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CS' speech in Seoul

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Following is the Speech (English only) by the Chief Secretary for Administration, Mr Donald Tsang, at a business luncheon organized by the Hong Kong Trade Development Council held today (October 27) in Seoul:

Distinguished guests, ladies and gentlemen, good afternoon.

Thank you for the warm welcome. I'm extremely happy to be back in Seoul for another chance to witness Korea's remarkable development first-hand. I first experienced your country's charms in the 1970s, when I was with the Asian Development Bank. I returned in the 1980s, while I was at Harvard, to carry out research on industrialisation. And I came back in the 1990s during the negotiations for Hong Kong to enter APEC. Now I'm fortunate enough to return in the first decade of the 21st century, in my capacity as Chief Secretary of Hong Kong. I've had a long and fruitful association with this country, one that I hope continues for many years to come.

Over the course of my visits, I've come to deeply admire the Korean people. Korea and Hong Kong actually have much in common. I'm not talking only about our industriousness, our energy, our business acumen or even the commonalities in our languages and cultures. Something else we share is an undaunted spirit. Both of us have overcome immense adversity over the past several decades, and both of us have emerged stronger than ever.

Fifty years ago, Hong Kong was in the midst of a massive migration of people from China, putting enormous strains on our housing, hospitals and schools. Korea, at that time, was just awakening from the nightmare of war.

In the 1960s, Hong Kong had to cope with the social upheavals that spilled over from the Cultural Revolution. In the '70s, we overcame a worldwide recession sparked by the oil crisis, and the influx of tens of thousands of Vietnamese boat people. Yet, through it all, Hong Kong's entrepreneurial spirit created a manufacturing and trading dynamo.

Korea's problems were even more formidable. Recovering from the ravages of war, you built an economic miracle that would become the envy of developing countries around the globe.

In the 1980s, Hong Kong began the unprecedented transition from British colony to Special Administrative Region of China. When our currency plunged in 1983, we linked it to the US dollar, a linkage that has provided monetary and financial stability ever since. When our stock market crashed in 1987, we brought in much-needed reforms that have helped us consolidate our position as one of the most important stock markets in Asia.

In Korea, the late 1980s saw political turmoil, and you responded with one of the most civilised transitions to democracy the world has seen. The '90s were an era of unprecedented prosperity for Asia -- until we were blindsided by the financial crisis. Once again, Korea exhibited great resilience and made the fastest recovery of all the Asian economies.

Since the crisis, we've both had to deal with fluctuating global economic conditions and, in Hong Kong's case, the outbreak of SARS last spring. Yet every time Hong Kong or Korea gets knocked down, we bounce back, ready to take on the world with renewed vigour. In every case, what pulls us through and allows us to surge forward is our greatest asset - our people.

The Hong Kong-Korea partnership stretches back many decades, and we continue to enjoy strong trade, investment, tourism and cultural ties.

There are about 7,000 Koreans in Hong Kong. And there are over 700 Korean companies, two-thirds of which are small and medium-sized enterprises (SMEs). On the cultural front, Hong Kong people enjoy Korean TV dramas, films and music. Hong Kong people love kimchee, and a Korean barbecue is always a treat for us. Football fans in Hong Kong were cheering wildly for the Korean team in the World Cup semi-finals.

My trip to Seoul is a further demonstration of how much we value this relationship -- and how much we want it to develop. In the past seven months alone, there have been a number of visits to Korea: a combined road show by the Hong Kong Trade Development Council, Invest Hong Kong and the Dongguan Municipal People's Government; a travel mission along with promotions and campaigns by the Hong Kong Tourism Board; and last week our Secretary for Commerce, Industry and Technology was here on a joint mission with officials of Guangdong Province.

Today I'd like to speak about recent developments in Hong Kong and the opportunities they are creating for Korean companies. I'm happy to say that our economy has recovered quickly from the SARS outbreak. Tourism arrivals are booming, thanks in part to an influx of Mainland visitors. The airline and hospitality sectors are pretty much back to pre-SARS levels. And exports continue to drive the recovery. Property prices appear to have stabilised and the stock market is showing strength. Confidence has returned.

Part of that confidence is based on the recently signed Hong Kong-Mainland Closer Economic Partnership Arrangement. The CEPA is essentially a free trade agreement. Starting January 1, the Mainland will give preferential treatment to a broad range of goods and services from Hong Kong. Tariffs on exports in 273 product codes -- covering 90 per cent of our trade portfolio -- will be reduced to zero. The CEPA not only gives Hong Kong companies a head start on the Mainland's WTO commitments, in some cases it exceeds those commitments. The definition of a "Hong Kong company" includes any enterprise that's incorporated in Hong Kong and carries on substantive business there -- whether it's foreign-owned or local.

In most of the services categories, a company must have been operating in Hong Kong for three to five years. This means foreign investors are looking at partnerships, mergers or acquisitions. In the manufacturing sector, there's no time requirement. You can set up operations and begin exporting tariff-free right away if your products meet the CEPA rules-of-origin requirements. Manufacturers of brand-name products and those using proprietary technology can take advantage of our robust legal system and intellectual property (IP) protection regime.

Fashion, jewellery and high-end watches are among the industries that could benefit most. Or perhaps a Korean biotech firm or a provider of mobile-phone solutions might set up in one of our technology flagships, the Science Park or Cyberport. From such a vantage point, the company could add value to its products through design and R&D, and sleep better at night knowing that its intellectual property is protected from pirates.

Tariff-free access for Hong Kong goods will in turn create opportunities in some of the 18 services sectors being liberalised under the CEPA. More Hong Kong companies will be able to carry out distribution in the Mainland, thereby addressing payment or IP protection problems. Logistics, freight forwarding, warehousing and transport services will all benefit.

The CEPA will play a key role in enlarging our market threshold in the Mainland. The Pearl River Delta (PRD), China's premier manufacturing platform just across our boundary, is the most prosperous region in China. The Greater PRD region, including Hong Kong and Macau, has a GDP of US$271 billion, more than Switzerland's or Sweden's. The Yangtze River Delta, with Shanghai at its centre, is not far behind, with a GDP of US$205 billion. Korean companies can leverage the advantages provided by CEPA to use Hong Kong as a springboard into either of these fast-growing manufacturing and consumer centres. Or, to anywhere else in the Mainland, for that matter.

Indeed, we are speeding up the cross-boundary flow of people and goods, and have undertaken a massive infrastructure programme. We already boast a world-class airport, container terminals, roads, railways and telecommunications. Work is under way on new road and rail links, including feasibility studies for a bridge to Zhuhai and Macau, which will not only benefit Hong Kong but also give a shot in the arm to the western part of the Pearl River Delta region.

The CEPA also helps Hong Kong deepen our economic connectivity with the Pearl River Delta. Many of you may already know that Korea's chaebol feature prominently on any map of the PRD. Guangzhou, for example, hosts Daewoo Electronics, Hyundai and Hyundai Petrochemical, four LG companies, POSCO, Samsung and Samsung Electronics, SK Global, and Ssangyong. Various Samsung entities are also prominent in Dongguan, Shenzhen, Foshan and Huizhou, while Hyundai Mobis has set up in Jiangmen and Zhongshan. In addition to the chaebol, some two-thirds of the Korean firms in the PRD are SMEs, many of them suppliers to the major corporations.

Each of the PRD cities specialises in one or more industries. Dongguan, for example, has clusters of factories making electronic products and toys, as well as components for both. The Korean Chamber of Commerce in Dongguan has 78 member companies -- including four Korean restaurants.

The PRD offers an abundant supply of low-cost, skilled workers and engineers, as well as a high concentration of customers. Suppliers in the PRD can support their customers with on-demand or just-in-time delivery, thereby increasing the efficiency of supply chain management.

These are some of the factors that have attracted several hundred Korean companies to the PRD, mainly to Guangzhou, Dongguan and Shenzhen. A survey of those Korean firms found that their top four reasons for setting up in the PRD were proximity to Hong Kong; availability of raw materials, parts and components; the size of the PRD market; and lower production costs.

An hour or so away, Hong Kong has much to add to the equation. We can be a financier, a dealmaker, a risk manager, a trouble-shooter, a project manager, an insurer, a legal haven, an upholder of contracts, an arbitrator of disputes, and a protector of intellectual property rights. We bring to the table decades of experience in doing business in the Mainland, along with our networks, our common language and culture, and so on. According to that survey of Korean companies in the PRD, almost 80 per cent of them have offices in Hong Kong. Their top three reasons for using Hong Kong to support their PRD operations were our banking and financial system; our geographical location; and our legal system.

Hong Kong is a global financial centre. Three-quarters of the world's top 100 banks operate in Hong Kong. There are no foreign exchange controls. Foreign companies use Hong Kong's banks for trade and financing. We specialise in raising capital for companies needing funding. Mainland firms, for example, have raised more than US$94 billion on Hong Kong's stock exchange since 1986, making Hong Kong the preferred place for raising capital.

As Hong Kong's manufacturing industries have migrated to the Mainland, we have also developed into the premier business and services centre of Asia. We provide modern and efficient transport, logistics, supply-chain management, quality control, sales and marketing, production planning, and many other services in the Mainland.

About 87 per cent of Hong Kong's GDP is derived from services. We have the top tier of lawyers, accountants, engineers, ad agencies and experts in strategic planning, marketing and after-sales service. If you have a new technology that requires licensing, commercialising and protecting from pirates, Hong Kong can deliver what you need.

And Hong Kong is a regional arbitration centre. Awards made in Hong Kong can be enforced in more than 130 jurisdictions, including the Mainland. With China's accession to the WTO, Hong Kong is increasingly being stipulated in contracts as the venue for dispute resolution.

As a bastion of free enterprise, Hong Kong provides a level playing field for all companies, local or foreign. Government involvement and red tape are kept to a minimum. The civil service is clean and politically neutral. Indeed, we have consistently been rated as the world's freest economy. All of this is underpinned by the rule of law, which is perhaps the key foundation of our success.

Many Korean SMEs have already achieved success in the PRD by using Hong Kong as a partner, by taking advantage of the region's low costs and access to their suppliers and our financial and services backup. Add in the CEPA, and I believe more and more Korean SMEs can enjoy what I call a win-win-win situation -- combining Korean technology and innovation, the Mainland's manufacturing prowess and burgeoning consumer market, and Hong Kong's financial and services expertise.

Korean SMEs can tap into the large reservoir of capital available in Hong Kong. We are Asia's biggest venture-capital centre, managing 30 per cent of the region's capital pool.

Last year, Dream International, one of the world's leading toy manufacturers, became the first Korean company to list in Hong Kong. Dream International came to Hong Kong to take advantage of our low tax regime, sound financial system, efficient infrastructure, flexible business regulations and proximity to the PRD. The company has factories in both Shenzhen and the Shanghai area. It's interesting to note that Dream International employs about 30 people in Hong Kong and 12,000 in the Mainland.

Over 3,200 other international corporations have gone further, making Hong Kong a base not just for China but for the region. In fact, more overseas companies have regional headquarters and offices in Hong Kong than in any other city in the Asia-Pacific region.

Some companies even take the ultimate step. The Korean-Dutch joint venture LG.Philips Displays, which has 27 factories around the world, set up its global headquarters in Hong Kong two years ago. The company cited Hong Kong's facilities, infrastructure, labour force and entrepreneurial climate as reasons for its choice. In the words of LG.Philips, Hong Kong is "the business centre of the region".

Ladies and gentlemen, as I said at the beginning of my remarks, Hong Kong and Korea have a great deal in common, most importantly the can-do spirit of our people. I invite you to bring some of that Korean spirit to Hong Kong. We welcome you to come to Asia's world city and see for yourselves what can be accomplished.

Thank you, or as you say here, KAMSA HAMNIDA.

Ends/Monday, October 27, 2003

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