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Following is the full text of the speech (English only) by the Financial Secretary, Mr Antony Leung, at the British Chamber of Commerce Luncheon today (January 9):
Distinguished guests, ladies and gentlemen,
By luck, or maybe design, you have chosen a very special day for me to speak. Or should I say, a very special day for Financial Secretaries and Finance Ministers throughout the world. And we have the British to thank for it. It was on this day in 1799 that a tax on income was first introduced by William Pitt the Younger. The tax rate was 10% on all income above 60 pounds a year. It was meant only to be a "temporary measure". Well, the rest is history. That "temporary" tax is now a mainstay of government finances throughout the world, including here in Hong Kong. I might add that Pitt had originally hoped to raise 10 million pounds during the first year the tax was introduced. But he only managed to raise about 6 million pounds. How he made up the shortfall I am not sure, but I can certainly relate to the problem he faced. And I will come back to this point later on.
Thank you very much for such a warm welcome and the opportunity to speak today. I would like to wish you all the very best for the New Year. My New Year wish is what you would probably expect - that Hong Kong emerges from the current economic downturn with renewed vigour and brighter prospects. We will be doing our best to make that wish come true.
The New Year is always a time of reflection. We look back on what we have achieved. We consider how we might have done better. We resolve to do better. And we look ahead to what's in store over the next 12 months. So today, I would like to give you a thumbnail of some of the areas where Hong Kong will move ahead over the next year.
Let me first share with you what I see as the more imminent priorities for me. As you all know, Hong Kong is undergoing very fundamental economic restructuring as a result of globalisation, the advent of a knowledge-based economy and fast economic integration with the Mainland of China. Come with the restructuring process are deflation, depreciation of asset value, reduction in income, and higher unemployment rate.
It is understandable that Hong Kong people have a lot of anxiety as we go through a period of downward price adjustment, even though we still enjoy very high per capita GDP by international standards, and our overall savings are at a high level. In fact our economy is doing better than many other places in Asia, and in the eyes of many international analysts, our outlook in the slightly longer term is quite positive. But in the near term, we do have some immediate challenges to deal with, particularly in helping those people who have lost their jobs.
In his October Policy Address, the Chief Executive has already announced the creation of over 30,000 additional jobs through various Government bureaux and departments. However, as the bulk of employment opportunities come from the private sector, we have to rely on companies and enterprenuers to provide even more job openings. Through various policies such as facilitating more Mainland visitors to Hong Kong, we have enabled more jobs, especially lower skilled jobs, to be created in the private sector. And we will continue to explore other measures.
The slowdown and restructuring of the economy has also had considerable implications on our public finances, mainly because of a reduction in revenue from several sources. As I already indicated some time ago, we would see an unprecedented budget deficit for the current financial year. It is true that our reserves could help us tide over a period of time, but as the Financial Secretary, I must endeavour to bring the budget back to a balance within a reasonable period of time.
I am in the midst of preparing the Budget for the next financial year. My current priority is to focus on controlling Government expenditure. In the process, we should allow the private sector to take up a bigger role in delivery of various services. I firmly believe that the resources of the community would be best used when they are subject to market forces. Reducing the size of Government would not only help address the fiscal problem, but also introduce more flexibility in our economy so that we could go through any future adjustment more quickly.
While we tackle the immediate challenges facing us, we must also cast our vision afield to ensure that we have sustainable development in the medium to long term. I firmly believe we are on the right track, and I will explain why.
Our policies are focused on helping Hong Kong move up to the next plateau of economic development and further up the value-added chain. For example, our determination to revamp and upgrade our education system and the embracing of innovation and technology as new economic drivers. I also believe we have struck the right balance between facilitating development in an increasingly complex environment, and preserving - indeed enhancing - Hong Kong's reputation as a free market economy.
Others also seem to think we are on the right track. Authoritative groups from the International Monetary Fund to the Heritage Foundation continue to commend Hong Kong for its policies and performance. Visitors I meet speak optimistically about our future prospects. Companies from around the globe, in many different lines of business, are establishing regional headquarters and offices here in record numbers. The United Nations Conference on Trade and Development cited Hong Kong as the "predominant funding hub for business in Asia". All of these indicate that the international community does have a considerable amount of confidence in Hong Kong's future. Surveys by the British Chamber of Commerce and other international chambers also bear out this point.
The local community, however, is more concerned with prevailing economic conditions than the prospects of the next five to ten years. This is understandable when there is rising unemployment and the possibility of wage cuts. As an open economy highly-geared to trade and services, any global downturn will inevitably affect Hong Kong. However, compared to other economies in the region, we are not faring too badly. Although our GDP figures of the 3rd Quarter of 2001 dipped into negative territory, the results were not as bad as many had forecast. So what we are trying to do as a government is to position ourselves in a way that will enable us to bounce back quicker and higher when the world situation improves. This includes positioning ourselves to make the most of the opportunities arising from China's accession to the World Trade Organisation.
So how will we do this in the year ahead? The first and foremost of everything is to maintain our existing institutional strengths: the rule of law upheld by an independent judiciary; the free flow of information; a level playing field for business; low taxes and a simple tax regime; and a clean administration. These are also unique advantages we enjoy under the "One Country, Two Systems" formula.
On top of this, we are planning to add more value to what we do in a number of key areas: including financial services, logistics, business services, design and tourism. This will help us realise our vision to become Asia's world city.
But Hong Kong's economic position as the region's premier financial, business and logistic hub can only be strengthened if we interact seamlessly with our hinterland. The Government is determined to facilitate the flows of people, cargo, capital, information and services between Hong Kong and the Mainland. I know that this is what the international business community also wants to see. In doing so we will be careful to protect the advantages and strengths we enjoy under "One Country, Two Systems".
In regards to people flow, we are taking initiatives to facilitate travel of both businessman and tourists between the Mainland and Hong Kong. We have obtained agreement of the Mainland authorities to issue more multiple business visas for Mainland people to come to Hong Kong. We are also pushing ahead with plans to smooth the flow of talented people into Hong Kong, particularly qualified people from the Mainland. This will help us maintain a top-quality workforce and will widen the pool of our human capital.
In response to the suggestion of the international business community, the Mainland authorities have started issuing multiple-entry visas valid for up to three years to expatriates who are Hong Kong Permanent Residents. This would facilitate them in running their operation in the Mainland using Hong Kong as their base.
There are of course other initiatives in bringing in more Mainland tourists and improving the facilities at the border crossings. The overall objective is to make it a lot easier for travelling across the border, for business, holidays, leisure or other exchanges. This is important to maintaining Hong Kong's role as a business hub in China and in the region.
China's accession to WTO will boost the need for efficient and advanced transport and logistics services for cargo into and out of Hong Kong and the Mainland. Hong Kong already excels in this area - we have the world's busiest and most efficient container port, and lead the world in international air cargo throughput. But we need to do more to link the Mainland with the world by making even better use of our excellent transportation facilities and the high productivity in the Pearl River Delta.
The logistics industry encompasses many different trades, and Government has been working closely with various players in the private sector in the Logistics Development Council to take forward our Logistics Hong Kong initiative. We will seek to strengthen our logistics industry and expertise across the full spectrum of the industry, including physical facilities, electronic transaction, manpower development and marketing.
Apart from trading in goods, China's accession to WTO will offer huge investment potential in the services sector. Particularly, with an increasingly mature and sophisticated market in the Mainland, the demand for professional services will continue to rise. Hong Kong is well positioned to capture the opportunities in the various services sectors - such as legal, accounting, auditing, finance, marketing, advertising, education, medical, architecture, construction and management.
Our Business and Professional Services Unit has been tasked with co-ordinating efforts that support the ongoing development of these and other services industries, with emphasis in enhancing the services flow between Hong Kong and the Mainland. I urge anyone here working in the services sector to give some thought as to how best the Government can service your needs, and help you expand your business outside of Hong Kong.
Another trend following China's entry into the WTO is the greater flow of funds into and out of the Mainland. This will mainly be overseas enterprises looking to invest in the Mainland, or Mainland enterprises looking to raise funds in the international market. Hong Kong's advanced banking and securities markets are set to play a major role in this area. With our freely convertible currency without any restrictions on capital movement, low taxes and high standards of corporate governance, Hong Kong can continue to serve as the premier fund-raising centre, in both equity and debt capital markets, for the Mainland.
We are discussing with the Mainland authorities a number of initiatives on financial services collaboration between Hong Kong and the Mainland. Meanwhile, we will continue to boost our competitiveness through enhancement of our financial infrastructure, promotion of a clear, fair and transparent regulatory framework, and improvement of the standards of corporate governance.
For free markets to work, there must be a free flow of information. Hong Kong is not only the regional base for important international media groups; our local media are extremely active and vocal. To further ensure that accessing information is as easy as possible for as many people as possible, we are continually upgrading our IT, telecommunications and broadcasting capabilities. The liberalisation of our telecommunications market since 1995 has led to substantial private sector investment, a significant upgrading of our external communications capacity and the rapid development of advanced telecommunications infrastructure with strong price and service competition.
Our advanced information infrastructure and affordable charges have encouraged the community to access and use IT. About 60 per cent of our households have computers, while 50 per cent of our households have an Internet connection. 84% of the population has a mobile phone. Hong Kong is also the home to many international broadcasters. The next generation of wireless communications and digital broadcasting technologies are being adopted in Hong Kong, making our information links to the world ever more convenient and speedy.
What I just said is evidence of the very solid foundation we have laid over the years for Hong Kong to become Asia's World City. We are also well positioned to exploit the enormous business opportunities available in the Mainland following China's accession to WTO. To capitalize on these strengths, the Chief Executive has obtained the agreement of the Central People's Government to explore some form of Free Trade Agreement between the Mainland and HKSAR. I am heading an internal Steering Committee to examine this in greater detail, and I expect to discuss with the relevant Mainland authorities shortly.
Ladies and Gentlemen, there is a tremendous amount being done to position Hong Kong for sustained growth. We are experiencing a difficult time now and we are taking measures to alleviate that pain in the short term.
I remain very optimistic about the medium to long-term future of Hong Kong. The Government is determined to ensure that Hong Kong benefits substantially from the continued opening up of the Mainland market. We have a special role to play in the development of our motherland. Some of the initiatives I have outlined earlier will help us to fulfil that role and provide a win-win situation for Hong Kong, the Pearl River Delta and our nation as a whole. We must also promote and nurture our role as a regional player; a location where international corporations naturally look for the expertise, infrastructure, facilities and policies required for the efficient transaction of global trade and investment.
In this regard I can assure you that we remain strongly committed to our vision of Hong Kong as Asia's world city.
Thank you very much.
End/Wednesday, January 9, 2002
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