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The following is the speech by the Chief Secretary for Administration, Mrs Anson Chan, at a business luncheon in Brussels today (June 22, Brussels time).

Professor Eyskens, Mr Loeb, Mr Dewit, distinguished guests, ladies and gentlemen,

It is a pleasure to be back in Brussels, the home of fine lace, fine chocolate and - so I am reliably told - fine, frothy beer, not to mention the world's finest 'frites'. I know of no other city where I need to watch my waistline so carefully.

Your presence here today does underline the close trade and investment links between Hong Kong and Belgium and the EU as a whole, our third-largest trading partner after the Mainland of China and the US. Last year, two-way trade between Hong Kong and the EU was worth about 45.8 billion Euros, while trade with Belgium and Luxembourg totalled 2.36 billion Euros. Belgian and European trade with Hong Kong and the wider Asian market did suffer in the previous two years due to the Asian financial crisis. But trade between Belgium/Luxembourg and Hong Kong is again on an upward trend - growing by 13.6% in 1999.

This indicates two things : first, Hong Kong's economy is recovering strongly. We are not only exporting more to Belgium, we are actually importing even more from Belgium. Secondly, there is renewed interest from Belgian and European companies in trade and investment with Hong Kong and in the wider East Asian region. The Fortis Bank's recent acquisitions have given it a formidable presence in 13 Asia-Pacific countries, in particular Hong Kong and the Mainland where the long-established Belgian Bank operations have been absorbed into the new mega-bank. I have seen from media reports that Fortis is 'on the prowl' for more acquisitions and will spend more than 13 million Euros expanding its consumer banking operations in Hong Kong.

Just last month we had the honour and privilege of welcoming Prince Philippe and Princess Mathilde to Hong Kong after their very successful visit to China with a Belgian business mission. I am certain that they and their delegation gained a deeper understanding of how Hong Kong has moved ahead since their previous visit at the end of 1996. And I also believe they saw for themselves the advantages that Hong Kong has to offer as a hub for trade and investment in the region, in particular with the Mainland.

I will speak more about this later. But before I do I would like to let you know how Hong Kong has been faring since our historic handover in 1997 and how we are positioning ourselves to enhance our position as Asia's premier international city and the major gateway to China.

Since Reunification in 1997, Hong Kong's status as a vibrant international financial centre and a bustling trade entrepot have perhaps come under closer scrutiny than at any time before. That goes doubly for all of the foundations upon which Hong Kong's success have been built - the rule of law, a level playing field for business, clean government, and the whole range of freedoms with which all of us can identify, such as the freedom of speech, freedom of the press, freedom of religion, of movement, and of assembly.

All of these rights and freedoms, all of these building blocks of success have been woven into our constitution, the Basic Law, which provides the legal basis on which Hong Kong people live and work under the 'One Country, Two Systems' concept. 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 mandated to us under 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.

While 'One Country, Two Systems' is working well, we have had our difficulties. This you would expect with such a bold undertaking, never before tried, and which legally defines the interface between Hong Kong's free-wheeling capitalist way of life and that of the socialist system in the Mainland.

But I believe that any fair-minded person who has been to Hong Kong would agree that we are moving ahead very well as a Special Administrative Region. And that it is abundantly clear that Hong Kong people are vigorously exercising all of their rights and freedoms and the high degree of autonomy, to protect their way of life as spelt out in the Basic Law.

However, it has been economic, rather than political or constitutional challenges that have occupied most of our time since the Handover. The Asian financial crisis knocked the wind out of our sails but we are now beginning to see signs of a strong and sustained recovery in the region.

Forecasts indicate that this year the nine economies of East Asia, excluding Japan, will grow by an average of 6.3 per cent; there are predictions of a 6 per cent growth in 2001. In Hong Kong, we are forecasting growth of 6 per cent this year. This compares with the average projected growth for the G-7 countries, which include Japan, of 3.3 per cent; and 2.7 per cent next year. These are encouraging signs.

There is no doubt that the Asian crisis exposed some fundamental weaknesses and frailties in the economic make-up of the region. What happened served as a wake up call - a call that we have heeded. It has resulted not only in economic restructuring, but more than a little bit of soul searching and character re-building. Personally, I am confident about the future of Asia. I believe the recovery we have witnessed in recent times is sustainable.

But there are caveats : Asian countries must continue to push ahead with the reforms set in train during the Asian financial crisis; we need a continued and strong commitment to free, open trade and further liberalisation in trade and services; we need political stability in the region, and importantly for Hong Kong, a positive Sino-US relationship and positive engagement across the Taiwan Strait; and, we must keep a watchful eye on the US and Japanese economies, the performances of which will impact on the sustainability of the recovery now taking place.

After recovering from the initial shock waves of the Asian financial crisis, we recognised the opportunities as well as the risks that came in its wake. We arrived at two clear conclusions which have guided our actions since.

The first was that our basic economic, financial, administrative and social infrastructure was sound, and did not require major surgery. But it was just as plain to us that within that overall framework there was much we should and could do, while remaining faithful to our underpinning policies and principles.

We had to face some hard facts. Our economy was overheating. Property prices had reached levels that could not be sustained. Now, almost three years down the track, prices and rentals for flats and offices have dropped by up to 50% off their peak levels in 1997. Wages have been static, and in some cases have eased over the same period. Our Consumer Price Index has seen an across the board drop in prices of 4-5%. As a result of all of this cost restructuring, Hong Kong is now a much more affordable place in which to live and do business. Our competitiveness has been given a boost.

At the same time, we realised that our economy must become more diverse. We needed to reform and revitalise our economic and social fabric, across a wide spectrum of sectors, if we were to remain competitive in the knowledge-based, global economy of the 21st Century. As a result, a whole raft of reforms and initiatives have been set in train. They 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 Brussels, 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; 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 - and are doing more - to consolidate and enhance our position.

Let me now 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.

With accession, there are forecasts that within six years China's foreign trade and foreign investment will double and its GDP is estimated to be 13% higher by 2010. These figures point to enormous opportunities for Hong Kong and the entire trading world. In our own case, 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.

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 Europe wanting to crack 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, Hong Kong can help and facilitate change in the Mainland. This will lead to greater transparency and openness in the Chinese market and bring our country even closer to the international community.

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/Thursday, June 22, 2000

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