CHINA'S top man in Hong Kong last night made a scathing attack on the Government's pension plan, warning of financial dangers and erosion of business confidence. Zhou Nan, local director of Xinhua (the New China News Agency), warned that transplanting a Euro-socialist pay-as-you-go concept into the territory - referring to the Government's old age pension scheme - would be too costly for Hong Kong, both now and after 1997. Without mentioning the pension scheme, he said the territory's successful policy of low tax and a balanced budget would be jeopardised 'if we drastically expand budgetary deficits and over-commit ourselves with regard to benefit payments and other expenditures in the transition period'. Mr Zhou, speaking at the Hong Kong Management Association's annual fellowship dinner, was making an address in English for the first time since he took over Xinhua in 1991. His criticism of the pension scheme was by far the clearest sign from the Chinese Government that it will oppose the scheme when it is tabled for discussion at the Joint Liaison Group. Government officials have strongly hinted they would drop the plan if China said no. Under the scheme announced in July for consultation, all eligible residents would get a monthly pension of $2,300 (in 1994 dollar terms) when they reached 65. The money would come from a proposed contribution of 1.5 per cent of the employee's monthly income, paid by both employees and employers. Despite the collapse of the 'through-train' arrangement, Mr Zhou argued that China's decision to disband the three tiers of government after 1997 was 'instrumental in reducing the uncertainties over Hong Kong's future political structure, and in defeating the efforts to destabilise Hong Kong's political transition'. Maintaining economic prosperity, the Xinhua chief said, was beginning to figure (Cont'd from Page 1) more prominently as 1997 approached. Citing the dynamic growth of the mainland economy, he said the 'China factor' was a positive one that could not be removed or replaced. 'However, there is a possibility that another key element in Hong Kong's economic success, namely, its economic structure, might be changed on purpose.' Mr Zhou said. 'In my view, it will be ill-advised for anyone to attempt this for the sake of one's own political positioning. 'We are seeing disconcerting signs of attempted changes, proposed in the name of lofty causes. These will definitely bring serious negative impact on the future of Hong Kong.' Although Hong Kong needed to develop new infrastructure projects and care for the poor and the old, Mr Zhou said this must be done carefully, taking into account 'the cost to taxpayers, the cost to budgetary balance and the cost to Hong Kong's overall economic structure and its free market orientation'. Referring to a World Bank report on pension schemes released in September, Mr Zhou said the 'pay-as-you-go' pension strategy in some Western countries had a history of grossly under-estimating liabilities and grossly over-estimating funding projections. 'The World Bank's statistics and analysis are not irrelevant to Hong Kong's situation,' he said. 'I remember dining in a Chinese restaurant in New York many years ago. After dinner the waiter served fortune cookies, and the message that I got read: 'The person sitting right next to you isn't going to pay for his meal'. 'This American-made practical joke has an ironic sense of reality in today's Hong Kong. 'Drastically expanded benefit payments and benefit commitments are being offered in the disguise of a free meal. The departing colonial authorities are not going to foot the bill. The taxpayers of Hong Kong will. 'All the 'beneficiaries' will see money being shifted from one pocket into another, with a government bureaucracy serving as a value-subtracted intermediary,' Mr Zhou said. He indicated that the price to be paid by the Special Administrative Region would be 'budgetary imbalance, tax hikes, reduced financial market liquidity which will result in eroded foreign investors' confidence'. 'We must watch very closely every spending move made by the [Hong Kong] authorities, either in cash or in terms of commitments. Hong Kong's future will depend on our vigilance and our perception, and most of all, on our desire and ability to uphold the Basic Law,' he said. Noting the concerns raised by local people over the 'massive spending package,' Mr Zhou said 'an accountable government should give such considerations a high priority'.