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Following is the speech by the Chief Secretary for Administration, Mr Donald Tsang, at a Promotional Luncheon at the Grand Hotel, Stockholm on May 13 (English only):

Distinguished guests, ladies and gentlemen, good afternoon.

My thanks to the Royal Sweden-Hong Kong Society, the Trade Development Council and our Economic and Trade Office in Brussels for organising this luncheon. I'm extremely happy to be back in your beautiful, historic city. There's a great deal Hong Kong can learn from Stockholm about blending commerce and culture to create a truly world-class city.

My only previous visit to Stockholm was five years ago, when I was Hong Kong's Financial Secretary. As you know, I was supposed to be here last autumn, but unfortunately I couldn't make the trip. Perhaps it's better this way, because at this later date I'm able to bring you even more good news about Hong Kong.

Before I update you on the latest developments, I want to talk about some of Hong Kong's attributes - our resilience, our vitality and our creativity - as well as the potential that Hong Kong offers for investors. I will try to avoid preaching to the choir, since some of you are already quite familiar with our city.

Indeed, Hong Kong's relationship with Sweden is a very important one. Last year, our bilateral trade grew by 12.7 per cent, to US$1.1 billion. Most of that was Swedish trade with the mainland of China that was routed through Hong Kong. And the momentum continues. In the first two months of this year, trade between Hong Kong and Sweden continued to grow in double digits.

The Swedish business community is a significant presence in Hong Kong, and has contributed a great deal to our strong economic recovery. The Swedish Trade Council, the Swedish Chamber of Commerce, the Royal Sweden-Hong Kong Society and other organisations all make positive contributions to our city. There are 130 Swedish companies in Hong Kong, and brands such as Ikea, Ericsson, Gammon Skanska, Volvo and Saab are entrenched household names.

As I said, some of you already know us very well. Others, however, might appreciate a closer look into the heart of Asia's world city.

The first thing you need to know about Hong Kong is our resilience. It's been said that the measure of a man is not how high he climbs, but how high he bounces back after he falls. The same is true of a city. Certainly Hong Kong has suffered through trials and tribulations, from waves of immigration to riots during the Cultural Revolution. In recent times, we have grappled with the Asian financial crisis and speculators' attacks on our currency, as well as deadly diseases such as SARS.

Each time, Hong Kong has bounced back higher than before. The regional financial crisis burst our asset price bubble and launched us on a long deflationary spiral. We were forced to restructure our economy. As a result, Hong Kong's costs are much lower now than they were in the late 1990s. Our banks are stronger than ever. Hong Kong's GDP is forecast to grow by 6 per cent this year. We have sharpened our competitive edge.

Another attribute that Hong Kong boasts, one that goes hand in hand with resilience, is vitality. It permeates the city, manifesting itself in the dynamism of the residents, the lights, the nightlife, the buzz of the place. But it also shows itself in the creativity of Hong Kong people. Our filmmakers, fashion designers, architects - and especially our entrepreneurs.

I believe Hong Kong's creativity is one of the fruits of our freedom. Many resourceful people use Hong Kong's freedom to make as much money as possible. The Government does not stand in their way.

There's another aspect of Hong Kong of which we're very proud, and that's our professionalism. In everything we do, we strive to be completely professional and transparent. I was Financial Secretary in 1998 when currency speculators attacked the Hong Kong dollar. To protect the integrity of the dollar and the stock market, we used government reserves to buy blue chip shares on the Hong Kong stock exchange. It was a controversial strategy at the time. But it worked. We beat back the speculators. Our strategy was proven correct. Then we sold the shares back to the market. The entire exercise was carried out in the clear light of day, for all the world to see.

Another example was last year's SARS outbreak. We lost almost 300 lives, but it could have been much worse. The World Health Organisation praised the professionalism of both our front-line medical staff and our researchers. Indeed, there is another Hong Kong delegation here this week. It's participating in the Stockholm Challenge awards to show off an innovative marriage of public health and police computer databases that proved to be a key factor in containing the outbreak.

These attributes - resilience, vitality, creativity and professionalism - all help make Hong Kong unique. Its cosmopolitan nature is unmatched anywhere in Asia. It's a melting pot - a unique ethnic mix that's continuously being rejuvenated and infused with new ideas.

One of the biggest drawing cards is our potential for investors. Hong Kong is a major gateway to China, the fastest-growing large economy on earth. The World Bank predicts that by 2020, China will be the world's second-largest exporter.

But Hong Kong is much more than just a gateway to the Mainland. With our top-notch legal and financial infrastructure, we can add value to commercial relationships in myriad ways. We can be a financier, a dealmaker, a risk manager, a project manager, an insurer, an upholder of contracts, an arbitrator of disputes, and a protector of intellectual property rights. Hong Kong can play a very important role in making a deal or a project run smoothly and efficiently in China. 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.

How well do we know China? Hong Kong is the Mainland's third largest trading partner, after Japan and the United States. We are the largest single investor in every Mainland province. Hong Kong-linked companies employ 11 million people in Guangdong Province alone - more than the entire population of either Hong Kong or Sweden.

Yet, under "One Country, Two Systems", Hong Kong remains separate and distinct from China in its economic, trade, legal and political systems. In other words, Hong Kong is not "just another Chinese city". Quite the contrary.

For example, we are one of the world's most sophisticated and stable financial centres. Three-quarters of the world's top 100 banks operate in Hong Kong. There are no foreign exchange controls. Hong Kong has the second-largest stock market in Asia by market capitalisation, after Japan, and is the premier international capital-formation centre for China enterprises. Mainland companies have raised more than US$100 billion on Hong Kong's stock exchange since 1986. The biggest share offering in the world last year was the US$3 billion IPO by China Life.

Hong Kong has consistently been rated as the world's freest economy - a shining example of unfettered capitalism. Underpinning that is the rule of law, administered by an independent judiciary. 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, efficient and politically neutral. Information flows freely, and taxes are low.

Hong Kong is also an international transport centre - the world's busiest container port and the world's busiest international air cargo hub.

You'll notice I like to say we're the world's freest 'this' and the world's busiest 'that'. It's because we're justifiably proud of these superlatives. We never settle for second best. That goes not only for our economic infrastructure, but our physical infrastructure as well. Our airport, container terminals, public utilities and transport system are all first-rate. Despite its high density, Hong Kong keeps moving, without the traffic jams so often experienced in other Asian cities.

We have some exciting new infrastructure projects in the works. There will be more container terminals, an exhibition centre going up 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 planned bridge that will extend 29 kilometres across the Pearl River Delta to Macau and Zhuhai.

That brings me to another key advantage - Hong Kong's close partnership with the Pearl River Delta, or PRD. It's known as the 'factory of the world', producing some US$300 million worth of goods every day. The PRD is also a burgeoning consumer market. The Greater PRD Region, comprising the manufacturing cities of Guangdong Province as well as Hong Kong and Macau, is the most prosperous region in China. The region has a GDP of US$271 billion, not too far behind Sweden's. To give you an idea of the potential, the Greater PRD Region has close to 50 million people - about five times the population of Sweden in one-tenth the area.

The Central Government has lent a great deal of support to facilitate this economic co-operation. Beijing has lifted restrictions on visits by individual tourists from several Mainland cities - and increased the amount of money they can bring. Beijing has also allowed Hong Kong banks to handle personal renminbi transactions, which we hope will be a first step in Hong Kong becoming an offshore renminbi centre.

But perhaps the greatest sign of Mainland support for Hong Kong is our Closer Economic Partnership Arrangement, or CEPA. It's essentially a free trade pact, China's first. Implemented just this year, CEPA gives preferential treatment to a broad range of goods and services from Hong Kong. Tariffs on exports by Hong Kong companies in 374 Mainland tariff codes have been reduced to zero. 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. If you're a Swedish bank, for example, you might want to invest in or partner with a Hong Kong bank as a means of entering the Mainland market.

In the manufacturing sector, there's no time requirement. You can fly into Hong Kong, set up operations and begin exporting tariff-free right away if your products are covered by CEPA and meet the rule-of-origin requirements. These products might have high-value-added or intellectual property content, allowing you to take advantage of Hong Kong's transparent legal system and rigorous IP protection regime. And Hong Kong is one of the easiest places in the world to set up a company.

Even if you don't take advantage of CEPA, there are several ways that a Hong Kong partner can be of service. Many multinationals, for example, have set up their front offices in Hong Kong, where they manage financing, strategic planning, marketing, sales, distribution and after-sales service, while using the Pearl River Delta for manufacturing, for sourcing or as a consumer market. For an internationally minded Swedish company, it could be the perfect combination of Swedish technology, China's manufacturing prowess, and Hong Kong's capital and expertise.

I know that many multinationals have gone directly into the Mainland. But if you are a small or medium-sized business, you'll find the going tough. Even big enterprises can find it difficult to penetrate the market. You might overlook the seemingly small things that matter. With the help of Hong Kong, it can be done more easily and cheaply, with less time and money lost to learning on the job.

As one of the most open, externally oriented economies in the world, Hong Kong is a magnet. More multinational companies have set up regional headquarters and offices there than in any other city in the Asia-Pacific region. A recent survey of Swedish companies in Hong Kong confirms the trend. Over 80 per cent of the companies surveyed are active in the Mainland. And 60 per cent of them have Hong Kong as their regional headquarters.

Let me give you an example of a Swedish company that established its Asia-Pacific sales and marketing headquarters in Hong Kong. You may be familiar with Habia Cable, a maker of high-end cables for the telecommunications, nuclear and other industries. It has a Mainland manufacturing plant [in Changzhou, near Shanghai] and does a lot of business in China. But when it came to choosing a regional hub, Hong Kong had a huge advantage over other choices. Business-friendly infrastructure; a first-class airport with more convenient international and Mainland connections; and superior legal and tax systems are just some of the reasons that Habia Cable Asia Limited is based in Hong Kong.

If you do decide to set up in Hong Kong, you'll find the lifestyle in Asia's world city both cosmopolitan and safe. We have state-of-the-art communications and hospitals, over 40 international schools, pristine country parks, world-class cultural and sporting events, excellent restaurants featuring every cuisine imaginable and convenient airline connections. We are planning to build a world-class cultural district on our magnificent harbour. It all adds up to a city that is progressive, free and stable, a city of opportunity where people strive for the highest quality.

Ladies and gentlemen, Hong Kong is the primary platform for doing business with China, and for China to do business with 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.

Ends/Friday, May 14, 2004

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