• Video

• Contact Us
• |
• Search our Site

THE POLITICAL AND ECONOMIC
TRANSFORMATION OF HONG KONG

by Mrs Jenny Wallis
Director, Hong Kong Economic and Trade Office

Asialink - September 28th, 1999

Good Evening, Ladies and Gentlemen,

Thank you for that kind introduction. It is always a real pleasure to visit Melbourne and I welcome in particular this opportunity to speak to you and share with you how Hong Kong is faring some 2 years after the transition.

On 1 July 1997, Hong Kong became a Special Administrative Region of China. Some of you may have watched the Handover ceremonies on television, or may have even been in Hong Kong at the time to witness this historic event. The reunification ended 156 years of colonial rule and allows Hong Kong people to run Hong Kong with a high degree of autonomy under the concept of "one country, two systems". In place of the previous Letters Patent which gave the governor from Britain complete power to do what he thought fit for the good order and governance of the people and territory, we now have our own constitution, the Basic Law, a finely drafted piece of National Law of China, which guarantees that Hong Kong's way of life and its capitalist system will remain unchanged for at least 50 years from July 1997 to 2047. The only areas for which we do not have responsibility are foreign affairs and defence, areas over which we had no responsibility in any case even at the time of British rule.

All the ingredients of our past success as an international financial and trading centre are embodied in the Basic Law. These include our legal system and way of life; the protection by law of all fundamental human rights; the free movement of goods and capital; the right to free movement to and from Hong Kong; the protection of property rights and foreign investments; freedom of the press and freedom of speech. In addition, Article 39 of the Basic Law incorporates by reference the provisions of the two most successful multilateral human rights treaties, the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights. These two instruments have been signed by 138 States at the last count but Hong Kong is the only one, and a non-State party, to have taken that unique step of replicating verbatim the language of the International Covenant on Civil and Political Rights as our Bill of Rights in 1991 and to have the Basic Law in 1997 specifying the provisions of the two covenants to be enforceable through domestic law. Our rights in Hong Kong are actually more legally protected now than when we were a British colony.

We remain a member, in our own right, to the World Trade Organisation, the World Customs Organisation and the Asia-Pacific Economic Co-operation. More than 200 international treaties, as well as multi-lateral and bilateral agreements continue to apply to Hong Kong. We negotiate our own air services agreements and maintain our own shipping register.

All of this enables us to maintain and build on our role as Asia's leading international city. We have Asia's second-largest stock market after Japan. We are one of the world's top four gold markets, the 8^th largest banking center where 80 of the world's top 100 bankers have offices in Hong Kong, 7^th largest foreign exchange market; and 9^th largest trading entity in goods. We have a very well developed private sector debt market and we are Asia's second largest fund management centre (Tokyo largest).

And throughout, the Central Government in Beijing has been exemplary in honouring its promise of allowing Hong Kong people to run Hong Kong. We are therefore still the same energetic, entrepreneurial, hard working, cosmopolitan and argumentative society that we were before the handover.

But while Hong Kong has gone through the 1997 transition smoothly, our economy has taken a severe beating from the Asian financial crisis, as have many other economies in the region. The financial crisis was totally unexpected and, as it turned out, had far greater impact than any other factor in our transition.

Our economy shrank by 5.1% in 1998 - a dramatic turnaround from a 5.3% growth in 1997. Unemployment has more than doubled to 6.1% - a shock for a community used to an unemployment rate of 2.5% to 3%. Wages have been frozen or reduced.Property prices for residential units and offices have fallen by up to 50%. Rents are down by about the same amount, or even more. Undoubtedly, we are going through a difficult time, and there are those who feel that as the regional recession drags on, Hong Kong is in danger of being seen as the laggard among Asia's once-dynamic newly industrialized economies.

So, what of the future for Hong Kong? To blame the dramatic economic downturn solely on the Asian financial crisis may be slightly unfair. While the crisis has had a major impact on us, the truth of the matter is that for many years Hong Kong had enjoyed exceptional growth and our asset markets had shown signs of overheating even before the crisis. The high inflation for much of the '90s, coupled with high property prices and salaries, had made Hong Kong uncompetitive and a correction was needed in any case. What the Asian economic crisis did was to accelerate the whole process of much needed correction but in a sharper, and hence more painful, manner. The Hong Kong Government has taken this opportunity to reform and realign our economy so as to maximize the benefits of recovery when it eventually comes. Among other initiatives, we set out to reform our financial services markets; and promote high-tech, high value-added industries as part of our drive to retain our competitive edge.

On the financial services side, we are undertaking major reforms of our securities and futures markets to make them more competitive and more accountable, especially in the light of global trends such as 24 hour stock trading, electronic commerce and on-line brokerages. In this connection, steps are being taken to upgrade market infrastructure, modernise the regulatory framework, and demutualise and merge the Exchanges and clearing houses.

We continue to open up our economy in areas such as telecommunications, where liberalization has brought healthy competition, a wider choice of services and, best of all, lower prices for consumers. A completely liberalized mobile phone sector has led to a big surge in the number of people using cellular phones. We have the highest penetration rate of mobile phones in Asia, at 49 phones per 100 inhabitants.

In the development and application of information technology, especially in electronic commerce and information services, we are planning a Cyberport in partnership with a private company. This facility will house a strategic cluster of major local and international information and communications services companies which specialise in the development of services and multi-media content to support businesses and industries. Large companies such as IBM, Intel and Yahoo! have already signed up as anchor tenants at the Cyberport, while another 40 have expressed interest in joining them.

Complementing the Cyberport is a new satellite Teleport, due to come on line in the year 2000. The Teleport is a vital component in attracting new telecommunications and broadcasting business following deregulation of the telecommunications market this year and next. Together, the Cyberport and the Teleport will form a strategic digital communications corridor, which will act as a catalyst for the development of new digital media types and applications for TV, telecommunications and internet.

We are setting up an applied Science and Technology Research Institute to strengthen Hong Kong's capability in commercial research development and we will be establishing an Innovation and Technology Fund worth A$1 billion to provide finance for projects that will contribute to the improved use of innovation and technology in Hong Kong's industries.

A number of exciting projects are also being planned to consolidate Hong Kong's position as Asia's most popular international tourist destination. These include an international theme park on Lantau Island, just a short distance from our new airport; the development of an international wetland park, a cuisine training institute, and a new Adventure Bay theme park.

On top of these new projects, we are forging ahead with an ambitious infrastructure development program, which will cost some A$50 billion over five years. This includes a massive expansion of our domestic and cross border railway network, new port facilities, roads, bridges and an extensive housing development programme. The price tag is 50% more than what we have spent on the new airport and the nine supporting bridges and highway projects. As well as enhancing our position as a regional transport hub and creating tens of thousands of jobs in Hong Kong, these initiatives will also provide good business opportunities for overseas companies with the required skills and expertise. All major Hong Kong Government projects, for example, are let through open tenders with no discrimination against overseas bidders.

We will also refine our role as the pre-eminent gateway to the mainland of China. By the end of 1998, the Chinese economy is already the 6th largest in the world, and the Mainland is now the world's biggest producer of grain, cotton, coal, steel and a number of manufactured products. A rising per capita income is also slowly transforming the Mainland with her 1.2 billion strong population into an increasingly attractive consumer market. The country is determined to continue the process of reform, particularly in the banking sector and in state enterprises.

Despite the contagion effect of the Asian financial crisis, the Mainland continues to grow at a healthy pace. Last year it reported a growth of almost 8% and this year, the target is 7% - by far the highest GDP target in the region. The Mainland continues to offer tremendous potential in terms of trade and investment.

As the springboard to the Mainland market, Hong Kong has no equal. We have a unique cultural and constitutional access to its burgeoning markets. We have a huge pool of talent, knowledge and experience and decades of business interaction through joint ventures and cross-boundary trade and two-way investment. Hong Kong is the largest Îexternal' investor in the Mainland and we have also seen increased investment from the Mainland in Hong Kong. As restructuring gathers momentum throughout the Mainland, Hong Kong's role as a facilitator of capital and expertise will only increase.

We believe that China's accession to the WTO will provide all members with better market access, improved transparency and predictability of its trade policies and measures, thus creating more business and trade opportunities. As we are the Mainland's number one trading partner, we believe that China's accession will further enhance Hong Kong's direct involvement in the economic development of the Mainland as more of its industry sectors are open to overseas participation. Hong Kong is therefore well poised for the opportunities ahead. And I would say that if anyone here is looking for opportunities in Mainland China, then the best place to start that process is in Hong Kong.

The Asia financial crisis has hit Hong Kong hard, but it has not stopped us in our tracks. If anything, it was a wake up call and shook us out of the complacency that has developed in more than a decade of significant economic growth, increasing wages and escalating asset values. We are glad to see some promising signs recently. Our GDP for the second quarter of 1999 has rebounded to a growth of 0.7%, after five consecutive quarters of negative growth. The property market has stabilised, the stock market is more active and has been more liquid than it was last year. We have also seen a lowering of interest rates, and an easing of the credit crunch. Local and overseas sentiments are improving. We have probably hit the bottom of the economic trough. We expect, all going well, to see the economy pick up further towards the end of the year or early next year. During these difficult times, the opportunity is taken to look at where we are going, build on existing strengths and diversify in new directions. As we step into the new millennium, Hong Kong aims to become Asia's premier international city, remaining open to the rest of the world and a valued partner in trade and commerce.