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The following is the transcript of the Question-and-Answer session given by the Chief Executive, Mr Tung Chee Hwa, after his speech at the opening dinner of the Business Week CEO Forum this (Wednesday) evening:-

Moderator: Thank you very much Mr Tung. We take questions from any one of the audience. But I have one. I have only been here for about a day and I know very well the image of Hong Kong and I come at least several times a year if I can. But several people have already said to me, you know, we are not as laisser-faire as we used to be because we're going to build the cyberport and the government shouldn't try to build something for all the crazy people who created another company because, by definition, they are the most free market people of all. I am a little confused that I thought, may be, you could tell me a little more about what the government intents to do with the developer in that project since it's one of the few things that came up very quickly in my visit.

Mr Tung: Well, Bob, it's a very good question. I think, first of all, let me say this. We have an advisory body which was called the Commission on Innovation and Technology which was chaired, and I say was because he now stepped down, was chaired by a very distinguished Chinese-American who until not too long ago, was the President of University of Berkeley. He is Professor Tien Chang-lin. He's now just been appointed by Bill Clinton to, I think, his Science Board. Now, he had together with a very distinguished group of members of the Commission had guided this government as to how to move forward in innovation and technology and highlighted in a number of areas where, in Hong Kong, we can accept if we move fast. Because other cities in Asia, Singapore, Shanghai, everybody is moving. And one of the areas he talked about a great deal was information technology and he felt Hong Kong had a unique position. And he would really recommend us to go as fast as we can. The essential aspect of this is to do a number of things. One is that the Commission felt there is not enough talent in Hong Kong. So, one of the things they suggested that we should open up immigration policy to attract more talents from all around the world particularly from Mainland China. And this is the software infrastructure responsibility of the government which I've said earlier on and this is what we've decided to do. And the other is that the Commission emphasized a great deal on the need to create clusters of companies in Hong Kong and do it quickly. Don't wait because, you know, especially in IT, tomorrow is another day. In order to do this, the best was really to create, physically to create an area where many, many of these creative people can be gathered. And this is how the cyberport idea came up. What the government did was really to have gone ahead with providing the infrastructure for the construction of that physical facility. And that was the basis of our thought and that is why we have gone ahead. We have chosen the fastest way of doing it.

Question: And what is your target date for that?

Mr Tung: K C, target date is 2001. I have to tell you that we have tremendous support internationally from many Silicon Valley companies such as Intel, Sybase, a whole lot of companies, they are all very interested in coming.

Question: Mr Tung, most of the business companies finding that the cost of doing business in Hong Kong is relatively expensive because most of the neighboring countries, from Indonesia up to Korea, have all devalued for the last eighteen months. You mentioned as well you want to keep Hong Kong competitive. Do you feel it might be viable for Hong Kong and China to devalue to be competitive against the neighboring countries?

Mr Tung: Let me be very clear of one thing. The linked exchange rate will stay and this policy would not change. It's a very fundamental fiscal policy of this government. And this is not just because it's a nice slogan because it is a very well thought out policy direction we have. Hong Kong at this moment is going through an adjustment process. Many companies are downsizing. Wages at the lower end have actually fallen rather more substantially. At the higher end because there is more demand actually in some areas such as information technology, wages haven't come down at all and I notice that even in the financial service sector, wages haven't come down, salary hasn't come down. So the demand is still out there. But we are very conscious of our cost structure. We want to leave to the market forces to do the adjustment. There has been a lot of downsizing going on. All my businessmen friends in Hong Kong have been telling me how much downsizing they have been doing. And the other thing, of course, is through the use of electronic commerce. I want to draw your experience or your attention to what America did in the late 80's and early 90's. America, actually through downsizing, was able to reduce the size of employment by almost 45 million people. And by last year, they created 75 million more new jobs in the process. And the key is really getting the efficiency going. And we feel that others do it through devaluation, we are doing it through a really physical hard process of downsizing. And the other thing of course our property market has fallen off very substantially and that should also help. So I would say, property market downsizing as well as use of electronic commerce which we are pushing very hard on, would eventually make us more competitive. You know, our economy is 85 percent service and that in a service base economy, depreciation is not the only solution. It's not the solution. Singapore, Taiwan, Thailand, Korea, they are either a manufacturing base economy or economy which is very heavily relying on manufacturing. So they have very good reasons to do what they did and we have very good reasons to do what we did and what we are doing today. And I believe we are doing the right thing. Yes, it's going to take a tougher time to adjust. And the other thing which I would like to say to everybody else and this is not trying to be, in Cantonese, "arrogant". One of the very major financial institution chairman saw me and he was saying to me that your cost is very high. And I said, yes, our cost is really high. And then, he named a few places where the cost is really much lower. So, I say let me ask you first, where do you make most money? He said in Hong Kong, so I said :"Good, you are making money in Hong Kong". And the key is that, you know, not only we have the software infrastructure, the hardware infrastructure, we also have sets of laws which everybody is very familiar with the transparency of regulations, the function of the government. People feel comfortable doing things here. And then, of course, we have the tremendous market which is Mainland China right with us. So they are areas where we have a tremendous competitive advantage on. I mention this not to say that we would be arrogant, we really need to adjust the cost down and we are continuing to do this and I hope that the market sector would continue to lead the way forward and make us more efficient.

Question:Mr Tung, how likely is it that China would enter in WTO this year? How important is that China grabs this also?

Mr Tung:I think it will be very sad and very unfortunate, I should say, if China does not become a member of WTO very soon. Because it is one of the largest economies in the world, and that without China, WTO is somehow not really complete. And I do very much hope that the negotiation that's now going on will bring some results eventually. I think it's going to take political will more than the haggling. It's really a political issue now and I think particularly the President in the United States facing opposition from the Congress: how to take a strong political leadership to say this is it. It's really very, very important. I hope the negotiation will be successful but I know the difficulties are enormous.

Question: I'll say something fast since we write about a lot. We were at all very strongly in April against the President's decision to reject to accept Mr Zhu's offer because it was very close to most people in the United States in business except all those people who were going to have political problems in signing international agreements, and I think that there is still a chance if that offer comes back within the next months. We could get it through. I think they know they've made a mistake. The problem politically in the United States right now is that many people say that it is not the same offer, it's a little bit less, 5 per cent, about 5 per cent below shouldn't matter but this is a difficult political situation. If it doesn't happen in the next month, then I think it is lost for quite a while because I don't think they can go into the American election campaign and take a position on that. There's no game for you in the United States taking a position which favours WTO?

Mr Tung:I would add that obviously, from Hong Kong's point of view, we would hope very much China will become a member of the WTO soon. But on the other hand, I have no doubt that China's market will continue to open up as they have done in the last twenty years. Its economy will continue to grow and that we will all continue to benefit from China's opening up, whether in or outside the WTO.

Mrs Nellie Fong: Maybe I could say a few words and that is that China's been talking about and negotiating about joining WTO for 15 years. The belief was, actually sharing Robert's thought, this was actually like a very close year because next year is the election for the US President and maybe no one will take on that issue on the election year. But things seem to have changed a little in the US because now it seems that all presidential candidates are behind China joining WTO. So maybe it is not going to be a sacrifice under the election year. And if adequate time is needed to make a more complete agreement, then I would hope that maybe in America, the election year would not stop the negotiation and China joining WTO next year.

Question: Mr Tung, I have a personal question. My personal question is that you've in the job now for over two years, and speaking of presidential elections coming up in the States next year, what is your own personal feeling about staying on? You have three more years to go. If you have not thought about it, when would you likely make up your mind about whether to stay on or not?

Mr Tung: Firstly, to all those of you who, and I know you are all businessmen, I would suggest, don't do what I have done. Secondly, I would say I am enjoying the challenge enormously. And thirdly, it's really so far away and you know it's not something that has entered my mind. And the most important thing now is to get our education going, get the environment issue going and get Hong Kong on the way to recovery as new millenium unfolds.

Question: Mr Tung, I think after '97, Hong Kong is part of China. But as a businessman, I think the focus is very much on two systems. But actually the focus could be shifted to one country. So I just wonder whether because as business activities are concerned, China treats Hong Kong no different from other independent countries. Do you have any plan to talk to the Chinese Government that they could give preferential treatment to the business originated from Hong Kong and that would be a very important step to improve the economic situation in Hong Kong. Thank you.

Mr Tung: First of all, maybe I should just digress this a little bit and then answer the other question. I think "One Country, Two Systems" is moving well forward. And I have always said that, you know, for Hong Kong, for "One Country, Two Systems" to continue to work well in Hong Kong, it is very important, for us, as a whole, to understand more about our own country. And I continue to say this a lot publicly because I think it is important, because only then "One Country, Two Systems" can be more solidly grounded. In so far as business is concerned, you know Hong Kong has entered into WTO separately. And that if China does become a member of WTO, Hong Kong will be treated the same as everybody else who are members of WTO. So we have to recognise this first. Having said that, I would imagine that given Hong Kong business people's agility, quick response and the fact that it's the same language, it's really the same people, I would think we have enormous advantage over everybody else in the market places. To get very special advantage in terms and conditions, I think under terms of WTO, in the longer term, it would not work.

Question: Mr Tung, the American business community, and I believe, say international business community, fully supported your vision as set forth in your Policy Address. But two days after the Policy Address, we saw at the headlines that minibus drivers are going to protest the environmental changes. I think it is indicative of the grassroot's feeling in Hong Kong. How do we bring the people of Hong Kong, the grassroots, and the politicians in LegCo along to share your vision as regards to education and the environment?

Mr Tung: Thank you very much. Obviously, we, as a government, are very grateful for the support given to us by the American business community and the international business community. And those of you may well know that in the process of preparing the Policy Address, my colleagues and I actually met you and many of the businessmen in the international business community to listen to your concerns. So I would hope some of your thoughts are in fact in the Policy Speech. But let me say this, Hong Kong is a very open society. There are bound to be people who are not happy for one reason or the other. And firstly, everybody is entitled to express their views. And it is important that views are expressed. Government will do our best to listen to all these views and to really understand them, which we do actually in this particularly case, and then work together, forge a common objective. One of the major purpose of the Policy Speech is really to define a vision for the future. And then get the whole community to come along and share this vision. And then, we can all move forward together. Yes, different interest groups will have different views about how to do different things, who should pay for what and who should bear what cost and so on. And it is only natural for, in a very open community like Hong Kong, this sort of discussion goes on in public. But I'm very confident that at the end of the day, things will move forward, and that the original target I set for Hong Kong by 2005-the quality of air in Hong Kong will be the same as New York and London can be fulfilled. I'm very confident of that.

Question: Mr Tung, I may not be the supporter of your critics but I would like to ask a question on their behalf. In the Policy Address, you have been talking about innovation and technology, environmental control and the education, These are, to them, longer term solutions. Do you have any shorter- to medium-term solutions for them?

Mr Tung: I think, if you are addressing innovation and technology specifically, short-term solution is to look at your company and say, "wow, there it is" and hope you would do much better and few more companies come along. Yesterday, I was talking with someone who's involved in information technology and I asked him, I said, how many start-ups are there in Hong Kong. And he was saying to me, he thinks it's anywhere between three to five hundred already, doing different things in Hong Kong, which is really quite encouraging. I then said how many have succeeded. He said it's too early to tell you. But things are beginning to happen. You know, on the issue of environment, we need to get on with it. I'm sure we'll get the things done. It's not going to be without difficulties. In the short term, if you are thinking about creating jobs, actually environmental protection itself is an industry. In Asia, many countries are lagging behind in this area anyway. If we put our act together, we can probably, you know, do well to make that part of the industry as part of our pillar. It's something which my colleagues in the government is now looking at very seriously. How to organise the community to move in that direction. We are moving forward in all these areas. I'm afraid many of the things, like education, is all going to take time to achieve our vision. But if you ask me, are there some short-term achievements or medium-term achievements, for instance, I was saying to somebody when I first assumed the responsibility, I said, we must have 100 per cent full-day schools for all the primary students. And I set the target of 2007. And by, I think, 2003, we will go to 60 per cent. Well, I'm happy to tell you this year, we are already at 32 per cent. So it's moving forward very well. Are there some short-, medium-term achievements? I think there are a lot. Unfortunately, it doesn't quite come out in the newspapers. That's all. You know, in the last two and a half years, the government has actually been able to create home ownership in the public sector for 100,000 families. One hundred thousand families. And if you think about the total ownership of about a million, just slightly over a million, a hundred thousand in two and a half years is a lot. But we have set these goals and we are moving ahead well. We have also said, you know, there are people waiting for seven years to go on these public rental housing. You know, we are moving very, very rapidly forward and I have every confidence that we are making tremendous progress every year. By 2005, we will be down to three years as it has been promised. So all these things are happening. And the government needs to do a lot better job in telling the public that we are doing all these things. Thank you very much.

(In English only)

End/Wednesday, October 13, 1999

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