Ref No 008/06 - PRIVATE SECTOR PAY REVIEW 2007

Dear Member, The Hong Kong General Chamber of Commerce's annual review of private sector pay trends has become an important guideline for members. It is carefully and thoroughly assessed, and I am pleased to present to you – for your reference only - the Chamber's views on pay trends and the outlook for the year 2007. We believe that in determining appropriate levels of pay for the coming year, members must take into account the circumstances of their own business and industry sector. In addition we continue to advocate strongly the use of "pay for performance" techniques. Hong Kong has had three good years in a row with strong economic growth, high levels of employment, falling unemployment and low inflation. Now, our economy is clearly slowing as indicated by monthly and quarterly data since May 2006. Overseas, the key global driver, the US is also slowing and we believe it prudent to take these factors into consideration. Our Advice As we said in the past, there does not appear to be any justification for a return to the old practice of across-the-board pay hikes. The more practical (albeit more difficult) solution is for employers to target raises through one-off bonuses and other flexible means to reward high performers and essential staff members. Depending on individual company, job title and industry conditions, an increase in total payroll is likely to be necessary for many companies. For those companies who believe their competitive position would be enhanced or protected by increasing compensation, we recommend doing so with the maximum flexibility possible. Using bonuses in a strategic manner specifically designed to achieve certain objectives will ensure that any rise in the overall cost of operations remains manageable as the economy slows. Therefore, for the coming year, the Chamber is not keen to recommend a “percentage pay raise” to its member companies. Rather, we provide the following advice: "Where employees, business units, divisions or companies perform well and exceed their targets, increased financial rewards may include higher base pay. Where ever possible, increased compensation should be managed through one-off bonuses or other non-permanent compensation enhancements. In making such decisions, demand for skill sets, anticipated business conditions and industry competition specific to your company should define adjustments to compensation policy." We hope these thoughts will assist you in your planning for the coming year. Hong Kong faces competitive pressure from other cities, and the economy has clearly passed the peak of the business cycle. Improving productivity and enhancing employment prospects for all, while rewarding those who exceed expectations, will ensure that employers and employees alike benefit from the advantages our city has to offer. Background In reaching a decision on our suggestion on pay for 2007, the following factors were considered: -Economic and business prospects. Demand in the US is slowing, and while growth – and particularly demand for skills – remains strong in the Mainland of China, the trend is likely to follow that of the US. The likelihood of a 2007 recession in the US is rising, and should be seen as the key factor in the world economy. -Competitiveness. Competing markets have steadily improved their regulatory environments and tax rates, while Hong Kong has remained largely static. At the same time, residential, office and retail space is becoming more expensive, reducing the SAR’s overall competitive offering. The rapidly deepening integration with the rest of the low-cost Pearl River Delta will continue to exert pressure on companies to hold down the cost of doing business. I wish to reiterate that each company faces different circumstances, and each business sector different pressures. In an slowing economic environment and amid stiff competition, the Chamber urges all members to study prudently the views in this letter. The decisions you make will not only affect your own business costs and employee morale, but also contribute to setting the tone for those of your fellow members. Hong Kong has had several good years, and we sincerely hope that our key trading and investment partners provide the external stimulus our own economy needs. Good employers will provide proper incentives, training, and career progression possibilities for good employees, while simultaneously working to remain competitive and be good corporate citizens. In the meantime, I hope that you and your business prosper in the coming year. Yours sincerely, David Eldon Chairman