Hong Kong: Looking Towards the Future


Speech by The Financial Secretary, Mr Donald Tsang, at the International Business Conference of the New South Wales State Chamber of Commerce, Sydney, Australia

Monday, August 25, 1997

Distinguished guests, chamber members, ladies and gentlemen,

I am very happy to have lunch with you today and to be given this opportunity to talk about the future of my home Hong Kong, or 'Honkers' as I've heard it referred to by some of my Antipodean acquaintances.

As a lover of good wine I am also happy to be in the state which produces those excellent Hunter Valley reds I have sampled in Hong Kong.

Unfortunately, my tight schedule does not afford me the luxury of a visit to the area but I may just find a minute or two to pop into one of your well-stocked wine shops before heading home.

I am certain many, if not all, of you saw something of the historic Handover events which marked the establishment, on July 1, of the Hong Kong Special Administrative Region of the People's Republic of China.

More than 30,000 Australians live in Hong Kong, and I'm sure quite a few Aussie tourists visited us during that period, so perhaps you even had friends or relatives who joined in the celebrations.

The events of July 1 marked a new chapter -- the beginning of a new era -- in Hong Kong's history and this is what I would like to talk about today.

I hope that what I tell you today sheds some light on the realities of life in the Hong Kong SAR and puts to rest some of the more negative or over-simplistic assessments of what the future holds for Hong Kong.

For many years now, people have been asking: "What's going to happen after 1997?" My answer has always been the same: "Not much will change."

Now, almost two months after the Handover, the reality is as we predicted - there has been no big change.

Indeed, I suspect many of the prophets of doom have been disappointed in what has transpired since the Handover -- the economy has not collapsed, the civil service has not fallen apart, people have not been leaving in droves and the stock market has not crashed.

And these were some of the more optimistic predictions we had to live with during the transition period, from the time the Sino-British Joint Declaration on the question of Hong Kong was signed in December 1984, until the Handover itself on July 1.

In fact, it has been very much business as usual. Nowadays in Hong Kong that means an economy growing at five per cent per annum; a corruption-free, highly-trained and dedicated civil service; a net inflow of people; and record highs on the stock market.

There has been one significant, historic, change and that, of course, is China's resumption of the exercise of sovereignty over Hong Kong under the unique concept of 'One Country, Two Systems'.

The framework and implementation of this concept was devised by our late patriarch Mr Deng Xiaoping and is very clearly spelt out in our Basic Law, Hong Kong's mini-constitution since July 1.

The Basic Law is a Chinese national law. It is an extremely important document. In any discussions about the future of Hong Kong you will always hear mention of it.

The Basic Law lays the foundations for the continued prosperity and stability of Hong Kong. It is our road map for the future.

It guarantees our way of life in Hong Kong for at least 50 years. It gives us a high degree of autonomy to conduct our own political, economic, social and cultural affairs.

It clearly sets our capitalist system apart from the socialist system practised on our motherland.

I have great faith that the leaders of our country want to see the Basic Law implemented successfully and to see Hong Kong's star continue to rise.

During the Handover events our senior leaders, President Jiang Zemin, Premier Li Peng and Foreign Minister Qian Qichen all made it very clear they were determined to see the 'One Country, Two Systems' concept successfully implemented.

It is, after all, a matter of considerable pride to our nation to ensure Hong Kong's continued economic development and social stability.

It is also up to the people of Hong Kong themselves to stand up for their rights and freedoms as spelt out in the Basic Law. To do any less would be foolish, to say the least.

And in the first two months of life of the SAR, Hong Kong people have been doing just that -- exercising their rights, as they should, of free speech, of demonstration, of scrutinising government policies and decisions. We have an average some 20 demonstrations a week, from human rights, labour issues, environment concerns, as usual. The government is still being perfunctorily taken to court, on migrants issues, on legality of the legislature, as usual.

Public pressure on the government to be open and responsive, to serve the community, is as great now as it was before July 1. This is all part of the fabric of Hong Kong. It is part of our way of life. We are proud of it. Disparaging cartoons and articles on my boss, the Chief Executive, myself and other senior figures appear in our printed media everyday, as usual. We have, as you may not know, some 15 newspapers for a population of 6.4 million. Life in Hong Kong, is fun, as usual.

A recent report by the Political and Economic Risk Consultancy says Hong Kong's political risk factor has actually dropped since the Handover when compared to a year ago.

The report said, and I quote: "Hong Kong is still the region's premier business centre." Encouraging words may be, but actually not that surprising to those who really know what make Hong Kong tick.

The Basic Law embodies all of the ingredients which have made Hong Kong the success it is today.

These ingredients, which I often refer to as the four pillars of Hong Kong's success, include:

* The free flow of information, free speech and a free

and open press;

* A level playing field for all who do business in Hong

Kong;

* The rule of law upheld by an independent judiciary; and

* Prudent fiscal policy and limiting the growth of public

spending to within the growth of the economy.

So, while the Basic Law has only been in force for just under two months, the basic tenets it upholds have been part of the Hong Kong recipe for success for many, many years.

I mention these aspects to give you a picture of the solid foundations upon which Hong Kong has been built and will continue to be built.

Let me stress, there has not been, and there will not be, a change in the basic philosophies which have served us so well for so many years.

Now, let me turn towards the future, which I believe many in Hong Kong are looking at with a great deal of optimism.

It has often been said that the dawning of the new millennium will herald the beginning of the Pacific Century, when the Pacific Rim economies will come to the fore on the global stage.

I know that over the past decade, for example, the focus of Australia's trade efforts has turned more towards its Asia-Pacific neighbours where there is strong - sometimes double digit - economic growth and there is an emerging and more affluent middle class with more money to spend on your goods and services.

This can be seen in your own trade figures, which show that 10 of Australia's top 15 trading partners -- including New Zealand -- are in the Asia-Pacific region, accounting for more than 51 per cent of your total trade in 1996.

Mainland China is Australia's fifth largest trading partner. Taiwan comes in at number seven; while Hong Kong is at number 11. These three "Chinese markets", if I can call them that, accounted for more than 11 per cent of Australia's trade last year.

But it is not only you in Australia who are pursuing these Asian markets, which are expected to grow by an average of 7.5 per cent per annum in the short to medium term.

So, too, are we in Hong Kong. In fact, 11 of our top 20 trading partners are in the Asia-Pacific Region.

We have economic and trade offices in Sydney, Tokyo and Singapore which give our companies direct links to those markets while at the same time helping overseas businesses to set up shop in Hong Kong and, indirectly, in Mainland China.

We expect to open more such offices as other Asian 'tiger' economies begin to roar.

I have no doubt that Hong Kong - described by Austrade as an economic tiger with "a globally significant, mature economy" - is well placed to become a Pacific Powerhouse, if indeed, it already has not.

There are several compelling reasons.

The first is undoubtedly Hong Kong's long-standing and symbiotic relationship with Mainland China. This is especially significant now that Hong Kong has been reunified with the mainland.

In simple terms, Hong Kong will play an even greater role as China's window on the world while more overseas and multi-national companies will use Hong Kong as a launch pad for their investment and trade drives into China.

Since China opened its doors to the world in 1978 there has been remarkable economic change and growth, unmatched by any other economies in recent history.

Even in Hong Kong, it is sometimes hard to fathom the enormity of the Chinese market. It is HUGE. And it is growing at the rate of eight per cent per annum in real terms, so it will get even HUGER.

And of course Hong Kong is well-placed to take advantage of this economic phenomenon.

We have a highly trained, hard-working and competent workforce. We have the skills, the management expertise, the knowledge, the language and the cultural and geographical links needed to do business in Mainland China.

Hong Kong is the biggest external investor in Mainland China by a long way, accounting for about 60 per cent of all external investments. By the end of 1996, Hong Kong companies had invested about 100 BILLION US dollars in Mainland China.

Chinese enterprises are the third largest external investors in Hong Kong and we expect them to edge their way towards the top of the list in the years to come.

I'm sure many of you have also heard talk that Shanghai will one day eclipse Hong Kong, that the Chinese leadership will pay more attention to the 'Paris of the East' than to the 'Pearl of the Orient'.

That Shanghai will develop a role as a leading financial centre is beyond doubt. But the nature of Shanghai's role and that of Hong Kong are different and complementary.

In simple terms, we believe, as the Mayor of Shanghai has said, that the relationship is this: Hong Kong will take care of international business; Shanghai will take care of domestic business.

I could spend 20 minutes alone talking about the Hong Kong - Shanghai relationship but I think it's best that I finish on this point by stating that whatever transpires there will be plenty of business for us both. There is no doubt about that.

My second reason for confidence in the future is the nature of Hong Kong's economy, now heavily geared towards services industries.

Almost 85 per cent of our GDP is related to service industries.

We are Asia's leading tourist destination; we have the world's busiest container port; we are the world's busiest airport for international air cargo; we have the world's seventh largest stock market; we are a regional communications hub.

We are one of the world's leading financial centres, with more than 520 banks or deposit taking companies - including 80 of the world's top 100 - from over 30 countries based in Hong Kong.

I am sure many of you, at one stage or another in your life, have had something inside your home with the famous 'Made IN Hong Kong' brand stuck on the back.

Hopefully, you still have.

But because of the big change in the nature of our economy - especially the re-configuration of our manufacturing industry - you are now more than likely to have a product 'Made BY Hong Kong'.

There has been some criticism that our economy relies too heavily on service industries, that we are overweighed in this sector. On this point I have to strongly disagree.

The Hong Kong economy has evolved the way it has because that's what the market wanted. There is minimal - and I mean absolute minimal - government interference in the direction of economic development.

What the government does, and it does it well, is to provide the legal, administrative and infrastructural framework for the market to pursue its goals.

Manufacturing is an excellent example. The limited supply, and high cost, of land in Hong Kong, as well as higher labour overheads and a finite labour supply, has led many Hong Kong manufacturers to set up production plants in Mainland China to complement their operations in Hong Kong.

We estimate that in adjoining Guangdong province alone there are some four million people - that's one million more than the entire Hong Kong workforce - employed by enterprises either wholly or partly owned by Hong Kong companies.

So now the toys, watches, electronics products and clothes are made in Mainland China, transported to Hong Kong and then trans-shipped across the globe, using the banking and financial infrastructure based in Hong Kong. Re-exports now account for 40 per cent of our total trade, compared to 28 per cent 10 years ago and only 11 per cent 20 years ago.

The Hong Kong economy has transformed itself from one which made things, to one which makes things happen.

Some critics have argued that the government should do more to retain the labour intensive operations of our manufacturers in Hong Kong. But why should the government take such an approach when the market clearly does not want to keep those operations in Hong Kong?

So, I see the Hong Kong economy evolving in much the same way as it has all along - with minimal government intervention and maximum private sector participation.

Taking this a step further I see Hong Kong continuing to develop its role as THE premier services centre in the Asia-Pacific Region.

We are not only perfectly placed to facilitate business in China and vice versa, but we are ideally located to become a bigger regional player by exporting our management and technical expertise and helping to facilitate the major infrastructural development of other Asian countries through such things as syndicated loans and the raising and financing of joint-venture capital.

Another reason that I see a bright future ahead for Hong Kong is because we approach the next Century in extremely good financial shape.

We are actually obliged by the Basic Law to strive for fiscal balance and to limit public spending within the limits of GDP growth.

At the moment, Hong Kong has something like $95 billion US dollars in the bank, of which some $82 billion is held in foreign currency. And we have no debt. That gives you an idea of the 'safety cushion' we have built up over the years.

At the same time we continue to plan for, and build, the massive infrastructure needed to keep our economy competitive - without having to dip into reserves.

We have spent almost 20 billion US dollars on our new airport and related developments, which include two of the world's longest bridges, a dedicated express railway line, a new town which will ultimately house 200,000 people, a new cross-harbour tunnel, 32-kilometres of six-lane expressways and major reclamation to provide new land for commercial development and housing.

All this, without involving the government in borrowing a cent from the public. In fact, once we develop the reclaimed land and the new town we expect to recoup all of the costs and then make a handsome profit.

The new airport will be run by the Airport Authority, which will also be expected to pay the government a dividend on its operating profits after a certain period.

We are now embarking upon a major upgrade and expansion of our already excellent railway service, to relieve pressure on congested lines and to bring fast, cheap and efficient transport to those living in new urban areas.

The two railway corporations operating in Hong Kong are wholly-Government-owned but run as separate businesses with their own staff. They are not only required to provide excellent service to the public - they are also bound to pay the public purse a dividend on their operations.

Our port - the busiest container port in the world - is built and run by private enterprise. Apart from some of the infrastructure which serves the port, such as roads, government spending on the port is kept to the absolute minimum.

However, the fiscal benefits the port brings by way of taxes paid by the port operators far outweigh any initial outlay on roads or parking spaces for container trucks.

Our tax system is very simple and, we believe, very fair . Individuals pay a MAXIMUM of 15 per cent, while corporations pay 16.5 per cent on their profits.

For example, a single taxpayer will need to earn the equivalent of just over 100,000 Australian dollars a year before paying tax at the full rate of 15 per cent.

Not surprisingly, the incidence of tax evasion is low.

One final - and perhaps the most important - reason I have every confidence in the future of Hong Kong is the 6.4 million people who call Hong Kong their home.

Hong Kong people have time and again demonstrated a 'can-do' spirit and an entrepreneurial flair which has allowed them to build a better life for themselves and their families.

The will to succeed is something which has become a part of the Hong Kong psyche.

It has been borne out of a society where everyone is given an equal chance at success; where a quality education is available to all who are willing to learn; where good, old-fashioned hard work and determination are the norm, rather than the exception.

I am convinced that Hong Kong people will waste no time seizing the world of opportunities which will present themselves following the reunification of China and that Hong Kong will continue to develop its role not only as a Pacific Powerhouse, but also as a global economic player.

I am equally certain that Hong Kong will remain one of the most open, free, exciting and cosmopolitan cities on earth.

I believe in Australia you would say: "She'll be right, mate!"

Thank you.