*******************************************************
Following is the speech by the Chief Secretary for Administration, Mrs Anson Chan, at the business seminar organised by the Hong Kong Trade Development Council today (Friday).
Mr Isayama, Mr Sze, distinguished guests, ladies and gentlemen,
Thank you for asking me to speak to you today, at a time when I am sure many are still thinking about the repercussions of the financial turmoil which hit East Asia almost a year ago. It has been a testing time for many economies, and not just those in Asia. The speed at which the so-called 'Asian Contagion' spread throughout the region - and was felt around the world - has made it abundantly clear that we are now all part of a sophisticated network of markets developing, expanding and changing at a great pace. Regional problems now require global solutions.
It is therefore appropriate that the focus of your business seminar today is the Chinese market, which itself is becoming more sophisticated and open, and changing day by day. What happens in China will not only affect the region, but the rest of the world. China is already a major economic force, but it is sometimes hard to fathom the sheer size of this market and just how profound an effect its full development will have on world trade.
Naturally, Hong Kong stands to benefit tremendously, just as it has since China embarked on its open door policies in the late 1970s. We will remain China's major entrepot for world trade and its biggest source of external investment. We will remain the premier services centre for international business wishing to break into the Chinese market, and we will continue to expand our role as the pre-eminent source of debt financing and market capital for Mainland ventures, especially now that the reform of state-owned enterprises is well under way.
As you all know, almost one year ago Hong Kong entered a new era as a Special Administrative Region of China. The reunification has gone smoothly. The Mainland leaders have adopted a 'hands-off' approach, giving full effect to the promises in our Basic Law of 'Hong Kong people running Hong Kong' with a 'high degree of autonomy'. Just two weeks ago we held our first elections since the Handover, which have given us a credible and representative legislature. Most importantly, it is a legislature chosen by the people of Hong Kong who turned out in record numbers to vote for candidates representing every shade of political opinion.
In February, we introduced our first Budget as an SAR. We have cut personal and corporate taxes and forged ahead with new spending on infrastructure, housing and education. Throughout the financial crisis, our considerable foreign reserves have been used effectively to fend off speculative attacks against the Hong Kong Dollar. The Hong Kong SAR Government contributed a US$1 billion loan to the IMF effort to help Thailand. Next month, we open our new, state-of-the-art international airport which will be served by some of the most modern and stunning road and rail links in the world. All of these things I mention for two reasons: one, to reinforce your confidence in the long-term future of Hong Kong, despite the financial troubles plaguing other countries in the region; and, two, to illustrate how the concept of 'one country, two systems' is working, and working well.
We could not of course escape the fallout from the regional crisis, as the recent sharp drop in our economic growth rate showed. But the fact that the Asian financial crisis came so closely after the Handover may well have been a blessing in disguise because it highlighted why Hong Kong is different. And it highlighted exactly what has been protected and safeguarded in the Basic Law. Let me tell you why:
* It showed that we already have mature and well-regulated banking and stock market sectors. The 'battle conditions' of the financial turmoil uncovered several areas in which we can fine tune our systems to make them function better, so we benefit as a result.
* It showed that we have, for many years, practised prudent fiscal management which has eliminated the need for Government borrowing and allowed us to accumulate sizeable fiscal and foreign reserves. We can continue to press ahead with key infrastructure projects and increase spending on such important areas as education, housing and information technology. Our past and present fiscal discipline of limiting spending increases to within the trend growth rate of GDP over time has given us flexibility and room to manoeuvre when most other parts of the region are in austerity mode.
* It showed that our fixed exchange rate and currency board system can withstand the enormous pressure of a regional financial meltdown. The Hong Kong Dollar is backed not once, or twice or even three times but a full eight times by our Exchange Fund assets. Our foreign currency holdings of more than US$96 billion are the world's third largest. Our Exchange Fund - which was used to defend the Hong Kong Dollar against speculative attacks - actually grew, and I stress grew, by more than US$13 billion in 1997, and that is a 19 per cent increase over 1996.
* It showed that a stable Hong Kong Dollar is an advantage during such volatile times. We are not hearing many calls now for a delinking of the HK-US dollar link, or a competitive devaluation. Business needs stability, and they have it in the Hong Kong Dollar. Yes, asset prices have suffered as a result of higher interest rates, but the correction in property prices and lower rentals will make Hong Kong more competitive. Prices will come back, but at a more sustainable and gradual rate. And it is important to note that the adjustment has been driven by market forces and is not the result of currency depreciation.
Hong Kong will emerge from the financial turmoil stronger and with a better insight into how to deal with the massive amounts of money which can be moved by fund managers or speculators within a matter of seconds.
This past year has been one of tremendous change for Hong Kong. We now have a clearer understanding of our role and importance in world markets. We have a clearer understanding of our role and importance in the continuing economic development of our sovereign, China. And we have a clearer understanding of the Mainland's role and importance in the preservation of our systems, and our way of life.
Hong Kong has always had a close, symbiotic relationship with the Mainland. As our new, post-reunification relationship grows and matures I think you will find that there is nowhere better than Hong Kong to tap into the huge potential of what will one day be the world's biggest market.
Hong Kong and Japan, too, have always had a close relationship - you are our third largest trading partner after China and the United States. You are our largest source of retained imports, our third largest re-export market and our third largest external investor. Much of the growth in trade between Hong Kong and Japan has come through the rapid growth in re-export trade involving the Mainland. Hong Kong is also an important regional operational base for Japan - some 500 Japanese companies have regional headquarters or offices in the Hong Kong SAR. The banking sector is very strongly represented - there are Japanese interests in 44 licenced banks, 11 restricted licence banks and 30 deposit-taking companies. This is said to be the largest number of Japanese banks outside of Japan.
Despite the adverse effects the Asian financial crisis has had on some Japanese businesses in Hong Kong, I am confident Japanese interest in Hong Kong will not wane. And I am supported in my confidence by the recent survey of the Japanese interest in Hong Kong, which indicates an overwhelming number of Japanese businesses operating in Hong Kong, envisages that for the next three years at the very least they will be maintaining their current level of activities. And over 20% of those surveyed indeed indicated that over the next three years they will actually be expanding their activities in Hong Kong. So we find that extremely encouraging. Your strong presence in Hong Kong is already a recognition of Hong Kong's role as the region's leading banking, financial, transport and communications centre and a testament to the potential you see in the Mainland market.
I wish you all good luck in your future endeavours. We welcome your continued investment in Hong Kong and the Mainland. I hope you will have a very successful seminar, and thank you very much.
Photo: The Chief Secretary for Administration, Mrs Anson Chan, speaking at the Hong Kong Business Seminar in Tokyo
End/Friday, June 5, 1998
NNNN