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Follows is a transcript of a question and answer session by the Chief Executive, Mr Tung Chee Hwa, at a US Chamber of Commerce luncheon in Washington D.C. today (April 7, US time).

Q: I have received more questions than one would normally get in these circumstances, and we are somewhat time constrained. I have tried to sort them out. I'll start right off. One of the principal areas of concern and the most questions came on the issue of Taiwan, and really it boils down to what is your message for Taiwan, given Hong Kong's experiences in dealing with the rest of China and the one-country, two-system policies?

Mr Tung: You know, ladies and gentlemen, I arrived in Canada and then the United States hoping to promote Hong Kong, and I end up talking about Taiwan all the time. I have to first tell you that my responsibility is looking after Hong Kong, but because the cross-straits relationship does have an impact on Hong Kong directly, and cross-straits relationship also affects the US-China relationship, which affects Hong Kong again, so I do pay a great deal of attention to what's going on in Taiwan. And on top of that, as a Chinese, like Chinese everywhere, I want to see a China reunited. Of course, peacefully. We all want to see China reunited. So, yes, I do follow closely, and I'll be happy to answer this question.

I think the best Hong Kong can do is continue what we have already done, the implementation, the successful implementation of 'One Country, Two Systems'. My experience and the experience of my colleagues in Hong Kong is that China's National People's Congress enacted the Basic Law, which provided the institutional framework to make 'One Country, Two Systems' possible, and that Chinese leadership is just totally determined to make this work. It is important Hong Kong is successful because it is in the greater interest of China as a whole, so I would want to say that China, at that one country, two systems is a practical reality. It works. Of course I'm not saying that it's the same system that applies to Hong Kong would apply to Taiwan because the situation is different, the background is very, very different. But I would hope more people from Taiwan would come to Hong Kong to see how this is working out. And the other point I would like to make is that we want to see the peaceful unification of the country, and that I know that with 'One Country' or 'One China' principle, negotiation can begin, and I hope the Taiwan leadership will move in that direction. It will be in the best interests of everybody.

Q: Thank you very much. We have had a fair amount of interest on the issue of the Internet, both as it relates to Hong Kong and as it relates to China overall. Specifically, can you give us an update on where you stand with respect to the Hong Kong Cyberport and how that fits in with Hong Kong's e-commerce strategy, part one; and part two, what do you see as being the future of the Internet in China? Is this a force for change or a force for the preservation of the status quo?

Mr Tung: I think for any nation in the future to succeed economically, one has to recognize that the knowledge economy is with us, and that there is no way to resist this change, and that resisting the change will only doom one's own country to failure. So whether it's China or any other country, that the issue is really to embrace the knowledge economy and to manage the change and to move as far forward as possible. My own impression sitting in Hong Kong, looking at it, I think China is also embracing the knowledge economy. Now, in Hong Kong we're moving as rapidly as we can, embracing the knowledge economy. What we have done with the cyber-port, it is part of the strategy. Let me tell you what we have actually done on this.

In order to embrace knowledge economy, we recognize the importance of information technology, so the first thing we did was to increase competition in the telecommunication area so that today telecommunication costs for consumer is one of the lowest in the world anywhere you can find. Second, we have started the work of a Growth Enterprise [Market] board to allow a small or medium sized enterprises a separate way to seek capital, and this has started to work in November, is working reasonably well except given recent volatilities, and certainly we know we're short of quality people, so we have again provided the avenue for companies to seek, to permit companies to import talents from overseas, including those from on the mainland of China. So as a government we are trying to create these soft and hardware infrastructures to make a knowledge economy possible, the building of Cyber-port, the building of a Science Park, they are all part of that particular process. And I am just happy to tell you that some initial figures show that Hong Kong's Internet penetration has reached close to 35 per cent, which is one of the highest anywhere in Asia. We're very proud of it. We're moving very fast. You know, one thing about Hong Kong people is this, that, you know, Hong Kong people are very, very entrepreneurial, and you give them something, they latch on to it, they run as fast as they can, and they make a success of it. This is a Hong Kong success story. Nothing fits Internet economy or the knowledge economy, you know, better than the mentality and spirit of the Hong Kong people. We are really now on to it. This is not just about making money in the stock market. This is about improving our productivity. This is about creating really a new economy.

Q: Now, they have been very easy so far, so we're going to toughen it up a little bit here. About taxes in Hong Kong. You need to balance the budget. There is an awful lot of talk about possible tax increases. Do you have any comment on that?

Mr Tung: Well, let me tell you this, that my first cheque with General Electric Company was $620 a month when I was - when I arrived in the United States in 1960 and started working with the General Electric Company in Lynn, Massachusetts. I remember about 37 per cent of it somehow goes away. I don't get to see the money. That's an experience I don't want to have in Hong Kong. Neither do I want to fill in a very complicated tax form. It's terrible. Every March you have to fill in this form to beat the deadline in April. We in Hong Kong believe in a simple and a flat tax and a low tax structure, and whatever we may have to do, this will not change. This will not change at all. For two years we have had budgets, deficit budgets, and this was done deliberately with a view to get the economy going again, and this was done, in fact, with the support of IMF. For the third year in a row now, this coming fiscal year, we still will have a small deficit, and this was again done to make sure that our recovery, tentative at this moment, can be more solidified. We are concerned that because previously we had relied on the income side a great deal on the sale of land, the income from the sale of land, and that we questioned whether there is a structural deficit or not, if there is, what are the ways to raise additional revenue, and the commission will be appointed to look at all these things because our tax base is very narrow, but the one thing I have said is this, that I want to see more cut in government expenditure before we talk about taxes, so these are the things we are doing, and all I can tell you is, you know, you still pay, your taxes are coming down also, but Hong Kong tax is really low, come and live in Hong Kong.

Q: I have one more question on the WTO, then one short question. The WTO issue. There is a great deal of suspicion in this country that China, even as a member of the WTO, will not abide by its agreements in the final analysis. Can you comment on that issue?

Mr Tung: Okay. Before I do so, there is one point which I want to say on this PNTR and WTO. You know, Hong Kong is now recovering from the impact of the financial turmoil. The recovery is tentative. We are working very hard to make sure that this is solid. But I tell you, if the US Congress goes the wrong way during the week of May 22nd, it will be devastating for Hong Kong because confidence will sap away, confidence will sap away, and because the worry would be, wow, major US-China confrontation. What would that do to Hong Kong? So even for little Hong Kong, I want to appeal to you, please make sure your Congressmen and Senators vote the right way for our sake. On this question about compliance, my experience with regards to the basic law, 'One Country, Two Systems', tells me that whatever is there will be agreed to, will be adhered to. There are always issues of culture or way of communication, and there will be issues like this, but I cannot imagine otherwise. The agreement is there, it will be fully complied to.

Q: One final question. You have a history of long-standing support for the Chicago Bulls, and now that Michael Jordan has come to Washington, will you switch your allegiance to the Washington Wizards?

Mr Tung: Well, no, actually because of my days in Boston, I was always following the Celtics, and unfortunately they are doing so badly these days, they are probably as close to Washington - as badly as the Washington Wizards. No, in Hong Kong, just to show you what Hong Kong is like, four nights a week we can watch an NBA game on television, so for Americans, Hong Kong is really a home away from home.

Thank you very much for this opportunity.

Ends/Saturday, April 8, 2000

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