The following is a translation of the opening remarks made by the Chief Executive, Mr Tung Chee Hwa, at the Provisional Legislative Council meeting today:

Madam President, Honourable Members,

It is a great pleasure for me to be here at this Provisional Legislative Council meeting at the start of a new year to speak to you on matters which cause us much concern. Recently, we have witnessed a string of events, in particular the tension which has once again mounted in the Asian financial markets, leading to negative repercussions on Hong Kong. I would like to take this opportunity to share my views with you specifically on Hong Kong's economic and financial situation.

Following another round of financial turbulence in the Asian markets over the past one or two weeks, general market sentiment has turned into one of deep pessimism. The financial crisis which hit the Asian markets so unexpectedly in the past six months has engulfed many economies and regions. Despite our strong fundamentals and stable monetary system, Hong Kong was also caught in the maelstrom, suffering heavy setbacks as a result. Our financial market and the entire economic system have been put to test while the people of Hong Kong are enduring great hardships. Although the crisis is hopefully near the end, there may still be some ripples, so it is vital that we remain on the alert at all times.

On analysis of the several countries hardest hit by the financial turmoil, both financial and non-financial experts have come to more or less the same conclusion. In their opinion, all these countries share some marked characteristics : mainly an overborrowing of foreign loans; particularly short-term loans; lack of an accurate estimate of the return on investment; an inadequate monitoring system for the banks; and ineffective macroeconomic management. These fundamental weaknesses, which should have been rectified in the first place, have been taken advantage of, by speculators. Consequently, the Asian financial market is hit by a catastrophe.

Our economic and financial fundamentals are strong. Hong Kong has a sound and effective financial monitoring system; ample fiscal reserves as well as prudent financial management policies. The Government is free of any foreign debts. Private firms also exercise financial prudence when seeking foreign loans. In spite of these, speculators have stirred up trouble in our stock and futures markets and challenged our determination and ability to maintain the local currency's link with the US dollar. Hence, our linked exchange rate system and even the entire financial and economic system are being put to severe tests.

In the face of this financial situation, the SAR Government's most important task at hand is to take firm and resolute measures to safeguard the stability of Hong Kong(s economic system. To achieve this, it is vital for us to defend the linked exchange rate, and the SAR Government is determined to do so. This is a basic policy to maintain the economic stability and prosperity of Hong Kong. Our sound economic foundation, huge fiscal reserves and effective financial systems and monitoring mechanism are abundant proof of our capability to maintain the currency linkage. The alarming events in some of our neighbouring countries have only served to make us stand firm in defence of the dollar peg. Failure to do so will bring disastrous consequences.

In the course of defending the linked exchange rate system, the following situations will undoubtedly arise - Hong Kong dollar interest rate goes up; property prices come down; the stock market lingers at low levels; our tourism is in the doldrums; the consumer spending sentiment diminishes; our economic growth in 1998 will slow down significantly, and our unemployment figures will be on the rise. If the external uncertainties do not clear up as soon as possible, there will be difficult times for all of us in 1998. The SAR government is well aware of the sufferings of the people and the troubles they encounter in the current financial turmoil.

However, we should also look at the other side of the coin. In recent years, our economy has been confronted with a number of disturbing problems, such as soaring property prices, rapidly increasing salaries, economic restructuring that has a negative impact on our economy and sustained inflation rate over those of Europe and the United States. If we keep our hands off these problems, then Hong Kong's competitiveness and economic vitality as well as the interests of every member of the public will inevitably be undermined. Against this perspective, the economic adjustment that comes as a result of the recent financial turmoil has certain positive effects on our economy : the decline of property prices and the slow-down of salary adjustment and inflation will enhance our competitiveness and be conducive to the long-term healthy economic development of Hong Kong.

We are very much concerned about the sufferings sustained by the Hong Kong people as a result of the recent financial turmoil and our policy of upholding the linked exchange rate. Nevertheless, I firmly believe that with the solid foundation of our economy and the strong and rapid economic development within our country, Hong Kong will surely be the first to get back on its feet after the Asian financial turmoil. At present, our economy is undergoing a period of adjustment. In a free market economy, it is difficult to find a ready solution that would bring immediate relief to the problems we now face. However, we do have huge fiscal reserves, with which the SAR Government is able to stabilize Hong Kong's economy and defend the currency linkage, while pushing ahead with the massive infrastructural development as firmly stated in the "Policy Address". In fact, since the outbreak of the financial turmoil, the government has been actively seeking other possible measures to strengthen the economy vitality, and to weather through the hard times with all the people of Hong Kong.

I am aware that many Councillors present today are deeply concerned about the housing problem in Hong Kong. I would also like to take this opportunity to reaffirm the Government(s position - we do not wish to see the property prices in the territory soar; neither do we wish to see our property market collapse. In fact, real estates are very important pillars of Hong Kong's economy and for many people, these are their life. Property prices affect the stability of the banking system to a great extent. The Government is therefore paying close attention to the development of the property market, particular at this time.

To view our society as a whole, I hope that all residents of Hong Kong will, at these difficult times, take a look at the achievements we have made so far and the competitive edge we have in development. The problem we are now facing is nothing but to find the way to overcome the temporary difficulties confronting us and keep moving ahead to reach new heights. As what I said a moment ago, the Asian financial turmoil has placed obstacles in the course of our development. Yet, the foundations on which Hong Kong is firmly based are hardly shaken. Instead, the financial crisis provides us with an opportunity to speed up our adjustments for improvement. All the advantages that we had prior to the financial crisis are still with us. The forecast of the relevant government department reveals that our economy will continue to grow in 1998 despite the marked economic slow-down in the territory. We have no reason to lose confidence of ourselves, nor have we any ground to believe that Hong Kong will never be able to scale new heights. We maintain a very optimistic attitude towards Hong Kong's inherent strengths as well as its resilience in adapting itself to unfavourable circumstances. We should remember in particular that upon the smooth return of Hong Kong to China on 1 July 1997, we have become masters of our own home and have successfully implemented the "one country, two systems" concept. We should rejoice over and take pride in these great achievements. On no ground shall we allow our lofty spirit be dampened by a financial crisis. The Central People's Government has great confidence in Hong Kong and believes that we are able to administer Hong Kong properly under the principle of "one country, two systems". Given the trust of the Central People(s Government as well as that of the entire nation, there is no reason for us not to trust ourselves.

Besides, I do hope that the more difficult our situation becomes, the more strongly shall we stand united and the more need do we have in building a community of great harmony and cooperation. This is the primary foundation of support we count on to surmount difficulties in adverse situation and to rise to challenges. I hope that my administration, members of the Council as well as the whole community will work together to build a harmonious and cooperative society.

Thank you. Questions from you are all welcome.