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Following is the full text of the speech (English only) delivered by the Financial Secretary, Mr Antony Leung, at a business luncheon in Frankfurt today (June 27, Frankfurt time):
Mr Moller, ladies and gentlemen,
I am delighted to be here in Frankfurt, one of the world's great financial centres, and to have the opportunity to address such a distinguished gathering.
2. One reason for my visit is to meet a wide cross section of business people, politicians and friends of Hong Kong. To discuss issues of mutual interest and to brief you on what is happening in our dynamic region of East Asia.
3. In today's global economy it is vital for market practitioners to be abreast of the latest developments in the world's financial centres. That's why we closely follow what happens here on the Deutsche bourse, as I am sure many of you keep a watching brief on trends in Hong Kong and Tokyo.
4. For those of you who haven't visited Hong Kong recently, I will bring you up to date with the economic situation in the region and, in particular, how you can capitalise on our position as a Special Administrative Region of China. I will also touch on the changing landscape in which we find ourselves as we position Hong Kong to become Asia's world city.
5. Hong Kong's economy rebounded strongly last year. GDP grew by 10.5% - our best economic performance since 1987 and the highest for all East Asian economies. It was driven largely by a surge in trade with our global partners : and came as we emerged from the aftermath of the Asian financial crisis.
6. Clearly such rapid growth could not be sustained indefinitely nor would it have been healthy. This year the weakening US economy, the slower growth expected here in Europe and the continuing stagnant economic situation in Japan is obviously having an impact on our region.
7. Nevertheless, the latest private sector consensus forecasts are still predicting economic growth ranging from 0.9% in Japan to 4.2% for both Singapore and Malaysia. For Hong Kong we are now forecasting GDP growth for the year of 3%, down from our earlier prediction of 4%. These figures still highlight the vibrancy of East Asia.
8. But the really bright spot in the region, and perhaps on the global scene, is the mainland of China, our vast and relatively untapped hinterland. It is expected to sustain a strong growth momentum of not less than 7% this year. If the first quarter growth of 8% is any guide, the forecast will be achievable. The potential for this level of growth to continue into the future will become even more evident when China eventually joins the World Trade Organisation.
9. Indeed, we were delighted to see last week that China and the European Union were able to resolve their outstanding bilateral issues which should pave the way for the Mainland's entry to the WTO later this year. Not only is this good news for Hong Kong, it opens up enormous opportunities for the world's trading nations.
10. China's accession is the next phase of what has been a remarkable economic transformation. State-owned enterprises will face a radical overhaul. There will be profound changes in the way Chinese companies do business not only with the world, but with each other.
11. More Chinese companies are expected to look for listings on the Hong Kong bourse, or elsewhere such as New York, London or perhaps Frankfurt. All of this will present Hong Kong with one of its biggest opportunities in history.
12. We conservatively estimate our GDP will increase by at least 0.5% a year after China's accession. There is no doubt we will face stiffer competition from other global players. But Hong Kong enterprises have been pioneering greater access and preparing for a more open market in China for over 20 years.
13. They are already the biggest single investor in every province in the Mainland. This existing presence and know-how, our contacts, our language and cultural ties will be used to leverage the opportunities presented by a Chinese market more closely aligned to the world's rules-based, multi-lateral trading system.
14. But are these sufficient reasons why Hong Kong should remain your best business location in Asia, now and in the future? The simple answer is 'yes'. Let me explain this. Many multinational companies will opt to move directly into the Mainland market. Some have already done so. These companies have the financial resources, the staff and the international experience to do this.
15. However, for every large multinational, there must be hundreds of smaller, medium-sized enterprises without those resources. They also want to enter what is potentially the world's single largest consumer market. Opportunities in the Mainland's domestic market will come not only from the prosperous coastal regions and big cities like Beijing and Shanghai, but from the developing inner and western provinces where Hong Kong's SMEs already have an established foothold.
16. By joining forces with established Hong Kong businesses, overseas companies will be able to bring their products and services to the Mainland market effectively.
17. While our entrepreneurs took advantage of cheaper land and labour in the Mainland to relocate their manufacturing facilities, they generally maintain the high value-added, high-end elements of their operations in Hong Kong. Areas such as management, design and marketing, legal services, transport and logistics, finance and accounting services are all based in Hong Kong.
18. The reason for this is we have a deep pool of professional talent in these areas which are required by multi-national companies. And we have a robust and respected legal system, a level playing field for business, the free flow of information and a clean and highly professional administration.
19. This is part of the separate system under which Hong Kong operates as a Special Administrative Region of China. It is what we mean by 'one country, two systems' and Hong Kong people running Hong Kong with a high degree of autonomy. I am told that this important distinction is often overlooked here in Europe. So, my advice to companies here in Germany wanting to do business with a China opening up more to the world - establish a presence in Hong Kong. From there you can also expand into the rest of Asia.
20. We are simply your best business partner for China. We provide a world-class cosmopolitan environment for business with cutting-edge hard and soft infrastructure. An international financial centre that closes the gap in the time zone between Europe and the US and is a major fund raising centre for Chinese enterprises. With China's accession to the WTO, our financial services sector is expected to continue to grow. Foreign Direct Investment into China is estimated to more than double to as much as US$100 billion annually within this decade.
21. Hong Kong's stock market is the second largest in Asia after Japan and is considerably more liquid, and more familiar to investors, than most others in Asia. Our banking sector - the 10th largest in the world - is among the best-regulated. The banks are known for their high levels of corporate governance, risk management and high capital adequacy ratios.
22. We have the cultural ties, the knowledge and experience of trading and investing in China. We have extensive transportation links and communications with the Pearl River Delta, the fastest growing region in the Mainland. And, most importantly, while Hong Kong benefits from these close ties, we have the rule of law upheld by an independent judiciary. This ensures that contracts are enforceable and that business disputes can be settled through a legal system that is based on the English common law.
23. Our separate system also means we have our own freely convertible currency. There are no restrictions on capital movements into or out of Hong Kong. Foreigners can freely repatriate their capital or funds. Nor are there any restrictions on the trading or ownership of securities or property, or in setting up or owning companies. Our tax rate is low and we have a simple tax regime. Only profits made in Hong Kong are taxable at a flat rate of 16% and individual salaries tax is a maximum 15%. We remain a separate customs territory with strong intellectual property laws.
24. These are the advantages of doing business in Hong Kong. Choosing Hong Kong as the location for your company headquarters can often mean the difference between success and failure in entering the China market. So, it may not come as much of a surprise to learn that last year the number of companies establishing their regional headquarters or offices in our city increased by 20%.
25. Indeed, there are now some 550 German firms with a presence in Hong Kong, which includes over 30 that have set up in the past 12 months. International investors, big and small, continue to use Hong Kong as a services hub for their operations in China and throughout Asia.
26. Today, Hong Kong is almost entirely a services economy. About 85% of our GDP comes from service industries, compared to less than 40% on the Mainland. There will obviously be a shortfall of skilled professionals and services staff in China. Some international companies will bring in their own. But others may look to Hong Kong.
27. We will continue to adopt a liberal immigration policy to attract talent from overseas to fulfil our manpower requirements. We have also just revived a scheme aimed at bringing in people from the Mainland with the right qualifications to fill positions in the IT and financial services disciplines.
28. Ladies and gentlemen, as I have said, my objective today is to give you a broad overview of why I believe Hong Kong is still your best business partner in Asia. We are continuing to build for the future. Investing in our physical infrastructure and developing Hong Kong into a hub for aviation, transportation and logistics. Investing in projects that are cleaning up the environment by improving our air and water quality : and we are already seeing positive results from these initiatives. Enhancing our role as Asia's most popular tourism destination with projects like Hong Kong Disneyland coming on stream. And we are better equipping our young people with the skills they will need in the knowledge-based global economy and to harness the technological advances that are changing the way we live and do business.
29. As a city that is within five hours flying time of half the world's population, we are capitalising on our location at the heart of Asia and the gateway to China - a China that is poised to become the world's second largest economy within the next 20 years. We have made great strides towards achieving our goals. The incentive and the inspiration is in the vision we all share for Hong Kong. A great city that is an asset both to our many and diverse citizens and to the rest of the world. A place where Asia's future can be seen today. Hong Kong, Asia's world city.
30. Thank you.
End/Wednesday, June 27, 2001
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