**********************************************************

The following is a speech (English only) by the Secretary for Information Technology and Broadcasting, Mr K C Kwong, at the breakfast meeting of the Canadian Chamber of Commerce in HK and the HK Information Technology Federation Ltd today (Wednesday) :

Ladies and Gentlemen,

Good morning. Thank you for inviting me to your breakfast gathering this morning. I would like to talk about the IT opportunities for Canadian business in Hong Kong.

First, a brief word on the current state of business relationship between Hong Kong and Canada in IT.

In 1997, Hong Kong imported from Canada about HK$1.3 billion (C$250 million) of IT and related products, mainly telecommunications switches, network equipment, and software products. In addition, there are currently more than 20 Canadian high-tech firms which have set up regional offices in Hong Kong.

To further strengthen the partnership between Hong Kong and Canada, our two Governments signed a Memorandum of Understanding (MOU) on co-operation in information and communications technology in May this year.

Following that, I led a delegation of representatives from the local IT industry to participate in Softworld '98 at St John's as well as the Hong Kong IT Seminar and Software Showcase '98 in Toronto in late September. During that visit, I also met with Minister Manley and other senior officials of Industry Canada, the Information Technology Association of Canada, and the Canadian Network for the Advancement of Research, Industry and Education. We had some useful discussions and exchanges on ways to enhance and promote co-operation on IT between Hong Kong and Canada. We have agreed to pursue co-operation in particular in the development of electronic commerce, and in the application of IT in education.

We expect that, under the MOU, we will organise even more co-operative ventures that will involve not just the two Governments, but also the IT industry, businesses and professionals as well as the academics in our two places.

I would now like to turn to specific areas in the IT field which I believe would provide opportunities for Canadian business.

Outsourcing of Government IT projects

First, outsourcing of Government IT projects. To put this in perspective, it is perhaps worthwhile for us to take a look at the local IT market. In Asia, Hong Kong's per capita spending on IT is second only to Japan and Singapore. Spending on IT in Hong Kong was worth some HK$17.7 (C$3.5) billion in 1997, and is expected to grow by 14% in 1998. While the local IT market was made up of predominantly hardware sales, which accounted for two-thirds of the total IT spending in 1997, it is the software business which will see a bigger expansion, with a forecast of growth in 1998 of 21%. Specifically, revenue in the software business in Hong Kong is expected to grow from HK$4 billion (C$790 million) in 1997 to HK$4.8 billion (C$950 million) in 1998.

The Hong Kong Government in particular has also seen its IT spending increase at a comparable rate. In 1998-99, Government spending on IT is expected to reach HK$2.1 billion (C$410 million), an 11% increase over the preceding year. Despite the economic downturn, we have decided to continue to push vigorously the use of IT within Government, both to improve services and to increase productivity. Bearing in mind the need to nurture the growth of the local IT industry, we have also decided to adopt an aggressive outsourcing policy. Starting from 1999-2000, all new IT development and maintenance projects will, as a preference, be outsourced unless there are over-riding reasons for retaining the work in-house. Our aim is to outsource some two-thirds of all new IT projects in Government by 2001. Our objective is to create a market of sufficient size to stimulate the development of and investment in the local IT industry.

Electronic Service Delivery and Electronic Commerce

The second area of opportunities is applications and services relating to electronic commerce. E-commerce has long been identified as an area of great potential. The change from paper-based transactions to electronic ones allows us to conduct business more efficiently and thereby helps to reduce costs. In Hong Kong, we have taken the initial step towards encouraging e-commerce with the facilities for some Government trade documents to be lodged electronically.

To facilitate the further development of electronic business in Hong Kong, Government has embarked on an Electronic Service Delivery (ESD) project for the delivery of government services on-line. Through ESD, the public will be able to transact business with Government in a seamless manner through the Internet, interactive telephone or television, or other electronic means of access. Earlier in June this year, we invited expressions of interest from the private sector. We received 44 submissions, some from very big companies in the international IT market. I am glad to say that of these, six submissions were from Canadian companies. This is a good indication of the interest of Canadian companies in business opportunities in Hong Kong. We are now finalising the tender documentation and will invite tenders for the ESD project by the end of this year. Our target is to implement the first phase of ESD in 2000.

Providing more effective and efficient government services is only one of the objectives of ESD. The open, common information infrastructure which we are going to develop for ESD will serve as a platform on which the private sector can conduct electronic business. To instil public confidence in the security and integrity of such electronic transactions, we will establish a public key infrastructure and Certification Authorities in Hong Kong. We will also establish a legal framework to ensure that electronic transactions are given the same level of legal recognition and backing as paper-based transactions.

We anticipate that the introduction of ESD and the creation of the necessary environment for electronic transactions would serve as a catalyst to pump-prime the development of electronic commerce in Hong Kong. The business opportunities made available by this development are there for Canadian IT companies to seize.

IT in Education

The third area is in education. Earlier this year, we published a consultation document on a 5-year strategy of IT in education. The strategy aims to harness the power of IT to help our students get the most out of their school education. Our initial target is to have 25% of the school curriculum taught through IT in five years' time. This will involve not only the provision of hardware facilities, but also the development of educational software which meets the needs of local students.

Canada is strong and advanced in the application of IT in education, particularly on the development of learning materials, application of educational resources for the Internet, and training in the use of IT for education. During my visit to Canada last September, I had a good discussion with the Office of International Partnerships of Industry Canada on this. We both agreed that we should explore further the scope for co-operation in these areas. I am pleased to report that my colleagues in the Education Department are now actively pursuing possible cooperation with the Canadian authorities in this respect.

Solutions to the Year 2000 Problem

The four area of opportunities is related to the Year 2000 problem. I don't think I need to spend time to introduce the problem or to explain why it exists. In addition to all the work that we have done on rectification of critical systems used in providing essential services (both in the Government as well as the private sector), we have also actively promoted rectification by private companies, especially among the small and medium sized enterprises (SMEs).

According to a survey conducted in September 1998 by the Hong Kong Productivity Council, over 98% of the companies surveyed, mainly SMEs, are now aware of the Year 2000 problem. About 57% of the companies with IT systems indicated that they would be affected by the problem. Of those affected by the problem, two-thirds are taking action to tackle it before the new millennium arrives. To IT practitioners, this is probably the largest ever maintenance project they would have seen in the IT history. The increasing awareness of the Year 2000 problem in Hong Kong means more business opportunities for Canadian IT companies to provide consultancy services and compliance solutions to local companies.

Internet Content and Applications

The fifth area of IT opportunities for Canadian business is related to the development of the Internet. The global Internet boom has given rise to a whole new industry of Internet service providers, web-page designers, Internet shopping support services and so on. In Hong Kong, for example, the number of Internet users has risen at a geometric rate of some 30% every six months. The latest count is that there were about 830,000 Internet accounts last month. Besides, there are now more than 130 Internet service providers in Hong Kong offering Internet services which cater for the specific needs and interests of local users. Nevertheless, I think the greatest opportunity is not so much in the local market, the size of which is limited by our relatively small population. It is more in Hong Kong's potential to develop into an Internet hub of the Asia Pacific region.

Given the history of the development of the Internet, communication on the Internet is largely based on the English language. However, the situation is changing rapidly as there is growing demand for Chinese content not only in the Mainland of China, but also in other Chinese speaking communities all over the world. Hong Kong, as a bilingual city, is well placed to provide Chinese language support for the development of Chinese Internet content and related applications. Coupled with our excellent telecommunications infrastructure and our unique position vis-a-vis the Mainland of China, Hong Kong can be developed into an Internet traffic and content hub of the region.

For Canadian IT companies which are advanced in both networking hardware and software, and Internet-based applications, I could go on to enumerate even more business opportunities. But I think I should pause here and perhaps answer a few questions if you wish.

Thank you.

End/Wednesday, November 4, 1998

NNNN