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Following is the full text of the "Hong Kong SAR - he First 12 Months" - a report on the key issues during the first 12 months of the Hong Kong Special Administrative Region of the People's Republic of China - published today (Monday):
Message from the Chief Executive
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These past 12 months have been of tremendous and historical significance for Hong Kong and its 6.5 million residents.
On July 1, 1997, the world watched as we proudly entered a new era as a Special Administrative Region of the People's Republic of China. We Hong Kong people are, at last, masters of our own destiny.
This past year has thrown up many challenges-indeed many more than we had expected, or saw coming. Chief amongst the unexpected was the financial crisis in Asia which sent reverberations around the globe and affected our economic growth in the short to medium term. Nonetheless, I am confident Hong Kong has the strengths to ride out the storm with our established institutions of free market, rule of law, prudent fiscal management and robust regulatory systems.
Hong Kong has experienced years of high property prices, high inflation and high wage increases which if not corrected will affect our long-term economic vitality. The Asian financial turmoil has accelerated the pace of the correction. The correction will be painful but necessary if we are to remain competitive. However, there is an up-side to this challenge-the downward adjustments to asset prices have led to a drop in housing and office rentals, which will ultimately help improve our competitive edge. Indeed, despite the turmoil around us, our strong financial reserves have enabled us to press ahead with our massive plan of investment in infrastructure, housing and education as originally planned.
As an SAR, we have taken some significant steps forward-our first Legislative Council elections were held in May; our first Budget was delivered in February, with tax cuts for 99% of tax payers and incentives for individuals and businesses; the first cases were heard by our ultimate appellate court, the Court of Final Appeal; initiatives were introduced to boost home ownership; infrastructure developments are forging ahead.
Throughout all of these challenges-and in particular the regional financial crisis-the Central People's Government has been very supportive. At the same time, our national leaders have stressed that under the commitments of "One country, Two Systems" and "Hong Kong people running Hong Kong" with a "high degree of autonomy", it is up to us to make our own decisions and to chart our own course. This is what was promised in our constitutional document, the Basic Law. This is what we expected would happen, and this is what is happening every day in the Hong Kong SAR.
While we in Hong Kong are moving forward with confidence, we are also mindful of the difficulties, and opportunities as well, which lie ahead. Our community is working whole-heartedly together to turn our vision into reality and make our city an even better place as the new century unfolds.
I hope this report will give you a deeper understanding of the key issues we have faced over these past 12 months. In particular, I am sure it will demonstrate our commitment to the successful implementation of the "One Country, Two Systems" concept and to those qualities which have made us one of the world's most exciting cities and a leading financial, transport, communications and trading centre.
Tung Chee Hwa
Overview
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* Reunification on July 1, 1997, went extremely well. A smooth transition for Hong Kong and its administration. The Hong Kong SAR exercised the 'high degree of autonomy' promised in the Basic Law.
* The Central People's Government (CPG) was very supportive, stressing time and again that Hong Kong people would be responsible for running their own affairs, except for defence and foreign affairs.
* The Civil Service had a remarkably smooth and stable transition-total wastage remained low at 4%, while loss at the top management level was below 3%. The Administration retained its unique cosmopolitan nature: while the Basic Law states that all Principal Officials must be Chinese citizens, one in four department heads were expatriates.
* The Court of Final Appeal (CFA), the SAR's highest appellate court was set up on July 1, 1997. It heard its first application for leave to appeal in September 1997 and its first substantive appeal in December 1997. Judges from other common law jurisdictions have sat on the CFA's full bench of five judges.
* Important court cases over the past year included those dealing with the legality of the Provisional Legislative Council, the survival of the common law as part of the laws of the SAR and the right of abode of Mainland-born children with a Hong Kong parent.
* The World Bank/International Monetary Fund annual meetings were held in Hong Kong in September 1997. Finance Ministers, financial market leaders and journalists from around the globe saw first-hand how well Hong Kong was operating after reunification.
* Chief Executive Tung Chee Hwa delivered his first policy address in October 1997, setting out his vision for the future of the Hong Kong SAR. Emphasis was on education, housing, high-tech industry, information technology and making Hong Kong more competitive.
* Hong Kong economy hit by fallout from Asian financial crisis. GDP declined by around 2% in the first quarter of 1998, the lowest figure since 1985. GDP grew by 5.3% in 1997.
* Stock market capitalisation down by 46% at the end of May compared with the peak in August 1997. Residential property prices down by 28% in April 1998, compared with the peak in October 1997. Interest rates pushed higher and will remain high in the short-term.
* Hong Kong Dollar remained firm in face of massive speculative attacks in October. IMF fully supported Hong Kong's actions. Business and investors provided with a haven of currency stability within a region in turmoil.
* Tourism hit. Arrivals in 1997 down 11.1% over 1996; down about 24% in the first four months of 1998 compared to the same period in 1997. However, with 10.4 million arrivals in 1997, Hong Kong was still the most popular tourist destination in Asia (excluding the Mainland). Initiatives launched by the government and Hong Kong Tourist Association to lure back visitors.
* Unemployment and under-employment rates edged up. Major efforts underway to retrain displaced workers. Top-level Task Force on Employment set up to look at job creation. Media continued to question and criticise government decisions with as much vigour and openness as before the Handover, and freely discussed sensitive issues such as Tibet, Taiwan and Mainland dissidents. Controversial films such as Seven Years in Tibet, which was critical of the Mainland, continued to be screened in Hong Kong.
* Political protest alive and well. More than 1 400 demonstrations -140 a week compared to 87 a week one month before the Handover - have taken place from July 1 until the end of April. Police have not refused a single application for a march permit. Annual Tiananmen Square vigil held peacefully and without incident on June 4.
New strain of avian flu virus detected for the first time in humans in August led to the deaths of six people and the reported infection of another 12. Government ordered slaughter of about 1.5 million chickens over three days from December 29 to contain spread of virus. No new cases detected since December 28, prompting world health experts and the World Health Organisation to say Hong Kong's actions had prevented a global outbreak.
* First Budget of the HKSAR delivered in February 1998. Biggest tax cuts ever announced would see 99% of salary earners paying less tax. Corporate profits tax cut plus a wide range of business-friendly incentives announced. New spending on housing and infrastructure; increased spending on economic development, education, health, social welfare.
* Promotion of mother tongue teaching (i.e. in Cantonese) in secondary schools caused controversy but would lead to better overall results, including higher English standards. More resources for English teaching to include recruitment of up to 750 additional native-speaking English teachers.
* In March and April 1998 a bloom of marine algae - known as 'red tide' and found in other parts of the world - killed a large proportion of the sea fish farmed in Hong Kong waters. However, the loss accounted for only some 1% of all marine fish consumed annually in Hong Kong.
* Records tumble in the first Legislative Council (LegCo) election of the HKSAR on May 24. Record number of candidates (166), record number of voters (1.49 million), record turnout rate (53%), record voter registration (2.8 million). All 60 LegCo seats returned by elections.
* Hong Kong's new state-of-the-art airport ready to open on July 6. The airport and related road, rail and reclamation projects cost US$20 billion over the past eight years. New road, rail and port projects forged ahead to maintain Hong Kong's position as a regional transport hub and pre-eminent gateway to the Mainland. Over the next five years, more than $235 billion (US$30 billion) to be spent - 50% more than on the Airport Core Programme. Thousands of jobs to be created.
* High-powered Hong Kong Guangdong Joint Co-operation Conference set up to comprehensively strengthen co-operation with Guangdong Province and to improve co-ordination in a range of issues such as trade and economics, infrastructure develop-ment, transport links and passenger flows.
* SAR maintained its global outlook - member in its own right of international organisations such as the WTO, APEC, the WCO. Also took part in activities of international organisations limited to states such as the IMF, ICAO and WIPO as part of the PRC delegation. Concluded agreements on air services, surrender of fugitive offenders, transfer of sentenced prisoners, mutual legal assistance and visa abolition. Since July 1, 1997, has taken part in more than 500 international meetings not limited to states using the name 'Hong Kong, China'.
* Hong Kong remained one of the world's safest cities. Law and order situation very good. Crime rate in 1997 was the lowest for 24 years. Downward trend continued in the first four months of 1998.
* Concerted efforts to stamp out piracy of intellectual property rights. Up to end of May, more than $1.2 billion (US$154 million) worth of pirated goods and equipment confiscated. Despite these efforts and tough new laws, Hong Kong, disappointingly, remains on the US piracy 'watch list'.
* The Independent Commission Against Corruption maintained its stringent world-renowned vigil against corruption in the private and public sectors. Pre-Handover jitters of a sharp rise in corruption cases unfounded-corruption remained under control.
* Emigration down 23% in 1997 to 30 900 compared to 40 300 in 1996 and a peak of 66 200 in 1992. Net inflow of Hong Kong residents doubled in 1997 to 127 000, compared to 63 900 in 1996. Steady increase in expatriate population (excluding foreign domestic helpers) rising from 200 000 at the end of 1993 to 335 000 at the end of 1997.
* Vietnamese Migrant issue close to an end. Port of first asylum policy scrapped in early 1998. At the end of May 1998, only 1 160 Vietnamese Refugees and 660 Vietnamese Migrants remained in Hong Kong.
* Chief Executive Tung Chee Hwa, Chief Secretary for Administration Anson Chan and Financial Secretary Donald Tsang embarked on a series of high-profile visits to the United States, Canada, Europe, Southeast Asia, Japan, South America, Australia and New Zealand to explain how well Hong Kong was operating under the concepts of 'One Country, Two Systems' and to boost trade and investment ties.
They said it ...
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'So far, so good' continues to be the view of the Hong Kong Transition Task Force ... there is no evidence of explicit Chinese interference in Hong Kong affairs ... we see no clear threat to Hong Kong's autonomy ... political protesters and demonstrators continue to carry out their activities without constraint ... the Hong Kong media continues to operate freely ... the Hong Kong judiciary continues to operate independently and without taint of political influence. -Excerpts from third quarterly report of the Speaker's Task Force on the Hong Kong Transition, US Congress, June 6, 1998
Hong Kong is the world's freest economy. -Heritage Foundation, Index of Economic Freedom 1998
Hong Kong is the second most competitive economy in the world. -World Economic Forum report, June 2, 1998
I have lived here long enough to know that Hong Kong will always spring surprises on you. But my time here taught me one certainty - that you underestimate the talent and resilience of Hong Kong people at your peril. Hong Kong people have always risen to a challenge. And I believe that they will continue to build one of the great cities of the world. -HSBC Holdings chairman Sir William Purves, reflecting on his more than 40 years in Hong Kong, The Asia Society, May 26, 1998
Hong Kong continues to be a most attractive place for Europe's business community as it remains a haven of stability in a region in turmoil and plays an invaluable role as a regional hub and a bridge to the Mainland. -Etienne Reuter, Head of Office, European Commission in Hong Kong, South China Morning Post, May 9, 1998
Hong Kong's banking system has the best overall quality in Asia, while Hong Kong, Singapore and Japan are the least risky places in Asia to do business. -Political and Economic Risk Consultancy (PERC) 1998 report, April 1998
With massive reserves, no public debt, a strong legal system, a strong external position, rigorously enforced anti-corruption regime, and a budget in surplus, Hong Kong is better prepared than most regional economies to weather the current economic uncertainties. -United States Hong Kong Policy Act Report, April 1, 1998
Some 96% of respondents to a survey had a 'very favourable' or 'favourable' view of Hong Kong's business environment in the next five years, despite the regional turmoil. -AmCham annual business confidence survey
More than 80% of German companies in Hong Kong have not noticed any significant change in the investment climate since the Handover. Some say the situation has improved and over a third plan to increase their activities in the Special Administrative Region over the next five years. -Survey on German Business in the Special Administrative Region of Hong Kong and China 1997/98, March 1998
Hong Kong retains a free and dynamic press. Political parties remain active, and continue to play an essential role in leading and informing popular debate ... The rule of law, essential to Hong Kong's continued prosperity and stability, remains strong and durable. -Excerpts from the 'Six-monthly Report on Hong Kong July-December 1997', released by British Foreign Secretary Robin Cook, January 1998
Hong Kong people's average income of HK$187,000 (US$24,000) in 1996 ranked 13th in the world. Spending power was ranked fourth behind the US, Singapore and Switzerland. -World Bank Report 1998
Hong Kong [and Singapore] are the least corrupt territories in the region. -1997 Corruption Perception Index, compiled by Transparency International
Runification
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On July 1, 1997, Hong Kong entered a new era as a Special Administrative Region (the HKSAR) of the People's Republic of China. Under the concept of 'One Country, Two Systems', Hong Kong is charting its own course, with the exception of foreign affairs and defence.
The HKSAR's constitutional document - the Basic Law - guarantees the capitalist system and way of life in Hong Kong will remain unchanged for 50 years. Hong Kong has been promised, and is exercising, a high degree of autonomy and continues, among other things, to manage its own economic policies and finances, issue its own currency, keep its low and simple tax regime, enjoy independent executive, legislative and judicial power, maintain its own laws and common law system, employ its own civil service and remain a free port and a separate customs territory.
Some 6 500 foreign and local media in Hong Kong for the reunification, and a world-wide television audience in the hundreds of millions, witnessed the establishment of the HKSAR, the swearing in of the Chief Executive, Mr Tung Chee Hwa, and his 'Cabinet' the Executive Council; the swearing in of the Provisional Legislative Council, all serving principal government officials (except two who retired) and the Judiciary, including Hong Kong's first Chief Justice of the Court of Final Appeal.
The Central People's Government established the Office of the Commissioner of the Ministry of Foreign Affairs (MFA Office) in Hong Kong on July 1, 1997. Since then, the MFA Office and HKSAR Government have worked closely, mainly in relation to Hong Kong's continued participation in international organisations and conferences, negotiation and conclusion of agreements, and the management of foreign consular and other official and semi-official missions.
Since July 1, the CPG has authorised the HKSAR Government to conclude 35 bilateral agreements - 19 air services, seven overflight, seven reciprocal juridical assistance and two visa abolition. The Hong Kong SAR has taken part in 44 international conferences limited to states as part of the PRC delegation and participated on its own, using the name 'Hong Kong, China', in more than 500 inter-national conferences not limited to states.
A total of 100 foreign states has maintained an official or semi-official presence in Hong Kong including 53 consulates-general, 41 honorary consuls and six semi-official (mainly trade) missions.
Recognising world-wide interest in Hong Kong before and after reunification, the HKSARG has compiled reports on the implementation of two international covenants in the first year of the HKSAR. Reports on the International Covenant on Civil and Political Rights and the Inter-national Covenant on Economic, Social and Cultural Rights will be submitted in August via the MFA Office to China's Permanent Representative to the UN for onward transmission.
The People's Liberation Army (PLA) Forces Hong Kong (Hong Kong Garrison) assumed defence responsibilities for the HKSAR at zero hour on July 1. The Garrison has settled in well since arrival and has been an almost invisible element of Hong Kong life. About the only time uniforms can be seen are on the guards at the front gate of PLA HQ in Hong Kong. Effective liaison and co-operation has been established between the HKSARG and the Garrison.
The Rule of Law
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The rule of law is the cornerstone of Hong Kong's success and one of its greatest strengths. It ensures equality of all before the law and a level playing field for business. As noted by the Economist magazine, if Hong Kong has a defining ideology, it may be the rule of law.
The Basic Law provides the constitutional foundation for the continuation of the legal system previously in force in Hong Kong.
Since reunification, Hong Kong remains a member of the common law world. Apart from a few ordinances which were inconsistent with the Basic Law, the ordinances previously in force have been adopted as the laws of the HKSAR. Criminal prosecutions are controlled by the Department of Justice free from any interference and in accordance with the established legal principles and declared policy. This ensures Hong Kong has a prosecution system which is independent, effective and just and that prosecution policy is applied without fear or favour.
As was the case before reunification, justice continues to be administered by an independent judiciary. Judges serving before reunification remain in office. The public continues to have unrestricted access to the courts.
Sitting at the pinnacle of Hong Kong's legal system is its own final appellate court, the Court of Final Appeal (CFA), which was established on July 1, 1997. The CFA is the ultimate arbiter of the development of the common law in Hong Kong.
The Full Court comprises the Chief Justice, three permanent judges and one non-permanent judge chosen from a list which, under a unique arrangement, includes judges from other common law jurisdictions.
The current pool of judges from other common law jurisdictions is a 'Who's Who' of the common law world - from Britain, two serving Law Lords, Lord Nicholls of Birkenhead and Lord Hoffman; from Australia, former Chief Justice of the High Court Sir Anthony Mason and former High Court Judge Sir Daryl Dawson; and from New Zealand, retired President of the Court of Appeal and Privy Councillor, Lord Cooke of Thorndon, and retired Court of Appeal Judge Sir Edward Somers. The involvement of experienced overseas judges in the Court of Final Appeal helps Hong Kong to maintain its links with the rest of the common law world.
The CFA held its first application for leave to appeal in September last year and the first substantive appeal in December. So far, the Court has heard 27 applications for leave to appeal and four substantive appeals.
Underlining the importance placed on maintaining and strengthening the common law system, Hong Kong's laws and its legal system have been the subject of lively and robust debate in the past year.
The Basic Law has already engaged the courts. Litigation on two fronts has been of particular interest:
The challenge to the legality of the Provisional Legislative Council (PLC). This matter (HKSAR v David Ma and others) was resolved by the Court of Appeal, which upheld the legality of the PLC and affirmed the continuous application of the common law in the HKSAR.
Legal challenges over the arrangements for entry into the HKSAR of Mainland-born children with a Hong Kong parent. Under the Basic Law, these children have the right of abode in Hong Kong. To facilitate orderly admission of these children into Hong Kong, the Immigration Ordinance was amended on July 9, 1997, to include a verification process before admission is granted. Parents of more than 1 000 children have challenged the arrangement, claiming it contravenes the Basic Law. The courts have so far upheld the constitutionality of this arrangement but legal proceedings are continuing.
There was wide debate on the following legal issues:
Prosecution policy: The Basic Law provides that the Department of Justice shall control prosecutions free from interference. Since reunification, this principle has been strictly observed.
There was considerable public comment on the department's decision not to prosecute in two specific and unrelated cases - Xinhua, in connection with the Personal Data (Privacy) Ordinance; and Miss Sally Aw, in the Hongkong Standard case together with others named in a conspiracy charge. The Department of Justice has made it clear in public that the status of any suspect or political factors did not feature in the decisions.
In a statement to the Provisional Legislative Council on March 23, 1998, the Secretary for Justice, Miss Elsie Leung, made it clear that prosecution decisions were taken independently. She pointed out that as the Hongkong Standard case was sub judice she would not comment on the case itself. However, Miss Leung stressed that the Department of Justice would not bow to external pressure and would continue to act in accordance with the rule of law. Miss Leung said that at the conclusion of the trial, she hoped to make a public statement on the case.
The adaptation of laws: This was necessary to maintain laws previously in force, to remove colonial terminology and ensure laws are consistent with the Basic Law and Hong Kong's status as a Special Administrative Region of the PRC. Six adaptation ordinances covering key areas such as nationality, courts of law, shipping and government land were enacted.
One of the adaptation ordinances related to the interpretation and binding effect of legislation. The adaptation defined the 'State' and its subordinate organs of power in Hong Kong law and provides that the 'State' is bound by ordinances to the same extent as the 'Crown' before reunification. The provision reflects a principle which applies in almost all common law jurisdictions (e.g. Australia, New Zealand, the United Kingdom) that the sovereign government is not bound by legislation enacted in the absence of express provision.
The move reinforces, not weakens, the common law system in Hong Kong by providing clear definitions of 'State' and the criteria under which the subordinate organs will qualify. The adaptation process has maintained rather than changed laws in place before reunification and removes any uncertainties which may arise when Hong Kong's courts have to interpret the law.
The adaptation of laws has been wrongly interpreted as giving State-owned enterprises a special legal status. This is not the case. The term 'State' has been carefully defined to exclude State-owned commercial undertakings. It reinforces the fact that no one in Hong Kong - from the Chief Executive down - is above the law.
Over the past year the Department of Justice has promoted a number of initiatives to develop and strengthen the legal system.
The development of legal bilingualism: This will help make the courts more accessible and comprehensive to the public while not compromising Hong Kong's status as an international financial centre. Since May 1997, all of Hong Kong's ordinances have been fully bilingual.
The establishment and strengthening of links with foreign jurisdictions across a broad spectrum as contemplated by the Basic Law: This includes the HKSAR's continued participation in more than 20 international organisations and the continued application of more than 200 international treaties in such areas as shipping, aviation, customs, international arbitration and private international law. Work is progressing on extending the network of bilateral agreements, currently more than 50 and covering such areas as mutual legal assistance, surrender of fugitive offenders, investment promotion and protection and air services.
Elections
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The first Legislative Council (LegCo) election of the HKSAR on May 24, 1998, was the first multi-party election held in a region of the People's Republic of China. It made history in a number of other ways.
The polls attracted a record 166 candidates representing all political persuasions, groups and parties and there were a record 2.8 million registered voters.
Despite torrential rain-and chest-deep floodwaters near some polling stations - a record 1.49 million people, or 53.3% of registered voters, cast their ballots in the five geographical constituencies.
The number of voters was 62% higher than in the 1995 polls when 920 567 people (35.8% turnout) voted and 100% higher than the 1991 polls, when 750 467 people (39.1% turnout) voted.
Turnout rate for the 28 functional constituencies was 63.5% (from 140 000 registered voters) while in the Election Committee, 790 of the 800 members (98.75%) cast their ballots.
The Chief Executive, Mr Tung Chee Hwa, described the election as an historic moment and a tremendous achievement which demonstrated Hong Kong people's determination and confidence in 'One Country, Two Systems' and 'Hong Kong people governing Hong Kong with a high degree of autonomy'.
He said the elections were a very important first step in the evolution of Hong Kong's democratic institution and 'an excellent beginning of a process which we are determined to move forward with'.
The election campaign was lively, colourful and hotly contested - as would be expected in Hong Kong. The major issues centred on livelihood matters - the economy, unemployment and job creation, housing and welfare. Maintaining Hong Kong's competitiveness and the momentum of democratic development were issues regularly raised by candidates and political parties.
All 60 members of the LegCo were returned by elections:
* 20 from Geographical Constituencies (GC) by universal suffrage;
* 30 from Functional Constituencies (FC) representing various sectors of the community which are substantial and important to the ongoing development of Hong Kong;
* 10 from an Election Committee (EC), composed of 800 members representing a wide cross-section of the Hong Kong community. The majority of the 800 were elected in open and fair elections on April 2, 1998.
After the elections, the Legislative Council will have the following members:
Democratic Party 13 (9GC, 4FC)
Liberal Party 10 (9FC, 1FC)
Democratic Alliance for the
Betterment of Hong Kong (DAB) 10 (5GC,3FC, 2EC)
Hong Kong Progressive Alliance 5 (2FC, 3EC)
The Frontier 4 (4GC)
The Citizens Party 1 (1GC)
Independents/Non-affiliated 17 (1GC, 12FC, 4EC)
The geographical constituency results demonstrated that the proportional representation voting system used - the List Voting System operating under the Largest Remainder Formula - was fair and accurately reflected voter preference. The results disproved claims before the election that the system was designed to disadvantage the democratic camp. The Democratic Party received 43% of the votes and won 45% of the GC seats; the DAB won 25% of the vote and 25% of the GC seats; The Frontier got 12% of the votes and 20% of the GC seats, while the Citizens Party got 2.6% of the vote and 5% of the GC seats.
The polls were the first step towards the election of all LegCo members by full universal suffrage as envisaged in the Basic Law. The next steps will be the Legislative Council elections in 2000 and 2004, when the number of Geographical Constituency seats will increase to 24 and 30 respectively, due to the phasing out of the Election Committee.
After 2007, the Basic Law provides a mechanism for Hong Kong people to decide how best to achieve the ultimate aim of electing all LegCo members by universal suffrage.
Economy
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The Asian Financial Crisis
Hong Kong's economic growth has been hit by the Asian financial crisis, and will continue to be affected in the short to medium term. As the Chief Executive Mr Tung Chee Hwa commented on May 29, 1998 : "Hong Kong is now in the depths of a major economic adjustment, the result of which will be painful."
Sustained speculative attacks on the Hong Kong Dollar in October last year have led to higher interest rates, which in turn have caused a sharp fall in property prices and hurt business.
The economy declined by around 2% in real terms in the first quarter of 1998 - the lowest figure in 13 years - after growing by 2.7% in the fourth quarter of 1997 and recording an annual growth of 5.3% for 1997 as a whole. GDP growth for 1998 is likely to be meagre.
The fallout has been painful. Tourism, retail, hotels and housing sectors have all suffered. Interest rates are high. Unemployment has edged up. The stock market remains unsettled.
There is an up-side-lower housing prices and rents will help Hong Kong regain its competitive edge. Inflation has dropped and is likely to continue falling. The Hong Kong Dollar has remained rock solid in the face of speculative attacks. Imports from East Asia are cheaper.
Measures were announced by the government on May 29 to stimulate the tourism industry, stabilise the property market, improve the liquidity of banks and increase the efficiency of the financial system. These were in addition to a wide range of economic stimuli announced in the 1998/99 Budget in February, including the biggest tax concessions in Hong Kong's history for individuals and business and massive spending on infrastructure.
Despite the turmoil, the Asian financial crisis has highlighted how Hong Kong is different from other markets in a number of important ways:
* Stable currency. The link to the US Dollar will stay. It has provided a safe haven for business in such turbulent times.
* Strong reserves. Sufficient to fend off speculators and to push ahead with important infrastructure development which will stimulate economic growth and create jobs.
* Well regulated and open markets, supported by the rule of law and a level playing field. Free of widespread and entrenched corruption and cronyism.
* The markets continued to operate normally, despite the regional volatility and meltdowns.
As the Asian Wall Street Journal commented on June 2: "It is important to remember that Hong Kong is a thriving financial centre, not a domino."
The crisis also presented the government and financial market regulators with an unexpected opportunity to critically test and review those systems under battle conditions, and in particular to look closely at the currency defence mechanisms and the operation of the securities and futures markets.
The Hong Kong and US Dollars have been linked since 1983 through a currency board system under which inter-bank interest rates rise automatically when there is selling pressure on the Hong Kong Dollar. This makes it difficult to speculate against the Hong Kong Dollar because inter-bank rates can become so high that selling Hong Kong Dollars becomes too costly. Unlike elsewhere, the Hong Kong Monetary Authority (HKMA) does not print money to ease temporary pain while storing up greater troubles later. Every Hong Kong Dollar issued is backed by the equivalent in US Dollars at the linked exchange rate of HK$7.80 to US$1. Currently the Hong Kong Dollar is backed eight times by US Dollars held with the HKMA.
A report of the review released in April 1998, found that the banking system and the currency defence mechanisms were basically sound but could be fine-tuned in several areas.
The review found that:
The linked exchange rate system had served Hong Kong well in maintaining currency stability and must be preserved. It found that the HKMA should continue its practice of leaving the foreign exchange market very much alone except when it needed to establish a passive presence if there was a risk of instability.
For the banking sector, the emphasis will be on ensuring banks prudently manage risks and pay special attention to the quality of assets so as not to be over-exposed to areas which are interest-rate sensitive. (Hong Kong's banking sector, nevertheless, is strong with capital adequacy ratios of locally incorporated banks averaging 17% and bad debt ratios of less than 2%.)
Several areas needed fine-tuning within the securities and futures market, including:
* Enhanced reporting on short-selling activities;
* Bringing share margin financing under the ambit of Securities and Futures Commission (SFC) regulation;
* Consolidation of new measures such as application for court orders and mandatory remedies to strengthen the enforcement of Stock Exchange Listing Rules;
* Changes to the Listing Rules for derivative warrants to reduce the market impact and to improve transparency and investor protection; and
* New measures to enhance market transparency, investor protection and education.
On May 29, the government announced that the Hong Kong Mortgage Corporation (HKMC) would streamline the purchase programme for residential mortgages. This would provide banks with greater certainty on the amount of loans they could sell to the HKMC within a specified period and should also give them greater assurance about the availability of liquidity.
It was also announced that the HKMA and major market participants were working closely on how to kick-start the development of a HK Dollar repo market. This would make fuller use of the liquid assets in Hong Kong's banking system - some US$138 billion - as well as facilitate interbank lending because of the security of such high-quality collateral.
The collapse of the investment house Peregrine, the broker-related finance company CA Pacific Finance Limited and the brokerage Ming Fung Group were the most high-profile casualties of the financial turmoil.
Peregrine's failure was primarily due to its substantial exposure to certain fixed income investments in the region and was not related to the group's business under supervision by the SFC in Hong Kong.
The closure of CA Pacific Finance Limited highlighted a regulatory loophole which has led to a review on the regulation of share margin financing activities with a view to strengthening protection for investors and enhancing prudential regulation of such companies.
The collapse of Ming Fung in May was the largest failure of a brokerage in the 12-year history of the unified stock exchange. The group's managing director was arrested for alleged theft stemming from losses incurred on futures trading. The Securities and Futures Commission has applied to wind up the group to protect the group's assets and to facilitate orderly return of the assets to potential creditors.
Trade
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Hong Kong was the world's 8th-largest trading entity in goods in 1997 - the 5th-largest if the European Union is taken as a single market.
Total trade in goods in 1997 reached $3,071 billion (US$396.7 billion), an increase of 4.7% over 1996. Hong Kong accounted for 3.6% of the world's total merchandise trade in 1997, about the same share as 1996. Hong Kong was the world's 11th largest services trading entity in 1996.
Other world trade figures for 1997:
* 9th-largest exporter (same as 1996);
* 6th-largest importer (one rank higher than 1996).
Total trade in goods for the first four months of 1998 decreased 3.5% year-on-year.
Hong Kong has been shielded somewhat from the fallout of the Asian crisis by its trading partner make-up - the Mainland of China accounts for 36% of all Hong Kong trade while other major trading partners are the USA, Japan, Taiwan, Singapore, Germany, South Korea and the United Kingdom.
Tourism
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Hong Kong is still, by far, the most popular destination in Asia (excluding the Mainland) and one of the most popular destinations in the world. In 1997, some 10.4 million people visited Hong Kong, compared with a record 11.7 million in 1996.
However, the tourist industry has been hit by the fallout from the economic crisis. Arrivals in the first four months of 1998 are down 24% over 1997. Arrivals from within Asia are down about 26% compared with 1997. The biggest drop came from Japanese and South Korean tourists, down about 58% and 65% respectively over the same period, year-on-year.
To counter the drop, the Hong Kong Tourist Association has launched a series of initiatives to lure back visitors through special deals and promotions. In May, the HKTA launched a $173 million (US$22 million) new destination campaign promoting Hong Kong as the 'City of Life' - dynamic and diverse, full of energy, colour and excitement, offering value for money and so much to see and do in so little time and space.
New measures announced by the government at the end of May will simplify entry requirements for visitors from Taiwan, as well as increase by more than 130 000 a year the Hong Kong Group Tour Scheme quota for visitors from the Mainland.
This will hopefully lead to higher tourism receipts from these two major source markets, which will in turn boost the retail, hotel and catering sectors.
The 1998/99 Budget also contained government help through:
* A $100 million International Events Fund to help stage some 50 major events in Hong Kong within the next five years;
* Reduced hotel accommodation tax - down to 3% from 5%;
* A cut in air passenger departure tax - down to $50 from $100;
* A cut in the marine ferry terminal fee - down to $18 from $25.
Hong Kong's new state-of-the-art airport, with two runways and 24-hour operation, is expected to stimulate the tourism industry. It will provide increased capacity, greater flexibility in airline scheduling and scope to introduce new services to and from Hong Kong.
Labour and Employment
---------------------
Hong Kong's unemployment rate hit a 14-year high of 3.9% in the three months from February to April 1998 as the fallout from the Asian crisis began to bite, particularly in the construction and consumption-related sectors such as retail and restaurants. Several big-name stores have either closed or laid off staff.
While not high by world standards, the number of jobless is causing considerable concern in Hong Kong, where an unemployment rate of around 2% or lower is regarded as the norm.
A top-level Task Force on Employment, headed by the Financial Secretary, met for the first time on June 3 and announced that at least 100 000 job vacancies would come on line over the next 18 months.
One problem is job mismatch - at the end of May there were more than 120 000 unemployed but there were also 50 000 job vacancies in the labour market. The government is looking at ways to address this problem through training, retraining and the strengthening of job matching and employment services.
Efforts are being made by the Employees Retraining Board to develop special tailor-made retraining programmes to match job vacancies.
The Vocational Training Council is running a new Business Starter Programme to help potential owner-managers set up small businesses. It is also providing skills upgrading and new training courses in a wide range of areas - from printing and electronics to insurance and information technology.
Small and medium enterprises will receive help through the Pilot Credit Guarantee Scheme for which a $500 million (US$64 million) capital injection has been granted to the Hong Kong Export Credit Insurance Corporation to enable businesses to obtain financing from lending institutions.
Looking ahead, overall employment prospects are positive. There are various new growth areas which will generate substantial employment opportunities:
Infrastructure development : The HKSAR will spend $235 billion (US$30 billion) over the next five years on new railways and roads, reclamations and housing. This will generate employment opportunities in the construction and related sectors. For example, about 13 000 jobs will be created by the end of 1999 on the KCRC West Rail and MTRC Tseung Kwan O extensions.
New Hong Kong International Airport : About 6 000 new jobs to come on line during initial opening phase.
Liberalisation of the telecommunications market: Thousands of jobs to be created at the technical, managerial and professional level as well as those supporting the building of telecommunications infrastructure, such as sub-contractors, engineers and construction workers.
Mandatory Provident Fund (MPF) Scheme: Significant employment opportunities expected in the financial services sector, with additional jobs in banks, trustees and insurance companies.
Mandatory Provident Fund
------------------------
During the past year, Hong Kong finalised plans to introduce a Mandatory Provident Fund (MPF) Scheme as a long-term measure to provide retirement benefits for employees and the self-employed.
The MPF Scheme will have far-reaching and positive effects in several areas. It will add a new breadth and depth to the capital market and strengthen Hong Kong's position as an international financial centre.
Contributions to the MPF will amount to about $10 billion (US$1.3 billion) a year and increase to about $60 billion (US$7.7 billion) annually when the system matures.
Property Market and Housing
---------------------------
The property market is perhaps the greatest barometer of Hong Kong's growth and the confidence of its citizens. When the property market is booming, confidence is high. When the property market takes a tumble, so too does the confidence level of Hong Kong people.
In a city with such a limited land supply, housing prices will always be more sensitive than most areas to the law of supply and demand. This sensitivity has been compounded by the 'Asian Contagion', which has pushed interest rates higher in the short-term and, in turn, dampened consumer sentiment.
Property prices are down about 35% compared with nine months ago, while rents have seen similar sharp decreases. Sales in the first five months of the year are more than 50% down on the same period last year, while the value of transactions is 61% down over the same period. For landlords, the correction may be painful, especially if properties were bought for speculative purposes rather than as a long-term investment or as the family home.
Housing has now returned to a more affordable level. Prices will bounce back, but at a slower, more gradual and more realistic rate. As the Financial Times pointed out on May 29: "So far there is no reason to panic. Most of the fall in property prices is the correction of a bubble."
The correction, though, was needed because high property prices - sales and rentals - were adversely affecting Hong Kong's competitiveness. Lower rentals for office space and flats will help retain business in Hong Kong. On the housing front, the government aims to achieve a home ownership rate of 70% within the next decade. Currently, just over half of Hong Kong people live in flats they own.
To increase the home ownership rate, the government has launched a number of schemes and initiatives over the past year, including :
* Tax deductions on mortgage interest payments;
* Offering more subsidised flats for sale;
* Home starter loans; and
* Encouraging public housing tenants to buy the flats they occupy at a considerable discount to the private market.
A key element to the new strategy, which will see up to 85 000 flats a year produced in the private and public sectors, is the introduction of a rolling five-year land disposal programme which will provide developers and the public with a better idea of how much, and when, land will be released for development. Despite uncertainties in the housing market in recent months, a stable supply of land for housing development will ensure that Hong Kong's future housing demand will be met in the years to come.
At the end of May the government announced the suspension of several measures relating to the pre-sale of flats that had been introduced to curb speculation. The day after the measures were announced, 1 400 flats at a new residential complex were sold within hours. The flats were offered at a price about 30% lower than the secondary market in the area, indicating that demand for property is still strong at a competitive price.
The main and overriding concern has been to stabilise property prices to prevent the rapid increases which contributed to a 'bubble' economy.
1998/99 Budget
--------------
The 1998/99 Budget at a glance
Total public expenditure $288.89 billion (US$37 billion)
Government expenditure $233.03 billion (US$29.9 billion)
Government revenue $258.99 billion (US$33 billion)
Consolidated surplus* $10.74 billion (US$1.37 billion)
Fiscal reserves (at 31-3-98) $445.57 billion (US$57 billion)
* Consolidated Surplus = Revenue-(Expenditure + new Budget revenue measures + equity investment into Capital Investment Fund).
Despite the economic turmoil besetting the region, the Hong Kong SAR Government has been able to introduce a range of new tax concessions and lower taxes for individuals and corporations.
In addition, the government has been able to push ahead with important and substantial spending on infrastructure, housing development and education programmes at a time when many governments in the region are tightening their belts.
The reason is the tried and tested policy and practice of limiting spending increases to within the trend growth rate of GDP over time. Simply put, the HKSAR Government does not spend any more than it earns.
There is no government debt. Budget surpluses are the norm, which in turn has allowed the government to accumulate considerable fiscal reserves.
The 1998/99 Budget focuses on sharpening Hong Kong's competitive edge through several initiatives and specific tax concessions, including:
* Standard rate of corporate profits tax reduced to 16% (from 16.5%);
* Advance ruling service on source of profits;
* 100% write-off for expenditure on manufacturing plant and machinery owned by end users;
* Widening network of agreements to avoid double taxation;
* Stamp duty on stock transactions cut from 0.3% to 0.25%;
* Concessionary tax rate of 50% of normal profits tax for offshore business or professional reinsurance companies;
* $500 million (US$64 million) for a pilot Credit Guarantee Scheme;
* $274 million (US$35 million) for the Industrial Support Fund;
* $500 million (US$64 million) promised for Applied Research and Development Scheme;
* Broader tax bands and higher allowances means 99% of people will pay less tax. The number paying tax at the standard rate of 15% reduced from 71 000 to 10 000;
* $100,000 (US$13,000) a year tax deduction on mortgage rate interest payments;
* $18 billion (US$2.3 billion) Home Starter Loan Scheme to help people buy their own homes.
Infrastructure Development
--------------------------
One of Hong Kong's greatest strengths is that it can push ahead with significant infrastructure developments without the need for the government to borrow money.
The government will spend $235 billion (US$30 billion) over the next five years on new projects - 50% more than was spent on the Airport Core Programme. The projects will not only boost Hong Kong's position as a regional transport hub, but also provide thousands of jobs.
Major railway projects include:
* KCRC West Rail Phase I, which will open up the northwest New Territories for future development;
* The MTRC Tseung Kwan O extension, which will provide a public mass transit link to Tseung Kwan O New Town and the urban areas;
* The $9.1 billion (US$1.2 billion) KCRC Ma On Shan extension linking the northeast New Territories to Tsim Sha Tsui.
The West Rail and Tseung Kwan O projects will together double the existing length of Hong Kong's railway system and create 13 000 jobs by the end of 1999>
It is expected that some 20 000 new jobs will come on line each year over the next four years as a result of the planning and implementation of other major public works programmes, including:
* The $21.7 billion (US$2.8 billion) Route 10 highway from North Lantau to Yuen Long;
* The $10.5 billion (US$1.35 billion) Central-Wan Chai Bypass and Island Eastern Corridor Link;
* The $9.8 billion (US$1.25 billion) Route 9 road from Tsing Yi to Cheung Sha Wan;
* The $7.6 billion (US$975 million) South East Kowloon waterfront development;
* The $7.2 billion (US$920 million) Kowloon Bay reclamation.
New Airport
-----------
The new Hong Kong International Airport at Chek Lap Kok will begin commercial operations on July 6, with an initial capacity of 35 million passengers and 3 million tonnes of cargo a year. On full development, the airport will be able to handle 87 million passengers and 9 million tonnes of cargo a year.
In one of the world's biggest peace-time logistical operations, tens of thousands of tonnes of equipment will be moved in more than 1 000 journeys from Kai Tak to Chek Lap Kok on 'move night' straddling July 5 and 6. In all, 10 000 vehicle journeys, 70 barge movements and 30 flights from Kai Tak to Chek Lap Kok will have been made from the beginning of May until the scheduled end of the relocation in early August.
About 6 000 new jobs will be created during the initial opening phase due to increased private sector participation and the introduction of competition in franchised services at the new airport.
The airport is the centrepiece of a US$20 billion investment in Hong Kong's future, which includes:
* New roads, expressways and bridges, including the world's longest suspension bridge carrying road and rail traffic;
* Reclamation for commercial and residential development on Hong Kong Island and Kowloon;
* A new town at Tung Chung (opposite the airport island) which will eventually house 320 000 people by 2011;
* High-speed trains linking Hong Kong Island and Kowloon to the new airport and Tung Chung New Town;
* A third cross-harbour link for road and rail traffic.
In addition, the Ting Kau Bridge - the world's longest cable-stayed bridge - opened in May. The bridge links the northwest New Territories into the ACP road network and alleviates severe traffic congestion experienced in the area.
Port
----
Hong Kong maintained its position as the busiest and most efficient container port in the world in 1997 with a throughput of 14.5 million TEUs (twenty-foot equivalent units).
Work on the new Container Terminal 9 (CT9) is expected to start early next year and to be fully operational by early next century. Tied in with this project is a realignment of the container terminal berths to allow for an even more efficient handling of cargo by the various terminal operators. Plans are being developed for a new Container Port (CT10 and CT11) on Lantau Island which will double capacity of the existing port to cope with port needs well into the next century.
A new River Trade Terminal will open later this year to cope with increases in cargo coming through the Pearl River Delta.
Education
---------
Education is the key to the future of Hong Kong. The government is committed to maintaining and upgrading the quality of education at all levels. All children aged between six and 15 have access to free, universal basic education.
Major developments over the past year include:
* The promotion of mother-tongue teaching (i.e. in Cantonese);
* The establishment of a $5 billion (US$640 million) Quality Education Fund to promote quality and innovation in the school sector;
* Increased use of information technology in schools;
* Upgrading the teaching and learning environment;
* Enhancing the professional quality of principals and teachers.
Of all policy initiatives, the promotion of mother-tongue teaching has perhaps generated the most debate in Hong Kong and overseas. Mother-tongue teaching, regarded world-wide as the most effective medium, will be adopted in most public secondary schools from the 1998/99 Secondary 1 intake.
The policy is not new - it has been a government objective since the early 1980s - and Cantonese has been the medium of instruction in most public primary schools for many years. What is new is that English medium of instruction will only be allowed in those public sector secondary schools which meet certain criteria in regards to student language proficiency, teacher capability and support services.
The overriding objective in the promotion of mother-tongue teaching is to increase the ability of students to understand what they are being taught and their capacity to express ideas and opinions in language that comes naturally and is easy to understand and comprehend.
The policy has been wrongly interpreted as placing less importance on English. In fact, the opposite is the case. A new programme has been launched to recruit 750 native-speaking English teachers as part of a package of measures to provide additional resources to those schools which use Chinese as the medium of instruction.
Also with effect from the 1998/99 school year, Putonghua will become a core subject in public primary and secondary schools on a gradual and expanding basis starting with Primary One, Secondary One and Secondary Four. Hong Kong's reunification with the Mainland, and the increasing importance of Putonghua in the region, reinforces the need for Hong Kong's citizens to be able to communicate in this language.
The government's language policy is to enable students to be biliterate (written Chinese and English) and trilingual (fluent in Cantonese, Putonghua and English), which will enhance their chances in the job market as well as boosting Hong Kong's reputation and competitiveness as an international business centre.
Public Health
-------------
Hong Kong has had several high-profile, though unrelated, public health problems over the past year.
Most notable was the detection in August last year by Hong Kong's disease surveillance system of a new avian 'flu virus (Influenza A H5N1 Virus) for the first time in humans. The virus killed six people, while another 12 infections were reported.
The government acted quickly to contain the outbreak, taking the unprecedented step of ordering the slaughter of some 1.5 million chickens in three days from December 29. The success of the action can be shown by the absence of any new infections after December 28. This prompted world health experts and the World Health Organisation to state that the chicken slaughter probably prevented a global outbreak of the disease.
Changes in the global climate, the environment and frequent travel to other countries led to an increase in communicable diseases. A spate of cholera cases occurred in February 1998. The sources were quickly traced.
This was followed by a bloom of marine algae, known as 'red tide', in March and April 1998 which swept through Hong Kong waters and killed a large proportion of the sea fish farmed in fish culture zones in Hong Kong. However, the loss accounted for only some 1% of all marine fish consumed annually in Hong Kong. No persons were taken ill as a result of the incidents.
While the government continues to step up controls on food health and improve public hygiene, the string of incidents prompted it to launch a major campaign in June to promote the importance of a healthy lifestyle as well as personal and environmental hygiene.
A consultation paper released on June 1 proposed that the government assume responsibility for all food safety and environmental hygiene because the current fragmentation of responsibilities between it and the two municipal councils was undesirable and inefficient.
Law and Order
-------------
Police
------
Hong Kong remains one of the world's safest cities. Residents and visitors feel comfortable taking a stroll at any time of the day or night.
Hong Kong's 1997 crime rate of 1 036 crimes per 100 000 population was the lowest for 24 years. It is roughly the same as that in Singapore and lower than that in Tokyo, London and major cities in the USA, Canada and Europe. The police-to-population ratio of 426 police to every 100 000 residents is one of the highest in the world.
The police retain responsibility for the law and order situation in Hong Kong, which includes the patrolling of the boundary with neighbouring Shenzhen. Enhanced co-operation with Mainland authorities led to a 23% drop in the number of illegal immigrants and a 30.7% drop in the number of illegals arrested for crime in 1997 when compared with 1996.
Hong Kong remains a member of Interpol as a sub-bureau of China and maintains close working relationships with overseas law enforcement agencies in the ongoing fight against organised crime, narcotics, currency and credit card fraud and money laundering.
Protecting Intellectual Property
--------------------------------
New laws introduced in March 1998 and new licensing procedures introduced in December 1997 reinforce ongoing and concerted efforts to stamp out the piracy of intellectual property rights, especially movies, songs and computer software.
Since December, the import and export of optical disc manufacturing equipment have been subject to licence. New laws passed in March require the licensing of all businesses involved in the production of optical discs. Customs officers have been given extended powers to conduct spot checks to ensure premises are not involved in the manufacture of pirated goods.
Enforcement action against piracy has been considerable - more than 28 million suspected pirated optical discs and manufacturing equipment, together worth more than $1.2 billion (US$154 million), have been seized by Customs and Excise officers and the Independent Commission Against Corruption in the first five months of 1998.
In addition, in what is thought to be a world first, a schools visits programme has been launched by the Intellectual Property Department to increase public education about why piracy is wrong and how it adversely affects Hong Kong's international reputation. So far, more than 25 000 school children from 90 schools have participated. The aim is to visit all 400 secondary schools within the next five years.
The Hong Kong SAR Government has expressed disappointment that the United States has failed to fully recognise the considerable efforts taken to combat piracy. This followed the publication of the United States Trade Representative's Report in April, which kept Hong Kong on its copyright piracy 'watch list'. Hong Kong will continue to take vigorous enforcement action against piracy and to lobby the US Trade Representative for a review of the rating.
Immigration
-----------
Since July 1, 1997, Hong Kong has been responsible for its own immigration policies and the issuing of the HKSAR Passport.
The government continued to lobby actively for visa-free access for SAR Passports, of which more than 550 000 have been issued since July 1, 1997.
As at June 2, 1998, 47 countries have granted visa-free access. Lobbying efforts are continuing and bearing fruit as more countries become familiar with the passport and its state-of-the-art security features.
In January 1998, the Immigration Department introduced a Travel Pass scheme which allows pass holders to use residents' counters at immigration control points as part of ongoing efforts to make travel easier for businessmen and women who already have visa-free access to the Hong Kong SAR.
Hong Kong has continued its liberal visa regime. Nationals from more than 170 countries and territories can visit the SAR visa free.
More people than ever are calling Hong Kong home. The expatriate population continues to increase, rising to 500 945 at the end of March - a 9% increase over the 460 481 expatriates living in Hong Kong at the end of 1997.
Emigration dropped 23% to 30 900 in 1997, compared with 40 300 in 1996 and a peak of 66 200 in 1992. The net inflow of Hong Kong residents has also surged considerably - 127 000 in 1997 compared with 63 900 in 1996 and 20 400 in 1994.
Fighting Corruption
-------------------
Hong Kong has a vigorous, active and highly respected Independent Commission Against Corruption (ICAC) which is determined to root out and punish corruption wherever it surfaces. It has been used as a role model for similar anti-corruption agencies throughout the world.
Despite pre-Handover jitters about a significant increase in corruption after reunification, the situation has remained under control. From July 1997 until the end of May 1998, there were 3 009 corruption reports compared with 2 876 reports over the same period in 1996/97. The slight increase in reports underlines the continued public confidence in the ICAC.
The ICAC maintains close working relations with its Mainland counterparts in combating cross-boundary corruption through co-operative efforts on the enforcement and educational fronts. It also has excellent working relationships with overseas law enforcement bodies through the exchange of information and mutual assistance in investigation work.
The independence of the ICAC is upheld in the Basic Law. The government is committed to ensuring the ICAC will continue to play a leading and vital role in maintaining Hong Kong's level playing field and discharge its duties without fear or favour.
Looking Ahead
-------------
The past year has not been easy - but Hong Kong people have handled the economic and social challenges over such a short space of time with considerable skill and their customary pragmatism.
Hong Kong has proved time and again it has a remarkably resilient and flexible economy and workforce, able to cope quickly and efficiently with rapid changes in regional or world markets. This is still the case.
Over the past 30 years the economy has been transformed from manufacturing to one based on the provision of services. The challenge now is to keep that momentum going. Hong Kong has responded to the challenge with sweeping tax concessions for individuals and business a huge public investment programme designed to keep the economy ticking over when the wheels of progress could have easily become stalled.
The SAR is positioned well, regionally and globally. With the rule of law, a well-managed, well-regulated economy and clean and open administration, underpinned by the success of 'One Country, Two Systems' and the support of the Central People's Government, Hong Kong has the capacity and the track record to be among the first to take advantage of the regional renewal when it inevitably comes.
Sizeable reserves, a prudent fiscal policy and low, predictable taxes will, in the meantime, provide the economy with the breathing space it needs during such volatile times.
Hong Kong has always been bold and global in outlook. These qualities have helped propel Hong Kong to international status, and they will carry it forward into the 21st Century.
Addendum
--------
In a major response to the effects of the Asian financial turmoil, the government on June 22, unveiled a four-part stimulus package to relieve hardship and revive Hong Kong's economy. It is designed to address the credit and liquidity crunch, falling property prices, business and domestic costs and declining public confidence.
The measures cover :
Easing the credit and liquidity crunch -
* Exempt interest income earned locally from profits tax with immediate effect. This will provide additional liquidity and improve the lending appetite of the banking system through the repatriation of offshore deposits to Hong Kong. This measure could bring in an estimated $200 billion (US$25 billion) to the Hong Kong banking sector.
* Set up a new $2 billion (US$256 million) scheme to help non-export related small and medium enterprises to obtain loans.
Stabilising property prices -
* Suspend all land sales by auction or public tender for the remainder of the 1998/99 financial year and freeze processing of six private treaty grants earmarked for a special category of housing development.
* Double the 1998/99 allocation for the Home Starter Loan Scheme from $3.6 billion to $7.2 billion (US$460million to US$920 million) which will increase the number of eligible families from 6 000 to 12 000.
* Increase the 1998/99 quota of families eligible for the Home Purchase Loan Scheme from 4 500 to 10 000.
Easing costs burdens on families and business -
* Rebate the first quarter rates paid for 1998/99. This will return some $3.9 billion (US$512 million) to residential and commercial ratepayers.
* Reduce duty on diesel by 30%, down to $2 a litre from $2.89 a litre for the remainder of the financial year. This will provide immediate relief to more than 22 000 taxi and public light bus drivers as well as reduce the transportation costs of 127 000 goods vehicles.
* Reduce by $200 million (US$26 million) annually ($130 million for 1998/99) the charges paid by importers and exporters.
Senior civil servants' pay adjustment freeze -
* A freeze on the pay adjustment of about 330 senior directorate officers in the civil service as well as staff of the equivalent seniority in the Judiciary, ICAC and subvented sector. This will save about $70 million (US$9 million).
The Chief Executive, Mr Tung Chee Hwa, said: "As a result of the financial turmoil, it is certain that the days ahead will be very difficult. But I can say for sure that our financial foundation is very solid, our monetary system is robust, our currency, backed up by the currency board arrangement, is stable.
"Our policies to stick to the linked exchange rate system and prudent fiscal management will remain unchanged. Given this, and coupled with our advantages of the strong economic development in the mainland of China as backup, Hong Kong will complete its economic adjustments very soon and emerge from this difficult situation."
The package has been drawn up under the guiding principles of maintaining the confidence of investors and the international community in Hong Kong; observing market discipline and upholding prudent business practices; ensuring no adverse impact on the linked exchange rate system; and, upholding prudent management of public finances.
It will result in a $21.4 billion (US$2.7 billion) deficit for 1998/99, as opposed to the budget forecast of a $10.7 billion (US$1.4 billion) surplus, which has been described by the Financial Secretary, Mr Donald Tsang, as 'acceptable' in relation to the overall size of the budget and the size of Hong Kong's reserves.
Contact Numbers
---------------
Hong Kong Economic and Trade Offices
Asia-Pacific
Hong Kong Economic and Trade Office Singapore
34-01, Tower 2 Suntec City,
9 Temasek Boulevard,
Singapore 038989
Phone : (65) 338 1771
Fax : (65) 339 2112 ; 337 7297
E-mail : hketo@pacific.net.sg
Hong Kong Economic and Trade Office Sydney
Hong Kong House,
80 Druitt Street, Level 1,
Sydney, NSW 2000,
Australia
Phone : (61) 2 9283 3222
Fax : (61) 2 9283 3818
E-mail : prhketo@ozemail.com.au
Hong Kong Economic and Trade Office Tokyo
7/F Nishi-Azabu Mitsui Building,
4-17-30 Nishi-Azabu,
Minato-ku, Tokyo 106,
Japan
Phone : (81) 3 3498 8808
Fax : (81) 3 3498 8815
E-mail : etotokyo@qa2.so-net.or.jp
Europe
Hong Kong Economic and Trade Office Brussels
Avenue de Tervuren 188A,
1150 Brussels,
Belgium
Phone : (32) 2 775 0088
Fax : (32) 2 770 0980 ; 770 0793
E-mail : hkbru@innet.be
Hong Kong Economic and Trade Office London
6 Grafton Street,
London W1X 3LB,
England
Phone : (44) 171 499 9821
Fax : (44) 171 495 5033 ; 493 1964
E-mail : hk@hketo.co.uk
Hong Kong Economic and Trade Office Geneva
5 Alle David-Morse,
1211 Geneva 20,
Switzerland
Phone : (41) 22 730 1300
Fax : (41) 22 730 1304-7
E-mail : hketo@iprolink.ch
North America
Hong Kong Economic and Trade Office New York
680 Fifth Avenue, 22/F,
New York, NY 10019,
USA
Phone : (1) 212 265 8888
Fax : (1) 212 541 7321 ; 974 3209
E-mail : hketo@hketony.org
Hong Kong Economic and Trade Office San Francisco
130 Montgomery Street,
San Francisco, CA 94104,
USA
Phone : (1) 415 835 9300
Fax : (1) 415 421 0646 ; 397 2276
E-mail : hketosf@hongkong.org
Hong Kong Economic and Trade Office Washington
1520, 18th Street N W,
Washington DC 20036,
USA
Phone : (1) 202 331 8947
Fax : (1) 202 331 8958 ; 331 0318
E-mail : hketo@intr.net
Hong Kong Economic and Trade Office Toronto
174 St George Street,
Toronto, Ontario,
M5R 2M7, Canada
Phone : (1) 416 924 5544
Fax : (1) 416 924 3599 ; 924 3542
E-mail : sio@hketo.ca
Information Services Department
8/F Murray Building,
Garden Road, Central,
Hong Kong
Newsroom (24 hours)
Duty Officer : 2842 8745 ; 2842 8747 ; 2842 8748
Fax : 2868 4726 ; 2810 1721 ; 2845 9078
E-mail : isdnews@isd.gcn.gov.hk
Overseas Public Relations Sub-Division
6/F Murray Building,
Garden Road, Central,
Hong Kong
Phone : 2842 8607
Fax : 2521 7725 ; 2524 9075
E-mail : po@isd.gcn.gov.hk
End/Monday, June 29, 1998
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