Following is a speech (English only) delivered by the Financial Secretary, Mr Antony Leung, at the APEC Business Advisory Council (ABAC) Luncheon today (August 9):
Chairman Prieto, distinguished guests, ladies and gentlemen,
Thank you Victor for those kind words of introduction. It is my great pleasure to welcome Chairman Prieto and all ABAC members to Hong Kong for this important round of discussions before your annual dialogue with Economic Leaders in Mexico in October. I certainly hope that once you've dispensed with the business at hand, you will have time for a little retail therapy, or to take in some of the sights and sounds of our great city. One of APEC's founding principles is the promotion of free trade, so please feel free to spend as much as you like with our retailers and restaurant owners while you're here.
The last time Hong Kong played host to ABAC was back in 1996, the same year that this 'private sector arm' of APEC was launched. Quite a lot has happened throughout the APEC economies since then. The most significant event for us here in Hong Kong was the Reunification in 1997. The fact that Hong Kong remains an active member of APEC in its own right is proof positive of how well the 'One Country, Two Systems' concept has been working over these five years.
Today, I would like to talk about one issue and that is the economic challenges facing Hong Kong, and what we're doing to tackle them. Afterwards, I'd be happy to take any questions you may have.
Most member economies, in one way or another, were affected by the Asian financial crisis that occupied much of our time and effort from late 1997 through until 1999. The global economic downturn has, similarly, affected many APEC economies since last year.
Here in Hong Kong we're contending with a double-whammy. Apart from dealing the global downturn, we're also grappling with painful economic restructuring. This has been caused by a number of factors such as the outward opening up of the China market. The bursting of the asset bubble has led to more than 40 months of price deflation, which is still continuing. Consumer sentiment remains weak, which in turn affects other sectors such as retail, restaurant and catering, transport and travel. Most worrying has been a sharp rise in unemployment, which currently stands at a record high of 7.7 per cent. All of this has put considerable stress on the confidence of the Hong Kong people, and challenges to those of us in the government.
To tackle these challenges, we can either resist the change, close the doors and impose barriers to protect local industries, sit back, do nothing and hope that the environment will change for the better. Or, we can embrace the change and spearhead structural reforms to break new ground. History has repeatedly told us that procrastination with structural reforms will eventually do more harm than good and reduce our competitiveness. So, we must press ahead with reforms, reengineer our processes, and strive to move up the value chain.
In Hong Kong, there are two things we can and must do: First, we can concentrate our efforts on areas where we already have an edge and that also have good growth potential. Secondly, we must nurture much closer links with our hinterland, the Pearl River Delta, which is a natural fit for Hong Kong. I'll expand on this topic a little later.
The services sector, which accounts for about 86% of our GDP, is without doubt our major focus in Hong Kong. We can add value by improving the quality, speed and creativity of the services we provide. We have identified four areas - financial services, logistics, tourism and professional and producer services. These four industries account for about half of our GDP and employment. They are externally oriented, with a large proportion relating to service trade with the Mainland and other APEC economies. This dovetails nicely with Hong Kong's role as an international services hub for the region, as well as the major handler for China's trade with the world.
The financial services sector is a good example of how we can add value. Hong Kong has long been an important fund-raising centre for Mainland enterprises. The successful listing of the Bank of China last month in Hong Kong, which raised 2.5 billion US dollars, highlights our strength. By listing in Hong Kong, Mainland enterprises can tap into deep, mature Hong Kong market to raise funds for expansion. At the same time, by following the international legal and accounting standards that apply in Hong Kong, these enterprises can boost investor confidence through compliance with our effective regulatory and corporate governance regime.
Nevertheless, we are facing increasing competition from other parts of the world. Mainland enterprises also have the option to list in New York or London, or in other exchanges in the region. Moreover, stock exchanges in Shanghai and Shenzhen are developing fast, with their combined market capitalisation already on a par with ours.
To stay ahead of the competition, we need to constantly improve ourselves. In this regard, we are continuing with reforms to our securities and futures market structures. Five months ago, our legislators passed a new Securities and Futures Ordinance that will put our regulatory regime on a par with the best international standards. The Ordinance embodies a number of key initiatives to enhance the quality of the market and lower compliance costs by market participants. These include a new streamlined single licensing regime for intermediaries; new proportionate disciplinary sanctions to combat market misconduct; new measures to protect the interests of investors by criminalising market misconduct and providing a civil route for action; and a tighter regime for disclosure in listed companies to enhance corporate governance.
Parallel efforts are being made to increase the depth and breadth of the market, and facilitate the development of new products and services in banking, the debt market, equities, insurance and the fund industry. We are also improving our hardware infrastructure, such as the introduction of US dollar and Euro Real Time Gross Settlement Systems, and the targeted implementation of scripless securities trading systems and automatic straight through processing.
What we are doing in the financial services sector is really what we've already tried to do in other sectors - that is, to position ourselves as the highest quality market in the region with the highest potential to grow. Quality attracts liquidity, and liquidity breeds liquidity.
This is what we can do in one sector. Now let me talk about what we can do to boost our competitiveness as an economic entity. And this comes back to the topic of our links with the Pearl River Delta. In my view, Hong Kong's future hinges on how best we could capitalise on the enormous comparative advantages of what is, and will increasingly become, one of the world's greatest manufacturing centers in the PRD, and one of the world's most successful services economy in Hong Kong.
But I must stress that whatever we do will be within the framework of 'One Country, Two Systems'. We understand the importance of maintaining Hong Kong's own identity and its international systems and standards. One of our greatest strengths is our difference from other Mainland cities, not our similarities. So I am not talking about subsuming Hong Kong's identity. In fact I mean to enhance it. And one way we can do that is to leverage on the aggregate strengths of the PRD in terms of manpower, the breadth and depth of economic activities, production capacity, market size, expertise, technology, infrastructure, telecommunications and transport.
Hong Kong and the PRD have a combined population of almost 50 million, about the same as Canada and Australia combined. With, and without Hong Kong, the PRD is one of the most prosperous economic regions in China. It is the largest exporter in the country; and, it is, by far, the most popular destination for foreign investment.
Hong Kong's private sector has, for many years, been making the most of the unparalleled complementary strengths of Hong Kong and the rest of PRD. That explains why there are more than 36,000 Hong Kong-linked enterprises employing some 5 million people in Guangdong Province. But now that China has entered the WTO, we need to do more to smooth the flows of people, cargo, capital, information and services between Hong Kong and our economic partners in the PRD.
As we move forward, we have to make further improvement to make PRD as a region more conducive to businesses making use of the advantages of both the Mainland and Hong Kong. We enable businessmen and ordinary people to cross the boundary more conveniently. We will make it a lot quicker for container trucks from all over the Delta to access the excellent intermodal logistics facilities in Hong Kong. And we will facilitate investors or companies in the Delta to more readily participate in our financial markets for investment or fund raising, and have even better access to our professional and business services.
We have already begun the process. We are upgrading and expanding our existing boundary crossings, and building new ones. We are examining new passenger and cargo rail links into the Delta. Travel convenience to the region has been enhanced for foreign residents living in Hong Kong, while Mainland business people can come to Hong Kong more easily. Travel documents on both sides are being upgraded to allow more speedy processing. Co-located Customs and Immigration facilities are being developed. We are discussing possible options for further co-operation in the financial markets. And we have made a good start on a Closer Economic Partnership Arrangement covering the trade in goods, services and trade facilitation.
Certainly, there must be far greater co-operation and interaction by both the public and private sectors on both sides of the boundary to make full play of our complementary assets and abilities. Ensuring that this happens is one of my top priorities.
Ladies and gentlemen, there is no doubt that Hong Kong is facing a tough time at the moment. But as you can see for yourselves, we are not standing still, nor would we ever stand still. We have set ourselves a goal to become Asia's world city, as well as a major city in China. I have today just touched the tip of the iceberg in terms of what we are doing to tackle the difficulties and challenges facing us, to lay the foundations for sustained growth, and to add value to whatever we do here in Hong Kong. We have also launched reforms and initiatives in education, environmental protection, transport infrastructure, tourism facilities, urban renewal and government accountability - all designed to make the benchmark that we have set for ourselves as Asia's world city.
Your meetings here in Hong Kong are an important part of that positioning. Hong Kong takes great pride in playing a meaningful role in international forum such as APEC - in fact, we are living example of what APEC is all about. As President Bill Clinton once remarked, Hong Kong is 'exhibit A for the case of global interdependence and its benefits'. I know that Hong Kong's policy of free and open markets strikes the right chord with members of ABAC. Similarly, on the flip side of the coin, much of what ABAC discusses and proposes will find a sympathetic ear here in Hong Kong.
Last but not least, I would like to wish you all the best for these meetings. Once again, thank you for coming to Hong Kong. And I extend my personal invitation to ABAC to come back to Hong Kong for meetings such as these as often as you like. You will always be welcome in Hong Kong, the world's freest city. Thank you.
End/Friday, August 09, 2002