Press Release

 

 

Chief Secretary's speech at business luncheon in Chicago

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The following is the speech delivered by the Chief Secretary for Administration, Mrs Anson Chan, at the business luncheon in Chicago organized by the Hong Kong Trade Development Council, today ( Wednesday June 23, US time):

Mr. Gordon, distinguished guests, ladies and gentlemen,

Thank you for that warm welcome. It is great to be back in this great mid-Western city. I was last here in late 1994 - leading, at that time, Hong Kong's biggest ever promotion to the United States. I remember saying at the time that it would be business as usual in Hong Kong after reunification in July 1997. Certainly, the transition itself was virtually seamless. In so far as the administration of Hong Kong is concerned the emphasis has very much been on continuity and stability. It has been business as usual in regard to our commitment to free trade, open markets, a level playing field and the rule of law. But, as I will explain later, the problems we have encountered are none of those predicted before the Handover. Had we simply to contend with our political transition, we would have passed with flying colors. Instead, the Asian financial crisis shifted the focus of our attention to an area which, until then, we had previously taken for granted. And that is, the health of our economy.

Before I go into detail about this, I would first like to highlight just how important your support is to Hong Kong. It is vitally important for us that corporate America understands and appreciates what we are trying to do in Hong Kong. I am very happy to see that so many people, people like yourselves, continue to show a tremendous interest in, and support for, Hong Kong. I am not just talking about business. I also mean the people-to-people, the family-to-family links that make for an even stronger bond between the US and Hong Kong. This is easy to understand if you look at some of the facts and figures.

In the 10 years to the end of 1998, more than 116,000 Hong Kong people were granted immigration visas to the US while about 17,000 student visas were granted in the three years to the end of 1998. There are very big and strong Chinese communities in New York, San Francisco and Los Angeles, and many of these people can trace their heritage back to Hong Kong or adjoining Guangdong Province.

On the other side of the Pacific, Americans have a long-established and extremely prominent presence in Hong Kong, where 40,000 US citizens live and work. Corporate America regards Hong Kong as an important base for the Asia-Pacific region - more than 190 US companies have a regional headquarters in Hong Kong, while another 285 have a regional office. That is about 20 per cent of all international companies with a regional presence in Hong Kong. Not surprisingly the American Chamber of Commerce in Hong Kong is extremely active and very supportive. It is in fact the biggest AmCham outside of America and represents the business interests of more than 1,000 companies and 2,600 members. AmCham is a strong supporter of China's accession to the WTO, and has consistently supported the unconditional renewal of Normal Trade Relations for China since 1990.

Last year total trade between Hong Kong and the US was worth some US$54 billion, which easily makes the US our second-largest trading partner after the Mainland of China. America is our third-largest source of direct inward investment - accounting for about US$16.6 billion, or 18 per cent, of all direct foreign investment in Hong Kong. There are tremendous socio-economic bonds which have been getting stronger and stronger over the decades.

A continued strengthening and expansion of economic links is clearly in both our interests. The promotion of stronger economic ties is, of course, one of the reasons why I am here today.

Another is to give you an update on how Hong Kong has managed since reunification in 1997. In just under a week, we will celebrate our second anniversary as a Special Administrative Region of China. The past two years have been very eventful. For all of us in government, it has been a time of great challenge. The biggest challenge, without a doubt, has been managing change. And there have been two fundamental changes - one political, the other economic.

Our reunification on July 1st, 1997, could not have gone more smoothly. It was a virtually seamless transition for the administration. Hong Kong people have taken that change in their stride and are moving ahead under the concept of 'one country, two systems'. The Central Government in Beijing has been exemplary in honouring the promises laid down in the Joint Declaration. Hong Kong people are running Hong Kong with the high degree of autonomy promised under our mini-constitution, the Basic Law. The challenge then, as it is today, is how to fully and successfully implement this unique concept.

As you can imagine, it is a new journey for all of us. And from time to time, we will encounter difficulties. But I am confident that with the experience we have gained during the past two years, we will make our steady progress in implementing this cornerstone of our development as a Special Administrative Region.

The rule of law is the indispensable foundation of our success. Despite what some commentators might say, I can assure you that it is alive and well in Hong Kong. We will ensure that the institutions which protect the rights of our citizens will continue to gain strength.

The second change we encountered has been the effects of the Asian financial turmoil. This was totally unexpected and, as it turned out, has had far greater impact than any other factor in our transition. Over the past 21 months or so, we have had to manage financial turmoil and a sudden reversal of economic fortune. In August last year, speculators launched a severe attack on our currency, stock and futures markets. I am happy to say that we beat them off. It was for us, a matter of survival to maintain the integrity of our linked exchange rate to the US Dollar under our currency board system.

The fallout has deeply affected us in Hong Kong. Our economy shrank by 5.1% in 1998 - a dramatic turnaround from 5.3% growth in 1997. Unemployment has more than doubled to 6.3% - a great shock for a community used to an unemployment rate of 2.5% to 3%. Wages have been frozen or reduced. Property prices for residential units and offices have fallen by up to 50%. Rents are down by about the same amount, or even more. And, five consecutive quarters of negative GDP is a situation with which we have never had to deal with before.

But in the first five months of the year, there have been some promising signs. The property market has stabilized and there has been healthy buyer interest in competitively priced new units coming onto the market. This has been helped by a lowering of interest rates, and an easing of the credit crunch. Our government land auction in April - the first since a moratorium was introduced in June last year - attracted good buyer interest. The three lots on offer were sold at 20-30% above market expectations. The stock market has been more active, and rather more liquid than it was in 1998.

However, despite improving local and overseas sentiment, I believe 1999 will continue to be difficult. We have probably hit the bottom of the trough, but may stay at this level for some time. We expect, all going well, to see the economy begin to pick up towards the end of the year or early next year.

For us, the key has been how to manage this downturn. On the one hand, we realized that high inflation for much of the '90s, coupled with high property prices, had made Hong Kong uncompetitive. With such an open and externally-oriented economy we were heading for a correction anyway, the question was just when. The financial crisis has made that adjustment process all the more fast and furious.

On the other hand, we also needed to reform and realign our economy to maximize the benefits of recovery when they eventually come. This has meant reforming our financial services market; and promoting high-tech, high value-added industries as part of our drive to become the innovation and technology center for East Asia and beyond.

On the financial services side, we are undertaking a major reform of our securities and futures markets to maintain Hong Kong as the pre-eminent financial services center in East Asia, and to strengthen our markets in the wake of the Asian financial crisis.

We continue to open up our economy in areas such as telecommunications, where liberalization has brought healthy competition, a wider choice of services and, best of all, lower prices for consumers. A completely liberalized mobile phone sector has led to a big surge in the number of people using cellular phones - our penetration rate is now well over 50%. In a short time, we have achieved the second highest penetration rate of mobile phone use in the world after Scandinavia. But if present indications are anything to go by we may well take No 1 spot in the not too distant future.

We are planning to dispose of a substantial minority stake of the Mass Transit Railway Corporation which will enable Hong Kong people and overseas investors to share in, and own, a successful and profitable operation.

We plan to be a leading city in the world for a number of initiatives, including the development and application of information technology, especially in electronic commerce and information services. In this respect, we are developing a Cyberport in partnership with a private company. This facility will house a strategic cluster of major local and international information and communications services companies to specialise in the development of services and multi-media content which will support businesses and industries. About 10 international IT companies including big players like IBM, Intel and Yahoo! have already signed up as anchor tenants at Cyberport, while another 40 have expressed interest in joining them.

Complementing Cyberport is a new satellite Teleport, due to come on line in 2000, that is being developed on Hong Kong Island. Teleport is a vital component in attracting new telecommunications and broadcasting business following deregulation of the telecommunications market this year and in 2000. Together, Cyberport and Teleport will form a strategic digital communications corridor, which will act as a catalyst for the development of new digital media types and applications for TV, telecommunications and Internet.

A number of projects are being planned to consolidate Hong Kong's position as Asia's most popular international tourist destination. We have started negotiations on an international theme park on Lantau Island, just a stone's throw from our new airport. We recently appointed our first Tourism Commissioner, who is taking forward this initiative as well as a number of other exciting proposals including the development of an international wetland park, a cuisine training institute, and a new Adventure Bay theme park.

On top of these new projects, we are forging ahead with an ambitious infrastructure development program, which will cost some US$30 billion over five years. These projects will enhance our position as a regional transport hub, improve the quality of life for everyone in Hong Kong and create tens of thousands of jobs.

These are just some of the initiatives and reforms we are undertaking now and for the future. The Asian financial crisis has hit us hard, but it has not stopped us in our tracks. Rather, it has been a wake-up call that has provided an opportunity to look at where we are going. To consolidate. To build on our strengths. To diversify into new directions.

We have an excellent base on which start. The basic building blocks of our success are already in place and are guaranteed under our mini constitution, the Basic Law. These include the rule of law, an independent judiciary, a level playing field for all who do business in Hong Kong, low and business-friendly taxes, a clean and efficient administration, a commitment to free and open markets, and the free flow of information, including a free and vigorous press. All these fundamental freedoms and incentives are built into our open and pluralistic society.

We are the pre-eminent gateway to the mainland of China. In this context, and despite the spill-over of the Asian financial crisis, the Mainland has continued to grow at a healthy pace. Last year it was almost 8% and this year, the official guidance growth target is a respectable 7% - by far the highest GDP target in the region. The Mainland still offers tremendous potential in terms of trade and investment.

As the springboard to the Mainland, Hong Kong has no equal. We have a unique cultural and constitutional access to its burgeoning markets. We have a huge reservoir of talent, knowledge and experience and decades of business interaction through joint ventures and cross-boundary trade and two-way investment. We are the largest 'external' investor in the Mainland and we have also seen increased investment from the Mainland in Hong Kong. As restructuring gathers momentum throughout the Mainland, Hong Kong's role as a facilitator of capital and expertise will only increase.

I would now like to say a few words about the wider Sino-US relations and their fall-out on Hong Kong. I have to preface my remarks on this subject by saying that Hong Kong's high degree of autonomy does not include responsibility for foreign affairs or defence. These belong to the Central Government. But that does not mean that we are immune from their consequences. The suspension of U.S. warship visits to Hong Kong - and I hope the visits can resume shortly - is an example of that.

Let me start with the Cox Report where there is a clear national interest and a very specific impact on our autonomy. I refer here to allegations in the report that Hong Kong is being used by some companies as a staging post, as it were, for the acquisition of sensitive technology for the Mainland. These allegations are totally unfounded. Indeed, an examination of the four cases detailed in the report simply serve to prove our point that Hong Kong operates a highly autonomous and very stringent system of control over strategic commodity trade.

We are and remain a separate customs territory; and we maintain a separate physical boundary with the rest of China that is policed by our own enforcement agencies. Our system is legally color blind and politically tone deaf. We know that it would be economic and political suicide for it to be otherwise.

The common thread running through the four cases I mentioned is this : the successful teeth-and-lips cooperation between the Hong Kong and U.S. Customs authorities in bringing the cases to light and the unswerving diligence of the SAR government in prosecuting them. Any suggestion that selling faster computers to Hong Kong is the same as selling it to the PLA is complete nonsense. Our control and enforcement system will stand comparison with the best anywhere, and its effectiveness was acknowledged in the recent report of the Congressional Task Force on Hong Kong and even by Mr. Cox himself.

No one should doubt our commitment to our vigilant control regime. We are deeply conscious that only by maintaining an effective control system and the closest possible cooperation with the U.S. can we secure access to higher technologies and technological products which are essential to our economic and trade developments. We in Hong Kong have a mutual interest with US business in this trade and would like to work with you in conveying that interest and the efficacy of Hong Kong's control system to those in doubt.

We view with some concern the current state of relations between the U.S. and China. It seems barely conceivable that in the wake of President Clinton's visit to China last year and Premier Zhu Rongji's visit to the U.S. two months ago that the relationship should have reached such a pass. I appreciate the deeply-held feelings in Beijing and Washington about the issues bedevilling the relationship. But I know, too, that fair-minded men and women on both sides of the argument understand that long-term vision must prevail over short-term aggravation.

This is not to advocate sweeping problems under the carpet. They must be tackled frankly and sincerely, but within the undeniable context that a good Sino-US relationship built on mutual respect and trust is good not just for these two great nations, but for the whole world. It cannot make sense for the world's richest country with so much expertise to offer and the world's most populous country so rich in history and potential to be at odds with each other.

In the meantime, all of us suffer as we see new doubts emerge around important issues like China's accession to the WTO and the renewal of NTR so soon after we thought we had put this spectre behind us once and for all.

We must all redouble our efforts to get the relationship back on a positive and firm footing. Surely some of the issues that trouble both governments will become easier to deal with if we see China taking its rightful place as a member of the WTO, so long as the entry fee is properly negotiated and agreed by both sides. And surely an atmosphere of trust will be better fostered if we don't any longer have to go through the debilitating NTR annual renewal process. We all know that it takes two to tango, but it's very difficult to stay in step if both partners are at opposite ends of the dance floor.

Today, Hong Kong is a part of China, but we are like no other Chinese city. We are uniquely different and separate in our ability to rule ourselves, in our commitment to the rule of law and the independence of the judiciary, in the protection afforded to the individual and in our embrace of free trade, competition and free flow of ideas. As we step onto the new millennium, Hong Kong aims to become Asia's premier international city, open to the rest of the world and a valued partner in trade, commerce and in law enforcement. We remain America's best friend and business partner in Asia.

As a public servant it would be quite wrong of me to offer any specific investment tips to anyone, least of all to a group like this. But I think it is perfectly proper for me to recommend to you in very broad terms that if you are looking at Asian futures, put Hong Kong down as a buy.

Thank you.

End/Thursday, June 24, 1999

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