********************************************
Following is the speech by the Financial Secretary, Mr John C Tsang, at the Century 21 Club today (April 18):
Ladies and Gentlemen,
Good afternoon.
It is a great pleasure for me to address Japan's business leaders in Hong Kong.
When the Century 21 Club was established in 1992, under the name "97 Japanese Business Committee", it had one goal in mind. That goal was to ensure the long-term prospects for Japanese enterprises in Hong Kong.
Sixteen years on, and 11 years after Hong Kong's reunification with the Mainland, our economic ties with Japan are stronger than ever. Last year, Japan was Hong Kong's third largest trading partner and second largest in Asia. Hong Kong was Japan's ninth largest trading partner and bilateral trade topped HK$400 billion.
I am confident we can do even better this year.
Today I would like to talk about the long-term prospects for business in Hong Kong; what we are doing to tackle some of the issues; and how we intend to give those bilateral trade figures a further boost.
Hong Kong and Japan are, at the same time, competitors and collaborators in business, which makes us perfect trading partners in this part of the world.
We are both fortunate to have societies that are hard working, law abiding, diligent and quick to rise to a challenge or grasp an opportunity.
Hong Kong and Japan have worked hard to develop strong infrastructure with fast, efficient transport networks moving people and goods around with relative ease.
We are also both concerned about our current and future generations with a strong emphasis on education, health services and family values.
While our two societies enjoy the highest living standards in Asia, we recognise that our economic growth is likely to slow in the next year or two, in line with an anticipated global slowdown. In my Budget this year, I forecast GDP growth of 4% to 5% for the whole of 2008. That is still a healthy expansion although slower than the 6.3% last year.
Given the highly competitive business environment in Asia, people inevitably ask how can Hong Kong remain relevant in the globalised world, how can we maintain our high standard of living, preserve social mobility and how will we cope with an ageing population?
The answer to all this is good and timely planning.
And for a small, externally oriented economy like Hong Kong's, that means building on our strengths, which include our proximity to, and integration with, the Mainland of China, our commitment to free trade and open markets and our geographical location in the heart of East Asia.
One of our core business strengths is financial services. They are the driving force of our move towards a knowledge-based and high value-added economy. I shall talk more about the opportunities in this sector a little later.
In drawing up my first Budget, I was acutely aware of the need to continue with the well-established principles of prudent financial management. I shall continue to keep expenditure within limits of revenues, maintain a low and simple tax regime and be guided by the philosophy of "Market Leads, Government Facilitates".
In the Budget, I stated clearly the three principles behind my fiscal thinking. These are to demonstrate a commitment to society; to adopt sustainable policies; and to be pragmatic in decision-making.
In carving up the fiscal pie, I was fortunate to have a little more money than we had originally estimated. The revised surplus was actually a record $115.6 billion.
The sizable surplus afforded me the opportunity to adopt a long-term strategy and spend on items that can help sustain growth by providing greater incentives and more opportunities.
A case in point is the reduction of profits tax by one percentage point to 16.5% and salaries tax also by one percentage point to 15%. In my Budget, I also earmarked $18 billion for research and development activities to stimulate new ideas and innovation that will promote growth of our knowledge based economy.
We also expect to spend almost $22 billion on infrastructure projects this fiscal year, which will create jobs and, when completed, improve our efficiency and productivity.
Tourism is another growth area. I have proposed waiving the Hotel Accommodation Tax to help promote the industry and give our hotel sector a boost. More than 28 million tourists visited Hong Kong last year, a record for the city. To help cope with an anticipated steady rise in visitor numbers we have also set aside 10 sites for new hotels to be built.
Turning to the wine trade in Asia - a market that is expected to grow by 10 to 20% in the next five years. Reducing the duties on wine and beer to zero in the Budget will help Hong Kong develop its potential as a storage, distribution and trading centre in Asia.
A little earlier, I mentioned the importance of financial services to Hong Kong.
Here too, there is intense competition, so we have to further enhance our status as an international financial centre by exploring new opportunities.
One such opportunity is the Islamic financial market, which has an estimated global value of about US$1 trillion. We are working hard to establish a market for Islamic finance in Hong Kong, and the early indications are positive indeed.
Last November, the Securities and Futures Commission authorised the first retail Islamic fund in Hong Kong. Within a week, it had raised US$20 million, mostly from local investors. By the end-2007, the fund had grown to US$62 million.
There is still much to be done in developing a market for Shariah-compliant products, but - given our sound regulatory environment, deep and liquid markets and well-developed financial sector - Hong Kong is well suited to providing such products.
We already have a good deal of experience in streamlining different financial systems through our engagement with the Mainland of China. Renminbi business was launched in Hong Kong in 2004, and as at end-January this year, total deposits were some 40 billion yuan.
And last year, we became the only place outside the Mainland to maintain a Renminbi bond market with three issues totaling 10 billion yuan. We expect more Renminbi bonds to be issued this year.
Although the Mainland is our most important market, it is also vital to reach out to new and emerging markets in Asia and beyond. In the past few months, we have led delegations from different sectors to Russia, Vietnam, India and the Middle East. Next month I will be visiting Central Europe followed by a trip later in the year to South America to further explore the possibilities for business.
The Government's role here is to open up new channels of dialogue or expand existing ones so that we can explain Hong Kong's advantages to business leaders in these new markets. We may need to raise the profile of our city or build closer international ties. The rest is up to you, the business community.
So far I have talked about the opportunities and potential for development in Hong Kong, but we know that this sort of progress means little without long-term benefits to the community as a whole.
With this in mind, I shall say a few words on the social issues facing our society, especially in terms of social mobility and coping with an ageing population.
In many ways, we can learn form the Japanese experience. Our two economies are on pretty similar growth tracks, although Japan’s economy has developed ahead of ours.
A fashionable term among the academic circles is the "M-shaped society". It is a phrase coined in Japan to describe a shrinking middle-class and highlight the difficulties people can face in moving up the social ladder.
The disappearance of social mobility and ossification of classes go against our belief that we can achieve our goals in life through hard work and that the world is changing for the better.
As I had indicated in my Budget, the Government should not attempt to narrow the wealth gap by redistributing wealth through high levels of tax and welfare.
Instead, we are creating more opportunities through education and retraining programmes to make sure that people have the right skills and that the jobs are available to them.
That is why the Chief Executive said in his Policy Address last October that he would insist on promoting economic development as a primary goal.
In addition to nurturing our home-grown talent, we will also have to do more to attract people from overseas to come to Hong Kong to live and work. In the face of strong international competition to attract skilled workers, we have already expanded programmes to entice the best and brightest individuals from overseas.
In January, we relaxed the age limit and other criteria for our Quality Migrant Admission Scheme to open the way for more high calibre people to apply. Other programmes include the Capital Investment Entrant Scheme where people with a minimum of $6.5 million to invest can reside in Hong Kong. And there is the Admission Scheme for Mainland Talents, which brought in some 6,000 people last year alone.
Under these schemes and together with our open and liberal immigration policy, more than 200,000 people from all over the world have come to live and work in the city since 1997.
Our success in attracting overseas talents will, to some extent, help cushion the effect of population ageing, but it cannot reverse the trend.
I have forecast that our elderly population will increase from the current 870,000 to about 2.17 million in 2033. If we fail to address the issues now, at an early stage when the economy is doing well, the trend could place a heavy burden on public finances in the long-term.
So how should we provide for the future? Certainly we can take a cue from Japan in certain areas, such as city planning and allocation of resources.
Not only are we living longer but we are also healthier in our old age. So it is important that seniors can continue to contribute to society through various activities. They should also have the opportunity to continue learning new skills and have access to our Elder Academies. We are working closely with our Elderly Commission to achieve these goals.
My final point today is health care. It is probably the biggest challenge facing long-term public finances. In March we launched a three-month public consultation on the issue. I look forward to seeing the views put forward.
The Government is fully committed to this reform process, and I have pledged to draw $50 billion from the fiscal reserves to help implement health care reform.
Ladies and Gentleman, I hope I have given you a good idea of what we are doing to enhance our reputation as a business-friendly city, and maintain our competitiveness and relevance in our global village.
I thank members of the Century 21 Club for your continued support for Hong Kong and commitment to promoting business ties and strengthening relations between Hong Kong and Japan.
I am confident that your enthusiasm and expertise will help to ensure a strong partnership for many years to come.
Thank you.
Ends/Friday, April 18, 2008
Issued at HKT 15:44
NNNN
