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Follows is a speech by the Chief Secretary for Administration Mr Donald Tsang as checked against delivery at a lunch in Vienna today (May 24) at the Vienna City Hall:

Vice-Minister, distinguished guests, ladies and gentlemen,

Thank you very much for joining us today for lunch. It is a great pleasure to visit this most enchanting city, which lies at the heart of Greater Europe.

I would like to thank the Austrian government for their invitation to visit your beautiful country and your magnificent capital. I and my delegation have been very warmly received and we are most grateful and humble for such a heartfelt welcome.

We have had some very good meetings this morning with Minister Peter Schieder and the Foreign Affairs Committee and with Mr Heinz Fischer, the National Assembly President.

It is important for us to take forward our relationship with Austria, but in particular Vienna which is a global city at the crossroads of Eastern and Western Europe. A city renowned for arts and culture as well as business and commerce.

We see a similar role for Hong Kong as the world city of Asia - a city where East and West combine; a city where opportunity, creativity, and entrepreneurship converge; a dynamic physical and cultural hub with world-class infrastructure, a strategic location, and a global network of people with an impressive record of success that can support achievement of your goals and objectives.

We know that the Viennese government understands this very special role. Hong Kong is fortunate to be home to one of only two Vienna Representative Offices outside of Europe. Both are in Asia - the other in Tokyo.

But, I can see the Hong Kong office taking on greater significance as a conduit for trade and investment between Vienna and Hong Kong and China now that the Mainland of China has entered the World Trade Organisation. I'll expand on this topic a little later.

Today, I would like to talk about two things. First, I'd like to give you an update on how Hong Kong is doing five years after our historic 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. Of course, that means Austrian businessmen and women, but particularly those here in Vienna who contribute about 30 per cent of your country's GDP.

At the moment in Hong Kong we are gearing up for an 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. And 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.

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 our 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 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, and at the moment we're predicting flat growth of 1% for 2002, although the IMF just last week predicted a slightly higher growth. I am sure, that as the global economy picks up, so too will Hong Kong's.

While the economic downturns were painful, they were blessings in disguise. Serious structural weaknesses were exposed in our economy. This forced us to look closely at what we do, and how we do it. We quickly realised that if we did not move with the times, we'd be left behind.

Reforms were introduced across a range of important sectors, including the financial markets, telecommunications and education.

We have pledged to 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, underpinning 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.

And, by extension, why it will remain the most important city for Austrian business trying to tap the potential of that enormous market.

First of all, we have a number of advantages over our 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 and 15% salaries 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 on four themes : services, international financial center, experience, access.

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.

International 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, the third-largest in Asia after Japan and the Mainland, is considerably more liquid, and more familiar to investors, than Mainland stock markets. 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 5 million people - more than three times the population of Vienna - 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. More than 30,500 vehicles cross between Hong Kong and Guangdong daily, while over 325,000 people cross between China and Hong Kong daily by land, sea or air. About 1,000 flights a week link Hong Kong and more than 40 Mainland cities.

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 there were five years ago and a record number since we started keeping numbers 11 years ago. And that was during the period when Hong Kong's economy was running slow.

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 (PRD). I truly believe that the Pearl River Delta - we call it the PRD - 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 - about six times the population of Austria. Total GDP is US$258 billion - more than Switzerland or 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 country's largest consumer market; it has the country's highest export capability; it is the most popular destination for foreign investment.

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 SAR 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.

I believe that Austrian businesses understand what I am getting at. Here in Vienna, you are a center for trade, marketing and manufacturing, like we are in Hong Kong. You offer access to the markets of East and Western Europe.

We offer unrivalled access to, and experience in, the Mainland market. The Vienna Representative Office in Hong Kong is working hard to promote Austrian goods both in Hong Kong and China.

Of course, if more Austrian businesses can team up with Hong Kong enterprises to bring their products and services to the Mainland market, it will be a win-win for both of us.

Thank you very much.

End/Friday, May 24, 2002

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