Thank you very much for those very kind remarks, of course you say these nice things because we have been friends in Hong Kong for I don't know how many years already.

It's really nice to be back at New York, where my wife and I lived for close to eight years. New York is a wonderful place, its vibrancy you can always feel like when you are in Hong Kong. I have not been back a year but it seems the streets are cleaner, people are very nice, it's a wonderful feeling. But when I was here in the '60s, I like to tell you the Yankees were winning all the time, the Mets even won the world series once, the New York Giants had (inaudible) as the quarterback and they were winning all the time and when I left in 1969, Willis Lee too the New York Nicks to become the NBA champions. And you guys in New York have really got to pull your act together because now none of the teams are doing anything right now. But I must confess, though, that I myself am a San Francisco 49ers as well as a Boston Celtics fan so far as basketball is concerned.(Laughter).

I am greatly honoured to be invited to speak here today. The Asia Society and the other co-sponsors of today's luncheon - the Hong Kong Association of New York & the National Committee on US-China Relations - play a key role in what I believe to be absolutely crucial as we move into the 21st Century: that is, the promotion of better awareness, understanding, appreciation and respect between America, Asia, China and Hong Kong. In May, I had the pleasure of attending the Asia Society annual dinner in Hong Kong. Today, I stand here with you in New York. Midway between these two free meals, Hong Kong has passed one of the most important milestones in its history, and has moved into the beginning of a new era.

Some of you were in Hong Kong two months ago to witness an important day in the history of Hong Kong, and indeed China as a whole. July 1st 1997 was a day to which we in Hong Kong had looked forward with enormous pride and confidence. Pride in that we are now reunited with China, and have become masters of our destiny. Confidence in that we can and will make our city an even better place for our children and grandchildren.

While July 1st has come and gone, we, who live and work in Hong Kong, continue to work hard for an even more successful and prosperous future. The three branches of our political structure, the Executive, the Legislative, and the Judiciary have all been functioning normally. There has been no change in the life style to which we are accustomed. And our economy continues to expand. Recent surveys by the Social Science Research Centre of the Hong Kong University have shown that 78% of the Hong Kong people expressed confidence over Hong Kong's future.

What is the basis for such optimism?

The fundamental reason is, of course, the solid promises embedded in our Basic Law. It is a comprehensive document that was drafted together by from Hong Kong and the people of Mainland China after some four years of consultation and discussion. The Basic Law provides a constitutional framework for the Hong Kong Special Administrative Region. It institutionalises the ground breaking concept of "one country, two systems". It clearly prescribes the social, economic and political systems in Hong Kong which, as you know, are different from those in Mainland China. It protects the rights and lifestyle of Hong Kong people. The Basic Law guarantees the independence of our judiciary and, apart from foreign affairs and defense, it gives us full responsibilities to manage our own affairs. It allows us complete financial autonomy, and independence of our monetary system. It establishes the Hong Kong SAR as a separate customs territory, and enables us to work directly with the international community to curb trade in strategic commodities, drugs, illegal trans-shipments, and infringement of intellectual property rights. It ensure us our freedom of speech, assembly, worship, and other civil liberties. The Basic Law has also established the framework for democratic evolution of our political structure over the next 10 years, and mapped out the path towards the ultimate objective of universal suffrage.

In May next year, the elections for the first full Legislative Council will be held. Members of all political parties and independent individuals are welcomed to take part and I know they will. Every adult permanent resident is eligible to vote. This first full legislature will have 60 members, all of whom will be elected directly or indirectly. More specifically, 20 will be directly elected, 30 indirectly elected through functional constituencies and the remaining 10 indirectly elected through an Election Committee. The second legislature will be elected for a four-year term in the year 2000 when the number of directly elected seats will increase to 24, and the third legislature in the year 2004 when 30, or 50%, of the seats will be directly elected. In seven years' time, we will have more democracy in the legislature than we ever have in 156 years of colonial rule.

As you all know, Hong Kong has never had a single voice in the selection of the Governor during 156 years of its colonial rule. And as you must know the ultimate authority rests with the Governor. Under the Basic Law, Hong Kong people will have an increasingly larger voice in the selection of the Chief Executive. I myself was selected in December last year by a committee of 400 people, all of whom reside in Hong Kong. This committee represents the society of Hong Kong from different walks of life including businessmen, professionals such as doctors, lawyers, architects, labour unionists, social workers, politicians and religious leaders for the Protestants, Catholics, Buddhists and Muslims. The second Chief Executive, serving from 2002 to 2007, will be selected by a similar committee, except that the committee will be enlarged to 800.

In fact, the progress we will achieve in 10 years from 1997 in terms of democratic process will be far more comprehensive and far-reaching than what we had achieved under 156 years of colonialism. What will happen after the year 2007? The Basic Law provides that further democratic evolution will depend on the wish of Hong Kong people and the overall environment at that time with universal suffrage being the ultimate objective. There are those who believe that the pace of democratisation in Hong Kong is too slow. Others consider that it is too fast. I believe we have struck the right balance. Of course, as far as constitutional issues are concerned, there will always be debates in any country, whether it is in Hong Kong, America, or anywhere else. And these debates are healthy.

I am aware of the criticism that the electoral arrangements for next year will reduce the franchise in some of the functional constituencies. This misses the point that these functional constituencies, in their very original design, were indirect elections and were intended to represent economic, professional and grass-root sectors of importance to the community of Hong Kong, and were not intended to be elections through universal suffrage. Indeed, they are an interim arrangement under the Basic Law, designed to maintain balance and continuity while our democratic process continues to evolve over the next 10 years. Is a period of 10 years too long for this evolutionary process - a process that is critical to Hong Kong's future, a process the success or failure of which we in Hong Kong, and no one else, will bear the full consequence? I appreciate that this is an issue of concern in the US. However, let me emphasise this point. At the end of the day, we must move forward in what we, the people of Hong Kong, think is in the best long-term interests of Hong Kong. And you would expect me to do no

less. In the meantime, we certainly have widely consulted the community, and believe that we have the support of the Hong Kong community. Here, I would like to note an interesting coincidence, that this timetable in the Basic Law covers a period as long as that between your 1776 Articles of Confederation and the 1787 Constitution, when you moved from a rather loose system focused on state legislatures to a much more centralised federal system. I was this morning at the Council on Foreign Relations and one of the gentlemen came up to me after the meeting and said 'Mr Tung, I would like you to know that Thomas Jefferson came through on an indirect election.'

There are those who are skeptical about the actual implementation of the Basic Law. They have fundamental doubts that China will allow the full implementation of "one country, two systems". I believe this is misguided. Clearly it is in China's basic national interest to ensure the successful implementation of "one country, two systems". The reason is simple: if Hong Kong succeeds in our effort, we can contribute towards continued modernization of China. In addition, the feasibility of different social, economic, and political systems within one country is being tested. Success in Hong Kong can serve as a significant step towards the greater and final objective of re-unification of the entire nation.

Why else am I confident in Hong Kong's future? China has undergone dramatic changes since she opened up to the outside world in 1978. The economy has grown at a remarkable rate, averaging close to 10% per annum. This is a tribute to the vitality and energy of the Chinese people and the quality of China's leaders. These leaders have the ability and the acumen to steer China successfully into the 21st century. It is this ability and acumen that will ensure the successful implementation of the "one country, two systems" concept as we move forward into the future.

China's leadership today is fully committed to making "one country, two systems" a successful reality. They have complete faith in the ability of Hong Kong people administering Hong Kong. I can testify to this commitment with my experience over the past nine months. The Central Government is fully adhering to the Basic Law and has given us an entirely free hand to deal with our own affairs. They have demonstrated flexibility, understanding, co-operation and accommodation.

Thanks to the solid foundation Hong Kong has in its finances, its civil service and, fundamentally, in the rule of law, we are well placed to develop our role in a dynamic world.

During the recent turbulence in other Southeast Asian financial markets, you saw how solid our finances and fiscal policy are today. The fundamentals in Hong Kong remain extremely strong for the future. We expect GDP growth this year to be around 5.5%. Inflation continues to decline, albeit slowly. Next year, our new airport opens, greatly improving our quality as an aviation and service hub, and we are following it up with a massive programme of rail and other infrastructure development to further improve our efficiency and productivity.

The efficiency and productivity of Hong Kong's civil service is respected by our community and by those who come to do business with us. Time and again I am complimented on their quality. Their enthusiasm and commitment to making Hong Kong an even better place in the next century is a valuable asset to our community.

The rule of law underpins our free market, the work of our civil service and the quality of our community. We will maintain our legal system, grounded, like yours, in the common law. The rule of law has kept our society open, fair and law abiding. We will maintain effective enforcement of the law, especially against corruption, and will maintain the principle that no one, Chief Executive included, is above the law.

Additionally, we will resolutely maintain our conservative and prudent fiscal management style, low and predictable tax structure as well as a level playing field for all. We will continue to encourage the contribution of the foreign community and maintain the characteristics

of a leading international city.

Alongside all specific reasons, my confidence in Hong Kong's future is grounded in the spirit of the people of Hong Kong. What we have achieved within my lifetime is staggering. What we still hope to achieve together is no less ambitious. Our experienced entrepreneurs and investors, and the high proportion of our children now going on to tertiary education and technical colleges, give us the talent and the drive to keep on succeeding in whatever the world holds out for us.

On October 8th, I will be delivering my first policy address - our equivalent of your State of the Union Address, although on a very tiny scale. I will be setting out a programme to tackle a wide range of matters close to the hearts of Hong Kong people. Hong Kong has reason to be proud of its achievements over the past thirty years, but we have to be alert to challenges which lie ahead. We face keen competition in trade and services, and our competitiveness is threatened by inflation. We have to meet the challenges arising from a growing and aging

population, satisfy demand for more and better housing, deal with employment dislocation due to restructuring of the economy and at some time address needs of the poor and the needy.

We will be sticking to the free market approach that has brought us prosperity in the past and aiming to improve the competitiveness of our business environment.

As the world moves rapidly into the information era, we will be investing heavily in our information infrastructure, our education and our expertise in this field. We aim to give every child in Hong Kong an education of the highest calibre, to improve their language skills and their ability to use new technologies.

We will be speeding up land formation, extending our mass transit system and other infrastructure, and increasing the pace of home construction to 85,000 units per annum to achieve a home ownership rate of 70% in the next ten years.

We are setting up provident funds and extending care for the elderly in order that our old people are provided with a treasured sense of security, belonging, and worthiness.

Ladies and gentlemen, I would now like to speak briefly about China. Let me first say that I have not come to America as a spokesman for China. My task is to speak about Hong Kong. But the fact is that China is our sovereign. China and the US are respectively Hong Kong's largest and second largest trading partner. Your perceptions of China, and Sino-US relations have a great impact on us. China has indeed made impressive strides since the late 1970's. We in Hong Kong are proud of China's achievements. We do not find China's achievements and behaviour threatening. The main reason for that difference is of course our perception of China against yours.

For Americans, perceptions have been shaped by historical interaction with China since the missionary days. In more recent post-Cold War days, perceptions have been affected by the natural tendency to see shifts in economic strength as a threat to familiar pattern of relationships.

For us in Hong Kong, the view is not the same. Over 95% of us are Chinese. We ourselves were on the receiving end of colonialism. We share the sense of dignity and pride on the return of Hong Kong to China, and at long last our new found responsibilities of managing our own affairs. China is our sovereign, and naturally, like Americans, we have an affinity for our own fellow countrymen. And like Americans, our patriotic feeling is something very natural to us. We were saddened by China's past humiliations, and rejoice now in her improving fortune.

Like many people of my generation, I have a deep admiration for the role played by the United States in the post war period. As much of the world struggled to rebuild itself from the smoking ruins of the late 1940s, the US generously offered its helping hand. And the success of the American society is widely appreciated around the world. As a Chinese who has lived for a decade in the US, whose children were all born and educated in the US, and whose enthusiasm for the 49ers and the

Celtics can rival those living in San Francisco and Boston, I would like to give you a view of China through my eyes. I hope my unique background can be helpful is bringing a different perspective to you. After all, mutual respect and understanding in Sino-US relations is good in its own right, good for the world, and very good for Hong Kong.

Many in the West today tend to define China through specific human rights issues. Others feel a sense of threat in China's rising prosperity. We in Hong Kong feel differently. What is happening in China is not a change to a monolithic giant, but a transformation of the lives of millions of men and women. They are being lifted out of poverty, given education and homes, and given opportunities that they have never had before. China's life expectancy rate, child mortality rate as well as adult literacy rate have improved significantly. The percentage of people living at or below subsistence level in China decreased from 33% in 1979 to single digit today. The scale of transformation exceeds anything that has ever happened over so short a period, and it is happening to men and women like ourselves. It is a process that warms the heart of everyone concerned for basic human condition and basic human rights. I know there are those in the United States who are concerned about human rights and religious freedom in China. I urge you to go and see for yourselves how much China has done in these respects. You will come away like many others, like me, surprised and impressed.

From a practical point of view, with a population of 1.2 billion people and a commitment to vastly improve the standard of living of people through a market economy. China needs social stability. China also needs stability and peace in Asia and around the world. Like many other developing nations, the strengthening of the military is not a tool for expansion but a declaration of independence and a political statement to the international audience, especially for China after 156 years of humiliation.

The growth of China's economy is good for everyone. Larger markets with a broader range of needs for goods and services provide opportunities to the world at large. Furthermore, China and the US have a natural fit with each other. The competitive advantage of the US is undoubtedly her capital, management system, and technological expertise. The US today is host to some of the most, if not the most, creative minds in the world. China's competitive advantage is her lower labor cost, her vast savings as well as her enormous appetite for consumer goods. China and the US are not competitors. On the contrary, there is much room for China and the US to become complementary economic systems, which could generate enormous benefits to both parties. Put simply:

What the US makes, China does not. What China makes, the US most certainly does not. As a matter of fact, the US/China fit is much more natural and complementary than those of Europe or Japan, who in fact are competitors with the US.

Again, I am here in the US to talk about Hong Kong, not the Mainland. But Sino-US relations based on mutual trust, respect and understanding, is an important element for Hong Kong's success. I believe that there is much synergy between China and the US. I hope that we will all one day recognize the potential of a strong China-US partnership.

Despite the recent set back in the financial markets in Asia, I believe the economy of the 10 leading east Asian economies will continue to expand so that by early next century, these economies will be the size of EU or NAFTA. With our unique geographic location, our combinations of infrastructure, skills and services that are being constantly developed, Hong Kong is in every sense ready to take on this opportunity and challenge. While still behind US levels, Hong Kong is already way ahead of any other regional economy in providing trained managers, able to work well with multinational companies. Where else but Hong Kong should you locate your Asia Pacific operations? We in Hong Kong look forward to the next Century. We are excited by the prospect of being masters of our own destiny. We are eager to create an even better Hong Kong in the new era.

Hong Kong was separated from China for 156 years. In fact, I would like to point out something very interesting about the figure of 156 years. If you take the year 1620 -- the year that the Pilgrims landed on Plymouth Rock -- as the practical starting point of British administration in what is now the United States, and add to it that same 156, you get ........1776, a year whose significance I certainly do not have to elaborate upon to this audience.

Ladies and gentlemen, in many ways, 1997 is destined to be our 1776. It is the beginning of a new era for us. As Chinese people, we see the Handover as a coming together -- a natural reconciliation ending a long period of unnatural separation. We, the people of Hong Kong, are finally going to be the masters of our own destiny. We will be making our own decisions, standing by them, and being held accountable for their consequences. And we will be doing so with pride and confidence.