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The following is the transcript (English only)of the Chief Executive, Mr Tung Chee Hwa's question and answer session following his speech at the Hong Kong Business Community Luncheon today (October 16):

Question: On China's accession to the WTO, there will be some opportunities for some business people but there are also some challenges to business communities, especially for our trading community. So do you have any message for SME? How does it face the challenges? Thank you.

Mr Tung: I think that China's entry into WTO certainly poses many challenges, but the challenges would have been there with or without China's entry into WTO because China, in the last 20-odd years has been moving very rapidly forward and has been very successful in their reform programmes. And then, if you visit cities like Guangzhou, Shenzhen, Shanghai, Beijing, you will see how much progress they have made, not only in terms of the hard infrastructure - roads, railways, telecommunications - but also in terms of the quality of people. The improvement is really astounding and very impressive. And I have very often told my colleagues in the Government, as well as many times in my speeches, that if Hong Kong is to continue to be in the forefront and to continue to be very successful, we need, really, to be moving ahead ourselves also.

And this is why I have been emphasising in areas of environmental protection, in areas of education, to ensure that we are always ahead in Hong Kong. Only if we do that, then we can be sure that our vision, which is not only to become one of the most important cities in China but also the world city of Asia, can become a reality. So irrespective of WTO or no WTO, it is a huge challenge for us anyway. Now the fact is that China is in the WTO and the challenge will be even greater.

But on the other hand, there are so many opportunities. It has been suggested that the trade in export/import of China which grew at over 30% up to September this year from the year before, could well be doubled in the next 7 to 10 years and Hong Kong can reap tremendous opportunities because of the increasing size of this business. And also foreign direct investment, which stands now at somewhere around US$30 billion to US$40 billion, according to some estimates could also be doubled in the next 7 to 10 years, and then when that happens Hong Kong will be playing a role as the financial centre, so there will be many, many opportunities for us.

Insofar as the SME is concerned, of course it is more than just the evolution of China into WTO, it's SMEs in Hong Kong and as you know 98% of the firms in Hong Kong are SMEs and they employ 60% of the labour force, about 1.35 million people. So the SME is tremendously important to us. And in my Policy Speech I have said two things, I said we are forming a new Medium and Small Enterprise Advisory Committee, the level of representation will be higher and hopefully this committee will give good advice to the Government as to how we can take one more step further in helping the SME, not just with regards to China but generally.

And secondly, there will be approximately HK$2 billion which is a sum which we originally earmarked for the purpose of providing guarantees for the banks, for the SME to borrow from the banks at the time of the financial crisis. So there will be $2 billion or thereabouts available as a financial resource to help whatever the Government can do in this area. So I am now, in the reverse, looking forward to suggestions by the SME Advisory Committee to give better advice to the Government how we can go ahead. So I am very hopeful that this time around, our help to the SME will be very real and very material.

Question: Mr Tung, could you explain a little bit further about what you mean about the 'third sector' of the economy and how you see business happening in that area?

Mr Tung: Actually, the best museums, hospitals and universities in some of the wealthy countries are not provided for by the government funding, they are provided by private sector funding; people with the willingness to help the community. And there is a lot of volunteerism involved, ordinary members of the community willing to spend some time in volunteering work. Hong Kong has that too but we need to organise this somewhat better and our plan is really to move in that direction. Hopefully, we can tap a great deal more, not just the financial resources but just as importantly, people's time to make volunteerism really work in Hong Kong. And the record shows that the more wealthy the country is, the more vibrant is the third sector. And in one of the countries, I read that third sector activities amount to 7% of the GDP of the country. So it can be very, very exciting and it is something which we are going to figure out how to move ahead and get the whole community more involved.

Question: Mr Tung, I understand that the cross-border traffic between Shenzhen and Hong Kong is increasing by 10 million a year. While I understand that Government is doing something to improve the Lok Ma Chau and Lo Wu crossing, and I think you also recognise that the city of Shenzhen and the city of Hong Kong could be complementary, and that better co-operation between these two cities would mutually benefit the economy and eventually the people of these two cities, what positive steps Government is taking to speed up the improvement at the Lo Wu and Lok Ma Chau crossing?

Mr Tung: I think, first of all, let me say this, that as the Government we recognise that one of the most important developments for Hong Kong's future is the development of a regional economy which is really Hong Kong, Macau, Shenzhen, the whole Pearl Delta all the way up to Guangzhou, 60,000 square kilometres, a population of 26 million - 27 million people. It is one of the most dynamic regions on earth, actually, and the important thing is how we can work more closely to develop this regional economy.

And one of the most important things of developing the regional economy is the physical infrastructure, which means the roads, the railways that link Hong Kong and the Pearl Delta. It also means much greater ease in crossing the border, because even if you have the best infrastructure, if you can't cross easily, then it really doesn't help. So I think these are areas of our priorities. We will be working very hard at them over the next few years to ensure that the regional economy vision becomes a reality which in fact is very important to Hong Kong's long term development.

Specifically, of course, we are going to build a bridge linking Shekou and the Northern New Territories. The railway, our railway, there will be a spur line from the New Territories which will link up with the subways in Shenzhen with the crossing in Huanggang, of course, this is subject to environmental impact studies and discussions. And then the other is, of course, just making the existing border a lot more efficient than what it is today.

And one of the difficulties is, as you said, the growth is so huge, people crossing is growing at 17% per annum, which means that over 4 years - 5 years, not quite up to 5 years, it's doubled. So you really have to be planning for the longer term to allow for this enormous growth to happen. And all I can tell you is that the vision is to see a regional economy. We recognise the importance of this, the importance of better cross-border physical infrastructure and software infrastructure, and we will be working very hard over the next few years to make that a reality.

Question: Mr Tung, my family operates two kindergartens in Hong Kong, I have a son who is about to go into primary school, and you can understand that I am quite sure that there are a lot of parents who are sitting amongst us who are very concerned about the education policies in Hong Kong. I studied in Hong Kong up until 1981, before going to Australia to complete my secondary studies and then my tertiary studies, so I think I have seen both sides of education. One is the Australian way, one is the Hong Kong way.

One thing which concerns me very much is that we are moving to a system where there is now going to be less exams, less tests, no elite schools, but I think, from my friends in China, they are now developing a system where there are going to be elite schools, where there are going to be exams, and is this 'one country, two education systems'? And how could I be sure, because I think everybody will agree with me that no one is more dear to our hearts than our children? So, are our children being, sort of testers, guinea-pigs, to try this new system? And those people, which I understand to be advising the Government on education policy, actually maybe came from my batch or the batch before me which was educated under the old system, so this is a time which I think I should not miss to ask you this question directly, and how could you assure me as a parent, that my children are going to come out in the way and at the quality of education which I received in Hong Kong?

Mr Tung: Every Sunday I have dinner with my own children and I have seven grandchildren and one of them is in primary one, the other, I think, is trying to get into primary one, and over the last two months the discussion at the dinner table is all about schools, all about the difficulties they will face because of the system - it's good, it's not good, it's good, it's not good. So I hear a great deal, not just externally from all sorts of people but also within my own family because as you can imagine, as my children, they are parents, they also care very much about their children's education. So I am aware of the fact that, like generations before, all parents care about their education.

This Education Commission's Report was the product of two years' work and the Commission consulted very widely within Hong Kong before they produced this report. And I hope you will take the time and the effort to read through the report because it really contains some really good and very, very interesting suggestions that I believe will make Hong Kong's education system better than what we had before. This is not just their view, it is a product of their consultation and I would say that whatever school system we have today, we make our school system better than what we had before, including the need to move into more private schools and so on and so forth. So all these things are happening.

I can spend hours with you going through the report because it literally will take hours, but I hope you go through the report and if you do have any then worries, I would be very delighted to get one of my colleagues, or even myself, to talk to you, and I want to hear what your concerns might be there.

Question: Mr Tung, as we all know, there is a great need for new and modern housing in Hong Kong. I just want to know the latest updated figure for the production of new flats for the years to come.

Mr Tung: Well, let me take the opportunity to go back to what we are trying to do. Firstly is that we want to be sure those who cannot afford housing, who have been waiting in a queue to go into public rental housing, their waiting time will be shortened. Now, in 1997 the waiting time was seven and a half years; there were 150,000 families waiting to get into public rental housing. We have made a pledge that by 2005 this waiting period will be shortened to 3 years. Recently, we have improved the pledge by saying that by 2003 the waiting period will be shortened to 3 years. And this is very important because there are a whole lot of people living in housing whose condition we can't accept, so it is important we rapidly move towards this objective.

The other objective we have is, for those people who would like to own their own home but who can't quite afford a private sector home, we have a Home Ownership Scheme which allows those who can't quite afford private sector housing to go into Home Ownership Scheme. But we did one more thing, we are providing loans for those people who do not wish to buy government-owned Home Ownership Scheme but who wish to go into the private sector housing, so we provide loans for them to become the first time investors in their own homes.

And thirdly is that before the financial turmoil, housing prices in Hong Kong were really, really very high, they went up and up and up, and since the financial turmoil, of course the housing prices have adjusted very, very substantially. Our role, as the Government now, is to want to make sure that housing for ordinary people - the prices need to be stable - recognising fully that to most people, to most of the Hong Kong people, the investment in housing is probably the most important long term investment one can have.

So we are very conscious of this. We want the price to remain stable. In the long term, it will not be a bad thing if it moves up with inflation. Now we can't dictate the market, we can't: tomorrow the market goes up, the day after tomorrow the market comes down. We can't do that. But what I can tell you is that the Government is the largest owner of land in Hong Kong and obviously, because we are the largest landlord in Hong Kong, what we do with the availability of land will have an influence on the long term housing costs. So that we will do. So it is with this sort of policy we are following, we are moving ahead. I can't tell you at this specific moment how many housing units we are building, I'm sorry.

End/Monday, October 16, 2000

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