************************************************************
Following is the full text of the speech, "Seeing into 2007: Challenges and Prospects for Hong Kong Businesses," by the Financial Secretary, Mr Henry Tang, at the 13th Annual Hong Kong Business Summit this morning (December 14):
Mr [David] Eldon, Distinguished Guests, Ladies and Gentlemen,
Good morning. It is my great pleasure to be here at the 13th Annual Hong Kong Business Summit to address such a distinguished group of businessmen and to share with you my thoughts on Hong Kong's challenges and opportunities ahead.
Hong Kong has come a long way to the cosmopolitan city we are today. Through hard work, dedication, perseverance, entrepreneurship and sound corporate governance, Hong Kong has transformed itself into a world class city. Today we boast strong fundamentals including a sound legal system based on common law principles, simple taxation and low tax rates, level playing field, free flow of capital and information, and world-class infrastructure. We treasure and strive hard to maintain and strengthen these valuable attributes which have contributed to the development of Hong Kong as an international financial centre, a major logistics node and a trading hub.
During the past ten years, we have gone through some difficult times, including the avian flu, the Asian financial turmoil, SARS, and the resultant economic downturn. Through concerted efforts, we have together overcome these challenges, one after the other. Following some adjustment after the hard hit of SARS, Hong Kong's economy has now picked up and gathered strong momentum. GDP expanded briskly by 6.8% in real terms in the last quarter, marking the 12th consecutive quarter of above-trend growth. Merchandise exports regained vigor, service exports sustained robust growth, and domestic demand continued to display strength. Meanwhile, consumer price inflation remained moderate. With sustained economic expansion, the seasonally adjusted unemployment rate went down to a 64-month low of 4.5% in the last quarter.
In about half a month's time, we will be entering into a memorial year for Hong Kong - the 10th anniversary of the establishment of the Hong Kong Special Administrative Region. It's an opportune time for us to reflect on our experiences and to chart our course to better prepare for the challenges ahead.
Building up closer economic relationship with the Mainland will remain a key feature in Hong Kong's development in the coming years. Hong Kong is unique in its geographical proximity with the Mainland and its operation under the "One Country, Two Systems" formula. This distinct and close relation was further cemented after the signing and implementation of the Closer Economic Partnership Arrangement (CEPA).
CEPA opens up huge markets for Hong Kong's goods and services, ahead of and beyond China's commitment in the WTO. It gives manufacturers and services providers in Hong Kong an envied edge in seizing the opportunities arising from the increasingly affluent Mainland markets. As at 1 July this year, more than 1 400 Hong Kong made products enjoy zero tariff, while 27 service sectors enjoy preferential treatment when entering the Mainland market. We will continue to work closely with the Mainland authorities to enrich the content of CEPA and to ensure its smooth implementation. We build the framework for businessmen like you to realise its potential.
Hong Kong's investment in the Mainland used to focus on outward processing. As the Mainland economy booms and with rapidly rising consumer spending, Hong Kong's investment has gradually diversified into many other sectors and expanded beyond the Pearl River Delta area. Opportunities are abound. And so are the challenges. How to best grasp the opportunities arising from an increasingly opening up and affluent Mainland market will be the challenge ahead.
It has been said that Shanghai is quickly catching up and posing as a threat to Hong Kong. Well, so may other Mainland cities. Competition is in fact no stranger to us. Hong Kong has survived, and thrived, on competition. It enhances economic efficiency, benefits consumer welfare, and brings progress and improvement. What Hong Kong's entrepreneurs impress me most is not their ability to rise above challenges, but their ability to seize the opportunity and make the best use of the complementary strengths of all parties concerned. In so doing, they are developing superior business models and creating win-win situations for all.
I am a staunch supporter of competition. But I also believe that given the huge size of the Mainland market, it could well accommodate more than one financial or logistics centre. As the Mainland economy continues to open up and develop, we will all stand to benefit. The important thing is to ensure that Hong Kong retains its competitiveness and attractiveness in the medium to long term. This is something that the Government and the business sector need to continue to work hard on.
With this in mind, the Government held the Economic Summit on the 11th Five-Year Plan in September to explore proactively the opportunities and challenges presented to us by the Nation's 11th Five-Year Plan. We need to analyse carefully what role Hong Kong should play in the development of the national economy and how we can contribute to and benefit from implementation of the plan.
The Economic Summit has generated a lot of stimulating thoughts. After the Summit, four Focus Groups are continuing with the work. They have studied in greater details how we can maintain Hong Kong's status as an international financial centre, trade centre and shipping centre. In particular, they are considering what additional initiatives are needed to further promote Hong Kong's further development in tourism, IT and other services, professional services as well as innovation and technology. I know many of you here have taken part in different ways in the work of these Focus Groups. We sincerely hope that with contributions from the business sector, experts and academia, the Focus Groups will put forward innovative ideas so that we can collectively chart the best course forward for Hong Kong.
Hong Kong is positioning itself as the best two-way platform for overseas investors accessing the Mainland and rest of the region - and for Mainland companies looking toward regional and global expansion. To this end, we need to strengthen our economic ties with the Mainland as well as with other major economies. Maintaining a high inflow of Foreign Direct Investment (FDI) is our key target and I am pleased to report that Hong Kong has been doing very well in this. Overseas and Mainland companies have been increasing their investment in Hong Kong over the past few years. FDI coming into Hong Kong last year totalled US$36 billion, which ranks us second in Asia and 6th in the world. FDI inflows remain robust this year. In the first half of 2006, inward FDI to Hong Kong amounted to almost US$21 billion.
Hong Kong is also keen to attract enterprises from the Mainland and abroad to come here to set up regional operations. We are now home to more regional headquarters and regional offices than anywhere else in Asia. As at 1 June this year, there were 3 845 such regional operations established by overseas investors. On average, there is a new regional headquarters or regional office set up every week by foreign-owned companies in Hong Kong.
Many of these companies - including many represented here today - bring in new skills, products and services, and job opportunities that contribute substantially to our economic development and competitiveness. Yet, we cannot and will not be complacent. We are well aware of the keen competition for investment in the region, and the need to continue to improve the business environment in Hong Kong to enhance our position further.
Other than economic development, creating a sustainable environment for our future generations is also a major challenge facing us. Roadside air pollution remains at high levels and is a concern to many of us. Hong Kong deserves and can afford a better environment. There is a strong consensus in the community on the need to take decisive measures to better protect and improve our environment. The quality of our living environment is also becoming an increasingly important factor affecting how good Hong Kong could continue to attract and retain investors, professionals and talents.
Pollution knows no geographical boundaries. So we have been working closely with the Guangdong Provincial Government to reduce emissions of four key pollutants, namely sulphur dioxide, nitrogen oxides, respirable suspended particulates, and volatile organic compounds in the Greater Pearl River Delta. The results are encouraging. Except for sulphur dioxide, the major air pollutants emitted in Hong Kong have been on a downward trend. The number of days of the Air Pollution Index exceeding 100 decreased from 87 days in 2004 to 49 days in 2005.
But Government effort alone is clearly not good enough. The challenge is for the whole community to adopt environmental stewardship at all levels. It is imperative that Government, businesses and all Hong Kong people should work together in protecting and conserving our environment for the enjoyment of the present and future generations. Don't think that the problem is so big that it is beyond anyone of us. There are certainly things that we could all do or avoid doing at individual, company and community level to help protect the environment. Changes can be made at home, at work or in schools. Just imagine, if companies put more weight to environmental performance in their procurement guidelines, if more consumers make buying decisions based on how a product is manufactured - they will certainly make a difference and create the necessary incentive for change.
Ladies and gentlemen, I have just outlined some of the challenges lying ahead. The Summit today provides an excellent occasion for a more focused discussion and exchange of views. May I wish the 13th Annual Hong Kong Business Summit a great success and an early Merry Christmas to all of you!
Thank you very much.
Ends/Thursday, December 14, 2006
Issued at HKT 10:32
NNNN