B. Preparing for Economic Restructuring

8. Hong Kong's externally-oriented economy is greatly affected by global developments. The hardships we currently face stem from both cyclical and structural factors.

Difficulties will Persist

9. In the past 12 months there has been an obvious slowdown in our major export markets, which indicates a cyclical adjustment. The cyclical adjustment of an economy usually means that it bottoms out and rebounds after a short period. However, the serious terrorist attacks in the United States on September 11 not only caused major losses and deep grief, they also depressed consumer sentiment in overseas markets and created greater uncertainty in the global economy. The gloomy outlook for world economic growth has adversely affected Hong Kong. As a result, Hong Kong faces an accelerated economic downturn, a rise in unemployment, an increase in the fiscal deficit and a delayed recovery. The sharp downturn of the external economy at a time when Hong Kong is undergoing structural adjustment has put us in a particularly difficult position. We have to prepare for drawn out economic hardship.

10. The globalised economy is continuously developing. Advances in information technology have ushered in a new knowledge-based era. The rapid rise and development of our country has brought new business opportunities as well as new challenges. All these major trends make it imperative for our economy to be restructured.

11. In the past few decades, Hong Kong has undergone several transformations: from an ordinary entrepot, to a base for light manufacturing, and into our present position as a renowned financial, trading and services centre. Today's circumstances make it essential for us to yet again reinvent ourselves. This is a new challenge for all of us.

12. This time, the transformation will be more complicated because the restructuring is the result of several different but inter-related factors. First, the world is rapidly transforming from an industrial economy to a knowledge-based economy. Previously, wealth was in the hands of those with natural resources or capital. Now, knowledge is the new currency. An important competitive edge in the knowledge-based economy is the possession of creative ideas, and the speed at which these ideas can be transformed into products or services. World economic development is changing from a quest for resources to a quest for human talents.

13. Second, globalisation has brought about tremendous challenges and opportunities. Advances in information technology and better transport links have globalised world markets. Popular products and services are now marketed worldwide; geographical boundaries no longer limit the potential of a product. That means we no longer vie for business just with local competitors, but competitors from around the world. Manufacturing industries have been able to relocate from high-cost to low-cost locations. A similar trend has been seen with white collar workers. In addition, businesses now require substantially fewer staff because of developments in information technology. The emphasis in the past was on a fine division of labour, whereas today it is on multi-skilling. The number of people employed by large corporations has dramatically decreased. As a result, more and more people have become self-employed and started their own small and medium enterprises. This will become a more prevalent trend.

14. Lastly, the bubble economy which surfaced during Hong Kong's transition period created a serious problem. The Asian financial crisis deflated the bubble, and this has changed the way people spend and invest their money. Because of the sheer speed of change, it is a tougher transformation this time. Nevertheless, if we are to preserve our economic vitality, create greater prosperity, and maintain living standards, economic restructuring is the only way. Hong Kong's operating costs are very high, so we need to move to high value-added activities. Our people, our businesses and the SAR Government must have the foresight to see changes coming, to adjust to those changes and to manage them. We must all do our best to move up to higher value-added activities.