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Following is a speech by the Secretary for Commerce, Industry and Technology, Mr John Tsang, at the Hong Kong Management Association 2003 Annual Conference on "Hong Kong, China and The World: Team Players in the Global Economy" today (November 10) (English only):

David, Mr Aw, Distinguished guests, Ladies and Gentlemen,

It is a great pleasure for me to be here today to address this distinguished gathering on the subject of "Hong Kong, China and The World: Team Players in the Global Economy". I intend to raise with you the positioning of Hong Kong vis-a-vis the Mainland and the rest of the world in the multilateral, regional and bilateral contexts.

Over the past few decades, we have witnessed profound changes in the world economy: it has become more global, more interdependent, and at the same time, more competitive. Our lives, and the lives of many people around the world, have been increasingly shaped by an interconnected economy of increased cross-border flow of trade, finance and technology. This trend of a freer flow of trade and investment across borders has not only expanded economic boundaries, spurred competition, raised productivity and standards of living, but also resulted at the same time in greater integration of the international economy and with it, unprecedented challenges.

Globalisation is the recent buzzword that has been used to explain everything from poverty to prosperity. But simply speaking, the growing liberalisation of international trade and investment simply means larger markets, both for imports and exports. It allows for access to higher levels of technology, and it provides for inflow of foreign capital to stimulate domestic growth. Although there are many who harbour strong reservation on globalisation, I firmly believe that the increasing interaction between economies around the world will promote growth and bring with this, enormous benefits. Any casual survey of the world today can confirm that nations that are relatively open to trade tend to be more prosperous than nations that are relatively closed. Open developing economies typically deliver growth in gross national product per person terms that is some five percentage points higher than similarly positioned closed economies.

Free trade is particularly important to Hong Kong: it is, in fact, our lifeblood. Hong Kong is one of the most open economies in the world and a staunch supporter of the rule-based multilateral trading system. Free and open trade has brought huge benefits to Hong Kong in the past few decades, and, I believe, it will continue to serve Hong Kong well in the years to come. I also believe that active and constructive participation in the multilateral and regional trade fora is the best option for a small and resource-challenged place like Hong Kong.

Hong Kong is a strong supporter of the multilateral trading system, and we faithfully fulfil our obligations as a member of the World Trade Organisation. For us, the WTO provides a predictable framework of rules and through active participation therein, we cannot only safeguard our rights and interests, but also ensure that WTO rules remain relevant and conducive to future trade and investment. To further demonstrate our commitment to the multilateral principle, we have announced our intention to host the next WTO Ministerial Conference in Hong Kong. The acceptance of our offer by the entire WTO membership is a strong vote of confidence in Hong Kong, and a clear recognition of Hong Kong's hard-fought status and reputation in the WTO.

Although the fifth WTO Ministerial Conference recently held in Cancun has ended in failure, experience in previous rounds has shown that the multilateral trading system is fully capable of resurrection after major setbacks. I am an optimist, and I believe that Members, both rich and poor, are set to gain by getting back to the negotiation table as soon as possible. As the host of the next Ministerial Conference, we will work closely with the WTO Secretariat and individual WTO Members in taking forward the trade agenda and in ensuring the hosting of a successful Ministerial Conference in Hong Kong.

On the regional front, we have been a member of the Asia Pacific Economic Cooperation Forum since 1991. APEC is a high level government-to-government forum in the Asia Pacific region for promoting economic and trade co-operation among its 21 member economies, many of which are top players in global trade. We share APEC's vision for free trade and subscribe to the so called Bogor Goal of achieving free and open trade and investment in the region by 2010 for developed economies and 2020 for developing economies. As APEC economies together account for about half of the world trade, we stand to benefit through developing closer economic ties with other APEC members. Through APEC, we also have the opportunity to further strengthen our bilateral ties with them.

Talking of bilateral ties, we have, just over a month ago, announced the details of the Closer Economic Partnership Arrangement between the Mainland and Hong Kong. CEPA opens up new opportunities for Hong Kong's manufacturers and service providers. It provides new impetus for deepening and broadening the Mainland-Hong Kong trade and economic partnership, and ushers in a new era in the economic relationship between the two places.

Starting from 1st January next year, some 90% of our domestic exports will enter the Mainland tariff-free. Such preference will make Hong Kong products even more competitive than products coming from elsewhere. Moreover, CEPA origin rules are quite liberal, and they compare favourably with preferential rules of origin of other free trade agreements. Rules for most products will be process based, a practice that has been in place for years and one with which Hong Kong manufacturers are familiar. For the minority of products where a value-added percentage threshold is required, the percentage is set at an enviable 30% - the lowest among all free trade agreements. Moreover, the costs of product development incurred in Hong Kong are also counted in the calculation, hence providing flexibility to the industry and creating incentives for them to develop products locally and to go up the value-added ladder.

CEPA also opens up 18 service sectors, allowing Hong Kong service suppliers earlier and easier access to the Mainland market. The liberalisation measures go far beyond what China has committed and probably will ever commit in the WTO. The preference is unique to Hong Kong, and will not be overtaken by China's existing liberalisation schedule under the WTO.

So where does Hong Kong go from here? While Hong Kong needs to defend strongly free trade in the global arena, closer to home, we need to focus on our own advantages and team up with business partners to maintain our competitive position in the global market.

We have our traditional strengths: rule of law, free and open market, independent Judiciary, simple, low and predictable taxation regime, and free flow of information. These are solid fundamentals that have contributed to Hong Kong's success in the past, earning us the 10th place amongst the largest entities on trade in goods, and the 13th place amongst the largest entities on trade in services.

In the past decade or so, the Pearl River Delta's relatively cheap land and labour costs have provided the driving force in transforming Hong Kong from a manufacturing economy to a service-oriented economy. We used to make everything here in Hong Kong, but now most of the labour-intensive parts of manufacturing have been moved to the Mainland, where land and labour are readily available at much lower cost. What have remained in Hong Kong are services such as design, financing, marketing, distribution, logistics and information technology. Over the years, these services have become progressively more sophisticated, and our competitive advantage in these areas increasingly apparent. Looking at the figures, some 85 per cent of our workforce is now employed in the services sector, and services now account for 86 per cent of Hong Kong's GDP.

Since the start of economic reform in the late 70's, the Pearl River Delta region has taken off at an enormous speed. It is now the largest manufacturing base and the fastest growing region in the world's fastest growing large economy. The PRD also has the highest per capita income in the Mainland. And with a population of some 50 million people who are getting more prosperous than ever, it is also becoming an increasingly attractive consumer market, and an enormous opportunity for Hong Kong businesses. The mode whereby Hong Kong serves as the shop front, providing the pre- and post-production services, and the Pearl River Delta serves as the factories in the back, providing the manufacturing base, has proved highly successful and has brought about prosperity for both places.

Indeed, in today's competitive world, a small city like Hong Kong can no longer compete effectively on its own in the global arena. A regional economy pooling together the strengths of the cities in the region appears to be the logical way forward. We must reach out to integrate our resources with those of other regional economies in order to create that competitive edge. We need to focus our efforts in leveraging on our competitive advantages, and to consolidate our role as an international financial centre, and centre for logistics and business support services.

The Pearl River Delta is an obvious partner and the Yangtze River Delta, far from being a competitor and a distractor, is another collaborator. Hong Kong and Shanghai each carries our own distinct advantages, and we see abundant opportunities for closer economic partnership to enhance the strengths of both sides, thereby creating a powerful economic force within the global economy. With this in mind, we convened the first meeting of the Hong Kong/Shanghai Trade and Economic Cooperation Conference last month. We identified eight major areas for cooperation from port and airport collaboration to movement and exchange of personnel, and work is already underway. We believe that by teaming up, Hong Kong can play a key role in helping to speed up Shanghai's alignment with the international market, while Shanghai can provide the vast market for our professional services sector, thus further accelerating Hong Kong's economic restructuring. This must be a mutually beneficial arrangement.

It is CEPA that provides the excellent framework for such partnerships to flourish and for both Hong Kong and Mainland hub cities to leverage on each other's relative advantages. Although CEPA is a bilateral arrangement, its significance actually goes far beyond the bilateral economic and trade relations between Hong Kong and the Mainland.

As an open economy that embraces globalisation, Hong Kong has long welcomed investors and entrepreneurs from around the world to come here to invest and to make the most gainful use of our many comparative advantages, including our notable role as the gateway to the Mainland. Hong Kong enjoys a unique role as the springboard for overseas investors to go into the Mainland and for Mainland enterprises to go overseas. CEPA strengthens and advances this position even further. It opens a new avenue of co-operation among Hong Kong, the Mainland and overseas enterprises. It offers opportunities for not only local businessmen and professionals, but also heightens our potential to attract foreign investors to Hong Kong, and Mainland companies to use Hong Kong as a base to go overseas. Under CEPA, enterprises in Hong Kong, Mainland and overseas can truly become players of the same team in realising the full benefits of globalisation. It will be a win-win-win situation for all.

Ladies and Gentlemen, government facilitates and private sector participates. CEPA has provided the framework. It is now up to you, businessmen and managers, to reap the full benefits it offers. Through our joint effort, I am confident that we can bring Hong Kong and the Mainland onto a higher level of prosperity and success.

Thank you very much.

End/Monday, November 10, 2003

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