Back to "Speeches" Mr. Donald Tong's Keynote Speech at Hong Kong SAR Anniversary Discussion Forum At Montreal on 28 June, 1998 First of all, I would like to thank the Chinese Embassy and the Sino-Canadian Association of Culture, Technology and Conmerce for inviting me to attend today's forum to mark the first anniversary of the establishment of the Hong Kong Special Administrative Region. I recall that about one year ago, many, both in Hong Kong and overseas, were awaiting the historical date of 1 July 1997 with mixed feelings and intense interest. 2.  Some people doubted how the "One Country, two systems" concept would actually work in Hong Kong and whether China would allow Hong Kong people to run Hong Kong. Some of our friends overseas even predicted that Hong Kong would begin to lose its glamour as an international finance, aviation and business centre, would disappear from the map or be swallowed up by the Mainland. Some pessimists even proclaimed "the death of Hong Kong". 3.  But for those who knew Hong Kong better, they knew that many years of hard and painstaking work had gone into often tough and complex negotiations to put in place the detailed arrangements essential to the orderly transfer of sovereignty whilst allowing Hong Kong people to rule Hong Kong. 4.  Now the first 12 months have come and gone. The pessimists and skeptics in Hong Kong and around the world have been proved to be wrong. 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 universal recognition that the concept of "One country, two systems" is truly being implemented and realized in Hong Kong. It has been acknowledged by the British Government, the co-signatory to the Joint Declaration, and in positive terms in the recent US State Department reports to the US Congress. And, indeed a number of local opinion surveys 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. We in Hong Kong will continue to work hard to ensure its success. Latest Development 5.  Let's look back and see how Hong Kong performed in the past 12 months. In 1997, Hong Kong's per capita GDP reached C$38,000 which was even higher than some industrialized economies. Hong Kong is currently the world's 8th largest trading economy. It has the 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 - 4th largest in terms of volume of external banking transactions and 10th largest in terms of stock market capitalization. Hong Kong remains one of the safest cities in the world and is consistently rated as one of the top three "least-corrupt" places in Asia. And 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. The Administration continues to provide the physical, human and legal infrastructure and leaves the rest to the private sector to make its own decisions. We continue to run a small, competent and clean administration and maintain a low tax rate. 6.  In the past 12 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. Human rights in Hong Kong are also well protected. China has agreed to forward to the United Nations in August 1998 Hong Kong's reports on the implementation of the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights. 7. Political protests which are now an integral part of Hong Kong people's way of expressing their views, are alive and well. We've had more demonstrations in the year since the handover than in the year before. And you will all have seen on your TV screen earlier the peaceful commemoration of June 4 incident in Hong Kong - which was considered by some as a litmus test for Hong Kong and China. During the handover, you might have seen on TV People's Liberation Army (PLA) crossing the border at midnight and thought that they were now patrolling our streets. But those who have visited Hong Kong recently will tell you that they can hardly be seen in Hong Kong. Everything remains the same in Hong Kong - even nitty gritty things like names. Yes, we continue to retain names used during the British Administration like Princess Margaret Hospital, Victoria Harbour, Queen's Road, King's College, etc. 8.  Our media continue to flourish in Hong Kong. Our press is not afraid to take on the Administration - we have the "bruises" to prove it. Furthermore, the media do report and comment on issues sensitive to the mainland authorities, including Taiwan, Tibet and mainland dissidents. Of course, we hear claims of self-censorship - but that's something we in the Administration do not approve of, or indeed encourage. A recent survey in Asia by the Political and Economic Risk Consultancy also concluded that the Hong Kong media is the most vibrant and the freest in Asia. 9.  Let me briefly mention our May 24 Legislative Council elections, the first held in the Special Administrative Region since the handover and, as one writer noted, the first multi-party elections in China. I am glad to say that we had a record number of registered voters, a record number of candidates stood for elections, and a record voter turnout of 53%, which is 50% more than the turnout in the 1995 elections. We heard many criticisms of the electoral arrangements, but Hong Kong citizens in unprecedented numbers passed their judgement by taking part in the poll and voting for candidates of their choice. We believe these results reflected the very strong support for the Basic Law and the spirit of "Hong Kong people ruling Hong Kong". The elections were, as promised, conducted freely, fairly and honestly. They produced a legislature representative of all sectors of our vibrant community. 10.  After the May elections, some people want us to move faster while others wish we would slow down the evolution of democratic development. The Basic Law has set out a very clear road map for development of our democratic institutions. We will progressively increase the number of directly-elected members in the Legislative Council from 33% this year to 40% in 2000 and 50% in 2004. By 2007, it would be up to the Hong Kong community to decide how to proceed to the goal of universal suffrage for our legislature. Financial turmoil 11.  Although we have had a very smooth transition - some might even have considered it as uneventful, the past year had abruptly been marred by the southeast Asia financial turmoil. Of course, all of you know that Hong Kong is undergoing quite a difficult time right now. While our very solid economic fundamentals have lessened the adverse impact of the financial crisis on Hong Kong people, it is simply not possible for Hong Kong to stay immuned from the fallout. The financial turmoil has resulted in a much higher interest rate and, a much tighter liquidity situation in our banking system. The depreciation of some currencies in Asia has caused a substantial reduction in tourism even though Hong Kong remains the second most popular destination for tourists in Asia other than China. On the other hand, we know just too well that years of high property prices and high inflation, overheated economy in Hong Kong have increased the cost of doing business in Hong Kong and put affordable housing beyond the reach of the average man. All these important issues have been undercutting our competitiveness. We are extremely mindful of these and our Chief Executive, Mr. Tung Chee-hwa, announced a series of measures last October to correct the situation to maintain our competitiveness. 12.  The Asian financial turmoil has, however, accelerated the pace of adjustment beyond everyone's expectation or control. Throughout Asia, tourism has fallen off, unemployment has risen, stock markets have tumbled and almost all of the Asian economies recorded negative or slower economic growth in the first quarter. We, Hong Kong, have registered a negative growth of 2% in the first quarter of 1998. The Heng Seng Index has lost about half when compared with the peak last August. Our property market is about 40% down from its highest point last October. Our unemployment has gone up to 4.2% which is on the high side by Hong Kong standard. We expect the economic adjustment will continue for a few quarters and will see very slow rate of growth in the near future. This is a painful adjustment process but we have experienced similar situations before - once in 1974/75 and another one in 1985. And, each time, we emerged much stronger and became even more competitive than before. I am confident that we will do it again this time. As for the property and stock markets, prices will rebound but at a more sustainable and gradual rate. Lowered property price and cost of labour indeed present overseas investors a good opportunity to invest in Hong Kong. And I know some Canadian firms have been able to look beyond this short-term turbulence and are already actively exploring these opportunities. These companies, I think understand a popular Chinese proverb which says that risks being opportunities. 13.  While the private sector plays a critical role in boosting Hong Kong's market driven economy, Mr. Tung's Government has actively been trying its very best to lessen the impact of the financial turmoil on the Hong Kong community, and to facilitate economic recovery. We consider that the most pressing problems now need to address are credit and liquidity crunch, falling property prices, business and domestic costs and weakening confidence. The Government in response has introduced a number of measures such as: Easing the serious credit crunch by implementing the proposal to develop a Hong Kong dollar repurchase agreement or repo market to facilitate inter-bank lending and by streamlining a facility under which the Hong Kong Mortgage Corporation will streamline its program for purchasing mortgage loans from banks. This would give banks more assurance about their access to liquidity and make them more confident to lend to the private sector. We also exempt interest income earned locally from profits tax so as to encourage corporations to repatriate their overseas deposits to Hong Kong. This would significantly improve liquidity and lending appetite of banking in Hong Kong. A new scheme is also established to help small and medium enterprises in securing bank loans. Cutting tax and charges on various items such as diesel, imports and exports, and on property so as to cut down operating cost of certain industries and allow the public more savings to spend. We also make an investment in expenditure increases equal to 3% of the GDP. The provision of these stimuli is the largest in our history and will provide the necessary boost to our economy. Investing more than C$43 billion over the next five years, between now and 2002, in our infrastructure projects, such as building more railroads, schools, highways, and in pushing ahead with information technology. These will cater for the long-term need of the community and create as many as 100,000 jobs for Hong Kong people within the next 18 months. It will take me much longer to give you the details. I'll save these for some other time. I would however, just like to remind you that these indeed will not just be business opportunities for Hong Kong companies but also for overseas firms including those from Canada. I can assure you that we practise level-playing field in Hong Kong and will not show favourism towards any firms including those from Hong Kong or China. Stabilizing property prices by suspending anti-speculation measures previously introduced to crush the overheated property market, by suspending all land sales before next April, and by expanding the coverage of home purchase program so that more applicants can purchase their own homes. Boosting tourism in Hong Kong by easing travel restrictions for Mainland and Taiwanese visitors who account for nearly 50% of our incoming tourists and by undertaking new projects such as the cable car on Lantau Island. 14.  We are confident that with our very solid foreign exchange reserve - C$96.2 billion - the third largest in the world, sustained high economic growth and further reform and opening up in the Mainland of China, and resilience of Hong Kong people, we will be able to ride through this difficult period and resume the path of economic growth. Indeed, this view is widely shared by several reputable institutions. Both the World Economic Forum and the International Institute for Management Development respectively ranked Hong Kong recently as the second and third most competitive economy in the world despite the financial turmoil. Several surveys also revealed that overseas businessmen in Hong Kong including the American, Canadian, German, and Japanese remained optimistic about the medium- and long-term future of Hong Kong and the majority have decided to stay rather than leave Hong Kong. These businessmen must have good reasons and I would strongly encourage you to talk to them. HK$ peg with the US$ 15.  Recently, the depreciation of Japanese yen has caused further economic turbulence. This created some pressure on other Southeast Asia economies including China and Hong Kong. Some analysts began to doubt whether Hong Kong will drop its peg with the US dollar. I can assure you again that we will NOT drop the peg. Indeed, the consensus of the business community, media, and academia in Hong Kong is the same. All of them realise that competitive devaluation is simply not a solution to our current problems. Hong Kong has never competed on cost alone. Our competitive advantage lies in certainty: certainty in the high quality of products; in prompt delivery, in fair and business-friendly government practice, and in the stability of our currency. To subject the Hong Kong dollar to fluctuations is to give up one very valuable asset. 16.  In addition, since we do not produce raw materials and must import everything, dropping the peg would mean importing inflation. This will wipe out any hope of gain from lower export prices. More than 80% of our income now comes from the servicing industry while manufacturing industry only accounts for 10%. Devaluation of Hong Kong dollar will, therefore, bring us little gain. We should also note that the total trade of our goods and services in a year is equal to well over 250% of our GDP. Business engaged in these externally-orientated economic activities want certainty in exchange rate. If you look at the economic performance of those economies that have chosen to devalue their currencies, I am not too sure whether you will find sufficient supporting evidence to argue for dropping the peg. 17.  One should also not forget that the Chinese leadership has time and again made it very clear that it will not devalue Renminbi. The Chinese Government understands that there are other measures like tariff reduction etc. to maintain the competitiveness of its exports. They know devaluation of Renminbi will trigger another round of competitive devaluation, hurting not only Hong Kong, but other Asian economies as well. And the Chinese Government has stated its unequivocal support for the Hong Kong-US dollar link, and pledged to back the link with its huge reserve - US$141 billion - the second largest in the world - if Hong Kong ever needs it. Conclusion 18.  I would conclude by saying that as far as the political transition is concerned, Hong Kong has gone much better than most people expected. 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 we will ride through the storm again this time. Of course, the presence of China, our motherland - an economy that is expected to grow by 8% per annum up to 2000 - will continue to benefit Hong Kong. As our new post-unification relationship grows and continues, you will find that there is no better place than Hong Kong to tap into the huge potential of what one day will be the world's largest market. A successful China and Hong Kong will no doubt contribute to the well-being of the Asian and global economy. Hong Kong is and will remain a place full of golden business opportunities. Therefore, don't be misled by this short-term turbulence and shut Hong Kong out of your radar screen. I urge all of you to visit Hong Kong to see for yourselves the reality in this "Pearl of the East". By the way, I should remind you that you will lose the excitement of landing at Kai Task airport, which will be closed around midnight on 5 July. But you will be landing at the new airport at Chek Lap Kok which is a concrete piece of evidence of the resilience and determination of the Hong Kong community. I am sure that you will find the visit very rewarding. Thank you very much. Back to "Speeches"