B. Building on Our Strengths
38. While we expand our economic horizon, we must continue to build on our existing strengths to ensure our long-term economic vitality.
39. Let me here state that Hong Kong is determined to maintain its position as the international financial centre of Asia and the key source of foreign capital for China. In past years the financial services sector has contributed substantially to our economy and will play an important part in our future. The current pressures in the Asian region may cause some economies to become more inward-looking, but Hong Kong will retain its free and open financial services structure. Furthermore, as China's economy develops and her need for foreign capital increases, Hong Kong's position as a major market for raising capital will become stronger.
40. We must now take a strategic view of what needs to be done to ensure that our financial market can support this expansion of our role. We will study, for instance, how best to use information technology to facilitate fully automated and seamless transactions in the market. We will provide the necessary regulatory framework to protect the integrity of the market. Recent experience has shown us how important it is to co-ordinate more effectively surveillance and regulation across all sectors of the financial services market. I have asked the Secretary for Financial Services to take a more active role in co-ordinating regulators and market operators, and to review the resources he needs to do this.
41. A robust market structure needs the support of a workforce with the ability to adapt to the challenges and opportunities ahead. I look forward to receiving recommendations from the Steering Committee on the Feasibility Study on the Financial Services Institute, which is currently examining human resources demand in this sector with a view to meeting tomorrow's needs for top-quality personnel. The Steering Committee is due to submit its recommendations in mid-1999.
42. We will also press ahead with the development of new services. We will study proposals for a Venture Board for smaller and emerging technology companies' stocks. To strengthen our role as an international financial centre, we will also continue to develop the debt market. The expansion of the Mortgage Corporation's business and portfolio and the introduction of the Mandatory Provident Fund Schemes will add impetus to this development.
43. Given sustained expansion and hence demand for capital on the Mainland, as well as the recovery of our economy, I expect the overall size of our stock market to increase as the current global financial uncertainties recede. I firmly believe that we will in the future strengthen our position as Asia's leading international centre for financial services.
44. Our tourism sector is another one of our traditional economic strongholds. Hong Kong is the most frequently visited city in Asia. Tourists come here for the same reason they go to Paris, to Istanbul or to Rio de Janeiro - there is nowhere else like it. We have a unique flavour to our city, and visitors have long been attracted by our East-meets-West culture, our day and night shopping and entertainment, and a spectacular, yet safe physical environment. But past achievements are no guarantee of success in the future. Tourists now demand more sophisticated attractions, and our competitors in the region are upgrading their tourism infrastructure in a bid to capture a greater market share. We must therefore take a strategic view of how best to respond to the present circumstances, and develop initiatives to maintain the interest of visitors from the Mainland, from other Asian countries and from the rest of the world.
45. In order to enhance our appeal as a tourist destination, we will promote new attractions which will complement our unique flavour and provide for a wider range of events in Hong Kong. Our broader vision is to cultivate Hong Kong's image as the Asian centre of arts and culture, and of entertainment and sporting events. We need to build on the popularity of regular international events such as the Hong Kong Arts Festival and the Rugby Sevens, as well as capturing the imagination with more cultural and artistic presentations such as the Treasures of China exhibition, which was so successful late last year.
46. I realise that this cannot be done without proper venues for world-class events. The Government is committed to providing more support in this area, and as a catalyst for upgrading our image as Asia's entertainment capital we are planning for a new, state-of-the-art performance venue on the West Kowloon reclamation. We will further develop proposals for other major facilities which will be both unique attractions in themselves as well as venues for cultural, entertainment or sporting events, including a new sports stadium, a new centre for water-sports and a multi-media theme park.
47. New facilities and attractive events are key planks in the tourism strategy, but they are not the whole story. We need also to look at ways of better presenting to the world our distinctive heritage, much of which is on show in our historical buildings and our archaeological sites, some of which date back 6 000 years. We intend to do more to promote our heritage to help develop tourism, and I have asked the Hong Kong Tourist Association to set up a Heritage Tourism Task Force comprising experts in this field. The Task Force will focus on individual initiatives and on a broader strategy for promoting our heritage sites and developing opportunities for joint promotions with the Mainland and other regional destinations.
48. To take our new vision for tourism forward with a clear focus, I have decided to appoint a Commissioner for Tourism whose duty will be to promote the development of this industry.
Small and Medium-sized Enterprises
49. Hong Kong's small and medium-sized businesses employ some two-thirds of the workforce and are the basic building blocks of our economy. With their relatively low start-up costs and flexibility in a changing business environment, small and medium-sized enterprises (SMEs) are a significant force in a renascent economy and create a large number of employment opportunities.
50. To ease the impact on our SMEs of the credit squeeze and provide them with working capital, we have established a $2.5 billion Special Finance Scheme. This helps them secure loans from financial institutions, with the Government providing guarantees for loans. The Scheme has been in operation for six weeks, and as at the end of September, 92 companies had obtained loans amounting to $176 million under the Scheme. There have been suggestions that the terms and conditions of the Scheme should be more flexible. We are monitoring feedback from SMEs, lending institutions and other interested parties, and we will review the Scheme early in 1999 to decide whether and how improvements need to be made.
51. SMEs often need help in certain key areas if they are to grow. These areas include: obtaining working capital, sourcing market information, finding good quality staff and controlling costs. We already have a comprehensive range of programmes to support SMEs, which are provided through the Industry Department and other institutions. For example, the Hong Kong Trade Development Council focuses on opening up overseas markets; the Vocational Training Council is geared towards human resources training and development; the Hong Kong Productivity Council works on productivity enhancement; and the Hong Kong Industrial Technology Centre helps nurture business ventures in technology. To strengthen the co-ordination and development of these and other available services and to help ensure that SMEs can make the best use of these services, we will set up a Small and Medium Enterprises Office within the Industry Department. We will also continue to fund projects which contribute to the development and competitiveness of our SMEs, such as those which relate to Year 2000, ISO 9000 application, manufacturing resource planning and technical assistance on environmental compliance, through the Industrial Support Fund.
The Manufacturing Sector
52. For many decades the manufacturing sector has contributed greatly to our growth. Although the 1980s saw a major move of labour-intensive production facilities across the boundary to the towns and cities of the Pearl River Delta, and indeed to other parts of the globe, we remain an active centre for the whole process of sourcing, distribution and other manufacturing related services. Our flexibility and market knowledge help put us in the forefront of global production. This economic activity has also made Hong Kong the primary logistic hub for obtaining banking, insurance and transportation services, and has led to us becoming the home of the world's largest container port.
53. The quick response time and sophisticated workmanship of our manufacturers ensure that we maintain a manufacturing sector. Our traditionally important textile and clothing industry is still at the heart of this sector. Continued development of the manufacturing sector must be a matter of priority for our community as well as Government. Our push towards greater use of innovation and technology will help industries in this sector to expand and improve their production capabilities and ability to develop new products. For our part, we will help our manufacturers by, in our regular contacts with Mainland authorities, pursuing measures aimed at improving the environment for businesses operating in the Pearl River Delta.
Investing in Infrastructure
54. A continued investment in upgrading and expanding our physical infrastructure is essential if we are to improve our living environment, create more land for future use and stimulate the economy and provide jobs.
55. Our public works programme is well-stocked with major projects aimed at improving our transport links, the most notable of which in recent years has been the new airport. The opening of the airport in July was not trouble-free. A Commission of Inquiry into the reasons for the early problems in the airport's operation is due to report to me in January next year, and I will act as appropriate upon the recommendations of that Commission.
56. Hong Kong International Airport is now processing some 80 000 passengers and 4 500 tonnes of cargo daily. About 80% of flights are departing within 15 minutes of scheduled time. Upon completion of the second runway the airport's capacity and operating flexibility will increase further. It is indisputable that Hong Kong now has a magnificent new facility capable of allowing us to expand our air links and services for generations to come. The Airport Authority will keep under regular review the need for additional facilities and the Civil Aviation Department will begin work on converting our ground-based air traffic control systems to next-generation satellite systems. This will ensure that Hong Kong's civil aviation sector maintains the high standards expected of a major international aviation centre.
Local Transport Networks
57. To ensure that our transport system matches our development, we shall continue to build on our major road and rail networks. In my 1997 Policy Address I described some of our plans to expand these networks, and I am happy to report that we have made good progress in this area.
58. The planning and implementation of the priority railway projects are proceeding at full speed. Construction of the West Rail Phase I has been authorised and will start before the end of this year. We will seek authorisation for the MTR Tseung Kwan O Extension in the coming weeks so that construction work can also begin on this project before the end of the year. We aim to complete the necessary statutory procedures and finalise our planning for the implementation of the Ma On Shan Railway in 1999 so that construction can start in 2000. Altogether these railways, which will open between 2002 and 2004, will cost $110 billion, and will create 27 000 jobs during their design and construction phase. To meet cross-boundary traffic demand, we are also planning to build a spur line which will connect the KCR at Sheung Shui with Lok Ma Chau, for completion in 2004.
59. As for major roads, we are making good progress with the design of the following projects which we are due to start building between 2000 and 2004 -
60. Apart from these commitments, in 1999 we will complete the Second Railway Development Study and the Third Comprehensive Transport Study. These will provide us with a blueprint for road and railway expansion to meet transport and development needs to the year 2016.
Delivery of the Programme
61. It is understandable that in the current economic climate some might question our capacity for funding major new projects. We have examined again the level of our resources, and I can give this assurance: we have sufficient resources within our expenditure guidelines to allow us to realise the projects for which we have ear-marked expenditure over the next five years. Investing in high quality infrastructure is an investment in our future.
62. Our willingness to invest must be matched by an ability to deliver projects on time and within budget. The time required for a major project could be some 10 to 12 years from conception to completion. The necessary tasks of feasibility study, public consultation and land acquisition often take more time than the construction process itself. We will look for ways to shorten the time taken to complete these tasks. We are determined to minimise the cost of each and every project and to maximise cost-effectiveness. In assessing project cost we will have particular regard to the current downward trend in construction costs.
Anchoring our Fundamentals
63. I have outlined here some of the key steps we will take to improve the economic climate, based on a commitment to maximising our use of innovation and technology and on a pledge to build on our traditional strengths. The Government will work hard to achieve the objectives I have described. But the measures we will take to stimulate growth can only take root if grounded in a stable foundation. The most important fundamental element underpinning our future progress is the continual implementation of the "One Country, Two Systems" concept, in accordance with the Basic Law.
64. It is essential that we all re-affirm our commitment to preserving these fundamentals, which are the basis of our success. I would like to state clearly that the Government will uphold the rule of law and protect the independence of the Judiciary; guarantee freedom of speech and of the press, and facilitate access to information; continue to manage our economy on a free-market basis within a regulatory framework which creates a "level playing-field" for investors; maintain a strong stance against corruption; emphasise the importance of law and order; and preserve the international character of Hong Kong.
65. One of the reasons for Hong Kong's success is that citizens of so many nations have made their homes here. The expatriate community contributes greatly to our economy and to our unique culture. We are determined to make this community more welcome in Hong Kong, and to remain the city of choice for multi-national companies wishing to establish a base in the Asia Pacific region. Recent figures show that 935 non-local companies, including some of the world's largest financial institutions have their regional headquarters in Hong Kong. To reinforce our links with the international community, I have appointed a Council of International Advisers, whose members include prominent personalities in the fields of finance, commerce and industry from all over the world. This Council, which will help the Government broaden its international commercial perspective will hold its first meeting in Hong Kong in January 1999.
66. Our budgetary policy will continue to reflect the principle of fiscal prudence, ensuring that growth in government expenditure will be in line with medium term economic growth trends. Such financial discipline has been a cornerstone of our success, and has allowed us to build up strong reserves, which are essential to the protection of our linked exchange rate. In the current year, because of the contraction in the economy and the suspension of land sales, our budget deficit may be substantially more than the $20 billion we announced in June. Because of the downturn in our economy, in the medium term our recurrent expenditure may grow more slowly than before. Nonetheless, we have the means to support our commitment to spending over the next five years in key areas such as infrastructural development, which are essential for our economic growth and which will create more jobs for our workforce.
67. Another element fundamental to our continued economic stability is the linked exchange rate. I will take the opportunity again today to underline our resolve to maintain our linked rate. Without it we would run the risk of major capital outflows, even higher interest rates and a crisis of confidence in our currency. It is an essential plank in our platform for growth, and will remain so.