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Follows is a speech (English only) by the Chief Executive, Mr Tung Chee Hwa, at the APEC CEO Summit in Shanghai today (October 18):

Hong Kong's Development Strategy in the New Era

Ladies and Gentlemen,

It is always a pleasure for me to visit Shanghai. I was born in Shanghai and spent the first 10 years of my life here before our family moved to Hong Kong. Whenever I come back, it brings back a lot of nostalgia and childhood memories. Most importantly, every visit is a new experience. One is so excited by the changing city landscape, gleaming new buildings, and the beaming energy and ambition of the people living here.

Indeed, Shanghai's development gives you a glimpse of the future of China, the vista of progress, achievements and opportunities that are rapidly unfolding before the world. Everywhere you go here, you feel in the air a sense of pride and the unity of purpose in the process of nation building.

People like to compare Shanghai with Hong Kong. There is one striking similarity between the two cities. When you walk on the street of Shanghai or Hong Kong, what always impresses you are the seemingly endless building works, the dust and the construction noise. It is a pleasant inconvenience that epitomises the two cities' confidence, commitment, and huge investment in building for the future. It is a vision that both of our cities share.

On 1 July 1997, China resumed sovereignty over Hong Kong. One hundred fifty six years of colonial chapter drew to a close and the Hong Kong Special Administrative Region (SAR) was born, ushering a new era in which Hong Kong moves forward under the concept of 'One Country, Two Systems' concept. The historic mission for Hong Kong is to turn this innovative concept into an everyday reality. Over the past 4 years, with the firm support of the Central Government and the determination of the people of Hong Kong, we have successfully achieved this mission. The successful implementation of the 'One Country, Two Systems' concept can best be demonstrated by the enormous inflow of capital into Hong Kong as well as the return of many, many Hong Kong residents who migrated overseas before 1 July 1997.

Since Hong Kong's return, our economy has been faced with a need for restructuring as a result of globalisation and rapid development of information technology. The rise of China economically has given us new opportunities as well as new challenges.

While undertaking the needed structural reform, our economy has also been affected by the cyclical downturn around the world. The terrorist attack upon the United States on 11 September has brought about deepening economic uncertainties around the world and in Hong Kong. Our earlier forecasts have to be significantly revised. More jobs will disappear before they re-appear. Government revenue will fall short of its target, whereas expenditure will rise, in part because we'll need to spend more to take care of the greater number of people who need to be taken care of in this downdraught; we will be running an unexpectedly large budget deficit this year.

In such a situation, a good government does two things: it must respond quickly to the vagaries of the moment and deploy resources in a timely manner to solve the problems of the day, and, perhaps more importantly, it must keep in mind and not lose sight of the bigger picture, of the trends, of the forces driving things in the long term. A good captain will always be able to know his true bearings, even while dealing with shifting winds and confused seas in a heavy blow.

For the short-term, faced with a serious cyclical downturn, we devised some short-term relief measures to release the financial burden of our citizens. Additionally, the Government will be speeding up public works projects and enhancing much needed social services and, by so doing, creating over 30,000 new jobs within the coming months to arrest the rise of unemployment.

But other than tackling short-term issues, I can tell you that the main efforts of the Government have been concentrated on a number of longer-term challenges. Central to our policy thinking and activities is how we can as a society best make the transition to a knowledge economy from our current starting point in the shortest time possible, ride the waves of progress of China our motherland with the greatest success and least economic and human dislocations, and adapt ourselves to the era of globalized competition and in the end come up with an economy that can perform brilliantly in the most demanding and competitive situations.

To these ends, the major tasks that the Government has decided to set out to do are five. First, we must invest in human capital in a sustained manner and on a vast scale, sufficiently to form a deep, strong base of brainpower to support a knowledge economy with high value-added economic activities. Secondly, we must enhance the hard and soft infrastructure and generally make Hong Kong even more business-friendly and efficient. Thirdly, to improve our environmental qualities so as to make Hong Kong a better place in which to work and live and enjoy life. Fourthly, to make life easier, hardships more bearable and jobs more accessible for the less fortunate members of our society who find it difficult to weather the process of economic restructuring. And finally, to make government more efficient and responsive to the needs of the people.

We have already been working hard and investing heavily on education for several years, in spite of the economic situation. Our three-fold objective is clear: first, we must vastly improve the quality of teaching and learning in our basic education system; secondly, we must further enhance our tertiary education with systemic reforms and efforts to make it available to many more of our young people - 60% is our goal in 10 years; and thirdly, we must make lifelong education the norm of our adult workforce poised to enter the knowledge economy.

Accordingly, government spending on education has increased by 46% since 1997 and is likely to accelerate following the series of education reforms that began last year. Much of that money goes into improving the quality of teaching and learning at all levels of basic education. Providing teacher support and time and resources for their self-improvement is given high priority. Special emphasis is paid to the teaching of English. Furthermore, in educating our children, we will be doing away with the old method of cramming more into their brain, but by giving them more space to develop on their own, opportunities to stimulate their curiosity and resources to help them acquire an all-round education. At the tertiary level, we are also working on reforming our university system to make it more conformable to world trends.

Education is a long-term investment, and reforming education is never an easy task, anywhere, at any time. A good beginning has been made, but I am calling for a sustained effort in this area.

Of course, investing in our school system and tertiary education is an important but not the only component in our overall game plan of investing in human capital. An unfortunate fact about knowledge economy is that knowledge has ever shorter half-lives. What is learned today in school will be useful for a few years and then a good part of it will become obsolete. For a person to remain competitive in the labour market of a knowledge economy, constant renewal of knowledge is imperative. In other words, people need to invest in lifelong education. Now clearly, the government cannot undertake all such investment for all our citizens: they themselves will have to put in the time and the money. What the government can do is to provide some stimulus, some help. For that reason, we would set aside US$640 million dollars to give partial tuition support to individuals who engage in lifelong education. According to our statistical projections, this year there are about 700,000 individuals taking at least one continuing education course at various institutions in Hong Kong, at a combined cost of about US$125 million. No doubt these numbers could have been higher, and we would be moving to a knowledge economy faster, if more people could afford to take those courses, which, being valuable, are by no means cheap to many people. The US$640 million dollars I mentioned would give needy and determined individuals a lift.

After knowledge enhancement, we need to work hard to improve our hard and soft infrastructure and to make Hong Kong into a more business-friendly city and to be sure that both our hard and soft infrastructure remain one of the best in Asia. The Government is committed to spending up to US$75 billion in the next dozen or so years on transportation and other infrastructure projects, to make Hong Kong a more efficient city in which to live and work.

We now have six railway construction projects due for completion by 2007 and we are planning for several more. In order to maintain our leader position as No. 1 in the port in the world, work on the Container Terminal Number 9 is under way. Phase 1 of the Hong Kong Disneyland, the core of our tourism development program, is scheduled for completion by 2005. To enhance our push in innovation and technology, our new Science Park is taking shape. In order to meet the needs in convention and exhibition activities, a second convention and exhibition centre at the Chek Lap Kok airport site will be built with the Government committing up to US$260 million and the rest coming from the Airport Authority. In telecommunication, the broadband connections to homes and office buildings is amongst one of the best you can find anywhere in the world.

Some of the infrastructure projects would be geared to facilitate a closer economic cooperation with the Pearl River Delta, a market of 40 million people that we cannot afford to ignore. These infrastructure projects will enhance the development of Hong Kong into a regional logistic centre. We are considering the construction of an express railway linking Hong Kong to Shenzhen, which would link up to a new Shenzhen-Guangzhou express railway already planned by the central government. Such a connection would cut the travel time from Hong Kong to Guangzhou within one hour.

Let me tell you, ten years from now, compared to what we are today, Hong Kong will be a very different - vastly superior - city. Many major construction projects are already under way; many changes are occurring right under our eyes. Just look, and you'd be amazed. Let me tell you, Hong Kong is really moving!

To make Hong Kong a truly business-friendly city, we are taking concrete steps that will bear results quickly. We will simplify business-relevant bureaucratic procedures. We are making it easier for foreign and Mainland companies to come to Hong Kong to set up offices and headquarters. We are also doing things to make Hong Kong a more attractive home for the employees that these companies would like to bring with them. We will also make it easier and faster for both multinationals and local companies to import foreign and mainland talents into Hong Kong. And the list goes on and on.

We have also decided to devote US$240 million to help small and medium-sized enterprises. The money will mostly go into establishing four new funds to help boost training, open up markets, implement projects and programmes to lift competitiveness, and to purchase business equipment and appliances with credit guarantees from the Government all geared to the growth and development of SMEs. SMEs are an integral part of our economy. As in the past, they are going to be very effective job creators once the recovery gets under way. With the funds set up and strengthened now, we are preparing exactly for that to happen.

On the environmental enhancement front, we made strong efforts over the last two years and have achieved good initial results. We have put most diesel taxis off our roads, and we are working with the transportation sector on other diesel polluters. These days, the air in Hong Kong is much cleaner. But we need to work closely with our counterparts across the boundary to treat regional air pollution. I am pleased to say that Guangdong province and Hong Kong have agreed to reach a consensus by April next year on a joint plan to implement long-term measures to improve the air quality of the entire region. We have made similar efforts in treating other pollution problems, such as solid waste disposal and sewage effluent into the Harbour. Furthermore, we are embarking on an urban greening program. Urban renewal is also given a shot in the arm with the setting up of a more powerful Urban Renewal Authority, which will push ahead with urban redevelopment at the same time that it strives to preserve important cultural heritage sites. We vow to make Hong Kong a better place to live for all our citizens and all the people that we want to attract to come to Hong Kong to tour, work or do business.

On the social policy side, the Government understands that the solution to many social problems, problems which are likely to be aggravated by the economic downturn and the restructuring process require a strong tri-partite partnership - the coming together of the government, business corporations and the volunteer or "Third" Sector. To foster this partnership, we are setting up of a "Community Investment and Inclusion Fund", with an initial injection of US$40 million of Government money. The Fund also accepts private and corporate donations, and will support grassroots activities that aim at spurring volunteerism, empowering individuals and groups, strengthening families and promoting healthy lives for all.

Other than the fund, our commitments to the elderly, the handicapped and other less fortunate members of our community continues unabated. In good times, we want people to be able to share in the prosperity. In more trying times, we want to lessen their pains.

In difficult times, the Government needs to foster a more service oriented government that responds better to the changing times and evolving needs of the community. We are developing a system which will make the entire Government, especially the top government officials more accountable.

There are other dimensions of good governance on which we are working hard to improve.

A government that delivers better service at lower cost and a smaller government that does not stand in the way of the market and the individual - through civil service voluntary retirement scheme and productivity enhancement programs, annual savings in the magnitude of US$1 billion can be achieved by the beginning of next fiscal year.

A government that promotes citizen participation and democracy, in full accordance with the letter and spirit of the Basic Law.

And, a government that stresses rule of law, safeguarding of the freedoms that its citizens enjoy, and public security especially in times that demand heightened vigilance.

Ladies and gentlemen, Hong Kong has overcome many challenges in the past and every time we emerged stronger and better. We have confidence because we have a clear vision and a targeted strategy. We have confidence because Hong Kong is endowed with distinct advantages - our unique geographical position and strengths as an international centre for finance, trade, transport, logistics and tourism. We have confidence because of the hard work, creativity, entrepreneurship and self-reliance of the Hong Kong people. Finally, we have confidence because we can leverage on the support of the Central Government and the huge potential and opportunities made available to us by the rapid expansion of the Mainland economy.

By 2020, China's economy will be one of the largest in the world. As China continues to open up, some will say Hong Kong's competitive advantage will narrow. So long as we have a clear target in Hong Kong, so long as we continue to build on our strength, and as long as we continue to move up the value chain, our competitive advantage will always be there. Therefore, we see opportunities for Hong Kong to continue to contribute to the Mainland economic development by providing services in the areas which we excel in - especially after China's accession to WTO - in financial services, including insurance and fund management; in professional services such as accounting and auditing; in legal services such as contract law, dispute settlement and arbitration; in logistics and supply chain management; and in marketing and advertising. We see enormous opportunities as accumulation of wealth will make China one of the largest economic and consumer markets in the world. We see opportunities particularly working together with the Pearl River Delta to create one of the largest and most vibrant economic region.

Ladies and gentlemen, people always ask me about the competition between Shanghai and Hong Kong. Let me conclude by borrowing an analogy first used by Mr Xu Kuangdi, Mayor of Shanghai. He described the role of Hong Kong and Shanghai as being the two engines of an airplane lifting China's economy into the 21st century. As China soars higher in the world economy, it will need not only two, but three, four and many more engines. Hong Kong and Shanghai will continue to be the two most powerful engines for China's growth way into the future.

Thank you very much.

End/Thursday, October 18, 2001

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