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

Following is the full text of the speech (English only) by the Financial Secretary, Mr Donald Tsang, at a dinner co-hosted by the African Asian Society and the Hong Kong Trade Development Council at Cape Town tonight (Tuesday, South African time):

Mr Botha, distinguished guests, ladies and gentlemen,

Thank you for that flattering introduction. I am delighted to be here in Cape Town, South Africa's "mother city", and what must be one of the most visually stunning places I have ever visited.

Members of our business mission were fortunate enough to catch a brief glimpse of the Cape region shortly after arriving on Sunday. There was just one word that summed up our feelings - breathtaking. The pounding seas, the jagged cliffs, the sheer beauty was almost too much for the eye to receive.

The contrasts in that vast stretch of land between the east and west coasts of South Africa were thrown into sharp relief even before we touched down. Like crossing an invisible divide, the brown parched earth suddenly gave way to green hills and even greener pastures.

And, that's why we are here today. Like the 15th and 16th century explorers - who found fame discovering, and then rounding the Cape - we too, have begun a journey of exploration in search of an enduring partnership between Hong Kong and South Africa. Our own permanent link spanning two continents.

I think all of Hong Kong would be flattered by what Peter Pullen, the CEO of WESGRO said yesterday, that he would like to see Cape Town become the Hong Kong of Africa.

We'll certainly do whatever we can to help. But getting your taxes down to only 16% (that's one-six percent for profits tax and 15% (one-five percent) maximum for salaries tax may be hard to achieve in the short-term. And that's just for starters!

While it is early days yet, what we have discovered on our late 20th century voyage to the Cape has been most encouraging. It has opened our eyes to the untapped opportunities in this region and dispelled any pre-conceived negative notions we might have harboured, particularly in relation to infrastructure.

Your highways, ports, communications, electricity and water supplies are a great inducement to business people wanting to establish a presence in this country. Not only as a base with which to trade within South Africa, but as the window to the growing market in southern Africa with its 200 million consumers. And the enthusiasm of the brave and enlightened people, from the President down, is infectious. The opportunities abound.

Hong Kong entrepreneurs have already recognised those advantages. There are some good examples of that here in Cape Town where our businessmen have made investments in the textiles sector and more recently in the South African wine industry.

I was able to visit two of those investments earlier today and was impressed with what I saw. The delegation also joined me on a visit to the Ashanti estate in the Paarl wine district yesterday in which some 60% of the investment has come from Hong Kong.

I know from functions like tonight's that South Africa produces some first-class wines, and have been for hundreds of years. But they have only come to the attention of Hong Kong people in the past few years. Now, as a direct result of this business mission, I believe that situation is about to change with more South African wines being imported into Hong Kong. All I can say is - "watch this space".

If it does eventuate, it will be a further step in our ultimate goal to transform Hong Kong into the wine hub of East Asia - distributing and trading wine throughout the region.

We have been helped by a study commissioned by our Trade and Industry Bureau earlier this year. This showed that the wine import market in Asia, in 1996, was worth close to US$930 million with a high growth potential. And Hong Kong is well positioned to capitalise on the dynamic changes taking place in the method of distribution.

And here's a tip for your producers. Up until a few years ago, Hong Kong people were renowned for their purchases of cognac. That demand is now overshadowed by growth in the sales of wine, particularly reds which are booming. They say a little is good for your health - or is that simply a myth.

But I don't want to dwell too much on one aspect of Hong Kong's investments in South Africa to the exclusion of others. Indirectly as a result of our business mission, another of the delegation members is firming up plans to expand his manufacturing operations to South Africa.

No deals have been signed yet, but negotiations are under way. This is a classic example of the entrepreneurial spirit of our small and medium sized enterprises, or SMEs as we like to call them. I can't emphasise enough the part played by our SMEs in our economic development.

You may be surprised to learn that in Hong Kong we have well over a quarter of a million SMEs, which form the backbone of our economy by employing some 60% of the total working population.

Their ability to quickly adapt to changing trends and innovation is legendary. And I am sure they would be willing to provide advice and exchange views with representatives of your small and medium sized enterprises on a regular basis. In this way we would be putting more flesh on the concept of a strategic economic alliance between Hong Kong and South Africa.

At a government level, we are playing our part as well. Following my meetings with President Mbeki and Minister for Trade and Industry, Mr Alec Erwin, last week, talks have already been held in Geneva between representatives of Hong Kong and South Africa on matters of mutual interest, including preparation for the forthcoming ministerial meeting of the World Trade Organisation in Seattle. And we have received a request to facilitate the visit of a South African trade mission to Hong Kong later in the year.

Together these developments - here in South Africa, in Hong Kong and in Geneva - are putting in place the framework of our strategic economic alliance.

As encouraging as these developments are, I don't want to leave you with the impression that we have reached the final hurdle. We still have a long way to go. And much will depend on the private sector follow ups and how quickly we emerge from the impact of the Asian financial crisis.

The early signs are there. Our property market has stabilised. Interest rates are lower. The stock market has been more active. Tourist arrivals have increased significantly. And the number of exhibitors and buyers to the Hong Kong Trade Development Council's international trade fairs has risen markedly.

These are positive indications of the local and international communities confidence in Hong Kong's future prosperity.

When reflecting on what has happened over the past couple of years, it's interesting to observe that the problems we've encountered have not stemmed from any political fallout from our reunification with China on July the 1st 1997. Rather it has been as a result of the financial turmoil.

The handover was virtually seamless. We have taken the changes, what little there were, in our stride. Hong Kong people are running Hong Kong with a high degree of autonomy in all areas except for defence and foreign affairs. And that's the way it should be under the terms of the 1984 Sino-British Joint Declaration.

It is all part of the 'one country two systems' under which we operate as a Special Administrative Region of China. While we are part of that great country, we still retain our distinctive and separate systems for 50 years.

Our capitalist system and present way of life are fully preserved - the rule of law based on the common law system; an independent judiciary; freedom of speech and freedom of the press; the protection of property rights and foreign investment; a freely-convertible Hong Kong dollar; a level playing field for all of those doing business in Hong Kong. And the list goes on.

These special characteristics are not found anywhere else in China. Hong Kong is different. And the Central Government in Beijing has deliberately adopted a hands-off approach.

But while we have this 'separate identity', our unique cultural, constitutional and commercial access to China's markets makes Hong Kong the pre-eminent gateway to the Mainland. So, if you're panning on doing business with China, then Hong Kong is the place to establish your base.

And it is worth remembering, the Mainland offers tremendous opportunities. It is a vast market with an economy that last year grew by almost 8%, and this year the growth target is 7% - by far the highest in the region.

What we are doing in Hong Kong is establishing a distinct position as Asia's most cosmopolitan city. In a sense we are re-inventing ourselves as a result of the financial crisis. We are restructuring the economy. Diversifying into new areas, such as innovation and technology.

We are reforming our financial markets to make them more competitive and more accountable, especially in the light of global trends such as 24-hour stock trading, e-commerce and on-line brokerages.

It is an exciting transformation and one that should position Hong Kong well to take advantage of new developments, new technologies as we enter the next century.

As part of that journey, we would like to see a new and distinct partnership with South Africa. One that will be to our mutual benefit. During this visit we have made tremendous progress. Let's hope it will lead to much greater investment in the future.

Thank you.

End/Wednesday, August 4, 1999

NNNN