*******************************************************
Following is a speech by the Chief Executive, Mr Tung Chee Hwa, at a luncheon of the Joint Chambers of Commerce today (Thursday):
Dr Tsang, Mr Sutch, guests, ladies and gentlemen,
Thank you for inviting me to join you here today.
Yesterday afternoon I delivered my Policy Address for 1998 to the Legislative Council. I recounted the events of the past twelve months and outlined plans to respond to the challenges caused by the financial turmoil and the bursting of our bubble economy. I described also how we could turn our present difficulties into opportunities as we move forward into the twenty-first century.
1998 has been a year of painful adjustment for Hong Kong. Our property prices have fallen substantially and lay-offs and wage adjustments are continuing as we respond to the effects of high interest rates and a slowdown in business activity. This adjustment, although painful, is necessary as we fight to regain our competitiveness.
In the current year Hong Kong's economy is expected to shrink by at least 4%. The unemployment rate, which has already reached 5%, will continue to rise, while corporate profits will fall. The signs are that 1999 will continue to be a difficult year.
In this difficult economic climate, we need to devise short-term measures which will cushion the impact of the downturn, and which will help to ensure that systematic damage to our economy does not occur. At the same time we have to draw up longer-term plans to guide us towards sustained economic growth in the future. In the past year or so, the Government has implemented a number of initiatives with this aim in mind. Last February's Budget contained tax concessions of $13 billion in the current financial year. A five-year plan to develop Hong Kong's infrastructure at a cost of $235 billion has also been announced. In June we put forward a whole series of measures aimed at stabilising the economy, including the setting up of the Task Force on Employment, the moratorium on land sales, and the creation of a fund to help small and medium-sized businesses.
Admittedly, not all these measures will produce an immediate effect. It will take some time for our investment in infrastructure and the various tax concessions we have made to produce a visible economic benefit. For example the construction of major new railway projects will start early next year, and the full effect of our tax concessions will not be seen until the first quarter of 1999. Nonetheless, I am sure that these measures will help in laying a solid foundation for our recovery.
While Government has a clear responsibility to help Hong Kong people face up to our current difficulties, I look also to the private sector to do what it can to help ease the pressure on the community. It is not Government's place to interfere in setting wage levels and employment policies. But in these difficult times I hope that employers will handle these issues with sensitivity. My own experience is that successful enterprises will always place a premium on good staff relations based on mutual trust and a regard for the continued well-being of employees. In the longer term this approach benefits staff, employers and share-holders alike.
Like everyone in Hong Kong, I am keen to see positive changes in our economy and our quality of life come sooner rather than later. But I also wish to ensure that these changes are consistent with a longer term vision. Early this year I convened the first meeting of the Commission on Strategic Development, with a view to analysing major trends and driving forces which might affect Hong Kong over the next 30 years. The Commission has quickly fastened on to the fact that we need to establish a distinct position for ourselves, following the reunification. We have therefore noted the roles of New York and London, as these are not only the most cosmopolitan cities in their respective continents, but are also international centres of finance, tourism, communications, design and entertainment.
It is my belief that Hong Kong has the potential to be more than simply one of the leading cities in our country. My vision is for Hong Kong to have the same status in Asia as do New York and London in North America and Europe respectively, and beyond that to be truly one of the world's premier cities.
An essential element in our long-term growth will be our close ties with the Mainland. 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 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 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.
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 and so on.
In my Policy Address I set out the reasons why I believe that we must focus more intensely on providing support for innovation and technology. This is an area to which the Government has always attached importance, and which we will continue to promote vigorously. I announced yesterday plans to set up an applied Science and Technology Research Institute, as well as a $5 billion fund to stimulate growth in this field. I now look forward to receiving the final recommendations of the Commission on Innovation and Technology as to how we might realise the vision for Hong Kong to become an innovation centre for South China and, in deed, the entire region. This will help us to add a new string to our economic bow, and stimulate growth in the value added areas of our economy, as well as improving our competitiveness in the fields such as information technology, telecommunications, entertainment and Chinese medicine.
Innovation and technology will be the major driving force for the future, but we must not lose sight of the importance of our traditional economic strongholds. We will continue to develop, for example, the financial services sector, by improving market conditions and promoting the emergence of new products. I have announced in my Policy Address measures to boost tourism, as well as to ensure that we provide as much help as we can to small and medium-sized enterprises. We will also press ahead with our $235 billion infrastructure programme. In this regard, we have carefully examined the level of our resources, and I can assure you that our plans are well attainable within our usually prudent financial spending guidelines.
Our economy, like good infrastructure requires a solid foundation. I am determined to keep our foundation strong, and to preserve the fundamental elements which have long been, and will continue to constitute the bedrock of Hong Kong's success. These elements are: a commitment to upholding the rule of law and protecting the independence of the Judiciary; freedom of speech and the press; easy access to information; managing our economy according to free-market principles and maintaining a "level playing field" for investors; taking a strong stance against corruption; managing public finances in accordance with our principle of fiscal prudence; and preserving the international character of Hong Kong.
The Government remains firmly committed to maintaining these key fundamentals. We will also continue to invest in areas such as education and manpower training, which are no less fundamental to our future success. In addition, I am concerned that the state of our natural environment should not constrain our development, and we will more vigorously pursue measures to improve our air and water quality and reduce waste.
One of the sections of my Policy Address which took a lot of thought in preparing was the section on housing. I hope that it is now clear that our major objectives in this regard are to provide public housing for those in need, and to promote stability in the private sector market. It is not Government's role, nor wish to set prices. But as the major supplier of land in Hong Kong, we do have an influence on the market, and we will exert that influence as necessary to promote that degree of stability.
Still on the subject of the housing market, we have looked at the often-discussed question of the affordability of housing for Hong Kong people, drawing comparison with other world and regional cities such as New York, London, Tokyo and Singapore. Our conclusion is that at current levels, we compare very favourably with these cities. Indeed, when levels of disposable income of Hong Kong people are taken into account, the case in favour of Hong Kong is even stronger. I therefore see little justification for the view put forward by some financial commentators that, on the basis of affordability, the housing market still has a long way to fall.
Towards the end of my Policy Address yesterday, I touched on one area which has been a source of much comment, namely the respective roles of the Executive and the Legislature in governing Hong Kong. My position is simply this. Hong Kong has a proven track record of executive-led Government, which has responsibility for making and implementing policy. I believe that this mode of Hong Kong will continue to serve us well, particularly in the current economic climate, which often calls for quick and decisive action on our part.
Yet, while remaining strongly executive-led, the Government will continue to listen to the views of the community, and we will also look to nurture a relationship with the Legislature which is based on mutual trust, mutual respect, for the overall benefit of Hong Kong.
Ladies and gentlemen, several times in the sixteen months since I've taken over the Chief Executive responsibility, I have been asked how we measure ourselves as a Government. This period has been one of historic significance on both political and economic fronts, as well as a time of great change. The degree of success of any administration will be measured by how well we respond to these changes.
In the political arena we have successfully turned the "One Country, Two Systems" concept into reality. We have gained the trust of the Central Government, and we have seen our own people turn out in record numbers to elect the SAR's first Legislative Council.
On the economic front, the regional financial crisis and the bursting of our "bubble" economy have presented us with unprecedented challenges. In face of these challenges we have responded deliberately and thoughtfully by introducing immediate measures to relieve pain and stimulate growth, as well as developing longer-term strategies to ensure solid expansion in the future.
There has been criticism of the way in which we have responded to certain crises that have occurred in the past year, such as the avian influenza outbreak, the red tides and mis-haps in the medical sector as well as the opening of the airport. We accept that the Government itself could perform better in some areas, and we are determined that we will improve our performance.
The immediate job in hand is, of course, to steer Hong Kong towards economic recovery. While we will exert ourselves in achieving this objective, I believe that we also need to take account, in my view, of four main factors which will be crucial to our recovery. These are: an improvement in the external, financial and economic environment; a steadying of our interest rates here; stability in the property market; and above all, a return of public confidence.
The external environment is not something which we can change significantly. Not neither we can control. We can note however certain positive signs, for example, the downward trend in US interest rates and the softening, and in fact substantial softening, of the US dollar. Also, calls from the international community to establish greater discipline in global financial markets should help to promote stability worldwide. I am optimistic that the measures which the Hong Kong Monetary Authority has recently introduced will help to steady interest rates. In addition, I look to our approach to meeting housing needs having a stabilising effect on the local property market.
The big issue now is our own confidence. We do face continued problems in the near term. But we must not sell ourselves short. Rather, we should recognise that our position is still envy to many. Our society is free, fair and stable. We have no debt. We have significant reserves and a sound banking system. Our strategic location and extensive experience on the Mainland are quite simply unmatched by anyone. China's political stability and sustained economic growth further strengthen our hand, and our people remain resourceful, hard-working, forward-looking and dynamic. I am sure, that as long as we maintain our self-confidence and remain resilient, we will be able to turn these crises into opportunity and together overcome the adversity that we now face.
Thank you.
End/Thursday, October 8, 1998
NNNN