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Following is a speech by the Deputy Secretary for Trade and Industry, Mr Tam Wing-pong, at the Hong Kong Economic Forum today (Monday):
Hong Kong as an International Trade Centre
INTRODUCTION
On the eve of the first anniversary of Hong Kong's reunification with the Mainland, it is timely for us to take stock of Hong Kong's position as an international trade centre and to identify the challenges and opportunities in front of us. These days no discussion will be complete without mentioning the Asian financial turmoil. I shall in this context also say a few words about its impact on Hong Kong's external trade.
HONG KONG'S POSITION AS AN INTERNATIONAL TRADE CENTRE
Let us reflect for a moment where Hong Kong stands in the area of external trade. With a total value of merchandise trade amounting to HK$3 000 billion in 1997 which represent 285% of our GDP, Hong Kong is now the eighth largest trading entity in the world, notwithstanding the fact that the size of our population only ranks Number 94.
While the figures just mentioned are already quite impressive, Hong Kong's conventional trade statistics fail to show an important aspect of Hong Kong's trading position, namely, the massive volume of offshore trade which, for technical reasons, is not captured in our trade statistics. According to a recent survey conducted by the Trade Development Council, the total value of offshore trade by Hong Kong companies, including direct shipments and transshipments, amount to over HK$1 000 billion in 1997, equivalent to one third of Hong Kong's total merchandise trade and 85% of Hong Kong's re-exports.
IMPACT OF THE ASIAN FINANCIAL TURMOIL ON HONG KONG'S TRADE
The figures just cited show that Hong Kong is a great trading economy. The trading capacity of Hong Kong has been greatly enhanced with the rapid rise of both external trade and offshore trade. We benefited from the growing globalisation of the world economy with the success in our trading activities, we have become more and more externally oriented and more and more dependent on the global economy. As a result, Hong Kong cannot be insulated from the economic turbulence befalling on our major trading partners.
This is particularly true in the case of the current financial turmoil that spread almost throughout this part of the world which has hit hard on our economy, intensified and prolonged the normal economic adjustment process which in fact was overdue for Hong Kong even around this time last year and made it more painful.
Many speakers in this forum have spoken to great length on the effect of the current crisis on Hong Kong's economy and it would be superfluous for me to add further voice to it. However, in terms of external trade, while the volume of trade in the first four months of 1998 has reduced when compared with the same period last year, the reduction nevertheless has been slightly less than many have expected. This is due largely to the fact that, with Hong Kong's free trade and open market policy, our business people have been able to diversify our product mix and our market so that we are not dependent too heavily on the regional market which is worst hit in the present crisis. This is born out by the trade statistics for the first four months which show that whereas our export to the ASEAN economies have dwindled by 18%, our export to the United States and the UK have registered 5% and 7% growth in the same period, and our total exports have gone down by just below 2% in the first four months.
We would have to make further observation on the trade figures for the coming months to determine whether the current economic crisis has brought serious damage to our external trade. However, our robust trade performance so far does underline Hong Kong's strong economic fundamentals and comparative advantages which we firmly believe will in time help to lift Hong Kong out of the hot water. The Government's prudent financial management, our sound banking system, stable currency, top class infrastructure, level playing field, hard working and well educated workforce, flexible and diligent entrepreneurs, to name but a few, have served Hong Kong well when our economy took off in the seventies. There is no reason to believe why they will not continue to serve Hong Kong now or in the future.
Perhaps the most important of all the positive elements is our strategic position on the world map which has put Hong Kong as the hub of the trade routes from east to west and from north to south and vice versa. The presence of the Mainland, the biggest and potentially most profitable emerging market in the world, will continue to serve as our economic hinterland and a pillar of stability. Reunification has further intensified the already close relation between the two economies. Very few other economies in the world could claim to enjoy such a favorable position.
HONG KONG'S TRADING POSITION VIS-A-VIS OUR RELATION WITH THE MAINLAND
Now that Hong Kong is part of China again after the reunification, there have been not a few suggestions that the Hong Kong SAR Government should seek preferential treatment from the Mainland authorities for lower tariff, tax breaks, special license and so on for goods, investment and trading activities emanated from Hong Kong. Many believe that this will be one way to help pull Hong Kong out of the present economic trouble.
This is not a course of action, I am afraid, that we should pursue, not under the one-country-two-system framework. Under Article 116 of the Basic Law, Hong Kong SAR is designated as a separate customs territory. This is a clear recognition of the fact that Hong Kong and China are two different economies at different stages of development and they therefore must implement their own economic policy to pursue their own economic interests, at least in the first fifty years after the reunification. Close though the economic ties are between the two places, this is the result of trading activities forged by market mechanism, not by administrative or political measures. The separate identities maintained by Hong Kong SAR and the Mainland is the best way for business people to maximize the comparative advantages of the two places at this stage. We cannot seek preferential treatment from the Mainland authorities without at the same time conceding our own identity and what it entails to them. In no time Hong Kong's autonomy in trade policy would be so eroded that Hong Kong would become no more than a part of China, too soon, for no good reason, and to the benefit of neither Hong Kong SAR nor the Mainland, as Hong Kong would then not be adding value to China as it does now.
Hong Kong's success in foreign trade is the result of our ability to remain competitive in a free market environment, and the Most Favored Nation principle and national treatment are two main guiding principles we use in establishing trade relation with our trading partners. To seek preferential treatment from the Mainland, or indeed from any of our trading partners, is to go against our own trading policy. Instead, we should try through trade to help China to develop into a truly free and open market economy and to participate fully and actively in the globalized market. Hong Kong would benefit more from a Chinese market open to all than one open only to Hong Kong.
CONCLUSION
In the short run, we cannot expect the economic downturn to reverse overnight. We must allow the adjustment process to take its full course. Amid all the troubles, trade, as I mentioned earlier on, has been hit relatively less badly than in other sectors. Trade will be one of the sustaining forces to keep Hong Kong afloat until the recovery. This is possible because Hong Kong's status as an international trade center is firmly established and has never been challenged. Hong Kong as a paradigm of free trade is highly regarded by the whole world, and all our trading partners have benefited from it as much as we have.. They will want to continue trading with us, or to use our trading system and facilities to pursue their trading interests. Indeed many of our trading partners have let out a sigh of relief that one year after reunification, with the close adherence to the Basic Law, Hong Kong's trade policy has remained unchanged, which is another manifestation of the One-Country-Two-System framework fully implemented. Optimism on trade is not undue even in this gloomy atmosphere.
End/Monday, June 29, 1998
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