The following is a transcript of the Media Briefing by the Financial Secretary, Mr Donald Tsang, at a post-breakfast meeting at the Confederation of British Industries National Conference in Birmingham, UK, on November 2 (UK time):
FS: Welcome to you all. Thank you very much for coming. This is an important forum which I have just addressed in the CBI.
My main message is to ensure that people have not forgotten the need for reform following the financial crisis. I do not believe we have finished all the reforming that needs to be done, particularly looking back, the reforms that should have been put in place after the European crisis in 1992, and the further reforms that needed to be put in place after the Mexican crisis in the mid-1990s. Now that recovery is taking place all across Asia, I believe we should carry through those reforms to ensure that we will not have an occurrence of a similar huge financial crisis of the sort in 1998 and 1997.
That remains the message. Of course, in Hong Kong we have just announced that we are proceeding with the project of a Walt Disney major theme park in Hong Kong which will be open to the public in year 2005. It is a major investment in tourism, a major infrastructure project in tourism in Hong Kong. To us it has been something we have planned for nearly a year. I announced it in my budget speech in March this year when we went into earnest in negotiation. Now it has begun to bear fruit. Of course, this will be subject to the approval of the Executive Council and the Legislature in particular, for the funding required, but it will be a hugely beneficial economic project. It will bring in more jobs, it will bring in new technology, and in fact it will put Hong Kong on a different plateau in terms of the tourism industry across the globe. To me, it is a major confidence booster reflecting the resilience of the Hong Kong people and its entrepreneurial flair even in times of crisis and trouble after financial pressures.
Perhaps I will stop here and I will be happy to answer any of your questions about Hong Kong generally or any particular aspect on the speech which I gave just now.
David Robertson (British News): What is your assessment of the impact that the new body will have ... on growth and secondly ...
FS: I think it is too early days to give a gross figure. As far as GDP figures are concerned, it will be an enhancement because of the economic activities and so on. I can only quote you someone putting it at 0.5 per cent, 1.5 per cent depending on what basis you work on. But it will be a boost. Whether it will reach as high as 1.5 per cent I think is doubtful, but it will be a boost particularly in terms of employment, economic activities and tourism expenditure.
As far as my future figure is concerned, I reported that there was a positive 0.7, but for the year as a whole, I would wish very much to have in hand my 3rd quarter figures before I contemplate any revision. For the time being, I still believe that my forecast made in March this year, for the whole year 1999, which is 0.5 per cent, still holds as far as I am concerned.
Question: With regard to the Tracker Fund, have you any more time now to ... disinvesture...
FS: First of all, we have not been buying in the stock market since 1998. We were in the market for a couple of weeks and that was it. Since then, we have accounted for every stock and every share we report, and we have now announced the plan for disposal, particularly through the Tracker Fund. As far as the Tracker Fund is concerned, we have invited subscriptions. The pricing will be announced next Monday. That will be the first tranche. The Tracker Fund is not a once-off thing, it will be a continuous process. After the first tranche, there will be more to be released, like tap issues, and then more will come. Finally, we will dispose of the bulk of my holdings, but we are, as you know we have the investment advisors to help us, and help us to devise various methods of disposal. So after the Tracker Fund, they might come up with other options as well.
But it is not a matter for me to decide; it is a matter for the company we have set up to dispose of shares, and it is operating totally at arm's length from the Monetary Authority and Hong Kong Government.
Question: But do you have to take effect ... at least of the appropriate levels to gather interest from people who might buy it?
FS: I think as far as the first tranche is concerned, the pricing will be done very carefully. The discount we have already announced will be no less than 5 per cent. I think it will be pegged to the level where on the one hand it would be able to attract sufficient retail investors, but on the other hand would not disrupt the market too much, and would not have a downward pressure effect on the pricing of the market as a whole. I think that is about right, and so far the response from retail investors has been pretty good.
There is a further dimension now to that. The Tracker Fund will enable Hong Kong people to consider the fixed income option in their investment portfolio. In the past, they either put money in the bank or fixed savings, or, they go into the stock market. I think the opportunities to go in the Tracker Fund, which is a hybrid, some sort of fixed income instrument, will be attractive. When we have seen the troubles of the financial crisis, and the effect would help Hong Kong to develop a much deeper and more liquid market in the years to come.
Sheel Kohli (South China Morning Post): You mentioned that the effect of Disney would be to help the economy, add to jobs. Can you be more specific about what kind of jobs you had in mind, ... and ... where exactly in the economy the impact will be felt the greatest?
FS: I think it will be better, there will be a full briefing on this with our colleagues in Hong Kong, and they will include all the figures to satisfy you completely, but as far as jobs are concerned, this project is likely in the initial stage to lead to the creation of something like 18,000 jobs, and on fruition, it will lead to something like 36,000 or 35,000 jobs. But it is quite a significant input and particularly in the present labour market. In terms of economic return it is quite a profitable market, profitable project, and the return has been quite high. We have the, according to the experts' estimate, the economic return will be something like 25 per cent, with a benefit/cost ratio of about 8:1. To me, that is quite a great value-added to various matters of the economy in Hong Kong.
Negotiations of this kind normally take a bit of time, particularly when you go into contractual agreements with someone. As far as this project is concerned, there are voluminous legal documents to be gone through. Of course there is the question of terms. We want to ensure that the project when it closes, the deal when it closes, will be of the greatest benefit to the Hong Kong people, so we want to make sure that we have reached the bottom line of Walt Disney, and I think the three months time that we have taken additionally has been very worth while.
Question: Could you just clarify some comments that were attributed to you recently about ... the [?fixed exchange rate ...
FS: Let me clarify this. We have a very robust monetary system. The Hong Kong linked exchange rate has worked successful, it has been very strong. It has been subject to all sorts of trials and tribulations ... it is still standing quite robustly after the international financial crisis.
But returning to the theme of which I spoke earlier today at the CBI, looking at the prospect of the currencies operating in free markets into the future, we have to consider what options they should take. In Singapore I talked about possible economic landscaping of Asia 50 years down the road, and I believe there would be a greater need for greater monetary union among the major players, particularly among those who are operating open currencies like Singapore and Hong Kong - nothing more, nothing less.
Question: I just wanted to ask about the timing of the yields ... - the 8:1, over what period of time is that?
FS: That's a benefit/cost ratio of the project. Over the life of the project which is 40 years -
Question: Over the life of the project...
FS: The net economic benefits announced are according to the estimate $148 billion, at the present value over 40 years.
Sheel Kohli: There is bound to be quite a lot of criticism about the equity split. My understanding is that you're going to own about 57 per cent and Disney will own 43 per cent. The Government is bringing in quite a lot of money and in addition, they are spending quite a lot of money into the associated infrastructure, whereas Disney is practically paying very, very little. Aren't you laying yourself open to quite a lot of criticism that it must be costing Hong Kong quite a lot and yet the equity split doesn't quite reflect that.
FS: You have to be careful what to say in this regard. Let me say that in pursuing this project, the Hong Kong Government has abided by our traditional philosophy of minimum intervention, and let the private sector take the lead, and this one is of course a private sector initiative. Walt Disney knocked at our door and asked us to go in a project of this kind.
As far as the split is concerned, it is strictly in accordance with the level of contribution made in terms of equity; we put in 57 per cent equity, they put in 43 per cent of equity, that's how it was struck. As far as the infrastructure that goes into a project of this kind, this is not unusual. When we built projects like the container terminal, the Convention Centre, Government always put in the infrastructure. Which would not be a cost of the project itself because the infrastructure is the responsibility of the Government.
So, if you look at the project on its own, the Government contribution has been fully recompensed, either through equity recognition or through the repayment of loan which the company being set up will do.
A good analogy for this is in the construction of the Convention Centre in Hong Kong. It was regarded as an important infrastructure for trade in Hong Kong. So the Hong Kong Government provided and paid for the infrastructure. They built the Convention Centre, again at public expense, and then we handed it over to the private sector for management on a profit-sharing basis without any hope of recovering the capital expenditure.
In this case, we believe that we are entitled to a return on capital investment, we are also entitled to recovery of the land cost involved, so there will be a land premium payable in the form of subsidiary shares, and there is also a question of profit-sharing in recognition of equity contribution. I do not think it has been unfair. It has been negotiated on terms quite comparable to those terms which Walt Disney succeeded in securing in Tokyo or in Paris. In many ways, I think, the terms are more preferential to Hong Kong on this occasion.
Thank you very much.
End/Wednesday, November 3, 1999