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Following is the speech (English only) delivered by the Chief Executive, Mr Tung Chee Hwa, at the Hong Kong General Chamber of Commerce's 7th Annual Business Summit this (December 13) morning:
CC, Mr Lehner, Ladies and Gentlemen
Introduction
It gives me great pleasure to have this opportunity to address you today on a subject which is close to my heart, which is central to the economic interest of Hong Kong and of the Chinese nation, and which, I believe, is pivotal to the future of the world economy - particularly that of the Asia Pacific Region. China's accession to the World Trade Organisation ("WTO") will enable our country to take its rightful place in the international trading system. This development will have a profound influence on the future of globalisation. The Mainland is now focussed on putting finishing touches to WTO accession and the subsequent implementation. We are here today to examine the implications for Hong Kong. To put things in perspective, let me first share with you the overview of the major changes in Hong Kong and the Mainland over the recent years.
Profound Changes in Hong Kong
All of you recognise that, over the past three years, Hong Kong has undergone profound changes. Many of you have played a part addressing challenges which we have faced and overcome. "One Country, Two Systems" has become a reality in Hong Kong. This is a constitutional arrangement unprecedented in history. The fact that this has worked remarkably well speaks volumes about the wisdom, courage and commitment of Hong Kong people. This has been made possible with the unfailing support of the Central Government. International businesses have repeatedly underlined their support for Hong Kong. Just last week, the American Chamber of Commerce announced the results of a very encouraging survey which showed that their members take a very positive view about business prospects in Hong Kong.
The other challenge which we have coped with, but was unforeseen prior to the transition in 1997, was the Asian financial turmoil. In the finest tradition of Hong Kong, we have turned adversity into opportunity. Not only have we reduced the cost of doing business in Hong Kong through a slimming down process in the private and public sectors, we have also seized this opportunity to undertake fundamental reforms to our financial system. The stock and futures exchanges have been merged. The Growth Enterprise Market has been launched. The IT wave has caught on in Hong Kong. Cyberport, Science Park and other infrastructural facilities have been well laid to provide a firm base for Hong Kong to take full advantage of the new economy. We are continuing to liberalise our telecommunications sector and broadcasting sector. To add a new string to our economic bow, we are upgrading Hong Kong's tourism through new initiatives such as the "Hong Kong Disneyland".
I will talk a bit about the changes in China. Since the Four Modernisations and the Open-Door Policy started 22 years ago, Hong Kong businesses have expanded significantly into the Mainland - particularly in the manufacturing sector. The Hong Kong economy is now ready for the next paradigm shift. Across the board, in the financial, IT, telecommunications, tourism and professional services sectors, Hong Kong is now well positioned to take full advantage of the vista of new opportunities which will flow from China's accession to the WTO.
Chinese Mainland Economy Liberalising Rapidly
Since 1978, China's economy has undergone changes at a breathtaking pace. When the reform began, China's GDP was only about US$200 billion. Today, the Chinese economy at US$1 trillion GDP, is the seventh largest in the world. Indeed, the World Bank has predicted by 2020 it will become one of the largest. This has been brought about principally by well-thought out and well-implemented macro-economic policies. Reform has been undertaken with determination and unprecedented speed. All parts of the Mainland economy are being subject to radical change as market economics take over as the main driving force. Over the last three years, pursuant to reforms of state enterprises, they have become much more efficient, while the private sector economy continues to gain greater prominence.
For an economy to develop, infrastructure facilities play a key role. Development in roads, railways, ports, airports and telecommunications to world class standard in the coastal regions of the Mainland has been very rapid. There is strong government commitment there to education to produce top quality people to drive the economic progress forward. At the same time, labour force continues to be inexpensive, well disciplined and productive. Therefore, the production costs in China are low and the quality of products is rising. Furthermore, efficient infrastructure allows the timely delivery of goods to different parts of the world. On top of that, Mainland China has a huge domestic market which will become open on China's accession to WTO. No wonder more and more multinational companies are establishing manufacturing facilities on the Mainland, not only to produce goods for the rest of the world, but also for the domestic market in China.
Another significant point is that after WTO accession, China will align herself with WTO rules and regulations. This will enhance investment confidence among the international community. Some investment banks in the west are already predicting that China's foreign direct investment which stands presently at an average of US$40 billion per year will make a quantum leap from this level.
Impact on Hong Kong
I see extraordinary opportunities for Hong Kong and our businesses after China's accession into WTO. What are these opportunities?
Since 1978, over 50% of foreign direct investment onto the Mainland has been channelled through Hong Kong. With much larger foreign direct investment into China in the years to come, Hong Kong's role is bound to grow in importance. Hong Kong's capital markets are continuing to transform in anticipation of this development. Rather than just being a hub for loan syndication across Asia over the past decade, Hong Kong has been transformed to become an equity-raising hub. An increasing proportion of activities is based on equity raising for local, mainland, and foreign companies. This role - which embraces private equity finance and venture capital activities - inherently is much more skill-intensive than mere loan syndication it has been. This will draw heavily on the depth and breadth of Hong Kong's legal, regulatory, equities research, and financial engineering skills. I believe this role of equity intermediation will grow at a hectic pace in the coming years. This development will make our financial services sector to be even more substantial and dynamic than it is today.
The conventional wisdom is that in anticipation of WTO accession a number of multinational corporations will relocate their operations to the Mainland or elsewhere in the region. The fact is that the number of regional headquarters and offices in Hong Kong has increased from 2,500 in 1999 to about 3,000 this year - an increase of 20%. Yes, we may lose some, but we will gain more.
I see our role as a headquarters hub broadening to address the needs of thousands of overseas medium-sized companies who aspire to go international and particularly to go into China. The tidal wave of smaller and less internationally experienced companies - the thousands of substantial companies that populate middle America, and the European equivalents of Germany's "mittelstand" companies - will be seeking a headquarters location or strategic partner in Hong Kong to explore the unfolding opportunities on the Mainland.
Through Hong Kong, they will be able to enter Mainland market with its huge population and expanding purchasing power. They can form strategic partnerships with Hong Kong medium-sized companies with knowledge and experience in making business deals on the Mainland and know what kind of products the Mainland market demand. Together they can enter the Mainland market and be successful. One of the challenges facing the new InvestHK unit and other "Hong Kong Inc" partners is to identify these companies overseas, match them with those in Hong Kong so as to take full advantage when China becomes a member of the WTO.
Increasingly, Mainland companies are moving to the international market. Hua Wei in telecommunications and Hai Er in home appliances, are some of the outstanding examples of success internationally. As more and more Mainland companies begin to explore opportunities to go international - or "¨«¥X¥h" in Cantonese - I believe that Hong Kong will play an indispensable role in enabling them to raise international capital, to develop focused strategies to target foreign acquisitions, and to build a prominent presence in foreign markets.
Up to now, a large number of Mainland companies based in second and third tier Chinese cities have had negligible interest in international markets. In the coming decade, literally tens of thousands of such companies are going to be seeking opportunities to export effectively and profitably to the rest of the world. Hong Kong's massive clustering of global trading intermediation skills, its strength as a centre for trade and finance, and above all else, its unique strengths as a logistics and fulfilment hub, place us ideally to help these thousands of companies to capture export opportunities worldwide.
I wish to make a special point on the Pearl River Delta. I have previously stated that we need to look at Hong Kong and the fifty thousand square kilometres of the Pearl River Delta with a population of some 30 million as a regional economy. Indeed, with the Pearl River Delta growing at double digit, this region economically is one of the most dynamic in the world.
Over the last few years, manufacturing activities in the Pearl River Delta have continued to expand. At the same time, increasingly there is a trend to move into high-tech sector. More and more companies of international standing are undertaking activities in the region. The strengths of Hong Kong as a business centre and the strengths of the Pearl River Delta as a manufacturing base are complementary. I see a lot of room of collaboration between the two places in information technology and high-tech development. Similarly, as the richest region in China, Guangdong and the Pearl River Delta region will present a most attractive consumer market to overseas companies wishing to sell their products in the Mainland. But this is not just of interest to multinational companies large or small. It is also of interest to Hong Kong companies who will find opportunities in the Pearl River Delta.
Furthermore, as the economy of the Pearl River Delta and indeed the entire Guangdong Province continue to expand, the need for infrastructure development whether they be roads, railways, power generation and transmission, port facilities, facilities for tourism can all be attractive investment for Hong Kong and overseas companies alike. Thus, following the entry of China into WTO, the formation of the regional economy between Hong Kong and the Pearl River Delta will gather faster momentum.
Hong Kong has enormous potential as a multimodal logistics hub. This is one of the reasons why I have been so keen for different parts of our Government, our port operators and our airport, to look carefully at developing and strengthening our logistics role. As China's trade with the rest of the world accelerates, so we face unprecedented opportunities to intermediate this trade physically. As the total volume of exports and imports to and from China increases, the goods purchased will still need to travel from the factory to the store or to the supermarket shelf - and Hong Kong has a unique clustering of strengths to manage this movement and act as a fulfilment centre for this anticipated surge in trade.
This is not something that Hong Kong will be able to make a success of on its own. I see the Pearl River Delta developing into globally significant "logistics region", combining the complementary strengths of Hong Kong, Guangzhou, Shenzhen, Zhuhai and Macau, and other dynamic townships in the delta. As we evolve these strengths, I see the region providing truly multi-modal capabilities, combining land, sea, rail and air transport to ensure cargoes reach their destination with a seamlessness that will be hard to match anywhere else in the world.
I see evidence of this in embryo form in the new service through Chek Lap Kok where an exporter from any city in the United States can now have his cargo delivered on a single airway bill to a destination anywhere in China; on arrival by air in Hong Kong, and without the need for customs clearance in Hong Kong, the cargo is shuttled in a high-speed truck directly to Guangzhou's Baiyun Airport, where it clears customs, and can then be delivered in the region, or flown on to another Mainland city by a Mainland carrier. The reverse flow is obviously entirely feasible.
So, too, with high-speed cargo ferry services linking Chek Lap Kok directly with 14 cities along the Pearl River Delta. Once this service is in operation early next year, factories on the western side of the Pearl River Delta will be able to get their cargoes to Chek Lap Kok in less than an hour - compared with a better part of a day at present. Such innovative, multimodal logistics services will benefit factories throughout the Pearl River Delta, and will serve to strengthen Hong Kong as the best possible hub through which to conduct trade. The same, of course, has been applicable for container shipping sector - Hong Kong being already the largest container port in the world.
As China moves to align herself with rules and regulations of WTO, the need for professionals whether they be accountants, lawyers, architects and surveyors will be enormous. Hong Kong has an abundance of quality professionals who will have new opportunities to participate in the growing demand on the Mainland as China enters WTO.
From the foregoing, it is abundantly clear that Hong Kong's strengths stem from its position as a specialised service economy, the clustering of headquarters and headquarters-related services, our international capital markets capability, our role as a transportation hub, and our expertise in global trading and logistics. The huge hinterland economy, particularly that of the Pearl River Delta, is a dynamo which will drive the expansion. The Mainland's growing involvement with global markets can only be excellent news for Hong Kong and the region.
The opportunities are many, but how can Hong Kong take on these opportunities and succeed? On a more macro scale, it is important for Hong Kong to upgrade our education system; train a generation of people with knowledge, skills and the right attitude to take on these challenges. We also need an immigration policy which attracts top quality people to work and live in Hong Kong. We need to continue to improve our environment to ensure the quality of life is one of the best anywhere. Only by so doing, can we attract and retain top quality people in Hong Kong.
We need to be mindful of our cost structure. The best way to remain competitive is for the whole community to embrace information technology as a way of life and as a way of doing business. Only by so doing, can we improve our productivity and stay ahead of the competition.
We need to improve cross boarder infrastructural links between Hong Kong and the Pearl River Delta to ensure that both cargo and people can cross with speed and efficiency, so that trade never stops.
As the Hong Kong SAR Government, we recognise that it is our responsibility to provide leadership in terms of facilitating communication between Hong Kong and the Central Government, in gaining a clear understanding of how policies of the Mainland regarding WTO accession will be implemented and in ensuring that Hong Kong business sector has access to opportunities which flow from these policies. We will liaise closely with the Central Government's various ministries, and at the same time, the Hong Kong Trade Development Council, Hong Kong's various chambers of commerce and professional bodies will need to redouble their efforts on both the Mainland and overseas.
Conclusion
Ladies and Gentlemen, I see China become more stable, open and prosperous as she enters WTO.
I see Asia Pacific economy overcoming the difficulties of the past two years and resuming its growth spurred on not only by the eventual recovery in Japan but also by China's WTO accession. The opportunities for Hong Kong are out there. The challenges are many. History and geography have placed Hong Kong in the privileged position next door to the largest developing market in the world in the 21st Century. I have every confidence that in the coming decades Hong Kong will not only be one of the most important cities in China, but will be the World City of Asia.
Thank you very much.
Photo: The Chief Executive, Mr Tung Chee Hwa, spoke on the role of Hong Kong post-China WTO entry when he attended the 7th Annual Hong Kong Business Summit organized by the Hong Kong General Chamber of Commerce in association with the Asian Wall Street Journal at the Hong Kong Convention and Exhibition Centre in Wan Chai this (December 13) morning. Picture shows Mr Tung addressing the audience.
End/Wednesday, December 13, 2000
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