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Following is the speech (English only) by the Chief Secretary for Administration, Mr Donald Tsang, at an Asia Society/Hong Kong Australia Business Association Dinner tonight (August 22) in Sydney:

Mr Woolcott [Richard Woolcott of Asia Society, co-host], Mr Liu [Stephen Liu of HK Australia Business Assn, co-host], distinguished guests, ladies and gentlemen,

Thank you Ian [Ian Stark of Cathay Pacific, the sponsor] for such a warm welcome. I've heard it said that some after-dinner speeches are like the horns of a steer - a point here, a point there, and a lot of bull in between.

Well, it's true that I do have a couple of points to make in Hong Kong's favour. But I can guarantee that like the runners at Pamplona, I'll do my best to steer clear of the bull. Instead, I'll stick to a golden rule of public speaking - be sincere, be brief and then, be seated.

It is a great pleasure to join you for dinner tonight in this great city of Sydney, and amongst such fine company. I know that I can always count on a genuine and heartfelt reception whenever I and my colleagues visit Australia.

That speaks volumes for the close bonds of business, family and friends that underpin the strong, and I emphasize, continually developing, links between Hong Kong and Australia.

There are about 50,000 Australians living in Hong Kong, which is also home to around 100,000 alumni of Australian universities and colleges. Australia is now the most popular destination for full fee-paying Hong Kong students. Australian education service providers account for about 40% of all offshore courses offered in Hong Kong.

In recent years, hundreds of Australian teachers have come to Hong Kong to help boost the English standards of our secondary school students.

The Australian Chamber of Commerce in Hong Kong is the largest outside of Australia and its 850 corporate members employ more than 200,000 people in Hong Kong - that's about 6.2% of our workforce.

There are strong professional links in areas such as medicine, dentistry, accounting, law and engineering. Our governments often speak as one voice in fora such as APEC and the WTO. Our law enforcement agencies co-operate closely to combat international crimes such as drug trafficking and money laundering.

We have a very solid trade and investment relationship across a broad spectrum of activities and sectors. Cultural and tourism links continue to grow. You will even find Vegemite on the shelves of our supermarkets.

But we do not take such strong and cordial ties for granted. That is why I am here in Australia this week. I want you to know that Australia matters to Hong Kong.

I want to tell you that despite being old friends we still have plenty of new ground to cover; that there is more we can do together, government-to-government and company-to-company for our mutual benefit.

And I want you to hear how we plan to consolidate our position as the best place in Asia for Australian companies to do business, indeed as the best place in Asia for international business full stop.

Anybody who has watched the Wallabies at their best will know that one of their greatest strengths is the ability to maintain their cool, and to stick to their game plan, even under enormous pressure.

The Bledisloe Cup decider three weeks ago here in Sydney is all the proof that you need - if you keep plugging away then you will reap the reward of your efforts. It's as much to do with self belief as it is to do with raw talent.

Tonight, I want to share with you Hong Kong's game plan as we face unprecedented challenges and opportunities in the rucks and mauls of the global market.

I want to explain how Hong Kong is positioning itself to deal with painful but necessary economic restructuring, how we hope to maximize the benefits of China's entry into the World Trade Organisation and how we are reforming our political landscape to accommodate the views of all of those who live in our free, open and pluralistic society.

Let's start with the basics first. Hong Kong has been a Special Administrative Region of China for five years. The 1997 transition of sovereignty to China was seamless. Since then, we have been enjoying a high degree of autonomy as guaranteed under 'One Country, Two Systems'. We remain as free and open today as we were prior to the Handover.

Now, look at the bigger picture. China is already the world's fourth largest trading entity. It will continue to open up and develop at a rapid pace. Its GDP has reached 1 trillion US dollars and could double within the next decade. Indeed, China is predicted to become the world's second or third largest economy within the next two decades.

To fathom the opportunities, look no further than the 25 billion dollar natural gas deal announced two weeks ago between China and Australia.

On the other hand, China's rapid development is also bringing into sharper focus the interplay between One Country and Two Systems. How can tiny Hong Kong, with a population nudging 7 million, maintain its relevance and market niche in the face of such huge developments?

To explain how, let me go back to that gas deal for a moment. And by the way, the principal legal adviser to Australia LNG during the 18-month bidding process was the Hong Kong office of an Australian law firm.

This liquefied natural gas from the northwest coast of Australia is destined for Hong Kong's neighbouring province of Guangdong. It is China's most prosperous province, the largest recipient of foreign investment, the most open and developed economic region in the country, and the largest exporter. It is often referred to as 'the factory of the world'.

In Guangdong, in particular within the Pearl River Delta region, you will find more than 36,000 Hong Kong-linked companies employing some five million people. More and more international companies, including those from Australia, are also taking advantage of low-cost labour and abundant land in the province to manufacture goods for export around the world.

At the same time, these companies maintain their corporate headquarters in Hong Kong where the laws are familiar, intellectual property is protected, quality support services are readily available and the most you'll ever pay in profits tax is 16 per cent.

History and circumstance have bequeathed us considerable advantages over any other Mainland city. Our legal system, our level playing field for business, the free flow of information and a clean, efficient civil service.

Our free and open markets, low and simple tax system, freely convertible currency and our own immigration and customs controls give us an identity distinct from the Mainland and give us unrivalled edges.

And Hong Kong's future prosperity hinges on sticking to a game plan that allows us to leverage these unique edges as a capitalist society under the rule of law, while China's socialist market economy continues to open up and modernize.

We are making full play of our existing strengths to enhance our role as an international city and an Asian hub, as well as a window on the world for China. To do this we are concentrating our efforts on two broad fronts.

On one front, we will enhance our competitiveness by adding value in key economic drivers such as financial services, transport and logistics, tourism and professional services.

Together these four sectors account for about 50 per cent of our GDP, while services as a whole account for about 86 per cent. But only about 35 per cent of China's GDP is attributed to services. So as the Mainland's economy grows and matures 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 fit perfectly with Hong Kong's niche.

On the other front we are working hard to boost the economic synergy with our prosperous hinterland, the Pearl River Delta, by smoothing the flows of people, goods, cargo and services across our land and sea boundaries.

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 two-and-a-half times the population of Australia. Its GDP of US$258 billion (A$500 billion) puts it amongst the world's top 20 economies.

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. And lying at the heart of the PRD is Hong Kong.

One of my key areas of responsibility as Chief Secretary for Administration is to make sure that we work more closely with the local governments in the Pearl River Delta to make trade and investment between Hong Kong and the PRD as seamless as possible, while carefully preserving Hong Kong's unique advantages under 'One Country, Two Systems'.

More resources will be devoted to hastening the flow of people and goods 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 between Hong Kong and the PRD.

There are plans for further co-operation in the logistics sector and to provide ferry services connecting the PRD's major port cities with Hong Kong International Airport.

All these initiatives will enhance the export efficiency of the PRD region and Hong Kong's ability to serve that extra trade.

Just last month we also opened our first Economic and Trade Office in the Mainland in Guangzhou to promote economic co-operation and to strengthen business and economic liaison between Hong Kong and the PRD.

A major reason for establishing the office is to help Hong Kong businesses to better understand the opportunities emerging in Guangdong following China's WTO entry. The office will also enhance understanding between the HKSAR and Guangdong authorities, provide better support for Hong Kong businesses and promote investment in Hong Kong.

Reforms and initiatives on both of these fronts are being co-ordinated to dovetail with our overall objective to lift Hong Kong to a new plain of economic development that underpins our positioning as the world city of Asia.

Such profound changes have inevitably led to painful adjustments within the local economy. But in Hong Kong these have been exacerbated by the global economic slowdown, particularly in our key market of the US, plus the bursting of an asset price bubble during the Asian financial crisis in 1997 and 1998.

Property prices have dropped by more than 40 per cent. We have had more than 40 months of price deflation. Unemployment is at a record high. And we face fiscal strain due to decreased revenues from taxes and stamp duties.

To tackle these challenges everyone across government is doing more with less. We have set ourselves a target to significantly reduce the size of government spending relative to GDP, from its current level of about 23% to 20% or below over the next five years.

If we use 2001 GDP figures as a base, this would equate to a saving of 38 billion HK dollars, or about 9 billion Australian dollars, by 2006-07.

But we will not shrink from our responsibilities to help those in genuine need. Nor will we pull back from investing in the major infrastructure projects needed to complement our growing economic interdependence with the Pearl River Delta, to improve the living environment and boost our attraction as a destination for international investment and talent.

For example, over the next 10 years or so we will spend some 600 billion Hong Kong dollars (more than 140 billion Australian dollars) on new railways, roads and bridges; urban renewal and new town development; environmental protection and enhancement; cultural and recreation facilities and new tourism infrastructure such as Hong Kong Disneyland.

We are also investing heavily in education and training to provide our citizens with the knowledge and skills needed to find jobs, and help Hong Kong compete, as we become an even more services-oriented and knowledge-based economy.

With so much happening, and so many changes taking place, it was inevitable that political reform would become a vital part of our agenda. Two years ago, when I last visited Australia as the Financial Secretary, I was a career civil servant with permanent tenure. Today, I am a political appointee with a tenure that cannot exceed that of the Chief Executive who appointed me - at most, five years.

Since July 1 - the fifth anniversary of the HKSAR - we have been operating under this new system of accountability. For the first time in our history, the top echelon of our administration has been appointed on contract terms.

This new "Hong Kong-style ministerial System" will make government more open and accountable and more responsive to public needs and opinion. The Chief Executive's 'cabinet' - the Executive Council - has been expanded to include all of the new 'ministers' and other key political figures in the community.

This will help the government work across the boundaries of various policy areas and provide a more unified and focused approach to policy formulation and resource allocation.

The new system has also preserved the political-neutrality of our permanent and merit-based civil service, which is one of our greatest assets. Previously, our Principal Officials played dual roles of drawing up as well as implementing policy. This inevitably led to a tug-of-war between their duty to remain politically neutral, and the necessity to formulate policy.

Now, the political mantle has been taken up by appointees who will be responsible for the success or otherwise of their policies. I am sure the politicians in Australia have no problem identifying with such a system.

The Accountability System is an important step along our constitutional roadmap for political development in Hong Kong. The Basic Law laid down a 10-year timeframe - from reunification in 1997 until 2007 - for Hong Kong people to gradually develop our system of representative government.

After 2007, it is up to Hong Kong people to decide how best to move towards the ultimate goal of universal suffrage.

But whatever the deliberations or outcome, it must be a home-grown system of government that has the support of Hong Kong people and is consistent with our status as a Special Administrative Region of China under the 'One Country, Two Systems' formula.

The Founding Fathers of this great country did not simply transplant a British or American model of government in Australia. It is, in fact, a hybrid of both.

Similarly, we in Hong Kong are not looking for an off-the-shelf, one-size-fits-all democratic model. Like Australia at the turn of last century, we need a tailor-made system that best suits our needs and our own unique identity.

Ladies and gentlemen, Hong Kong is standing at the threshold of a new era in economic opportunity and development. Over the past 20 years, we have grown rich as the premier gateway to the Mainland market, especially in the areas of financial services and in 'offshore' manufacturing.

As China moves forward, and as more international companies gain access to its huge market, we cannot afford to stand still. In many ways it is make or break time for us in Hong Kong.

But as I mentioned earlier, we have our strengths and we have our advantages and we have a game plan. And that is why international businesses continue to open regional offices in Hong Kong at the rate of one a week.

Like many of the Australian companies in Hong Kong, they are looking for a stepping stone into the Mainland market. We are happy to play that role. But we are determined to do it better than ever before.

Thank you very much.

End/Thursday, August 22, 2002

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