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Following is the transcript (English only) of the Financial Secretary, Mr Donald Tsang, at the press conference organised by the World Economic Forum in Singapore on October 19:

Moderator: Ladies and Gentlemen. We are pleased and honoured to welcome Mr. Donald Tsang who is the Financial Secretary of Hong Kong SAR. The Financial Secretary will make some remarks and then he will take your questions.

Donald Tsang: Thank you, maybe I'll just say a few words about the recovery of Hong Kong. There have been quite a lot of figures and data describing the recovery of various East Asian economies after the international financial crisis. There are some who would compare the figures on quarter on quarter and some on year on year. But it is quite clear a lot of us, all major economies are now recovering. But it would be useful perhaps I start off from a provocative note to compare how we have been doing individually as economies now in terms of GDP. Compare that set of figures with how we did in our golden era of the Tigers, Asian Tigers. And the golden era of the East Asian Tigers took place in late 1996 or 1997. We take those two sets of figures as benchmarks and compare the performance of all individual economies now in Asia. Now if you take, when I measure these things, of course, I have to use a common denominator, which is in US dollar terms. How we did in 1996 and then how we are doing now. If you compare our performance now by taking 8 economies outside Japan that is, Hong Kong, Singapore, Taiwan, South Korea, Thailand, Malaysia, Indonesia and Philippines. If we take it our present performance of productivity in GDP, compare our figures and performance in 1996, you will find that all of us have contracted. None of us have really regained the past glory, so to speak. Hong Kong has contracted about 1%, Singapore has contracted about 9%, Taiwan has contracted about 1.1%, South Korea 32%, Thailand 38%, Malaysia 33%, Indonesia 74% and Philippines 27%. So although we are recovering, we are not quite recovering fully. If we compare our present performance with 1997 again it is interesting the best performer is Taiwan. It's not Hong Kong anymore. It has contracted about 3.2%. Hong Kong ranked number two has contracted 5.7%. Singapore has contracted about 10.9% and Philippines 22.6%, South Korea is 24.9%, Thailand is 27%, Malaysia is 31.7%, Indonesia 71.1%. So, all of us have contracted in US dollars terms so within this period. But the recovery has been quite steady. In Hong Kong you can see that both the securities market and the properties markets have recovered and are stable. The balance of payment is quite respectable and in the positive. Fiscally we are still enjoying our fiscal reserves of about 400 billion HK dollars. In terms of foreign exchange reserves, the reserves level now stands at about 91 billion US dollars. We have now almost towards the finality of merging our stock exchanges, we have completed our reform, more or less in the banking sector and we are continuing on with our surge of new activities in the IT field. So, the financial crisis in 1997 and 1998 has spurred us to go into new areas and enabled us to focus more clearly in our position in the 21st century. What we want to be as described in our Chief Executive's policy address, to be the global, the world city in the next century. In that context, I spoke earlier today about the need to look at corporate governance which is very important at the end of the day in getting fundamental recovery in the respective economies. Perhaps, I stop here having been provocative and listing how we have been doing and I'll be quite happy to answer your questions.

Question (Mr. Soh Say Peng from SAFRA Radio): Mr. Tsang, now that the East Asia is recovering, what do you think Hong Kong can play in this process? What do you think the role of Hong Kong can play in the recovery?

Mr. Tsang: Hong Kong has a service economy. We are not a manufacturing economy but we have a major international financial centre in the sense that we would continue to be an area where international finance community can raise funds and make investments. In Asia in particular, I see that the development of the debt market which is now in earnest in Hong Kong and also in a process of running into the same development as well in Singapore is very useful, and I have been saying quite a while that the lack of a deep and liquid debt market in these region is one of the causes of the financial difficulties in meeting short-term balance of payment difficulties in certain countries here. So, in that area Hong Kong is quite happy to play a very active part to be the intermediary of debt instruments to generate funds for balance of payment needs. In addition to that, we are very active in regional forum and international forum in looking at ways in which to strengthen our international financial architecture and upon which I touch on earlier today. Not only that we would need to strengthen the international financial institutional structure; we also have to look at individual sovereign economy architecture. Look at how well they are conducting their fiscal affairs, whether they regulate the banks properly and so on. And I also mention the need to inject a higher dimension, higher level of transparency and disclosure in international capital flow. In this area we are working hard to engineer some sort of international consensus.

Question (Mr. Sebastian Tong from Bridge News): Can you tell us when and where you'll be launching your investment shows for the track fund?

Mr. Tsang: We have already launched a brand of the track fund known as TraHK and we would be inviting subscriptions next Monday. Ten days afterwards, we'll be determining the pricing of it depending on the market sentiment at that time. So, all these things have been planned out. It would be probably priced on November 8th.

Question (Mr. Sebastian Tong from Bridge News): Would there be investment shows in the region or in the world?

Mr. Tsang: There would be promotional shows, promotional activities by my colleagues in the Exchange Fund Investment Limited in the region and elsewhere, immediately after the launch.

Question (Mr. Sebastian Tong from Bridge News): It would be after November 8th?

Mr. Tsang: It would be. I think we have to talk in terms of the pricing of it. It is very difficult for me to discuss these things in the absence of information on the size of the first traunch, the actual provision, if there is any provision for discount level or whether there will be any loyalty bonus or the actual pricing of it. So, most of these activities will take place after November 8th.

Question (Mr. Sebastian Tong from Bridge News): Any idea where the country or cities that you'll be targeting?

Mr. Tsang: I think we will be looking at... this would be on recommendation of our financial advisers on this. But of course, Asia is certainly one of the catchment areas.

Question (Mr. Zhu from Xinhua News Agency): I have two questions. In the 2nd quarter, Hong Kong's economy has moved from negative to positive growth to 0.7%. What is your expectation of the growth rate for the 3rd quarter and the whole year? My second question is that does the return of Hong Kong to China have any impact on Hong Kong business law?

Mr. Tsang: Business role. First of all, my forecast for the GDP growth for 1999 as a whole has been since March this year, 0.5 half a percentage point growth for whole year. So, for the first half we have seen negative 3, minus 3 for the first quarter, 0.7 for the second quarter. For the next two quarter, I would suggest it would be, the growth rate would be somewhere between 2 to 3 percent, making the whole year average of about 0.5%. I would be reviewing this figure in the third quarter of this year. As far as the Hong Kong role is concerned, that is enshrined in our constitutions. Hong Kong is an international financial centre and would be the international financial centre of China as a nation, that was Hong Kong's role. We have shown to the rest of the world how we performed that role during the last two years, operating independently, autonomously in the economic and financial field. That will continue to be our role, we would be doing our own things. In other words, we are doing this independent of China. We have two separate economic systems and two different financial systems. We have two currencies for that matter. For that reason, the business, the way we conduct business in Hong Kong has not changed since the handover and will not change.

Question (Mr. Barry Porter from South China Morning Post): You said just now at the end of the 3rd quarter, you would review your whole year estimate. Are you likely to revise it upwards or downwards based on current ...?

Mr. Tsang: I do not want to speculate at this stage because earlier in the year when I announced that we should make 0.5% everyone said that I was over optimistic. I still have lots of press cuttings on that showing that I was wild. Now, that I have got attacks that I've been so pessimistic, I was not rather worthless in this and I should be a lot more bold in coming up with higher figures. I would wish very much to preserve my own position until I've seen the third quarter figure, which I normally do when I have it, but I would be very cautious in forecasting. One thing I have learnt in the financial crisis is the economical performance has surprised me enormously. The speed of which the GDP of Hong Kong has fallen during the bad months has been most remarkable and the speed of which we recovered also is quite remarkable too. So, I'm not going to move my figures nor do I wish to speculate at this stage but I would certainly would be looking at figures when I have the third quarter figure.

Question (Jack Sung from Television Corporation of Singapore): Yesterday, Malaysian Prime Minister advocated an East Asian Fund. Can I get your opinion on that and would Hong Kong likely be playing a leading role if such a fund is established?

Mr. Tsang: Well, it was not the first time that it has been mooted, in fact, it was raised even as early as 1997 when the trouble in Thailand emerged. The question of East Asian fund depends on its composition, its utility, particularly whether it would create a question of moral hazards, whether it would be created and the resources dispensed at using criteria less robust than those dispensed by the IMF. So, these are the questions one would have to look at but I think any initiatives would help. This is a problem we are facing unless there are early international agreement on how to deal with financial crisis of the kind we have seen in Asia where there are likely to be regional initiatives as I said, if not, individual economies' initiatives as well. But Hong Kong being a regional player, we would be interested in any initiatives and will be looking at these things in a professional and objective fashion.

Question (Christopher Donville from Bloomberg): There was a report in one of the Hong Kong newspapers today that you may be thinking about modifying the size of the tracker fund or the number of units for sale because of the recent decline in global equity prices. Is there any truth to that report or are you thinking about making changes to the tracker fund?

Mr. Tsang: There's absolutely no truth in that article at all. All I can tell you is nobody in Hong Kong knows the size of the first traunch. Certainly I do not know. I deliberately try not to know and I have instructed all my colleagues not to come up with any firm preconceived ideas. I want to decide on this matter in the light of prevailing circumstances, two to three weeks down the road. In other words, a day or two on the actual announcement of it. So the size of the tracker fund, the amount of discount we're likely to give away, that we've any discounts we give at all, or whether there'll be any loyalty bonus and how we deal with the subsequent traunches is a matter for decision much later on. What the press reports have said about that there were emergency meetings looking at all these things is all falsehood, if I may say so.

In fact it said that there was an emergency meeting held on that night, and in fact I was in a concert.

Question (Mr. Christopher Donville from Bloomberg): Last year you were roundly criticized for your intervention in the market and people questioned your commitment to free market, etc. And I'm wondering now, more than a year on when you look around the region, I'm wondering what your thoughts are on the kind of criticisms that you had to take to branch off, and whether it has changed your thinking at all on how people regard Hong Kong or the role Hong Kong would play as a financial centre in Asia in the coming year.

Mr. Tsang: The way in which Hong Kong market has recovered since August last year when we made the incursion in the stock market has indicated the world has accepted that there was a necessity, that the market at that time was close to collapse, and it would be much better to have a market to trade rather than no market at all. So the criticism was quite understandable because (it was) rather than an exceptional step for Hong Kong to take and for us it was a last resort. So it was not something that we are exceedingly proud of, but it was something which was absolutely necessary. And even with hindsight, I cannot see any other option to it except of course impose foreign exchange control, which we do not believe is a viable option for Hong Kong, being an international financial centre. Now, I think the world has generally accepted that we've done so in treating the incursion honestly, openly, transparently and now we have outlined the way in which we are disposing of the portfolio again in an honest and transparent fashion. I was in America not too long ago in connection with the IMF-World Bank meeting and I am happy to note that the critics are very few and far between. And those try to say that we did something good was quite visible as well. But I'm not drawing any conclusion. What I'm saying is that Asia saw an enormous change in the finances of the region in 1997-1998. It was perhaps the worst crisis we have seen since World War II, so there it is only probable that each and every economy affected has to take some exceptional measure. And Hong Kong did something. But we as usual try to do it transparently, as I said, openly and we have accounted for what we have done. And we've taken measure to revamp the re-occurrence of this kind by strengthening, by enlarging our monetary base, by strengthening further our banking system, opening up more in fact our banking system and our securities market. And I think we've been behaving like quite a responsible financial citizen in the world.

Question (Mr. Barry Porter from South China Morning Post): Later today you'll be meeting Lee Hsien Loong and Goh Chok Tong, are there any bilateral issues you like to raise?

Mr. Tsang: We consider ourselves a good companion and partner in the recovery process of Asia. So there will be interesting subjects we would wish to canvass. But you might not realize in fact that Singapore and Hong Kong have been working together on a number of issues. In addition to bilateral exchanges, we have mutual appointments to committees. A number of senior Hong Kong public officials have been appointed to the Singaporean statutory boards, and a number of Singaporean senior officials have been appointed to Hong Kong statutory boards. And we've been looking at each other's system and we are now going into a memorandum of understanding on a number of fields including IT and education. We have, I think, a lot of things in common. We've done own soul searching looking into the future, positioning ourselves, looking not at each other as rivals or competitors rather, but as a companion and partner in the new century, finding our own position and competing with the rest of the world.

So I'm sure I've a few things to discuss with the Prime Minister and the Deputy Prime Minister later today.

Question (Mr. Sebastian Tong from Bridge News): I would like to clarify something, Sir. Did you say that the 3rd and 4th quarter growth could possibly be 2 to 3 per cent?

Mr. Tsang: Correct. On average of 2 to 3 per cent.

Question (Mr. Sebastian Tong from Bridge News): So averaging out...?

Mr. Tsang: 0.5% for the whole year.

Question (Mr. Christopher Donville from Bloomberg): Is that 2 to 3 per cent represented change in your view at all?

Mr. Tsang: No. No. Mathematically it worked out that way too.

Question (Mr. Barry Porter from South China Morning Post): You mention IT and education, can you explain what they are?

Mr. Tsang: Further cooperation in curriculum cultivation in exchange of information. If you want detailed information, I would suggest South China Morning Post contact KC Kwong or Joseph Wong on (your) return to Hong Kong. I think they know a lot more than I do.

Question (Mr. Matthew Saltmarsh from Market News): Between yourself and Singapore have been talking for many years about developing the debt market in the region and yet very little by way of initiatives. Could you tell us how those discussion are going at the moment, are we expecting anything concrete?

Mr. Tsang: Well we are working hard in Hong Kong ourselves. For instance we have put our exchange fund papers on the stock market, we have put the MTRC debt paper on the market, we are going to have a mortgage corporation paper traded in the market, and we're definitely putting the track fund which we are going to launch later in November onto the market, that will be listed. So, at the same time, we are providing a legislative environment to enable debt instrument to be traded in a viable fashion. We're doing quite a few things, but it depends on people's appetite. If people prefer to gamble and find equity more interesting, more exciting, it is difficult to push people into fixed income instrument.

But I think the financial crisis has taught us one thing. Maybe our savings, investments of our savings should be more balanced. Partly it should be in the banks, perhaps partly it should be in equity, and partly it should be in fixed income instruments like debt too. And again in the context of other initiatives particularly from Japan, they are thinking of issuing papers also in other territories denominator in Japanese yen in Hong Kong and Singapore. That we'll welcome that as well. As I agree with you, the speed of which this matter is being realized is slower than I had anticipated. But I'm afraid that it is a matter for the market to decide.

On our part in Hong Kong, we'll put in the infrastructure. We'll put down the legislative framework, we'll welcome the trading of debt instrument in Hong Kong in any, any kind of currency and any denomination. And we'll make sure that the transactional costs will be as little as possible in Hong Kong.

Question (Sebastian Tong from Bridge News): Given the present state of the market in the US stock market right now, do you think that it will affect the prices of the track fund?

Mr. Tsang: Well, I'm not concerned. The track fund is not a flash in the pan. It is a long term thing, in that we would be selling the first traunch whatever happens because I'm not there to make profit. I want to have a regulated disposal in the sense that it will not cause any rupture in the market. So that will not deter the timing of the launch. But as far as appetite is concerned, market comes and goes. And I think we must have a plan, if the market lacks appetite to absorb the entire portfolio through the track fund route, then we've to think of some other route for disposing of it.

Question (Mr. Christopher Donville from Bloomberg): The economic recovery in East Asia so far has been a V-shaped recovery, I'm wondering what you think is the likelihood of the possibility that we may ultimately experience a W-shaped recovery that it tails in the bottom or another dip.

Mr. Tsang: Well, I've been using this terminology before, whether V or V W recovery. It largely depends on external factors. External factors are how the American market is, whether it continues to be robust, how Wall Street will be performing. And also whether the recovery in Japan is durable. These are the two main factors affecting the speed of East Asian economies outside Japan. I'm afraid these are, they would remain uncertain for a couple of months at least.

Well thank you very much for coming. And I hope to see you in Hong Kong and I welcome you there too.

End/Wednesday, October 20, 1999

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