I am greatly honoured to be invited to speak in front of this distinguished gathering of the Sixth Annual World Economic Development Congress today. This Congress convenes the world's top business, government and financial leaders from Asia, Europe, the Americas and Africa and is being held immediately prior to the IMF/World Bank Annual Meeting. May I take this opportunity to welcome all of you and to wish you and the Congress every success.

"Some of you were in Hong Kong two and a half months ago to witness an important day in the history of Hong Kong, and China. July 1st 1997 was a day to which we in Hong Kong had looked forward to with pride and with confidence. Pride in that we are at last reunited with China, and have become masters of our destiny. And confidence because we know we can build a better future for our children and for our grandchildren.

"For the last two and a half months, all the three branches of our political structure, the Executive, the Legislative, and the Judiciary have been functioning normally. Despite the financial turmoils in Southeast Asia, our economy continues to expand. The lifestyle to which we are all accustomed to is being maintained, and indeed, since July 1 there have been over 150 demonstrations. And for the time being, I am still in a commercial building where my office is located until I move to a permanent site. All the other tenants of the building think our office is really a nuisance because of all the demonstrations that carries on every day.

"We, who live and work in Hong Kong, continue to work hard, very hard, for an even more successful and prosperous future. Recent surveys have shown that confidence level continues to rise. Surveys done by the Hong Kong University have shown that the confidence level is 78 per cent. What is the basis for this optimism?

"The fundamental reason of our optimism is in our trust in our country, China. It should be remembered that the "one country, two systems" concept is not originated from Hong Kong or London. It was a concept originated from China, taking into account the fundamental interest of China as a nation and Chinese as a people. The reason is simple : if Hong Kong succeeds under "one country, two systems", we can contribute towards China's modernisation goals. 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 the re-unification of the entire nation. These are very important objectives for China as a nation.

"Why else am I confident of Hong Kong's future? China has undergone dramatic changes since 1978. The economy has been growing at close to 10 per cent per annum. The energy and vitality in China today is for everyone to see. This is a tribute to the hard work and vitality of the Chinese people and the quality of China's leaders today. These leaders have the ability and the acumen, in my view, to steer China successfully into the 21st century. It is this ability and acumen that will ensure the successful implementation of "one country, two systems" as we move forward into the new century.

"China's leadership is totally committed to the "one country, two systems" concept and want to make sure this is successful. They have complete faith in the people of Hong Kong to make this work. I can testify to this in my nine-and-a-half months' experience. They have demonstrated flexibility, understanding, co-operation and accommodation every where.

"But what else are the reasons of my confidence and the reasons of the confidence of Hong Kong people ? 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 turbulent days recently in other Southeast Asian financial markets, you saw how solid our finances and our fiscal policy are today. The fundamentals in Hong Kong remain extremely strong. Our economy continues to grow steadily. Inflation is declining, 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. Their enthusiasm and commitment to making Hong Kong an even better place in the next century is a very valuable asset to all of us here in Hong Kong.

"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 many in the Western world, in the common law. The rule of law has kept our society open, fair and law abiding. We will maintain effective law enforcement, especially against corruption, and will maintain 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 every one. 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 has been 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 technical colleges and universities, give us the talent and the drive to keep on succeeding in whatever the world holds out there for us.

On October 8th, I will be delivering my first policy address. 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 the challenges which lie ahead. We face keen competition in trade and services, and our competitiveness is being threatened by inflation. We have to meet the challenges arising from a growing and ageing population, satisfy the demand for more and better housing, and deal with employment dislocation due to restructuring of the economy and address the needs of the poor.

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 quality, to improve their language skills and their ability to use new technologies.

"We will be speeding up land formation, extending our mass transit railway 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 per cent within ten years.

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

"In addition to the above, we are also moving forward with our political development in accordance to the Basic Law. In May next year, the elections for the first full Legislature, which will serve for a period of two years, will be held. Members of all political parties and independent individuals are welcomed to take part. Every adult permanent resident who is eligible to vote will vote, I hope, and there are 2.5 million eligible voters. There will be 60 members to the Legislature, all elected directly or indirectly. Twenty, in fact, will be elected directly; 40 elected indirectly.

"The election for the second Legislative Council will be held by the year 2000 and for a term of four years. The third Legislative Council election which is also for a four-year term, will be held in the year 2004. Each election, the number of directly elected seats will be increased so that in the election for the third Legislature in 2004, 50% will be directly elected and 50% through functional constituencies.

"As you all know, Hong Kong has never had a single voice in the selection of the Governor during 156 years of colonial rule. 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 400 people represents Hong Kong society from different walks of life including businessmen, professionals such as doctors, lawyers, architects, labour unionists, social workers, politicians, religious leaders and etc, etc. The second Chief Executive, serving from 2002 to 2007 will be selected by a similar committee, except the committee will be enlarged to 800 people.

"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 received under 156 years of colonial rule.

"What about after 2007? The Basic Law provides that further democratic evolution will depend on the wish of Hong Kong people and the environment at that time with universal suffrage being the ultimate objective. 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 consequences. There are those who believe that the pace of democratisation is too slow. Others believe that it is too fast. I believe we have struck the right balance as we move forward.

"Let me say this, that we as a community is very much committed to a democratic process and we are moving forward. We are moving forward in accordance to the Basic Law, which is our constitution, a piece of document which was produced after four years of consultations between people of Hong Kong and people on the mainland of China. And I have every confidence if we move forward in this way, the society in Hong Kong will continue to sustain its economic development, its fundamental rights of freedom and the rights that are accorded to us. We are very confident that this structure is particularly suitable for us here in Hong Kong.

"It is important that I speak a word on China because your perception of China is important to the future of 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. I know there are those in the West 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, 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. This is particularly important if you bear in mind the 156 years of humiliation China has gone through in her recent history.

"It is not just China which is expanding economically. Indeed, the whole of Asia has come a long way. The east Asia region which includes China, Japan, Korea, Taiwan, Hong Kong and ASEAN countries could have an economy larger than that of NAFTA or the European Union soon in the 21st century. Despite the recent turmoil in the financial market in the South East Asia, I am confident that the economy in this region will continue to expand successfully.

"This region, already well known for its high savings rate, could produce US$1,200 to US$1,300 billion in additional annual savings than it does today; thereby becoming one of the largest capital markets in the world.

"At the same time, the region will serve as the largest user of capital in the world. Asia Development Bank estimates that by the year 2000, the region will have spent almost US$1,000 billion in investments in infrastructure projects alone.

"What does that mean? Asia may well emerge as the world's largest producer, capital lender, and capital borrower, as well as the world's largest consumer market. Asia's economic and political impact on the world in the decades to come cannot be overlooked.

"Imagine the unlimited economic opportunities which will present themselves in the coming decades as this region's economy continues to grow and as China becomes one of the largest economies in the world. Where should the international business community be located to take advantage of these opportunities in this region? Where indeed, but right here in Hong Kong.

"We will continue to provide a friendly business environment and a world-class service to backup international corporations doing businesses in Hong Kong, in China or throughout Asia. Our Chinese heritage, western management style, and ability to speak English and Chinese have placed Hong Kong in the best position to provide the international business community with the people, the knowledge and the skills necessary to run successful business in China and the rest of Asia.

"The confidence level in Hong Kong has been steadily increasing even before the transition. For a number of years, our population has been growing at approximately two per cent per annum, higher than any metropolis in the world. This trend is continuing. Part of the growth is as a result of legal migrants from China, part of the growth is, of course, natural birth. But tens and thousands who have previously emigrated overseas are coming back to Hong Kong. They sense the opportunity, they feel the pride and they want to participate in the making of history.

"Those of you who are living in Hong Kong already understand the secrets of Hong Kong's success. To those of you who are visiting us during this historic time, I urge you to return to Hong Kong, as frequently as you can, to see for yourselves how we are doing, and to play a part in what will undoubtedly be the story of our continuing success.

"As we lift our sight above the horizon into the 21st century :

* I see Hong Kong as a leading financial and services centre;

* I see Hong Kong remaining at the forefront of the new age with cutting-edge new technology and new industries;

* I see a truly international and cosmopolitan city which combines the strengths of the east and the west;

* I see Hong Kong, as a Special Administrative Region, making significant contributions to the modernisation of China and moving forward with China as she emerges as a leader among the community of nations; and

* I see an increasingly affluent and well-educated population, proud of our Chinese heritage, confident in our destiny and global in outlook.

"This vision will guide the Special Administrative Region Government in the next five years. The international business community will have an active role to play in turning this vision into a reality; and I look forward to your continuous support in our joint endeavours.