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Following is a speech by the Chief Executive, Mr Donald Tsang, at the Hong Kong Trade Development Council Annual Dinner at Four Seasons Hotel in London today (November 2, London time):
Distinguished guests, ladies and gentlemen,
As Peter said, it's wonderful to be back in London, to re-connect with so many good friends of Hong Kong, and to meet some new ones as well. I'm delighted to be able to speak to you at two consecutive TDC Annual Dinners in London, albeit in different capacities. The dress code for this dinner may have changed, but it would take more than that to get me out of my bow tie. In Hong Kong we have great respect for copyrights and trademarks, and I stick to mine.
Ladies and gentlemen, much has been said at these TDC dinners over the years about the special relationship between Hong Kong and Great Britain, and I never tire of saying or hearing it. Our historical ties and the legacy of the former British administration continue to enhance Hong Kong¡¦s civil service, legal and education systems, English language proficiency and business environment. Of course, we also treasure our people-to-people ties, from the 20,000 Hong Kong students studying in the UK, to the large British community that adds a cosmopolitan flavour to Asia's world city.
Tonight I would like to bring you up to date on the latest happenings in Hong Kong, especially on how we are leveraging our closer co-operation with the Mainland to help fuel China's dramatic economic growth, and to reap the benefits of it. And how, in doing so, we are expanding the horizon of business possibilities for British companies.
Despite all the world's worries, from oil prices to terrorism to avian flu, Hong Kong is entering an exciting new phase of its development. Our economy is enjoying a sustained, across-the-board recovery powered by strong growth in the export of goods and services, rising investment, buoyant consumer confidence and record tourist arrivals. Our GDP grew by 8.2% last year, on a rather mature economy with a per capita GDP of US$25,000, the unemployment rate has dropped to a four-year low, and all economic indicators are pointing up. Hong Kong people have a renewed sense of purpose, and are working together more closely to achieve our goals. The theme of my first Policy Address last month was "Strong Governance for the People", and I am committed to that. According to a university survey released last week, and reinforced by another survey by another university yesterday, public trust in the Government is at its highest level since the Handover, and confidence in Hong Kong¡¦s future is also on the rise. The buzz has returned to Hong Kong, with people feeling good.
As you well know, Hong Kong has always been quick to adapt to changes in the global economy. Today, we are leading the economic evolution of Asia, from manufacturing to high-value services. Our manufacturers were the first to migrate to the Pearl River Delta after China opened up in the late 1970s, and the first to invest heavily there. Today in Guangdong Province there are more than 53,000 Hong Kong-linked companies employing over 10 million workers. One important outcome of the manufacturing migration has been that services now make up nearly 90% of Hong Kong's GDP.
As the fastest growing part of China, the Pearl River Delta has become the "factory of the world", producing everything from cars to electrical appliances and computers. For example, the PRD produces 30% of the world's output of computer hard disks and over 50% of the colour TVs made in China. Guangdong Province has made heavy industries a key development priority, and aims to become China¡¦s largest petrochemicals base. The province is also focusing on nuclear power, motor vehicles and steel. Generally speaking, when a country or region enters the stage of developing its heavy and chemical industries, its economic growth rates get higher and its growth cycles get longer.
All this presents new opportunities for foreign investors, as does increasing development in the rest of southern China. Which brings me to the Pan-PRD co-operation initiative. Pan-PRD, known as 9+2, which encompasses nine southern provinces and regions of China, along with the Special Administrative Regions of Hong Kong and Macao, is designed to break down domestic barriers to the entire spectrum of trade in goods and services. The goal is to develop a huge regional economy in an area with a current population of 460 million ¡V equivalent to that of the EU.
The Central leadership whole-heartedly supports this initiative. China wants Pan-PRD to provide a role model for the rest of the country, and to add momentum to the nation's long-term economic growth. The Mainland¡¦s growth will require a strong international financial infrastructure to sustain it. This is where the unique Hong Kong features come into this equation. Hong Kong provides that infrastructure. How do we do it? Let me count the ways: Our convertible currency, for starters. World-class financial services. A well-regulated market with excellent liquidity. Global standards. Corporate governance rules. A robust and transparent, common law based legal system. The free flow of information on which to base critical business decisions. Modern knowledge and management skills. Global connectivity. State-of-the-art logistics and communications networks. An exceptionally clean public service. The list goes on.
The growth of the Pan-PRD will revolve around Hong Kong in terms of financial and technical support. We are the principal services hub for outward-looking Chinese companies, and we are the Mainland¡¦s premier capital formation centre. Mainland enterprises have raised over 67 billion pounds sterling on the Hong Kong stock exchange, and increasingly they are using Hong Kong and its international know-how to venture into global markets.
Pan-PRD will broaden Hong Kong¡¦s market access to more ventures in project financing, capital-raising and investment consultation. And, by providing this capital-formation and investment platform, Hong Kong will contribute even more to the reforms and modernisation of the Pan-PRD region.
Our other big co-operation initiative with the Mainland is the Closer Economic Partnership Arrangement, or CEPA. Since CEPA I was introduced in January of last year, Hong Kong and Mainland officials have applied a building-block approach to enriching this free-trade arrangement. CEPA II expanded the list of Hong Kong products that could enter the Mainland tariff-free, as well as the number of services industries allowed first-mover access to the Mainland market. CEPA III, which comes into effect in January next year, removes tariffs altogether from all remaining Hong Kong goods and further liberalises trade in services ahead of China¡¦s WTO commitments.
The Mainland's rapid economic growth and accumulation of wealth means that it is not lacking in capital. What it lacks are modern knowledge and management skills. Hong Kong has another key role to play here, as either a source or a bridge for the Mainland to acquire these skills and expertise. Hong Kong can help the Mainland raise the level of its service quality and ultimately transform itself from a "relationship-based" to a modern "rules-based" market economy. In particular, Hong Kong can help the Mainland strengthen its financial system and diversify its financial intermediation.
CEPA also provides a laboratory for the liberalisation that goes with WTO accession. This allows the Mainland economy to ease into the process of opening up to the world, to upgrade its service capabilities ahead of the WTO deadline, and to identify the challenges to come.
Ladies and gentlemen, I would like to share with you just one example of CEPA's impact. There was a newspaper report last week that Warner Music would use its Hong Kong arm to take advantage of CEPA and become the first international music label to set up a majority-owned distribution company in the Mainland. Not only would this give the label more control over distribution but, according to a Warner executive, it would also allow the label to spend more on promoting Mainland artists.
So, you can see how CEPA is good for both Hong Kong and the country. It is also good for British companies that want to gain a fast track into the burgeoning Mainland market by anchoring their Asian operations in Hong Kong, tapping the vast experience of Hong Kong businesses and enjoying free trade status with the Mainland.
Hong Kong has also benefited from the Individual Visit Scheme under CEPA, which allows residents of 39 Mainland cities to visit Hong Kong on their own rather than as part of a tour group. Last year, 4.2 million Mainland visitors came to Hong Kong under the Scheme, adding 470 million pounds sterling to our tourism receipts.
Another area of co-operation with the Mainland has been allowing Hong Kong banks to conduct renminbi business ¡V an initiative that will soon be expanded, further promoting economic integration with the Mainland and improving the mechanism for channelling renminbi back across the boundary. At the same time, the new measures will strengthen Hong Kong's status as an international financial centre.
The financial services sector is, of course, a key contributor to our economy. Hong Kong is the sixth largest foreign exchange centre in the world, with a Forex clearance system that is unparalleled. We are the second biggest recipient of foreign direct investment in Asia, after the Mainland of China. Hong Kong's stock market is the second largest in Asia by market capitalisation ¡V and last year it ranked first in Asia and fourth in the world in capital raised, outperforming the London and Tokyo stock exchanges.
Hong Kong has the world's freest economy, according to the Heritage Foundation and other public policy institutes. We take pride in offering a business-friendly environment. Let me give you an illustration. The first company was incorporated in Hong Kong in 1865. By 1994, the number of companies incorporated had grown to half a million. Just 11 years later ¡V last month, in fact ¡V the one-millionth company was incorporated in Hong Kong, which has a population of 7 million. Lord Palmerston obviously did not foresee that when he described Hong Kong as "a barren island".
As you know, Hong Kong's success is built on four pillars, which are largely the legacy of the former British administration, and which are diligently upheld by the current local one: the rule of law supported by an independent judiciary; a clean administration; a level playing field for business; and the free flow of news and information. These unique advantages are the foundations of our development, our stability and our prosperity. They also help us to help our country along the path of economic reform and opening up. They are our most important advantages as Asia¡¦s world city, and as the pre-eminent two-way platform for doing business in China.
As London is for Europe, Hong Kong is Asia's premier international financial and business centre. We are an externally oriented city, with an international outlook and constant engagement with the world for over one and a half centuries. Like London, Hong Kong provides leadership in the fields of trade, finance, legal and business services, education, health care, research, marketing and retailing.
Considering all these advantages, it is clear that Hong Kong is not just another Chinese city, and never will be.
I mentioned trademarks and copyrights in a light-hearted manner at the beginning of my remarks tonight, but we are very serious when it comes to protecting intellectual property. Hong Kong is well known for its sound legal system, well-regulated market and adherence to international business standards. It's a place where foreign investors feel safe to operate and manage their investment in the Mainland. Indeed, since 1997, the number of overseas companies with regional operations in Hong Kong has risen by over 50%, to nearly 3,800 ¡V confirming Hong Kong as the most popular place in Asia to establish a base, and as the premier platform for doing business in the Mainland and around the Asia-Pacific region.
British companies have the third highest number of regional operations in Hong Kong, at 330, and there are hundreds more firms with British ownership or management operating in our city. Some are newcomers, and some are old friends that are expanding. For example, Marks & Spencer, long a presence on our retail scene, recently announced the opening of its Asian sourcing office in Hong Kong. Company executives listed some of the reasons as: high efficiency, timely market information, extensive links to all major business destinations, proximity to the Mainland and a strong financial infrastructure.
Another well-known British retailer, B&Q, has just announced it will open its first store in Hong Kong in 2007. It described Hong Kong as "one of the largest and most affluent markets in Asia" and "a centre for retailing excellence". B&Q figures that Hong Kong is ripe for the D.I.Y. culture, although it may have some educating to do. You know what avid investors Hong Kong people are. B&Q may have to remind them that D.I.Y. does not stand for "dividends, interest and yield".
Before I wrap up, I must mention what else we have planned in Hong Kong. In terms of our connectivity with the Mainland, we are making excellent progress on major cross-boundary infrastructure projects, such as the Hong Kong-Shenzhen Western Corridor, which is scheduled to open next year, and the Hong Kong-Zhuhai-Macao Bridge, which is in the advanced planning stage. In terms of our connectivity with the world, we have a number of new tourist attractions opening soon to augment Hong Kong Disneyland, which as you know opened earlier this year. Our new exhibition centre, AsiaWorld-Expo, will open next month near the airport; it will be the venue for next year¡¦s ITU Telecom World 2006, the world¡¦s premier telecommunications event. We will be on the world stage again when we host the equestrian events of the 2008 Beijing Olympics. And, burnishing our credentials as Asia's world city, our hosting of the WTO meeting next month demonstrates our staunch support for open trade in global markets and our strong desire to promote the multi-lateral trading system.
Ladies and gentlemen, I would like to thank you for your enduring support of Hong Kong. I hope you will continue to work closely with us as we enter the new era of opportunity presented by the economic miracle taking place in China, with Hong Kong right at its heart.
Thank you very much.
Ends/Thursday, November 3, 2005
Issued at HKT 07:04
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