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Remarks of Mr Donald Tong
Hong Kong Commissioner for Economic and Trade Affairs, USA
Paul H. Nitze School of Advanced International Studies (SAIS)
of the Johns Hopkins University
April 13, 2009
Ladies and Gentlemen,
Thank you Prof. Pieter Bottelier for the kind introduction. It is a great pleasure to be speaking at one of this nation's leading schools of international affairs.
HKETO
2. I would like to begin by providing a brief introduction to 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. Our mission is to represent the Hong Kong government in strengthening the economic, trade, investment and cultural ties between Hong Kong and the U.S. We maintain close working relations with the U.S. administration and Congress on a variety of issues, particularly on trade and economic matters. In addition, we keep our friends in the media, think-tanks, academia, and the diplomatic community well informed of Hong Kong developments. We also have offices in New York and San Francisco.
Background and Basic Facts on HK
3. As many of you know, 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.
4. Under this system, we have full autonomy in governing Hong Kong except in the areas of foreign policy and national defense.
5. This formula has already passed the most vigorous test for over 11 years. Today, Hong Kong people continue to enjoy cherished civil liberties – among them freedom of the press, freedom of assembly, and freedom of speech, as well as the rule of law, buttressed by an independent judiciary.
6. With regard to the latter, Hong Kong has maintained its common law tradition. Adherence to the common law system demonstrates the continuity of Hong Kong's legal structure since the historic handover of July 1, 1997.
7. For those of you unfamiliar, the common law system relies on case precedent generated throughout the common law world, not just within a single jurisdiction.
8. The system allows Hong Kong to benefit from the expertise of other common law jurisdictions. Our Court of Final Appeal, the highest appellate court in Hong Kong, includes judges from other common law jurisdiction, such as the United Kingdom, Australia and New Zealand.
9. With regard to international links, the Basic Law provides for Hong Kong to maintain relations with foreign states and international organizations. This is demonstrated by Hong Kong's separate member status in the World Trade Organization and APEC, as well as recognition of Hong Kong as a separate customs territory.
10. Furthermore, Hong Kong can negotiate its own bilateral agreements – from airs services to extradition and mutual legal assistance.
11. We also have our own independent immigration, customs, police, and anti-corruption authorities.
12. Hong Kong's has it own tax regime – that is we pay no taxes to Mainland authorities – and we enjoy our own economic and monetary policy.
13. We maintain a simple and low tax system with maximum salaries tax capped at 15% and profits tax capped at 16.5%. We impose no sales tax or capital gains tax.
14. And we have our own freely convertible currency which has been pegged to the U.S. dollars since 1983.
15. Our staunch belief in free trade and open markets, as well as our entrepreneurial spirit, has allowed what was once a remote fishing village to emerge as an international financial, banking and logistics center. This has enabled a city of 7 million to prosper, with its citizens enjoying GDP per capita of around $30,000.
16. Hong Kong's adherence to free market principles has also earned it the title of the "world’s freest economy" by the Heritage Foundation and the Cato Institute for many consecutive years.
2008 Economic Performance and 2009 Economic Forecast
17. Hong Kong's economy performed reasonably well in 2008, although there was a significant slowdown in the second half of the year. Visitor arrivals in 2008 increased to a record high of 29.5 million. Total exports of goods last year grew by 2% in real terms over a year earlier, while the value of imports of goods increased by 5.5%. Growth of foreign direct investment into Hong Kong also grew quickly in the first half of 2008.
18. But as an externally oriented economy, Hong Kong is not immune to the impact of the current economic crisis which upset an economic upswing started in late-2003. As a result, Hong Kong's GDP grew by only 2.5% in 2008 – lower than the trend growth rate over the past 10 years and much lower than GDP growth of 6.4% in 2007.
19. Taking January and February of 2009 as a whole, the value of total exports of goods dropped by 22.4% over the same period last year. The sharp fall in merchandise exports reflects the increasingly severe impact of the crisis on Hong Kong's overseas markets, particularly the U.S., our second largest trading partner. Concurrently, the value of imports of goods decreased by 22.8%. This notwithstanding, Hong Kong remained the 13th largest merchandise trading entity and the 16th largest service trading entity in the world in 2008.
20. Following the global trend, both the share price and the trade volume of our stock market have plummeted. The Hang Seng Index fell by nearly half from 27,000 points in early in 2008 to 14,000 points in end 2008, while the daily trade volume dropped 18% to $9.2 billion from $11.2 billion. Having said that, our stock market still ranked seventh in the world, and third in Asia, in terms of market capitalization.
21. For 2009, we currently forecast a decrease in GDP by two to three percent, with the unemployment rate, currently at 5%, to increase further.
Combating the Financial Crisis
22. Despite the downturn, Hong Kong's economic fundamentals remain strong. Our banking system continues to be fundamentally sound, healthy and robust as we have improved risk management of banks and created a more transparent regulatory system after the Asian financial turmoil in 1997. The capital adequacy ratios of locally incorporated banks remain strong and are consistently above the local statutory requirement and international standard of 8%. No bail out is necessary for our banks. We are obviously not complacent and will continue to keep a close eye on our banking system and our financial industry. We have also adopted a prudent fiscal policy and maintain healthy fiscal reserves of over $62 billion – equivalent to 18 months of government expenditure.
23. To combat the current crisis, the Hong Kong government introduced a series of measures to stabilize the financial market, create and preserve jobs, and support enterprises.
24. We injected about $23 billion between September and December last year into our banking system so as to ease the liquidity crunch. To bolster public 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.
25. To stimulate economic growth and job creation, our government increased public expenditure by around $38.6 billion, largely in health care, social welfare, education and environmental improvement. We have also fast-tracked public infrastructure projects and introduced other measures with a view to creating more than 120,000 jobs, training places and internships in the next three years, including over 60,000 this year. The government also sought cooperation between the public and private sectors, including universities, statutory bodies and chambers of commerce to create employment and internship opportunities to absorb fresh graduates.
26. To support enterprises, particularly small and medium enterprises, the government introduced a scheme of $12.8 billion to guarantee up to 70% of bank loans so as to help unfreeze credit. Small and medium enterprises are very important to our economy as they account for over 98 percent of our businesses and employ nearly half of private sector workforce. In addition, we have also eased export credit insurance criteria and assisted with promotional activities and information sharing to help tide them over during this difficult period.
Mainland Support and Cooperation
27. The Mainland government has also offered Hong Kong support. In a series of measures announced last December, the Mainland has further promoted economic and financial cooperation between Hong Kong and the Mainland.
28. Hong Kong and the Mainland recently entered into a currency swap pact valued at $29 billion to provide short-term liquidity to Mainland operations of Hong Kong banks and the Hong Kong operations of Mainland banks. The Mainland also supports Hong Kong enterprises operating in China through commercial loans and helps them access China’s domestic market.
29. A significant development was just introduced last week when the Mainland launched a pilot program that allows Hong Kong companies to settle cross-boundary trade in Renminbi. The program would enhance Hong Kong companies' flexibility and reduce the risk of currency fluctuations for companies doing business with the Mainland. It would also create new opportunities for our banking sector, diversify local Renminbi assets, and increase the capital liquidity of the yuan in Hong Kong.
30. No doubt, this will facilitate Hong Kong as a regional Renminbi clearing center and strengthen Hong Kong’s position as an international financial center.
31. In addition, the Mainland government has facilitated visitor arrivals from the Mainland to Hong Kong – an encouraging move as Mainland visitors now account for over 50% of total visitor arrivals and do spend a lot in shopping, taking full advantage of the absence of sales tax in Hong Kong
32. To cope with the ever increasing traffic demand arising from both visitor arrivals and trade, Hong Kong is enhancing cross-boundary infrastructure projects with the Mainland. One of these projects is the 18-mile bridge project which will link up Hong Kong, Macao, and Zhuhai in the Mainland. Upon completion, it will enable Hong Kong companies to tap the full potential of the neighboring Pearl River Delta Region which has emerged as the world's manufacturing center.
33. Of course, under the Closer Economic Partnership Arrangement (CEPA), our free trade pact with the Mainland, 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). We will continue to work closely with relevant authorities in the Mainland, particularly the Pearl River Delta, to identify new economic opportunities and give our business sectors greater support in exploring such opportunities.
Measures to spur growth
34. Not losing sight of where we want to position Hong Kong in the future, we have introduced a range of initiatives and projects to spur medium-term and long-term growth.
35. With regard to tourism and business facilitation, we are undertaking construction of a new cruise terminal at the old Kai Tak airport site with the first berth commissioned in 2013. Complementing this project is development of a 100-acres cultural hub which will feature world-class performing arts venues, an exhibition center and galleries to enrich Hong Kong's art and culture content.
36. We will also continue to develop Hong Kong as a destination for Meetings, Incentives, Conventions and Exhibitions or MICE in short. We have waived hotel accommodation tax and the 40% 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%. We have already entered into Memorandum of Understandings on wine promotion with France, the Bordeaux Region and Spain; and look forward to similar collaboration opportunities with other major wine-producing economies like the U.S.
37. As a small economy, Hong Kong must remain flexible in adapting to an increasing competitive, and fluid, global market. To ensure the long-term competitiveness of Hong Kong, we are further developing six key economic areas: testing and certification, medical services, innovation and technology, cultural and creative industries, environmental services, and educational services.
US-HK Ties
38. Hong Kong and the U.S. have long enjoyed close ties. The U.S. tops the list of countries with regional headquarters and regional offices in Hong Kong. The number of U.S. companies using Hong Kong as its regional offices and headquarters has indeed increased from 400-plus in mid-1996 to over 900 as at end of last year. This is a strong vote of confidence in our role as Asia's leading business hub and a reliable partner for U.S. businesses.
39. But the relationship goes beyond commercial interests. Our governments work in tandem on issues ranging from port security to combating money-laundering and global public health issues.
40. As one of the world's busiest container ports, Hong Kong was among the first to sign on to the U.S. Customs and Border Protection's post-9/11 Container Security Initiative which aims to safeguard global maritime trade. Hong Kong is one of many ports participating in the program. As part of the initiative, a team of U.S. Customs officers stationed in Hong Kong works closely with Hong Kong Customs officers to pre-screen US-bound container cargo data for identification of high-risk containers.
41. In addition, Hong Kong has been participating in the U.S.'s Secure Freight Initiative which aims to utilize radiation detection, imaging, and related equipment to scan maritime cargo containers to help detect and interdict illicit trafficking of any nuclear material or other radioactive material.
42. As a responsible trading and financial entity, Hong Kong is fully committed to maintaining a high degree of vigilance against illicit financial activities. We do this through legislation and regulatory control measures as well as our membership in the Financial Action Task Force which globally combats money laundering and the financing of international terrorism.
43. In addition, we collaborate with the U.S. Centers for Disease Control and Prevention as well as the World Health Organization to confront global public health challenges.
Constitutional Development
44. Of particular interest to our friends in Washington is Hong Kong's political development. On this front, Hong Kong continues to make strides as the elections of the Chief Executive in 2017 and all members of the Legislative Council in 2020 may be returned by universal suffrage.
45. With a timetable set, the Hong Kong government is tasked with amending the electoral methods for the Chief Executive and Legislative Council in 2012 with the aim of laying a solid foundation for attaining universal suffrage as prescribed by the Basic Law. We will consult the public in the last quarter of 2009 in this regard.
Conclusion
46. Hong Kong is resilient. We overcame several major challenges in the past decade or so, including the Asian financial crisis and the outbreaks of SARS and avian influenza. We have full confidence in Hong Kong's ability to rebound from the current economic crisis due to our sound fundamentals, can-do spirit, quality workforce, great support from the Mainland government, and the new opportunities arising from the Pearl River Delta development. As we move forward, I know that our friends in the U.S., including our friends and the future policy makers gathered in this room, will continue to support our efforts in bolstering Hong Kong-US ties. And we look forward to working closely with you all in this regard.
Thank you.
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