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FS's speech at HK - GD Business Conference USA 2005 (English
only) (with photos)

Following is a speech by the Financial Secretary, Mr Henry Tang, at the Hong Kong - Guangdong Business Conference USA 2005 today (October 14, San Francisco time) (English only):

Good morning Governor Huang, distinguished guests, ladies and gentlemen,

It is wonderful to be back in San Francisco, a city where I, too, "left my heart" the first time I was here many years ago.  I have returned many times since to the City by the Bay and on every occasion my visit lifts my spirits.

It also is a great pleasure for me to participate in the Hong Kong-Guangdong Business Conference today.  This event is an excellent demonstration of the growing and mutually beneficial co-operation within our region and the opportunities it presents for American and other international companies.

South China and the Bay Area have strong family and business connections dating back over 150 years.  Many companies from this city and region are active in Hong Kong and Guangdong.

But today I am here to talk mainly about Hong Kong, which is another dynamic place like this city.  Hong Kong is attuned to the needs of the marketplace.  It is where East meets West (a bit like San Francisco, where perhaps it can be said that "West meets East").  Hong Kong is on the doorstep of the economy of the 21st century, the Mainland of China.

You have just heard from Governor Huang about the remarkable and exciting developments in Guangdong Province.  Now, I would like to tell you the Hong Kong story, which is very much interrelated with Guangdong's.  Both of us - individually and together - have developed and expanded vibrant economies that offer attractive opportunities to companies like the ones represented here today.

Comprador city

I grew up in Hong Kong when we were a manufacturing base.  We produced fine products in the cheapest possible way and we marketed ourselves as such.  Hong Kong was then a city of compradors, who thrived on trade and business and in the process helped Hong Kong thrive.

We have come a long way since.  Ours is now a very much service-based economy - accounting for nearly 90% of GDP - and we are rapidly moving towards a knowledge-based economy.  The transformation is a response to a global trend and is necessary if we are to achieve our vision to be Asia's World City.

Nowadays, we market Hong Kong as the world's finest service centre, and as the undisputed regional hub for American and other international companies wishing to do business in Asia.

Hong Kong is back!

But this is not just hype.  Hong Kong is attracting more investment, and more business than ever before.

Most of you would know how the Asian financial crisis and the bursting of our property bubble hit us hard - just after our reunification with our motherland in 1997.  Then, as we were regaining our balance, we were blind-sided by SARS in 2003.
I am very pleased to report that Hong Kong has recovered well and is now in the midst of a sustained and broad-based economic recovery - helped by robust growth in Guangdong and substantial external demand.  To quote Business Week, which happens to have its regional headquarters in our city, "Hong Kong is back!"

During the first half of 2005, our real GDP increased a very healthy 6.5% from the same period a year ago.  Forecasts remain favourable for at least the rest of this year - although external factors like high energy prices and rising interest rates could adversely affect our economy.  Does that sound familiar?

Foreign investment has been particularly strong.  Inflows of foreign direct investment (FDI) to Hong Kong in 2004 amounted to US$34 billion - second only to Mainland China in Asia, and 7th in the world.  This represented a 150% increase over last year, which was the highest growth rate in Asia.  The Mainland and Hong Kong together received two-thirds of all of Asia's FDI last year.  FDI inflows remain robust so far this year.  In the first half of 2005, inward FDI to Hong Kong has totalled nearly US$20 billion.

These numbers underscore Hong Kong's strong appeal to a growing number of international companies as a platform to reach Guangdong and the rest of the Mainland, as well as the Asia-Pacific region.

In addition, both the number of regional headquarters and regional offices in Hong Kong reached all-time highs in 2005, demonstrating that Hong Kong remains the preferred base in Asia for foreign and Mainland companies to oversee their regional operations.  As of June this year, there were some 3,800 companies that ran their regional operations from Hong Kong.

Strong American presence

American companies top the list, with 868 regional headquarters or offices.  For the past 165 years, Americans have contributed substantially to Hong Kong's growth and success.  This long history of trade and investment has culminated in the US being Hong Kong's second largest trading partner after Mainland, totalling some US$58.15 billion in 2004.  The US is also the third largest foreign investor in Hong Kong, at US$24 billion.  

The more than 1,100 American companies in Hong Kong are a vibrant and diverse group, including financial services, electronics, IT, chemicals, energy, consumer products, transportation, retail, media and a vast array of professional services.  And last month we got our own Disneyland - which, I'm happy to report, is doing very well.

Competitive advantages

Why is Hong Kong doing so well in attracting foreign companies?  We think we have a number of competitive advantages.  We have the unique "One country, two systems" formula guaranteed for 50 years since 1997.  So all those factors that have made Hong Kong such an attractive place for foreign investors down the years - rule of law; clean governance; a simple, low tax regime; an unfettered flow of information and capital; level playing field; lack of government interference - remain intact.

Hong Kong also exemplifies prudent and effective financial management.  We are living proof of a maxim popularised by our old friend Steve Forbes - "Learn to live within your means and you will have more means to live with".

One of our distinctive competitive advantages is the "clustering" of professional services.  We have over 400 financial institutions and banks, probably more than any other place in the region except Japan.  It is not just banks; there are lawyers, accountants, and all other support services that you need to manage your business.

Another competitive advantage is in our hardware. Our efficient roads, railways, telecommunications network, airport and port are unrivalled in the region.

A big plus is that American and other foreign investors bringing their families with them feel comfortable in Hong Kong.  Our city is safe and offers a year-round feast of exciting social, cultural and recreational activities.  Expatriate children can choose among 56 international schools, such as the Hong Kong International School, which provides an American curriculum.  The fact that many Americans find the adjustment to life in Hong Kong so smooth has something to do with the unique cultural mix in our city.

Guangdong connection

Hong Kong is blessed because of where we are. We are in the heart of Asia, which makes us the natural hub for doing business in Asia as a whole - and at the heart of the Pearl River Delta (PRD), the most economically dynamic region in China.  

The interaction of Hong Kong and Guangdong Province, particularly in the PRD, has contributed greatly to prosperity on both sides of the boundary.  This combination has resulted in the PRD developing into one of the world's leading manufacturing centres - with its clusters of industries and services reinforced by a continuous stream of start-ups and numerous small and medium enterprises.  Each day, over US$300 million worth of goods are produced by thousands of factories in this region.

During the past quarter century, Hong Kong and Guangdong Province have combined and leveraged our respective strengths to develop one of the world's most efficient and cost-effective manufacturing supply chains.

Hong Kong's pivotal role as a China gateway is now more pronounced than ever.  The booming manufacturing region of Guangdong province, where some 12 million people are employed by Hong Kong companies or joint ventures, is a short train journey or a trip by high-speed ferry away.  Scores of flights depart daily from our award-winning international airport to Guangzhou, Shanghai, Beijing and other major Chinese cities - all of which can, if necessary, be covered in just one day, there and back.

Hong Kong provides the capital, management, technology, market knowledge and access to international markets while Guangdong's cities offer world-class competitive manufacturing, and access to a new, demanding consumer base.  

As a former industrialist myself and as someone who used to operate garment and electronic businesses in the Mainland from a Hong Kong base for many years, I can speak from experience.  This combination really works!

The CEPA factor

And there's more good news.  American and other foreign companies in South China are benefiting from the Closer Economic Partnership Arrangement (CEPA), essentially a free trade pact between two autonomous trading partners within the same nation, which came into effect on 1 January 2004.  It represents one of the most significant steps we have taken to increase and enhance economic flows between Hong Kong and the Mainland.

To summarise briefly, Hong Kong products covered by 1,108 Mainland 2005 tariff codes now enjoy zero tariffs when exported to the Mainland.  CEPA also gives qualified companies based in Hong Kong greater access to the Mainland in 26 services sectors, including banking, distribution, professional services, IT, transportation and logistics and telecommunications.  It also significantly improves trade and investment facilitation across the boundary.

CEPA covers "Hong Kong manufacturers and services suppliers", a nationality-blind category that includes American companies too.  Under CEPA rules, any foreign services provider that has been established in Hong Kong for over three years is treated as a Hong Kong company.  This requirement does not even apply to manufacturing, where the only eligibility criterion is rule of origin.
Looking to the future

I am confident that co-operation between Guangdong Province and Hong Kong will increase even faster with the expanded CEPA and the easing of restrictions on Mainland travellers to Hong Kong.  

In tandem with CEPA, an even more exciting development is taking shape - a visionary concept that aims to develop a South China "common market".  It is the Pan-Pearl River Delta Regional Co-operation and Development Forum, which we have called as "Pan-PRD" or simply "9+2".  The initiative brings together nine provinces of southern China, including Guangdong, along with the two Special Administrative Regions of Hong Kong and Macao.  To give you some idea of the size and scope of the concept - Pan-PRD in 2004 had a population of 460 million people, making up of about one-third of the national population.  The GDP of the Pan-PRD Region totalled US$730 billion, surpassing countries such as Mexico, South Korea and India; and its total trade volume reached US$970 billion, higher than the corresponding figures of France and the United Kingdom.

In the past 20 years or so, our manufacturing industries migrated to the north, helping Hong Kong to transform its economy successfully.  And now the Pan-PRD regional cooperation has further enlarged our economic catchment area.  In particular, I believe that Hong Kong can assume an active role in the following three main areas under this cooperation effort -

(I) Participating in the planning and construction of infrastructural network.  Hong Kong is vigorously strengthening its transportation links with the PRD region and stepping up on major infrastructure works, such as the Hong Kong Shenzhen Western Corridor, the Hong Kong - Zhuhai - Macao Bridge.

(II) Assisting Mainland enterprises in capital formation.  Pan-PRD enterprises can strengthen its business activities by making use of Hong Kong's world-class financial services for fund raising.  Since 1993, a total of 316 Mainland enterprises have raised more than US$120 billion through the Hong Kong stock market.

(III) Using Hong Kong as a platform for the Mainland enterprises to access global markets.  In support of the national policy of "going out" for Mainland enterprises, we encourage Pan-PRD enterprises to set up offices in Hong Kong and to use Hong Kong as a base to access world markets.

We must strengthen this co-operation to achieve a "win-win" situation for both Hong Kong and Guangdong - and for the companies doing business in our region.  This is a key aspect of consolidating and enhancing Hong Kong's position as an international centre for finance, trade, transport and logistics, as well as a premier tourist destination.

Our Challenge

The task we face is to build on our competitive advantages and to establish a framework of arrangements that facilitates seamless interaction within "One Country", while not in any way compromising the high degree of autonomy we enjoy under "Two Systems".  Hong Kong is well placed to play a vital role in the growing Mainland market.  The opening up of the key services and distribution sector in the Mainland will unleash a whole range of opportunities for businessmen from Hong Kong as well as overseas.

Hong Kong looks forward to playing a more active role in contributing to the sustained growth of the Mainland, both as a source of investment and as a partner to overseas firms looking to enhance their presence in a country set to become a key engine of global economic growth.

And with these promising prospects, naturally many more firms from the Bay Area - including small and medium-sized companies - will want to be close to the action.  

Ladies and Gentlemen, maintaining and enhancing our closer relationship with Guangdong Province is a cornerstone of Hong Kong's economic policy.  I see Hong Kong and Guangdong moving up the value added chain and from there to even greater heights.

Together, we will leverage and build on the fruits of our co-operation to achieve an even brighter future for Hong Kong and Guangdong Province - making it even more attractive for companies like yours that invest in the fast growing region of the fastest growing large economy in the world.

Let me conclude by wishing all of you every success in your business ventures - especially in Hong Kong and Guangdong.
Thank you very much.

Ends/Saturday, October 15, 2005
Issued at HKT 12:12


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