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Following is the full text of the speech by the Financial Secretary, Mr Donald Tsang, at a luncheon hosted by the Hong Kong Trade Development Council in London:

Sir John, distinguished guests, ladies and gentlemen

I'm flattered by your kind words of introduction. I think you all know how I feel about being back in London. The contrasts between the centuries old traditions and the raw energy of a city setting the pace for Europe in the new millennium simply starts the adrenaline pumping.

Indeed, my feelings about London could best be summed up by a headline in the magazine, the New Statesman which I saw when I was on holiday here earlier this year. The headline read: 'Oh, What a Capital City'. And the strapline below said: 'To inhabitants of London, it's busy, buzzy and cosmopolitan. To outsiders, its size, influence and affluence are the stuff of envy'. Somehow I can also see Hong Kong fitting neatly into that picture.

This morning you have heard some of the experts from Hong Kong on how we are forging ahead as the leading international financial centre in the Asian time zone. I'm sure you now have a better picture of why Hong Kong remains the best partner for the City of London in providing financial services in Asia.

What I propose to do is to give you my perspective of how Hong Kong, as one of the freest economies in the world, intends to compete in the New Economy. So, please excuse me if I touch on ground already covered in the seminar.

First, let me bring you up to date with how the economies of our region have been performing as we regain the ground lost through the impact of the Asian financial crisis. There's no doubt the recovery is taking hold. Barring any serious deterioration in the oil supply situation, forecasts indicate that the nine economies of East Asia, excluding Japan, will grow by an average of over 6 per cent this year and there's likely to be a similar growth rate in 2001. This compares with the average projected growth in the G-7 countries, which of course include Japan, of just over 3 per cent and 2.7 per cent next year.

As far as the year 2000 is concerned those forecasts, based on IMF data, almost reflect what is happening in Hong Kong today, despite the fact that we've been steaming ahead in the first two quarters with real growth of 14.3 per cent and 10.8 per cent. Fortunately, the heat will dissipate over the last half, which should leave us with growth for the year of about 8.5 per cent. We're also expecting a quieter period in 2001 with growth returning to a more normal trend of around 4 per cent.

As you can see, the overall picture is looking a lot brighter, but, of course, a lot depends on external factors including a possible economic slow-down in the United States, particularly in view of the sharp oil price hikes, the patchy recovery in Japan, and the scene here in Europe.

The Asian financial crisis did have a profound effect on Hong Kong. We were faced with the most serious threat to our prosperity since the Second World War. It was something that many, if not most, in our community had never witnessed before. Compounding this, particularly at the employment level, was the restructuring of our economy - the diversification away from our traditional over-reliance on asset inflation to sustain growth into the New Economy of innovation and technology.

Even now, the recovery has not filtered through to all sections of the economy. We are trying to redress that situation with much-needed reforms to our education system and special training and re-training programmes for those workers who want to gain new skills for the knowledge economy and as we build Hong Kong into the world city of Asia.

The days are long gone in Hong Kong when manufacturing was a key part of our economic fabric. That has moved across the boundary into Guangdong Province. Today in Hong Kong the buzz words are the Internet, e-commerce, virtual banking, 3G, dot-com, portals, WAP, and a host of other sayings that would just about fill a dictionary. Although, even these seem to be causing a few headaches.

Today's Hong Kong 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. Many of us were guilty of taking our economic success for granted and, when the bubble burst, the thud as we hit the ground reverberated around the region. Increased sophistication and globalisation have generated new wealth for us, but they have also increased the volatility of the economy.

In particular, we recognised that our ability to compete was an overwhelming priority. This fundamental issue was reinforced when we 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. We now have a different labour 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. Now our work force is starting to gain new skills and a new level of productivity. The unemployment rate is also beginning to trend downwards, now standing at 4.9 per cent.

Our vision of a world city with an economy dominated by a combination of advanced technology and sophisticated services is taking shape.

And with typical Hong Kong passion for a new fad, e-revolution fever has swept the city. The speed with which firms, particularly those which had made their names in property, moved into the information age was quite amazing. They are forging new relations with leading hi-tech and Internet multinationals in their switch to cyberspace. This momentum, despite the downside risks, is inspiring a new generation of entrepreneurs.

An example of how quickly the Internet boom spread to Hong Kong is reflected in one set of statistics I have been following with interest. Before June last year, 199 companies had been incorporated in Hong Kong with the character string dot-com. By the beginning of September - that's 15 months later - the number had increased nearly 840 per cent to 1,678.

Of course, like any other business venture, the New Economy has not been without its risks. The consolidation since March has highlighted the volatility of sectors within the cyberworld. To express this another way, "you have to kiss a lot of frogs to find a prince". One study has shown that for every 10 start-ups, three eventually fail and another six at best break even. While other research points to 75 per cent of Internet companies disappearing within 3-to-5 years. We all know the risks are high, but there are winners too and Hong Kong has its fair share.

The growing influence of technology stocks on our securities market is also indicative of the enthusiasm with which people from all walks of life have embraced the New Economy. Since the end of 1998, the top 10 technology, media and telecommunications stocks have increased their share of the Hong Kong stock market's total capitalisation from 17 per cent to 39 per cent. And those same stocks were responsible for 64 per cent of the growth in the market capitalisation.

Our second board, the Growth Enterprise Market was set up last November specifically for start-ups, mainly in the technology field. It now has over 45 listings and although the GEM index slipped after the dot-com bubble burst, the market is playing an important role in raising capital for young companies with bright ideas.

Hong Kong's excellent telecommunications infrastructure has been a major factor in our aggressive move into the New Economy. Market liberalisation has thrown open this vital economic sector to intense competition and rapid advancement in technologies. Indeed, in a recent regional study by the National University of Singapore on telecommunications competitiveness in Asia, Hong Kong was placed marginally behind Australia which held down the number one spot.

The huge increase in the use of the Internet has mirrored the development of the telecommunications sector. One in two households now has a computer at home and over one-third of our population, or some 2.5 million people, are Internet users who last year generated over 11 billion minutes of Internet traffic - a 100 per cent increase over the previous year. Perhaps influencing this has been the ease with which people can log-on through nearly 190 Internet Service Providers, the world's highest ratio of ISPs to population.

Today, the range and scope of information that can be transmitted by or downloaded to a mobile handset may well be the first step in consigning the PC to the scrapheap of history. But if you want high speed connectivity, you need look no further than Hong Kong. Broadband fibre optics are available to 100 per cent of our commercial buildings and nearly all of our residential properties - thanks, in part, to our free market approach to competition.

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 the third Disneyland theme park outside the United States, demonstrates how vigorously we can compete for investment. Preliminary work has already started on Hong Kong Disneyland, which is due to open up a new tourism frontier in 2005.

And we have set up Invest Hong Kong as the government's new vehicle to develop a vigorous and professional investment promotion strategy focusing on areas where we have a competitive edge. Some of you here today may have seen The Spirit of Hong Kong, which is being co-sponsored by InvestHK, sailing out of Southampton last Sunday week (September 10) at the start of the BT Global Challenge around-the-world race.

As you watched the images, you may have asked the question why sponsor an entrant? Well, it's the longest, toughest, and most demanding of international yacht races. And through the event we can show to the world that Hong Kong has the freest economy, has the most competitive business environment, has the most strategic location in the Asia-Pacific region, and has the guts to take on a tough challenge.

Sir John, ladies and gentlemen, I have mentioned these different elements to illustrate the broad range of reforms and the restructuring that we have been overseeing 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 moving confidently into the age of information and technology.

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 at the end of this year at US$1.9 billion. But these are expected to leap-frog to some US$69.6 billion by the end of 2004 and the figures for China will show an even stronger growth.

As a way of further stimulating the development of e-commerce, the infrastructure being developed for the government's new around the clock electronic service delivery scheme - which will provide a range of services to the public through the Internet - will also be made available to the private sector for e-commerce. It could be said that we are rapidly gearing ourselves for a world without walls.

Our flagship IT project, the Cyberport, is helping us to provide the catalyst for the e-Revolution similar to the efforts of the East of England Development Agency which, I understand, is devising initiatives to promote technology clusters here in the UK. The first stage of the Cyberport, itself a high-tech cluster, won't be ready until early in 2002, but already some of the world's top New Economy businesses have signed on as anchor tenants, including Microsoft, Cisco, IBM, Nokia, Ericsson, Silicon Graphics, and Sybase. With this project we're providing the infrastructure for a 21st century concept designed to attract, and retain, quality companies and talented professionals who specialise in leading-edge IT applications.

We're also making sure that diversification into the New Economy 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 centre where, as you know, the speed at which transactions can be completed is pivotal to business decision-making.

A case in point are 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 to take advantage of the global 24-hour trading day which is fast becoming a reality. With the installation of new technology HKEx will be capable of performing T+zero transactions by the end of the year.

For our small and medium sized enterprises, and we have nearly 300,000 of them employing 60 per cent of the workforce, the e-revolution is changing the way they operate. Adjusting to the Internet as the principal medium of doing business may not always be easy. However, it is opening up new avenues 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 better. Not only is the economy on the rebound, but China's imminent accession to the World Trade Organisation will pave the way for new ventures. 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, accounting, legal and other support services. It is estimated that our GDP will grow by up to one per cent a year as a result of China's entry to the WTO. But our businesses will have to work even harder to seal a deal in the face of much tougher competition. And believe me, the competition will be fierce.

Hong Kong has many advantages for companies wanting to open the door to the Mainland. Not only do we have the established connections through our culture, language and business background, we have preserved all our traditional strengths.

That means - 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: an effective and apolitical administration: an openness to international trade and capital flows: the freedoms of the individual equal to those you have here: and the knowledge that you can always fall back on a tried and true legal system based on the English Common law for resolving any disputes, including disputes with the government. We continue to build on those strengths to create an even better Hong Kong for the future.

Thank you.

End/Tuesday, September 19, 2000

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