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On tertiary education, Mr Tsang said the Government would support tertiary institutions to develop their strengths to become centres of excellence.
He said over the next few years an extra 11,000 hostel places would be provided to enable more students to identify with their academic community and participate more in its activities.
Students from outside Hong Kong will also be increased.
"This will help widen the outlook of our own students, enhance their language and interpersonal skills, and inject a healthy element of competition," he said.
Mr Tsang said more would be done to improve language skills, which are vital to Hong Kong's success as a Special Administrative Region of China as well as an international centre for business.
In 1997/98, almost $42 million will be spent on raising language training standards in schools by:
Extending the Chinese and English reading schemes to more levels of primary and secondary schooling;
Providing more intensive English courses for Secondary Six and Seven students in Chinese-medium schools;
Establishing a Language Resource Centre to support the classroom teacher; and
Conducting a pilot exercise to establish language benchmarks for teachers.
Another $78 million will be spent in universities (compared to $68 million last year) to raise students' language standards.
"Universities can also send a clear signal about the need for higher language standards by only accepting, as a general rule, students who meet the language requirements in their Advanced Level Examinations," said Mr Tsang,
The Financial Secretary said there was a need to intensify efforts to ensure a workforce well-trained to meet the needs of a changing economy.