A Recovering Economy

10. Many indicators point to a V-shaped rebound of our Gross Domestic Product (GDP) after SARS. The unemployment rate has declined. Deflation, which has persisted for more than five years, is easing, indicating that domestic demand is gradually reviving.

11. We expect to see sustained economic growth and a continued decline in unemployment this year. Hopefully, deflation will disappear in 12 to 18 months. Our measures to stabilise the property market are gradually producing results. With deflation and a weaker US dollar, our costs have declined and our competitiveness has risen significantly. As the world economy improves, we are optimistic about our own economic prospects.

12. We must, of course, be aware of existing problems and potential concerns. Deflation and the fiscal deficit are internal issues that need to be resolved. Externally, globalisation may bring sudden and unpredictable fluctuations in areas such as shocks to financial markets, new diseases and epidemics, and international terrorism. Geo-politics and international conflicts could give rise to wide-spread threats.

13. But, generally speaking, we possess particularly favourable conditions for overcoming such difficulties. Without doubt, Hong Kong is a blessed city. We have our own unique advantages and the staunch support of the Mainland. Our country is poised to benefit from rapid development, with GDP expected to quadruple from US$1,000 billion in 2000 to US$4,000 billion by 2020. Provided that we work hard at it, our economic development will undoubtedly benefit from closer ties with the Mainland.

14. In fact, we are already witnessing the practical effects of closer links to the Mainland. The CPG's decision to allow individual visits of Mainlanders to Hong Kong has provided a great boost to our retail and catering sectors. The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) has ushered in a new phase of development, enabling Hong Kong and the Mainland to make use of institutional arrangements to promote comprehensive economic co-operation. Regional co-operation, especially recent progress in developing closer links with Guangdong and Shanghai, offers Hong Kong greater integrated advantages resulting from an expanded economic hinterland. The CPG's agreement for banks in Hong Kong to conduct personal renminbi businesses and provide clearing arrangements has strengthened our position as an international financial centre. The interaction between Hong Kong and the Mainland will naturally become even closer and more frequent. The increasing ease in the flow of people, goods and capital will be the main factor contributing to our long-term development. This increasing integration is the result of careful planning and detailed discussion on our part over the recent past and demonstrates how the CPG as well as Mainland provinces and cities are concerned about Hong Kong and ready to lend a hand in time of need. We are deeply grateful to them.