Hong Kong and Japan are on the threshold of a new era in economic partnership, the Chief Executive, Mr Tung Chee Hwa, said today in Tokyo.

Speaking at a luncheon attended by 700 business, trade, tourism and community leaders, Mr Tung said: "It is time to rethink the scope of the Japan-Hong Kong partnership. To think bigger.

"The broadening of the economic partnership between Japan and Hong Kong will benefit not just our own people. It will, in my view, be a powerful force for stability, prosperity and peaceful co-operation in the entire region as the new century unfolds."

Mr Tung highlighted the already strong links between Hong Kong and Japan, noting the presence of 3,000 Japanese companies and close to 25,000 Japanese expatriates and their families in Hong Kong.

"Japanese products and department stores, like sushi and karaoke, are an integral part of Hong Kong's life," Mr Tung said at the lunch, jointly hosted by Hong Kong Economic and Trade Office, Hong Kong Trade Development Council, Hong Kong Tourist Association and the Japan Hong Kong Society.

"Japan is a lead partner in major Hong Kong infrastructure projects, including our new airport.

"Japanese trading conglomerates are also very active in Hong Kong, which serves as their principal sourcing and marketing hub for southern China and, in many cases, Southeast Asia.

"All of this is reflected in the growth in trade between us, which more than doubled in the past decade, strongly boosted by re-exports of Japanese products to China and the rest of the region.

"Similarly, about one-third of China's trade with Japan was handled by Hong Kong last year."

Mr Tung said Hong Kong and Japan had a dynamic partnership which was set to expand into an even more significant economic relationship.

He said Japanese companies had a greater role to play in Hong Kong's economy as it accelerated towards higher, value-added industries and services.

"These are technology and knowledge-based areas where Japan is already strong and has much to contribute to new partnerships in the SAR," he said.

The Chief Executive said the epic scale of economic reform in China also presented opportunities to Japanese business.

"Hong Kong is primed to make a unique and mutually beneficial contribution in areas such as raising capital, new technologies, professional expertise and contacts in overseas markets, especially through our capital markets," he said.

"But it is a huge challenge and one in which we would welcome Japanese partners."

Mr Tung said there were fresh areas in which Japan and Hong Kong could work together in the wider region.

"Following the currency crisis, I envisage a return to sounder, export-led strategies for growth in Southeast Asia which will, in turn, create demand for more manufacturing investment, technology and infrastructure support," he said.

"These are all areas where Japan and Hong Kong are strong. Working more closely together, we can be even stronger."

Mr Tung also told guests that one of his highest priorities outlined in his inaugural Policy Address last week would be to make Hong Kong more competitive.

He said inflation and the rising costs of doing business in Hong Kong were areas of particular concern affecting the SAR's competitiveness.

He said increasing the supply of housing and land would bring some cost relief in the property sector.

Another area to boost competitiveness would be to foster the move towards higher value-added industries by providing more land for high-technology industries and speeding the application of information technology to official business and commerce.

Guests were also told of Hong Kong's smooth transition and the guarantees contained in the Basic Law to maintain Hong Kong's economic, social and political systems separate from those on the Mainland for 50 years.