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Following is a speech by the Secretary for Commerce, Industry and Technology, Mr Henry Tang, at the Annual Dinner of the Federation of Hong Kong Industries tonight (March 6):

Victor, distinguished guests, ladies and gentlemen,

It gives me great pleasure to join you at tonight's annual dinner of the Federation of Hong Kong Industries. For me, this is almost like a reunion gathering, as I have known many of you for so long since I used to have such a long association with the Federation.

Tonight, I would like to touch briefly on how I see we should continue to capitalise on Hong Kong's competitive advantages through enhancing the partnership between the Government and the private sector.

After the economic hiccups since the Asian financial crisis, we seem to have lost faith in our strengths and our capabilities to drive our economy forward. Let me try to put our situation into perspective. It is true that we are faced with sluggish economic growth. Domestically, prices continue to fall, with the Composite CPI recording a year-on-year decline for more than four years. Unemployment has been staying high, at above seven per cent.

But we are not really that bad if we look around ourselves. And if one takes a careful look at our fundamentals, we would realise that what we have achieved is so far no small feat at all.

The fundamental strengths of Hong Kong lie essentially in our world-class infrastructure, a low and simple tax system, a level playing field, the rule of law, a robust intellectual property rights regime, and the free flow of capital, information, people, services, and goods. These attributes are important and unique, for they are essentially what set us apart from other Chinese and Asian cities.

Indeed, these attributes underpin Hong Kong's reputation as Asia's World City, and explain why we have continued to fare impressively in attracting foreign direct investments. Despite the apparent economic woes, we continue to be the second largest recipient of foreign direct investment in Asia after the Mainland.

Another of our fundamental strengths is our strong economic ties with the Mainland, in particular the Pearl River Delta (PRD). Our economic integration of course began more than twenty years ago by our entrepreneurs, because they could see the tremendous benefits this would bring to Hong Kong as well as the Mainland.

Nowadays, we handle about 40% of the Mainland's foreign trade. We are a major source of inward investments to the Mainland, accounting for nearly half of all the external investment in China, and about 70% of that in Guangdong. Of the 3,200 regional headquarters and offices established here, about 80% are responsible for overseeing their Mainland business.

In the Guangdong Province alone, there are more than 65,000 Hong Kong-linked enterprises, employing an estimated 7 to 10 million people. Most of them concentrate in the PRD area, which is rightly described by the Federation' on-going study of "Made in PRD", as "the fastest-growing part of the fastest-growing province in the fastest growing large economy in the whole world".

Our close ties with the PRD will continue to put us in an unrivalled position in competing for the investment opportunities and market shares of the booming Mainland market.

Indeed, what we are trying to achieve, is to bring the existing symbiotic economic relationship to an even higher level, through better and more coordinated efforts between the Government and the private sector.

To attract more overseas investment into the Greater Pearl River Delta and to set up operations in Hong Kong, the Government will work hand-in-hand with the private sector. We have identified a number of very successful, knowledgeable and well-connected business people, including my good friend Victor here, who are willing and prepared to spend their own time to promote Hong Kong together with the SAR Government.

Now, this is a very important example of public-private sector partnership and it is far more effective than the Government doing it alone. We will "use" these business leaders as "door-openers" to help us make the opening sales pitch. Our staff in Invest Hong Kong will then follow-up each case closely, guiding potential investors through all stages of the investment process. The Financial Secretary has announced in his 2003 Budget Speech yesterday that we have set aside $200 million over the next five years to coordinate such efforts, and in running more overseas promotions together with the Guangdong authorities.

Later this week, I will be leading a delegation of local IT companies and SMEs to visit Ireland, Germany, and Finland. One of my key messages in the visits is to promote Hong Kong as the gateway to the Mainland. In mapping out this and other initiatives, my colleagues and I will continue to work closely with the private sector to ensure that what we do responds to market needs.

One of the topics which has generated much interest is the proposed Mainland/ HKSAR Closer Economic Partnership Arrangement, CEPA in short. The Arrangement will help promote trade and investment flows, and will provide our service providers and manufacturers with much greater access to the Mainland market. We have been making steady and substantive progress on the CEPA, and are working very closely with the Central People's Government to meet the June deadline. With CEPA in place, Hong Kong will become an even more attractive two-way platform for doing business with the Mainland.

Apart from fostering even greater economic ties with the Mainland, and promoting Hong Kong's competitive advantages to overseas economies, we are helping local enterprises, in particular small and medium enterprises (SMEs), equip themselves for the new opportunities and new challenges. In this regard, we will continue to spearhead innovation and technology development in Hong Kong through funding schemes, provisions of hard and soft infrastructure, and through investment in human capital.

I remember the last time I addressed the Federation was in July last year, shortly after I took up this job. I was telling you about the investments on the Science Park and the Cyberport. I am pleased to report that we are gradually building up a strategic cluster of IT and multimedia companies in the Cyberport. They include a good mix of like-minded companies of varying sizes and at different stages of development.

The Science Park is enjoying a similar success. In addition, the Hong Kong Science & Technology Parks Corporation, under the able chairmanship of Victor, is in the process of enhancing its soft infrastructure, e.g. the establishment of the IC Design and Development Support Centre, Photonic Centre, and Biotech Centre. These new initiatives would help build up the target clusters in the Science Park and attract technology-based companies in the relevant fields. We will no doubt continue to market both the Science Park and the Cyberport very aggressively overseas.

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

Indeed, as I have said on various occasions, Hong Kong possesses the basic qualities for the development of creative industries, which cover product design, IC design, hi-tech instruments, multimedia, film, digital entertainment, and so on. I have already set up two Steering Committees on innovation and design to better co-ordinate Government efforts to facilitate enterprises to engage in more innovative activities and to move up the value chain. These committees will serve to identify the industries' potential as well as problems, and look for the right solution.

We will of course also leverage on the existing efforts of the Federation and other private sector bodies. I understand you have a Design Council within the Federation and your "Hong Kong Awards for Industry: Consumer Product Design" has been a very successful tool in promoting greater use of design.

Finally, let me say a few words on protection of intellectual property rights which is a cornerstone of our economic success.

We have a robust IPR regime in Hong Kong, so much so that we received the Cyber Champion Award from the Business Software Alliance in November last year, in recognition of the legislative framework developed by the Hong Kong Government to protect IPR as well as the leadership we have demonstrated in IPR protection and enforcement. These efforts will continue and will not diminish, even in the face of our budget deficit.

Ladies and Gentlemen, 2002 was not an easy year for Hong Kong. But our export figures have held up well, showing that our industrialists and traders have managed to find their market niche despite all the odds against them.

Looking ahead, we can expect uncertainties brought about by the possible outbreak of a war in Iraq and the ever-changing economic prospects of our major trading partners. But none of us here is a stranger to uncertainties or difficulties. I am confident that, with our enterprising spirit and rich experience, we will rise to the challenges ahead. Thank you very much.

End/Thursday, March 6, 2003

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