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Following is the speech (English only) by the Chief Secretary for Administration, Mrs Anson Chan, at the Business Luncheon in New York organized by the Hong Kong Trade Development Council today (Friday, June 25, New York Time):

Mr Conable, Deputy Mayor, Ambassador Platt, Ambassador Qiu, ladies and gentlemen,

First of all, Mr Conable, thank you for your very gracious introduction and in particular for your complimentary remarks about the Hong Kong Administration, or Bureaucracy, as you put it, which, of course, I entirely share. Ladies and gentlemen, it's a great joy coming back to New York, I think that most people in Hong Kong feel that New York is very much home because it has the same kind of energy and spirit pulsing through its veins 24 hours a day, 365 days a year.

I know that New York is many things to many people. When I sat down to write this speech, I flicked through a large volume of quotations, and New York was by far the most 'popular' city, if I can put it that way. In my book - and this one had 16,000 entries - there were 24 quotes about New York, compared to eight on Venice, six about Washington D C, four about London and three on Paris - so all together 21 quotes. I suppose you could say that even those four great cities, when combined, are still no match for one New York.

Now one of the quotes was quite interesting. It was by the American journalist and humorist, Finley Peter Dunne, who I believe was well-known as the creator of a character called 'Mr Dooley'. It was in one of his books called 'Mr. Dooley's Opinions' that he wrote, and I quote: "Nearly all the most foolish people in the country, and many of the wisest, goes to New York. The wise people are there because the foolish went first. That is the way that wise men make a living." So can I just say that I am very happy to be here today, in the company of so many wise New Yorkers.

I am also very happy to see that so many people, people like yourselves, continue to show a tremendous interest in, and support for, Hong Kong. And 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 whilst 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 the adjoining Guangdong Province.

On the other side of the Pacific, Americans have a long-established and extremely prominent presence in Hong Kong, where more than 40,000 US citizens, 5,000 more than before the Handover, live and work. Corporate America quite rightly regards Hong Kong as an important base for the Asia-Pacific region - we have more than 190 US companies who have regional headquarters in Hong Kong, whilst another 285 have a regional office. That is about 20 per cent of all international companies with a regional presence in Hong Kong.

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 - and accounts for about 18 per cent of all direct foreign investment in Hong Kong. It is clearly in both our interests to continue to expand our economic ties. And that of course is one of the reasons why I am here today.

But another reason 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. And for all of us in government, it has been a time of great challenge. But 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 1, 1997, could not have gone more smoothly. It was a virtually seamless transition for the administration. And Hong Kong people have taken that change in their stride and they are moving ahead under the concept of 'one country, two systems'. The Central Government in Beijing had been exemplary in honouring the promises laid down in the Joint Declaration. And it is Hong Kong people running Hong Kong with the high degree of autonomy. The challenge then, as it is today, is how to fully and successfully implement the unique concept of 'one country, two systems'.

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

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. And 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, on our stocks and futures markets. But 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 affected us very deeply in Hong Kong. Our economy shrank by 5.1 per cent in 1998, which is a dramatic reversal from a 5.3 per cent growth in the previous year. Unemployment has more than doubled to 6.3 per cent, which is a great shock for a community that is used to an unemployment rate of between two and a half per cent to three per cent. Wages have been frozen or reduced. Property prices for residential units and offices have fallen by up to 50 per cent. Rents are down by about the same amount, or even more. And, five consecutive quarters of negative growth in our GDP is a situation that we have never had to face before. So, undoubtedly, we are going through a very painful, but in our view, a very necessary adjustment.

In the first five months of this year, we are seeing a few encouraging 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, which was the first that we held since a moratorium was introduced in June last year, attracted good buyer interest.

But despite improving local and overseas sentiment, I believe that 1999 will remain difficult. We have probably hit the bottom of the trough, but we may stay at this level for some time. But we expect, all going well, to see the economy begin to pick up towards the end of the 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; strengthening even further our banks; promoting high-tech, high value-added industries as part of our drive to become the innovation and technology centre for East Asia and beyond.

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 the 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 per cent. In a short time, we have achieved the second highest penetration rate of mobile phone use in the world after Scandinavia. And if present indications are anything to go by we may well take over the 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 very 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. And 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 specializing in the development of services and multi-media content which will support businesses and industries. About 10 international IT companies including big players like Intel, Yahoo! and IBM have already signed up as anchor tenants.

Complementing the Cyberport is a new satellite Teleport, which is due to come on line in the year 2000. Teleport is a vital component in attracting new telecommunications and broadcasting business following deregulation of the telecommunications market this year and even further next year. And together, the Cyberport and the 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, for telecommunications and the Internet.

We are also planning a number of projects to consolidate our position as Asia's most popular international tourist destination. An included in this project is ongoing negotiations for an international theme park on Lantau Island, which is just a stone's throw from our new airport.

On top of all these projects, we are also embarking on a major infrastructure program after completing our international airport. And this program, over the next five years, will mean investment of US$30 billion. These projects we feel 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 remain the pre-eminent gateway to the mainland of China. 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 target is a respectable 7 per cent, which is 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 seen increased investment from the Mainland in Hong Kong.

Let me now say a few words about the wider Sino-US relations and their fall-out on Hong Kong. I have to preface my remarks on the subject by saying that Hong Kong's high degree of autonomy does not include responsibility for foreign affairs or defence. Those belong to the Central Government. But that does not mean that we are immune from their consequences. Far from it.

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 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 colour 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, what I would describe as, teeth-and-lips co-operation 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 in the world, 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 protecting the integrity of our control regime. We are deeply conscious that only by maintaining an effective control system and the closest possible co-operation 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 we 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 concern the current state of relations between the U.S. and China. It seems barely conceivable that in the wake of President Clinton's own 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 in Washington about the issues bedevilling that 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, of course, to advocate that we should be 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, of course, 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 specter behind us once and for all.

I think we must all redouble our efforts to get the relationship back onto 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 of course 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 is very difficult to stay in step if both partners are at opposite ends of the dance floor.

Hong Kong is of course an undeniable part of China, but we are like no other Chinese city. We are distinctly and uniquely separate in our international outlook, in our ability to rule ourselves, in our commitment to the rule of law and the independence of the judiciary, to free trade, competition, free flow of information and ideas, and in the protection that we accord to the individual. As we step into the new millennium, Hong Kong aims to become Asia's premier international city, remaining open to the rest of the world and a valued partner in trade, in commerce and in law enforcement.

These are the messages I had to drive home hard during my recent visit to Washington last week, particularly on the Hill. I found that the politicization of US-China relations, and in particular the prominence given to national security, had infected perceptions of Hong Kong. There was a kind of "either you are with us or against us" over-simplification in some quarters which quite frankly I found most worrying.

Of course there have been setbacks, there have been misunderstandings in US-China relations. But that makes it all the more important to increase dialogue and mutual understanding. Trade has an important role to play in that process. And so does Hong Kong. We are the bridge between the US and the Mainland of China and we can best play that part if we remain a successful autonomous region with our own distinct way of life. In the words of your own Consul General in Hong Kong, "the US can play a positive role in supporting Hong Kong's success". And I hope very much that that support will continue to be forthcoming in the years ahead.

As a public servant I think 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, then put Hong Kong down as a buy.

Thank you very much, ladies and gentlemen.

Photo: The Chief Secretary for Administration, Mrs Anson Chan, delivering keynote address at the "Hong Kong Business Luncheon", co-organised by the Hong Kong Trade Development Council and the Hong Kong Economic and Trade Office (New York).

End/Saturday, June 26, 1999

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