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Following is a speech (English only) by the Chief Secretary for Administration, Mrs Anson Chan, at the Hong Kong Trade Development Council Annual Dinner at the Dorchester Hotel, London, today (Tuesday, London time):

"To Better Pastures and Brighter Days"

My Lords, President of the Council, Mr Chairman, Distinguished Guests, Ladies and Gentlemen,

Thank you so much for those very kind words. This is my first official visit to London since the transition and it is good to be here among old friends. I take it as a signal honour to be invited to address this great annual gathering, the second since Hong Kong severed its constitutional links with Britain and, fortuitously enough, just a little over two weeks since Prime Minister Tony Blair made his welcome and warmly-received visit to Hong Kong.

The past year has been a difficult one for Hong Kong for reasons that few predicted before the handover. To borrow a phrase from your gracious and respected Sovereign, last year might best be described as Asia's annus horribilus. Whichever way you look at it, the virulence which has triggered the fallout in the international markets since it first surfaced in Thailand in July 1997 has been ferocious and unforgiving. When our Chief Executive Tung Chee Hwa addressed this audience a year ago, most people thought that the Asian financial turmoil would have limited impact. Tonight, as I speak, we are dealing with the ramifications of trying to avert a global recession.

Should we be surprised about that? I wonder. The fact is some people are surprised, or at least they should be on the evidence of what they were saying a year ago. There were many that short distance back in time who thought the virus would be contained in Asia. There was even a hint here or there that Asia might have got its come-uppance after years of jet-propelled growth. There was a school of thought that reckoned what was happening in Asia would not affect the rest of the world, certainly not the United States or Europe.

The landscape today tells us a much different story. Even the strongest houses have shattered windows and torn up gardens, and the owners - in some cases belatedly - are moving with a greater sense of urgency to shore up the foundations.

We in Hong Kong, and the rest of Asia, are much encouraged by the recent moves in Washington and the capitals of Europe to take a tighter grip on some of the critical issues now facing all of us. We are heartened by the greater determination being shown to take the necessary measures to stabilise the world economy, and introduce some modern supervisory and regulatory support to match the new-look financial architecture which has changed the shape of the international financial markets.

I was particularly pleased with the serious-minded and practical approach taken on this issue by Mr Blair during his visit to Hong Kong when he reinforced his determination that the G7 countries should bear their leadership responsibilities to tackle the international financial crisis. Mr Blair's recognition of the social cost in human terms, particularly in Asia, struck a real and sympathetic chord.

Economic solutions will not work without political will. It is good to see such clear signs of the twinning of these two imperatives.

We in Hong Kong will play - indeed I believe we have already played - a positive part in all of this. We will bring a good deal of tough experience to the table from the sharp end of the crisis. We will bring optimism and realism, too.

Indeed I believe that in our current situation, we can all do with a large dose of realism. Part of that is a recognition - which has been slower in forthcoming from some quarters than others - that globalization is an all - inclusive process. It is not selective, cherry picking Asia here, Latin America there, Russia this week, Brazil the next. The breathtaking advances in sophistication of technology, the lightning speed of the movement of information, money and ideas means that somewhere along the line decisions are going to be taken faster than the speed of thought.

At its worst, it can be like a cattle prod to the herd. Hopefully, what we have seen over the last year and a bit will result in us all slowing down for a breather to see if we cannot manage the process a little more sensibly, to take a bit more collective control of what Mr Soros has described as the "wrecking ball" which has flattened currencies, destabilised governments and disrupted communities from Jakarta to Moscow.

We in Hong Kong support that proposition in principle, and have pursued a specific proposal : that is, to bring transparency and disclosure to those hedge funds which have been at the centre of so much of the turmoil in the international market place. In this age of openness and accountability, where governments and all manner of public, private and commercial organisations are expected to conduct themselves in a way which maximises public scrutiny and, where necessary, censure, is it really right that vast quantities of cash can be moved with stealth and secrecy, creating havoc and unnecessary instability in even the soundest and most risk worthy markets?

That is not to say that some of the economic structures so badly damaged were built on the most solid of foundations. In some economies in our region, there were matters long overdue to be addressed. In contrast, I believe Hong Kong has weathered the storm as well as it has because our fundamentals are right. We are an open, free market, free trade economy operating on a level playing field. We have a strong, well managed, well-regulated banking and financial services sector. We have a low tax base and prudent fiscal policies which have enabled us to accumulate substantial fiscal and foreign exchange reserves. We have a clean, apolitical, and highly-motivated civil service, which I have the honour to lead. Crucially, all that is underpinned by the rule of law and an independent judiciary, Britain's greatest legacy to Hong Kong. We remain a robust and lively community where people have no hesitation in speaking out, including their views on our administration.

Political protest, civil liberties, human rights are alive and well in the Hong Kong SAR. So is the spirit of democracy, as the record turnout of voters in our Legislative Council elections last May so amply demonstrated.

All of this is important but, quite frankly, our main concern has been grappling with the most difficult economic situation we have yet encountered in recent memory. It is as well for us that we have saved so hard for this torrentially rainy day.

I would not pretend to you for a moment that we are out of trouble or over the worst. Our small, externally-oriented economy is too exposed to global forces beyond our control to say that just yet. But there are some positive signs. Our research shows that housing affordability in Hong Kong now compares favourably with that in cities such as New York, London, Tokyo and Singapore, and more so if you take account of the disposable income of our population. This augurs well for our overall competitiveness. I'm also confident that just as the open nature of our economy meant that we went into the downturn quickly and steeply, we will come out of it in the same manner. In Hong Kong, we never forget there is an upside to every downside.

I can assure you that we are tackling our problems calmly and with sensitivity to our community which has suffered such sharply reduced asset prices and the barely known spectre of rising unemployment.

We have introduced a mini-budget containing some carefully-targeted relief measures for the community and business which are still working their way through the economy. We are working closely with employers and employees to alleviate the worst effects of the downturn. We are maintaining programmes which protect the most vulnerable and underprivileged in the community. We are forging ahead with infrastructural developments costing US$30 billion over the next five years without raising new taxes to pay for them. As I have said, we are playing our part in addressing the larger global concerns which are at the heart of our problems, as Donald Tsang has demonstrated during his recent 3-week visit to Washington, London and other European capitals.

I hope that he has been able to dispel fears among you that we have been diverted from our free market principles. Our 10-day surgical incursion into the market was an exceptional move to deal with an exceptional situation. At the end of the day, the duty of any government is to its people The alternative to what we did was to expose Hong Kong to serious market dislocations and an undermining of our currency which could have potentially devastating consequences for our community. It was not a risk we were prepared to take.

I can certainly assure you that we have not lost our nerve. That is not the Hong Kong way. And we have not lost sight of our vision for Hong Kong's future. That, indeed, was the unmistakable message from C H Tung when he delivered his second annual policy address in Hong Kong earlier this month. While giving a sober, level-headed assessment of the challenges and tasks immediately before us, Mr Tung nevertheless also began the process of fleshing out some of the ideas for the future that he outlined on assuming the leadership of the SAR on 1 July last year.

In essence, that means building on our assets while fashioning a new niche for ourselves; taking full advantage of our unique role in the development of China; strengthening our position as the most cosmopolitan city in Asia, enjoying the same status as London in Europe, or New York in North America. We aim to become a centre of excellence for fashion, film and Chinese medicine. We intend to finesse our position as a financial services centre, both in the provision of services and the effectiveness and sophistication of our regulation.

We must not lose sight of the fact during this period of uncertainty that the restructuring of the Mainland's state-owned sector involves funding requirements estimated at some 70 billion pounds - I repeat, 70 billion pounds - much of which is expected to be met by foreign funding. Financial institutions in Hong Kong are uniquely placed to pay a pivotal role in this.

Central to our strategy for the future is a recognition that innovation and technology are the driving force of a modern economy. In the United States, 80% of productivity growth is attributed to technological and knowledge-based advances. This is not a phenomenon unique to the biggest economies. For example, Israel's high tech exports in 1997 represented two thirds of the country's total exports and were worth nearly HK$70 billion - double the 1990 figure.

Some concrete proposals are now emerging from a high-powered commission on innovation and technology established by Mr Tung last year. We will, for example, set up an Applied Science and Technology Research Institute to strengthen Hong Kong's capability in commercial research development; we will be injecting 384 million pounds into a new Innovation and Technology Fund to foster innovation and technology improvement in business; we are building our first Science Park and a second centre providing incubation services to technology-based start-up companies. There is much more in the pipeline, all of it aimed at the cutting edge of the Information Age.

The object is to create a favourable environment for business in which we hope the private sector will capitalise on the opportunities we seek to create. Our strategy is to provide the physical, technological and human infrastructure in which business can best and most freely operate.

We have always been China's gateway to the world for trade and business, and we intend to use that unique position to become its information gateway. Through high speed communications links between the Mainland and Hong Kong, our companies are able to integrate their manufacturing and supply operations on the Mainland with unprecedented ease, allowing them to source from the Mainland more efficiently, respond to changing conditions in the world market more quickly, and help overseas suppliers market their products in the Mainland in a more cost effective manner.

On a more global scale, we are extending the frontiers of technology in our commercial broadcasting on telecommunications sector through technical trials of digital terrestrial television services and the development of a world-class teleport to provide the best possible global satellite communications links. We are well and truly in this technology race and, in true Hong Kong fashion, we intend to be competitive.

Mr Chairman, I have dwelt at some length this evening on some of our present difficulties and future ambitions. It is not in Hong Kong's nature to look backwards but I would not wish to let this opportunity pass without some mention of the unique relationship - and here, for once, the word is not misused - which exists between Hong Kong and the United Kingdom.

The commercial, personal and family ties between us have deep roots. There is about three billion pounds worth of British direct investment in Hong Kong; the capitalisation of British companies on our stock market totals 70 billion pounds; British exports to Hong Kong (including some for re-export) are about three and a half times those to China as a whole.

I know that for many of you in this audience tonight the ties go deeper than just commercial interests. Hong Kong is a city that has shaped your lives as much as it has mine. Many of you gave Hong Kong the best years of your life. Your children grew up there. You made deep and lasting friendships. You prospered. Although the constitutional link has been severed, I know that you still care deeply for Hong Kong and feel for the fate of its people.

For each of us, Britain's legacy to Hong Kong is something slightly different. Overall it is a responsive and just administration of government, a deep and abiding respect for the rule of law and the common decency of a tolerant and caring society. These attributes have not changed since 1 July 1997 nor are they likely to.

For me and I believe for many in Hong Kong, the territory's most obvious defining characteristic is that it is a Chinese community. This is not to dismiss the significant contribution that Britain has made to Hong Kong's success. It is simply a statement of the cultural and spiritual reality. We have been a nation and a people divided. Now we are whole. And though our relationship with the United Kingdom is changed, the values that Hong Kong people have absorbed over the generations will enrich and enlarge the special contribution we make to China and reinforce our identity as an international city with a valued and vital expatriate community.

I have been Chief Secretary for almost exactly five years. They have been five of the most dramatic years in Hong Kong's history. A tenure framed by economic extremes and bisected by the events of 1 July 1997. My position has given me a unique and privileged perspective of the character and qualities of both China and Britain. My experience has left me with deep admiration for the genuine good will of both and respect for the character and quality of their leadership. Today we are masters of our ship, responsible for our own fate and our children's future. In 36 years of public life I have seen great shifts in our fortune but always the indomitable will of the people of Hong Kong to conquer adversities and to succeed has prevailed. Our irrepressible spirit of progress compels us forward in search of a better life for ourselves and for our children. Like Churchill, I remain an optimist and with our people we look forward to better pastures and brighter days.

End/Wednesday, October 28, 1998

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