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Following is a speech (English only) by the Chief Secretary for Administration, Mr Donald Tsang, to the Hong Kong Association at the Cavalry and Guards Club in London today (May 17, London time):

Baroness Dunn, Lord Wilson, honourable guests, ladies and gentlemen,

Thank you, Lydia, for that very kind introduction. Your generous remarks remind me how much we miss your gracious presence in Hong Kong.

It is a pleasure to be here with you again today. I say 'again' because I believe this is the seventh time I have had the honour of addressing this distinguished organisation over the last nine years, going back to my days as Secretary for the Treasury. I am wondering whether all of this entitles me to honorary membership - or just a free lunch.

But as all of us know, there is no such thing in life as a free lunch. Not in Hong Kong, anyway. At its simplest, that little truism has been very much behind the success of the place.

Hong Kong people value the freedom they enjoy to pursue their own dreams for themselves and their children. And, notwithstanding the difficulties we have faced over the past few years, Hong Kong is in relatively decent shape.

We have our problems, but no more - and in many cases less - than some of our neighbours in the region. What we need most now is a bit more of that good old get-up-and-go chutzpah that has been our trademark for so long. And I believe that as the economy starts to turn the corner, you'll see that spirit come shining through once more.

Now I know as well as any pragmatic, hard-headed Hong Konger that talk is cheap, and life is real. So I am not in any way trying to downplay our problems. I would not insult the intelligence of this well-informed audience by doing so.

So what are the problems? First, the economy is still under some strain from the aftermath of the Asian financial crisis and the downturn in the global economy. Economic growth this year will be more or less flat, but we are expecting that to improve over the next year or two.

Unemployment is unacceptably high at 7%. Addressing the consequences of this is a top priority for C H Tung and his administration. We are tackling the issue through a mix of job creation, retraining, skills matching and education.

Some of these measures, in particular retraining, and the radical changes to our education system, will have a positive medium and long-term effect.

Services already account for 86 per cent of our GDP, and as we move up the value chain, our workforce has got to adapt and stay ahead of the trends. They have done it before and I'm sure they'll do it again.

We are facing the prospect of a structural deficit that I suspected three years ago when I was Financial Secretary. My successor has grasped that nettle. Antony has put in place a number of measures to deal with this critical issue.

The key to his approach is to rein in public expenditure so that it stays some 1.5 per cent below the trend growth rate of the economy. This is a challenge for the civil service. We are determined to rise to it.

We civil servants have another important role to play. The Administration is currently considering the level of civil service pay, and a reduction is in the offing. This is the story making the headlines.

What receives much less attention is the range of reforms we have introduced over the past few years to streamline the delivery of services, eliminate wastage, avoid overlapping, encourage a more client-oriented culture and provide better value for money. We have more or less frozen recruitment and eliminated many posts. There is more to be done.

I don't want you to get the idea that the Hong Kong civil service had become lazy, sloppy or complacent. Far from it. It remains one of the finest you will find anywhere.

But the demands of the past five years, with the downturn in the economy, a robust legislature and a relentlessly critical press, have really put the civil service to the test. My colleagues have responded with commitment and professionalism.

But the pressures I have just mentioned have exposed weaknesses in the structure that need to be repaired as the economy undergoes realignment in a changing world driven by globalisation and technology.

We have another priority task on hands: to make sure we are fully fit and ready to take every opportunity offered by China's accession to the WTO. There will be many, especially in our own backyard - the Pearl River Delta.

We have already set in train massive infrastructural projects that will vastly improve our own efficiency and quality of life, and at the same time upgrade the vital arterial links we have to the Mainland. That's the hardware.

On the software side, the Chief Executive, Antony and myself and our key officials are widening and deepening our connections at the ministerial and operational levels with our colleagues in the Mainland.

In enhancing the value of our interdependence with the Mainland, we are acutely aware that in doing so we must vigilantly protect the high degree of autonomy guaranteed to us by the Joint Declaration and the Basic Law. Dilute that autonomy and you diminish Hong Kong; and, you damage Deng Xiaoping's dream of recovering China's lost territories.

I believe the Chief Executive's policy initiatives emphasising the upgrading of our technological base, the quality and focus of our education system, and leveraging the natural advantages we have as the gateway to the Mainland of China, will be at the core of our recovery and at the heart of our future stability and prosperity. History will salute Mr Tung for his vision.

I believe many of you will recognise the clarity of that vision. It certainly shows in the surge of investments and the recognition of an increasing number of international business people that Hong Kong is the place to be if you want to be close to the action not just in the Mainland, but the whole of the Asia Pacific.

We now have some 3,200 regional operations in the SAR. That's a third more than we had in 1998.

International business is voting for Hong Kong with its money. Likewise, hundreds of thousands of former Hong Kong residents who left in the run-up to 1997 have voted with their feet to return to Hong Kong.

Emigration from Hong Kong is today at its lowest level for more than 20 years. Last year, 10,600 people emigrated compared with the early '90s when the annual figure averaged around 60,000. 'One Country, Two Systems' works.

A week or two ago, as you may have heard, 'Fortune' ran a cover story on Hong Kong asking : 'Who needs Hong Kong?' Well, I think I've given you a few examples in the last minute or two. But, as we all know, headlines can be misleading. We all remember the same magazine's famous 'Death of Hong Kong' cover back in 1995. A grossly-exaggerated report, as Mark Twain would say.

If you look carefully at the current story, it simply raises many of the issues we debate boisterously in Hong Kong every day. About the economy. The direction it needs to take. Our relationship with the Mainland. Leadership. Jobs. Property prices. Governance. Democracy. Immigration. The Rule of Law. That's what happens in a free society.

But, tucked away towards the end of the Fortune piece that wrestled with all these questions, was an interesting conclusion which I now quote in full. 'Fortune' said: 'Hong Kong is still a better, easier, saner, more honest place to do business than almost anywhere else in Asia.' That's why AOL Time Warner, the parent company of "Fortune", has placed its Asia-Pacific regional headquarters in Hong Kong.

I'll say 'Amen' to that.

Madame Chairman, I don't want to take up too much of your time today. After so many speeches to this venerable institution, I'm worried about wearing out my welcome. But I do want to say a few words about the recently-announced Accountability System to be introduced in Hong Kong on 1 July, just six short weeks away.

Actually, what we are talking about is a system often referred to as a "Hong Kong-style Ministerial system". It is of the type that Baroness Dunn advocated on more than one occasion during her long and distinguished public service career in Hong Kong. Allow me to explain.

Briefly, the Chief Executive is to form what amounts to a Cabinet of politically-appointed Principal Officials to serve as his "Ministers", characters which are generically called Policy Secretaries in Hong Kong, for the whole range of the government's activities and responsibilities.

There will be 14 in all - the Chief Secretary, Financial Secretary and Secretary for Justice at the apex, supported by 11 Policy Secretaries holding down a reshuffled schedule of portfolios.

They will report directly to the Chief Executive. But this does not mean that unbridled power will reside in the Chief Executive. Whilst we have not reached the ultimate aim of universal suffrage prescribed in the Basic Law, we are not an autocracy. No one has absolute power in Hong Kong. The constitutional institutions are firmly established. We have an open and uncorrupt government, a representative legislature, an independent judiciary and a free press. Checks and balances abound and the proposed Accountability System will introduce more.

Proposals put forward by the Chief Executive or the Administration can go nowhere unless the Legislative Council passes our bills and approves our Budget. These ultimate constitutional checks put in place by the Basic Law have worked to their design over the past five years.

The Accountability System will not and cannot add to or derogate from the powers given the Chief Executive by the Basic Law.

Indeed, central to the thinking behind the new arrangements has been the Chief Executive's determination to devolve more power to the Policy Secretaries so that they become accountable not just to him, but to the legislature and the public.

Inherent in the new system will be the demands placed on the politically-appointed Policy Secretaries to be more, well, political. This means they will have to pay more attention to public opinion in the formulation, execution and marketing of their policies.

And despite whatever you may read in some commentaries, LegCo is no pushover. With expectations raised about enhanced accountability, the Policy Secretaries will have to be even more astute, persuasive and politically and media-savvy than we are now to secure the votes in LegCo and acceptance of our policies by the press and public.

I do not make a direct comparison of our new system with what you have in the UK. The differences are well understood. It is also well understood that our constitution, the Basic Law, imposes certain constraints. The Accountability System certainly draws from Cabinet arrangements in Western democracies and will be familiar to those who live in such places.

What does the new system mean for the civil service? It of course means change. But I believe it is change to a role that is quite recognisable in this country, where a permanent, professional civil service is mandated to offer objective advice based on rigorous research and a regard for the public interest to their political masters. In short, it is for civil servants to advise and for their "political masters" to decide.

This is the crux of our Accountability System as well. Our new Policy Secretaries will be supported by a Permanent Secretary whose task will be to marshall the facts and options about issues within his or her area of responsibility, and present them without fear or favour to a Policy Secretary to make the final decision. After that it will be for the Chief Executive in Council to come to the ultimate conclusion.

The difference for the upper echelon of the bureaucracy is that permanent civil servants will no longer have the Jeckyll and Hyde role of being Permanent Secretary on the one hand, and "political figure" on the other. The system may have served us well in the past, but we are living in a different age. It is time to move on.

And surely fair-minded people will see it as a positive step in the right direction as we follow the route map to the more representative government set out in the Basic Law.

Of course, Mr Tung has not yet indicated who will be on his team. Naturally enough, this has led to a somewhat frenzied guessing game in Hong Kong. My own lips are sealed.

All I can say with certainty is that I stand before you today in my traditional role of Sir Humphrey Appleby. But who knows: If you are not completely fed up with me after all these years, the next time I come to address you, I might sound a lot more like Jim Hacker.

Madam Chairman, you have been as patient and as indulgent as ever. I simply want to leave you - on the eve of the 5th anniversary of the birth of the HKSAR - with the message that you find us in good stead, grappling with some of the challenges of change, a little bruised here and there, but nonetheless sure in our heart-of-hearts that we have taken the first firm steps in our historic reunion with our proud and ancient nation.

More to the point, we approach the next five years confident that the best is yet to come.

Thank you very much.

End/Friday, May 17, 2002

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