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Following is a speech by the Secretary for Commerce, Industry and Technology, Mr John Tsang, at a cocktail reception organised by the Hong Kong New Zealand Business Association and the Auckland Chamber of Commerce in Auckland, New Zealand today (March 8):

Distinguished guests, ladies and gentlemen,

Good evening.

First of all, I would like to thank the Hong Kong New Zealand Business Association and the Auckland Chamber of Commerce for inviting me to address this gathering. It is a great pleasure to be here tonight among so many friends of Hong Kong, both old acquaintances and new ones too.

I have brought with me Hong Kong's congratulations to all Kiwis on the clean sweep by Lord of the Rings at the Oscars last week. Coming as I do from another popular tourist destination, I can certainly appreciate the priceless international marketing buzz that New Zealand has enjoyed as a result. And, if you can hang on to eight or so of those 'orcs' for the next few years, I think you'll have a pretty formidable forward pack for the 2007 Rugby World Cup.

As many of you know, Hong Kong is a city that means business. So, I would like to get right down to business to give you an update on the latest economic situation in Hong Kong, on our swift revival after SARS, and on our various initiatives to take advantage of China's booming growth.

I also want to talk a little about the opportunities available in Hong Kong for New Zealand companies, and about Hong Kong's unique role as the leading two-way platform for companies doing business with China, and for China to do business with the world.

Our economic recovery from last year's SARS outbreak has been much swifter and stronger than anyone had anticipated. Some people are wondering whether we have left out the "U"s in our alphabet, leaving only the "V"s. As a result, we have raised our growth estimate for 2003 to 3%. As for this year, the pundits are projecting real GDP growth in the range of 4.5% to 7%. Even the usually pessimistic Economist has forecast a growth rate of 6.5% in 2004. We'll know the actual figures when the Financial Secretary unveils his budget in two days' time.

No one can predict the future, of course. But what these optimistic forecasts reveal is a genuine belief that there are brighter days ahead. And, after five years of non-stop deflation, we are cautiously optimistic that prices will stop falling within the coming year. Our unemployment rate, while still too high, dropped significantly, to 7.3% in January from its peak of 8.7% last July. Funds are flowing into Hong Kong, and we remain the second-largest recipient of FDI [foreign direct investment] in Asia, after the Mainland. This has helped the stock market stage a strong rally, lifting the Hang Seng Index by more than 35% in the past 12 months. Through it all, the value of Hong Kong's export of goods has continued to grow at a robust pace. For 2003, our export growth was a healthy 11.7%.

At last count, the number of overseas companies using Hong Kong as their regional headquarters had reached 966, an all-time high. This proves once again that Hong Kong is the best place to be for international companies doing business in the Asia-Pacific region, especially Mainland China.

None of this progress is happening in isolation. Of the world's 10 largest economies, China is growing the fastest. The World Bank predicts that by 2020, China will be the world's second-largest exporter. As the Mainland opens up under its WTO commitments, it is driving an increasing share of the world's economic growth. Hong Kong is well positioned to help feed this growth by providing the high-value-added services China needs right on its door steps. And by feeding this growth, benefiting from it.

Hong Kong possesses long-standing institutional advantages, which stem from the rule of law under the "One Country, Two Systems" principle, a fully convertible currency, high standards of corporate governance, and the list goes on. On this foundation, we have developed a concentration of value-added services - financial, logistics, transport, distribution, marketing, packaging, design, management, accounting and legal.

Geographically and historically, we have another key advantage - our close partnership with China's Pearl River Delta [PRD]. It is known as the "factory of the world", producing some US$300 million worth of goods every day, thanks in large part to the 60,000 Hong Kong-invested factories there employing over 10 million Mainland workers.

The PRD is also a burgeoning consumer market. To give you an idea of the potential, the Greater PRD region, including Hong Kong and Macau, has close to 50 million people - about 12 times the population of New Zealand in one-sixth of the area. The per capita GDP of the denizens of the Pearl River Delta region, excluding Hong Kong, is more than that of the Yangtze River Delta which includes Shanghai.

We are working hard to build stronger and more beneficial links with the Mainland economy. As Sir John Bond, Chairman of HSBC, has said, what we are heading toward is, in fact, "One Economy, Two Systems".

Perhaps the most significant recent step has been the free trade agreement signed between the Mainland and Hong Kong, which came into effect two months ago. Under the Closer Economic Partnership Arrangement, or CEPA, Hong Kong products covered by 374 Mainland tariff codes can enjoy zero tariffs when exported to the Mainland. CEPA also gives Hong Kong companies greater access to the Mainland in 18 services sectors, including banking, distribution and telecommunications.

CEPA offers tremendous opportunities for foreign companies to set up in Hong Kong, to partner with Hong Kong companies, or even to acquire a company in Hong Kong. All the information is available on the CEPA website or from our Economic and Trade Office in Sydney, so I won't go into the details here.

Western think-tanks have consistently rated Hong Kong as the world's freest economy, not least because it is a bastion of free trade. To maintain our position, we have some exciting infrastructure projects in the works - new container terminals, a new exhibition centre near our award-winning airport, Hong Kong Disneyland opening at the end of next year, and several new transport links with the Mainland, including a bridge under planning that would extend 29 kilometres across the Delta to Macau and Zhuhai.

Within the past couple of years, we have also established a solid base of new technology infrastructure, including Cyberport and the Science Park, to attract companies interested in commercialising technology and introducing it to the Mainland and the rest of Asia. We have also established a Wireless Development Centre and a Digital Media Centre to provide infrastructural support to our small and medium-sized enterprises. Just last month, a New Zealand-invested anti-spam solutions provider called MailProve Limited announced it would set up its regional headquarters at Cyberport. Why did the company choose Hong Kong? The reasons would obviously include an excellent business environment, our well-established IT and telecommunications infrastructure, and of course our proximity and close ties to the huge Mainland market.

I would just like to finish up with a success story that illustrates how Hong Kong's entrepreneurial flair is alive and well, despite the recent ranking of Hong Kong by the Global Entrepreneurship Monitor near the bottom of the scale. You may recall US President George W Bush's dramatic landing on an aircraft carrier last May. This event elicited a range of political reactions, but one toy company in Hong Kong, called Blue Box, reacted to what it saw as a business opportunity. Blue Box immediately set about producing a 12-inch action figure of the President in full naval flight suit called "GI George". By July, the company was reportedly forecasting it would sell 3,000 of the dolls at US$40 apiece. By September, orders were pouring into American toy stores for this new action hero. So far, Blue Box has sold more than 50,000 of them.

This product has created quite a buzz. One US columnist said Republicans were buying the GI George doll to "share in the majesty of the moment", and Democrats were buying it so they could "stick pins in it on election night". And this columnist appeared to be rather envious. He wrote: "I really wish I had thought of this". It comes as no surprise to Hong Kong people that a Hong Kong company did think of it, and capitalised on it.

I should add that Blue Box is a long-established Hong Kong company that moved its manufacturing operations in the 1980s to the Pearl River Delta, where it employs 7,000 workers, while maintaining its headquarters and R&D and engineering divisions in Hong Kong. This Hong Kong-PRD business model is one I don't hesitate to recommend to outward-looking companies everywhere, including, of course, New Zealand.

Ladies and gentlemen, we are laying the groundwork for a new cycle of economic growth. We are positioning ourselves as the primary platform for doing business with Mainland China, and for China to reach out to the world. If you have not visited us for a while, I recommend that you come back to Hong Kong, Asia's World City, and see for yourselves. I am sure you will not be disappointed.

Thank you very much.

Ends/Monday, March 8, 2004

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