Press Release

 

 

Speech by the Financial Secretary

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Following is the speech delivered by the Financial Secretary, Mr Donald Tsang, to the Hong Kong Association in London:

Baroness Dunn, distinguished guests, ladies and gentlemen

I am delighted to be back in London. What with Legco elections generating considerable heat; the Hong Kong U's pollster inquiry report creating community wide discussion; and the Chief Executive finalising his fourth policy address; it's a relief to be out of Hong Kong for a short while and to meet our friends here in England! That was until the fallout from the oil crisis started to bite in London last week. So I am particularly grateful for the extra effort many of you have had to make to come here today.

It's a privilege and a pleasure to be given another opportunity to address an audience as knowledgeable about Hong Kong as members of this august Association.

Not only is London arguably the world's leading financial centre, it is almost a second home for my sons. I have lost count of the number of times I've been here. Like Dr Johnson, I'll never tire of London; and I certainly hope I have a lot of life in me yet!

It's now more than three years since the handover. During the intervening period we have witnessed a series of ups and downs for Hong Kong - from bird flu to floods, from polemics to politics and more. But overshadowing this has been the fallout from the Asian financial turmoil. From the severe recession in 1998 to our resilient recovery of the past nine months - economic factors have dominated the Hong Kong scene. Although more recently it could be said that politics have supplanted the economy as the hot topic. And that is natural and indeed a maturing sign of Hong Kong.

But through all the traumas we never lost our nerve. The indomitable fighting spirit of the Hong Kong people kept us going and today we are beginning to see the benefits of that fight back.

Not only are we seeing a significant recovery in the economy, we have been overseeing a fundamental economic restructuring. Moving away from our previous dependence on asset inflation to the new dynamics of innovation and technology. The New Economy characterised not so much by the dot-com bubble, which by some calculations has burst and is now heading in different and more soundly-based directions, but also by the telecommunications and e-revolution.

And this is being achieved in parallel with a further consolidation of our traditional strengths as a services economy. In the Asian time zone there is probably none better for financial, banking, legal, accounting, and a host of other services, especially trade - Hong Kong's lifeblood since those first colonial days back in 1841.

As our Chief Secretary, Anson Chan, noted in the Hong Kong yearbook : "It used to be said that Hong Kong people lived to trade. The facts of history and geography dictated the opposite - the people of Hong Kong have had to trade to live". Therefore, it's no coincidence that trade has played such a large part in our latest economic revival. And the United Kingdom continues to be a key link in those trading patterns. For instance, in the first six months of this year, total two-way trade was worth some 3.7 billion pounds(¢G). That's more than 20 per cent higher than the same time last year.

I believe that most of you are aware of our second quarter economic data, so I won't go into it in any great detail, except to say that in the three months to the end of June, our GDP grew by 10.8 per cent. This came on the heels of our phenomenal first quarter growth of 14.3 per cent; and the 9.2 per cent for the final quarter of 1999.

Underpinning this impressive set of statistics is the fact that for those three successive quarters, exports of goods recorded double-digit growth - in one quarter alone by almost 21 per cent. And it was a similar story for the export of services, which grew by over 16 per cent in each of the past two quarters.

In light of the first half results, we have revised the full year GDP growth forecast from our earlier estimate of 6 per cent to 8.5 per cent. If this is achieved, it will be our strongest economic growth for over a decade.

But we realise such rapid growth cannot be sustained. As our forecast indicates, growth during the second half of this year will slow to a figure that is more likely to reflect the medium term predictions of around 4 per cent.

I also sound a note of caution about our performance so far this year. Unemployment, at 4.9 per cent, is still running higher than we would like and the effects of the recovery have not trickled through to all sectors of the economy. This points to a disparity in incomes which needs to be addressed.

The structural changes to our economy, largely brought about by the financial crisis, have left some in our community at a disadvantage. This situation is something we are now trying to tackle. But it does not mean we are travelling along the road to a welfare state. Far from it.

It means carefully thought-out programmes of training and re-training for those who can and want to be retrained. And, as the Chief Executive said recently, it is a combination of strong government leadership with programmes that are compatible with self-help and self-esteem for the less fortunate in our community.

I raise this now, not to over emphasise a problem, but to illustrate how we are addressing issues that are being thrown up as we diversify into the knowledge-based economy. The diversification has been accompanied by a host of much-needed reforms.

Hong Kong is a city that always strives to find new and better ways of doing things; and the advent of globalisation and the Information Age have provided the opportunities. I don't have to remind this audience that Hong Kong is an ideal breeding ground for those who want to turn a bright idea into a practical application. And to meet the challenge of globalisation head on, we have to open the doors still wider - encourage market liberalisation, enhance competitiveness, innovation and efficiency, while at the same time maintain the safety and integrity of the system.

So what are some of these reforms? For a start, the stock and futures markets and their clearing houses have been merged and demutualised and the single entity is now being freely traded on the newly named HKEx. The exchange is also being plugged into the most sophisticated of e-trading systems; and new alliances are being formed to hasten the concept of the global 24-hour trading day with Hong Kong as the Asian hub.

As part of this, HKEx has become the first exchange in the Asian time zone to offer 'live' trading in seven leading Nasdaq stocks, including Microsoft, Cisco, Dell and Starbucks which all have strong business interests in the region. And a second board, the Growth Enterprise Market - or GEM for short - despite some teething problems shadowing the volatility of the Nasdaq, is proving a useful avenue for IT start-ups to raise capital for their innovative ideas.

We have also just launched the most comprehensive real-time US dollar payment system in Asia with direct links to Hong Kong's stock market and debt securities clearing houses. The system allows domestic banks to settle US dollar transactions in 'real-time', thus reducing or removing foreign exchange settlement risk outside US trading hours.

In December, customers with US dollar current accounts with banks in Hong Kong will be able to settle US dollar transactions by cheque with next day settlement instead of the current two weeks. The next target, provided the business is there, is a Euro-denominated market.

We have also revitalised the banking sector by -

* opening it up to more foreign competition and eliminating outdated interest rate regulations;

* reforming the public sector, including partial privatisation of our Mass Transit Railway Corporation;

* further liberalising the telecommunications sector;

* promoting e-commerce as the communications and business-efficiency tool of the 21st century;

* transforming the tourism and recreation industry, including a start on Hong Kong Disneyland;

* cleaning up the environment, particularly the quality of our air and water; and

* we are bringing fresh, creative thinking to the way we educate our young people.

It's a comprehensive list of initiatives which, in some cases, has attracted concern or opposition from people who say the government may be moving too far, too fast. Their reaction is understandable given the nature of some of the reforms that have stemmed from the aftermath of the Asian financial crisis, or from the natural vacuum created in the closing stages of British administration and our reunification with China.

I don't say this in an attempt to gloss over any flaws in the government's performance. As an administration, we probably could have done a better job in explaining our policies and the reasons for the reforms before implementing them. We were, after all, in the thick of a recession when people's concerns about their future were heightened.

Fortunately, Hong Kong is a free and open society which offers a safety valve for its citizens to let off steam. The fact that people are able to take to the streets to protest over any manner of grievance is, I believe, a good sign about post-handover Hong Kong. It would be a bad sign if they were not able to do so.

What we are seeing is a manifestation of the legacy the past 150 years have left Hong Kong. A legacy that we continue to cherish and preserve - the freedom of speech, freedom of expression, freedom of the press, the rule of law, a level playing field for doing business, an independent judiciary, and a clean, apolitical civil service.

I know there are some, perhaps more than some, who are sceptical of how we have tackled problems since 1997. They question our sincerity and point to issues such as our incursion in the stock market during the Asian financial crisis in 1998; the joint venture Cyberport development; and our decision to seek an interpretation of the Basic Law provision relating to the right of abode.

They string these isolated and unrelated issues together and then toss them into the air as examples of how we are supposed to be slowly chipping away at the foundations of our success. But this is not going to happen. Hong Kong people may be rambunctious at times, but we are a law-abiding, fair-minded, civil but noisy society jealously guarding our fundamental freedoms. In particular, we recognise without question the rule of law as one of the principal foundations of our success.

But let me say this, decisions that have been questioned were made openly and transparently and with one purpose in mind - to protect or enhance the interests of Hong Kong and its people, not to weaken our institutions or our economy.

Ladies and gentlemen, there is no pretending that the past couple of years haven't been tough. They have been. The people of Hong Kong have been through some trying times. The value of their assets has shrunk; jobs have been difficult to find; wages and salaries have remained frozen or reduced; the changing nature of the economy has left some low skilled workers stranded between the old and the new economies; and issues over academic freedom and leadership have been vigorously debated.

As one visitor remarked to me only last week - Hong Kong is like a piece of wood floating on the water. It gets tossed around when the seas are rough, but the wood never sinks. And that, he said, is the essence of Hong Kong - unsinkable, even in the worst of storms.

We are emerging positively from the recession and next month sees the start of the new legislative year. So, while some things may change, our philosophical approach is as steadfast as ever. We are totally committed to the principle of a market-led economy. Adam Smith has not given up his permanent suite at the Mandarin. We are sticking to the Hong Kong credo of 'maximum support, minimum intervention' in the economy.

And if there has been one other constant during these past three years, it has been the attitude of our leaders in Beijing. They have been scrupulous in their resolve to let Hong Kong people get on with the job of running Hong Kong. They are not looking over our shoulder and telling us what to do, or what not to do. 'One country two systems' is working well. Our separate systems and way of life are intact.

That's not to say we don't benefit from being part of China. Of course we do. And these are about to be enhanced with the Mainland's accession to the World Trade Organisation. I have said before that we face increased competition as China's markets open up further to the world. But we believe the gains will far outweigh the losses with our own conservative forecasts showing our GDP will rise annually by 0.5 to one per cent.

I believe there is also a comfort level for the international community in Hong Kong's system of open and transparent government. Business people need to know that their investments, their dealings and their commercial contracts are protected by a legal system they know and understand, and an independent judiciary based on English common law, another indispensable legacy bequeathed to us by our history.

Our links with Britain have been as enduring as the seasons. As with all relationships we have had our highs and lows, but throughout the past century and a half we have retained our sense of purpose, commitment and friendship. We value the role Britain has played in our past development just as we look to the future with confidence as part of one nation, China. I am a great believer in the old saying 'the best is yet to come'. That applies equally to Hong Kong, the Mainland and to Britain.

Thank you.

End/Monday, September 18, 2000

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