Elite have trouble with the concept of accountability
February 19 2008
Do the members of Hong Kong's elite of inherited wealth understand
the meaning of the words accountability and responsibility? David Li
Kwok-po has now stepped down from the Executive Council, albeit reluctantly
and without being obviously pushed by a chief executive who seemed
inclined, not for the first time, to put personal relationships ahead
Mr Li is a personable individual who has always sought to be friends
with everyone, straddling political and other fences with ease, despite
a naturally shy disposition. He is not the kind of person to induce
anger or resentment in others. But that does not explain why supposedly
responsible individuals have rushed to defend the indefensible.
For sure, Mr Li personally never made money out of the leak of news,
entrusted to him in confidence as a member of the board, of the impending
Rupert Murdoch bid for Dow Jones. But the fact that he was not charged
with a criminal offence, but was instead required to pay a civil penalty
of US$8.1 million, cannot hide the serious nature of the leak.
According to the US Securities and Exchange Commission, Mr Li received
the news in the evening on April 12 last year. Next morning, he flew
to Shanghai with his friend Michael Leung Kai-hung. On arriving in
Shanghai, Mr Leung contacted his son-in-law who contacted his broker,
Merrill Lynch, and began heavy buying of Dow Jones shares, accumulating
some 415,000. During this time he was, according to the SEC, in touch
with Mr Li on more than one occasion. When the Murdoch bid was announced,
the shares jumped to about US$56 from the US$36 average price paid
by Mr Leung. He has had to disgorge his profits and pay an equivalent
It beggars belief that someone who is on the board of at least 10
publicly listed companies does not understand the importance of confidentiality
in this kind of situation. He must have realised that a Murdoch bid
for Dow Jones would be a matter of global interest, as well as a major
Whether Mr Li wanted to do his friend a favour, or was just talking
loosely, is not known. But it is a huge embarrassment for Hong Kong.
It will be an even bigger one if cronyism allows the issue to be treated
lightly, thereby giving the impression that insider trading and breach
of trust are taken lightly in what claims to be a well-regulated financial
Yet fellow senior figures have rushed to Mr Li's defence as though
he were a victim not a culprit. Bernard Chan, another inherited-wealth
Exco member, and a lawmaker who represents the insurance industry,
was quoted as saying: 'I actually find it unfair. Indeed, he has done
nothing wrong. He shouldn't shoulder any responsibility.' Laura Cha
Shih May-lung, a fellow Exco member and former vice-chairman of the
China Securities Regulatory Commission, also regretted Mr Li's decision
to quit Exco.
Are these people fit to be on numerous boards, let alone various government
advisory panels, if they cannot see anything wrong in directors telling
their friends confidential board information? Do they regard insider
trading as acceptable just because it is not illegal in Hong Kong?
Whether the bankers re-elect Mr Li, who has represented them in the
Legislative Council for two decades, is up to them. The finance sector
re-elected Chim Pui-chung although he had done time in jail for forging
documents. Almost anything is possible in the dysfunctional world of
functional constituencies, where business interests engage in commercial
bargains with the government. As for the other companies on whose boards
Mr Li sits, most are family controlled and unlikely to put principles
before personal relations.
As the son of a policeman, Chief Executive Donald Tsang Yam-kuen surely
knows that leaders in society should set standards and not get away
with lower ones than an average citizen.
HK Budget:Unfair advantage
SCMP March 2008
John Tsang's first budget was a public relations exercise that most
benefits those least in need, writes Philip Bowring
The first budget of the new Tsang administration was politically astute
but, in reality, stunningly mean. It also displayed those two ever-present
characteristics of the bureaucracy - prevarication and surrender to
elite interest groups. The mostly effusive media coverage is testimony
to its political merits, as journalists were swept up in the public
relations spin that everyone in Hong Kong was getting goodies from
a generous financial secretary determined to give back this year's
surplus to the people.
Much attention was paid to the volume of words in the speech on small
schemes to help the underprivileged and to the overall size of the
handouts via rates cuts and a power subsidy, and the one-off payment
into Mandatory Provident Fund accounts. It was even given the gloss
of helping lower-income earners and addressing Hong Kong's ever-growing
But do the sums and you will find that the catchphrase 'Leaving Wealth
with the People' amounts to further increasing the income divide when
inflation is hurting the lower-income groups more than others. Of the
measures, only the power subsidy and public housing rent concessions
significantly address this issue. Most of the rest of the budget 'generosity'
goes to those least in need.
The biggest giveaway by far is to salaries- and personal-tax payers.
Add together the tax waivers (HK$12.4 billion), wider tax bands (HK$1
billion), increased allowances (HK$1.3 billion) and a lower standard
rate (HK$960 million), and the total comes to over HK$15.6 billion.
Yet, the roughly half of income earners who are at the median level
will receive none of this. By far, most of the concessions will go
to the 400,000 or so in the HK$300,000 to HK$600,000 annual income
Contrast this generosity to the top 20 per cent of earners with the
penny pinching towards the old, sick and lower-50-per-cent income groups.
The sum total of increased (mostly one-off) payments will be around
HK$5.7 billion. These consist of one month extra payments to social
security and old-age allowance recipients (HK$2.7 billion), housing
rent relief (HK$1 billion) and roughly half the HK$4 billion being
given to all households as an electricity subsidy.
The generosity to the upper income earners came on top of rates concessions
totalling HK$11 billion, a benefit unevenly spread across households
As bad as the figures are, even worse was the attitude displayed by
Financial Secretary John Tsang Chun-wah, who implicitly warned that
the old-age allowance, and other benefits, would have to be cut back
in future. Note this extraordinary paragraph: 'If the existing social
security system were to remain unchanged it is expected that expenditure
relating to the CSSA ... would increase from the present HK$13.1 billion
to HK$31.8 billion in 2033.'
In other words, as the population ages, Mr Tsang wants to cut back
on help for the old who built Hong Kong through the harsh times of
the 1960s and 1970s - all the old except, of course, for civil servants.
While expressing shock at the possible HK$18 billion additional cost
of old-age allowances in 25 years, Mr Tsang was happy to dole out more
than that to his favoured few today. These include not just the higher-income
earners but, as usual, the construction lobby. Thus, capital spending
- mostly on roads - is to rise from HK$30 billion this year to HK$56
billion in the coming year and to HK$62 billion in 2009-10.
A government determined to spend huge amounts on concrete infrastructure,
much of it of dubious economic justification, is unwilling to spend
on cleaning up a Hong Kong environment that is widely acknowledged
to be a deterrent to international business. Just HK$1.6 billion is
allocated to encourage the use of cleaner diesel. If the government
were serious about investing in our future health, as well as the needs
of a sophisticated service economy, it would put excess capital to
work on this issue rather than helping its many friends in the construction
A government willing to help all sectors equally would have cut betting
tax as well as the wine tax - another sop to higher income earners
and an elite that now collects wines instead of watches.
Even Mr Tsang's good ideas have mostly been timidly executed. The
one-off payment to MPF schemes is a pittance. It should have been HK$80
billion, not HK$8 billion, if it were to be meaningful and reflect
the slogan of returning wealth to the people. The HK$50 billion capital
to be injected into health care reform could prove beneficial but,
equally, may become an excuse for cutting back health spending.
At every turn, the administration seems determined not to spend money
other than on itself (Tamar) and unnecessary infrastructure (the Stonecutters
Bridge). Thus, Mr Tsang did not bother to explain why this year's operating
budget will be underspent by HK$8 billion, or why it is desirable for
public spending to fall as a percentage of gross domestic product even
while capital spending is booming. Nor did he care to mention that,
in addition to the fiscal surplus this year of an estimated HK$115
billion, the Exchange Fund had a surplus - after paying HK$27 billion
to the government - of HK$109 billion. The accumulated Exchange Fund
surplus is now HK$617 billion. That money belongs to the community
but it is treated by the bureaucrats as a slush fund to be used as
they wish - as with the purchase of shares in Hong Kong Exchanges and
Clearing - and without public accountability.
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