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Following is the transcript of the speech (English only) by the Chief Secretary for Administration, Mrs Anson Chan, at the Hong Kong Exporters' Association Annual Christmas Luncheon today (Monday):
Jeffrey, Robert, ladies and gentlemen.
When Robert asked me to join you all for your annual Christmas lunch, I thought this would be purely a social gathering but I think I should have known better. But I'm quite happy to sing for my lunch, particularly at this point in time when the latest indicators of how the economy is performing gives us all, I think, better grounds for looking forward to the new year with better and greater expectations.
I'm not sure that I can do a better job at forecasting our future than Jeffrey has just done very, very briefly because I have to confess that my crystal ball is none too clear. But I will take a look at what has happened in the last year or two and give you a personal perspective of some of the challenges facing us and some of the issues that give us grounds for optimism as we enter the new millennium.
I don't think I need to go over the difficulties that we've all experienced from the public sector to the private sector in the last two years in the wake of the very severe Asian financial turmoil. Although this has been a very painful process for everyone I think you will all acknowledge that it has been a very, very necessary adjustment process. The way that the public sector and the private sector have responded and coped with the crisis can be summed up in four or five different measures.
First of all, there has been a much needed corporate restructuring, chiefly through companies downsizing and, in its wake, we've seen some very, very welcome cost cutting. We've seen property prices fall by over 30 per cent for rentals, over 50 per cent for the property prices, both residential and commercial. We've seen salaries definitely soften, although we note that in the private sector most companies, probably quite understandably, have chosen to downsize rather than to cut salaries.
The scope for cutting salaries within the civil service, being the bureaucracy that it is, as you will appreciate, is a very difficult process. But we have tried to do what we can - for example, in the survey that has just been concluded on comparing starting salaries in the civil service with those in the private sector for equivalent educational qualifications. We've had the results of that survey. We are considering those results and in the longer term I hope that whatever decisions we may make will have a longer term beneficial impact on salaries as a whole across the board.
I think it's typical of the entrepreneurs of Hong Kong who are very nimble and flexible on their feet, that there has been more of an attempt to expand overseas. This has been a continuing process. It isn't something that has happened overnight as a result of the last two years' difficulties, and clearly, given our locality, our very strategic locality, that we lie at the heart of East Asia, that we can operate, as it were, 24 hours round the clock, that half the world's population is within five hours' flying distance from Hong Kong, makes Hong Kong an extremely good regional base, whether it is in terms of investing in Hong Kong, doing business in the mainland via Hong Kong, or doing business with the region as a whole. I hope that this effort to diversify and to look for opportunities overseas will continue.
Insofar as the Government is concerned, we have done what we can to assist the economy to diversify. I think you will all agree that if there is one thing that the Asian financial turmoil has thrown up, it is that in the past we've been overly dependent on property and on real estate development. If we look to the 21st century, which everybody acknowledges will be a knowledge-based 21st century, then there is a real need for the pace of diversification to take root and for everybody to see in what way we can bring more stimulus into the economy.
On the part of the Government, what we have done I think is well known to you all. We have assisted in helping the economy diversify by, for example, projects such as Cyberport, which will clearly put Hong Kong at the cutting edge of information technology and will assist companies to embrace information technology, high technology, which will be crucially important in terms of ensuring who are the winners and who will be left trailing behind.
We've also done what we can to bring greater stimulus to our tourism industry because tourism has traditionally been an important contributor to our economy. In the past, before the difficulties of the last few years, the tourism sector more or less took care of itself. Year after year we saw an increase in the number of tourists coming to Hong Kong without really too much of an effort on our part. But 1997, what followed, and particularly the slackened demand as a result of the Asian financial turmoil, have brought home, both to the Government and to those in the hospitality and tourist industries, that we need to do much more to stimulate tourism, to attract into Hong Kong more tourists from the four corners of the globe.
In other areas the Government is also trying to do what it can to facilitate diversification. For example, we have said that we believe Hong Kong is well placed to take advantage of the current global demand for the development of health food, health supplement, making use of Chinese medicine as a base. Here we hope to see more research and development being conducted. We hope that there will be, as it were, clinical tests because clinical tests and everything based on that is crucially important in terms of assuring would-be consumers of the standard and the quality of health food based on Chinese medicine. As you know, we have started a registration system of licensing those who practise Chinese medicine, and we will also in the process be helping to improve and raise the quality and care provided by those practising Chinese medicine. Finally, all these projects will, we hope, lead to increased investment.
Perhaps here I can say a word about the imminent accession of the Mainland of China to the WTO and what this means for Hong Kong. Some people have described this prospect as the greatest economic deal of the millennium. I believe myself that there is a great deal of truth to this because clearly the prospect of the Mainland of China acceding to the world trade body will lead to extensive and fairly sweeping opening of a developing market and this market, as you know, is fast. It has a population of nearly one-and-a-half billion people with an average annual income of 10,000 US dollars.
We also believe that China's accession to the WTO will give a big boost to the reform process and this will be beneficial not just for the mainland of China, for Hong Kong, but for the rest of the world. So this should be positive for everyone concerned.
Goldman Sachs recently released the results of a survey that they had conducted and in their estimation imports are likely to rise by 115 billion US dollars a year by the year 2005. Clearly, this will have an impact on Mainland China's balance of payments situation. But in Goldman Sachs' estimation that impact will be offset by higher exports estimated to be 50 billion US dollars and also an increase in direct foreign investment, again estimated to be around the area of 50 billion. So all told it should balance out.
We also feel that China's accession to the WTO will have a positive impact on financial markets and again, so that you don't think that I'm trying to give a Government spin to this, quoting again Goldman Sachs, in their view it would help to reduce uncertainty surrounding China's economic reforms and therefore in its wake compress what is generally described as risk premium for China Hong Kong markets, an area I'm sure that will be very familiar to you.
One area where the Government feels it can assist business, and particularly assist exporters like yourselves, is in ensuring that we do what we can, not only to maintain but also to enhance Hong Kong's position as a regional aviation hub, as a cargo hub, and as a seaport hub.
Let me say a few words about the airport and the port.
We all realise that in the initial opening of the airport, the air cargo side suffered greatly as a result of difficulties that HACTL experienced. But thankfully all that is behind us and by all accounts today we have an international airport that we can all be extremely proud of and indeed in the past year the airport at Chek Lap Kok has captured one or two highly coveted international awards. We now have two runways operating round the clock and that gives us an annual capacity of 87 million passengers a year and also an ability to handle something like nine million tonnes of cargo a year. It is our aim and our wish, and also the wish of the Airport Authority, that we should do what we can to develop Chek Lap Kok Airport as a cargo hub.
In this connection, there are one or two good pieces of news which I hope you will welcome. First of all, very shortly this afternoon DHL will be announcing a partnership with Cathay Pacific Airlines whereby they will be making use of the capacity provided by Cathay Pacific Airlines to move their central Asia cargo hub from Manila to Hong Kong. This, I think, is extremely good news. It will also bring additional employment opportunities because I understand - I'm sure there will be greater details this afternoon during the announcement - but I understand that initially DHL will need to recruit another 400 people in order to cope with the fact that the hub will now be in Hong Kong and not in Manila. Cathay Pacific clearly will also be recruiting more people.
The Airport Authority is extremely mindful that it needs to look at the way it provides services, it needs to look at their charges. In this connection, as you know, they have already announced that as from January next year landing and parking charges at the airport will be reduced by 15 per cent. We hope, of course, that airlines will make the best use of this reduction and sooner rather than later will see fit to pass on some of this reduction to their clients and to their consumers, people like yourselves.
We are also looking at other areas where we can help enhance Hong Kong's status as an aviation hub. In this connection, I can assure you that insofar as our bilateral government to government discussions on air traffic rights are concerned, we will continue to adopt a liberal policy. Clearly, the new CLK airport gives us much enhanced capacity as opposed to the constraints imposed upon us by the old Kai Tak Airport and we will be bearing very much in mind in our negotiations with our air traffic partners the need to provide for additional traffic rights. But, as you all know, air services negotiations are conducted on the basis that the economic opportunities to both sides of the agreement, that is to ourselves and to our trading partner, should be more or less equal. So I can assure you that we will do nothing that will inhibit Hong Kong maintaining and developing as an aviation hub.
The Airport Authority would, I'm sure, also be happy to look at other areas. I understand of course that costs are crucial from exporters' point of view and I'm given to understand that one of the areas of difficulty is the current regulatory regime, i.e. the licensing requirements that affect air to air transhipment. I would like to say to you that currently within the administration we are looking at this very area to see whether there is scope for us to liberalise the current licensing regime so that we can encourage transhipment. So again I hope that if it is possible to move forward, always bearing in mind our need to have regard to our international obligations, that provided we are not seen to be in breach or placing at risk our international obligations, then we are fully prepared within the administration to look at the scope for relaxing current licensing arrangements.
Let me say a word about the port. One of our biggest natural assets - and we have precious few - is of course the fact that we have the best deep water port on the South China coast. So nature has given us a great advantage but we cannot just rely on what nature has given us. We have to be ever mindful - particularly when competition all around us is extremely keen - we have to be mindful again of costs. I understand that terminal charges is an area of concern but at the moment there is a freeze on increasing terminal charges although I understand that in Yantian charges in fact have gone up by 15 per cent.
But this is an area where I would encourage you to continue to have a regular dialogue with the operators of our container terminals. Insofar as additional capacity is concerned you know that Container Terminal 9 is currently under construction. It will add another 2.6 million TEUs and the first berth will be operational in the year 2002. The River Trade Terminal will also be fully operational by next year. Again, here I understand that at the moment in fact this particular terminal is not being used to its full capacity. I know that the Secretary for Economic Services is looking into this specific problem and I would encourage you again, if you have any views as to how we can make better use of this facility, to keep in touch with the relevant policy bureau.
Clearly, in the longer run, as ports in the mainland develop, it will be very natural for goods destined for the export market to go directly via ports in the central part of China or in the northern part of Asia directly. But we must capitalise on the fact that we have the best deep water port on the South China coast, so at the very least we ought to do whatever we can, and the Government is fully prepared to examine together with the private sector how we can help. We must do all we can to continue to capture the goods destined for export market originating in southern China. I believe at the moment we are doing well but it's clearly another area where you need constantly to look at your costs.
For the future, I have already indicated the various efforts that the Government are expending. We will continue to pay particular attention to the physical infrastructure. We are aware of the need to improve cross-border traffic and in this connection let me say that very, very shortly I hope that, if not by the end of this year, certainly by the start of next year, we will be able to increase the number of kiosks at Lok Ma Chau from the current 14 to 24 to handle the cross-border traffic. We're also looking at other areas where the cross-border traffic can be streamlined but we need to do this in conjunction and in cooperation with our counterparts across the border.
So I think I have spoken enough. I will just say that the signs currently are more encouraging. They have been more encouraging than for the last two years. Although it is still too early to say that we are now positively on the road to recovery and that profits and growth will be strong from here on, nevertheless I do believe we have a reasonable expectation that the economy should be performing better next year, particularly with the last quarter's figure of four-and-a-half per cent growth which has made it possible for the Financial Secretary to adjust his estimate of GDP growth for the year as a whole from half a percentage point to 1.8 percentage point. I notice that pundits outside are predicting an even stronger growth and I'm sure on this count, if the Financial Secretary is proven wrong, he will not be too unhappy.
So on that note let me close this address and wish you all a very happy Christmas and good business in the year 2000. Thank you.
End/Monday, December 6, 1999
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