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Follows is a speech by the Chief Executive, Mr Tung Chee Hwa at a lunch organized by the Asia Society at Waldorf Astoria Hotel, New York (April 6, Hong Kong time):

Ambassador Platt, distinguished guests, ladies and gentlemen,

Thank you for those kind words and a very warm New York welcome. I always love coming back to this great city. It has so much energy and it is so dynamic. It is home to me and to my wife. We were here for almost eight very happy years. And in between bringing up our children I took great interest in the Yankees, and the Giants, the Jets and the Knicks. It's been two and a half years since I have last been back and really I can see things have changed for the better here in New York. Of course some things never change. It still took me more than 15 minutes to get across town from East River Driveway to Madison Avenue. But really, Central Park is as beautiful as ever. And Wall Street, its ups and downs, continue to mesmerize the whole financial world. But it is a great city. It's a great feeling to be back here in New York.

The last time I was in New York it was September 1997, a little over two months after the Handover. It was my first trip the States as Hong Kong's Chief Executive and I spoke at a lunch hosted, as it is today, by the same organizations in this very same hotel.

Since then a lot has happened in Hong Kong. We have had to face not one, but two distinct challenges as a community. The first was political, and that was how to make a success of the untested concept of 'One Country, Two Systems'. The second was economic, and that was how for Hong Kong to achieve a recovery from the longest recession in our history brought upon us by the Asian financial crisis. That these two challenges were with us almost simultaneously made our work much more difficult. Today, however, we can take pride in the fact that with the support of the entire community we have met these challenges head on and in the process emerged with renewed strengths.

Anybody who has been to Hong Kong since the Handover can see that 'One Country, Two Systems' has been transformed from a concept into an everyday reality. It is working well. We have been given maximum support from our national leaders. At the same time, it has been made clear time and again, that it is up to us in Hong Kong to chart our own course - Hong Kong people running Hong Kong with high degree of autonomy as stipulated in the Basic Law.

Everything that has happened in Hong Kong since the Handover rests squarely on the shoulders of people in Hong Kong - people like me, members of the Executive Council, the Legislature, the Judiciary and my colleagues in the civil service. We are the ones who have been making the decisions. The Basic Law provides a constitutional framework for the Hong Kong Special Administrative Region. It clearly prescribes the social and economic systems in Hong Kong, which are different from those in Mainland China. It guarantees the independence of our judiciary. It allows us complete financial autonomy, and an independent monetary system.

Our political structure is evolving in accordance with the provisions of the Basic Law. The first election of the legislature was held in 1998 and the second one will be held later this year.

The evolution of constitutional law in Hong Kong has also been a new experience for us and our international supporters. Since July 1997 we have had, for the first time in our history, a written constitution. Parts of the Basic Law have already been tested in our courts - this is no surprise given the importance that Hong Kong people place on the rule of law. These challenges, and the robust public debates on rule of law issues that have accompanied them, are a healthy sign. It shows that the rule of law remains intact; and that constitutional issues can be justly and efficiently dealt with by Hong Kong's independent Judiciary.

In addition to high-profile constitutional cases, every year, hundreds of thousands of cases are dealt with in same way as before the Handover. We have a tried and tested legal system, that is easily understood and trusted by Hong Kong people and the international community. We fully understand that our common law system is one of our greatest strengths - a bedrock of our success - and that we must, and will, do everything we can to protect the rule of law in Hong Kong.

So, 'One Country, Two Systems' is working well in Hong Kong. We are proud of what we have achieved in almost three years since Reunification. But it would not have been possible, really, without the support of Hong Kong people, the international community and the unwavering determination of the Central Government to make the 'One Country, Two Systems' a reality.

This brings me to the second challenge we have had to face since the Handover and that was how to recover from the recession caused by the Asian financial crisis. In two successive budgets, we introduced tax cuts and freezes or reductions in government fees and charges as a means to encourage consumer spending. We also decided to proceed with massive investments in infrastructure such as roads, railways and schools, not only as a means to stimulate the economy but also as a way to build a better future for our community. With the recovery of the regional economy in Asia, and the strength of the economy in North America, Hong Kong's economy is now rebounding strongly.

The recovery in Hong Kong has been led by increases in trade, tourist arrivals, government investment and consumer spending. The fourth quarter of 1999 grew at an impressive rate of 8.9 per cent. For the year 2000, we forecast our economy will grow by 5 per cent. Although our unemployment rate of 5.7 per cent is still high by Hong Kong standards, the economic recovery is well on the way.

By all counts, we have managed the challenges we faced well. However, while we were devoting attention to managing these challenges throughout the past two-and-a-half years, we also continued to keep our eyes firmly focused on the future. How to meet the challenges of the knowledge-based society of the 21st Century? How to achieve equitable, sustainable and long-term economic growth? Where do we want to be as a community in 10, 20 or 30 years time?

From the very beginning, we recognized that as we move into the 21st Century, we are faced with yet more far-reaching challenges. First, the world's economy is becoming more globalized as a result of free trade and advances in information technology. Second, the Mainland's success in reform and the implementation of open-door policies in the past two decades has brought about changes in the economic relationship between Hong Kong and the Mainland. Third, Hong Kong's economy is now undergoing another round of economic restructuring. New challenges and opportunities are emerging. Let us take a closer look at these challenges.

International trade has become increasingly open in the past 50 years. New technology, particularly advances in information technology, are not only changing the way we live, but also the way we do business. Transaction procedures have been streamlined. Suppliers from all corners of the world can now engage in keener and more direct competition. We in Hong Kong will only be able to compete successfully in the world market if we can provide a wide range of high quality, innovative and technologically sophisticated products and services, and have good access to information.

Two decades of rapid economic growth in the Mainland have continued to narrow the gap between Hong Kong and the key cities there. The Mainland has a wealth of talented people. Their knowledge and capabilities in many areas have advanced rapidly as a result of extensive international exposure in recent years. Their diligence and frugal lifestyle also give them a competitive edge. Unless we in Hong Kong consciously improve, our lead will disappear. We are faced with great challenges. But we are also seeing great opportunities. According to the World Bank, China's gross national product currently ranks 7th in the world, and will rise to 3rd or 4th place by 2020, with an enormous cumulative growth in the interim. Nothing can stop China's advance. And as China's economy grows, Hong Kong stands to benefit greatly if we can play an active part in this process.

With the bursting of the asset price bubbles, and currency devaluations in some Asian economies during the financial turmoil, competition in the region has intensified. Hong Kong cannot count on a recovery led by asset inflation. Also, some labor-intensive service industries have followed the lead of the manufacturing sector and moved to the Mainland or overseas. These factors, together with globalization and the development of the Mainland's economy, are leading to another phase of economic restructuring for Hong Kong.

A little over two years ago, I announced the formation of a Commission for Strategic Development to help Hong Kong formulate a long-term plan for the future. Drawing on the commission's advice, we will position Hong Kong, not only as a major city in China, but as the World City in Asia, with a status comparable to that of New York in the Americas and London in Europe. New York and London are cosmopolitan cities with a great depth of talent in culture, technology and education. They are vibrant economies and possess the financial strength to serve the region and the world in areas such as finance, trade, tourism, information and transport. They are also home to numerous national and multi-national enterprises. Their solid economic foundations have made it possible for their residents to enjoy a relatively high average income.

Hong Kong already possesses many of the key features common to these great cities. For example, we are already an international finance center, a popular tourist destination and hold leading positions in trade and transportation. These are all pillars of our economy. If we can consolidate our existing economic pillars and continue to build on our strengths, we should be able to become world-class. Then, like these cities, we will play a pivotal role in the global economy, be home to a host of multi-national companies and provide services to the entire region.

Indeed, we are consolidating our economic strengths. In order to ensure our position as an international financial center, we have unified our stock and futures markets and clearing houses to make them more efficient; we are striking strategic alliances with other stock exchanges to allow the cross-trading of shares around the world; we have a new Growth Enterprise Market modeled on the NASDAQ which is proving very popular for new companies, especially high-tech ventures, to raise capital; we have brought in a whole range of measures to make our monetary system more open and transparent which has reduced significantly the risk of currency speculation; we are bringing in a multi-currency clearing system to allow real-time settlement of financial transactions, initially in US Dollars but geared for other currencies if there is demand.

We are already a favored tourist destination in Asia, with more than 10 million visitors annually. But we want to do a lot better. We are developing an international wetland park adjacent to a world wildlife heritage site; we are paying more attention to Heritage and eco-tourism; and we are going to transform the face of our water-front, to make the best use possible of our greatest natural asset, Victoria Harbour. At the center of the tourism efforts is our success in bringing the Disneyland to Hong Kong. Disneyland will open in Hong Kong in 2005.

Hong Kong is already the busiest container port in the world, with a throughput of more than 16 million twenty-foot units 1999. Furthermore, with the opening of the new airport in 1998, our position as a major center for air travel has been enhanced. Our international air cargo throughput is the highest in the world. We are implementing a liberal policy for air cargo services to further develop Hong Kong into an international and regional air cargo hub.

Hong Kong is a favorite location for multi-national corporations seeking to establish a regional base in Asia. In 1999, there were 2,490 regional operations in Hong Kong, more than any other city in Asia. We are acutely conscious of Hong Kong's high costs compared with some of the other cities in the region. Housing costs have been reduced substantially and greater efficiency is being gained by the wider use of information technology. Fortunately, competitiveness is about more than just costs. Low taxation, clean and transparent government, a trusted and easily understood legal system, ease of access are all factors. In all these areas Hong Kong excels in Asia.

One of the greatest advantages in developing Hong Kong into a world class city are our links with the Mainland China. Over the past 20 years, Hong Kong has benefited greatly from China's open door policy. With China's accession to the WTO, Hong Kong stands to gain greatly. Inward investment into China will also make quantum leap. As one of the major conduits in these areas, Hong Kong stands to benefit.

So, too, do the more than 1,100 U.S. companies which have invested over US$21 billion in Hong Kong. The American Chamber of Commerce in Hong Kong - the largest AmCham outside of the U.S. - has long supported China's entry into the WTO. No doubt U.S. businesses will make good use their presence in Hong Kong to leverage the significant opportunities created by China's entry to the WTO. It has been estimated that China's trade as a result of accession will double within the next six years. So, even if the U.S. market share remains unchanged, U.S. exports could grow from US$21 billion in 1999 to US$42 billion by 2006.

However, U.S. market share will likely increase, given the strength of American companies and the substantial openings in the Mainland market in many U.S. priority areas. There will be big tariff reductions for many goods and significant liberalization in the services sector. Areas covered will include agriculture, high technology, chemicals, wine, wood and paper, autos, banking, insurance, telecommunications, distribution and trading rights, audio-visual, professional services and travel and tourism.

I would also point out that China's accession is not simply about business opportunities. It is also about strengthening economic stability in the region. It is about ensuring that differences on trade issues are resolved sensibly. It is about developing the global economy on responsible, rules-based principles. It is about maintaining the steady momentum of growth for the betterment of everyone in the world.

It is surprising to me that there is so much debate here in the U.S. on the issue of PNTR for China. The U.S. trade agreement with the Mainland is a win-win for U.S. businesses. China will be opening up its markets quite dramatically, while the U.S. need not make any concessions. China is set to become a member of the WTO. The issue is whether U.S. business will be able to participate in the Mainland's substantial market opportunities. At the end of the day, I am confident that Congress will make the right decision in the interests of the U.S - in other words, a positive vote for PNTR.

Another driving force in our bid to become a World City is to embrace innovation and technology in the knowledge economy of the 21st Century. The government and the entire Hong Kong community fully recognize that these will be major components of our economic growth. From an infrastructural point of view, through private sector investment, Hong Kong already has one of the most advanced broadband networks in the world. Furthermore, the Government has accelerated the deregulation of our telecom industry providing greater efficiency and lower costs. We have established the Growth Enterprise Market to provide another source of capital. We have liberalized the rules on the admission of talents to provide much needed skills for the knowledge economy. And through the Digital 21 program, the Government is also implementing the electronic delivery of services to our citizens.

We have a US$640 million Innovation and Technology Fund, to encourage joint industry and government development of the IT sector. A Science Park and our Cyberport are both under construction, and the enthusiastic response from the local and international community confirms that Hong Kong is well on the way to becoming a telecommunications hub and a centre for innovation and technology in Asia.

We are confident of becoming a World City in Asia. With a per capita GDP of US$23,200, we are already First World economy. We have first world infrastructure - our roads, railway and telecommunications systems are world class. However, we recognize our weaknesses. And it is in these areas that we really must spend a lot of time and look elsewhere, to places like the U.S., for ideas and inspiration and examples of best practice.

One area is education. The education system in Hong Kong, as it is now, will not be able to meet the challenges of a knowledge-based economy. We are in the midst of a far-reaching study on education reform that will hopefully transform the way our students learn and think. We must make learning a more enjoyable, responsive and creative process for our young people and instill in them a desire for life-long learning.

We also must do much more to improve the quality of life in Hong Kong. In dealing with the air we breathe, in dealing with the sewage and waste we produce, the Government has outlined a very ambitious program over the next five to 10 years to achieve a standard comparable to other cities in the world.

Hong Kong's need for environmental technology, especially the technology of clean transport, is more pressing than any other city. We have higher population densities in our main city area than any place else on the planet. Already nearly 90 per cent of our passengers move around on public transport, but we need to make that transport a lot cleaner.

We are also determined to improve the quality of homes we live in, and the soft side of culture, art and leisure - all the things associated with a great city like New York. I am determined to make Hong Kong one of the most attractive cities in the world in which to live and work.

At the dawn of the 21st Century, I see China's economy continuing to grow, and in time become one of the largest in the world. I see the economy of Asia recovering from the impact of the financial turmoil of the past two years and actively re-emerging in size as large as that of the European Union or NAFTA. Hong Kong, with our unique relationship with the Mainland of China, and our prime position within Asia - within five hours flying time of more than 50 per cent of the world's population - is ideally situated for those who wish to participate actively in this growing nation of economy.

The U.S. and Hong Kong have always had a close and special relationship. There are more than 1,100 U.S. companies in Hong Kong, of which about 500 have established a regional headquarters of office in Hong Kong. More than 50,000 American citizens are living in Hong Kong. Tens of thousands of Hong Kong people have emigrated to the States, while thousands of our youngsters are studying here in your schools and universities. These very strong people-to-people bonds are a great asset for both of us. And I hope we can use these existing bonds of family and friends, as well as business, to take our relationship to new heights in the 21st Century.

A lot is happening, a lot will be happening in Hong Kong over the next few years. But what we are doing now is simply laying the foundations for Hong Kong to really surge ahead in the next few decades. We want to develop a Hong Kong that is mentioned in the same breath as New York and London - a World City without parallel in its time zone and continent.

You would, of course, expect me to upbeat about Hong Kong's future. But I would also say come and see for yourselves, do your own research. I am sure that you will come to the same conclusion as I - that Hong Kong is destined for even bigger and better things.

Thank you.

Photo : The Chief Executive, Mr Tung Chee Hwa, is greeted on his arrival at New York's La Guardia Airport by China's Consul-General in New York, Mr Zhang Hongxi.

Ends/Thursday, April 6, 2000

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