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Following is a transcript of the Chief Executive, Mr Tung Chee Hwa, at the Asia Australia Institute dinner in Sydney yesterday (Sunday):

Reporter: You talked about the influence of the American hedge funds on the (inaudible). I wonder if it is also that the Americans have invented a form of capitalist gambling the game of which probably only they could win. And the second part to that question sir is with the new arrival of the Euro Dollar is that it will (inaudible).

Mr Tung: I think that we must first recognise that when the speculators do come they have good reasons to come because there are internal weaknesses. And the important thing for any country or any community is to make sure they do not have sufficient internal weaknesses for other people to come and hit you. Speculators will only come when you have internal weaknesses. When we try to (inaudible) in Hong Kong and we try to be very careful that we don't have internal weaknesses. In the case of Hong Kong it was really the bubble of the property market, which had caused a very (inaudible) stock market and which gave the speculators the opportunity to come and hit it. So that would be the first point.

It's easy always to blame it on everyone else, I think. So it is important that we (inaudible) ourselves and make sure our defences are good, everything is good and well done and it will be difficult for speculators to pounce. These capital and fund managers do play a very big role, because they do bring money into the stock market, sometimes they provide alternative investment. So they have a role to play and it is really up to each entity to do what they can.

And your second part of the question was about the Euro. Well I was in Europe in March, I had an opportunity to meet both Chancellor Kohl and President Chirac in Bonn and Paris. I think the confidence level there is remarkable and the fact that these 11 countries have been able to achieve a convergence (inaudible) is really quite (inaudible). There has been tremendous determination to make Euro work. The Central Bankers (inaudible) is very well regarded (inaudible). And obviously in the longer term the Euro will become and alternative reserve currency. I think it is a good thing for the rest of us to get a choice in the future.

Reporter: If the Japanese deliberately delay the recovery of their financial crisis, of their financial problems, how will (inaudible concerning Hong Kong Dollar)?

Mr Tung: I think the Hong Kong Dollar is linked to the US Dollar is one thing that we will not change. And as I said we have eight times the currency in circulation. We have the means to do it, we have the reason to do it because it is good for us. We are going through a painful period this moment but the painful period would have come anyway because the bubble needed correction and it's now being corrected. Of course there is government sympathy for those people (inaudible) who will be unemployed in the near future, and of course it's all part of the fortunes we have to go through. The other thing (inaudible) in Japan, and let me say this, if something is not done quickly in Japan it's not just Hong Kong that's in trouble, it's a whole lot of places that it's in trouble. And I am sure there is now enough international concern about Japan, the solution in the not too distant future. I would imagine that, one of the drawbacks of democracy is sometimes you can't do things quickly, and I would say the Upper House elections in Japan, you might just have to wait for that to settle down first.

Reporter: You stated the importance of Australia to Hong Kong and obviously Australia's future and fortunes have been linked to Hong Kong and Asia at large. You have also stated the determination and the entrepreneurship within the Hong Kong people. With that regard, in your opinion, have we seen the worst of the Asia crisis in Hong Kong. And secondly what is your opinion as to the length of time before we see the recovery in the region.

Mr Tung: In so far as your question is concerned. For a number of years (inaudible) funds being withdrawn, investment opportunities in America and Europe are much better in Asia and therefore the recovery of Asia from a financial point of view will also be judged from the point of view of the recurring cycles in America and Europe. (Inaudible) So you have to be judged as how these economic circles can work though. I don't want to be pinned down to a timetable, I have learnt this from my economist friends not to be too specific, probably a few years down the road. As far as Hong Kong is concerned, we are going though a difficult period, the adjustment process will be painful, it may take a couple of years. Let's not forget one thing, China is doing very well and what is happening within China will continue to help us in Hong Kong. And the prospect of China moving forward in the next few years continue to be very promising indeed. And that will probably help us with what we are trying to do. I hope that together with the Budget measures that we announced in February will start to take some effect quite soon.

Reporter: I am a doctor I know very little about finance. I am just wondering you had a very brief mention of corruption, when you said you have to have a corruption-free society. I was wondering how much influence the corruption has had in the turmoil in Southeast Asia. Corruption in Thailand, in Indonesia and in other places, diplomatically I will say nothing about China. Has it had a major influence or would it have happened anyway without corruption?

Mr Tung: I think obviously crony-capitalism does have an impact on what's happened here in Asia and let's not belittle that's one of the reasons why all of these things happen. In Hong Kong we pursue a very strong policy against corruption both within the government and also in the private sector. And it's not just in enforcing, it's not just in law, there is also an education aspect which is only part of what we are doing in Hong Kong. And I must add a word about China. The senior leadership in China is really very keen top eradicate corruption in the system. The way they are going about it is very encouraging indeed.

Reporter: Mr Tung, Max Willis, President of the Parliament of New South Wales. Firstly may I congratulate you on your absolutely splendid speech. It's a long time since I have heard a politician, which you now claim to be, make such firm commitments (applause). Sir you are an enormously successful businessman turned politician. We have no successful examples of that in this country. I say you are proving to be a success in Hong Kong. You now, however, now had elected your first legislature under the new arrangements and there is a significant presence there of, to put it mildly, people not in favour of your administration or at least having reservations about it. One of the great things about the society in which we live and the system we have inherited, and there is a big element of this in what the Basic Law provided for Hong Kong, is the constant tryst between the Executive Government and the legislature. I would be very pleased to have your comments on how you see yourself and your administration inter-relating with this somewhat fractious legislature which you now have.

Mr Tung: Than you for this question and the opportunity to explain what is happening on the Hong Kong political horizon. But first of all let me say this to all these people who are businessmen and business women sitting around it this room - I've heard that 50 per cent of you are from the business community - don't you ever do what I have done. It is not something I would encourage you to do. Already friends of my wife say I need to be dyeing my hair, dyeing my eyebrow, have an operation to get rid of my eye bags. All these have come recently!

Let me say this, that we had an election on May 24, it was an election we were very proud of. Two and a half million voters registered and 53% of voters those registered decided to vote that day. There were people said 'oh, there were so many votes because they were unhappy with the administration'. There were those who said they voted because they want faster democracy. There are those who said so many people come because the Government decided to give a very attractive card for those who voted for the first time as a souvenir, so (inaudible).

But let me tell you, three newspapers had polls recently and one of them is very, very anti-government. They all concluded that 60% of the people decided to vote because it's the first time under 'One Country, Two Systems' they have exercised their civic responsibility. And we are very proud of it that they voted. There are obviously other reasons too, but 60% out of all these three newspapers, they all come up with 60% voted because of civic responsibility. We are very proud of that.

The legislature has a responsibility in Hong Kong different from those in Australia, where the ruling party will be choosing the Cabinet, the Prime Minister through this process. In Hong Kong, we are not quite the American system, but the legislature has the responsibility to approve finance for the government and also approve laws for government. Now we are at a very early stage of this (inaudible). There are 60 members of the legislature. None of them belong, have an affiliation with the government so it as (inaudible) like all the members in opposition. So we are in the very early stage of our political development and evolvement and we will move forward and I am sure we will be (inaudible). But for the time being there will always be differences and we have managed those differences before and we will manage those differences in the future. I had to deal with one year for the Provisional Legislature and Brian (STI Chau Tak-hay), one of the Secretaries sitting here, I think he will agree with me, the Provisional Legislature gave us a lot of trouble too, so we will deal with them as we have before. But one thing is very clear, the Basic Law provides and we firmly believe people support the strongly Executive-led government (inaudible).

Reporter: (Inaudible question on Shanghai and competition with Hong Kong).

Mr Tung: I am from Shanghai. I was born there and I came to Hong Kong when I was 10 years old and I wish Shanghai all the best of luck. I think maybe in Hong Kong we make sure nobody will catch up with us. Let me be serious. Shanghai is really doing very well. Planning ahead, thinking ahead and it is a formidable competitor for Hong Kong. But according to the World Bank by 2020 the Chinese economy will be the second largest in the world. There will be a need for Shanghai, there will be a need for Hong Kong, they may be need for another Shanghai or Hong Kong. I would also like to tell you in my own view on, from an international perspective, I think in the 21st Century competition amongst nations will become less and less because of (inaudible concerning currency and people moving back and forth). I look at Sydney, I went for a walk about the Botanic Gardens, and I look at Sydney ask myself 'Can Sydney compete with Hong Kong'. The answer is 'yes'. Can San Francisco compete with Hong Kong - the answer is 'yes' too. In so far as the financial markets are concerned with the world linked up, people in Hong Kong can buy shares in Frankfurt without going through a broker. These are the challenges we must face as we run each community - where we are going to be in the next 20 years. And these are the things certainly, as an administration, we ask ourselves, how do we position ourselves. So we don't just look at Shanghai we look at all the cities, including this beautiful city of Sydney.

Thank you very much indeed.

End/Monday, June 15, 1998

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