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Following is a speech (English only) by the Financial Secretary, Mr Donald Tsang, at the luncheon hosted by the New America Foundation in Washington today (June 15, Washington time):
I am honored to be here to speak to such a young and enthusiastic group as the New America Foundation. It is always good to see young people bringing new ideas and fresh thinking into the public arena for debate and discussion.
While on that topic, I notice that the Washington Wizards are about to get a new coach. Perhaps Leonard Hamilton will breathe some new life into the Wizards' game. And if I can stretch the analogy a little further, I think it's true to say that the 'wizards' of Hong Kong - our legendary entrepreneurs with their can-do spirit - are turning the New Economy into a new engine of growth for our city.
Hong Kong is now emerging from the shadow of the Asian financial crisis - the worst economic crisis we have had to face since the Second World War. As a result, we were forced to depart from our traditional approach to dealing with problems. We introduced, in some instances, radical reforms to our systems to improve the way they operate. And we have been restructuring our economy to diversify it into new areas of growth. Hence my reference to the New Economy.
A similar pattern is being followed by other countries in the East Asian region as they re-build after the crisis. Some may not be adopting such fundamental reforms as we are, and they may not be doing it with the same determination, transparency and openness as we are. And that's where our uniqueness sets us apart from the crowd.
Hong Kong is a unique place - politically, economically, geographically and constitutionally. We have unique strengths and a unique product to offer to foreign investors and businessmen. We have the flexibility and the expertise to implement innovative ideas when seeking solutions to problems. A recent example was the set of measures we took to protect the Hong Kong economy from collapsing at the height of the Asian financial crisis. And I guess some of you may want to question me on that later.
But first, let me set the scene for the city that I like to call "Unique Hong Kong". And the most obvious place to start is with our constitution - the Basic Law. As you know the 'one country two systems' principle under which we operate as a Special Administrative Region of China, is a unique arrangement - one that is not found anywhere else.
Hong Kong's unique constitution
We are the world's freest economy, and at the same time sovereign territory of the world's largest socialist state, China. This relationship is clearly defined in the constitution which guarantees us a high degree of autonomy in all matters except for defence and foreign affairs. That's how, as a global financial center, we are able to deal with economic and financial issues in our own way. We don't have to consult the national leaders in Beijing. We don't seek advice and we are not given it. And it is the same for other issues as well - it is a case of Hong Kong people running Hong Kong.
The relationship works remarkably well. And it works for two reasons. First and foremost the Chinese leadership has been absolutely consistent in its determination that Hong Kong's capitalist way of life should be preserved, and that the Hong Kong economic success story should continue after the resumption of sovereignty. Secondly, Hong Kong people are determined to preserve their way of life and the freedoms they enjoy - the same sort of freedoms you have here in the United States. It is a unique relationship and it is working as the architects intended it should.
Hong Kong's unique economy
Hong Kong is the world's freest economy by many measures including the Heritage Foundation's annual index of economic freedom, which has consistently put Hong Kong in first place since it started seven years ago. The index is more than a simple measure of freedom. It looks at regulation, property rights, banking and trade policy for example. It recognises that responsible regulation is important. That is our goal.
We follow a policy of maximum support, minimum intervention. We see the government's primary role as providing the most business friendly conditions possible. This is putting in place the fundamental "software" to make Hong Kong tick : personal liberty, the rule of law, a clean and efficient administration, and a level playing field for all businesses.
The level playing field includes a firm commitment to free trade, to removing market restrictions and to promoting fair competition. These are primary goals and we re-emphasise them at every opportunity. No economy is perfect. And we have to work hard at these principles. The measure of our success is reflected in the success of our economy.
Hong Kong's response to the Asian Financial Crisis
Hong Kong's response to the Asian financial crisis was a test of our commitment to maintaining an open economy. And I believe we passed the test. We were the only freely convertible currency in the region that did not devalue. We did not impede capital flows. We kept our markets open. The link between the Hong Kong dollar and US dollar was maintained despite heavy speculation against it. We did not impose wage freezes or wage cuts. Instead businesses were forced to make tough individual decisions on their own in the light of very different financial circumstances.
In short, Hong Kong businesses were left uniquely exposed to economic reality. They did remarkably well. There were few bankruptcies or defaults on bank loans. But downsizing was widespread. Businesses were forced to make tough decisions in order to get costs down and survive. They did and most are bouncing back, retooled and re-energized.
The latest economic statistics attest to the strength of the economy. Hong Kong's real GDP grew by 14.3% year-on-year in the first quarter of this year, the highest quarterly growth rate since 1987. Of course that rate can't be sustained, but we have raised our full year growth estimate for this year as a whole from 5% to 6%.
Hong Kong is uniquely suited to taking advantage of the Internet for a number of reasons. First the nature of our business is international and complex. As traders and a service center, Hong Kong's role is putting deals together, ordering parts, shipping them, managing production, costs and quality, arranging financing and insurance, getting the final products on time just in time. Complex operations ideally suited to the Internet, particularly when long distances and international commerce are involved. This is the case for most of our business.
Secondly, we are well-suited to developing the Internet because our business community includes over 400,000 small to medium sized enterprises. The entrepreneurial spirit is very strong. The will to succeed is high. But so is the acceptance of failure and the determination to start again. That is just the sort of culture in which practical applications of the Internet thrive. And we are seeing this impact on Hong Kong business dramatically.
The figures tell an interesting story. Estimates of the value of e-commerce transactions in Hong Kong in 1998 were only US$60 million. But projections for 2003 put the amount at some US$2.4 billion. The total for China will be even greater. And we have put in place a public key infrastructure that is facilitating the conduct of safe and secure e-commerce. I was in Boston yesterday and noticed in the Boston Globe that Congress is poised to approve the legal use of e-signatures. But we jumped that hurdle last year. Electronic records and digital signatures have been given the same legal status as their paper-based counterparts since the beginning of this year.
Hong Kong is uniquely well-placed both culturally and geographically to take advantage of China's entry to the WTO. Hong Kong companies are treated as foreign companies on the Mainland. We are given no special treatment. But our businessmen have generally made a success of their ventures on the Mainland. Hong Kong money employs about 5 million workers in southern China. A World Report estimated that two thirds of Direct Foreign Investment in China over the 10 years to 1996 had come from Hong Kong.
And we have become a much wealthier place on the strength of those investments they generate. What is more Hong Kong's economy is strong in those vary areas which the Mainland needs most to develop its economy, namely trade and travel related services. Finance, insurance, transportation, tourism, telecommunications, business services generally.
Given this unique combination of strengths, concerns about Hong Kong's decline when China gets into the WTO are seriously misplaced. Some trade may be diverted, some business transactions currently routed through Hong Kong may go direct. But Hong Kong will more than make up for these losses given the new business it will generate. It is estimated that our GDP will grow by at least half a percentage point a year as a result of China's membership of the WTO.
There is just one other issue I wish to raise in this forum and which touches on a topic I mentioned earlier - our constitutional development. In September this year, the people of Hong Kong go to the polls to elect a new 60-seat Legislative Council. This year we will have 24 members elected through universal suffrage in the geographical constituencies - that's six more than at the previous elections in 1998. The rest of the legislature will be made up of 30 members returned by functional constituencies and the remaining 6 through an 800-member election committee.
While there is a long way to go to match the system you have here in America, our constitution sets out the timetable for the progressive development of our democratic processes. Beyond 2007, the people of Hong Kong can decide on their own how quickly to move towards universal suffrage which is the ultimate aim of the Basic Law. In short, at what rate do we replace the functional constituencies?
Mr chairman/president, I'm sure your members will have many questions they want answered. I will do my utmost to give you the answers.
Thank you.
End/Friday, June 16, 2000
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