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Following is the transcript of the question-and-answer session by the Chief Executive, Mr Tung Chee Hwa, after delivering a speech at the Asia Society this morning (Thursday):
Question: I am Barry Wain from The Asian Wall Street Journal. Mr Tung, I just wonder if you can put some sort of a timetable on Hong Kong's recovery and perhaps for the recovery of the rest of the region. You have no doubt that the region is coming back, you have said that Hong Kong will be the centre of the world's most exciting area once again, one day. And earlier in your speech you did say you expected the crisis to bottom-out in the next couple of years. What sort of timetable do you see for Hong Kong and the region's recovery?
Mr Tung: Barry, if I were an economist I would give you an answer: on the one hand it is going to be like this, on the other hand it is going to be like that. It is, really, very difficult because market forces are at play, events which are very often beyond the control of any single government at play, and these are all forces that will affect the speed of recovery. But if it is a normal situation, I would think it will take Asia a couple of years to bottom-out and then recovery will start. Maybe a little bit longer but that sort of time frame. But we have to realise that forces are at play - economic forces are at play, financial forces are at play, which single governments have difficulty in controlling.
Insofar as Hong Kong is concerned, again we have to be looking at all the forces at play around us. At this moment, of course, for reasons understandable, interest rates in Hong Kong remain high. Actually, at the long end of the interest rate, the differential between the US dollar and the HK dollar has narrowed to about 2.5%. But at the short end interest rates in Hong Kong remain very high - and it is understandable.
And I think the recovery will come when, firstly, you see signs of interest rates easing, and secondly, I would like you to know that in the Budget which was introduced on February 18, we introduced a tax cut which is equal to one per cent of our GDP, and we have increased expenditure and investment, particularly in infrastructure and education, equal to three per cent of the GDP. So, in fact, fiscally we have put in a lot with a view to getting our economy going again. But you and I all know that the fiscal measures will take time for it to come through the economy. So, things are at work and I should not be too pessimistic. I am sorry, Barry, I can't quite give you a timetable at this moment.
Presenter: We are looking for something precise - like June 30, 2000. Does anyone else have a question? Can I just ask you before we let you go, you gave a very eloquent defence and case for defending the peg. There are many people who continue to believe that late this year or early next year, China will devalue. Will you be able to give the same defence of the peg at that point?
Mr Tung: First of all let me say this. China will not devalue the Renminbi and assurances have been given by the central leadership that the Renminbi will not be devalued. I think it is not only the assurances, but I think if you look at the economy in China, in the first three months of this year they had a trade surplus of about, if I remember correctly, US$7.5 billion. In the first three months, foreign investment flow increased by 9.8% into China, to about $8.7 billion, if I am not mistaken. So these are not signs of a nation that needs devaluation.
The Economists' Intelligence Unit surveyed the labour-cost competitiveness, and next to Indonesia, China came the lowest. There is no case for devaluation. China's national debt is less than 20% of the GDP. China's budget deficit is only one per cent of GDP. And if China were on the European continent, they are the best qualified for the Maastricht Treaty. So I just cannot make a case for the devaluation of the Renminbi.
Certainly, in Hong Kong we cannot make a case for ourselves to devalue either. The consequence of that would not be good for Hong Kong. I think it is important that China is responding in a very responsible manner, in any case, knowing fully well that devaluation does not do anybody any good, except another round of competitive devaluation. So I don't think it is the case. I mean there are a lot of people, sceptics, out there -- well, we will see each other a year from now and talk about it.
Question: My name is John Winthrop and I am from South Carolina and I am an investment adviser, and I must say I have found your comments most encouraging. I would like to ask you though if the year 2000 problem with the computer, that we have heard so much about, is a problem for you?
Mr Tung: I think this is really a global problem which I don't quite understand, so I can't answer you very intelligently. Since July 1, I have become an expert on chicken and ducks, and on fish and pigs and everything else. But that is one thing I have not mastered yet.
Question: I am Eddie Allen from Eastern Texas. You said a lot in your speech about investing in human capital in Hong Kong. For a foreigner, can you explain to me the controversy that has been raging here about language in the schools in Hong Kong and be more specific about what initiatives you are going to be making to raise the universities and education system in Hong Kong to the first rank of the world?
Mr Tung: I am very glad, sir, you asked this question because it needs clarification; there is a lot of misunderstanding overseas. If you live in Hong Kong, whether you are an expatriate or you are Chinese, and if you are in the business community, you will hear remarks such as, "How come both our English and Chinese standards are declining?" And this is not in 1997, we have been talking about this for many years already. We have what is called an Education Commission which is an advisory body to the Government, to advise Government on educational issues and in the 1980's, this Advisory Commission recommended what they call mother-tongue teaching. And in March 1997, before I assumed the total responsibility, the Government decided to implement mother-tongue teaching.
Now what is the purpose of that? The purpose of all that is to make sure Hong Kong people can do much better than they are today, in English and in Chinese. And when it comes to Chinese, in Putonghua as well as in Cantonese. And that is the purpose of mother-tongue teaching. The argument of experts in Hong Kong and around the world is that a child learns much more quickly under a mother-tongue environment. In other words, the child gets home, he reads a local Chinese newspaper, he watches local Chinese television, he speaks to his mother or father or his sisters in the local Chinese dialect. And if you are being taught in English in school, it is very difficult. And the learning process is faster in the mother-tongue. And this is the purpose. So our purpose is to make sure that we will be better, at the end of the day, both in English, in Putonghua and in Cantonese.
Insofar as education is concerned, we are investing a great deal in education - 4% of our GDP is put into education. It is one of the largest - well, it is the largest item we have on the Budget. But we are very mindful that pouring money into the system may not achieve the end results, so we are looking at almost every aspect from the primary to secondary education, kindergarten education, to tertiary education, to make sure that in the 21st century we will be the best. It is a subject I can spend hours with you on but I am afraid that neither you nor I have that sort of time at this moment.
Presenter: Mr Tung, thank you very much. I think you gave everyone a good idea here that since China qualifies for membership in the Monetary Union, we could make Governor Dai head of the Central Bank and that would end the problem between the French and the Germans.
I would like to, on behalf of the Asia Society, give you this small token of appreciation.
End/Thursday, May 7, 1998
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