1998 Policy Address by Chief Executive


Following is the full text of the 1998 Policy Address - From Adversity to Opportunity - by the Chief Executive, Mr Tung Chee Hwa, at the Legislative Council today (Wednesday):

Madam President,

I. Introduction

1. In the past year, since I delivered the first Policy Address of the Hong Kong SAR Government, Hong Kong people have been running Hong Kong in accordance with the Basic Law. The Central Government has, by its actions, fulfilled its promise to allow Hong Kong a high degree of autonomy. The international community has generally recognised that the principle of "One Country, Two Systems" has been realised successfully in Hong Kong. The fact that China has given us her full support is something that we should take comfort in.

2. Today, Hong Kong still staunchly upholds the rule of law and practises a free market economy. Our citizens enjoy freedom of speech, freedom of the press, freedom of association and assembly, as well as the many other rights provided for in the Basic Law. In May this year, more than half of all registered electors cast their votes in the election of the first Legislative Council, representing the highest ever voter turnout rate in Hong Kong s history.

3. Yet at the same time, 1998 has been, to say the least, a trying year for Hong Kong. As the Asian financial crisis swept through the region, our economy came under tremendous strain. Unfortunate incidents in our environmental and health care sector and the difficulties which marred the opening of the new airport have dealt a blow to Hong Kong s reputation overseas and have dented our citizens confidence. I am determined that the SAR Government should be more vigilant and seek to improve its performance so that it can lead Hong Kong effectively in coping with future challenges.

The Asian Financial Crisis

4. The financial crisis began in Asia last July, and has since extended to Russia, Eastern Europe and South America. Today it is no longer simply a regional crisis, but one which has global economic implications. Inevitably, Hong Kong has found itself facing economic difficulties. The economic downturn led some people, as well as international hedge funds, to question the SAR Government's resolve and ability to maintain the linked exchange rate. They took the view that the Hong Kong economy was very much a "bubble" economy and that the SAR Government would not be able to stand the economic strain which would be caused by maintaining the linked rate. Intense pressure to short-sell the Hong Kong dollar resulted in interest rates moving sharply higher. At the same time, overseas banks and investors moved their funds out of the Hong Kong market, thereby reducing further the liquidity in our banking system. The banks took a pessimistic view of the prospects of the commercial sector, and credit became even more difficult to obtain. The resulting steep decline in the property and stock markets led to a contraction of asset values and severely dampened consumer spending. In addition, the rapid depreciation of Asian currencies and the decline in the number of inbound tourists took their toll on our tourism and service industries. Together, these factors have put Hong Kong in the difficult position which we face today.

Hong Kong's Economic Re-adjustment

5. The financial turmoil has not only rocked our economy; it has also exposed inherent weaknesses in Hong Kong's economic structure. Our economy, after years of over-heated development, already shows the characteristics of a "bubble" economy. Hong Kong has also become one of the most expensive cities in the world in which to do business, and this has affected our competitiveness. For many years, the financial and real estate sectors have been the main pillars of the Hong Kong economy, and both will continue to make significant contributions to the prosperity of Hong Kong. However, because our economic base has been too narrow, whenever these sectors have encountered problems the Hong Kong economy has suffered. At present, our economy is in a difficult period of adjustment. But this adjustment is necessary, because it will help us to improve our competitiveness.

Relieving the Pressure through Change

6. The Government, after a thorough analysis of the overall economic and social situation, has used our reserves to put forward a number of measures aimed at easing pressure on the public and creating the conditions necessary for economic and social stability. In his Budget last February, the Financial Secretary put forward tax concessions which will cost over $13 billion in lost tax revenue in 1998-1999. He also undertook to earmark $235 billion in government expenditure on infrastructure projects within five years. In June, the Government set up the Task Force on Employment which has so far helped over 17 000 people find jobs. We anticipate that the number of vacancies will increase to 100 000 by the end of next year. We announced in the same month a moratorium on the land sales programme, together with a series of measures specifically aimed at alleviating economic hardship. These included a rate rebate and the setting up of a fund to assist small and medium-sized enterprises. All these measures, together with the freeze on rental payments and tariffs agreed by the Housing Authority, Housing Society, Kowloon Canton Railway Corporation and the Mass Transit Railway Corporation, add up to a total of $20 billion foregone to relieve pressure on the public.

7. The full effect of some of these measures may not be immediately evident. For example, it will take time for our investment in infrastructure and the various tax concessions we have made to produce a visible economic benefit. Furthermore, for a small, open and outward-looking economy such as ours, external factors are very important. Should these factors remain unfavourable, they will present a palpable obstacle to Hong Kong's economic recovery. However, I do believe that the measures which we have put forward will not only provide some degree of relief, but will also lay a solid foundation for the recovery.

8. In order to restore order to our financial markets, the Government's monetary authorities announced last month a series of measures aimed at supporting our currency and strengthening the markets. I would like to make it clear that in putting forward these measures it is not our intention to interfere with market forces, nor is it our intention to broaden the powers of the Government. Rather, our aim is to consolidate Hong Kong's ability to manage its monetary affairs, so that we can counter manipulation of our markets and stabilise interest rates. The Government is committed to ensuring that we maintain our status as an international financial centre, as well as the vitality of our financial markets. The linked exchange rate will remain, and we will strictly enforce the provisions of the Basic Law which stipulate that no foreign exchange control shall be applied in the Hong Kong Special Administrative Region.

9. The changes which have taken place during the past year in the financial markets of Asia and of other regions in the world have led me to conclude that the time is ripe for the international community to increase co-operation with regard to the functions of the global financial system. A number of economies have now agreed that the indiscriminate free-flow of large sums of capital through world markets threatens the stability of this system. Experience tells us that in an integrated global market, no single economy can expect to be immune from the results of financial turmoil elsewhere in the world. I hope that the relevant international organisations will step up co-operation and communication, with a view to establishing a more robust financial order, through which each and every economy can exercise better risk management, and enjoy a more stable environment for growth. We will participate fully in these co-operative efforts.

10. This year, we predict that Hong Kong s economic growth will shrink by 4%. Our unemployment rate which has already reached 5%, will continue to rise, while corporate profits will continue to fall. This difficult economic situation will continue well into 1999. During this period of adversity, both employers and employees will come under very severe economic pressure. Thinner margins and lower returns will put a strain on employers, while workers will face pay adjustments and rationalisation of staff numbers. I would urge employers and employees to build up mutual communication and understanding so as to help tide them over these difficult times. Full economic recovery in Hong Kong depends on four major factors: improvement in the external economic environment; moderation of interest rates; stabilisation of property prices; and increased public confidence. External factors are beyond the Government's control. Nevertheless, we are committed to creating the best possible environment for our economic progress, and to putting Hong Kong back on the road to growth and prosperity as soon as possible.

The Challenge of Opportunities on the Mainland

11. To spark our economy into resuming its growth and to help us chart a course for our longer term development, we have to adopt two key initiatives. First, we must work to maintain Hong Kong's status as an international trading centre. Second, we must strengthen our co-operation with the Mainland in all areas. The World Bank estimates that China will, in the twenty-first century, become one of the largest economic entities in the world. I believe that most people in Hong Kong have had the same experience of the Mainland as I have. During each of my periodic visits to the big cities on the Mainland, I am amazed by the tremendous pace at which conditions improve, both with regard to the "hardware" , such as civic amenities, transport systems, and infrastructure, and the "software", for example, the skills of the people, levels of service and the degree of cultural development. There are positive changes happening everywhere in China, which is something that should give us all reason to be optimistic.

12. China has historically provided the impetus for Hong Kong s economic growth, and we have always played an important role in promoting the Mainland's relationship with other countries. Since the implementation of reforms and the opening of doors to the international community began in 1978, the Mainland has provided an expansion zone for Hong Kong s manufacturing sector. Hong Kong in turn has become the Mainland s most important centre for fund-raising, trading and re-export. Now, with the success of her reforms, China is becoming more open and her market mechanisms are maturing. The international business community has acquired a deeper understanding of China. As China passes through the different phases of modernisation, Hong Kong will have different roles to play and new functions to perform. To strengthen our position, Hong Kong must now chart a new course and find a new niche for ourselves. We must now consider how to reinforce our role as the bridge between China and the international community, as well as how to enhance our function as a leading business centre for China and the Asia Pacific region.

13. I mentioned in last year's Policy Address the need to explore the potential of our new relationship with China, in particular with the neighbouring areas, and to promote joint development to a greater degree. The Hong Kong-Guangdong Co-operation Joint Conference has made a number of new breakthroughs in this regard. In the six months since its first meeting in March this year, the Joint Conference has agreed on: the need for longer opening hours at our land boundary crossing-points; concerted joint efforts to protect the environment; more initiatives to promote tourism; and measures to assist Hong Kong businessmen with operations in Guangdong. This is an excellent start and I anticipate more good news from future meetings.

14. The "One Country, Two Systems" concept puts Hong Kong in a strong position to develop our special status. We must make the most of this advantage, and grasp the opportunity to expand further our business links and economic co-operation with the Mainland in areas such as finance, trade, transport, communication, energy, innovative technology, raw materials, tourism and agricultural development.

15. The Government will look to play a leading role in creating an environment conducive to greater co-operation between the Mainland and Hong Kong. This will offer our industrial and commercial sectors greater scope for development, open up more job opportunities to our people and put us back on course for a prosperous future.

A Strategy for Long-term Development

16. We must ensure that Hong Kong can continue to respond flexibly and effectively to the forces of change. In my first Policy Address, I announced the formation of the Commission on Strategic Development. Since the Commission s first meeting early this year, we have analysed a number of major trends and driving forces which may affect Hong Kong in the next 30 years - worldwide, regionally and in China - including the impact of globalisation on trade and investment; technological development; the effect of an ageing population throughout the world; issues regarding the natural environment; and the impact of economic reform in Asia s two most important economies - China and Japan.

17. Right from the early stages of its work, the Commission has been aware of the need for Hong Kong to establish a distinct position for itself following reunification. We have studied the roles of New York and London, which are not only the most cosmopolitan cities in America and Europe respectively, but are also international financial centres, tourist destinations, homes for the headquarters of multi-national corporations and international communication and transportation centres. I believe that Hong Kong too has the potential to become, not only a major city within one country, but also the most cosmopolitan city in Asia and the Asia-Pacific region, enjoying a status similar to that of New York in America and London in Europe. We must seek, as our ultimate goal, to realise this potential. We must devote our efforts to consolidating our position and at the same time give renewed impetus to our economic development.

18. However one looks at the situation, Hong Kong is going through a period of change. This had led to unease and difficulty, but it can also be a force for stimulating new ideas and creating new opportunities. Later in this Policy Address, I shall put forward a package of measures aimed at enhancing the quality of life in Hong Kong. First, I shall explain the plans and proposals that the Government will take forward in order to help Hong Kong plot its course towards economic revival.

II. The Economy

A. Strategies for Growth

19. To help our economy respond to the changes I have described, our strategy will be to focus on increasing the diversity of the economy by creating conditions for growth in sectors with a high value-added element, in particular in those industries which place importance on high technology and multi-media applications. We will also encourage businesses to take advantage of the opportunities offered by the Mainland, and we will bolster the established pillars of our economy such as the financial services sector, small and medium enterprises, tourism and import and export. We must also upgrade the skills of our workforce. As our strategy unfolds and we regain economic momentum, we will look forward to more opportunities for our citizens and a better employment environment.

Innovation and Technology

Engines of Growth

20. Innovation and technology are important drivers of economic growth. In a knowledge-based global economy, they are essential in adding value, increasing productivity and enhancing our overall competitiveness. The world s most outstanding economic success stories of recent years have mostly involved the application of innovation and technology. In the world s largest economy, that of the United States of America, 80% of productivity growth is attributed to technological and knowledge-based advances. This is not a phenomenon unique to the biggest economies. For example, Israel s high-tech exports in 1997 represented two-thirds of the country s total exports and were worth nearly HK$70 billion - double the 1990 figure. To achieve success in this area however does require a dedicated effort and a commitment to investing in the necessary technological infrastructure, which includes research and development, support to industry and human resources. Although the rewards may not be immediately apparent, this is an essential investment in our future.

21. Over the years we have steadily built up our technology sector. Our universities now spend some $3.2 billion annually on research. We allocate $180 million annually to the Hong Kong Productivity Council which provides technical advice to industry. We have established the Hong Kong Industrial Technology Centre to provide services and support to industry to enhance technological development at a cost of $250 million. We have injected $750 million working capital into the Applied Research Fund and $278 million into the Industry Support Fund to encourage innovation and support the development of new industries. In addition, we will build the first phase of the new Science Park in Tai Po, due to open in 2001, at a cost of $3.3 billion. This will enhance our technological infrastructure.

22. These initiatives reflect the fact that the Government has done a lot to promote technological development. We now need to look critically at these initiatives and redefine our goals and objectives in the area of innovation and technology as a whole. I believe that a focused approach in this field, together with our sophisticated capital-raising markets, our rich market experience and our well-established international business links, will provide us with the potential to turn innovative ideas into commercial products on a far greater scale than at present. We need now to strengthen our support for technological development, build up a critical mass of fine scientists, engineers, skilled technicians and venture capitalists, and encourage the development of a significant cluster of technology-based businesses.

23. With all this in mind, earlier this year I invited Professor Tien Chang Lin to chair the Commission on Innovation and Technology. In its first report to me, the Commission recommends that, to realise our vision for Hong Kong to become an innovation and technology centre for South China and the region, we need to position ourselves to be -

* a leading city in the world for the development and application of information technology, especially in electronic commerce and software engineering;

* a world class design and fashion centre;

* a regional centre for multimedia-based information and entertainment services;

* a world centre for the development of health food and pharmaceuticals based on Chinese medicine;

* a leading international supplier of high value-added products and components in areas where Hong Kong already excels today;

* a regional centre for supplying professional and technological talents and services; and

* the market place for technology transfer between the Mainland and the rest of the world.

24. To take forward these recommendations, it is essential that we have a clear policy objective, namely, to enhance the capability of our firms to innovate, and to stimulate technological development and encourage its commercialisation and application in Hong Kong.


25. To ensure that technological research can add the highest degree of value to economic activity, all the links in the research and development chain must be in place. The Commission has identified "mid-stream" research and development as an area of weakness in Hong Kong. Mid-stream research is a pivotal step between basic scientific research and its commercial application. To support and stimulate mid-stream research, I accept the Commission's recommendation to establish an Applied Science and Technology Research Institute. In addition, to finance specific projects which will contribute to innovation and technological upgrading in our manufacturing and service industries, we will set up an Innovation and Technology Fund with an injection of $5 billion.

26. This upgrading of our technological infrastructure will provide the basis for taking forward other important recommendations of the Commission. One is that we stimulate the collaboration of academic institutions and industry in research and development. We shall do this by, for example, awarding matching grants for co-operative research between tertiary and other institutions and industry. Another recommendation is that we strengthen our industries' links to the technological institutes on the Mainland to make best use of the Mainland's research strengths and turn them into commercial products. In order to build a critical mass of expertise, we will consider measures which will enable employers to recruit the best professionals from the Mainland and elsewhere in the world. We will also more vigorously promote technological collaboration through various fora.

27. We are setting out on an important strategic course. The Government will do its utmost to provide an environment conducive to the development and application of innovation and technology, and I look forward to receiving in mid-1999 the Commission s final report, which will contain recommendations for moving forward on all fronts. We will study all these recommendations carefully, and will consider how to take them forward so as to create a favourable environment for business, in which we hope the private sector will capitalise on the opportunities which we seek to create. Certain industries in particular rely on advances in innovation and technology, and these sectors provide obvious scope for developing or further enhancing our competitive edge.

Information Technology

28. Hong Kong is among the world s most sophisticated users of IT, and the average growth rate in this industry in recent years, amounting to 23.5% annually, reflects its importance both in helping us to retain our competitive edge and in driving our overall economic expansion. We need to continue to make the best possible use of IT as an essential tool in speeding the flow of business and other communications. We also need to ensure that the IT industry can flourish in an environment which will encourage the creation of new products through innovation.

Internet Hub

29. With our excellent telecommunications infrastructure, our unique position vis-a-vis the Mainland and our bi-lingual language capability, Hong Kong has a strong competitive advantage in seeking to serve as an information gateway to the Mainland. Working with our Mainland counterparts, we will improve our mutual Internet links, making it easier for Hong Kong companies to integrate their manufacturing and supply operations on the Mainland. In linking the Mainland through Hong Kong to the rest of the world we will also be able to act as a digital intermediary, which will allow us to stimulate economic growth.

Electronic Service Delivery

30. Within Hong Kong, creating an infrastructure for the free flow of electronic transactions in the community will help promote the development and growth of new IT products and services. The Government will spend $173 million on launching the on-line Government Electronic Services Delivery Scheme, which from 2000, will allow anyone to access public services and information 24 hours a day via the Internet and other means of electronic access. This will be an important step in facilitating growth in electronic commerce, as well as enhancing Government s own efficiency.

Broadcasting and Telecommunications

31. Two of our largest technology-intensive industries are broadcasting and telecommunications, which together have grown by some 14% annually in recent years. We aim to speed up growth in these industries, and therefore our economy, by creating the best possible market conditions and regulatory environment for investors in these sectors. Innovation and improvement in these industries will also lead to better service delivery and greater consumer choice, thereby promoting growth and creating new jobs.

32. In the coming year we will undertake two projects which will extend the frontiers of technology in Hong Kong's commercial broadcasting and telecommunications sector, namely -

* technical trials of digital terrestrial television services; and

* the development of a world class teleport at Chung Hom Kok to provide the best possible global satellite communication links.

We will also encourage greater investment and promote the provision of better services to the public in the television and telecommunications sectors by ensuring fair competition among service providers.

The Film Industry

33. Hong Kong's film-makers have long had a reputation for their distinctive style. Even today, when the industry faces difficulties, Hong Kong is still one of the world s major film producers. With a potential audience of over a billion people in the world-wide Chinese community alone, and the availability locally and on the Mainland of world-renowned creative and artistic talent, we see potential for further growth in our film industry.

34. Government's role in this process will be to help provide an environment conducive to long-term development. In the past year we have set up a Film Services Office to help the industry with production and location shooting in particular, and provided a site for a state-of-the-art film studio with advanced post-production facilities. To help our film industry keep pace with new technology and skills, we propose to set up a $100 million Film Development Fund in 1999. This Fund will promote innovation by supporting projects aimed at enhancing the industry s professional and technological capabilities; stimulating the growth of creative productions; facilitating the use of advanced special effects techniques; and improving the skills of employees. Some of the most successful films of recent times have relied greatly on computer graphics, and our overall investment in technology will also greatly enhance our capabilities in this area. I look to the film industry to make the best use of these favourable conditions to develop the industry.

Chinese Medicine

35. In last year's Policy Address I affirmed my belief in Hong Kong's potential to become an international centre for Chinese medicine and medical practitioners. This is another industry which, through the application of innovation and technology, can enhance our economic growth.

36. To provide for a regulatory structure for facilitating the use, trading and manufacture of Chinese medicine, and to recognise the professional status of Chinese medical practitioners, we will introduce the Chinese Medicine Bill into this Council in 1999. Registration of Chinese medical practitioners will begin in 2000. To encourage innovation and development in this field, in the past year we have funded a series of research programmes in our universities. We will now examine the case for establishing an Institute for Chinese Medicine which will focus on applied research. This will strengthen our scientific and technological base, and will facilitate the commercialisation of medicinal products.

Intellectual Property Rights

37. If Hong Kong is to become an innovation centre we must respect intellectual property rights. The Government is committed to upholding a world-class intellectual property rights regime. Our approach has been to maintain a comprehensive legal framework, to take vigorous and sustained enforcement action, to step up education and publicity and to create strong links with cross-boundary and international enforcement authorities as well as relevant industries. In the coming year we will devote extra resources to combatting illegal activities in this area and further increase our efforts to educate the public. We simply will not tolerate the theft of ideas, and I urge everyone in Hong Kong to support this effort by refusing to buy pirated or counterfeit goods of any description.

B. Building on Our Strengths

38. While we expand our economic horizon, we must continue to build on our existing strengths to ensure our long-term economic vitality.

Financial Services

39. Let me here state that Hong Kong is determined to maintain its position as the international financial centre of Asia and the key source of foreign capital for China. In past years the financial services sector has contributed substantially to our economy and will play an important part in our future. The current pressures in the Asian region may cause some economies to become more inward-looking, but Hong Kong will retain its free and open financial services structure. Furthermore, as China's economy develops and her need for foreign capital increases, Hong Kong s position as a major market for raising capital will become stronger.

40. We must now take a strategic view of what needs to be done to ensure that our financial market can support this expansion of our role. We will study, for instance, how best to use information technology to facilitate fully automated and seamless transactions in the market. We will provide the necessary regulatory framework to protect the integrity of the market. Recent experience has shown us how important it is to co-ordinate more effectively surveillance and regulation across all sectors of the financial services market. I have asked the Secretary for Financial Services to take a more active role in co-ordinating regulators and market operators.

41. A robust market structure needs the support of a workforce with the ability to adapt to the challenges and opportunities ahead. I look forward to receiving recommendations from the Steering Committee on the Feasibility Study on the Financial Services Institute, which is currently examining human resources demand in this sector with a view to meeting tomorrow's needs for top-quality personnel. The Steering Committee is due to submit its recommendations in mid-1999.

42. We will also press ahead with the development of new services. We will study proposals for a Venture Board for smaller and emerging technology companies' stocks. To strengthen our role as an international financial centre, we will also continue to develop the debt market. The expansion of the Mortgage Corporation's business and portfolio and the introduction of the Mandatory Provident Fund Schemes will add impetus to this development.

43. Given sustained expansion and hence demand for capital on the Mainland, as well as the recovery of our economy, I expect the overall size of our stock market to increase as the current global financial uncertainties recede. I firmly believe that we will in the future strengthen our position as Asia's leading international centre for financial services.


44. Our tourism sector is another one of our traditional economic strongholds. Hong Kong is the most frequently visited city in Asia. Tourists come here for the same reason they go to Paris, to Istanbul or to Rio de Janeiro - there is nowhere else like it. We have a unique flavour to our city, and visitors have long been attracted by our East-meets-West culture, our day and night shopping and entertainment, and a spectacular, yet safe physical environment. But past achievements are no guarantee of success in the future. Tourists now demand more sophisticated attractions, and our competitors in the region are upgrading their tourism infrastructure in a bid to capture a greater market share. We must therefore take a strategic review of how best to respond to the present circumstances, and develop initiatives to maintain the interest of visitors from the Mainland, from other Asian countries and from the rest of the world.

45. In order to enhance our appeal as a tourist destination, we will promote new attractions which will complement our unique flavour and provide for a wider range of events in Hong Kong. Our broader vision is to cultivate Hong Kong's image as the Asian centre of arts and culture, and of entertainment and sporting events. We need to build on the popularity of regular international events such as the Hong Kong Arts Festival and the Rugby Sevens, as well as capturing the imagination with more cultural and artistic presentations such as the Treasures of China exhibition, which was so successful late last year.

46. I realise that this cannot be done without proper venues for world-class events. The Government is committed to providing more support in this area, and as a catalyst for upgrading our image as Asia's entertainment capital we are planning for a new, state-of-the-art performance venue on the West Kowloon reclamation. We will further develop proposals for other major facilities which will be both unique attractions in themselves as well as venues for cultural, entertainment or sporting events, including a new sports stadium, a new centre for water-sports and a multi-media theme park.

47. New facilities and attractive events are key planks in the tourism strategy, but they are not the whole story. We need also to look at ways of better presenting to the world our distinctive heritage, much of which is on show in our historical buildings and our archaeological sites, some of which date back 6 000 years. I have asked the Hong Kong Tourist Association to set up a Heritage Tourism Task Force comprising experts in this field. The Task Force will focus on individual initiatives and on a broader strategy for promoting our heritage sites and developing opportunities for joint promotions with the Mainland and other regional destinations.

48. To take our new vision for tourism forward with a clear focus, I have decided to appoint a Commissioner for Tourism whose duty will be to promote the development of this industry.

Small and Medium-sized Enterprises

49. Hong Kong's small and medium-sized businesses employ some two-thirds of the workforce and are the basic building blocks of our economy. With their relatively low start-up costs and flexibility in a changing business environment, small and medium-sized enterprises (SMEs) are a significant force in a renascent economy and create a large number of employment opportunities.

50. To ease the impact on our SMEs of the credit squeeze and provide them with working capital, we have established a $2.5 billion Special Finance Scheme. This helps them secure loans from financial institutions, with the Government providing guarantees for loans. The Scheme has been in operation for six weeks, and as at the end of September, 92 companies had obtained loans amounting to $176 million under the Scheme. There have been suggestions that the terms and conditions of the Scheme should be more flexible. We will monitor feedback from SMEs, lending institutions and other interested parties, and we will review the Scheme early in 1999 to decide whether and how improvements need to be made.

51. SMEs often need help in certain key areas if they are to grow. These areas include: obtaining working capital, sourcing market information, finding good quality staff and controlling costs. We already have a comprehensive range of programmes to support SMEs, which are provided through the Industry Department and other institutions. For example, the Hong Kong Trade Development Council focuses on opening up overseas markets; the Vocational Training Council is geared towards human resources training and development; the Hong Kong Productivity Council works on productivity enhancement; and the Hong Kong Industrial Technology Centre helps nurture business ventures in technology. To strengthen the co-ordination and development of these and other available services and to help ensure that SMEs can make the best use of these services, we will set up a Small and Medium Enterprises Office within the Industry Department. We will also continue to fund projects which contribute to the development and competitiveness of our SMEs, such as those which relate to Year 2000, ISO 9000 application, manufacturing resource planning and technical assistance on environmental compliance, through the Industrial Support Fund.

The Manufacturing Sector

52. For many decades the manufacturing sector has contributed greatly to our growth. Although the 1980s saw a major move of labour-intensive production facilities across the boundary to the towns and cities of the Pearl River Delta, and indeed to other parts of the globe, we remain an active centre for the whole process of sourcing, distribution and other manufacturing related services. Our flexibility and market knowledge help put us in the forefront of global production. This economic activity has also made Hong Kong the primary logistic hub for obtaining banking, insurance and transportation services, and has led to us becoming the home of the world s largest container port.

53. The quick response time and sophisticated workmanship of our manufacturers ensure that we maintain a manufacturing sector. Our traditionally important textile and clothing industry is still at the heart of this sector. Continued development of the manufacturing sector must be a matter of priority for our community as well as Government. Our push towards greater use of innovation and technology will help industries in this sector to expand and improve their production capabilities and ability to develop new products.

Investing in Infrastructure

54. A continued investment in upgrading and expanding our physical infrastructure is essential if we are to improve our living environment, create more land for future use and stimulate the economy and provide jobs.


55. Our public works programme is well-stocked with major projects aimed at improving our transport links, the most notable of which in recent years has been the new airport. The opening of the airport in July was not trouble-free. A Commission of Inquiry into the reasons for the early problems in the airport s operation is due to report to me in January next year, and I will act as appropriate upon the recommendations of that Commission.

56. Hong Kong International Airport is now processing some 80 000 passengers and 4 500 tonnes of cargo daily. About 80% of flights are departing within 15 minutes of scheduled time. Upon completion of the second runway the airport s capacity and operating flexibility will increase further. It is indisputable that Hong Kong now has a magnificent new facility capable of allowing us to expand our air links and services for generations to come. The Airport Authority will keep under regular review the need for additional facilities and the Civil Aviation Department will begin work on converting our ground-based air traffic control systems to next-generation satellite systems. This will ensure that Hong Kong s civil aviation sector maintains the high standards expected of a major international aviation centre.

Local Transport Networks

57. To ensure that our transport system matches our development, we shall continue to build on our major road and rail networks. In my 1997 Policy Address I described some of our plans to expand these networks, and I am happy to report that we have made good progress in this area.

58. The planning and implementation of the priority railway projects are proceeding at full speed. Construction of the West Rail Phase I has been authorised and will start before the end of this year. We will seek authorisation for the MTR Tseung Kwan O Extension in the coming weeks so that construction work can also begin on this project before the end of the year. We aim to complete the necessary statutory procedures and finalise our planning for the implementation of the Ma On Shan Railway in 1999 so that construction can start in 2000. Altogether these railways, which will open between 2002 and 2004, will cost $110 billion, and will create 27 000 jobs during their design and construction phase. To meet cross-boundary traffic demand, we are also planning to build a spur line which will connect the KCR at Sheung Shui with Lok Ma Chau, for completion in 2004.

59. As for major roads, we are making good progress with the design of the following projects which we are due to start building between 2000 and 2004 -

* Route 9 connecting Tsing Yi and Cheung Sha Wan;

* Route 16 connecting Sha Tin and West Kowloon;

* the section of Route 5 connecting Tuen Mun Road and the Tsuen Kam Interchange; and

* the section of Route 10 connecting North Lantau and Yuen Long.

The design and construction of these roads will create about 10 500 jobs. In addition, we have already made a start on preliminary planning for the Central Kowloon Route and Route 7 between Kennedy Town and Aberdeen. All these new roads will help to clear existing bottle-necks, as well as serve transport demand and tie in with land use planning.

60. Apart from these commitments, in 1999 we will complete the Second Railway Development Study and the Third Comprehensive Transport Study. These will provide us with a blueprint for road and railway expansion to meet transport and development needs to the year 2016.

Delivery of the Programme

61. It is understandable that in the current economic climate some might question our capacity for funding major new projects. We have examined again the level of our resources, and I can give this assurance: we have sufficient resources within our expenditure guidelines to allow us to realise the projects for which we have ear-marked expenditure over the next five years. Investing in high quality infrastructure is an investment in our future.

62. Our willingness to invest must be matched by an ability to deliver projects on time and within budget. The time required for a major project could be some 10 to 12 years from conception to completion. The necessary tasks of feasibility study, public consultation and land acquisition often take more time than the construction process itself. We will look for ways to shorten the time taken to complete these tasks. We are determined to minimise the cost of each and every project and to maximise cost-effectiveness. In assessing project cost we will have particular regard to the current downward trend in construction costs.

Anchoring our Fundamentals

63. I have outlined here some of the key steps we will take to improve the economic climate, based on a commitment to maximising our use of innovation and technology and on a pledge to build on our traditional strengths. The Government will work hard to achieve the objectives I have described. But the measures we will take to stimulate growth can only take root if grounded in a stable foundation. The most important fundamental element underpinning our future progress is the continual implementation of the "One Country, Two Systems" concept, in accordance with the Basic Law.

64. It is essential that we all re-affirm our commitment to preserving these fundamentals, which are the basis of our success. I would like to state clearly that the Government will uphold the rule of law and protect the independence of the Judiciary; guarantee freedom of speech and of the press, and facilitate access to information; continue to manage our economy on a free-market basis within a regulatory framework which creates a "level playing-field" for investors; maintain a strong stance against corruption; emphasise the importance of law and order; and preserve the international character of Hong Kong.

65. One of the reasons for Hong Kong's success is that citizens of so many nations have made their homes here. The expatriate community contributes greatly to our economy and to our unique culture. We are determined to make this community more welcome in Hong Kong, and to remain the city of choice for multi-national companies wishing to establish a base in the Asia Pacific region. Recent figures show that 935 non-local companies, including some of the world's largest financial institutions have their regional headquarters in Hong Kong. To reinforce our links with the international community, I have appointed a Council of International Advisers, whose members include prominent personalities in the fields of finance, commerce and industry from all over the world. This Council, which will help the Government broaden its international commercial perspective will hold its first meeting in Hong Kong in January 1999.

66. Our budgetary policy will continue to reflect the principle of fiscal prudence, ensuring that growth in government expenditure will be in line with medium term economic growth trends. Such financial discipline has been a cornerstone of our success, and has allowed us to build up strong reserves, which are essential to the protection of our linked exchange rate. In the current year, because of the contraction in the economy and the suspension of land sales, our budget deficit may be substantially more than the $20 billion we announced in June. Because of the downturn in our economy, in the medium term our recurrent expenditure may grow more slowly than before. Nonetheless, we have the means to support our commitment to spending over the next five years in key areas such as infrastructural development, which are essential for our economic growth and which will create more jobs for our workforce.

67. Another element fundamental to our continued economic stability is the linked exchange rate. I will take the opportunity again today to underline our resolve to maintain our linked rate. Without it we would run the risk of major capital outflows, even higher interest rates and a crisis of confidence in our currency. It is an essential plank in our platform for growth, and will remain so.

III. Other Policies and Programmes

A. Land and Housing

Major Planning Studies

68. I have stressed that we need to respond to change by refining our economic policies and programmes. We must also plan to meet the needs of a growing population by providing a stable land supply and a high quality living environment. We are pushing ahead with planning and land use studies for Lantau, the Northwest and Northeast New Territories, Hong Kong Island South and Lamma Island. A study on the Southeast New Territories will explore the area s potential as a centre of recreation and tourism. In parallel we will review the structure and strategic functions of our inner city, with the focus on devising a mass-transit based development strategy. We will work towards an environmentally-friendly transport system and an efficient land use pattern to create a more balanced distribution of people and jobs.

Meeting Housing Needs

Recent Developments in the Residential Property Market

69. Property is one of the most important components of the economy. A good home is also an important factor in maintaining the quality of life, and the residential property market in particular serves as both a major vehicle for the personal investment of wealth and a public barometer of social stability.

70. The sharp fall in property prices in the past year has led to a decrease in asset values and has hit public confidence. If this trend continues, it will put pressure on the banking system. I believe that it is now necessary and desirable for property prices to stabilise. As a Government we cannot set price levels, nor can we dictate the degree of fluctuation in the market. But as the largest single supplier of land in Hong Kong we undoubtedly have an influence on the long-term pricing of property.

Housing Supply

71. When I announced in last year's Policy Address the target of producing 85 000 flats annually, I was setting a long-term housing target and looking towards our long-term land production programme. The announcement was made against the background of an over-heated economy and rapid rises in property prices. Our competitiveness as an economy was threatened and too many families could not afford to buy their own homes. However, the environment has changed dramatically since last October. The economy has contracted, interest rates are higher and unemployment has risen. This has led to a sharp drop in the near-term demand for private sector residential property.

72. As a result of this economic re-adjustment we have had to look again at the key components of the housing sector, namely: public rental housing; home-ownership scheme (HOS) flats; "sandwich" class housing; and the private residential sector.

Public Housing

73. In the public housing sector, the long-term production target set in 1997 was based on a programme to provide on average 50 000 units annually for the five years from 1997. This programme includes both public rental and HOS units built by the Housing Authority, as well as Housing Society flats. When I delivered last year s Policy Address, work on building some of these flats had already begun.

74. In respect of the public rental component, the Government remains fully committed to ensuring that no household in genuine need of housing should be denied the right to decent accommodation and within a reasonable period of time. We have pledged to reduce the average waiting time for a public rental unit to three years by 2005, and we are on target to achieve this.

75. As regards the HOS component of the public housing programme, we will proceed with the sales programme largely as planned. However, we will closely monitor the effect of our HOS flat sales programme on the home ownership market, and fine-tune the programme as necessary to ensure overall market stability.

Sandwich Class Housing

76. As to middle income earners, or the "sandwich" class, as many good-quality flats in the private sector are now affordable to them we have decided to suspend the building of flats under our schemes for this group, with the exception of projects which we have already started work on. However, we will continue to provide loans for downpayment to allow the sandwich class a wider choice of home in the private sector.

Private Residential Housing

77. Turning now to the private residential market, the 35 000 flats to be supplied by the private sector within the overall long-term flat supply target of 85 000 units annually was projected with regard to the supply and demand situation at the time. I see it as our first priority to do what we can to promote stability in this sector. Nonetheless, the actual number of flats built annually by the private sector over the next five years is likely to vary according to market demand, and in line with developers own commercial considerations.

Financial Assistance for Home Ownership

78. To promote home ownership we will continue to provide financial assistance to home buyers. Currently, we do this through the Home Starter Loan Scheme, the Home Purchase Loan Scheme and the Sandwich Class Housing Loan Scheme. These schemes have proved to be very popular. I have asked the Secretary for Housing to rationalise these schemes and to ensure that they continue to provide the appropriate level of assistance to households requiring help, as well as making the best use of public funds.

The Way Forward

79. Earlier this year we imposed a nine-month moratorium on land sales up to March 1999. We will decide early in 1999 whether or not to lift this moratorium, having regard to the need to ensure stability in property market. In the longer term, the Government's focus will be on ensuring that we produce sufficient land to be able to meet our needs. This will help to create a land bank which will provide the foundation for a stable market. Within the next ten years, our population will grow by about one million people. In our current population there are still many families in need of decent housing. Others will in time want to buy their own homes. Short-term difficulties must not, therefore, deflect us from our fundamental housing policy objectives, which are -

* to provide public rental housing to the needy, which is our priority; and

* to facilitate home ownership for those who wish to buy their own home.

80. For the longer term, as regards HOS flats, we will consider the extent to which we will continue to build such units - the "bricks and mortar" approach - as opposed to the alternative of offering home ownership loans. The recent fall in property prices gives us an opportunity to study this issue carefully. I have therefore asked the Secretary for Housing to consult all interested parties, including the Housing Authority, Housing Society and representatives of the property and banking sectors, and to reach a conclusion on this issue as soon as possible.

Urban Renewal

81. The quality of life in many of the older parts of Hong Kong contrasts unfavourably with that in our new towns. Buildings are run-down, hygiene is poor and there is a lack of social cohesion. We cannot allow this situation to continue. We must improve the urban landscape of Hong Kong by replacing these areas with modern accommodation served by sufficient open space, a full range of community facilities and a good quality environment.

82. In the past we have carried out a number of urban renewal projects which have been successful in improving parts of the older urban areas. But we need to take a more strategic and comprehensive approach to the problem. An extensive study, conducted over the past year, of the old built-up areas of Hong Kong has shown that there are sites covering a total of 76 hectares which require renewal or rehabilitation. The study has also shown that early action needs to be taken to improve areas occupied by some 1 400 old buildings accommodating 35 000 households. If we are to make good progress with urban renewal we need to find a way of shortening the time taken to implement projects, which in some cases take up to 12 years to complete. In the longer term we will also need to tackle the problem of redeveloping old industrial areas.

83. I am keen that we should address these problems quickly, and I have asked the Secretary for Planning, Environment and Lands to formulate an Urban Renewal Strategy which will provide a comprehensive planning framework for urban renewal. In parallel we will improve current procedures so that we can carry out projects more quickly and on a larger scale. To help in this regard, we will seek to establish as soon as possible an Urban Renewal Authority with statutory powers to make plans and acquire land more effectively and efficiently. Such an Authority must be transparent and accountable in its operation. It must also be able to implement the Urban Renewal Strategy with minimum delay, the aim being to reduce the time taken to complete projects to an average of six years.

84. We are now finalising our initial proposals for an Urban Renewal Strategy and drawing up the suggested terms of reference, powers and operational guidelines for the new Authority. We are also studying how to improve the financial viability of projects, and we shall explore with the Housing Authority how we might seek its assistance in re-housing those affected by the projects. It is crucial that we make an early start in this area. We aim to introduce an appropriate bill into this Council early next year, and look forward to Members support for our proposals.

Safer Buildings

85. A long-term urban renewal strategy will help us eventually to remove many of the hazards that are presented by older buildings in Hong Kong. But we still need to deal with the fire safety and structural deficiencies of these buildings today. Following public consultation earlier this year, we have drawn up a programme to improve fire safety in private buildings. We will work first on upgrading fire safety measures in old mixed-use commercial and residential buildings, and then turn our attention to residential and industrial buildings. The Secretary for Security will prepare legislation in 1999 to help us implement the programme. We will also inspect electrical installations in 4 000 buildings in 1999 so as to identify necessary improvements. We will prosecute owners who do not comply with the statutory fire safety requirements.

86. To encourage proper upkeep of these older buildings, at the beginning of August we launched a Building Safety Improvement Loan Scheme to help building owners undertake inspections and repair work. In 1999, we shall develop a Code of Practice for owners on the inspection, assessment and repair of buildings.

Safer Slopes

87. Many areas of our city are built on or below natural or man-made slopes. We must ensure that these slopes are properly maintained so as to minimise the risk of land-slips. In the next ten years we plan to step up our work on slope improvements, and we will increase the manpower in government departments to allow them to maintain every slope in their care. We aim to be second to none in the world in our use of the latest skills, techniques and methods of investigation and risk assessment. In this way we will provide the best possible protection to the community from the risks of slope failure.

B. Investing in Human Capital

88. I now turn to another important element in improving our future, namely a commitment to investing in our human capital.


89. The starting point for the development of an enlightened, knowledge-based society is good education. To take Hong Kong forward in an increasingly competitive world, we must give education top priority. In 1999-2000, education will continue to be the single biggest item of recurrent expenditure. Despite the economic downturn, total recurrent spending in this area will rise to $44 billion.

The Education Commission s Review of the System

90. The recent review of educational advisory bodies has re-affirmed the Education Commission s leadership role in co-ordinating the work of these bodies in helping the Government to set a strategic direction for education policy. Shortly after the 1997 Policy Address, the Education Commission began a review of the structure of our entire formal education system, from pre-primary to tertiary level. The Commission s work focuses on key issues related to the academic structure. These include the overall aims of education and how they relate to the nature and duration of the various stages in the system, from pre-primary to tertiary level. The review will also look at issues related to the curriculum and to methods of assessing academic achievement. The Commission s work in this regard is of great importance, and I look forward to receiving its preliminary findings in 1999.

Reform of the Education Department

91. In May this year we received a final report on the review of the management and organisation of the Education Department. In July we began public consultation on the review findings. The main findings of the review were that -

* the Education Department should be re-structured to allow it to focus more clearly on service to its key clients, namely the schools, students and the community;

* the professionalism of the Department should be enhanced, in particular by drawing on the expertise of the education sector; and

* the Education Department should devolve more responsibility to schools with a view to improving their management.

I attach great importance to this exercise. Once we have received the public's comments on these findings, we will draw up detailed plans in early 1999 to implement the necessary changes.

Basic Education

Quality Education

92. In last year's Policy Address I set out a number of measures aimed at improving the quality of education in primary and secondary schools by having the schools take greater responsibility for the teaching environment. Among these was the setting up of the $5 billion Quality Education Fund, under which schools can apply for grants to raise their standards through innovation. So far more than 500 projects have received a total of over $350 million from the fund. These projects will benefit over 500 000 students in pre-primary, primary and secondary schools.

93. From 1999, we will also provide grants to all public sector schools to help them draw up management programmes which will give them more flexibility, as well as greater responsibility for improving the quality of education. Altogether these schools will receive an estimated total of over $500 million in grants over the four years to 2003.

High Quality Teaching

94. We must also redouble our efforts to improve the quality of teaching in our schools. Our teachers and principals are the backbone of our education system, and their skill and commitment are essential to the success of this system. I announced in the 1997 Policy Address our goal of requiring all new teachers to be trained graduates. As a first step we will develop the Hong Kong Institute of Education into a degree-awarding teacher training institute. Currently the Institute offers 2 400 Certificate of Education places. In the 1999-2000 academic year we will start progressively to upgrade these places, and provide instead places at degree or above level at both the Institute and other tertiary institutions.

95. To improve further the quality and professionalism of our teachers, we will -

* allocate $20 million to set up a General Teaching Council;

* develop an awards scheme which will recognise high performance and stimulate a culture of quality in the teaching profession; and

* provide subject training in music and art and crafts to some 600 teachers annually over the next seven years to ensure an all-round education for our students.

Whole-day Primary Schools

96. Last year I announced that, as an interim target we aimed to have 60% of our primary school children enjoying whole-day schooling by 2002. We are on course to achieve this target. Our longer term aim is for virtually all primary school students to enjoy whole-day schooling from the start of academic year 2007-2008. In pursuing this aim we must recognise constraints such as the availability of sufficient school sites in individual districts and possible shifts in population growth and distribution. Also, reluctantly we shall have to continue with the interim measure of slightly increasing class size, in the interests of achieving the important aim of full whole-day schooling.

Medium of Instruction

97. We remain fully committed to the promotion of mother-tongue teaching. First, because expert opinion world wide is that students learn best in their mother-tongue. Secondly, we are committed to improving the ability of our students to use Chinese and English. To help Chinese medium schools improve their teaching of English, we are -

* providing up to four additional English language teachers for each school, of whom a maximum of two may be native-speaking English teachers;

* giving schools additional recurrent grants for English language teaching materials and library books; and

* giving priority to Chinese medium schools in the provision of multi-media learning centres.

I realise that the implementation of the mother-tongue learning initiative caused some concern in the community. While we will continue to adhere to the principles behind this initiative, we have undertaken to review progress within three years to examine further how to promote mother-tongue teaching and improve students' ability in the use of both languages.

Private Schools

98. For many years, public sector schools have provided most of our primary and secondary school places. They have contributed considerably to educating our children. Nonetheless, we recognise that at this stage of Hong Kong s development there are good arguments for injecting more variety into our education system, for giving schools greater scope for innovation and for allowing parents a wider choice by fostering growth in the number of quality private schools. To facilitate expansion in the private school sector, we will -

* increase the level of assistance to direct subsidy schools in 1999;

* allocate, on a pilot basis, Government-built premises to interested bodies to operate direct subsidy schools; and

* introduce a pilot scheme whereby non-profit making private schools may apply for a land grant at nominal premium and for a capital assistance loan.

Special Schools

99. In the coming year we will begin a programme to provide air-conditioning in 17 schools for physically and severely mentally handicapped children regardless of whether these schools are affected by noise or other environmental nuisance. By so doing, we hope to reduce the discomfort that these children bear due to their physical condition, and thus to improve their learning interest.


100. This year we will give a higher rate of subsidy to kindergartens which employ a greater percentage of qualified teachers than required by current standards. This initiative will encourage kindergartens to achieve the target of 60% of teachers being Qualified Kindergarten Teachers before the 2000-2001 school year.

Learning through Information Technology

101. To promote further the use of IT in education, in the coming year we have ear-marked funds totalling $630 million in order to -

* provide more IT training for teachers;

* supply technical back-up to help schools manage their newly-acquired IT facilities; and

* employ some 250 IT co-ordinators to help public sector schools develop and implement their IT-based initiatives.

We are determined to ensure that in implementing this initiative we achieve the aim of integrating the use of IT with our education system for the benefit of teachers and pupils alike.

Tertiary Education

102. To remain competitive we must be skillful and versatile, and our higher education system has to reflect this need. We will encourage our tertiary institutions to build on their existing strengths by developing centres of excellence. This will help ensure that they keep pace with rising international standards so as to serve better Hong Kong's future economic and social needs. The tertiary sector s decision to offer places to students who excel in areas other than pure academic performance sends a clear signal that our society values attributes such as athletic or artistic talent. We will look to this arrangement becoming a regular feature of the admission system.

103. To enhance our status as a regional centre for higher education, it is our policy to admit non-local students to our higher education programmes. Starting from the 1999 2000 academic year, the overall quota of a maximum of 580 first-year, non-local undergraduate students will include 150 outstanding Mainland students. The admission of non-local students facilitates the cross-fertilisation of skills and ideas, injects an element of healthy competition for local students and broadens our students' outlook.

Life-long Learning

104. As our society becomes more knowledge-based, continued education becomes more than just the preserve of keen learners. It plays an important part in helping us to make progress in society. I look to Hong Kong developing further as a learning-based community. I encourage the Open University and other institutes also to provide continuous learning facilities for our community s benefit. We will do our best to let everyone have a chance to upgrade their skills if they so wish.

Manpower Training

105. Because of the changing needs of society and the economy, the type of manpower required in Hong Kong will vary at different stages of our development. We must review our manpower and training policies carefully so as to ensure that Hong Kong has a well-trained, adaptable and versatile workforce which can meet the needs of the economy and contribute to our overall competitiveness. In 1999 we will complete a study of manpower forecasting best practice with a view to developing a forecast model which will serve our needs for the next ten years.

More and Better Training

106. With the aim of helping our workforce acquire new skills or upgrade their existing skills, we will work with the Vocational Training Council (VTC) and the Employees Retraining Board (ERB) to assist these organisations in improving their services. In this regard, the VTC proposes to unify the existing two Technical Colleges and seven Technical Institutes by the year 2002 to form a single academic and training institution, the Hong Kong Institute of Vocational Education. The new Institute will provide courses which will be more attuned to the needs of the economy, and will also promote the image of vocational education and training as an attractive and viable alternative to traditional academic education.

107. For the ERB, we will give the Board a grant of $500 million to enable it to expand its training capacity and improve the quality of its courses for the unemployed. In consultation with employers, the ERB will identify more job vacancies for special tailor-made training at the employer's workplace which in addition to vital working experience, also gives trainees a re-training allowance and 12 months post-employment follow-up service.

108. To help ensure that both employed and unemployed people can benefit from a well-structured education and training ladder, we will develop a qualifications framework for programmes provided by the VTC and the ERB. This will provide an objective yardstick for assessing the skills standards of trainees and will help secure employers' confidence in and recognition of the qualifications. We aim to draw up initial proposals by the end of 1999.

109. There is great concern in the community for the problems faced by the unemployed. I share that concern, and the Government will do its utmost to improve the prospects of all our citizens who are looking for work. As well as implementing to the full measures developed by the Task Force on Employment, we will boost our support networks for the jobless, in particular young people, with the aim of helping them to find work more quickly. We will strengthen the Job Matching Programme in the Labour Department and upgrade our re-training services. Realistically, the employment situation will not improve until our economy starts to recover. We will nonetheless work hard to maximise opportunities for all those currently without a job, by bringing forward the start date for public works projects and promoting the tourism industry so as to help generate more job openings in the relevant sectors. I hope that the unemployed will not become discouraged and that they will make the best use of the training opportunities which the Government and other organisations provide, in order to equip themselves with new skills. I am sure that by doing so they will be able to find work.


110. The women of Hong Kong have made great achievements in building up the family and contributing to the economy and the community as a whole. We have established the Equal Opportunities Commission, enacted the Sex Discrimination Ordinance and the Family Status Discrimination Ordinance and faithfully implemented the provisions of the Convention on the Elimination of All Forms of Discrimination against Women. These are important steps. We will work to ensure that women can also reach their full potential through education, training and community support.

Young People

111. The qualities, skills and sense of belonging of our young people will determine what Hong Kong will become. I look to our younger generation to search continuously for knowledge, to be creative and to play an active role in the community. I encourage our young people to take pride in their Chinese heritage, yet also to develop an international perspective, seeking not only to assert their rights as individuals, but also to meet their obligations to the wider community.

112. The Commission on Youth has completed its study on youth development and mapped out the direction for our young people to follow in order to realise their full potential. In the coming year we will work with the Commission and other organisations to reinforce and promote positive values among young people; to provide programmes on leadership and life-skills training; and to create opportunities for voluntary work and exchange programmes with other countries. I also encourage our young people to take part in more activities which will deepen their knowledge of the Mainland. To provide a focal point for youth development activities, the Chai Wan Community Centre will be re-developed into a facility specifically for this purpose. I endorse the Commission s call for the whole community to take ownership of the challenge of developing our young people s qualities. This will require the efforts of parents, teachers and ultimately, young people themselves.

C. A Better Quality of Life

113. I would now like to discuss how we will work to improve the quality of life in Hong Kong.

A Better Environment

114. In recent years we have witnessed a deterioration in the quality of our natural environment. Our surrounding waters and our air have become more polluted and our city is dirtier. As we work to take advantage of the opportunities which the future holds, we should be satisfied with nothing less than a world class environment. The Government will step up its efforts to protect the environment to enable our people to enjoy a better and healthier quality of life. It will also help enhance our reputation as a pleasant destination for tourists and for international business travellers, and will make Hong Kong a more attractive place for highly-skilled professionals to live in. We will work closely with our counterparts on the Mainland, particularly in Guangdong Province, to achieve our common goal of improving the environment.

Cleaner Water

115. The two most pressing problems which we face are the pollution of our coastal waters and our air. To help tackle the problem of water pollution, we will look to develop options for the further improvement of the strategic sewage system which serves the main urban area. These options have been drawn up with the National Environmental Protection Agency and our counterparts in Guangdong Province with a view to ensuring that protection of the local marine environment will also contribute to the protection of neighbouring waters. Pending further consideration of these options and detailed work on the preferred scheme, we will seek this Council's agreement to fund other major projects to improve sewage collection and treatment, such as -

* building more deep tunnels to collect sewage from Hong Kong Island for treatment at Stonecutters Island; and

* upgrading local sewage collection and treatment systems in many parts of the new towns, old developed areas and rural villages.

116. We will also liaise closely with our counterparts in Guangdong with a view to planning long-term sewage treatment standards and to designing further measures to reduce pollution in Hong Kong and neighbouring waters.

117. We expect to spend $12 billion on our sewage programmes over the next five years. In addition, we will proceed with the implementation of Stage II of the strategic sewage disposal scheme once the preferred scheme has been chosen. This represents a major investment in our future. It is also an investment for today, providing employment in construction and helping to safeguard those who make their living from the sea.

Cleaner Air

118. I have noted with concern the poor air quality as measured by street-level monitors in recent days. We must deal with this problem as a matter of priority. The most pressing issue is to reduce air pollution from particulates in diesel vehicle emissions, as this is a direct present threat to our health. Although they are not the only source of these emissions, taxis produce 30% of all particulates given off by diesel vehicles. Our experience of working with the taxi trade, motor trade and fuel companies on a pilot scheme shows that it is feasible to convert the taxi fleet from diesel to liquefied petroleum gas (LPG) fuel. I am now therefore setting out our intention that all new taxis should operate on LPG fuel from the end of the year 2000. We will work with the trade and take all necessary steps to ensure that the supporting infrastructure required to support this initiative will be put in place.

119. Other vehicle emissions also have to be tackled if we are to enjoy cleaner air in our city. New standards for light diesel vehicles which came into effect last week should reduce harmful emissions from individual vehicles by up to 55%. In 1999 we will ban the sale of leaded petrol. We will also introduce more stringent testing of and enforcement action against smoky vehicles, as well as working with the minibus trade to encourage them to move to using cleaner fuel.

120. We are conscious of the need to liaise with our counterparts in Guangdong Province with a view to improving the air quality of the Pearl River Delta area. Together with our Mainland colleagues we will initiate a study of the air quality in the Delta region, with the aim of developing improvement measures from 2000 onwards.

Less Waste

121. In the past year we have developed plans for waste reduction and assessed how to put in place a better waste management framework. We will shortly publish a ten-year plan for waste reduction, setting out targets for improving efficiency. Our key aim will be to encourage the community to produce less waste, thereby conserving resources and helping to make Hong Kong a cleaner city. We will also look to maximise efficiency in waste collection and disposal, and to promote greater private sector involvement in re-cycling materials and handling waste in an environmentally responsible manner.

Use of our Energy Resources

122. A place which develops as quickly as Hong Kong is bound to be a voracious consumer of energy and of other resources. It is important for Hong Kong's economy and environment that these resources should not be used wastefully. The efficient use of energy is a practical, economically sensible step. To improve energy efficiency and conservation within Government, we are carrying out audits for the use of energy in our buildings, and we will publish building energy codes. All new Government buildings will be designed for high energy efficiency. We are also looking at the potential for developing waste-to-energy incineration so as to reduce our reliance on fossil fuel.


123. We are now conducting a study on Sustainable Development for the 21st Century, which will give us better tools to identify the consequences of the choices we make for developing our society. I welcome discussion by this Council and by the community of the measures we will need to adopt to make Hong Kong a truly sustainable city. To stimulate the process of community education and debate, in 1999 the Secretary for Planning, Environment and Lands will issue a green paper on environmental policy. I urge everyone to raise their awareness of the issue of environmental protection, to examine the options we will put forward and to consider the choices which we must make in order to steer Hong Kong towards a better environment.

Promoting our Culture and Heritage

124. An improved, sustainable natural environment will make Hong Kong a more attractive place in which to live and work. To foster a sense of belonging and identity, we need to promote our heritage, which is a valuable cultural legacy. This involves the protection of historic buildings and archaeological sites, of which some are more than 6,000 years old.

125. Since reunification there has been a noticeable trend among our people of wanting to know more about our country's proud culture, history and heritage. I hope this will continue. We will also look to strengthen Hong Kong s own unique culture which embodies a successful blend of the best of the East and West.

The Arts and Sport

126. The arts scene in Hong Kong reflects our distinctive cultural background. We have invested significantly in the arts in Hong Kong and will continue to support arts development by ensuring that we have in place effective administrative and funding arrangements.

127. It is essential that we continue to support the development of sport in Hong Kong. Without question, participation in sport benefits our health and helps to generate a sense of well-being and a cohesiveness in society. Hong Kong s participation in the 1997 National Games was a clear example of how sport can foster our sense of identity and collective achievement. We will continue to support our athletes, and to develop more opportunities for the public to enjoy sport and recreation.

D. Taking Care of People in Need

128. No matter how successful we are in fulfilling our mission to meet the forces of change and turn them to our advantage, there will always be people who need the community's support and care. We must work to improve the living conditions of those in need. Our success in this area is a measure of the true quality of our society.

Helping the Elderly

129. Hong Kong's elderly have contributed much to our success over the years. It is only right that we should help them to enjoy a sense of security, a sense of belonging, good health and a feeling of personal worth. I am pleased that more than 5 000 elderly people are expected to take part in new voluntary programmes organised by government departments and community organisations to help others in need. This shows their value to the community and also sets a fine example to younger generations.

130. More than 70% of elderly people live with their families. To encourage people to care for their aged relatives, we already provide tax incentives and public housing privileges. We will provide more support for elderly people living at home, and for their families, by -

* providing 15 more home help teams in 1999-2000;and

* launching a pilot project to introduce a respite service, which will allow families to place their elderly parents in day care centres temporarily so that the families can attend to other business.

131. For old people who cannot live with their families, we aim to provide support in obtaining suitable housing and care. We are making good progress towards meeting our target of reducing the waiting time for elderly people applying for public rental flats to two years, and the Secretary for Housing is developing a model which will help us to assess the housing demand and preferences of our elderly population so that we may better cater to their needs in the future.

Residential Care Services

132. As regards residential care, I have received a report from the Elderly Commission which recommends a comprehensive strategy to improve residential care services. This involves reducing the waiting time for places in subsidised care homes, and improving the standards of private residential care homes.

133. The Elderly Commission has found that there are currently about 13 000 old people in need who are waiting for residential care places. To help meet demand and reduce the waiting time for places, we plan to provide about 8 000 new subsidised places in the period between 1998 and 2002, including the 7 100 pledged last year. This will increase our total annual committed expenditure on residential care by an estimated $670 million.

134. To help upgrade the standards in private care homes, since early 1997 we have approved financial assistance to 100 homes. We will also pay higher prices under the Bought Place Scheme for places in homes which have more living space and higher staffing levels. To provide more premises of an appropriate standard for private care homes, we will draw up a programme to make available suitable sites in public and private housing developments. We will also monitor the demand and supply of nursing, allied health and personal care staff for residential care homes. To allow elderly people to continue to live in the same home even when their health deteriorates, we will develop a funding mechanism to support residential care homes offering this service and in 1999 we will invite selected homes to provide the service on a trial basis.

Welfare Services

135. Just as many elderly people have special needs, some families, young people and children also require support and practical help. To help relieve pressure on families which has been brought about by the changes in the economic environment, we will strengthen our family services to help those in need. In the coming year, we will employ additional caseworkers to give counselling and practical help. We will also provide more child protection workers next year in order to reinforce public education on the problem of child abuse and to improve our existing child protection services.


136. The disabled can and do make an important contribution to society, inspiring not only others with disabilities, but also able-bodied fellow-citizens to overcome their difficulties. But they cannot do it alone. In 1999-2000 we will provide over 400 extra day and residential places for disabled people. To help us better assess the demand for rehabilitative services and support, the Secretary for Health and Welfare will complete a comprehensive review in 1999.

CSSA Review

137. Last year I asked the Secretary for Health and Welfare to review the scope and administration of the Comprehensive Social Security Assistance (CSSA) Scheme. One of the factors which gave rise to this review is the trend in CSSA expenditure, which has risen almost four-fold in four years to $9.7 billion in 1997-1998. Our objective in operating the CSSA is to direct valuable resources to provide people in real need with a safety net. Although the current economic conditions have left more people in financial difficulty, the Government must handle its finances prudently and ensure that scarce resources are used effectively and in a targeted manner. The Secretary for Health and Welfare is now finalising the review, and will put forward her recommendations by the end of this year.

E. Health Care and Public Hygiene

Health Care

138. I share the public s concern at the number of unfortunate incidents which have occurred in our hospitals and clinics over the past year. We must do all we can to minimise the risk of similar mis-haps recurring. At the same time, we should not forget that Hong Kong people enjoy a health status that is among the best in the world. Our infant mortality rate is a low four per 1,000 live births. Life expectancy is long at 76 years for men and 82 years for women. Despite the enormous pressure on our public health care system, which saw two million admittances to emergency rooms and seven million attendances at specialist clinics last year, the system has served us well. Of course, this is of no comfort when things go wrong, and we must ensure that our health care workers are trained to the highest levels of competence. To this end, the Hospital Authority is improving its clinical audit and risk management system and will keep these under strict review with the aim of further reducing the risk of clinical mis-haps.

Clinical and Hospital Services

139. We will continue to invest in our public medical sector and improve our existing services for the benefit of community. For example -

* we will upgrade the pharmaceutical services provided in the clinics of the Department of Health to ensure a high quality of service and to help avoid a recurrence of dispensing errors;

* to extend our in-patient services, we will, in 1999-2000, bring into use 853 additional beds in public hospitals;

* we shall put forward a proposal to redevelop Pok Oi Hospital to meet the rising demand for medical services in the northwest New Territories; and

* we have reserved funds to establish a new Radiotherapy Centre in Princess Margaret Hospital to improve services to cancer patients.

The Health Care Review

140. I said in last year's Policy Address that to help us draw up long-term policies, the Secretary for Health and Welfare would review the financing and delivery of health care in Hong Kong. The review is still in progress. However, preliminary findings show that public expenditure on health care has taken up an increasing share of our resources over the last decade. This share is projected to increase by a further 50% between now and 2010, putting great pressure on our public finances. If we are to continue, in the long-term, to be able to provide quality services we will need to implement reforms. We are now developing reform options and we shall begin public consultation on this important issue in 1999.

New Public Health Initiatives

141. In the past year, a series of public health and hygiene incidents, such as the outbreak of avian influenza, have raised public concern about the deterioration of our food safety and environmental hygiene standards. The Administration has studied the optimum framework for the delivery of food safety and environmental hygiene services as part of the review of District Organisations. I shall talk about this review shortly. Changes to our current management framework will not affect initiatives already in the pipeline, and these will strengthen our monitoring, prevention and control of the spread of communicable diseases. In the coming year, we will step up our health surveillance programmes, increase our analysis of disease data, liaise more frequently with overseas health authorities and intensify staff training. To support these initiatives, we will build a new Public Health Laboratory Centre in Shek Kip Mei, which is scheduled for completion in 2002.

142. Poor hygiene and careless habits are the direct cause of many illnesses, particularly food-related infectious diseases. In May this year we launched the "Healthy Living into the 21st Century" campaign to promote public awareness of the importance of personal and environmental hygiene. We will set up a special team in the Health and Welfare Bureau to organise a campaign of educational, publicity and community activities to emphasise the message that good hygiene contributes to good health. We will also step up government action to monitor food safety, with the aim of ensuring that there is a consistent, unbroken monitoring process which tracks our food from the field to the meal table.

F. The Review of District Organisations

143. As I promised in last year's Policy Address, we have reviewed the functions and structure of the Provisional Municipal Councils and Provisional District Boards. Our objective in conducting this review has been to enhance the standard of provision of services. We have focused on the need to improve efficiency and cost-effectiveness, to streamline the present organisational framework and to increase public accountability and public participation in community affairs.

144. I mentioned a moment ago that in the past year a series of public health incidents, most notably the outbreak of avian influenza, had affected the public s confidence in our food safety and environmental hygiene standards. These incidents were seen by many to be due to a lack of effective central co-ordination, arising from fragmentation of responsibilities for public health matters among different agencies within Government and the Provisional Municipal Councils. Opinions expressed during the consultation exercise on the review of district organisations supported this view, and a clear majority of those who responded to the exercise agreed with the proposal that Government assume direct responsibility for food safety and environmental hygiene services.

145. We will respond to the public's concerns by introducing structural changes to the current framework for the delivery of these services. In this regard, we will set up a policy bureau which will be responsible for the environment and for food safety. The new bureau will provide central co-ordination and direction on environmental protection, environmental hygiene, waste management, food safety and nature conservation policy. It will be underpinned by a new Department of Food and Environmental Hygiene, as well as the existing Environmental Protection Department and the Agriculture and Fisheries Department. The responsibilities for food safety and environmental hygiene currently under the purview of the Urban and Regional Services Departments, the Department of Health and the Agriculture and Fisheries Department will be assumed by the new Department. An advisory committee will be established to give advice on and monitor our work in this area, as well as to allow greater professional participation in formulating policies. We have ruled out the option of placing the functions of the new Department under the Provisional Municipal Councils purview because they go far beyond the scope of the services which the Councils currently provide.

146. We are finalising the planning for the new structure, with a view to it being in place before the end of 1999.

147. Besides providing food and environmental hygiene services, the Provisional Municipal Councils also manage arts and culture and sports and recreation programmes and facilities. The review has addressed the issue of whether these latter functions should remain under the control of the Councils.

148. The consultation exercise provided feedback from the arts and sports communities which revealed concerns about unclear policy, a lack of cost-effectiveness and duplication of functions with other service providers. Some have questioned whether the Provisional Municipal Councils are best placed to continue to provide these services, and they have pointed to overseas experience to illustrate the argument for having dedicated agencies to deal with these sectors. With this in mind, we have examined the possible role that might be played by a Municipal Council which would no longer exercise functions in respect of food safety and environmental hygiene, and have come to the conclusion that it would be better to have dedicated agencies play the leading role in the development of the arts and sport in Hong Kong. We will therefore develop a new administrative framework for the delivery of these services with the Arts Development Council, the Sports Development Board and other concerned parties before finalising the details of the new structure, so that we can put this in place before the end of 1999.

Municipal Councils

149. Prior to the 1980s, there was no elected legislature in Hong Kong and the then Urban Council was the only political institution with directly elected representatives. Members of the Urban Council not only dealt with municipal services, but also often acted as informal "ombudsmen". Both the Urban and Regional Councils have played an important role in encouraging the community s participation in the running of Hong Kong. However, with the development of the roles of the Legislative Council and the District Boards, it is questionable whether there are still valid reasons for maintaining a three-tier system of Government in a compact city like Hong Kong.

150. I believe that the proposed new framework for providing services in the areas of food safety and environmental hygiene will be more efficient and cost-effective than the present arrangements. In designing the new framework for managing sport and the arts our key consideration will be to improve service delivery. Against this background, we do not see the need to retain the Provisional Municipal Councils after the terms of office of their members expire at the end of 1999. We fully acknowledge the work done by the two Councils in the past, and I appreciate that there are differing views within this Council on the merits of keeping the Municipal Councils. However, now that I have explained the proposed new arrangements and the reasons behind these proposals, I hope that in the months ahead the Government will be able to achieve a consensus with the Honourable Members of this Council that these arrangements are in the best interests of providing an improved service to our community.

District Boards

151. Since their establishment in 1982, the District Boards (DBs) have effectively given advice and feedback to the Administration on local and territory-wide matters and encouraged participation in community affairs. The review found that the public was generally in favour of retaining the Boards and many felt that their role in advising government and monitoring services at the district level should be expanded. In view of Hong Kong s small size, delegating specific executive functions to the 18 DBs would run the risk of fragmenting responsibilities and diminishing efficiency. Nevertheless, we believe that the DBs will still play a vital role in empowering the community and providing more accountable and responsive district services. With this in mind, we will -

* provide additional funding to the DBs for improving the local environment, commissioning district cultural and recreational activities and promoting more community building programmes;

* enhance the DBs' role in advising on and monitoring municipal service delivery; and

* ensure that the Government is more responsive to DBs advice, by consulting them before we finalise district programmes.

152. The structure of the DBs will remain essentially the same as now. I have asked the Secretary for Constitutional Affairs to prepare legislative proposals for the election of the Boards (which, in English, will be re-named "District Councils") in time for the election to be held before the end of 1999.

G. Strengthening the Institutions of Society

153. The rule of law and the maintenance of order are indispensable foundations of Hong Kong s success. To guarantee our future stability we must ensure that the institutions which protect the rights and the safety and security of our citizens continue to gain in strength.

An Excellent Police Force

154. We are one of the world s most crime-free cities. This is largely attributable to our professional Police Force. Our excellent co-operation with Mainland and overseas law enforcement agencies has also helped in containing crime. We will continue to upgrade the services provided by the Police to the community, and in the coming year we will -

* enhance the Police's use of information technology;

* deploy more front-line Police officers in newly developed areas such as Tseung Kwan O and Ma On Shan; and

* streamline crime reporting procedures and upgrade the environment of Police stations so as to improve our level of service to the public.

The Importance of the ICAC

155. That Hong Kong has a reputation as one of the most fair and open cities in the world in which to do business, is in large part due to the excellent work of the ICAC, which continues to bring to justice, regardless of background, those who use bribery and corruption to gain an unfair advantage. To combat the ever more sophisticated techniques, often involving information technology, which are used by the corrupt, the ICAC will in 1999 set up two new sections to enhance its ability -

* to seize, preserve and analyse electronic data and to present such data as evidence in the courts; and

* to detect and investigate the increasingly complex financial aspects of corruption cases.

Our Legal System

156. As I emphasised earlier, we are proud of our legal framework, which acts as a bulwark of equality and justice. We are keen to promote further public recognition and understanding of the system both here and overseas, and to enhance the quality of the system. Over the next year, we will -

* press home the message that our legal system is still autonomous and functioning smoothly;

* improve our ability to conduct criminal cases which go to the Court of Final Appeal, by strengthening the Prosecutions Division of the Department of Justice; and

* extend our network of bilateral agreements with other administrations on mutual legal assistance in criminal matters.

The Rights of Individuals

157. For a person to be able to play his or her full part in society, they must be able to enjoy their basic rights as an individual. We remain firmly committed to meeting our international obligations in this regard. We have recently submitted a report to the United Nations under the Convention on the Elimination of All Forms of Discrimination against Women. We aim to submit further reports later this year under treaties governing civil and political rights, and economic, social and cultural rights.

158. The Equal Opportunities Commission, which plays a key role in enforcing anti-discrimination laws will continue to have our full support. This year, the Commission will step up campaigns to promote equal opportunities for students in schools. Separately, the Privacy Commissioner for Personal Data will continue his work in promoting compliance with the Personal Data (Privacy) Ordinance, and will publish a code of practice for human resource managers on how to handle the personal data collected and held by them as employers.

Constitutional Development

159. The Legislative Council election held on 24 May this year in accordance with the principles laid down in the Basic Law was a resounding success. The record turnout of voters reflects the community s increasing civic awareness and strong support for the principle of "One Country, Two Systems", as well as its confidence that we can realise the concept of "Hong Kong people running Hong Kong" with "a high degree of autonomy". With the successful completion of the first Legislative Council elections, our major task is now to prepare for the elections to this Council in the year 2000. For the longer term, we are fully committed to developing further our democratic institutions in accordance with the Basic Law. We need to develop a model suitable for Hong Kong, one which promotes stability and prosperity and is in line with the ultimate aim of having a Legislative Council and a Chief Executive elected by universal suffrage.

Co-operation between the Executive and the Legislature

160. Rule by an executive-led Government is a proven formula in Hong Kong, and is a principle enshrined in the Basic Law. The initiative for policy-making lies with the Government, and this puts the onus on us to plan for the long term, yet also to be responsive and flexible in adjusting to prevailing conditions. I believe that this mode of Government will continue to serve Hong Kong well, particularly under the present economic climate which calls for quick, decisive and determined efforts on our part.

161. In formulating policies, the Government must listen carefully to the views of the community. The Government will also seek the views of the Legislature, and respect its powers as enshrined in the Basic Law. Of course, the relationship between the Government and the Legislature goes beyond these principles. It is built on daily contact between officials of the Government and Legislative Council members in panels, at sittings, or even through informal contacts. Through constructive exchanges and continuous dialogue, both sides work in the interest of the public good. The Government will continue to nurture a relationship with the Legislature which is based on mutual trust and mutual respect, with the long-term benefit of the people of Hong Kong as the goal.

H. More Efficient and Cost-effective Government

162. The delivery of the pledges made in this Address is largely in the hands of our Government. For us to be able to serve the people of Hong Kong properly, we must ensure that we operate efficiently and cost-effectively, maintaining high standards and yet controlling growth in the bureaucracy. We must also ensure that we have the best possible structure for the effective delivery of services.

An Honest and Effective Civil Service

163. Events of the past year have tested civil servants' responsiveness and ability to manage crises. We must and we will strive to do better. The community expects nothing less than full dedication and professionalism from its public servants.

164. Since becoming the Chief Executive of the HKSAR Government, I have come to appreciate more and more the skill, loyalty and dedication of our civil servants. In the past year, many civil servants have gone beyond the call of duty to devote their time and efforts unreservedly to tackling urgent and unforeseen matters. The Civil Service as a whole has provided much needed stability after the Handover. Their honesty and integrity help to ensure that the Hong Kong way of life is maintained.

High Civil Service Productivity

165. The public sector has a duty to ensure that community gets maximum value from the available resources, and must direct these resources to achieving the best possible results. Last year, I announced the implementation of a Target-based Management Process to ensure that we in the public service manage our business in a result-oriented way. This year we will publish 37 Policy Objective booklets in which Bureau Secretaries and other agency Heads will specify the results we aim to deliver for the community in the bulk of the Government's programme areas. This process has laid a solid foundation for us to embark on a drive for higher productivity in the years to come.

166. Driven by the Chief Secretary for Administration, the public sector will undertake an Enhanced Productivity Programme. We will set targets and require departments and agencies regularly to review their baseline expenditure to ensure that it is directed to Government's main priorities. In the next few months we will require departments and agencies to put forward proposals for new or improved services without giving them additional financial resources. Managers will be required to deliver productivity gains amounting to 5% of their operating expenditure between now and the year 2002. As appropriate, we will also require managers to make more use of appointments on contract, rather than permanent appointments.

167. Civil service pay levels should in principle be broadly comparable to those in the private sector. The Secretary for the Civil Service will shortly commission the Standing Commission on Civil Service Salaries and Conditions of Service to carry out a detailed Benchmark Review to determine whether or not civil service pay at the crucial entry point is still in step with the equivalent pay levels being offered in the private sector. Once the results are known, the Standing Commission will also advise on what steps should be taken to adjust civil service entry pay to ensure broad comparability with that in the private sector.

168. In making these changes, we will not accept any deterioration in our level of service to the community. I am confident that the public service will respond positively to this challenge, and will come to pride itself on being lean and fit, while attaining high standards of accountability and productivity.

IV. Conclusion

Looking with Hope to the Future

169. The delivery of this Policy Address coincides with a time of great challenge and difficulty for Hong Kong. I am mindful of the anxiety of Hong Kong people in all walks of life, and I am also well aware of their expectations of the Government. As I have said earlier today, the recovery of our economy hinges on four factors: an improvement in the external economic environment; a steadying of interest rates; stability in the property market; and the restoration of public confidence. I am optimistic that the measures recently introduced by the Hong Kong Monetary Authority will help to steady interest rates. I believe that our approach to meeting housing needs, together with the series of measures implemented in the past year, will help to stabilise property prices. As far as the external environment is concerned, although we cannot control global trends, nor predict the changes that may occur in the future, the signs are that US interest rates are on a downward trend and the US dollar is softening. The financial difficulties now being faced by global hedge funds have led to increased calls from the international community to impose tighter controls over the use of such funds and to establish a new international financial order. This development will have a positive effect on the stability of Hong Kong's financial markets.

170. The most crucial factor now is our own confidence. Undeniably, Hong Kong faces many problems. But we must not sell ourselves short nor lose confidence. Rather, we should recognise that Hong Kong still enjoys a position which is the envy of many. Our society is free, fair and stable; and we steadfastly uphold the rule of law. Our currency will grow stronger as the measures which we have introduced to improve market regulation take effect. We owe no foreign debt. We have sufficient reserves and a sound banking system. Our user-friendly and up-to-the-second communication networks are efficient and reliable, helping to make Hong Kong the first choice destination for many companies which invest and set up offices in Asia. Our strategic location, heritage and cultural background, together with our extensive experience in working with the Mainland place us in a position unmatched by anyone. Political stability and rapid development in China give Hong Kong a strong hand in furthering our development. Above all, Hong Kong people remain resourceful, hardworking, forward-looking and dynamic. I firmly believe that as long as we retain our self-confidence and remain resilient, we will be able to turn crises into opportunities and together overcome the adversities that we now face.

171. Madam President, Honourable Members, during the past few months, as I prepared for this Policy Address, images kept flashing through my mind of our countrymen fighting the terrible floods which swept through China this summer. Natural disasters are the most insuperable obstacles that mankind faces. Yet against all the odds, those battling the flood waters did not retreat, they did not give up and they refused to accept what seemed inevitable. Instead, they stood together and worked to overcome seemingly insurmountable difficulties. Like many in Hong Kong, I feel enormous admiration for the spirit and the courage of our fellow countrymen. As we in Hong Kong face one of the most severe challenges in our recent history, I deeply believe that, if we can show the same spirit of strength, courage, solidarity and concern for our fellow citizens, we will be able to overcome our present difficulties and build a brighter future.

Thank you.

End/Wednesday, October 7, 1998