Mr Lord, Ladies and Gentlemen,

It is an honour for me to address the Opening Luncheon of this Conference: It is also an honour for Hong Kong to be hosting this important event - the first Asian host outside Japan in its 11-year's history. On behalf of the people and the Government of the Hong Kong Special Administrative Region, I extend a very warm welcome to every one of you.

Together, all of you here today represent investment funds totalling over US$5 billion: that's about US$60 million a head by my count. We often hear exuberant investment analysts spondulizing about fantastic buying opportunities. I just want you to know that I see you as a fantastic selling opportunity. And what a great story I have to sell you : the story of Hong Kong. Not Hong Kong nostalgia. Not Hong Kong as imagined in a fit of irrational exuberance: but the solid reality of Hong Kong today, powerhouse of the Asia Pacific trading economy.

Four months ago one chapter of Hong Kong's history closed. I can assure you that the chapter we have now opened is not Chapter Eleven. We have massive financial reserves. We have no public sector debt. We have a very healthy fiscal position and tight discipline on public sector expenditure. Alongside those structural strengths we have an economy that remains strong and steady. GDP growth has been increasing over the last nine months. We expect it to achieve 5.5 per cent real growth for the whole financial year. That will bring GDP per capita in Hong Kong to around US$26,600. Our unemployment rate continues to fall and is now down to 2.2 per cent of the workforce, and I am now forecasting that inflation for the year as a whole will be 6.5 per cent, half a percent below my projection in March this year.

All those good things don't insulate us from the world around us. The currency and stock market troubles in South East Asia over the last few months have had an impact on us. As ever, when squalls hit, we've had some squawks about a need for a change of course. While I am the first to acknowledge the merits of an open mind, to assess each new situation afresh, I do not believe that one should leave the mind so open as to entertain every passing breeze. This is not the time for excited expedients or the fallacy of quick fixes, but time for assurance, time to keep one's eye firmly fixed on the cardinal points by which our economy is steered. What are they, if not the trust and the confidence that are inspired by prudent and predictable policies?

I know that there are particular sectors of our economy hurt by the exchange rate changes relative to some other Asian economies, but my duty is to serve the public interest, not sectoral interest. Hong Kong is not any other Asian economy. We do not have a huge, unearning stock of vacant offices. Two thirds of our domestic exports and three quarters of our re-exports within Asia go to China and Japan; against whose currencies ours is stable. Crucial sectors of our economy, such as our financial services industry, benefit from stability.

Let me tell you a little story. For hundreds of years, the British treasury kept receipts in the form of wooden tally sticks. In 1834, they finally decided to get rid of that system. The vast accumulation of wooden sticks were sent to be burned in the furnace room of the House of Lords. The quantity of fuel proved too great, starting a fire which burned down both houses of Parliament. The moral of the story is this: beware the dangers of un-thought through changes in financial management. Let me reiterate: we will not change our system or our dollar link: the only people who will be burned by speculation against the Hong Kong dollar are the speculators.

We will watch developments in the region very closely, particularly the efforts of various governments to put in place remedial and structural reform measures needed to tackle economic imbalances and financial weaknesses underlying the present turmoil. We in Hong Kong will do our share, as a responsible partner in the regional economy, in international measures for financial and economic co-operation to cope with the present difficulties. We are ready to share our experience, where it is needed, to help ensure that these difficulties are not repeated in future. What I will repeat is that here in Hong Kong, our economy is not unbalanced, our finances are not weak : Hong Kong is here for the long term as a centre to serve the stable and sustained growth of the region.

Let me outline briefly what we are doing to ensure that.

Already, what are loosely called 'service industries' account for 83 per cent of our GDP. Within that, financial services are the key components, growing by 500 per cent in terms of contribution to GDP over the last decade.

In 1978, our fund management industry began with just 46 funds open to investors. Today we have 1,404, run by 87 licensed fund management companies, and we are home to 35 regional headquarters of international fund management houses. Altogether they deal with assets of nearly US$230 billion.

This industry has grown here for several reasons. Among financial markets world-wide, we have the least barriers that might limit market entry or distort commercial decisions. We have a sound regulatory regime, applying core principles common to the world's leading fund management markets. We have not startled the markets with unheralded changes; and, we have developed close relations with overseas regulators to respond to the needs of ever increasing cross-border, international fund management. On top of all that, our free market philosophy, our excellent infrastructure, particularly in telecommunications, and our commitment to the rule of law and freedom of information serves to provide an environment in which this business can flourish.

We will maintain all these good foundations. Standing on them, the prospect lifts the heart. At best estimates, the local mutual fund industry has around 250,000 to 300,000 local investors today. That is only about four per cent of the population, way below the level in North America or Europe. With growing incomes and wealth in Hong Kong, the potential for growth in secured investments is simply huge.

One area where growth is guaranteed is through the Mandatory Provident Fund Schemes. These will be privately managed and will generate fund assets of HK$10 billion a year in the initial stages, rising to HK$40 billion a year on maturity over the next thirty years. All the enabling legislation for these schemes will be completed within the next six months.

Another area that will continue to be a source of great potential and opportunity for Hong Kong is Mainland China. Hong Kong's expertise in marketing, design, quality control, entrepreneurial initiative and international trade forms a perfect match with the resources of people, land and material in the Mainland. By the end of last year, we had invested about US$100 billion in the Mainland, accounting for nearly 60 per cent of total foreign direct investment there, and employing at least 4 million people in Guangdong Province alone.

The manufacturing capacity we have built in Mainland China generates demand for a full range of supporting financial services. At the end of March this year, external claims by Hong Kong's authorised institutions on mainland banks and non-banking entities amounted to nearly HK$300 billion, or about US$39 billion.

On top of investment on our account, economic reform in the Mainland is creating growing demand for capital, and Hong Kong is the obvious base for fund raising by Mainland enterprises. So far, 36 have been listed on the Stock Exchange, raising US$7.3 billion in capital.

The clear commitment to continued financial and economic reform in Mainland China, set out at the 15th Party Congress, means that Hong Kong's pivotal role as the best place for Mainland enterprises to raise capital will develop firmly in the years ahead. Some estimates put the capital requirement to fund the next stages of reform in the region of US$120 billion. Hong Kong provides the mechanisms to raise and channel that investment.

As the Chief Executive set out in his Policy Address a few weeks ago, we are going to go on strengthening Hong Kong's position as a premier financial centre through improving the efficiency of supervision and regulation, by increasing training, by greatly improved financial communications infrastructure; and above all that, by maintaining the rule of law, freedom of information, low, simple and predictable tax rates and open markets - the things which give everyone a level playing field on which to make sensible investment decisions.

I am aware that there is concern in some quarters about the substantial amount of money the Government is going to spend over the next few years for funding the various initiatives in the Chief Executive's Policy Address. Let me make it crystal clear that we are not going to depart from our prudent fiscal policy. We can accommodate all the initiatives announced by the Chief Executive in the 1997 Policy Address and in the related Policy Programmes within the level of expenditure permitted under our budgetary guideline. That budgetary guideline enables us to raise public spending over our medium range forecast period by five per cent annually in real terms.

As you know, we are particularly vigilant in control of recurrent Government spending. In the current financial year, total Government recurrent spending will be $154 billion. The estimated increase in spending by Mr Tung is in the region of $7.7 billion in the next financial year, to implement the programme announced in the Chief Executive's Policy Address, represents five per cent real growth. By the end of the medium range forecast period in 2001/02, the Policy Address initiatives will incur additional spending of $18.6 billion annually. Again, this will be well within the permitted increase in expenditure of some $33 billion by the year 2001/02 under the five per cent real growth guideline. Overall capital spending of $88 billion for the new initiatives is likewise clearly affordable, against total capital expenditure of about $50 billion in the current financial year. The total sum will be spread over five years and, as the initiatives can be funded in a combination of ways, I can assure all of you that we are able to make these investments without overloading the Budget.

In conclusion, let me sum up where we now stand. Hong Kong has passed through the watershed of 1997 with strong reserves, with healthy economic fundamentals, with continuity of prudent fiscal management and with enduring opportunity here and in the Mainland. Today, and no doubt from time to time in years to come, we face challenges and difficult days, days when steady nerves are needed. But we have a clear vision of what we want to be - a bastion of sound financial management for Asia - and we have great strength and experience to draw upon to keep us on course. And when the clouds pass, as they will, we have the abundant and refreshing potential of free markets, operating under the rule of law, to carry us on.

Thank you.