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Following is a keynote speech (English only) by the Chief Secretary for Administration, Mr Donald Tsang, at a lunch in Milan today (May 20, Milan time) co-hosted by the Hong Kong Economic and Trade Office, Brussels and the Lombardy Regional Government:
President Formigoni, distinguished guests, ladies and gentlemen,
It is a great pleasure to join you all today in beautiful Milano, the heartland of commerce and industry in Italy. I was fortunate enough to have a day off yesterday to walk around this lovely and historic city and to visit the glorious Como Lake. But the real highlight for me was a beautiful Pentecost service at the Duomo in Como yesterday, and a lovely Mass at your own magnificent Duomo this morning. This was especially meaningful for me as the Priest was thoughtful enough to conduct it in English.
But I was faced with a problem that I often encounter in Hong Kong. And that is, my wife wanted to go shopping while I wanted to go eating. In Milano, just like Hong Kong, you really are spoiled for choice. So it was quite comforting to be in a city where shopping and eating is just as enjoyable as it is back home. We really had a great day.
Today, I want to talk about two things. First, I'd like to give you an update on how Hong Kong is doing five years after reunification with China. I'll also outline how we intend to make our government more accountable.
Secondly, I'd like to explain how we see Hong Kong fitting into the big picture of a rapidly emerging China market. A very important element of this is to strengthen relationships with our trade and investment partners around the world. That of course means Italy, but in particular Milano and the Lombardia Region which are centers for trade and industry, commerce and investment.
Hong Kong and Italy already have a very strong and cordial relationship. There are more than 300 Italian or Italian-linked companies in Hong Kong and they are active in many sectors, including banking, engineering, consumer goods, transport and logistics, franchising. The scope of their operations range from large multi-nationals down to the single importers of silverware or Italian food stuffs.
The strength of these links can be seen in Hong Kong right now, where we are in the middle of our largest ever Italian Fair organised by a very active Italian Chamber of Commerce and supported by the Italian Consulate General.
This one-month festival includes a great variety of events including, naturally, an Italian soccer evening as a prelude to the World Cup. But as much as I love the flair and style of the Italian football team I will be cheering loudly for China when we make our World Cup finals debut against Costa Rica on June 4.
At the moment in Hong Kong we are gearing up for another important event. In a little over one month, we will celebrate the 5th anniversary of our reunification with China.
Over the past five years, the principle of "One Country, Two Systems" has been successfully implemented. Hong Kong people have been running their own affairs with the high degree of autonomy promised in our constitutional document the Basic Law.
We have had to overcome some challenges, but by and large the transition from a colony to a Special Administrative Region of China has been remarkably smooth. Our national leaders have been scrupulous in their hands-off approach.
We have remained true to the foundations of success: the rule of law upheld by an independent judiciary; a level playing field for business; the free and unfettered flow of information; and a clean, efficient civil service.
Additionally, the Basic Law protects the key ingredients so essential to our ongoing development as an economy and a society. These include the free flow of capital and goods, a freely convertible currency, our retained status as a separate Customs and Immigration territory, and the right to maintain our own shipping register and to negotiate our own air services agreements.
In fact, just over a month ago we successfully negotiated an enhanced air services agreement with the authorities here in Italy. This will increase the number of flights between Hong Kong and Italy as well as provide for direct services between Hong Kong and Milano.
On the political front, we have had two successful elections for our Legislative Council in 1998 and 2000. The next election is due in 2004.
Our Chief Executive, Mr Tung Chee Hwa, will serve a second, five-year term as Chief Executive from July 1, 2002.
Last month Mr Tung unveiled details of a new accountability system that will make government more open and accountable to the people. Under the new system our top officials - who correspond to Ministers in your system - will be appointed on contract terms by the Chief Executive. They will be accountable for the success or otherwise of their policies and performance.
The merits of the new system are that the top officials - known as Principal Officials - will have more clearly defined roles and responsibilities, and that they will need to be more accountable to enlist the support of the legislature and the public.
We hope to have the system in place by July 1 to coincide with the start of Mr Tung's second term.
Economically, the past five years have been rather hard going. We have experienced two economic downturns since 1997. At the moment we're predicting flat growth of 1% for 2002, although just last week the IMF predicted we would have 1.5% growth this year. But as the global economy picks up, so too will Hong Kong's.
While the economic downturns were painful, they were actually blessings in disguise. They exposed serious structural weaknesses in our economy that forced us to look closely at what we do and how we do it.
We quickly saw that if we did not move with the times, we'd be left behind. Reforms were introduced across a cross-section of important sectors, including the financial markets, telecommunications and education.
We will spend about HK$600 billion (84.5 billion Euros) over the next decade or so on new infrastructure to consolidate our position as an Asian transport hub, and open up new routes across the boundary into the Mainland of China.
We will significantly upgrade our attraction as tourism market. The centrepiece will be Hong Kong Disneyland, scheduled to open in 2005.
All of these developments are aimed at boosting our competitiveness and attractiveness as a business, investment and tourism hub. In other words, helping us achieve our goal to become the world city of Asia.
Central to Hong Kong's long-term success is to make the most of our unique advantages now that China has become a member of the World Trade Organisation.
Some people believe that Hong Kong's gateway role to the Mainland will diminish now that foreign enterprises can go directly into the China market. Others believe that Hong Kong will be left behind by Shanghai.
I do not agree with these assessments because they are based on rather simple assumptions. Let me explain why Hong Kong will remain the most important international city in China for a long time to come.
First of all, we have a number of advantages over other Mainland cities, and will continue to do so in the foreseeable future. Some I mentioned earlier such as our tried and trusted legal system, a fully convertible capital account, no restrictions on dealings in property, foreign exchange, gold or securities.
Others include low taxes - just 16% corporate profits tax; a strong and well-regulated financial sector; a deep pool of managerial talent with international experience; a dense network of services firms; ease of access to the rest of the world.
Let me expand a little. For services: About 86% of Hong Kong's GDP comes from service industries, compared to less than 35% in the Mainland. There will be a large shortfall of skilled professionals and services staff in China. Areas such as management, design and marketing, legal services, transport and logistics, finance and accounting services all correspond perfectly with Hong Kong's niche.
As a financial centre: Predicted, large inflows in Foreign Direct Investment into China over the next five years will create great opportunities for Hong Kong's financial services sector - banking, fund management, insurance, underwriting, the debt market.
Hong Kong's stock market is the third largest in Asia after Japan and the Mainland. We expect that many Mainland companies will look to raise capital in Hong Kong to fund business expansion or modernisation plans.
Experience: Since China opened its doors to the world in the late 1970s, Hong Kong companies have invested more time, money and resources than any others in the Mainland market.
Hong Kong shares the same language and culture as China, and draws on more than 150 years of trading and investment experience there. More than 100,000 Hong Kong companies source products from China for the world market. And there are more than 36,000 Hong Kong-linked enterprises employing some five million people in adjoining Guangdong Province.
They have built one of the world's greatest light manufacturing bases to export products all over the world. But at present, only about 25% of these companies sell their products inside China.
So, there is enormous scope for these companies to move quickly into the domestic market while still serving the overseas market.
Access: Hong Kong has thrived as the world's major entrepot for trade and investment with the Mainland. Around one-quarter of the Mainland's imports and 40% of its exports are handled through Hong Kong.
But, we also serve as an Asian hub for international business. More than 3,200 international companies have regional operations in Hong Kong. That's 700 more than five years ago and a record number since we started keeping numbers 11 years ago.
And why are most of them flocking to Hong Kong? Because Hong Kong is the best place to access the Mainland market.
Crucial to Hong Kong's positioning and long-term success is greater economic co-operation and inter-dependence with our hinterland in the Pearl River Delta. I truly believe that the Pearl River Delta - the PRD as we call it - is destined to become one of the world's greatest economic regions. And lying at its heart is . . . Hong Kong.
The PRD, including Hong Kong and Macau, is the fastest growing and most affluent region in China. It has a population of about 48 million - that's about 10 million less than Italy. Total GDP is US$258 billion - more than Switzerland, Sweden or Austria - which would put it amongst the world's top 20 economies.
Within China, the PRD has the highest per capita GDP; it is the largest consumer market in the country, accounting for 12% of retails sales from less than 4% of the population; it has the country's highest export capability.
The PRD has specific advantages and significant potential as a consumer market, a trading hub, a manufacturing base, a services market and as a destination for investment.
What we are now working at very hard is to significantly boost cross-boundary co-operation to leverage this synergy and maximize the PRD's potential.
The emphasis is on smoothing the flows of people, goods and capital between Hong Kong and the PRD's other major cities, through such initiatives as co-located Customs and Immigration checkpoints, the development of an electronic cargo clearing system and the opening up of new road and rail routes.
Ladies and gentlemen, I fear I may have spoken a little too long. Five years after our reunification with China, Hong Kong remains a progressive, free, stable and open society. International companies are flocking to Hong Kong to invest and do business. We are working hard to leverage our unique strengths to make the most of China's WTO accession.
And we are positioning ourselves to be the world city of Asia - a city where opportunity, creativity, and entrepreneurship converge; a dynamic physical and cultural hub with world-class infrastructure, Asia's most strategic location, and a global network of people with an impressive record of success that can support achievement of your goals and objectives.
We certainly hope that more Italian companies will come to Hong Kong to do just that.
Thank you very much.
End/Monday, May 20, 2002
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