Saturday 4 February 2012

No to Sharia Finance in Hong Kong

Update, 7 Feb: Christine replied on 5th Feb: "Pointing it out doesn’t mean I support it!!!!..." [exclamation marks in the original!!]
Christine Loh is a fine and sensible woman, head of  Civic Exchange an independent non-profit think tank in Hong Kong. Email to her 4th Feb:
Dear Christine,
You say (“Pressure relief?” Feb 3):
On Islamic finance, Tsang hopes to introduce legislation before he steps down as "we are close to finalising the draft amendments to the relevant legislation". For some reason, this has taken a very long time since a dedicated team was set up in 2007 to promote this type of financial service. [emphasis added]
But do we really want Sharia-Compliant Finance (aka Islamic Finance)?  Sukuk Bonds do not only avoid investment in industries connected with alcohol, gambling or pork. They also prohibit investments in companies or products that benefit non-Islamic religions; any project that promotes equal rights for women and gays; any western defence industries (but not Muslim ones); any western books, films, TV and radio.  And, of course, they prohibit investment in any company having links with Israel. In short, they are egregiously discriminatory in a way that surely we ought not to be promoting; they may even be illegal by Hong Kong’s laws.
As for the alleged “interest-free” nature of Sharia loans, you may know that they structure deals with sale and buyback provisions, with profit margins at levels equivalent to prevailing interest rates.  In other words they are an elaborate ploy of form over substance.  Yet we have to change our tax system to accommodate it?
I am against promotion of Sharia Compliant Finance in Hong Kong.  I urge you to look into Islamic Finance more closely as there are many other problematic issues with it.  I’d be happy to indicate some references to you if you wish.

Yours, etc. 
Christine's article below the fold

Pressure relief?

Christine Loh looks beyond the unsurprising array of populist concessions and subsidies in the budget and finds cause for complaint, despite John Tsang's apparent desire to counter the difficult times ahead

Nothing, it seems, can undermine the resilience and resourcefulness of Hong Kong people and its business community. The budget shows yet again just how strong public finances are. A large surplus - HK$66.7 billion - is estimated for the current year, and Hong Kong can look forward to growth despite a tough general economic outlook. Financial Secretary John Tsang Chun-wah revealed that, by this time next year, the fiscal reserves are expected to equal 34 per cent of gross domestic product, or equivalent to 20 months of government expenditure.

He proposed various minor tax concessions and subsidies, such as waiving rates and business registration fees, halving import and export declaration charges, one-off cuts in business and profit tax, and handouts for electricity charges and public housing rents.
These were essentially populist gestures, although the financial secretary says he wants to relieve the pressure on families, create jobs and fight inflation in the difficult months ahead.
But there are likely to be complaints.
For example, salaries tax allowances were raised but without any proper explanation of how the concessions were decided. For the basic and married person's allowance, the increase was 11 per cent - double the rate of inflation last year and well above the 3.5 per cent headline figure he forecast for 2012. Yet, for dependent parents and grandparents, the allowance was raised by only 5.5 per cent.
He boasted that the 11.1 per cent increase of median household income from HK$18,000 to HK$20,000, "an increase of 5.1 per cent in real terms", reflected "an improvement in the livelihood of grass roots in the past year". In 1997, however, median household income was already HK$19,000, so progress has been very slow.
He could have done more for all of us by making the cost of medical insurance to individuals tax-deductible. It was lamentable that the financial secretary failed to make this tax concession although it had been an election pledge of the chief executive.
His budget also failed to give all 360,000 needy students who currently receive help the full remission of their transport fees, and textbook and other costs. Moreover, his various education initiatives this year were largely focused on the already privileged and self-financing sectors of the education system, which makes his miserly attitude towards students from poor families that much harder to understand.
One good decision was the announcement that an additional HK$200 million will be provided to increase the number of first-year first-degree places in medicine by 100, nursing by 40 and allied health by 146. This measure will assist in tackling the crisis caused by the shortage of doctors and nurses that is especially acute in the public sector.
What about the Community Care Fund? Tsang could have filled the shortfall created by the failure of the chief executive to raise the full HK$5billion he had forecast in donations from the business community, to provide welfare services that are currently not available. But the financial secretary preferred to heap vague praise on the fund and its performance, while leaving it to find its own financial solutions.
With regard to promoting Hong Kong as an international financial centre, there were no concrete initiatives to find a way to accelerate the expansion of the renminbi market. All Tsang felt able to say was that "we should improve our market infrastructure, seek to enhance the market connectivity of the mainland and Hong Kong and increase our market capacity".
These platitudes are unlikely to promote confidence around the world in the ability of Hong Kong officials to get things done in Beijing. He could at least set up a specialist body with credible experts to help identify practical solutions to expand international use of the renminbi.
On Islamic finance, Tsang hopes to introduce legislation before he steps down as "we are close to finalising the draft amendments to the relevant legislation". For some reason, this has taken a very long time since a dedicated team was set up in 2007 to promote this type of financial service.
He ended on a note of pathos, making an effort to show how much he has done personally for the economy and community during this administration, together with an attempt to present himself as a "team player" with legislators.
"I shall never forget the days when we were working together to fight against the financial turmoil," he said. He must be finding political life very much harder today.
Christine Loh Kung-wai is chief executive of the think tank Civic Exchange.