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Hong Kong people will be able to turn crises into opportunities and together overcome the current adversities as long as the community retain self-confidence and remain resilient, the Chief Executive, Mr Tung Chee Hwa, said today (Wednesday).

Mr Tung said this when delivering his second Policy Address, entitled "From Adversity to Opportunity", in the Legislative Council.

He also called for increased international co-operation and communication to establish a more robust global financial order and urged Hong Kong's employers and employees to improve mutual communication and understanding so as to help tide them over the current difficult times.

Reviewing the past year, Mr Tung told the Legislative Council that Hong Kong would participate fully in any co-operative effort which would help the world's economies to exercise better risk management and enjoy a more stable environment for growth.

He said the regional financial crisis had developed global economic implications and this meant that 1998 had been "to say the least, a trying year for Hong Kong".

He acknowledged that unfortunate incidents in the health care sector and the difficulties which marred the opening of the new airport had dealt a blow to Hong Kong's reputation and dented local confidence.

The SAR Government would be more vigilant and seek to improve its performance, he said.

Mr Tung noted that Hong Kong people had been running Hong Kong in accordance with the Basic Law; the Central Government had fulfilled its promise to allow Hong Kong a high degree of autonomy; and that the international community generally recognised that the principle of 'One Country, Two Systems' had been realised successfully in Hong Kong.

However, he said, the financial turmoil had rocked the economy and exposed inherent weaknesses in Hong Kong's economic structure. Years of over-heated development had made Hong Kong one of the most expensive cities in the world in which to do business and this had affected its competitiveness.

The financial and real estate sectors had long been the main pillars of the Hong Kong economy and would continue to make significant contributions to the SAR's prosperity, but the economic base had been too narrow, he said.

The current difficult period of adjustment was necessary to improve Hong Kong's competitiveness.

Mr Tung reviewed the measures instituted to ease the pressure on the public and create conditions necessary for economic and social stability.

These included tax concessions, the Task Force on Employment, a moratorium of land sales and a freeze on some housing and transport rental payments and tariffs.

However, external factors were very important for Hong Kong's small and outward-looking economy and, if they remained unfavourable, would hinder its economic recovery.

Discussing the series of monetary measures announced last month aimed at supporting Hong Kong's currency and strengthening the markets, Mr Tung said: "I would like to make it clear that in putting forward these measures it is not our intention to interfere with market forces, nor is it our intention to broaden the powers of the Government.

"Rather, our aim is to consolidate Hong Kong's ability to manage its monetary affairs, so that we can counter manipulation of our markets and stabilise interest rates.

"The Government is committed to ensuring that we maintain our status as an international financial centre, as well as the vitality of our financial markets. The linked exchange rate will remain, and we will strictly enforce the provisions of the Basic Law which stipulate that no foreign exchange control shall be applied in the Hong Kong Special Administrative Region."

He said the Government predicted that this year Hong Kong's economic growth would shrink by four per cent, the unemployment rate would continue to rise and corporate profits would continue to fall. This difficult economic situation would continue well into 1999.

"During this period of adversity, both employers and employees will come under severe economic pressure," he said. "Thinner margins and lower returns will put a strain on employers, while workers will face pay adjustments and rationalisation of staff numbers.

"I would urge employers and employees to build up mutual communication and understanding so as to help tide them over these difficult times.

"Full economic recovery in Hong Kong depends on four major factors: improvement in the external economic environment; moderation of interest rates; stabilisation of property prices; and increased public confidence.

"External factors are beyond the Government's control. Nevertheless, we are committed to creating the best possible environment for our economic progress, and to putting Hong Kong back on the road to growth and prosperity as soon as possible."

Two key initiatives would be adopted to spark growth in the economy and to help chart a course for longer-term development.

"First, we must work to maintain Hong Kong's status as an international trading centre," Mr Tung said.

"Second, we must strengthen our co-operation with the Mainland in all areas. The World Bank estimates that China will, in the twenty-first century, become one of the largest economic entities in the world."

Hong Kong had to reinforce its role as the bridge between China and the international community, and enhance its function as a leading business centre for China and the Asia-Pacific region.

Mr Tung said the Hong Kong-Guangdong Co-operation Joint Conference had made several breakthroughs, including joint efforts to protect the environment; more initiatives to promote tourism; and measures to assist Hong Kong businessmen with operations in Guangdong.

Hong Kong had the potential to become not only a major city within one country, but also the most cosmopolitan city in Asia, enjoying a status similar to that of New York in America and London in Europe, he said.

Ending his address, the Chief Executive said confidence was the most crucial factor.

"Undeniably, Hong Kong faces many problems," he said. "But we must not sell ourselves short nor lose confidence. Rather, we should recognise that Hong Kong still enjoys a position which is the envy of many."

Mr Tung said Hong Kong should take heart and inspiration from the spirit and the courage displayed by those who fought the floods that swept across China this summer.

"As we in Hong Kong face one of the most severe challenges in our recent history, I deeply believe that, if we can show the same spirit of strength, courage, solidarity and concern for our fellow citizens, we will be able to overcome our present difficulties and build a brighter future," he said.

End/Wednesday, October 7, 1998

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