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The following is the transcript of the question and answer session following a speech by the Chief Secretary, Mr Donald Tsang, at the luncheon hosted by the American Chamber of Commerce today (October 15):

Question: At the risk of sounding a bit insensitive to certain people who have homes, I am having a hard time understanding how this ubiquitous term of negative equity came to be so prominent in Hong Kong at this point. Because as I understand it a home for your own use as opposed to speculation is a long-term investment, as other investments may be. It's going to go up and down and the fact that interest rates have come so low I would have thought on a cash basis those people who have bought a home are paying far less. And I sometimes think if they had a positive equity and interest rates had gone up, there would be another problem for these people because they would be paying so much out of their pocket to meet the mortgage payments. So I don't fully understand how this came to be so popular in Hong Kong as a major deficit. Unless people are going to sell their homes right away? Can you comment on that?

Mr Tsang: Well, I think it is a sensitive issue for people in Hong Kong because property has been so expensive here in relation to other places and many of us have worked out the whole life's savings to put into investment, into one's home. And when we see value of that investment comes down, although as you are quite rightly said, Jim, we still live in it and we have to service it, we feel the pain and particularly the amount you still owe your bank for that mortgage is likely to exceed the market value of the premises, it hurts doubly. And then if you're under the threat of about to lose your job, that hurts triply and particularly when you hear about the recession coming and life is going to be tougher, then you complain again. Hence, this Government is useless and so on and so forth, will come forth.

If you look at it very objectively you are exactly right Jim. Interest rates are coming down, the loan service burden is now coming down too, and we must have a trust in Hong Kong too. And you brought up a very right point, in that this is a very small land mass of 1,100 square kilometres where there are seven million people living in it and it's not going to grow any larger, and the Green people make sure we can't even reclaim more. The fact of the matter is the only way in which property value could go is to go up, over time. So I hope it is not an ever-lasting phenomenon that property market will remain in the doldrums.

Another thing as a way in which the market will grow, and Hong Kong's place is still important, people will realise the value of property will become stable. But at the moment I can see the pain of people and we must not be too insensitive about it. But some are carrying it too far. The negative equity can be carried a bit too far. We go to buy a suit when it's not on sale. Then the next day you find that it's cut by 30 per cent, immediately you're wearing a negative equity. I'm not trying to pretend to be heartless. That goes right to the heart of the issue, whether it is more than justified for the Government to help as much as we can. But we must not be heartless in this. We have to think about those people who have come up with life-long savings into one investment and they feel the hurt and the pain.

Question: Donald, thank you for sharing with us your prospective on both the past and the way forward. I think in terms of how you mentioned the chicken flu, I think we all have caught an endemic of self-doubt and this virus I think, that is going through our population in Hong Kong, really gets at your self-confidence, gets at your confidence about the future. At the same time, as I talk to people, I also find that there is a strong potential for combating this. People in Hong Kong, both from people who have come from abroad as well as people home grown here, share a love for Hong Kong that is rare. If you search inside this room and outside this room there is a love of Hong Kong that is wonderful and we want do right by Hong Kong and the future. We want to make a difference, individually we want to do that. I think it does call for leadership, it calls for the leadership that is just not stewardship, but it calls for a leadership that can paint a future that we can all buy into and we can do our part to make it happen.

Mr Tsang: Well, Mr Tam, I agree with much of what you say. But self-doubt, which has arisen not only in Hong Kong, but the whole of East Asia which has been struck by economic problems twice in a short space of time. You survey the newspapers reporting from Tokyo right down to Singapore, you'll find editorials writing the same theme: are we going from here, what will has happened to us, what will the future hold for us. Same sort of questions. But in a totally free society like Hong Kong with our free press, the thing is even debated a bit more. I agree with you people do love Hong Kong, people around this room, expatriates, local, we all love this exciting place. But the fact that we love it so much that we want to make sure it is perfect, it's impeccable, it's doing well. And that is why we scream and shout aloud and express our worries and concern. So it is a flip side to this.

And I do believe it is not entirely a bad thing, so if you look at these things positively; that people complain about it because they care about this place. And I'm quite sure when we turn the corner economically, spirit will be lifted and people will go forward and forward again, and they are proud of this place. Once you go, once you leave Hong Kong you'll find that the telephone is not working as efficiently here, you want to mail a letter it just takes a bit longer, you want to do three things in a day, it's just not possible, and so on and so forth.

But that doesn't mean that people won't complain, they would. But we must remember that stems from the fact that they are concerned about this place, they are rooted here, they want to tell you their own concern, they want the Government to do something about it if they can. I'm listening but also I agree with you that we cannot complain too much. There are times that we have to recognise that there are things that we are pretty strong, there are things that we have done over the last four years, which I have mentioned. Don't write them off. This is not easy to come by. We have come a pretty big way to where we are and there are a lot hold out for us in the future.

Question: Speaking of an industry that has been so badly affected by the ramifications of September and the tragedies in New York and Washington, I think it is encouraging to notice the airline scene in Hong Kong has not had to call on government support, whereas many affected around the world have either re-nationalised or have cash-flows bailed out. Could you comment on the Government's views in the future and its philosophy about recouping the cost of the airport at a time when people around the world recognise that aviation and commerce are so closely interwoven? Thank you.

Mr Tsang: Well the cost recovery is in our blood. It is not a raw motivation, but the rate of which we try to recover an investment depends on how the market can bear, and I'm quite sure the Airport Authority will mull over this issue, as they embark on their ambitious development plans and the way in which they charge for the services in Hong Kong. It is a good airport. It is an efficient one and it helps all airlines make money too. But I think the airport will have to make both ends meet but this is a matter I'm quite sure that the Airport Authority, in making Hong Kong the focal point, the hub of the Orient, they have to make sure that the pricing is correct. I'm sure they are listening.

Question: I'm born and bred a product of this place of unlikely history as you pointed out. I've seen all these years Hong Kong has gone through many crises and the private sector has somehow found a way out. This time it sounds a bit different and maybe it is a change of frame of mind of people that we are more dependent on the pointers of Government on what might be the new way out. Do you think that it is the way the Government should take a more leadership role and if so, could you give us one or two pointers as to what is the way that we can find light at the end of the tunnel?

Mr Tsang: The Administration had never shirked their leadership, responsibility. But being a leader doesn't mean that you have to do all sorts of handouts for the people. That is not what leaders are good for and that is not to be a respected leader for that matter. Leaders must do the right thing.

So we must not confuse the two issues. To lead the place means you have to pork barrel politics into this place; this is the last thing we want. The leadership is somebody who's able to look at the problem at hand so that concessions are being made for the very poor in the community, and one who has vision too to making sure that the community is equipped to deal with the competition of tomorrow and hence the vast investment and the priority in education, and to look at the business prospects and the business environment. This is what we are trying to do and develop new markets in the Mainland of China. That is what genuine leadership means. It doesn't mean just going out and shout and scream and tell everybody about it. But rather, it is someone who is able to do the right policy for the people.

I do not pretend that the Administration of which I work in has been immaculate, has been faultless, far from it. As any administration in the world, it has committed its fair share of little mistakes, but these mistakes must be looked at in the context of what it has done too. And I believe it is not a bad record on any showing.

Well, ladies and gentlemen, this is a great place and I am proud to be in service to it and I'm proud to be among you to speak to you on a subject of Hong Kong, of relationship between Hong Kong, the sharing of values between and the civilised world.

I thank you very much.

End/Monday, October 15, 2001

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