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Following is the speech (English only)by the Financial Secretary, Mr Antony Leung, at a Luncheon hosted by the Brookings Institution in Washington DC today (June 6, Washington time):
Ambassador Armacost, ladies and gentlemen,
I am delighted, and honoured, to have the opportunity of addressing such a distinguished audience and at a function hosted by the Brookings Institution - an organisation whose reputation for analysing public policy and offering practical remedies is legendary.
It may be my first official visit to Washington since being appointed Hong Kong's Financial Secretary just over a year ago, but I am no stranger to this vibrant world capital. And I hope there will be many more visits in the future as we continue to develop the close bonds of friendship which have been the hallmark of our relations with the United States going back well over a century.
The past 13 months or so have been a busy and fulfilling period for me after some 28 years in the banking business, all with American banks. My mission has been to work hard to help make Hong Kong even more successful and, most importantly, to ensure that we develop economic opportunities which benefit the majority. The task is a challenging one, and perhaps made just a little bit more difficult as a result of the current economic downturn. But when you can see the kind of rewards Hong Kong has to offer, there are plenty of reasons to be optimistic. And I have boundless optimism for Hong Kong - it is a great city and we plan to make it even greater.
Hong Kong has enjoyed a remarkably successful transition, and we are gratified by the encouragement and support we have received from the US government over the past five years. But one still hears questions about our future. Are we becoming just another city in China? Are we in danger of losing out to Shanghai? My answer to questions such as this is 'No'
Let me explain. Hong Kong plays two distinct but complementary roles. One is our geographical position on the doorstep of China. The other is at the centre of Asia - a major hub for finance, business, services and logistics. We are exploiting both of these strengths. We are building on our network of contacts, experience and the ties of language and culture to make the most of a rapidly opening up and increasingly sophisticated Mainland economy. Indeed, our links with neighbouring Guangdong Province, especially the Pearl River Delta, are changing dramatically as our two economies become more inter-dependent.
At the same time, as we become more interlinked, we must continue to attract and retain international business, investors and human capital to provide the added-value we need to boost our competitiveness. We must be the first and logical place that comes to mind in terms of business and investment not only in China, but the rest of Asia. In this, we continue to be successful. More than 3,200 international companies have now established their regional operations in Hong Kong - nearly 650 from the United States alone - 30% more than in 1997; and many others have simply 'set up shop'. They have been attracted by our own free and open domestic market of almost 7 million people, who live in the world's freest economy, and by our location.
And this brings me back to our growing economic links with our immediate hinterland. I have always placed great importance on closer co-operation with the Mainland, especially the Pearl River Delta, which is the fastest growing region in China and one of the fastest in the world. Indeed, establishing closer ties became one of my top five priorities after I was appointed Financial Secretary.
The subject is now something of a hot topic as the opportunities for both communities through greater inter-dependence have become more evident. It has attracted considerable support from the public, but there are those who are concerned about a possible loss of identity for Hong Kong as an international city. On this point, I can assure you, this is a friendly hinterland. Our increased co-operation is one of mutual benefit. We as a government are fully aware of the importance of maintaining Hong Kong as a unique cosmopolitan city.
Some of our greatest strengths are our differences with the Mainland, not our similarities. But to be a leader in today's global society, it is necessary to leverage the total strengths of a region. Hong Kong's strengths are as a financial and business centre, and a hub for logistics, communications and tourism. On the other hand, Guangdong Province, particularly the PRD, is a global production powerhouse. Its manpower and land resources dwarf those of Hong Kong and it is a very large consumer market.
If Hong Kong and the PRD are taken together, we have a population approaching 50 million - that's close to the size of the United Kingdom with a complete range of economic activities. And there is ample room to further develop the market potential. In fact, the private sector was the first to capitalise on the complementary strengths between Hong Kong and Guangdong. During the 1980s they shifted their manufacturing operations across the boundary in a move that has been so successful that Hong Kong business interests now employ some five million workers in the Pearl River Delta.
Today, the crucial role of the government is to protect the integrity of 'one country, two systems', while ensuring the boundary crossing does not impede this enormous increase in economic activity and closer relations. In other words, maintaining Hong Kong's status as a separate customs, immigration and monetary territory, but making the flow of cross-boundary activity as smooth as possible. That's why we are focusing on improving our links with Guangdong. Much has been achieved, but it is 'work in progress'. After all, we are dealing with one of the world's busiest boundary crossings with an average of nearly 300,000 people and 31,000 vehicles crossing back and forth each day.
We are expanding our existing road and rail links and building new ones. We are examining an express rail link to shorten the travelling time between Hong Kong and Guangzhou to less than one hour. Already, mainland visitors can enter Hong Kong more easily; cargo flows have become smoother, and business people in Hong Kong have easier access to cities across the boundary. In addition, the Mainland and Hong Kong authorities are studying the possibility of co-locating boundary checkpoints to ensure speedier processing.
Proposals are also being discussed to enhance co-operation between the financial markets in the Mainland and Hong Kong. And looking further afield, we have begun talks with the Central Government on a Closer Economic Partnership Arrangement. This is a complex issue as neither Hong Kong nor the Mainland has entered into a free trade agreement with any other parties. Therefore, a CEPA will not happen overnight.
I would also like to make it clear that our closer links with the Mainland are not being developed at the expense of our international partners. We are continuing to strengthen relations with our friends around the globe. Our international network is one of Hong Kong's unique strengths, one that differentiates Hong Kong from other Chinese cities. This is 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. We have been a key centre for US business interests in the Asia Pacific region for many years. To illustrate this, by the end of 2001, preliminary US government statistics showed that American direct investment in Hong Kong totalled US$25 billion. We see these links expanding in the future, now that China is a member of the World Trade Organisation. And I recently learned from the US Consul General in Hong Kong that last year, the consulate's Commercial Section arranged business matchmaking services for more than 70 American companies, providing each company with six to eight meetings. On a per capita basis that's the highest number of matchmaking services of any US diplomatic mission in East Asia. And many of those meetings resulted in successful deals.
So, I think we can safely say that China's WTO membership will bring more opportunities for Hong Kong and companies like those I just mentioned. We estimate that accession will add another 5% to our GDP over ten years. In all aspects, Hong Kong is in an enviable position - a dynamic city where East really meets West. We have the expertise, the contacts and the track record of working and trading in the Mainland; and a deep knowledge of western business practices built up over generations of working with the West, to profit from the next stage of China's opening up to the world. Put simply, we have developed a cluster of service industries that can provide support and solutions to match any demands.
We also have the key institutional strengths to help maintain stability in a region that historically has been subject to some volatility - the rule of law, underpinned by an independent judiciary, a level playing field, a clean and efficient administration, and the free and unfettered flow of news and information. Our tax system is low, predictable and business friendly.
Due to economic recessions, twice in the last five years, and deflation, Hong Kong is suffering from structural deficit. But we are not looking to raise taxes in a big way to overcome this. The main thrust is to reduce government spending - to cut it back from the present 23% of GDP to 20% or below over the next 5 years. Our cost structures must come down, and while we will always strive to create a favourable business environment, we remain firmly committed to relying on market forces to lead the way. I believe we have the support of the community to take the tough measures now to make life better for our future generations.
Finally, I would like to come back to a phrase I used earlier in my speech - a phrase on which Hong Kong's future has been mapped out - 'one country, two systems'. This concept, 'one country, two systems' provides unique advantages to Hong Kong that other Chinese cities don't have. Five years after reunification, I think it is reasonable to say that its implementation has been successful. Hong Kong people are running Hong Kong with a high degree of autonomy promised in the Basic Law.
Indeed, the Central Government has been exemplary in observing its hands off policy. The freedoms people enjoyed prior to the handover continue to be enjoyed today - five years on. That's not to say everything has been perfect. Difficulties arise whenever a unique system is put to the test. But with patience and tolerance on all sides, these issues have been resolved satisfactorily.
This is a mark of the maturity of the people of Hong Kong and one of the most significant pointers to our future development in the next five years and beyond. It is a yardstick by which Americans and American companies can take comfort when looking to do business in Hong Kong, Asia's world city.
Thank you.
End/Friday, June 7, 2002
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