Beijing's budget worries

Fanny Wong

BOTH the Joint Declaration and the Basic Law promise Hong Kong financial autonomy after 1997, but it seems that the provision has become increasingly irrelevant.

The signing by China and Britain of the Memorandum of Understanding on the new airport project was the first step towards diluting the credibility of this clause. But the two sides' recent 'negotiation' through the media over how consultation should be done on the formulation of Hong Kong's future budgets renders the provision meaningless.

A straightforward interpretation of the promise is that the Hong Kong administration is trusted to be fully capable of managing the territory's public finances without the need of help from the central government.

Last Wednesday, Governor Chris Patten offered in his policy speech to consult China on the 1997-98 Budget to facilitate a smooth handover on the financial front.

Over the weekend, the Beijing-appointed Preliminary Working Committee (PWC) went a step further by demanding that the British side should start consulting China on the 1995-96 Budget through the Sino-British Joint Liaison Group (JLG) as next year's Budget would already have a direct bearing on the post-1997 administration's finances.

By signing the airport memorandum, Britain has legitimised China's right to interfere in Hong Kong's financial matters. Securing a say on the drafting of the annual budgets is probably the next logical step. Beijing believes it has an obligation to speak on behalf of the Special Administrative Region (SAR) government which will not be formed until July 1, 1997.

One of mainland officials' worst fears in the run-up to 1997 is British officials depleting Hong Kong's wealth, secretly siphoning off massive funds back to London.

The fear is evident in the airport memorandum and in China's demand at the recent JLG plenary meeting for full details of Hong Kong's total assets, such as how the territory's reserves and Exchange Fund are being invested.

Although as early as August, Hong Kong officials started briefing Chinese officials on how the budgets are formulated, China is not content with the information provided so far. It believes it is inadequate.

China may consider that knowing only the broad framework of drawing up a budget, the mechanism of accounting and how expenditure is allocated is simply not enough because it cannot check whether Britain is cheating. It may be more important to know the assumptions used in arriving at those figures and the principles behind those assumptions.

There are grounds for China's suspicion that Britain has been massaging the figures. A good example is the sharp contrast in the budget forecasts for this and the last financial year.

In last year's Budget, Financial Secretary Sir Hamish Macleod predicted a period of high deficit in the run-up to 1997 so that the fiscal reserves would be down to $78 billion in 1996-97. But in March, he substantially revised the reserve level to $120 billion. No wonder mainland officials wonder whether this is purely a numbers game.

HONG Kong officials are fully aware of Beijing's suspicion and hence the budget briefings have been conducted.

But, as Treasury Secretary Donald Tsang Yam-kuen has pointed out, sensitive information such as Hong Kong's investment strategy - which is vital to the territory's financial well-being - can only be disclosed under very strict guidelines.

Chinese officials have reportedly suggested that all the information handed over should also be passed on to PWC members. If this were true, the Hong Kong administration would think it even more dangerous to reveal any sensitive data because it might mean opening the records to a wide audience.

However, the crux of the problem is that even if Hong Kong were to sacrifice its financial autonomy completely and be frank with China - opening all its books for Beijing's inspection - mainland officials would still be suspicious. The consequence of the breakdown of Sino- British relations is that the present Hong Kong administration under British rule simply cannot be trusted by the Chinese.