**********************

Following is the full text of the speech by the Financial Secretary, Mr Donald Tsang, at a luncheon hosted by Hong Kong Trade Development Council in Warsaw today (September 22, Warsaw time):

Distinguished guests, ladies and gentlemen,

I am delighted to be here in Warsaw and leading the highest level Hong Kong mission ever to visit Poland. It has taken us a long time to reach this stage. Indeed, Hong Kong was just developing as a then British colony when your virtuoso pianist and composer, Frederic Chopin, was transforming piano music into an artistic power 160 years ago. And his influence continues in Hong Kong today for the many students and lovers of music.

Here in Warsaw, I see Chopin has been immortalised in statue as a tribute to his life and works. In Hong Kong, it is hardly coincidental that the 19th century gentleman immortalised in Statue Square, in the heart of our central business district, is not a politician, not an explorer, artist or soldier, but a banker. This statue of Sir Thomas Jackson, who helped found the Hongkong and Shanghai Banking Corporation, HSBC, 130 years ago, is a powerful symbol of what Hong Kong has become today, the most important financial centre in Asia after Tokyo.

But, I'll come back to that a little later. You may be wondering why a tiny place like Hong Kong has suddenly become interested in doing business with a large country like Poland. The answer is simple. We are continually on the look out for new opportunities to expand business and trading links.

In the past two years, I have personally led Hong Kong missions to South America, the Middle East, Scandinavia and South Africa. And both our Chief Executive and Chief Secretary have spearheaded promotions in countries such as Canada, the U.S., Europe and Australia. So you can see we have the world on our radar screen. We have to. Trading has been our lifeblood ever since the sailing clippers of the early 19th century started using the magnificent deepwater port of Hong Kong.

Today, it is the world's busiest container port handling over 16 million containers - that's one 'box' every two seconds, 24 hours a day, 365 days a year. Indeed, there would be few countries in the world today that don't trade with Hong Kong. In Poland's case, total trade between our two communities last year was worth US$260 million - a decline of some 15 per cent over 1998. However, we have seen a sharp increase in 2000. In the first six months, trade grew by 11 per cent. Certainly, while we are here in Poland, we will be exploring all avenues to see how we can further expand our trade and commercial ties to ensure that growth trend can be maintained in the future.

Having given you one set of statistics on the Hong Kong-Poland connection, I would like to take a step back and draw a picture of Hong Kong for those of you who may not be familiar with our region. I will do that by using comparative figures for Poland.

Hong Kong became a Special Administrative Region of China in July 1997. We have a land area of 1,100 square kilometres, that's about twice the size of Warsaw. We have a population of 6.8 million which makes us a pretty crowded place with a density of about 6,500 people per square kilometre. In one of our more congested urban areas we have over 55,000 people per square kilometre. By contrast, the population in Warsaw, including the suburbs is around 2.1 million and the density 3,300. Hong Kong's GDP in 1999 was US$158 billion and Poland's was about US$154 billion. Our total labour force is 3.5 million and here in Poland it is 17 million.

Economically, about 85 per cent of our GDP comes from the services sector, compared to between 60 and 70 per cent here. Last year Hong Kong's trade with the world was valued at US$351 billion; Poland's external trade was over US$60 billion. These few facts should give you an idea of where Hong Kong is coming from and why our community needs to trade and provide services in order to survive.

There were many commentators who were predicting that we would not survive our reunification with China in 1997, after more than 150 years of British administration. They argued that Hong Kong would become just another large city of China. That our freedoms, our free market economy and our capitalist way of life would not be tolerated by our new leaders in Beijing, despite the Sino-British agreement reached in 1984. This document, which subsequently formed the basis of our constitution, the Basic Law, guarantees there will be no change to our systems for 50 years after the handover.

Well, the commentators got it wrong. The 'one country two systems' principle under which we operate as a Special Administrative Region of China is working well. The Central Government in Beijing has been scrupulous in observing its hands-off policy, allowing Hong Kong people to get on with the job of running Hong Kong in all matters except for defence and foreign affairs as was the case under the British.

Our separate systems mean just that. All of the ingredients of our past success as an international financial and trading centre are enshrined in the Basic Law. These include our legal system, based on the English common law, and way of life; the protection by law of all fundamental human rights; the free movement of goods and capital; the right to free movement to and from Hong Kong; the protection of property rights and foreign investments; freedom of the press and freedom of speech; a fully convertible currency; and the freedom to run our own economy.

We still remain a member in our own right of the World Trade Organisation, the World Customs Organisation and the Asia Pacific Economic Co-operation forum. We negotiate our own air services agreements and maintain our own shipping register. Indeed, we are now ready to sign an air services agreement with Poland. More than 200 international treaties, as well as multi-lateral and bilateral agreements continue to apply to Hong Kong.

And this brings me back to a point I made earlier. All of these factors allow us to maintain and build on our role as Asia's leading international city and a global financial centre. We have Asia's second-largest stock market after Japan. Some 450 banking institutions and local representative offices have established a presence in Hong Kong. We are one of the world's top four gold markets; the 4th largest banking centre; 7th largest foreign exchange market; 10th largest trading entity in goods. We have a very well developed private sector debt market, and we are Asia's second-largest fund management centre.

That is where we are today. But what of the future? Like Poland over the past few years, we are realigning our economic base to achieve sustainable and equitable growth in the new millennium. We are reforming our financial markets to make them even more competitive, more transparent and more accountable, especially in the light of global trends such as 24-hour stock trading, electronic-commerce and on-line brokerages.

We are branching out into new areas of innovation and technology, and carving ourselves a niche in the development of information technology. Our distinctive Cyberport project, which will open for business early in 2002, is designed to put Hong Kong on the global IT map.

This strategic cluster of technology and information services companies will help build a pool of talented professionals, who are in short supply in Hong Kong at the moment. On top of this we are building on our traditional strengths such as our close trade and investment ties with the Mainland of China and our strategic position as a communications and transport hub between the time zones of Europe and the Americas.

And, we are actively looking at the world to develop new opportunities and strategic partnerships which will not only strengthen and expand our economic base, but also that of our new-found partners. As I said at the outset, that's why I am here today with my colleagues from the Hong Kong Trade Development Council and representatives of the business community. We want to tell you as much as we can about ourselves; and to learn what you would like from us.

I know from talking to your Consul-General in Hong Kong, Ms Agnieszka Lobacz, who is kindly accompanying us on our visit to Poland, that business people may be reluctant to establish a presence in Hong Kong because of the perceived high costs involved.

But, let me say this, our costs have been coming down. One message reinforced by the financial crisis that swept through East Asia between late 1997 and early 1999 was the need to remain competitive.

During the crisis, the free market forces of our economy came into play to bring about natural adjustments that have resulted in a lowering of our cost structures. It wasn't easy. The people of Hong Kong had to endure a lot of pain while the economy adjusted. Thankfully, we are now recovering strongly and this growth is expected to continue.

The 2,500 overseas companies that have established their regional headquarters or regional offices in Hong Kong are proof that we are still a very attractive city in which to locate operations. These attractions include our low and business-friendly tax structure which sets corporate tax at only 16 per cent and salaries tax at 15 per cent - that's amongst the lowest in the world. And other advantages, such as our strategic position at the heart of Asia and the gateway to the mainland of China, will be significantly improved with China's accession to the World Trade Organisation.

Hong Kong is uniquely well placed both culturally and geographically to take advantage of China's WTO membership. Hong Kong companies are treated as foreign companies on the Mainland. We are given no special treatment, but our businessmen have generally made a success of their ventures. Hong Kong money employs about 5 million workers in southern China and about 50 per cent of direct foreign investment in China has come from Hong Kong. Indeed, we have become a much wealthier place on the strength of those investments they generate.

In addition, our economy is strong in those very areas which the Mainland needs most to develop its economy, such as trade and travel related services, finance, insurance, transportation, tourism, telecommunications, and business services generally.

Given this unique combination of strengths, the concerns about Hong Kong's decline when China joins the WTO, I believe, are seriously misplaced. Some trade may be diverted, some business transactions currently routed through Hong Kong may go direct. But Hong Kong will more than make up for these losses from the new business to be generated. Indeed, the increase in trade in China will enhance Hong Kong's role as the nation's premier international financial centre with a fully convertible currency needed to support international trade. In short, we're excited by the prospects and opportunities China's WTO membership will create.

I realise a number of Polish companies have already established themselves in the Mainland. But I can see opportunities for other, perhaps smaller firms, being able to leverage Hong Kong's position and expertise to get a piece of the action. There is also a level of comfort 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.

I hope I have given you a clear picture of Hong Kong. But there is one aspect I want to raise specifically and that is the role of a small group of Polish people who are playing a part in our own development, particularly in education. As you all know, Poland has long been famous for the outstanding scientists and scholars who have made their name on the world scene in a variety of fields.

We are fortunate in Hong Kong to have attracted a diverse group of academics from Poland who have taken up positions at several of our universities. They are helping to educate our bright young students in a range of disciplines including physics, applied sciences, architecture, arts and social sciences, astrophysics and molecular biology. These academics are making a valuable contribution towards Hong Kong's diversification into the knowledge economy.

And the University of Hong Kong is currently involved in a joint research project with the Warsaw University of Technology that could pave the way for cleaner air in Hong Kong and parts of China. The project involves the development of advanced electric and hybrid motor vehicles. Air pollution is one of the major problems affecting Hong Kong's quality of life and one that we are tackling with top priority. So, I'm delighted that Professor C C Chan, who heads the Hong Kong University's side of the research project, has been able to join our business mission to Poland.

All of us wish Professor Chan and Professor Antoni Szumanowski, head of the Propulsion Control Centre of the Warsaw University of Technology every success with their highly valuable research project.

Ladies and gentlemen, I have spoken at some length. I now want to give you an opportunity to ask questions if you want to raise issues that I may have overlooked or if you need further clarification of points I have made.

But before this happens, I would simply invite you to come and visit us in Hong Kong so you can see for yourselves what we have to offer. You will find that Hong Kong today remains an open and pluralistic society which welcomes trade, investment and interaction with our partners in the global village. I very much hope that the Hong Kong-Poland partnership, in particular, grows and matures into the future.

Thank you.

End/Friday, September 22, 2000

NNNN