XN000022-1981-10-29 — Page 17

THURSDAY, OCTOBER 29, 1981

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PLEA FOR TWO-TIER INTEREST RATES

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THE HON STEPHEN CHEONG TODAY URGED THE GOVERNMENT TO INITIATE CONSULTATIONS WITH THE VARIOUS ORGANISATIONS REPRESENTING MANUFACTURING INTERESTS AND LOCAL FINANCIAL INSTITUTIONS, WITH THE AIM OF INTRODUCING A TWO-TIER SYSTEM OF INTEREST RATES.

HIS CALL WAS MADE IN DISAGREEMENT WITH THE GOVERNMENT'S STRONG PREFERENCE + FOR RESTRAINT OF THE EXCESSIVE CREDIT GROWTH BY THE SELF-DISCIPLINE AND RESPONSIBILITY OF OUR FINANCIAL INSTITUTIONS.

SAID MR CHEONG: +1 APPRECIATE THAT, IN A FREE ENTERPRISE ECONOMY SUCH AS OURS, THE SCOPE FOR GOVERNMENT INTERVENTION IS LIMITED.

+BUT GIVEN THE ALMOST WHOLLY EXPORT-ORIENTED NATURE OF OUR MANUFACTURING ENTERPRISE AND THE SIZE OF THEIR CONTRIBUTION TO THE WELL-BEING OF OUR ECONOMY, I AM NOT SURE HOW THE EXERCISE OF SELF-DISCIPLINE BY OUR FINANCIAL INSTITUTIONS ALONE COULD RESTRAIN CREDIT GROWTH WITHOUT, AT THE SAME TIME, ADVERSELY AFFECTING THE MANUFACTURING SECTOR.

+NOR AM I CERTAIN THAT ACROSS-THE-BOARD UPLIFTS IN THE BANKS' BEST LENDING RATE IS NOT TOO BLUNT AN INSTRUMENT PARTICULARLY IN DIFFICULT TIMES SUCH AS THOSE WE ARE NOW FACING.+

HE POINTED OUT THAT A MEANINGFUL TWO-TIER SYSTEM OF INTEREST RATES IS ALREADY IN OPERATION IN SOUTH KOREA, TAIWAN AND SINGAPORE WHICH ARE AMONGST HONG KONG'S CLOSEST COMPETITORS.

MR CHEONG SAID HE WAS PLEADING FOR GOVERNMENT INTERVENTION IN THIS ISSUE NOT JUST BECAUSE HE BELIEVED THAT THE CURRENT LEVEL OF BEST LENDING RATES ARE HAVING A DAMAGING EFFECT ON THE

MANUFACTURING SECTOR BUT ALSO BECAUSE HE WAS NOT CONVINCED THAT THE SELF-DISCIPLINE EXERCISE BY THE FINANCIAL INSTITUTIONS ALONE WOULD RECONCILE THE NEED TO DAMPEN DOWN EXCESSIVE CREDIT CREATION AND THE NEEDS OF THE MANUFACTURING SECTOR.

+I WOULD SUBMIT THAT IT IS TIME THE GOVERNMENT CEASE *WATCHING THE SITUATION CLOSELY' AND STARTS A CONSULTATIVE PROCESS, WITH A VIEW TO DEVISING SOME SOLUTIONS, HOWEVER DIFFICULT AND HOWEVER UNPALATABLE THE IDEA OF GOVERNMENT INTERVENTION MAY SEEM IN THIS FREE ENTERPRISE ECONOMY OF OURS.

/+THE DIFFICULTIES