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Following is the transcript of the Chief Executive, Mr Tung Chee Hwa's interview on the 'News Hour with Jim Lehrer' aired in the US early today (Saturday, HK time):

Interviewer, Elizabeth Farnsworth: Tung Chee Hwa was born in Shanghai but left China in 1947 just before the communists took over. He studied in England, worked in the United States and then helped manage his family's Hong Kong-based shipping business, one of the world's largest. He became Chief Executive of Hong Kong in 1996 after being elected by a committee of 400 people representing different sectors of the community, and after being confirmed by Beijing. Thank you very much for being with us.

Mr Tung: Thank you. Good morning.

Farnsworth: Now before we get to Hong Kong I need to ask you about some of these items that have been in the news this week, first on Taiwan. How serious do you think this disagreement between China and Taiwan is?

Mr Tung: Well, I think the situation is serious. You know the One China principle was the very foundation of the informal discussions that were being conducted by the Central Government of China and Taiwan authorities. And this One China principle was also very much accepted internationally by all the nations around the world, and by Chinese people everywhere. So I think really it is important that this One China principle should be stuck to in all the future discussions.

Farnsworth: When you say it's serious, how serious?

Mr Tung: Well it is serious and from Hong Kong's point of view, any destability in that region would obviously not be good for Hong Kong.

Farnsworth: It's already had some economic effects hasn't it, on the stock market and other things?

Mr Tung: Yes, there are some temporary effects on the stock market already. Not just in Hong Kong, in Taiwan also.

Farnsworth: You have close ties with Taiwan and Beijing. Do you have a role to play in ironing this out?

Mr Tung: No Elizabeth, my responsibility is Hong Kong and I'm really very busy dealing with Hong Kong already. But I would hope that given the fact that One Country, Two Systems, which is now being implemented in Hong Kong, has been a success, and continues to be a success, would be a good example for Taiwan to see, that things can be worked out.

Farnsworth: Good, I want to get to that in one second. Before we do, what about the Falun Gong, some people call it the Buddhist Law, or Wheel of Law group, that has been outlawed and some people have been arrested. How serious do you think that could be? They say there could be millions of members in China, there's some in Hong Kong. Now I know this does not apply to Hong Kong. Your government has already said that it will not be banned in Hong Kong. But how serious do you think that could become?

Mr Tung: Well, you know, as far as Hong Kong is concerned of course we are working under One Country, Two Systems and in Hong Kong we have our own set of laws. So long as the societies or organisations function within the framework of law they are perfectly alright. So if Fa Lun Gong is working in Hong Kong within the framework of law, we have our set of laws and we go by our way forward. In so far as China is concerned, of course I am not very well versed with what is happening in detail, but I think it is important to recognise that China is moving forward very rapidly in its economic reform, it's going through many ambitious and a very important reform programme for the country as a whole. The standard of living for the country has been improved enormously and throughout all this, social stability is very important for the country.

Farnsworth: And that's their main concerns, stability?

Mr Tung: That's right, that's right.

Farnsworth: OK, now to the Hong Kong model for Taiwan. Do you think it is a kind of model that can be applied, I understand with some differences, I think China has already said, for example, that Taiwan can keep its own military. But is it working, is it an important model?

Mr Tung: It is really working in Hong Kong, and working very well. It's now been two years since the reunification of Hong Kong with China. And One Country, Two Systems is no longer a slogan, it's no longer a concept, it is in fact a reality. We are working at it every day and you know I wish you would come to Hong Kong to see for yourself how well it is working. You know the One Country, Two Systems concept is in fact institutionalised by a piece of legislation, which the National People's Congress in China passed in 1990, which is called the Basic Law. And the Basic Law prescribes that Hong Kong will have a different social, economic and political system from that of the Mainland. And that our way of life, the freedoms we enjoy will all be guaranteed. The judiciary independence, which is so important to Hong Kong's success, will be guaranteed. The fact is that we have a separate monetary authority to manage our own monetary affairs. And all this is now working in Hong Kong and working very well.

Farnsworth: Now let me put a couple of questions to you. As you know there have been some incidents which have raised some questions among your critics, both inside Hong Kong and even in the US government, about how well it's working. On judiciary separation, there was a recent immigration case. The Chinese People's Congress in Beijing overruled your highest court. Explain that very briefly because we don't have a lot of time. And you asked for this, you asked for the intervention of Beijing, which I think is what I think most upset say Martin Lee and other critics inside of Hong Kong, he's the head of the Democratic Party there. Why? Why did you ask for a ruling from Beijing on something your highest court had already ruled on involving who could immigrate into Hong Kong?

Mr Tung: Well Elizabeth, Hong Kong's population has been growing at about over 2 per cent per annum, double that of any other community or nation in the world. So we are already absorbing a lot of people into Hong Kong. And the Court of Final Appeal's ruling on January 29 would have permitted, another 1.6 million, a good 25 per cent, of people to come to Hong Kong within a frame of 10 years.

Farnsworth: Although some people did dispute those figures. They were wrong?

Mr Tung: No, they were pretty well scientifically tested and we were quite confident they were the right figures. So, we already have a population problem and this is what comes on top of that. It's just like America suddenly in 10 years, suddenly having another 65 million immigrants coming into America. Socially, from a housing point of view, education point of view, it's not something we can handle. And don't forget, Hong Kong has very limited resources on land. But let me say to you one thing Elizabeth, that whatever we did, we did within the framework of law. Because to me, and to the Hong Kong government, nothing is more important to us than the rule of law. And I also want to tell you that in doing so we had enormous support from the people of Hong Kong that this needs to be done.

Farnsworth: So when critics like Martin Lee, or even the US Consul-General at the time, said that the US concern was that this would become too easily a precedent, that Beijing could overrule what happened in Hong Kong, what's your response to that?

Mr Tung: Well, when we first approached Beijing, Beijing said to us, 'you know under One Country, Two Systems, will you try to sort out your own problem because we don't even want to get involved in the argument'. But we can't handle the problem. And this is why we had to do it in Beijing. And remember, the interpretation which the (National) People's Congress Standing Committee rendered was to give us the original intent in the legislation, what was the original legislative intent. And they made the clarification on this, which was very helpful. And in fact the law which now is in the books is exactly the same as what Britain and China agreed to in immigration before July 1st 1997.

Farnsworth: And finally, how are you dealing with the fact that problems between the US and China now become problems between the US and Hong Kong. For example, because of the bombing of the embassy, China has decreed that no US military ships would visit ports, and that includes Hong Kong because China does control that sort of thing. And that takes some money away from your coffers, right, not having the navy come? And also this matter of the Congressional Committee which has said that military related technology, secret technology is getting into China via Hong Kong. So there is some move in Congress to limit technology to Hong Kong. I mean this is a whole problem you would not have if you were not part of China.

Mr Tung: Well, let me put it this way that obviously the US-China relationship, the ups and downs impacts on Hong Kong very much. China of course is our sovereign, the United States is our largest partner in trade and in commerce. Forty thousand Americans live in Hong Kong. I think a good US-Sino relationship is important to Hong Kong. It is important to China. But in my own view it is also very important to the United States of America - the United States of America, the super power in the world; China an emerging economic powerhouse, which will offer tremendous opportunity to American business, create more American jobs. So I think it is really important, not just for Hong Kong, for America, for China to work out the problems because there is so much national interests involved.

Farnsworth: Well Mr Chief Executive thank you very much for being with us. I hope you have a good trip home.

Mr Tung: Thank you very much Elizabeth.

Ends/Saturday, July 24, 1999

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