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Following is the speech delivered by the Financial Secretary, Mr John C Tsang, at the Economic Freedom of the World and The Lion Rock Institute Gala Dinner at the Harbour Grand Hotel last evening (November 6):
Bill (William Stacey), distinguished guests, ladies and gentlemen,
Good evening.
I am delighted to join you all this evening for the "Lion Rock Institute Economic Freedom of the World Annual Dinner" and congratulations to the 10th Anniversary.
It is always a great pleasure for me to speak with people who appreciate the strength of economic freedom; people who understand the importance of free-market principles; people like Siegfried of the Friedrich Naumann Foundation; people like Fred McMahon of the Fraser Institute. Great to have you here with us again, Fred. As you know, Fred runs the Fraser Institute's global network, among other things.
Indeed, this is an important and opportune moment for me, the Financial Secretary or perhaps today the Acting Chief Executive of Hong Kong, to thank the Fraser Institute, on behalf of the people and the businesses of Hong Kong for bestowing on us again the honour of being the world's freest economy. I am proud to add that Hong Kong has held the number-one rating every year since the Institute's first Economic Freedom report came out back in 1996. The report tells us what we have done right. It also offers timely and valuable insights into areas on which we need to work harder if we are to reap even more of the benefits that economic freedom can bring to us in Hong Kong.
The importance of applying the free-market philosophy to the formulation of Hong Kong's economic policies cannot be over-emphasised. For us, economic freedom is our core value, the linchpin of our success and the formula of our global competitiveness. Today, amid increasing interdependence in the globalised world among economies, which in some ways, unfortunately, is driving our decision makers towards a new normal - a new normal with less freedom and more regulation. The less competitive economies of the world are urging multi-national organisations to enforce the implementation of hugely burdensome and rather imposing initiatives in the post-Lehman era, raising the level of inefficiency for everyone in an effort to equalise the world of competition. That is why spreading the gospel of economic freedom has become even more important now than ever.
Hong Kong is a small and open economy. We rely, heavily, on international trade. Inevitably, that reliance makes us susceptible to external shocks. Our steadfast commitment to free-market principles has indeed guided us through a variety of challenges and crises over the years. It does so by enabling market forces to bring about fast and efficient adjustments to our economy. That's economic freedom at work. It is not an exaggeration to say that economic freedom has been the cornerstone of Hong Kong's economic stability, growth and prosperity.
So, what do we mean by economic freedom? Fred has just mentioned, in the Fraser Institute's own words, "personal choice, voluntary exchange, freedom to enter markets and compete, and security of the people and privately owned property" are the essentials of economic freedom. Accordingly, the Institute measures economic freedom in five broad areas: legal system and property rights, regulations, freedom to trade internationally, access to sound money, and size of government.
Those elements should be familiar to everyone here, familiar because they are in perfect alignment with our own free market principles and governance philosophy. Let me share with you tonight my thoughts on how Hong Kong is faring in these five areas.
First, the legal system and property rights, or more broadly speaking, the rule of law as Fred has just mentioned. It is the foundation of modern society, the key element for the smooth functioning of markets. We do take pride in the fact that the rule of law is firmly established here in Hong Kong, and that it enjoys support throughout the community.
The rights and freedoms of all - individuals, businesses and organisations - are explicitly guaranteed in our constitutional document, the Basic Law. Private property rights, including intellectual property rights, are also well protected in Hong Kong. These rights have been made possible thanks to our own concerted efforts in formulating legislation, in law enforcement as well as in public education.
Judicial independence is also guaranteed by the Basic Law. It has been - and will always be - rigorously upheld. In particular, the Judiciary of Hong Kong is free from intervention of any kind by our Administration or our Legislature. And the Basic Law provides clear rules concerning the appointment and removal of judges as well as the appointment of senior judges from other common law jurisdictions to sit and make judgments on cases in our own Court of Final Appeal. That is something unique. That no other jurisdictions have the same kind of arrangement.
The continuing protests in the past few weeks in Hong Kong have raised some concerns about our rule of law. Let me take this opportunity to share my views with you. The continuing protests clearly demonstrate the freedom of speech, freedom of assembly and other fundamental human rights are protected here and are protected by the Basic Law. We shall uphold the rule of law relentlessly because it represents our core principal and serves as the cornerstone of Hong Kong's prosperity. Moreover, our vocal and unfettered media, many of them are present here today, have always been a powerful guardian of our rule of law. They articulate their concerns without fear or favour over any apparent sign of deterioration in this area.
As to those who have been challenging the rule of law by charging the cordon line and ignoring the court injunctions in the name of civil disobedience, we shall in our usual way follow the due process in dealing with all the individual case concerned after collecting the necessary evidence.
The second area is regulation, which goes hand-in-hand with the rule of law. Without the rule of law, regulations cannot be effectively enforced, no matter how well-deliberated and how business-friendly they are. In this regard, I am pleased to note that the Institute's 2014 report ranked Hong Kong first, once again, in this area.
Hong Kong has always provided a secure and predictable regulatory environment, and a level playing field, for local and overseas companies alike. We are a faithful practitioner of the nationality-neutral principle. We treat everyone, every business, every organisation the same way, regardless of their nationality. We apply the same rules and same regulations to everyone alike. We allow everyone to enjoy the same privileges accorded by, for example, our free trade agreements and other international agreements. We operate a true level playing field, unlike other jurisdictions in our region.
We are continuing to improve our regulatory environment. Under our "Be the Smart Regulator" Programme, we promote business efficiency by cutting red tape, eliminating outdated and burdensome regulations, enhancing regulatory efficiency and transparency, and reducing business compliance costs.
Let me give you an example: we have designed a one-stop, online electronic service for company incorporation and business registration that can actually issue both of these certificates to an applicant in just 15 minutes. This is almost equivalent to the speed of Usain Bolt.
Our labour-market regulations are another example of how carefully we formulate economic policies. The statutory minimum wage, which, I believe, many of you think is totally unnecessary, came into effect in May 2011. We have been able to strike a delicate balance in the implementation of this policy. To date, the policy has been successful in forestalling excessively low wages and in helping the vulnerable, while preserving Hong Kong's virtually full employment. We may have been fortunate in introducing this policy during an up-cycle, if you really think the past few years can be so considered, but we are also mindful of the longer-term impact of minimum wage on labour-market dynamics, particularly during times of less vibrant economic performance.
Moving on to cross border trade. Even though the benefits of trade have been known since the times of Adam Smith and David Ricardo, protectionism continues to prevail, and continues to be a barrier to international trade. Our inability to conclude the Doha round with the implementation of the Bali agreement, which I think is basically a modest collection of facilitation measures, is a good example of how far some economies will go to obstruct free trade in order to protect their own national interests by leveraging on the welfare of the least developed economies. This is unacceptable and will ultimately damage the credibility as well as the effectiveness of the WTO, which is now the only multi-lateral trade organisation left.
To this end, I can proudly say that we remain a staunch supporter of free trade and open markets. A free port, Hong Kong imposes no tariff on exports or imports. We do not exercise any form of capital control, and we have no restrictions on the flow of information.
Thanks to our institutional strengths and geographical location, Hong Kong has been able to provide an unmatched environment for conducting international business. And that, together with the Mainland's rapid development, has enabled us to become a leading trade, business and services hub.
Consider the following. In 2013, our trade in goods and services totalled some 460 per cent of our GDP. That placed us among the world's top economies in terms of openness to trade. More than 7,000 overseas companies operate in Hong Kong. About 4,000 of them use Hong Kong as their regional headquarters or regional offices. This underlines Hong Kong's high degree of freedom to engage in international trade and our openness to foreign investment.
On to "sound money". We have fared less well in this area of assessment, given the criteria that the Institute has employed and the monetary system that has worked effectively for us in the last three decades. I do not want to dispute the fine points of these criteria, but I feel that the assessors should give greater consideration to our highly successful monetary system, which has brought a lot of stability to Hong Kong.
Under the Linked Exchange Rate System, prices and domestic costs in Hong Kong adjust quickly in aligning our macroeconomic conditions with external changes. This reflects, in a positive way, our economy's price flexibility, which allows for efficient adjustments in our macro-fundamentals to stay in sync with the ebbs and flows of global business. Thanks to our long-standing, transparent, rule-based currency-board system, Hong Kong is blessed with one of the world's most consistent and effective monetary policies.
Finally, let us look at the size of government. We believe in the efficiency of the private sector. We believe that the government should leave sufficient room in the economy to allow the private sector to flourish. Hong Kong has chosen to limit the size of government to accomplish this objective. We believe that, by keeping the public sector small, more resources in our community can be taken up by the private sector, the latter being more flexible and has the uncanny ability to allocate these limited resources in a more efficient manner.
Hong Kong has a simple tax system anchored by a low tax rate. Our maximum salaries tax rate is 15 per cent, while our profits tax rate is a flat 16.5 per cent - both among the lowest in the world. A simple, low tax regime minimises decision-making distortions made by companies and individuals; it also helps keep compliance and enforcement costs low.
Given our commitment to low tax rates, we need to conduct our fiscal policies with prudence. Hong Kong is virtually debt-free, with government debt at just 0.5 per cent of GDP. The debts issued in recent years under the Government Bond Programme are of my making. I need to take responsibility of that. But they are not intended for the financing of further government spending, but for promoting the development of the local bond market. We have been able to invest the money raised through the Bond issuances and keep them away from the sticky fingers of our Legislative Councillors. The rewards and the returns that we are getting will be used for worthwhile projects in the future.
Our recurrent government expenditure has remained steady over the past five years, at about 13 per cent of GDP. This low level of expenditure reflects, in part, our determination to maintain rationality and pragmatism in our policies, and not fall prey to calls for politically motivated populist measures.
We have focussed instead on fostering a favourable business environment. For Hong Kong, that means creating employment opportunities, while providing a social safety net for people who are genuinely in need. The fact that we have been able to maintain full employment in our community, currently at 3.3 per cent, and social welfare spending has continue to account for only a small share of total government expenditure in recent years are clear signs that that our policies are working effectively.
Some of you may have noted that our government expenditure related to infrastructure investment has increased in recent years. I believe that infrastructure spending, when used appropriately, represents investment that can reap significant benefits by enhancing Hong Kong's productive capacity in the longer term. It is also a useful tool to stimulate the economy during a slow down period. It is clearly the result of fiscal prudence that we have the choice and the resources to support such infrastructure spending and to roll out counter-cyclical measures to stabilise the economy when it became necessary.
Despite our solid fiscal position, we are not complacent. As mentioned, I set up a Working Group on Long-term Fiscal Planning last year. Its purpose was to assess our fiscal sustainability, given the immense challenges posed by Hong Kong's low fertility rate and aging population.
Since the release of the study's report, I have also rolled out a series of expenditure-control measures, with the aim of re-engineering and re-prioritising government department spending initiatives to help maximise the effectiveness and efficiency of our public services.
In short, Ladies and Gentlemen, our commitment to the free market is absolute. We value, and we take pride in, Hong Kong's number-one ranking in the Fraser Institute's economic freedom index. Thank you very much. But more importantly, we need to sustain and protect the market institutions that have been working effectively in Hong Kong. We need to remain committed to our core values. We need to protect these core values and there are no shortcuts to developing, and maintaining, a genuinely free economy. We are in it for the long haul, rain or shine, for the long term benefit of the people of Hong Kong.
Thank you very much.
Ends/Friday, November 7, 2014
Issued at HKT 00:21
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