The Chief Executive, the Honourable Tung Chee Hwa,
outlines the remarkable attributes that provide a firm base
for positioning the Hong Kong Special Administrative
Region as a 'world city'.

ONE of the many reasons I am proud to call Hong Kong home is our people. The ability of Hong Kong people to turn adversity into opportunity has proven time and again that we are able to reinvent ourselves when faced with challenge. In the process, we have created 'Asia's world city' and an important centre for global business.

When the Asian financial crisis hit in 1997, bringing about one of the worst recessions in memory, it was a difficult time for all. The economic downturn, coupled with the mission of implementing 'one country, two systems', presented Hong Kong with an unprecedented new challenge. In the last four years, Hong Kong has not only proven that our unique form of constitutional government is effective and our commitment to the rule of law is strong, we have gone a step further. We have shown the world that we can prosper as a Special Administrative Region of China and can continue to serve as the international business hub for the Asia-Pacific region.

Hong Kong's economy has recovered. Growth has resumed and unemployment has come down from a peak of 6.4 per cent. We are also welcoming increasing numbers of visitors from around the globe. In 2000, there were more than 13 million visitors, a 15 per cent increase over arrivals in 1999. The number of regional headquarters and offices established by multinational corporations in Hong Kong increased from 2 500 to 3 000, a remarkable 20 per cent increase over 1999. Foreign investment is also on the rise with Hong Kong at the centre of much of the investment for Asia. During 2000, Hong Kong received more than US$64 billion in foreign direct investment (FDI). And since China opened its doors to the world in 1978, over 50 per cent of FDI into the Mainland has been channelled through Hong Kong.

Hong Kong is back on track. As an externally oriented economy, we will always be susceptible to the fortunes of our major trading partners such as Japan and the United States. But the economic restructuring has started, and it will take some time to complete.

Perceptions of Hong Kong internationally are keeping pace with our economic development. Recent research carried out as part of our review on international perceptions of Hong Kong establishes that the HKSAR is considered to be innovative, up-to-date, dynamic, intelligent, energetic, prestigious and distinctive. While heartened by these views of the community we are creating, we recognise that perceptions must be constantly reinforced by positive change. Hong Kong is all about positive change.

Our aspiration is to put Hong Kong in the league of 'world cities' like New York and London. A 'world city' must have a strong internationally oriented business sector and, in particular, vibrant service industries with access to a workforce with specialised skills and knowledge. These characteristics, combined with a vibrant economy, a free society based on the rule of law, a position as an international centre of finance, trade and tourism, excellent transportation and telecommunication infrastructure, and a large international community, are all trademarks of these 'world cities.' Hong Kong not only possesses these attributes, but it is committed to maintaining and strengthening them. We do, however, recognise that we have to advance further in improving the quality of life in Hong Kong, for example in environmental protection and arts and culture, if we are to compete as a world city.

Our world-class financial services sector is set to become even more dynamic. In the past decade, Hong Kong has broadened its base as an international financial centre. Apart from loan syndication, an increasing proportion of our financial activities is based on equity raising for local, Mainland and foreign companies. This role, which embraces private equity finance and venture capital activities, is much more skill-intensive than loan syndication. The growth of this sector draws heavily on the depth and breadth of Hong Kong's legal, regulatory, equities research, and financial services skills. This role of equity intermediation will grow at a faster pace in the coming years.

Hong Kong is the world's 10th largest trading entity, largely as a result of our position as the gateway to the Mainland. This advantage is critical when international corporations look for a strategic location for their Asian headquarters. With China's accession to the World Trade Organisation (WTO) and the subsequent lowering or removal of many import tariffs, Hong Kong's efficient port, market knowledge and easy access to the Mainland will become even more crucial to global trade and investment flows.

For nearly half a century, Hong Kong has witnessed the tremendous changes that have taken place in the Mainland — and has derived great benefits from those changes. In the 1950s, we saw a huge influx of entrepreneurs and business elite from the Mainland, which turned Hong Kong into a highly competitive and efficient export economy. The change brought about by Deng Xiaoping's 'open-door' policy in 1978 gave Hong Kong manufacturers an opportunity to expand and migrate across the boundary and their success has helped make Hong Kong one of the world's most remarkable trade and financial centres. Throughout this process, Hong Kong has also made significant contributions to the Mainland economy. Because of this, our relationship has always been a 'win-win' situation and this will continue.

Today, 40 per cent of our trade is with the Mainland. Three quarters of the 18 million containers handled by our port during the year were related to the Mainland, mostly to and from the Pearl River Delta region. On average, 31 000 vehicles and 280 000 people travel across the boundary every day. Mainland companies account for some 30 per cent of the Hong Kong stock market capitalisation. In 2000, over three million tourists from the Mainland visited Hong Kong, ranking these tourists ahead of visitors from all other locations. Clearly, Hong Kong's economy is intrinsically linked with the Mainland.

China's accession to the WTO will mark yet another major change. Not only will this provide greater market access for China's trading partners and greater opportunities for multinational corporations and small and medium-sized enterprises (SMEs), the Mainland will become more rules-based. Because of that, the trade and investment systems in China will be more transparent, more business friendly and more aligned with international practices. Such vital improvements will attract more international and Hong Kong businesses and will support expanded trade and investment links. While some multinational businesses may choose to deal directly with China, others will continue to use Hong Kong as their base of operations. Few overseas SMEs have the capacity to move into China directly. Because of this, they will need a partner who knows the Mainland well and Hong Kong is the obvious choice. Hence, China's accession to the WTO will mean further enhancement of Hong Kong's position as an international financial and business centre, a transportation and communication hub, a centre for professional services and our traditional role as a gateway to the Mainland.

But perhaps an even greater opportunity for Hong Kong is the growth of the Mainland's domestic market. In the 23 years since China first opened up its market, the economy has grown tremendously, with GDP reaching US$1 trillion last year. A great deal of wealth has been created in the process and a strong domestic economy is emerging. China's membership in the WTO and the development of the country's virtually untapped Western Region will accelerate this process. We have seen in history, and in Hong Kong's development over the past few decades, that once per capita GDP rises beyond a certain level, there is an explosion of demand for high-value and high-quality consumer products and services.

When I was in Guangzhou in December, I was told by managers at an automobile plant that their annual production of 30 000 cars was insufficient to meet domestic demand. In fact, due to such high demand, customers had to wait several months to purchase these vehicles. I also visited a piano factory where the general manager told me that every year they produced over 70 000 pianos. Aside from healthy sales to western markets such as the United States and Europe, demand in the Mainland for grand pianos continued to grow steadily with the expansion of the middle class.

From all indications, the coastal regions and the Pearl River Delta are on the verge of an economic take-off.

The Pearl River Delta, covering 50 000 square kilometres with a population of some 30 million people, is a microcosm of the future development of the Mainland. With Hong Kong at the entrance, this dynamic hinterland offers great economic opportunities. In recent years, the Pearl River Delta has recorded double-digit growth and is one of the most open regions in the Mainland. In that time, the people of the Pearl River Delta have accumulated significant wealth. Shenzhen's per capita GDP in 2000 rose to US$4,300 and is estimated to grow to US$7,000 in five years. Guangzhou, Dongguan, Zhuhai, and other cities and townships in this important region are following close behind.

In Hong Kong, there has been some concern over the huge changes taking place within the Pearl River Delta region. Some are anxious that closer integration within this region could have a negative impact on Hong Kong's property market and businesses such as restaurants and retail outlets. While concern about rapid growth in the region is understandable, and there may, unfortunately, be some negative impact in the short term, I believe increasing integration within the Pearl River Delta region is a natural process that we should welcome and embrace. In doing so, we must be confident of Hong Kong's strategic location and our continued role as a conduit to the outside world for southern China.

The faster cities throughout southern China grow, the more business they will generate for Hong Kong. As people in the region begin to accumulate wealth, there will be increased demand for Hong Kong's goods and services. As this region becomes more affluent, more of its people will travel to Hong Kong as tourists. All these factors will contribute significantly to our economy. In this context, the future of Hong Kong and the Pearl River Delta should be seen as one regional economy. We need to manage the change leading to this outcome, seize the opportunity, and ensure that Hong Kong remains the economic driving force for the region. In the process, we will strengthen our position as a 'world city'.

Added to this is the expanding nature of the Pearl River Delta's manufacturing industry, assisted by more Hong Kong companies establishing plants or joint ventures across the boundary, and the Pearl River Delta's own burgeoning hi-tech sector. With Hong Kong's strength as a business centre, and the Pearl River Delta's strength as a manufacturing base, the two regions complement each other. Increasingly, international companies are attracted by this synergy, which directly reinforces Hong Kong's position as Asia's business centre.

Hong Kong's close economic relationship with the Mainland, and in particular with the rest of the Pearl River Delta, puts Hong Kong in a unique position. This relationship will help to strengthen Hong Kong's business relations with the rest of the world. Where else is there an international financial and trading centre located immediately adjacent to an economy that offers very competitive land and labour costs, a huge expanding market for goods and services, and a hinterland economy that is ready to take-off and become a leading global market? The HKSAR Government is committed to enhancing this vital relationship. Let me cite five important tasks which we will pursue:

But it is not just our growing links with the Pearl River Delta that are enhancing Hong Kong's reputation as the best place in Asia for establishing a business. A recent independent two-year study of multinational firms in East Asia and Australia carried out by Professor Michael Enright of the University of Hong Kong and Edith Scott, an international consultant, has found that Hong Kong is, and will remain, the most important base for regional headquarters in the Asia-Pacific region.

In part, the study indicated that Hong Kong's dominant position stems from its political and legal stability, proximity to major markets (Hong Kong is within five hours flying time of half the world's population), excellent infrastructure, its dense network of financial and professional service firms and the quality of its local management. With this combination of factors, it is not surprising that over 60 per cent of the FORTUNE Global 500 companies have a presence in Hong Kong and that the number of regional headquarters and offices of multinational corporations in Hong Kong increased by 20 per cent.

Hong Kong has returned to China at a time when the country is developing rapidly and the international standing of the nation is rising. This enhances both our opportunities and our national pride. In the same way as the coastal areas have prospered in the last 20 years, the hope is that the opening up of the Western Region will provide new opportunities for long term development. The purchasing power of the Mainland consumer is rising and the Chinese market is huge and growing. Being positioned at the heart of Asia, Hong Kong is well placed to help the world capitalise on these opportunities.

To ensure Hong Kong's continued success, it is essential that we maintain and strengthen our links with our major international trading partners and explore new developing markets. We must also preserve the key factors which put Hong Kong ahead of other economies in the region — the institutions which are underpinned by the Basic Law, our well established legal and judicial systems, our international outlook and the level playing field. We will then be able to enhance our role as a bridge between the Mainland and our major trading partners around the world. Hong Kong's links with the Mainland and those with our international partners are complementary.

In addition to the emphasis we place on economy and business, we will continue to take steps to raise the quality of life for people throughout our community. On the environmental front, we have adopted a full range of initiatives to improve our air quality. Strategies for dealing with solid waste and sewage treatment are being formulated. On the cultural front, we are designing a world-class cultural complex in Western Kowloon, so that in the future we will be able to enjoy productions ranging from Broadway musicals to Peking operas.

We will continue to enrich Hong Kong's multi-faceted and colourful lifestyle in the economic, cultural and other spheres. We will realise our vision as 'Asia's world city' by continuing to strengthen Hong Kong's position as a hub for the Asia-Pacific region and as a gateway to China.