A far-reaching shake-up of the way in which universities are funded was announced by the government yesterday in a bid to turn Hong Kong into a regional centre of academic excellence. Universities are to be rewarded for their performance in research and will be given greater flexibility in recruiting top academics with the aim of producing world-class institutions, said Secretary for Education and Manpower Arthur Li Kwok-cheung. He said the government will largely adopt proposals put forward in a report on higher education reform released in March. Professor Li said future funding would put more weight on the quality of research and teaching, with rewards for innovative teaching. Currently, university funding is largely determined by student numbers. Universities will also be allowed to delink staff salaries from the civil pay scale. He made no mention of the controversial issue of merging institutions. The plans are based on recommendations in a review of higher education conducted by the University Grants Committee (UGC) released in March. A four-month public consultation followed the release of the report, by Lord Sutherland. The UGC has also been asked to conduct periodic comprehensive audits on universities to improve their governance. 'What we want to do is for the universities to focus and reflect on their own strengths so they can concentrate their resources on those areas and make them world-class areas of excellence,' Professor Li said. The proposal of allowing students to switch from one institution to another, gaining credits as they go, was partially adopted. But the original proposal of linking funding to the number of students earning credits at each institution was dropped. The Heads of Universities Committee has supported the change. UGC chairman Alice Lam Lee Kiu-yu said deregulation was a trend in the global higher education sector, allowing institutions to operate more efficiently. He also announced plans to increase second and third-year places for graduates of sub-degree places. He said the new places would help reach the target of ensuring that 18 per cent of young people aged between 17 and 20 have access to tertiary education, up from the present 16.5 per cent. THE MAIN POINTS Funding based on academic excellence Quota for foreign research postgraduate students removed Optional delinking of academic pay with civil service scale More second and third year university places to be offered