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Following is the speech by the Chief Secretary for Administration, Mrs Anson Chan, at a luncheon in Hamburg today (June 19, Hamburg time):

It is indeed a pleasure to be here today in this great European port city - the Free and Hanseatic City of Hamburg. I must confess that when I realised our visit coincided with Euro 2000, I wondered whether we would be able to get anyone interested in our lunch today. But I am delighted to see that so many of you present here today and I take that as a very encouraging and gratifying signal of the interest of people here in Hamburg in what goes on in Hong Kong and in Hong Kong's future and the future of the Mainland of China.

This is actually our first promotion in Hamburg and I hope it will help to build even stronger links between us. Hong Kong and Hamburg share quite a few similarities and we should make the most of this synergy. We are both important hubs for trade and shipping; Hamburg is Europe's second largest port, Hong Kong is the world's busiest container port; Hamburg is a gateway to Europe, Hong Kong is the gateway to China; Hamburg is carving itself a niche as a high-tech centre for Europe, Hong Kong is developing a role as the innovation and info-tech hub for China and East Asia; we are both very strong in the services sector; we are both media hubs; we are both popular conference venues; and, we are both important consular cities.

In a broader context, Hong Kong and Germany have a very strong and important trade and investment partnership. Germany is our second largest trading partner within the EU, and our eighth largest in the world. Total two-way trade was worth almost 11 billion Euros in 1999. Bilateral trade for the first quarter is up by almost 20% year-on-year, which is probably why we see so many brand new Mercedes-Benz and BMWs on Hong Kong's streets nowadays. Hong Kong companies have 25 offices here in Hamburg - no doubt because of the shipping links.

More than 400 German companies are based in Hong Kong, of which more than 130 use Hong Kong as a regional base. Hong Kong is home to a large German diplomatic mission, and some 5,000 German citizens. We have a fine German/Swiss School which provides excellent facilities and German and English instruction to local and expatriate children. Last year we welcomed almost 190,000 German visitors to Hong Kong. Arrivals for the first quarter are up by a healthy 12% as more and more German tourists take advantage of lower room rates and falling consumer prices. Now is a good time to visit Hong Kong if you have not yet done so.

I mention all of this to highlight the foundations which underpin the existing trade, investment, business and people-to-people bonds between Hong Kong and Germany. It is important to understand the strength and depth of this relationship because it will help you understand why it is poised to become even stronger and more important in the years ahead.

An integral part of this equation is why Hong Kong remains such an important hub for finance, trade, transport, communications and tourism in Asia. Prior to the Handover in 1997, there were many people who believed Hong Kong under 'One Country, Two Systems' would not work. Nowadays, people are skeptical that Hong Kong's role as the pre-eminent international conduit for China will diminish once China joins the WTO. My mission today is to dispel those misconceptions.

I know that there is still a great deal of misunderstanding about Hong Kong's future and role as a Special Administrative Region of China. I acknowledge that it must be hard for people overseas to fathom how a free-wheeling, capitalist society of seven million people can continue to enjoy all of their rights and freedoms in a unique, untested experiment that bestows on Hong Kong a high degree of autonomy, with the specific aim to keep our lifestyle and systems separate from those of our country, the world's largest socialist state with a population of 1.2 billion. Surely, I have heard it said, Hong Kong will be overwhelmed. Surely, the leadership in Beijing is pulling the strings in Hong Kong. I am here to tell you that this is definitely not the case.

The Beijing leadership has scrupulously honoured the promises and commitment to Hong Kong. There has been no interference from the Mainland in the running of Hong Kong. You will find no 'hotline' to Beijing in my office, nor in the Chief Executive's for that matter, that is ringing off the hook with instructions from the Central Government. We do enjoy a very close and cordial relationship with the leadership in Beijing - as you would expect. But it has been made abundantly clear - in word and deed - that the running of Hong Kong is entirely a matter for the people of Hong Kong. Let me elaborate.

Our systems are vastly different from those in the Mainland, and this is essential to our continued stability, prosperity and economic development. We are proud to be reunited with China, but we jealously guard the high degree of autonomy provided by the Basic Law. It sends an important message to the international community that their investments, their business dealings, their commercial contracts and their human rights and freedoms are protected by a trusted legal system and an independent judiciary based on English common law. We fully understand that our legal system is the bedrock of our success and if we lose that, we lose everything. That is why rule of law issues come under such close scrutiny in Hong Kong.

You may have read reports recently about statements made in Hong Kong by Mainland officials which raised concerns about press freedom and the freedom of businessmen to choose their trading partners. You will have read - I hope - that the Chief Executive and myself responded in unequivocal terms on both issues. Let me give you two vivid examples of 'One Country, Two Systems'. Each year a large commemoration vigil is held in Hong Kong to mark the Tiananmen Square June 4 incident. And the Falun Gong, banned in the Mainland, is free to practice in Hong Kong, and does so. Our community expects us to be forthright in ensuring that the distinction between One Country and Two Systems is not blurred.

This distinction also allows Hong Kong to maintain a separate identity in the international arena in a wide range of areas except for foreign affairs and defence, which are the responsibilities of the Central Government. We are a member, in our own right, of the World Trade Organisation, and before that the GATT; the World Customs Organisation and the International Maritime Organisation. Hong Kong is a member in its own right of APEC, as is China. You may be surprised to hear that within APEC we do not necessarily agree with the Mainland's position on issues such as trade liberalisation - but we do agree to disagree. To draw a parallel in a German context, this would be like the Federal State of Hamburg joining the WTO and, from time to time, opposing the view of the German government in that forum. As incredible as that arrangement might sound to you, it is exactly the way that 'One Country, Two Systems' can - and does - work for Hong Kong and China.

That is why Hong Kong today continues to be the same free, open, tolerant and pluralistic society it was before the Handover. 'One Country, Two Systems' has been transformed from a concept into a working reality. The ongoing and successful implementation has been acknowledged by various international agencies and governments, including the IMF, the British government, the US Congress and your own European Commission. And before I close on this subject, I would like to read to you an excerpt from the EC's Second Annual Report on the Hong Kong Special Administrative Region, published just last month. It states, and I quote :

"Hong Kong remains one of the freest societies in Asia. Hong Kong people are running Hong Kong and doing so effectively . . . The economy is gradually recovering from the Asian financial crisis and EU companies continue to invest heavily in Hong Kong. This demonstrates confidence in Hong Kong's future." End quote.

As you would expect I, too, am confident about Hong Kong's future as an economy and as the most vibrant international city in Asia. Hong Kong's political transition was a seamless exercise although, as I have outlined, we still need to do more in the international community to explain just how successful that transition has been. But it has been economic rather than political change that has occupied most of our energies in the past three years. The Asian financial crisis not only caught us by surprise, it knocked the wind out of our sails. Our economy contracted by 5.1% in 1998 - the first time we had ever had to contend with a full-year recession. In the two decades prior to 1997, Hong Kong had enjoyed annual growth averaging 7%.

Once we had dusted ourselves off from the initial shock, a period of quite intense soul-searching took place. And it soon became clear that we needed to reform and revitalise our economic and social fabric, across a spectrum of sectors, if we were to remain competitive in the knowledge-based, global economy of the 21st Century. The reforms and initiatives that have been set in train are very comprehensive, ranging from economic drivers such as banking, finance and the stock market, monetary policy, telecommunications, innovation and information technology through to economic support software such as education, health care, culture and arts, leisure, the environment and retirement protection. I can think of no time in Hong Kong's history - most certainly during my 38 years as a civil servant - when such an ambitious yet vitally important reform agenda has been put in place.

There is a clear focus to all of these efforts, and that is to make Hong Kong the World City in Asia. What do I mean by World City? I mean a city with a vibrant economy in its own right. A depth of talent in every field of endeavour from the arts, culture and education to business and banking, technology and information and the media. A location of choice for the principal offices of major corporations. The service hub for a large hinterland. A vibrant and diverse population.

We are already Asia's most cosmopolitan city. There is much here that would be familiar to anyone from New York, London or Hamburg, or for that matter any of the great cities of Europe. Hong Kong is a free society based on the rule of law. It is an international centre of finance and trade; services such as communications and transport; regional and international media; tourism; and home to numerous multi-national enterprises and a large international community. We remain a uniquely Chinese city where East comfortably meets and blends with West. We have a hinterland of vast potential. But we have to do more - we are doing more - to consolidate and enhance our position.

Finally, I would like to touch on one matter that is important not simply for the region, but for the world economy generally : China's entry to the World Trade Organisation. The absorption of the world's most populous nation, and potentially its largest economy, into the multilateral, rules-based regime governing the international economy is a matter of profound significance. It will help maintain discipline and momentum in ongoing economic reforms in China. It will make state-owned enterprises become more efficient and profitable. It will raise standards of corporate governance and change the mindset and attitudes of business people as they interact more closely with their international partners or competitors. The liberalisation of trade in goods and services will lead to greater openness and higher standards of accountability. The implications for the restructuring of the Chinese economy are enormous and speak volumes for the vision of the leadership in Beijing.

As I mentioned earlier, there are some who believe Hong Kong's star will fade - that our role as a gateway to the Mainland will diminish - once China joins the WTO. That is not - I repeat not - how we see it in Hong Kong. We welcome China's accession and are anxiously awaiting the enormous opportunities it will bring.

There are forecasts that within six years, China's foreign trade and foreign investment will double. Its GDP is estimated to be 13% higher by 2010. These figures point to enormous opportunities for Hong Kong and the entire trading world. The size of the trade and investment pie is going to get that much bigger and so will our slice of it. There are indications that our GDP will be 5.5% higher over 10 years.

Already the Mainland's trade with Hong Kong represents about 40% of our total external trade; we handle some 40% of China's re-exports; and we are the largest source of foreign direct investment which reached US$156 billion by the end of last year. That is nearly 52% of the Mainland's total inward investment. Hong Kong companies employ some 5 million people in wholly or partly owned ventures in neighbouring Guangdong Province and there are more than 1,800 Mainland companies operating in Hong Kong.

Mainland China has historically provided the impetus for Hong Kong's economic growth and we in turn have become the Mainland's most important centre for fund raising, trading and re-export.

This economic interdependence serves to highlight the synergy between Hong Kong and the Mainland, and the vital link we play as a springboard for international companies wanting to establish a foothold in China. There is a message here for companies in Germany wanting to penetrate the China market : you will do no better than to find yourself a Hong Kong partner or facilitator. Our cultural, commercial, and historical links with the Mainland and the knowledge and expertise our entrepreneurs have built up over decades of trading and doing business with China give Hong Kong an unrivalled advantage.

I believe this in-built advantage will be enhanced rather than diminished by China's accession to the WTO. Hong Kong already has a very deep pool of experienced professionals who can be called upon as China's markets become more closely aligned with global practices. In particular, areas such as legal and accounting services, management, logistics and distributive services, transport and communications. Our sound legal system, for example, will provide international corporations with a tried, tested and internationally understood legal framework in which to work in areas such as contract law and arbitration services.

And here I would also like to stress that Hong Kong can only be of value in this process if we maintain our own unique identity under 'One Country, Two Systems'. We are in the best position to facilitate the significant changes that will take place in the Mainland within the next decade or two. Hong Kong is the best example I can think of to highlight the benefits of free trade, open markets and ongoing liberalisation. As China embarks upon this profound economic transformation which WTO accession will bring, Hong Kong can act as an agent of change. This in turn will lead to greater transparency and openness in the Chinese market and bring our country even closer to the international community.

As you can see, China's accession is not just about business opportunities. It goes much deeper than that. It is about strengthening economic and social 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 a steady momentum of growth for the betterment of people everywhere.

Ladies and gentlemen, I hope I have been able to leave you with a thumb-print of how Hong Kong has moved ahead successfully since 1997, and how we plan to continue that positive momentum in the future.

In this age of globalisation it does not make much sense to try to pigeon-hole this region or that part of the world. In the age of the Internet, the future surely belongs to all of us, no matter where we live or work or trade.

I am, however, convinced the brightest future will belong to those communities which dedicate themselves to the rule of law; to free trade; an open market in goods and services and ideas; clean, transparent and accountable government; respect for decent human values; tolerance of diversity; and intolerance of corruption and cronyism. These are the benchmarks we have set for ourselves in Hong Kong.

Ladies and gentlemen, thank you very much.

End/Monday, June 19, 2000

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