Speech by the Financial Secretary in Buenos Aires

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Following is a keynote address by the Financial Secretary, Mr Donald Tsang, at the High-Level Business Conference in Buenos Aires, Argentina, yesterday (May 14, Argentina time):

Distinguished guests, ladies and gentlemen,

It is a real pleasure to be speaking to you here today as the leader of Hong Kong's first official delegation to Argentina - and indeed the first to South America.

For most of us, it is a voyage of discovery, since it is our first visit to the continent. For some, it is an occasion to reinforce existing contacts. For all of us, it comes at a time in history when a brisk draught of enterprise is required to blow away the haze of uncertainty and reveal a panorama of opportunities.

The members of this delegation have the expertise, experience and enthusiasm that such an enterprise needs. They include Hong Kong's top business leaders in banking, securities, telecommunications and infrastructure. Individually, they command formidable capital and resources. Together, they represent corporate Hong Kong. It is the first time they have assembled and travelled together as a group on business.

They also have well-established connections with counterparts in the Mainland of our nation, China, and around Asia. They can provide invaluable help for enterprising South American business leaders seeking to develop opportunities in Asia.

This delegation is officially entitled "Hong Kong Business Mission to South America". The key element in that is the word "mission" - which conveys the meanings of aim, purpose, determination and aspiration.

In a few weeks, we will celebrate our first year in the new era since Hong Kong became a Special Administrative Region of the People's Republic of China. The reunification with China was marked with a ceremony at midnight on the 30th of June last year. This ended 156 years of British administration and some of you saw it on television.

This time last year, we were welcoming the first of 6,000 representatives of the news media coming for the Handover. It became almost impossible to walk through the centre of town without tripping over a camera stand or having a microphone thrust in your face.

The single question, repeated endlessly, was: "What is going to happen after the Handover?"

Most people who live in Hong Kong and understand the place replied: "Nothing." Meaning life would go on as usual and Hong Kong would thrive as ever. Events have proved that they are right.

Under a unique constitutional arrangement, defined fully in a Basic Law, Hong Kong becomes the first Special Administrative Region of the People's Republic of China.

The Basic Law demonstrates that China understands the important ingredients for business in Hong Kong. These ingredients include clear, reliable laws, especially the law of contract that helps to ensure people keep their word. China has committed itself under the Basic Law to maintain Hong Kong's capitalist system and way of life unchanged for 50 years. Rule of law ranks supreme in Hong Kong: not rule nor law alone, but the rule of law. Nobody in Hong Kong - from the Chief Executive downward - is above the law, which is rooted in the common law system.

So far as business and commercial activities are concerned, the law makes it plain that an enterprise established in Hong Kong by any organ based in the Mainland of China and operating as a commercial business must comply with the Hong Kong law. This is the clear intention of our national leaders.

This also accords with our belief and experience that free enterprise on a level playing field is the most reliable way to attract investment and run an economy. That means the freedom to do business and to acquire property, protected by fair and equitable laws, in an open market.

Such freedom makes no distinction between an indigenous business in Hong Kong and any investor from outside Hong Kong. In short, we have reached perfection in the pursuit by the World Trade Organisation for the so-called "national treatment" for all.

Business takes place under and within a civil administration that is honest, efficient, and the minimum practicable size. Hong Kong's public sector spending is less than 20 per cent of its GDP - a remarkably low figure in the world's seventh-largest economy. For over two decades, our civil service has generally been untainted by corruption and we work hard to keep it that way.

In Hong Kong, we cherish above all else the freedom of speech and a free flow of information. Our lively news media exercise their "freedom of the press" to the full, and this freedom relates to most business activities as well, since it is impossible to plan confidently when information is deliberately withheld from the market. Mark this proud and distinguishing feature of Hong Kong - which is rare in East Asia.

On the political front, the Hong Kong Special Administrative Region will hold the first elections for our Legislative Council coming up on May 24. Meanwhile, political activities remain at a high level.

Of course, life never remains static. In any circumstances, the past 12 months would be viewed as remarkable. In East and South-East Asia they have been quite exceptional, particularly in the economies of the region that have taken rather a battering.

Hong Kong has weathered these storms well. The currency is as strong as ever. The economy is still in reasonable shape. We have again been listed among the world's freest and most competitive economies by reputable organisations world wide.

The International Monetary Fund's research director, Mr Flemming Larsen, is even more positive. Just a few weeks ago (April 27) he said Hong Kong's highly flexible economy was the reason we are doing so well.

Our dollar has hardly depreciated while other currencies in the region have fallen quite markedly.

As a result of this determination to retain our fixed exchange rate between the Hong Kong and US dollars, we have seen a 14.3 per cent appreciation in the Hong Kong dollar relative to the rest of the region.

However, as Mr Larsen pointed out, our labour and product markets are adjusting to the impact this has on our competitiveness - and he said the IMF supported the link with the US dollar because our stability was helping the whole region recover its equilibrium.

This fixed link with the US dollar has survived many financial crises since we instituted it 14 years ago. It is a major symbol of economic stability and confidence in Hong Kong as a major international and financial centre. The Hong Kong-US dollar link will stay, enhancing the confidence you can have in dealing with Hong Kong.

The Hong Kong SAR Government has just completed a thorough examination of our financial market. This examined the currency defence mechanism and the operation of our securities and futures markets.

The review noted that, as a major international financial centre Hong Kong could not remain immune from the financial turmoil afflicting the region.

However, we successfully defended ourselves from short-sighted predatory raids on the currency and overall we were affected far less than our neighbouring markets. It is also a very lucrative market for investors and generates excellent hard-currency returns.

Indeed, the Hong Kong market remains lucrative and competitive, because recent adjustments to property prices have had a healthy cooling effect and put Hong Kong in a much better position for the recovery, which is now under way. Our property market had been heating so rapidly it was acquiring an unhealthy fever.

Just because we are probably the first globalised economy in Asia, we were among the last and least affected by the financial crisis in the region, and we believe we will be the first to recover fully. We are not complacent about this and we always review our actions to see if there is any way we can improve on them.

Hindsight being the wonderful tool it is, we can always find a better way to do just about anything. You will appreciate our confidence once you share our view that competitiveness can no longer be measured in terms of strength of exports in manufactured goods or commodities, but in terms of value added productivity, technology, as well as policy flexibility and efficiency.

We strongly believe in looking forward. Despite the current problems, Asia remains the world's prime engine for growth in the coming decades. Of all the economies in the region, Hong Kong has the fundamental strengths essential for sustained growth. The fever has passed and we are coming out of the crisis leaner and even more competitive.

No one should underestimate the significance of one fact: Hong Kong is part of China and, economically, we enjoy a growing and mutually beneficial interaction with the Mainland of China. China's exports rose about 8 per cent in the first quarter of this year, and were worth some US$40 billion. Hong Kong's pivotal position in capturing the advantages flowing from this trade is unrivalled.

A large proportion of those exports passed through Hong Kong and a fair percentage came here to Argentina. Two-way trade between Argentina and Hong Kong amounted to $6.14 billion (US$787.2 million) in 1997, up 16 per cent on the 1996 figure.

The signs are good for a continued improvement in our relationship. Argentina has shown the world how an economy can turn around. In the past decade your have introduced a multitude of structural reforms that have stabilised your economy, got on top of inflation and established a sound international standard for the peso. Considerable foreign investment has followed, which is a genuine indicator of confidence in an economy. The International Monetary Fund has also reported positively on your robust performance.

As I have already noted, the Basic Law is an undertaking that Hong Kong's system and way of life will remain unchanged for 50 years. At that time, 2047, we shall be half way through what many commentators now call the "Pacific Century".

We in Hong Kong live by the Pacific Ocean in a small area of 1,095 square kilometres that is just inside the tropics by about 110 kilometres. We are at the mouth of the Pearl River - which serves all of southern China - and we have excellent transport links by land, sea and air to the region and the rest of the world.

We are furthering our international links with a new airport designed for the 21st Century, which will open on July the 6th. Our container port is already the world's busiest - as it has been for the past six years - and we will add to it. We have a major expansion programme for the subway system and conventional rail system. Capital expenditure on these and other infrastructural projects such as highways and reclamations will amount to nearly US$30 billion up to the year 2002.

Hong Kong remains one of the safest cities in the world. Despite the massive influx of visitors during 1997 - and the presumed uncertainty about the Handover - crime figures were the lowest in 24 years. That trend has continued into this year.

So, Hong Kong on the "west bank" of the Pacific, if you like, want to share the successes of that century with you in this continent on the "east bank". We are geographically well placed to benefit from the economic advances forecast for the next 50 years.

The challenge of the 21st Century is to accept the globalised nature of any significant economic activity, whether that takes place in Hong Kong or Buenos Aires, to accept a shared economic future and indeed to promote shared growth. We understand that fully in Hong Kong. That is why this delegation is here.

We have an open mind about external investment and we are keen to see everyone who comes to Hong Kong succeed in their endeavours. I invite you to come and see for yourselves how much Hong Kong has to offer.

Finally, I believe there is a fairly interesting event coming up in France next month. I wish you the very best - or should that be the very Batistuta - of luck in Toulouse on the 14th of June.

End/Thursday, May 14, 1998

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