Following is the speech (English only) by the Chief Secretary for Administration, Mr Donald Tsang, at the Hong Kong-Guangdong Business Seminar in London today(October 26):
Deputy Prime Minister, Sir Stephen [Brown], Ambassador Zha, Governor Huang, distinguished guests, ladies and gentlemen,
It's a pleasure to be back in London, a magnificent city that sets the pace for the rest of us who aspire to 'world city' status. I would like to thank you for coming today, and I will do my best to help make it worth your while.
Governor Huang has just given you a vivid description of the amazing transformation taking place in Guangdong Province. Now it's my turn to tell you Hong Kong's side of the story. The two tales are becoming increasingly intertwined, and both are equally extraordinary. Just as the opportunities now arising in Guangdong Province are exciting and unprecedented, so too are the opportunities that are bubbling up in Hong Kong as a result.
You are familiar with Hong Kong's story up to the handover in 1997. You also know, of course, how the Asian financial crisis and the bursting of our property bubble knocked us for a loop - just as the implementation of "One Country, Two Systems" was getting under way. Then, as we were regaining our balance, we were blind-sided by SARS early last year.
Ladies and gentlemen, I'm delighted to report that Hong Kong is back in fighting form. The long spell of deflation and economic restructuring that we endured has reduced our costs and made the Hong Kong economy more lean and competitive. Deflation is over, the property market has bounced back, the unemployment rate is slowly but surely coming down to a manageable level, tourists are arriving in record numbers, our exports continue to flourish, and consumer confidence is once again strong. The result is that we expect GDP growth of 7.5% in 2004. There may be a perception in some parts of the world that Hong Kong's best days are behind it. Well, 7% to 8% GDP growth by a developed economy says otherwise.
While the global economic recovery has certainly helped Hong Kong's externally oriented economy, and our US dollar link has boosted our export performance, we did not sit on our hands and wait for the good times to roll again. During the hard times we looked at the rapidly growing Mainland economy, we looked at our new circumstances as a Special Administrative Region of China, and we formulated our plan. That plan, in a nutshell, was to consolidate our global position, as the premier international financial and service centre of Asia. As a corollary of that plan and, in the light of the rapid development in the Mainland of China, we have decided to channel our energy and resources into building much greater economic interactivity with Guangdong's Pearl River Delta (PRD). We wanted greater access to the Mainland market for our businesses and professionals. And we were determined to leverage our international financial and trade expertise to feed into - and benefit from - the Mainland's remarkable economic performance.
The results have been dramatic. Thanks in no small part to the Individual Visit Scheme, which allows travellers from several Mainland cities to come solo to Hong Kong, a record 14 million visitors arrived in Hong Kong in the first eight months of 2004. Thanks to the Central Government permitting Hong Kong banks to handle personal renminbi transactions, it's easier for these visitors to spend their money in Hong Kong. Thanks to stepped-up co-operation between immigration authorities on both sides, our boundary crossings handled unprecedented volumes of people during the recent Mid-Autumn and National Day holidays, and did so efficiently and smoothly. Thanks to closer collaboration between Mainland and Hong Kong authorities, we are building new bridges, rail links and other cross-boundary infrastructure projects. And thanks to our closer co-operation, you are listening to senior representatives of Guangdong and Hong Kong discussing these exciting developments at the same seminar for the first time in the United Kingdom.
Hong Kong has long been famous as the gateway to China. For 30 years up to the 1970s, this meant that Hong Kong was the portal into the economy of the mainland of China that was virtually impermeable to outsiders. For the past 25 years, as the Mainland has opened up its economy, Hong Kong has led the way -- as the largest external investor, and as the home of the first pioneering manufacturers to move production into the Pearl River Delta. There may be an inordinate number of optometrists' shops in Hong Kong, but I can assure you that our entrepreneurs have 20-20 vision when it comes to seeing trends. Today, there are some 53,000 Hong Kong-invested manufacturers in Guangdong Province, employing 10 million workers -- more than the entire population of either Hong Kong or London.
Lately, this process has been accelerating, with globalisation gaining pace and China joining the World Trade Organisation. The world is beating a path to the Mainland market. As a result, China is becoming a juggernaut in world trade. Last year, China's imports grew by an astounding 40% in dollar terms, while its exports expanded by 35%. As the WTO notes, these are remarkable levels of growth for a country with such a substantial volume of trade.
The fastest-growing part of China is just across our boundary with Guangdong. Every day in the PRD, tens of thousands of factories produce well over US$300 million worth of goods. About 7,500 multinationals are active in the Delta, including several prominent investors from the UK, of course.
As I said, Hong Kong companies were the first to venture into the PRD. As usual, the private sector led the way. The next step was for our Government to find a way to make it easier for more Hong Kong businesses and professionals to crack the Mainland market. Once again, the Central Government demonstrated its staunch support for Hong Kong by agreeing to the Mainland and Hong Kong Closer Economic Partnership Arrangement, or CEPA, which came into effect on January 1st this year. This landmark free-trade arrangement increases trade and economic flows across the boundary by removing tariffs from nearly all Hong Kong products and by giving preferential access to the Mainland market to a number of service industries and professions.
How were we able to conclude a free-trade pact within our own country? Under the Basic Law and "One Country, Two Systems", Hong Kong enjoys a high degree of autonomy and individual membership in international bodies such as the WTO. We are also a separate customs, immigration and legal jurisdiction. CEPA provides Hong Kong businesses with access to the Mainland market not only ahead of China's WTO schedule, but in some cases with concessions that go beyond China's WTO commitments. Overseas companies can also gain a fast track into that burgeoning market, by partnering with Hong Kong businesses and drawing on their decades of experience in the Mainland. CEPA offers tremendous opportunities for UK and other overseas companies to enter the Mainland market by setting up in Hong Kong, partnering with Hong Kong companies, or even acquiring a company in Hong Kong. You can get all the details from my colleagues at Invest Hong Kong or from the Hong Kong Economic and Trade Office here in London.
The next chapter of Hong Kong's story is perhaps the most exciting. It's called the Pan-Pearl River Delta Regional Co-operation and Development Forum. Because that's quite a mouthful, we call it "Pan-PRD" or simply "9+2". It's an initiative that brings together nine provinces of southern China, including Guangdong, along with the two Special Administrative Regions of Hong Kong and Macau.
"9+2" has been described as "a budding European Community" -- a common market, if you will, within China's borders. I use the word "budding" not in the sense of something small, because it's certainly not. The Pan-PRD encompasses 457 million people, which is one-third of China's entire population. The region's combined GDP in 2003 was US$634 billion, accounting for 40% of China's total output. To put that into perspective, that's the same population as the expanded EU. And it's nearly the same GDP as the 10 countries of the Association of Southeast Asian Nations combined.
No, I mean "budding" in the sense of just getting started. Again, if it seems strange to talk about a free-trade area within a single country, the explanation lies in a unique set of historical circumstances. Since 1949, the Mainland economy has developed along the lines of self-sufficient local markets at the municipal and provincial levels. "9+2" is the first attempt to break down the barriers between these local economies and to forge a multi-provincial, regional free-trade area, which is expected to grow into one of the world's largest and most efficient regional economies.
Hong Kong is already the service and financial hub of a manufacturing powerhouse, the PRD, which radiates about 200 kilometres inland to include cities such as Guangzhou and Jiangmen. With "9+2", that catchment area expands more than five-fold, to cities like Fuzhou in Fujian Province, Changsha in Hunan and Chengdu in Sichuan. These cities will become increasingly important manufacturing and consumer centres as Guangzhou, Shenzhen and Dongguan move up the value chain; as land supply tightens and wages rise in the heart of the PRD; as manufacturers look for sites to build new and larger factories; and as the national highway network comes together. At the heart of this huge and rapidly developing region are Guangdong and Hong Kong -- providing the airports, the seaports, the capital, the trade and business services, the international contacts, the expertise and the leadership.
What are the ramifications? The answer requires only a little bit of imagination. If Hong Kong has the world's busiest container port with a catchment area of 200 kilometres, imagine how busy it could be with a catchment area of 1,000 kilometres. If Hong Kong is the world's busiest international air cargo hub now, imagine how much cargo could be taking off from our runways when they're serving this vast area of southern China. And if Hong Kong is the biggest investor, the fundraiser of choice and the business service centre for a Greater PRD population of 55 million, imagine the deals that could be done for a Pan-PRD population eight times larger.
The less-developed provinces within Pan-PRD have high hopes too. They're looking forward to an influx of investment, new manufacturing and employment opportunities, technology transfer, increased tourism, greater markets for their natural resources, and exposure to world-class management expertise. Much of this influx will be funnelled through Hong Kong. All of it will increase their consumer power - and, I reiterate, we're talking about close to half a billion people.
If I may, I'd like you to stretch your imagination one more time. Stretch it back 25 years, to a time when Shenzhen, Dongguan and Zhuhai were bucolic farming villages, when aerial photos of the Pearl River Delta showed virtually nothing but green. Today this is the most dynamic manufacturing region in the world. Now stretch your imagination forward 25 years. The Greater PRD region will have a population of perhaps 75 million including Hong Kong and Macau. Many of these people will be working in clean, high-end manufacturing plants, many others providing sophisticated trade, business and consumer services. The Pan-PRD, in turn, may look like a much larger version of today's PRD, a beehive of industry teeming with consumers who have a growing hunger for new homes, new cars, luxury goods and whatever digital gadgets are going to be popular at the time.
Will Hong Kong capture all of this future business? Of course not. As places like Guangzhou and Shenzhen move up the value chain, their share of the logistics pie and the business services pie will naturally increase. But these pies themselves will grow even faster. That's the beauty of 9+2: an exponentially growing production base and consumer market that will throw up opportunities all along the supply chain. Guangdong and Hong Kong will complement as much as compete. The same applies to Shanghai, which has its own important role to play in China's development. It's not a zero-sum game -- far from it. Hong Kong will be a big part of the success of the Pan-PRD. Indeed, you cannot discuss Pan-PRD without talking about Hong Kong. To do so would be like talking about Moby Dick without the whale.
How do I see Hong Kong's future? We aspire to be Asia's world city, and in many ways we already are. Like London and other world cities, Hong Kong will provide leadership in the fields of finance, trade, legal and business services, education, health care, research, culture and entertainment. Like London and other world cities, Hong Kong will enjoy strong links with its hinterland, supported by a free flow of goods, services and people, and provide that hinterland an interface with the rest of the world.
Hong Kong will continue to make the most of its strengths, many of which are legacies of the previous UK administration: the rule of law, supported by an independent judiciary; the free flow of information; a clean and efficient civil service; a world-class communication network; a level playing field for all businesses; a low and simple tax regime; no foreign exchange controls or trade barriers; and the world's freest economy.
Currently, 3,600 overseas companies have regional headquarters or regional offices in Hong Kong. That's a record number, and it includes over 300 British firms. In short, more and more international businesses are recognising Hong Kong's value as a base for doing business, not only in the Mainland, but in the Asia-Pacific region as a whole. It's not surprising. In addition to being a leading international financial and logistics centre, Hong Kong is within a five-hour flight of half the world's population. I'm confident that, 25 years from now, and long beyond that, Hong Kong will still be the most popular place in the Asia-Pacific for regional headquarters, as it is the case today.
Now, let me pull you back from the long-term future into the short-term future. There will be a lot going on in the next couple of years to keep Hong Kong at the centre of attention and to occupy our highly efficient immigration counters. To start with, there's the Rugby World Cup Sevens tournament next March, along with the Standard Chartered Marathon and many other annual events of note. It won't be long before Hong Kong Disneyland and other fantastic new tourist attractions are open to the public. In December next year, Hong Kong will serve as host of the Sixth WTO Ministerial Conference, a privilege that underlines Hong Kong's status as a WTO member in its own right. The following year, Hong Kong will welcome some 100,000 participants of ITU Telecom World 2006. This is the world's premier telecommunications event, and it will be staged in a sprawling new exhibition centre that's being built adjacent to Hong Kong's award-winning international airport.
So, there are many reasons to visit Hong Kong in the foreseeable future. But the greatest excitement of all will be watching "9+2" unfold, witnessing its growth into a powerful, integrated regional economy, and being at the centre of it.
The leading actors in this drama are represented here today. Guangdong Province supplies land, infrastructure, manpower, entrepreneurial drive, ambition and spirit. Hong Kong supplies capital; accounting, insurance, legal and trade services; expertise, connections and international experience. British companies bring their investments, innovations and marketing skills. We welcome overseas companies large and small. The Mainland is opening quickly, but making money in China is not yet a piece of cake. Even multinationals have encountered unexpected obstacles when entering the Mainland market. Small and medium-sized enterprises that are looking for support will find what they need in Hong Kong. We invite you to join us as we enter a new era of opportunity in southern China.
Ladies and gentlemen, let me conclude by wishing all of you every success in your business ventures -- in Hong Kong, in Guangdong and globally. And I hope you have a productive seminar today.
Thank you very much.
Ends/Tuesday, October 26, 2004