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Following is a speech by the Secretary for Financial Services, Mr Rafael Hui, at the Far Eastern Economic Review's annual conference today (Wednesday):
"Weathering the Storm: Hong Kong & the Asian Financial Crisis"
Mr Ching, ladies and gentlemen,
Good Morning. Let me say at the outset that this is one hell of a time to talk about "weathering the storm" whilst the storm itself is still raging unabated and is likely to persist for some time, if not getting considerably worse before things get any better. Apart from the lack of foresight on my part in accepting the Review's invitation back in April, why am I here and what do I have to say?
The times of adversity are also the best times for reflection. In the past few weeks, with the approach of the first anniversary of the birth of Hong Kong Special Administrative Region, one thought has struck me as being rather ironic. For many years since 1984 until June last year, those of us who had worked for the previous Administration had to talk a lot about "confidence". Indeed there was little else that was of greater concern when we gave speeches and answered questions in conferences and seminars. Then, all of a sudden, the topic seemed to have vanished completely and almost one year now into the new SAR, I cannot recall when was the last occasion I talked about "confidence".
The reason for this, ladies and gentlemen, as we all know, is very simple. Prior to the Handover, there had been persistent worries and dire predictions that "one country, two systems" would not work and that in spite of Hong Kong's economic success, its political uncertainty would doom it to failure. Underlying this sort of thinking was the notion that whilst economic fundamentals might be assumed and taken for granted, political confidence, or the lack thereof, would still bring down the whole edifice.
Well, 1997 came and went. The edifice is still here, still standing, in spite of the financial turmoil. The mainland Government has demonstrated to the whole world, by action, that it is strictly and scrupulously sticking to "one country, two systems" and the Basic Law. It is therefore hardly surprising that people seldom talk about "confidence" these days, not "political confidence" anyway. The irony now lies in the fact that, as a complete reversal of the position taken before the Handover by some forecasters, analysts and commentators, it appears now political confidence is more readily assumed and taken for granted whereas economic fundamentals are not.
I find the logic behind such a reversal somewhat hard to understand. After all, whereas political confidence might have been uncertain, the economic fundamentals of Hong Kong are the same, this side and that side of 1997.
Ladies and gentlemen, in dealing with our present trials and tribulations, it is worthwhile to go back to basics, so to speak, although we in fact are only too familiar with these basics and therefore may under-estimate their value and significance. I am referring to that dreary old term "economic fundamentals". You have heard them stated many times before but I make no apologies for repeating some of them here. They may not bring us immediate relief and reversal of fortune, but I do believe that it's largely the fundamentals that will eventually see us through our present difficulties and lead us, once again, to recovery.
Back to Basics
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The first "basic" that I wish to talk about is our status as an international financial centre. It is not just an aspiration and objective that we have in maintaining such a status. In fact, the Basic Law obliges us to provide an appropriate economic and legal environment for the maintenance of Hong Kong as an international financial centre, to formulate monetary and financial policies so as to safeguard the free operation of business and financial activities, and to safeguard the free flow of capital in and out of the SAR. Hong Kong is very much an externally oriented economy. We must rely on external investment and trade for our continual survival and prosperity. We must adhere to the policy of maintaining a free and open market even at times of adversity so that when the cycle turns, investments will continue to flow.
While we take pride in the fact that we already have very efficient and advanced trading and clearing systems for the financial markets, which, incidentally, have proven their effectiveness in the most volatile days during the turmoil, we are continuing our efforts in further developing a state-of-the-art infrastructure to enable even more efficient and reliable processing of transactions. These include the development of the relevant systems to enable straight-through-processing across different segments of the financial markets for all transactions; the integration of all financial clearing systems; and the development of linkage between our Central Money Market Unit which is the clearing facility for our debt securities trading with its counterpart in Australia, New Zealand and elsewhere in the region where real-time gross settlement is available. Meanwhile, our Stock Exchange and Futures Exchange have also continued their market and product development initiatives, such as the launching of the Venture Board and the Hang Seng 100 Index Futures.
The second "basic" to our success so far is the stability of our currency. I have emphasised the fact that Hong Kong is an externally oriented economy and our status as a major international financial centre. A stable currency is the key to maintaining both. The currency board system which has served us well in the past 14 years has become a very important anchor, especially in times of stress and volatility. Afterall, our domestic economy has been undergoing significant adjustments, and more so than ever, it makes even less sense to abandon the system now.
Our third basic strength lies with our fiscal policy. Throughout the years, the Administration has exercised great care and prudence in our fiscal management. We have always kept the growth in public spending in tune with the overall growth of the economy, and we have no government debt. Our strong fiscal and foreign currency reserves underpin the soundness of our economy and buttress the confidence of domestic and foreign investors.
I must say I do not envy the position of the Chief Executive and the Financial Secretary who are currently under pressure from the legislature to make use of the fiscal reserves in this period of hardship. But I am sure good sense and pragmatism will prevail and a right balance can be struck.
The fourth "basic" that I would like to highlight is the sound and robust baking system in Hong Kong. The recent months of financial turmoil and credit reduction have proven that our banking sector is strong, prudently managed and well capitalised. The Hong Kong Monetary Authority will continue to uphold the highest international standards in the supervision of banks and their work in this respect is well supported and recognised as essential by the community.
Last but not least, a very basic feature of the Hong Kong economy that will not change over time or with ebbs and flows of fortune is our natural location. We are situated in the right time zone being on this part of the Pacific to form an integral part of the 24-hour global financial market. We are also fortunate to be at the gateway to mainland China, a hinterland that is unrivalled by any other city. With the reunification and establishment of the SAR, our unique political status is an additional edge to Hong Kong's ability to develop mainland business, for example, serving as the capital raising centre for mainland enterprises. Further to this natural advantage, the infrastructure that we have put in place over the years also enables Hong Kong to maintain its competitiveness. We have one of the densest and most developed telecommunications network in the world. We have a good port and efficient terminal facilities which are supported by a vast network of domestic and cross-border road transport. Our new airport will be open in less than a month's time. And we have just announced the plan for further infrastructure development which will out-scale the Airport Core Projects Programme in the years to come.
Ladies and gentlemen, the Asian financial turmoil is still unfolding. Events outside of Hong Kong and out of our own control will continue to have a major impact on our short to medium-term economic outlook. These are times of almost unprecedented uncertainty. It is natural and understandable to grope for solutions and "do something". At the international and regional levels, there are on-going efforts to restructure, to reform and to revitalize. At the level of individual economies, painful but necessary adjustments of one sort or another are taking place. It is by now also commonly and pragmatically accepted that there is no instant solution. Perhaps the definitive lessons of the present crisis have yet to be compiled but here in Hong Kong at least, one lesson is already abundantly clear. In times of turmoil, frustration and uncertainty, we have no better alternative than to hold fast to those basic fundamentals and policies that have withstood endless tests and strains in the past. The real danger, as always, lies in letting go of those fundamentals in exchange for immediate, but ultimately futile and illusory relief. With "political confidence" no longer a serious concern, there is no reason to replace one obsession with another. Our economic confidence, as always, basically lies in our sound and solid fundamentals. It is these fundamentals that should buttress the downturn and it will be the very same fundamentals that will lift us in the upturn.
End/Wednesday, June 10, 1998
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