2001-based Manpower Projection for Financial Services up to 2007

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2001-based Manpower Projection for Financial Services up to 2007

Government of the Hong Kong Special Administrative Region June 2003

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2001-based Manpower Projection for Financial Services up to 2007

Economic Analysis Division, Financial Services and the Treasury Bureau in collaboration with

Education and Manpower Bureau and Census and Statistics Department

Government of the Hong Kong Special Administrative Region June 2003

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Manpower projection for financial services up to 2007

Introduction

This report is essentially an adjunct to the main report on “Manpower requirement up to 2007”. It focuses on manpower requirement and training needs in the financial services sector. For consistency and comparability, it adopts a broadly similar format as that of the main report, comprising an overview of the major features and development trends in the financial services sector, quantitative projection of manpower requirement, and a summary of survey feedback from the employers and employees concerned.

Major features of the financial services sector

2. Hong Kong is a major financial centre in the Asia Pacific region, backed by its favourable geographical location, excellent communications network, and absence of restrictions on capital flows. It now runs the world’s 11th largest stock market in terms of market capitalisation, 12th largest banking centre in terms of external transactions, seventh largest foreign exchange market, and is also one of the most vibrant insurance centres. Furthermore, its debt market possesses much potential and has kept on growing.

3. In a move to strengthen Hong Kong’s competitiveness as an international financial centre, the Government has undertaken a three-pronged approach since 1999 to reform the securities and futures market. The package of measures taken include demutualisation and merger of the two exchanges and the associated clearing houses; modernising and rationalising the legal framework for the regulatory regime; and enhancing the infrastructure for the market. Through demutualisation and merger, the Hong Kong Exchanges and Clearing Limited was established in March 2000 and listed in June 2002. On regulatory reform, the Securities and Futures Ordinance has taken effect since 1 April 2003. It consolidates and modernises ten existing ordinances into a composite piece of legislation governing the securities and futures markets. It aims at promoting a user-friendly regulatory regime for the development of a fair, orderly and transparent market that is competitive internationally as well as attractive to investors, securities issuers and securities intermediaries. On market infrastructure reform, FinNet, the secure on-line network connecting financial market participants in Hong Kong, was launched in 2001. This helps expand cross-links with other regulators and market players.

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4. In addition, the Government has been focusing on the development of the Hong Kong dollar debt market, so as to further strengthen Hong Kong’s position as an international financial centre. Since the launch of the Exchange Fund Bills and Notes Programme by the Hong Kong Monetary Authority (HKMA) in 1990, a benchmark yield curve of various maturities has long been established, while the Central Moneymarkets Unit operated by HKMA provides effective clearing and settlement facilities. Apart from HKMA, major issuers in the local debt market include multilateral agencies, authorized financial institutions, the Hong Kong Mortgage Corporation (HKMC), the Mass Transit Railway Corporation Limited, the Kowloon-Canton Railway Corporation, and the Airport Authority Hong Kong. Amongst them, HKMC has been active in promoting the retail bond market. On the other hand, local corporations have not been particularly keen in debt issue. Yet the situation has improved recently, amidst a low interest rate environment. Furthermore, the Government has been working towards simplification of the issuance procedures and continued enhancement to the market infrastructure. Most recently, additional tax concession on trading profits from qualified debt instruments is granted in the 2003/04 Budget. The sustained accumulation of funds under the Mandatory Provident Fund (MPF) System should provide continuing impetus to growth of the Hong Kong dollar debt market.

5. As to the banking sector, Hong Kong has one of the highest concentration of banking institutions in the world. The Real Time Gross Settlement System introduced in 1996 is a robust inter-bank payment system, which allows all payment transactions to be settled in real time across the books of HKMA. In 1999, HKMA announced a three-year programme to raise the level of competitiveness of the banking sector, and to enhance further the safety and soundness of the banking system. This includes relaxation of the one-building condition attached to the licences of foreign banks in that year, full interest rate deregulation in 2001, and current preparation for the introduction of a deposit insurance scheme in Hong Kong.

6. Hong Kong is also one of the most open insurance centres in the world. The business activities involved can be broadly delineated into two main types. One is underwriting of risks by insurers, whether direct insurers or professional re-insurers, which fall in the spheres of life (or long-term) insurance and general insurance. The other is provision of business services by insurance intermediaries (agents or brokers) and related professionals (e.g. actuaries, fund managers, loss adjusters and surveyors, risk management professionals, etc.). In recent years, many banks have either acquired or started insurance subsidiaries, or entered into strategic alliance with insurance companies to offer bancassurance

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products and services through their branch network. Also, new insurance products have been developed, which vary greatly in terms of features and coverage. One notable example is investment-linked life insurance policy. This is due to the combined influence of increased recognition of insurance products as an alternative investment avenue, enhanced awareness of the need to save for retirement, implementation of the MPF Schemes, etc.

Development trends

7. The financial services sector has attained robust growth over the past one and a half decades. Comparing 2001 with 1986, net output or value-added in the sector surged by an average of 13.8% per annum in money terms, much exceeding the overall GDP growth averaging at 9.8% per annum. The increase was concentrated in the period up to 1997. An abrupt downturn occurred in 1998 upon the impact of the Asian financial crisis, followed by a moderate rebound in the more recent years. With this profile, the share of value-added of the financial services sector in GDP leaped from 7.1% in 1986 to 11.1% in 1996, and edged up further to 12.1% in 2001 (Annex 1).

8. Employment in the financial services sector exhibited a similar pattern of movement. Between 1991 and 2001, the number of persons engaged in the sector rose by an average of 6.8% per annum, distinctly outpacing the average annual increase of 1.2% in the total employment. Growth was more pronounced in the period up to 1997, but has since moderated amidst more extensive downsizing and lay-offs in the sector. As a result, the share of persons engaged in the financial services sector in total employment, having soared from 3.5% in 1991 to 5.2% in 1996, rose slightly further to 5.9% in 2001 (Annex 2).

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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 0

20 40 60 80 100 120 140 160

180 Value-added ($Bn)

0 20 40 60 80 100 120 140 160 180 Employment ('000) 200

Chart 1: Value-added and employment in financial services

Employment

Value-added

9. Analysed by sub-sector, banking services had a leap in value-added by an average of 14.9% per annum in money terms over 1986-2001. This was followed by insurance services, with a surge of 13.6% per annum, and by investment and holding companies, stock, commodity and bullion brokers, and miscellaneous financial services taken together, with a surge of 11.1% per annum.

Banking services also rendered the largest contribution to value-added in the financial services sector, with a share of 69.2% in 2001. For investment and holding companies, stock, commodity and bullion brokers, and miscellaneous financial services taken together, the corresponding share was 20.4%. For insurance services, the share was 10.4%.

10. In terms of employment, insurance services had the fastest growth averaging at 9.9% per annum over 1991-2001. This was followed by investment and holding companies, stock, commodity and bullion brokers, and miscellaneous financial services taken together (7.7%), and banking services (4.9%). By employment size, banking services were the largest sub-sector, with a share of 43.0% in 2001. For investment and holding companies, stock, commodity and bullion brokers, and miscellaneous financial services taken together, the corresponding share was 34.7%. For insurance services, the share was 22.3%.

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Value-added in 2001:

Banks (69.2%)

Financial companies other than banks and insurance services (20.4%)

Employment in 2001:

Insurance services (10.4%)

Financial companies other than banks and insurance services (34.7%)

Insurance services (22.3%)

Banks (43.0%)

Total value-added in financial services in 2001: $146.9 bn

Total employment in financial services in 2001: 180 000

Chart 2: Value-added and employment in financial services by constituent segment

11. Over the past years, the financial services sector has not only flourished but also diversified in types of activities, concomitant with structural transformation of the economy. The more significant developments are highlighted below :

¾ Banking services have continued to grow apace in both volume and scope of activities. At end-2002, a total of 318 banking institutions or local representative offices from 38 countries/territories, including 73 out of the world’s largest 100 banks, were in operation in Hong Kong. At the same time, the total value of foreign currency assets held by the banking institutions in Hong Kong reached $3,312 billion (US$425 billion). Indicative of high degree of external orientation, around 55% of its banking business was denominated in foreign currencies.

¾ Hong Kong’s debt market has evolved into one of the most liquid debt markets in Asia. Between 1997 and 2002, the size of the Hong Kong dollar debt market, as measured by outstanding debt securities issued by both the public and private sectors, rose cumulatively by 85%. At end-2002, the value of Hong Kong dollar debt paper outstanding amounted to $533 billion (US$68 billion), equivalent to

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27% of HK$M3 or 20% of the Hong Kong dollar denominated assets of the entire banking sector.

¾ Hong Kong’s equity market is the 11th largest in the world, and third largest in Asia, measured by market capitalisation. Between end-1986 and end-2002, market capitalisation of the Stock Exchange of Hong Kong increased by almost eight times to $3,611 billion (US$463.06 billion)⁽¹⁾. At the end of May 2003, a total of 818 companies were listed on the Main Board and another 171 companies on the Growth Enterprise Market (GEM) of the Stock Exchange of Hong Kong. For GEM alone, it is the third largest second-board market in Asia, after Korea’s Kosdaq and Taiwan’s ROSE.

¾ Hong Kong is also a regional centre for portfolio management activities. The total number of authorized unit trusts and mutual funds surged to 1 906 and the total value to $2,668 billion (US$342 billion) at end-2002, from 1 356 and $1,025 billion (US$132 billion) in 1997. Moreover, it is one of the first jurisdictions in the world to introduce hedge funds to the investing public. At present, there are 284 authorized master trust schemes and pooled investment funds under the MPF System⁽²⁾. The expansion in retirement fund assets is providing added impetus to the growth in fund management business in Hong Kong.

¾ At end-2002, there were 195 authorized insurers from 27 countries/territories operating in Hong Kong. The amount of gross premium for general insurance was $23.3 billion and that for life insurance was higher at $68.3 billion, giving a total gross premium of

$91.6 billion for the entire insurance business in 2002. The growth in life insurance business, by 18% over 1991 – 2002, outpaced that in general insurance business, by 11%.

(1) At end-2002, the stock market capitalisation amounted to US$2,069 billion in Tokyo, and US$463.08 billion in Shanghai and Shenzhen combined.

(2) By end-2002, about 1.7 million employees, 217 000 employers and 302 000 self-employed persons had enrolled in the MPF Schemes, representing coverage ratios of 94%, 96% and 81% respectively.

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¾ Besides being a major insurance centre, Hong Kong is an important regional centre for reinsurance, which accounted for 22% of Hong Kong’s total booked gross premium income last year. At end-2002, 27 professional reinsurers operated in Hong Kong, of which 10 were locally registered.

Projected manpower requirement in the financial services sector up to 2007 12. Projection of manpower requirement has been done for some selected economic sectors and domains up to 2007, based on certain statistical models and feedback from a consultation exercise⁽³⁾. For the financial services sector, manpower requirement is projected to increase from 180 000 in 2001 to 211 500 in 2007. This gives a projected average annual growth rate of 2.7%, faster than that of 1.0% for overall manpower requirement in the economy⁽⁴⁾ (Annex 3).

13. Analysed by sub-sector, the following projection results are noteworthy :

¾ For banking services, manpower requirement is projected to increase from 77 400 in 2001 to 82 000 in 2007, or by an average of 1.0% per annum (Annex4). Growth in business locally and regionally should help create more employment opportunities in the local banking sector.

This may however be partially offset by job losses resulting from more mergers and acquisitions involving the small and medium-sized banks, as well as further relocation of the back-up operations away from Hong Kong.

(3) In the projection exercise, statistical models for 40 major economic sectors have been calibrated for projecting overall manpower requirement in Hong Kong, based on their respective employment data series from 1986 to 2001. The preliminary projection results thereby generated are then examined carefully and refined, taking into account the views of industry leaders, trade association representatives, academic experts, and relevant Government bureaux and departments as obtained from a consultation exercise conducted during June - September 2002.

For details, see “2001-based Manpower Requirement Projection by Economic Sector”, Census and Statistics Department.

(4) This includes all employed Hong Kong residents regardless of their place of work, and excludes foreign domestic helpers.

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¾ For investment and holding companies, stock, commodity and bullion brokers, and miscellaneous financial services, manpower requirement is projected to increase from 62 500 in 2001 to 72 900 in 2007, or by an average of 2.6% per annum, along with more fund raising activities in Hong Kong by enterprises from the mainland of China (the Mainland) (Annex5).

¾ For insurance services, manpower requirement is projected to increase at a faster pace, from 40 100 in 2001 to 56 500 in 2007, or by an average of 5.9% per annum (Annex6), as there still exists considerable scope for expansion in the future in view of the relatively low penetration rate in the local insurance market at present.

14. Analysed by occupation category, the trend towards further skill upgrading is discernible from the projection results :

¾ For managers and administrators, professionals and associate professionals, the respective manpower requirements are expected to increase further in the period up to 2007, with faster growth projected for the latter two occupation categories (Annex 7). The share of professionals in total employment in the financial services sector is thus expected to rise from 6.5% in 2001 to 7.6% in 2007, and that of associate professionals from 37.2% to 44.1%.

¾ That higher-skill personnel will be in greater demand is premised on the continued desire on the part of the financial institutions to improve further the quality of their services in face of keen competition in the market, as well as on the need to strengthen management support to cater for business activities in the Mainland.

¾ Moreover, the sustained robust growth projected for insurance will reinforce the demand for associate professionals. In addition to the Insurance Intermediaries Quality Assurance Scheme introduced in 2000, all insurance intermediaries are required to attend the Continuing Professional Development Programmes as from 2002 to ensure that the required professional standard is preserved.

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¾ Yet owing to widespread application of information technology and on-going relocation of the more labour-intensive operations outside Hong Kong, the demand for clerks is expected to dwindle over time.

The share of clerks in total employment in the financial services sector is envisaged to fall from 33.7% in 2001 to 25.0% in 2007.

15. Concurrent with the shift in manpower requirement towards the higher end of the occupation hierarchy, there is likely to be greater demand for staff with higher educational attainment. Reflecting this, manpower requirement for persons with postgraduate, first degree and sub-degree education is projected to increase visibly, by an average of 7.5-12.5% per annum over 2001 – 2007, exceeding considerably the average growth rate of 2.7% per annum projected for manpower requirement for the financial services sector as a whole (Annex 8).

The share in respect of these three educational groups taken together is thus projected to go up, from 36.2% in 2001 to 49.8% in 2007. On the other hand, manpower requirements for persons with upper secondary education and with lower secondary education and below are projected to fall, with their shares declining from 39.0% and 9.3% respectively to 28.2% and 6.1% over the period.

16. As well as statistical models, econometric models have been used for projecting manpower requirement in the financial services sector up to 2007.

Two single-equation models are calibrated, one for insurance companies and the other for banks and other financial institutions (Annex 9). The projection results likewise point to a much faster growth in manpower requirement in insurance than in banks and other financial institutions in the coming years. This is in line with a sustained strong growth in business envisaged for insurance services generally and life insurance in particular, amidst income growth and continued ageing of the population. As to banks and other financial institutions, though with further growth in business, the influence of corporate downsizing and services automation will continue. Taking all financial services together, manpower requirement is projected to increase by an average of 2.8% per annum over 2001-07. This is broadly similar to the average annual growth of 2.7% as derived from the statistical models.

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Feedback from the establishment survey on business environment, manpower requirement and training needs in respect of financial services

17. In the third quarter of 2002, the Census and Statistics Department conducted an establishment survey⁽⁵⁾on business aspirations and training needs, upon Hong Kong’s economic restructuring and China’s accession to the World Trade Organisation (WTO). For establishments in the financial services sector, the following feedback is relevant :

¾ On business prospects, 48% of the establishments surveyed held an optimistic or very optimistic attitude, while 10% had a pessimistic or very pessimistic view (Annex 10).

¾ On business turnover, 39% of the establishments surveyed predicted sustained growth over the next five years, with 2% even anticipating a significant rise. On the other hand, 16% of the establishments surveyed envisaged a reduction in business turnover, with 5%

expecting a significant drop (Annex 11).

¾ On investment projects in the Mainland, slightly over a quarter (26%) of the establishments surveyed were found to have undertaken such projects (Annex 12).

¾ On business opportunities generated from China’s accession to WTO, 46% of the establishments surveyed foresaw more opportunities to arise in the coming years, while 47% did not think so (Annex 13).

¾ On business environment in Hong Kong, China’s accession to WTO was expected to bring about both opportunities and challenges to financial institutions in Hong Kong. The financial institutions were particularly concerned about “need to better understand the market and changes in investment environment in the Mainland”, “face

(5) The survey successfully enumerated some 4 200 establishments to collect their views on manpower requirements and training needs in Hong Kong over the next five years, amidst further structural change in the economy, as induced by rapid advances in information technology and e-commerce, globalisation and liberalisation of trade and investment, China’s accession to WTO, and closer economic integration between Hong Kong and the Mainland.

The response rate attained was 90%.

It is estimated from the survey that about 8 000 establishments were engaged in financial services, employing some 156 400 persons, as at mid-2002.

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keener competition from enterprises in the Mainland”, and “more companies to relocate business operations to the Mainland”

(Annex 14).

¾ In order to cope with changes in business environment, over half of the establishments surveyed were inclined to step up efforts in the following areas (Annex 15) :

• increase the use of IT within the company (65%); and

• focus on the core business and reduce the peripheral business with lower value-added content (54%).

18. On future manpower requirement and training needs, the financial services establishments surveyed gave the following views :

¾ Better educated staff would continue to be sought for improving work efficiency and productivity in the financial services sector.

Reflecting this, the establishments expected a notable increase in the proportion of persons with postgraduate, first degree and sub-degree education in total manpower requirement for the financial services sector up to 2007. The corresponding proportion for persons with secondary education and below was however expected to decrease over the same period (Annex 16).

¾ Analysed by occupation category, there would likely be a notable increase in the proportions of professionals, and service workers and shop sales workers in overall manpower requirement for the financial services sector up to 2007. Yet a more distinct decrease in proportion was envisaged for clerks (Annex 17).

¾ On training plans and budget, the financial services establishments surveyed indicated that :

• Amongst those establishments employing staff, 18% had training plans and 20% had training budget (Annex 18).

• Analysed by occupation category, managers and administrators, and professionals were preferred to have their management skills enhanced, and craft and related workers to have their job-specific skills enhanced. As to associate professionals, clerks, and plant

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and machine operators and assemblers, the focus of training should preferably be geared to language skills. For the remaining occupation categories, it was interpersonal and intrapersonal skills for the workplace that needed to be enhanced (Annex 19).

• As to mode of training, extra-mural courses were most preferred, followed by in-house training and on-the-job training (Annex 20).

Feedback from the household survey on employment concerns and training needs in respect of persons engaged in the financial services sector

19. In the third quarter of 2002, the Census and Statistics Department had separately conducted a thematic household survey on employment concerns and training needs of the local workforce⁽⁶⁾. From persons engaged in the financial services sector, the following feedback is noted :

¾ On perceived prospects of the sector, nearly half (48%) of the persons engaged anticipated either a moderate or fast growth over the next five years. Yet at the same time, 35% predicted only slow growth, 9% zero growth, and 8% even a contraction in business (Annex 21).

¾ On challenges/problems faced, “keen competition amongst companies within the sector” was most commonly cited by the persons engaged (50%). This was followed by “corporate downsizing” (45%), “cost reduction (including salary/wage cuts)”

(22%), and “contraction of business” (21%) (Annex 22).

¾ When asked about whether they had been affected by the prevalence of corporate restructuring, 34% of the persons engaged replied in the affirmative. Amongst those affected, 62% indicated that they had encountered “increasing work pressure”, 49% “longer working hours”, and 28% “salary/wage cuts” (Annex 23).

(6) The survey successfully enumerated some 8 000 households. Within each successfully enumerated household, all economically active persons were interviewed to collect information on their aspirations as well as their employment concerns and training needs over the medium term in face of structural change in the economy. The response rate of the survey was 72%.

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¾ On possession of job-specific skills, 96% of the persons engaged claimed to have sufficient or very sufficient job-specific skills to cope with the current job requirements (Annex 24).

¾ On training needs, 25% of the persons engaged had attended job-related training/retraining courses arranged by their employers in the past 12 months, while 16% had attended job-related training/retraining courses on their own initiative (Annex 25).

¾ On plans to attend job-related training/retraining courses, some 39%

of the persons engaged had such plans in the coming 12 months.

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Annex 1

Value-added of financial services

Value-added at current market prices

Average annual rate of change in value terms 1986 1996 2001 1986-96 1996-2001 1986-2001

($Bn) ($Bn) ($Bn) (%) (%) (%)

Financial services 21.0 128.2 146.9 19.8 2.8 13.8

(7.1) (11.1) (12.1) Of which :

(a) Banks 12.6 93.1 101.7 22.1 1.8 14.9

(b) Investment and holding companies; stock, commodity and bullion brokers; and

miscellaneous financial services

6.1 23.6 29.9 14.4 4.9 11.1

(c) Insurance services 2.3 11.6 15.3 17.8 5.7 13.6

c.f. Overall GDP at factor cost 297.7 1,159.0 1,216.2 14.6 1.0 9.8

Notes : ( ) Figures in brackets represent % shares in GDP.

Figures may not add up exactly to the total due to rounding.

Source : Census and Statistics Department.

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Annex 2

Employment in financial services

Number of

persons engaged* Average annual growth rate

1991 1996 2001 1991-96 1996-2001 1991-2001

(%) (%) (%)

Financial services 93 300 150 800 180 000 10.1 3.6 6.8

(3.5) (5.2) (5.9)

Of which :

(a) Banks 48 000 68 600 77 400 7.4 2.4 4.9

(b) Investment and holding companies;

stock,

commodity and bullion brokers;

and

miscellaneous financial services

29 700 54 000 62 500 12.7 3.0 7.7

(c) Insurance services 15 600 28 300 40 100 12.6 7.2 9.9

c.f. Total employment in the economy (net of foreign

domestic helpers)

2 682 700 2 925 200 3 029 400 1.7 0.7 1.2

Notes : (*) Figures for 1996 and 2001 are based on the “resident population” approach, while those for 1991 are based on the former “extended de facto population” approach.

( ) Figures in brackets represent % shares in total employment in the economy.

Source : Composite Employment Estimates, Census and Statistics Department.

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Annex 3

Projection of manpower requirement for financial services in 2007

Actual employment

in 2001

Projected manpower requirement

in 2007 Change in 2007 over 2001

Number Number Number % change

Average annual %

change

Financial services 180 000 211 500 31 500 17.5 2.7

Of which :

(a) Banks 77 400 82 000 4 700 6.0 1.0

(b) Investment and holding companies; stock, commodity and bullion brokers; and miscellaneous financial services

62 500 72 900 10 400 16.6 2.6

(c) Insurance services 40 100 56 500 16 500 41.1 5.9

c.f. Total employment in the economy (net of foreign domestic helpers)

3 029 400 3 222 700 193 300 6.4 1.0

Note : Figures may not add up exactly to the total due to rounding.

Source : 2001-based Manpower Requirement Projection by Economic Sector, Census and Statistics Department.

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Annex 4

Projection of manpower requirement for banks in 2007

Average annual growth rate

of employment (%) Model

Average annual growth rate during

2001-07 (%) 1986-2001 : 2.00 Partial sum modified

exponential 0.98

1991-2001 : 0.81 Linear 3.35

1991-1996 : 2.00 Log parabola -2.45

1996-2001 : -0.36

Main points

z Upon China's accession to WTO, there is likely to be an increase in foreign direct investment in the banking sector. This will bring about more business to banks both in the Mainland and in Hong Kong. For Hong Kong in particular, this "business creation-effect" is likely to outweigh the "business diversion effect".

z The relaxation of asset requirement for overseas-incorporated banks will provide an added incentive for more overseas banks to set up branches in Hong Kong.

z Yet manpower requirement may be adversely affected by the on-going relocation of ancillary activities like data handling tasks, call centres and electronic banking transactions across the boundary, which in turn will hinge on the cost and quality of manpower resources in Hong Kong vis-à vis those in other places, including in particular the Mainland.

0 20 000 40 000 60 000 80 000 100 000 120 000

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Year

Number of employed persons….

Actual

Partial sum modified exponential Linear

Log parabola

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z Despite increased popularity of e-banking services, traditional banking services rendered on a branch network basis will continue to be needed.

z Banks have been progressively diversifying their business into "financial supermarkets" to encompass, inter alia, fund management, securities, insurance and MPF-related services. Yet the impact on overall manpower requirement in the financial services sector is not likely to be large, as the existing staff have been trained to cater for such new businesses.

z The banking sector is very sensitive to developments in the global economy. Yet unless a visible downturn in the global economy occurs, it seems likely that manpower requirement in the financial services sector will have a sustained, albeit somewhat slower, growth in the next several years.

Projection after incorporating expert views and judgement

Model-derived growth rate + Additive factor (% point of adjustment) = Projected growth rate Model chosen

Base-year (2001)

figure 2001-07

Projected (2007) figure Partial sum modified

exponential 77 400 0.98% + 0.00% = 0.98% 82 000

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Annex 5

Projection of manpower requirement for other financial services in 2007

a. Investment and holding companies

2001-07 (%)

1986-2001 : 2.28 Constant 0.00

1991-2001 : 4.03 1991-1996 : 10.87 1996-2001 : -2.40

0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Year

Actual

Constant

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b. Stock, commodity and bullion brokers, exchanges and services

2001-07 (%) 1986-2001 : 6.12 Least square modified

exponential 2.68

1991-2001 : 3.71 Linear 3.70

1991-1996 : 5.16 Log linear 6.52

1996-2001 : 2.28

0 5 000 10 000 15 000 20 000 25 000

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Year

Actual

Least square modified exponential Linear

Log linear

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c. Other financial institutions

2001-07 (%)

1986-2001 : 8.42 Linear 5.08

1991-2001 : 2.90 Log linear 10.34

1991-1996 : 3.99 Partial sum modified

exponential -0.02

1996-2001 : 1.81

Main points

z Manpower requirement in investment and holding companies has exhibited a fairly erratic movement over the past years, making it difficult to project the future trend. For the purpose of this exercise, the respective manpower requirement is assumed to stay constant at the 2001 level.

z The role of Hong Kong as a listing centre for the Mainland enterprises is expected to sustain, as investors generally maintain good faith in Hong Kong's securities market, underpinned in particular by the rule of law and the regulatory standards. The longer-term prospects will depend on how well the securities market in the Mainland builds up its strength over time.

z For the other financial institutions, manpower requirement is projected to remain on a steady increase.

0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Year

Actual

Linear

Log linear

Partial sum modified exponential

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Model-derived growth rate + Additive factor (% point of adjustment) =

Projected growth rate Model chosen

Base-year (2001)

figure 2001-07

Projected (2007) figure Investment and holding companies

- Constant 24 300 0.00% + 0.00% = 0.00% 24 300

Stock, commodity and bullion brokers, exchange and services

- Least square modified exponential

16 600 2.68% + 0.00% = 2.68% 19 500

Other financial institutions

- Linear 21 600 5.08% + 0.00% = 5.08% 29 100

Total 62 500 - 72 900

Note : The average annual growth rate of financial institutions (other than banks and insurance) is projected at 2.59% for the period 2001-07.

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Annex 6

Projection of manpower requirement for insurance services in 2007

2001-07 (%)

1986-2001 : 11.17 Linear 5.91

1991-2001 : 11.06 Least square modified

exponential 9.50

1991-1996 : 15.68 Log parabola 8.97

1996-2001 : 6.63

Main points

z The insurance industry recorded double-digit growth over the past 15 years. Yet the market is still far from saturated.

z Recognising the relatively low penetration rate and granting sustained economic growth, the insurance industry can be expected to maintain robust growth in the years ahead.

0 20 000 40 000 60 000 80 000 100 000

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Year

Number of employed persons

Actual

Linear

Least square modified exponential Log parabola

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Model-derived growth rate + Additive factor (% point of adjustment) = Projected growth rate Model chosen

Base-year (2001)

figure 2001-07

Projected (2007) figure

Linear 40 100 5.91% + 0.00% = 5.91% 56 500

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Annex 7

Projected manpower requirement for financial services in 2007

by occupation category

in 2001

Projected manpower

requirement in 2007 Change in 2007 over 2001

Number % share Number % share Number % change

Average annual %

change Managers and

administrators 34 600 19.2 44 200 20.9 9 600 27.7 4.2

Professionals 11 800 6.5 16 200 7.6 4 400 37.4 5.4

Associate professionals 67 000 37.2 93 300 44.1 26 200 39.1 5.7

Clerks 60 700 33.7 52 900 25.0 -7 800 -12.8 -2.3

Service workers and shop

sales workers 200 0.1 100 0.1 -100 -33.3 -6.5

Craft and related workers 400 0.2 400 0.2 # -0.7 -0.1

Plant and machine operators

and assemblers 1 000 0.6 800 0.4 -300 -26.4 -5.0

Elementary occupations 4 200 2.4 3 600 1.7 -600 -15.0 -2.7

Overall 180 000 100.0 211 500 100.0 31 500 17.5 2.7

Notes : (#) Change in number being less than 50.

Source : 2001-based Manpower Requirement Projection by Occupation Category and Educational Attainment within Economic Sector, Education and Manpower Bureau.

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Annex 8

Projected manpower requirement for financial services in 2007

by educational attainment

in 2001

Projected manpower

requirement in 2007 Change in 2007 over 2001

Number % share Number % share Number % change

Average annual %

change

Postgraduate 12 500 6.9 19 300 9.1 6 800 54.4 7.5

First degree 43 700 24.3 67 600 32.0 24 000 54.9 7.6

Sub-degree 9 100 5.1 18 400 8.7 9 300 102.6 12.5

Technician 6 100 3.4 6 600 3.1 500 8.1 1.3

Craft 300 0.2 500 0.2 200 56.1 7.7

Matriculation 21 500 11.9 26 600 12.6 5 100 23.9 3.6

Upper secondary 70 200 39.0 59 600 28.2 -10 600 -15.1 -2.7

Lower secondary and below 16 700 9.3 12 900 6.1 -3 800 -22.7 -4.2

Overall 180 000 100.0 211 500 100.0 31 500 17.5 2.7

Note : Figures may not add up exactly to the total due to rounding.

Source : 2001-based Manpower Requirement Projection by Occupation Category and Educational Attainment within Economic Sector, Education and Manpower Bureau.

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Annex 9

Econometric model for projecting

manpower requirement in financial services up to 2007 Model structure

Based on the actual data input for 1991-2001, two single-equation models are calibrated for projecting manpower requirements in banks and other financial institutions and in insurance services. By reference to a priori reasoning and revelation from the test statistics, the following two models are chosen :

log EMBFI_t = -2.249 + 1.000 log GDP_t (-3.40) (21.02)

R² = 0.9652 R² = 0.9565 DW = 2.014

log EMINS_t = -42.228 + 0.544 log WAGE_t + 3.235 log POP18_t

(-3.28) (1.36) (3.38)

R² = 0.9756 R² = 0.9696 DW = 1.784

Note : ( ) Figures in brackets represent the t-statistics of the respective regression coefficients.

where EMBFI_t = manpower requirement in banks and other financial institutions except insurance in period t

EMINS_t = manpower requirement in insurance services in period t GDP_t = Gross Domestic Product at current market prices in period t WAGE_t = nominal wage index in period t

POP18_t = population aged 18 and above in period t Assumptions

2. The input assumptions adopted for the various explanatory variables are summarised below :

(a) GDP at current market prices is assumed to follow a trend growth rate of around 3% per annum over 2003-07.

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(b) In line with the expectation for only a mild inflation over the medium term, the nominal wage rate is assumed to fall by around 2% in 2003, followed by a modest increase during 2004-07.

(c) According to the 2001-based population projection by the Census and Statistics Department, the size of the population aged 18 and above is projected to increase by an average of 1.5% per annum over 2002-07.

Projection results

3. The projection results are summarised below :

Manpower requirement in :

Actual average annual growth

Projected average annual growth rate during rate during

1991* 2001* 2007⁺ 1991-2001 2001-07

(%) (%)

Financial services 93 300 180 000 212 100 6.8 2.8

Of which : Banks and other

financial institutions

(except insurance)

77 700 139 900 155 900 6.1 1.8

Insurance services 15 600 40 100 56 200 9.9 5.8

Notes : (*) Actual figures.

(+) Projected figures.

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Annex 10

Business prospects over the next 5 years in view of

Hong Kong’s economic restructuring and China’s accession to WTO - Financial services

Number of establishments

Degree of optimism :

Size of

establishment*

Very

optimistic Optimistic

Neither optimistic

nor

pessimistic Pessimistic

Very pessimistic

No

comment Total

Small 24

(0.4)

3 256 (49.5)

2 404 (36.6)

401 (6.1)

223 (3.4)

263 (4.0)

6 571 (100.0) Medium-sized 16

(1.4)

378 (33.5)

429 (38.0)

186 (16.5)

0 (0.0)

121 (10.7)

1 130 (100.0)

Large 15

(4.8)

134 (42.3)

85 (26.8)

12 (3.8)

0 (0.0)

71 (22.4)

317 (100.0)

Overall 56

(0.7)

3 768 (47.0)

2 918 (36.4)

599 (7.5)

223 (2.8)

454 (5.7)

8 019 (100.0)

Notes : (*) Establishments are categorised into small, medium-sized and large enterprises according to the number of persons engaged. For establishments in the non-manufacturing sector, those employing less than 10 persons are classified as small enterprises, 10-49 persons as medium-sized enterprises, and 50 persons and more as large enterprises.

( ) Figures in brackets represent % shares in the respective row totals.

Source : Report on 2002 Establishment Survey on Manpower Training and Job Skills Requirements, Census and Statistics Department.

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Annex 11

Impact of Hong Kong’s economic restructuring and

China’s accession to WTO on business turnover over the next 5 years - Financial services

Impact on business turnover : Significant

increase

Some increase

No change

Some decrease

Significant decrease

No

comment Total 174

(2.2)

2 943 (36.7)

3 185 (39.7)

818 (10.2)

437 (5.5)

461 (5.7)

8 019 (100.0)

Note : ( ) Figures in brackets represent % shares in the total.

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Annex 12

Investment in the mainland of China - Financial services

Whether having investment in the mainland of China

Yes No Not specified Total

2 071 (25.8)

5 674 (70.8)

274 (3.4)

8 019 (100.0)

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Annex 13

New business opportunities brought about by China’s accession to WTO - Financial services

Whether expecting new business opportunities

Yes No Not specified Total

3 715 (46.3)

3 735 (46.6)

569 (7.1)

8 019 (100.0)

(35)

Annex 14

Implications for Hong Kong’s business environment over the next 5 years upon China’s accession to WTO

- Financial services

Major areas of concern Number of establishments

Need to better understand the market and changes in investment environment in the mainland of China

5 934 (74.0)

Face keener competition from enterprises in the mainland of China

5 743 (71.6) More companies to relocate business operations to

the mainland of China

5 635 (70.3) More inducement to conduct business in the

mainland of China upon more objective and transparent rules and regulations

5 310 (66.2)

Benefit from increase in business opportunities arising from liberalisation of the Mainland market

5 251 (65.5)

Face keener competition from overseas companies 4 940 (61.6) Hong Kong's middleman role in provision of

services to strengthen further

4 834 (60.3)

Hong Kong's middleman role to diminish 4 398

(54.9)

Note : ( ) Figures in brackets represent % shares in the total number of establishments engaged in financial services.

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Annex 15

Measures to be taken over the next 5 years to cope with

Hong Kong’s economic restructuring and China's accession to WTO - Financial services

Measure Number of establishments

Increase the use of IT within the company 5 196 (64.8) Focus on the core business and reduce the peripheral

business with lower value-added content

4 327 (54.0)

Diversify the business of the company 3 972

(49.5) Upgrade the capability of the workforce on

technology and language skills

3 488 (43.5)

Expand business in the mainland of China 3 423

(42.7)

Note : ( ) Figures in brackets represent % shares in the total number of establishments engaged in financial services.

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Annex 16

Percentage distribution of persons engaged as at mid-2002 and mid-2007 by educational attainment

Educational attainment Percentage distribution of persons engaged

Mid-2002 Mid-2007

Postgraduate 4.6 6.1

First degree 30.0 43.1

Sub-degree 7.2 8.6

Technician 1.3 1.4

Craft 0.4 0.3

Matriculation 16.7 15.6

Upper secondary 35.4 22.2

Lower secondary and below 4.3 2.8

Overall 100.0 100.0

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Annex 17

Percentage distribution of persons engaged as at mid-2002 and mid-2007 by occupation category

Occupation category Percentage distribution of persons engaged

Mid-2002 Mid-2007

Managers and administrators 24.9 24.5

Professionals 11.7 12.1

Associate professionals 16.3 16.1

Clerks 39.7 38.9

Service workers and shop sales workers

3.3 4.5

Craft and related workers 0.2 0.2

Plant and machine operators and assemblers

0.5 0.4

Elementary occupations 3.4 3.3

Overall 100.0 100.0

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Annex 18

Training plans/training budget for employees - Financial services

Whether having training plans/training budget for employees

Yes No

Not

specified Total

Training plans 1 195

(17.7)

5 342 (79.2)

211 (3.1)

6 748 (100.0) Training budget 1 383

(20.5)

5 153 (76.4)

212 (3.1)

6 748 (100.0)

Note : ( ) Figures in brackets represent % shares in the respective totals.

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Annex 19

Types of skills to be enhanced by occupation category - Financial services

Occupation category Type of skill to be enhanced Managers and administrators Management skills

Professionals Management skills

Associate professionals Language skills

Clerks Language skills

Service workers and shop sales workers Interpersonal and intrapersonal skills for the workplace

Craft and related workers Job-specific skills Plant and machine operators and

assemblers

Language skills

Elementary occupations Interpersonal and intrapersonal skills for the workplace

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Annex 20

Preferred training mode - Financial services

Ranking Preferred training mode

1 Extra-mural courses

2 In-house training

3 On-the-job training

4 Contract-out

5 Self-learning (outside office hours)

6 Distance learning

7 Web-based training