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Following is the transcript of a five-minute message on TV and radio by the Chief Executive, Mr Tung Chee Hwa, on his Policy Address today (Wednesday) :

Ladies and Gentlemen,

The past year has been to say the least, a trying year for Hong Kong. As the Asian financial crisis swept through the region, our economy came under tremendous strain. Unfortunate incidents in the health care and environmental hygiene sectors and the difficulties which marred the opening of the new

airport dealt a blow to Hong Kong's reputation overseas and dented our citizens' confidence. I am determined that the Special Administrative Region Government should be more vigilant and seek to improve its performance so that it can lead Hong Kong effectively in coping with future challenges.

The delivery of this year's Policy Address coincides with a time of great challenge and difficulty for Hong Kong. We predict that Hong Kong 's economy will shrink by 4% this year. Our unemployment rate, which has already reached 5%, will continue to rise. This difficult economic situation will continue through 1999.

I understand that what concerns the community most is the economy. The Government has put forward a number of measures aimed at easing pressure on the public and creating the conditions necessary for economic revival. These included substantial tax cut, rate rebate and the setting up of a fund to assist small and medium-sized enterprises. These measures, together with the freezing of rent and other charges by the Housing Authority, the Housing Society and the two railway corporations, came to a total value of $20 billion. In addition, we have earmarked $235 billion on infrastructure projects within five years. I believe we shall see the positive impact of these measures on our economy towards the end of 1998 and in 1999.

In order to restore order to our financial markets, our financial and monetary authorities announced last month a series of measures. I would like to make it clear that the Government is committed to maintaining our status as an international financial centre. The linked exchange rate will remain, and we will strictly enforce the provisions of the Basic Law that no foreign exchange control shall be applied in Hong Kong.

There is great concern in the community for the problems faced by the unemployed. I share that concern, and the Government will do its utmost to improve the prospects of all our citizens who are looking for work. I hope that the unemployed will not become discouraged and that they will make the best use of the training opportunities which the Government and other organisations provide to equip themselves with new skills. During this period of adversity, employers are constrained by thinner margins, whilst employees have to face the prospect of pay adjustments or redundancy. I urge employers and employees to work together, to build up mutual understanding so as to help tide them over these difficult times.

The sharp fall in property prices in the private housing sector in the past year has led to a decrease in asset values, hit public confidence which in turn reduced consumer spending. If this trend continues, it could put pressure on the banking system. I therefore believe that it is now necessary and desirable for property prices to stabilise. In the public housing sector, the Government is determined to work towards achieving our policy of providing public rental housing to the needy and to facilitate home ownership for those who wish to buy their own homes.

The Government will do all it can to bolster the established pillars of our economy such as the financial services sector, small and medium enterprises, tourism and import and export. We will also capitalise on the opportunities as a result of China's sustained economic growth. Through the application of innovation and technology, we will stimulate Hong Kong's economic development by improving our competitiveness in the field of information technology, telecommunications, entertainment and Chinese medicine.

To take Hong Kong forward in an increasingly competitive world, we must give education top priority. We need also to take care of Hong Kong's elderly, who have contributed much to our success over the years. We will also do our best to improve the quality of life in Hong Kong. We shall be satisfied with nothing less than a world class environment.

The recovery of Hong Kong's economy hinges on four factors : an improvement in the external economic environment, a steadying of interest rates, stability in the property market and the restoration of public confidence. I am optimistic that the measures recently introduced by the Hong Kong Monetary Authority will help to steady interest rates. I believe the measures I announced in this Address on housing will help stabilise property prices. As far as the external environment is concerned, although we cannot control global trends, the signs are that US interest rates are on a downward trend and the US currency is softening. Some global hedge funds are also facing financial difficulties. These developments will have a positive effect on the stability of our financial market.

The most critical factor now is our own confidence. Undeniably, Hong Kong faces many problems. But we must not lose confidence because of the short-term problems we now face. Rather, we should recognise that Hong Kong still enjoys a position which is the envy of many. Our society is free, fair and stable. We have no foreign debt. We have sufficient reserves. Our banking system is sound. The successful implementation of the One Country Two Systems concept has provided us with a solid foundation for stability and growth. Above all, Hong Kong people remain resourceful, hardworking and dynamic. I firmly believe that as long as we retain our confidence and remain resilient, we will be able to turn crises into opportunities and together overcome the adversity that we now face.

End/Wednesday, October 7, 1998

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