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Following is the transcript of a question-and-answer session given by the Chief Executive, Mr Tung Chee Hwa, at the Asia 2000 Forum tonight (Wednesday afternoon, Hong Kong time) in Auckland, New Zealand:
Question (Pansy Wong, MP): First of all Mr Tung I would like to express a special welcome on behalf of the Shanghainese-New Zealand community and the Hong Kong-New Zealand community to your first visit to New Zealand and to Mrs Tung's second visit to New Zealand. Indeed growing up in Hong Kong I share your confidence about the pro-active, dynamic attitude of Hong Kong to ride out the storm and I think that is one of the many attributes that New Zealanders feel the same. And furthermore because of our positive, up-front and forward attitude in dealing with the race issue and debate I can assure you the unfortunate occurrence in Queensland would not repeat in New Zealand. Mr Tung, we are especially envious about the ample reserves in Hong Kong and I notice recently your government has announced over $200 million to be spent on infrastructure. In February this year I noticed a New Zealand-led consortium actually won 3% of the Hong Kong airport contract and New Zealanders has actually established an extremely good reputation in engineering, urban development, environmental planning. So I would like you to advise us, how can we play an even more proactive and positive part in sharing that exciting economic activity, in exchange for flying Cathay Pacific!
Mr Tung: Thank you very much. Let me first say this. We obviously are very excited about our infrastructure development. And these are not infrastructure developments which we have just taken on, we just dreamed up overnight, these are projects that have been thought about for a long time. They involve most, railways, road projects, projects for schools, for cleaner air for cleaner water, information technology. Much of it already has gone beyond the concept stage. Further study may still be needed in terms of each project's feasibility and so on. We believe that almost all these projects will go ahead. We obviously welcome New Zealand participation in these projects. Hong Kong has a very open process that everybody is the same before the law. Everybody is the same, there is a level playing field for everybody. The key question is quality, the key question is reliability and I am sure New Zealand, having succeeded in the airport contract will go onto greater successes in the time to come. Certainly I want to tell you that New Zealand and Hong Kong, we have a good relationship, a good government to government working relationship and good people to people relationship. So I would imagine New Zealand would stand every chance to gain a good share of the business, just as I would expect Cathay to get a good share of the business by being inexpensive, efficient and good quality.
Question: As the news from Japan, even from Hong Kong, from some of the Asian countries becomes increasingly bad, perhaps unexpectedly still continues to become ore pessimistic, what do you think are the chances of a global recession?
Mr Tung: The economy in America continues to move ahead well. Europe, in fact with the tremendous determination to come together in the Euro there is a convergence of the economies there and it looks like sustained, the growth will be sustainable. The key question is Japan, the second-largest economy in the world. And it is really very important now for the rest of the world at this very critical moment for Japan to come through. The Yen has to really stop falling, the economy has to start growing. It's not something that's going to happen overnight but if there are strong signals from Japan that credible policies are coming through, that stimulus packages begin to work, then I think things will be alright. It is now at a point where really something will have to happen, and happen quickly, and I would expect something would be done. I'm reasonably optimistic something will be done in Japan. And that is very important.
As far as Asia is concerned, I think three economies in Asia are very, very important. One is Japan, which I just touched upon. The other is Korea, which has gone through a difficult period. They are pulling themselves together, it may take them two or three years to get on their feet again but I am very confident they will march forward too. And the third one is China. It's a big economy, it's moving forward very well, it's under strong leadership and I have every confidence it will continue to move well. So the key is Japan. If we get Japan going again then for the rest of the world, for Asia, I think we will be all right. And I would imagine that Japan will come right.
Question: Mr Tung, I suppose most of us, if not all of us here admire the Hong Kongers. But also we admire them because of the huge burden they have had in achieving all the success they have - property prices. I don't think there is a person in this room who would pay Hong Kong rents and make a quid (inaudible) You talk about the currency and the cost of doing business. The cost of doing business in Hong Kong. Isn't it related to property prices and therefore the Hang Seng Index which is mainly property. If you are pressured to pull the peg and devalue wouldn't you be better off letting the Hang Seng fall, let the property prices go down let those guys lose money, let the investor sector make money, that's part of my question. The other part is the link between the Hong Kong Dollar and the Renminbi. If one wanted to devalue does that mean that the other has to, or is there any necessary link to these two?
Mr Tung: Can I first answer the first question. The property prices have come off, this is for ordinary folks, the property prices have come off about 40% since November. This is a very sharp drop. The commercial property prices for offices have come off more than 50% already, and this is a very sharp drop. Once you link the exchange rate you know what will happen - inflation of asset prices. And that's what happened. The Hang Seng Index has dropped from a peak of 17,000 to today somewhere about 8,000, just below 8,000. It is a very substantial drop. Corrections, as I said are being made. It's painful to many people the corrections now being made in Hong Kong. What the government has to be very mindful of is that there is not an overcorrection because in free market this happens all the time. An overcorrection will not be good for the banking system. I have earlier on spoke how strong our banking system is. it still is but we have to be watching carefully from that point of view. But it has dropped and in fact what's, in linking the exchange rate, it has exactly achieved that particular objective. As I said earlier on, the correction is very sharp, very painful but it is now happening. And Hong Kong will be more competitive at the end of the day after this adjustment period is over.
Let me try to put to rest one more point about the devaluation of the Renminbi. I know it's being asked of me every day in Hong Kong, it's being asked of me every day in Australia when I was there. There is a lot of talk about Renminbi must devalue because of all the other currencies. In addition to the reasons I mentioned earlier on, you know 'The Economist', the magazine 'The Economist', they have an intelligence unit and they did a survey about labour costs in Asia after this round of devaluation. China's labour cost is actually the second lowest in Asia after Indonesia and I think the work ethic and stability in China is much better. I therefor can not see there is a need for China to devalue and you know I talk to people engaged in business in Hong Kong, as I said they have factories across the border. One of them, a few months ago after Thailand's tremendous depreciation one (inaudible) to make toys for Matel from a manufacturing facility in Thailand to a manufacturing facility across the border from us in Pearl Delta. And he told me his costs is very competitive with Thailand. So if you look at it from that point of view I really don't see why there is a reason for a devaluation. The first quarter of this year China's exports grew at 12%, and they recorded a trade surplus of $8.7 billion. And these are all facts there, you know, and you just can't go against economic and facts, as well as promises.
Question: Sir a question indirectly related to something you said. I wonder if you could enlighten me. I understand there is an action being taken by the Army in China that's putting our well-being at risk. They have adopted rugby union as their official sport and they've request 1500 coaches from New Zealand.
Mr Tung: (Laughs). Who coached the Fijians, I thought ... (applause) Rugby is becoming increasingly popular all over Asia. It is a tremendous sport and it would be good to have China involved in rugby in a big way and wish all the luck.
Question: I would just like to ask you, you made a big reference to Japan, and we out here Down Under, understand Japan, Asia etc and the concern that we have is sometimes the indiscipline of the fiscal markets particularly in Japan. Could you assure us that the Hong Kong and Chinese governments have a stronger discipline?
Mr Tung: I think the success of Hong Kong, over the years is our very prudent fiscal management, making sure that when we budget we do the budget we do have some surplus. We have also very prudent management of our banking system, rather prudent monitoring of our banking system, whether it's the capital adequacy ratio or the lending of different sectors. All the indicators we need to watch, we watch very carefully and we have been reasonably successful at that and our Chief Executive of the Hong Kong Monetary Authority, two years in a row was chosen as the best central banker around the world, we're very proud of that. In so far as China is concerned, you know they are mounting a very determined effort to reform the banking system and it's really good to see what China is trying to do to impose the financial discipline that is necessary with a growing economy. And I can give you assurances for Hong Kong and as far as Hong Kong is concerned I want to tell you this has been the reasons of our past success, there's no reason for us to change it. If anything we will make it better.
End/Wednesday, June 17, 1998
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