge. Further flood control measures are planned in the upstream and downstream sections of the River Indus, as well as along sections of the Beas and Sutlej rivers. Construction of two pedestrian footbridges near the Sheung Shui Railway Station was scheduled to commence in January 1995.

  The school building programme continued, while the Regional Council's market complex at Shek Wu Hui was completed. Construction of the North District Hospital started in August.

Tuen Mun

Tuen Mun, in the West New Territories, is developed mainly on land reclaimed from Castle Peak Bay and on platforms formed in the valley between Castle Peak and the Tai Lam Hills. About 1 200 hectares of land have been provided by the government and the private sector for development.

  About 70 per cent of the town's population of some 430 000 live in public housing developments, which comprise 11 public rental estates and 15 home ownership and private sector participation schemes. Within the next five years, three more home ownership and private sector participation schemes will be developed to accommodate an additional 40 000 people. Together with some low-density private housing developments along the southeastern coast, the new town will provide homes for about 450 000 people by the late 1990s.

  A marina is located along the southeastern coast of the town. This private development consists of 19 residential buildings, hotels, shops and recreational facilities, including berths for 300 boats.

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      Light manufacturing industries, including plastics, garments, metal, electronics and textiles, dominate in Tuen Mun. The existing industrial areas provide floor space for about 2 200 companies and jobs for about 40 000 people. Over 80 per cent of the workers employed in the factories live in the Tuen Mun and Yuen Long areas.

      The backbone of the transport service serving the town, and linking it with Yuen Long, is the Light Rail Transit system. Provision has been made for its future extension within the Tuen Mun region.

      A large-scale recreation project was completed at the year's end, providing a horse- riding school, a golf-driving range and other recreation facilities such as a children's play

area.

      A 125-hectare site in western Tuen Mun has been earmarked for special industries and a terminal for river trade with China to be developed by the private sector. Reclamation work for the special industry area will commence in mid-1995. A planning and engineering feasibility study was completed for an even larger reclamation to the north of Tap Shek Kok in Tuen Mun West, for both deep waterfront industries and cargo-working terminal development.

      Construction work on a new thermal power station, with a 5 000MW capacity, at Black Point is in progress.

Yuen Long, Tin Shui Wai and the Northwestern New Territories

Yuen Long town was first developed in the early 1970s. Its population, which stood at 120 000 at the end of the year, is expected to grow to 140 000 early in the next decade.

      Development is spreading to the Tuen Mun-Yuen Long Corridor. The rural area is being rejuvenated, with new infrastructure providing for improved rural development.

      The final major infrastructure contract in Tin Shui Wai was completed, ensuring the whole development will be adequately serviced with the rapid completion of private and public housing developments.

      Land formation for the first stage of the Light Rail Transit link to Tin Shui Wai was completed in late 1992 and train services commenced in early 1993. Both the Tin Shui Wai light rail routes to Yuen Long and Tuen Mun and the new town itself were commissioned in 1993.

      The two public housing estates, Tin Yiu Estate and Tin Shui Estate, were completed. The first residents began to move into their new flats less than five years after major engineering works started in late 1987. They were followed shortly afterwards by the residents of the private development, Kingswood Villa. A third public housing development commenced in early 1994. Upon its completion in 1997, the new town population is expected to reach 140 000.

      Long Tin Road and Long Ping Road, which connect the southeast of Tin Shui Wai to Yuen Long, were completed in early 1992. The Tuen Mun-Yuen Long Eastern Corridor was opened to traffic in July 1993. The Yuen Long Southern Bypass was opened to traffic in November 1994, while construction of the Tin Shui Wai West Access was continuing. As these major roads move to completion, the traffic around this area will improve progressively.

For the disposal of sewage from existing and future developments, the Northwest New Territories Sewerage Scheme, which provides for a sewage treatment plant, pumping

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 station, nine-kilometre sewer tunnel and 3.1-kilometre submarine outfall, was commis- sioned in March 1993.

  The large tracts of low-lying land to the north and west of Yuen Long are particularly susceptible to flooding during heavy rains. A series of major flood prevention projects have been planned to solve this problem. Among them are two contracts to improve flood control measures on the Shan Pui River and Kam Tin River, awarded in October 1993 and April 1994, respectively.

Tseung Kwan O and Sai Kung

The development of Tseung Kwan O new town, which started in 1982, is divided into three phases. The major part of the new development areas is being formed by reclaiming Tseung Kwan O Bay. About 66 million cubic metres of fill material will have been placed on completion of the whole reclamation. The Phase I area has been substantially completed. Reclamation for the other phases is in progress, with the drawn-up programme extending beyond the year 2000.

  The population of the new town, which stood at 136 000 at the end of the year, will reach over 400 000 upon full development by 2010.

  About 450 hectares of land have been formed at Tseung Kwan O new town. Engineering infrastructure has been provided to cater for private and public housing. The development of community facilities is underway. Reclamation of the town centre area, currently in progress, is expected to be completed by the end of 1999, and will provide additional land for commercial, residential, government institutional and community uses.

  Work continues for the provision of land and services for the Tseung Kwan O Industrial Estate. An initial 26 hectares of land were completed in 1994. Upon full completion in 1996, an additional 64 hectares will be available for industrial development. Reclamation is also in progress to develop the southern part of Siu Chik Sha for industrial use.

  In preparation for further industrial development, a plan is being drawn up to develop a 100-hectare site to the south of Tseung Kwan O for deep waterfront industries and potentially hazardous installations. Design work is in hand for reclamation of the required land to begin at the end of 1995.

Islands District

 Hong Kong's ninth new town is beginning to rise at Tung Chung and Tai Ho on northern Lantau Island, to provide a supporting community for the new airport at nearby Chek Lap Kok.

  A comprehensive development - incorporating residential, industrial and commercial facilities and all the necessary supporting infrastructure has been designed to modern international standards.

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  The new town will comprise about 760 hectares of land. As well as playing a pivotal role at the gateway to Hong Kong, it will respond to the need for further development space.

  The new town will comprise two discrete urban development areas at Tung Chung and Tai Ho, with proposed populations of 150 000 and 50 000, respectively, by the year 2011. Residential and commercial developments will be concentrated in the town centre and two district centres in Tung Chung and Tai Ho, each incorporating a Lantau Line railway station and public transport terminus. The town centre will provide the retail, commercial and

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     cultural core of the new town. Other necessary retail and commercial facilities will be distributed in the district centres serving Tung Chung and Tai Ho, and local centres within housing areas. Land will be reserved at Siu Ho Wan for airport-related industrial uses. A number of major utilities, including a water treatment works, a sewage treatment works, a railway depot and a refuse transfer station, will also be located at Siu Ho Wan.

There will be four phases of development for the new town between now and 2011. The first phase, which is earmarked as one of the Airport Core Programme projects, will be completed by 1997 to coincide with the opening of the new airport and will accommodate about 20 000 residents at Tung Chung. The land formation for this phase was completed in mid-1994, and construction of roads and drains and a public housing estate is in progress.

      Construction of the first stage of the North Lantau sewage collection, treatment and disposal system is underway. Work is expected to be completed in late 1996.

      Elsewhere in the Islands District, improvements to the living environment and facilities for residents and visitors continued during 1994.

      In Cheung Chau, site formation work for the rural public housing estate and Home Ownership Scheme in Sin Yan Tseng is in progress. The rural public housing development will provide about 400 housing units for some 1 300 residents upon completion in 1998.

      Building works were underway for the first rural public housing estate on Peng Chau. They are expected to be completed in October 1995. A sewage treatment plant will also be completed at the same time.

      In Mui Wo, the construction of a fireboat berthing point was completed. The upgrading of the existing sewage treatment works is scheduled to commence in late 1995.

Rural Planning and Improvement Strategy

The Rural Planning and Improvement Strategy (RPIS) aims to improve the quality of life in the rural areas of the New Territories. It is implemented at both strategic and district levels. At the strategic level, land-use policies are continuously reviewed to control incompa- tible developments and provide a more sustainable and cost-effective basis for public and private investments. In this regard, a number of reviews and studies have been, or are being, undertaken. They include studies on open storage and port back-up land requirements, and the review of the rural improvement concept.

      At the district level, improvement projects are undertaken under the rural development programmes. These projects include village improvement and expansion works; provision of sewers and sewage treatment plants; improvement, reconstruction and expansion of village access roads; provision of local recreational facilities in village areas; works related to land drainage, river training and flood prevention schemes; and the provision and improvement of communal irrigation, field drainage and farm access in selected agricultural areas. These rural improvement projects are initiated, implemented and monitored by various district working groups.

      Fresh impetus was given to the RPIS during the year. Following interdepartmental discussions and committee work, the responsibilities for the estimated $5 billion commitment to rural improvements were re-organised with the objective of achieving better physical progress suited to local requirements.

In November, the City and New Territories Administration (which was renamed the Home Affairs Department in December), by virtue of its close contacts with rural residents

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and groups, knowledge of local needs and available consultation mechanism, assumed control for the planning, management and implementation of minor rural improvement schemes. More local participation is also expected to be developed. The implementation of major improvement works, such as river-training works, continued to be controlled by the Territory Development Department through either agent departments or consultants. The two-pronged, multi-tiered approach cuts across geographical and district boundaries, and is expected to bring about progress in real terms both at the local and regional levels.

Planning Studies

 During the year, the Planning Department provided planning input for a number of major reclamation and development projects, notably the Central and Wan Chai, West Kowloon and Green Island reclamations.

  Studies were completed on development trends in Guangdong Province, vehicle repair workshops, commercial facilities in the Fo Tan industrial area, wholesale activities, density guidelines for private residential areas, the redevelopment of under-developed government sites, and port back-up land and open storage requirements. Two studies to identify short- term and permanent sites for mid-stream operations were also completed.

  Studies were being undertaken on site design parameters for the West Kowloon Reclamation; a survey of population in the new towns and rural areas; amortization of non- conforming existing uses; layout plans for Tin Shui Wai Reserve Zone; the provision of industrial premises and development of planning guidelines and design parameters for new industrial areas and business parks; and visitors and tourism in Hong Kong. Other planning studies relating to the Territorial Development Strategy and the Sub-regional Development Strategies were also conducted during the year.

Building Development

The Private Sector

Building development in the private sector as a whole underwent a period of consolidation during the year. A total of 1 273 buildings, with three million square metres of floor area, were built at a cost of $26,176 million, compared with 1 227 buildings with 3.2 million square metres, built at a cost of $28,860 million in 1993. The Buildings Department processed 14 428 submissions of building plans, compared with 13 918 in 1993. At the end of 1994, the department was preparing the ground for enhancing its capabilities to meet an anticipated increase in land production and housing supply.

  Statutory standards and procedures under the Buildings Ordinance were the subject of a major review: registration certificates were introduced for authorised persons, registered structural engineers and registered contractors to provide for greater accountability; the appeal system for redressing grievances was overhauled to conform with present-day legal principles; practice notes for the guidance of authorised persons, registered structural engineers and registered contractors were updated; and codes of practice for use in building and structural designs were critically scrutinised and where appropriate, revised. In addition, it was proposed that buildings be made more energy-efficient by introducing controls on their overall thermal transfer values. A comprehensive code for energy consumption and energy conservation is planned. The Buildings Department enhanced its services to ensure that buildings and building works in the private sector comply with

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     standards of health and safety. The department launched initiatives in a number of areas, including information technology, human resource management, public education on building safety and management, and the publication of performance pledges. To examine the conditions and trends of corrosion of steel reinforcement in cantilevered structures built in the 1940s and 1950s, the department commissioned a consultancy study.

      The programme of planned surveys of buildings for detailed inspection was taken further forward during the year when some 2 370 structures on the target list of 16 700 buildings were inspected by Buildings Department staff. As a result, 587 statutory orders were issued, requiring the repair or demolition of buildings.

      The success achieved in the past two years in removing potentially dangerous appendages and unauthorised projections from buildings made it possible for large-scale clearances to be extended. Under 'Operation Catherine Wheel' and 'Operation Rolling Stone', 251 buildings were targeted and 27 540 projections and appendages cleared. Assistance was sought from the district boards and district offices to identify such projections and appendages.

      Large air-conditioning cooling towers on metal frames, in unstable or poor condition and posing a threat to public safety, were another focus of the department's attention. The Buildings Department surveyed over 1 500 cooling towers in two industrial areas - Chai Wan and San Po Kong - and identified nearly 280 potentially dangerous cooling towers or supporting frames for removal.

      A number of tragic incidents during the heavy rainstorms in July highlighted the need for building owners and the government to jointly safeguard buildings and slopes from potential danger.

      These included the slope failure at Kwun Lung Lau Estate in Smithfield and the canopy collapse in Aberdeen. The department arranged for emergency works at Kwun Lung Lau to be completed within two weeks. Statutory orders were issued requiring investigations and proposals for permanent remedial works. As for the canopy collapse in Aberdeen, remedial works have been completed. The department has renewed calls for the co-operation of owners in the timely maintenance and preventive repair of their buildings for their own sake and for public safety.

The partial collapse of a building under demolition at Nathan Road, which claimed six lives in September, prompted both the government and the private sector to take a critical look at the arrangements and resources available for supervising building works in general and demolition works in particular. In parallel with improvements to administrative procedures, the Buildings Department reviewed the law and other measures to strengthen the Building Authority's capacity for monitoring the practices and performance of the construction industry and the building professions. Legislative proposals for change had been drawn up by the end of 1994.

      Following the gazetting of new outline zoning plans for the Kowloon peninsula at the end of 1993, redevelopment of the affected areas continued to gather momentum. Previously showing signs of urban decay, the areas were starting to show appreciable signs of rejuvenation.

      Two records were broken in the area of new building development. Plans were approved for what is expected to be the tallest hotel in the world a 92-storey building with some 2 000 rooms in Wan Chai. The largest reinforced concrete building in the world, a container

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freight station distribution centre, was completed in Kwai Chung, providing space for some 2 900 container vehicles in 800 000 square metres of floor space spread over 13 levels.

The Public Sector

 The Architectural Services Department is a large multi-disciplinary organisation with responsibility for providing planning and technical advice on building-related matters to all government departments, financial control and project management of public building developments under the Public Works Programme, and for subvented building projects financed by the government. It is also responsible for professional design services for the government, Hospital Authority, Urban Council, Regional Council and British Forces in Hong Kong; and provides maintenance services for buildings owned or occupied by these bodies.

  During 1993-94, the department had over 300 projects under design and construction, valued at $22 billion. In addition, the value of subvented projects monitored by the department amounted to $14 billion. Actual expenditure on building projects undertaken or monitored by the department came to $6.8 billion, while expenditure on routine maintenance and minor alteration works to properties amounted to $2 billion.

  Construction of a major, purpose-built, centralised government godown at Chai Wan will begin in January 1995 and is planned for completion in 1996. This godown will replace the existing storage facilities of the Government Supplies Department at both Oil Street in North Point and Cheung Sha Wan, and provide accommodation for a number of government departments presently located in leased premises. The Oil Street and Cheung Sha Wan sites will be released for redevelopment. At the same time, substantial savings in rent will be achieved. It is proposed that the Government Supplies Department's headquarters be accommodated separately in a new joint-user office building in Java Road, North Point, planned for completion in 1996.

  Construction has also started on a number of projects in support of the new airport. They include radar and telecommunications stations located on hill-top and island sites in the vicinity of Chek Lap Kok and the Air Traffic Control Tower complex on Chek Lap Kok itself. The projects are due for completion in 1995, to enable the timely installation of air traffic control equipment. At the same time, the design of other projects connected to the new airport, such as its police station, fire station, air mail centre and Government Flying Service facilities, is in hand to enable construction to start in 1995.

  Construction work started on the Ha Kwai Chung Clinic, which includes a school children's dental clinic, a child assessment centre and a special education service centre. The project is due for completion in 1996. Both the specialist out-patient clinic at Queen Elizabeth Hospital and the Kwong Wah Hospital refurbishment and improvement scheme are due for completion in 1997. Major improvement works at the Prince of Wales Hospital, Kowloon Hospital and Buddhist Hospital are all due for completion in 1995. Other medical projects under construction include the Queen Mary Hospital extension and improvement, the Jockey Club Institute of Radiotherapy and Oncology, and the extension block at Princess Margaret Hospital. They should be completed in 1995. The Queen Elizabeth Hospital refurbishment and improvement scheme, and the redevelopment of both the Jockey Club Institute of Radiology at Queen Elizabeth Hospital and the Castle Peak Hospital are scheduled to be completed in 1996. The Princess Margaret Hospital

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..

refurbishment and improvement scheme and the Tai Po Infirmary and Convalescent Hospital will be ready in 1997. Projects completed during the year include the Cancer Centre at the Prince of Wales Hospital, the Shum Wan Laundry and major improvement works at the Tuen Mun Hospital, Prince of Wales Hospital and Fanling Hospital.

      Three secondary schools were completed in 1994 under the School Building Programme. Three special schools for handicapped children were also completed. Construction work started on three primary schools, two secondary schools, one prevocational school and one secondary technical school.

      Construction work was completed on a number of Urban Council projects, including the indoor games hall at Western, a recreational development on the Ho Man Tin Reservoir Deck, the Causeway Bay Market, King George V Memorial Park, improvements to the To Kwa Wan Market, the To Yuen Street Recreation Ground, Wan Chai Gap Park and the district open space in Cornwall Street. Projects on which work began included the Wong Nai Chung Market Complex; the 12 000-seat Siu Sai Wan Sports Ground; indoor games halls at Shek Kip Mei Park, Diamond Hill and Ma Chai Hang Recreation Ground; a new wing to the Flagstaff House Museum of Tea Ware; Lai Chi Kok Park Phase II; and leisure pools at Diamond Hill and Jordan Valley. Construction work has also begun on the Chinese garden at the former Kowloon Walled City site. The design of the garden received an international award for design excellence at the IGA Stuttgart Expo 93.

      Regional Council projects completed included an air-conditioned market complex at Shek Wu Hui, a swimming pool complex and indoor recreation centre at Tin Shui Wai, an indoor recreation centre at Tsuen Wan, and another indoor recreation centre at Lai King. Construction work commenced on two civic centres at Kwai Tsing and Yuen Long, two swimming pool complexes at Ma On Shan and Tsuen Wan, a swimming pool complex and sports ground at Tsing Yi, the Tai Po Waterfront Park and a vehicle depot at Tai Po.

      For the disciplined services, completed projects included a workshop at Lai King Hill for the Fire Services Department, the Lai King Divisional Fire Station, Tsing Yi Sub- divisional Fire Station, additional accommodation at the Sai Kung Police Station, 288 married quarters for junior police officers at Tsing Yi and a permanent container cargo examination compound at Kwai Chung. Projects under construction included the new Police Headquarters Complex Phase II, Causeway Bay Divisional Fire Station, a permanent Marine Police Training School at Sai Wan Ho and quarters for the disciplined services at Wong Tai Sin, Tseung Kwan O, Ngau Chi Wan and Pik Uk.

      Planning for various military reprovisioning projects commenced during the year. These involve the construction of a naval base on the south shore of Stonecutters Island, a military hospital in the Gun Club Hill Barracks, a military warehouse in Sek Kong and a joint movement unit at the new airport at Chek Lap Kok. In February, construction work commenced on a government dockyard on the north shore of Stonecutters Island, due for completion in May 1995.

      Project management services offered to subsidised projects also covered the permanent campus of the Open Learning Institute in Ho Man Tin. Construction of this commenced in May and is expected to be completed by October 1995.

Vetting and advisory services on building developments, repairs and maintenance continue to be provided to other departments and private organisations such as the seven universities, the Hospital Authority, the Hong Kong Institute of Education and small

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welfare agencies. An advisory and liaison role is also provided to the government for joint venture developments with the private sector.

The department also gives advice on facilities to be provided to the government by private developers as a condition for land grants. These include office accommodation, transport interchanges and neighbourhood social welfare facilities.

  Maintenance and minor alteration works are provided to approximately 7 000 buildings and facilities used by the government, Urban and Regional Councils, Hospital Authority, British Forces and voluntary agencies. Major refurbishment and fitting-out works continue, together with further phases of noise abatement measures at government and subvented schools. The Antiquities Group, which is responsible for the restoration and conservation of listed buildings, completed several projects, including the Yi Tai Study Hall (at Kam Tin), Tin Hau Temple (Chek Lap Kok) and Ping Shan Heritage Trail (Yuen Long). The Kun Ting Study Hall restoration work by the group won the ARCASIA award for architecture in 1994.

  Committed to environmental friendliness, the department has been focusing on improving indoor air quality (IAQ) and energy conservation. A working group has worked out internal guidelines for achieving better IAQ. Recommendations include the proper selection of construction and furnishing materials, control of contaminant sources, sufficient fresh air make-up, better air filtration of air particulate and volatile compounds, better air distribution and improved maintenance. In addition, mathematical models have been introduced to project engineers to select filters and to quantify the intangible assessment of IAQ during the design stage of projects. The department is also playing an active role in improving IAQ in premises it manages. The installation of ozone generators in the Legislative Council building brought satisfactory results in the control of indoor bacteria and mould.

On the energy conservation front, the department has enhanced its activities in the promulgation of energy-efficient design and operation of government buildings. Overall Thermal Transfer Value (OTTV) requirements have been set up for buildings designed by the department in accordance with Building Ordinance requirements. Energy management opportunity studies have been carried out at Wanchai Tower, Immigration Tower and Revenue Tower. As a result, energy-saving measures implemented at Wanchai Tower achieved savings of $500,000 in 1993. Energy-saving opportunities identified for Immigra- tion Tower and Revenue Tower are being examined, with a view to implementation.

  In the 1994 Energy Efficient Building Award competition, organised by the Energy Efficiency Advisory Committee, the government-managed Murray Building was awarded a certificate of merit in recognition of its energy-efficient design and operation features.

Land Administration

The Lands Administration Office of the Lands Department, which consists of a headquarters and 14 District Lands Offices, is responsible for all aspects of land administration. The office's main functions are to acquire land and make land available for the government's development programme; to dispose of land in accordance with a programme approved by the Sino-British Land Commission; to manage all unallocated government land; and to ensure the use of private land complies with its lease conditions.

Land usage statistics are at Appendix 39.

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Land Acquisition

When private property is needed in the public interest, which in most cases is for the implementation of public works projects, and cannot be acquired by negotiation, the use of compulsory powers becomes necessary.

      Property may then be acquired under the Crown Lands Resumption Ordinance, the Land Acquisition (Possessory Title) Ordinance, the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance or the Roads (Works, Use and Compensation) Ordinance.

      These ordinances provide for payment of compensation, based on the value of the property, and for business loss, where appropriate, at the date of acquisition. If agreement cannot be reached on the amount payable, either party can refer the claim to the Lands Tribunal for adjudication.

      Where land is compulsorily acquired in the New Territories, a system of ex gratia payments applies.

      Enhanced rates are paid for land situated within the new town development areas and progressively lower rates are paid for land situated outside these areas. In the case of building land, an ex gratia payment is offered in addition to the statutory compensation available. A system of ex gratia payments also applies in the case of old scheduled lots acquired in the urban area.

Additionally, an ex gratia Home Purchase Allowance is normally paid upon resumption of domestic units within the urban area.

      During 1994, about 196 000 square metres of private land was acquired in the New Territories to carry out various public works projects. The total land acquisition costs amounted to about $1,535 million. These projects included the construction of main drainage channels for Yuen Long and Kam Tin (Stage I Phase I), electricity pylons for the 400kV overhead transmission networks in association with the Tuen Mun Black Point Power Station, the Ting Kau Bridge and approach viaduct in Tsuen Wan, the first phase of the explosives complex at Kau Shat Wan on Lantau Island, and improvements to Ping Yeung Road, Lin Ma Hang Road, Heung Yuen Wai Road and Tong Fong Track in Ta Kwu Ling.

      In the urban areas of Hong Kong Island and Kowloon, about $369 million was paid in compensation for land and buildings acquired during the year for public works and urban renewal projects, either under compulsory powers or by agreement. These projects included the Ma Hang housing redevelopment in Stanley, the Rock Hill Street extension in Kennedy Town, open space development in Sheung Wan and Tai Hom, and the urban improvement scheme in Ma Tau Kok.

      The Lands Administration Office was also very much involved in the resumption of land for implementation of urban renewal schemes carried out by the Land Development Corporation and the Hong Kong Housing Society.

      Private streets continued to be resumed to facilitate their repair and maintenance by the government.

Land Disposal

All land in Hong Kong is held by the government, which sells or grants leasehold interests. Such grants and leases are made in accordance with the terms set out in Annex III to the Sino-British Joint Declaration on the Question of Hong Kong.

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The new land to be granted is not to exceed 50 hectares a year, excluding land granted to the Hong Kong Housing Authority for public rental housing. (The Land Commission may increase this limit and regularly does.)

The land disposal limit for 1994-95 is 1 410.73 hectares. This includes developments for the new airport, airport railway depot, airport railway property developments at Tai Kok Tsui and Tung Chung stations, Home Ownership Scheme and Sandwich Class Housing Scheme. Premium income obtained from land transactions is shared equally, after deduction of the average cost of land production, between the Hong Kong Government and the future Hong Kong Special Administrative Region Government.

Land grants and leases are normally made for terms expiring not later than June 30, 2047. They are made at premium and nominal rental until June 30, 1997, after which an annual rent equivalent to three per cent of the property's rateable value will apply.

  A land sales programme is issued at the beginning of each financial year and updated regularly, showing the details of public auctions and tenders normally held each month. Land in the New Territories is often sold by way of tender, restricted to holders of land exchange entitlements. These entitlements were used in the past for the acquisition of land in the New Territories, but since 1983 are no longer issued.

  Although most government land available for private sector development is sold by public auction or tender, land is also made available at nominal premium to the Hong Kong Housing Authority for its public rental estates and Home Ownership Scheme, and to non-profit-making charitable, medical and educational institutions which operate schools, hospitals, and social welfare and other community services.

During the year under review, a site in Chai Wan, with an area of 2.75 hectares, was sold under the Private Sector Participation Scheme. Sites granted to the Housing Authority for the development of Home Ownership Scheme projects included two sites comprising 3.56 hectares in Kowloon East, a 3.65-hectare site in Tseung Kwan O and a 4.7-hectare site in Ma On Shan.

Land for the construction of about 5 000 flats was granted in 1994-95 to the Hong Kong Housing Society for an assisted housing scheme for Hong Kong's 'sandwich class' (those families not eligible for existing public housing assistance but unable to afford private sector flats). This was the second year in which land was granted to the society for the scheme.

Major land transactions included the granting of a 23-hectare site in Tseung Kwan O for the Phase I development of the third industrial estate; a 3.44-hectare site in Kwai Chung for the expansion of the container terminal facilities of Modern Terminals Limited; and a 2.90-hectare site in Aberdeen for the development of a non-profit-making hospital and medical technology exchange centre by the Canadian International Hospital.

In the New Territories, three sites with a total area of 3.55 hectares were offered by restricted tender to holders of land exchange entitlements. These comprised a 1.43-hectare site in Tseung Kwan O and two sites with a total area of 2.12 hectares in Sha Tin. The sites were for commercial and residential use.

Land Registration

The Land Registration Ordinance provides for the registration of all documents affecting land in the Land Registry.

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On August 1, 1993, the Land Registry became one of the first government departments to operate on a trading fund basis. A trading fund is a financial and accounting arrangement which requires a department, whose services are of a commercial nature, to operate on a commercial basis while remaining a government department. The basic objective is to improve the quality of service to customers.

The Land Registry comprises the Urban Land Registry at the Queensway Government Offices on Hong Kong Island and eight New Territories Land Registries located in Tsuen Wan, Tuen Mun, Yuen Long, North District, Tai Po, Sha Tin, Sai Kung and Islands District. Registration of land documents is effected by means of a memorial form, containing the essential particulars of the document. These particulars are then placed on a register showing the relevant piece of land or property. The registers provide a complete picture of the title to each property, from the grant of the government lease. They are available for search by members of the public on payment of a small fee. The Land Registry keeps the memorials and a complete copy of each registered document, which are also available for search by members of the public on payment of a fee.

      For any transaction affecting land, a search of the land registers and records is made to ascertain property ownership and other relevant particulars. During the year, 3 480 033 such public land searches were made and 576 974 land documents were registered throughout the territory, compared with 3 328 390 and 631 849, respectively, in 1993. At the end of the year, there were 1 667 563 property owners, an increase of 86 686 over the previous year.

      All land documents presented for registration in the Urban Land Registry are microfilmed, and the particulars of the land transactions are stored in computerised land registers. To improve the efficiency and convenience of the public search services in the urban areas, a new facility, the Direct Access Services (DAS), was introduced in September 1994. Through a computer network, the DAS provide on-line, direct search facilities at the offices of solicitors and other professional firms.

The land registers in the New Territories, presently in book form, are being computerised to provide a more efficient storage, maintenance and retrieval system which would enhance both the land registration and public search services. A data conversion centre has been set up and the conversion exercise, which commenced in May, will take three years to complete.

      The Land Registry is also planning to introduce a Document Imaging System (DIS). When the DIS is completed in 1997, all registered land documents will be imaged and stored on optical discs, and can be retrieved and transmitted electronically through the DAS network. Detailed planning and development work is underway.

      Hong Kong has a system of land registration which is highly regarded for its efficiency and reliability. The Land Registration Ordinance provides that all land documents registered under it shall have priority according to their respective dates of registration. If a document is registered within one month of execution, priority shall relate back to the date of execution of the document. For charging orders made by the court and pending court actions, priority runs from the day following the date of registration. The ordinance further provides that unregistered instruments, other than bona fide leases at a rack rent for a term not exceeding three years, shall be null and void as against any subsequent bona fide purchaser or mortgagee for valuable consideration.

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  Registration is essential to the protection of land title but does not guarantee it. A Land Titles Bill, proposing to change the present land registration system to one of title registration, is under consideration by a Bills Committee of the Legislative Council. The proposed title registration system will provide certainty of title to property, protect property owners and purchasers, and simplify conveyancing procedures.

Land registration statistics are at Appendix 38.

Government Conveyancing

The Legal Advisory and Conveyancing Office of the Lands Department provides professional legal services to the government for all government land transactions and associated matters. It is responsible for the issue, renewal, variation and termination of government leases as well as the drafting and completion of conditions of sale, grants and exchanges of government land, the apportionment of government rents and premia, and the recovery of outstanding rents. It provides conveyancing services for the Housing Authority in connection with the sale of flats built under the Home Ownership Scheme, and for the Financial Secretary Incorporated in connection with the extension of non-renewable government leases, the purchase and sale of government accommodation in private developments, mortgages to secure interest-free loans to private schools, the purchase of properties for government staff quarters and group housing schemes for the elderly. It is also responsible for the processing of consent applications which are governed by the rules of the Land Authority's Consent Scheme. The scheme was amended substantially in mid- 1994 to implement the measures against speculation on residential units and to increase Hong Kong's housing stock as decided by the Task Force on Land Supply and Property Prices. During the year, 11 applications involving 7 715 residential units in the urban areas were approved and in the New Territories, 12 applications involving 10 069 residential units were approved.

Survey and Mapping

The Survey and Mapping Office of the Lands Department is responsible for defining and recording the land boundaries of all existing and new land developments; providing and maintaining the territory-wide survey control system; mapping the territory at various scales for land administration, engineering and government purposes; and managing a computerised land information system.

  Geodetic control systems, which are horizontal and vertical control networks covering the whole territory, have been established and maintained to a high degree of accuracy. These systems provide the necessary origin and control points for cadastral (property boundary), topographical mapping, engineering and other surveys.

  Global Positioning System (GPS) technology is also used for the efficient provision of geodetic control points.

Cadastral surveying is one of the most important functions of the Survey and Mapping Office. The office provides survey services to support all government land transactions. Its staff set out boundary corners and mark out the limit of all land for sale, grant/regrant, or other methods of disposal. Plans are prepared for legal purposes, land disposals, attach- ment to government gazette notices, setting out of private land parcels, and for identi- fication purposes. The office also maintains a comprehensive record of all leasehold and

LAND, PUBLIC WORKS AND UTILITIES

government land boundaries in the territory, with all urban area records stored in digital form and the New Territories records kept in graphical form pending digitisation.

The office's mapping coverage of Hong Kong is extensive. The most definitive series of maps serving as the foundation of all other mapping is the large-scale (1:1 000) basic topographic series (3 000 sheets). Conversion of this basic series into digital form is progressing satisfactorily and will be completed in 1995. Smaller-scaled maps include the monochrome map series at 1:5 000 (161 sheets) and the coloured map series ranging from 1:20 000 (16 sheets) to 1:300 000 (one sheet). All topographic maps except the 1:1 000 basic map series are bilingual. The 1:300 000 map entitled 'Hong Kong in its Regional Setting' shows the Zhu Jiang (Pearl River) Delta and has proved popular. Demand for guide books and leisure maps, in the form of the Countryside Series and the Tourist Guide, continues to be strong.

       Maps are obtainable from the Government Publications Centre on the ground floor of the Queensway Government Offices, map publication centres in Hong Kong and Kowloon, and district survey offices in the New Territories.

The Survey and Mapping Office provides extensive cartographic services for many government departments. These include full-colour mapping for the geological series, thematic maps, weather forecasting plans, aeronautical charts, electoral boundary maps and pollution control plans. Its Reprographic Unit also provides services in photo-reproduction and plan copying, and serves as an essential backup for in-house map reduction and other cartographic activities.

The office has to maintain a huge volume of territory-wide land information to meet land administration, land boundary survey and mapping needs. The computerised Land Information Systems being implemented in the District Survey Offices contain all the necessary basic mapping data and land boundary or cadastral survey data. The Land Information Centre of the Survey and Mapping Office is responsible for the initial data conversion work of digitising the paper maps and the land record sheets into computer format. The conversion work will proceed on a district-by-district basis, enabling the phased implementation of the systems. The District Survey Offices which have imple- mented the systems in full, to date, cover the Hong Kong, Kowloon, Kwai Tsing, Tsuen Wan and Shatin districts.

      The systems allow many jobs to be performed in a shorter time and with better product quality because of the timeliness of the land information and the wide choice of plan sizes, scales and colours available.

Mapping information in digital form, from the 1:1 000 survey sheets to 1:200 000 topographic maps, is now on sale to the public at the Land Information Centre. The customer is required to sign a data supply contract, which ensures recognition of the government's intellectual property rights in the data. At present, the digital map data is widely used by public utility companies, engineering consultants and construction firms.

       The office's Photogrammetric Survey Section provides aerial photographs and photo- grammetric mapping as well as data for engineering design work, volumetric calculations for quarry and controlled tipping operations, environmental studies and town planning work.

The Air Survey Unit is also on call for quick response photography in emergency operations such as storms, flooding and landslips.

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Drainage Services

The Drainage Services Department is committed to a programme of works to upgrade Hong Kong's drainage system to significantly reduce water pollution and flooding.

It is responsible for planning, designing, constructing, operating and maintaining the sewerage, sewage treatment and stormwater drainage infrastructures.

To serve the community, the department continued to attend expeditiously to complaints on drainage matters, such as blocked drains, and to promptly process applications for drainage connections for private developments.

Treatment and Disposal of Foul Water

The treatment and disposal of foul water, including domestic sewage and trade and industrial effluent, are based on standards, strategies and programmes drawn up by the Environmental Protection Department.

The planning, design and construction of the associated projects are carried out by the Drainage Services Department.

The projects on foul water disposal are broadly divided into three categories: sewerage or sewage treatment projects which were in the public works programme before the new strategy to combat water pollution evolved; 'sewerage masterplan schemes' which are territory-wide sewerage rehabilitation and improvement projects; and the 'Strategic Sewage Disposal Scheme' under the new strategy.

The latter is a massive project to collect, treat and discharge all sewage from Hong Kong Island, Kowloon, Tsuen Wan, Kwai Chung and Tseung Kwan O into the Dangan Channel, south of Lamma Island.

Projects under these three categories valued at some $9 billion are now under construction by the Drainage Services Department, and a further $4 billion worth of projects are at various stages of engineering planning and design.

Under the existing projects category, the largest project in hand in 1994 was the Tolo Harbour Effluent Export Scheme. This will export the sewage effluent from the Sha Tin and Tai Po sewage treatment works into Victoria Harbour and help to prevent the occurrence of red tides in Tolo Harbour. Stage I of the works between Sha Tin and Victoria Harbour was completed in late 1994 and included the construction of a sewer tunnel, 3.2 metres in diameter and 7.5 kilometres in length, under Tsz Wan Shan. Stage II of the works between Tai Po and Sha Tin is expected to be completed in mid-1995 and includes the construction of a one-metre diameter, six-kilometre long, steel rising main buried under the seabed of Tolo Harbour.

Another major project underway in this category was the construction of a sewage screening plant to serve a population of 700 000 and various industries in Tsuen Wan and Kwai Chung, to help reduce pollution in the Western Harbour.

Under the sewerage masterplan schemes, planning and design work was in hand to improve the sewage collection, treatment and disposal facilities in Tsuen Wan, Kwai Chung and Tsing Yi; Tuen Mun; Yuen Long and Kam Tin; North District; North, South and Northwest Kowloon; Wanchai East and North Point; Central, Western and Wanchai West; Chai Wan and Shau Kei Wan; Port Shelter; Aberdeen, Ap Lei Chau and Pokfulam; and the outlying islands. Advance works had started in some areas in order to reap early environmental benefits.

LAND, PUBLIC WORKS AND UTILITIES

Construction work continued in the Southern District of Hong Kong Island. In Stanley, the sewage treatment plant, constructed underground in a cavern, is due for commissioning in early 1995. Other sewerage rehabilitation and improvement works in the Stanley and Tai Tam areas were completed in late 1994. The sewage treatment plant will treat and disinfect the sewage from these areas before their discharge to the sea. The works in Repulse Bay and Shek O are expected to be completed towards the end of 1995 and in mid-1996, respectively. Besides improving sewerage facilities, the project will protect the popular bathing beaches in the district.

In East Kowloon, a system of new trunk sewers and pumping stations is expected to be completed in early 1995. After the commissioning of the Yau Tong Pumping Station in July, raw sewage from the Yau Tong area is no longer discharged into the harbour.

The advance works for the Principal Collection and Treatment System of the Strategic Sewage Disposal Scheme commenced in April. Detailed design for the main works continued.

The Director of Drainage Services is also the General Manager of the new Sewage Services Trading Fund, established on March 11, 1994, with a $6.8 billion injection of capital. The immediate objective of the trading fund is to bring about early improvements to the water quality around Victoria Harbour through the implementation of some of the above-mentioned capital projects in a high priority programme. Preparation was underway for the introduction of a scheme of charging for the sewage services provided by the Drainage Services Department.

Stormwater Drainage and Flood Control

The North and Northwest districts of the New Territories are particularly vulnerable to flooding.

In 1994, Hong Kong experienced its wettest July since 1884, with a total of 1038 millimetres of rain recorded during the month. An intense rainstorm period from July 22-25, due to a widespread low pressure trough in the region, resulted in severe flooding in the territory, particularly in the Yuen Long area. More than 380 reports of flooding were received.

Some of the main causes of flooding in the New Territories have been the urbanisation of the rural areas and uncontrolled developments on the floodplains of the main rivers. To assist planners in guiding developments so that the flooding situation will not deteriorate further, the department has developed basin management plans for the five flood-prone basins in the North and Northwest New Territories. These plans define the constraints and opportunities for development within the five basins from a drainage perspective. They have been used to assist in the preparation of outline zoning plans and development permission area plans.

      The government continued to implement schemes with a view to alleviating the problem of flooding in the Northwest New Territories. Construction work on Stage I of the $1.1 billion project for the improvement of the Kam Tin River and the Shan Pui River in Yuen Long progressed satisfactorily. Construction work on a second drainage channel to the south of Lut Chau started in April and this will be followed by upstream works in mid-1995. Design work was in progress to construct a further 24 kilometres of drainage channels in Kam Tin, Ngau Tam Mei and San Tin.

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As an associated measure, 14 flood water pumping systems have been constructed and are in operation to mitigate the impact of flooding in low-lying villages in the New Territories. Twelve more are under planning and design.

The government is also working closely with the Shenzhen Municipality to resolve the flooding problem associated with the Shenzhen River, which divides Hong Kong and Shenzhen. The solution proposed involves the straightening, widening and deepening of some 17 kilometres of the river, to enhance its flow to reduce the risk of flooding in its catchment areas. Preparatory work has largely been completed and construction of the first stage of the project is planned to commence in 1995.

  The Land Drainage Ordinance, enacted in March, is an essential component of the strategy to alleviate flooding in the New Territories. It authorises government staff to gain access to, inspect, clear and maintain main watercourses running through or bordering private land, in a further attempt to reduce the risk of flooding. It also empowers the government to control the erection of structures within main watercourses, to ensure their water-carrying capacity is not undermined.

Operation and Maintenance of the Drainage System

With the commissioning of each additional item of capital infrastructure, there is a consequential increased commitment in operations and maintenance. The volume of sewage treated by the department has increased from 385 million cubic metres in 1989 to 638 million cubic metres in 1994, of which 146 million cubic metres receive full biological treatment. To facilitate the conveyance and treatment of the sewage, 65 sewage pumping stations and 50 sewage treatment plants are now in operation throughout the territory.

  Since the establishment of the department, the approach to the operation and maintenance of the public drainage system has progressively shifted from crisis management to preventive maintenance. The efficient maintenance of the drainage infrastructure is essential to ensure the proper and effective disposal of foul and storm water, and to prevent blockages and leaks which also cause bad odours, flooding or other nuisances to the public. The department now maintains almost 3 000 kilometres of watercourses, drains and sewers. Some 45 000 clearance exercises are carried out annually to remove over 150 000 cubic metres of silt from drains and watercourses, to keep them free-flowing and their pollution levels low.

  The department operates an overnight hotline service, from 10 pm to 8 am, to receive complaints on blocked drains and sewers.

The department also operates an Emergency Storm Damage Organisation. The organisation is run by staff working on a rotational basis and is supported by the department's own labour force and contractors. Its operation ensures that emergency situations are dealt with efficiently. The recurrent expenditure on operations and maintenance in 1993-94 was $575 million. This sum is increasing steadily.

Geotechnical Engineering

The Geotechnical Engineering Office (GEO) of the Civil Engineering Department was established after the landslip disasters of the 1970s, and the control of geotechnical aspects of construction works, in the interest of public safety, continues to be one of its foremost duties. Checks were made on 7 866 design proposals during the year.

LAND, PUBLIC WORKS AND UTILITIES

A Working Party on Geotechnical Control Strategy was established in May 1993 and considered three options for a future control strategy. A report prepared by the working party contains a consideration of the three options and recommendations for the way forward in geotechnical control. Action is being taken to implement the recommendations, with a view to enhancing the effectiveness of geotechnical control.

Work to upgrade unsatisfactory old slopes to modern safety standards is continuing. Three consultancies were signed in 1994 to accelerate the Landslip Preventive Measures Programme. A detailed plan is being worked out to further accelerate the programme to complete the necessary upgrading works for slopes in the 1978 Slope Catalogue by the year 2000, subject to the availability of resources. During 1994, landslip preventive works were completed on 71 slopes and retaining walls, at a cost of $102 million. Preliminary studies were carried out on 2 893 slopes and retaining walls, and detailed geotechnical investigations were finished on 90 slopes and retaining walls.

A public works project on the 'Systematic Identification and Registration of Slopes in the Territory' (SIRST) was begun in July. The project will lead to a computerised Slope Information System containing important information on sizeable man-made slopes in the territory. Preparatory work for SIRST involves territory-wide systematic aerial photograph interpretation (API) and field checks to identify additional old fill slopes, cut slopes and retaining walls that have not previously been registered. The API study began in 1992, following the fatal landslide at Baguio Villas in Pok Fu Lam, and is continuing with increased staff resources through the use of seconded consultant aerial photograph interpreters.

      The GEO operates the Landslip Warning System and a 24-hour emergency service to provide advice when landslips occur. GEO staff attending these incidents give advice on immediate measures to reduce danger, as well as on permanent remedial measures. Exceptionally heavy rainfall between July 22 and 26 resulted in about 200 landslip incidents. One of the landslips, which occurred on the evening of July 23 at Kwun Lung Lau Estate in Western District, resulted in five people being killed and three seriously injured. GEO staff carried out a detailed investigation into the cause of the landslip, which was independently reviewed by Professor N.R. Morgenstern of the University of Alberta. The findings of the investigation were published in November. The landslip was caused by leakage from defective sub-surface drainage systems which saturated the soil behind an exceptionally thin retaining wall. In the light of the findings, Professor Morgenstern made five recommendations to improve slope safety in Hong Kong. The government has accepted these recommendations and steps are being taken to implement them.

      The GEO continues to be concerned about the landslip hazard to squatters on hillsides. The squatter clearance programme and work to improve village conditions over the last decade have significantly reduced such landslip hazards. During 1994, inspections of about 80 squatter villages in the New Territories were completed, and recommendations were made for the clearance of about 4 800 squatter huts and rehousing for their occupants on slope safety grounds. Since this work began in the early 1980s, some 65 000 squatters have been rehoused from steep hillsides because of concerns about landslips during heavy rainfall.

      The GEO continued its public education campaign to increase awareness of the impor- tance of slope maintenance and the responsibility of land owners to maintain their slopes.

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The Hong Kong Geological Survey published one 1:20 000 scale geological map for part of Lantau Island, and four 1:5 000 scale detailed geological maps of North Lantau. A 1:100 000 scale map of the geology of Hong Kong and an explanatory document are under preparation. The computerised borehole database for the urban areas of Hong Kong Island and Kowloon is expanding, facilitated by the new requirement for contractors and consultants to submit ground investigation records in a standardised, computer-readable format.

The extensive collection of historical and recent aerial photographs was supplemented by satellite data. These were used to monitor suspended sediment offshore and for studies of areas affected by severe landslips, including Lantau Island in 1993. Engineering geological studies are underway on slopes adjacent to Tung Chung new town, which is presently under construction.

The GEO's Geotechnical Information Unit (GIU) houses the largest collection of geotechnical data in Hong Kong. It served more than 2 900 users during the year. Draft versions of guides to pile design and construction and to slope maintenance were produced and circulated for public consultation.

Further major ground investigations were undertaken for the Lantau Port and Tseung Kwan O development studies and the Strategic Sewage Disposal Scheme. Additional drilling and geophysical surveys were conducted for the Fill Management Study (Phase IV) on potential land and marine borrow areas across the territory. Several investigations of landslips were also undertaken, using high quality drilling and sampling techniques. In all, over 230 land and marine ground investigations (including geophysical surveys) and over 100 laboratory test schedules were completed. An additional one-year laboratory testing term contract was let to cope with the demand for the testing of samples recovered from marine ground investigations.

The GEO manages the Public Works Central Laboratory at Kowloon Bay and seven public works regional laboratories in various parts of the territory. These laboratories are accredited under the Hong Kong Laboratory Accreditation Scheme (HOKLAS) to carry out specific tests on construction materials, and to provide laboratory calibration services. Over 60 tests have now been accredited. An application has been made for the accreditation of a series of soil tests to new testing standards. A new section of the laboratory is being equipped to extend the services to cover rock mechanics testing.

Fill Management

The territory's fill resources are managed by the Fill Management Committee, whose secretariat is a division of the Geotechnical Engineering Office. The committee was set up in 1989 to make decisions on the reservation, allocation and efficient utilisation of fill resources for government and major private projects.

  Up to the end of 1994, some 270 million cubic metres of marine fill had been allocated or reserved and, of this amount, approximately 200 million cubic metres had been extracted from the seabed for reclamation projects.

  A further 465 million cubic metres of fill from both land and marine sources are needed for reclamations over the next 15 years.

  A second role of the committee is to plan the marine disposal of dredged mud, including contaminated mud, and to allocate disposal capacity at the gazetted marine spoil grounds.

LAND, PUBLIC WORKS AND UTILITIES

During the year under review, approximately 56 million cubic metres of uncontaminated mud and 1.8 million cubic metres of contaminated mud were disposed of under licences issued by the Environmental Protection Department. The uncontaminated mud was dumped in spoil grounds and in worked-out borrow areas, and the contaminated mud was placed in disposal pits especially designed to ensure containment.

In connection with the management of the territory's fill resources and mud disposal capacity, the GEO, on behalf of the Fill Management Committee, is undertaking a series of environmental studies to examine the effects of the dredging and dumping activities, and investigating possible ways to avoid or minimise any adverse effects on the marine environment.

Water Supplies

Water from China

China is the major single source of water supply for Hong Kong, and all future increases in demand will be met from this source.

This arrangement dates back to 1960, when a scheme was first formulated for receiving a piped supply of 22.7 million cubic metres a year. The supply from China stipulated under the agreements was 534 million cubic metres for the period from March to December 1994. This will continue to increase in stages to 840 million cubic metres per annum by the year 2000. Apart from the fixed quantities of supply stipulated in the agreements, there are provisions for the purchase of additional supplies from China in years of low rainfall in Hong Kong.

Following the agreement reached with the Chinese authorities in December 1989 to increase the China water supply up to a maximum of 1 100 million cubic metres per year to cope with anticipated demands beyond 1994 and into the early 2000s, a conceptual plan was developed for the necessary works to receive and distribute the additional supply. The works are being implemented in stages, with Stage I works substantially completed at the end of 1994. These works include some 22 kilometres of large-diameter delivery pipes; new pumping stations at Muk Wu, Tai Po Tau, Au Tau and Sai O; and major improvements to an existing pumping station at Tai Mei Tuk.

Water Storage and Consumption

Full supply was maintained throughout the year. At the end of 1994, there were 423 million cubic metres of water in storage, compared with 386 million cubic metres at the end of 1993. Of this, 367 million cubic metres were stored in Hong Kong's two largest reservoirs, High Island and Plover Cove. Rainfall for the year was 2 726 millimetres, compared with the average of 2 214 millimetres. Water piped from China during the year totalled 683 million cubic metres.

A peak consumption of 2.73 million cubic metres per day was recorded, compared with the 1993 peak of 2.78 million cubic metres. The average daily consumption throughout the year was 2.53 million cubic metres, an increase of 0.8 per cent compared with the 1993 average of 2.51 million cubic metres. The consumption of potable water totalled 923 million cubic metres, compared with 915 million cubic metres in 1993. In addition, 142 million cubic metres of sea water for flushing was supplied, compared with 129 million cubic metres in 1993.

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Water Works

The water distribution system continued to be extended and enlarged to meet urban and rural demands in the territory. This included expansion of the distribution network to supply remote villages in the New Territories.

Construction work for the Ma On Shan Treatment Works, Au Tau Treatment Works Stage II and Sham Tseng Treatment Works Stage I; and extension of the Sheung Shui Treatment Works and Yau Kom Tau Treatment Works were in progress.

Planning for the major new treatment works at Ngau Tam Mei was completed. Further planning was underway for the improvement of system capacity to meet the demand from new developments in central and western Hong Kong Island, Sham Tseng, Kwun Tong, Yau Tong, Tsing Yi, Yuen Long, Tin Shui Wai, the northwestern New Territories and Ma On Shan.

Design work for additional service reservoirs, pumping stations and water supply networks for the areas of Shek Kip Mei, Yau Kam Tau and Tsuen Wan was completed while work was still in progress for Tseung Kwan O, Tsing Yi, Tuen Mun and the Western Mid-Levels. Design work also continued for the improvement of the water supply to the metropolitan southeastern areas of Kowloon, the enhancement of the Tai Tam Tuk Pumping Station and the major renovation of the sea water supply system for central Kowloon.

Work on the permanent water supply system for the new airport at Chek Lap Kok and other developments in North Lantau associated with the Port and Airport Development Strategy was being implemented in stages. The Stage I works, to be commissioned by mid- 1996, include submarine and land mains, a water treatment works, pumping stations, a service reservoir and an aqueduct between Siu Ho Wan and Silvermine Bay.

Work was also in progress to replace gas chlorination plants by on-site hypochlorite generation plants at salt water pumping stations, to reduce risks associated with chlorine storage. Hazard assessments on the chlorination installations of five small treatment works were carried out. Design work for the extension of the Tai Lam Chung Prechlorination House was completed.

Water Accounts and Customer Relations

The number of the Water Supplies Department's consumer accounts continued to rise at a rate of about two per cent and the consumer account base expanded to approximately 2.05 million accounts at the end of 1994.

Computer systems were widely employed to provide efficient enquiry services; to handle applications for water supply and change of consumer particulars; and to issue demand notes for water charges, connection fees and water deposits.

An Interactive Voice Response System was introduced in April to provide a round-the- clock enquiry service on water supply matters.

Efforts to promote the autopay service continued, and the number of consumer accounts using autopay for payment of water charges reached 263 000, or about 13 per cent of all

consumers.

Since December 1993, consumers have been also able to pay water bills through the Payment by Phone Service (PPS). The number of consumer accounts using this service reached 75 000 at the end of 1994, or about four per cent of all consumers.

LAND, PUBLIC WORKS AND UTILITIES

      In May, the department announced its achievements against performance targets for the past year, declaring the results to be satisfactory. For the majority of the targets, the achievement rates were close to, or reached, 100 per cent. Enchanced performance targets were also publicised.

Electricity

the Hongkong Electric Company

Electricity is provided by two commercial companies Limited (HEC), which supplies Hong Kong Island and the neighbouring islands of Ap Lei Chau and Lamma; and China Light and Power Company Limited (CLP), which supplies the whole of Kowloon and the New Territories, including Lantau and a number of outlying islands. The supply to consumers is at 50Hz alternating current, while the voltage is being upgraded to 220 volts single phase and 380 volts three phase from 200 and 346 volts, respectively.

      The two supply companies are investor-owned and do not operate on a franchise basis. The government monitors their financial arrangements and technical performance through mutually-agreed scheme of control agreements. New agreements with CLP and HEC came into effect on October 1, 1993 and January 1, 1994, respectively. Both will last for 15 years. The agreements require each company to seek the approval of the government for certain aspects of their financing plans, including projected tariff levels.

      In 1985, the Hong Kong Nuclear Investment Company (a wholly-owned subsidiary of CLP) and the Guangdong Nuclear Investment Company (wholly-owned by the Chinese Ministry of Nuclear Industry) signed a joint venture contract for the formation of the Guangdong Nuclear Power Joint Venture Company, to construct and operate a nuclear power station at Daya Bay in Guangdong.

      The Guangdong Nuclear Power Station comprises two 985MW pressurised water reactors. The two units were put into commercial operation in February and May 1994, respectively. About 70 per cent of the power from the station will be purchased by CLP to meet part of the longer-term demand for electricity in its area of supply.

      The operations of the three generating companies affiliated to CLP - Peninsula Electric Power Company Limited (PEPCO), Kowloon Electricity Supply Company Limited (KESCO) and Castle Peak Power Company Limited (CAPCO) - were consolidated under CAPCO in April 1992. CAPCO's present generating facilities include the Tsing Yi 'A' (796MW), Tsing Yi 'B' (876MW), Castle Peak 'A' (1 752MW), Castle Peak 'B' (2 708MW) and Penny's Bay (300MW) power stations. The total installed capacity is 6 432MW. The government has also approved the installation by CLP of four 600MW blocks of additional generating capacity, the first two of which will be installed in a new power station at Black Point, Tuen Mun, in 1996 and 1997, respectively. The other two blocks will be commissioned within the periods 1998 to 2000 and 1999 to 2001. All will be fuelled by natural gas piped from the Yacheng 13-1 gas field off Hainan Island in China.

      CAPCO is 60 per cent owned by Exxon Energy Limited and 40 per cent by CLP, while the associated transmission and distribution systems are wholly owned by CLP. CLP's transmission system operates at 400kV, 132kV and 66kV, and distribution is effected mainly at 33kV, 11kV and 380 volts.

      CLP has more than 173 primary and over 7 916 secondary sub-stations in its transmission and distribution network.

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  An extra high voltage transmission system at 400kV was completed in 1986 to transmit power from the Castle Peak Stations to the various load centres. Currently it comprises a double-circuit overhead line system encircling the New Territories, underground cables and eight extra high voltage sub-stations. Planning and construction work for the addition of new extra high voltage sub-stations and for the reinforcement of the existing system is in progress.

  In HEC's supply areas, electricity is supplied entirely from the Lamma Power Station. At the end of 1994, the total installed capacity at the Lamma Power Station was 2 605MW. There are plans to add two 350MW units to Lamma one each in late 1995 and 1997.

  HEC's transmission system operates at 275kV, 132kV and 66kV and distribution is effected mainly at 11kV and 380 volts. With the exception of a small proportion of 132kV overhead transmission lines, all supplies are transmitted and distributed by underground or submarine cables.

  The transmission systems of CLP and HEC are interconnected by a cross-harbour link. This provides emergency backup and achieves cost savings to consumers through economic energy transfers between the two systems and a reduction in the amount of generating capacity that needs to be kept as spinning reserve against the tripping of other units. The interconnection, commissioned in 1981, currently has a capacity of 720MVA.

  CLP's system is also interconnected with that of the Guangdong General Power Company of China and electricity is exported to Guangdong province. Such sales, which are made from existing reserve generating capacity, are governed by an agreement with the government, signed in March 1992, under which CLP's consumers receive priority of supply and 80 per cent of the profit from the sales.

  CLP also, in July 1985, signed a contract with the China Merchants Steam Navigation Company Limited for the supply of electricity, for a 10-year period starting from late 1986, to the industrial zone of Shekou and the adjacent Chi Wan area, both in Guangdong. The arrangement, which affords Shekou a reliable electricity supply without subsidy from Hong Kong consumers, is illustrative of the close co-operation on energy matters which has developed on both sides of the border.

  CLP, through its affiliated company, the Hong Kong Pumped Storage Development Company Limited, has purchased the right to use 50 per cent of the capacity of the Guangzhou Pumped Storage Power Station, located at Conghua. The total installed capacity of the current phase is 1 200MW. The first two 300MW units were commissioned in early 1994, while the other two were commissioned in late 1994. Off-peak electricity from the Castle Peak Stations and Guangdong Nuclear Power Station is used to pump water from a lower reservoir to an upper one. The water is allowed to flow downhill during the day to generate electricity to meet Hong Kong's peak demand.

  The Electricity Ordinance, enacted in 1990, provides, among other things, for the registration of electrical workers and contractors. The registration of electrical workers and contractors started in November 1990 and November 1991, respectively. To be eligible for registration, applicants must possess the necessary experience and qualifications. The Electricity Ordinance and its subsidiary regulations also require all electrical work to be undertaken or supervised only by registered contractors, and set out the standards for electrical wiring to which registered electrical contractors and workers have had to adhere from June 1992.

LAND, PUBLIC WORKS AND UTILITIES

      At the end of December 1994, over 55 000 qualified electrical workers and 7 800 qualified contractors had been registered.

      To further enhance public safety, the government is planning to introduce statutory controls over electrical products and is updating the safety legislation for the power supply industry.

      As a first step, legislation was introduced for statutory control over plugs and adaptors in late 1994. Comprehensive legislation on electrical product safety will be enacted in late 1995 to provide control over all household electrical products. The introduction of the new Electricity Supply Regulations is scheduled for 1996.

      In May 1990, the government decided that the electricity supply voltage in Hong Kong should be upgraded from 200 volts single phase or 346 volts three phase, to 220 volts single phase or 380 volts three phase. A Supply Voltage Advisory Committee was appointed in February 1991 to advise on the implementation of voltage upgrading in the territory. The voltage upgrading is being carried out in two phases. Phase I conversion, covering existing installations inside government buildings, started in August 1990 and was completed in November 1992. Phase II conversion, covering existing installations in buildings managed by the Housing Authority and those of the private sector, commenced in January 1993 and will take about four years to complete.

Electricity statistics and sales figures are at Appendix 40.

Gas

Gas is widely used throughout the territory for domestic, commercial and industrial purposes. Two main types of fuel gas are available: Towngas, distributed by the Hong Kong and China Gas Company Limited (HKCG); and liquefied petroleum gas (LPG), supplied by major oil companies based in Hong Kong, namely Shell, Mobil, Esso, Caltex, Concord Oil and China Resources. Towngas is mainly supplied as a manufactured gas, but for some customers, substitute natural gas (SNG) is supplied under the Towngas trademark. The constituents of LPG are butane and propane, mixed in approximate proportions of 70 per cent and 30 per cent, respectively.

      The total number of gas customers is about 1.935 million. In 1994, Towngas accounted for 69 per cent of the total fuel gas sold in energy terms, and LPG for 31 per cent.

      HKCG manufactures Towngas at two plants, at Ma Tau Kok and the Tai Po Industrial Estate. Both use naphtha as a feedstock. They currently have output capacities of 2.2 million and 8.4 million cubic metres per day, respectively.

Towngas is supplied through an integrated distribution system to about 1 060 000 customers for cooking and water-heating purposes. The mains network extends throughout the territory's urban areas. The new towns in the New Territories are supplied via an 80-kilometre high-pressure pipeline, of 600-millimetre diameter, emanating from the Tai Po gas production plant. An additional 10 kilometres of high-pressure pipeline, currently under construction, will provide supplies to the new development areas in Tin Shui Wai and to Tuen Mun. A further 30 kilometres of high-pressure pipeline are presently under construction to supply Towngas to the new airport at Chek Lap Kok and to Tung Chung and other housing developments on Lantau Island.

      Natural gas will be available in the territory towards the end of 1995 and will be used exclusively for power generation at the Black Point and Castle Peak power stations. The gas

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will be imported directly from the Yacheng 13-1 gas field off the south of Hainan Island, via a 780-kilometre, high-pressure, submarine pipeline.

SNG is distributed by HKCG under the Towngas trademark from a temporary plant located in Tuen Mun, specifically designed and operated to provide the gas requirements of the new town. The plant will be decommissioned in 1995, when construction of the last phase of the transmission pipeline has been completed and customer appliances have been converted to use the gas produced at the Tai Po plant.

LPG is imported to Hong Kong by sea. About 58 per cent of total sales is distributed to customers, via dealer networks, in portable cylinders. The remaining 42 per cent is distributed through piped gas systems from bulk LPG storage and vaporiser installations, which are located in, or adjacent to, the developments being supplied.

There are about 460 LPG distributors operating within the territory. Additionally, 23 LPG site operators manage 509 bulk storage installations under government-monitored arrangements. Altogether, there are about 877 000 LPG customers.

In 1982, the government introduced a piped gas policy to discourage the use of gas cylinders in domestic dwellings. At the same time, it began a programme of encouraging the upgrading of sub-standard gas water heaters. The percentage of domestic dwellings using cylinders fell to less than 26 per cent in 1994, and the number of upgraded gas water heaters increased to some 75 400. Apart from suicide cases, there were eight fatalities arising from fuel gas incidents during the past year.

  As a further means of safeguarding the general public and gas consumers, the Gas Safety Ordinance was introduced in 1991. The ordinance and its subsidiary regulations constitute a comprehensive package of gas safety legislation, covering all aspects of fuel gas importation, manufacture, storage, transport, supply and use of gas. The Director of Electrical and Mechanical Services was appointed the Gas Authority, and the Gas Safety Advisory Committee was established for the purpose of advising the authority on all relevant matters. Since April 1992, it has been necessary for all gas supply companies, gas-installers and contractors to be registered with the Gas Authority in order to carry out their operations. In 1994, seven gas supply companies, 3 088 gas-installers and 392 gas contractors were registered under the scheme. In addition, the administrative arrangements for controlling safety in the transportation of LPG in tankers and cylinder wagons were transferred from the Director of Fire Services to the Gas Authority.

  The government and the fuel gas supply industry have adopted risk assessment techniques for the detailed examination of all appropriate potentially-hazardous gas installations. The risk assessments facilitate the taking of remedial measures where necessary, with the aim of ensuring that residents in the vicinity of these installations are not exposed to unacceptable risk levels.

15

TRANSPORT

TRAFFIC congestion is worsening in Hong Kong, largely due to the rapid growth in the number of private cars. To keep the transport system moving smoothly, several measures were proposed in 1994.

      In November, the Working Group on Measures to Address Traffic Congestion published its report at the start of a three-month period of public consultation. The report reaffirmed the government's commitment to investing substantially in transport infrastructure and to expanding and improving public transport services. It also proposed a package of measures to tackle congestion.

      In the short term, the working group proposed improvements in traffic management, including more bus priority lanes and tighter controls on road works. Fiscal measures were also proposed to reduce the growth in private vehicle numbers from the current 10 per cent to between two to three per cent per annum. These measures include increases in the annual licence fees and first registration tax of vehicles and in cross-harbour tunnel tolls. The extra revenue raised from the first registration tax increase would be set aside in a transport fund, to be used for improvements to the transport system, such as the provision of better public transport interchanges and expansion of the rail system.

In the longer term, the working group proposed that an electronic road pricing system be introduced to manage the use of road space in the most congested areas at the busiest times. The Governor has already pledged, in his annual address to the Legislative Council in October, to spend $30 billion in the next five years on building new roads.

      Other notable developments in the past year included the publication of the Railway Development Strategy, which maps out plans for the future expansion of the railway system; the formation of an infrastructure co-ordination committee to discuss major cross-border projects with the Chinese authorities and the round-the-clock opening of the Lok Ma Chau border crossing.

      The Railway Development Strategy was finalised and published in December. It recommended the implementation of three high priority projects by the year 2001 - the Western Corridor, an extension of the Mass Transit Railway to Tseung Kwan O and the East Kowloon Route projects. The Western Corridor in the Western New Territories will comprise a port rail line, a cross-border passenger service and a domestic passenger service, including an extension to Tuen Mun North. The Tseung Kwan O extension will stimulate the further development of the new town. The East Kowloon Route will comprise the

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 extension of the Kowloon-Canton Railway from Hung Hom to Tsim Sha Tsui and a new railway from Ma On Shan to Tai Wai. The strategy also put forward railway proposals for implementation in the longer term.

The Sino-British Co-ordinating Committee on Major Cross-border Infrastructure between Hong Kong and the Mainland was also established in December. The committee provides a new forum for the exchange of views and information with China on major cross- border projects, including roads and railways.

The opening, in November, of the Lok Ma Chau-Huanggang Border Crossing Point for 24 hours-a-day was on a trial basis to cope with the increase in cross-border goods vehicle traffic between Hong Kong and China. The border crossing was previously closed from 10 pm to 7 am daily.

The Transport Department pressed ahead with an ongoing programme to improve the capacity and safety of the existing road network. This included more traffic management measures to improve local traffic and the upgrading of the Area Traffic Control System and its extension to Tsuen Wan, Kwai Chung and Sha Tin.

Efforts continued during the year to improve the traffic flow on Tuen Mun Road. A working group comprising Legislative Councillors, district board members and representa- tives of relevant government departments was reconvened in September to consider further improvement measures. One of the new measures involved the installation of a Traffic Surveillance and Information System on Tuen Mun Road to improve the police response time to accidents and vehicle breakdowns. The construction of new climbing lanes in the most congested parts of Tuen Mun Road was progressing well.

Work on the Ting Kau Bridge, which forms part of Route 3 linking the border with the container port at Kwai Chung, started in August. Tenders were invited from the private sector for the construction of the last two sections of Route 3 under a 'build, operate and transfer' franchise.

Work on constructing major transport links between the new airport at Chek Lap Kok and the urban area proceeded smoothly.

  The Transport Department continued its programme to contract-out management services which are more effectively provided by the private sector. During the year, contracts were awarded for the management and operation of parking meters and the hillside escalator linking Central and the Mid-Levels.

The expansion of public transport services also continued. The four franchised bus companies together carried the largest number of daily commuters. To give priority to public transport users, consideration is being given to introducing more bus-only lanes on Tuen Mun Road, Siu Lek Yuen Road and Tolo Highway.

This chapter also looks at Hong Kong's port and aviation services.

The Administrative Framework

The Transport Branch of the Government Secretariat, headed by the Secretary for Transport, is responsible for overall policy formulation, direction and co-ordination of internal transport matters. The Secretary for Transport is assisted by the Transport Advisory Committee, which advises the Governor in Council on major transport policies and issues. The committee has 16 appointed members, including the chairman and six government officials, and is supported by a Transport Complaints Unit, which received

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14 589 complaint cases on traffic and transport matters in 1994. The Secretary for Transport also chairs the Transport Policy Co-ordinating Committee, which oversees the formulation and implementation of major internal transport policies. On local transport matters, the government is advised by the district boards, and their traffic and transport committees.

      The Commissioner for Transport, the head of the Transport Department, is the authority for administering the Road Traffic Ordinance and legislation regulating public transport operations other than railways. His responsibilities cover strategic transport planning, road traffic management, government road tunnels, carparks and metered parking spaces, and the regulation of internal roads and waterborne public transport. He is also the authority for the licensing of drivers and the registration, licensing and inspection of vehicles.

      While the police force is the principal agency for enforcing traffic legislation and prosecuting offenders, the prosecutions unit of the Transport Department handles pro- secutions involving safety defects found on buses, disqualifications under the Driving Offence Points System, and breaches of vehicle safety regulations and government tunnel regulations. In 1994, the unit handled 36 prosecutions in respect of buses, 5 004 cases for which disqualification was sought under the Driving Offence Points System, and 830 prosecutions in respect of breaches of tunnel and other regulations.

      A Transport Tribunal, set up under the Road Traffic Ordinance and chaired by a non- government official, provides the public with a channel of appeal against decisions made by the Commissioner for Transport in respect of the registration and licensing of vehicles, the issue of hire car permits and passenger service licences, and designation of car-testing

centres.

The Transport Department also operates an Emergency Transport Co-ordination Centre, which co-ordinates traffic and transport arrangements during serious traffic and transport disruptions, rainstorms and typhoons. The centre undertook eight operations in 1994.

      To tackle the area-wide traffic congestion at the Kwai Chung container port, the police operate, when necessary, the Emergency Container Port Traffic Control Centre jointly with representatives of the Transport Department, Kwai Tsing District Office, the three terminal operators, the Container Tractor Owners Association and the Container Transportation Employee's General Union. The control centre is located within the container port and is equipped with a Closed Circuit Television system and efficient communication links. During the year, it operated seven times.

      The Director of Highways heads the Highways Department, which is responsible for designing and building all highways, their repair and maintenance, and also for studying new railway proposals.

Planning

The Freight Transport Study was completed during the year. It put forward wide-ranging recommendations to improve the efficiency and operation of the freight industry. The study identified six major freight transport problems and recommended 28 measures to tackle these problems and to meet the projected freight transport demands up to the year 2011. Views on the recommendations have been received from concerned parties, and a freight transport strategy is being prepared.

Also completed during the year was the updating of the strategic transport planning models, using the data on household trips collected from the Travel Characteristics Survey.

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A study is underway to assess parking demand in Hong Kong. It will forecast future demand and identify shortfalls in parking spaces for the territory and make recommenda- tions to solve the parking problems.

The Sha Tin-Ma On Shan District Traffic Study commenced during the year. It will identify traffic problems in the district and recommend improvement measures.

Cross-Border Traffic

There are three road crossing points between Hong Kong and China - at Sha Tau Kok, Man Kam To and Lok Ma Chau. The total capacity of the three crossings is about 40 000 vehicles per day. The Lok Ma Chau crossing started operating 24 hours-a-day in November. The Sha Tau Kok and Man Kam To crossings open at 7 am each day and close at 6 pm and 10 pm, respectively.

Cross-border vehicular traffic increased by about 11 per cent during the year, compared with 1993. The increase was registered mainly at Lok Ma Chau. The average daily traffic figures at the three crossing points in 1994 were about 1 800, 9 500 and 11 100 at Sha Tau Kok, Man Kam To and Lok Ma Chau, respectively. Goods vehicles accounted for 95 per cent of the traffic, reflecting the rapid growth in trade and industrial links with China. At the end of the year, 30 companies operated tourist coach services across the border.

  The Kowloon-Canton Railway continued to play an important role in carrying freight and passenger traffic between Hong Kong and China. Some 2.35 million revenue tonnes of freight were brought into Hong Kong by rail, compared to 2.53 million tonnes in 1993. Exports to China by rail accounted for 1.06 million revenue tonnes, a decrease of 13 per cent from the 1.22 million tonnes carried in 1993. There are five goods yards at Hung Hom, Ho Man Tin, Sha Tin and Fo Tan, and a marshalling yard at Lo Wu. Freight trains are hauled by a fleet of 12 diesel locomotives. A Hung Hom-Daleng railway container shuttle service was commissioned on December 7, 1992. Some 43 million passengers crossed the border by rail in 1994, compared to 40 million the previous year. A further extension of the terminal building at Lo Wu is being constructed to cope with the growth in rail traffic. The project is scheduled for completion in early 1995.

Ferry services between Hong Kong and China carried 7.2 million passengers, compared with 6.5 million in 1993. At the end of the year, there were 29 ferry routes between Hong Kong and China, operated by 10 companies.

The opening of the Shenzhen Airport in October 1991 provided a further impetus to the growth of cross-border traffic, and coach and ferry services now operate between the airport and Hong Kong.

The completion of Phase I of the Guangzhou-Shenzhen-Zhuhai Superhighway, linking Guangzhou and Huanggang, in 1994 led to a further increase in cross-border traffic, particularly through Lok Ma Chau.

The Road Network

Hong Kong's roads have one of the highest vehicle densities in the world. At the end of 1994, there were 454 932 licensed vehicles and about 1 661 kilometres of roads

419 on Hong Kong Island, 395 in Kowloon and 847 in the New Territories, representing 274 vehicles per kilometre of road. This high vehicle density, combined with the difficult terrain and dense building development, poses a constant challenge to transport planning, road

TRANSPORT

construction and maintenance. There are eight major road tunnels, over 840 flyovers and bridges, 471 footbridges and 279 subways to assist the mobility of vehicles and people.

To cope with increasing transport demands, the Highways Department continued to implement an extensive road construction programme. About 60 road projects are under construction and another 30 projects are being planned.

The department's budget for the financial year ending March 1995 totals $9,262 million. Of this, $8,693 million is for major highway construction, and $569 million for road and public lighting maintenance work.

Strategic Road Network

The spine of the strategic road network is Route 1, which runs from Aberdeen on the southern shore of Hong Kong Island, and cuts through Kowloon peninsula and the New Territories, to the Lok Ma Chau border crossing point.

On Hong Kong Island, Route 8 runs along the northern shore from the Cross Harbour Tunnel, via the Island Eastern Corridor, to Shau Kei Wan and Chai Wan in the east. Route 7 stretches westwards from the Cross Harbour Tunnel along the northern shore, via Gloucester Road, Harcourt Road and Connaught Road, to Hill Road at Kennedy Town.

On the mainland, Route 2 runs from the Kowloon Bay Reclamation, through the Airport Tunnel, via the East and West Kowloon Corridors, Tsuen Wan Road, Tuen Mun Road and Yuen Long Northern Bypass, to the junction of Castle Peak Road and Lok Ma Chau Border Link Road. Route 4 runs along the base of the foothills separating Kowloon from the New Territories, and connects Lai Chi Kok with Kwun Tong, and with Tseung Kwan O through the Tseung Kwan O Tunnel. Route 5, another strategic road, is a seven-kilometre, two-way trunk road connecting Sha Tin with Tsuen Wan, via the Shing Mun Tunnels. It forms part of the New Territories Circular Road System.

Route 6 covers the Eastern Harbour Crossing, Kwun Tong Bypass, Tate's Cairn Tunnel and the approach road linking Tate's Cairn Tunnel to the Tolo Highway.

Improvements to Major Road Networks

The Yuen Long Southern Bypass, construction of which started in early 1992, opened to traffic in late 1994.

The Second Ap Lei Chau Bridge was completed in mid-1994, to provide a second link between Ap Lei Chau Island and Hong Kong Island.

To improve traffic in the Mong Kok and Yau Ma Tei Districts, the construction of the Yau Ma Tei section of the West Kowloon Corridor commenced in phases from mid-1992. Phase I works, involving an extension along Ferry Street - including the construction of a 700- metre flyover along Tong Mi Road and Ferry Street - will be completed in early 1996. Phase II works, involving the associated footbridge and subway system, will be completed in mid-1997.

The Hillside Escalator Link provides a direct and convenient mechanised walkway for commuters between Central District and the Mid-Levels. Opened in late 1993, the system comprises 20 escalators and three travelators, and measures 800 metres in length.

To improve cross-border traffic and access to the northwestern New Territories, the construction of the Country Park Section of Route 3 will start in early 1995, for completion in late 1998. It will be a dual, three-lane carriageway, connecting Ting Kau with Yuen Long.

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The private sector will build the section from Au Tau to Ting Kau under a franchise arrangement.

New Airport Access

The new airport at Chek Lap Kok and developments along the northwestern shore of Lantau require road links to facilitate access. Work is progressing well on all major highway projects related to the new airport. These include the Western Harbour Crossing, the West Kowloon Expressway, the Kwai Chung and Tsing Yi sections of Route 3, the Lantau Fixed Crossing and the North Lantau Expressway.

  The Airport Core Programme also includes a rail link, which will provide both a fast and efficient train service to the new airport and a domestic service to relieve congestion at the Nathan Road Corridor of the Mass Transit Railway. The rail link will also serve new developments on the West Kowloon Reclamation and in Tung Chung new town. (For further details, see Chapter 16.)

Environmental Impact of Road Construction

 The environmental impact of new road projects is carefully appraised at the planning stage by the Highways Department. Where practical, measures such as landscaping works, artificial contouring of surrounding hillsides and installation of noise barriers are considered. Measures taken include the application of decorative wall panels to the retaining wall of the Kowloon Park Drive Flyover project, and the installation of an enclosed-type noise barrier in a section of the Tate's Cairn Tunnel approach road near Richland Gardens in Kowloon Bay.

  Where necessary, consideration is also given to providing air-conditioning units and double-glazing in domestic premises where noise levels cannot be brought within the required standard by other means.

Road Opening Works

Besides serving as carriageways for vehicles and pedestrians, the highways also accommodate various utility services, such as water and gas mains, sewers, and electricity and telephone cables. To cope with the increasing demand for utility services and main- tenance work, utility companies often have to excavate the carriageways and footpaths to lay more pipes, cables and ducts, and to carry out repair work. On average, there were about 200 new road openings on each working day in 1994. Road openings are co-ordinated and controlled by the Highways Department through a permit system, under which utility companies are required to carry out work to a required standard and within a time limit. To co-ordinate work more effectively and to minimise traffic disruption, the department holds monthly Road Opening Co-ordinating Committee meetings with the utility companies, the police and the Transport Department. Measures are being introduced to improve the management of road openings, so as to reduce their duration and frequency.

Tunnels

The management and operation of the five government-owned tunnels - the Lion Rock Tunnel, Aberdeen Tunnel, Airport Tunnel, Shing Mun Tunnels and Tseung Kwan O Tunnel- have been contracted out to private operators to improve efficiency and to

TRANSPORT

optimise government resources. The toll charges at these tunnels remain under government control.

The Lion Rock Tunnel, which links Kowloon and Sha Tin, began single tube operation in 1967, with a second tube added in 1978. The toll was $6 per vehicle. It is the most heavily- used government tunnel and was used by 80 000 vehicles a day in 1994.

The Aberdeen Tunnel was opened in 1982. It links the north and south sides of Hong Kong Island, and recorded a daily traffic volume of 56 000 vehicles in 1994. The toll charge was $5 per vehicle.

The toll-free Airport Tunnel provides direct road access from Hung Hom to Hong Kong International Airport. It also passes underneath the airport runway to Kowloon Bay. Opened in 1982, it was used by an average of 55 000 vehicles per day in 1994.

The Shing Mun Tunnels, linking Sha Tin to Tsuen Wan, opened to traffic in 1990. The toll was $5 per vehicle. The average daily traffic was 50 000 vehicles during the year under review.

Tseung Kwan O Tunnel was also opened in 1990. Linking Kowloon to Tseung Kwan O new town, it was used by 30 000 vehicles daily in 1994. The toll was $3 per vehicle.

The Cross Harbour Tunnel, the Eastern Harbour Crossing and the Tate's Cairn Tunnel were all built by the private sector under 'build, operate and transfer' franchises.

The Cross Harbour Tunnel, opened in 1972, connects Causeway Bay on Hong Kong Island and Hung Hom in Kowloon. Used by an average of 123 000 vehicles each day in 1994, it is one of the world's busiest four-lane road tunnels. The tolls ranged from $4 to $30 per vehicle, including a government passage tax.

The Eastern Harbour Crossing is Hong Kong's second cross-harbour road tunnel. Opened in 1989, it links Quarry Bay on Hong Kong Island and Cha Kwo Ling in Kowloon. It is connected by an elevated section of Route 6 to the Kowloon portal of the Tate's Cairn Tunnel. At the end of the year, the average traffic in this tunnel was 86 000 vehicles per day. The tolls ranged from $5 to $30.

Tate's Cairn Tunnel was opened to traffic in 1991, to provide an additional direct road link between the northeastern New Territories and Kowloon. Measuring four kilometres from portal to portal, it is the longest road tunnel in the territory. The daily traffic flow at the Tate's Cairn Tunnel had increased to 81 000 vehicles a day at the end of 1994. The tolls ranged from $4 to $8.

Automatic toll collection (autotoll) was extended to the Lion Rock Tunnel in August, enabling motorists to drive through designated toll booths without stopping. The autotoll system was first introduced at the Cross Harbour Tunnel and Aberdeen Tunnel in August 1993.

At the end of 1994, there were about 52 500 registered autotoll users, making an average of 32 000, 20 200, and 18 100 trips daily through the Cross Harbour, Aberdeen and Lion Rock tunnels, respectively.

Traffic Management and Control

      An extensive programme of traffic management and control measures is being implemented to improve traffic flows.

At the end of the year, there were 1 211 signalised junctions in the territory - 306 on Hong Kong Island, 474 in Kowloon and 431 in the New Territories.

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  On Hong Kong Island, almost all the signalised junctions on the northern shore, from Kennedy Town to Shau Kei Wan, are under the control of the Hong Kong Area Traffic Control (ATC) system. The system is being expanded to cover Chai Wan and the Southern District. At the end of the year, 254 junctions on Hong Kong Island were under ATC control, and 37 ATC-related, outdoor Closed Circuit Television (CCTV) cameras were in

use.

  The existing Kowloon ATC system, which has been in operation for more than 17 years, is being replaced by a new system to increase capacity and upgrade technology. One notable feature of the new system is 'traffic adaptive control', through which signal timings can be automatically adjusted in response to the changes in on-street traffic flow. The project involves replacing the central computer system and the on-street traffic signal controllers. At the end of the year, 85 per cent of the signalised junctions in Kowloon had been commissioned under the new system. The project will be completed in 1995. In addition, a consultancy study on the expansion of the Kowloon, ATC-related, CCTV system commenced in October. The study will lead to the installation of 40 more cameras in Kowloon to monitor traffic.

  A new ATC system is also being installed to control traffic signals in Tsuen Wan new town and to expand the ATC to other new towns in the territory. At the end of the year, 85 signalised junctions in Tsuen Wan, Kwai Chung and Tsing Yi were under computer control. The final system, to be completed by the end of 1995, will include traffic adaptive control and a CCTV system with some 20 out-station cameras.

  Work on expanding the ATC to Sha Tin new town started during the year. The related replacement of existing controllers and commissioning to the ATC system will start in mid- 1995.

  To improve the response time to accidents and vehicle breakdowns, and to advise motorists and guide them to alternative routes during such incidents, a Traffic Surveillance and Information System is being installed on Tuen Mun Road. The first stage of the project, involving the installation of a CCTV system covering the whole length of the road, started in July and is to be completed in mid-1995.

  Investigation and design work for the second stage, involving Automatic Incident Detection and Traffic Information Signs, has commenced. The second stage will become operational in 1997.

Parking

The management and operation of on-street, metered parking spaces was contracted-out to a private operator in March to improve efficiency.

  On-street parking, usually metered, is provided only at locations where traffic conditions permit. At the end of the year, there were 13 000 metered spaces in the territory, most of which operate between 8 am and midnight from Mondays to Saturdays. Their operation in areas of high demand has been extended to include Sundays and public holidays, to facilitate a better turnover of parking spaces. The meter charges were increased to $2 per 15 minutes in November, starting with the busiest areas.

  The government also owns 14 multi-storey carparks, which provide 8 000 parking spaces. They are operated and managed by two private companies under two separate management

contracts.

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Off-street public parking is also provided by the Civil Aviation Department at the Hong Kong International Airport, and by the Kowloon-Canton Railway Corporation at its terminus in Hung Hom. The private sector also operates multi-storey and open-air public carparks in commercial buildings, public and private housing estates and open-air lots, providing over 120 000 parking spaces.

Licensing

The total number of licensed vehicles in all classes was 454 932 at the end of the year, an increase of 5.17 per cent over 1993.

The number of new private cars registered decreased by 11.68 per cent, from 41 480 in 1993 to 36 634 in 1994. This brought the number of licensed cars to 279 420 in December, an increase of 7.52 per cent over the past year. With effect from August, the retail prices of motor vehicles replaced the Cost Insurance Freightage values as a basis for calculating the first registration tax.

Registered goods vehicles decreased to 141 574 in December, down by 1.55 per cent compared with 143 805 in 1993. Of these, 102 479 were light goods vehicles, a decrease of 3.38 per cent from 1993. In line with the policy to restrain the ownership and use of this class of vehicles, the first registration tax and annual licensing fees of light goods vehicles were increased in 1991 by 50 per cent and 90 per cent, or $4,140 and $2,115, respectively. This had the effect of reducing the number of light goods vehicles, but slightly increasing the number of medium goods vehicles. At the year's end, the number of licensed light goods vehicles stood at 85 507, a decrease of 1.39 per cent from the same period in 1993. Meanwhile, the number of medium goods vehicles increased by 5.7 per cent to 34 231 by the end of 1994.

There were 1 046 399 licensed drivers at the year's end, an increase of 3.78 per cent from 1993. The average number of new learner-drivers decreased from 6 541 per month in 1993 to 5 664 per month in 1994.

Since the introduction of a Driving Offence Points System in August 1984, 27 080 drivers have been disqualified. A total of 281 687 warning notices have been served and 400 764 drivers have incurred penalty points for committing offences scheduled under the Road Traffic (Driving Offence Points) Ordinance. The figures for 1994 were 5 004, 42 037 and 20 007, respectively.

A performance pledge scheme for the services provided by the Transport Department was introduced in December 1992. The scheme, which initially covered the issue of learner and full driving licences and registration and licensing of vehicles, was extended to other licensing and vehicle examination services in October 1994. Two customer liaison groups, covering the licensing services on Hong Kong Island, and in Kowloon and the New Territories, were formed in September 1993 to gauge customers' opinions on services provided and improvements desired.

The Transport Department's licensing offices on Hong Kong Island moved to the United Centre, in Queensway, in August.

Vehicle Examination

The scope of vehicle examination activities continued to expand, through the combined efforts of examination centres operated by both the government and the private sector.

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  A brake roller test machine was installed at the Sheung Kwai Chung Vehicle Examination Centre to enhance the checking of New Territories taxis.

  With effect from April 1, all medium and heavy goods vehicles manufactured before 1991 must undergo an annual inspection before they can be relicensed.

  Annual inspection continued to apply to all public service vehicles and dangerous goods vehicles.

  The fees for vehicle examinations at government centres were increased in June, to reflect higher operating costs.

  The private car inspection scheme continued to operate at 24 designated car-testing centres. All private cars manufactured before 1988 must pass an annual inspection. Light goods vehicles under 1.9 tonnes were also checked at these garages.

Road Safety

Traffic accidents involving injury decreased by 0.2 per cent in 1994. There were 15 439 accidents, of which 3 279 were serious and 279 fatal. This compares with 15 469 accidents in 1993, of which 3 406 were serious and 336 fatal. In-depth investigations were carried out at 155 traffic accident blackspots to identify accident causes. Remedial accident preven- tion measures were recommended at 150 of these locations.

  Similar measures, when implemented, have been shown to reduce accidents by 30 per cent on average.

  Accident records are regularly updated, using the microcomputer-based traffic accident data system installed in 1991. Accident statistics and map plots are retrieved, compiled and analysed for traffic accident blackspot analysis and road safety strategy formulation. (Accident statistics are at Appendix 43.)

  Following the encouraging results of the red light camera pilot scheme in reducing the number of accidents and red light violations at signal-controlled junctions, the project will be expanded to cover more locations in 1995. The red light cameras automatically detect red light violations at traffic signals.

  Road safety campaigns continued to play an important role in reducing traffic accidents. The major themes of the campaigns in 1994 were pedestrian safety, targeted at young people and the elderly; and safety for drivers, targeted in particular at light goods vehicle, private car and motorcycle drivers. Posters, television announcements and leaflets were produced and widely distributed. A series of radio and television road safety programmes were broadcast. In anticipation of new legislation on the fitting and wearing of rear seatbelts in private cars, efforts were made to educate the public on the subject. A new short film on rear seatbelt wearing was produced for future broadcasting on television. A short film on drink- driving was also broadcast as legislative amendments were being drafted to control drink- driving, providing police officers with powers to require a suspected drunk driver to be tested on the roadside.

  At the year's end, the Road Safety Association of Hong Kong operated 236 teams of student road safety patrols, while school staff road safety patrols were operated in 558 schools, with the objective of ensuring the safety of school children on their way to and from school.

  The Road Safety Council, an advisory body, continued to co-ordinate all road safety matters in the territory.

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Public Transport

A safe, geographically comprehensive and efficient network of rail, ferry, bus and other transport services has been developed and maintained, to a greater extent than is achieved in many other big cities. This public transport network offers a good range of choices to commuters at reasonable fares, to match the different levels of comfort, speed and convenience offered.

Railways

There are five rail systems, comprising a heavily-utilised mass transit system, a busy suburban railway, a modern light railway, a traditional street tramway and The Peak funicular railway.

      The first three rail systems are operated by public corporations, wholly-owned by the government. The others are owned by private operators.

Mass Transit Railway

The Mass Transit Railway Corporation (MTRC) operates a three-line metro system, comprising 43 route-kilometres with 38 stations, served by a fleet of 711 cars operating in eight-car trains. The system was opened in stages between October 1979 and August 1989. Patronage increased slightly during the year and by the year's end, the railway was carrying 2.4 million passengers a day. It is one of the busiest underground railways in the world. Adult fares ranged from $3.50 to $10 per trip, according to distances travelled.

      Plans for the construction and financing of the airport railway are in hand. The new railway, when built, will consist of two separate rail services: a dedicated express service linking the new airport at Chek Lap Kok to Central, with stations at the airport, Tsing Yi, West Kowloon and Central; and a domestic service between Tung Chung and Central, with stations at Tung Chung, Tsing Yi, Lai King, Tai Kok Tsui, West Kowloon and Central. The domestic service will interchange with the Tsuen Wan line of the existing MTR system at Lai King and with the Island Line at Central, bringing relief to the MTR Nathan Road corridor.

Kowloon-Canton Railway

The Kowloon-Canton Railway was opened in 1910 and was double-tracked and electrified in the early 1980s. Operation of the system, formerly run by a government department, was vested in the Kowloon-Canton Railway Corporation (KCRC) in 1982.

      The 34-kilometre railway provides a suburban service to the new towns in the north- eastern New Territories, a freight service to and from China, and passenger services to and from Guangzhou and Foshan. The suburban service has grown substantially since the introduction of electric trains, and in 1994, the railway handled 603 000 passenger journeys daily. Passenger traffic is carried in a fleet of 351 cars, operated in train formations of 12 cars. There are 13 stations along the railway. A major programme to replace old escalators and install additional ones began in 1991 and continued throughout the year. In a 10-year programme, which began in late 1993, the KCRC plans to spend about $600 million to reduce noise levels at major residential developments along the entire line, by constructing covered or semi-covered noise barriers at 18 locations. Adult fares ranged from $3 to $7.50, according to distances travelled.

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Light Rail Transit

The KCRC also owns and operates the 31-kilometre Light Rail Transit (LRT) system, in the northwestern New Territories, which began operating in 1988. An extension was opened in January 1993, between Tin Shui Estate and Castle Peak Road at Tong Fong/Hung Shui Kiu. The extension increased to 55 the number of stops served by the system. Eight routes are provided on the network by a fleet of 100 cars, which operate either singly or in pairs. At the end of the year, 354 000 boardings a day were handled on the LRT and its feeder bus services within the transit service area between Tuen Mun and Yuen Long. The LRT operates zonal fares and provides free transfers from one route to another within the zone and to and from the stations by feeder buses. Ordinary adult fares ranged from $3 to $4.30. In June 1993, the boarding and alighting restrictions on buses operated by the Kowloon Motor Bus Company (1933) Limited in the transit service area were lifted, to provide a greater choice for passengers travelling within the area.

A further extension of the LRT in Tin Shui Wai new town, from Tin Shui Estate to the Tin Shui Wai town centre, is scheduled for completion in early 1995.

Trams

Electric trams have been operating on Hong Kong Island for a century

since 1904. Hongkong Tramways Limited has six overlapping services, using 13 kilometres of double track along the north shore of Hong Kong Island, between Kennedy Town and Shau Kei Wan, and nearly three kilometres of single track around Happy Valley. The company's 163 trams, including two open-balcony trams for tourists and private hire, make up the only fully double-decker tram fleet in the world. All of the original trams were rebuilt by 1991. Tramway patronage rose marginally during 1994, with an average of 377 000 boardings daily. Fares were increased in February to $1.20 for adults and 60 cents for children. A senior citizen concessionary fare of 60 cents, for all persons aged 65 years or above, was introduced at the same time.

Funicular Rail

Hong Kong's other 'tramway' is a cable-hauled funicular railway, operated by the Peak Tramways Company Limited from Central to The Peak. The 1.4-kilometre line began operation in 1888 and climbs 373 metres on gradients as steep as one-in-two. The line was modernised in 1989. The service caters largely for sightseers but also serves residents in the Peak District. The line serves an average of 10 000 passengers a day. One-way fares for adults and children were $12 and $4, respectively.

Ferries

Ferries are essential for travelling to Hong Kong's outlying islands and provide an important link to the new towns in the northwestern New Territories. In the inner harbour, they are a supplementary mode of transport to cross-harbour buses and the Mass Transit Railway. Existing services are provided largely by two franchised operators the Star Ferry Company Limited and the Hongkong & Yaumati Ferry Company Limited (HYF).

The Star Ferry operated 12 vessels across the harbour and, during the year, carried 36 160 000 passengers on its three routes. Fares ranged from $1.40 to $2. Passengers aged 65 and above can enjoy free travel on all Star Ferry services.

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      HYF owned 74 licensed vessels and operated 24 ferry routes, including passenger and vehicular services across the harbour, hoverferry services to the northwestern New Territories, services to the outlying islands and chartered services. In 1994, the company carried 107 885 passengers and 2 872 vehicles daily. Elderly passengers aged 65 or above can enjoy concessionary fares, set at the same level as children's fares, on all ferry services except the deluxe class.

      A further 20 other ferry services were operated by eight licensed operators, including the service to Discovery Bay on Lantau. These were supplemented by kaitos, or local village ferry services, which were licensed to serve remote coastal settlements. At the end of the year, 88 kaitos were in operation.

Road Passenger Transport

Road passenger transport accounted for two-thirds of all public transport journeys. Of the public transport journeys made by road, over half were on franchised buses, and the remainder on green minibuses, public light buses, taxis and non-franchised buses.

Franchised Buses

The standard and capacity of franchised bus services continued to improve through effective planning and co-ordination. There are four franchised bus companies, which together carried 3.4 million passengers daily on a network of 491 routes.

      The largest operator is the Kowloon Motor Bus Company (1933) Limited (KMB), which ran 302 bus routes in Kowloon and the New Territories; 38 cross-harbour routes jointly with the China Motor Bus Company (CMB); four cross-harbour routes with Citybus Limited and six cross-harbour routes of its own. As a continuing effort to improve service quality, KMB has introduced 19 air-conditioned bus routes. KMB also operates 'Airbus' services to and from the airport, comprising three routes to Hong Kong Island and two within Kowloon.

The KMB fleet at the end of the year comprised 3 369 registered vehicles, with 2 619 double-decker conventional buses, and 441 and 309 air-conditioned double and single- decker buses, respectively. Each can seat between 20 and 164 passengers. In 1994, KMB made 977 million passenger trips and covered 255 million kilometres, compared with 966 million passenger trips and 243 million kilometres in 1993. KMB's current franchise extends until August 31, 1997. Fares range from $1 to $28 for non air-conditioned services, and from $2.20 to $30 for air-conditioned services.

      To relieve peak-hour congestion on the Mass Transit Railway (MTR) along the Nathan Road Corridor, a total of 28 air-conditioned bus routes were operated during the year from the New Territories and North Kowloon to Hong Kong Island and South Kowloon. These services helped keep the MTR passenger flows along Nathan Road at acceptable and safe levels.

      Elderly passengers aged 65 and over are entitled to concessionary fares on every KMB route, except the Airbus services.

      Bus services on Hong Kong Island are provided by two operators. The China Motor Bus Company (CMB) operates 93 routes on the island and, jointly with KMB, 38 cross-harbour routes. At the end of 1994, CMB's fleet comprised 930 double-deckers and 31 single- deckers, of which 104 double-deckers and 30 single-deckers were air-conditioned. They made 197 million passenger trips and travelled 44 million kilometres during the year,

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compared with 236 million and 48 million, respectively, the previous year. CMB purchased 30 air-conditioned double-deckers and eight air-conditioned single-deckers in 1994 to improve services. Fares ranged from $1.90 to $30. Since July 3, concessionary fares are available to elderly passengers aged 65 and over on all CMB Hong Kong Island routes.

  Citybus Limited (Citybus) is the other franchised operator on Hong Kong Island. It began franchised operations on September 1, 1993. Citybus operates 35 routes on the island and, jointly with KMB, four cross-harbour tunnel routes. At the end of the year, Citybus had a fleet of 144 franchised double-decker buses, of which 141 were air-conditioned. Fares ranged from $2 to $3.60 for non air-conditioned trips, and from $2.40 to $13 for air- conditioned services. Elderly passengers aged 60 and over are entitled to concessionary fares on Hong Kong Island routes. The company's franchised bus services made 68 million passenger trips and travelled 12 million kilometres during the year.

  The New Lantao Bus Company (1973) Limited (NLB) operates seven regular, and one recreational, franchised routes on Lantau Island with a fleet of 69 single-decker and five double-decker buses. Most NLB services connect with the ferries at Mui Wo. Operational efficiency was improved in September 1991 with the opening of a new bus depot in Mui Wo. The average weekday patronage of NLB in 1994 was 12 038 passengers. Boosted by recreational traffic, the average patronage on Sundays and public holidays was 19 294 passengers. Fares ranged from $1.20 to $21. Since July 1, 1994, elderly passengers aged 65 or above are entitled to a half-fare concession on most NLB franchised routes. The concession is not available on routes to the Po Lin Monastery at Ngong Ping on Sundays and public holidays. To meet peak recreational demand, NLB introduced in June 1991 a special service between Mui Wo and the Po Lin Monastery, using non-franchised, air-conditioned coaches ferried to Lantau at weekends. This special service has been extended to Saturdays to cater for increasing passenger demand after the opening of the Tian Tan Buddha statue at Ngong Ping. The average patronage on this special service was 7 321 passengers per day during the year. The company's franchise has been extended to March 31, 1997.

Minibuses

Hong Kong's minibuses are licensed to carry a maximum of 16 seated passengers. There were 6 939 minibuses in 1994. Of these, 4 350 were public light buses (PLB), and 2 589 private light buses.

  The PLBs are authorised to carry passengers at separate fares. The private light buses are authorised only to carry group passengers, and the collection of separate fares is not permitted.

  The operation of PLBS is regulated by a passenger service licence. There are two types of PLBs. Green PLBs provide services according to fixed schedules. There were 1 742 of these, operating on 252 approved routes, each with fixed fares and timetables. They carried 753 000 passengers a day. Red PLBs operate without a schedule. They do not have fixed routes, timetables and fares. In 1994, there were about 2 608 red PLBs, which carried about 987 000 passengers daily.

  In line with government policy to convert more red PLBs to operate on scheduled routes, more new scheduled routes will be identified. During the year, a green minibus selection exercise was conducted and minibus operators were invited to apply for the right to operate a total of 21 routes.

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Taxis

At the end of 1994, there were 15 250 urban taxis, 2 838 New Territories taxis and 40 Lantau taxis, carrying a daily average of 1094 000, 201 000 and 2050 passengers, respectively.

      The Transport Advisory Committee completed in February a taxi policy review which made recommendations to improve the taxi licensing system, fare structure and quality of service. Following approval by the Executive Committee in April, steps have been taken to implement the recommendations in stages.

Non-Franchised Bus Operators

Residents' coach services were introduced in 1982 to give commuters an additional choice of transport modes. These services operate primarily during peak hours, supplementing services provided by the franchised bus operators. They are flexible in responding to local demands. This helps to keep down the number of franchised buses that would otherwise be needed during rush hours and left idle during off-peak hours. Residents' organisations may invite a non-franchised bus operator to operate a service under a passenger service licence issued by the Transport Department. Residents' services operate in accordance with approved schedules, which specify the routings, timetables and stopping places.

At the end of the year, there were 101 residents' services running 87 135 passenger-trips a day. Vehicles used on these services ranged from small coaches to double-decker buses. During the year, 18 residents' services were introduced, providing bus services from residential areas mainly in the New Territories, the Mid-Levels and the southern part of Hong Kong Island.

Non-franchised bus operators also serve the needs of factory employees, tourists and students on a group hire basis.

       At the end of 1994, the licensed fleet of non-franchised buses totalled 4 098 vehicles, of which 245 were double-deckers. An increasing proportion of these vehicles were air- conditioned.

The Port

In 1994, Hong Kong's port remained the world's busiest container port, handling more than 10 million TEUS (20-foot equivalent units). It also remained one of the busiest in terms of vessel arrivals and departures, and cargo and passenger throughput. Some 185 000 ocean- going and river trade vessels arrived in Hong Kong. These vessels handled over 141 million tonnes of cargo and over 21 million international passengers, most of whom were carried on the world's largest fleet of high-speed ferries.

Container handling, vessel arrivals and departures, cargo, and passenger numbers saw a growth rate in 1994 of 20.1 per cent, 12 per cent, 15 per cent and 4.1 per cent, respectively, compared with 1993.

Details of international movements of vessels, passengers and cargo are given at Appendix 41.

      The port has always been, and continues to be, crucial to Hong Kong's economy and prosperity. It handles about 88 per cent, by weight, of the territory's trade. Port and related industries generate about 15 per cent of Hong Kong's gross domestic product, provide some 350 000 jobs and keep 17 per cent of all companies in business.

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Hong Kong must continue to develop the port to maintain its strategic significance as a conduit of trade, an entrepôt for China and a hub port for world trade. The blueprint for its growth is developed from the Port and Airport Development Strategy and the Port Development Plan. These plans cover not only container terminal development but other important facilities such as cargo-working areas, typhoon shelters, anchorages, container backup land, shipyard sites and berths for deep waterfront industries. The pace of development is geared to meet the forecast demand up to the year 2011. The strategic plan is reviewed regularly to take into account the latest developments.

The government has always taken the view that it should not provide commercial services that can be provided more efficiently by the private sector. This policy works well in respect of the port, and is a role model for developing ports in the region in their attempts at privatisation.

Most port facilities in Hong Kong, including container terminals and dockyards, are privately financed, designed, built, owned and operated. Services such as stevedoring, tugs and pilotage are also provided directly by the private sector. The Port Development Plan envisages a continuing high level of private sector involvement in providing port facilities and services. (Port development is covered in detail in Chapter 17.)

Port Administration

The port is administered by the Marine Department. The department's mission is to pro- mote excellence in marine services. In line with the government's public sector reform programme, the department has published a performance pledge, outlining the standards of services its customers can expect. In a further step to improve and meet the ever-growing demand for its services, the department is commercialising its port operations with the aim of becoming a self-financing, commercial entity within the government.

The advice given by users and operators of port facilities is an important factor in port administration. A wide range of private sector interests are represented on advisory bodies such as the Port Development Board, which advises the government on port planning and development; the Pilotage Advisory Committee, which advises the Director of Marine on all matters relating to marine pilotage services; the Port Operations Committee, which advises the Director of Marine on the operational needs of the port; and the Provisional Local Vessel Advisory Committee, which advises on local craft matters.

Challenges in 1994

The port faces new challenges from various developments. Major reclamation work associated with infrastructural developments has led to the progressive reduction of navigable water areas. At the same time, the rapid growth in Hong Kong's trade, coupled with growth in southern China, have brought about a significant increase in marine activity. Congestion in the harbour has become a cause for concern. Congestion increases navigation risks and reduces the efficiency of the harbour. It is expected that such pressures will continue to build up in succeeding years.

This situation must be rectified if the port is to continue to serve Hong Kong's economic needs. Against this background, the focus of the Marine Department in 1994 was to identify and implement positive and effective measures to improve the efficiency and safety of the harbour. These measures are discussed in the following sections.

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Vessel Traffic

The Marine Department's Vessel Traffic Centre (VTC) helps ensure a safe and efficient marine traffic flow in the densely-populated waters in and around the port. The movements of ocean-going vessels are directly regulated from the VTC through a computer-assisted radar network, a database on ships and VHF radio telephone communications. During 1994, new, updated vessel traffic service legislation was introduced to replace and streamline existing regulations.

      The legislation resulted in more user-friendly communications procedures and made it mandatory for all ocean-going vessels of 300 gross registered tonnes (GRT) and above to follow VTC directions.

Fairways and Anchorages

Since mid-1994, the principal fairways and anchorages in the western harbour and at Yau Ma Tei have been reorganised to enhance safe vessel movements and to achieve a more organised usage of the available waters. To make the main approaches to the port of Hong Kong safer, the traffic separation scheme in the East Lamma Channel has been extended southwards as a traffic-organising measure.

Harbour Patrol and Local Control Stations

Marine Department launches, in continuous radio contact with the VTC, patrol the main harbour area and its approaches to maintain order and respond to emergencies. During 1994, the department stepped up harbour patrols by establishing a special team to monitor marine traffic in the central harbour. Three new speedboats were also deployed to cover local waters, to enable officers to react quickly to any situation that might arise. To tighten the surveillance and control of certain high risk spots such as the Ma Wan Channel, the department is introducing new, dedicated control stations to handle local traffic. The installation of the Ma Wan control station has commenced. An additional radar station is also being set up at Kau Yi Chau to augment the VTC.

Pilotage Service

Pilots play an important role in navigation safety by assisting shipmasters who are unfamiliar with Hong Kong waters. At present, ships over 5 000 GRT, and certain other vessels, are required to engage pilots when moving within the port and its approaches. The Director of Marine regulates and controls the pilotage service, although the pilots themselves operate as a private company.

      The number of pilots and the quality of their service are kept under constant review and closely monitored by the Pilotage Advisory Committee, whose membership covers a wide spectrum of port users and shipping interests.

      Following the recommendations of a pilotage review consultancy study completed in 1994, action has been initiated to extend compulsory pilotage to all ships exceeding 3 000 GRT and to shift the pilot boarding station seawards from Green Island to the outer entrance of the East Lamma Channel.

      These initiatives, together with legal changes to the institutional arrangements of the service, will place marine pilotage in a position to meet the needs of the port well into the next century.

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Hydrographic Office

The increase in the number and size of ships visiting the port and the increasing pace of reclamation have increased the need for accurate and up-to-date hydrographic surveys and charts. The department has established its own hydrographic office and this will gradually replace the services, in respect of the territory, which are presently provided to the shipping community by the British Admiralty.

Dangerous Goods

A prototype Dangerous Goods Control System is in place in an attempt to establish more accurately the quantities and types of dangerous goods being moved into and out of Hong Kong. When the results of the prototype control system are available, the department will introduce a stricter control regime, using the International Maritime Dangerous Goods (IMDG) Code as its cornerstone.

Well-equipped fleets of fire boats, tugs, oil pollution control vessels and marine police launches are available to respond to any emergency.

Risk Assessment

As a longer-term objective to improve the safety and efficiency of the harbour, the Marine Department will commission a marine risk assessment study, to identify problem areas and to draw up a comprehensive action plan. The findings of the study are expected to be available by the end of 1996.

Looking Ahead

With the continued growth in, and the rapid economic integration with, southern China, Hong Kong will remain a major shipping centre and a hub port for the region. The economic growth will not only attract additional marine traffic to Hong Kong but will also see increased traffic moving to the new and developing Chinese ports through the Ma Wan Channel and Mirs Bay. The territory will continue to face new challenges in maintaining a safe port while improving efficiency. Efforts will continue towards strengthening traffic management through the provision of more local control stations and traffic regulations. The possibility of increasing the flow of traffic through the narrow Ma Wan Channel by relaxing tidal windows will also be explored.

Participation in International Shipping Organisations International Maritime Organisation

Hong Kong is an associate member of the International Maritime Organisation. This status will continue after 1997 in accordance with the Sino-British Joint Declaration on the Question of Hong Kong. The territory participates actively in the proceedings of the organisation, especially in the development of measures to improve shipping safety and prevent pollution of the sea.

Maritime Search and Rescue

By international agreement, the Marine Department is the Maritime Search and Rescue Co- ordinator for the area of the South China Sea north of latitude 10°N and west of longitude 120°E, excluding the immediate coastal waters of neighbouring states.

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      The Maritime Rescue Co-ordination Centre (MRCC) is manned continuously. It monitors all emergency communications channels and the Global Maritime Distress and Safety System (GMDSS). When the need arises, search and rescue missions are activated and run by professionally-trained staff. Fully-equipped search and rescue vessels and aircraft are available, and additional assistance can be obtained from nearby ships and other rescue co- ordination centres in the region.

Port State Control

Many marine casualties and pollution cases can be attributed to the use of substandard ships. This situation can be improved by each port state stepping up inspections of incoming vessels, but such a move would place a considerable strain on their resources. Also, a significant burden would be placed on ship operators if their ships are subject to port state control at all the ports at which their ships call. In view of these factors, various countries in the Asia-Pacific region have agreed to mutually co-operate to share the workload and share information on inspected vessels. In this connection, an Asia-Pacific Regional Memoran- dum of Understanding on Port State Control has been concluded. Hong Kong supports this initiative and, in Beijing in April 1994, signed the memorandum accepting regional co- operation on port state control.

      During 1994, a total of 85 ocean-going ships visiting Hong Kong were inspected, to check compliance with international safety and environmental protection conventions. This represented about 0.23 per cent of the ships visiting Hong Kong. About 93 per cent had deficiencies which had to be made good before they could proceed.

Role in Other International Fora

Hong Kong is a modern shipping centre and the Marine Department is an active participant in international shipping and port matters. The department hosted the Marine Accident Investigators International Forum in May, and participated in the work of international bodies such as the Asia-Pacific Economic Co-operation (APEC), Economic and Social Commission on Asia and the Pacific (ESCAP), and the International Association of Ports and Harbours (IAPH).

Services in the Port

Container Handling

     Of the 11 million containers loaded and discharged in 1994, about 66 per cent (or 7.3 million TEUS) were handled at the Kwai Chung Container Port, and 26 per cent (or 2.8 million TEUs) were handled by ships at mid-stream mooring buoys and anchorages. This represented a growth rate of 26 per cent at container terminals and 0.5 per cent at mid-stream facilities, compared with 1993. All the eight container terminals at Kwai Chung are privately-owned and operated. They have a total of 16 berths for ocean-going vessels. The four berths of the latest terminal, Container Terminal 8, became operational between July 1993 and October 1994.

Planning for the construction of Container Terminal 9, at Southeast Tsing Yi Island, is at an advanced stage, and preliminary design work is underway for Container Terminals 10 and 11, to be located at West Lantau. Hong Kong, already the busiest container port in the world, continues to enjoy unprecedented growth in this area.

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International Ferry Services

The number of international passengers using the two ferry terminals managed by the Marine Department is increasing. In 1994, 7.4 million passengers used the China Ferry Terminal in Tsim Sha Tsui, and 13.1 million used the Macau Ferry Terminal in Central. The total was a 3.8 per cent increase over 1993. Most of these passengers travelled on the world's largest fleet of modern, high-speed passenger ferries, comprising jetfoils and catamarans operating from Hong Kong to Macau and various Chinese ports.

  The department has enhanced the safety of high-speed passenger ferries by introducing statutory requirements for operators to predict and minimise the effects of shipboard system failures and to improve crew training.

Immigration and Quarantine Services

Immigration and quarantine services, including advance clearance, may be applied for by radio through the VTC. The Western Quarantine Anchorage provides these services round-the-clock, while services are available between 6 am and 6 pm daily at the Eastern Quarantine Anchorage. A new immigration anchorage for river trade vessels became operational at Tuen Mun in June and provides services between 1 am and 11 am. This is a particularly convenient facility for river trade vessels not intending to enter the central harbour.

Mooring Buoys

The department provides and maintains 76 mooring buoys within the port for ships to work cargo in the stream. The buoys can be booked through the VTC. Most are typhoon moorings, where vessels are secure during tropical storms.

Bunkering

Bunkering is readily available at commercial wharves and oil terminals, or from a large fleet of private bunkering barges. Fresh water can also be provided alongside berths, or from a private fleet of water boats.

Ship Repair and Dry-docking

The port has extensive facilities for repairing, dry-docking and slipping all types of vessels of up to 150 000 deadweight tonnes, including oil rigs. A new floating dock, with a lifting capacity of 40 000 gross tonnes, will soon be available for use. Smaller shipyards are able to build and maintain workboats and pleasure vessels. The department provides a free inspection and advice service to promote safe working practices in ship repairing, ship- breaking and cargo-handling afloat.

Treatment of Marine Wastes

A chemical waste treatment centre on Tsing Yi Island provides reception facilities for oily and chemical wastes from ships, as required under the International Convention for the Prevention of Pollution from Ships (MARPOL). The department also collects refuse from ocean-going ships and scavenges floating refuse from local waters. A total of 6 100 tonnes of refuse is collected annually. Floating refuse remains a serious problem and intensified scavenging is planned.

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Local Craft

Harbour workboats are essential to the efficient running of the port, and Hong Kong has many of them. Over 1 600 lighters and 500 motorised cargo boats transport cargo between ocean-going ships at mooring buoys or in anchorages and cargo-working areas ashore. They are part of Hong Kong's fleet of 16 000 local craft, including ferries, barges, workboats, fishing boats and pleasure vessels.

The Marine Department sets and enforces safety standards for local craft. The requirements for certification, safety and control are being rationalised to enhance safety, by clearly delineating the duties and responsibilities of owners, operators and the government. Reclamations such as the Central and Wan Chai reclamation have also increased pressures on local craft navigating the harbour. Special detailed traffic measures were adopted to ease such pressures in Central and Wan Chai so that passenger ferries and other vessels could continue to operate safely from the existing piers and landing steps, respectively, while reclamation proceeded around them. Eventually, the piers and public landing steps will be relocated in the reclamation itself.

Government Fleet

The government fleet of 341 powered vessels is highly visible in the port. In addition to harbour patrol launches, fire boats and police vessels, the government has launches used for immigration, port health and customs clearance, and surveys of international shipping. The fleet also includes lighters, airport rescue craft, pollution control craft, floating clinics and launches for transporting government staff.

The department designs, procures and maintains all government vessels. It has a rolling 10-year development plan to replace old vessels and provide new ones as they are needed. In 1994, the department awarded 10 vessel construction contracts, worth $90 million, to shipbuilders in Hong Kong and overseas.

Shipping

Hong Kong is a prominent centre for ship-owning, ship-financing and ship-management. Members of the Hong Kong Shipowners Association control a significant percentage of the world's shipping tonnage. At the end of 1994, their fleet stood at 1 300 ocean-going vessels, totalling 37 million GRT. These ships are registered under many flags, but principally with the Hong Kong, Panamanian and Liberian registers of ships.

The association represents the interests of many local shipping interests in international shipping affairs. In addition to shipowners, its members include banks, classification societies, maritime lawyers, average adjusters, shipbrokers, shipbuilders, insurers and surveyors. This broad-based membership provides a particularly effective forum for liaison on current shipping issues with government and international organisations.

Hong Kong's Shipping Register

The Hong Kong Shipping Register is administered by the Marine Department. It recognises the commercial realities of the shipping industry but, more importantly, reflects the government's commitment to the highest international standards of maritime safety and environmental protection. Its supporting legislation embodies international standards for vessel construction, equipment and manning, and is consistent with the territory's

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obligations under International Maritime Organisation and International Labour Organisa- tion conventions, including those on safety of life at sea, training and certification of crew, and protection of the marine environment. Statutory surveys of Hong Kong-registered vessels are undertaken worldwide by the department's surveyors or authorised classification societies, to ensure that these standards are met.

The register had a total fleet of 592 vessels, amounting to eight million GRT, at the end of 1994.

Seafarers

The Marine Department's Seamen's Recruiting Office and the Mercantile Marine Office supervise the employment of about 2 600 Hong Kong seafarers.

The falling recruitment of local seafarers is a major concern. Hong Kong shipowners and the Merchant Navy Training Board are trying to increase the recruitment of trainee officers. As part of this effort, the Hong Kong Shipowners Association is sponsoring 75 cadets and trainees.

In addition, the Merchant Navy Training Board and the training institutions are improving training for Hong Kong seafarers. The Vocational Training Council operates a modern and well-equipped Seamen's Training Centre. The centre provides training courses for new entrants as well as in-service training. The Marine Department monitors training leading to maritime qualifications and examines candidates for certificates of competency.

Civil Aviation

The year saw continued growth in passenger and cargo throughput at Hong Kong International Airport, at Kai Tak.

A total of 25.2 million passengers passed through the terminal, an increase of 3.1 per cent over the 24.5 million in the previous year.

Some 1.29 million tonnes of cargo, valued at $447.6 billion, were handled, an increase of 14.7 per cent compared to 1.14 million tonnes, valued at $390.1 billion, in 1993. Air transport continued to play an important role in Hong Kong's external trade. Approximately 19.8 per cent, 31.6 per cent and 13.7 per cent, in value terms, of Hong Kong's total trade in imports, exports and re-exports, respectively, were carried by air. The United States remained the major market for exports and re-exports by air, accounting for 11.5 per cent and 3.6 per cent, respectively.

An increase of six per cent in aircraft movements was recorded in 1994, bringing the annual total to 143 259, of which 78 per cent involved wide-bodied aircraft.

On September 23, a Hercules transport plane plunged into the sea at Kowloon Bay shortly after its takeoff from the airport. Six crew members were killed and six were injured. An official investigation has been launched into the cause of the incident.

Improvement to the Airport

A series of improvements to the airport passenger terminal building, which included the widening of the departure pier in the departure lounge, the construction of an additional bus dock to serve passengers transferring to aircraft positioned on outer parking bays, the provision of 12 additional check-in counters and the installation of escalators for disembarking passengers, was completed in December 1994. Further improvements are

TRANSPORT

     under planning, including the construction of additional transfer passenger processing facilities and the upgrading of the existing airport facility as required. All these improve- ments are aimed at enabling the airport to cope, as far as possible, with passenger traffic growth arising from the anticipated increase in runway movements, aircraft size and passenger load factors during its remaining life at Kai Tak.

A new replacement facility for the handling of interline baggage, with a total floor area six times that of the existing facility, was commissioned in October.

To optimise check-in counter utilisation, a computerised Check-in Counter Allocation System is being installed for commission in mid-1995.

The Flight Information Display System installed at the terminal building was enhanced in December by replacing the monochrome television displays with large-screen colour displays and increasing the display capacity from the previous 20 flight records to 75, in both the Chinese and English languages. The system will be further upgraded to allow the display of free format messages in both Chinese and English in critical and special situations.

As part of the air traffic control modernisation programme, obsolescent equipment was replaced and additional facilities were introduced to improve the standard of service and enhance operating efficiency. The Instrument Guidance System, a navigational aid to assist arriving aircraft, was upgraded in February and a new Secondary Surveillance Radar for Approach Control was put into use in June. In addition, tenders were called for a new Terminal Area Radar and the replacement of Very High Frequency Omnidirectional Radio Range and Distance Measuring Equipment at Cheung Chau. Both items of equipment are expected to be ready for use by the end of 1995. The upgrading of the existing Radar Data Processing and Display System has also commenced, with a target completion date of mid- 1995.

A number of road works to improve ground access to the airport were completed during the year. An exit ramp from the airport's multi-storey carpark westbound to Olympic Avenue and improvements to the Dakota Drive Roundabout were completed in January. An upramp from Concorde Road to the departure podium, together with a bridge crossing the Kai Tak Nullah, were opened to traffic in June, in line with the commissioning of a new passenger drop-off area on the second floor of the airport's multi-storey carpark to supplement the kerb-side facility on the departures level. The new passenger drop-off area is connected to the existing terminal building via an additional link bridge and two lifts, which were completed in December.

Construction of an additional exit taxiway at the seaward end of the runway, to help reduce runway occupancy time, started in November. The exit taxiway is scheduled to be completed in mid-1995.

Following the completion of the last B747 parking bay on the South Apron in May, the total number of aircraft parking bays available at Kai Tak has increased to 69.

      As part of a continuing process to upgrade security standards at the airport, works to reconfigure the security screening channels, replace the airport perimeter fence and provide remote control to a security gate were completed in December. An Integrated Permit Production and Access Control System for Restricted Area 7 was commissioned in September. A plan to further expand the system to cover the access control of all staff entrances to the remaining restricted areas is being pursued, for implementation in 1995.

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To further enhance the fire-fighting and rescue capabilities at Kai Tak, an order was placed for an additional fire appliance equipped with a hydraulic platform. Delivery is expected in early 1995. A plan to replace fire-fighting vehicles with more than 10 years' service is being implemented.

Air Services

Hong Kong is home to three international airlines. During the year, Cathay Pacific Airways (CPA), the largest of the three, commenced scheduled passenger services to Toronto in June. To cope with the increasing scale of its operations, CPA acquired two extra B747- 400s, one of which is a freighter, and two A340-200s to replace two of its L1011s. At the end of 1994, its fleet comprised 17 L1011s, seven B747-200s, six B747-300s, 18 B747- 400s, four B747-200Fs, one B747-400F and two A340s a total of 55 aircraft.

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Hong Kong Dragon Airlines (Dragonair) continued to operate scheduled services to seven cities in China and six other destinations in Asia, together with non-scheduled passenger services to a number of other cities in the region, mostly in China and Japan. The airline commenced joint services with Royal Brunei Airlines to Bandar Seri Begawan in September, with the Malaysian Airline System to Kuching in November, and suspended its scheduled services to Kagoshima at the end of March. With the addition of another A320 aircraft, the airline now operates seven A320 and two L1011 aircraft.

Air Hong Kong (AHK) continued to operate scheduled all-cargo services to Manchester, Brussels, Dubai, Delhi, and Nagoya, and non-scheduled cargo services to a number of destinations in Asia, using two B747F aircraft. The airline suspended its scheduled all-cargo services to Ho Chi Min City and Singapore in October and November, respectively.

The year saw the introduction of scheduled air services to Hong Kong by Virgin Atlantic Airways in February, Pacific East Asia Cargo Airlines in May, Atlas Air in June, Martinair in July, American International Airways in August and Ansett International Limited in September. As a result, the number of scheduled airlines serving Hong Kong increased to 60. During the year, these airlines together operated about 1 300 direct round-trip services weekly between Hong Kong and some 100 other cities. In addition to the scheduled services, an average of 250 non-scheduled flights were operated by both scheduled and non- scheduled airlines each week.

Under specific authorisation from the British Government, the Hong Kong Government continues to negotiate air services agreements (ASAs) and hold regular air services consultations with foreign aviation partners, to review and update current bilateral arrange- ments to cope with changing market circumstances. In 1994, 25 rounds of air services negotiations were held with 17 countries. So far, Hong Kong has signed 10 ASAs with its aviation partners.

In 1994, the Air Transport Licensing Authority granted seven licences to Hong Kong airlines: six to CPA and one to Dragonair. At the end of the year, CPA held licences to operate scheduled services to 74 cities, Dragonair to 62 cities and AHK to 37 cities.

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An agreed minute on financing arrangements for the new airport and the airport railway was signed by the Sino-British Airport Committee on November 4, facilitating the start of major works for the two projects.

The minute provides for not less than $60.3 billion of government equity and not more than $23 billion of private sector debt for the two projects. The $60.3 billion equity is broken down into $36.6 billion for the airport and $23.7 billion for the airport railway, while the $23 billion debt is divided into $11.6 billion for the airport and $11.4 billion for the airport railway.

      Arrangements for land required for the projects were also agreed upon by the Sino- British Land Commission on November 17.

       Discussions continued with the Chinese side on the financial support agreements for the two projects, the Airport Bill and major airport-related franchises.

      As construction work on the new airport and airport railway moved into a new phase of activity, the government raised, with immediate effect in November, the ceiling of the Importation of Labour for the New Airport and Related Projects Scheme from 5 500 to 17 000, to meet the worker requirement of the projects.

Hong Kong's externally-oriented economy depends greatly on modern, efficient and expanding air transport for its continued growth. Efficient road and rail transport facilities are also essential, along with land for development. The Airport Core Programme (ACP) is designed to provide these facilities in 10 interlinked projects, which will build a base for the territory's economic expansion well into the next century.

      Aside from the new airport and airport railway, the ACP projects comprise five road projects, including extensive tunnels and bridges, stretching from Central District under the harbour, along the western shore of Kowloon peninsula, across the islands of Tsing Yi and Ma Wan, and along the North Lantau coast; two major land reclamations in West Kowloon and Central District (in addition to the land reclaimed for the airport); and a new town at Tung Chung, North Lantau.

Hong Kong's key role as a centre for international and regional aviation will be enhanced by the new modern airport, which will replace the existing one at Kai Tak, and be capable of operating round-the-clock. Associated infrastructure developments will relieve traffic congestion, and open up new land for urban development and the further expansion of port facilities.

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The ACP is based on sound financial principles, with good returns for government investments and substantial involvement of the private sector. Project management and control mechanisms have been put in place to ensure that the ACP projects will be completed within budget and to the maximum extent possible by mid-1997.

In 1994, good physical progress was maintained on the ACP. By the end of the year, 102 major contracts at a cost of about $66.1 billion had been awarded by the government, the Provisional Airport Authority (PAA), the Mass Transit Railway Corporation (MTRC) and the Western Harbour Crossing franchisee the Western Harbour Tunnel Company Limited (WHTC).

Major developments on the works front during the year included the commencement of physical works for the airport railway, construction of the towers and spinning of the main suspension cables for the Tsing Ma Bridge, tower construction on the Kap Shui Mun Bridge, foundation work for the airport passenger terminal and the breakthrough of the Cheung Ching Tunnel on Route 3. Good progress was also made on the Tung Chung new town infrastructure works, the North Lantau Expressway and the Central reclamation.

The Need to Replace Kai Tak

A new airport is urgently needed because the international airport at Kai Tak, which has only one runway, is operating near its designed capacity. The economic importance of the airport is illustrated by the fact that in 1994, over 25 million passengers passed through Kai Tak, making it the third busiest airport in the world in terms of international passengers. A total of 68 per cent of all visitors to Hong Kong arrived by air. Tourism receipts amounted to nearly $64 billion, representing 6.4 per cent of Hong Kong's gross domestic product. In term of international air cargo, Kai Tak handled over 1.3 million tonnes of air cargo, making it the second busiest airport in the world. Moreover, 31.6 per cent of domestic exports, 13.7 per cent of re-exports and 19.8 per cent of imports by value went through Kai Tak. In the past 10 years, the territory has seen an annual average growth rate of over 10 per cent in air traffic at Kai Tak. In 1994, mainly due to the limitation of Kai Tak's capacity, the passenger throughput grew by only 3.1 per cent. But continued robust growth in demand is predicted. This means that Kai Tak will be unable to accommodate the forecast passenger demand before the new airport opens. Hong Kong will stand to suffer serious economic losses if Kai Tak is permitted to operate at, or beyond, its designed capacity for a protracted period of time. For example, the economic disbenefits to Hong Kong of not going ahead with the new airport have been estimated to be at least $420 billion, in money-of-the-day (MOD), over the period 1997-2010. This represents only quantifiable losses; it does not include indirect losses caused by the declining effectiveness of Hong Kong as an international trading and financial centre providing comprehensive business services, which could double the estimate.

Memorandum of Understanding

In September 1991, the British and Chinese Governments signed the Memorandum of Understanding Concerning the Construction of the New Airport in Hong Kong and Related Questions (MOU). The memorandum recognises the 'urgent need for a new airport in Hong Kong in order to ensure and develop its prosperity and stability', and the 'need for the airport to be cost-effective'. It requires the Hong Kong Government to complete the ACP

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projects 'to the maximum extent possible' by June 30, 1997, and states that the Chinese Government will 'support the construction of the new airport and related projects'.

      During 1994, the Airport Committee, which was set up in accordance with the MOU under the auspices of the Sino-British Joint Liaison Group (JLG), held three meetings to discuss the overall financing arrangements for the airport and airport railway projects, the Airport Bill and other related issues. There were also extensive informal meetings of experts from both sides on financing, the Bill, airport franchises and other issues.

      The Consultative Committee on the New Airport and Related Projects (ACC) and its four sub-committees held a total of 23 meetings during the year. The sub-committees had responsibility for: the airport and its related land development projects; planning, environment and people's livelihood; traffic and transport; and financial matters. A wide range of subjects related to the ACP were discussed.

The MOU provides that an Airport Authority will be established and that the ordinance setting up the body will be modelled, as far as possible, on the Mass Transit Railway Cor- poration Ordinance. A White Bill was published in early 1994 for public consultation. The Chinese side of the Airport Committee was also consulted in accordance with the MOU. A Blue Bill will be prepared for introduction into the Legislative Council in early 1995.

Implementing and Financing the ACP

The ACP is being implemented by the government, two statutory corporations wholly- owned by the government, and a franchisee appointed for the Western Harbour Crossing. The government is carrying out direct capital works projects to reclaim land and to build highways and a new town near the airport. The PAA is responsible for planning and developing the airport until a permanent statutory body is established. The MTRC is responsible for building and operating the airport railway. The Western Harbour Crossing is being designed and built, and will be operated, by the WHTC under a 30-year franchise. The cost of the 10 ACP projects was estimated in 1992 to be $163.7 billion in MOD (sometimes known as out-turn prices), which takes into account the impact of inflation on the value of the dollar while projects are designed and built. This is particularly relevant to the ACP because most contracts are let on a fixed-price lump sum basis, which means that contract prices have been adjusted to cover inflation over the contract period. In January 1994, the government announced that the total ACP cost estimate had been reduced by $5.5 billion in MOD to $158.2 billion. This was made up by a reduction of $7.6 billion in MOD in the cost estimate of the seven government projects and other adjustments. The reduction largely stemmed from highly competitive tendering for construction contracts, along with a reduction in project contingency allowances and lower forecasts of construction sector inflation.

      Within the $158.2 billion, the government's capital expenditure was estimated at approximately $52.5 billion. This is expected to amount, between 1992-93 and 1996-97, to nearly 30 per cent of the government's total capital expenditure. The remaining 70 per cent of its capital expenditure will be spent on social services projects and other essential construction activities.

In accordance with the agreed minute on financing arrangements for the new airport and the airport railway, the government will inject equity of not less than $60.3 billion into the two projects. This is also provided for in the overall ACP cost estimates.

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  The ACP provides many opportunities for private sector participation. Besides the franchise for the Western Harbour Crossing, these include a range of important commercial franchises at the airport, plus commercial lending and real estate development associated with the airport and the airport railway.

Benefits for the Community

 The main benefits for the community, in addition to the airport itself, will come from improved road and rail facilities, which will ease congestion in West Kowloon and open up North Lantau. The closure of Kai Tak will also provide substantial environmental benefits for the 350 000 residents living under its flight paths, who will escape the noise of aircraft. The overall benefits to Hong Kong's economy will also be substantial.

  The government's proposed financial investment in the projects will yield substantial benefits for taxpayers. It is estimated that by the year 2020, the new airport, the Lantau Fixed Crossing and the airport railway will generate over $300 billion in additional revenue for the government.

The Airport at Chek Lap Kok

Good progress was made during the year in the planning and construction of the new airport at Chek Lap Kok. With site formation nearing completion and contracts covering the passenger terminal building, airport infrastructure, utilities and ancillary facilities well into the tendering phase, the PAA is on schedule to enter its most intensive construction phase in 1995.

  The PAA, a statutory organisation formed in April 1990 with the Hong Kong Government as its sole shareholder, is engaged in planning, developing and building an airport that will be operationally safe and efficient, environmentally sound and commercially viable.

  Operationally, the new airport will expand on the quality and range of aviation services available at the existing airport at Kai Tak. At the same time, it will set new standards in terms of commercial operations and expand the role Hong Kong plays as the region's leading air transportation centre.

  Because of its location off the north coast of Lantau Island, 25 kilometres west of Hong Kong's central business district, the new airport will be capable of round-the-clock opera- tions without causing noise problems for urban areas.

The new airport at opening, with the first of two runways, will be capable of handling 35 million passengers and three million tonnes of air cargo annually. Airport facilities are being designed so that they can be expanded in stages to cater for forecast growth, in both passenger and air cargo throughput, to 87 million passengers and nine million tonnes of cargo by the year 2040.

At the end of 1994, 17 contracts, with a total value of $13.5 billion, had been awarded out of a total of about 80 construction and equipment contracts planned by the PAA for the new airport.

Site Preparation

The $9 billion site preparation contract, the largest contract of the ACP, began in December 1992 and covers a 41-month period. By the year's end, about 1 000 hectares, representing

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     80 per cent of the 1 248-hectare airport platform, had been formed. By April, enough land had been prepared for work to begin on the terminal building foundations. The contract for this was awarded in May and is due for completion by March 1995, when the actual terminal construction will be able to begin.

Passenger Terminal

     Detailed design work for the passenger terminal building was completed at the end of August, within the construction budget. With construction of the terminal foundations underway, the new airport has advanced to a stage at which the main contracts related to terminal construction can move ahead.

      The passenger terminal complex, with its architecture inspired by the concept of flight, will be the focal point of the airport and a dynamic gateway to Hong Kong. Over 1.2 kilometres long and with a gross floor area of 490 000 square metres, it will be strategically located between the airport's two runways at the northeastern end of the island. On opening, the airport will have 57 aircraft gates with the capacity to process 35 million passengers annually. An automated people-mover, a driverless train system, will operate between the processing terminal and the far end of the 750-metre concourse. A gross floor area of 30 000 square metres will be allocated in the arrivals and departures halls and concourse for 150 commercial and retail outlets and services. The PAA, the MTRC and consultants are working on the preliminary design for a ground transportation centre adjacent to the passenger terminal.

Airside Developments

Commercial opportunities at Chek Lap Kok will be as diverse as Hong Kong's own economic profile. As a business, the PAA will encourage private sector participation to provide a world-class, user-friendly airport with support services at competitive prices for all airport users passengers, air-cargo shippers, commercial franchisees and

concessionaires alike.

      Over the past year, the franchise award process for the main airside support services continued to advance and, in line with the Provisional Airport Authority's stated policy of competition and choice, more than one franchise will be awarded for the main support services in respect of air cargo handling, aircraft maintenance and aircraft catering. One franchise will be awarded for the aviation fuel supply system but competition will be ensured through the provision of open access, under which all qualified fuel suppliers will be able to put fuel into the system for delivery to aircraft. The franchises are due to be awarded in early 1995.

Government Facilities

Government facilities at Chek Lap Kok are estimated to cost $5,539 million in MOD. Funds amounting to $3,113 million have been obtained for the construction of the air traffic control complex and tower; procurement of air traffic control, meteorological and postal mechanisation equipment; and related consultancies and construction works. By the end of the year, the government had awarded 14 contracts totalling about $1 billion in value. Tenders for the remaining works such as the Government Flying Services headquarters, police station, fire station and air mail centre will be invited in early 1995.

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Formation of Land

The ACP involves the creation of 1 669 hectares of new land, comprising a 1 248-hectare platform for the new airport (composed of 920 hectares of reclaimed land, and the islands of Chek Lap Kok and Lam Chau off northern Lantau, which will be levelled); 67 hectares of reclamation along the northern shore of Lantau for Phase I of Tung Chung new town; a 334- hectare reclamation at West Kowloon; and a 20-hectare section of a larger reclamation adjacent to Central and Western districts on Hong Kong Island.

The West Kowloon reclamation will provide housing for 91 000 people, commercial space, and vital road and rail arteries linking Kowloon with the new airport and north- western New Territories. The reprovisioning of private shipyards, to make way for the reclamation, was achieved in May. The target completion date of the project is mid-1997. By the end of 1994, the project was about 77 per cent complete.

Phase I of the Central reclamation will provide opportunities for the development of Hong Kong's central business district, plus a site for the Central terminus of the airport railway. Physical work commenced in September 1993, with completion due by early 1997. By the end of 1994, 36 per cent of the project was complete.

Tung Chung new town will ultimately occupy two valleys at Tung Chung and Tai Ho on northern Lantau and a coastal strip of reclamation in between. It is expected to house 20 000 people by 1997 and up to 200 000 people by 2011. In addition to providing support services for the new airport, it will accommodate commercial and industrial developments and serve as an impressive gateway to Hong Kong for visitors. There will be a mixture of private, public rental, and home ownership scheme housing; several shopping centres; an office and hotel complex in the town centre; and an industrial area. Strong emphasis has been placed on community facilities, and both local and long-distance rail and bus transport. Work on the new town started in April 1992, with completion targeted for the second quarter of 1997. The reclamation work has been completed and infrastructure works have commenced. At the year's end, about 41 per cent of the project was complete.

New Transport Facilities

The ACP includes five major highway projects designed to cater for the new airport's traffic and to relieve congestion on existing roads. They comprise the Western Harbour Crossing, West Kowloon Expressway, the Kwai Chung and Tsing Yi sections of Route 3, the Lantau Fixed Crossing and the North Lantau Expressway. Construction work on all five projects is underway. Together with the airport railway, these highways will also provide a rapid transit system between Tung Chung new town and the Central District, stimulating developments on North Lantau.

New Highways

The Western Harbour Crossing will be a dual, three-lane, immersed tube road tunnel. It will link the West Kowloon Expressway on the West Kowloon reclamation with a new section of elevated road in the Western district on Hong Kong Island, connecting to Connaught Road Central. Apart from providing a key part of the airport highway route, it will relieve congestion at the two existing cross-harbour tunnels. The formal project agreement to finance, construct and operate the tunnel under a 30-year franchise was signed in September 1993 with the Western Harbour Tunnel Company Limited. Physical work

Previous page: Hong Kong's new international airport takes shape· transforming the 302-hectare island of Chek Lap Kok into a 1 248-hectare platform designed to service the world's airline traffic.

Below: The 2.2-kilometre Tsing Ma Bridge will link the islands of Ma Wan and Tsing Yi and carry road and rail traffic to, and from. the new airport. Right: Around 160 000 kilometres of wire will be used in the two suspension cables of the Tsing Ma Bridge- enough to circle the Earth four times. Opposite page: Part of a 500-tonne cable 'saddle' is hoisted to the summit of one of the suspension bridge towers, around 200

metres up.

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Above: Steel wire weighing 28 000 tonnes is being used in constructing the Tsing Ma Bridge suspension cables. Top: Strict safety rules apply to workers engaged on Airport Core Programme projects.

Opposite page: Dramatic changes are already evident on Hong Kong Island's Western harbourfront, where work is progressing on the third cross-harbour road tunnel, the Western Harbour Crossing.

F

      Below: Reclamation at West Kowloon has increased the area of the Kowloon peninsula by about a third. Right: Marine sund is pumped ashore at a reclamation site.

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      started in that same month and is progressing well. Overall, the project is 32 per cent complete and on schedule for completion by mid-1997.

The West Kowloon Expressway will link the northern portal of the Western Harbour Crossing to Lai Chi Kok, forming an important part of Route 3, with a dual, three-lane carriageway. It will serve developments on the West Kowloon reclamation and help relieve pressure on existing local and distributor roads in central and western Kowloon. Physical work on the expressway started in August 1993, aiming for completion by the end of 1996. At the year's end, 29 per cent of the project was complete.

Route 3 will link the northern end of the West Kowloon Expressway to the approaches of the Lantau Fixed Crossing. Its three major civil contracts cover the construction of the Cheung Ching Tunnel, Kwai Chung Viaduct and Rambler Channel Bridge. Work on these three contracts commenced in 1993, for scheduled completion in early 1997. The breakthrough of the Cheung Ching Tunnel was a significant development in May. Overall, 40 per cent of the project was complete at the year's end.

The two-deck Lantau Fixed Crossing, carrying a railway as well as roads, will comprise the Tsing Ma suspension bridge linking Tsing Yi to Ma Wan; viaducts crossing Ma Wan; and Kap Shui Mun Bridge, with a cable-stayed design, linking Ma Wan to Lantau. The Tsing Ma Bridge will become internationally-known as a major Hong Kong landmark. Its main span of about 1.4 kilometres will be the world's longest bridge carrying both road and railway. Work on the Lantau Fixed Crossing commenced in May 1992, for completion in mid-1997. Construction of the Tsing Ma Bridge was about 68 per cent complete at the end of 1994. Aerial wire spinning of the main suspension cables began in July 1993 following completion of the towers and anchorages. Overall, 58 per cent of the Lantau Fixed Crossing project is complete.

The North Lantau Expressway will be a 12.5-kilometre dual, three-lane carriageway along the northern coast of Lantau, linking the Lantau Fixed Crossing to Tung Chung new town and the airport at Chek Lap Kok. Construction of the expressway is being carried out in three sections, at Yam O, Tai Ho and Tung Chung. Work started in 1992 and is scheduled for completion by the end of 1996. Overall, 64 per cent of the project is complete.

Airport Railway

The 34-kilometre airport railway has been planned to provide two separate rail services, operating mainly on the same tracks but with separate platforms. These will be a fast passenger link to the airport at Chek Lap Kok, called the Airport Express, and a domestic service called the Lantau Line. Both will have maximum operating speeds of 135 kilometres per hour, compared to 80 kilometres per hour on existing Mass Transit Railway (MTR) lines.

The Airport Express is designed as an all-seated, business class-type express service providing a 23-minute link between Central District on Hong Kong Island and the airport, with only two stops at Kowloon and Tsing Yi. It is envisaged that six-car trains will be used initially at eight-minute frequencies, increasing, as required, to a maximum of 10-car trains, operating at 4.5-minute frequencies.

Serving northern Lantau, western Kowloon and Central, the Lantau Line is designed as a conventional mass transit commuter service. It will bring much needed relief to the MTR's Tsuen Wan Line, particularly along the Nathan Road Corridor where the railway is

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presently carrying its capacity of 80 000 passengers during the morning peak hours. Stations are planned at Central, West Kowloon, Tai Kok Tsui, Lai King, Tsing Yi and Tung Chung new town, with provision for additional stations later.

   Five sites, totalling approximately 62 hectares, have been identified along the railway route for residential and commercial property development. They are at Central, West Kowloon, Tai Kok Tsui, Tsing Yi and Tung Chung.

   During 1994, the MTRC continued with the detailed design and planning work for the railway. Route protection works had commenced. Work on the $600 million immersed tube tunnel contract for the harbour crossing of the railway started in June. In November and December, the MTRC awarded 20 more civil, electrical and mechanical works contracts at a total cost of about $11 billion. The corporation also received tenders in November for the property development at Tung Chung and Tai Kok Tsui stations.

To avoid interface problems that may arise between the government works on the Central reclamation and the MTRC's railway station works, the government has entrusted management of the Central Reclamation Phase I work to the corporation. Work on this $1.7 billion (MOD) contract commenced in September 1993 and is progressing well. The contract will provide the site for the railway's Hong Kong Station, which will be the terminus for both the Lantau Line and the Ai