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The following is the speech by the HKSAR Chief Executive Tung Chee Hwa at a lunch in San Francisco co-organised by the Hong Kong Economic and Trade Office San Francisco, the Hong Kong Trade Development Council, The Asia Foundation, Asia Society, Commonwealth Club of California, Hong Kong Association of Northern California, and the World Affairs Council of Northern California today (Wednesday, July 21, San Francisco time):
Thank you for those very kind words. Chinese people are different in this way that Americans very often like to begin their speech with a joke. Chinese tend to begin a speech with an apology. Apologising for the fact that I'm afraid for the fact you have to spend the next 20 minutes or so listening to me. I am particularly mindful because my good friend Dick Blum called me one day last week and said: "C H I'm coming to your dinner. It better be good because we all paid a lot of money for it!"
Ambassador Platt, Mr Kwok, Mr Bonney, Dr Krevans, distinguished guests, ladies and gentlemen
Thank you all very much for this very warm welcome. It is an absolute delight to be back in San Francisco. This city by the bay holds a very special place in my heart. My wife Betty and I always love coming back. We have many, many friends in San Francisco going back many, many years. Before I took up this job as Chief Executive of Hong Kong SAR, Betty and I would find ourselves back in San Francisco seven or eight times every year - for me on business,, for my wife lots of shopping. We enjoyed the scenic spots, the cosmopolitan food, catching up with old friends and generally enjoying the fair weather. We loved to stroll along the waterfront from the Marina all the way to the foot of the Golden Gate Bridge, or to take the ferry over to Sausalito for a relaxing lunch. I suppose it is no surprise that I am a big 49ers fan. So San Francisco is just like a home away from home for me and Betty.
San Francisco is not only special for me personally, it is a special place for all Chinese people in America. Just over 150 years ago a ship called the Eagle dropped anchor in San Francisco harbour. I'm told that was the first ship carrying Chinese immigrants to arrive on the West Coast.
Today, over two million people of Chinese descent have made America their home. Of those, it is estimated that close to one million - over 50% - live in California, mostly in the Bay Area and Los Angeles. There is a significant presence of former Hong Kong residents. In the 10 years to the end of 1998, more than 116,000 Hong Kong people were granted immigration visas to the US while 17,000 student visas were granted in just the three years to the end of 1998.
On the other side of the Pacific, Americans have a long-established and prominent presence in Hong Kong, where more than 40,000 US citizens live and work. For corporate America, Hong Kong is an important base for the Asia-Pacific region. More than 190 US companies have regional headquarters in Hong Kong, while another 285 have regional offices. That represents about 20 per cent of all international companies with a regional office or headquarters in Hong Kong.
The American Chamber of Commerce in Hong Kong is extremely active. It is the biggest AmCham outside of America and represents the business interests of more than 1,000 companies with 2,600 members.
The American Club and the Hong Kong International School (which offers American curriculum) are both in great demand. July 4th, Halloween and Thanksgiving are part of Hong Kong's calendar of events. The Asian Wall Street Journal, USA Today, the International Herald Tribune and Newsweek International are all published in Hong Kong. So I suppose you could say that Hong Kong is a 'home away from home' for many Americans in Asia.
I want to mention all of this to underline the depth of the people-to-people interaction between our two communities; the very close and long-standing ties that bind Hong Kong and America, particularly here on the West Coast in San Francisco, in the Bay Area and in Los Angeles.
There are, of course, very strong and important economic links between Hong Kong and the US. Last year's total bilateral trade was worth some US$54 billion. This easily makes the US our second largest trading partner after the mainland of China. The US is our third largest source of direct inward investment - accounting for about US$16.6 billion, or 18%, of all direct foreign investment in Hong Kong. All of this underpins the tremendous socio-economic bonds between Hong Kong and the US. And these bonds have been getting stronger and stronger over the decades.
'One Country, Two Systems'
Ladies and gentlemen, it has been just over two years since China's resumption of sovereignty over Hong Kong. It had been, indeed, two very eventful years.
Those of you who are engaged in business or in government will particularly appreciate the fact that managing change rather than the 'status quo' is the real challenge for any leader, for any government and for any business.
Over the past two years, we in Hong Kong had to manage two enormous changes. One was brought about by the resumption of sovereignty over Hong Kong by China; the other, was brought about by the impact of the Asian financial turmoil.
Let me address the first of these changes. For 156 years, Hong Kong had been a British Colony. On July 1st 1997, we were proudly reunited with China. Since that day, Hong Kong people have been running Hong Kong with a high degree of autonomy under the concept of 'One Country, Two Systems'. The enormous challenge has been to ensure how 'One Country, Two Systems' as a concept becomes a reality.
'One Country, Two Systems' is not just a slogan, in fact, the concept is institutionalised by the 'Basic Law'. It is a comprehensive document that was drafted together by people from Hong Kong and the people of Mainland China after some four years of consultation and discussion. The Basic Law provides a constitutional framework for the Hong Kong Special Administrative Region. It clearly prescribes the social, economic and political systems in Hong Kong which, as you know, are different from those in Mainland China. It protects the rights and lifestyle of Hong Kong people. It guarantees us our freedoms of speech, assembly, worship, and other civil liberties.
The Basic Law guarantees the independence of our judiciary and, apart from foreign affairs and defence, it gives us full responsibility to manage our own affairs. It allows us complete financial autonomy, and independence of our monetary system. It establishes the Hong Kong SAR as a separate customs territory, and enables us to work directly with the international community to curb trade in strategic commodities, drugs, illegal transshipments, and infringement of intellectual property rights. Let me emphasise in particular the last point. Our status as a separate customs territory means that Hong Kong operates a highly autonomous, law-based and transparent system of strategic trade control closely adhered to internationally recognised control regimes.
The 'One Country, Two Systems' concept is not an invention of Hong Kong or London, but of China. Today's Chinese leaders are committed to making the concept work. They have faith in the ability of Hong Kong people to administer Hong Kong, and have pledged their full support for us. I can testify to this commitment from my experience over the past two years. The reason for their determination is simple. It is because of the fact that success in the implementation of 'One Country, Two Systems' will not only benefit Hong Kong and China as a whole, it will also help towards the ultimate reunification of the entire country.
For those of you who have visited Hong Kong over the past two years, you would have, I am sure, observed that the 'One Country, Two Systems' is being successfully implemented.
The fact is that the freedoms of speech and of assembly are very much alive in Hong Kong. Demonstrations are an everyday occurrence. Since the transition, we have had over 4,000 demonstrations and petitions, averaging 160 a month - about double the number before the Handover. And if you should be visiting my office, very often you can hear them shouting downstairs.
The fact also is that the rule of law is very much intact and is going from strength to strength.
Common law judges, who served before 1997, continue to dispense justice from the bench, in the same way as before the transition.
One key indicator that the rule of law is intact is that the government continues to lose cases in the courts from time to time. Justice continues to be administered independently and impartially.
The proof that 'One Country, Two Systems' is being successfully implemented is best demonstrated by the level of confidence of people of Hong Kong. You will be interested to know in the calendar year 1998, Hong Kong people spent HK$110 billion (approx. US$15 billion) in buying 30,000 new apartment units. It was a record high figure for Hong Kong. Furthermore, during 1997 and 1998 about 127,000 and 90,000 people respectively came to Hong Kong to live and work. Most of these are permanent residents of Hong Kong (or their children) who had previously emigrated overseas; again the highest on record. These figures are particularly remarkable given the difficult economic environment surrounding Hong Kong throughout most of 1997 and 1998. While some 30,000 flat buyers demonstrated their vote of confidence in Hong Kong with their wallet, over 200,000 persons did so with their feet to come home.
Asian Financial Turmoil
If I may now go on to talk about the impact of the financial turmoil on Hong Kong. The other enormously difficult change we in Hong Kong have had to manage was the impact and the consequences of the Asian financial turmoil. I believe I can truly claim that we have managed this change well in the past 24 months.
The Asian financial turmoil began inconspicuously on July 2nd, 1997 in Thailand while we were still celebrating the Handover. The turmoil not only affected Asia, but also affected many parts of the world.
Hong Kong was badly affected. In 1998, our economy contracted by over 5% and unemployment rose from a low level of just over 2% in 1997 to 6.1% in the last quarter. To be sure, years of close to double digit inflation and negative interest rates had already created a bubble economy in Hong Kong. Indeed by 1997, our property prices and our salary scale were already among the highest in the world. Hong Kong was getting uncompetitive. Painful adjustments would have been necessary anyway. The Asian financial turmoil accelerated the pace of adjustment.
What we had to do was, on the one hand, make our people accept the inevitability of the need for the adjustment, however painful it might be. On the other hand, we had to maintain confidence in ourselves by focussing on what the long-term future promises. Fiscal measures were devised in both the 1998 and 1999 budget with a view to, on the one hand, providing short-term stimulus for economic recovery and, on the other hand, investing in our long-term future.
Substantial tax cuts were granted to stimulate demand. Simultaneously, many infrastructural projects for railways, highways, protection of environment, and schools were committed as a long term-investment in our future.
In fact the total spending in these areas alone over the next five years will exceed US$30 billion.
The question will be asked: Have we created a budget deficit? Have we behaved in a fiscally responsible manner? While it is true that our total deficit over the 1998/1999 fiscal year will be in the order of US$7.7 billion, about 2.5% of GDP, one should bear in mind that the Hong Kong SAR Government has US$55 billion in fiscal reserves and has no debt whatsoever. Against this background, the situation is considered acceptable by the local community and the international financial community. Indeed years of prudent fiscal management has proven to be effective. This is a philosophy we are determined to uphold.
Two years since the beginning of the financial turmoil in Asia, calmness has returned to Hong Kong.
Property prices, having fallen 50% to 60% have now settled. The financial sector is now stable. Staffing costs are still being adjusted through lay-offs or cuts in salary. While the painful process is continuing, I believe our economy has bottomed out and 'recovery', however slow as it may be, is on the way.
Asia's Positioning
Throughout the past 2 years, while we battled the many challenges facing us, we never stopped planning for our future, and seeking to position ourselves for the 21st Century.
Hong Kong's future lies in its strategic position in the heart of Asia and in greater participation in the growing Chinese economy.
Let me talk about Asia. In the past 20 to 30 years, Asia has come a long way through hard work, thrift, a firm commitment to education, political stability and fiscal prudence.
Growth over the last 20 years has been at about 7.5%, compared with barely about 2% in both Europe and somewhat higher in the United States. Millions were lifted out of poverty and entered into the life of the middle class.
The Asian economies have grown more than anything else by embracing international trade. Export growth for the region has grown between 10%-15% every year over the past two decades. Likewise, imports to Asia have also been growing between about 10% and 15%.
This has brought Asia to the heart of the global economy. Before the turmoil started in the middle of 1997, Asia accounted for 26% of world exports, and 24% of all imports. These figures made Asia a significantly bigger importer than the United States, which accounted for just 14%.
The prudence of governments in the region has enabled them to build up very large reserves by any standards. Six Asian economies account for 37% of non-gold reserves held by governments around the world.
Given today's difficulties in Asia, you might be thinking that I am indulging in what Mr Alan Greenspan has called irrational exuberance. I am not. As I have mentioned, I am well aware of the damage and the pain that has been inflicted on Asia over the last 24 months. I mentioned all of the above because I wanted to remind you of the significance of Asia.
There is inherent strength in many of the Asian economies. Given the various reforms now being pursued vigorously across Asia, I am confident that Asia will soon rebound from the current difficulties. And Hong Kong, being strategically located in the heart of Asia, will surely emerge even stronger than before, playing the role of a major financial and trading centre of the region.
Mainland China's Positioning
I would now like to touch on China and how it relates to Hong Kong. As part of China, we have a tremendous advantage which other Asian economies do not have, and that is the opportunities which the Mainland provides and the support which this huge hinterland offers.
The Mainland Chinese economy has undergone major transformation over the last 20 years. We have seen tremendous growth since the onset of the 'open door' policy in 1978. The entire country, under a determined and strong leadership, has moved forward with impressive economic developments. The livelihood of the people has greatly improved. Growth in 1998 was 7.8%. The forecast growth of 7% for 1999 looks set to be achieved. No doubt in 25 years' time the Chinese economy will be one of the world's largest. Hong Kong has the unique opportunity, under 'One Country, Two Systems' as part of China, to take full advantage of this very exciting growth.
Hong Kong has played different roles vis-a-vis China as her economy evolves over the last 50 years. Since the end of the 2nd World War, Hong Kong has played a role as the window to China for the world and vice versa. Over the past 20 years, Hong Kong has relocated a very substantial portion of our manufacturing sector to the Mainland, while China has used Hong Kong as an international financial centre to raise substantial investments to support developments in the Mainland. At the same time, Hong Kong investors have begun to participate more and more in China's infrastructural projects. Indeed, China's economic reform has been most instrumental in changing the structure of our economy from one relying heavily on manufacturing to one that relies on the service sectors.
At the dawn of the 21st century, we hope to take full advantage of the greater opportunities arising from the consistent rapid growth of the Chinese economy and the continued opening up of the country which, I am sure, will become one of the world's largest economies in the not too distant future.
Hong Kong's Positioning
I spoke earlier about how we need to position ourselves in Hong Kong. As I mentioned earlier, our future lies in our strategic position in the heart of Asia and in our greater participation in the growing Chinese economy. We are determined to make Hong Kong a premier international City of Asia as New York is to North America and South America and London is to Europe. Yes, I am confident Hong Kong will be Asia's international financial centre, a favoured tourism destination, headquarters for multinational companies in Asia, international communication transportation and logistics hub and centre for innovation and technology.
To achieve this, first of all, Hong Kong will build on many of our existing strengths.
Hong Kong is already one of the most active financial centres in Asia.
Over the past year or so, we have unveiled a host of plans to make our financial markets, banking sector and monetary system more transparent and better regulated. Just last week, the Hong Kong Monetary Authority announced a raft of measures that will help consolidate and strengthen the local banking industry, introduce greater competition and allow for more participation by overseas banks. I believe we already have Asia's best-regulated and most open banking sector. But we are never one to rest on our laurels.
We want to develop a deeper debt market, locally and on a regional basis, to provide more stable and flexible financing for businesses in Hong Kong and the region.
Our Mandatory Provident Fund, when it is up and running by the end of next year, will have a very positive impetus on local fund managers and the growth of the local capital markets, especially the debt market. There will also be significant business opportunities for corporate trustees, banks, investment management houses, insurers and other financial institutions. We estimate that annual contributions to our Mandatory Provident Fund System will be around US$1.5 billion, and will quickly grow to US$4 billion, or about 3% of our GDP. The eventual size of MPF portfolios may reach 60-70% of our GDP.
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. Our initiatives include the demutualisation and merger of the stock and futures exchanges and a new regulatory framework to modernise and rationalise the overall structure of the securities and futures markets. We are also establishing a growth enterprise board to give start-up companies the opportunity to raise funds.
We are moving ahead with a number of projects to improve our attractiveness and build on our position as Asia's most popular international tourist destination. Amongst the most talked about is Hong Kong's attractiveness as a prime location for a new theme park in Asia. We believe this would be a great thing for Hong Kong's tourism industry, but we must also make sure it is a good deal for Hong Kong people. Intensive discussions are still ongoing so I cannot say much more other than that we will do what we reasonably can to bring the Magic Kingdom to the Middle Kingdom.
In order to maintain our leading position in Asia as a transport and logistics hub, we now operate the world's most efficient international airport. In 1998 our container port was the second busiest in the world, handling more than 14.5 million twenty-foot equivalent units. The private sector in Hong Kong has committed about US$1.3 billion to build new container terminals, which will increase capacity by approximately 25% by the year 2005. So, the private sector too, has confidence in Hong Kong and is voting with their capital.
While shoring up our areas of strength, we continue to diversify into new areas, amongst which I believe innovation and technology are crucial drivers of economic growth and expansion. This is particularly so in today's knowledge-based, global economy. Innovation and technology are the principal means to improve efficiency and productivity, add value and enhance overall competitiveness.
We are determined to carve ourselves a niche as Asia's centre of e-commerce, Internet traffic and content, cutting-edge information technology, satellite broadcasting, telecommunications, and Chinese-language or bilingual applications.
We are also taking steps to liberalise our telecommunications industry which will not only provide wider choice and lower prices for our consumers, but will also be critical to the expansion of Internet services both in Hong Kong and internationally.
Conclusion
We are aware that in ensuring success of our vision to make Hong Kong the 'Premier International City in Asia', we need to focus on a number of things:
* We need to improve the education for our population so that they could participate fully in the knowledge based economy;
* We need to attract talents both from overseas and Mainland China to help us pursue the development of IT and high-tech industries;
* Protecting the environment, including the quality of our air and water, waste treatment and disposal. Much has already been done, but much more remains to be done. We are most determined to improve our environment in order to provide a world-class quality of life for people of Hong Kong and people who will come to work and live in Hong Kong;
* Making Hong Kong an international city with a workforce proficient in the English language, and a society rich in culture and the arts, combining the best of east and west;
* We will maintain the rule of law and Hong Kong's way of life and our freedoms; and further business developments on the foundation of the free market economy, a level playing field and prudent financial management.
Ladies and gentlemen, when America was opening up many years ago, the advice to those looking for opportunities was 'go west'. Today, I would offer the same advice: 'go west' and keep on going, across the Pacific until you come to Hong Kong. Do come and share with us in Hong Kong the immense opportunities which await all of us in the new Millennium.
Thank you.
Photo:The Chief Executive, Mr Tung Chee Hwa, delivers a keynote address in San Francisco at a lunch attended by more than 700 people.
Ends/Thursday, July 22, 1999
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