Following is a speech by the Chief Secretary for Administration, Mr Donald Tsang, at the Asia Society luncheon today (November 29):
Hong Kong's Role in Asia and Beyond
Mr Chairman, distinguished guests, ladies and gentlemen,
Thank you, Ronnie, for that very kind introduction. And thank you for the invitation to address this audience today on a subject of considerable importance to all of us in the room. The fact that the Asia Society has chosen Hong Kong as the location for its nerve centre in the region is of itself an eloquent commentary on the title of my speech: "Hong Kong's role in Asia and Beyond". The topic also fits nicely with Hong Kong's ambition to establish itself as Asia's world city, a reputation I believe we already enjoy with many.
Mr Chairman, these are challenging times for Asia, indeed for the whole world. As I speak, we appear to be approaching the military end game in Afghanistan. But as President Bush has warned, this is not the end of the war on terrorism, only the end of this phase. Whatever else that means, it certainly signals a continuation of the shifting winds that the navigators of the global economy have been charting since September 11. The fact that the US has now slipped into recession after a record decade-long period of growth will add a few more furrows to their learned brows.
Now, in these circumstances, I don't think it makes sense for any of us to wear rose-coloured glasses. It makes even less sense for us to talk ourselves into a slough of despair. The practical, sensible, pragmatic Asian thing for us to do - especially in Asia - is to keep our cool, get our analysis right, stay flexible, plan carefully and work hard for the moment when the tide turns, as inevitably it will.
Much good will come out of September 11. It already has. The success of the WTO meeting in Doha owes much to the resolve of the key players to show that September 11 has not derailed the world trading order. The determination of civilized countries to relentlessly pursue terrorists and those who harbour them will, in the long-run, bring greater international stability. The throttling of the sources of terrorist financing, in which Hong Kong has played a leading role, will have a welcome cleansing effect on the whole system. And there is already a more urgent and deeper focus on the conditions that create the breeding grounds of terrorism: poverty, neglect, deprivation, ignorance, unemployment and selfish, backward and corrupt government. And the developed nations must show a lot more sensitivity to the plight of the poorer nations and those with different cultures.
None of us can ignore any of this, and we must take account of it as we forge new goals in a changed world. For Hong Kong, as for much of Asia, we were already struggling with the effects of the US downturn before September 11. We were only starting to overcome the effects of the fallout from the Asian financial crisis.
As you will have seen from the package of measures announced by the Chief Executive in his annual Policy Address last month, we have moved quickly - trimmed our sails again, if you like - to address the problems thrown up in the aftermath of September 11. If Hong Kong people give these measures time to bite, they will discover that they will be more effective than some of their more sour critics have allowed.
Of course, most of our neighbours are in the same boat. Some of them are battening down different hatches, because they need solutions that better fit their particular circumstances and the way in which their communities are governed. Economies such as Singapore, Taiwan and South Korea which had huge investments in the export of electronics have been hit hard by the bursting of the tech bubble. Asian electronic exports have tumbled by some 20%.
Hong Kong, on the other hand, with its more broadly-based export profile can take comfort from its close relationship with the Mainland economy, which continues to grow strongly. Coincidentally, Hong Kong has embarked on a strategic path to bring about a closer and more mutually-rewarding synergistic relationship with the Pearl River Delta. We have identified our place in the greater scheme of 21st century globalisation. We are putting in place the economic, logistic and political framework to cement this niche.
We come from a very good starting point. I think we can all agree that Hong Kong's economic and political future has been clear for many years now. Deng Xiaoping's historical opening up of the Chinese economy in 1978 propelled Hong Kong into its role as catalyst for the explosive growth of Southern China. This, in turn, provided a dynamic spark for the rest of the country as it embraced more market-driven economics. It also enabled Hong Kong to morph seamlessly from a light manufacturing to a service economy. Services, indeed, now account for 84% of our economy.
Deng's equally visionary concept of "One Country Two Systems" also paved the way to solve a tricky problem left over from history. It has enabled Hong Kong to once again become part of China while preserving the essence of the economic and social fabrics which has underpinned our great post-war success. Our foundation stones of the rule of law, a clean and accountable administration, the free flow of capital, information and ideas, a level playing field will continue to provide the basis of our success in the future.
They will continue to give us our distinctive character, our international personality. It is essential that this distinctiveness be preserved and enhanced. Our future lies in being a different city from the rest of those in China, not in being just another city in China. This is what "One Country Two Systems" means.
At the economic level, we have recognised, painfully, that an overdependence on asset-price inflation does not work. The balance of our economy has shifted towards innovation and technology. This is essential if we are to stay ahead of our competitors in a knowledge-based economic environment. Competitiveness and productivity are what counts in this day and age. If we do not achieve this out of our long period of deflation, the pain we are suffering will have been in vain.
We must maintain our competitive edge as a premier regional hub for logistics, communications, finance and trade. Hong Kong has always been at the heart of Asia, and that blessed positioning is more important to us than ever as a post-WTO China takes its place increasingly nearer to the centre of the global economy. As one of our distinguished Consuls-General in Hong Kong made this point very nicely most recently when he said as follows :
"Hong Kong is fortunate to occupy a global crossroads. It sits at the rapidly evolving hub of Asia's information highway at a time when communications through satellites,transoceanic cables and mobile devices are exploding. It sits at the centre of Asia's publishing industry at a moment when the demand for unfiltered information is surging. And it sits at the doorstep of the Mainland marketplace at a time when it is poised for rapid expansion following WTO accession."
Our friends understand what we have got going for us. I sometimes think we need a greater appreciation of these strengths within our own community.
It is just as important for us to recognise that those who reform fastest will survive and prosper. The Asian financial crisis did not expose the kind of structural weaknesses in Hong Kong that it did in some of our neighbours. Nevertheless, we have taken some significant steps to further liberalise our economy - look at interest rates and our telecommunications sector, for example. We have liberalised the banking sector and introduced major reforms in the stock markets. We have taken big strides in strengthening e-commerce and e-government. Perhaps the most radical reforms have come in education, where we are removing the shackles of exam-driven rote learning to make way for a system that encourages lateral thinking and individual initiative.
And looking around Asia, I am encouraged by much of what I see. Asia is changing, reforming and restructuring. But much more needs to be done. I can understand why there is some element of reform fatigue in some parts of the region. Many people have been on a diet of harsh medicine for so long now and that some of them want a change of prescription.
But there has to be an acceptance that the old paradigms of export led growth dominated by family-owned business protected by government controls will not survive the demands of globalisation. We must learn from the Western management matrix with its focus on consumers and flexibility in response to changing markets combined with a commitment to technology and trade liberalisation.
Does Asia still have the fleetness of foot to do so? We have geography and demographics on our side. More than half the global population lives in Asia, but we account for only one third of global GDP and one quarter of world exports. So the potential for growth is enormous. China and India between them account for 40% of mankind and they are growing at 5-7% per annum. That adds 2.3 billion consumers and labour force to the global markets. As I said, the potential for growth is enormous.
That's why I urge my friends in the region to keep their nerve. Of course, we have problems. But don't allow ourselves to fall prey to the siren songs of the doomsayers. The worst thing we can do is lose our self-confidence. Asia is still, in my view, the world's fastest growing region; we have an abundance of natural resources; our labour force is well-educated and motivated; and the spirit of entrepreneurship remains vibrant. The test of regional leadership, as it passes from one generation to the next, is to adapt these advantages to a rapidly globalising economy. We must not be frightened of change.
I certainly remain optimistic about Hong Kong and our ability to adapt and change. This is because I am a great believer in the strength of our fundamentals, as I outlined them earlier in this address. It's not just the software. Hong Kong has no debt. Our fiscal reserves represent more than 40% of GDP. Half of the money supply is in foreign currency. There is no inflation and the current account surplus is running at 5%.
And look at the strength of our financial markets. We have the most liquid pool of risk capital in Asia. We maintain a low tax base. We have no capital gains tax and a high disclosure environment. We have the highest concentration of international legal and accounting firms in Asia. We are a major fund-raising centre for Chinese enterprises. All of this is a solid base from which to work our way out of our current difficulties.
I would be the last one to decry those difficulties. I have been deeply involved in all of our decisions and initiatives to ease the pain of those in our community who have been hard hit. We will continue to do all we can within the parameters of responsible government to help them. And to provide both the framework for a sustainable recovery and the foundations for long-term future growth.
Mr Chairman, Hong Kong has always been a major international city with an importance disproportionate to our size. This manifests itself in many ways. As Chairman of the General Council of the WTO, our Principal Representative in Geneva, Stuart Harbinson, played a pivotal role in negotiating the new trade round in Doha. He came from Hong Kong. Our impeccable track record as a free trader no doubt lent credence to his cause. Our Commissioner for Narcotics, Clarie Lo, is this year's chairman of the Financial Action Task Force on Money Laundering. She convened a special meeting in Washington DC last month to finalise the strategy to choke the supply of funds to terrorists.
We play a major role in shaping the APEC agenda. We had a big hand for example, in putting together the APEC-wide implementation of Trade Facilitation Principles that aim at reducing transaction costs. And we have just successfully hosted the 14th General Meeting of PECC, which attracted 1,000 delegates. We also played host earlier this year to the Fortune Global Forum and the World Economic Forum East Asia Summit.
If you look at it carefully, the Basic Law is all about preserving Hong Kong's status as an international city. The drafters of our constitution knew that would be good for China, good for Hong Kong, good for the world which does business with us.
One of the oddities that has arisen from this is that we are empowered to conclude international agreements on our own in many areas, for example in the areas such as customs, information technology, shipping and taxation. Among the 200 multilateral treaties that are applicable to Hong Kong, some 80 do not apply to the Mainland-"One Country Two Systems".
And although as an SAR we have no responsibilities for foreign affairs or defence, there are 55 consulates-general, 44 honorary consuls and 6 semi-official missions of foreign countries in the SAR. Some of our senior consuls-general actually hold Ambassador rank. That is due recognition by our peers of Hong Kong's role as a major international trade and financial centre. It is due recognition of the high degree of autonomy we enjoy under "One Country Two Systems".
Mr Chairman, what does all this mean? It means that Hong Kong has always been a citizen of the world. That is undoubtedly our past. It is certainly our future.
Thank you very much.
End/Thursday, November 29, 2001