Ladies and gentlemen,

Thank you very much for inviting me to lunch today. I thought that it was important, before I set off abroad again to talk to key international partners about the continuing prospects for Hong Kong, to have an opportunity to underline some of the key points that I made in my Policy Address yesterday: the first policy address made in Hong Kong, by Hong Kong people, for Hong Kong's needs.

I know that for you, the business community of Hong Kong, this Address was of great importance, and I am grateful for all the advice and suggestions that many of you have made to me over the last few months.

As I prepared for the Address, I have considered what you have said to me; I have considered the views given to me by many others in the community; and I have reflected on all the things that I have seen for myself in Hong Kong, the city that has been the home for five generation of my family. I have considered all this in the context of a forward looking vision of Hong Kong's place in this region and in the world in the years ahead.

Vision is needed in order to inspire effort, but it has to be a vision that is firmly grounded in reality, so as to guide the practical work that is needed in order to fulfil ambitions.

The realities that we have to keep in mind are these:-

first, China is well set for strong and continued

growth and stability well into the 21st century: this

is fundamental to our own prospects;

second, the world economy is becoming increasingly

open, increasingly competitive, and ever more

integrated through information technology: we have to

embrace the new technology and hone our competitiveness

to keep ahead; and

third, in order to advance and successfully implement

new initiatives, we have to maintain the foundations on

which our present prosperity has been built.

Let me elaborate on those points.

China's economic reform and opening up to the world has been progressing successfully for twenty years. It is a process that warms the heart of all the people and it is a process that has given Hong Kong great opportunities. We have been able to make a great contribution as a source of capital and know-how, and as the best base for the world's businesses to use in developing their contacts with the Mainland. The decision taken at the recent 15th Party Congress to further deepen the reform in China's economy makes it clear that growth will continue steadily and that market based practices will be extended. Indeed China will be more prosperous and more open as we move into the 21st century. As China progresses, so the demand for Hong Kong's financial and other business services.

The scale of development in China, and the fact that we have an unmatchable location as the gateway to the South, gives us a natural competitive advantage. But we cannot take it for granted that location alone will ensure our prosperity. Competition with the region is increasing. Only by vigorous measures to improve our own competitive performance and to add higher value to what we do can we keep our advantage.

But although constant change and improvement is needed in a competitive market economy, stability is also essential. Sound policies, consistently followed and managed openly and honestly, are the basis for trust and confidence. That again has been one of Hong Kong's great competitive advantages. We have found a winning combination of sound principles, policies and practices - commitment to the rule of law; a free press; prudent fiscal management with firm control of public expenditure; low, predictable, simple taxes; an open process of policy making; resolute action against corruption. All are vital to our success. Sustaining all of them is essential for maintaining confidence and trust in the integrity and efficiency of our system as we make the changes needed to upgrade our economy to meet the challenges of tomorrow.

The events of the last few months in Southeast Asia provide striking demonstration of the value of our fundamental policies. As other currencies and economies in the region have reeled Hong Kong has withstood the storms and stayed on course. How? Because everybody knows where we stand. They know we have effective regulation and supervision of financial and stock markets. They know that our public finances are soundly based, well managed and backed up with strong reserves. They know what we are doing and why. They know that our currency is firmly anchored by a sensible mechanism and that we can act, and do act decisively to maintain stability. In short, the world can trust Hong Kong, and my fundamental duty is to make sure that they can continue to trust us. Trust and stability enable us to plan sensibly and on a long term basis to bring benefit to the whole community.

That was the message that I and my colleagues wanted to get across at the recent meeting of the World Bank and IMF, and I want to thank all of you who helped to make such a success of that event. The world's financial and economic leaders came to Hong Kong and saw for themselves not just the success that sound fundamentals had created, but our commitment to maintain those foundations and to build on them creatively for the future.

So, those realities - the imperative of holding fast to sound fundamentals; the need to improve our competitive ability in the changing world economy; and the importance of the Mainland's economy to our own activities - they have provided the basis on which I have shaped my vision for Hong Kong.

Let me restate that vision briefly.

In economic terms, it is for Hong Kong to be the international financial and service centre which much of the world uses as a base for activities in China, and through which China raises much of her capital requirements in the world. It is for this city to be a centre for innovation and technological development for the region, and a leading producer of content and services for the growing world market for information, entertainment and communications. We have always been a trading hub, we can be a key processor in the world-wide networked economy of the information age.

In social terms, my vision is for Hong Kong to be a place in which the majority of families have the security of owning their own home, where our traditional values are upheld, where the elderly can enjoy a dignified retirement and where care and compassion are encouraged.

For our city, I see Government and individuals taking pride in creating a clean, healthy and enjoyable living environment, in which the ugliness and inefficiency of waste and pollution is put behind us.

In education, I want to see Hong Kong become a world leader in the quality of its education at all levels. I see information technology being used to transform the teaching and learning environment, helping to stimulate the creativity of our children and to prepare them for tomorrow's world.

In my Policy Address, I have set out the steps that my Administration will be taking to make that vision a reality. You've heard or read the Address, so I don't need to repeat myself. I'll be happy to take your questions in a moment. But before I do, I'd like to ask you all to think about what you can do to help make that vision a reality, particularly in the field of education.

For your businesses to thrive in future, you need well qualified, creative, motivated people. The quality of our education system is therefore of great importance to you. Many of the initiatives that my Administration is pursuing are intended to give greater flexibility to schools, to give them freedom to innovate and develop better teaching and learning methods. We will also be looking at ways to allow for the growth of a high quality private sector. We will be investing billions of dollars in information technology in schools, not simply to teach children how to use these vital tools, but to improve the teaching and learning environment so as to stimulate creativity. Our aim to create an educational system that encourages the pursuit of excellence, cultivates all the talents of our children, and gives choice to parents.

I know that there are quite a number of companies and businessmen in Hong Kong who have given support to schools and institutions in the past. As we seek to strengthen our education system over the coming few years, I ask all of you to consider how you might help with that process, and I welcome you to propose and develop your own initiatives.

For the free, information based market economy of tomorrow, investment in high quality education is the single most important initiative that we can take to ensure sustained success. Protecting freedom of information; protecting intellectual property rights; deregulation and the promotion of competition - all these things are important as a framework, but without skilled, ambitious and creative people to make use of them, they will not produce anything. Investing in our children and in our workforce will be the hallmark of my Administration : every business that looks to build long term prosperity may with profit consider doing so too.

The vitality of business in Hong Kong makes this city special. You are the people who lead our businesses and shape their character. My Administration will work with you to make Hong Kong an ever better business centre. By our investment in people, information infrastructure and physical infrastructure; by sound long term planning, and by close attention to the efficiency of regulation and Government activity, we will give you the tools, the framework and the freedom to build Hong Kong into a truly great city.

Thank you.