*********************************************************

Following is the transcript of the question and answer session given by the Chief Executive, Mr Tung Chee Hwa, after his luncheon speech in San Francisco today (Thursday, HK time):

Question: With regards to attracting investment in technology, finance etc, do you consider Singapore a rival or a partner?

Mr Tung: Much has been written about the rivalry between Singapore and Hong Kong. Let me say this, that two-way trade between Singapore and Hong Kong is very huge. It's important to Hong Kong, it's important to Singapore. Singapore has a tremendous amount of investment in Hong Kong, and Hong Kong has a tremendous amount of investment in Singapore. So in many respects we are partners. If Singapore does well, so would Hong Kong do well. And if Hong Kong does well, so will Singapore. But as I have said to my friends in Singapore many times, in many areas we are going to compete. In areas of financial services, in areas maybe of innovation and technology and what I want to make sure is that they can't catch up with us. And we will run as fast as we can.

Question: During the transition of Hong Kong back to China there was much discussion about whether China would change Hong Kong, or Hong Kong would change China. What direction are the changes going today?

Mr Tung: Well I think Hong Kong is Hong Kong. We are part of China but Hong Kong is very distinct and under "One Country, Two Systems" we are preserving Hong Kong as what it is. China of course is China. China is an economy which is growing very rapidly from a low base. China of course has its own priorities as it moves forward. So I would say in Hong Kong we are going about it under two systems in our own way. And China is going about it in the way they should be going about with their own priorities and I would say they are doing very well on their own. So I would think it's difficult to relay on this basis but there is one point I would like to make to you.

My wife and I got married in New York. Our three children were born in New York, one in Boston, two in New York. They were educated here. And we all love this country. We think you are a wonderful country, wonderful kind-hearted people here in America. But I am also Chinese and I hope that as a Chinese I can also offer you a unique perspective of what I see of America. You are wonderfully kind-hearted people and after the Second World War you generously gave help and rebuilt many nations that were devastated by war. It was a wonderful thing. The American way of life is something that we all envy, we all treasure very much. But sometimes in the kindness of your heart you like other people to immediately have what you have today. But what we always have to remember is that countries are different, culturally they are different, they all have different history and they all may be at different stages of economic development and therefore priorities are very different. I mention these things because I hear very often criticism about China on human rights records and so on. I am the first one to say I speak on behalf of Hong Kong, not China, because my responsibility is Hong Kong. But knowing America as I do, knowing China as I do, I think I would like to mention these points. China is at a different stage of economic development. It has different priorities. It must go about its own way forward. Today China's GDP per capita is US$750 and I try to think back where Hong Kong was when we had US$750 GDP per capita and I looked back at where the United States was when you had US$750 GDP per capita and it was back in the 20's and 30's. Of course at that time you had a different ... whether the society is as open today as it was then. I mention these points only to say that each country is at different stage of development and therefore must be given the opportunity to develop in their own way forward. I say this particularly knowing how American people are very kind-hearted, wanting everybody to get on with a better life as quickly as possible. Thank you very much.

Question: Shanghai seems to be moving to regain its historic status as a major commercial centre of China. How would this resurgent effort affect the Hong Kong economy?

Mr Tung: In 1937 I was born in Shanghai. I left Shanghai when I was 10 years old. Shanghai is moving ahead very well, it is formidable as a competitor. It has got a leadership which is really very focused on long-term development. But I would like to emphasise that Hong Kong will run even faster. I don't think Shanghai will be able to catch up with us. We will run as fast as we can. And we are confident of that.

Question: How active will the present Hong Kong government be in the economic policy and development of southern China. Specifically, will the Hong Kong fiscal budget and reserves be used to develop southern China?

Mr Tung: Well let me digress a bit here. The Hong Kong Government is not at its best when it has to run businesses. We are not good at it. But what we think we are good at, and we know we are good at, is our ability to create the necessary infrastructure environment to make the business, to give business the opportunity to do the best they can in creating wealth for their own companies, for individuals, for their shareholders. So certainly the Hong Kong Government would not be involved in investing in businesses. It is not our role. It has never been, it will not be in the future either.

In so far as southern China is concerned obviously what you can see over the last 20 years is that we moved much of our industry now across the border, employing some five million workers. So the whole Pearl Delta has become our industrial land, so to speak, for Hong Kong. It is a very important development. If you look down the road, obviously Hong Kong's economic development will go forward together with Guangdong Province, with the Pearl Delta. But how to do it, that will depend a great deal on the private sector. It is the private sector businessmen in Hong Kong, five of our friends from the business sector are sitting amongst you, will be the ones to decide how to move forward in that regard. What the Government will do is to provide the necessary infrastructure to make sure there is enough railway linkage across the border; making sure there is enough road linkage across the border; making sure that cross-border traffic, whether it's people or trucks, is as free as possible, as efficient as possible. That we will do. But other than that it is really up to the private sector to do.

Question: Do you anticipate that the Hong Kong and Chinese currencies will be combined as one? If so, when and what are the advantages and disadvantages?

Mr Tung: The answer is no, no, no, no no! You know one of the things which is really very important for all of you to know is that the maintenance of two systems is very important for us in Hong Kong. I mentioned to you that we have a HK$55 billion fiscal reserve, in fact our foreign exchange reserve is US$88 billion. This is all managed by the Hong Kong Monetary Authority in Hong Kong because we have a separate monetary system. We issue a separate currency, which is the Hong Kong Dollar. We keep separate monetary reserves. Our dollar is totally, freely convertible whereas the Renminbi of course is not freely convertible. No, I cannot see the time when there will only be one currency. There will be the Hong Kong Dollar, there will be the Renminbi for a long, long, long, long time to come.

Question: The Hong Kong Government requested a reinterpretation of the abode issue which had already been decided by the final court of appeal. How is this consistent with an independent judiciary?

Mr Tung: I was very surprised when this question did not come up earlier.

Let me perhaps start from the beginning because it is a very serious issue and it is an issue I really want all of you to understand. Back in 1993, Hong Kong's population was just over six million and by 1999 our population has reached 6.8 million. The increase is very, very rapid. Every year natural birth, minus death, in Hong Kong is about 30,000-odd people. There is also an agreement with the Central Government that 54,000 Mainland Chinese are permitted to Hong Kong every year for the purpose of reuniting with their family. And then on top of that, as I mentioned to you earlier on, tens of thousands of permanent residents of Hong Kong who previously emigrated have decided now to return to Hong Kong. So we are facing a population increase, which is the largest by any standard, anywhere, any community. The decision of the Court of Final Appeal on January 29 was to allow another 1.6 million people to come into Hong Kong in the next ten years. They are children born to permanent residents before they come, sorry, they are children born to people of Hong Kong before they become permanent residents. At this moment, until very recently, the law says only children born to parents who were permanent residents of Hong Kong are qualified to become permanent residents. But the court said children born to parents who were not permanent residents at the time of birth, but subsequently become permanent residents, are also qualified as permanent residents. And there were one or two other things about illegitimate children and all that, so it add up to about 1.6 million people over the next 10 years. Now this is on top of what we are dealing with already and it is something which would be very difficult to manage.

On the other hand, if one looks at it very carefully what the Court of Final Appeal said was that the law of Hong Kong was against the Basic Law, was not in accordance to the Basic Law. Now normally, as in the case of California or the United States, if there is a judgment by a court which the people at large find unacceptable you can get the legislature to amend that particular law so in the future it becomes clearer for future judgments. We can do that in Hong Kong too, for the laws of Hong Kong. But the Basic Law is not enacted in Hong Kong. It is a law promulgated by the National People's Congress of China, because that is our constitution. So, we ourselves cannot do anything about this. It is then up to the National People's Congress to do what needs to be done.

Another point I would like to raise is that we looked very carefully at what was the original intent of the Basic Law and we came to the conclusion that the original intent of the Basic Law was not the way that the Court of Final Appeal actually decided. So since we had no option in Hong Kong, we could not do anything in Hong Kong, we thought the only option we had available was to go to the National People's Congress. Now, the Central Government said to us at that time: "Please if you can solve your own problem, please solve your own problem. It's really your own problem and we would prefer not to get involved in this argument. But of course if you can't solve the problem, if you want us to look at it we would be pleased to do so." So actually it is at our request, the Central Government, or National People's Congress, took a very careful look at the situation and concluded that, indeed, the original intent of the Basic Law was the way we had originally interpreted it, the way we had originally made out.

Now to the common law practitioners of you here, well you say well there needs to be an amendment of the law. Well, yes to common law practitioners. But for laws of China it is possible you can amend the law, or either you interpret the original intent. And this is not peculiar for China, countries like Belgium, Greece, the parliament, and some others, the parliament can actually interpret the original intent of the law. So China, the National People's Congress, decided to interpret the original intent of the law. We all believe it is a better method, it is a proper method to do it. In any case amendment of the law cannot become retroactive so you cannot solve the problem of this 1.6 million people anyway. So this is what we did. And I would like to emphasise that, having done that, what we have done is in fact to have now clearly established our regulations on immigration of migrants from China, is back to where Britain and China agreed in the first place some time ago. No more, no less that that.

I also want to emphasise that in the process of doing this we have enormous support from the community at large. Yes, there are some lawyers who have voiced different views. There are equally lawyers who are equally supportive of our views. And being a businessman before I know, I know what lawyers are like. But we feel we have done the right thing, it was the right thing to do for us.

Let me also emphasise this. For any government it is always difficult to find a compromise between humanitarian considerations on the one hand and livelihood for the rest of the population on the other. But I would hasten to add here for those people who are deprived of the opportunity to come because of what we have done, they still can line up as part of the 54,000 coming to Hong Kong in the future, that is still there, the option is still there for them.

The other point I want emphasise is that at no time will we compromise the rule of law in Hong Kong, that is paramount for us.

Question: Is there a way that the concept of "One Country, Two Systems" could apply to Taiwan? Aren't the differences between Taiwan and China too great to uphold the One China policy?

Mr Tung: Until the last two questions I thought I was going to get away from this afternoon very easily!

"One Country, Two Systems" is working very well in Hong Kong. It is working very well in Hong Kong. For those of you who have been in Hong Kong I think you would agree with what I have said. For those of you have not been in Hong Kong, come and see for yourself how well we are doing. I hope this will provide some level of confidence for the people of Taiwan. Of course, Taiwan and Hong Kong are different, because we are different. But let me say this, the One China principle is the foundation of all the discussions that have been going on so far between the Central Government and the authorities in Taiwan. It is the very foundation of all these informal discussions. And the One China principle is also the universally accepted way forward. It is also supported by Chinese people all over the world. So I think it is wrong to deviate from this principle, particularly at this time and I really would hope that this should be borne in mind and that we should be able to move forward because ultimately the reunification of the country is the wish of all Chinese people.

Question: How would you have reduced the recent tension which emerged after President Lee's comments on a German television station?

Mr Tung: Well my responsibility is looking after Hong Kong. My responsibility is to make sure "One Country, Two Systems" truly works and becomes a shining example for Taiwan and everywhere else.

Question: Will the Taiwan-China conflict affect the economic recovery of Hong Kong?

Mr Tung: I think any conflict in the region would affect Hong Kong, would affect the region, would affect the whole world. And I think it is particularly important to remind ourselves that we really must move forward under One China principle.

Question: I'm afraid we have reached that time in the programme where we have time for one last question. How would you expect the government team to be constructed following your retirement in 2002? Would the key team players be elected through a general election?

Mr Tung: There are people in Hong Kong who are impatient for me to retire! Well I haven't really reached that stage of decision making yet. Some of you may or may not know that I was elected by a 400 member Election Committee comprising representatives of different walks of life representing the people of Hong Kong. Before that I was happily engaged in business, coming to San Francisco eight times a year. You would have thought that trying to get support from 400 people would be easier than to get support from six-and-a-half million people, but I have news for you. In order to get voted in by this 400 people there was really a lot of work. I will give you an example. I visited the president of the medical society, Dr Li, who is a wonderful man, and asked him for his support and he said: "Just a moment, yes, but I have an executive council which I would like you to meet, I would like you to meet all members of the executive council". Which I did. Then this was enlarged and enlarged, eventually a theatre of doctors and nurses, everybody was there, telling me about their grievances of this government and what needed to be done to the medical profession. And not only you have to listen, you have to understand the issues, you have to state out positions and you have to get their support and this goes on for different professions. For different professions you visit the chamber of commerce and you go through the same thing and again and again it went on for many, many months. And by November, the election was in December, by November I recognised I was behind in the opinion polls so I had to go out and meet the people and short of kissing babies I was doing everything possible to get the support of the people at large. And on the election day I had already lost 10 pounds, on election day I was voted by 80 per cent of the 400 and the public opinion poll was, I think, 70 per cent in favour of me being elected. So it is quite a complicated but a very, very important election process. And the next chief executive will be elected in a similar process except the Election Committee will consist then of 800 people. And then beyond that the Basic Law actually stipulates that beyond that it is then up to Hong Kong people to decide how we would want to move forward. So we still have a few years to think about how we want to move forward beyond the year of 2007. But, no I'm not retiring yet. Thank you very much.

End/Thursday, July 22, 1999

NNNN