"It gives me great pleasure to join you today. At one stage, I thought I would be stranded in Toronto by the onslaught of snowstorms but fortunately the blizzards have taken a breather and I was able to sneak out. I know 120 cm of snow within a fortnight is nothing to you in Regina but it's a big deal to us in Toronto and particularly for someone like me who is used to above-zero temperatures. We have a Chinese proverb which says only your best friends will bring you coal in the depth of a snowy winter. I have not brought you coal today but I brought with me a Hong Kong message which I would like to share with you.

Before I start, I should perhaps give you some background information on my office and myself. My Office - the Hong Kong Economic and Trade Office - is the official representative of the Hong Kong Special Administrative Government in Canada. We are based in Toronto and we maintain a small information office in Vancouver. We are responsible for relations with three levels of government, promoting understanding of Hong Kong in Canada, liaising with the media and business community and promoting investment into Hong Kong or through Hong Kong to China.

As for me, I joined the then Hong Kong Government back in 1983 and was posted to Canada to head the office here after the handover in mid-1997. I am not a Chinese Government official. I maintain contact with the Chinese Ambassador and the Chinese Consul-Generals in Canada but I do not report to them. I am the man in charge of all matters relating to Hong Kong here and of course, if I have done anything wrong, I will find myself flying west back to HK.

So much for my office and its role in Canada, let me now turn to Hong Kong. By the way, have anyone of you been to Hong Kong before? If not, I hope you will later find time to visit Hong Kong. For those who have been there, I think you would probably agree with me that Hong Kong offers you everything that you can think of, very similar to an international cosmopolitan city like New York, London, Paris, Tokyo, Toronto.

It has almost been nineteen months since the reunification of Hong Kong with China. Before July 1997, some of our friends overseas predicted that after the handover, Hong Kong would begin to lose its glamour as an international finance, trade and business centre, would disappear from the earth or be swallowed up by the Mainland. But contrary to the predictions of the doom-merchants, the political transition has simply been plain sailing. We are still here, alive, and well and kicking. Indeed, the handover has been so seamless that even some of our most ardent well wishers have been caught by surprise.

The unprecedented principle of "One Country, Two Systems" developed by China is working extremely well. Hong Kong people are running Hong Kong and we are exercising our rights and freedoms as we have always been before the handover. This was made possible because of the adoption by China of the Basic Law, our mini-constitution, which was drafted by people from both China and Hong Kong. The Basic Law provides a constitutional framework for the Hong Kong Special Administrative Region. It institutionalizes the concept of the "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. 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 so as to achieve its final goal.

We have demonstrated to the world that it is business as usual in Hong Kong, even though the economic climate has made business much more difficult - I will come to that later. There is now recognition from around the world, including the European Community, the UK and the US Governments, that the concept of "One Country, Two systems" is truly being implemented and realized in Hong Kong. Opinion surveys also indicated that the Hong Kong community is increasingly confident about Beijing's ability and willingness to leave us alone, and to allow Hong Kong people ruling Hong Kong.

In 1997, Hong Kong's per capita GDP was more than C$40,000 which was even higher than some industrialized economies. Hong Kong is the world's 9th largest trading economy although its population only ranks 89th in the world. We have the second busiest container port in the world. Our airport is the busiest in terms of international cargo throughput and fifth largest in terms of the number of international passengers handled. We are also one of the world's leading financial centres - 6th largest banking centre, 7th largest in terms of foreign exchange trading, and 11th largest in terms of stock market capitalization.

Hong Kong has been able to maintain very high rankings in global comparisons. For instance, Hong Kong was ranked the second most competitive economy by the World Economic Forum, third most competitive by the International Institute for Management Development, and the freest economy by two reputable bodies, namely the Heritage Foundation, and by a group of economic institutes from 54 economies, including your Fraser Institute in Vancouver.

Hong Kong remains one of the safest cities in the world and our crime rate is comparatively lower than that of many major cities. We are also consistently rated as one of the top three "least-corrupt" places in Asia. We have more than US$88 billion foreign exchange reserves - the third largest in the world, and no government debt. We maintain our own currency and every Hong Kong dollar currency note is nearly 8 times backed by foreign exchange reserves. We had on average a real growth of 5% each year in the past decade. Despite the financial turmoil, we achieved 5.3% real growth in 1997. We continue to practise Adam Smith's theory of the invisible hand of the free market. Business decisions continue to be made by businessmen not bureaucrats whose key responsibility is to maintain a level playing field for all. We continue to run a small, competent and clean administration. We maintain a low tax rate with no valued-added or sales tax, no capital gains tax, no tax on interest and no global taxation. Corporate profits tax is 16% whereas salaries tax is only 15%.

In the past 18 months, the institutions of civil society, i.e. the rule of law, an independent judiciary, an elected legislature, a free press, churches, non- government institutions - remain not just intact but vibrant. The European Commission in its first annual report on Hong Kong found "basic right, freedoms and autonomy have been broadly upheld". The report concluded that a high degree of freedom had been maintained in human rights, political freedoms and public order, that there had been regular demonstrations, unbridled press criticism and no detentions or harassment of political opponents or human rights activists. The UK and US Governments in their reports on Hong Kong also concluded that China has given Hong Kong autonomy and freedoms as promised in the Basic Law. Although China is not yet a State Party to two International Covenants on human rights, Hong Kong has already submitted through China its report on the International Covenant on Civil and Political Rights to the United Nations. The report on the International Covenant on Social, Economic and Political Rights will shortly follow. This is clear demonstration of China's determination in protecting human rights in Hong Kong.

During the handover, you might have seen on TV People's Liberation Army crossing the border at midnight and thought that they are now patrolling our streets. But those who have visited Hong Kong recently will tell you that they can hardly be seen in Hong Kong, let alone policing Hong Kong. The boundary between Hong Kong and China remain intact and visitors from China into Hong Kong are still under stringent control. But the economic border is now becoming increasing blurred as a result of the close trade and economic ties between the two places.

Most of you will become journalists in the near future. I know you must be particularly concerned about the preservation of freedom of press in Hong Kong. I can assure you that the press is very much alive, indeed in my own view much more vibrant than before in Hong Kong. You can hardly come across a day without criticism of our Government. The administration is under as much scrutiny now as it ever was, perhaps more so today. The media in Hong Kong continues to report developments in China and sometimes taking a very critical or negative view on Chinese Government without fear. Developments in Taiwan continue to be reported without intervention. There is much talk about self-censorship but this is something that we disapprove and we will do everything possible to preserve an environment conducive to maintaining a free press in Hong Kong. We also understand just too well that some foreign investors have chosen Hong Kong as their regional offices because they enjoy free flow of information and various sort of freedoms in Hong Kong. Preservation of a free press is therefore not just something for the Hong Kong local community but for the foreign investors as well.

Let me now say a few words on the pace of democratization in Hong Kong. We know this is a very contentious issue and you might know that some people in Hong Kong would like to see a fully elected legislature as soon as possible. However, if you look at our pace of democracy, you would appreciate why we would like to adopt a more gradual approach. We had 156 years under the British administration, but it was not until 1991 when we started having some directly elected members in our legislature.

The Basic Law has set out the blueprint of Hong Kong's democratic development. It stipulated that out of a total of 60-members legislature, the number of directly elected members will progressively increase from 20 in 1998 to 24 in 2000 and 30 in 2004. By 2007, it would then be up to the Hong Kong community to decide the way forward in returning a fully elected legislature by universal suffrage. We always said that rule of law is an important pillar of the Hong Kong community and I think the last thing we want to do is to dismantle this provision in the Basic Law simply because a certain sector of the community does not like it. We believe amendment to our mini-constitution must not be taken lightly and we would need to come up with a general consensus (through a full-scale debate) before we put forward any proposal for change. Indeed, when we had our first election after the handover for the legislature last May, the people of Hong Kong turned out in record numbers to vote for candidates representing every shade of political opinion and we ended up having a credible and representative legislature. We are deeply encouraged by this high turnout rate and believe this is a positive sign showing popular support for the Basic Law. We will continue to adhere to the timetable stipulated in the Basic Law with a view to forming a fully directly elected legislature.

As you all know, the political stability has not provided Hong Kong with a trouble free year. We had the bird flu which we bravely contained; we had bouts of red tide which did not dampen for long the zealous enthusiasm of the world famous seafood lovers in Hong Kong; we had a massive drop of tourist figures which are now steadily rising again; we had the unfortunate problem-laden opening of our spectacular airport which is now operating efficiently; and above all, we had the fall-out from the Asian financial turmoil which has led to a sharp decline in our economy. All these problems with the exception of the financial turmoil have all been resolved. So I will just concentrate on the financial turmoil and its impact on Hong Kong. But to start with, let me talk about the Hong Kong dollar first.

Today, Hong Kong dollar is the only freely convertible currency in the region that has survived the storm without a devaluation. Thanks to the huge foreign reserve of US$88 billion, our sound financial system, and our prudent fiscal policy, we have been able to maintain our linked exchange rate with the US dollar. This link has served us well since its establishment in 1983 and helped us survive several economic crisis. There were earlier some sceptics that questioned whether we should maintain the peg. But our position is clear and simple : we cannot afford to lose the link and we have the means to defend it.

In a highly-externally-oriented economy such as ours - with a trade to GDP ratio of more than 250% - currency stability is of utmost importance, and indeed a necessity. With all currency and financial markets now globally connected to one another, dropping the peg is most likely to trigger another round of currency devaluation in Asia with serious economic and political ramifications worldwide. And if you look at the economies in Asia that have chosen to devalue their currencies, I am not too sure whether you can conclude that devaluation is the solution to ending the turmoil and to spurring growth. If devaluation is not a win-win formula, why should we take the risk by dropping the peg?

Some might worry about the devaluation of Renminbi and its impact on the Hong Kong dollar. But senior leaders of China have given repeated assurances not to devalue Renminbi. China also fully understands that devaluation of Renminbi is likely to lead to higher import prices which in turn will push up the manufacturing cost, thereby wiping out any hopes of gain in increased exports. It is also likely to trigger another round of competitive devaluation in Asia and damage the reputation of China as a major player and stabilizer in the global financial community. Let's not forget that China also has the second largest foreign reserve in the world - nearly US$144 billion. Chinese products remain very competitive as the cost of production in China is still way below that of its neighboring economies which have devalued their currencies. Under these circumstances, we do not see any economic or political reasons why Renminbi needs devaluation. Even in the unlikely scenario that the Renminbi were devalued, there is no particular need for Hong Kong dollar to devalue. As a matter of fact, Renminibi has devalued several times since 1983 when we linked the Hong Kong currency to the US dollar, but the pegged exchange rate has remained unchanged at all.

Some might think that the linked exchange rate has hurt our competitiveness. Yes, we may be as expensive as say New York, Paris, London, Tokyo but big business doesn't look at the cost alone. Big business looks at the bottom line- is there a reasonable return on investment. Hong Kong offers them very good value for money - our communications, our infrastructure, our location, our educated manpower and most importantly, our connections to China, which are extremely competitive in the global market. These are the reasons why you see thousands of overseas companies, including more than 500 Canadian companies, have chosen to establish a presence in Hong Kong.

As a result of keeping the peg, we have to pay a heavy price - asset devaluation. In the last 15 months or so, our stock prices and property prices lost about 40% compared with their peaks in 1997. Our inflation has come down to 2.8% and we estimated that we have a negative growth of 5% in 1998. Our unemployment has soared up to a 15-year high of 5.8% and wages have been moderating. So Hong Kong is really hurting badly. But we understand that these economic adjustments are inevitable given the asset price inflation up to 1997. Our economy needed the adjustments anyway if we are to remain competitive in the long-run. From this perspective, the Asian financial turmoil has merely hastened the pace of these much-needed adjustments. These economic adjustments are certainly a very welcome sign to overseas investors who previously have avoided Hong Kong because of the high operating cost.

The economy will continue to adjust in 1999 which remains a difficult year but we are confident that these economic adjustments will ultimately lead to the emergence of a much leaner and more competitive Hong Kong. While it might be too early to conclude that we are out of the wood, there are some positive signs recently, the interest rate has been cut five times in the past three months, and the property and stock prices are beginning to stabilize. But at the end of the day, the pace of our recovery would depend on the external environment. In this regard, we would very much hope that the Japanese economy would recover as soon as possible so as to spur growth in the rest of the region. Our official economic forecast for this year's growth will only be available in March but we noted that two reputable organizations have come up with a positive assessment. Both the International Monetary Fund and the OECD forecast that the Hong Kong economy would show signs of recovery in 1999. And we are confident that we will recover soon.

Why are we so confident? First and foremost, our people. Hong Kong people have weathered different storms in the past. They have proved time and again that they have the flexibility and resilience to ride out the storms. We have no doubt that they could sail across the rough waters again this time. We will also continue our investment in our human capital because Hong Kong has nothing but just talented people. We are determined to continue to upgrade our labour force and this is why education is now the single biggest expenditure item in our Government's budget. Indeed, in the next 5 years, we will invest C$50 billion in education, especially in primary education and language training.

Secondly, our strategic location. China has always been the engine of growth for Hong Kong. China is our number one trading partner. It is a huge consumer market for our products; and a manufacturing base which supplies Hong Kong industrialists with more than 5 million workers in Southern China alone. We are also China's major entreport for world trade and a pre-eminent source of debt financing and market capital for Mainland ventures, especially now that the reform of the 350,000 state-owned enterprises are under way. With the reunification since mid-1997, Hong Kong obviously stands to gain even further advantages from the continuous growth of China.

We know that there have been some reports about the recent bankruptcy of Guangdong International Trust and Investment Corporation (GITIC) and some people in the financial community are understandably getting more cautious in extending loans to China. But we must notice that what the Chinese authorities are doing is for the long-term benefit of both the borrowers and the banks. Its decision to deal decisively with ailing financial institutions will play a helpful and important part in restructuring the Mainland's financial sector. A more rational and market-oriented system will benefit both the Mainland and Hong Kong's position as a centre for overseas investment in Mainland enterprises.

Thirdly, despite the financial turmoil, Hong Kong does not remain standstill. We continue to invest in our infrastructure so as to keep pace with our projected population growth and economic development, particularly the projected increase in the cross boundary flow of people and goods. With the completion of the C$30 billion airport core programme projects, Hong Kong is now investing C$47 billion over the next four years between now and 2002 in our infrastructure projects e.g. railways, highways, schools, and residential developments. In addition, we will turn the former Kai Tak Airport site into a Garden City which will house 320,000 people with a first-class performing venue like the Toronto Skydome.

Fourthly, to meet the new challenges and to maintain our competitiveness, we will now increase the diversity of our economy by encouraging the development and application of technology and innovation in all sectors in Hong Kong with particular emphasis in information technology and telecommunications. We are taking steps to encourage mid-stream research in Hong Kong and are looking at ways of intensifying our links with China and other countries to help build up our expertise in this area. We also provide funding support for companies engaging in technological projects to carry out more technology ventures and applied R & D activities and to help local business sectors upgrade its technology. We are also building another technology centre which would provide accommodation and support services to technology-based start-up companies. Preparation for the construction of the science park is underway and upon completion both local and overseas technology-based companies can build their own technological research centres or operation centre or carry out technological development projects. We believe these would help broaden the base of our economy.

Before I conclude today, I should perhaps just say a few words on our Government's incursion in the stock market in August this year which was a rather controversial move. Let me emphasize that we intervened not because we want to prop up the stock market. We intervened because we wanted to stop the manipulative attacks of our currency and financial markets simultaneously by speculators, to maintain the integrity of our linked exchange rate and to restore order to the markets. Our action has not altered in any way Hong Kong's absolute commitment to our long-standing philosophy of free and open markets and non-intervention. And, please remember this, Hong Kong has a constitutional duty under the Basic Law to develop its role as an international financial centre. In Hong Kong, a free market is not just policy - it is the law. You can't get better guarantee than this.

After the intervention, we implemented some improvement measures to reinforce our monetary and financial markets to make them less susceptible to attacks by manipulators. We believe these would help minimize the need of incursion in future. Despite the introduction of these measures, our current regulatory framework is no more stringent than that which you have here in North America, and in many cases less stringent. We are also glad to see that the international community begins to notice the adverse economic consequence these free flow of hedge funds could create and will be looking into ways to monitor them.

The financial turmoil has brought pain to everyone in Hong Kong but we understand that this economic adjustment is necessary if Hong Kong is to remain competitive in the long-run. Hong Kong people are known for their resilience and this quality has taken Hong Kong time and again out of its economic crisis. We have absolute confidence that this quality of Hong Kong people together with a stable currency and sound banking and financial systems will help us ride out the storm this time.

Of course, as the gateway to and the largest external investor in China, Hong Kong will continue to benefit significantly from its close ties with China. A successful China and Hong Kong will no doubt contribute to the well-being of the Asian and global economy.

Canada and Hong Kong have very close ties. Over 150,000 Canadian citizens are residents in Hong Kong and we have over 12,000 students studying in Canada. Canada is our ninth largest export market and our eighteenth largest supplier of goods. We therefore do treasure our ties with Canada and we hope by promoting better understanding, we could reinforce these social, cultural and economic bonding. Hong Kong is and will remain a place full of interesting developments and I hope you will continue to put Hong Kong on your radar screen in the years to come.