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Following is the full text of the speech by Chief Executive Mr Tung Chee Hwa at a luncheon, co-organised by the Hong Kong Economic and Trade Office San Francisco, HongKong-SV.com and the Asian American Manufacturers Association, in Silicon Valley today (Friday, Hong Kong time):

Mayor Gonzales, Justice Ming Chin, Mr Lee, Mrs Pauline Lo Alker, distinguished guests, ladies and gentlemen,

Thank you so very much for those very kind remarks. I did start working as a young man in 1960 with General Electric Company and that was four years before you did Pauline, you also worked with General Electric Company. But I must tell you a story about General Electric Company which of course is really, despite all the success in Silicon Valley, still is one of the most successful companies in America, or around the world. The Chief Executive of General Electric Company is by the name of Jack Welch. He visited me recently, we compared notes. He said C H, I noticed you joined General Electric Company in 1960. I said 'yes. He said I also started with General Electric Company in 1960. So I said 'oh', I said 'Jack I think I would rather be like you, I would rather be you because to be the head of General Electric Company is marvelous. And he said 'what's the matter with you, you don't like your job? I'd rather be you! The truth is that people may start together but we all go different ways and we really sometimes end up in different places all together. But I have now been here a couple of days and the experience in Silicon Valley is really quite something. You know in Hong Kong we are all very proud of what we have achieved. On the financial market we have second-largest financial market capitalisation in Asia, next to Japan, next to Tokyo and we have some of the wealthiest people in Asia, or around the world, some sitting in this room, who have made good in Hong Kong. You know we are all very proud of what wealth we have created for our six and a half million people. But having come to Silicon Valley, as Payson (Cha) was correctly saying this morning we all feel humbled what's happening here. That in Hong Kong a one billion dollar company is a very successful company but in Silicon Valley a one billion dollar company may be a start-up company! I think, you know, what you have done is marvelous. You have created so much wealth for your people, you have made such a wonderful city for your citizens.

My second experience is that there is a lot to learn for us in Hong Kong, from you in Silicon Valley. But I am even more determined that we should move in this direction, we should follow your footsteps. And I should hope that a few years down the road, it won't be an easy, quick fix, but a few years down the road we will be able to proudly say: Look, we are like Silicon Valley in Asia, working well. We hope we will be able to achieve a fraction of your success a few years down the road.

It is a great pleasure to be speaking with you today. It should have been May, earlier on this year but because of events in Hong Kong I had to make a last-minute cancellation of the trip so I would like to begin my speech with an apology for not having kept the May timetable but I am absolutely delighted to be back here today. This whole Bay Area, the Silicon Valley, is a favourite place for me and my wife. Before I took up this responsibility as the Chief Executive we used to come back here eight times a year, for me to do some business, enjoy some good food, to see some beautiful scenery and to visit many old friends here. But since I have become the Chief Executive this is my first trip to this area. I am really very happy to be back here. For me it's like a home away from home. You might or might not know, that I am a great 49-ers fan and I think it's about time they won back the Superbowl.

This is really a home, away from home. I was just going to tell you Mr Mayor, unfortunately I don't understand ice hockey so I can't say very much about the San Jose Sharks.

But this area is not only special for me, it is also very special for Chinese people in America. It was back in the late 1840s, that Chinese first started arriving in California. Today, around two million people of Chinese descent have made America their home. Of those, it is estimated that close to one million - about 50% - live in California, mostly in San Francisco 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 about 17,000 student visas were granted in 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 and very supportive. It is the biggest AmCham outside of America and represents the business interests of more than 1,000 companies and 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 and parcel 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.

Recreation and leisure aside, one prominent feature which California and Hong Kong share is the emphasis on business and commerce. The primary purpose of my visit this time round is to tap into the experience of Silicon Valley, which is leading the world's advances in information technology and high tech industries. I am told that the market capitalisation of the top six or seven IT firms in the world exceeds the value of gold which mankind has ever mined in history. As Hong Kong embarks on the journey to upgrade its economy into the realms of the high tech world, Silicon Valley offers the best starting point.

Busy as I am in Hong Kong, I try to meet as many of you from Silicon Valley as possible. Silicon Valley is one of those places which we hear a lot about. We want to know what makes you successful, what makes you tick. Even during my brief visit this morning it is hard not to feel inspired by the sheer magnitude of creative energy which has made this place the heartland of high-tech and what some have called the cradle of American innovation. And that is the main reasons my colleagues and I are here today - to look, listen and learn.

Another is to let you know what we have been doing in Hong Kong to try to emulate some of your success. We have our own vision - and that is to make Hong Kong the hub of innovation and technology in Asia, and particularly for China. The American philosopher Eric Hoffer once said that 'the only way to predict the future, is to have the power to shape it'. The policies and programmes we are now vigorously pursuing - and I stress word 'vigorously' - will help shape a better future for us all in Hong Kong.

I have always believed that innovation and technology are crucial drivers of economic growth and expansion. This is particularly so in the knowledge-based global economy in which we now live. Innovation and technology are the principal means to improve efficiency and productivity, add value and enhance our overall competitiveness. In short, innovation and technology are the blueprints for building our future.

And my visit to Silicon Valley today has reaffirmed my conviction that we should develop long-term policies to promote the development of a technology-based and high value-added economic sector in Hong Kong. This is particularly important while we continue the economic adjustment process brought on by the Asian financial crisis of the past two years.

I believe that government has an important role to play in creating the right environment for innovation and technology to develop and flourish. And this is what we are doing now. However, the ultimate success of our endeavours to facilitate, encourage and nurture our IT sectors and export home-grown technology will depend largely on private sector involvement and the determination and courage of young entrepreneurs to turn good ideas into popular, commercially viable products. I am sure many in Silicon Valley know exactly what I mean.

Last year, I established a Commission on Innovation and Technology which was chaired by one of America's outstanding scientists and educators Professor

C L Tien, from UC Berkeley. The Commission earlier this month handed me its final report and has made a number of recommendations to help Hong Kong position itself as a leader in the development of information technology, especially in e-commerce and software engineering.

In this regard, I have accepted the key recommendations from the Commission on Innovation and Technology to strengthen the capability of our private sector to develop innovative ideas for commercial use. I have also endorsed Professor Tien's recommendation to step up our efforts to attract the best talents to Hong Kong. In today's knowledge-based world, intellectual capital is as important as financial capital as an economic driver. Let me elaborate on these areas.

Firstly, we will establish an Applied Science and Technology Research Institute which will bridge the gap between academics and entrepreneurs by conducting applications-driven and market-oriented research and development work for transfer to industry. In other words, turning bright ideas into even brighter, deeper bank accounts.

Secondly, we will set up an Innovation and Technology Fund of HK$5 billion (US$640 million) to finance projects which will contribute to innovation and technological upgrading of our manufacturing and service industries. These may include commercially relevant R&D projects, activities to promote technology diffusion, sourcing and acquisition, and those which would enhance technological entrepreneurship. One area in which Hong Kong can excel is to develop as a centre for Chinese medicine, focusing on the standardisation, commercialisation, and internationalisation of traditional Chinese medicine, which has a long history of thousands of years.

Thirdly, we have set up a special Task Force to critically review our immigration policy to facilitate an inflow of talent. In particular, the Task Force is considering ways in which we can draw on the deep and rich reservoir of scientists and highly-skilled technologists from the Mainland of China. We will also embark on overseas 'missions' to major technology centres such as Silicon Valley to highlight the opportunities available in Hong Kong, the Mainland and the entire Asian region. Another purpose of these missions would be to 'recruit' young talent or technology entrepreneurs who can see a future for themselves and their ideas in Asia. And by Asia, I mean based in Hong Kong. We already have a dynamic IT sector in Hong Kong well on its way into becoming a significant cluster of creative energy. Our efforts will be directed towards building up a critical mass of talented IT professionals in the shortest possible time.

Fourthly, we will make sure we have the proper co-ordination, leadership and advisory structures within government to carry forward the commission's major recommendations, as well as to complement and support the efforts of the private sector.

Professor Tien has left us with a valuable blueprint for providing the sharpest possible technological cutting edge which we can apply to both our industrial and IT services processes. Professor Tien was recently appointed by President Clinton to the US National Science Board, which, unfortunately, means he may no longer have the time to help us take forward his proposals. I guess our loss is your gain.

To develop Hong Kong into a centre for innovation and technology, the single most crucial ingredient is, of course, human capital. In this regard, we will continue to invest heavily in education. It takes up about 20% of our annual Budget. At HK$44 billion (US$5.6 billion), education is our single-biggest item of recurrent expenditure in the current financial year, as it was in the last financial year, and the year before that. And I believe it will continue to be in the years ahead. In November last year, we released a five-year strategy on IT in education which will significantly boost the availability, and use, of IT in teaching and learning.

We are also building a Science Park to develop more high-tech, high value-added industries. The 54-acre project will provide accommodation for research and development activities of technology-based firms. Significantly, it is expected to house the Applied Science and Technology Research Institute. Its Phase One is due to open in the second half of 2001.

The policies and initiatives I have just described will re-define Hong Kong's comparative advantages and sharpen our competitive edge. The Government is also doing its part in promoting the development of e-commerce, by implementing an Electronic Service Delivery scheme, or ESD as we call it. This project will allow the government to deliver around-the-clock, on-line services to the public at home via the Internet or other electronic means. The first phase, to be launched in the latter half of next year, will offer services from 10 Government departments. One service will be the payment of tax bills - although I am not quite sure how popular that service will prove to be!

An integral part of ESD is the development of a safe and secure system through which to conduct e-commerce via a common, open interface. This involves the establishment of a local public key infrastructure, and a public certification authority. We expect the public certification service will be available to businesses and individuals by the end of this year. We shall also develop a clear legal framework to enhance certainty in the conduct of electronic transactions. All of these initiatives we hope will pump-prime the development of e-commerce in Hong Kong. In the long run, we aim to include all public services amenable to electronic mode of delivery under the ESD scheme.

In addition, we are developing a common Chinese language interface to facilitate electronic transactions and information exchange for those who want to use Chinese. Our excellent telecommunications infrastructure, our bilingual language capability and our unique position as a Special Administrative Region of China give us an unparalleled advantage to serve as an information gateway to the Mainland, and to develop a role as an Internet traffic and content hub for the Asia-Pacific region.

I'll give you an example. One pioneering, Chinese-language project has recently come to fruition after more than three years' work. It brought together the entrepreneurial flair of a Hong Kong publisher and the talents of more than 400 IT professionals, editors and academics from Hong Kong, Beijing and Shanghai. The result of all their work is a digital version of the classic Chinese literary masterpiece Siku Quanshu, which is the single largest collection of literary works in the world. It is actually an encyclopedia covering 5,000 years of Chinese civilization. To give you an idea of the size of the project, Siku Quanshu contains some 800 million characters in 36,000 volumes. The project has made extensive use of high-speed scanning, graphics handling and optical character recognition technologies to cope efficiently and accurately with the large-scale inputting of Chinese characters. As a result, those works are now available on a set of 175 CD-ROMs, which contains 4.7 million pages of scanned, original scripts. This was also the world's first large-scale project to use the international coding standard ISO 10646 to create a database of Chinese contents. This is the same coding standard that the Hong Kong SAR Government is using and promoting as its common, Chinese-language interface and in the development of Chinese-language applications. A sophisticated system of indexing and searching tools was also developed and installed in the electronic version of Siku Quanshu. These tools have greatly facilitated the study of classical Chinese texts. And I can think of many other useful applications, for example, the compilation of a digital reference of the vast pool of literature on Chinese medicine.

In addition to the above initiatives, we are embarking on an exciting project that will put us in a strategic position to develop information technology and services - we have called it 'Cyberport'.

This 62-acre (26 hectare), US$1.3 billion project is situated on a waterfront site on the western shores of Hong Kong Island and is a private sector led initiative with infrastructure support provided by the Government.

It will offer the best working and living environment and facilities for leading-edge information technology and services companies. In addition to top international names in the IT and services field, Cyberport will also cater to smaller local companies. They will benefit from shared facilities such as a broadband telecommunications 'backbone', multi-media laboratories, a cyber library, and linkages with universities and research institutes. By establishing a good cluster of IT and services companies at Cyberport, we will also create an environment conducive to the exchange of ideas and interaction between all of those at the facility - the sort of environment on which Silicon Valley has thrived and fortunes have been made.

I am confident we will see a good mix of international companies taking advantage of the facilities at Cyberport, and the opportunities it presents for cyber business in Asia and the Mainland. Twelve international companies have already signed up as anchor tenants, including Hewlett-Packard, Intel, Oracle, Yahoo!, IBM, Softbank and Sybase. Another 50 companies have registered their interest in becoming tenants. I hope more will join them.

The Cyberport will also greatly strengthen Hong Kong's appeal to venture capitalist. While our venture capital industry is the largest in Asia in terms of capital under management, funds predominantly originate outside Hong Kong and are disbursed outside of Hong Kong. As IT applications and Internet companies take root and flourish in the nurturing environment of the Cyberport, the need of young Internet and Internet-related companies for venture capital will naturally grow.

Not far from Cyberport, on the south side of Hong Kong Island, we are building a world-class Teleport, which will come online next year. This will give external facilities providers and broadcasters plenty of capacity for satellite links to and from Hong Kong. Given that the digital world makes no distinction between telephones, TVs or PCs it is expected that the teleport and Cyberport projects will form a strategic communications corridor. This in itself will create a synergy to develop new media types and applications.

One of the world's most open and liberal telecommunications sectors is also helping Hong Kong realise another goal to become Asia's leading Internet traffic and content hub. Excellent communications infrastructure and the presence of more than 130 Internet Service Providers has placed Hong Kong in an ideal position to act as the premier information gateway into the relatively untapped and potentially huge market in Mainland China. The online market in China, for instance, represents a potentially huge opportunity of Cyberport based companies.

Encouraging the development of innovative and attractive bilingual Internet sites locally - perhaps through some of the Cyberport tenants - will add impetus to the push, especially in terms of e-commerce opportunities in the Mainland routed through Hong Kong servers or accessed via Hong Kong sites. We believe that content and language differentiation will be among the largest technical, distribution and marketing challenges facing service providers, portal operators and their investors. This is an area where Hong Kong can excel and lead, as it has in the past.

If recent indications are anything to go by, the private sector - and as I mentioned before, they will be the ultimate arbiters of whether our high-tech drive is a success - is wasting no time in seizing upcoming opportunities in Hong Kong, the Mainland of China and beyond.

For example, Intel has joined forces with Hong Kong's Pacific Century Group to develop an interactive Internet/TV service delivered via cable and satellite. Microsoft and Cable & Wireless Hongkong Telecom are developing an interactive Internet/TV service to be delivered via cable. Telecom has already introduced the world's first commercial-scale interactive TV service while Microsoft Hong Kong provided technical support for our Interactive Government Services Directory; Yahoo!, which I have visited this morning, has teamed up with Hong Kong's third-largest mobile phone operator SmarTone to expand its Internet presence, especially in greater China.

There is indeed a huge potential for collaboration on all manners and all types of projects with partners in China. According to data provided by the International Data Corporation, China's IT market growing at an annual rate, compounded rate of close to 30 per cent between 1998 and year of 2003, will become one of the largest in Asia. And, indeed the same data showed that by 2005, it is projected China will become the second-most wired country in the world next to the United States. We have unparalleled access to, and understanding of, the massive market on our doorstep - the Mainland of China. We would serve as the best stepping-stone to that vast potential market of over 1.2 billion people. We are developing closer links with Mainland universities. And we are putting together a digital data base of all of the Mainland's technological resources.

In order to ensure success in building our knowledge based economy, we as a Government have reaffirmed our determination and commitment. Firstly, we are committed to improving our IT infrastructure - lending our support to projects like the Cyberport. Secondly, we are developing an efficient telecommunications network as we progressively liberalise our telecommunications sector. By replacing telecommunications monopolies with open competition, we have managed to reduce charges, promote usage and stimulate innovation in telecommunications and Internet services. To date, the majority of households in Hong Kong are connected to optic fibre network and our internet penetration rate is almost 15%, one of the highest in the region. Thirdly, we are committed to put in place Internet friendly policies to foster a high-tech culture in the community. We firmly believe that having a knowledge based and information economy will benefit the entire society as it will make all companies and everyone of our citizens more competitive.

These are some of the initiatives we are taking. But they are not simply 'stand-alones'. Rather, they form part of a strategic, long-term vision to complement and enhance our traditional strengths in financial services, banking, communications, tourism and transport. They will add a new dimension to our economic base and, in the long-run, boost our competitiveness and attractiveness as an international business centre. And they will be carried forward within the fundamental framework that has served Hong Kong so well over the past three to four decades: the rule of law upheld by an independent judiciary; a level playing field and a clean administration; low, predictable tax rates; and legendary commitment to free trade and open markets.

Ladies and Gentlemen, I want you to know that we are absolutely committed to protecting intellectual property rights through a world-class intellectual property rights regime. Our approach has been to maintain a comprehensive legal framework, to take vigorous and sustained enforcement action, to step up education and publicity and to create strong links with cross-boundary and international enforcement authorities as well as relevant industries. We recognise that much more needs to be done and we are determined to do more to ensure that we have one of the best intellectual property rights regime in the world. We have devoted extra resources to combat the theft of intellectual property and are making special efforts to intensify our public education programmes in this area. We simply will not tolerate the theft of ideas. We have urged everyone in Hong Kong to support our efforts by refusing to buy pirated or counterfeit goods of any description.

We have a cosmopolitan and outward-looking community, the world's most externally-oriented economy, a free and vibrant media and an unfettered flow of information, news, views, ideas and money which give us advantages that few, if any, can match in Asia. Excellent communications and transport infrastructure, easy access and a strategic location in the heart of Asia between the time zones of North America and Europe, have all helped Hong Kong stamp its mark on the world stage.

We have a well-educated and flexible workforce, a quick uptake of new ideas and new technology and world-class universities, including the world's first Authorised Academic Java Campus at Hong Kong University.

Hong Kong today is one of the world's freest and most open economies. We are a major international financial, trading, communications and transport centre. All of this has been achieved because of the drive and determination of our people - their hard work and entrepreneurial spirit.

As an international city, we are also putting a sharper focus on quality of life issues. We understand that our role as an international and cosmopolitan community relies on attracting and retaining the best international and cosmopolitan talents from around the globe. And to do that we need to offer a lifestyle that promises not just commercial stimulation and ample reward for hard work and enterprise, but a pleasant and enjoyable living environment as well. In addition, we also owe it to our 6.8 million residents to provide them with a decent environment in which to live, work and enjoy life. Much has been done and we know that much more needs to be done. To this end, we will spare no efforts to tackle the full range of environmental issues, including air and water quality and solid waste disposal.

All of this underpins our determination to develop a leading role within Asia as the centre of excellence for innovation and technology. We are determined to move forward with our vision for a 21st Century Hong Kong playing an active, meaningful and leading role in the fully-wired world of the not too distant future. And if anyone here is looking for a stepping stone into the Asian and Chinese market then all you need do is key in the magic words: H-O-N-G K-O-N-G: Hong Kong.

Thank you.

Photo:The Chief Executive, Mr Tung Chee Hwa, delivers a keynote address to a luncheon crowd of more than 800 people during a visit to the world's leading technology region Silicon Valley.

End/Friday, July 23, 1999

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