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Following is the full text of a speech (English only) by the Secretary for Information Technology and Broadcasting, Mr K C Kwong at the luncheon meeting of the British Chamber of Commerce in Hong Kong today (Friday):

Ladies and Gentlemen,

Thank you for inviting me to your luncheon gathering today. I am glad to have this opportunity to outline to you our information technology (IT) strategy. But before I do so, I would like to say a few words on the business relationship between Hong Kong and the United Kingdom (UK).

The ties between Hong Kong and UK are of course deep-rooted. Notwithstanding the transition last year, there is about HK$38 billion (three billion pounds) worth of British direct investment in Hong Kong; the capitalisation of British-managed or owned companies in our stock market totals HK$896 (seventy billion pounds); and British exports to Hong Kong (including some for re-export) are about three and a half times those to the Mainland of China.

As regards IT, Hong Kong was the UK's 10th largest market for her export of IT products in 1997, at HK$9.3 billion (seven hundred and twenty five million pounds), while the UK was the 7th largest market for our domestic export of IT products. And we would very much like to see this bilateral trade and investment relationship strengthened even further. I would suggest that the initiatives that we are taking to implement our IT strategy should provide good opportunities for that.

So, perhaps I should briefly describe our IT strategy for you. As many of you will know, the Chief Executive has, in his recent Policy Address, emphasised the importance of exploiting IT to drive Hong Kong's economic growth. To achieve this policy objective, we have published last month "Digital 21" - the IT strategy for the Hong Kong Special Administrative Region. The aim of the "Digital 21" strategy is to enhance and promote Hong Kong's information infrastructure and services so as to make Hong Kong a leading digital city in the globally connected world of tomorrow.

The strategy is made up of four building blocks. They are first, a high capacity communications infrastructure; second, a common software interface through which individuals, business and the government can interact easily and securely; third, people who know how to use IT; and fourth, a cultural environment which stimulates creativity and welcomes advances in the use of IT. We have formulated a series of initiatives to strengthen each of these building blocks to help achieve the objective of our IT strategy.

Instead of introducing the initiatives one by one, I would like to focus on a number of areas in the strategy which I believe offer opportunities for British businesses.

Liberalisation of telecommunications market

First, on the development of a high capacity communications infrastructure, we have proposed to further open up the telecommunications market in Hong Kong. We have already announced our decision to introduce free competition for external telecommunications services from January 1999. We are now reviewing our proposal to liberalise the market for external telecommunications facilities from January 2000 in the light of response to the public consultation exercise and should be able to announce our decision shortly. We envisage that liberalisation of the telecommunications market would help to promote innovation, increase choice, and encourage better services at lower prices. And of course, the telecommunication operators, be they existing players or newcomers, have to invest in new equipment and applications to improve their services and efficiency in order to stay competitive in the new open market. This would offer business opportunities to British companies which specialise in telecommunications services, or which provide IT hardware and software products to telecommunications service providers in Hong Kong,

Electronic Service Delivery and Electronic Commerce

Another key initiative under the Digital 21 strategy is the Electronic Service Delivery (ESD) project for the delivery of government services on-line. The purpose of ESD is twofold. On the one hand, we wish to improve the delivery of Government services by making it possible for members of the public to transact business with Government departments electronically round the clock, using various electronic means, including their PCs at home or in the office, interactive TV, interactive public pay phones and the like. On the other, we want to use ESD to drive the development of electronic commerce. In recent years, we have seen some limited development in electronic commerce in Hong Kong, with the launch of on-line shopping and banking by a small number of companies. But these are not enough. We need to do a lot more to encourage the further development of electronic business in Hong Kong. Through ESD, we aim to establish an open and common platform which would be able to serve not just our own needs, but also the needs of the private sector in carrying out electronic commerce. We also aim to create the necessary secure environment, supported by legislation, to ensure that the public feel comfortable about the security and integrity of electronic transactions. In addition, we believe that the use of ESD will help to promote general awareness in and acceptance of electronic transactions in the community and this would in turn spur the development of more electronic commerce in Hong Kong. We are now finalising our preparatory work for ESD and will invite tenders for the project in the next few weeks. Our target is to implement the first phase of ESD by the latter half of 2000. I would urge British companies which are interested in this project to watch out for the tender and respond to it.

In talking about ESD, I touched briefly on the security and integrity of electronic transactions. This brings me to the second building block in our IT strategy - a common software interface for secure electronic transactions. To instil public confidence and trust in 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 legal recognition and backing as their paper-based counterparts.

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. British companies specialising in electronic commerce and related services could play a part in assisting local firms to develop their business electronically in order to reap the benefits of electronic commerce.

Solutions to the Year 2000 Problem

Another initiative to strengthen the building block of secure electronic transactions relates to rectification of the Year 2000 problem. I don't think I need to spend time to explain the problem, but its timely rectification is of utmost importance if we are to feel secure and comfortable with our IT systems and IT-supported equipment and devices. In our IT strategy, we have set a target for rectifying all mission-critical systems within Government by the middle of 1999. In addition, we are monitoring closely the progress in the rectification of mission-critical systems used in the non-Government sectors which provide essential services (such as power, telecommunications, banking, etc) We are also actively promoting rectification in the private sector, especially among the small and medium sized enterprises, by working jointly with the Hong Kong Productivity Council.

According to a survey conducted in September 1998 by the Hong Kong Productivity Council, over 98% of the companies surveyed are now aware of the Year 2000 problem. About 57% of them indicated that they would be affected by the problem. Of those affected by the problem, two-thirds are already taking action to tackle it before the new millennium arrives. I understand that the UK Government has also made strenuous efforts, through its Action 2000 programme, in enhancing awareness of the problem and in assisting firms to tackle the problem. British experience and expertise in this area will of course be most welcome in Hong Kong as there is still much work left to be done.

IT in Education

I would now turn to the third building block in our IT strategy - people who know how to use IT. Needless to say, education and training is the focus here. Transforming the way we teach and learn through the use of information and communication technologies is one of the key components in the policy statement "Our Information Age" launched by the UK Government in April this year. The Hong Kong SAR Government also understands the importance of exploiting IT to raise the standards of education, and to get our younger generation better equipped for the Information Age. Last week, we published our "Five-year Strategy of IT for Learning in a New Era". The strategy aims to harness the power of IT to help our students get the most out of their school education. The various proposals in the strategy will cost some HK$3,200(two hundred and fifty one million pounds in capital expenditure and HK$556 (forty three million pounds) annually in recurrent expenditure to implement.

I am sure that British experiences in this area, particularly on the development of learning materials, application of educational resources using the Internet, and training in the use of IT for education will help us take our initiatives forward.

Outsourcing of Government IT projects

The fourth building block in our IT strategy is related to the environment in society. We need to create a culture which welcomes the use of IT. It is perhaps worthwhile for us to take a look at this juncture at the use of IT in Hong Kong. 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 billion (one hundred and thirty three million pounds) 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 (three hundred and twelve million pounds) in 1997 to HK$4.8 billion (three hundred and seventy five million pounds) in 1998.

The Hong Kong SAR Government in particular has also seen its IT spending increase at a fast pace. In 1998-99, Government spending on IT is expected to reach HK$2.1 billion (one hundred and sixty four million pounds), an 11% increase over the preceding year. Despite the economic downturn, we will, as set out in our "Digital 21" IT strategy, 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 on IT. 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 target 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 the IT industry. And of course, we would welcome participation of British companies in our ambitious outsourcing programme.

Internet Content and Applications

Another key initiative to help nurture an IT culture is related to the development of Hong Kong into an Internet content and traffic hub in the Asia Pacific region.

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 35% every six months. The latest count is that there are about 640,000 Internet accounts. 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. While there is of course a lot of scope for the consumption of Internet services and content in Hong Kong, I think an even greater potential lies in the development and supply of those services and content from Hong Kong to the rest of the world.

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, at least in this part of the world, as there is growing demand for Chinese content not only in the Mainland of China, but also in Chinese speaking communities overseas. 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 British IT companies which are advanced in both networking hardware and software, and Internet-based applications, there are clearly opportunities for them to partner with Hong Kong companies in our quest to develop Hong Kong into an Internet hub for the Asia Pacific region.

The digital world of the 21st century offers enormous opportunities for everyone of us. The objective of our "Digital 21" IT strategy is to build on the strengths of Hong Kong so as to maintain our competitiveness. The success of this strategy requires collaboration among all parties concerned and I look forward to continued cooperation with British businesses in this endeavour.

Thank you.

End/Friday, December 4, 1998

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