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Following is the keynote luncheon speech by Mr Stephen Ip, Secretary for Economic Services, Hong Kong Special Administrative Region at the Seatrade Hong Kong Conference today (Tuesday):

"Hong Kong - International Cargo Hub and Logistical Springboard to China"

Mr Vokos, Distinguished Guests, Ladies and Gentlemen,

I am honoured to be invited to address such a distinguished gathering of leaders in the maritime sector. Let me begin by congratulating the organizers who have worked very hard to bring this Seatrade Conference to Hong Kong, and to Intercargo for holding their annual meeting in Hong Kong in combination with Seatrade.

In addition to this major shipping conference, I have spoken at a number of other maritime events in Hong Kong recently, such as the International Bunker Symposium and the Maritime Asia Awards. Someone remarked to me recently that when I am not talking about Mickey Mouse, I am talking about shipping. What is the connection? Before you jump to any conclusion, let me make my point clear: just as Disney has chosen Hong Kong as the location for their third theme park outside of the United States because of the huge market in Asia, I can see that shipping businesses are likewise seeing their future in Asia, and looking to locate offices in Hong Kong.

International Cargo Hub

There are good reasons for international cargo businesses to choose Hong Kong as their base of operation. Trade is the backbone of the Hong Kong economy which is why shipping is so much in our business blood. Just last week, the Heritage Foundation released its 2000 Economic Freedom Report and again honoured Hong Kong as the freest economy in the world - for the sixth year in a row. Apart from playing the role of channelling investments and managerial skills into the economic zones of Southern China, Hong Kong, with its strategic location and comprehensive link with the outside world, provides the main conduit for the movement of raw materials into and finished products out of the numerous factories and manufacturing plants in Southern China. This has led to the rapid expansion of the Hong Kong container port and air services.

Today, apart from operating the world's busiest international cargo hub, handling nearly 2 million tonnes of air cargo this year, we also operate one of the world's busiest container ports, handling an estimated 15.6 million TEUs this year with some 460 liner services per week to 170 destinations in the world. In terms of total shipping, we expect over 210,000 ship arrivals this year. To cope with the expected growth in demand in the coming years, tenders for the construction works for Container Terminal Nine will be invited soon with works scheduled to begin in early 2000 to provide six additional berths, bringing our port capacity up by 2.6 million in the next five years.

Our container port at Kwai Chung is well served by our extensive road network. Expressways and local roads connect the port to the boundary, the whole of Northwest New Territories and other parts of Hong Kong. To serve the new Container Terminal 9 in Tsing Yi, we have in place the Duplicate Tsing Yi South Bridge to meet the port traffic needs. An additional multi-billion dollar Deep Bay Road link will dovetail with a new Shenzhen Western Corridor to double the capacity of our boundary crossing facilities. These will be completed by 2005. Moreover, action is in hand to construct Route 9 to connect Tsing Yi to the industrial area in Cheung Sha Wan. This 7.6 km and HK$14 billion project will be completed in 2006.

Apart from the road links, the Government is studying the need for expanding our railway network. The Second Railway Development Study is being conducted to examine the feasibility of a Container Port Rail Line, the strategic function of which will be to support the long-haul freight transport needs between Hong Kong and our hinterland. In examining its feasibility, we will review the trend of port cargo growth and the competition that the port rail line might bring to other modes of freight transport.

The Hong Kong Port and Maritime Board was established in June 1998 to advise Government on measures to strengthen Hong Kong's position as an international shipping and maritime centre and a leading port in Asia. Members of the Board and its working committees consist of experienced shipowners, ship managers, port terminal operators, bankers, brokers, insurers and maritime lawyers. The government will continue to work closely with the Port and Maritime Board and the maritime community to enhance the business environment and to make it more attractive for shipowners to invest in Hong Kong, and to make our port more user friendly and efficient. In this connection, I should mention that I initialled a double taxation avoidance agreement on shipping with the Government of the Netherlands yesterday to provide further tax benefits to shipowners based here. More agreements are on the way. Similarly, the Airport Authority will work closely with its business partners and the Government to further improve the airport services and facilities. We will continue to expand our air links by negotiating new air services agreements in addition to the 37 agreements we have already signed. We will also progressively expand traffic arrangements with our existing aviation partners.

Gateway to the Mainland

We have a vibrant domestic market, but our primary status as a cargo hub port is derived from our economic relationship with the Mainland. Geographically, Hong Kong is located at the entrance to one of the most dynamic manufacturing regions in the world, the Pearl River Delta, consisting of some 480,000 factories, employing over 5 million workers and accounting for 40% of the total exports of the Mainland. Hong Kong is the Mainland's largest investor and third largest trading partner. Many of the factories there are joint ventures between Hong Kong and the Mainland.

At the moment China is the seventh largest economy in the world. China's imminent accession to WTO will bring more trade and investment flows into China in the longer term. Along with these will be the inflow of technology and management know-how. Entry to WTO also means access to a consistent and transparent framework for the conduct of trade. A more open and certain environment helps to reduce transaction cost and promote efficiency. Given that Hong Kong is the most important entrepot and business service centre as well as the largest source of foreign direct investment in the Mainland, Hong Kong will have much to gain from the spurring effect of China's WTO membership on its trade and investment with the rest of the world. Moreover, greater protection accorded by the WTO membership against unilateral trade actions by others will mean less negative spillovers arising from trade disputes between the Mainland and its trading partners. The gateway value of Hong Kong will not diminish. Hong Kong companies are known for their efficient operations, rich experience in import/export and distributive trades, and good business networking with the rest of the world. Moreover, Hong Kong people have a very close cultural and language semblance with people in the Mainland and excellent knowledge of the Mainland environment. Due to these advantages, Hong Kong companies should be able to secure a significant share of the liberalised trade in the Mainland. Our professionals can contribute to the modernisation of China's business and legal systems. More businesses can be derived in accounting, auditing, advertising, computer applications, management system, and finance (such as fund raising and share listing). Hong Kong companies can capitalise on their well-established business network in the Mainland to help facilitate foreign direct investment inflows into the Mainland.

Hong Kong's Role as Logistical Spring Board to the Mainland

Just as Hong Kong has acted as the manufacturing springboard into China for the last 20 years, more recently we have taken on the same role for service industries such as transport and logistics. Hong Kong provides shipping services to 18 major ports as well as 70 river trade ports in the Mainland. On any day some 12,000 container trucks cross the boundary to link with the extensive highway network in the Pearl River Delta. As for air transport, our airport offers some 400 flights per week to about 40 Mainland destinations and is expanding as a logistics base for rapid distribution of express freight to the Mainland. Our new airport is operating very efficiently and has won recognition as one of the finest airports in the world.

The rapid growth of the Mainland's economy, together with its increasing integration with the world, will create a huge demand for the transportation of goods, services and people. One of the main advantages we have as a logistic centre is that we are already a major international shipping and aviation centre. There are over 1000 shipping and shipping related companies in Hong Kong, controlling over 58 million dead-weight tonnes of the international fleet. We are ranked the sixth-largest maritime centre in the world after Greece, Japan, Norway, the United States, and the Mainland of China. Shippers and manufacturers today look for more than an efficient transport service but someone who can take over the hassle of arranging shipments, looking after the stocks and inventories and save money for them in the meantime, i.e. a total supply chain solution, integrating the logistical requirements for manufacturing, freight, retailing and e-commerce.

The Hong Kong SAR Government is committed to providing a conducive environment and the necessary infrastructure for the development of, among other things, logistics business and supply chain management. For instance, we have set up industrial estates which provide low-density land at development cost for industries which meet the prescribed criteria. We are pleased to see that some firms in the private sector have already expressed interest in operating logistics and distribution centres in the industrial estates.

To strengthen our position as an international air cargo hub, the Airport Authority is inviting interested parties to set up logistics centres and a marine cargo transfer centre in the airport zone. We will also see the full completion of our River Trade Terminal in Tuen Mun next month. The Terminal is well placed to be developed as a logistical centre to support the activities of our port.

To support the development of e-commerce and supply chain logistics, we also have excellent telecommunications and IT infrastructure. We have embarked on a progressive liberalisation of the telecommunications market to ensure our economy continues to be well supported by quality telecommunications services at reasonable prices. Our domestic network is already fully digitised, the local broadband infrastructure is developing rapidly to meet growing traffic demands and our external connectivity is among the best in the region. On the IT side, PNET charges for Internet access are amongst the lowest in the world - now only HK$1.62 per hour. There are some 1.5 million Internet users and more than 130 Internet Service Providers. To further enhance our IT infrastructure and improve the environment for e-commerce development, we will be launching the Electronic Service Delivery scheme to provide public services on-line to the community through the Internet and other electronic means in October next year. With the support of certification authorities and a clear legal framework, we will provide a safe and secure environment for the conduct of e-commerce by early 2000.

Hong Kong, with its huge cargo base, comprehensive and efficient links with the Mainland and the outside world, and first-class telecommunications and IT infrastructure and supporting services, is ideally located to organize such supply chain logistics for the numerous manufacturing plants and factories in the Pearl River Delta and the region. We invite you to explore this opportunity.

In closing, I want to say that geography has been very kind to us. In addition to having one of the finest harbours in the world, Hong Kong is located right in the heart of Asia and the entrance to the Pearl River Delta, which has been and will continue to be the most dynamic economic area not just in the Mainland of China but in the world too. Half of the world's population live within five hours flying time from Hong Kong. That means you can have your meeting out of Hong Kong and come back in the same day. In terms of time zones, we are positioned perfectly to cover the financial day between New York and London. Over the past 160 years, we have been taking full advantage of our favourable location to serve as the gateway to the Mainland of China. This role has become even more important today with the growing international trade and rapid expansion of the Mainland's economy.

To stay close to your customers, I hope you will consider using Hong Kong as a base for your shipping, air services and logistical needs in Asia. You are most welcome to contact the Hong Kong Port and Maritime Board and the Airport Authority for more information.

Thank you.

END\Tuesday, December 7, 1999

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