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Following is the transcript of the Chief Executive, Mr Tung Chee Hwa, in the press conference on Policy Address today afternoon (Wednesday):
Mr Tung: (SI) Good afternoon everybody. Now I don't intend to speak any more for now. So I'll just wait for your questions. Who would like to kick off?
Reporter: (SI) Mr Tung, you said you would review whether there is still a need to build HOS flats. So under what circumstances would you come to the conclusion there is no more need for HOS?
Mr Tung: (SI) Please don't misinterpret my speech that way. In fact from 1997 to the year 2002, in this five-year period public rental housing, HOS flats and flats built by Housing Society will total more than 50,000 units. So these are being built and they will continue to be built. That's the first principle.
The second one is for all those who are eligible for HOS flats, we hope they will be able to be granted HOS as soon as possible or granted a loan subsidy from us. That's the second principle.
The third point is, in the long run, if property prices remain at the current level then would that not allow us an opportunity to review or study whether we should continue to build some of the HOS flats. We are talking about a long time from now. That is, would it be better that we have more loans and consider whether we will continue with the construction programme of some of the HOS flats. Now we need to consider that in great detail. We need to do a detailed study but for the time being there will be no change.
Reporter: (SI) In paragraph 66 there is mention of medium term forecast -- recurrent expenditure will slow down and that's because that shows that economic growth slows down. So could you give us an exact figure. From 5% to how many? And because of less recurrent expenditure does it mean that this year or in the next few years revenue will be less?
Mr Tung: (SI) Well, let me answer you this way. I have said the revival of Hong Kong's economy will be determined by several major factors. One is the external factor. The other is the reduction of interest rates and, third, stable property prices and finally public confidence in themselves.
Now on these fronts, interest rates -- I am confident that with the series of measures taken by the Hong Kong Monetary Authority, that should help to stabilise interest rates.
For property prices, I hope and I believe that after our efforts in the year, and with what I have said in the Policy Address and with the stabilisation of interest rates then property prices should also stabilise.
External factors are, in fact, beyond our control but we could see this trend. The US dollar is weakening and US dollar interest rates are also coming down. Hedge funds, some hedge funds, are experiencing financial difficulties. So all these developments would actually make possible short term stability in the financial markets in Hong Kong.
So I hope that though 1998/99 will continue to be a difficult year, I believe in the long run measures or ideas presented in my Policy Address -- now when these are implemented, I believe we will be able to come out of this trough slowly.
And under the current circumstances what should be medium term growth rate, what should be the forecast; well, the Financial Secretary is still doing a detailed study now and at the right time I am sure we will let you know.
Reporter: (SI) Now, with the slowing down of recurrent expenditure, will it mean that there will be fewer new policies in future?
Mr Tung: (SI) What do you mean?
Reporter: (SI) Because there is a slow-down in recurrent expenditure, would it then mean fewer new policies that require one-off grants for instance?
Mr Tung: (SI) Now for this year's recurrent expenditure, there is no bearing whatsoever and, secondly, as I have said, we can see that while the economy is not so good but we've also considered, as we embark on all these infrastructural projects, could we really afford it. As I have said, we have studied that, we have considered that carefully and we are confident that in the five-year period we are still able to proceed with the infrastructural projects as planned.
Reporter: ....the 85,000 (housing) target...have you changed at all your expectations of meeting that target?
Mr Tung: Where are you from?
Reporter: AFX Asia Financial News.
Mr Tung: As I said earlier on, when we develop the 85,000 units of houses, when I made the Policy Address last year, it was against the background of the economy which was moving too fast, property prices were rising very rapidly, our competitiveness was being affected and the ability of our citizens to find decent homes was being very badly affected. So the objective was very clearly one to try to achieve a soft-landing. And the other, really, is the target for us to produce land for the future. Producing land is a very important aspect of Government's responsibility.
Of course, since then much has changed. The Asian financial turmoil and our own correction as a result of our bubble economy have resulted in a much higher interest rate and unemployment that is rising, and the demand for housing, obviously, has declined very dramatically.
I have said that Government is not in a position to fix specific levels of what the price of property should be, and neither are we able to dictate fluctuations. But because we are the largest supplier of land, obviously what we do will have an influence on the way the market will move in the long term.
Let me say another thing to you. I have noticed that many have questioned the affordability issue. Some of the investment banks have made the affordability issue a real issue, saying, even three weeks ago, that property prices in Hong Kong are too high, they need to drop another 40-50 per cent, and that the Hong Kong citizens' affordability is still a big question. I would like just to tell you, and through you to tell my friends in that community, that we have very carefully looked at the affordability issue. We looked very carefully at the affordability issue and I want to assure you that our affordability today is really very, very good if we compare ourselves, for instance, to London, New York - with many cities - and especially if we do it on the basis of disposable income. Because, don't forget, our tax rate is much lower than these countries I have just mentioned. So I think it is time now for property prices really to settle down. Affordability now looks good and I think we are moving in the right direction.
Question (SI): ...you say that the financial sector is very important for propelling Hong Kong's economy, but in your Policy Address you don't have specific means to turn Hong Kong into a New York or a London, so can you elaborate on that?
Mr Tung (SI): There are several imperative considerations in terms of a international financial centre. First, we have to stick to the free-market economy principle. About our regulations, etc, they have to be very clear. Our legal system has to be sound. In Asia, I think we are the premier territory in this respect. We have wanted to maintain our financial order. The Hong Kong MA and the Financial Services Bureau have adopted a series of measures. The aim is to maintain our financial order. The measures have strengthened our status as an international financial centre.
If you look at other Asian territories, they have been buffeted by the financial turmoil, so they may become more inward-looking or even backward-tracking. But ours is an open market - we won't have Forex control. It is very clear, so we have sent out these sorts of clear messages. When the financial market stabilises, the international investors will come back and this will be their prime consideration. And for our country, in the 21st century, we will become one of the largest economic entities in the world. There is a great requirement for capital. So Hong Kong will play a major role. Our stock market can work for the economy of the country in terms of financing. So, about Hong Kong, improving the situation, we are already a financial centre and for our future status it will be further consolidated and strengthened.
Question (SI): Mr Tung, you are assessing the coming year, have you reached the bottom of the trough, so to speak? You are trying to lead us out of it. Say, for the property market, you want to review that, and for unemployment you have not given any details. So, for many areas we do not have clear and specific policies. Is it true that the Government ...select what the FS said -- property prices will drop further before reaching the floor...that is why you don't have specifics here now?
Mr Tung (SI): Perhaps I will put it this way. For many areas we talk about the long term development and of course we have described the present. From February up till now, the government has adopted relief measures to ease people's plight. For example, there have been tax breaks and there will be a raised rebate and there will be a freeze of rentals by the Housing Authority and Housing Society. The MTRC and the KCRC have frozen their tariffs. So the revenue foregone is about $20 billion. That is a massive figure.
About tax concessions and the rates rebate, of course the effect is still to be seen. You know that for tax relief we won't see specific results until next year, and the rates rebate is to be implemented shortly, so we have to wait for some time to see the results. As for our massive infrastructural investment in terms of the West Rail or Tseung Kwan O line, the works will go ahead at the end of this year, so we need some time before we can see the positive results on the economy.
The Government has been taking measures for housing, as I said. The Government does not have the capability to set property prices and it does not have the capability to regulate the daily fluctuations of property prices. But the Government is the largest supplier of land, so for the long term property prices we can have sway, definitely.
Is the Government omnipotent? Do we have a magic wand? Not so. For the short term we have taken measures. For the longer term future we have set long term targets. There are things already set in motion; we have to fine-tune them. Like in terms of financial services, tourism, small and medium sized enterprises, etc, we have to improve upon that. And I have especially mentioned information and technology and hi-tech. Of course we need some time for these areas and they do not necessarily solve present problems, but when we put them in place a few years down the line, they will be good for Hong Kong.
Before 1978, our positioning vis-a-vis the Mainland was different because now we have had two decades of reform and opening on the Mainland, and in the 21st century our country will have further success in opening and reform, our positioning will be different. Our country will become one of the largest economic entities in the world and there will be much room for our businesses to manoeuvre. So, perhaps we have under-estimated our potential. As a government we will create a favourable environment for people to work.
Question (SI): Just now, you mentioned people's confidence. Okay, you want to leave much room to manoeuvre, but how can you win public support for your Policy Address this time?
Mr Tung (SI): As I said, we should not sell ourselves short and lose confidence. Hong Kong still enjoys a lot of favourable conditions. When the world financial markets stabilise we will have a very quick recovery. We have good conditions, please do not lose confidence. We don't have debts, we have a lot of reserves, our infrastructural projects are on the way, so we should not lose confidence in ourselves, especially during difficult times.
Question: Following the recent market intervention by the Government, a lot of international investors have lost a bit of confidence in Hong Kong, but there wasn't really anything in particular -- well, I'll ask, do you believe that the issues brought up in the Policy Address today were adequate to entice international investors back to Hong Kong?
Mr Tung: Well, I think we had a very good reason to do what we did because we were really trying to restore the order of the market. That's what we were trying to do. To restore the freedom and the order of the market. I think now there is increasing recognition internationally that what we have done needed to be done and I am very pleased that there is now this great degree of recognition that we did the right thing for Hong Kong, for maintaining our position as a financial centre.
Question (SI): Now, you compare Hong Kong to London, New York, but in fact if you look at Hong Kong in the past year, our economic growth lags far behind that of Taiwan or Singapore, and, on the financial side there is actually nothing new in your Policy Address in terms of ideas and measures. So how can we ensure that we can maintain our position?
Mr Tung (SI): For the economic development in Taiwan and Singapore: I've followed that closely in the past year and I've also done comparisons because it is important that we know the position well. Just as we know our own position well. Of course, for Taiwan and Singapore their economy is more diversified. For instance, Singapore, on the high tech front and on petrochemicals -- they are doing very well. And Taiwan of course, high tech and small and medium enterprises are also developing well. There is also another characteristic that they enjoy. That is there is some form of control for capital movement and I am referring to foreign capital movement. So their economy is quite different from ours. Ours is a completely open economy. We are a financial centre so the most important thing that we must make sure is that we have a completely free and open market and there will be no foreign exchange control. And we also try very hard to turn Hong Kong into a major tourist attraction and in terms of freedom of information we also rank first in Asia. So if you look at this, a lot of multinational companies have bases in London, New York. In Hong Kong there are also a lot of multinational companies based here. So the special features we enjoy -- we actually develop a different path.
Question (SI): Mr Tung, on a "More Efficient Government", in that chapter you said that if necessary you may use a contract basis in recruiting people. Does it mean that it will help you to find talents from outside the Government to take up some of the existing government posts? And for the managers, staff -- you say they may be employed on a contract basis. Would that cause any turmoil in the Civil Service structure? That is, they no longer will enjoy an iron rice bowl and they will just be employed on a contract basis.
Mr Tung (SI): No, I don't think so. While we have considered that long and hard before we come up with this idea, because it's just the fact that there are some specialists outside of government that help us on certain tasks. So that should help to strengthen Civil Service operations. So it is a very good idea.
Question (SI): Mr Tung, the chairman of a shipping committee said he mentioned to you about turning Hong Kong into an international shipping centre. So what's the progress and is it really possible? Can we really become the international shipping centre of the region or of the Orient. And how would that help the employment situation?
Mr Tung (SI): I think we have to be careful with this definition. Of course, Hong Kong is one of the world's largest ports. If shipping centre means that Hong Kong is a container port then we already are one and we will continue to keep this edge. The thing is, what's the definition of a shipping centre? It is a place where there is control or possession of a huge shipping fleet that operates around the world but the headquarters is in Hong Kong? That's another definition.
Well, maybe the figures aren't accurate any more because I've left this trade for a year or two but I understand from what I can remember, Hong Kong controls or possesses a shipping fleet of 50 million tonnes and that's already a huge figure. So how could we further consolidate that position as a shipping centre; I understand colleagues in the shipping industry are working very hard towards that goal and the Government will most certainly support their striving so that Hong Kong could do better in this regard and I am sure we could do it.
Question (SI): Still a question on confidence. In your Policy Address not many new resources are proposed, so how could you convince the public to have confidence in our future or in the Government?
Mr Tung (SI): On confidence -- I must go back a little -- I don't think we should be too pessimistic. The fact is, Hong Kong enjoys solid fundamentals. We have no foreign debt, we have a good reserve, we have rule of law, we have a free market economy. So when the external factors stabilise, then there will be a chance for our economy to revive. So in the Mainland, development is going well, so we just have to look at it in the longer term. And as I have mentioned, four factors -- property prices, interest rates, external factors and so on -- you just have to monitor development in these four areas. But we don't need to lose confidence.
Since 1945, Hong Kong has gone through much turmoil. Of course this one is particularly serious. One reason is the financial turmoil brought along this volatility and it is an external factor. And also because over a period of time we have had a bubble economy, so there is a need for adjustment. Yes, it is a major storm, but still it is just a storm, it will pass. We just need to monitor developments in these areas.
Question (SI): You said for the next five years you will still proceed with your plans to produce the extra HOS flats but then in the long run you may consider changing it to a loan scheme. But what are the developments now that will make you consider switching to a loan scheme? And your target is that over ten years there will be 70 per cent home ownership, so if you are not going to build more HOS flats, are you going to direct the buyers to the private market or would you ask the Housing Society to build more flats or ask the HA to build more public rental housing to absorb the demand here?
Mr Tung (SI): I think the important thing is, those who want to own their home must be given a chance to do so. That is the guiding principle. Another principle, now we are building HOS flats, so people could apply for that. At the same time, we are also helping people to buy flats from the private market, so it is a two-pronged approach at the moment. Of course, most of them will opt for HOS flats but with property prices falling, then we need to reconsider it.
Now, if property prices are at the current level, would it mean that more people may prefer to take a loan and buy their own flats, or do we still need to build so many HOS flats? So I just think that we should be given a chance to consider this whole thing.
The Secretary for Housing will be doing some study in this regard and at this stage, actually, we have no conclusion yet.
Question (SI): I have a supplementary question on HOS. You stress that for these five years, HOS flats will still be built but for sandwich class housing it will be suspended. Is it true that you do not have a clear picture about the property market in the next five years, that is why you keep on building HOS flats? And also, about the application of high value added industries, okay, there will be an Applied Science and Technology Research Institute but we need a high tech market. You cite ... as an example but it has the backing of the US. You say that China is our back-up, but the China market will not easily open itself for other people for sales, so how will you deal with that?
Mr Tung (SI): First, from 1997 to the year 2002, the Housing Authority, the Housing Society, have had their programmes and the programmes are under way, they are ongoing -- more than 50,000 flats a year -- so these programmes have been set. Property prices have dropped, so we should take the opportunity to take a look at the situation. As for sandwich class housing, why is it that we have been able to make a decision so quickly? The property prices have dropped to a stage where the levels are much lower than the levels at 1994 when we decided on the sandwich class scheme, so we have to question the need for further sandwich class housing. As I said, we will suspend sandwich class housing. Still, we have the loan scheme so that the needy people can secure loans for a purchase.
Question (SI): How about the ensuing years? How about the property market -- is it true that you are still not quite sure?
Mr Tung (SI): That is why the Housing Bureau will carry out studies. As for the second question, you look at the world situation: knowledge-based communities are progressing well. Investment in technology is desirable. It is just like the investment in education, it is long term. For countries which have remarkable economic performances, they are very good in investing in technologies. So, if our society is a knowledge-based society, our investment cannot be neglected and we should strengthen that element in fact.
Secondly, in future we do have the opportunity to become a centre for innovative technology in Asia, we do have the conditions. And why is that so? We do have conditions to attract the cream of the crop to Hong Kong, whether the talents are coming from the Mainland or whether we are talking about Overseas Chinese in Silicon Valley, well, we can attract them to come back.
In addition, we do have other favourable conditions, like information technology or telecommunications, we already have a very sound basis.
As for Chinese medicine, we hope that Hong Kong can become an international centre for Chinese medicine. So we will co-operate with the Mainland in these areas. The Government should carve out a clear direction for ultimate success or otherwise. It depends on, also, the public enterprise -- we do have their confidence. But we need the markets. A couple of companies themselves may not be able to gain access to the markets, that is why I mentioned a cluster effect in the Policy Address.
Question: Could I ask you to enlarge upon your analogy with the fight against the floods in China, that was an immediate crisis and immediate measures were taken to build the sandbanks and stop the floods and now the Chinese have a much bigger long term struggle on their hands. Don't you also have a long term struggle and haven't you been somewhat complacent in your Policy Address and short of specific remedies?
Mr Tung: Which question should I answer first? Let me put it this way: the analogy I tried to draw is that the country was ravaged with flooding, it is the most serious for the century and that the country up and down were united in fighting this calamity, this natural calamity and, you know, to conquer a natural calamity is really a very difficult thing and they have taken some really very solid steps. First, to have succeeded in doing what they did and now they are making sure homes are being rebuilt, diseases will be contained and enough medical care for everybody. And in fact it became a rallying cause for the whole nation to rally around, and get on with it. What I was trying to say was that if a natural calamity can be overcome, in Hong Kong we have very good solid foundations; sure we can overcome our problems and let's have confidence in ourselves. Let's recognise, let's not always worry, let's recognise what strength we have and then as soon as the external environment becomes somewhat more stable we will be able to move forward.
Question (SI): you said that you will take measures so that the employers will get technical experts from overseas. Is this a change in immigration policy?
Mr Tung (SI): Some manufacturers say that developing high tech in Hong Kong is not very competitive so investment becomes a white elephant, but investment in technology it is something long term. It is not to simply solve today's problems. Just now I mentioned a knowledge-based society so we have to work more on that. That will help our long term competitiveness and our economic growth. I really hope that we can attract the best people to Hong Kong. In that case we must give due consideration so that they are welcomed by Hong Kong.
About immigration policy, population policy, environmental protection -- these are major considerations of course. Environmental protection is not just for them it is for ourselves as well.
Apple Daily (SI): The two municipal councils were the first to have elected members but today you said in paragraph 150 that there would be no need to retain the two councils in 1999. Some say that the municipal councils will allow people a chance to take part in elections, so because of political motive you try to scrap the councils so that you will limit training ground for politicians. So can you tell us why you are so resolved in scrapping the two councils? And some of the political parties comment that your Policy Address, it is well intentioned but couldn't really be effective in addressing the problems we have, so what do you think?
Mr Tung (SI): On the first question, I think I have given a lengthy explanation in my Policy Address so I don't intend to repeat that. I think if you read my speech carefully and you will see that the only motive is the interests of the people of Hong Kong.
Second question. Yes, I am very concerned about it. I want to see how we could take Hong Kong out of this plight as soon as possible. I fully sympathise with the unemployed and I'm also very anxious to tackle the problem but you know the economy, it's not like just a water tap, you just turn on the tap or turn it off, and it's not like a light switch, you just switch it on and the light will come on, no it's not like that, especially when there are so many external factors and Hong Kong is so vulnerable to these factors. So that's why I say we must monitor those indicators or factors I've mentioned. But I am confident that the series of measures that we've taken, the $20 billion worth of tax breaks and rate rebates, freeze of rentals and so on, that should help our economic revival and infrastructural projects that will start at the end of the year, they will also help our economy and help employment. I've told you that we will create 100,000 jobs and so on, and I think we would slowly walk out of the bottom of the trough.
Question (SI): In the last day or two there have been protests for the problems that Hong Kong has seen in the past year and some of the policies that you should be held responsible for and some commented on your leadership. Now in the last year, all the problems we've seen, how responsible are you for the policies or the mistakes. And there are a lot of queries about the effectiveness of the Government. So how do you view these comments?
Mr Tung (SI): When I was elected the Chief Executive I laid out three principles -- unbiased, no complaint and I could always answer my conscience. I am not biased because whatever I do, I always do it in the public interest. No complaint, and it doesn't matter how much difficulty I have to go through, how much criticism I face, how much pressure I am under, I will not complain. In fact, whenever there are criticisms I will always look at them carefully and analyse them and in a clear conscience because whatever I do I just do it for the sake of the public. So I have a clear conscience towards the public.
In the past year, we can see actually we did quite well in some areas. One country, two systems -- implemented successfully in Hong Kong. We've also won the trust of the Central Government, the political environment is highly stable, so I am actually very happy about that. On the economy, we face a major challenge brought about by the financial turmoil and by the bubble economy but even under these difficult circumstances we try our best to stabilise the situation. We've taken a series of shorter measures which I have mentioned. We've also planned long term measures on how we could lead Hong Kong to an even brighter future in the long run. Well, in fact you give it more thought, we have now mapped out strategies for the next generation; on education, on welfare for the elderly, on many different fronts we have strengthened public awareness and with that awareness then people work harder towards those goals. Now could we have done better in some areas, emergency cases like the bird flu incidents and environmental hygiene problems? Yes, true, we could have done better so that's why we will continue with our efforts. Even there, you could look at this like the bird flu case, it's true we didn't do well in slaughtering the chickens but you have to look at the results, you must focus on the results. The results are today we do not have bird flu. In fact, the World Health Organisation and other organisations have high praises for us. So, if you ask me whether there is room for improvement, of course there is and where there is room for improvement I could assure you the whole Government will work very hard to achieve that.
Question (SI): In your Policy Address you mentioned the establishment of a Council of International Advisers. So what is your expectation of this council and what do you expect this council could do for Hong Kong. Is the membership announced?
Mr Tung (SI): Well, I think you should study the Membership list and you will see from all over the world those are leaders in the financial sector or trade and industry sector. They are all very concerned about the development of Hong Kong. So be they from the financial sector, trade and industry sector or technology sector, they are able to give us solid advice and that will help us in our mapping out of long term future. The first meeting will be in January next year, in Hong Kong. I have high expectation of this Council. If you just study the membership list and you will see who we've got. They are the creme de la creme from all over the world.
Question (SI): In Paragraph 166, you say you will strengthen productivity of the Civil Service and reduce costs. Does it mean that in the coming year there may be some rationalisation of the Civil Service?
Mr Tung (SI): Well, we have to look at it this way. There is an increase in demand from the community and there is an increasing expectation of service quality and there are always new items that the public want from us so with this effort we hope that without calling for additional resources we could do even better within the current framework and we hope that within three years we could increase our efficiency by 5% and that increase of 5% will allow us to provide more services. That's the whole purpose. The 5% figure, I think amounts to something like $5-6 billion of savings in the next three years.
Question: You've been accused over the past year or so of lacking in providing inspiration or leadership. Do you think that your Policy Address provided this. Some might accuse you of failing to do this -- what is your response to that allegation?
Mr Tung: I have been accused of a whole lot of things. As I said earlier on, these are very challenging times for Hong Kong and we are faced with challenges that are more serious than we have ever faced before. But I am quite sure that with very solid foundations we will be able to come out of this. Am I an inspirational leader or am I not an inspirational leader; am I concerned about the pose that has been taken? Well, the honest answer is, no, I am not concerned about people's short term view about me, I am more concerned about what I actually achieve for the people. And at the end of the day people will judge for themselves as to what I and my colleagues have achieved for Hong Kong as a whole.
Question: I have two short questions. The sandwich class housing, how many units would have been built that are now not going to be built? And as for the deficit, how much more than $20 billion do you expect it to be and how long are you willing to go into deficit spending to stimulate the Hong Kong economy?
Mr Tung: I think for the fiscal year 1998-1999, I have said in the Policy Address that the deficit will be substantially more than the $20 billion. This is, firstly, because we have decided, as of the later part of June, to stop selling land and obviously, with the recession, that the income has come down. But I have also said in the Policy Address, and I want to repeat this again, that we will maintain a conservative, or rather a prudent fiscal policy, as we have always done. And this will not change. And that the growth of our expenditure will be in line with the growth of the medium term forecast of growth of our economy. That will not change either.
I have also said, looking carefully at all these things, that we will have enough financial resources to continue the very ambitious infrastructure projects which I have outlined: railways, highways, schools, etc, etc.
With regard to your first question, I explained that because, when in 1994 we set up the sandwich class housing, the prices of housing units was already way up there and going up. What has happened now is that it has dropped very substantially and it has gone way beyond the '94 level. So it gave us a unique opportunity to actually decide not to build any more sandwich class housing but for those already built, obviously they will be delivered and be sold. And that although we stop building, we will continue the loan scheme for those sandwich class who need financing.
End/Wednesday, October 7, 1998
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Chief Executive's transcript in press conference (Chinese)