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Following is the full text of a speech by the Secretary for Commerce, Industry and Technology, Mr Henry Tang, at the the Hong Kong General Chamber of Commerce's 9th Annual Hong Kong Business Summit today (November 27)(English only):

Good morning, distinguished guests, ladies and gentlemen,

It is always a great pleasure to be back amongst so many good friends at the Chamber. Indeed, this is my first opportunity to address the Chamber since taking up my appointment five months ago as the Secretary for Commerce, Industry and Technology. Despite the change in title, I remain as always a friend of the Chamber and look forward to the candid exchange of ideas at forums like this one.

In recent years, we have heard from time to time concerns about the competitiveness of Hong Kong. In May this year, the Fortune Magazine, which distinguished itself seven years ago by carrying the title "The Death of Hong Kong", produced its sequel by asking another question - "Who needs Hong Kong?" The Magazine alleges that Hong Kong's franchise on China has eroded because China is rising so fast and is making huge strides toward integrating into the global economy. China just doesn't need Hong Kong as such, so the Magazine says.

Today, I would like to share with you some of my thoughts about our competitiveness, and what my bureau will be doing in the current economic situation to further enhance our attractiveness.

Let's first of all not forget that Hong Kong's fundamentals remain strong. We are a major player in the international business scene. We are the world's tenth largest trading economy. Last year, our total merchandise trade was more than HK$3,000 billion. Both our port and airport are the busiest in the world in terms of international cargo throughput.

We are also the pre-eminent services centre in the region. We are the second largest exporter of services in Asia after Japan. Our financial and securities markets are amongst the most developed in the region. Our stock market is the third largest in Asia. We are the world's eleventh largest banking centre and seventh largest foreign exchange centre.

Our strengths in terms of our world class infrastructure, a low and simple tax system, a level playing field, the rule of law, free flow of capital, information, people, services and goods are all unique in the region. We have been rated for the past nine consecutive years by the Heritage Foundation as the freest economy in the world.

Our fully digitized telecommunication system, together with broadband coverage over practically all office buildings, offers our businesses seamless connections to the rest of the world. Indeed, Hong Kong has been ranked first in a recent ITU Mobile/Internet Index which measures how each economy is performing in terms of information and communication technologies (ICT) while also capturing its potential in taking advantage of future ICT advancements.

Because of all these favourable conditions and our proximity to the Mainland, we are the second largest recipient of foreign direct investment in Asia. The United Nations has rated us as the best performing host economy for direct investment in Asia. According to our latest survey, over 3 100 foreign companies based their regional operations in Hong Kong.

These figures speak for themselves about where we are. But you would probably say these are history. Are we able to maintain our leading position or will we be out-competed as the Fortune Magazine has predicted?

Ladies and gentlemen, we built our economic success upon doing business with the Mainland. We have been each other's most intimate trading and investment partner. Our economic future is integrally linked to that of the Mainland, which looks very good at present. China is now the world's fourth largest trading entity, with a continued robust GDP growth at seven to eight per cent a year. It is tipped to become the world's second largest trading entity within 20 years, ahead of Germany and Japan. WTO rules, principles and dispute settlement mechanism will add certainty to China's trading environment. This certainty, together with wider market access and a commitment to follow the internationally-recognised trading rules, will bring a huge jump in trade volumes and tremendous new opportunities.

For Hong Kong, the opportunities arising from an expanding Mainland economy are magnified because of the symbiotic economic relationship between our two economies. We are the most important entrepot for China, handling about 30 per cent of the Mainland's foreign trade. We are also each other's major source of external investment. Hong Kong accounts for nearly half of all external investment in China, while the Mainland accounts for about one-third of direct investment in Hong Kong. We are the location of choice for Mainland companies seeking to raise capital or to expand their business overseas.

Yes, some of the top multi-national companies may be moving their China operations into the Mainland. I always say that if you are a household name or a Fortune 500 company, you don't have to rely on Hong Kong as the go-between. But you may still wish to rely on our legal system and the familiar business environment.

However, there are still tens of thousands of other smaller companies that wish to do business with the Mainland following China's entry to the WTO, but which lack the resources or experience to venture into the vast, unfamiliar Mainland market. Hong Kong is a perfect partner for these companies. Nobody knows more about doing business with the Mainland than we do. Sharing common culture and language with the Mainland, with the huge reservoir of experience, our businessmen are best placed to support these so-called second-tier companies to buy from or sell to China, either as business partners or as service providers.

No doubt there would be competition as different economies will be competing for a slice of the huge Mainland market. The foothold that we have established and the knowledge that we have accumulated over the years will give us a definitive lead. Even if we are just able to hold on to our slice, the bigger the cake in future, the bigger the portion it will mean for us in absolute terms. Hong Kong will continue to play a unique role in the economic development of the Mainland. After all, we are a city with our own distinct identity and where we play it all by international systems and standards as well as with Hong Kong's typical efficiency and flexibility. Our greatest strength is our difference from other Chinese cities - not our similarities.

Yet we do have some difficulties in the near-term, despite a positive medium and long-term outlook. As an open and externally-oriented economy, we can never stay immune from the performance of our trading partners and the world economy. We are also experiencing heavy deflationary pressure and the economic restructuring towards a knowledge-based economy has brought up our unemployment rate to over seven per cent. All these have put considerable stress on the confidence of Hong Kong people, and presented challenges to the business sector.

My bureau and the Government as a whole have put the objective of creating new opportunities for business at the centre of our work. Let me introduce to you briefly how I plan to achieve this in my area of responsibility.

First, we must continue to further strengthen our economic ties with the Mainland, in particular the Pearl River Delta (PRD). I try to accomplish this through three measures: building partnership with the PRD in attracting foreign investment, providing support to HK businesses in the PRD, and the proposed Closer Economic Partnership Arrangement (CEPA).

PRD is one of the most important manufacturing centres in the world, a workshop of the world as some have said. With a population approaching 50 million and an overall GDP of US$258 billion, it is also a huge market for consumer goods and a destination for investment. Hong Kong, on the other hand, is a premier business and service centre, with well-developed clusters of bankers, lawyers, accountants and consultants. We are well positioned to capitalise on the complementary strengths to capture the huge opportunities in the PRD.

With the strength of the PRD in terms of its manufacturing power and the depth and breadth of its economic activities, Hong Kong and the PRD together represent a total solution for overseas companies hungering for a taste of the Mainland market. This is an area of our strength that we should promote to the world.

So, in attracting foreign investment, we should look at Hong Kong and the PRD as a whole. We are indeed moving in this direction. This September, InvestHK joined with the Bureau of Foreign Trade and Economic Co-operation of Guangzhou Municipality to hold the first-ever joint promotional investment seminar in Tokyo. Earlier this month, we received a trade mission of Canadian businessmen in which their programme included a visit to Hong Kong-owned factories in the PRD to showcase how the two places complement the development of each other. Both events received very positive response.

InvestHK, the Trade Development Council, and the Guangdong Economic and Trade Office (ETO) will continue to organise joint promotions with Guangdong authorities to promote Hong Kong/PRD region as the preferred business platform for overseas investors, with Hong Kong as the preferred service centre for the investors specifically.

For local companies which have established their presence in the PRD, we need to provide timely and appropriate support to them. The Guangdong ETO has been actively liaising with Hong Kong businesses in the PRD to understand their concerns and reflect them to the relevant authorities. They have achieved some remarkable results in this area. For instance, the difficulties faced by Hong Kong manufacturers in the PRD regarding the new documentary requirement on import of certain steel products were quickly resolved, through the joint efforts of the trade and Guangdong ETO in reflecting the concerns to the relevant Mainland authorities and through effective and timely follow-up actions. But of course, we will not stop at PRD, but will continue to expand inland as well as strengthen our presence elsewhere in the Mainland through the efforts of TDC and our own offices in Beijing and Guangdong.

China's accession to the WTO presents tremendous, and I dare say, once-in-a-life-time opportunities for us. Our businessmen are in an unparalleled position to capture them but the Government must also do our part to facilitate them. This January we started discussion with the Mainland on a Closer Economic Partnership Arrangement. The aim is to promote trade and investment flows and facilitate exchange of talents, capital and technology between the two places. We have been making steady and substantive progress on the CEPA, and we will continue to work actively with the Central People's Government to take forward this proposal.

Apart from CEPA, we will make effective use of the Mainland/HKSAR Joint Commission on Commerce and Trade to discuss matters of concerns to investors. The 4th plenary session of the Joint Commission will be convened in Hong Kong tomorrow. I shall meet with Mr. An Min, Deputy Minister of MOFTEC, to discuss trade and economic matters of mutual concern and map out the work plan of the various working groups under the Joint Commission.

So much for my bureau's work in promoting even greater economic ties with the Mainland. In order to stay ahead in this competitive global environment, to turnaround our economy and to create more jobs, we must transform our economy into a knowledge-based economy. We should continue to support innovation and technology as the pivotal economic drivers for Hong Kong and encourage our SMEs to think and operate in such terms.

Over the past five years, a lot has been achieved in spearheading innovation and technology development in Hong Kong. We have established a programme of investment in Hong Kong's research and development activities, through funding schemes, provisions of infrastructure and investment in human capital. The Government will continue to provide the best hard and soft infrastructure through, for example, the Science Park, the Cyberport, the Applied Science and Technology Research Institute and other institutions, the Innovation and Technology Fund, as well as through encouraging university-industry collaboration.

Design is an integral part of our innovative capability. The Government's policy is to facilitate the industry to enhance competitiveness through embracing advanced technology and innovative design.

We have been promoting the development of the design industry through various ways. The Government has provided $10 million for the initial operating costs of a newly established Hong Kong Design Centre. We have made available more than $80 million from the Innovation and Technology Fund and the former Industrial Support Fund to finance 24 projects aiming to facilitate the design capability of industry. The Hong Kong Productivity Council (HKPC) has taken various active steps to provide support to manufacturers in product design and development.

Our competitive advantages lie in our ability to integrate our knowledge of the market needs, our understanding of the global trends and also our ability to make the best use of the most cost-effective technologies. Our proximity to the vast manufacturing base in the Pearl River Delta enables quick responses to market demand and quick time-to-market. All this helps maintain Hong Kong's position as the world's major exporter of toys, textiles, clothing and footwear, watches and clocks, and jewellery. We want, and we must, capitalise on innovation and technology to upgrade our industries, enhance our competitiveness and create business opportunities.

To maintain a business-friendly environment is another major aspect of my work, and I try to do this through both cutting red tape and enhancing our support for SMEs.

Over the last few years, the Government has introduced over 300 measures to improve our services for the business sector through cutting red tape, eliminating over-regulation, and introducing new services. As an ex-businessmen who has years of experience tackling government bureaucracy from the private sector's point of view, I assure you that the momentum will not stop. Removing red tape will always come high on my agenda.

Regarding support for SMEs, you are of course aware of the four SME funding schemes totalling HK$1.9 billion to encourage our SMEs to innovate and move up the value chain. We are bringing forward a review of the four schemes to ensure they serve their purposes, and can facilitate the development of our industries. We have also put in place "soft" assistance for SMEs such as the Support and Consultation Centre housed in the Trade and Industry Department, and a mentorship programme to provide support for SMEs at various stages of their development.

I am privileged to have the opportunity to wear the different hats of a businessman, a legislator and now a principal official under the accountability system; to view things from all sides of the fence, so to speak. Those experiences make me even more value the tripartite partnership among the business sector, legislature and government. While I am a firm believer of market principles and that Government's intervention should be kept to a minimum, I will still look forward to working closely with you to identify the right course of action to maintain and enhance Hong Kong's competitiveness, to achieve sustainable improvement to our economy, and to the confidence of our great city.

Thank you very much, Ladies and Gentlemen.

End/Wednesday, November 27, 2002

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