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Following is the speech (English only) by Mr John C Tsang, Director-General of the Hong Kong Economic & Trade Office in London at the Oxford University Asia-Pacific Affairs Society today (Wednesday)

"Hong Kong Matters"

Presidents, Ladies and Gentlemen,

I am grateful to the Society's kind invitation to speak this evening. I have always found speaking to a young audience a rejuvenating experience. I have recommended this remedy to many of my older colleagues but it is apparent that it does not work the same way for everyone.

Let me first introduce myself. I was born and raised in Hong Kong, and I was educated in the United States with degrees from the two educational institutions in Cambridge Massachusetts, among others. I have been working for the Hong Kong Government for the last 16 years, and I have had a number of very interesting jobs as an administrative officer. You would, therefore, not be surprised that I have a great deal of affection for Hong Kong, its people, its history and institutions, and most of all, the entrepreneurial spirit that intoxicates the very air that they breath. There is nothing that I like better than to tell people about this very special place that I love.

Reunification

In the evening of the 30th of June 1997, I still remember clearly that I was drenched in sheets of rain, riding a sustained emotional roller coaster, witnessing the unpeeling of the many layers of ceremonial activities of the reunification of Hong Kong. You will no doubt have seen the blanket television coverage of the occasion. In fact, there were over six thousand journalists from all over the world camping out in Hong Kong at that time. ABC, BBC, NBC, CBS, CNN, whatever. All the major networks were there. Even the BBC international weather reports were broadcast from Hong Kong.

The reunification of Hong Kong was compared in terms of its level of impact and magnitude of interest by opinion-formers to the fall of the Berlin Wall and the election in South Africa. Why should there be such a big fuss made for the return of a small territory to its rightful sovereign? What does it matter to the rest of the world? Afterall, the Joint Declaration for the return of Hong Kong was proclaimed some 13 years earlier. Even though there had been a few arguments along the way, no major surprises were anticipated, but somehow, the Hong Kong story sparked the imagination of the world. Some had seen that occasion as the closing chapter of the British Empire. The end of imperialism. Some had seen the occasion as the defining moment of future Chinese behaviour in the international arena. Others had seen the occasion as the extraordinary union between the freest economy in the world and the last big communist state. Or was it the beginning of a new unified China having unloaded 156 years of historical baggage?

The broad range of coverage, electronic and print, varied from jubilation to sadness, from righteousness to indignation, and from pride to prejudice. There was no single explanation for the degree of intense interest. Even the verdict on the reunification was mixed. The most poignant picture that shot around the world showed the People's Liberation Army rolling into Hong Kong in their personnel carriers with juxtaposed shots from June 1989, predicting the demise of the Pearl of the Orient. Death coming before birth. Others showed the magnificent fireworks in the harbour following the departure of the royal yacht Britannia, signaling a rebirth. There were also countless pictures of people with tears on their faces, but it was hard to tell whether these were tears of joy or tears of sadness. Or was it just rain?

Hong Kong Matters

I suppose there is no simple answer and it was probably all of the above that helped ignite great universal interest in this particular moment in history. It will actually be years before we are able to pass judgment on the meaning of this occasion. What was absolutely clear, however, was that, for whatever reason, there was a great deal of concern for the continued well being of this small territory. To the people everywhere in June 1997, Hong Kong mattered. Today, Hong Kong still matters a whole lot to the rest of the world. The reasons are rather complex, and I shall devote the remaining time to cover six key reasons which I think have attracted the level of intense international interest in Hong Kong.

Economic Model

The first reason falls under the heading of Economic Model. Hong Kong is Asia with a difference. We are a model of sound economic management, with a free market operating under the rule of law, a well regulated financial sector and a clean government that exercises prudence in its fiscal policies. We have no public debt. Our foreign currency holdings amount to the world's third largest. Our banking sector is profitable, carefully managed and well capitalised. We have one of the lowest taxes in the world. Top rate for individuals now stands at 15% and for corporations at 16%.

We are striving ahead in the current adverse economic climate with massive spending on infrastructure, education and housing. We are investing confidently in our future. Over the next five years we will be spending some 20 billion pounds on infrastructural projects, at a scale of about 1( times as much as the 10 airport projects, including our stunning new Hong Kong International Airport, which have now come into operation. The rail projects, which are about to begin, will satisfy the internal transport requirements in the next millennium and will serve to enhance our economic and trade links with the Mainland. Education continues to take up some 20% of our total expenditure. Not only are we expanding further in the tertiary sector, we are seeking to strengthen the bilingual ability of our students and expand the knowledge base of our general population with the necessary skills to keep pace with the advancement of technology. In developing Hong Kong as an innovation and technology centre in the region, we are seeking to enhance the competitiveness of Hong Kong. Housing has always been a big issue in the land scarce territory, but we are determined to provide enough decent and affordable housing, both in the private and public sectors, to the people of Hong Kong. This would help enhance their sense of belonging.

Many countries, not only those from the Third World, have tried to replicate the winning formula in Hong Kong by creating Hong Kong clones within their respective economies. With a great sense of humility, I agree that there are a few successful aspects in Hong Kong that are worth closer examination. It would, however, be overly simplistic to suggest that these complicated sets of parameters and conditions can be recreated in isolation, with little regard to the holistic integrity of the overall system, taken together with all its supporting institutions. We have shared with others on many occasions our experience in whole and in part, and for the keen observers, a close look at Hong Kong in its totality would reveal in its full glory the essence of a civil society. I shall discuss more on this aspect later on.

Responsible Player

The next reason falls under the heading of Responsible Player. We are a responsible economic player in the increasingly globalized world. We have been exemplary in dealing recently with the Asian financial crisis, seeking to contain the contagion and providing stability to the region. You may recall that the Thai Baht began its free fall on 2 July 1997, one day after Hong Kong's reunification. Hong Kong, even with its strong fundamentals, was swept up quickly by the financial turmoil, and became embroiled in what was considered the worst economic disaster in its history.

The externally oriented nature of our economy has left us wide open to the problems plaguing our Asian neighbours, and we are paying dearly for the necessary adjustments in our own system. We went into negative growth in the first half of 1998. Our stock and property markets took a spill with substantially diminished asset values. Unemployment rate rose to the highest level in recent history. Retail sales fell. Tourist numbers tumbled. However, our economic prospect for the medium and longer terms remains healthy, and with all the measures we have implemented to strengthen the discipline of the market and to ensure a level playing field for all concerned, we believe that we will be among the first to rebound and to recover fully.

Hong Kong has not escaped unscathed from the regional financial storm, but with our steadfast determination to retain the fixed exchange rate between the Hong Kong Dollar and the US Dollar, it has been a pillar of stability for the region. The Hong Kong Dollar is now the only freely convertible currency in the region that has not depreciated. We are suffering serious asset price adjustments as a result of our unyielding commitment to the link. We know that a devaluation in the Hong Kong Dollar will not benefit anyone, including ourselves. Any such devaluation will no doubt spark a new round of competitive currency depreciation in the region. At the end of the round, relative positions will remain the same, but meanwhile we would have stirred further volatility in the already tumultuous environment. In any event, the link has served Hong Kong well since its establishment in 1983, and there is no reason, economic or psychological, for us to abandon the link. This staunch determination is strongly supported by the International Monetary Fund which regards the stability of the Hong Kong currency essential in helping the region recover its equilibrium.

There have been sneers and snipes when the Hong Kong Government intervened in the second half of August in the stock market on an exceptional basis, denying gains to the massive private hedge fund speculators who were seeking to gain from manipulating the markets at the expense of the global public. I can assure you that there has been no deviation from our policy of non-intervention. This has been an exceptional situation and we needed exceptional measures. We wanted only to make sure that the markets would continue to work fairly to the benefit of all investors. This is our duty to our local community and to the stability of the regional and global markets. In fact, we have called on the developed economies to support further actions against such manipulative practices, by, for example, increasing transparency at a global level. And we have received positive responses. On 30 October, the G7 issued a communique on Strengthening International Financial Systems in view of the financial crisis that swept Asian and other emerging markets. In the statement, the G7 made a commitment to develop and implement international principles and codes of best practice on fiscal policy, financial and monetary policies, corporate governance and accounting; and to work together to ensure that private sector institutions, including hedge funds, comply with new standards of disclosure.

Global Merchandiser

The third reason comes under the heading of Global Merchandiser. We are the global merchandiser, packager and integrator of goods and services, matching demand in the developed world with supply from the developing world. This role has arisen from our drive to remain competitive. Given the relatively high wages and land price in Hong Kong, we can no longer rely on manufacturing as our principal income as we have done in the past. In fact, less than 10% of Hong Kong's GDP is now derived from the manufacturing sector with more than 85% of our GDP accrued from services.

We are applying our knowledge of international commerce to optimize the business aspect of trading. We take on the function of a middle man for the international community. We would design the products, source the raw materials, organize production in low cost manufacturing bases, package the goods, and sell these competitively priced yet high quality goods to the consumers of the world, making full use of the comparative advantages of all the economies involved.

Hong Kong's middleman role extends beyond what economists call the real sector. As a leading international financial centre, Hong Kong firms package all kinds of investment vehicles for corporate and private clients from the region, and also those from the rest of the world. Financiers based in Hong Kong are involved in some of the largest capital raising efforts in the region, for Mainland, European and American firms alike. Even Mainland firms find Hong Kong the ideal location to close deals between themselves. This is attributable to the business friendly environment anchored by the rule of law.

Gateway to China

The fourth reason falls under the heading of Gateway to China. We are the gateway to the Mainland of China, a hinterland that is unrivaled by any other economy. Our natural geographical location is a feature of Hong Kong's economy that will not change with the ebbs and flows of fortune. In fact, we are now the international hub for overseas firms to conduct business in China. Following reunification, our unique political status provides us with a commercial edge in developing Mainland business and in capturing the advantages flowing from the sustained economic growth of China. Our capital market is also preparing to benefit enormously from the Chinese Government's determination to reform its 350,000 state-owned enterprises.

More and more businessmen are using Hong Kong as the platform for China, and, indeed, the region. This vote of confidence is easily illustrated by the increase in the number of regional headquarters in Hong Kong. We have in our favour the strategic location, the business infrastructure, the rule of law and the human resource in capturing a commanding position in the region. It is no wonder that Hong Kong has been consistently voted by international business think tanks as one of the top centres to do business. Recently, the Fraser Institute, an economic think-tank based in Canada, has for the sixth time, ranked HK as the freest economy in the world.

Model of Civil Society

The next reason comes under the heading, Model of Civil Society. Hong Kong is a model of civil society, the paradigm of Asia's future. I have mentioned earlier that the doomsayers have predicted Hong Kong's demise before the reunification. Many suspected that the Pearl of the Orient would die a premature death as soon as it ceased to be a British Dependent Territory and became the Special Administrative Region of China. Fears were expressed about the dilution of human rights and civil liberties, the curtailment of press freedom, the erosion of the rule of law and the creeping in of cronyism and corruption.

The doomsayers have proved themselves to be completely wrong. None of the doomsday scenarios has come true. In Hong Kong, business is continuing as usual, just as it was before reunification. The Hong Kong people are running Hong Kong now with a high degree of autonomy granted by the Central People's Government, giving full effect to the principle of 'One Country, Two Systems' as guaranteed in the Basic Law. It has been widely applauded that Beijing has adopted a strictly hands off policy towards all Hong Kong issues outside the realm of defense and foreign affairs.

Contrary to popular belief, the People's Liberation Army are not patrolling the streets of Hong Kong. The institutions of civil society which include the rule of law, an independent judiciary, an elected legislature and a free press, remain intact and vibrantly alive. Political debates remain active in Hong Kong. We have had more demonstrations in the year since July 1997 than in the year before. Even the June 4th gathering in Victoria Park had proceeded without any incident. We had a record turnout in our last election which produced a legislature which included all shades of political affiliation and all sectors of society.

Our media have remained as vocal as before, if not more so. The media have been painstakingly vigilant on the work of the Administration, and they report and comment extensively on all sensitive issues. There have been talks about self censorship, but controversial films such as "Seven Years in Tibet" had been screened in Hong Kong. We know well that the free flow of information is vital to the success of Hong Kong as an international financial and business centre. That is why we are maintaining an open, fair and liberal environment to enable the continuation of a healthy media sector in Hong Kong.

There have also been concerns that after reunification, there would be a tremendous rise in corruption in Hong Kong with businessmen abandoning their ethics and corrupt business practices creeping down from the North. These fears have also proved to be misconceived. There has not been a significant rise in the level of corrupt practices in Hong Kong. The Independent Commission Against Corruption remains effective, and is continuing to be a role model for other anti-corruption agencies throughout the world.

These are positive proofs which reinforce the model of the society of Asia's future. All the ingredients of civil society are essential to the survival of Hong Kong, with economic freedom and political freedom going forward hand in hand. To all those who believe in decency and democratic ideals, it matters a great deal for Hong Kong to continue developing in the current mode.

Hong Kong Culture

The last reason that I will cover comes under the heading of Hong Kong culture. As the capital of the Chinese diaspora, the emerging Hong Kong culture, which is quite distinctive from anything else, is spreading its influence around the world. All the communities with substantial Chinese population are singing to the latest canto-pop tunes, watching the latest Cantonese soap operas and following the Hong Kong fashion scene as closely as the ups and downs of the Hang Seng Index in the Hong Kong Stock Exchange. Even Hollywood has come under the Hong Kong spell as a whole new generation of film makers as well as film watchers are charmed by the stylised work of the likes of John Woo of 'Face Off' fame, and as stars like John Travolta and Nick Cage have become Chow Yun-fat look-alikes shooting from the hip with both hands under the black wind-blown trench coats.

In the evolution of its unique mode of expression, Hong Kong has combined modalities from both the East and the West. It is mass culture, which caters principally to the whims of the Hong Kong consumers, having little regard to tradition, aesthetics or taste. There is no need to worry yet that it will become an art form in any mainstream way. Some call it a mess, but this imperfect cultural fusion is giving preliminary definition to a whole new generation of Asian youths, drawing them together, from Vancouver to Macau and Edinburgh to Cape Town, in the form of a new identity. It is a culture in transition, and it requires some time for us to have this turn into a unique set of lasting cultural values which could give us the necessary psychological comfort. For now, these displays of expression are giving us the helpful diversions to a stressful life.

Conclusion

I have given you now some of the reasons why Hong Kong should matter to all of us. Hong Kong is not a miracle. We came about as a result of a lot of hard work, operationalizing the best values offered by Confucius and Adam Smith. Little bit of inspiration and lots of perspiration. The outcome is a civil society with a happy mixture of market economics, political freedom and social harmony. Long shall it flourish.

Thank you.

End/Wednesday, November 25, 1998

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