Following is the speech (English only) by the Financial Secretary, Mr Antony Leung, at a lunch organized by the HKETO San Francisco today (September 27, San Francisco time):
Distinguished guests, ladies and gentlemen,
I'm delighted to join you today to talk about the opportunities that Hong Kong offers foreign investors and businesses like yours.
Visiting America is always a comfortable experience for me. I like talking to an American audience - and I'm used to it. Before I was appointed Financial Secretary some 18 months ago, I spent 28 years working for American banks. Some of you probably dealt with me when I was wearing that hat. But this is my first trip to California and San Francisco since taking up my current post. And it's about time I came here considering the close family, educational and business relationships shared by California and Hong Kong.
Today, I want to talk about the extraordinary changes taking place in Hong Kong. We are extending our reach beyond being the region's financial services hub to also becoming one of the technology centres. In addition, we are working hard to harness this expertise for the benefit of businesses trying to enter the fastest growing and most exciting economy in the world. I refer of course to China.
All of you have heard and read volumes about what membership of the World Trade Organisation means to China, but I believe some of you may still be scratching your heads about what it might mean for your business. We in Hong Kong have just about worked that out. We can see there are countless opportunities for us and the people who are partnering with us, or simply using Hong Kong and our infrastructure as their springboard onto the mainland.
This realisation is not something that we just woke up to one day. It is the result of a great deal of hard work and soul searching. While our transformation from a British colony to a Special Administrative Region of China has been relatively smooth, our economy has not experienced an equally kind transition.
Asia's financial crisis struck in 1997 and hit us hard. Just when it seemed like the worst was over, the global economy was stunned by the terrorist attacks of September 11. I don't have to tell you how profoundly this event affected confidence worldwide. Now that Hong Kong is slowly emerging from recession, but with unemployment at a high 7.6 per cent and consumer confidence remaining weak. But we are lucky to have a strong economic neighbour in the Mainland of China. And capitalising on the advantages that this proximity brings is assisting the re-engineering and reinvigorating of Hong Kong's economy.
The downturn forced us early on to focus on how we wanted to structure our economic future. The emergence of the new economy provided part of the answer. Hong Kong wholeheartedly embraced the concept of a knowledge-based economy. Ensuring that we had the infrastructure and the educational focus to become Asia's technology centre became a priority for the government. More than four years ago, our Chief Executive identified the twin economic drivers of technology and nurturing innovation, and the possibilities that would open up with targeted investment in them.
That the bubble has burst for Internet stocks doesn't affect our commitment. I realise that in this room I'm speaking to the converted when I say that. But the revaluation of the technology sector just supports Darwinian theory. The infirm, the unhealthy and the half-hearted are being weeded out, leaving the hard core who will weather this business cycle like any other. And, Hong Kong stands with the stayers.
Once our government realised that we had the capacity to be one of the best technology services hub in Asia, we approached the task with our well-known vigour. We decided to invest in purpose-built infrastructure like the Applied Science and Technology Research Institute (ASTRI) and the Hong Kong Institute of Biotechnology. The recently opened Science Park as well as the construction of Cyberport adds to these credentials.
At the ASTRI, a laboratory for commercial and academic bodies to partner or go solo on research and development, we have already seen internationally competitive researches emerge. It ranges from the construction of one of the smallest nanotubes in the world, to the breakthrough discovery of using maternal plasma DNA for the diagnosis of foetal deformities.
At the Science Park, we concentrate on bringing enterprises together from four technology clusters: information technology and telecommunications, electronics, biotechnology and precision engineering. So far, the occupancy rate by world-class tenants is more than 70 per cent. Several names will be familiar to you - Agile Software and Pericom Semiconductor from San Jose; as well as RAE Systems and Advanced Analogic Technologies from Sunnyvale.
At Cyberport, a purpose-built, mini-city completely geared for the needs of technology companies, Environmental Systems Research Institute from Redlands has taken space, and so has Microsoft. I'm pleased to say that another key tenant will be Sybase, and not just because the chief executive John Chen was born in Hong Kong and I know him well. Sybase recently did us a great service by re-engineering the Hong Kong Police Force's technology. New systems were installed to make information instantly available to 70 police stations across the territory. Paperwork was reduced and operations streamlined, resulting in more police back on the beat helping to prevent crime.
We have also built the financial infrastructure to support the bricks and mortar. We set up a 640 million US dollars Innovation and Technology Fund. We have established a second bourse - the Growth Enterprise Market - to focus on new and growing firms, including those involved in information technology, biomedicine, and traditional Chinese medicine. Some 150 companies are listed with a total market capitalisation of 8 billion US dollars. You must also remember that we are the biggest venture capital centre in Asia, managing 30 per cent of the region's total capital pool.
In fact, our financial infrastructure is what we are best known for. Hong Kong provides the most important funding platform in Asia ex-Japan. We house the regional headquarters of some of the best-known names in banking, such as your Bank of America and Wells Fargo. In fact, more than 120 international banks operate in Hong Kong.
Over the past two years, we have moved to strengthen the framework of our financial system. Issues of corporate governance have been just as topical in Hong Kong as they have been in the US. Our Standing Committee on Company Law Reform exists to review and assess reforms introduced in compatible foreign regimes to see if they might apply to us. Earlier this year, our legislature passed a new Securities and Futures Ordinance which places our regulatory system on a par with any first class Western economy. Disclosure rules for listed companies will be tightened considerably. Disciplinary sanctions will be proportionate to market misconduct. Investors will be provided with a civil route of action. These reforms will make Hong Kong a safer place for corporate and individual investors alike.
While some regional markets have been exceedingly quiet lately, our financial and legal sectors have been kept busy by companies from the Mainland of China using Hong Kong as a fund-raising centre. Bank of China, for example, raised 2.5 billion US dollars when it listed on the Hong Kong Stock Exchange in July.
Of course, as Mainland companies become more sophisticated and foreign banks gain a greater foothold in China post WTO, we will face increasing competition. But, we have the advantage of already being the most user-friendly gateway to China. We know the language. We know the market. We know the people.
Earlier, I said that part of the answer to Hong Kong's conundrum about its future lay in our territory becoming the best technology and research hub in Asia. Another part of the solution lies just across the border in China. We have been blessed by our hinterland. Hong Kong is a premier financial, business and services centre, which is also a hub for logistics, communications and tourism. Neighbouring Guangdong Province and the rest of the Pearl River Delta, is a manufacturing powerhouse. Its people are looking for experience and opportunities. The best and brightest of their increasingly well educated professional work force are coming to Hong Kong, and that's good news for any foreign company looking to open up or expand in there. China has a large pool of talented engineers and scientists, particularly in the Pearl River Delta, but they lack the contacts and the business know-how to commercialise their work. This is where Hong Kong plays a major role in matchmaking researchers and investors from around the world, including California.
If Hong Kong and the Pearl River Delta are taken together, we have a population approaching 50 million - about 15 million more than here in California - with a complete range of economic activities, and there is ample room to further develop the market potential. That Hong Kong knows this market best is beyond question. After all, our private sector was the first to capitalise on the complementary strengths between Hong Kong and Guangdong.
Since the 1980s, Hong Kong manufacturers have moved their operations across the border. The move has been so successful that Hong Kong business interests now employ some five million workers in the Pearl River Delta. The yin and yang is clear. Hong Kong is the safe, international service centre and a reliable source of funds, while the Pearl River Delta is the manufacturing base for a burgeoning, aspirational economy.
Recently, I heard a story that amply illustrates the Pearl River Delta's potential. Walmart has a Sam's Club warehouse outlet in Shenzhen. The club has 100,000 members who have all paid about 20 US dollars each for the right to shop there. The warehouse's turnover is the second biggest for the group in the world. You can see that this economy is accelerating. People are becoming more affluent. They want Western-style features in their homes. The fastest growing market in the world for dual-flushing, water-saving toilets is southern China.
Some of you may be concerned that Hong Kong's unique identity might get swept away in some amorphous Pearl River Delta region. We know the importance of maintaining Hong Kong's position as a stand-alone, cosmopolitan city. Whatever we do will be within the framework of 'One Country, Two Systems'. But that doesn't mean we can't leverage our strengths to obtain a bigger footprint in China and blur the borders in the business and economic sense.
You may also be concerned about Hong Kong's role as a regional financial centre. There has been a lot of talk about Shanghai pushing us off our perch. But that does not seem to make sense. Just as your country has multiple financial centres - Chicago and San Francisco coexist happily with New York. There is plenty of room for Hong Kong to share China, a country with a population of 1.3 billion, with Shanghai and maybe another city or two.
Shanghai's mayor Chen Liangyu said recently that the Yangtsz River Delta would have to take 15 to 20 years of development before they can try to match us head on. I understand it is always risky and difficult to make economic predictions, hence instead of making one myself, I would rather present actual figures for you to make your own assessment. Per capita GDP in the Pearl River Delta including Hong Kong and Macau is 5,388 US dollars, which is two and a half times that of the Yangtze River Delta. The greater Pearl River Delta's total export capability was 290 billion US dollars in 2000, compared to 63 billion US dollars in the Yangtze.
Hong Kong and Shanghai also have quite different economic structures. Hong Kong focuses on the service sector while manufacturing industries form the backbone of the Shanghai economy. It's a tale of two very different cities with complementary rather than competitive roles.
So where does California and the US fit into all of this? Well, America, and California in particular, have been close partners with Hong Kong for a long time. Many of us have family and friends here. Many of us went to school or have worked here, particularly in Silicon Valley. Hong Kong is one of the top foreign investors in the Golden State - the 10th biggest by book value. And Hong Kong affiliated companies employ about 5,500 employees here.
Looking at the bigger picture, the US is our second biggest trading partner while we rank 16th among America's trading partners. Of the 3,200 international companies with regional operations in Hong Kong, nearly 650 are from the US. About one sixth are from California, and many have exciting stories about their development and prospects.
Take Yahoo! for example. In 1998, it started life in Asia with a handful of employees in two rooms above a live chicken dealer in the Western District of Hong Kong. Today, the company has more than 50 employees in a much fancier office and is one of the best known brands in Asia.
It's not just Californian technology and financial services that have made an impact on Hong Kong. Your wines, your natural produce and processed foods are also well represented. How else would I know that Gilroy is the garlic capital of the world?
All this means that coming to Hong Kong will feel like coming home. I am convinced of the opportunities and potential that can be generated by closer economic and social ties between your state and Hong Kong. Even though Americans are already among our closest friends, I trust that you'll find there are many more ways we can partner to our mutual benefit.
End/Saturday, September 28, 2002