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B. Turning Crises into Opportunities
16. Hong Kong is a modern international city and a sophisticated capitalist market economy. It has always been a great challenge to achieve sustained prosperity, good governance, social harmony and quality living.
17. The first major challenge we now face is the severe external economic environment. The financial turmoil triggered by the US subprime crisis continues to deteriorate, with a fall in asset prices, a near-frozen credit market, and a number of major international financial institutions running into difficulties. The crisis has spread to Europe, and it seems the worst is yet to pass. As they bear the brunt of the financial turbulence, Europe, the US and other developed economies are verging on recession. Here in Hong Kong, economic growth declined noticeably to 4.2% in the second quarter. We expect the economy to slow further. As a small, open economy and a global financial centre, Hong Kong is not immune to the impact of this financial tsunami. Some investors in Hong Kong have suffered losses from a derivative product, referred to as Minibonds, issued by the US investment bank Lehman Brothers, while rumours triggered a fleeting run on a local bank.
18. The financial tsunami we now face is a global crisis. Its destructive force is much stronger and more widespread than the Asian financial turmoil in 1997. The recovery will take longer, be more difficult and certainly cannot be taken lightly. That said, our financial infrastructure is more robust than it was in 1997, having matured a lot from the opportunities seized and the experience we - me and my financial team included - all gained from the previous crisis. Although the current financial tsunami has not caused systemic damage to our financial market, we will not underestimate its impact, nor flinch from meeting the challenges, nor rest on our laurels. We must get the job done.
19. To meet this major challenge, Hong Kong people should stand united in vigorously pursuing economic development. The Government will implement the major infrastructure projects and development strategies to reinforce our role as a global financial centre. We have no plan to cut back public expenditure on infrastructure and social services for the disadvantaged. At the same time, we will uphold fiscal prudence and the concept of "Big Market, Small Government".
20. As the financial tsunami has yet to recede, it is impossible at this stage to ascertain its adverse impact on both our and the global economy. To prepare for the challenges ahead, I will soon establish and chair a task force to continually monitor and assess the impact of the financial tsunami on local and global markets, and provide timely evaluation of its impact on the local economy and our major industries during this trying period. More importantly, the task force will propose specific options for the Government and business community to address the challenges. This will help us overcome the crisis, turn it into new business opportunities and enhance our competitiveness. Members of the task force will include top government officials, finance experts, economists and representatives of major industries.
Reinforcing Our Position as a Financial Centre
21. The financial turmoil has given rise to a series of questions: Will a new global financial order emerge? Can the existing regulatory regime cope with developments in the global financial market? How should we chart Hong Kong's development as a global financial centre?
22. Enhancing our status as a global financial centre to help the economy power ahead is a well-considered strategy. In the face of global financial volatility, we need to keep calm and take a critical look at our own strengths and weaknesses. By so doing we can move in the right direction and reinforce our position as an international financial centre.
23. Hong Kong boasts a sound legal system, a free flow of capital and information, a large pool of financial talent and a vibrant economy. All these underpin our status as a global financial centre. Meanwhile, the economic development as well as the reform and opening up of our country have presented new opportunities for a broader and deeper financial market. We have much to offer in supporting our country's rapidly expanding and increasingly internationalised economy. Hong Kong is the only Chinese city in the same elite league as the global financial centres, London and New York. Building on this solid foundation, we will look for opportunity amidst this financial tsunami, and tap into emerging markets to consolidate our financial sector as an important economic pillar.
(To be continued)
Ends/Wednesday, October 15, 2008
Issued at HKT 11:23
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