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Following is the full text of a speech (English only) delivered by the Financial Secretary, Mr Donald Tsang, at the Retail Management Association's luncheon today (Wednesday):

Philip (Ma), distinguished guests, ladies and gentlemen,

Thank you Philip for those kind words and the opportunity to speak at today's lunch. Your association and its members have done a tremendous amount to give the retail industry a unified voice in Hong Kong. That unity and strength is a potent force in making Hong Kong a better place in which to do business. Your efforts have my support and encouragement.

My presence at events like this gives me a chance to understand the feelings and difficulties of the retail industry which is waging its toughest battle in living memory. It has been almost two years since the Asian contagion first took hold in Hong Kong. Its effects on the retail sector are still lingering, despite the encouraging signs we have seen recently elsewhere in the economy.

The retail industry suffered a triple-whammy. First, there was a big drop in tourist arrivals. Asian tourists whose currencies have all devalued were spending less. A price-cutting war ensued. The situation has now improved as tourist arrivals are returning in encouraging numbers.

Second, consumer confidence in Hong Kong remains fragile and fickle. However good signs have begun to emerge. Retail sale in July recorded positive year-on-year growth for the first time since September 1997.

Third, the advent of the 'virtual retailer' and the 'cyber shopper' is starting to impact on the way in which people buy goods and services, and the way in which retailers sell them. I am not sure how deeply cyber shopping will take root in Hong Kong where we have such density and amazing diversity of shopping experiences. I personally believe there is a great therapeutic value in wandering around a shopping mall or strolling through a street market that can never be matched by clicking a computer mouse. Meanwhile, the retail industry should look seriously at how it should adapt to the changing business environment.

Overseas visitors often remark to me that they cannot believe the enormous variety and price range of goods available in Hong Kong. The recent intense competition among supermarkets has shown that some retail sectors are more open or suited to Internet-based competition than others. Regardless of this, it is likely that retailers of all shapes and sizes will need some Internet presence in the future - even if it is just a web page advertising their goods - as we continue our march along the information superhighway.

So the real challenge to the retailers in Hong Kong is not only a more competitive market, but a significant, and most likely profound, shift in the way in which people buy goods and services.

For some, this combination of body blows has proved too much. It was a knockout in the first round when tourist numbers dropped off sharply. Most others, though, are holding their ground but feeling the pain. Hong Kong's legendary competitive environment continues to hone the best and fittest in the retail industry. And that is why our retail industry will eventually emerge from this recession a lot more street wise, a lot leaner and perhaps a little warier than the days when Hong Kong was riding on the back of two million more tourists a year, stronger regional currencies and a misplaced confidence in the power of the property market to forever sustain economic growth.

Retailers by now must have done about all they can to weather the current downturn. They have eliminated or minimised inefficiencies, reorganized and reassessed their business strategy and approach. They have adapted quickly to changing fortunes and devised innovative ways to attract and retain customers. Service standards and professionalism continue to improve. I know that your association and the HKTA have been working especially hard in this area. This is not only good business, it enhances Hong Kong's image abroad as a sophisticated, friendly and value-for-money shopping and tourism destination.

There are still many uncertainties facing the industry: rental costs, cross-border shopping in Shenzhen, deflationary pressure on profit margins, wage restraint and its negative effect on spending habits. So I have had to ask myself: What can the government do to ease your burden?

I was very pleased to hear that the association was happy with measures announced in my last Budget in March this year to help stimulate local spending and provide a catalyst for economic recovery. Our latest GDP figures - which took many by surprise - are a sign that some of the proposals announced in the current Budget and the supplementary one in Summer 1998 are starting to work their way through.

The retailing industry should have benefited from many of our economic relief and revenue concessions during the past two years, for example the freeze - in some cases reduction - in most government fees and charges; rates rebates and reductions; reduction in diesel duty; 10% tax rebate; and reduction in declaration charge for imports and exports. By the time they fully trickle through, these economic stimulus measures will have freed up well over HK$40 billion in the current and previous fiscal years. And most will have gone back into the coffers of small businesses, the wallets of their staff and the bank balances of all other taxpayers in the SAR.

Small and Medium Enterprises are of enormous importance to Hong Kong's economy - there are about 300,000 of them and they make up about 98% of all businesses in the SAR. Many retailers come under this umbrella. To help SMEs cope with the liquidity crunch over the past two years, the government established a $2.5 billion special finance scheme in August 1998. The purpose was to offer loan guarantees of up to 70% to small businesses which needed to raise bank financing. The scheme recently reached its funding limit after providing guarantees for almost 6,000 small businesses. In the Policy Address which the Chief Executive announced last week, he doubled the amount of guarantee for loans provided under the scheme. More SMEs will benefit.

In August, we established an SME Information Centre within the Industry Department to replace the Business Licence Information Centre. This is a one-stop shop for information on services and support offered by the government to SMEs. It is particularly useful in helping companies find out all the business licence requirements for their particular activities. Although the centre has only been up and running for a little over two months, it is receiving more than 500 enquiries a month over the phone or in person, and more than 3,000 over the Internet.

Anyone who has started a retail business from scratch will know that one of the myriad problems to be tackled is the design of premises. One of the critical steps in this process is referring to specific building plans. At the moment it takes around four weeks to retrieve a plan, which is too long. The main reason is that there is no central repository for the more than 170,000 files that contain the plans for every building in Hong Kong. And we are talking about hundreds of thousands of plans. The Business and Services Promotion Unit under my office is currently studying how we can revamp the process so that building plans can be retrieved much easier and quicker. The target is to make plans available within minutes, rather than weeks, and obviously this will involve some advanced information technology applications.

We have also introduced an Interactive Government Services Directory which allows users to download public forms over the Internet. The service is currently being accessed more than 15,000 times a month. Government bills can also be paid through more than 1700 automated bank teller machines spread all over Hong Kong.

A new initiative coming on-line, which will help develop e-commerce in Hong Kong, is the Electronic Services Delivery Scheme. This will give members of the public and businesses on-line access to certain types of services, and allow the payment of various government fees and bills. One of the services that will be available in the first phase of the project is the payment of tax bills. I am sure this will make life easier for tax-paying retailers.

We have also introduced an Electronic Transactions Bill into the legislature to establish a legal framework for electronic commerce in Hong Kong. This Bill will give electronic transactions the same legal status as paper-based transactions. The Bill will be of particular relevance to the retail sector as more and more people take to the Net to do business. Hongkong Post also expects to have ready by the end of the year a service to issue coded digital certificates which will be used to ensure the security and integrity of electronic transactions carried out over open telecommunications and information networks such as the Internet. All of these steps will help pump-prime the development of e-commerce in Hong Kong.

Ladies and gentlemen, I understand that the recent, slight increase in retail sales volume may not yield enough comfort when revenue is still down about 8 per cent year-on-year. However, I do believe that positive sentiment is starting to filter through. There has been a noticeable growth in sales of consumer durables such as home appliances and furniture, and a more modest increase in sales of watches and jewellery. This positive sentiment will hopefully translate into positive territory for both sales volume and value in the last quarter of the year, and especially during the busy Christmas and Chinese New Year periods. And, on a personal level, I will be doing my utmost to give the credit card a serious workout during that time.

Before I finish, I would like to quote your esteemed honorary president and international advisor Daniel Koo who last year, at the worst time of the downturn, remarked that 'a diamond is only a piece of coal that has been put under pressure'. I enjoyed the analogy because I think it nicely encapsulates the attitude of most people in Hong Kong hit by the economic turmoil - their strength and resilience is shining through. But it was also a very appropriate analogy for the retailing industry because it is truly one of our economic gems. And I for one will do what I can within the government to see that it does not lose any of its world-famous lustre.

Thank you.

End/Wednesday, October 13, 1999

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