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Following is the full text of the speech (English only) delivered by the Financial Secretary, Mr Donald Tsang, at a Joint Financial Markets Luncheon today (July 7):

Mr Bindra, Mr Bucknall, Mr Dewilde, ladies and gentlemen,

It is indeed a pleasure and somewhat daunting to be invited to address such a distinguished gathering. I had to ask myself - am I entering the lion's den? I recall one of Ian Adams' early faxes about today's function, in which he said so succinctly that collectively your three associations have a pivotal influence on the Hong Kong economy. Does this mean that if I don't have the right message, this pivot will turn against our markets and rubbish our economy?

Let me set the scene with a not so short quote which I found in a publication called Quotations for our Time. And it goes something like this: "If a man runs after money, he's money mad; if he keeps it, he's a capitalist; if he spends it, he's a playboy; if he doesn't get it, he's a ne'er-do-well; if he doesn't try to get it, he lacks ambition. If he gets it without working for it, he's a parasite; and if he accumulates it after a lifetime of hard work, people call him a fool who never got anything out of life."

Now I think you might know how we in the administration sometimes feel - a no-win situation no matter how hard you try. However, I will add a caveat to that - the reforms we have implemented in the financial services sector are working well.

The economy is bouncing back after the traumatic experiences of the Asian financial crisis. And while some sectors continue to suffer from the fallout, particularly in relation to unemployment and lingering concerns over the property market, the prognosis for the immediate future is good.

As you know, after the release of the first quarter figures, we revised our GDP growth forecast for the year from 5% to 6% - mainly on the back of our very strong export performance. That double-digit export growth has continued. Earlier this week, we announced that in the first four months of this year, the volume of total exports of goods increased by 19.5% over the same period last year. And the value of that trade, worth some HK$462 billion, rose by about the same amount. In May, the value of total exports was up by more than 22%.

I use these trade figures simply to give you a feel for how things are going. They come off a relatively low base of comparison from last year, but are still indicative of the robust pick up in the economy. Other positive factors include a significant improvement in both consumption and investment demand; and strong double-digit growth in tourism as visitor numbers for each of the past three months topped the one million mark.

As a result of the continuing impressive set of figures, I notice that analysts are now predicting varying levels of economic growth for the year ranging from our own, perhaps rather conservative 6%, to more than 10% by some in the private sector. I certainly would want to look at our second quarter figures very carefully before considering the possibility of any further revision of our own projections.

Suffice to say, I am encouraged by our economic performance to date. But, as ever, there are telltale signs we have to monitor, not the least being the international trade environment which may pose some challenges in the near term.

While that may seem more remote following the hefty increases in trade we've recorded so far this year, we still have to watch closely for any possible slowdown in the U.S. even though pressure on further interest rate hikes appears to have eased. At the same time, the recovery in the Japanese economy still remains difficult to predict.

Despite these blips on the radar screen, the reforms we have introduced to the market place and the smooth way in which they have been implemented, have worked to Hong Kong's advantage.

It is a tribute to market practitioners that we were able to complete, in such a relatively short time, the most significant of the reforms - the merger and demutualisation of the various exchanges and their clearing houses. And to follow that up with the highly successful listing of the new company last week, demonstrates the commitment of the financial services sector to accepting the realities of globalisation. Consolidate and compete or be subsumed and disappear.

As you know, in recent months there have been protests in a number of cities around the world against the movement towards globalisation. These focus on how its impact is perceived as an adverse force, particularly on the economic well-being of different sectors in their communities.

I don't think we should dismiss their protests out of hand. We should be listening to what they are saying and when they have got it wrong we need to convince them about what is right. And when they send us messages that have resonance, we should take them on board.

I think it is indisputable that the economic benefits of globalisation are many and varied. But very often it is a mixed blessing. I have for some time been warning of dangers like the instant and massive flows of capital that threaten small and open markets; and the greater exposure to volatile external factors.

However, to my mind none of this should stop the march of globalisation. It is the right way to go and will ultimately benefit all mankind. Trade and foreign investment have proven to be the major forces of global economic growth. Economies such as Hong Kong that have adopted an open market and free trade policies have enjoyed significant growth. In the three decades to 1990, our GDP increased nine times and our per capita income four-and-a-half times, both of them in real terms.

Globalisation, coupled with our market reforms, have helped spur growth in our multinational business activities; brought advances in information technology and communications, and this, together with liberalisation of the markets, has enabled us to slash business costs. In one case alone, it is estimated that Hong Kong consumers saved some HK$2.5 billion on IDD tariffs last year.

And the new technologies have helped to level the playing field for individuals and small businesses. In your own area, globalisation and reform of the financial markets is constantly creating room for Hong Kong to reach out and expand. One example is the strategic linkage between HKEx and NASDAQ which has reinforced our position as the leading market for global shares in the Asian time zone; and other alliances are in the pipeline.

We have already embarked on the next important step, the development of a multi-currency capital market. The first stage will be the introduction of a U.S. Dollar- denominated capital market. In order to make this possible, a reliable and efficient U.S. Dollar clearing system will be introduced in phases beginning next month. This will facilitate transactions of US$ denominated securities, including debt securities, in Hong Kong to be settled within the Asian time zone. The system will help reduce settlement risk and increase settlement efficiency.

When the system is fully operational, hopefully by the end of the year, we will be able to build a new capital market that offers local and global investors access to a full range of US$ denominated products. This will make Hong Kong the leading investment window in Asia. It will also help internationalise the local bond market by attracting both foreign issuers and investors, as well as US$ denominated trades in the region to be settled in Hong Kong. This will enhance our potential as a regional bond hub.

As part of this development, the mainland of China is playing a positive role. So far, the Ministry of Finance has been actively tapping US$ funding from the world debt market. Eight US$ issues have been listed on the Hong Kong Stock Exchange in parallel with other major markets.

This is a welcome development and we would like to see the Mainland making even more active use of Hong Kong as the centre for these US$ funds. In fact, the cost-effectiveness of such fund-raising activity by the Mainland should increase with the introduction of the US$ clearing system.

And there will be another spin-off as well. More transactions will be US$ denominated and this will reinforce our monetary stability by reducing the pressure on the Hong Kong dollar as it will no longer be used for conducting non-domestic financial business.

Developing the debt markets of Hong Kong and the region as a whole is an important task that I am determined to pursue with some vigour. In this context, expanding our global network and forming strategic alliances with other markets are pivotal to the competitiveness our debt market.

Over the past decade, we have put in place the infrastructure and provided various initiatives to kick start market development. The measures have included the introduction of the Exchange Fund Bills and Notes Programme to provide a benchmark yield curve; the listing and trading of these bills and notes on HKEx; the development of a cost effective centralised debt settlement and clearing system; the establishment of the Hong Kong Mortgage Corporation; and tax incentives to encourage the supply of quality debt instruments.

Partly as a result of these initiatives, the debt market in Hong Kong has grown considerably, particularly in the past few years. The total outstanding public and private sector debt issues jumped 60% from HK$279 billion at the end of 1996 to more than HK$440 billion today. What has been most encouraging during this time has been the increasing use of the debt market by the corporate sector to diversify its sources of funds.

But more needs to be done if we are to develop a mature debt market in Hong Kong. As part of this push, we are strengthening our efforts to attract companies outside Hong Kong, especially Mainland enterprises, to issue debt papers here. This will increase the breadth and depth of our market.

We need to establish links with more central clearing and depository systems outside Hong Kong. So far, direct clearing, settlement and payment linkages have been established with Australia, New Zealand and South Korea, as well as Cedel and Euroclear. But we have to build on this excellent basis and reach out further to other jurisdictions.

And we must continue to participate actively in international forums and work closely with regional financial centres to develop a liquid and mature Asian bond market. As for promoting the local market, we are developing a series of initiatives to capitalise on the favourable environment for debt market development. These include reviewing the Exchange Fund Bills and Notes programme, particularly in relation to stimulating the market-maker system; and reviewing the procedures for offering securities.

In this latter case, the Securities and Futures Commission late last year formed a working group to rationalise the complex issuance and listing procedures. Its aim is to reduce the costs of raising funds here, especially for private sector borrowers. In this way, we will improve the international competitiveness of our securities markets, including the stock and bond markets.

In summary, our overall programme is designed to keep us ahead of our competitors and to further enhance our claim as Asia's premier financial centre. And we will not rest there. With globalisation, markets are continuing to evolve in the face of ever fiercer competition. This means we can never be complacent.

But just before I conclude, I wish to refer back to something I mentioned at the start of my speech about the government sometimes finding itself in a no-win situation. The recent demonstrations about a whole range of issues in Hong Kong say a lot about the kind of society we have. It's free. It's open. It's plural. People feel they have a part to play in the community and a voice in the way it is run. And believe me we hear what the people say. That's what free society is all about. And I hope that's what the readers of the Washington Post understood when Hong Kong was recently described in a report in that distinguished newspaper as a 'city of protest'.

They certainly know what public protest is all about in the U.S. and in particular their national capital. The time for us in Hong Kong to worry would be the day - God forbid that it ever came - when the Washington Post ran a headline that said protests suppressed in Hong Kong. Luckily for us, we are a robust society - vigilant about our freedoms which are guaranteed to us under our constitution.

Thank you.

End/Friday, July 7, 2000

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