Following is the speech (English only) by the Chief Secretary for Administration, Mr Donald Tsang, at the Hong Kong Trade Development Council Annual Dinner in London today (October 26, London time):
Sir Stephen [Brown], Mr [Peter] Woo, distinguished guests, ladies and gentlemen,
It is, as always, a great pleasure to be back in London. The TDC Dinner is one of our most important and long-standing annual events and I am delighted to be on the menu tonight as your guest, and after-dinner speaker.
This dinner always brings together many old friends -- our 'lo pang yau' as we say in Hong Kong -- who have stood with us through thick and thin to help create the economic marvel that is Hong Kong today. There are many people here tonight with whom I have worked closely over the years. I've probably butted heads with one or two as well -- that's OK, I've got a hard head. But, at the end of the day, we are all part of the same Hong Kong family, and we all want to see Hong Kong prosper and keep on making its mark in the world. Tonight, I want to tell you why Hong Kong is poised for a new and exciting cycle of growth that will eclipse anything we have seen in the past.
To be sure, that hasn't been too easy to achieve during these past few years. The Asian financial crisis, avian flu, the bursting of an asset price bubble, prolonged deflation and high unemployment have hit us one after another since 1997. All have had an adverse effect on our economy and our fiscal balance sheet. They also put a fair dent in our confidence, too. And, just when we thought we had turned the corner last year, a frightening new disease called SARS comes along and shuts the city down for several months.
So, it has been somewhat of a rough patch that Hong Kong people have endured. But, to their great credit, our people persisted, and persisted, and persisted. They never gave up hope in the future of their city and home. There were times when we all felt a bit like one of those punching clowns that children play with -- the ones that never stay down when you hit them. That sort of sums up Hong Kong's experiences over these past few years. Getting knocked about, falling down, but most important, bouncing back every time.
This year, however, we've seen a change. This year, the pieces of the jigsaw are falling into place. This year, the restructuring that caused us so much pain in the past is beginning to pay dividends for the future. Our economy is growing at about 7 per cent -- pretty good for an advanced economy. Deflation has ended. The property market is showing signs of a healthy recovery -- and just two weeks ago we saw a post-1997 record price at a Government land auction that will also help improve our fiscal position. Unemployment is edging down slowly, although it remains a major concern for the Government. We are devoting considerable resources to training and retraining so our citizens have maximum opportunity to find suitable employment. When nearly all of East and Southeast Asia were besieged by avian flu earlier this year, Hong Kong was a notable exception. We learnt our lessons from the outbreaks in 1997 and 1998 and have developed sophisticated preventive and early-warning systems. The same applies to SARS -- no winter outbreak this year, sighs of relief all round in Hong Kong. But, we remain vigilant.
As you all know, Hong Kong's past and future success has been, and will be, inextricably linked to the Mainland China market. And, as I mentioned earlier, I believe that Hong Kong is now on the verge of unprecedented economic opportunity. Let me tell you why.
First of all, China's entry to the WTO at the end of 2001 stimulated keen global interest in China as a market. Generally, it is still a relatively undeveloped market. But it has enormous potential and is rapidly becoming more open and competitive under WTO discipline. Hong Kong will of course benefit from this process because we remain the location of choice for international enterprise wanting to do business in China, not to mention the Asian region as a whole.
This is no doubt a familiar refrain that you will have heard at previous TDC dinners. But it remains as true today as it did five or 10 years ago. If you want to do business in China, there is simply no better place to explore those possibilities than Hong Kong. Our most recent figures -- released just two weeks ago -- bear that out. In the past year we have seen a jump of 400 companies establishing regional operations in Hong Kong -- up to 3,600 compared to 3,200. If we include local offices of overseas companies in those figures, then we have seen more than 1,000 overseas companies set up regional operations or local offices in Hong Kong between June 2002 to June 2004. Amongst them, some 480 UK companies with regional operations or local offices in Hong Kong. Interestingly, the number of UK companies with Regional Headquarters in Hong Kong jumped by almost 20 to 105 in the past year. And just yesterday, the London Stock Exchange opened its Asia-Pacific regional office in -- you guessed it -- Hong Kong. Clearly, despite what you sometimes hear about Hong Kong being bypassed, we remain well and truly on the radar screen of international business.
Why are they there? Because Hong Kong makes them feel at home in Asia. A trusted legal system, a clean and efficient government, a level playing field for business, the free flow of information, low and predictable taxes, no restrictions on capital flows, a well-educated workforce, a broad and deep pool of professional talent and excellent connectivity to the rest of the world -- for both transport and telecommunications. All of these combine to make Hong Kong an unbeatable package for global enterprise wishing to do business in Asia and the Mainland.
This brings me to my second point -- CEPA -- which not only builds on China's WTO accession but also the large presence of well-established international companies in Hong Kong. You will have heard about the Closer Economic Partnership Arrangement between Hong Kong and the Mainland, which came into effect on January 1 this year. This landmark free trade agreement covers trade in goods, trade in services and trade and investment facilitation. CEPA gives Hong Kong companies -- both local and foreign-owned -- a head start over the competition by offering preferential access to the Mainland market. In some cases, the early market access exceeds the Mainland's WTO commitments. So far, more than 2,350 manufacturing companies and 560 service providers have been granted certificates of compliance under the arrangement. It has created considerable interest. In business, time is money. The earlier you get a foothold in a market, the harder it is for the competition to shoe-horn you out of a dominant position. This is perhaps CEPA's greatest advantage -- it buys time to get established ahead of the rest of the world.
Another of CEPA's great strengths is that it is an ongoing process -- and that is why just nine months after CEPA came into effect we announced details of CEPA II. This further liberalisation will come into effect on January 1 next year. On trade in goods, it adds a further 529 products to the 374 that already enjoy tariff-free access to the Mainland market. On top of that it adds another 184 planned products that can enjoy tariff-free access from January 1, 2006. So it not only covers nearly all the products made in Hong Kong now, it also incorporates those that are planned to be made in Hong Kong in the future because of CEPA. On the services side, eight more sectors have been added to the 18 that already enjoy preferential access. All of this has come about because the market has asked us to pursue these particular areas with our Mainland trade counterparts -- it is what we mean by let the market lead, and let the government facilitate.
CEPA is also of strategic importance to Hong Kong businesses because it applies to the entire Mainland market. Hong Kong enterprises are still the largest investors in the Mainland. CEPA provides an added impetus to this trend because it gives Hong Kong businesses the chance of a national foothold, particularly in areas where we have proven strengths such as financial services, management services, transport and logistics, tourism, conventions and exhibitions, construction and real estate.
Almost half of Hong Kong's investment in the Mainland has been in Guangdong Province, particularly the Pearl River Delta. In fact, Hong Kong accounts for about 70 per cent of all investment in Guangdong Province. This is understandable given the close cultural, language and family ties between us. These ties are going to get much closer. Because of WTO, because of CEPA, and because of greatly enhanced co-operation between Hong Kong and Guangdong authorities, we are going to see even more great things from the Pearl River Delta over the next five to 10 years. And this is the third point I want to make about why Hong Kong is poised for a new era of prosperity.
Economic activity in the Pearl River Delta has largely been concentrated in a 100-km corridor running in a straight line from Hong Kong, through Shenzhen, to Dongguan and on to Guangzhou. Take a look at a satellite picture of this part of the world and you will see that development has neared saturation point. That is going to change -- soon. Major infrastructure projects nearing completion, or being planned, will begin to come on stream over the next five years, starting from next year. New, world-class highways in Guangdong are feeding into a national grid that will put Hong Kong within a day's drive of markets 1,000 kilometres away. But, more important for the near future, new infrastructure in Hong Kong and the Pearl River Delta will significantly improve cross-boundary traffic flows and greatly improve access to the relatively undeveloped western Pearl River Delta. New ways of dealing with Customs and Immigration clearance will make the process more efficient for businessmen and women who want to maintain an office in Hong Kong and a factory in the PRD. The availability of new land, cheaper land within easy reach of Hong Kong will continue to draw international interest. And of course, Hong Kong entrepreneurs will be at the vanguard of new investments in the western PRD.
Growing investment in Guangdong and the PRD will give rise to a growing and more sophisticated consumer market. We have already heard estimates that Guangdong's population has grown by some 15 million over the past four to five years and now probably exceeds the 100 million mark. We would expect that at least half of that growth has been in the PRD, which puts the population in the Greater PRD, including Hong Kong and Macau, at about 55 million. The combined GDP of the Greater PRD today would make it the 16th largest national economy in the world -- on a par with Russia and Argentina. And the Greater PRD has also overtaken South Korea as the world's 11th largest exporter. If you look 10, 15 or 20 years down the track you will see a highly integrated, highly efficient and globally important regional economy centred on an axis of Hong Kong and Guangzhou -- probably serving a market in its own right of 70 to 75 million people.
Now, these three sets of factors that I have just outlined should be enough to convince even the most sceptical of observers that Hong Kong has all the ingredients necessary to prosper in the years ahead, and to firmly entrench its position as Asia's world city.
But, there is more. My fourth and final point has the potential to eclipse all of what I have just spoken about. It is a long-term undertaking, but one that could put Hong Kong at the epicentre of trade and investment services in a market the size of the EU25, or all of NAFTA, or all of ASEAN -- take your pick.
What I am talking about is an initiative we call the Pan-PRD Regional Co-operation and Development Forum, or 9 + 2. It involves the nine southern provinces of the Mainland, plus Hong Kong and Macau. It is a visionary concept to create a massive, integrated regional economy of more than 450 million people. It is designed to break down barriers to trade and investment by encouraging greater co-operation in 10 key areas -- infrastructure, including energy, transport and pipelines; industry and investment; commerce and trade; tourism; agriculture; labour; science, education and IT; environmental protection; and public health. In the same vein as CEPA, it allows the Pan-PRD governments to develop and fine-tune an institutional framework that allows business to flourish.
To try to make some sense of the magnitude of this undertaking, we need look no further than the PRD experience. Over the past 25 years, since China opened its doors, the PRD has flourished to become one of the world's most important manufacturing centres. Hong Kong, too, has flourished as a financial and businesses services hub for international and Chinese businesses investing in the PRD and beyond. You can see how much the PRD has grown over that time in terms of economic importance: with less than half a per cent of China's land mass and about 3 per cent of the country's population, the PRD accounts for 9 per cent of China's GDP, a third of its exports and a fifth of foreign direct investment. This is what has happened in the PRD, and Hong Kong has benefited greatly from it too.
Now, what the Pan-PRD initiative asks us to consider is this: What happens if we take the Hong Kong-PRD success in a market of 55 million people today, and apply it to a market of 450 million or more over the next 25 years? We've seen what's possible in an area than accounts for less than half a per cent of China's land mass. What happens when we include one-third of the country in that equation? New road and rail links in the Mainland have seen the catchment of our port and airport expand to a radius of 200km. What happens if we have infrastructure in place that services a 1,000-kilometre catchment area? In fact, that infrastructure is being built right now.
The Pan-PRD initiative does more than just provide us with some interesting economic possibilities; it is actually an agenda for action. It is an opportunity for Hong Kong to work much more closely with the nine southern provinces, and Macau, to jointly shape our economic development, not just over the next five or 10 years, but over the next 25 or 50 years. We have given it the highest level of support in Hong Kong, and we want to see it take root and succeed. We believe that we offer Mainland businesses an excellent product -- the same product that appeals so much to the international business community; the same product that provides us with unique advantages under 'One Country, Two Systems' -- a level playing field for business, a strong legal system, the free flow of information, clean government, low taxes and access to international capital, connections and expertise unparalleled not just in China, but within Asia. At the same time, a massively expanded market catchment will no doubt generate serious international interest in Hong Kong.
Ladies and gentlemen, as I mentioned earlier, the pieces of the jigsaw are falling into place for Hong Kong: China's entry to the WTO; CEPA and its enhanced access for Hong Kong and international companies; increased interest in Hong Kong as a regional corporate base; new opportunities in the expanding catchment of the burgeoning Pearl River Delta; and now the possibilities of a 450 million-strong Pan-PRD market. I can think of nowhere else in the world that has such enormous opportunities. But then again, there really is nowhere else in the world like Hong Kong.
Ends/Wednesday, October 27, 2004