Remarks by Commissioner Donald Tong
to the World Affairs Council of Washington, D.C.

25 March 2009

Ms Soupe and friends from the World Affairs Council,

Thank you Madam President for the kind introduction.

2. It is a great pleasure to meet you all this evening with my colleagues. I hope by the end of this reception, we will be able to enhance your understanding of Hong Kong and succeed in persuading you to visit Hong Kong for business or vacation.

3. First of all, some key information on the Hong Kong Economic and Trade Office in Washington, D.C. The office is the official representative of the Hong Kong Special Administrative Region Government. Its mission is to represent the Hong Kong government in strengthening the economic, trade, investment and cultural ties between Hong Kong and the U.S. – maintaining close working relations with the U.S. administration and Congress on a variety of issues. Illustrating the importance we place on Hong Kong-US ties, we also have offices in San Francisco and New York.

4. On July 1, 1997, after 150 years of British administration, Hong Kong became a Special Administrative Region of China. As guaranteed in the Basic Law – our mini-constitution – Hong Kong enjoys a high degree of autonomy under the "One Country, Two Systems" formula.

5. Today, Hong Kong has emerged from a former fishing village to an international financial and banking center. Hong Kong people continue to enjoy their cherished civil liberties, such as freedom of the press, freedom of assembly and freedom of speech. We have full autonomy in governing Hong Kong except in foreign policy and national defense. We maintain our own currency and way of life. We have our own independent immigration, customs, police, anti-corruption authorities and continue to participate in international forums like the World Trade Organization and APEC as an independent member.

6. We have a population of 7 million, enjoying a GDP per capita of around $30,000. We maintain a simple and low tax system – maximum salaries tax at 15 percent and profits tax at 16.5 percent – without sales tax or capital gains tax. We continue to practice a common law legal system, buttressed by the rule of law and an independent judiciary separate from that of China’s. Our government is clean and efficient. Our well-educated workforce, fluent in both English and Chinese, has very rich experience in, and a good network for, doing business in international and China markets, making Hong Kong an ideal gateway to China and the Asia Pacific Region.

7. We adhere fully to free market principles. These have earned Hong Kong the title of “world’s freest economy” by both the Heritage Foundation and the Cato Institute for many consecutive years. Hong Kong also housed the world’s 7th largest stock market, 6th largest foreign exchange transaction center, and is the 12th largest trading entity in the world. We also have the world’s busiest international air cargo hub and the world’s 3rd busiest container terminal.

8. Hong Kong's economy performed reasonably well in 2008 although there was significant slowdown in the second half of the year. Visitor arrivals in 2008 increased to 29.5 million. Total exports of goods grew by 2 percent in real terms over a year earlier, while the value of imports of goods increased by 5.5 percent.

9. But as a highly open economy, Hong Kong is susceptible to the current financial crisis which upset an economic upswing started in late-2003. In the last few months, consumer sentiment worsened quickly and there was a sharp drop in asset prices. As a result, Hong Kong's GDP grew only by 2.5 percent in 2008 – lower than the trend growth rate over the past 10 years and much lower than GDP growth of 6.4 percent in 2007.

10. We expect a decrease in GDP by two to three percent for 2009 and that the unemployment rate, currently at 5 percent, will increase further.

11. Despite the downturn, Hong Kong’s economic fundamentals remain strong. We have been adopting a prudent fiscal policy and maintain at present a healthy fiscal reserve of over $62 billion, equivalent to 18 months of our government’s expenditure. Our banks, with a high capital adequacy ratio, remain healthy and sound as we have improved risk management of banks and created a more transparent regulatory system after the Asian financial turmoil in 1997/98.

12. To combat the economic crisis, our government introduced a series of measures to stabilize the financial market, create and preserve jobs, and to support enterprises.

13. To ease liquidity for businesses and bolster confidence, we guaranteed all customer deposits in banks, without ceiling and introduced a mechanism to provide additional capital to banks if requested. Both measures will remain in force until at least the end of 2010.

14. To stimulate growth and job creation, our government also increased public expenditure, introduced various programs and fast-tracked public infrastructure projects with a view to creating more than 120,000 jobs, training places and internships in the next three years. [Annual capital works expenditure will be about $5 billion this year and may reach $6.4 billion over the next few years.]

15. To support enterprises, the government introduced a scheme of $12.8 billion to guarantee up to 70 percent of the bank loans to enterprises, particularly for small and medium enterprises so as to help unfreeze credit.

16. In addition, we have introduced a series of other initiatives to spur growth; e.g.:

• Development and global promotion of Hong Kong as destination for Meetings, Incentives, Conventions and Exhibitions or MICE in short

• Construction of a cruise terminal at the old Kai Tak Airport site. The first berth will be commissioned in 2013.

• Development of a 100-acres cultural hub in West Kowloon which will feature world-class performance arts venues, museum, exhibition center and galleries to enrich Hong Kong’s art and culture content and attract tourists.

• Development of a bond market in Hong Kong by issuing government bonds

17. We have also waived hotel accommodation tax and the 40 percent duty on wine since last year. Our objective for the removal of wine duty is to develop Hong Kong into a hub for wine-related business. Progress so far has been encouraging – the total value of our wine imports from around the world reached $370 million in 2008, representing a year-on-year increase of almost 80 percent.

18. The Mainland government has offered Hong Kong significant support in helping our economy ride over this economic crisis by announcing a series of measures last December. These included, amongst other things, promoting further economic and financial cooperation between Hong Kong and the Mainland of China, particularly the Pearl River Delta Region, and supporting Hong Kong’s small and medium enterprises operating in the Mainland through commercial loans and helping them access China’s domestic markets.

19. The Mainland government also pledged to expedite a pilot programme for Hong Kong whereby selected companies could settle Mainland trade in Renminbi. This would no doubt help enhance our role as an off-shore for Renminbi business.

20. In anticipation of the reduced number of visitors from other sources to Hong Kong, the Mainland government agreed to extend the Individual Visit Scheme to cover more Mainland cities so as to encourage more Mainland tourists to visit Hong Kong. To cope with the increasing traffic demand, we are now collaborating with the Mainland government to enhance cross-boundary infrastructure projects between Hong Kong and the Mainland, as well as Macao. The projects will enable Hong Kong to tap the full potential of the neighboring Pearl River Delta Region which has emerged as the world's manufacturing center.

21. Of course, under the Closer Economic Partnership Arrangement (CEPA), our free trade pact with the Mainland of China, local and foreign companies would continue to enjoy tariff-free entry into the Mainland market and preferential market access in 40 service sectors; e.g., financial services, legal services, trade. CEPA we believe might well be one of the key reasons why many foreign companies have continued to establish a presence in Hong Kong.

22. Hong Kong and the U.S. have long enjoyed close ties. The U.S. is Hong Kong’s second most important trading partner, the 5th largest import source, and 2nd largest export destination. Last year, we imported $21.6 billion from the U.S. and exported about $6.5 billion worth of goods to the U.S. The U.S. also tops the list of countries with regional operations in Hong Kong – increasing to over 900 in a decade. This is a real vote of confidence in our role as Asia's leading business hub and a reliable partner for U.S. businesses.

23. Hong Kong was among the first economies to sign on the U.S. Customs and Border Protection’s Container Security Initiative. Hong Kong maintains an effective anti-money laundering and counter-terrorist financing regime. We also collaborate with the U.S. Centers for Disease Control and Prevention as well as the World Health Organization to confront public health challenges.

Constitutional Development

24. Hong Kong continues to make strides in its political development. Elections of the Chief Executive in 2017 and all members of the Legislative Council in 2020 may be returned by universal suffrage. We will consult the public in the last quarter this year on the electoral methods for the Chief Executive and the Legislative Council in 2012 with the aim for laying a foundation for attaining universal suffrage as prescribed by the Basic Law.

25. I could go on forever as there is so much that we could speak about Hong Kong. But perhaps I should stop here so that we could take some questions and exchange views.

Thank you