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Following is the speech by the Chief Executive, Mr Tung Chee Hwa, at the reception for newly formed foreign-owned and mainland companies in Hong Kong today (July 11):

Friends, Ladies and Gentlemen,

Let me first extend a very warm welcome to everyone of you to this reception and to this wonderful city of ours. I held a similar type of reception for a hundred or so new companies who had been set up in Hong Kong in August 2001.

We are counting more than 3 200 regional headquarters and offices in Hong Kong, the largest number in any city in Asia. The Director-General of Invest Hong Kong told me that, on average, one regional headquarter is set up here every week. This number includes only those which have come to our notice, whether through our contacts or what we are reading in the media, and does not, in fact, include many who are not even aware of as of now.

Perhaps taking this opportunity I would like to talk to you a bit as to what we are facing today in Hong Kong. What other challenges we are facing today and what other things we are trying to do here in Hong Kong to successfully overcome the challenges we face. Over the last five years, against sceptics, we were able to turn "One Country, Two Systems" into a everyday reality. That in itself is a tremendous achievement, acknowledged around the world, and it is something we will continue to make sure over the many, many years to come in the future that "One Country, Two Systems" will continue to be practised here every day as we move forward. But the challenge we face over the next five years as my new term begins, is really a very different challenge.

We are faced with challenges which are mainly economic. We are faced with the challenge of the cyclical downturn of economy which until recently had signs of picking-up in the United States, Europe, and Japan, although signs of late during the last couple of weeks from the United States have not been that encouraging. We are very sensitive to the cyclical downturn of economy of our major markets. At the same time, we are going through a major structural reform, economic restructuring that was brought about by the very rapid speed of globalisation, the advent of information technology, and particularly by the success of the development of the Mainland economy, which has given us great opportunities. But at the same time real challenges, those that come about because now across the border from here, products can be produced or service can be rendered at a fraction of our cost here in Hong Kong, forcing us to change our ways, repositioning ourselves, to a different Hong Kong.

Hong Kong's success, one way or another, has always been associated with the development on the Mainland. Before 1978, China was not an open economy. Hong Kong was the conduit, the bridge for Mainland to reach the world and for the international community to reach the Mainland. In that process, we benefitted a great deal, created tremendous wealth for ourselves, and at the same time contributed to the development of the Mainland of China.

After 1978, China became partly open, and our manufacturing force moved across the border from Hong Kong onto the Pearl River Delta. We used to employ about 900 000 manufacturing workers. Its now down to about 250 000 people. But, across the border, Hong Kong businesses employ over 5 million people. Hong Kong, in return, becomes a very successful centre for financial services, logistics, transport services, a centre for multi-national companies clustering here. During that process we created wealth for ourselves again. Hong Kong becomes even more prosperous than before, but at the same time we also contributed to the rapid development of the Mainland.

But now in the 21st Century, China is totally open up with tremendous opportunities. It has a very disciplined workforce of 1.2 billion people and excellent infrastructure, making China a very formidable competitor as a production centre. At the same time, it is potentially a very large consumer market. We have seen all the countries recognising this moving into China, many of whom choose to do so through Hong Kong.

And of course, from that point of view, we ourselves here in Hong Kong, looking at this very open and successful development of the Chinese economy, ask ourselves what is our new role in all these because the role will be different from what it was before in the 80's, up to the 90's, and certainly very different from what it was before 1978. What we have said to ourselves is that we are positioning ourselves as the world city of Asia because we are in the heart of Asia, providing this wonderful geographical location for doing businesses all over Asia. And of course, particularly for doing businesses with the Mainland.

I want to particularly mention in addition to this, particularly about the Pearl River Delta, an area of 40 million people with very rapid wealth creation, very attractive consumer market in the making. Combining with Hong Kong's 6.8 million people, it is close to 50 million people, a territory with a combined GDP of US$250 billion. If this grows at the same rate as the last 10 years, the combined GDP 10 years from now will be US$500 billion. In fact, it is a large economy compared even with some of the OECD nations or regions.

There is tremendous potential for companies based here for developing their businesses for Asia, for the Mainland of China as well as for the Pearl River Delta. Yes, our economy is going through restructuring, with our unemployment rate rising at this moment because basically the labour intensive jobs have already moved across. Now the white-collar work is moving across, and at the same time as this is happening, as our economy is restructuring, we are saying to ourselves we are moving up the value chain. We have to move up the value chain to provide different services which, in fact, are needed in Asia for the Pearl River Delta or for the whole of China.

And in fact, we have a lot of competitive advantages. If we look at this as Hong Kong, we have the competitive advantage of geography which you are all aware of. A tremendous clustering of all sorts of talents here. Many of you are already in this particular room, but really clustering of talents, be they professionals, accountants, lawyers, bankers, clustering of people who are entrepreneurs who want to create a better life for themselves. And there are very good infrastructure, roads, railways, airport, telecommunications.

Of course, my colleagues had already mentioned about our determination to make sure that the rule of law, the transparency of our Government, and the level playing field. All these are really very unique qualities which few cities in Asia have. We will be maintaining them and doing our very best to enhance them. So these are the competitive advantages we have and I am very confident that with these competitive advantages, we will be able to move ahead and achieve our new positioning in the 21st Century.

Some of the things you might be interested to know: what we are trying to do is that we are investing 21 per cent of our annual budget on education.If we are going to move up the value chain, if we are going to have a population that can compete with the best in the world, we need to do more and more in education, and this is from kindergarten level upward - kindergarten, primary school, secondary school, then university. Investments are being made and efforts are being made to make sure that in the years down the road, we will continue to produce some of the best.

The second thing I want to say is about importing the talents and the professionals that are necessary for your business because we believe only by getting all the best in the world to come and live in and work in Hong Kong, Hong Kong can continue to be as successful as it has been in the past. So we are liberalising our policies of immigration, particularly vis-a-vis for talents and professionals and the elites from the Mainland of China. Then we also recognise that today the best talents, the best people in the world have the possibility of being employed in anywhere he or she wants to live. And therefore, quality of life is a very important issue for us here in Hong Kong.

To make sure that people who come, and work and live here find Hong Kong a wonderful place to live in, not only that it's safe, it's pleasant, but the quality of air, the quality of water we drink and also how do we treat the wastes, and making sure that Hong Kong is really an attractive place. I don't know whether you have noticed we are moving forward in investment in cultural facilities, hoping that not too many years down the road, we can have Broadway or West End plays to come to Hong Kong. We already have many many performing venues, but we are investing more in world-class performing venues. The quality of life here in Hong Kong is such that those who live and work here, whether you are Hong Kong citizens, whether you are here just for a few years, you'll find this a wonderful place to live in.

And the other thing which I want to mention is about innovation and technology because the promotion of innovation and technology for adding value to our economy against the background of globalization process, the brutally competitive international landscape and the impact of technological application has been one of the cornerstones of my policy platform over the last five years. We recognized that without promoting in a very very determined way for the community to become more innovative, even more entrepreneurial and to apply science and technology in innovation, we are not going to be able to compete. So over the past five years, we have been investing and doing a great deal in a number of areas to support research and development at all levels, notably the creation of a 5 billion Innovation and Technology Fund, establishment of an Applied Science and Technology Research Institute, greater incentive for industry to collaborate with universities in technology transfer and development, technology incubation programmes, financial assistance for technology entrepreneurs, development of Science Park and cyberport, and the creation of the Hong Kong Science and Technology Parks Corporation to manage in a coordinated manner the technological infrastructure of Hong Kong, and the list goes on and on.

Just on the development of Science Park and Cyberport, the first stage of Science Park is practically full; the first stage of Cyberport is eighty per cent full already and some of the best companies are there. I don't know whether Philips is represented here today or not, they decided to move here, research and development operations from Singapore to Hong Kong, into the Science Park, and this will happen in the very near future. So, obviously we are attracting some of the very good companies to come, live, and work here.

I am trying to make propaganda. I do want to tell you that our efforts in this regard have been really quite successful. I really believe you need to attract the best to come to Hong Kong, the best can then attract other talents to come, to create the cluster that is necessary to develop science and technology. Couple of months ago, we announced that we are going to set up a Genome Centre at the University of Hong Kong. For those of you who are new here, the Medical School of University of Hong Kong is very well-known in this region, one of the best in this region, and we want to build on that strength of the University of Hong Kong. We decided to set up the Genome Centre here to study genomics. And the director we recruited was, I say "was", by the name of Dr. Tsui Lap-Chee who is very prominent in this field internationally, particularly well-known in Canada, has now agreed to come here. I said "was" because he has now become the Head of the University instead, he's going to make sure somebody else is going to run the Centre. And the other is, of course, recently you might have noticed, that David Ho, who was made by Time magazine "Man of the Year", I think, famous in AIDS research in the State of New York, has agreed to move part of its research actually into the Hong Kong University.

So you can see some of these very good people we have been able to attract them to come, live and work here in Hong Kong. On the one hand, helping us to gradually develop our bio-medical effort in these two particular examples. I mention these only to tell you that we are able to attract some of the best people to come here and this Government will continue to do so to ensure the direction we are setting is going to work. I just want to tell you that in many of these areas, I am very much personally involved in charting this particular course, to make sure that we will be successful in the years down the road.

Many of you are here because of opportunities on the Mainland and the Pearl River Delta. All I can tell you is that, you have absolutely made the right decision. On all my travels overseas, I have made a point that if you are General Motors, you may not meet us here in Hong Kong, you can go to Beijing, Shanghai directly. Although sometimes we welcome you guys to come just spend a weekend here with us, for many other companies, I have noticed that they have chosen to come and make Hong Kong their headquarters. All I can say is that, we would do our very best to make your stay here very pleasant and that your stay here a very successful one.

Ladies and gentlemen, you have come from around the world, I really once again like to welcome you all into this big Hong Kong family of ours. Your presence here is really very essential wherever you are from, very essential in making Hong Kong the world city of Asia. We are determined to maintain and enhance our advantages to ensure that we retain the best business environment in Asia. If you have any problems at all or if you have any suggestions at all, how we can do better? What steps we are missing? Just give me a call or my colleagues at the Invest Hong Kong Office. You will be surprised my door is already open, always open. People say I work very hard, I really work 24 hours a day. So, you can get to me. The important thing I want you to understand is that, your success is our success and we want you to be successful.

Thank you very much.

End/Thursday, July 11, 2002

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