The following is a speech delivered by the Chief Secretary for Administration, Mr Donald Tsang, at the Business Week Fifth Annual CEO Forum "Driving Revolutionary Change: New Business Models for an Interconnected World" at Ritz-Carlton Hotel today (October 24):
Mr Chairman, ladies and gentlemen,
Thank you very much, Ronnie, for the kind introduction. I am particularly pleased to be here today and speak at a Business Week forum, because it was only three months ago that Business Week headlined Hong Kong as 'A City Under Siege'. Hong Kong has had the curious experience of reading its own obituary notices from the day it was born. They seldom surprise us and they have always turned out to be premature. They started when the distinguished British Foreign Secretary, Lord Palmerston, who dismissed Queen Victoria's newest colonial acquisition 160 years ago as 'a barren rock' that would 'never become a mart of trade'. Political and economic forecasting has always been a tricky business.
Mr Chairman, the Book of Ecclesiastes tells us there is a time for everything. Notably and tragically, the world is now in a mood of war. And we are experiencing some hard times, across the region and around the globe.
As fate would have it, this is nothing new. Most of us in this part of the world were just beginning to look up again after the Asian financial crisis of 1997-99. That was the first real test of our regional mettle for many years. It provided a painful but necessary impetus for us to take stock of how we go about our business. Right across the region, we had been enjoying a period of relatively rapid growth. We had seemed to be economically invincible, all on a one-way ride to the top.
Many young people, even up into their 30s, knew only the boom times and came to regard them as a permanent feature of life. Older heads knew that "bust" is the other part of that cycle. But even so, it seemed that all the talk about the forthcoming "Pacific Century" was about to become reality. It may yet happen. After all, this is just the first year of that century but it is certainly too long a time to be holding your breath.
Perhaps a more down-to-earth vision of how this century will unfold was on display last week when the members of APEC met in Shanghai to discuss how to handle this difficult period. It provided another example of why APEC is such a good and necessary forum. We are washed by the same body of water and we are pretty much all in the same boat. This is some boat. The 21 member economies of APEC are home to some 2.5 billion people; represent 44% of global trade; and in 1999 had a combined gross domestic product of US$18 trillion.
The truth of life is that crisis brings out the best, and worst, in all of us. I believe that the aftermath of the appalling events of September? 11 have brought out the best in most of us. It has certainly produced solidarity among those who believe in the rights of individuals and countries to live in peace, free from the tyranny and fear of terrorism and its cruel perpetrators.
It also focuses the mind on what is important in life: as human beings, as members of our own communities, and as citizens of the wider world. It underlines the need for co-operation over conflict; sharing over selfishness; and a generosity rather than a meanness of spirit.
For our own region, still shrugging off the events of the financial crisis which engulfed our economies just four years ago, the international slowdown and the unpredictable aftermath of September 11 have brought new and unprecedented challenges. Our response to them requires bold and firm leadership. This is why we should take encouragement from the strong and determined outcome of the APEC meeting in Shanghai over the weekend.
To my mind, our region now faces its biggest challenge since the Korean War in economic, strategic, security and social terms. Most of all, we face an important challenge in trying to forge a new identity following the traumas and setbacks of the last four years. How we cope with these challenges will be a test of our collective character.
At the heart of this will be the way we tackle globalisation. Globalisation is all-pervasive. It touches everything from IT to financial services; to where businesses locate; to where industrialists manufacture their products; to where investors place their money. Globalisation has defied geography. It touches rich and poor.
Let me share with you a story I heard recently. A big game hunter was deep in the jungle in Africa when he came across a village. In the dusty village square, some kind of ritual was taking place. All eyes were on a man in full tribal regalia who appeared to be offering prayers to the heavens. The villagers were praying hard with him. The hunter tapped one of them on the shoulder and asked : "Is he praying for the rain to come down?" "No," came the reply, "he's praying for the Nasdaq to go up."
We'll all be watching the Nasdaq, and much else, these next few months. We will also be doing our best to work our way through a period of uncertainty as to how long the downturn may last. Some say we may see serious signs of an upturn next year. Others predict that it will last much longer.
Whoever is right, the real test of leadership will be to protect the interests of our respective communities in the short term and prepare ourselves for the upturn when, inevitably, it arrives.
If you look around our region, you can be in no doubt that there are problems as well as prospects. The Japanese economy remains a worry, although there are positive signs of political determination to tackle the root causes of the problem. Most other economies are still struggling with the after-effects of the Asian financial crisis. Others have been hit by the double whammy of the recent global slowdown and September 11.
But many of the problems that existed before the Asian financial crisis and, indeed, contributed to that crisis, are no longer there. Nonetheless, it remains imperative that the reforms set in train following the crisis must be completed. Those who have learned the lessons of the Asia financial crisis will be best placed to take long-term advantage of the recovery.
Globalisation demands more transparency, not less; open markets and open minds; less government control and more faith in the power of the market; good corporate governance and the free flow of information and ideas.
These are values we recognise in Hong Kong. We have always placed our trust in the ideas of Adam Smith. This is not as a matter of blind ideology. But, as a small, externally oriented economy, we have found this to be a practical and rewarding way to unleash the talent and energy of our population. As a government we see it as our job to provide the soft and hard infrastructure to buttress the endeavours of our people.
The rule of law, underpinned by an independent judiciary; a level playing field for all; a free and unfettered press; a clean, accountable civil service. These are the four pillars of our society. Our physical hardware you see all around you, starting with your arrival at our international airport, 23 minutes from here by express train, a journey which takes you past the world's busiest container terminal.
It is certainly true that the economic principles Hong Kong put in place long before I was born are fast becoming the rule rather than the exception. We are consistently ranked as the world's freest economy by organisations such as the Heritage Foundation and the Cato Institute. But it's becoming increasingly difficult to stay in front. Many politicians and economists who once promoted the cause of socialism, or even Marxism, have now embraced the market. Adam Smith would be pleased.
Clearly, there are those who are not happy with this trend. While I do not approve of some of their methods, I don't think we should lightly dismiss some of their underlying concerns. The task facing all of us in public life is to do our best to ensure that globalisation doesn't further marginalise the poor.
Our aim should be to produce results that benefit the impoverished as much, if not more, than the rich. In this context, we should listen to voices like those of Jim Wolfensohn rather than Gordon Gekko. After all, what is the purpose of economic endeavour if it is not to bring a better life for our families and fellow citizens? And by that I mean our fellow citizens in less privileged and affluent parts of the world as well. The rising tide of globalisation must lift all the boats, not just the gin palaces.
The region can best contribute to this goal by celebrating its diversity and maximising its common interests. We should caucus together in formal and informal ways to leverage our strengths, particularly those which arise out of our time zone. The economies of our region should develop a complementary agenda for social advancement. We can do this by forming much stronger regional partnerships, and focussing on important issues like environmental protection, the development of a powerful Asian debt market, an old cri de coeur of mine from a previous incarnation in the government of Hong Kong.
Domestically, we all need to look at how we can manage the demands of globalisation. In Hong Kong, we have some home grown advantages. Our backyard is China, in particular the Pearl River Delta. Even in the current difficult circumstances, China's continuing growth, its enormous potential, and the possibilities opened up by its accession to the WTO provide us with a cushion not available to some of our neighbours.
In the short term, some other economies in the region will have to adjust to China's role as a major exporter of not just cheaper goods, but increasingly sophisticated ones. If you believe in the principle that competition is a spur to your economy, there is no reason why this should not be a win-win situation. Our aim must be to ensure that the region becomes a giant marketplace peacefully entwined in a web of commerce, to borrow a phrase from the Washington Post.
Hong Kong itself faces adjustments. Our strategy for the future is predicated on moving away from an over-dependence on property to a more sustainable service economy based on innovation and technology and the synergy we derive from our connectivity with the Mainland. There will be some painful adjustments, which we are trying to alleviate. We are putting in place the economic, infrastructural and political framework to maximise this in-built advantage.
Railways and other transport links we are building in the New Territories will not only improve life and travel for residents there, they will also boost connectivity with the powerhouse of Southern China. They will complement our natural locational advantage. A symbol of this is the proposed express rail service linking Hong Kong, Shenzhen and Guangzhou which the Chief Executive mentioned in his policy address on October 10th.
But Hong Kong is not just a China play - although clearly we are THE China play. Hong Kong is a key regional player. That is why we have some 3,000 Asia Pacific headquarters in Hong Kong, far greater than any other place in the region. We need to continue to leverage that, which was one of the factors behind our decision to set up an investment agency, InvestHK, last year. The fact is that we are in the right place, at the right time. We may need to do more to make sure that the rest of the world knows this - although I note that a regional study among German concerns reported a day or two ago that two-thirds find Hong Kong's location to be an indispensable asset in their business with China.
Now I know some people point to other places and say that our pivotal role is under threat. Shanghai is the place most often mentioned. Well, let me declare immediately that I am a great admirer of everything achieved in Shanghai.
Shanghai has been helped by a huge dollop of investment from Hong Kong - 42% of cumulative foreign investment through 1999. In fact, Hong Kong is by far the largest external investor in Shanghai.
I also happen to agree with the results of independent academic research which shows, in essence, that Shanghai's strengths lie in its natural sphere of influence in the Mainland while Hong Kong will continue to be the driving force in acting as the fulcrum for the wider Asia Pacific region and Southern China, especially the Pearl River Delta. Those who have responsibilities extending from Seoul to Sydney and South Asia will continue to locate in Hong Kong.
The key points are well made in recent reports by academic Michael Enright and consultant Edith Scott, and the Trade Development Council's Chief Economist Edward Leung.
The Enright and Scott study reported on a two-year survey of more than 8,000 multinational firms in the Asia-Pacific area. Hong Kong was the leading choice for regional headquarters and dominant for service-sector firms, which the survey concluded "should be little surprise".
The TDC study found a great case of complementarity between Hong Kong and Shanghai, again acknowledging Hong Kong's established primacy and international claims as an established cosmopolitan city, evolving towards becoming a first-class world city.
It noted Shanghai's strong industrial base to support industrial research and development, while stating Hong Kong had the edge in commercialising new technology.
Another key point was that: "Hong Kong's premier role is as a financial centre serving the region. Its second role is a conduit for foreign capital inflows to the Mainland. The main role for Shanghai is in mobilising domestic funds to fuel the Mainland's economic reforms."
And, as the Mayor of Shanghai himself sees it, our two cities are the twin engines propelling the great China economic airliner. If we are to maintain this complementary role, Hong Kong will have to make sure it continues to fire on all cylinders. I think you can rely on that.
To round up this point, I echo the sentiments expounded last week by the head of the Washington State China Relations Council, Joe Borich, a former U.S. Consul-General in Shanghai. Success in future competition in the international arena will depend less on the hardware of bricks and mortar and more on systems such as low taxes, reliable financial institutions, freedom of communications, an absence of government interference, and an independent and impartial judiciary. For businesses seeking that kind of environment in China, Borich said, and I quote - "the clear choice is still Hong Kong."
We are continuing our transformation from a manufacturing into a service economy. This involves myriad economic activities in the value chain. In this process, the Government must also play a part. For example in Hong Kong, the Territory Planning Board has approved changes of use that will allow the transformation of factory areas into "Knowledge Precincts", where a range of community colleges, internet cafes, bookshops, libraries and IT outlets can be established.
They will help the Government realise its commitment to steer the community towards life-long learning. They will also provide environmental and ready-made accommodation for foreign firms to set up local bases in Hong Kong. And why stop there? Many of the world's older industrial areas have re-invented themselves by converting lofts into top-quality, keenly sought offices, galleries and housing. I think I detect the scent of opportunity here.
From our perspective, I do not see why Hong Kong people should be daunted by competitors from anywhere. Given our geopolitical history and our lack of natural resources, Hong Kong has always had to be faster on its feet than our competitors just to stay ahead of the game. We've always succeeded against the odds. Competition is our middle name.
This gives me confidence that in leveraging technology, our position as a major international financial centre and the post-WTO opportunities, Hong Kong people will continue to demonstrate their prowess as global players.
They will do so comfortably in the knowledge that the "One Country Two Systems" arrangements under which we have lived since 1 July 1997 gives them the flexibility and freedom to do so. Our unique role in the Mainland and the region, and our long history of successful involvement in global market places, augurs well for our ambition to be recognised as Asia's world city.
Thank you very much.
End/Wednesday, October 24, 2001