XN000022-1987-05-13 — Page 30

WEDNESDAY, MAY 13, 1987

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BACKING FOR COMMISSION TO STUDY PROVIDENT FUND IDEA

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THE HON KIM CHAM SAID TODAY (WEDNESDAY) THAT HE SUPPORTED THE PROPOSAL FOR A COMMISSION COMPRISING EMPLOYERS, EMPLOYEES AND EXPERTS TO STUDY ISSUES RELATING TO A CENTRAL PROVIDENT FUND TO ENSURE PRACTICABILITY, FLEXIBILITY AND EQUITY.

SPEAKING IN THE LEGISLATIVE COUNCIL DURING THE ADJOURNMENT DEBATE ON CENTRAL PROVIDENT FUND, MR CHAM SAID THAT IN ESSENCE A CENTRAL PROVIDENT FUND SCHEME REPRESENTED FORCED SAVINGS ON EMPLOYEES AS IN THE LONG RUN REAL WAGES WOULD BE EQUAL TO THE PACKAGE OF SALARY PLUS BENEFITS WHICH WAS ADJUSTED TO REFLECT LABOUR PRODUCTIVITY IN HONG KONG'S FREE ENTERPRISE ECONOMY,

HE NOTED THAT RECENT ESTIMATES OF INITIAL CONTRIBUTIONS TO THE FUND MIGHT RANGE FROM $5 BILLION TO $10 BILLION A YEAR, BUT THE ANNUAL AVERAGE VALUE OF EQUITIES, WARRANTS, UNIT TRUSTS AND LOAN STOCKS TRADED IN THE STOCK EXCHANGE FOR THE PAST THREE YEARS AMOUNTED TO ONLY $3 BILLION.

+THUS, COUPLED WITH ANY REQUIREMENT FOR THE FUND TO BE INVESTED IN HONG KONG, THIS WILL CREATE AN IMPACT ON THE EQUITY MARKET AS WELL AS THE DEBT MARKET,+ HE SAID.

MR CHAM SAID THAT IN THE FUTURE THERE WOULD BE A DEMAND FOR WITHDRAWAL OF THE FUND AS THE POPULATION AGED AND FAMILY PLANNING REDUCED SUBSEQUENT CONTRIBUTIONS TO THE FUND.

THE OUTFLOW OF FUNDS EXCEEDING THE INFLOW WOULD CAUSE A NET DRAIN ON THE FUND, HE SAID.

+IT IS THIS TIME IN THE FUTURE WHEN THE LIQUIDITY OF THE FUND HINGES ON THE PREVAILING STATE OF THE CAPITAL MARKET WHICH CAN CREATE PRESSURE ON THE DEBT OR EQUITY MARKET, NOT TO MENTION THE DIFFICULTY OF LIQUIDATING POOR QUALITY INVESTMENTS, HE ADDED.

MR CHAM ALSO SAID THAT WHETHER INVESTMENTS OF THE FUND MUST BE RESTRICTED TO HONG KONG INSTRUMENTS WAS AN IMPORTANT POINT WHICH MUST BE ADDRESSED.

CONFINING INVESTMENTS IN HONG KONG WOULD ENSURE EASIER SUPERVISION AND THE BENEFITS OF THE INVESTMENT MULTIPLIER EFFECT ACCRUING TO THE HONG KONG ECONOMY.

HOWEVER, WITH A PORTFOLIO OF SIGNIFICANT SIZE, THIS WOULD INHIBIT FLEXIBILITY AND INVESTMENT CONFIGURATIONS.

ALTERNATIVELY, INVESTMENTS ABROAD MIGHT FACILITATE DIVERSIFICATION BUT THE LESSONS OF A EPHEMERAL STOCK NOT ADEQUATELY COVERED BY ASSETS OR TRADE MUST BE REMEMBERED, HE SAID.

ANOTHER FACTOR

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