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Following is the speech by the Financial Secretary, Mr Antony Leung, at the Asia Society, New York today (June 4, New York time):

Ambassador Platt, ladies and gentlemen,

Thank you for that kind introduction. I am honoured to be here this morning and among so many good friends of Hong Kong. It's good to be back in New York and to be the guest of the Asia Society - an institution that does so much to facilitate understanding and dialogue between the peoples of the United States and the countries of Asia.

The fact that you have chosen Hong Kong as your 'centre' for the region speaks volumes for the links between our two communities and Hong Kong's position in Asia. It's probably coincidental that one of my last major speeches before I departed Hong Kong for this trip was at an Asia Society dinner: and one of my first functions on this visit to the US is to be engaged in a dialogue with Asia Society members. I only hope this doesn't wear out my welcome!

With the 5th anniversary of the establishment of the Hong Kong Special Administrative Region just over three weeks away - on July the 1st - I thought it would be timely to bring you up to date with where Hong Kong is today. And to give you a feel for how we have adapted to the 'one country, two systems' concept.

Taking up this latter point first, I think it is fair to say that implementing 'one country, two systems' has gone like clockwork. Hong Kong people have been running Hong Kong with a high degree of autonomy since day one. I know you have heard this said before, but it bears repeating in view of the scepticism of many during the transition. Our national leaders in Beijing have not flinched from honouring their commitment to a hands-off policy for Hong Kong.

They want the system to work, just as much as we do. After all, it is a model for the ultimate reunification of our entire country - a goal to which we aspire. Hong Kong's separate system of government and way of life are working well. Of course, there have been challenges and difficulties along the way. But that is only to be expected when a unique system is put to the test.

And, it's not just my colleagues or myself who are expressing these sentiments. Here in the United States, your own congressional leaders are of a like mind. Let me quote from the 9th Report of the US Speaker's Task Force on the Hong Kong Transition released in January this year - it said, in part, "The people of Hong Kong continue to enjoy a tradition of free speech and free press. Political debate is dynamic and raucous. A wide and diverse range of opinions, including those critical of the Hong Kong and PRC governments, are routinely aired in the mass media and public fora." Unquote.

In one way then, the successful implementation of 'one country, two systems' has been the easy part. Managing the economy through the Asian financial crisis of the late 1990s; and now our second economic downturn in the space of five years - a downturn exacerbated by the terrible events here last September - have thrown up new challenges that have tested the mettle of the Chief Executive, Tung Chee Hwa, and his administration. But we are succeeding.

Of course, the situation is not just peculiar to Hong Kong. Much of East Asia, particularly economies that are major trading partners of the United States, have all been affected as a result of the cyclical downturn here and in Europe. Coupled with this, we are coping with the twin pressures of Hong Kong's transformation to a knowledge-based economy and our rapid economic interaction with the Mainland, in particular the Pearl River Delta.

Nevertheless, our first quarter results released last week, are beginning to show some very early signs of an improvement in some sectors of the economy, including tourism, re-exports and increased activity in the property and stock markets. Our GDP grew marginally by 0.3% on a quarter-to-quarter basis, which indicates that we do appear to be emerging from the recession, albeit tentatively. We are optimistic that we can achieve our forecast growth of one percent this year. But, we are likely to continue to see deflation and high unemployment for a few more quarters.

Despite this temporary setback, what is the way forward? In charting the course - and I am full of enthusiasm for Hong Kong's future - we have to move up the value-added chain. We have to further develop our four main engines of growth - financial services, logistics, tourism and producer and professional services. We not only have to make these sectors thrive, but add value to the economy as a whole. The emphasis must be on market-driven and customer-oriented services and products delivered or made with quality, speed and creativity. Like you do here in New York or in London - the two great business capitals of the world.

But this is not a process driven by the government. I am a firm believer in the operation of a free and open market. It can allocate and use resources more effectively and has a greater capacity to foster creativity, provide economic impetus and create employment opportunities. Therefore, it is up to the private sector to take the lead. And, market forces are already at work in Hong Kong as we emerge from the economic slump.

Deflation is addressing Hong Kong's higher cost base. Property prices and rentals have dropped considerably, in some cases by as much as 60%. And while it is hurting those people with large mortgages, the steep decline in asset values has not led to any bank failure. This is testimony to the inherent strength and flexibility of our financial system. And our external account remains very strong. While I don't have the figures to hand, the soon to be released International Investment Position will show that our net external assets exceed the size of our GDP, which is just another indicator of the strength of Hong Kong's economic fundamentals.

Nevertheless, while I am one of the staunchest supporters of a market economy, the government does have an important role to play in providing an environment and a platform for market forces to operate. I have described this role as a proactive market enabler. Let me give you some examples of what I mean.

One - maintaining an institutional framework conducive to market development. Streamlining and enhancing the efficiency of the government by re-prioritising the various things we do; re-organising government structure; and re-engineering the processes. In this way we are promoting the free market. Over the next few years, we are reducing the size and reach of the government by cutting back expenditure from 23% of GDP to 20% or below. Reducing the bureaucratic and regulatory burden on the private sector in the process of downsizing the public sector. In addition, we will continue to uphold our institutional strengths such as the rule of law, an independent judiciary, the level playing field, the free flow of information; and we are maintaining Hong Kong's business-friendly environment, in particular our low and simple tax regime where profits tax rate is 16% only.

Two - securing more favourable market access for Hong Kong enterprises. And nowhere is this more evident than in the measures we are taking to improve the flows of people, cargo, funds, information and services between Hong Kong and our immediate hinterland. Facilitating the natural process of closer economic relations with the Mainland, particularly the Pearl River Delta. Enhancing the synergy between the PRD - a global production powerhouse and a market with over 40 million people, and Hong Kong, which is a financial, business, logistics and tourism hub not only for southern China, but the Asian region as a whole. This is a process that cannot be left to market forces.

Three - providing the infrastructure to facilitate development. And I need look no further than what we are doing to improve our physical links with the Mainland. Enhancing the existing road and rail links and building new ones to cope with the ever-growing movement of people and cargoes across one of the world's busiest boundary crossings between Hong Kong and the Pearl River Delta. Improving our environment - cleaning up the air we breathe and the quality of our water. And facilitating the development of Hong Kong as Asia's centre for the arts, culture and entertainment.

Four - providing the resources required to ensure we have quality manpower. This includes investing in education: introducing reforms that will provide a more innovative, lively and creative environment in which our young people can learn and interact. Indeed, over the past five years we have increased spending by 50% and will continue to invest heavily in education and training. We are also looking to attract more outside talent to Hong Kong - people with the right knowledge and skills to give impetus to our economic development. Perhaps we can take the cue from the United States, which is a leader in attracting talent from all over the world.

In other words, we are proactively enabling the market to take Hong Kong to the next stage of development, a regional financial, services, logistics and tourism hub that is supported by the very strong growth of the Mainland, particularly the Pearl River Delta.

However, our closer links with the Mainland are not being developed at the expense of our international partners. Indeed, our international network is one of Hong Kong's key strengths, which offers unique value to the Mainland. We are continuing to strengthen relations with our friends around the globe. That's one of the reasons why I am here today. I don't think we have any closer ties than those we share with this great country. I believe the American presence and investment in Hong Kong is testament to that. And we see these links expanding in the future, now that China is a member of the WTO.

Ambassador Platt, ladies and gentlemen, before I conclude I want to briefly mention the new accountability system that will be introduced from the beginning of next month for the most senior government officials. The system announced by the Chief Executive is designed to make the government more responsive and accountable to the people of Hong Kong.

In a nutshell, it will see the introduction of political appointees to the senior levels of government. Those appointed will take full responsibility for their respective portfolios and be accountable for the success or failure of their policies. They will have much more contact and communication with the people. They will work more closely with all political parties to get things done faster and more smoothly. This is a major step in the constitutional development in Hong Kong.

And, it will not give the Chief Executive more power as some have claimed. These powers are spelled out in the Basic Law and there are strong checks and balances which come from the Legislative Council, the people and the media. I am confident the accountability system will achieve its goal, and I look forward to serving Hong Kong as part of the team if I am fortunate enough to be appointed.

So, I am very optimistic about our future. I see us building a Hong Kong community that has a heightened sense of belonging, a sense of direction, a sense of achievement. A community that upholds the pillars of our success. An administration that provides a good living environment, maintains a low and simple tax regime, good law and order, and the right infrastructure, both hard and soft. A cosmopolitan city that is able to attract people, capital, cargo and information. A society that treasures freedom, diversity and creativity.

The incentive and the inspiration come in the vision we all share of a truly great city - one that is an asset both to its many and diverse citizens and to the rest of the world. In short, Hong Kong is Asia's world city.

Ambassador Platt, I now eagerly look forward to our dialogue.

End/Tuesday, June 4, 2002

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