Following is the text of the question-and-answer session of the Chief Executive, Mr Tung Chee Hwa, after addressing a joint chamber luncheon organised by the Hong Kong General Chamber of Commerce today (Thursday):

Question: ... I would like to ask the question ... it is a vision which I share and support, like many of us here do as well. My question is a simple one. What are the chances for the level of inflation to come down next year, say by at least another one per cent or so?

CE: Well, Hilton, I am not a magician; and inflation, it is very worrying. Actually, our inflation is at a ten year low today. And you think about it, for ten years we have sustained a high level of inflation. We are at a ten year low; it is really not good enough and we have to do more. And if you look at the components of what has created inflation, housing actually comes number one, and then there are salaries and so on and so forth. And all these areas, we really need to look at very, very carefully over a long term to bring this inflation down. The good news is that for the first time we actually have positive interest rate. You know, for a long time we had negative interest rate. So I hope it is beginning to help, but a whole lot more needs to be done. But I can't give you a prediction, I'm sorry.

Question: Sir, looking at the currency crisis in the region, what are the Hong Kong Government policies towards future US dollar/Hong Kong dollar fix?

CE: The US-HK dollar exchange link has served us very well for the last 14 years and there is absolutely no plan whatsoever to change that particular arrangement. The South-East Asia currency has fallen in the past couple of months and obviously it would have an impact on our economy. Tourism is down already. And these markets' exports will probably be more competitive compared with those from China where much of the goods that go through our port have been manufactured. So we will get, probably, hit somewhat. But I think there are a lot of strong fundamentals here and we should not be unduly worried.

The other point which I think is important is that it is unrealistic for us to compete based on competitive devaluation. There is no end to it. What we need to do is to identify where we should be as a market to provide the type of services others cannot provide, and then to go as strong as possible on this. And this is why my emphasis is on education, my emphasis is on value-added, and the fact that we are on the doorstep here, we have a very special relationship with our own country. So all this will add to our strength. We have to build on our strength and this is certainly the direction we are going and we think it is the right direction to go. And this is not to say we should not worry about our cost structure. We must be concerned about our cost structure.

Question: Mr Tung, ... the press, in taking your speech to bits, has overlooked your vision. Perhaps everyone expects it to be platitudinous, but I for one think that you are remarkably sincere in your vision of a democratic, prosperous, highly computer literate, value-added economy. I would just like to ask a question in relation to your paragraph 146 which relates to the Basic Law and the future of democratic elections.

Now when one looks at what is laid down in the Basic Law, which is 20 popularly elected people this next year, then 20 more, then 30, and if one considers that as an arithmetic progression (+4, +6, +8, +10, +12) it means we don't get 100% popularly elected Legislative Council until the year 2018, I think. Now this doesn't seem, to me, to be quite fast enough for public opinion which we've followed very intensively over the last decade. What are your views, after your release from the constraints of the Basic Law, to speed up the proportion of legislative councillors to be elected by popular vote? And secondly, in your policy speech you made no reference to election of the Executive Councillors. Would you care to comment?

CE: I would be delighted to. I think democracy is very important to Hong Kong. And what is democracy all about? It is about people having a choice; it is about the government being held accountable to the people; it is about a framework for orderly succession, orderly political framework; it is about the rule of law; it is about the legislature having a check and balance in terms of power against the executive. And we are all moving in that direction.

I think the framework laid down by the Basic Law is very suitable for Hong Kong as we develop towards universal suffrage eventually. When would that time frame be? David, to be very honest with you, I'd like to think about it a few years down the road. I think it is important for the community to tackle all these issues on livelihood, on education, which are very, very important to us. The whole community has to be focused on that. And this is not to say democratic evolution is not important. It is important. We have to move forward. We've had five years of debating about that. Now it is time to get on with the livelihood issues. Now, we will be committed to moving towards democracy. But as I said, the framework is now here and we are going to strengthen on it, we are going to build on it, and we will be doing fine.

People have criticised me for being conservative. Well, I don't apologise for that. I am. And we move in that direction and then a few years down the road we take a look. And if I may say so, if you look at the history of many, many western countries, from indirect election to direction election and to universal suffrage it takes years and years, sometimes hundreds of years. And we are taking 10 years to move forward. I think we are quite remarkable as a community.

Question: Mr Tung, a few days ago your assistant, Anson Chan, said in the press conference that the government achieved 94% of their pledges. I am concerned about the housing in Hong Kong. You said that you will endeavour to provide about 85,000 flat units each year, and also you will endeavour to enable about 70% of the populace in Hong Kong own their own home by the year 2000 something. Could you express in terms of the percentage how confident you are to achieve this target - either 95% or 94% or 100%?

CE: Well, I think we have a very good chance to achieve this target. It is important to the community as a whole we achieve this target. Of the 85,000 units about 50,000 will come from the efforts of the government and 35,000 from the private sector. And it is not just the government needing to deliver this but also the private sector and I am very encouraged in all my discussions with the private sector; they are very keen for the long-term interests of Hong Kong to make sure that 35,000 is also delivered.

Of course it is incumbent upon the government to produce the land that is needed to produce all these units of apartments. If you think about it, what do we need? We need land; there is land there. What else do we need? We need resources; we have the resources there. And what further do we need? Simplification of our system of approval. We also need a great deal of determination and I think there is now the total complete determination within the administration, within the community, to make this happen. And I am quite confident it will happen, one hundred per cent.

Question: Mr Tung, today is supposed to be the Dress Casual Day and I can see that you are observing this day. May I make a proposal that while the cream of society is sitting here enjoying the good food and a good speech, we have to think of the underprivileged. May I make a proposal that those who are not casual, make a donation towards the Community Chest when we pass out of the room, or we can make a collection on the table, and make this a good cause for the day.

Floor: Mr Tung, may I second that proposal.

CE: Are you going to set examples by telling everybody how much money you put in?

Floor: Mr Tung, to answer your question, I will put in $1,000.

CE: Very good.

Question: Mr Tung, I have a question on housing, on private sector housing, which is one of your priorities. We all agree that the long term solution to the housing programme is to supply more land and build more. But for the short to medium term it seems that there is not very much the government can do because land supply has been short in the past. But in terms of allowing private developers to sell, would you consider relaxing the 15 month pre-sale period to, say, 18 months or 24 months, so that more flats can be made available for sale? And if not, why not? Thank you.

CE: This is something that has been raised with me during my consultation exercise. It is something being looked at this moment, so I don't think I should comment on it. But I would say that the issue of housing is an issue that cannot be resolved overnight. It is an issue that takes time. It is not like just turning on the tap-water. And there is always the temptation to introduce administrative measures to bring down the prices. The temptation is always there. And the reluctance to use it is because I think stability is very important. A total collapse is not desirable for Hong Kong, from an economic point of view, from an overall community point of view. But on the other hand, I do have to emphasise that if speculation begins again and gets out of hand, the government will do something and we have measures in hand to do it if this happens. But let's hope we don't have to use that weapon.

Question: Mr Tung, I have one livelihood question and I wonder, do you recommend to limit salary increases for next year? And if so, at what level - over or under the rate of inflation?

CE: I have heard all sorts of arguments from my friends sitting at this table about what salary levels should be. I think in the private sector, really this is a free economy and supply and demand really should dictate the ultimate level. And this is why I emphasise a great deal of looking at the issue of allowing professionals from Mainland China - there are some really qualified professionals - to come into Hong Kong to help to resolve the shortage issue. So it is these areas where government can really try to be more helpful and the private sector, really, should set their own benchmark and work it through their own systems, I presume purely on a supply and demand basis.

Question: Mr Tung, I would like to join the group of accolades for you. As a Hong Kong resident I sincerely wish you the best. I think you have done a marvellous job for all of us. Especially, I have to commend you on your trip to the US where you answered in a very, very graceful manner the democracy demands by the US. I would just like to ask you what is the purpose of changing the schooling to Chinese when English is the utmost important international business language of the world?

CE: We notice that both the standards of English and Chinese in this community have been declining and the business community, of which I was a member until not too recently, has voiced the largest of the complaints. And if you look carefully at the reasons why, then you come to a conclusion that there is something wrong with the method of our approach in teaching our languages. And one of the thoughts and the recommendations is mother-tongue teaching; the way recommended by the government actually before July 1, 1997, was to go to mother-tongue teaching. If you go for mother tongue teaching your English will be better, your Chinese will be better, and also it is easier for you to pick up all the other subjects.

I was in Singapore not too long ago and I looked into that to look at what Singapore does as far as language is concerned, and it is interesting that in their way each student is asked to learn two languages - one is English and the other is Chinese or Malay or Indian, it depends on which, originally, nationality you were. And it is interesting that about 15% of the people, students, will excel in both; and about 50%-60% will do all right in one-and-a-half, not quite two, of the languages, and all right in the other subjects; and the other 15% or so can only manage one language. So that is their experience.

Now we ask ourselves can we manage two; how can we manage it well? And the thought of the government was that if we go on mother-tongue teaching we can in fact improve both our English and Chinese. Now, would we do as well as Singapore or better than Singapore? It will remain to be seen. But the objective is exactly to overcome what you were talking about, that we need to have both English and Chinese as good and that is basically one of the objectives.

Question: I want to expand on that question about education. It is an international global problem throughout the world and every country has come up with a conflict of what is the best way to educate the children. Given that it has been proven that an environment free of stress and pressure allows the mind to absorb knowledge, I want you to address the fact that you have suggested competition by a monetary value to the schools, which in my opinion would bring on pressure both for the teacher as well as the student. And again, to learn a language you must be free to absorb it. Could you elaborate on this for us?

CE: Well, the criticism at this moment, of our school system, is that it is too centralised. The Department of Education sets the agenda, sets the salaries, sets almost everything. And the objective of the Report No. 7 of the Education Commission was really to say that to go for quality education you need to devolve; you get the authority down to the principal and to each school to let them be held accountable for what is happening. And I think this is a very good way forward. There are many businessmen here and the best way to make the business go forward with the branch offices and departments is to give authority to the people who are really running the business. And this is what the Education Report No. 7 suggests, to give the authority to the principals of the schools to get on with what needs to be done, rather than to have all the authority centralised in one place and I certainly support this very much. And I think the Education Commission consists of really some of the best educators in Hong Kong and they came up with this suggestion after a lot of thought; so was mother-tongue teaching, although it came out of an earlier report.

Question: ... of the youth today, and that is why I brought this out. That with the pressure of being the best and excelling, it will also bring on a higher psychological problem and again, suicide has been the number one problem with the youth today.

CE: I think anything in excess, one way or the other, is not good, and we really have to apply moderation in what we are trying to do here.

Question: Mr Tung, I can't agree with you more about the mother-tongue language teaching. I come from a Chinese school myself and what worries me right now is that over the radio this morning you were being asked (questions) by some new migrants from China who speak to you in Mandarin. We do have a good portion of new migrants that comes in every day into Hong Kong that are children and we are catering our education also to these new migrant children. Now one of these days we may have to choose between Mandarin and the Cantonese language which the Hong Kong community is very familiar with. Do you have any plans that you will be implementing in our education system that after the mother-tongue language teaching method is being introduced, would we eventually be transiting into Putonghua teaching, or do we have a time table for that?

CE: For those people who really want to engage in this discussion, I want to complicate it by saying to you that in addition to the dialect aspect of it there is also, in China we use jian ti zi (simplified Chinese characters) and in Hong Kong we use fan ti zi (original complex form of Chinese characters). And then on top of that there are a lot of Cantonese words which sometimes I can't read either which come out in the newspaper. So these are the unique challenges we face ourselves. But I think under 'one country, two systems' we will be using Cantonese. I just hope the newspaper will write in some characters we can all understand. But as our economy becomes more integrated with the Mainland, I am quite sure Putonghua will become more widespread. Not only because it is the dialect of the entire country but also from a practical point of view this is going to happen. And I think, (if) I am not mistaken, in two years' time or so we are going to introduce Putonghua in the examinations here, in the general examinations also. But we will be doing it in Cantonese.... . And for two-and-a-half-hours I tried to do that in Cantonese yesterday.