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I volunteered to come here tonight to give an update on what I have said for the last two years. After I volunteered, I was filled with misgiving because it is not an easy time in which to share my experiences.

The size of Hong Kong is easy to remember. It is approximately 1000 kilometres, or 300 sq. miles. Hong Kong had a population of five and a half million, it was rich and prosperous, a centre for foreign trade and investment, a source of hard currency for China. Its language was Cantonese and English. Its people enjoyed complete freedom within the law, and the law which permeated the whole society was the Common Law, a law which is more than just the administration of justice based upon precedent cases and judgements, but a system of Law which had been left behind wherever British Colonies had previously existed. Hong Kong spoke the legal language of a large part of the world.

Five years after the two governments had agreed in 1990, a Law embodying these detailed principles was agrees by the people of Hong Kong and representatives of the People's Government of China. This is known as the Basic Law of the Hong Kong SAR and this, too, is a comprehensive document describing the many aspects of the life of Hong Kong.

So that, when you land at our new airport, it is built with Hong Kong money under our economic system. When you check through immigration and Customs, they are our officials and you are being checked against our legislation. When you register at the hotel, take a taxi, ride in a lift, buy goods in our shops, read our newspapers, you are embraced by the invisible laws of Hong Kong passed by our own legislature whose legality finds its origin in the Basic Law, and before that, in the agreement between Hong Kong and China. And yet you are already in China!

The Hong Kong SAR Government's crisis management and Chief Executive have been put to a totally unexpected test and a succession of bizarre happenings. Mishaps in the delivery of medical services; bird flu leading to the order of slaughter of more than a million chickens; RedTide algae killing all the fish in the fish farms; vegetables coming from the mainland, polluted by pesticides; even the repercussions of mad cow disease reached our shores. People were joking that there was nothing much left to eat.

The Transfer took place in pouring rain on 30 June 1997. The very next day, beginning in Thailand, the economies of the region began to go down like skittles. Hong Kong, which had linked its dollar to the US$ in 1983 because of a crisis of confidence over the future of Hong Kong, now found itself stuck at a high point, when all around us, other currencies were plummeting. The number of tourists to Hong Kong dropped dramatically; hotels were strangely quiet, tables were empty in restaurants; tourist shops were boarded up.

Property and construction account for between 40% and 50% of our GDP. In 1996 and 1997 demand which had been building up, fuelled by speculation, led to an absurd surge in property prices. Property prices have now dropped by 40% to 50%. There is a surplus of commercial property. The stockmarket also dropped, but did not crash. We became a target for currency speculators.

The Government has successfully warded off attacks on our link with the US$. Interest rates have been raised and our reserves of US$ 100 billion have been used to defend the currency, at one time by buying stocks in the market to maintain their price. Now a combination of high interest rates, fallen property prices, the steep decline in tourism have led to forecast an economy which has contracted.

But Hong Kong is strong and does not share the difficulties of the countries of the region:

• our financial and banking regulatory system has evolved from experience gained in previous periods of economic turmoil;
• our currency is backed by foreign exchange reserves, in aggregate over US $100 and fiscal surplus of $50 billion;
• Private banking sector reserves are strong; our exports are mainly to western economies and not to the rest of the Asia;
• the government has no foreign debt and is compelled by Law, over the medium term, to follow a policy of balancing its budget;
• We are sustained by a Chinese economy which is continuing to expand. The latest World Bank report sees no difficulty if China continues on its present course of maintaining 7% growth this year;
• Hong Kong's public life and financial institutions are subject to a powerful, permanent statutory anti-corruption commission. Cronyism and corruption are not a problem. Footballers, financiers and jockeys end up in prison.