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Following is the transcript of the media session by the Chief Executive, Mr Tung Chee Hwa, this (Wednesday) afternoon:

Today is an important day for Hong Kong. The budget speech delivered by the Financial Secretary represents a key milestone in the implementation of the economic strategy of our Administration.

Ever since the establishment of the Hong Kong Special Administrative Region Government on 1 July 1997, this Administration has sought to build on Hong Kong's economic strengths and to improve the quality of life for Hong Kong people. Despite the financial turmoil, we have never wavered from the implementation of this strategy. In casting the Annual Budget, the Financial Secretary not only has to look at long-term interests, but also has to pay particular attention to the short-term difficulties we have been facing. Last year, in anticipation of these difficulties, we introduced a full range of tax concessions to provide relief and to stimulate the economy. The effects are beginning to come through. For example, taxpayers are now able to claim deductions of mortgage interest paid on their principal residence.

This year, there is still a need to provide short-term assistance. We are offering a series of one-off tax concessions to assist individuals and business to cope with the economic downturn, as well as freezing of government fees and reduction of property taxes and other taxes. All together these concessions amount to over $10 billion in the next financial year. I believe this will provide further fiscal stimulus.

In respect of the long term, we expect to make substantive progress in many economic areas.

For the service industry, I note that tourist arrivals nearly touched 10 million again in 1998. We expect growth and some revival further this year. I would specially like to mention the fact that we have signed a letter of understanding with Walt Disney and will commence intensive negotiations on building a Disney theme park on reclaimed land at North Lantau. If the discussions are successful, this will bring many benefits. Apart from the possibility of Disney, we are pursuing many other tourism projects. Hong Kong's tourism industry will move to a higher plane.

The announcement of a joint government and private sector development to construct a "Cyberport" will provide the essential infrastructure for the formation of a strategic cluster of information services companies. Eight multinational companies have already indicated their intention to become anchor tenants. These include major players such as Hewlett-Packard, Hua Wei, IBM, Oracle, Pacific Convergence Corporation, Yahoo, Sybase, Softbank and Intel.

This development follows closely the announcement last week of seven international companies signifying their commitment to invest in innovation and technology industries in Hong Kong. The developments on both fronts speak very well for Hong Kong's future development in this area.

In the financial sector, we have outlined a plan to demutualise the stock and future exchanges and their associated clearing houses and merge them under a new holding company. We will also be upgrading our financial infrastructure and modernise our regulatory regime.

A few weeks ago, we announced the listing of US$1 billion worth of Government bonds of People's Republic of China in Hong Kong. Today, we have also announced new policy proposals to develop further the Hong Kong debt market. Hong Kong's position as an international financial centre will be further enhanced.

Aside from the long- and short-term measures outlined above, we are taking forward the civil service reforms which I announced in the Legislative Council in January. We are proposing also to privatise a substantial minority portion of the MTRC.

We will have two successive years of fiscal deficits. But in the current economic situation, it is necessary for us to continue to stimulate the economy. In so doing, we will be always adhering to the principles of prudent fiscal management. We expect we will be able to balance our budget by 2001-02.

To conclude, I wish to emphasise that the HKSAR Government will continue to pursue our economic strategy and to reform the public sector, so that we are well placed to meet new challenges as a knowledge-based economy and the premiere international city in Asia. Across the board, we will move our economy onwards with new strengths.

Reporter: Are you worrying that the move to freeze civil servants' salary will eventually kick start a vicious cycle that companies in the private sector will further cut their employees' wages?

Mr Tung: You know the proposed salary freeze for the civil servants in part is in response to the voices of the community, in part also is as a result of the fact that we are all facing difficulties. We have 180,000 very dedicated civil servants. I am quite sure that they will support the direction that is taken by the Government. Insofar your second point is concerned, it's up to the private sector to base on what the market forces will do to decide how they want to move forward.

Chief Executive's transcript (Chinese part)

END/Wednesday, March 3, 1999

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