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The following is a speech by the Chief Secretary for Administration, Mr Donald Tsang, issued to members of the Center for Strategic and International Studies in Washington D.C. today (September 19, Washington D.C. time) (English only):

[Dr Hamre], Mr Campbell, distinguished guests, ladies and gentlemen,

Thank you for this opportunity to speak with you today. The last time I was in Washington was two years ago. But little did we know, that shortly after we touched down at Ronald Reagan airport, the world would never be the same again.

The events of September 11 remain vividly imprinted in my mind: as clear as the powder blue sky when we took off from New York that morning; and as stark as the plume of smoke I saw rising over the Pentagon from my hotel room about an hour after we touched down.

I remember the profound sadness and bewilderment of the American people. Later, as the brutality of the attacks unfolded before the eyes of the world, we felt the deep hurt inflicted on the American psyche. And then, the outpouring of outrage here and by all civilized nations.

Surprisingly, and despite the magnitude of the tragedy, our official visit continued, albeit on a curtailed basis. We felt that we might be intruding on your grief. But all of those with whom we met were adamant that our discussions go ahead, as scheduled. As a long-standing friend and partner in the Asia-Pacific region, we were invited to share your grief. I must admit, we were somewhat taken aback - but thankful - to find that tiny Hong Kong could provide a modicum of comfort and reassurance at a time of such great tragedy.

I believe the reason for that was because we in Hong Kong share many of the same values and beliefs that strike such a resonant chord here in the US, and in all the other countries that cherish and nurture free, open, pluralistic and tolerant societies.

As fate would have it, Hong Kong was able to offer more than just reassuring words. As the incumbent President of the Financial Action Task Force on Money Laundering, Hong Kong has played a role in the global battle against terrorist financing. Our commitment to that fight continues today. We have willingly embraced a new regime of stricter checks and balances to prevent the illicit flows of money destined for a terrorist training camp, or funding organized crime, or laundering drug proceeds.

We were also among the first to lend our support to the US Container Security Initiative - gladly and openly, I might add, as the world's busiest container port. Our Customs authorities place the utmost importance on maintaining an open and transparent Customs regime, particularly in the area of strategic commodities. We have US Customs Officers stationed in Hong Kong. We maintain and cultivate close links with other US law enforcement agencies such as the FBI and the Secret Service. We have very productive working relationships with law enforcement agencies around the world, including our own national public security ministry, Interpol, Scotland Yard, the Australian Federal Police, the Royal Canadian Mounted Police and, closer to home, with police forces in Singapore, Thailand and Malaysia.

As the most open and externally-oriented economy in the world, we take our international responsibilities extremely seriously. We are encouraged that such an august research institute as the CSIS has itself highlighted and discussed the critical role that Hong Kong plays in protecting Asian security. Indeed, as a CSIS conference noted earlier this year, Hong Kong has been a leader, and a role model for regional governments, in areas such as strategic trade controls, the fight against terrorist financing and international transport security. As I said earlier, we will gladly continue to play our part as a responsible global citizen.

We do so in many other areas: immigration, aviation, shipping, telecommunications, international law, intellectual property rights, investment promotion and protection; and in fora such as APEC, the WTO, the Asian Development Bank. We are home to a large consular corps, the EC and the UNHCR; and regional offices of the Bank for International Settlements, the International Finance Corporation, World Bank.

Excuse me for labouring the point but there's a reason for it. And that's because I know, that six years after reunification with the Mainland, there is a school of thought here in the US and elsewhere, that 'One Country, Two Systems' is fraying at the edges, or heading for 'One Country, One System'; that Hong Kong is being absorbed or overwhelmed by the economic might of the Mainland; that we're becoming increasingly irrelevant as China continues to open and reform its markets. Let me address these points head on.

First, I do believe that 'One Country, Two Systems' is working, and working well. It was never going to be an easy undertaking. But then again, worthwhile undertakings never are. Even though we have a clear direction in the Basic Law, the implementation of this unique and visionary concept was always going to be a work in progress. 'One Country, Two Systems' is not a static slogan but rather a dynamic and evolving process. Our inevitably closer ties with the Mainland should not be seen as an erosion of 'two systems', but as a realisation of the 'one country' part of the equation.

This should be viewed as a good thing, because it carries significant economic and political benefits for both sides. Economically, it boosts Hong Kong's attraction as a platform for accessing the Mainland market and as an international financial centre, and this in turn can help with the Mainland's ongoing economic development. Politically it engenders greater mutual trust, openness and understanding. We might not operate on the same wavelength, but we learn a lot more about each other by being able to tune in whenever we want. And in the broader realm, the international reputations of both China and Hong Kong benefit when both sides live up to their part of what, we must remember, is a two-part equation.

I have to admit that it is a delicate balancing act - but at the same time it is one never before attempted. There is bound to be a wobble here and a wobble there. But, nevertheless, the gyroscope of self-interest maintains stability. And as long as we remain true to the direction laid out in the Basic Law, then I believe we will be able to strike the right balance for our country and for Hong Kong.

Closer links have not been - I want to stress, have not been - at the expense of the basic tenets that underpin the 'two systems' part of the equation. Six years after reunification, we in Hong Kong remain true to the values and institutions that buttress our development as a separate social, economic and political system from the Mainland; a free society under the rule of law and an open, pluralistic, tolerant and outward-looking community.

A tried and trusted legal system, upheld by an independent judiciary. A level playing field for business. A clean and efficient civil service. The free flow of news and views and information. I call these our 'four pillars', and they remain as solidly and firmly entrenched today as they did six years ago.

For proof, look no further than the protest march in Hong Kong on July 1. It was a defining moment for us. In steaming temperatures, cheek by jowl, 500,000 of our residents took to the streets in a protest against the government. The march itself showed that the freedoms and values I have just mentioned remain not only intact but in very robust health.

Before I address the reasons for the march, I want to first tell you what the march meant to me. As someone born and bred in Hong Kong, as the son of a Policeman, I was moved by the calm, peaceful and rational manner in which Hong Kong people conducted themselves that day. Despite the uncomfortable conditions, tempers did not overheat. There were no angry scenes in the streets. No destroying of public or private property. No baton charges by police, or water cannons fired into the crowd. Our residents wanted to make a point, and they did just that but without the drama often seen elsewhere when such large groups of people come together. I am very proud of them.

I was also heartened and reassured to see that Hong Kong people cared enough about the future of their society - about the values that they hold dear - to take to the streets in defence of them. I can tell you, the march has galvanised the government in Hong Kong to do a much better job in listening to a wider cross-section of opinions and ideas, and in formulating and selling policy. There has been a sea change in attitude and approach.

I believe there were three main reasons for the march: our consultations on national security legislation, often referred to as Article 23 of the Basic Law; lacklustre local economic performance, which has led to record unemployment and was exacerbated by the SARS outbreak; and the general performance of the government. Combined, these issues have also reinvigorated discussions on political development in Hong Kong.

In many ways, Article 23 is the most important litmus test for 'One Country, Two Systems'. We have a constitutional duty under our Basic Law to implement laws that protect national security. I believe most people here in the United States would accept that there is a need for such laws. And I believe that most people in Hong Kong also generally understand the need for legislation to protect the national security of our country. But in doing so we must be careful to protect the rights and freedoms that have been promised Hong Kong people under the Basic Law.

The major problems for us were the details of some proposals, and the manner in which we promoted them. It was feared that some of the proposals went beyond what was required in the Basic Law, or posed a threat to the freedom of speech and the free flow of information. We did carry out extensive consultations, and we did make significant changes to our initial proposals. But there remained items that continued to cause concern. At that time, the administration felt that our proposals had struck the right balance - and many of our proposals for offences such as [treason and subversion] were comparable or more lenient than in other jurisdictions, including here in the United States.

But following the July 1 protests it was clear that there were still deep-seated doubts and divisive sentiment within the community. The legislation was withdrawn. The Minister leading the consultations resigned. And now the new minister responsible for the legislation is beginning consultations all over again. There is no deadline for when the laws should be re-submitted to the Legislature. And we are determined that when legislation does go before the Legislative Council again, it is in a form that has the broad support - and input - of Hong Kong people.

Our economic problems have their roots in the Asian financial crisis which - by sheer bad luck - coincided with the day after our reunification in 1997. The crisis brought a dose of harsh reality to Hong Kong, and its effects are still being felt today. We have endured 57 months of deflation, a 50-60% drop in real estate prices, lower wages, higher unemployment and continued economic restructuring. The new Hong Kong SAR Government had to make some tough choices.

We could have chosen to soften the blow. We could have devalued our currency - we did not. We could have raised protective barriers - we did not. Instead, we remained wedded to the principles of the free market. That remains today as we adjust to the healthy competition of a rapidly developing Mainland market. And I believe that our determination to see through this adjustment process, while keeping our markets open and our currency stable, is no mean achievement of the HKSAR Government in its formative years.

While all of the adjustments have actually made Hong Kong a more competitive economic entity, the flip side is that it sapped consumer confidence and robbed Hong Kong of a 'feel-good factor' for several years. Inevitably, the government has borne the burnt of community angst, made even worse by widespread anxiety during the SARS crisis earlier in the year.

Fortunately, the worst seems to be behind us. We are beginning to see the signs of a nascent recovery. And hopefully, that recovery will morph into sustained growth, and that in turn will translate into more jobs. I can not think of any other economy in the world that stands to benefit as much as Hong Kong from the remarkable developments, and continued opening up, in the Mainland market over the next five to 10 years. The world is beating a path to China's door - and we have the keys to success in that massive market. There are plenty of grounds for economic optimism but that is the subject of another speech altogether.

Our economic tribulations and the Article 23 consultations also led to a wider debate in the community about the ability of the administration to govern Hong Kong. Our free and unfettered media in Hong Kong have never pulled any punches when it comes to criticising the administration, or exposing what they see as policy weaknesses or inept performance. Such are the risks faced by political leaders of the world over today. And all of us in our ruling team have to bear the responsibility for our failures or otherwise. That is very clear to me and to my ministerial colleagues. The July 1 demonstrations showed that we had not listened as much as we thought we had. And as I mentioned earlier, this has had a profound effect on our approach to policy formulation and engagement in Hong Kong.

Hong Kong's political development has long been a topic of interest at home and abroad. And it is now in sharper focus. There is, as many of you know, a 10-year timetable laid out in the Basic Law. This sets out a gradual and orderly expansion of directly-elected seats to our legislature. In elections to be held next year, half of the Legislative Council's 60 seats will be directly elected, while the other half will come from the functional constituencies representing important sectors of the economy and community. The Basic Law states the ultimate goal is the election of all LegCo members - and the Chief Executive - by universal suffrage. It also makes it clear that after 2007 it is up to us in Hong Kong to chart our own way forward.

It is only natural that Hong Kong people want a greater say in how they are governed. But this is an undertaking we need to get right - and it will take time. We will work very closely with different political parties, legislators and members of the public to identify common ground and build consensus, with a view to continued democratic development under the Basic Law framework.

The review on post-2007 constitutional development will be done carefully, positively and with an open mind. Our current timeframe is to conduct internal research this year, consult the public next year, and deal with any local legislation after the consultation. We will ensure that there is sufficient time and opportunities for the public to participate in the consultation process. In the meantime, we will concentrate on making the 2004 Legislative Council elections a great success in terms of voter registration and participation.

Ladies and gentlemen, the events of the past few months, indeed our development over the past six years, have shown that Hong Kong people will jealously guard their promised 'high degree of autonomy' under the 'One Country, Two Systems' formula. They have shown that they seriously value the promise of 'Hong Kong people running Hong Kong' - and that the government must do all within its power to ensure that all sectors of the community can share in that promise, that their voices are heard and their opinions valued and acted upon.

I have great faith in the future of Hong Kong. Not because I am a member of the government. Not because of our unrivalled position on the doorstep of the world's biggest and fastest-growing market. But because men and women of all ages, experience and political persuasion have shown the world through their peaceful actions that they will not brook even a perceived erosion of the fundamental rights and freedoms that have underpinned Hong Kong's development and prosperity as the world's freest economy. The people have spoken; and the government has listened.

Thank you very much.

End/Saturday, September 20, 2003

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