***********************************************
Following is the full text of the speech (English only) by the Financial Secretary, Mr Donald Tsang, at a luncheon hosted by The Boston Committee on Foreign Relations and the Boston Economic Club in Boston today (June 14, Boston time):
Mr Glauber, Mark Eddington, distinguished guests, ladies and gentlemen,
I am delighted to be back in Boston, a city in which I spent a wonderful year studying for my Master's degree. And, I'll refrain from saying, more importantly, where I also 'graduated' in some of the finer points of 'the ball game'. Perhaps there's still hope for me - I noticed the Red Sox last week signed Korea's top-rated high school pitcher. Although I expect the closest I'll ever get to home base is sitting in the bleachers wearing the famous Red Sox cap.
I would like to thank the Boston Committee on Foreign Relations and the Boston Economic Club for giving me the opportunity to address this luncheon today. I hope you won't mind if I change the title of my speech to 'Hong Kong : Economic Reform and the e-Revolution'.
When I looked again at the original title, I realized that 'technological transformation' is a term best confined to the century that has just ended. The buzz words for the 21st century seem to be e-commerce, dot-com, internet portal, WAP, and a host of other words that I confess I don't really know their full meaning! Nowadays, if you don't have a dot-com address then you haven't passed into the new millennium.
Fortunately, we in Hong Kong have made the grade, but there were some anxious moments in the last three years of our journey towards the year 2000. The Asian financial crisis being the greatest hurdle we had to overcome. Now, hopefully, with the crisis, being relegated to the pages of the economic textbooks, I think it is safe to say that Hong Kong has emerged from the most serious threat to its prosperity since the Second World War.
We are already shifting our focus from recovering from recession to building Hong Kong into the world city in Asia. In the process, we are not forgetting the painful lessons we learned from the Asian financial crisis.
As prosperity returns to most sectors of the economy, we're not simply hanging out the 'back in business' shingle. Hong Kong today looks very different from the world of 1996 when property prices were going through the roof.
The financial crisis forced us to abandon our former complacency. We had come to take our economic success for granted. We now realize that although increased sophistication and globalization have generated new wealth for us, they have also increased the volatility of the economy. We have come to recognize, in particular, that our ability to compete is an overwhelming priority. This fundamental issue was reinforced when we at last broke the long-term cycle of asset inflation based on a prolonged real estate bubble.
Unrealistic property prices and rents no longer dominate or distort our economy. And we now have a very different labor market. Unemployment hit a record high of just over 6 per cent at the height of the crisis - an uncomfortably high rate for a city that is more accustomed to a figure of less than 3 per cent. And while the dislocation and the pain that the crisis caused are still filtering through the economy, the unemployment rate is now trending downwards. Our work force is gaining new skills and a new level of productivity.
So, our vision of a world city with an economy dominated by a combination of advanced technology and sophisticated services is becoming a reality. Hong Kong can be the 'cyber city for the cyber century'.
The speed with which firms, particularly those which have made their names in property, are moving into the information age has been quite amazing. They are forging new relations with leading hi-tech and Internet multinationals in their switch to cyberspace. This transformation, even by the traditional standards of resilience and risk-taking in Hong Kong, is proving the inspiration for a new generation of entrepreneurs.
An example of how quickly the Internet e-boom has spread from here, in America, to Hong Kong is reflected in one set of statistics I noticed the other day. Before June last year, 199 companies had been incorporated in Hong Kong with the character string "dot com". By the beginning of this month - that's one year later - the number had increased nearly 800 per cent to 1,540. And this is only part of the overall equation as not all hi-tech companies use the dot-com string.
The growing influence of technology stocks on Hong Kong's securities market is also indicative of the enthusiasm with which people from all walks of life have embraced the New Economy. In the space of just three years, these stocks now constitute 30 per cent of the Hang Seng Index; while 80 per cent of the growth in the Hong Kong Stock Exchange's market capitalization has been generated by technology stocks.
A second board has been established in Hong Kong, known as the Growth Enterprise Market, to specifically raise capital for promising start-ups. In less than six months' operation there have been 25 new listings and some 40 applicants are waiting in the queue. At its peak, market capitalization reached more than US$10 billion. Similar boards are being considered in mainland China, opening new sources of venture capital for private enterprises.
Hong Kong's excellent telecommunications infrastructure has provided a kick-start to the New Economy. Market liberalization has thrown open this vital sector of our economy to intense competition and rapid advancement in technologies. The range of information that can be downloaded to a mobile handset may well make the PC an endangered species! Broadband connections are now available to 100 per cent of our commercial buildings and 80 percent of residential properties. There has been a huge growth in the use of the Internet. No doubt stimulated by the ease with which people can log-on through nearly 200 Internet Service Providers. Such a concentration of ISPs makes Hong Kong one of the best served communities in East Asia, if not the best.
I noticed in the Boston Globe this morning that Congress is set to approve the legal use of e-signatures. I'm pleased to say we in Hong Kong passed that hurdle in 1999 and the new legislation came into effect at the beginning of this year. Electronic records and digital signatures now have the same legal status as their paper-based counterparts. And Hongkong Post is spearheading the establishment of a public key infrastructure which facilitates the conduct of safe and secure e-commerce.
The Asian financial crisis has also ushered in changes in the way Hong Kong operates. The negotiations we successfully concluded last year with the Walt Disney Company, to build only the third Disneyland theme park outside the United States, demonstrates how vigorously Hong Kong can compete for investment. Preliminary work has already started on Hong Kong Disneyland, which is due to open up a whole new tourism frontier in 2005.
I have used these rather diverse developments to illustrate the broad range of reforms and the restructuring that has been taking place in Hong Kong in the past few years. They are transforming our economy from one that previously relied on asset inflation to one that is becoming a regional pacesetter in innovation and technology. And we are promoting even more competition in what is still the world's freest economy.
Our businesses have also been adapting well to the new e-commerce era. Industry estimates put the value of e-commerce transactions in Hong Kong in 1998 at just US$60 million. But these are expected to leap-frog to some US$2.4 billion in 2003 and the figures for China will show an even stronger growth.
As a way of further stimulating the development of e-commerce, the government will be launching an around the clock electronic service delivery scheme in October. This will provide a range of services to the public through the Internet or from information kiosks located around the city. People will be able to submit tax returns, renew driving licences, pay government bills, register as voters and carry out a number of other government-related activities.
In other words, we're helping to make life easier for the consumer, and the infrastructure being developed for the scheme will also be made available to the private sector for e-commerce. With more than 2 million people in Hong Kong now estimated to be capable of logging onto the world wide web - that's nearly one third of our population - we are rapidly gearing ourselves for a world without walls.
Hong Kong's IT flagship project, the Cyberport is also helping to provide the catalyst for the e-Revolution, despite the fact that the first stage won't be ready until the end of next year. The marketing strategy has yet to begin, but already Cyberport is attracting the attention of the cream of the world's New Economy businesses, including Microsoft, Cisco, IBM, Nokia, Ericsson, Silicon Graphics, and Sybase. Through this project we are providing the infrastructure for a 21st century concept designed to attract, and retain, quality companies and talented professionals who specialize in leading-edge IT applications targeted for different industries and services.
Diversification into the New Economy, however, is not happening at the expense of our traditional strengths. Our services sector, which forms the backbone of the economy, is being reinvigorated with the switch to the information age. It is enhancing our status as a global financial center where, as you know, the speed at which transactions can be completed is pivotal to business decision-making.
A case in point is the reforms we have made to the banking sector, further opening it up to greater competition to the rest of the world, including provision for the era of the 'virtual bank'. And the stock and futures exchanges and their clearing houses have now been merged and demutualised. As a result, they are poised for 24-hour trading. With the installation of new technology they will be capable of performing T+ zero transactions by the end of the year.
The e-revolution is sweeping away many of the traditional ways our small and medium sized enterprises operate. And, in some cases, the transition has not been easy. Adjusting today to the Internet as the principal medium of communication is probably just as confusing to some as mastering - a few decades ago - the change from the abacus to the calculator. But at the same time, new avenues are opening up for Hong Kong's savvy entrepreneurs who are always quick to spot an opportunity and then run with it.
And the opportunities for Hong Kong are looking bright this year. Not only is the economy on the rebound, with a forecast GDP growth of 6 per cent for the full year, but China's imminent accession to the World Trade Organization will open up other horizons. As the Mainland opens its doors wider to the world, the flow of foreign goods into China will increase. This will probably mean more goods passing through Hong Kong and more business for the financial services sector such as banking, insurance, and support services. It's estimated that our GDP will grow by at least half a percentage point a year as a result of China's entry to the WTO.
Finally, there is just one other observation I wish to make. You might ask, why will Hong Kong remain a global financial center and the world city in Asia? The answer to that is easy. We have preserved all our traditional strengths: The rule of law: An independent judiciary: A level playing field for doing business: The free and unfettered flow of information, including a free and robust media: A clean administration not tainted by crony capitalism: A fully convertible currency: And the freedoms of the individual equal to those you have here. And we continue to build on those strengths.
That's what Hong Kong is today: will be tomorrow: and into the future.
Thank you.
End/Thursday, June 15, 2000
NNNN