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Following is the speech by the Chief Executive, Mr Donald Tsang, at the "Celebrating the Miracle of Hong Kong" Gala Dinner organised by the Fraser Institute of Canada at Conrad Hong Kong, Admiralty this evening (September 16) (English only):
Good evening ladies and gentlemen,
It's a rather eerie feeling. The world out there is facing an economic meltdown, starting with Lehman Brothers and the heavy government intervention in America, Japan and Europe on an enormous scale, that we should be talking about free trade and economic freedom. But to the contrary, this is the right topic. It is the core of the financial value that we must concentrate on in times of trouble like this. While I accept that every government, every federal reserve bank, every central bank has the right to intervene in the market when the market stops to work, and, on the occasion like that. But it should be regarded as an exception. It must set against firm criteria of normal market operations. Particularly, those who are the regulators should be acutely aware of the implications of what they are doing. For that reason, it is appropriate, even today, to talk about the core value of financial management in Hong Kong.
I am delighted to join you tonight to celebrate "The Miracle of Hong Kong", and I am grateful for the release of the Fraser Institute's Economic Freedom of the World Index for 2008, which gave favourable comments on the performance of Hong Kong in this regard.
The Fraser Institute and Hong Kong share a passion – an unswerving commitment to free trade and open markets, and the elimination of barriers to trade and investment.
We are, of course, pleased that Hong Kong has earned the top spot every year since the Index began. But, we cannot and will not be complacent.
Even today, when we are talking about managing the crisis of the fallout of what is happening in North America, we are continuing to look at how it will impact on our fundamental values, particularly our adherence to free trade and free market and the market flow. The Financial Secretary said earlier in the afternoon, assuring that we are clean-handed, we are not stopping the flow of funds and market transaction. We assure the market at the end of the day.
We understand that we must continue to practice what we preach. And we know that if we stray from the path of economic freedom, then the Fraser Institute will let us know. We welcome that scrutiny, and the Institute's ongoing interest in our economy is much appreciated.
You have come to Hong Kong at a very interesting time in the development of our city, and our country.
If we are trying to look at it in a longer historical perspective, thirty years ago this year, Deng Xiaoping initiated the "opening up" policy that led to China's rapid economic development, and lifted tens of millions of people out of poverty. That development continues at a rapid pace, and will be a major driver of global economic growth for years to come. It is particularly important while there are turbulent times in the other part of the global economy.
Over the past three decades, China has evolved from a closed, under-performing economy into the world's third largest economy. Foreign investment, almost non-existent 30 years ago, now averages US$70 billion every year. In addition, China is a strong champion of free trade in the world.
It is clear that the development of a socialist market economy in China has had a profound and positive impact not only within China, but also around the world. The reform process will continue unabated, which is not only good news for our country, it's good news for the rest of the world too.
In that same timeframe, Hong Kong's fortunes have also improved considerably, and in tandem with our country's growth. Hong Kong's economy will be increasingly integrated with the Mainland economy, and Hong Kong will continue to benefit from Mainland's economic vitality.
In 1978, manufacturing accounted for more than 25% of Hong Kong's economy. Today, services account for more than 90% of our GDP.
We have transformed from an economy that made things, into one that makes things happen.
Today, Hong Kong is a brand-name product. Undoubtedly, one of the key ingredients of that product – of the economic miracle of Hong Kong – is economic freedom.
Last year, inward direct investment was just below US$60 billion – one of the highest levels in the world. Our inward investment agency, Invest Hong Kong, is helping Mainland and international companies set up operations in Hong Kong at the rate of about one completed project every working day.
Almost 4,000 overseas and Mainland companies use Hong Kong as their regional base – that's over 50 per cent more than we had a decade ago.
Why is Hong Kong such an attractive proposition?
Because corporations, and entrepreneurs, and investors will always gravitate to an economy where the government's role in the market is kept to an absolute minimum.
We do not offer special deals or incentives – our philosophy, our track record, and our attractiveness are the incentive.
Low and simple tax, a trusted legal system, clean and efficient government, a level playing field for business, a freely-convertible currency, and the free and unfettered flow of information, goods and capital are all vital ingredients in our recipe for success as an economy and as a global financial centre. It's a recipe that works well. And, we will not tinker with it.
Of course, we can refine or improve the ingredients. Indeed, this is essential to maintaining our competitive advantage in the region.
In our Budget this year, the Financial Secretary further lowered taxes and introduced new initiatives to stimulate our business environment. Profits tax was decreased by one percentage point to 16.5%, and salaries tax was also lowered by one percentage point to 15%. We also waived business registration fees for the current financial year.
There is one interesting aspect as well. We try to develop our wine industry. This is a good example of free-market capitalism at work. In the Budget, the Financial Secretary scrapped duties on wine – the previous 40% tariff was slashed to zero per cent in one day. Since then, the business community has done the rest.
In the past seven months we've seen a revival of wine auctions in the city. Imports of wine – especially fine wine – have increased. There are now new job opportunities as a result. Two months ago we staged the first Hong Kong International Wine Fair, which attracted exhibitors and buyers from around the world.
Wine traders, distributors and storage companies are expanding their operations or launching new projects in the city. Last month we signed a Memorandum of Understanding on Co-operation in Wine Related Business with the French Government.
This is how we encourage enterprise through small government and low, stable and predictable taxes.
Our principle is "Big Market, Small Government". We aim to contain public spending at below 20% of GDP as far as possible. This fiscal year we expect it to come down to 19% of GDP. The less government contributes to GDP, the more that is left for the private sector to do.
In an externally oriented economy such as ours, it is important that we take a proactive, pro-market approach to meet the rapid changes in our nation and around the world.
Ultimately, though, Hong Kong owes its success to the innovative, hard working and well-educated work force.
As well as nurturing home grown talent, our liberal immigration regime has helped to attract more than 200,000 high-calibre individuals to Hong Kong since 1997, not a small figure in a context of a population of less than 7 million people. We also have different schemes to attract the brightest talent from the Mainland of China and from overseas, and we maintain an employment policy that is friendly to skilled migrants.
They bring fresh ideas, knowledge and expertise that are valuable to the development of our city.
Maintaining an open and free economy is good for Hong Kong, and it is good for our country. It has helped us make the most of the opportunities that have arisen from our reunification with the Mainland of China in 1997.
Under the 'One Country, Two Systems' formula, we have been able to help break down barriers to trade and investment within our nation. Because China has joined the World Trade Organisation and Hong Kong – under 'One Country, Two Systems' – remains a separate member of the WTO, we were able to sign a free trade pact with our sovereign in 2003.
We call this the Closer Economic Partnership Arrangement, or CEPA. Under CEPA, Hong Kong firms enjoy enhanced access to Mainland market for their products and services. CEPA is also on-going initiative – not just a one-off initiative. We recently signed the Fifth Annex to the original agreement, with new liberalisation measures due to come into effect on January 1, 2009. This allows Hong Kong-based companies to get the first-mover advantage in the Mainland. But it also enables Hong Kong to make its unique contribution to the Mainland's economic development.
Hong Kong's commitment to economic freedom is not just a policy that can be changed at whim – it is law. Our constitutional document, the Basic Law, compels us to adopt a low tax policy, to ensure a freely-convertible currency, to allow the free flow of capital, to maintain our status as a duty-free port, and to provide the economic and legal environment for Hong Kong's development as a global financial centre.
Significantly, the Basic Law is a national law – so our economic vibrancy and freedom is legally and constitutionally protected at the national level. I can't think of anywhere else in the world where economic freedom is so deeply ingrained into a city's raison d'etre.
Ladies and gentlemen, there are of course other factors that add to Hong Kong's attraction. A prime location. Superb infrastructure. Unparalleled experience and contacts in the Mainland market. A hard-working and entrepreneurial population. A broad and deep knowledge bank of international best practice in financial services. And, the tremendous help and support from our national government. All of these factors combined provide a fairly convincing argument that Hong Kong is a city with enormous potential, and a bright future.
All of these are the foundations of our success as a free and open economy, and as a free and open society – where people from all over the world come to make a living and contribute to our development as Asia's world city.
We are honoured that the Fraser Institute's rigorous ranking process has once again confirmed Hong Kong as the freest economy in the world. We value this recognition. And we will continue to make every effort to "walk the walk" of economic freedom in the years ahead, despite the turbulence that is happening around us.
Thank you very much.
Ends/Tuesday, September 16, 2008
Issued at HKT 22:41
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