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Reporter: The Asian crisis is behind us and now Hong Kong's small business people and people - low wage earners - are not feeling the pay-off of the economy, I mean from these businessmen's point of view, can you see that there is perhaps something wrong with the fundamentals - fundamentally wrong in Hong Kong's economy?

Mr Leung: I don't think there is anything fundamentally wrong with the policies. As a matter of fact I see that a lot of policies that the SAR Government has adopted so far have been very good for a lot of the common people, and indeed, I think a lot of people in the various sectors have benefited. What we are faced with is actually a change in the paradigm, meaning if you look at the two major trends of change in Hong Kong, one is that we have moved from an industrial economy to a knowledge economy, and that is a paradigm shift. It is not an evolution, indeed it is a paradigm shift, and the implications are tremendous. And I would hope that all of us can actually think hard about what the implications are, including its implication on education - that's why we have the education reform.

Secondly, the second change really is the merging of the Hong Kong economy with that of the Mainland. With the Mainland economy at a much more cost-effective basis and with all these changes, it would clearly make certain sectors in the community benefit and other sectors suffer. And so I think the Government will have to think about ways to help the entire economy and thereby every Hong Kong citizen somehow seize the opportunity and not being victimised by these changes.

Reporter: A few days ago you were reported as saying that during the ... that you went off to Istanbul ... go away while this was on ... It is unclear whether you were joking or whether you were trying to say that you actually intervened in the market against your own best interest, against your own best judgment. Could you please explicate on that a bit, explain to us what that was all about?

Mr Tsang: That's the pay for telling the truth to young people, then all this can catch up on you. I can tell you what happened. It was a very difficult situation in summer 1998, we were assailed on all sides and a recommendation was made to me, jointly by Mr Joseph Yam and Mr Raphael Hui, that we had to do something rather extraordinary in the market and they laid out a plan. The sort of plan that in my own personal economic philosophy was quite anathema. In a sense it was an incursion in the market. Then I weighed up the whole thing and I believe, like other market movements, sometimes these things go away and I hoped that perhaps we'd put it aside for a few days the thing might just go away. And right at that time I had already committed to an inaugural flight to Istanbul, so I took the flight to Istanbul for one day. During this period Mr Hui was on the phone all the time telling me what was going on hour by hour. When I came back I realised that the situation was much more serious than I had thought so. We laid out a plan and decided to intervene in the market. And what happened is history, you know about that. But it was indeed the case that in the process of consideration, I tried to detach myself from the scene, hoping that I would be able to make some objective assessment, but the markets just overwhelmed me at that time - they were collapsing between my ears.

Reporter: Mr Leung, about the 1998 intervention, did you support the intervention from the beginning, and if you've come around to supporting it now, at what point and what made you support it?

Mr Leung: Well, I suppose all these actions you have to judge by the result, and also the auxiliary actions. Clearly, as a kind of advocator of a market economy, undue intervention or undue interference by the Government is not a very good thing, but at that point of time I believed that there was not really a normal market situation. The markets had been manipulated and when the markets were manipulated it wasn't really free markets. And since I am a true believer of the free market, any actions that can restore the market to a free market, away from manipulation, would be a correct move.

Reporter: Is it your last Budget?

Mr Tsang: It would be my last Budget.

Reporter: Any surprises? Can you give us some preview? What can we expect?

Mr Tsang: You can't expect me to give you some but I'll give you a little secret, I will show my Budget to Mr Leung before it is delivered.

(Please also read the Chinese part)

End/Thursday, February 15, 2001

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