Following is the speech by the Chief Secretary for Administration, Mr Donald Tsang, at a luncheon co-organised by the HKSARG Economic and Trade Office in London, the Hong Kong Trade Development Council and the Russian-Hong Kong Business Association in Moscow:
Distinguished guests, ladies and gentlemen, good afternoon.
I am honoured and delighted to finally be in Moscow, one of the world's great cities. My visit represents the first time in Hong Kong's history that our Chief Secretary has been invited to Russia. I'm sorry that I could not make it last October when I was originally scheduled to be here. But happily, you have invited me back. This is an auspicious occasion and, I hope, a stepping-stone to a much closer relationship between Russia and Hong Kong.
I want to thank the Hong Kong Trade Development Council and the Russian-Hong Kong Business Association for organising this luncheon. This is an important event, because I don't think we really know each other well enough. Or perhaps I should say that very few of us in either place are really familiar with the other. It's unfortunate, because since our reunification with China in 1997, Russia is Hong Kong's biggest neighbour - just across our national border. So I'm happy to be here to learn more about our neighbour, and to give you some neighbourly insight into how you can benefit from the vast potential that Hong Kong has to offer.
Now let's get a little better acquainted. 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 can be said 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 movement of the people, the lights, the nightlife, the buzz of the place. But it also shows itself in the creativity of Hong Kong people - 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 one more 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 proved 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 SARS. We lost almost 300 lives during last year's SARS outbreak, but it could have been worse. The World Health Organisation praised the professionalism of both our front-line medical staff and our researchers for their efforts in containing the disease.
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, which is the fastest growing large economy on earth. The World Bank predicts that by 2020, China will be the world's second-largest exporter.
I believe this is a time of unprecedented opportunity. As the world economy becomes more and more integrated, and as formerly planned economies unleash the power of market forces through liberalisation, global trading patterns are shifting dramatically. China's recent accession to the WTO - and hopefully Russia's membership in the near future - will have a powerful impact on the international marketplace.
I am well aware of the long historical trade relationship between Russia and China. And I know that it will continue to strengthen. But history and geography have shaped a relationship that has often excluded Hong Kong. Most of the rest of the world has taken advantage of Hong Kong's skills-set to do business with the mainland of China, but for the most part, Russia has not. This makes obvious sense in terms of proximity and transport. Why would you take the long route to get into China?
But Hong Kong is much more than simply a gateway to the Mainland. With our top-notch financial and legal 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, a legal haven, 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.
Yes, you could get access to capital and professional expertise in Frankfurt, London or New York. But Hong Kong has one huge advantage over those places - they're not in China, or even Asia. 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. Simply put, Hong Kong is the best place in Asia to do business with the Mainland. And in this age of swift international travel, real-time communication and instantaneous money transfer, Hong Kong's physical location on the other side of China is no longer an impediment.
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 - more than the entire population of either Hong Kong or Moscow.
Yet under "One Country, Two Systems", Hong Kong is separate from China in its economic, legal and political systems. In other words, Hong Kong is not 'just another Chinese city'. Quite the contrary.
For example, Hong Kong is 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. We are the premier fund-raising hub for businesses in the region, with the second largest stock market in Asia by market capitalisation, after Japan. Several big Mainland companies have listed in Hong Kong, including China Mobile and Bank of China. In all, Mainland companies have raised more than US$100 billion on Hong Kong's stock exchange since 1986, making Hong Kong the preferred place for raising capital.
Hong Kong has consistently been rated as the world's freest economy - a shining example of unfettered capitalism. Underpinning that freedom 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. Taxes are low, and information flows freely.
We are an international transport hub - the world's busiest container port and busiest international air cargo hub. And there's no sign of a let-up. The value of our exports grew by 11.7 per cent last year.
Hong Kong not only survived the exodus of its manufacturing industries to the Mainland, it has in fact thrived. Today about 87 per cent of our GDP is derived from services. We have the top tier of lawyers, accountants, designers, architects, engineers, ad agencies, filmmakers and experts in marketing, branding, after-sales service, logistics and distribution. There are clusters of professionals offering expertise in strategic planning, marketing, project management and project financing. If you have a new technology that requires licensing, commercialising and protecting from pirates, Hong Kong can deliver what you need.
One of Hong Kong's greatest assets is its partnership with the Greater Pearl River Delta Region. Comprising the manufacturing cities of adjoining Guangdong Province as well as Hong Kong and Macau, it is the most prosperous region in China - known as the 'factory of the world' and a burgeoning consumer market. The Greater PRD has a GDP of US$271 billion, in the same neighbourhood as Sweden and Switzerland.
A key element of Hong Kong's economic co-operation with the Mainland is our new free trade pact, called the Closer Economic Partnership Arrangement, or CEPA. Implemented just this year, CEPA gives preferential treatment to a broad range of goods and services from Hong Kong. Tariffs on exports in 374 product codes have been reduced to zero. 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. If you're a Russian bank, for example, you might want to invest in or partner with a bank in Hong Kong 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. Agencies such as Invest Hong Kong, the Hong Kong Trade Development Council or the Russian-Hong Kong Business Association will be happy to help.
Even if you don't take advantage of CEPA, there are many 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 Russian company, it could be the perfect combination of Russia's technology or resources, China's manufacturing prowess, and Hong Kong's capital and expertise.
I know that many Russian companies have been operating in China for decades. And multinationals the world over 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. Many international corporations use Hong Kong not only as their China headquarters, but as their regional headquarters as well, since we're conveniently situated within five hours' flying time of 40 per cent of the world's population.
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 - including Russian, of course - and convenient airline connections.
Ladies and gentlemen, even though Hong Kong and Russia might not know each other as well as we should, I'm happy to note that our relationship is blossoming. We are starting to see more Russian business people and tourists in our city. Hong Kong and Russia recently reached a new air services agreement to facilitate the movement of people. Next month, Aeroflot plans to increase the frequency of its direct flights to Hong Kong to six a week, and TransAero has also begun flying direct. Aeroflot expects to carry 40,000 passengers between Moscow and Hong Kong this year - more than three times the traffic of four years ago. At the same time, the value of our bilateral trade increased by nearly 45 per cent last year, to US$781 million. These signs all point to the beginning of an exciting new era in Russian-Hong Kong relations.
It's always the bold entrepreneur who blazes the trail. In the past decade or so, a few bold Russians have come to Hong Kong, and a few trailblazers from Hong Kong have invested in Russia. Now is an opportune time for a bigger second wave. We invite you to come to Asia's world city and see for yourselves what can be accomplished.
Ends/Monday, May 17, 2004