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Speech by FS at Asia Society Gala Dinner in Melbourne (Eng only) (with photos)

    Following is the speech by the Financial Secretary, Mr Henry Tang, at the Asia Society Gala Dinner in Melbourne today (May 25, Australia time): (English only)

Distinguished guests, ladies and gentlemen,

     Good evening. It is a pleasure to be here in beautiful Melbourne, speaking to the Asia Society, who are such good friends and supporters of Hong Kong. I know for sure that we can always count on the support of Melbournians.  

     Tonight, I would like to bring you up to date on the latest happenings in Hong Kong, especially on how we are leveraging our proximity and unique circumstances to benefit from China's outstanding economic growth and contribute to it. I'll also be talking about how we are expanding the horizon of business opportunities for foreign investors, including those of Australia, as a result.

Update on Hong Kong's economy

     On the economic front, we are doing quite well - the best in years. We emerged leaner and healthier from various trials and tribulations that hampered our growth from 1997-2003; and we have enjoyed a sustained and broad-based recovery over the past two years. We posted GDP growth of 8.6% in 2004, and 7.3% last year - quite impressive results for a mature economy. The unemployment rate has dropped to a four and a half year low, and all economic indicators are pointing up.  

     Foreign investment has been particularly strong. We were recently named the "Asian City of the Future" and the city with the best foreign direct investment (FDI) potential by fDi magazine. Inflows of FDI to Hong Kong in 2005 amounted to nearly US$36billion, second only to Mainland China in Asia.

Strong ties with Australia

     Australia-Hong Kong trade is doing very well. Over the past four years, bilateral trade has grown by a healthy 7.9% a year. We have long enjoyed excellent relations. Many Hong Kong people are studying here, with Melbourne a favourite destination; many have come here to live; many have also invested here. Indeed, Hong Kong is the fourth-largest source of investment into Australia.  On the flip side, there is a substantial Australian community in Hong Kong - about 50,000 Australian citizens living in Hong Kong and about 90 Australian companies with regional operations in our city. But this is not the total figure and there are many, many more Aussie companies and entrepreneurs using Hong Kong as their base in Asia or in southern China, or as a market in its own right.

Our competitive advantages

     Why is Hong Kong such an important hub for Australian businesses and professionals?  One reason, of course, is our proximity to the most exciting market in the world, which I will talk about later. But another equally important reason is that Aussies feel at home in Hong Kong. And that doesn't just mean that you can get a bottle of Australian fine wine at the local supermarket, Aussies feel at home in Hong Kong because we share many of the same values - freedom of speech; freedom of the press; freedom to work, travel, worship, make money; freedom to criticise politicians on a regular basis. We remain a staunchly capitalist economy, where the market leads and the Government facilitates. All these strike a familiar chord with Australians.

     Hong Kong has the unique "one country, two systems" formula guaranteed for 50 years under the Basic Law. So all those factors that made Hong Kong such an attractive place for foreign investors down the years remain intact. They include rule of law; clean governance; a simple and low tax regime, which Forbes rated as the 2nd best for low taxes in the world; an unfettered flow of information and capital; level playing field; and minimum government interference. And all these are important for Australia, too, because they provide your business people and entrepreneurs with the degree of certainty they need to continue investing, and to continue exploring new markets in Hong Kong, China and Asia.

     While we have maintained all of our strengths under the "two systems", we have also been able to forge a much closer and deeper relationship with our sovereign under the "one country" part of the formula. Hong Kong is blessed because of where we are. We are at the heart of Asia and of the Pearl River Delta (PRD), the most economically dynamic region in China, and the best kept business secret. When China began opening up in the late 1970s, our manufacturers were the first to charge north across the boundary into the PRD and to invest heavily there. Today, in Guangdong Province alone there are over 50,000 Hong Kong-linked companies employing over 12 million workers. The interaction of Hong Kong and Guangdong Province, particularly in the PRD, has contributed greatly to the prosperity on both sides of the Lo Wu River. This combination has resulted in the PRD developing into the "factory of the world".

     Another important outcome of the manufacturing migration is that services now make up nearly 90% of Hong Kong's GDP. Hong Kong is now focusing on providing financial, business and value-added logistics services to help international companies do business in Asia and China - as well as helping Mainland companies take their goods and services to the world market. We provide 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, fast-growing consumer base.  

     Currently, there are some 3,800 companies that ran their regional operations from Hong Kong. Both the number of regional headquarters and regional offices in Hong Kong reached all-time high in 2005, demonstrating that Hong Kong remains the preferred base in Asia for foreign and Mainland companies to oversee their regional operations. In addition to being a leading international financial and logistics centre, Hong Kong is within a five-hour flight to half of the world's population.

Integration with the Mainland's economy

     Hong Kong's pivotal role as the gateway to China is now more pronounced than ever. One of the most important co-operation initiatives with the Mainland is our Closer Economic Partnership Arrangement (CEPA), essentially a free trade pact between two autonomous trading partners within the same nation, that came into effect on January 1, 2004. All Hong Kong goods now enjoy zero tariffs when exported to the Mainland and trade in many services is liberalised ahead of, and some even beyond China's WTO commitments. CEPA covers "Hong Kong manufacturers and services suppliers", a nationality-blind category that includes Australian 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. In fact, almost half of the companies that have successfully applied for the Hong Kong Service Suppliers Certificate are of foreign interest.

     On financial services, Hong Kong banks have been allowed to conduct Renminbi business. These measures have further facilitated cross-border spending by Mainland and Hong Kong residents and strengthened Hong Kong's role as an international financial centre. Also, the People's Bank of China has recently announced measures to relax foreign exchange controls to facilitate overseas investment by Mainland companies and individuals through qualified banks, fund management companies and insurance institutions. Hong Kong stands to benefit as the capital market gateway to the Mainland. The move to allow outflows of the Mainland's portfolio capital will be highly significant to Hong Kong, as we will be the first stop behind the exit door.

     Hong Kong has a large and highly liquid market capable of absorbing funds from all over the world. The market capitalisation of our stock exchange now ranks eighth globally and second in Asia, and hit the historic mark of HK$10 trillion early this month. The trading volume has been tremendous - our daily turnover averaged at HK$38 billion in April 2006, representing a surge of some 150% over the same time last year.  

     Being the premier capital formation centre for Mainland enterprises, Hong Kong offers access to the stocks of some of the Mainland's established enterprises. Indeed, Hong Kong raised over US$140billion for Mainland enterprises in the last dozen years. At present, Mainland enterprises account for some 30% of the total number of listed companies in Hong Kong, and about 40% of our market capitalisation. The presence of Mainland enterprises has not only increased the depth and breadth of our equity market, but has also upheld our position as an international financial centre.

Looking to the future

     In tandem with these moves drawing us closer to our motherland, an even more exciting development is taking shape - a visionary concept that aims to develop a South China "common market", with a population of 460 million, equivalent to that of the European Union, and with a GDP comparable to the 10-nation ASEAN. It is the Pan Pearl River Delta Regional Cooperation initiative, or simply "Pan-PRD Cooperation". The initiative brings together nine provinces* of southern China along with the two Special Administrative Regions of Hong Kong and Macao. Pan-PRD Cooperation aims to break down provincial and municipal trade barriers, thereby opening up incredible new business opportunities for international investors in a vast region of our country.
     A defining characteristic of Hong Kong is our international outlook and engagement with the world. At the same time, we enjoy strong links with our hinterland, supported by the free flow of goods, services, capital, people and information, and provide an interface with the rest of the world for our hinterland. Initiatives, like CEPA and the Pan-PRD Cooperation, produce a win-win-win situation, benefiting the Mainland's and Hong Kong's economies, along with the foreign companies that invest there. And this is where Hong Kong has a unique role to play. If you want to manage your risk in China; if you want to partner with people who have decades of experience in China; if you want to deal with people who understand the culture and language of China; if you want to take a shot at the China market in small chunks rather than one big bite, then you will find no better place than Hong Kong to achieve those goals.

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". Maintaining and enhancing our closer relationship with the Mainland, and at the same time, keeping our global outlook is a cornerstone of Hong Kong's economic policy. We look 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 that is set to become a key engine of global economic growth.

     Ladies and gentlemen, with our institutional advantages, Hong Kong has much to offer Australian investors - notably a high degree of certainty for doing business, not only in the Mainland but in the entire Asia-Pacific region. There is no other city in China, or the rest of Asia, that offers all the advantages Hong Kong does for businesses wanting to get in on the China adventure. That's why we pride ourselves on being Asia's world city.  Hong Kong has been through some extraordinary times, but the best is yet to come.  

     Lastly, I would like to thank you for your enduring support and friendship for Hong Kong. I hope you will continue to work closely with us as we enter a new era of opportunities presented by the economic miracle taking place in the Mainland, with Hong Kong right at its heart. Thank you very much!

* These nine provinces are Guangdong, Fujian, Jiangxi, Hunan, Guangxi, Guixhou, Yunan, Sichuan and Hainan.

Ends/Thursday, May 25, 2006
Issued at HKT 19:17


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