Prime Minister Goh, Prime Minister Dehaene, Professor Schwab, Dr Fung, Distinguished Guests, Ladies and Gentlemen. Richard, thank you for those very kind words.

A year ago, I spoke at this very distinguished gathering. A year ago I was a businessman venturing into unfamiliar territory of political campaigns, working really very long hours every day, little sleep and no prospect of any holidays. A year has gone by, I am now speaking to you as Chief Executive of Hong Kong Special Administrative Region. But some things don't change. I am still working long hours, still very little sleep, and absolutely no prospect of a holiday. Victor, just now, said that we are the second freest economy in the world, as judged by the World Economic Forum. I would just like you to know that our worthy competitor, the number one is Singapore, and Chok Tong is sitting right there, so I just want to say, Chok Tong we will be working very hard to catch up with you.

It is my pleasure to be here this evening to address this very distinguished gathering. I wish to extend my warmest welcome to you all to Hong Kong. I also wish to congratulate the World Economic Forum for its vision in starting the East Asia Summit five years ago. It gives the right focus to East Asia, a driving force in world economic development, and its relationship with Europe as well as North America.

Some of you were in Hong Kong on July 1st to witness an important day in the history of Hong Kong, and indeed of China. Today, three and a half months later, we in Hong Kong are moving forward with pride and confidence. Pride in that we are now reunited with China, and have become masters of our own destiny. Confidence in that we can and will make our city an even better place going forward.

Indeed, July 1st has come and gone. We, who live and work in Hong Kong, continue to work hard for an even more successful and prosperous future. Our economy continues to grow, our financial foundation remains solid, our society remains pluralistic, and our politicians continue to debate openly on all the topical subjects. And our many interest groups continue to express their views through many, many demonstrations. Indeed, recent surveys conducted by the Hong Kong University Social Research Centre concluded that 85% of our population are confident about the future of Hong Kong. This is a historic high for Hong Kong under any administration.

It is not surprising that many individuals who come to Hong Kong after the Handover share our confidence and enthusiasm. Barely one month ago, we hosted the annual World Bank/IMF meetings, and the G7 meetings. Many of the attendees have gone away feeling reassured and affirmed on the future of Hong Kong. I quote Mr. James Wolfensohn, President of the World Bank in his concluding remarks, "Seeing this region and seeing Hong Kong, the "One Country, Two Systems," is certainly something that we can now believe and I think it served as a very reassuring message to all of us that Hong Kong will continue as it has before." Likewise, you now have seen for yourselves. Indeed, the very fact that Hong Kong was host city to the international Lutheran convention, The World Economic Congress, the World Bank/IMF meetings, and the World Economic Forum within three, four months after July 1st is a vivid testimony of our commitment and confidence to the stability and prosperity of Hong Kong.

Ladies and Gentlemen, I for one know full well that "confidence" and "stability" is more than mere words. "Confidence" and "Stability" are hardearned assets, and can never be taken for granted. Recent financial turmoil has caught some countries in Asia off guard. Maintaining financial stability is very challenging, but it can be done.

Our financial policies and institutions must operate in a prudent manner to maintain public confidence. In addition, our banking and financial systems must be sound and healthy if they are to withstand external shocks or policy adjustments. I will pledge to you that Hong Kong will remain secure from these events.

For us here in Hong Kong, we shall continue to pursue sound and sustainable macro-economic policies which support the stability of the financial system. This means the continued pursuit of the fiscal discipline which has been the hallmark of Hong Kong in the past. In nine out of ten years in the past, we have actually achieved a budget surpluses. It shall remain our guideline that government expenditure over time shall grow at a rate no faster than the economy.

Fiscal prudence is a necessary precondition for exchange rate stability. It shall remain a central plank of our economic policy to maintain the link between the Hong Kong dollar and the US dollar. This gives confidence in the currency to the people of Hong Kong and those who do business and invest here. Despite one or two short-lived speculative attacks during the recent currency upheavals, the Hong Kong dollar has remained rock-solid. We aim to keep it that way. Our large stock of foreign exchange reserves of US$82 billion and the good economic fundamentals of Hong Kong give us the means to do so. I know that we can also rely on the unwavering support of our own country in this objective.

Confidence depends not only on a stable exchange rate. Transparent and predictable government policies and a reliable legal system are essential for a stable investment climate. We will continue our policy of a low and predictable tax structure. We will adhere to our present legal system and the rule of law to ensure that Hong Kong continues to provide an even-handed, corruption free, and secure business environment.

What makes us so confident in managing our future? The fundamental reason for our confidence is, of course, the solid promises of the Basic Law. It is a comprehensive document that was drafted by people from Hong Kong and Mainland China after some four years of consultation and discussion. The Basic Law provides a constitutional framework for the Hong Kong Special Administrative Region. It institutionalizes the concept of "One Country, Two Systems". It clearly prescribes the social, economic and political systems in Hong Kong which are different from those in Mainland China. It protects the rights, freedom and lifestyle of Hong Kong people. The Basic Law guarantees the independence of our judiciary and, apart from foreign affairs and defense, it gives us full responsibility to manage our own affairs. It allows us complete financial autonomy, and independence of our monetary system. It establishes Hong Kong as a separate customs territory, and enables us to work directly with the international community to control trade in strategic commodities, drugs, illegal transhipments, and to protect intellectual property rights. The Basic Law has also established the framework for the democratic evolution of our political structure over the first ten years, with my election as Chief Executive in 1996 and the election of the first Legislature in May 1998.

It should be remembered that the "one country, two systems" concept was not a concept that originated from London or Hong Kong. It was a concept developed by China. The reason was simple : It is clearly in the fundamental national interest of China as a nation and Chinese as a people that the "one country, two systems" concept be successfully implemented. By preserving and further enhancing the success of Hong Kong, we can contribute towards the continued modernization of China. In addition, the feasibility of different social, economic, and political systems within one country is being tested. Success in Hong Kong can serve as a significant step towards the greater and final objective of the re-unification of the entire nation. These are major objectives for China.

What else am I confident of in Hong Kong's future? China has gone through dramatic changes since she opened up to the outside world in 1978. The economy has grown at a remarkable rate, averaging close to 10 per cent per annum. This is a tribute to the vitality and energy of the Chinese people and the quality of China's leaders. These leaders have the ability and the acumen to steer China successfully into the 21st century. It is this ability and acumen that will ensure the successful implementation of the "one country, two systems" concept as we move forward into the future.

Since July 1, we in Hong Kong have been administering our own affairs. We are also carrying on with the development of democracy in Hong Kong. Our constitution, the Basic Law, requires us to develop democratic institutions: our commitment as a society is to do the same.

The Basic Law has given us a 10-year timetable for the election both for the Chief Executive and the Legislature. I was chosen by a committee of 400 Hong Kong residents, drawn from all walks of life. My successor will be chosen in the year 2002 by a similarly widely drawn body, increased in size to 800. Legislation is being completed in Hong Kong for the election of our first full legislature, which will be held in May 1998. Of the 60 seats altogether, 20 seats will be directly elected and 30 through a functional constituency arrangement and 10 through an election committee arrangement. Every adult permanent resident will have a vote for the 20 directly elected seats and there are 2.5 million registered voters. Every political party is welcome to contest these seats. Those elected will serve for two years, before a second legislature is elected for a four-year term in the year 2000. With the third legislative election in 2004, the number of directly elected seats will increase from the one third we will have next year, to one half of the total. After 2007, according to the Basic Law, Hong Kong people will decide when to introduce elections by universal suffrage for the election of both the Chief Executive and the Legislature. Furthermore, the Basic Law has already set out for us an independent Executive, Legislature and Judiciary, together with the relationship amongst them.

I know there is some concern that the electoral arrangements for next year will reduce the franchise in some of the functional constituencies. This misses the point that these functional constituencies, in their very original design, were indirect elections to represent economic, professional and grass-root sectors of importance to the community of Hong Kong, and were not intended to be elections through universal suffrage. This was the case until changes were brought about in 1995. Indeed, the present arrangement reverts back to what we had before and is an interim arrangement under the Basic Law, designed to maintain balance and continuity while our democratic process continues to evolve over the next 10 years. In any case, I want to assure you that we are not turning the clock back, not standing still, not shutting out people.

Many of you know, I am conservative. But conservatism - wanting to sustain things that you know and value - doesn't mean trying to stand still or turn the clock back. Sustaining a wonderfully complex and exciting community like Hong Kong requires constant, judicious movement and sometimes pre-emptive adjustment. I am bound by conviction and by oath to uphold the Basic Law. I will assert and support key values and principles. And I also know that they require weight and acceptance of our entire community.

On October 8, I gave my first policy speech and indeed the first one for the Special Administrative Region. I set out a vision for our future and programs to tackle a wide range of matters close to the hearts of Hong Kong people. Hong Kong has reason to be proud of our achievement over the past 30 years, but we have to be alert to challenges which lie ahead. We face keen competition in trade and services, and our competitiveness is threatened by inflation. We have to resolve a series of social problems arising from a growing and aging population, meet the demand for more and better housing, deal with employment dislocation due to the restructuring of the economy, and address the needs of the poor and deprived.

In the process of preparing for the policy speech, we took stock of situation around us today.

For understandable reasons, our long term strategic thinking has previously been influenced by the date of 30th June 1997 and by the physical border with Mainland China. With the handover, we in Hong Kong are no longer inhibited by this artificial or psychologically constraint. We can now indeed be much more forward thinking and imaginative than ever before.

The recent 15th Party Congress has again reaffirmed the path of China's development in the future. Indeed, we are confident that China will be more open and more prosperous as she enters into the 21st century. In a recently released study by the World Bank, China 2020, it is projected that by early next century, China would become the second largest trading nation in the world. Hong Kong will undoubtedly be one of the chief beneficiaries of the growth and prosperity of China. With our expertise and access to the world for capital and knowledge, Hong Kong will continue to play an important role in th development of the China. Indeed, as China prospers, Hong Kong will benefit even more.

With rapid technological advancement, the world is becoming a smaller place. The world economy has progressed into a more open and borderless trading system than ever before. World trade will continue to grow and stimulate further economic development in all nations.

To promote the well-being of our citizens and maintain the economic vitality of our society is the fundamental task of any responsible government. The law of the market dictates that those with lower costs, higher efficiency and better quality, succeed. Simply put: Add value or be left behind. It is therefore my task to constantly and consistently focus our energy in adding value: Adding value to the products we provide, the services we offer, adding value to our economy at large. Indeed, our standard of living is too high to compete in the region in labour intensive areas of industries and services.

But in order to add value, we must ensure that our population has the appropriate skillset. More and more of our citizens need to receive highest quality education in order to participate in this new economy and further generate wealth for both the individual and for the community. Equally important, we must ensure that the quality of life in Hong Kong keeps pace with the development of the economy in order to attract and retain the talent. These include good and affordable housing, quality living environment and the maintenance of the life style which we are accustomed to here in Hong Kong.

It is the entities like Hong Kong, open and free, entrepeneurial and competitive, that will particularly benefit from these very global conditions. With the addition of our cultural affinity to Mainland China and our excellent geographical location, we are well placed to maintain our position as a primary commercial hub for all of China and Asia. This does not mean, however, that Hong Kong will automatically become more successful. We must re-position ourselves in order to fully utilize this very favourable environment.

We will, as a government, continue to create a business friendly environment and improve our competitiveness and provide a well educated, well trained workforce that can take advantage of tomorrow's opportunities.

We will continue our policy of a low and stable tax regime, minimum government interference, free flow of information, a level playing field for all, and the rule of law and a clean civil service, all of which have made Hong Kong an attractive place for business.

As the world moves rapidly into the information era, we will be investing heavily in our information infrastructure and our expertise in this field.

We will be speeding up land formation; extending our mass transit system and other infrastructure and increasing the pace of home construction to 85,000 flats a year in order to ease the acute shortage in housing and bring about a soft landing in the level of housing cost. To meet community desire of home ownership, we will also achieve a home ownership rate of 70 per cent by 2007.

Although somewhat late, we are setting up a mandatory provident fund and extending greater care for the elderly, in order that the older members of our community are provided with a treasured sense of security, belonging and worthiness.

We will, as stated, invest heavily in education, not only tertiary but also in primary and secondary education, in order to ensure all our citizens will have equal opportunity to participate in our prosperity and we have the high quality of people needed to keep on expanding our economy and as we move into value added industry and service sectors.

Through the years, Hong Kong has become a symbol of free trade, free enterprises and free market. While we will continue to keep our market open, we will also be seeking unrestricted access for our goods and services in the global market place. To achieve a better external business environment, we are playing our part vigorously in the multilateral trading system embodied in the World Trade Organisation (WTO) and in the open regional forum of Asia Pacific Economic Corporation (APEC).

Ladies and gentlemen, there is much work to be done. But we in Hong Kong look forward to the next century. We are excited by the prospect of being masters of our own destiny. We are eager to create an even better Hong Kong in the new era. By early next century, China will become an economic giant and will take her rightful place as one of the leaders in the community of nations. East Asia, despite our recent financial turmoil, will continue to march forward strongly into the 21st century. Indeed, East Asia as a whole will emerge as the world's largest producer, capital lender, and capital borrower, as well as the largest consumer market. Imagine the depth of economic opportunities in the coming decade. Where can the international business community best capitalize on these opportunities? Where else indeed, but right here in Hong Kong. Thank you very much.