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Following is the full text of a keynote speech (English only) delivered by the Financial Secretary, Mr Donald Tsang, at a luncheon organised by National Committee on US-China Relations in New York today (Thursday, US time):
John (Holden), distinguished guests, ladies and gentlemen
I'm delighted to be in New York again and consider myself fortunate not to have been here last week when I would have had to compete with Hurricane Floyd. It is a rare phenomenon - natural or man-made - that can move markets AND shut down New York City.
I understand that New York may soon be a divided city as New Yorkers take sides in the ultimate political contest - a battle that will pit experience against talent, a hard-driving test of will, savvy, resources and the backing of powerful interests. Of course, I'm talking of the exciting possibility of a "subway series" if this year's World Series becomes an all New York affair. Although I must confess that, unlike your various potential New York Senate candidates, my own loyalties are with the Red Sox, who may very well make it a New York-Boston contest.
My visit to the US this time has been largely determined by the Annual Meetings of the IMF/World Bank in Washington next week. But it is vitally important that we maintain a steady exchange of visits to keep our friends in America informed of what is happening in our part of the world, and Hong Kong in particular.
I know New Yorkers are avid readers of newspapers. But it's always better to get the news first hand. I have the impression that Hong Kong does not figure too prominently in the news pages these days. But I am here to assure you that we are alive and well. Human rights, the freedom of expression, the freedom of the press - in fact all the freedoms we have come to expect over the years, as our right, are intact.
Our free, open, argumentative and free-wheeling society continues to manage successfully in a free-market economy bolstered by the rule of law, and the free and unfettered flow of ideas and information. And slowly, but surely, we are getting back on our feet after the devastating impact of the Asian financial crisis.
It's early days yet, but the revised 2nd quarter figures show that our economy grew by 0.7 per cent in real terms. A marked turnaround from the 3.2 per cent decline in the 1st quarter; and the first positive GDP figures since the final quarter of 1997.
So, do these figures mean the worst of the crisis is over? They certainly show that domestically consumers seem happier; Hong Kong is beginning to attract more tourists; and trade has improved.
If the trend continues, the economic outlook for the 2nd half of the year should show further improvement. You might detect my note of caution, but I have been caught before when trying to rub my crystal ball only to end up with a handful of broken glass!
A lot will depend on the equity market and import demand here in the United States; the economic climate in Europe. And the pace of economic recovery in Japan, in particular, is crucial for sustaining the revival in our economy.
Assisting with the recovery will be the reforms we have made, and will continue to make, to our financial services sector. Those of you keeping a finger on Hong Kong's pulse will be aware that our current programme of reforms falls roughly into three areas - the merger and demutualisation of the stock and futures exchanges; further enhancement of the banking system; and improved, but not heavy-handed, regulations to give more clout to the watch-dog Securities and Futures Commission.
These fundamental reforms will reshape our markets for the new millennium - streamlining them for tomorrow's increasingly transparent and highly competitive world. Simply surviving is not enough. We have to be bold, innovative and imaginative to remain at the top of the heap. And that's what we are attempting to do.
Our most radical reform, which is taking place right now, is to guide the merger and demutualisation of Hong Kong's stock and futures exchanges and their associated clearing houses. Next Monday, proposals will be put to their respective shareholders for approval. If the vote is successful - and we're banking on that being the case - the flotation of the combined entity will happen next spring.
The merger is crucial to our goal of building the leading securities and futures exchange in Asia and one of the top five equities markets in the world. Failure in this goal is not in our lexicon. So you can see how important this merger is.
Other interlocking pieces to complete our market strategy include a single clearing arrangement for securities, stock options and futures transactions; straight-through processing; and a scripless securities market supported by state-of-the-art technology. This will be backed up by a modern regulatory regime that will include features such as strengthened powers for the Securities and Futures Commission; the creation of a Market Misconduct Tribunal headed by a High Court Judge; and new regulations on Internet trading.
Taken together, these reforms will reinforce Hong Kong's position as a global financial centre. It will put us at the forefront of markets in Asia where competition is already getting hot.
But the new regulations are not heavy handed. They will provide optimum regulation for the market, give sufficient protection for investors, and leave enough room for market development in a fair, orderly and transparent way. Encouraging, not stifling, healthy competition and market innovation.
I want to leave you in no doubt, that as we enter the 21st century, Hong Kong will play an increasingly important role as the number one services centre and capital fund-raising focal point for China and the East Asian region.
Simultaneously with the reform of the markets, we are also freeing up the banking sector - deregulating the remaining deposit interest rate rules by scrapping the long-standing practice of the so-called banking cartel to set rates on current and savings accounts. Improving depositor protection. And encouraging greater participation from foreign banks.
Will all these reforms be sufficient to keep Hong Kong one step ahead of the pack? In a word - yes. But it won't stop there. The reform process must continue in an age where we can so easily be overtaken by advances in innovation and technology.
I think that is one of the valuable lessons we have learnt from the Asian financial crisis. Take for example what we have done to liberalise our telecommunications market. We successfully negotiated the early surrender of the former Hongkong Telecom's exclusive licence for international telecommunications.
Not surprisingly, healthy competition, a wider choice of services, and - best of all - cheaper prices for consumers are the result. These benefits have kicked in much earlier as the licence was originally due to expire in 2006. We have completely liberalised the market for Internet services and mobile phones to the stage where every 8th person in Hong Kong is surfing the net, or every other person is using a cell phone.
Our reformist zeal has extended into the public sector where we have a programme on further privatisation of public assets, including our profit-making Mass Transit Railway Corporation and even some of our social welfare services.
Sure, we have suffered a great deal as a result of the Asian meltdown. But it also threw up enormous opportunities - opportunities like reshaping our markets, enhancing the banking sector, and liberalising the communications industry. Reform is part of strengthening our systems and we do not intend slowing down.
It is integral to positioning ourselves as the premier international financial centre in Asia in the next century. That requires continuous reform and we are committed to it.
I would like to make the point that all these on-going reforms are very much Hong Kong market-driven. They are not instructions somehow being handed down from the Central Government. I raise this because during a question and answer session at a luncheon in San Francisco on Tuesday, I was asked to what extent the Mainland would impose restrictions on the development of Hong Kong as a high-tech area. The answer was obvious - none.
However, the question itself clearly indicates that many people do not fully understand the "one country, two systems" principle under which Hong Kong operates as a Special Administrative Region of the People's Republic of China. Perhaps we haven't done enough on our part to explain the position. As it is such a unique concept, there are even some within our own community who are still coming to terms with it.
I think you would all agree that despite predictions to the contrary, our reunification with China on July the 1st 1997 was virtually seamless. What little changes there were we have taken in our stride as any mature and civilised society would do. We are moving ahead with our capitalist system and way of life firmly entrenched and guaranteed for 50 years until 2047.
Hong Kong people are running Hong Kong with a high degree of autonomy in everything except defence and foreign affairs. All our systems remain intact. The rule of law. An independent judiciary with the power of final adjudication. A free and open market. Freedom of the press. Freedom of speech. The protection of property rights and foreign investment. A freely-convertible Hong Kong Dollar. The freedom to run our own economic and fiscal policies without interference. Low and business-friendly taxes. (I don't want to boast, but that remains at 16% profits tax and a maximum 15% salaries tax.) A clean and efficient administration. And the playing field remains perfectly level for all those doing business in Hong Kong.
And to reinforce this, Hong Kong continues to be separated from the Mainland by a physical and clearly defined boundary which is policed by our own enforcement agencies. And we operate as a separate customs territory. These special characteristics are not found elsewhere in the rest of China. Hong Kong is unique. And the Central Government in Beijing has been scrupulous in adopting a hands-off approach, allowing us to get on with the business of running Hong Kong.
The special relationship we have with the Mainland of China is working, and working well. Teething problems, when they arise, will be resolved amicably and openly together by the Central Government and Hong Kong.
Finally, I know some of you may be interested in what we are going to do with the shares we bought as a highly exceptional measure in August last year.
Having accounted for all the shares we bought, and explained clearly the reasons for doing so, we swiftly set about distancing the government from the multi-billion dollar equity portfolio. We established a company - Exchange Fund Investment Limited - to find the best way in which to carefully dispose of the shares.
In this regard, the company, operating independently of the government, announced last June a plan to launch a unit trust product designed to track the Hong Kong Stock Exchange's Hang Seng Index. Work is underway to prepare for the launch of that product.
As a government we are anxious to dispose of our large share holdings, reducing it - in the long-term - to an amount equal to about 5% of the assets of our Exchange Fund. The unit trust is the first step to achieving that goal.
For the past two years, Hong Kong people have found the going rather tough. However, with the economy showing signs of recovery; with the recent improvement and stability in the stock market; land prices stabilising; a level playing field; and a Mandatory Provident Fund coming on stream, there is - at last - some good news coming from our region.
And, as I noted in The Economist recently, if you look closely through the haze generated by a healthy plural society, you will find a confident city, dedicated people, and a free community passionately committed to the rule of law. A city that is leaner, more competitive, and positioning itself for the post-recession lift-off.
Thank you
End/Friday, September 24, 1999
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