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Following is the transcript (English only) of the panel discussion on "A Meeting of Minds" attended by the Chief Executive, Mr Tung Chee Hwa, the Forbes' President, Mr Steve Forbes, and its Chairman, Mr Caspar Weinberger, after the opening of the Forbes Global CEO Conference at the Grand Hyatt Hotel last night (September 24):

Forbes: To begin the discussion going to the global stage, since Iraq is on everyone's minds now, if it is likely the US does commence hostilities against Iraq militarily in the next few months, what impact do you think that will have on the region here and on the global economy? Will it be long term, short term? What do you see coming out of such an event?

Mr Tung: Steve, I think that it really depends on the length of the war. If it is a quick war, a quick finish, then I think the impact will be, at least for a while, minimum. But if it's a prolonged or protracted war, then probably there will be negative impacts all around. It is not just about the oil prices going up, but also the impact on consumers' spending, the impact on the anxiety of the people. Past wars have suggested that if the war does, it helps the economy may be even in the beginning. But then if it prolongs it, I think nowadays so much of the economy, particularly in the United States is driven by consumers' spending, it will be worrying for us. But it is still too early to judge yet.

Weinberger: Another subject, I was very interested in the report we keep getting from Mainland China about the improvement of the economic situation of the last few years. I wonder if you had assigned any particular reason. Why do you think this is happening? Why is the individual GDP going up for each person and why is the quality of life seem to be improving? What has caused this change?

Mr Tung: I think since 1978, Cap, you can see that the leadership in China had followed a very consistent macro-economic policy and also a very consistent geo-political policy. This macro-economic policy management, especially since the last decade, has really been excellent and the person who has always been saying this and he told me this in person was Alan Greenspan. He said to me a few years ago in Hong Kong. He said, "you know Chief Executive, where do you think are the best managers of economy these days in the world?" He said it is in China. They have the best team, they have the toughest job, and they are not afraid to take on these difficulties. They openly talk about their problems, they openly find solutions for them. If they don't, they will try again, very honest with the people what is happening, and I think that is what they are trying to do now. Their policies are being very much supported by the people, and so it is going very well. It is really the sound macro-economic policy as well as the persistence and the courage to carry out some of the reforms because you know, and I particularly know here in Hong Kong, sometimes we have to carry out reforms very difficultly because entrenched interest is sure enough to put some blockage along your way.

Weinberger: You see that continuing with the changes in government that are supposed to be taking place in the next few months, you don't think those changes will make any difference in economic policy?

Mr Tung: I don't think so because in fact as I said since 1978, you can see the change of leadership, but actually the policy has been very consistent. I think the leadership will continue to be very consistent in pursuing the policies.

Forbes: You think there will be more emphasis after November, and more internal development economically in China, instead of the emphasis on exports? You think there will be more domestic orientation in their economic growth and reforms, such as what the United States went through in the 19th Century when what you might call continental internal development, rather than relying on exports?

Mr Tung: Of course, domestic economy is always very important which is a major component of the Chinese economy. The Chinese economy is really doing well that domestic fixed investment is very high. In particularly investment, not just on the coastal region, but way into the western region, consumers' spending is holding up very well. So, you can see that it is moving well. Of course, the fact that export has increased enormously during the first six months, and it is very good news for Hong Kong because it helps Hong Kong's export figures and so on and so forth. But I would say that because economy is now large enough, so the emphasis on the domestic economy is quite substantial now.

Weinberger: One of the things that stopped the American economy, despite all the problems, has been distracted the real estate market, and the fact that people can now get mortgages at a considerably lower rate and so on. Hong Kong, some years ago had, one of that is we rather envied, and that was the ability to control and supply over substantial out of real estate. Is there still a possibility or is it being done?

Mr Tung: Well, Cap, you know property market in Hong Kong has fallen a great deal since the peak in the late 1990s just before the return of Hong Kong to China. We have taken a few measures to try to stabilize the property prices, try to prevent it from falling further, try to really stabilize it and, if possible, to even to gently push it up a bit. Because what is happening is this property price falling has a major deflationary impact on Hong Kong.

Out of that 12 percent of deflation we have had over the last four-and-a-half years, 50 percent of the deflation actually came from falling property prices. It is a lot. Deflation is doing huge damage to our economy. So we really need to put a stop to it. A few measures have been taken each time it has not been as successful as it should be. We need to look at it one more time to see how we really can stabilize the property prices as, I said, if possible to help it to push it up a bit. We have the intention. We have the desire to do this. Now the question is to find the right way of doing it.

Forbes: One of the great advantages as you had mentioned in your speech, Chief Executive in your remarks, that Hong Kong has enjoyed a support logistic services. As you know in China, some of the ports are being upgraded. How do you see Hong Kong staying ahead of the competition in those areas?

Mr Tung: First, I have to declare interest because all my life I have been in transport business. I know the subject very well. First of all, let me tell you Hong Kong's role as a shipping centre, as a port centre. Actually, we have two parts in this. For the first part, we don't talk about it too much but it is really very important to Hong Kong also.

Hong Kong shipowners control about 60 million tonnes of ships. Most of the ships don't come to Hong Kong, but Hong Kong is used as a management centre, as a base to manage the business, the finance and the running of the ships. Where are the other centres? New York, London, Piraeus in Greece, may be Oslo in Norway, Tokyo, and few other places. But we are one of the largest centres for the ownership and management of ships. You know it is industry by itself, apart from shipowners, brokers, maritime lawyers, arbitrators, they are all here working out, sell them like everything else in Hong Kong. We just keep on doing it and we have not done enough of a job of trying to tell people how successful we are here.

And then the other is, of course, we have a very successful airport handling air cargo which is one of the largest in the world. Then we have our container port. We handle 18 million TEUs of containers which again is the largest in the world. Let me say this. China is growing very rapidly. In the first six months of this year, China's export growth was double-digit plus more. Of course, Hong Kong benefits from it. The thing is as China joined the WTO, the cake is getting very big, and is getting bigger everyday. So as the Chinese ports expand, our port is also expanding to sharing a bigger cake. That is number one point.

Number two point is this. Our cost is high comparing with the handling cost of a port just across the border. Comparing with Xiamen, Shanghai, Qingdao, our cost is much higher. Then as a government, what we are trying to do is to see how we can reduce these costs. How we can make Hong Kong more competitive as a port, because in the longer term, we just cannot totally completely everyday rely on the growth of the cake. We have to make ourselves more competitive. How do we organise this? How do we make, for instance, the trucking movement from Pearl River Delta to Hong Kong more efficient so that the cost can be reduced?

You know we are looking at all them issue by issue very seriously to ensure that years down the road we will be competitive. We are determined to be competitive, determined to be amongst the foremost in the world insofar as port facilities are concerned.

Weinberger: The next question that I was interested in and that is tourism has always been a big part of the economy and in many parts of the United States and in many parts of the world. After the terrible tragedy of September 11, tourism naturally dropped off. How was it doing in Hong Kong? Is the tourism starting to pick up again or would it never fall?

Mr Tung: It really never taper off. The reason is actually visitors from the US did taper off. But what happened is that during the course of this year, a lot more mainland visitors come to Hong Kong. They have come in much greater numbers and has been very helpful to us here in Hong Kong. Actually tourism is one of our major, from an economy point of view, strategic objectives to promote tourism. Of course, the flagship of our activity is the Disney World project which will be opened in October 2005. But that is, of course, only one project. We are creating a whole lot more attractive sites to justify the tourists from all over the world to come to Hong Kong.

Tourists in the old days came to Hong Kong just to enjoy the food. I think we still have pretty good food, and they enjoy some shopping which I know some of the ladies would say Paris and Milan are now cheaper than Hong Kong. But let me say this we are very conscious of all these issues. We are trying to ensure that Hong Kong will continue to be a very attractive tourist centre. As I said, last year, 13.5 million tourists were in Hong Kong. This year we expect to be about 15 million. The key is this, you know, they stay here for about two-and-a-half days. We like to see them staying for three-and-a-half days or four days. That will really help the pie growing.

Weinberger: Hong Kong is one of the few places in the world where the city itself is the attraction. You find that expressed quite frequently?

Mr Tung: That's right. We are very proud of this, and we will continue to work hard at it.

Forbes: Chief Executive, you mentioned you assumed you duties in July of 1997 which was just about the time for the Asian economic crisis. Looking back with the perspective of five years, what lessons have you learnt from that? Do you think this thing can have been avoided if the IMF have pursued different policies? What have been taken away from that crisis? How can we avoid that in the future if we have something like that?

Mr Tung: Steve, you know we were celebrating here in Hong Kong on 1997 July 1. On July 2, the Thai government delinked the baht to the US dollar and that was when it actually kickstarted the Asian financial turmoil. Looking back, I think over the last five years the same governments certainly were managing their fiscal area much better. More conservative, more prudent as they moved forward. Secondly, the corporations in these countries have also learnt that fiscal conservatism, in the long run, actually pace off. I was talking about competitive advantages in Hong Kong. One of the things about Hong Kong is that Hong Kong corporations are run very conservatively from a fiscal point of view which I think is very important.

In Hong Kong, our corporate governance area is pretty good. But still there are areas we need to improve if we continue to be the international financial centre here in Asia. We will all keep on working at it to make sure we are always at the forefront and the best in the best way. IMF and the World Bank are very important international organizations. They come in when they are needed. Sometimes they come in any way. Yes, they sometimes make mistakes. But, you know, they are very important to Hong Kong.

You know when one is sick, gets very sick, and one gets a doctor. If one cannot be cured because he is too sick, you can blame the doctor for it. Sometimes the doctor does prescribe the wrong medicine, but the important thing is still about how you look after yourself. Only you can look after your own health. You need to have that discipline, and you need to know where you want to go. You have to chart the right course and get on with it. It certainly is what we are trying to do here in Hong Kong.

Forbes: One of the great achievements during that crisis was that Hong Kong was one of the few that beat back the currency speculators. Do you think Hong Kong is going to stay tight to the dollar? How is that for an easy question?

Mr Tung: Well, to the second question my answer has three words. It is no, no, no. We are not changing. On August 13, 1998 when we intervened in the market, throughout the five-and-a-half years I have been Chief Executive, I never had a sleepless night except for that night. It was a time when a very difficult decision was made.

Weinberger: We all know the importance of attracting foreign capital and foreign investment. Is Hong Kong able to make their own inducements? Can the tax break? Can they make all kinds of inducements to foreign capital to come in or does that have to be fairly uniform throughout the whole People's Republic?

Mr Tung: Cap, our corporate tax rate is so low already. I already have difficulties balancing the books. Our Financial Secretary has difficulty balancing the books. I am not sure how more we need to cut. But honestly speaking, we have a very attractive and single tax regime. We are not going to change that, and that itself I think is an attraction to foreign investment. What we need to be sure though is really in areas of good corporate governance, in areas of more friendly business environment to reduce bureaucracy, to reduce the time needed for approval of projects, processing and etc. In other words, to make business be welcome when they come to Hong Kong.

Forbes: You don't object anybody making a profit?

Mr Tung: We will be so happy when everybody makes a profit. Right now our economy is suffering through this deflation and many companies are not doing very well.

Forbes: One of the things I find attractive about Hong Kong is precisely a simple low tax regime. I wish we could have that in United States. May be after you retire here, we can bring you and make you a Treasury Secretary or President or something.

Mr Tung: Well, Steve, I think the other better way is come and live here in Hong Kong.

Forbes: Chief Executive, you recognized we are in an Information Age. Can you outline to us your ideas on improving Hong Kong's human capital, education, and attracting skilled workers as you look ahead to grow your the economy?

Mr Tung: Well, if we are to achieve our ambition plus the Asia's World City as one of the most important cities of China, we need to upgrade the quality of our people. As I said over the last five years, we continue to invest in education and we will continue to do so in the future. This is about investing education in the primary and secondary schools, about upgrading the quality of our teachers. It is about expanding the opportunity for every citizen in Hong Kong, the opportunity to go ahead with life-long learning if they so desire to do. And to improve the quality of our tertiary education.

As I said, it is very important for us to do this if we are going to keep the competitive edge. Of course, they will be long-term investment. Of course, we are going to see results overnight. We are going to be persistent. We are going to make sure that over a long period of time, we do get the quality people we wanted. We already have good quality people, but we want more of them. The second part of it, of course is, as I said earlier on, in my brief talk about importation of the professionals, of the elites, of the best knowledge workers from all around the world, we have a very open regime to welcome people. Our requirement for Mainland Chinese is restrictive and we are looking at how to make this more liberal so that we can attract more talents from Mainland China. These are all necessary if Hong Kong is to going to move ahead in the knowledge economy.

Weinberger: Going back to Steve's first question about the problems that could be associated with declaring a war on terrorism to Iraq. What is basically your reading on the sentiment of the people in Hong Kong with respect to that we have, sad to say frankly, we have been a little disappointed with some of our friends in Europe. I am wondering what your sentiment was with respect to the feeling of the people here? I am sure you haven't taken a pause or anything, but I just wonder if you are able to get any kind of idea as to what sort of support if military application might have?

Mr Tung: Cap, you know in Hong Kong we are so focused in the creation of wealth and making money for everybody. This is what Hong Kong is all about.

Forbes: Both are very diplomatic and a very able answer.

Mr Tung: This is also a true answer.

Forbes: Too bad. Some of the other nations and states around the world don't have such control, such as Baghdad.

Weinberger: The principal industries abroad sometimes seem to be American criticism and so that we adopt the sense down here.

Mr Tung: We are truly an international city. Fifty thousand Americans live here in Hong Kong as you know. Of course, you can switch on the TV and in the morning you can see Peter Jennings. You can buy a Forbes magazine and Disney is coming. It is a very international city. Twenty-five thousand Japanese live here. Thirty-five Britains live here. Really 30,000, 40,000 Australians and Canadians. It is a very international city and we aim to keep it that way. It is very important to us.

Forbes: Chief Executive, thank you very much for sharing your thoughts with us tonight and for having this discussion. I think your candour has been appreciated. You did not minimize the challenges, but you also I think like a good business executive and entrepreneur, always looks to the future and always trying to turn circumstances into the most favourably way to move ahead. I think we can use some of that kind of can-do, move ahead. Don't let the present drags us down, and to the other parts of the world including a place called Washington D.C. with your emphasis on wealth creation. It is much needed, sometimes. With that undiplomatic comment, Chief Executive, thank you so very much for being with this. We now hope you enjoy the good food. You have been a great apetitizer and a fantastical way to begin this conference. Thank you very much.

End/Wednesday, September 25, 2002

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