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

Following is the translation of the speech by the Chief Executive, Mr Tung Chee Hwa, at the luncheon meeting of the Newspaper Society of Hong Kong today (Thursday) :

Mr. LEE, Friends from the Press,

I am delighted to have been invited to your luncheon meeting today. I would like to take this opportunity to speak to you about the economy - an issue which concerns all of us. Hong Kong people naturally look forward to economic recovery and sustained growth. I would not speak long and would be pleased to answer your questions.

Economic Recovery

2. In the Policy Address delivered last month, I mentioned that our economy was turning the corner gradually and would continue to pick up. I have also given a brief account of the major internal and external factors affecting our economic development. After declining for more than a year, we recorded for the first time modest positive GDP growth of 0.7% in the second quarter of this year.

3. The Government will announce by the end of this month its assessment of our economic performance in the third quarter. However, as revealed in the forecast issued last week by the University of Hong Kong and Nobel Laureate Prof. Lawrence Klein, our GDP growth in real terms for the third quarter is estimated to be 2.6%, while that for the fourth quarter is 3.8%. It remains to be seen whether the Government's assessment will be in line with this forecast but it is apparent that the performance in various areas of our economy continue to improve in the third quarter. With the recovery of the Asian economy, Hong Kong's exports to these markets have rebounded in the second quarter; there was a double-digit increase in the third quarter. The downward trend of exports to the Mainland has also reversed and a sharp increase was recorded. As for tourism, the number of tourists from within Asia continues to increase. Retail consumer spending recorded positive growth in July and accelerated in August. On the whole, the signs of recovery are now more obvious and the worst is surely over.

4. We have weathered the Asian financial turmoil. In the past two years, the Government has addressed the economy and unemployment as key issues. In the Policy Address, I outlined measures we had taken towards this end, including speeding up the investment on infrastructure, providing tax refund and relief, freezing Government fees and charges, and providing financial relief to small and medium enterprises. When our economy was experiencing negative growth last year, the Government still increased the public expenditure to counterbalance the negative effects of economic decline. We all know that measures to boost the economy and relieve people from financial difficulties take time to materalise and I am pleased to see that the effect is beginning to come through . Although private sector investment is still relatively weak, we are pushing ahead with major infrastructural projects, such as the three priority rail-road projects. These efforts have helped to boost domestic demand and to create more jobs.

Long-term Development

5. As the Hong Kong economy begins to come out of the trough, people are concerned about the sustainability of growth. In dealing with immediate concerns over the past two years or so, we never lost sight of Hong Kong's long-term development strategy. As we approach the new millennium, we have assessed major trends in the Mainland and overseas, and analysed the fundamentals, advantages and weaknesses of Hong Kong. In my Policy Address, I have talked about establishing a clear position for Hong Kong and have mentioned that in addition to an important city of the country, we have to develop Hong Kong into a 'World City'. Hong Kong already has some of the pre-requisites of a world-class city, for example, we are an international financial centre as well as a popular tourist destination. But we need to do more in various areas in order to realise our vision. I have also placed emphasis on "Quality People, Quality Home" in the Policy Address. I will not dwell on the details again. Otherwise, it might take me two more hours to be here. But I wish to stress again we need the support of the entire community in this endeavour.

6. To develop Hong Kong as a world-class city, to sustain economic development and to create wealth and employment opportunities, we must strengthen the pillars of our economy, expand our competitive edge, and develop knowledge-based businesses.

.

Tourism

7. For example, tourism has been one of our economic pillars. It has brought Hong Kong substantial economic benefits. Despite the Asian financial turmoil, we attracted 9.6 million tourists in 1998. This generated a gross income of HK$55 billion , representing about 4% of our GDP. During the first nine months of 1999, 7.7 million tourists visited Hong Kong, representing an increase of 11% over the same period last year. The Hong Kong Tourist Association forecasts total tourists to exceed 10 million in 1999. We are naturally delighted with the rise in tourist arrivals. However, there is still considerable room for development. We should make further efforts to attract more visitors to Hong Kong, to encourage them to stay longer and to spend more in Hong Kong.

8. To strengthen this economic pillar, we continue to take different measures to enhance our competitive edge, including enhancing coordination, reviewing tourism development strategy and infrastructure development. We are considering a number of development projects for enhancing Hong Kong's attractiveness as a popular tourism destination. These projects include:

* an international wetland park at Mai Po Marshes;

* a new world-class performing arts venue at Kowloon;

* a cable car system on Lantau Island linking Tung Chung to the Big Buddha;

* a $500 million 'Adventure Bay' attraction at Ocean Park;

* development of a Fisherman's Wharf in Aberdeen;

* new waterfront promenades on both sides of the harbour; and

* improvements to tourist attractions in Central and Western, especially preservation of characteristic monuments.

9. Two days ago, we announced jointly with The Walt Disney Company the plan to construct a Disney theme park in Penny's Bay on the northern part of Lantau Island. This world-class project is central to the promotion of Hong Kong's tourism and will give the industry a quantum leap.

10. Once completed, the theme park will further strengthen Hong Kong's position as the most popular tourist destination in the Asia-Pacific Region. The theme park is expected to attract 3.4 million tourists in its first year of operation and 7.3 million after 15 years. In net present value terms, the project will generate an estimated HK$148 billion boost to the economy over a 40-year period, representing eight times the total investment that is to be made or a return of 25%. This substantial economic return is indeed very attractive. The development of a Disney theme park will not only attract foreign investment, but also boost tourism and economic development of Hong Kong and provide employment opportunities.

11. We decided to build a theme park on the northern part of Lantau Island as a tourism infrastructure project. The project is market-oriented. It has private sector support and will be developed in collaboration with international investors. We have struck a good deal. This joint venture will consolidate and enhance Hong Kong's position as a World City. It will also provide Hong Kong people with very enjoyable world-class entertainment facilities and holiday resorts.

Enterprise Investment

12. Disney's investment is a vote of confidence and clear indication of interest on the part of international investors in Hong Kong. I would like to highlight some recent major foreign investment projects. For example, we have decided to continue the liberalization of telecommunications and this has met with a very favourable response. As at the end of September, we had received 34 tenders for external telecommunications facilities licences. The majority of these tenders involve long-term investments amounting to billions of dollars and about half of them come from foreign investors who have confidence in Hong Kong.

13. On investments, Cathay Pacific has recently announced its plan to lease three passenger carriers and purchase two air freighters while Dragonair will procure an additional passenger carrier next year and is considering the launching of full cargo services. Both airlines are studying the possibility of expanding their fleets further and are taking active steps to increase the number of their flights. It reflects not only the confidence of local and overseas investors in Hong Kong's future, but the fact that Hong Kong's economy is picking up. The greatest advantage enjoyed by Hong Kong is the enormous Mainland market behind. I believe that in the next five or ten years, we will see more prestigious and successful foreign investment in Hong Kong.

Premier Position

14. Disney's choice of Hong Kong as the third international theme park destination and its investment of equity in a long-term development affirm that Hong Kong holds a premier position and has excellent prospects. From these developments, we can make three observations :

* Firstly, foreign investors have great confidence in Hong Kong's economic prospects. We have successfully weathered the Asian financial turmoil and maintained our economic vigour. Investing in Hong Kong can provide access to the huge market on the Mainland and the business opportunities available. Hong Kong's position as a World City is gaining recognition.

* Secondly, the world recognises that "One Country, Two Systems" has been successfully implemented in Hong Kong. Multi-national enterprises have confidence in this and will continue with their investments.

* Thirdly, the agreement we have concluded with The Walt Disney Company is based on the laws of Hong Kong and Hong Kong has been chosen the place for any arbitration. We are, of course, looking forward to full cooperation with The Walt Disney Company and do not envisage any legal complications. But it is crystal clear that international investors are fully confident about the rule of law, freedom of speech, the openness of our economy and level playing field in Hong Kong. They believe that these advantages of Hong Kong will continue to underpin our success.

Conclusion

15. Ladies and gentlemen, with the efforts we made over the past two years or so, the Hong Kong economy has turned the corner and the various economic measures we have taken are beginning to produce results. The SAR Government will focus both on immediate initiatives and long-term strategies, so that we will have steady economic growth based on a solid foundation and can build an ideal home for the people of Hong Kong. In face of globalisation of the world economy and intense competition, the SAR Government must be able to respond rapidly. We have seen progress in various spheres, and our strategy to stimulate economic development is taking shape. We have consolidated Hong Kong's position as a financial centre through measures such as stabilising the exchange rate mechanism and merging the two exchanges. We are sharpening our competitive edge in tourism by enhancing the coordination, planning and provision of infrastructural facilities. We have taken the lead in encouraging the community to pursue innovation and technology initiatives. We are pleased to see specific investment projects taking shape. We have adopted a liberal policy for air cargo services so as to further develop Hong Kong into an air cargo hub. The SAR Government is making steady progress in realising its economic strategy.

16. The financial turmoil and the consequential economic downturn have given us many challenges, but we must not be pessimistic as a result of short- term difficulties. We have gone past the most difficult period and the way forward is clear. The successful implementation of "One Country, Two Systems", the clear positioning of Hong Kong and the unfolding of our economic strategy will lead Hong Kong to a brighter future.

Photo:Photo shows Mr Tung receiving a souvenir from a representative of the Newspaper Society of Hong Kong.

End/Thursday, November 4, 1999

NNNN