Speech - Hong Kong - a new era of opportunity begins

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Speech by Mr Donald Tong, Director of the Hong Kong Econonic & Trade Office, at a dinner organized by the Vancouver Chapter of the Hong Kong Canada Business Association at Victoria Chinese Restaurant in Vancouver on 23 April 1998

Hong Kong - a new era of opportunity begins

Henry, Ladies and Gentlemen,

I feel very pleased and honored today to have the opportunity to address such a distinguished audience. I would also like to take this opportunity to express my gratitude to Hong Kong Canada Business Association (Vancouver), particularly Mr. Henry Fetigan, for inviting me to speak at this dinner meeting today.

2. It is about ten months after July 1 when China resumed sovereignty over Hong Kong. Since my arrival in Canada in late August last year, people here have been asking me about the latest developments in Hong Kong. I would like to take this opportunity to share with you our experience after the handover.

3. We have changed the flag, and now have a Chief Executive, Mr. Tung Chee-Hwa, not a Governor, to head the Administration. But other than these visible differences, you do not really see many changes in Hong Kong where "business is as usual". The three branches of the Government - the legislature, the executive, and the judiciary all continue to function normally. Our economy continues to grow, our lifestyle remains the same, our financial foundation remains solid, our society remains pluralistic, and our politicians and media continue to debate openly on all the topical issues.

One Country, Two Systems

4. We have absolute confidence in managing our future. The fundamental reason for our confidence is, of course, the solid promises of our Basic Law, which was adopted by China under the terms of the 1984 Sino-British Declaration. The Joint Declaration is an international treaty registered with the United Nations and has the binding force of international law. The Basic Law is a comprehensive document that was drafted by people from both 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 that the social, economic and political systems in Hong Kong will be different from those in the mainland of China. It protects the rights, freedoms and lifestyle of Hong Kong people. The Basic Law guarantees the independence of our judiciary and, apart from foreign affairs and defence, it gives us full responsibilities 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 transshipment, and to protect intellectual property rights.

5. Some may doubt whether the "one country, two systems" concept will continue in Hong Kong. We should not forget that this concept did not originate in London or Hong Kong. It was carefully thought out by the Chinese leadership. We have absolute confidence in China's sincerity and determination in implementing this principle in Hong Kong. The reason is simple: it is clearly in the national interest of China that the 'one country, two systems' concept be successfully implemented. By preserving and further enhancing the success of Hong Kong, we can contribute towards continued modernization of China.

Reality on the Ground

6. Since July 1, we in Hong Kong have been administering our own affairs. The Chinese leadership during the handover ceremony on July 1st, and on numerous occasions since then, has emphasized that Hong Kong will enjoy a high degree of autonomy under the 'one country, two systems' concept as guaranteed by the Joint Declaration and the Basic Law. Nearly ten months after the establishment of the Hong Kong SAR, there is not a single suggestion that autonomy has been undermined. Indeed, people here always ask me whether as the official representative of the Hong Kong Special Administrative Region in Canada, do I have to report to the Chinese Embassy or the Consulate General here. My answer is an emphatic NO. My Office maintains a very cordial relationship with the Chinese missions here but I report to Hong Kong and to Hong Kong alone. This is one of the guarantees enshrined in the Basic Law. (Chapter II).

7. Some friends of Hong Kong expressed concerns about the continuation of the rule of law in Hong Kong. I can tell you in no uncertain terms that the rule of law is the cornerstone of Hong Kong's success. We take much pride in upholding the rule of law and will do everything to preserve it. The Basic Law guarantees that Hong Kong will keep the Common Law system and an independent judiciary with the power of final adjudication in Hong Kong. The Court of Final Appeal is served by Hong Kong Judge. Both the British Government and Judiciary admitted that Hong Kong still maintain the same high standard of legal system as before July 1. The UK Judiciary has also recently appointed, with the agreement of the Hong Kong SAR Government, two Law Lords to serve on the five-member Court of Final Appeal. This is a very welcomed arrangement in Hong Kong as it is clearly a vote of confidence in the Hong Kong judicial system and will further enhance the status of Hong Kong in the international arena.

8. Some people may also doubt whether freedoms, democracy and civil liberties in the HKSAR will be curtailed. For those who have visited Hong Kong recently, they would possibly share the view that our rights and freedoms, including our right to free expression has not only not been eroded, but has survived and flourished in robust fashion. The freedoms of speech, assembly, association, the press, as well as other freedoms stipulated by the International Covenant on Civil and Political Rights (ICCPR) and the International Covenant on Economic and Social and Cultural Rights are all protected under the Basic Law. Since the establishment of the HKSAR, Hong Kong people have been exercising these rights of free speech, of demonstration, and of scrutinizing government policies and decisions. We have on average some 20 demonstrations a week. China has also agreed to forward our reports on the implementation of these two covenants in Hong Kong to the United Nations - the first of which will be achieved this August. This is clearly a positive gesture on the part of China to prove to the international community that the freedoms and rights of Hong Kong people will continue to be protected. People also talked about self-censorship by the media before the handover, but if you have been monitoring Hong Kong's newspapers/radio or TV reports, you will conclude that criticism, complaint or comment about the Government have not subsided. Perhaps even more so today than before June 30. Indeed, the media we have today in Hong Kong arguably is the freest and most robust in Asia. It is interesting to note that one of the very first things senior government officials do in Hong Kong every morning is to go through newspaper articles, editorials as well as op-ed pieces to gauge public opinions on our policies and legislative proposals and formulate a response, if necessary.

9. What I have just said are not just our own observations. A recent report by the US House Task Force on Hong Kong Transition concluded that "the press and media continue to be open, free and full of criticism and analysis of both the Hong Kong and Beijing Governments" and that journalists continue to cover the news much as they did before July 1 and have no hesitancy in voicing views not welcome by Beijing. It also said that non-government organizations in Hong Kong continue to operate freely and that Beijing appears to have absented itself from involvement in Hong Kong affairs. In a six-monthly report to the UK Parliament in January 1998, the UK Foreign Secretary Robin Cook also admitted that developments in Hong Kong have been encouraging and that the people of Hong Kong retain a free and dynamic press. Rule of law remains strong and durable and the Chinese Government has practical actions to show its commitment to uphold the Joint Declaration and the Basic Law. The American, Canadian and German Chambers of Commerce in Hong Kong - all the city's top overseas business groupings - also reflect a positive medium term outlook for Hong Kong's business environment even against the backdrop of recent financial turmoil in the region. A US State Department Report on Human Rights in Hong Kong issued in end January 1998 also reaffirmed that there has been no substantial change in Hong Kong since the transition. It recognizes the freedoms in various areas continue to be the order of the day.

Financial Turmoil

11. On the economic aspect, the economy is growing at a healthy rate. Despite the recent financial turmoil in SE Asia, we achieved a real growth of 5.2% in 1997 while inflation rate remained benign at 5.8%. Unemployment rate is 3.5%. GDP per capita is more than about C$ 36,000 which put Hong Kong on par with many of the developed economies in the world. In addition, Hong Kong is the busiest airport for international cargo, the busiest container port in the world, and is the eighth largest trading economy. We have also recently been named by the Heritage Foundation of the US as the freest economy in the world for the fourth consecutive year.

12. As you all know, in recent months, the financial turmoil in Asia has been the talk of the town. Hong Kong is an international city. Any change in the external environment will have a direct impact on its social and economic situation. The financial turmoil has dealt a hard blow to Hong Kong but we have been able to weather this storm.

13. In the mistaken belief that Hong Kong would follow many of its neighbouring economies and abandon the Hong Kong Dollar/US Dollar linked exchange rate, speculators have attacked the Hong Kong dollar and got badly burned as a result. Hong Kong has US$96.7 billion - the third largest foreign reserve in the world. And, we have no foreign public debt - not a penny. This, together with our strong economic and financial fundamentals and good monitoring systems, enables us to maintain our linked exchange with the US dollar, and ride through the recent turmoil more or less intact. As pointed out by our Chief Executive, Mr Tung Chee-hwa, and many other senior Government officials, the Hong Kong/US Dollar linked exchange rate will not change. Since 1983, the link has provided the basis which Hong Kong has come through many international crisis : the 1987 stock market crash, the 1992 exchange rate mechanism turmoil, the 1995 Mexican peso crisis, and now the largest regional currency crisis. The link has provided economic stability and contributed to the maintenance of confidence in Hong Kong's role as an international and financial centre.

14. Given the open nature of the Hong Kong economy, any fundamental change in policy on the peg would cause grave uncertainty and undermine investment sentiments and confidence. De-linking would damage Hong Kong, and do further damage to the regional economy. The peg, together with our greatly improved market regulation and supervision, has enabled us to develop into one of the world's leading financial centres. Financial services have increased their contribution to our GDP by over 500% in the last decade and we are now the world's 4th largest banking centre and 6th largest securities centre. Most of the crossborder loans and deals in the world are made in US dollars. The stability of our currency against the dollar protects our businesses and financiers from exchange rate risk on those transactions.

15. As for our exporters, the idea that they can gain sustained advantage from competitive devaluation is ill-conceived. We must first import all our materials before we can export. Devalue and we will import inflation that will wipe out the hope of gain from lower export prices. Any devaluation would undermine public confidence and would have serious consequences for our financial, property and stock markets. It would do lasting damage to our economic prospects.

16. We understand that in order to protect the linked exchange rate, the interest rate will go up. This means increasing burden for Hong Kong people and the business community and adversely affect the property market. But the Hong Kong community fully understands that this is a short-term price that we have to pay. Indeed, the lower prices and rentals in some ways arguably have been a blessing in disguise since these would be good for Hong Kong's competitiveness. It forces businessmen to upgrade the quality of their goods and seek higher productivity. It also enables the economy to adjust through lower property prices and rental levels. This is putting home ownership back within reach of the people and is restoring competitiveness in our business costs. The nature of these market-driven adjustments to the Hong Kong economy bring short-term trauma, but not long-term chronic illness. If you look around elsewhere in the region, I think you must agree that Hong Kong is in better shape than most of the economies whose currency has depreciated in double-digit figures vis-a-vis the US dollar whereas our depreciation is only 0.03%.

17. With our solid economic foundation, a huge fiscal reserve, and effective financial systems, and monitoring mechanism, we are confident that we will be among the first - if not the first - to rebound.

18. Some of our friends have also expressed concern on the possibility of the Renminbi (RMB) being devalued which they assume is necessary for China to maintain relative competitiveness of its exports, and the consequential adverse impact on the Hong Kong dollar. There are several reasons why we strongly believe that the Chinese Government will not depreciate the RMB.

19. Firstly, senior Chinese leaders, including President Jiang Zemin and Premier Zhu Rongji, have categorically stated time and again that the RMB will not depreciate.

20. Secondly, Chinese Government officials have indicated that export competitiveness can be restored through means other than currency depreciation, such as product upgrading, import tariff cuts, and mobilization of more of the cheaper labour resources further inland.

21. Thirdly, China's strong external payments position also makes it impractical for the RMB to depreciate. In 1997, China enjoyed a huge visible trade surplus, at US$40 billion. With China's foreign exchange reserves standing at US$140 billion at the end of 1997, the country is therefore fully capable of resisting the depreciation of RMB.

22. Fourthly, given the huge visible trade surplus, a move to depreciate the RMB is likely to intensify trade friction between China and its major trading partners, particularly the US. Furthermore, other East Asian economies might see this as a move of competitive devaluation, and thus may trigger another round of currency instability.

23. Fifthly, depreciation of the RMB would increase the cost of imports for China's own production and consumption and hurt China's ability to service its US$119 billion external debts which would have to be repaid in foreign currencies.

24. The RMB's instability could make foreign investors more reluctant to invest in China, due to a perceived increase in exchange risk. Furthermore, as RMB devaluation would depress the asset value of the state-owned enterprises when expressed in foreign currency terms, this would jeopardize the enterprise reform measures, one of which includes inducing foreign investors to acquire equity stakes in the SOEs.

25. Any lingering doubts people might have had over China's commitment to allow Hong Kong to look after its own affairs, apart from defence and foreign relations, would have been dispelled by the way in which we were left alone to handle the crisis. China's leaders pledged full support to Hong Kong, but only if we asked for it. China has shown a clear understanding that maintaining the position of the Hong Kong Dollar is the expression - in economic terms - of the substance of 'One Country Two Systems'. Equally, there is an understanding that for the Hong Kong Dollar to keep its position, it is vital that it continues to be supported not by political intervention, but by the sound fiscal and economic policies that are practised in Hong Kong.

Future Developments

26. Despite the present turmoil, Hong Kong's position as the key international financial, trading and business centre of East Asia has been strengthened. Our political stability, sound economy and dependable currency, which is freely convertible, have provided a measure of certainty in a region now beset by uncertainties. And this is bolstered by the fact that we have the mainland of China as our economic hinterland -- an economy that grew by around nine per cent in real terms in 1997 and with little spill-over effect from the regional crisis. China is expected to grow by around 8% this year.

27. The attributes that have put us at the top of the East Asian region remain:

� our geographical location, on China's doorstep and midway between Tokyo and Singapore;

� our hard-working, flexible and well-educated work-force, combined with our enterprising and resourceful entrepreneurs;

� our simple and low tax system, where no individual pays more than 15% on their salary and no company more than 16% beginning from April 1998 on its profits;

� our transport and communications infrastructure, which makes it easy to travel to and communicate with almost anywhere in the world; and

� our accessible and predictable legal and judicial system, which ensures that the rule of law is upheld and that no one is above the law.

28. And we are continually improving on those attributes. Our new state-of-the-art airport will open on 6 July this year to carry us through well into the new millennium. Further expansion of our container port, already the world's busiest, is under way and scheduled for completion by mid 2001. And we have just announced major expansions for our mass transit railway and conventional rail systems in the next 4-1/2 years.

29. As one of the world's great cosmopolitan cities - a meeting place for East and West and where English remains the language of business - we are also upgrading our teaching methods to ensure our graduates have an even better command of both English and Chinese. This is essential if we are to maintain our competitive edge in the world. As part of this programme, we will be providing more than 700 additional native-speaking English teachers in secondary schools from this September. We have already received over 1000 applications from Canada alone and will be conducting interviews in May in Canada.

30. On our legislature front, we are stepping up our publicity for elections for the first SAR Legislative Council. I can assure you that the voting system will be as usual - fair, open and transparent. These elections will be held on May 24 this year. The structure of the new Legislative Council will be the same as that of the 1995 legislature - 20 directly elected members from geographical constituencies; 30 indirectly elected from functional constituencies; and 10 from an Election Committee. The Government has earlier this year mounted an extensive campaign on voter registration. We now have an electorate of 2.8 million, which is about 70% of the potential electors.

31. The indirect elections in functional constituencies are pretty well unique to Hong Kong. They have drawn criticism from the time they were introduced under the British Administration in 1985. They remain, as then, a transitional arrangement. The Basic Law clearly sets out a timetable for electoral development in Hong Kong that will see the number of directly elected seats steadily increased to 50% of the total by 2004. After that, it will be up to us to decide for ourselves how to take the electoral development forward to full universal suffrage.

32. What about peace and order in Hong Kong? The Hong Kong Police Force continues its most effective role in maintaining law and order in the streets, as well as ensuring the integrity of our border with the mainland. Hong Kong must be amongst one of the safest cities anywhere in the world. Our crime rate last year was the lowest in 24 years. Our border with the mainland remains intact. Just as it was before the Handover. The same immigration and customs laws apply. There hasn't been, and there won't be, any sudden influx of people from the mainland coming to Hong Kong. The People's Liberation Army stationed in Hong Kong is very well-disciplined and almost invisible in Hong Kong. Indeed, some people and the media in Hong Kong said that they should be allowed to see more of Hong Kong.

33. The US$20 billion Airport Core Program projects will be fully completed by July 6 this year with the opening of the new airport and the airport railway. But we are not complacent. We continue to forge ahead and build the necessary physical infrastructure such as highways, railways, and reclamation and provide more and better housing to meet the future needs of the Hong Kong businessmen and public at large. Capital expenditure on these infrastructural projects over the next 4-1/2 years will amount to more than C$43 billion. Some of the contracts will be awarded as early as next quarter. So I am talking about immediate business opportunities for you now. If you do not want to miss the boat, act now and talk to us.

Conclusion

34. Hong Kong is a place full of business opportunities, particularly in information technology, biotechnology, environmental technology, telecommunications, building materials, and physical infrastructure. Its reunification with China has only made Hong Kong better placed than ever as a gateway to China. More than 550 Canadian companies have already set up offices or are represented in Hong Kong by agents or joint venture partners. I hope you will not miss these business opportunities.

35. My Office would be more than happy to offer you information and guidance to establish your profitable ventures in Hong Kong. We will discuss with you one-on-one your interests and needs, to enable you to decide whether to investigate the potential of Hong Kong. We will provide you with specific information to carry out studies . We can also assist you in seeking out OEMs, suppliers, distribution agents and even joint venture partners in Hong Kong. We will put together a visit program for you to meet bankers, industrialists, local service providers, government officials, industrial and trade organizations, your Consulate General and the Canadian Chamber of Commerce there. I am sure that you will find the visit very worthwhile and I hope you will join me in fostering a more close economic tie between Canada and Hong Kong.

Thank you for your patience.

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