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The following is the transcript of the question and answer session by the Chief Secretary, Mr Donald Tsang, at the Business Week 5th CEO Forum today (October 24) (English only):

Question: My name is Nick. I would like to have a simple answer. What is your personal view about the Hong Kong economy for the next one or two years in terms of the national economic situation after the 9/11 attack?

Mr Tsang: Well, I would like to know the answer to that myself, but this is something which is in fact best answered by my colleague, Mr Antony Leung, the Financial Secretary. But what I can say is, given the fundamental strengths of Hong Kong which I have mentioned, although we are facing a tough time, a pretty tough time as I said, perhaps the worst since the Korean War, our recovery will be no slower than any of our neighbours. And indeed, all I can say is, I do not know when exactly - as soon as we can see that the return of the US economy on a climb, you will find Hong Kong closely behind.

Question: I think the Disneyland project is very, very recommendable, and as what you, the Chief Secretary has said that the service industry is very important for Hong Kong. Are there any things in line or being planned, like companies like Universal Studios, Fox Studios, anything related with the service industry that could amplify more in so-called bringing in new jobs, bringing thriving economies to Hong Kong?

Mr Tsang: We have a massive infrastructural programme for the coming decade. The Chief Executive, in fact, announced an infrastructural programme that requires a total spending of $600 billion and that would create thousands of jobs as these projects come on stream. And I am grateful for your remarks about the Disney projects. We believe that these are very important recreational facilities which will not only serve Hong Kong but serve the region, giving an all-weather venue for recreation for our neigbouring brothers and sisters in the Mainland and our neighbours in the region. But there will be other recreational facilities that will be established here, but they will be on train. Just look at California; there you will find, for instance, Disneyland which is doing very well, then you have Universal Studios facilities as well. I am sure these things will spring up in Hong Kong, while the critical mass is being built up. But this is a matter which is decided largely by the market and is not something which the government can directly motivate. But all the trimmings will be there. Our job as a government is to ensure that there is the best environment for people to trade, to invest and to make money, and that is our motto.

Question: Yesterday, we heard about this competition for talent amongst cities, and recently I have heard so many talks on the press and also by some government people about asking the Hong Kong people to go fishing in the South China Sea. And then we are so glad that now China is opening up and attracting people to go up there and work and invest. Isn't that contradicting that we are on the one hand - I assume the government is asking the $6,000-$8,000 per month people to go over to China to work but in reality, those are not the people who are actually being attracted to the other economies. And my question to you is, what is the government going to do to actually compete for talent in Hong Kong.

And the second question, related, is when you talk about not marginalising the poor. And when we are talking about this 24-hour entry into Shenzhen and expanding the Pearl River Delta area and having this one-hour train ride to Guangzhou, which is all good news to the business community, I assume - and I, being a member of . . . was very glad - but what are you going to do with these grassroots people who are earning this $6,000-$8,000 per month, where their counterparts are earning about $600 across the border doing the same job?

Mr Tsang: The prosperity of various cities in the world in the coming decade will depend very much on the individual success in attracting talents and that is what I've been looking for. Hong Kong has an exceedingly liberal regime about allowing foreign professionals to come to Hong Kong to work, and probably one of the most liberal regimes you can see anywhere. Once you can find a job here, then you are allowed to come in and work and live and live happily, and after seven years you become a Hong Kong resident as well, with permission to vote, and very few countries have that sort of thing. But the real attraction of a city depends not only on immigration policy but what it offers. What Hong Kong offers. Not only the modern facilities of a great city where everything works, from telephone to telecom, transport infrastructure and everything works, to the same level in the best cities in the world of New York and London. And what's more, it produces something very unique in Asia, something which I talked in my speech just now. The sort of things like the rule of law, the independent judiciary, a sense of justice, a level playing field, a clean government, total free-flow of information, these are the qualities which will attract people to your place. And coupled with that, low taxation, low contribution to the social burden. As you know, we have a personal tax of maximum of 15%, and we have no sales tax, we have no capital gains tax, and the contribution to the Provident Fund is 5%. These are the reasons why people come.

So we have a wholesome menu that people naturally come to Hong Kong and work. What we need to do more is not only that is improving the general environment, like air and water, and we have done quite a lot already and we are continuing to do more. And I have no worry that Hong Kong is able to compete and able to secure the talents we want. The question is, in the midst of all this, during the adjustment process we must not forget the second point which you mentioned, that the poor have been marginalised. But I look at it like this; there would be a location advantage. The menial jobs in New York City for instance, pay a bit more than you can get in New Jersey, and similarly the menial job being paid for in London's centre is a bit more than is available out in Surrey in London. Similarly, in Paris, Tokyo and so on. So for that reason, I am not particularly worried about the diversity, a range of different showing between wages in Hong Kong and our neighbouring cities in the Mainland. But then the disparity and the differences are being narrowed already.

And I also believe that in the past, during the heat of all the economic restructuring in Hong Kong, the unemployment rate was very low. In fact, each and every time the high speed of economic transition is accompanied by a low unemployment rate. Well, that has been the past experience. I am not saying that it might be repeated this time around. But what we are seeing here is not only economic restructuring, of which we have some experience, but also a major regional and global recession taking place. Now, we must not be unnerved by this, we must be able to see through this temporary event and look into the opportunities of the future.

Question: One of the key areas that has been mentioned where Hong Kong can compete or lead, is in the field of medical services, health care. Our company is into that but in Hong Kong, the anachronism is that despite the capitalist culture of Hong Kong, medical care is 97% controlled by the government through the Hospital Authority. What is the long-term plan of the government to encourage this industry?

Mr Tsang: You are welcome to come any time and sell your goods and there is no impediment at all. But the question is, we have a very good public sector health service and as you know, life expectancy in Hong Kong is very long, second only to Tokyo and second in the world today. Our ladies now live up to about 83 years and our men are now going over the 80 years of life expectancy. So we are rather proud of the public health facilities here. But I agree with you, we should inject more market mechanisms into it, making sure that the private sector will not only work well but will thrive in this context. But it is something which the Secretary for Health and Welfare is working on and has been making sure that while we improve the public sector services, we leave sufficient space for the private sector to grow as well. But it is a free market here, that you can sell your goods, your medical supplies, your medical services anywhere, provided you achieve the qualified standards here, which are universal standards, which are not particularly unique to Hong Kong. But please continue on and I am sure that if you have any bright ideas on this, please talk to Dr Yeoh.

Question: Sir Donald, thank you for your very encouraging remarks about Hong Kong's future and the region's future. You mention that the Asia Pacific Region is now facing its greatest challenge ever, and one would have thought that in the midst of these challenges there would be greater movement towards regional integration. And yet, we don't seem to see that. Regional integration would seem, also, to be very advantageous to Hong Kong, and its development as a financial and service centre. Why do you think that despite the great challenges that the region is facing, despite the trends in Europe and in the American hemisphere, that there does not seem to be a greater urgency towards regional integration in the Asia Pacific region?

Mr Tsang: Well, there are lots of historical and economic reasons for that, and political reasons for that matter. But I have not lost hope. I believe it is something which we work for and I have been saying this on several previous occasions, in my previous incarnation, on this very subject - about greater economic integration in the region. But I think it depends on the future or the preference of the two major players in this region, and by that I mean Japan on the one hand and China on the other. And I think what we are able to see is how these two big powers are going to exercise their leadership in this region and how we can come together and become more robust as a regional entity.

And, also, you have to look at the major differences in economic achievements in this region, which is quite unlike Europe. In Continental Europe you have the differences between Spain and Portugal from France and Germany, but in here we are dealing with some of the very rich countries, like Japan, with the very poor nations like Vietnam and others. So there are difficulties for them to work together and find some common economic agenda. And furthermore, you must remember this is a region in which we were engulfed in World War Two, and for that reason, some of the issues have not been fully settled. So all this comes into place and while there is an urge among a lot of thinking people that they must come together more, but there are also these historical, political and social baggages that we have to get rid of first. But that is why it is important for us to concentrate on forums like APEC and others, where we can bring in other people to a forum where you can talk about common problems, common challenges and common opportunities while we are waiting for the time when a great regional movement can really take-off.

Question: Mr Chief Secretary, I am very happy that you have talked about something that those of us in the business community feel we should talk about more in Hong Kong, and that is the four pillars you referred to. It is, I think, one of our great strengths here in Hong Kong and we don't talk about it enough to the other people in the world. If I move to the next step, in 2007 we have an opportunity for more reform, more change, whatever word you want to use. What will the government be planning to do and when will they be planning to do it, in terms of any changes in the government political process?

Mr Tsang: You are talking about constitutional reforms - these must come naturally, it must be the home-grown system. For my part, I think the destination is quite clear: to have a fully representative government which will suit Hong Kong's case. But the speed at which we achieve it, the final form it will be shaped, depends on the wishes of Hong Kong people. At the moment they are not in the mood for talking about it. Repeated polls indicate that the highest things on the minds is (a) jobs, the second thing is the economy, providing education, housing and so on, and constitutional reform, in fact, is the priority of less than one per cent of the population at the last poll. So we have been very careful, and modest, and humble as a government, to make sure that we are not inventing things or thrusting things on the people. But our destination is quite clear. We will be embarking on the election of the Chief Executive next Spring, and there will be election of the legislature two years from then, and we are a place where we can work fast. But I think it must be an evolutionary process. It must be something which is good for Hong Kong, suitable for us as a Special Administrative Region, and something which is capable of producing or sustaining economic vitality, financial vitality in Hong Kong in the long run. Exactly what shape it will take, I will not hazard a guess at this stage, but my mind is there.

We are taking a modest step forward in introducing an accountability system, which the Chief Executive explained on October 10. That will make the government far more attentive to people's feelings, far more attuned to political priorities of the people, and making sure the government policies and decisions reflect the genuine wishes of the people. And that, again, will gradually, create a situation where these issues which you mentioned can be rationally discussed and debated.

Question: One of the things we are always told in business is that it is easier to keep an existing customer than to try and get a new customer, and Hong Kong has been very good at getting new customers, for example regional offices. But to keep the existing customers is a quality of life issue to a large extent, and the government has been making rapid changes in that. The question I have of you was that, where there hasn't been a lot of change for a while and there has been a lot of change, how has the government expressed the management of that change to the people? And do you think you are expressing the management of the change to the people in a way that people will understand, generally speaking, what the government is actually doing to try and make Hong Kong a better place to live?

Mr Tsang: That is a very crucial and fundamental issue of how, not only to attract people, as you say, but how we are able to keep them here. In other words, make them happy here, make sure they are happy with their families here, that their kids are being educated here. What we do is, we are listening. We listen. We go out of our way to listen to those people invested here. You will find, for instance, Mike Rowse, rounding up and going all over places, shop by shop, and listening to the people's views. Not only to attract new investment, which will come naturally, but rather to keep what we have. Listen to their views about the problems of bringing in professionals here; getting someone from the Mainland; about placing their kids in schools; about individual problems and issues about taxation systems and so on and so forth.

So, what we want to do is to make sure our policy is right. We want to make sure people will settle here. We want to give them convenience, much more than anybody else, for instance, to do their job. We have been working a lot with the private sector, for instance, in gaining more convenient access to the Mainland to trade, a special arrangement for them to go into the Mainland for business, much more than any other foreign business going into the Mainland, as long as they are residents of Hong Kong. These are the sort of things which we do. And what is important here is we have a fundamentally pretty healthy menu for businessmen doing work here. We do not stand in their way. We provide the efficient infrastructure, we provide a very good, favourable tax system. But we are not impeccable, we are not immaculate, there are things we can do more. But what is important is, for people like yourself and others to tell us how we can do better. You have got Mike Rowse's telephone number? We will give it to you. He has a government office to listen to all these things. And he will do something about them, not only listen. Thank you very much.

Question: Mr Chief Secretary, if I could exploit my privilege and ask you one last question and I promise to close on this question and thank you for your indulgence. We have heard that you and other leaders of Hong Kong talk about how Hong Kong promises to be an excellent gateway city - if I can use that term - between the rest of the world and China, and indeed the region, and I think Hong Kong has played that role exceptionally well. But most of that discussion tends to be one way, in the sense that it's all about how Hong Kong can be a means or a vehicle for outsiders to understand China, perhaps to do business with China, etc, etc. But what about the dialogue in the opposite direction? What kinds of messages is Hong Kong conveying to Beijing for example, as a way for Beijing to better understand the rest of the world, because a gateway works two ways? So, if you could shed some light on that I would much appreciate it.

Mr Tsang: Well indeed, that has taken place, but the mode of discussion would naturally be different, Professor. Whereas in a case of going to the world, then we use the mass medium to do it and the usual business commercial channels. Talking to our Mainland brothers is a family talk and we do discuss and tell them what we believe is right. But I think it is much better, more effective, that we do it in our way that we have been doing it, in the sense of telling, for instance, our interlocutors what people expect in a more competitive environment as a WTO membership. We tend to work with them quietly, discreetly, for that purpose. But I can assure you, Doctor, we are doing it all the time, and being pretty successful, and we are being appreciated for what we do. Thank you very much.

End/Wednesday, October 24, 2001

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