THE Government is poised to slash its controversial subsidy to the Trade Development Council following a barrage of criticism from the private sector. Funds raised from traders - who pay a 0.05 per cent ad valorem levy on imports and domestic exports - are expected to be scaled back to 0.03 per cent, increasing the TDC's reliance on self-generated funds. The levy, which is based on the value of goods shipped in and out of the territory - but does not affect re-exports - hits all products except foods and other essential products such as medicine. Last year the TDC raised the bulk of its income through the Government-imposed levy. Its annual report, which is due out shortly, will show funds raised through the levy totalled $492 million against $460 million from activities including publishing and trade fairs. The move for a subsidy cut follows three months of consultation with the Government and is expected to be signed and sealed this month. Talks followed criticism from private exhibition organisers and others, who complained they were competing on uneven terms, and an abortive attempt at corporatisation early last year. Financial Secretary Hamish Macleod first telegraphed the Government's intention. In his March Budget speech he said: ''There is also a need to review and rationalise the TDC's funding arrangements in recognition of its success in generating income. ''This may well enable us to increase the funds for supporting industry. ''I would like to make progress in all these areas in the next few months. Our initial ideas need to be refined further by discussion in particular with the TDC and the Industry and Technology Development Council.'' The TDC, which aims to promote trade and help local firms penetrate new markets, will increase its own revenues through the enlarged convention centre and a growing number of trade fairs both in Hongkong and in China. Also in the Budget, Mr Macleod said he was earmarking $2.4 billion to expand the Hongkong Convention and Exhibition Centre on land gained from the Central and Wan Chai reclamation. This will effectively double the space available, accommodating bigger fairs and commanding bigger rentals from exhibitors. Mr Macleod reckoned the extension - due to be completed by 1997 - would bring in financial benefits of $9 billion to $10 billion a year. This estimate is believed to be based on charges levied by the centre on conference organisers, together with revenue to hotels, airlines, travel organisations and retailers from delegates visiting the territory. Under proposals mooted early last year, the TDC was to have become financially self-sufficient. Direct government funding would have been removed after a one-off golden handshake. It is believed that it was the failure of the Government and the TDC to agree on the scale of government funding - the figure bandied at the time was $3 billion - that triggered the collapse of the privatisation plans. Talks resurfaced as the TDC became increasingly self-sufficient - last year's government contribution of 51.7 per cent of the total compares with 90 per cent back in 1985. The TDC held that self-sufficiency would enable it to become more efficient and flexible but would not risk its main objectives. The TDC has been active in lobbying on key trade issues, including China's Most Favoured Nation Status with the US and 301-type investigations. Asian Sources Group, which competes directly with the TDC in trade publishing, said the partial removal of government funds did not detract from the fact that the TDC's promotional activities were being supplemented by private sector activities, which may now be escalated in a bid to increase funds. Chief operating officer Sarah Benecke said: ''What concerns me greatly is when the amount is reduced, I fear that TDC would be encouraged to generate more funds.'' Her concerns focus on the TDC's activities in trade publishing, trade shows, the TDC design gallery and the retail operations in China, which provide direct competition to the private sector. ''I strongly object. These are areas that the private sector is 100 per cent capable of dealing with,'' she said. Legislative Councillor Jimmy McGregor, who helped set up the TDC in 1966, said the reduction was probably because the Government felt embarrassed and the amount of money earned from the levy was essentially no longer needed. He said: ''With the extra windfall, it seems to me that some of the extra money gained could be used for trade and industrial institutions.''