Following is a speech entitled "Hong Kong 10 Years On" by the Financial Secretary, Mr John C Tsang, at the Weatherhead Policy Forum at the Columbia University, New York City, USA on October 18 (New York time):

Distinguished Guests, Ladies and Gentlemen,

     Good afternoon, I would like to begin with a “thank you”, and perhaps an apology.

     First of all, thank you for inviting me here. Back when I was a young lad – or should I say, a younger lad – I was a student at Stuyvesant High. In those days it was still located on 15th Street. Columbia was uptown stuff, and a world away from St Mark’s Place where I used to live. So, it is an honour and a pleasure to have been asked to speak with you today; and a special personal moment for a guy like me who was educated in this neck of the woods but never quite made it as far as these hallowed halls.

     Second, the apology, or maybe not so much an apology, but an acknowledgement that I won’t be able to generate as much academic debate as one of your recent guests. Foreign affairs is not within the ambit of Hong Kong’s autonomy – that is squarely the responsibility of our sovereign government. But what happens in the Middle East does affect the rest of the world. And, as an individual, I share the fervent hope that all people in this world, regardless of race, colour or creed, can peacefully co-exist with one another.

     In its own small way, Hong Kong does matter to the rest of the world. That’s what I’d like to talk about today. I want to explain why Hong Kong matters. I want to explain how Hong Kong has fared in the 10 years since our reunification with China. And I want to explain Hong Kong’s role in the broader context of China’s continued opening up and reform, and engagement with the world.

     Our tiny city of 7 million has, for many years, punched above its weight in the global arena of trade and finance. Last year, for example, we were Asia’s largest market for IPOs, and eclipsed New York as the world’s second largest IPO market behind London. For three decades we have been the preferred international gateway for corporate engagement with China. Hong Kong business people have contributed enormously to the rapid development and modernisation of our country. They have been, and remain, the largest single investors in our country, accounting for some US$273 billion, or 40%, of all the realised direct investment in China.

     In tandem with that role, Hong Kong has emerged as the preferred base for international companies managing their operations in Asia – the largest single group are American companies, which account for almost 25% of the 3,900-odd international companies with regional operations in Hong Kong. So, we are a capital base and a knowledge bank for our country and the region.

     Hong Kong is also an interesting case study of the benefits of economic freedom. The Heritage Foundation, as well as the Fraser Institute and the Cato Institute, have consistently rated Hong Kong as the world’s freest economy, in their own separate studies, for well over a decade.

     Economic freedom starts with a mindset – we believe in the primacy of the market, the wisdom of individuals to do what’s best for themselves, and the need for a gentle but helping hand when it comes to governance.

     This mindset has its genesis in, and is reinforced by, institutional software that nurtures and protects freedom. The rule of law upheld by an independent judiciary. A level playing field for business. A clean, efficient administration. The free and unfettered flow of news and information. Freedom of speech. Freedom of assembly and association. Freedom of belief. These are our core values.

     Building on this institutional software are policies designed to help create wealth, and let people decide for themselves how best to spend that wealth. Low taxes – our personal tax rate at the moment is 16% but we plan to cut that to 15% from the next financial year. Companies at the moment pay only 17.5% in profits tax, but we also plan to cut that by one percentage point next year. No capital controls. No capital gains tax. No withholding tax. No sales tax or VAT. No death duties. No restrictions on foreign investment. And, we are a duty-free port.

     What has economic freedom given Hong Kong? If we look at hard data we will find a per capita GDP of about US$27,500. Our fiscal accounts generally return surpluses. We have accumulated considerable fiscal and monetary reserves. This has provided us the resources to provide world-class and affordable health care for our residents. We have one of the world’s lowest rates of infant mortality, and our citizens are near the top of global longevity tables. We have the resources to provide a sound education for our children, and we have just recently announced plans to provide 12 years of free education compared to the current commitment of nine years free education. We have been able to invest in infrastructure that generates economic activity – our road, rail, port and airport facilities are also amongst the best in the world. The result is a modern and efficient metropolis that provides a high standard of living for our residents. And because we are a duty free port, our people, literally, have a world of choice when it comes to goods and services.

     We have also been able to invest considerably in law enforcement – the Police, Customs, Immigration and anti-corruption agencies all enjoy high public acceptance and approval in Hong Kong. We have a high police-to-population ratio, which makes us one of the world’s safest large cities. And, we play our role as a global citizen in the fight against drug trafficking, organised crime, money laundering and terrorist financing.

     At a deeper level, economic freedom has helped instil other core values into our community – values that we cherish and protect. Pluralism, tolerance, respect, acceptance. Hong Kong is a predominantly Chinese society, but we have a big international community – more than 500,000 foreign passport holders live in our city. There is rarely – and I mean very rarely – any racial trouble in Hong Kong. Religious intolerance is anathema to us. Random violence is uncommon, as is vandalism. Because people of all races exist peacefully and happily together, we all benefit as a result. One of the great things about Hong Kong is that we celebrate Eastern and Western festivals with equal gusto. Because of our eclectic mix we can appreciate the significance of Ramadan to our Moslem friends; we can join our Indian residents to celebrate Diwaldi; when the Christian community celebrates Christmas, our Jewish friends will be saying Happy Hanukkah! Buddhist, Taoist, Hindu, Sikh – whatever your calling it makes no difference to people in Hong Kong. We are united by our humanity, and enjoy the richness that diversity brings.

     Now, there is a special reason why I mention all of this. And that’s because this year Hong Kong celebrated its 10th anniversary as a Special Administrative Region of China.

     In 1995, Fortune Magazine famously predicted, in a cover story, the death of Hong Kong after our reunification in 1997. This year, the magazine conceded their mistake, though in not such dramatic terms. The magazine said, and I quote: “Oops … ten years after the handover … Hong Kong is far from over, and hardly dead. What’s clear is that economic concerns have won. To paraphrase American writer Mark Twain: ‘Reports of Hong Kong’s death have been greatly exaggerated’.” End Quote.

     There was considerable international media coverage on Hong Kong in the runup to the 10th anniversary on July 1 this year. The media love anniversaries. Much of the coverage was pretty positive, and mirrored the more recent Fortune snippet I have just shared. That is, nobody really knew what to expect after July 1, 1997. But, the general consensus today is that things have gone fairly well; that Hong Kong’s economy is booming; and that Hong Kong now has a much clearer role in China’s development – with the enormous opportunities that presents – and is on much firmer footing as a co-ordinator of global commerce and finance in the Asian time zone. In other words, the future looks bright.

     All of that development over the past decade has been within the context of ‘One Country, Two Systems’, that is, our country’s guiding principle on how to absorb a capitalist Hong Kong into the socialist system practised in the Mainland of China. Giving effect to that principle is our constitutional document, the Basic Law. The Basic Law is a national law of China and guarantees our way of life and freedoms for at least 50 years until 2047.

     Since 1997, our national government has wholeheartedly honoured its commitments to Hong Kong, and I know it will continue to do so. Our national leaders have also been extremely supportive of Hong Kong’s development – over the past decade they have introduced national policies and initiatives that benefit Hong Kong’s economic development, and reinforce our dual roles as a major city in China, and as a global city in Asia. I know that this policy commitment to Hong Kong will also continue.

     For those with a deep understanding of China and Chinese culture, there was never any doubt that Hong Kong would face a bright future following reunification. The reason is simple: we are all part of the same family. The family is the core value of Chinese culture. It doesn’t matter that Hong Kong grew up with foster parents. It doesn’t matter that our way of life is distinctly different. What matters is that we share the unbreakable bonds of blood and culture. Now, that might sound a bit dramatic but it really does describe the relationship between Hong Kong and the Mainland under ‘One Country, Two Systems’.

     There are several good examples of how this has worked in practice since 1997.

     Under the Basic Law, Hong Kong remains a separate member of international organisations and fora such as the World Trade Organisation, the World Customs Organisation and APEC.

     In 2003 – two years after China’s accession to the WTO – we signed a free trade pact with our sovereign – what we call a Closer Economic Partnership Arrangement, or CEPA for short. This agreement gives supra-WTO access to the Mainland market for Hong Kong manufactures and services. But because we have a level playing field for business, CEPA is nationality neutral. That means international companies based in Hong Kong can make use to CEPA to get enhanced access to the Mainland market.

     Apart from boosting Hong Kong’s attraction as an international business platform for the China market, CEPA also benefits the Mainland, particularly in the services sector. The enhanced access has helped the Mainland to upgrade its services sector more quickly. It has also allowed it to experiment with reforms in key sectors such as financial services, banking and legal services. For example, capital requirements for banks gaining access to the Mainland market under CEPA are considerably less than China’s original WTO commitment. Hong Kong has also been used as a testing ground for the internationalisation of the RMB. In fact, the enhanced access in 38 services areas will help to reform and upgrade the Mainland’s services in a step-by-step manner.

     Leveraging CEPA is another initiative, what we call the Pan-PRD grouping. This brings together the nine southern provinces of China plus the two Special Administrative Regions of Hong Kong and Macau. This grouping has a combined population of 470 million people – that’s about the same size as the EU or ASEAN. And it’s all in one country. This is really the first step by our national leaders to forge a common market within our country. CEPA aims to break down these barriers to trade and investment by allowing everyone to play to their strengths. Hong Kong’s role is as a knowledge bank, a reservoir of experience in the services sector, and in international financial services.

     So, CEPA provides a national framework for enhanced access, while Pan-PRD provides a further opportunity for increased and more focused engagement within a massive catchment area. Our goal – our nation’s goal – is for Hong Kong to a sit alongside New York and London as truly world cities that co-ordinate global economic activity.
 
     Ladies and gentlemen, one last thing I want to touch on has a direct bearing on whether Hong Kong can attain this goal. That is, the development of human capital.

     Major cities around the world are competing for talent like never before. Hong Kong is no exception. Last week, our Chief Executive Donald Tsang unveiled new measures to enhance Hong Kong’s attraction as an education hub in Asia. One of the things we want to do is make it easier for talented students – students such as yourselves – to study in Hong Kong, and then to find work in Hong Kong after you graduate.

     Hong Kong’s economy is the best shape it’s been for years. This if course, is on the back of the stellar growth in the Mainland. I am convinced that the continued emergence of our country on the global stage will have a profound impact on the world over the next few decades. Hong Kong will have a ringside seat and a special role to play in that process.

     I would like to encourage any students here with an interest in Asia to seriously consider coming out to Hong Kong to take a look. You will find the free, open and pluralistic society that I have spoken about. When you travel to China you will find that the people there are really no different to you or me. They share the same dreams and aspirations that you do – to make a good living, to raise a family, to improve themselves, to live peacefully and happily with other nations.

     America has a long history of engagement with the East – your generation will be the ones to take that relationship to a new level in the next 10 or 20 years. A China embraced is a nation of grace. It is certainly my hope that Sino-US relations can develop peacefully and with mutual respect. That will be good for you. It will be good for my country, China. And, of course it will be good for Hong Kong.

     Thank you very much.

Ends/Friday, October 19, 2007
Issued at HKT 11:50

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