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Speech by SEDL at business conference in Sydney

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Following is the speech by the Secretary for Economic Development and Labour, Mr Stephen Ip, at the business conference on "Hong Kong: Opportunities at the Crossroads of China" co-organised by Hong Kong Economic and Trade Office and Austrade in Sydney, Australia today (October 24) (English only):

Good morning, ladies and gentlemen,

I am delighted to be back in Australia, and particularly here in Sydney - a city that in many ways reminds me of Hong Kong. The spectacular harbour with its icons, the Opera House and the Sydney Harbour Bridge, strike a familiar chord with our Convention and Exhibition Centre and our Tsing Ma bridge. But there is more to it than just the familiar landmarks, there is the added buzz - the adrenalin rush - one gets when visiting an economy that is performing well. Australia has certainly been a stellar performer amongst developed economies by riding out the global economic storms in extremely good health. The strength of the Aussie dollar is a pretty accurate barometer of this and you are the envy of many nations.

Part of the reason I am here again is to bring you up to date on what has been happening in Hong Kong. This business conference provides an ideal platform for me to re-launch a healthier and more competitive post-SARS Hong Kong; to promote partnerships in trade and services; and, of course, to renew contacts and strengthen the already strong economic and cultural ties between Hong Kong and Australia. A lot has happened since the last time I was here - events that to a certain degree, have given added impetus to this visit. One of those events was the outbreak of SARS in March this year, which really knocked the wind out of our sails.

We were just beginning to recover from the impact of the economic downturn with an export-driven robust GDP growth of 4.5% in the first quarter, when we were struck down by SARS. The impact of SARS on our economy was quite devastating, particularly in sectors like tourism, restaurants and entertainment. Tourist arrivals dropped dramatically; hotel occupancy rate at one time tumbled to as low as 18%; and unemployment, which had been creeping up as a result of our on-going economic restructuring, hit an unprecedented high of 8.7%.

So, that was the bleak picture of Hong Kong in April and May this year. Fortunately, our medical and health professionals and research specialists, with the help of the World Health Organisation and experts from other countries, including here in Australia, were able to quickly identify the virus and introduce a regime of drugs and other measures to treat the patients and control the outbreak. But the disease had another major positive effect - it galvanised the collective will of the people and the government to overcome the problems; to build a cleaner, more caring and friendlier Hong Kong, while still retaining the competitive edge that is so much part of the entrepreneurial spirit of our city and people. And that is exactly what is happening in the post-SARS Hong Kong today.

I'm here to tell you Hong Kong is back in business, healthier than ever and looking for your business. Indeed, I have a few figures to help illustrate the transformation that has taken place since May. First, the unemployment rate has stabilised and is beginning to inch down. Our unemployment rate has come down from 8.7% to 8.3% recently. Second, visitor arrivals, which dropped dramatically at the height of the SARS outbreak, are rebounding strongly. In July, we welcomed 1.3 million visitors, up almost 80% over the June figure. The increase continued in August, when we received 1.64 million visitors, a 26% increase over July. September is typically a slower month but we still recorded 1.48 million visitors, a growth of 8% over the corresponding period last year. Hotel occupancy rate also climbed from 18% in May to 88% in August.

The speed of recovery in tourism has exceeded all expectations; and the challenge now is to keep the momentum going. In this respect, the prospects for further growth are good.

One very important development in our favour is the decision of the Chinese authorities to allow Mainland residents to visit Hong Kong in their personal capacity. The scheme presently covers eight cities in neighbouring Guangdong Province as well as Beijing and Shanghai. It will be extended to the whole of Guangdong by May 2004. This means about 100 million people will be able to visit Hong Kong under this scheme. This is a huge number in anyone's language - some five times the entire population of Australia - and offers new opportunities for the tourism industry and related sectors. In the "Golden Week" of Chinese National Day holidays which lasted from October 1 to 7, over 330,000 visitors from the Mainland arrived in Hong Kong; and 80,000 of them were visiting in their personal capacity. This is a healthy 20% increase compared to the same period last year.

But our vision is not confined to the Mainland market. It is important for Hong Kong to continue to be an international city - Asia's world city. We must cater for the different interests of visitors from both long haul and short haul markets. And we have a bit of catching up to do, as I notice that visitor arrivals from Australia are still showing negative growth over the same month last year. That's why we have been working with the Hong Kong Tourism Board and local businesses to restore international confidence in Hong Kong as Asia's top city tourist destination.

So far, I have concentrated on the tourism industry as an example of how the recovery is taking shape in Hong Kong - probably because a few simple statistics provide an instant picture. But, it is an interesting fact that throughout the trauma of the SARS outbreak, our export industry continued to record double-digit growth. Indeed, exports powered ahead as they had in the first quarter. And I'm pleased to report that our trade with Australia is part of that healthy picture. Last year our bilateral trade was worth more than A$6 billion dollars, up nearly 5% over 2001. And it gets better: in the first six months of 2003, the value of our total trade is already about 10% higher than it was at the same time last year.

There is every reason to believe this trend will continue. My confidence is based on the developments taking place in Hong Kong in the past few months in relation to our enhanced co-operation with the Mainland. I have already mentioned the impact this is having on our tourism industry. But, our major initiative is the Closer Economic Partnership Arrangement, CEPA, which we signed with the Mainland in two stages this year - the broad agreement on June 29 and the implementation details less than a month ago.

This landmark agreement covers three broad areas - trade in goods, trade in services and trade and investment facilitation. It provides a new platform, and new impetus, for businesses wishing to tap the vast potential of the Mainland market. It gives Hong Kong companies a head start on their competitors. At the same time, it opens a new avenue of co-operation between Hong Kong and overseas firms and partners wanting a foothold in the Mainland market. Since the signing of CEPA, I am glad to say that there has been an increase in the number of enquiries received by our economic and trade offices overseas. Companies worldwide are seeking ways to take advantage of this new platform, which will mean more investments in Hong Kong.

The details of CEPA are too numerous to go into now, but the six annexes which were signed on September 29 generally reveal that about 90% of the value of Hong Kong's domestic exports to the Mainland will be tariff free by January 1 next year. This will increase the competitiveness of Hong Kong goods in the Mainland market, compared with those imported from other places. But the added attraction is that both local and foreign investors can manufacture, in Hong Kong, brand name goods with recognition in the Mainland and export them tariff free into China. Under CEPA, a total of 273 products meeting the CEPA rules of origin requirement will enjoy zero import tariff. And this includes goods with high intellectual property content.

The agreement also liberalises market access for trade in services in 18 sectors including, management consultant services; exhibitions and conventions; advertising; accountancy; construction and real estate; medical and dental; freight forwarding and agency services; legal services; banking; securities; insurance; and value-added telecommunications services. On logistics and transport services, Hong Kong companies will be allowed to set up wholly-owned enterprises to provide a wide range of services in the Mainland including international ship management services, storage for international maritime freight, container station and depot services.

Indeed, Hong Kong companies providing freight forwarding, storage and road freight transport services, for example, will be allowed to set up wholly-owned enterprises in the Mainland at least one to two years before other WTO members. In respect of logistics services, China has not made any WTO commitments. As such, Hong Kong's logistics companies will enjoy unique advantages over their foreign counterparts. I hope you will take advantage of CEPA to gain early access to the Mainland market through Hong Kong.

Consistent with WTO rules, certain conditions apply under CEPA to determine who are the service suppliers of Hong Kong, but these requirements are not onerous and will not be an impediment to the smooth operation of CEPA or for foreign suppliers establishing a base in Hong Kong. There is also talk of increased mergers between overseas and Hong Kong companies to take full advantage of CEPA.

I have no doubt the agreement will breathe new life into our economy. With tariff free treatment and better intellectual property protection, it will be much more attractive for manufacturers of high value-added products to establish their plants in Hong Kong. Likewise, our service industries will stand to benefit from the unprecedented opportunities in the Mainland market offered by CEPA.

So, Hong Kong's future is looking brighter. The initiatives I just mentioned are lifting the spirits of our people. Confidence is returning as the economy begins to turn the corner, and Hong Kong's famous entrepreneurial flair is once again coming to the fore. We are becoming more attractive as an investment destination and as a place in which to establish a base. And I am delighted that Australian companies are continuing to make a success of their operations in Hong Kong from major developers to financial institutions and small entrepreneurs wanting to establish a foothold in China.

Just as important, Hong Kong has not lost any of its institutional strengths or strategic advantages. Our location; our strengths as a free and open market with low and simple taxes; a legal system familiar to the West and upheld by an independent judiciary; a level playing field for business; a clean and efficient civil service coupled with free flow of news and information remain as firmly entrenched today as they did prior to our reunification with China six years ago. Our Customs service is renowned for providing speedy and reliable services; there are no trade barriers, no investment restrictions nor are there any foreign exchange controls.

The business-friendly environment we have built up over the years is amongst the best in the world; and we are making it better by leveraging on our 'One Country, Two Systems' status with the Mainland to strengthen two-way links between China and the rest of the world, with Hong Kong as a finance, transport and logistics hub and facilitator of trade. For instance, we are planning to develop a Value Added Logistics Park near the airport to provide 'one-stop' logistics services. We are also inviting proposals to develop a Digital Trade and Transportation Network System to facilitate the flow of information in the supply chain. These are designed to capitalise on our position as an integral part of the Pearl River Delta, which is now often referred to as the 'factory of the world'.

To illustrate what I mean, Hong Kong handled in 2002 more than 23% of the total trade between Australia and China. It is a similar story with many of the countries trading with China and is one of the reasons why Hong Kong operates the world's busiest container port. Indeed, the common goal of Hong Kong and Guangdong Province is to develop the PRD region, with a population of nearly 50 million, into one of the world's most vibrant economic hubs within the next two decades. It is happening already. The PRD is the fastest growing, most affluent and most open economic region in China. It is also the single largest contributor to the nation's GDP and the largest exporter. And much of this rapid development has been driven by Hong Kong entrepreneurs and developers investing billions of dollars into the region.

Ladies and gentlemen, Hong Kong is in a unique position as a Special Administrative Region of China. We have the benefit of our close geographic, economic, political and cultural ties to the world's fastest growing economy. Yet we have our own separate system with its institutional strengths, financial and business acumen and an infrastructure that no other city in China has. We have the skills, the knowledge and the resources to help companies in China compete under WTO; and to help companies from around the world who want to do business in China. Most importantly, we're well and truly back in business and looking for your business.

Thank you.

Ends/Friday, October 24, 2003

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