LEGISLATIVE Councillors have warned that the new policy to allow expatriate civil servants to adopt local status will affect the promotion prospects of Chinese staff and hit morale. Members of the Public Services Panel said they were dissatisfied at the Government's ''overnight change of policy'' made without consulting the public and the council. They accused the Government of trying to safeguard expatriates' interests by broadening the basis of the localisation scheme to include overseas employees. But principal assistant secretary for the Civil Service, Sally Wong Pik-yee, defended the decision. She said it was in the interests of Hong Kong to retain expatriates who had committed themselves to working in the territory. Lau Wah-sum of the Liberal Party questioned the move to allow expatriates to have permanent residency. It distorted the original idea of the localisation policy, which was to offer local Chinese more opportunities prior to 1997, he said. Cheung Man-kwong of the United Democrats said as most of the expatriates were holding senior posts in the Government, the new policy would allow them to extend their influence. He warned that the move could enrage China. Under the new policy, expatriates who have worked in the territory for seven years or more can apply for naturalisation to become Hong Kong residents and change their employment contracts to local terms. The original localisation policy stipulated that an expatriate employed on a contract should be replaced by an appropriate local candidate by the time the contract expired. Miss Wong said the new policy would not draw an enthusiastic response from the expatriates as it required them to give up expatriate perks which were often more favourable than those available for locals. ''When he transfers to local terms he has to give up all his original expatriate perks, like more holiday, passage and housing allowance, if he's on a junior rank. I don't think many overseas civil servants are prepared to transfer to local terms,'' she said. Of the 1,400 expatriate civil servants on contract, about 800 would be eligible to become Hong Kong residents, she said. The Government had been faced with a large number of expired contracts and the policy change was implemented as an interim measure.