The Hon. Donald Tsang Chief Executive, HKSAR

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The Hon. Donald Tsang Chief Executive, HKSAR Central Government Offices Lower Albert Road Hong Kong 18 August 2005 Dear Chief Executive, Re: Policy Recommendations The Chief Executive faces two major challenges. The first is to chart a longer-term development path for Hong Kong. The second is to raise the quality of governance. •

The development challenge is to put Hong Kong on a path which guarantees both optimal economic growth measured in terms of GDP and maximum human development and quality of life as well.

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The governance challenge requires the maintenance of a robust rule of law, the creation of transparent decision-making processes to prevent conflicts of interests and hidden agendas, and to evolve a participatory and democratic culture that dovetails with steps for Hong Kong to achieve universal and equal suffrage by 2011-2012.

Civic Exchange, a non-profit policy think tank, makes specific recommendations based on research that we have done (see Attachments). Before we discuss the recommendations, we would like to make a general observation about the need for adaptive responses to meet future challenges. Adaptive Response In an increasingly uncertain world, policies need to be adaptive. This necessitates the realistic evaluation of future risks through identifying the right questions in order to frame the critical problems. This approach will generate real options that provide the flexibility to respond to unexpected events. The starting point is to define success as the ability to prosper across a wide range of potential futures, and so the capacity to respond needs to be built accordingly. The adaptive response system can change course, like a ship, and not like a railway, which can only choose between preset options. Recommendations We propose specific actions that can and should be taken now to address Hong Kong’s development and governance challenges:

1. Economic Development 9 Use objective demographic data to readjust policies Recent demographic trends show Hong Kong may be de-populating as well as ageing rapidly. These trends will create problems, but they have positive features which should not be ignored. A smaller population will ease the pressure to expand the hard infrastructure.

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Resources can then be diverted into expanding the city’s soft infrastructure, which is essential for Hong Kong to move up the ladder of human development and quality of life. Demographic trends and their potential impact on policy and public finance should be a key aspect of work for the next two years.1 Currently, government departments are using a variety of population projections for planning purposes, which will only lead to confusion and inconsistencies, and eventual public criticism. In addition, the temptation to choose population projections on the basis of political convenience and to justify existing or preferred development plans is dangerous as these cannot provide the optimal adaptive response.2 Civic Exchange is about to complete the first phase of its review of demographic trends and hopes to be able to raise further funding to continue this work. Attachment 1 provides 9 recommendations on specific areas of review, 3 and Attachment 2 provides 8 consideration areas from the perspective of Hong Kong as a world city and its attractiveness to global talent.4 9 Adopt comprehensive harbour-front planning approach The HKSAR Government will face continuing public objections over harbour-front development because current plans were prepared in a piece-meal manner without looking at Victoria Harbour as a whole and how it could be developed optimally using a sustainable development approach. In view of the existing controversies over Central Reclamation III, Wanchai Development II, and West Kowloon Cultural District, the best option is to use the next two years to examine how the entire harbour-front could be developed, including the Tamar site.5 In general, we have to accept lower intensity developments, minimize the land use and impact of transport infrastructure, and promote diverse marine uses, to create a world class ‘Hong Kong Harbour’ experience for residents and visitors. The Chief Executive may wish to say in the policy address that in urban, transport and marine use planning, the HKSAR Government will be guided by the Urban Design Guidelines and the Harbour Planning Principles. We recommend that the Chief Secretary be given a specific task to develop policies and coordinate the relevant departments for the development of the harbour-front. His goal should be as to strengthen the relationship between town planning, road planning, marine use planning and urban design, as well as to liaise with the Town Planning Board, the Harbourfront Enhancement Committee and the Legislative Council. We must emphasize that road planning should be a part of the town planning process and not done independently by the Highways Department as it is now.

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The 12 January 2005 Policy Address emphasized Hong Kong’s ageing population and provision of elderly care for the future. We are aware that the CPU has commissioned some studies in this area. The HKSAR Government needs to consider demographic trends from a much wider perspective. 2 There is a history of over-projection in Hong Kong. See Christine Loh, Alternative Policy Address: 2005-2006, Civic Exchange, www.civic-exchange.org/publications/2004/apa05e.pdf, paragraphs 9-15. 3 Christine Loh, What Is the ‘Problem’ of An Ageing Population?, Civic Exchange, August 2005, www.civicexchange.org/publications/2005/ageingpop.pdf 4 Christine Loh and Kee Foong, Hong Kong as a ‘World City’: Assessing its Attractiveness to Global Talent, Civic Exchange, August 2005, www.civic-exchange.org/publications/2005/pop-lohkee.pdf 5 Harbour-front development involves substantial public and private sector investment, as well as affecting many interests. The current development plans were prepared at a time and in a manner that has become outdated, which has provoked extensive public objections and controversies. The 2005 Policy Address provides a good opportunity to readjust the planning process to meet Hong Kong people’s new aspirations in town planning and urban design.

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9 Announce urban planning reforms To complement the above initiative, an announcement should be made at the same time for existing urban planning problems to be fixed. The HKSAR Government can then show it is willing to invest heavily on improving the city both in terms of doing “new” things (although as per above more thought is needed before decisions are taken) and to improve the quality of the city to meet new public aspirations for improved quality, aesthetics and sustainability.6 [See Powerpoint on examples of the types of improvements]. 9 Reassess ‘sector specific’ approach to competition Hong Kong’s external economy is highly competitive but the domestic economy is not. There is growing support within Hong Kong to develop a new competition and regulatory regime. Since the mid-1990s, the IMF has drawn attention to this issue and the need to promote competition. In 2000, the IMF released a review of Hong Kong’s competitiveness which found our economy no more competitive than the OECD average and identified the adverse implications of this situation.7 More recently, the Hong Kong General Chamber of Commerce has urged changes in policy. It is no longer true that consumers and their watchdogs are the main advocates of reform. The Chief Executive should carry out a reassessment of the current ‘sector specific’ approach during this 2-year term, setting the stage for future policy initiatives (see Attachment 3).8

1. Sustainable Development and the Environment 9 Get energy policy right Getting energy policy right is now a national policy priority throughout China. It is also a major policy area for many other countries around the world. In Hong Kong, discussion has concentrated mainly on the Schemes of Control (SoC) for the two electric utilities. This narrow focus denies Hong Kong the opportunity to become an economic and environmental leader. With higher world energy prices and likely supply constraints in the future, Hong Kong should explore strategies to lower total energy consumption by a substantial margin (such as 20%). The Government should evaluate existing technologies and efficiency management methods and assess the new technologies likely to become available over the next decade. In addition, renewal of the SoC should be seen as an opportunity to reduce air pollution and minimise the impact on climate change, both of which will contribute to better public health. Civic Exchange has presented its views and recommendations to the Economic, Development and Labour Bureau9 (Attachment 4). But it is essential that the subject of energy be given priority at the highest level. This clearly is an area where Hong Kong has 6

By showing what the HKSAR Government is willing to spend on, this will show development and construction interests both within government departments and in the private sector that there will be substantial amount of work for them. 7 Eric Zitzewitz, Domestic Competition, Cyclical Fluctuations, and Long-Run Growth in Hong Kong SAR, Washington: International Monetary Fund, 2000. 8 See Christine Loh, Amar Gill and various authors, Is Hong Kong anti-competitive? – Competition policy and Regulation, Civic Exchange and CLSA Emerging Markets, www.civic-exchange.org/2003/Competition.doc, March 2003. Civic Exchange’s competition research project in 2003 included publications on the public transport, telecommunications, and energy sectors. All the relevant reports can be found at www.civic-exchange.org 9 Christine Loh and Amory Lovins, Joint Response: Consultation Paper on Future Development of the Electricity Market in Hong Kong, Civic Exchange and Rocky Mountain Institute, 30 April 2005, www.civicexchange.org/2005/EDLB%20Consultation.pdf

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the potential to be a national leader in efficiency management but has not yet grasped the opportunity. 9 Promote sustainable transport policy – rail merger Civic Exchanges wishes to emphasize that the most substantial benefit of a merger of the two railways will be to put public transport policy on a firmer path towards rail-led transport. This is already government policy but not adequately implemented in practice. Our research shows that railways are essential to the proper functioning of high density urban settings, and much greater weight needs to be given to their external benefits in deciding on construction of new lines. In Attachment 5, we highlight 6 consideration areas 10 9 Take further action on air quality There is strong public demand for improved air quality. A number of well-coordinated, interlinked, steps need to be taken. In Attachment 6, Civic Exchange lists 15 recommendations, of which 14 recommendations can be adopted by the Executive Authorities, and one by the Legislative Council. In addition, we suggest either imposing a ban or levy of a tax on industrial grade diesel so as to encourage users to switch to ultra low sulphur diesel to reduce air pollution.11 On the occasion of the Chief Executive’s first policy address, it would be ideal for the HKSAR Government to release an initial progress report by the Hong Kong and Guangdong Governments to inform the public on the progress of the implementation of the Joint Regional Management Plan over the last two years, and to make a commitment for an annual report summarizing progress to meet the Regional Emissions Reduction Targets. We take this opportunity to also provide our latest research paper on air quality, which is focussed on working with the private sector to complement the efforts of the HKSAR and Guangdong authorities in improving air quality (see Attachment 7).12 9 Consider adopting an ecological restoration policy Hong Kong’s biodiversity is important and must be protected, both for its inherent value and to provide vital services to the people of Hong Kong. The HKSAR Government’s current conservation policy does not adequately protect and enhance biodiversity. There should be a separate ecological restoration policy or an explicit restoration element in the conservation policy. In Attachment 8, Civic Exchange provides 7 recommendations.13 9 Upgrade fisheries and agricultural policies for sustainability While fisheries and agriculture are relatively small sectors of the Hong Kong economy, they are important from a sustainable development perspective. With a new focus on quality, these food sources can command higher prices, provide a healthier diet provide better public

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Merging Hong Kong’s Railways: The Public Interest Perspective, Civic Exchange, December 2004, www.civicexchange.org/publications/2004/railmerger%20-%20E.pdf 11 Industrial grade diesel has 0.5% sulphur maximum, whereas ultra low sulphur diesel’s sulphur content is 0.005% maximum. 12 Bill Barron, Christine Loh and Kylie Uebergang, Dealing with Hong Kong’s Air Quality Problems: Using Cleaner Fuels, Civic Exchange, July 2005, www.civic-exchange.org/publications/2005/cleanfuel-e.pdf 13 Extracted from Joanna Clark, Preserving Hong Kong’s Biodiversity: The Need for an Ecological Restoration Policy, Civic Exchange, August 2005 (forthcoming). A copy of the full research report will be forwarded shortly as it is in the final stages of publication.

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health and create additional employment. They deserve to command a higher policy priority. Hong Kong has the knowledge and the regulatory foundation to be a national leader. In Attachment 9, Civic Exchange provides 6 recommendations on how to upgrade the aquaculture industry to make it more sustainable and economically vibrant.14

2. Public Health 9 Focus on prevention, not just treatment There has been a profound shift in the major causes of mortality: cancers (34% of all deaths in Hong Kong, which is exceptionally high by world standards), heart attacks, strokes, obstructive airway diseases, and diabetes. Important risk factors include being overweight, tobacco and alcohol consumption and physical inactivity. The ageing population and childhood obesity will put greater demands on the heath care system in the next decade. As the HKSAR Government is focussing on health care provision and its costs, prevention should be a top priority. In Attachment 10, Civic Exchange proposes 10 consideration areas.15 We are concerned that policy attention is much more focussed on treatment than prevention, when prevention is the optimal and least cost solution. 9 Consider the dangerous effect of chemical contaminants Industrialization and urbanization have polluted our environment. Soil and water pollution arises mostly from industrial waste discharges. Pollutants such as heavy metals, eventually end up in the food chain. In Hong Kong, the levels of chemical contaminants in the environment have declined during the last two decades due to the shift of manufacturing to Southern China and to tighter control locally of the use and disposal of various chemicals. On the Mainland, the use of these chemicals has also been banned since the 1980s. However, because of the persistence of these chemicals in the environment and their illegal use, levels of chemical contaminants remain high in the PRD Region. Hong Kong’s location at the estuary of the PRD, and the reliance of Hong Kong’s population on Southern China for its water and food supply, mean that these chemicals will continue to be a health threat for all the residents of this region. Civic Exchanges has various recommendations on how Hong Kong can deal with chemical contaminants, which has so far been a relatively neglected area of policy focus and will forward the research report shortly as it is in the final stages of publication.16

3. Constitutional Development Civic Exchange has spent considerable time studying how Hong Kong can move ahead with constitutional reforms for the 2007-2008 elections within the parameters set by the Decision

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Thierry Tak-chuen Chan, Study on the Current Status and Potential Sustainable Development of the Aquaculture Industry in Hong Kong, Civic Exchange, July 2005, www.civicexchange.org/publications/2005/Aquaculture%20-%20E.pdf 15 Moira Chan-Yeung, Diet, Lifestyle and Health: Impact of Demographic Change, Civic Exchange, April 2005, www.civic-exchange.org/publications/2005/pop%20-%20mc.pdf 16 Moira Chan-Yeung, Chemical Contaminants in Hong Kong’s Food and Environment, Civic Exchange, August 2005 (forthcoming).

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of the Standing Committee of the National People’s Congress made in April 2004, and move forward for 2011-2012 elections. We have already presented our views to the Constitutional Development Task Force in response to its 4th report. We will simply attach in Attachment 11 our recommendations.17

4. Governance Culture 9 Stabilize the rule of law There are fundamental differences between the Common Law system practised in Hong Kong and the Mainland legal system. In consequence, Article 158 of the Basic Law has the potential to destabilize both the Basic Law and the rule of law on a recurring basis. The lack of an agreed protocol on when Article 158 should be used, how it should operate once invoked and what its relationship is with Article 159 has given rise to continuing apprehension and controversy.18 The Chief Executive needs to champion the establishment of a protocol to protect the robustness of the rule of law in Hong Kong (see Attachment 12). 9 Release of timely information To build trust with the public and enhance governance, the HKSAR Government should publish data expeditiously as well as release the results in full produced by all commissioned research projects. Civic Exchange has noted several occasions when the delay or refusal to release such materials has created distrust between the public and the government. An obvious example is planning, traffic and engineering studies relating to harbour-front projects. 9 Create sound policy-making based on established procedures It is sometimes necessary for the Government to make major decisions on an urgent basis. However, these cases should be rare exceptions to reaching decisions through established procedures which allow thorough reviews of options and priorities and the proper testing of assumptions. When the normal routines of policy making are side-stepped, the result is often flawed policies and wasted resources. Cyberport and West Kowloon Cultural District provide painful examples of these dangers. In the latter case, Civic Exchange recommends that the HKSAR Government should reconsider harbour-front planning over the next two years while simultaneously overhauling an arts and cultural policy. 9 Use public engagement processes to engage and inform decision-making In recent years, the HKSAR Government has organized a variety of public engagement processes but it remains unclear whether the decision-makers make genuine use of the results of these exercises in drafting policy. Civic Exchange recommends that the HKSAR Government reviews these experiences to consider how public engagement and decisionmaking are more closely integrated, including ensuring there are opportunities for key decision-makers to directly explain background to policies and discuss them publicly.

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Civic Exchange’s Views and Proposals on Methods for Selecting the Chief Executive and for Forming the Legislative Council in 2008, Civic Exchange, 31 May 2005, www.civicexchange.org/publications/2005/4TF%20Sub%20-%20E.pdf 18 Richard Cullen, The Rule of Law in Hong Kong, Civic Exchange, July 2005, www.civicexchange.org/publications/2005/rolawe.pdf

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9 Use consultative bodies for deliberation and debate, not ‘rubber-stamp’ The most valuable consultative bodies are those where the members are knowledgeable and have the time and capacity to deliberate and debate the relevant issues so as to assist in the framing of adaptive policies. The HKSAR Government needs to reflect on why many consultative bodies lack public credibility and are attacked for acting as ‘rubber-stamps’. Thank you for the opportunity to put our views to you.

Yours sincerely,

Christine Loh Chief Executive Officer

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