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Following is the speech by the Director of the Hong Kong Economic & Trade Office (HKETO), Mr Michael Lee, at a dinner hosted for the Dallas Assembly delegation in San Francisco on Thursday (June 11, San Francisco time):
Mrs Kirk, Mayor Kirk, ladies and gentlemen,
On behalf of the HKETO, I would like to welcome all of you to San Francisco. I am pleased that you have given my office the opportunity and honor to host this dinner. But as they say there is no free lunch, and there is also no free dinner. I say so because for the next few minutes, you will have to bear with me and listen to what I have to say, and for once, I feel that I am more important than Mayor Kirk but still not as important as Mrs. Kirk.
As you know, Hong Kong is a very small place with lots of people. It has an area of about 400 square miles which is about the size of City of Dallas but one-third of the population of the State of Texas. It also has many similarities with San Francisco, the city you are visiting. San Francisco has the Golden Gate Bridge. We have Tsing Ma Bridge which is the world's longest suspension bridge and as beautiful as the Golden Gate Bridge. San Francisco has the world's most hazardous airport. We are not far behind. We have the world's 3rd most hazardous airport. It is home to 40,000 Americans and over 1,200 US companies. Among them are Texas Instruments, EDS, Mary Kay, Tandy Corporation, Dell Computer, Amtech Systems, AMR, to name a few household names. They are in a variety of fields, from telecommunications to airline services, information technology and cosmetics. There are other companies too. They are in the business of publishing, waste management, textiles and I can just go on and on.
In terms of exports to Hong Kong, Texas is the third largest state (after California and New York). For every 100 dollars Americans sell to Hong Kong, seven dollars are from Texas. If including China, Texas also ranks third in importance (this time after California and Washington), and for every 100 dollars, 10 dollars are from Texas.
Hong Kong became part of China a year ago on July 1, 1997 after British rule for about 150 years. Before the transition, there were a lot of unfavorable speculations about the future of Hong Kong, some were obviously by some very prominent newspapers in this country. They predicted that China will not honor its commitment of "one country, two systems" and its promise of a high degree of autonomy; that the economy of Hong Kong will crash (well, it did crash but not because it became part of China); that there will be Chinese People's Liberation Army patrolling the streets of Hong Kong; that there will be no more freedom of speech. They also predicted that there would be ugly scenes on the day of the Handover. Since you all know that none of what I just described happened, I would not want to spend my valuable few minutes to go over that.
I would however wish to update you on two issues:
First, the Legislative Council election which was held 3 weeks ago on May 24; and second, the current economic situation in Hong Kong.
Legislative Council Election
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Insofar as the Legislative Council election is concerned, I am pleased to say we broke three records:
* a record number of people registered to vote (2.8 million or 70% as opposed to 2,572,124 or 65% in 1995);
* a record number of political candidates to run (167 as opposed to 138 in 1995); and
* a record number of people voted on the day of the election (53.3% or 1.49 million) as opposed to 35.8 % or 920,567 in 1995). The figures speak for themselves. They are very encouraging and we are very proud of ourselves.
The election has been conducted in an open, fair and honest manner. It is a very important first step in the evolution of our democratic institution, the final goal of which is the election of all Legislative Council members by universal suffrage. We have several more elections to come - elections to the district organizations next year, the second Legislative Council election in 2000, and the third LegCo election in 2004. We will resolutely move forward to a more democratic form of government in accordance with the provisions of the Basic Law. We will continue to do our utmost to encourage active community participation in future elections.
Talking about community participation, I would like to share with you the outcome of the opinion polls, conducted immediately after the election, by a number of major newspapers in Hong Kong. The polls showed that over 60% of those who voted said the reason for casting votes was to fulfill civic obligations. There were also people who voted because they were dissatisfied with the Government and the polls put the percentage at 10-15%. All in all we believe the spirit of "Hong Kong people running Hong Kong" with a high degree of autonomy was the motivation which motivated Hong Kong people to vote.
After the election, there was also call for a faster pace of democracy. As a matter of fact, a road map for democratic development has already been laid down in the Basic Law, which is our constitution, and which was put together only in 1990 after extensive consultation. Any proposal to change the constitution will have to be considered very carefully and there must also be full-scale debates leading to a general consensus in the community. We feel that we should not be seen to be changing the Basic Law very easily, because to do so would send a wrong signal to foreign investors who prefer to see a stable and, more importantly, predictable Hong Kong, both politically and economically.
Current Economic Situation in Hong Kong
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Now a few words about the Asian financial turmoil, its effects on Hong Kong and how we rise to the situation.
First of all, I think a lot of us ( economists, analysts, and business people) are taken by surprise by the width and depth of the Asian economic meltdown.
As an integral part of the regional financial markets, Hong Kong is not immune from it. Our stock market has been severely battered. The Hang Seng Index is currently about 50% below its peak in August last year. Our property market is about 40% down from its highest level in October last year. Overall economic growth for this year will be much lower than the 5.2% recorded for last year. As a matter of fact, the economic performance in the 1st quarter of this year has recorded a disappointing negative growth of 2%. Overall trade figures are also not going to show the strong percentage growth that we had become so used to in the 70's, 80's and early 90's. Unemployment is likely to increase. As a matter of fact, it shot up to 3.9% from 2.5% recorded end of last year.
Against the background of an economic downturn, the question in many people's minds is can the HK/US dollar peg hold? The first point I want to make is that the HK/US dollar peg is not an artificial peg, susceptible to political pressure, but is based on a sensible currency board system. Under that system, all Hong Kong dollars issued are backed by US dollar deposits, and our foreign exchange reserves are large enough to back up our currency seven times over. Moreover, we have no foreign debts.
We also have sound regulation of our banks, including high capital adequacy ratios, which place our banks in a very strong position. Above all, we have over time built up credibility from our record of prudent fiscal policies, open and transparent systems, a relatively clean and efficient administration and also the strength of our economy. We have a very different economic structure than that of our neighboring economies. We now have an economy which derives 85% of its GDP from services. We are therefore not competing directly with our neighbors.
Despite that, many people still speculate that the Hong Kong/US dollar peg will fall apart. Their theory is based on loss in price competitiveness of Hong Kong products. On the face of it, it seems to make economic sense. But if you look deeper, devaluation does not help Hong Kong to sustain its competitive edge. The reason is that, unlike the United States, we do not produce raw materials. If we devaluate, we would simply import inflation and that would wipe out any hope of gain from lower export prices. Having said that, we actually do not compete on price. We compete more on quality.
The stability of the Hong Kong dollar since the currency board was established in 1983 has helped us weather many storms. Looking back at the past 15 years, we have experienced the Sino British negotiation over the future of Hong Kong; the stock market crash in 1987; the Tiananmen Square incident in 1989; the Mexican peso crisis in 1995; and now the regional currency crisis. It is hard to say which of these storms is the hardest hitting. But it is easy to say that the stability of the Hong Kong dollar has helped us weather all of them. Not only that, it has also transformed Hong Kong into the world's 5th largest banking center and the 6th largest securities center.
Our experience has therefore taught us that the HK/US dollar peg has worked well for Hong Kong, and as such the Government is not going to create uncertainty and risk undermining public confidence by fiddling with it.
Impact on Hong Kong
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Having said all that, this is of course an unsettling period for many of us in Hong Kong. The high interest rates (300% for about an hour) that are needed to fend off attacks on the currency do have an adverse impact on the stock and property markets, and affects those doing business or has a mortgage to repay.
But it has its sliver lining too. It enables the real economy to adjust through lower property prices. It is putting home ownership back within reach of the people. It is restoring competitiveness in our business costs. It will also bring lower inflation. In short, there will be short-term pain, but there will be no long-term chronic illness.
Opportunities
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So where do we see ourselves now? What are the opportunities?
I believe the regional financial turmoil has tested the strength of Hong Kong's systems and the strength of its economy. Relative to our neighbors, I think Hong Kong's position as the key international financial, trading and business center of East Asia has been strengthened. Our political stability and our dependable and freely convertible currency have provided a measure of certainty not readily available elsewhere in the region. I believe, having gone through this bitter experience, any one wishing to do business with Asia will not forget to look at Hong Kong first.
We have Mainland China as our economic hinterland - an economy that grew by around 9% in real terms in 1997 and is expected to continue to grow at around 8% per annum up to 2000. In addition, the reform of China's state owned enterprises will provide a perfect opening for Hong Kong to act as a banker and provider of services. Also as Washington has set itself on a course of constructive engagement with Beijing, the bigger political and economic picture also augurs well for Hong Kong.
Outlook for 1998
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I believe 1998 will be hard for Hong Kong. Already the first quarterly figures have reflected this. We will have to adjust to the new environment around us. But those of you who know Hong Kong will know that our strength lies in our ability to adapt and respond to change. The spirit of creativity and willingness to work hard that was responsible for our past successes is still with us today.
In the light of the sluggish economic performance so far, the forecast of a 3.5% GDP growth for 1998 now looks unattainable. However, amidst a still highly volatile situation both externally and locally, it seems imprudent to put out a new GDP forecast at this stage as it is bound to be subject to a large degree of uncertainty and imprecision. We prefer to defer this to the next occasion which will be near end August, when we will publish the Half-yearly Economic Report 1998.
We are all acutely aware of the pain and despair that the community is suffering in these particularly difficult times. What is happening in the region are beyond our control, and we do hope that the regional situation will not deteriorate further and will improve soon. But our economy has to adjust effectively in order to recoup competitiveness. As this is gone through, it will provide us with a strong basis for a prompt return to growth.
Conclusion
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To sum up, in the 12 months since the Reunification, we have made a good start as a Special Administrative Region of China, enjoying a high degree of autonomy. The fact that Beijing has let us handled the financial crisis entirely on our own with no interference is a good, visible demonstration of the central Government's commitment to the "One Country, Two Systems" concept and a high degree of autonomy for the Special Administrative Region.
The recent volatility in the financial market has not changed our policy toward maintaining a free, open and transparent economy with sound regulatory controls, underpinned by the rule of law. And it has not shifted our determination to further enhance Hong Kong's role as a leading international financial center and cosmopolitan city. We are confident of being able to recover from the setback very quickly.
Finally, I would like to extend an invitation to all of you to visit Hong Kong and China. In Chinese, there is a saying "walk a thousand miles is better than read a thousand books" - definitely better than reading some newspapers. I promise that you will not be disappointed and it is actually very cheap now. What I cannot promise is the excitement of landing in Hong Kong, as the new multi-billion dollar airport will start operating from July 6.
End/Friday, June 12, 1998
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